This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If extension of credit is not intended, a provision for giving bond or other security is precedent to the right of the party who is to give such bond or security, to enforce the contract against the adversary party.1 If a building contract provides that the owner is to give security for the payment of the contract price, his giving of such security is precedent to his right to demand performance on the part of the contractor.2 Under a contract for the sale of a business, which provides that the buyer is to give security, his giving such security is a precedent covenant which he must perform before he can enforce performance against the seller.3 If each party agrees to give security for performance on his part, each of such covenants is precedent to his right to demand performance on the part of the other, but the two covenants for giving security are not concurrent, each with the other.4 If A has agreed to lend money or furnish credit to B in consideration of B's furnishing certain collateral, B's failure to furnish the collateral agreed upon discharges A from his duty to lend money or to furnish credit.5 If a contract of guaranty contains a covenant on the part of the creditor not to extend credit to the debtor in excess of a certain amount, the creditor's performance of such covenant is precedent to his right to enforce the covenant on the part of the guarantor; and the creditor's breach of such covenant operates as a discharge of the guarantor.6 Under a contract to indemnify against loss, the party to whom such indemnity is given must show that he has sustained such loss, in order to enable him to enforce such covenant for indemnity.7
21 Burrell v. Masters, - Colo. -, 17G Pac. 316.
22 Cadwell v. Blake, 72 Mass. (6 Gray) 402; Hughes v. Crooker, 148 N. Car. 318, 125 Am. St. Rep. 606, 62 S. £. 429.
1 Kingston v. Preston, 2 DougL 689; Roberts v. Brett, 11 H. L. Cas. 337; Harrimnn National Bank v. Seldom-ridge, 249 U. S. 1, - L. ed. -; Flynn v. Dougherty (Cal.), 26 Pac. 831; Clark v. Gulesian, 197 Mass. 492, 84 N. E. 94.
"It's of the very essence of the agreement, that the defendant will not trust the personal security of the plaintiff. A court of justice is [asked] to say, that by operation of law he shall, against his teeth. He is to let him into his house to squander everything there, without anything to rely on but what he has absolutely refused to trust." Lofft 194 (same case as Kingston v. Preston, 2 DougL 689).
2 Clark v. Gulesian, 197 Mass. 492, 84 N. E. 94.
3 Kingston v. Preston, 2 DougL 689.
4 "It was also contended by the appellant that the covenants to give the bonds by the appellant and respondent respectively were mutual covenants dependent one on the other; and that there was no default by the appellant until that instant of time at which there was a like default by the respondent, and that the respondent, being in like default, could not defend himself by pleading the default of the appellant.