Story Case

During the winter of 1914 and 1915, the town of Beatrice, Iowa, suffered a general financial stringency. Black, the miller, was forced to discharge a large number of men. One day, as he chanced to be at T. R. Lang's grocery store, he overheard Patrick Ryan, one of his discharged millers, trying to buy groceries on credit. Lang was not willing to make the sale to Ryan on a credit basis, until Mr. Black reassured him with these words, "Go ahead, Lang, let Pat have the groceries. I'll see that you are paid by February first, if Ryan cannot settle by that time." Lang insisted that this statement be put in writing. On February first, when the bill was not paid, T. R. Lang, the grocer, sued Mr. Black. The latter affirmed that Lang had made no demand on Patrick Ryan; that he should have been sued first. Does Mr. Black have a correct idea of the law?

Ruling Court Case. Hornet Vs. Sherman, Volume 151 Pennsylvania State Reports, Page 70

Adam Sherman held two judgments against one. Robbins, upon which there was due $592.38. Sherman sold the claims to Hornet, giving him at the same time his bond to secure the payment of the judgments. Robbins failed to pay the judgments, and Sherman also became insolvent, failing to pay the bond given to Hornet. Later, when the claims against Sherman were being settled, Hornet maintained that Sherman became a surety in giving the bond to secure the judgment, and that, therefore, the bond was a direct obligation to pay. The other creditors of Sherman maintained that he was only a guarantor, not liable, until there had been default on the judgments against Robbins.

Mr. Justice McCollum rendered the opinion of the court, and held in substance: "The bond was a direct promise to pay, made at the time of the assignment of the judgments. Hornet was not bound to resort to legal proceedings against Robbins before proceeding against Sherman, nor need Hornet show that proceedings in the judgment would have been unavailing before proceeding against Sherman on the bond. This was a contract of suretyship and not one of technical guaranty. Judgment was given for Hornet.

Ruling Law. Story Case Answer

A surety undertakes to stand for the principal, irrespective of whether or not the principal has defaulted in his obligation. He undertakes usually to perform jointly with the principal, and is primarily liable with him. But a guarantor undertakes to satisfy the obligation of the principal, only provided the latter does not. Whereas the surety assumes absolutely the obligation, the guarantor agrees only to assume it if the principal should fail to perform. In the former case, the third person may proceed against the surety, even though the principal debtor has not defaulted. In the latter case, the third person may not proceed against the guarantor until he shows that the principal debtor has made a default in his obligation. However, this does not mean that the creditor must exhaust all effort in trying to collect from the principal debtor.

In the Story Case, Mr. Black's defense that Lang did not first sue Patrick Ryan is not valid. Mr. Black was not obliged to exhaust all his remedies against the debtor, Ryan. Such a law would render the services of the guarantor so uncertain to the creditor that no inducement would be held out to him to make the transaction.