It is by force of the peremptory words of the statute declaring such paper void, that it is held to be void in the hands of an innocent indorsee without notice.

2. In McS v. N, 91 Pa. St. 17, where the maker of a note had poor eyesight, was purposely made drunk and then induced to sign an instrument for a much larger sum than the amount he owed, which subsequently and before maturity came into the hands of a bona fide purchaser for values without notice of the circumstances of its execution, it was held that if a man voluntarily deprives himself of the use of his reason by strong drink he is responsible to an innocent party for the acts which he performs while in that condition. It was so decided upon the principle that where a loss must be borne by one of two innocent parties it shall be borne by him who occasioned it, and that nothing but clear evidence of knowledge of or notice of fraud or bad faith can impeach the prima facie title of the holder of negotiable paper taken before maturity.

3. In U v. B, 1 Harris 601, where the action was upon a note given for a gambling debt, it was held that the contract was in defiance of a prohibitory statute, and that such a case was excepted from the operation of the law relating to negotiable securities; i. e., the nature of the consideration was a good defense against a bona fide holder.

4. In S B v. McC, 19 P. F. 204, where fraud on the part of the payee of a note was set up by the maker in a suit by the indorsee, and it was alleged that when he signed the note the defendant was so intoxicated as to be unconscious of the fact, it was held that even "if the evidence had made out a case of gross carelessness on the part of the bank, that alone would not have been sufficient to defeat title to the note." There must have been proof that the bank took it in bad faith or with notice of the fraud.

227. Introduction. These terms are frequently used synonymously. That there are certain points in common cannot be denied, but it is also undeniable that this looseness of definition leads to misunderstanding. Both guaranty and surety are undertakings to answer "for the debt or default of another," and therefore the agreements must be in writing according to the

Statute of Frauds. The agreements differ materially in the following: A guaranty is a separate and distinct contract parallel to another, known as a principal contract, while a surety is an undertaking to make good the principal contract of which it is a part.

1. Parties. In either case three parties are contemplated, the debtor, the creditor, and the one assuring the debtor's liability, called the surety or guarantor. The debtor is the one primarily obliged to pay some debt or obligation, or who has some duty to perform. The creditor is the one to whom the debt or obligation is to be paid, or the one to whom the performance of the duty is due. The third party is secondarily liable, and undertakes to perform in case the principal debtor fails in his obligation. He receives no benefit from the transaction. The consent of the creditor must be had as well in forming the secondary, as in the principal, obligation.

2. Consideration. The consideration exists between the debtor and the creditor as in an ordinary contract. It may be a benefit to the promisor, or a detriment to the promisee, or it may be mutual. The consideration should be expressed in writing, although it is generally sufficient to use the words "value received." If the secondary contract is entered into at the same time as the original one, the same consideration is sufficient for both contracts. If, however, the second contract is entered into subsequently to the making of the original contract, then there must be another consideration to bind the new agreement. The new consideration may be a sum paid to the one conditionally liable, or it may be accomplished by changing the time of payment in the original agreement.

3. Kinds of Guaranty. Guaranties are special when directed to a particular person, and general when addressed to the public. The amount for which the guaranty is given may be limited or it may be unlimited. As to whether a guaranty is to be acted upon at once or is to continue for a reasonable time, depends upon the construction given to the language used. Unless it ap

pears to be the intention of the party giving the guaranty that it shall be continuous, it will be held to be for the present time.

SPECIAL GUARANTY

Indianapolis, Ind., June 2, 1913.

Carson, Scott & Co.,

Chicago, Ill.

Gentlemen: If you will kindly allow

Mr. A. A. Brewer credit for sixty days on a bill of goods not to exceed five hundred dollars, I hereby agree to guarantee the prompt payment of the bill. Very respectfully,

R. W. Miller

4. Payment of Note. If the guarantor of a note writes "I hereby guarantee the payment of the within note," it is generally understood to be an absolute undertaking to pay. If payment at maturity is defaulted, the guarantor is liable without notice and the holder may demand payment at once. If the guaranty reads "I hereby guarantee the collection of the within note," the holder must exhaust all other resources before he can hold the guarantor liable. He must reduce his claim to judgment if the guarantor insists.

5. Negotiability. There is no uniformity on this question. However, if the writing in the form of a signature appears on the face of a note with that of the maker, it is called a suretyship and the collateral contract is negotiable. If the agreement is written on the back of the instrument, the liability is that of an indorser.

228. How Extinguished. 1. Notice. If a continuing guaranty is given and has not been fully taken up, the guarantor may annul the balance by notice, but this notice will not affect the

part already acted upon. The guaranty will extinguish itself by lapse of time.

2. Acts of Debtor and Creditor. Any special agreement entered into between the debtor and the creditor, wherein a specific change is made in the nature of the original contract, releases the guarantor or surety. A definite extension of time for a new consideration would be sufficient. An extension of time that is in the nature of a forbearance is not sufficient to release the one conditionally liable. A diversion to another object of the fund for which one becomes responsible will annul the special agreement of guaranty or suretyship. If the debtor and creditor make any material alteration in the contract, it will release the guarantor. It would be substituting a new for an old contract which was not assented to by the guarantor.

3. Payment. The contract of guaranty is extinguished when full payment is made by the debtor; the reason for the conditional agreement ceases. A part payment releases the guarantor from a like amount. The guarantor has no right to insist that a payment made by the debtor shall be applied on the debt he guarantees in case there are other debts between the debtor and creditor. The debtor and creditor are sole judges as to the application in such a case. A compromise in regard to the principal debt by the debtor and creditor releases the conditional liability of the guarantor at least to the extent of the compromise.

4. Release. If a release based on a sufficient consideration, or one under seal, is given to the debtor by the creditor, the guarantor will be released. So, also, if the creditor accepts a higher security for his claim, the merging of the lower into the higher security will work an extinguishment of the guaranty.

229. Rights of Surety or Guarantor. Neither guarantor nor surety have any rights against either party before the maturity of the original claim. At maturity the one conditionally held may pay the principal obligation and then enforce the claim against the debtor. He may collect all charges and items of cost in addition to the original claim. The chief rights are the following: