"And the question which, under this view, is presented is
whether, upon a letter of guaranty addressed to a particular person
or to persons generally for a future credit to be given to the
party in whose favor the guaranty is drawn, notice is necessary to
be given to the guarantor that the person giving the credit has
accepted or acted upon the guaranty and given the credit on the
faith of it. We are all of the opinion that it is necessary, and
this is not now an open question in this Court after the decisions
which have been made in
Russell v. Clarke, 7 Cranch
69;
Edmonston v. Drake, 5 Pet.
624;
Douglass v. Reynolds, 7 Pet.
113;
Lee v. Dick, 10 Pet.
428, and again recognized at the present term in the case of
Reynolds v. Douglass. It is in itself a reasonable rule,
enabling the guarantor to know the nature and extent of his
liability, to exercise due vigilance in guarding himself against
losses which might otherwise be unknown to him, and to avail
himself of the appropriate means in law and equity to compel the
other parties to discharge him
Page 104 U. S. 164
from further responsibility. The reason applies with still
greater force to cases of a general letter of guaranty, for it
might otherwise be impracticable for the guarantor to know to whom
and under what circumstances the guaranty attached and to what
period it might be protracted. Transactions between the other
parties to a great extent might from time to time exist in which
credits might be given and payments might be made the existence and
due appropriation of which might materially affect his own rights
and security. If, therefore, the questions were entirely new, we
should not be disposed to hold a different doctrine, and we think
the English decisions are in entire conformity to our own."
In
Reynolds v.
Douglass, 12 Pet. 497,
37 U. S. 504,
decided at the same term and referred to in the foregoing extract,
Mr. Justice McLean stated the rule to be
"that, to entitle the plaintiffs to recover on said letter of
credit, they must prove that notice had been given in a reasonable
time after said letter of credit had been accepted by them to the
defendants, that the same had been accepted,"
and he added:
"This notice need not be proved to have been given in writing or
in any particular form, but may be inferred by the jury from facts
and circumstances which shall warrant such inference."
There seems to be some confusion as to the reason and foundation
of the rule, and consequently some uncertainty as to the
circumstances in which it is applicable. In some instances, it has
been treated as a rule inhering in the very nature and definition
of every contract, which requires the assent of a party to whom a
proposal is made to be signified to the party making it in order to
constitute a binding promise; in others, it has been considered as
a rule springing from the peculiar nature of the contract of
guaranty, which requires, after the formation of the obligation of
the guarantor, and as one of its incidents, that notice should be
given of the intention of the guarantee to act under it as a
condition of the promise of the guarantor.
The former is the sense in which the rule is to be understood as
having been applied in the decisions of this Court. This appears
very plainly not only from a particular consideration of the cases
themselves, but was formerly declared to be so by
Page 104 U. S. 165
Mr. Justice Nelson, speaking for the Court in delivering its
opinion in
Louisville Manufacturing Co.
v. Welch, 10 How. 461,
51 U. S. 475,
where he uses this language:
"He [the guarantor] has already had notice of the acceptance of
the guaranty and of the intention of the party to act under it. The
rule requiring this notice within a reasonable time after the
acceptance is absolute and imperative in this Court, according to
all the cases; it is deemed essential to an inception of the
contract; he is therefore advised of his accruing liabilities upon
the guaranty, and may very well anticipate or be charged with
notice of an amount of indebtedness to the extent of the credit
pledged."
And in
Wildes v. Savage, 1 Story 22, Mr. Justice Story,
who had delivered the opinion in
Douglass
v. Reynolds, 7 Pet. 113, after stating the rule
requiring notice by the guarantee of his acceptance, said:
"his doctrine, however, is inapplicable to the circumstances of
the present case, for the agreement to accept was contemporaneous
with the guaranty, and, indeed, constituted the consideration and
basis thereof."
The agreement to accept is a transaction between the guarantee
and guarantor, and completes that mutual assent necessary to a
valid contract between them. It was, in the case cited, the
consideration for the promise of the guarantor. And wherever a
sufficient consideration of any description passes directly between
them, it operates in the same manner and with like effect. It
establishes a privity between them and creates an obligation. The
rule in question proceeds upon the ground that the case in which it
applies is an offer or a proposal on the part of the guarantor,
which does not become effective and binding as an obligation until
accepted by the party to whom it is made; that until then, it is
inchoate and incomplete, and may be withdrawn by the proposer.
Frequently the only consideration contemplated is that the
guarantee shall extend the credit and make the advances to the
third person, for whose performance of his obligation on that
account the guarantor undertakes. But a guaranty may as well be for
an existing debt, or it may be supported by some consideration
distinct from the advance to the principal debtor, passing directly
from the guarantee to the guarantor. In the case of the guaranty of
an existing debt, such a consideration
Page 104 U. S. 166
is necessary to support the undertaking as a binding obligation.
In both these cases, no notice of assent, other than the
performance of the consideration, is necessary to perfect the
agreement, for, as Professor Langdell has pointed out in his
Summary of the Law of Contracts (Langdell's Cases on Contracts
987),
"though the acceptance of an offer and the performance of the
consideration are different things, and though the former does not
imply the latter, yet the latter does necessarily imply the former,
and as the want of either is fatal to the promise, the question
whether an offer has been accepted can never in strictness become
material in those cases in which a consideration is necessary, and
for all practical purposes it may be said that the offer is
accepted in such cases by giving or performing the
consideration."
If the guaranty is made at the request of the guarantee, it then
becomes the answer of the guarantor to a proposal made to him, and
its delivery to or for the use of the guarantee completes the
communication between them and constitutes a contract. The same
result follows, as declared in
Wildes v. Savage, supra,
where the agreement to accept is contemporaneous with the guaranty
and constitutes its consideration and basis. It must be so wherever
there is a valuable consideration, other than the expected advances
to be made to the principal debtor, which, at the time the
undertaking is given, passes from the guarantee to the guarantor,
and equally so where the instrument is in the form of a bilateral
contract in which the guarantee binds himself to make the
contemplated advances or which otherwise creates by its recitals a
privity between the guarantee and the guarantor, for in each of
these cases, the mutual assent of the parties to the obligation is
either expressed or necessarily implied.
The view we have taken of the rule under consideration as
requiring notice of acceptance and of the intention to act under
the guaranty only when the legal effect of the instrument is that
of an offer or proposal and for the purpose of completing its
obligation as a contract is the one urged upon us by the learned
counsel for the plaintiff in error, who says in his printed
brief:
"For the ground of the doctrine is not that the operation of the
writing is conditional upon notice,
Page 104 U. S. 167
but it is that until it is accepted, and notice of its
acceptance given to the guarantor, there is no contract between the
guarantor and the guarantee, the reason being that the writing is
merely an offer to guarantee the debt of another, and it must be
accepted and notice thereof given to the party offering himself as
security before the minds meet and he becomes bound. Until the
notice is given, there is a want of mutuality; the case is not that
of an obligation on condition, but of an offer to become bound not
accepted -- that is, there is not a conditional contract, but no
contract whatever."
It is thence argued that the words in the instrument which is
the foundation of the present action -- "we hereby guarantee unto
them, the said Wells, Fargo, & Co., unconditionally, at all
times," &c. -- cannot have the effect of waiving the notice of
acceptance, because they can have no effect at all except as the
words of a contract, and there can be no contract without notice of
acceptance. And on the supposition that the terms of the instrument
constitute a more offer to guarantee the debt of Gordon & Co.,
we accept the conclusion as entirely just.
But we are unable to agree to that supposition. We think that
the instrument sued on is not a mere unaccepted proposal. It
carries upon its face conclusive evidence that it had been accepted
by Wells, Fargo, & Co., and that it was understood and intended
to be, on delivery to them, as it took place, a complete and
perfect obligation of guaranty. That evidence we find in the words,
"for and in consideration of one dollar to us paid by Wells, Fargo,
& Co., the receipt of which is hereby acknowledged, we hereby
guarantee," &c. How can that recital be true unless the
covenant of guaranty had been made with the assent of Wells, Fargo,
& Co., communicated to the guarantors? Wells, Fargo, & Co.
had not only assented to it, but had paid value for it, and that
into the very hands of the guarantors, as they by the instrument
itself acknowledge.
It is not material that the expressed consideration is nominal.
That point was made, as to a guarantee, substantially the same as
this, in the case of
Lawrence v.
McCalmont, 2 How. 426,
43 U. S. 452,
and was overruled. Mr. Justice Story said:
"The
Page 104 U. S. 168
guarantor acknowledged the receipt of the one dollar, and is now
estopped to deny it. If she has not received it, she would now be
entitled to recover it. A valuable consideration, however small or
nominal, if given or stipulated for in good faith, is, in the
absence of fraud, sufficient to support an action on any parol
contract, and this is equally true as to contracts of guaranty as
to other contracts. A stipulation in consideration of one dollar is
just as effectual and valuable a consideration as a larger sum
stipulated for or paid. The very point arose in
Dutchman v.
Tooth, 5 Bingham's New Cases 577, where the guarantor gave a
guaranty for the payment of the proceeds of the goods the guarantee
had consigned to his brother, and also all future shipments the
guarantee might make in consideration of two shillings and sixpence
paid him, the guarantor. And the court held the guaranty good and
the consideration sufficient."
It is worthy of note that in the case from which this extract is
taken, the guaranty was substantially the same as that in the
present case, and that no question was made as to a notice of
acceptance. It seems to have been treated as a complete contract by
force of its terms.
It does not affect the conclusion, based on these views, that
the present guaranty was for future advances as well as an existing
debt. It cannot, therefore, be treated as if it were an engagement
in which the only consideration was the future credit solicited and
expected. The recital of the consideration paid by the guarantee to
the guarantor shows a completed contract, based upon the mutual
assent of the parties, and if it is a contract at all, it is one
for all the purposes expressed in it. It is an entirety, and cannot
be separated into distinct parts. The covenant is single, and
cannot be subjected in its interpretation to the operation of two
diverse rules.
Of course, the instrument takes effect only upon delivery. But
in this case, no question was or could be made upon that. It was
admitted that it was delivered to Gordon for delivery to the
plaintiffs below, and that he delivered it to them.
But if we should consider that notwithstanding the completeness
of the contract as such, the guaranty of future advances was
subject to a condition implied by law that notice
Page 104 U. S. 169
should be given to the guarantor that the guarantee either would
or had acted upon the faith of it, we are led to inquire what
effect is to be given to the use of the words which declare that
the guarantors thereby
"guarantee unto them, the said Wells, Fargo, & Co.,
unconditionally, at all times, any indebtedness of Gordon &
Co., &c., to the extent and not exceeding the sum of ten
thousand dollars, for any overdrafts now made, or that hereafter
may be made, at the bank of said Wells, Fargo, & Co."
Upon the supposition now made, the notice alleged to be
necessary arises from the nature of such a guaranty. It is not and
cannot be claimed that such a condition is so essential to the
obligation that it cannot be waived. We do not see, therefore, what
less effect can be ascribed to the words quoted than that all
conditions that otherwise would qualify the obligation are by
agreement expunged from it and made void. The obligation becomes
thereby absolute and unqualified, free from all conditions
whatever. This is the natural, obvious, and ordinary meaning of the
terms employed, and we cannot doubt that they express the real
meaning of the parties. It was their manifest intention to make it
unambiguous that Wells, Fargo, & Co., for any indebtedness that
might arise to them in consequence of overdrafts by Gordon &
Co., might securely look to the guarantors without the performance
on their part of any conditions precedent thereto whatever.
It has always been held in this Court that, notwithstanding the
contract of guaranty is the obligation of a surety, it is to be
construed as a mercantile instrument in furtherance of its spirit
and liberally, to promote the use and convenience of commercial
intercourse.
This view applies with equal force to the exceptions to the
other charges and refusals to charge of the court below. These
exceptions are based on the propositions
1. That if Wells, Fargo, & Co. neglected to notify the
defendants below of the amount of the overdraft within a reasonable
time after closing the account of Gordon & Co. and,
2. That if they failed within a reasonable time after demand of
payment made upon Gordon & Co., to notify the defendants
Page 104 U. S. 170
of the default, the plaintiffs could not recover upon the
guaranty.
For if the necessity in either or both of these contingencies
existed to give the notice specified, it was because the duty to do
so was, by construction of law, made conditions of the
contract.
But by its terms, as we have shown, the contract was made
absolute, and all conditions were waived.
It is undoubtedly true that if the guarantee fails to give
reasonable notice to the guarantor of the default of the principal
debtor, and loss or damage thereby ensues to the guarantor, to that
extent, the latter is discharged, but both the laches of the
plaintiff and the loss of the defendant must concur to constitute a
defense.
If any intermediate notice, at the expiration of the credit, of
the extent of the liability incurred is requisite, the same rule
applies. Such was the express decision in
Louisville
Manufacturing Co. v. Welch, supra. An unreasonable delay in
giving notice, or a failure to give it altogether, is not of itself
a bar.
There was a question made at the trial as to the meaning of the
word "overdrafts" as used in the guaranty. It was contended that it
would not include the debit balance of account charged to Gordon
& Murray and assumed by Gordon & Co., as their successors,
before the guaranty was made, nor charges of interest accrued upon
the balances of Gordon & Co.'s account, which were entered to
the debit of the account. The reason alleged was that no formal
checks were given for these amounts. The point was not urged in
argument at the bar, and was very properly abandoned. The charges
were legitimate and correct, and the balance of the account to the
debit of Gordon & Co. was the overdraft for which they were
liable. There could be no doubt that it was embraced in the
guaranty.
We find no error in the record.
Judgment affirmed.