First State Bank of Windom v. McElwrath

The appellant presents, in effect, the two points in view: (1) That there is a failure of evidence, as a matter of law, to show a guaranty of payment of the note by the bank; and (2) that an oral guaranty of payment of a vendor's lien note is legally unenforceable. The evidence goes to show that in the negotiation for the sale of the note in suit, and as an inducement for appellee to purchase, the bank cashier stated to appellee that the note was good and would be paid at maturity, and the land securing it was worth the notes against it, and that "the bank is behind it." The appellee purchased the note in reliance upon the statement that "the bank is behind it." The inference from all the evidence is that the bank in reality promised to pay to appellee the amount of the note paid by appellee to the bank in the case the maker of the note did not pay same, and that the land upon which the lien rested was not worth the amount of the note. At least the court is not authorized to say, as a matter of law, that an issue of fact was not presented by the evidence for decision by the jury. Whether a particular transaction constitutes a guaranty must be determined by its particular terms and by the surrounding circumstances. As held, language like "it will be all right," and "if he is not good, I am good," is sufficient, under pertinent circumstances, to constitute a guaranty. Birdsall v. Heacock,32 Ohio St. 177, 30 Am.Rep. 572; Crenshaw v. Jackson, 6 Ga. 509, 50 Am.Dec. 361.

It seems to be well settled that when one or more of a series of vendor's lien notes is transferred by the owner with a guaranty of payment, the note so transferred is entitled to priority over those retained in the distribution of the proceeds of the land sold under foreclosure of the lien. Perry v. Dowdell, 38 Tex. Civ. App. 96,84 S.W. 833; Anderson v. Perry, 98 Tex. 493, 85 S.W. 1138; Martin v. Gray (Tex.Civ.App.) 159 S.W. 118; and other cases. That is in effect all the court did, as shown by the judgment, in the present appeal, to accord the appellee priority in right to participate in the proceeds of the sale of land upon which the lien of the notes rested. Is the guaranty required to be in writing in order to be legally enforceable? No legal reason why the guaranty should be in writing in order to make it enforceable is apparent. If an oral guaranty is made of payment of a vendor's lien note, transferred for a valuable consideration by delivery only, the promise is not within the statute of frauds. Lee Co. v. Stowe Wilmerding,57 Tex. 444; Kiernan v. Kratz, 42 Or. 474, 69 P. 1027, 70 P. 506; Bank v. Moers, 19 A.D. 155, 45 N.Y.S. 997; Robinson v. Baskins, 53 Ark. 330,14 S.W. 93, 22 Am. St. Rep. 202. For the guaranty of payment is regarded as the promise of the transferor to pay for the consideration had to him from the transferee, if the maker of the note does not pay, and not a promise to answer for the default of another. 2 Daniel on Negotiable Instruments (5th Ed.) § 1763; 3 R.C.L. p. 1160, § 378; Tiedeman on Commercial Paper, § 418.

Quoting from Daniel on Neg. Inst., supra:

"When a third person gets credit or forbearance upon the guaranty of another, even when it is contemporaneous, the latter's promise is clearly a promise to answer for his debt. But there are cases in which a guaranty is really to answer for one's own debt, though having the appearance of a promise to answer for another's, and in such case it is not within the statute of frauds. Thus where a third person's note was transferred with mere verbal warranty that it ``was good and collectible' in part payment of a horse, it was held valid, because in reality a promise to pay the amount, unless the third person paid it for him. This doctrine is uniformly adopted in the United States where the guaranty is upon a pre-existing consideration, as well as where it is for a debt contracted, goods sold, or obligations exchanged, at the time the guaranty is made. Where one who sells a note guarantees its payment, the guaranty is an original undertaking, and need not be written."

And the Uniform Negotiable Instruments Act (Vernon's Ann.Civ.St. Supp. 1922, art. 6001-18), declaring that no person shall be liable on a negotiable instrument whose signature does not appear thereon, has no application to a suit on a guaranty of payment of a vendor's lien note transferred for a valuable consideration by delivery only. Swenson v. Stoltz, 36 Wash. 438, 78 P. 999, 2 Ann.Cas. 504. Quoting from this last case:

"The liability sought to be enforced neither arises out of the instrument, nor is it based thereon. This note made by third parties is merely an incidental and collateral matter to the agreement sued upon, * * * which is in effect an agreement to make good to respondents that from which they parted, and which they turned over to the party here sought to be charged. * * * The [Uniform Negotiable Instruments] Statute was not intended to change the rule, * * * where the obligation is the absolute one of the guarantor, and is not a liability on the instrument itself."

We conclude that the judgment should be affirmed, and it is accordingly so ordered.