§ 1132. The guarantee is also bound to exercise proper diligence, and to perform all the duties incumbent upon him;2 proving solvency, and of injury flowing from want of notice, upon the guarantor. The last case mentioned on this point, and one which seems to be conclusive upon it, is that of Reynolds v. Douglass et al., 12 Pet. 497, in which the court established these propositions: -
"1st. That the guarantor of a promissory note, whose name does not appear upon the note, is bound without notice, where the maker of the note was insolvent at its maturity, unless he can show that he has sustained some prejudice by want of notice of a demand on the maker, and of notice of non-payment.
"2d. If the guarantor can prove he has suffered damage by the neglect to make the demand on the maker, and to give notice, he can be discharged only to the extent of the damage sustained. Tried by the principles ruled in the authorities above cited, and especially by that from this court in 12 Peters, it would seem that this case should admit of neither doubt nor hesitancy. The note on which the action was brought was given as a guaranty for the payment of the bill for $8,000, as is proved, and indeed admitted on all hands. It is the distinct and substantive agreement by which the guaranty of the bill was undertaken. It is established by various and uncontradicted circumstances in the case, aud finally by the solemn admissions of Timberlake, the drawer, and Smith, the acceptor of the bill, both of whom have testified in the cause that at the maturity of the bill they were both utterly insolvent; that Timberlake was probably so before the commencement of these transactions; and that Smith, before the maturity of the bill, had made an assignment of every thing he had claim to, for the benefit of others, and amongst the creditors named in that assignment, providing for the plaintiff in error as ranking high amongst the preferred class.
"Under such circumstances, to have required notice of the dishonor of the bill would have been a vain and unreasonable act, such as the law cannot be presumed to exact of any person." See, also, Talbot v. Gay, 18 Pick. 534; Dole v. Young, 24 Pick. 250; Wildes v. Savage, 1 Story, 22.
1 Ibid.; Lewis v. Brewster, 2 McLean, 21; Skofield v. Haley, 22 Me. 164. In an action by the holder, who was also the holder at the time of guaranty, against the guarantor of an existing promissory note, no notice to the guarantor of demand on the maker, and of his inability to pay, need be proved. Parkman v. Brewster, 15 Gray, 271 (1860).
2 Where one agrees as guarantor that the principal shall pay a debt within a specified time, and the creditor draws a bill for the amount on the debtor, payable to a third party at a given day within the time specified, if the payee and holder of the bill neglect to present it to the drawee and if, in consequence of his neglect, any injury accrue to the guarantor, he will thereby be discharged pro tanto.1 If, therefore, the guarantee misapply,2 surrender,8 or lose securities or funds, which might be applied by him in discharge or in reduction of his demand against the principal, the guarantor is only liable so far as he would have been had the guarantee performed all his duty. The principle in these cases is that the guarantee is the trustee or agent of the guarantor, and is bound, therefore, either to hold all securities in behalf of the guarantor or to apply them properly. Nor does it matter whether the guarantor knew of the existence of particular securities, which the guarantee held against the principal creditors: in all cases he is entitled to the benefit thereof.4 Thus, where a debt was secured by two promissory notes, for payment, the guarantor is discharged from his liability. Jones v. Fierce, 35 N. H. 295 (1857). But the surety of a tenant for his rent is not discharged merely because the tenant gave his landlord an order for the rent on a third party, which the latter accepted, but failed to pay. Burnham v. Hubbard, 36 Conn. 539 (1870).
1 Capel v. Butler, 2 Sim & Stu. 457; Oxley v. Young, 2 H. Bl. 613; Wheeler v. Lewis, 11 Vt. 265; Russell v. Buck, 14 Vt. 147; Sigourney v. Wetherell, 6 Met. 553; Barhydt v. Ellis, 45 N. Y. 107 (1871). So where a creditor disposes of personal property mortgaged to him by the principal as collateral security, he is responsible to the surety for ordinary care and prudence in the sale, and the application of the proceeds. City Bank v. Young, 43 N. H. 457 (1862).
2 Hidden v. Bishop, 5 R. I. 29 (1857).
3 But a creditor who has commenced an action against the principal upon a promissory note may discontinue it without prejudice to his rights against the sureties, although property of the principal may have been attached therein. Barney v. Clark, 46 N. H. 514 (1866). But see Springer v. Toothaker, 43 Me. 381 (1857). The surety in a recognizance given to prosecute an appeal from a judgment of a police court is not discharged by the plaintiff's subsequent release of his attachment upon the writ. Curtie v. Bothamly, 8 Allen, 336 (1864). A surety upon a bond given to dissolve an attachment is discharged by an amendment of the writ after its entry in court by joining and summoning in a new party as a defendant, and the discontinuance of the action as to one of the original defendants without notice to the surety. Tucker v. White, 5 Allen, 322 (1862).
4 Pidcock v. Bishop, 3 B. & C. 605; Mayhew v. Crickett, 2 Swanst. 185; Law v. East Ins. Co., 4 Ves. 824; Story, Eq. Jur. § 215, 303. See Wulff v. Jay, Law R. 7 Q. B. 756 (1872).
§ 1133. Want of proper notice of acceptance to the guarantor will also discharge him from liability. Where the guaranty is to apply to future transactions and requires an acceptance on the part of the guarantee, the guarantee is bound to give notice to the guarantor of his acceptance thereof, in order to bind him. For the party giving a letter of guaranty has a right to know whether the person to whom it is addressed means to hold him ultimately responsible, inasmuch as his own caution and vigilance may, in a great measure, be regulated by his knowledge of the fact.1 After such a guaranty is accepted, it is not ordinarily necessary for the guarantee to give notice to the guarantor of the advances, acceptances, or indorsements made under it, until a reasonable time after the default of the principal. It may be otherwise in some particular cases; as where advances are contemplated upon certain future contingencies, the occurrence of which is doubtful, when it is proper to give notice, within a reasonable time, that the advances are actually made, in order to give the guarantor information that the contingencies have actually happened, and that the guaranty has been acted upon.2 But, if the guaranty be either continuing, or limited to a single transaction, in the absence of peculiar circumstances, it is only incumbent upon the guarantee, after giving due notice of his acceptance of the guaranty, to make the proper demand upon the debtor when the credit has expired, or the amount become due, and, upon his default, to give notice thereof to the guarantor within a reasonable time afterwards.1 What is a reasonable time to give notice of the amount of the advances, or of the default of the principal, depends upon the circumstances of each case, and is mainly governed by the consideration whether the want of such notice at an earlier period has been to the prejudice of the guarantor; if it have, then to the extent of that prejudice, he will be discharged; but want of notice will not discharge the guarantor, beyond the loss or injury actually sustained by him in consequence of the neglect or omission.2 The only notice to which the guarantor has a strict right is notice that his proposal of guaranty is accepted, and will be acted upon; and this right may be waived by the form of the guaranty,3 or by the manifest intention of the parties, as implied thereby.4 As, if a promissory note be guarantied upon its face or by indorsement, no notice need be given by any person to whom it is transferred that he holds the guarantor responsible, because the terms of the contract manifestly indicate such an intention. And wherever the undertaking by a guarantor is absolute, notice is unnecessary; but where it is collateral merely, notice must be given within a reasonable time, otherwise the guarantor will be discharged, unless he is not prejudiced by the want of notice.1 So where a guaranty was in these terms: "If you will let A. have $100 worth of goods on three months' notice, you may consider me as guaranteeing the same,"2 - it was held that a notice of acceptance was not necessary, the terms of the guaranty indicating a waiver thereof.3 Want of notice will in no other case absolutely discharge the guarantor, although, if any loss be thereby occasioned to him, it will be deducted