Story Case

The Western Woolen Mills borrowed $10,000 in June of 1915 from the First National Bank of Lafayette, and $5,000 from the German National Bank, on notes, both of which were signed by the company through its secretary, and also by Henry Kramer, the president, in his personal capacity. The first note was written as follows: "We, the undersigned, etc.," with the signatures of the parties as stated. The second was written "The Western Woolen Mills Company herein agrees to pay, etc." It was signed in the name of the company. Henry Kramer wrote the word "surety" following his name. At maturity, the notes were not paid, and suits were brought against Kramer. In each instance, the bank holding the note brought suit against Kramer, alleging a suretyship. Was this a proper allegation in both cases!

Ruling Court Case. Blanchard Vs. Gibbs, Volume 15 Michigan Reports, Page 292

Daily was desirous of purchasing a mare from Blanchard. The latter was not willing to sell the mare to Daily on his credit alone. Gibbs accompanied Daily to Blanchard, and stated that he and Daily would give their joint notes to him in payment of the mare, if he, Blanchard, would sell the mare to Daily. Under these circumstances, the mare was sold and delivered to Daily, but no joint note was given to Blanchard, who brought this action against Gibbs.

Gibbs argued that he was a guarantor for Daily, and since his undertaking was not witnessed by a memorandum signed by him, his promise was unenforcible under the provisions of the Statute of Frauds.

Mr. Justice Christians held in substance that: "Usually when goods are sold to one person, on credit, and another agrees to act as his security, the latter's obligation is one of guaranty, and, therefore, must be in writing to be binding. This is presumed from the very nature of the case, since the promise is made in behalf of the party to whom the goods are sold, and it is reasonable to assume that the parties considered him the principal debtor. As stated, however, this is merely a presumption when the words of the party do not clearly express his intention. In the present case, Daily and Blanchard together promised to give a joint note. A promise to give a joint note is an original obligation and a direct promise, not a collateral one. Therefore, the undertaking need not be expressed in writing, and Gibbs is liable."

Ruling Law. Story Case Answer

When two people sign a note as follows: "We, the undersigned, etc.," this is a joint obligation and a direct promise to pay to the payee. In this case, however, as between themselves, the parties may be principal and surety. This is true if the obligation has been entered into for the particular benefit of one of the two parties. If the payee knows of these circumstances, he also must treat them as principal and surety. If the obligation has been executed for the joint benefit of both makers, as between themselves, a suretyship may exist. That is, each is a principal, and each a surety to the other. Therefore, if one must pay the entire obligation, he can look to the other for a pro rata return.

If a note has been executed like the second one, in the Story Case, a perfect suretyship exists. Under the Law of Merchants, if one signs a negotiable paper with another, this is sufficient writing to bind the first. In the Story Case, the allegation of suretyship is correct in both cases.