An indorser is usually defined to be one who writes his name on a negotiable instrument for the purpose of passing title. By so doing, he agrees to answer for the debt of another. That is, he agrees conditionally to pay the obligation of the maker of the instrument if the maker does not, and if the indorser is promptly notified of the failure of the maker to pay.
Irregular indorser is the term applied to persons who sign negotiable instruments outside the chain of title. For example, if A is the maker of a promissory note and B is the payee, and C places his signature on the back of the note, C is an irregular indorser. He signs outside the chain of title. B is the one who must first place his signature on the back of the note to transfer title. The courts of the different states have not been in harmony in fixing the liability of an irregular indorser. Some make his liability that of a surety, some that of a guarantor, and others that of an indorser. Many of the states at the present time have statutes regulating the making and transfer of negotiable instrument. The codes generally fix the liability of an irregular indorser to be that of an indorser.
187. Consideration to Contracts of Suretyship. An agreement to answer for the debt, default, or obligation of another, to be binding, must constitute a contract. It must contain all the elements of a simple contract, including a valuable consideration. A valuable consideration may be defined to be anything of benefit to the one making the promise, or anything of detriment to the one to whom the promise is made. A promise made in return for a promise, usually termed "a promise for a promise," is considered a valuable consideration as well as something of value actually given to the one making the promise. A consideration need not be adequate. It need not be commensurate with the obligation entered into. In the absence of fraud, a consideration of one dollar will support a contract for $10,000.00 as well as an actual consideration of $10,000.00. In a suretyship contract, three persons are concerned; the party owing the original debt, the one to whom the debt is payable, and the one promising to answer for another's debt. By reason of the third party to a suretyship contract, the question of consideration is sometimes confusing. If the obligation of the promisor, or the party agreeing to answer for the debt of another, is made at the same time, and is a part of the same transaction as the contract between the original debtor and his creditor, the consideration supporting the contract between the original debtor and the creditor supports the contract of the promisor. For example, if A endeavors to purchase $100.00 worth of goods of B, and B refuses to make the sale unless C signs a contract of guaranty for the value of the goods, and C signs such a contract of guaranty which is delivered to B before the goods are delivered, the consideration, namely the receipt of $100.00 worth of goods delivered to A which supports A's promise to B, will support C's promise to B to pay the $100.00, if A fails to pay it. If the suretyship contract is entered into after the original obligation is incurred, and independently of it, there must be a separate and independent consideration to support it. For example, if A purchases $100.00 worth of goods from B, agreeing to pay for them in thirty days, and after fifteen days have elapsed after delivery of the goods, B, fearing A is insolvent, asks him to furnish a guaranty of C, C must receive a valuable consideration to support his contract of guaranty, separate and distinct from the consideration which supports A's obligation to B.
188. Contract of Suretyship Must be in Writing. About 1676, the English Parliament passed a statute known as the Statute of Frauds. Among other things this statute required contracts of suretyship to be in writing to be enforceable. The statute was in part as follows, "No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person unless the agreement upon which action shall be brought or some memorandum or note thereof shall be in writing, signed by the party to be charged therewith or some person thereunto by him lawfully authorized."
The states of this country generally have re-enacted this statute. An oral contract of suretyship is not void. The parties may voluntarily carry it out if they choose. The law does not make it illegal. The law simply says that it is not enforceable. If an action is brought by a party on an oral contract of suretyship and the other party objects for that reason, the court will not enforce the contract. To satisfy the Statute of Frauds it is not necessary that the entire contract be in writing, but the substance must be stated, and the writing must be signed by the one promising to answer for the other's obligation.
A promise to pay one's own debt is not within the Statute of Frauds, and need not be in writing to be enforceable. If a promise is made for the primary purpose of benefiting the promisor, even though it takes care of the debt of another, it is regarded as an original promise of the promisor, and need not be in writing.
189. General, Special, Limited and Continuing Guaranties. Guaranties may be directed to some particular person or firm, or may be addressed to anyone who desires to accept them. An open guaranty, or one addressed to anyone is called a general guaranty. A guaranty addressed to a particular person or firm is called special guaranty. In case of a special guaranty, only the person to whom it is addressed can accept it. Anyone can accept a general guaranty. A letter of guaranty addressed, "to whom it may concern," is a general guaranty, while one addressed to "The A. B. Co.," is a special guaranty.
A guaranty limited as to time, either by specifying the date on which it is to expire, or by specifying the number of transactions or the transactions it is to embrace, is a limited guaranty. If no limit of time or of number of transactions is placed therein, it continues until withdrawn by the guarantor. This is called a continuing guaranty.
190. Notice to Guarantors. A guarantor may be entitled to two kinds of notice. He may be entitled to notice of acceptance of the guaranty, and he may be entitled to notice of default of his principal. The first is called notice of acceptance of a guaranty, the second, notice of default of a guaranty. If a person stipulates in his letter of guaranty that he requires notice of acceptance of his guaranty, the creditor must give him such notice to hold him. Without such stipulation he is not, in most jurisdictions, entitled to notice. A addresses the following letter of credit to B:
Cleveland, O., Jan. 4, 1909.