U.S. Supreme Court
Lee v. Dick, 35 U.S. 10 Pet. 482 482 (1836)
Lee v. Dick
35 U.S. (10 Pet.) 482
Commercial guarantee. L., at Memphis, Tennessee, addressed a letter to D. & Co. at New Orleans stating that N. & D. wished to draw on them for $2,000, saying, "Please accept their draft, and I hereby guarantee the punctual payment of it." In a letter of the same date to one of the firm of N. & D., he says "I send a guarantee for $2,000. The balance I have no doubt your friend W. will do for you." N. & D. drew a bill on D. & Co. for $4,250, which they accepted, and after having paid the draft, they gave notice to L. that they looked to him for the money. No notice was given by D. & Co. to L. that they intended to accept or had accepted and acted upon the guarantee before they paid the draft. The drawers of the bill did not reimburse D. & Co. for any part of it. Action was instituted to recover $2,000 from L., being part of the bill for $4,250. Held that although the bill was drawn for $4,250, the guarantee would have operated to bind L. for the sum of $2,000 included in it if notice of the acceptance of it had been given by D. & Co. to L.; but having omitted to give such notice, or that they intended to accept or had accepted and acted on the guarantee, L. was not liable to D. & Co. for any part of the bill for $4,250.
A guarantee is a mercantile instrument, and to be construed according to what is fairly to be presumed to have been the understanding of the parties, without any strict technical nicety.
If the guarantee stood alone, unexplained by the letter which accompanied it, it would undoubtedly be limited to a specific draft for $2,000, and would not cover that amount in a bill for a larger sum; but the letter which accompanied it fully justifies the conclusion that the defendant undertook to guarantee $2,000 in a draft for a larger amount. The letter and guarantee were both written by the defendant on the same sheet of paper, bear the same date, and may be construed together as constituting the guarantee.
The decision of the Court in the case of Douglass v. Reynolds, 7 Pet. 125, affirmed. In that case, the Court held that a party giving a letter of guarantee has a right to know whether it is accepted and whether the person to whom it is addressed means to give credit on the footing of it or not. It may be most material not only as to his responsibility, but as to future rights and proceedings. It may regulate in a great measure his course of conduct and his exercise of vigilance in regard to the party in whose favor it is given. Especially it is important in case of a continuing guarantee, since it may guide his judgment in recalling or suspending it. This last remark by no means warrants the conclusion that notice is not necessary in a guarantee of a single transaction, but only that the reason of the rule applies more forcibly to a continuing guarantee.
The same strictness of proof as to the time in which notice of the intention to act under the guarantee is to be given to charge a party upon his guarantee as would be necessary to support an action upon the bill itself when by the law of merchant a demand upon and refusal by the acceptors must be proved in order to charge any other party upon the bill. There are many cases where the guarantee chanrobles.com-red
is of a specific existing demand by a promissory note or other evidence of a debt and such guarantee is given upon the note itself or with reference to it and recognition of it, when no notice would be necessary. The guarantor in such cases knows precisely what he guarantees and the extent of his responsibility, and any further notice to him would be useless. But when the guarantee is prospective and to attach upon future transactions and the guarantor uninformed whether his guarantee has been accepted and acted upon or not, the fitness and justice of the rule requiring notice is supported by considerations that are unanswerable.
IN error to the Circuit Court of the United States for the District of West Tennessee.
On 24 September 1832, Samuel B. Lee, the plaintiff in error, of Memphis, Tennessee, addressed to N. & J. Dick and Company, at New Orleans, a letter in the following terms:
"Gentlemen -- Nightingale & Dexter, of Maury County, Tennessee, wish to draw on you at six and eight months; you will please accept their draft for $2,000, and I do hereby guarantee the punctual payment of it."
"SAMUEL B. LEE"
On the same paper containing this guarantee and on the same day, Mr. Lee wrote a letter to P. B. Dexter, one of the firm of Nightingale & Dexter, in which he says
"I have no objections to guarantee your bill except it might affect my own operations. I, however, send guarantee for $2,000, which you can use if you choose. The balance, I have no doubt your friend Mr. Watson will do for you. I would cheerfully do the whole amount, but expect to do business with that house and do not wish to be cramped in my own operations."
On 5 October, 1832, Nightingale & Dexter, at Nashville, having forwarded the letter of guarantee given by the plaintiff in error, drew a bill of exchange for $4,250 on N. & J. Dick, at New Orleans, payable six months after date, which bill was accepted on the faith of the guarantee, and they paid the same, and gave notice to Mr. Lee that they looked to him for the money.
The defendants in error not having been repaid the amount of the bill by the drawers, instituted an action against Samuel B. Lee on his guarantee, and in September, 1835, the cause was tried and a verdict and judgment were rendered in favor of the plaintiffs.
During the progress of the trial of the cause, the following bill of exceptions was tendered, and was sealed by the court. chanrobles.com-red
The court charged the jury that if the defendant intended to guarantee a bill of exchange, to be drawn for $2,000, he would not be liable upon a bill drawn for upwards $4,000, but if he intended to guarantee $2,000 of a bill to be drawn for a larger amount, that then he would be liable for the $2,000. That the court was of opinion the letter accompanying the guarantee was admissible in evidence to explain whether the guarantor meant to guarantee a bill for $2,000 or only $2,000 in a bill for a larger amount, and it was the opinion of the court that the true construction of the guarantee was that he intended to guarantee the payment of $2,000 in a bill to be drawn for a larger amount. The court also charged the jury that no notice by N. & J. Dick & Co. to the defendant that they intended to accept or had accepted and acted upon this guarantee was necessary.
The defendant prosecuted this writ of error. chanrobles.com-red