CHAPTER 22-01 Guaranty

22-01-01. Definitions.

In this chapter, unless the context or subject matter otherwise requires:

  1. A “continuing guaranty” means a guaranty relating to a future liability of the principal under successive transactions which either continue the liability or from time to time renew it after it has been satisfied.
  2. A “guaranty” means a promise to answer for the debt, default, or miscarriage of another person.

Source:

Civ. C. 1877, §§ 1649, 1664; R.C. 1895, §§ 4625, 4640; R.C. 1899, §§ 4625, 4640; R.C. 1905, §§ 6075, 6090; C.L. 1913, §§ 6651, 6666; R.C. 1943, § 22-0101; S.L. 1993, ch. 246, § 1.

Derivation:

Cal. Civ. C., 2787, 2814.

Cross-References.

Commercial paper, contract of guarantor, see N.D.C.C. § 41-03-53.

Commercial paper, guaranty of endorsement, see N.D.C.C. § 41-03-24.

Factors, see N.D.C.C. §§ 3-06-05, 3-06-06.

Real estate loan, guaranty by bank void, see N.D.C.C. § 6-03-06.

Word defined by statute always has same meaning, see N.D.C.C. § 1-01-09.

Notes to Decisions

Anti-Deficiency Statutes.
—General Partners.

When general partners personally guaranty a general partnership mortgage debt, the anti-deficiency statutes are applicable, and the procedures for deficiency judgments outlined in First State Bank v. Ihringer, 217 N.W.2d 857 (1974), must be satisfied. However, because of contractual expectations, this decision will be applied prospectively. First Interstate Bank v. Larson, 475 N.W.2d 538 (N.D. 1991), overruling Mandan Sec. Bank v. Heinsohn, 320 N.W.2d 494 (N.D. 1982), decided prior to the amendment to N.D.C.C. §§ 22-01-12 and 45-06-07, by Session Laws 1993, ch. 246.

Continuing Guaranty.

A guaranty of payment of a note at maturity, or at any time thereafter, or any renewal thereof, is not a “continuing guaranty” within the statute. Baird v. Foss Inv. Co., 58 N.D. 345, 226 N.W. 523, 1929 N.D. LEXIS 217 (N.D. 1929).

Direct Liability.

Because to answer for the default of a municipality on a bond issued pursuant to the Municipal Industrial Development Act (N.D.C.C. § 40-57-01 et seq.) constituted obligations separate and distinct from the bond itself, the bond holder could enforce those guaranties by suing on them, without regard to the anti-deficiency statutes, which were not applicable to those guaranties. First Nat'l Bank & Trust Co. v. Anseth, 503 N.W.2d 568, 1993 N.D. LEXIS 148 (N.D. 1993).

General Partners.

General partners who personally guaranty a general partnership’s mortgage debt have not changed the nature of their obligation on the debt. The partners are parties personally liable for the partnership’s debt and, pursuant to former subdivision (1) of this section (now subdivision (2)), the partners have not personally guarantied the debt of another. First Interstate Bank v. Larson, 475 N.W.2d 538 (N.D. 1991), decided prior to the amendment to N.D.C.C. §§ 22-01-12 and 45-06-07, by Session Laws 1993, ch. 246.

Guarantor Is Debtor.

Because a guarantor becomes liable upon the principal’s default, a guarantor qualifies as a “debtor” within the broad statutory definition in former subsection 1 of N.D.C.C. § 41-09-05 (now N.D.C.C. § 41-09-02) as owing payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral. Dakota Bank & Trust Co. v. Grinde, 422 N.W.2d 813, 1988 N.D. LEXIS 111 (N.D. 1988).

Guaranty of Payment.

Instrument stating that defendants, for purpose of enabling corporation to obtain credit, guaranteed prompt payment, at maturity, of notes given corporation and that instrument was to apply to all existing and future indebtedness was an absolute, unconditional, continuing guaranty; it was a guaranty of payment as distinguished from a guaranty of collection and from a surety contract; N.D.C.C. § 22-03-08 was not applicable to suit on the guaranty; even if it was applicable, it could be invoked only upon showing that statutory remedy was not available to surety. State Bank v. Porter, 167 N.W.2d 527, 1969 N.D. LEXIS 102 (N.D. 1969).

District court properly awarded a monetary judgment to a factoring servicer in its action for breach of contract and to collect on a personal guaranty because the testimony of a subcontractor’s president established that the subcontractor consented to the sub-subcontractors’ assignments to the servicer, the president signed the guaranty in his personal capacity, even though he included his representative capacity for the corporation, and, while consideration did not need to be expressed in a guaranty, the subcontractor was conferred a benefit by being able to continue operations and the president was similarly conferred that benefit as the corporation’s president and owner. Frontier Fiscal Servs., LLC v. Pinky's Aggregates, Inc., 2019 ND 147, 928 N.W.2d 449, 2019 N.D. LEXIS 150 (N.D. 2019).

Guaranty of Payment and Guaranty of Collection.

Under a guaranty of payment, the guarantor undertakes unconditionally that the debtor will pay, and the creditor may, upon default, proceed directly against him without taking any step to collect from the principal debtor; under a guaranty of collection, the undertaking is that, if the demand cannot be collected by legal proceedings, the guarantor will pay, and legal proceedings against the principal debtor and a failure to collect from him by those means are conditions precedent to the liability of the guarantor. Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 1980 N.D. LEXIS 265 (N.D. 1980).

Language Constituting Assumption, Not Guaranty.

Record amply supported the trial court’s finding that general contractor assumed, rather than guaranteed, the mortgage debt of custom built house where the warranty deed conveying the property to contractor expressly provided that contractor assumed and agreed to pay the mortgage debt and where the bank continuously treated contractor as the principal debtor, although no loan assumption documents were executed. Dakota Bank & Trust Co. v. Funfar, 443 N.W.2d 289, 1989 N.D. LEXIS 126 (N.D. 1989).

Letter of Credit.

A letter of credit, in which the maker agrees to pay for all goods ordered, and paid for by another when due, is a contract of guaranty. Aluminum Cooking Utensil Co. v. Rohe, 43 N.D. 433, 175 N.W. 620, 1919 N.D. LEXIS 56 (N.D. 1919).

Notice of Withdrawal.

A guarantor who had signed a continuing guaranty was liable for amounts borrowed by other guarantors after oral notice of his withdrawal had been given, where he did not deliver written revocation as expressly required in the guaranty. First Nat'l Bank & Trust Co. v. Meyer Enters., 427 N.W.2d 328, 1988 N.D. LEXIS 162 (N.D. 1988).

Obligation of Guarantor.

A guaranty is a contract which, although separate and distinct from the contract imposing obligations on the principal, nevertheless imposes an obligation on the guarantor if the principal defaults in performance or payment. Dakota Bank & Trust Co. v. Grinde, 422 N.W.2d 813, 1988 N.D. LEXIS 111 (N.D. 1988).

Party As Principal Debtor and Guarantor.

Where purchaser under a contract for deed was both the principal debtor and a guarantor of the contract for deed, the guaranty was not a promise to answer for the debt, default, or miscarriage of another person within the definition of guaranty in this section, therefore, the trial court incorrectly held that as a result of his personal guaranty the purchaser was personally liable for the balance of the deficiency, if any, after the foreclosure sale. Hagan v. Havnvik, 421 N.W.2d 56, 1988 N.D. LEXIS 72 (N.D. 1988).

Review on Appeal.

The trial court’s determination of whether, under the circumstances, statements made by the parties constituted an oral guaranty or assumption of debt was a finding of fact which Supreme Court would not disturb unless it was clearly erroneous. Dakota Bank & Trust Co. v. Funfar, 443 N.W.2d 289, 1989 N.D. LEXIS 126 (N.D. 1989).

Rights of Guarantor.

The party for whose accommodation a note is executed is not entitled to recover from the accommodation party thereon. Jacobson v. Klamann, 54 N.D. 867, 211 N.W. 595, 1926 N.D. LEXIS 94 (N.D. 1926).

Satisfaction of Debt.

Where mortgagee foreclosed upon mortgaged property and purchased property at sheriff’s sale by bidding full amount of foreclosure judgment, underlying debt was satisfied and individual guarantees of debt were extinguished. First Fed. Sav. & Loan Ass'n v. Scherle, 356 N.W.2d 894, 1984 N.D. LEXIS 431 (N.D. 1984).

Guarantors were discharged when the bank satisfied the underlying debt by purchasing the property at the foreclosure sale for the full amount of the indebtedness, and the guarantors had no duty to respond to the bank’s letter, N.D.C.C. § 22-01-01(2). First Int'l Bank & Trust v. Peterson, 2009 ND 207, 776 N.W.2d 543, 2009 N.D. LEXIS 216 (N.D. 2009).

Collateral References.

Guaranty as covering renewals, after revocation, of claims within coverage at time of revocation, 58 A.L.R.5th 325.

Law Reviews.

For summary of significant decisions rendered by the North Dakota Supreme Court in 1989 relating to vendors and purchasers, see 65 N.D. L. Rev. 595 (1989).

22-01-02. Knowledge or consent of principal unnecessary to guaranty.

A person may become a guarantor without the knowledge or consent of the principal.

Source:

Civ. C. 1877, § 1650; R.C. 1895, § 4626; R.C. 1899, § 4626; R.C. 1905, § 6076; C.L. 1913, § 6652; R.C. 1943, § 22-0102.

Derivation:

Cal. Civ. C., 2788.

22-01-03. Original obligation sufficient consideration — Exception.

When a guaranty is entered into at the same time as the original obligation or at the same time as the acceptance of the original obligation by the guarantee and forms, with that obligation, a part of the consideration to the guarantee, no other consideration is necessary. In all other cases there must be a consideration distinct from that of the original obligation.

Source:

Civ. C. 1877, § 1651; R.C. 1895, § 4627; R.C. 1899, § 4627; R.C. 1905, § 6077; C.L. 1913, § 6653; R.C. 1943, § 22-0103.

Derivation:

Cal. Civ. C., 2792.

Notes to Decisions

Consideration.

Consideration given by bank in connection with three hundred twenty-five thousand dollars guaranty executed by wife in order to induce bank to extend credit to corporation being formed by husband, as a part of the same transaction which allowed husband to pay off his personal obligations and transfer the debts of partnership to the new corporation, was adequate, even though bank did not give a separate and distinct consideration to wife for her signing of the guaranty. First Bank (N.A.) v. Scherbenske, 375 N.W.2d 156, 1985 N.D. LEXIS 404 (N.D. 1985).

District court properly awarded a monetary judgment to a factoring servicer in its action for breach of contract and to collect on a personal guaranty because the testimony of a subcontractor’s president established that the subcontractor consented to the sub-subcontractors’ assignments to the servicer, the president signed the guaranty in his personal capacity, even though he included his representative capacity for the corporation, and, while consideration did not need to be expressed in a guaranty, the subcontractor was conferred a benefit by being able to continue operations and the president was similarly conferred that benefit as the corporation’s president and owner. Frontier Fiscal Servs., LLC v. Pinky's Aggregates, Inc., 2019 ND 147, 928 N.W.2d 449, 2019 N.D. LEXIS 150 (N.D. 2019).

Extent of Guaranty.

Guaranty extended to note dated prior to signing guaranty where guaranty was in consideration of agreement by creditor to establish line of credit to principal debtor over a period of months and note in question was given to cover first portion of that credit. State Bank v. Porter, 167 N.W.2d 527, 1969 N.D. LEXIS 102 (N.D. 1969).

Collateral References.

Forbearance as sufficient consideration for guaranty, 78 A.L.R.2d 1414.

22-01-04. Guaranty to be in writing — Exception — Consideration need not be expressed.

Except when a guaranty is deemed an original obligation as provided in section 22-01-05, a guaranty must be in writing and signed by the guarantor, but the writing need not express a consideration.

Source:

Civ. C. 1877, § 1652; R.C. 1895, § 4628; R.C. 1899, § 4628; R.C. 1905, § 6078; C.L. 1913, § 6654; R.C. 1943, § 22-0104.

Derivation:

Cal. Civ. C., 2793.

Cross-References.

Contract invalid unless in writing, statute of frauds, see N.D.C.C. § 9-06-04.

Notes to Decisions

Consideration.

District court properly awarded a monetary judgment to a factoring servicer in its action for breach of contract and to collect on a personal guaranty because the testimony of a subcontractor’s president established that the subcontractor consented to the sub-subcontractors’ assignments to the servicer, the president signed the guaranty in his personal capacity, even though he included his representative capacity for the corporation, and, while consideration did not need to be expressed in a guaranty, the subcontractor was conferred a benefit by being able to continue operations and the president was similarly conferred that benefit as the corporation’s president and owner. Frontier Fiscal Servs., LLC v. Pinky's Aggregates, Inc., 2019 ND 147, 928 N.W.2d 449, 2019 N.D. LEXIS 150 (N.D. 2019).

Exception.

Where the primary objective of individual’s oral guarantee was to subserve some object of his own, notwithstanding that the effect of such promise was to pay the debt of another, the individual’s oral guarantee was an original obligation and not within the statute of frauds. Ned Nastrom Motors v. Nastrom-Peterson-Neubauer Co., 338 N.W.2d 64, 1983 N.D. LEXIS 371 (N.D. 1983).

Parol Guaranty.

An executory parol agreement to discharge a note past due by accepting property instead of money from a person not a party to the instrument, is unenforceable until fully performed by delivery and acceptance of the property. First Nat'l Bank v. Burdick, 51 N.D. 508, 200 N.W. 44, 1923 N.D. LEXIS 8 (N.D. 1923).

Promotion of Injustice.

Although the facts did not bring the case within the exceptions to the statute of frauds set out in N.D.C.C. § 22-01-04, defendant was not allowed to invoke the statute of frauds as a defense to an action on his oral guarantee to make repayments of a loan where to allow defendant to invoke the statute of frauds would promote an injustice under the facts of the case. Nelson v. TMH, Inc., 292 N.W.2d 580, 1980 N.D. LEXIS 232 (N.D. 1980).

Writing Requirement.

When the principal object of a promisor as surety is to subserve some object of his own, notwithstanding the effect is to pay or discharge the debt or obligation of another, his promise is an original obligation and is not within the statute of frauds. Austford v. Smith, 196 N.W.2d 413, 1972 N.D. LEXIS 170 (N.D. 1972).

Collateral References.

Parol evidence rule as applied to written guaranty, 33 A.L.R.2d 960.

Signature: person, who signs contract of guaranty but is not named in body thereof, as party to contract and liable thereunder, 94 A.L.R.2d 691.

Parol evidence: admissibility of parol evidence to show whether guaranty of corporation’s obligation was signed in officer’s representative or individual capacity, 70 A.L.R.3d 1276.

Conflict of laws: what law governs validity and construction of written guaranty, 72 A.L.R.3d 1180.

22-01-05. When a guaranty need not be in writing.

A promise to answer for the obligation of another in any of the following cases is deemed an original obligation of the promisor and need not be in writing:

  1. When the promise is made by one who has received property of another upon an undertaking to apply it pursuant to such promise, or by one who has received a discharge from an obligation in whole or in part in consideration of such promise.
  2. When the creditor parts with value or enters into an obligation in consideration of the obligation in respect to which the promise is made, in terms or under circumstances which render the party making the promise the principal debtor and the person in whose behalf it is made the debtor’s surety.
  3. When the promise, being for an antecedent obligation of another, is made upon the consideration that the party receiving it shall cancel the antecedent obligation and accept the new promise as a substitute therefor, or upon the consideration that the party receiving it shall release the property of another from a levy under an execution on a judgment obtained upon the antecedent obligation, or upon a consideration beneficial to the promisor, whether moving from either party to the antecedent obligation or from another person.
  4. When a factor undertakes, for a commission, to sell merchandise and guarantee the sale.
  5. When the holder of an instrument for the payment of money upon which a third person is or may become liable to the holder transfers the instrument in payment of a precedent debt of the holder’s, or for a new consideration, and in connection with such transfer, enters into a promise respecting such instrument.

Source:

Civ. C. 1877, § 1653; R.C. 1895, § 4629; R.C. 1899, § 4629; R.C. 1905, § 6079; C.L. 1913, § 6655; R.C. 1943, § 22-0105.

Derivation:

Cal. Civ. C., 2794.

Notes to Decisions

Agent’s Oral Promise.

Parol promise of agent to be responsible for principal’s debts is unenforceable. McArthur v. Dryden, 6 N.D. 438, 71 N.W. 125, 1897 N.D. LEXIS 7 (N.D. 1897).

Conditional Promise.

A conditional promise to pay the indebtedness of a third person is not sufficient to bind the promisor unless in writing. McMillan v. Aitchison, 3 N.D. 183, 54 N.W. 1030, 1893 N.D. LEXIS 12 (N.D. 1893).

“Leading Object” Rule Inapplicable.

Because trial court’s finding of no oral guaranty was not erroneous, the “leading object” rule was inapplicable. The “leading object” rule is not a test for gauging whether, under the circumstances, an oral guaranty has been given; rather, the rule is used for determining whether an oral guaranty is excepted from the statute of frauds. Dakota Bank & Trust Co. v. Funfar, 443 N.W.2d 289, 1989 N.D. LEXIS 126 (N.D. 1989).

Payment by Agent.

When an agent pays the obligation of his principal, he does not become a surety thereby for other debts of his principal. McArthur v. Dryden, 6 N.D. 438, 71 N.W. 125, 1897 N.D. LEXIS 7 (N.D. 1897).

Promise to Deliver Property.

An oral agreement with a person not a party to an instrument to discharge overdue promissory note by accepting property in lieu of money is unenforceable until full performance by delivery and acceptance of the property. First Nat'l Bank v. Burdick, 51 N.D. 508, 200 N.W. 44, 1923 N.D. LEXIS 8 (N.D. 1923).

Purpose of Promise.

Where the promise is to subserve some interest or purpose of the promisor, notwithstanding the effect is to pay or discharge the debt of another, the promise is an original obligation and not a promise to answer for the debt, default or miscarriage of another. Glock v. Hillestad, 85 N.W.2d 568, 1957 N.D. LEXIS 156 (N.D. 1957).

When the principal object of a promisor as surety is to subserve some object of his own, notwithstanding the effect is to pay or discharge the debt or obligation of another, his promise is an original obligation and is not within the statute of frauds. Austford v. Smith, 196 N.W.2d 413, 1972 N.D. LEXIS 170 (N.D. 1972).

Oral guarantee of general contractor, guaranteeing payment for boiler supplied by supplier to subcontractor, served a purpose of the promisor, i.e., discharge of it’s contractual obligation to furnish a boiler to fulfill its contractual obligations, and was enforceable as an “original obligation.” Baker Mfg. Co. Wholesale Div. v. Kramer Sheet Metal, 371 N.W.2d 149, 1985 N.D. LEXIS 359 (N.D. 1985).

Statute of Frauds.

Where it appears that a party was told by another that he would see that goods delivered to a third person, and charged to such person, would be paid for, there is established a promise to pay for the debt, default, or miscarriage of another within the statute of frauds. Gidley v. Glass, 41 N.D. 542, 171 N.W. 93, 1919 N.D. LEXIS 81 (N.D. 1919).

Although the facts did not bring the case within the exceptions to the statute of frauds set out in this section, defendant was not allowed to invoke the statute of frauds as a defense to an action on defendant’s oral guarantee to repay loans made by plaintiff to the corporation of which defendant was an incorporator and a stockholder where defendant induced plaintiff to make the loan and gave several assurances that it would be repaid, defendant was in a position of trust with plaintiff when she was in an emotionally weakened state, defendant induced plaintiff to make the loan under false pretenses that he was unable financially to make the loan himself, defendant and the corporation repeatedly refused to comply with plaintiff’s request that papers be drawn up concerning the terms of the loan, and defendant received a direct personal benefit from the loan in the form of a reimbursement he received from the corporation on a loan that he had made, since to allow the defendant to invoke the statute of frauds under such facts would promote an injustice. Nelson v. TMH, Inc., 292 N.W.2d 580, 1980 N.D. LEXIS 232 (N.D. 1980).

22-01-06. Acceptance of offer to guaranty required — Exception in case of absolute guaranty.

A mere offer to guaranty is not binding until notice of its acceptance is communicated by the guarantee to the guarantor. An absolute guaranty is binding upon the guarantor without a notice of acceptance.

Source:

Civ. C. 1877, § 1654; R.C. 1895, § 4630; R.C. 1899, § 4630; R.C. 1905, § 6080; C.L. 1913, § 6656; R.C. 1943, § 22-0106.

Derivation:

Cal. Civ. C., 2795.

Notes to Decisions

Absolute Guaranty.

Letter guaranteeing payment of goods sent to third party, up to three hundred dollars worth, was an absolute guaranty and no notice of acceptance was necessary to render the guarantor liable. Fisk v. Stone, 50 N.W. 125, 6 Dakota 35, 1888 Dakota LEXIS 48 (Dakota 1888).

Guaranty Given for Future Advances.

A guaranty which is signed by a guarantor without a previous request, in consideration of future advances to be made to the principal debtor, is an offer to guarantee, and is not binding until the acceptance is communicated to the guarantor. Rogers Lumber Co. v. Clark, 52 N.D. 607, 204 N.W. 184, 1925 N.D. LEXIS 126 (N.D. 1925).

Insurance Agent’s Bond.

An insurance agent’s bond, required to be given by an employment contract and executed subsequent thereto at the request of the agent, is required to be accepted before it becomes binding. Atlas Assurance Co. v. Lawrence, 34 F.2d 401, 1929 U.S. App. LEXIS 3250 (8th Cir. N.D. 1929).

Mutual Assent.

Mutual assent of the parties or meeting of the minds is necessary to make a guaranty absolute. Standard Sewing Mach. Co. v. Church, 11 N.D. 420, 92 N.W. 805 (1902), distinguished, Emerson Mfg. Co. v. Rustad, 19 N.D. 8, 120 N.W. 1094 (1909); W. T. Rawleigh Medical Co. v. Laursen, 25 N.D. 63, 141 N.W. 64, 1913 N.D. LEXIS 95 (N.D. 1913), and State ex rel. Harding v. Lane, 60 N.D. 703, 236 N.W. 353, 1931 N.D. LEXIS 223 (N.D. 1931).

An unaccepted offer of guaranty was the only result when the alleged guarantor never met with the guarantee to consummate an agreement, and the guarantee was not bound thereby. Union Nat'l Bank v. Schimke, 210 N.W.2d 176, 1973 N.D. LEXIS 103 (N.D. 1973).

Notice Must Be Pleaded.

Notice of the acceptance of letter of credit by a creditor must be pleaded and proved. Aluminum Cooking Utensil Co. v. Rohe, 43 N.D. 433, 175 N.W. 620, 1919 N.D. LEXIS 56 (N.D. 1919).

Waiver of Notice.

Notice by the guarantor of acceptance of a guaranty may be waived by the form of the guaranty. W. T. Rawleigh Medical Co. v. Laursen, 25 N.D. 63, 141 N.W. 64, 1913 N.D. LEXIS 95 (N.D. 1913).

Collateral References.

Acceptance: necessity of creditor giving guarantor notice of acceptance of guaranty, 6 A.L.R.3d 355.

Law Reviews.

Guaranty, Necessity of Notice of Acceptance, 24 Bar Briefs, State Bar Ass’n of N.D. 222 (1948).

22-01-06.1. When notice of acceptance to guarantor or surety required. [Repealed]

Repealed by S.L. 1989, ch. 296, § 2.

22-01-06.2. Surety or guarantor may withdraw within ten days. [Repealed]

Repealed by S.L. 1989, ch. 296, § 2.

22-01-06.3. When account furnished surety or guarantor.

When a manufacturer, wholesaler, or distributor furnishes merchandise to any agent, salesman, or dealer whose execution of bond or obligation to the manufacturer, wholesaler, or distributor has been joined in by a surety or guarantor, the manufacturer, wholesaler, or distributor upon written request by the surety or guarantor, shall furnish each surety or guarantor either by mail or personal delivery a statement each month during the life of the bond or obligation showing the debit and credit items incurred and made in the account between the manufacturer, wholesaler, or distributor and the agent, salesman, or dealer during the immediately preceding month and the exact balance owing from the agent, salesman, or dealer thereon at the date of the notice.

Source:

S.L. 1945, ch. 193, § 3; R.C. 1943, 1957 Supp., § 22-01063; S.L. 1989, ch. 296, § 1.

22-01-06.4. Surety or guarantor may withdraw at any time. [Repealed]

Repealed by S.L. 1989, ch. 296, § 2.

22-01-06.5. Public policy. [Repealed]

Repealed by S.L. 1989, ch. 296, § 2.

22-01-07. Guaranty of contract the terms of which are unsettled — Interpretation.

In a guaranty of a contract the terms of which are not then settled, it is implied that its terms shall be such as will not expose the guarantor to greater risks than the guarantor would incur under those terms which are most common in similar contracts at the place where the principal contract is to be performed.

Source:

Civ. C. 1877, § 1655; R.C. 1895, § 4631; R.C. 1899, § 4631; R.C. 1905, § 6081; C.L. 1913, § 6657; R.C. 1943, § 22-0107.

Derivation:

Cal. Civ. C., 2799.

22-01-08. Guaranty of solvency — Failure to take proceedings to collect — Removal of principal from state.

A guaranty to the effect that an obligation is good or is collectible imports that the debtor is solvent and that the demand is collectible by the usual legal proceedings if the same are taken with reasonable diligence. Such a guaranty is not discharged by any omission to take proceedings upon the principal debt or upon any collateral security for its payment if no part of the debt could have been collected thereby. The removal of the principal from the state, leaving no property therein from which the obligation might be satisfied, is equivalent to the insolvency of the principal in its effect upon the rights and obligations of the guarantor.

Source:

Civ. C. 1877, §§ 1656 to 1658; R.C. 1895, §§ 4632 to 4634; R.C. 1899, §§ 4632 to 4634; R.C. 1905, §§ 6082 to 6084; C.L. 1913, §§ 6658 to 6660; R.C. 1943, § 22-0108.

Derivation:

Cal. Civ. C., 2800 to 2802.

Notes to Decisions

Guarantor of Collection.

No cause of action accrues against the guarantor of collection until after the creditor has exhausted his remedies against the principal debtor. Smith v. Show, 16 N.D. 306, 112 N.W. 1062, 1907 N.D. LEXIS 53 (N.D. 1907).

Guarantor of Payment.

The guarantor of payment undertakes unconditionally that the debtor will pay, and, upon default, the creditor may proceed directly against the guarantor without taking any step to collect of the principal debtor. Smith v. Show, 16 N.D. 306, 112 N.W. 1062, 1907 N.D. LEXIS 53 (N.D. 1907).

Guaranty of Solvency.

An endorsement “For value received, we hereby guaranty the collection of the within note” is a guaranty only that the makers were solvent. Roberts, Throp & Co. v. Laughlin, 4 N.D. 167, 59 N.W. 967, 1894 N.D. LEXIS 25 (N.D. 1894).

22-01-09. Guaranty deemed unconditional — Exception.

A guaranty is to be deemed unconditional unless its terms import some condition precedent to the liability of the guarantor.

Source:

Civ. C. 1877, § 1659; R.C. 1895, § 4635; R.C. 1899, § 4635; R.C. 1905, § 6085; C.L. 1913, § 6661; R.C. 1943, § 22-0109.

Derivation:

Cal. Civ. C., 2806.

Notes to Decisions

Conditional Guaranty.

Delivery of a conditional guaranty by the principal to the obligee, although the condition had not been complied with, and the obligee had no knowledge thereof, was binding on the guarantors. Security Nat'l Bank v. Andrews, 53 N.D. 328, 205 N.W. 732, 1925 N.D. LEXIS 82 (N.D. 1925).

22-01-10. Guarantor of payment is liable upon default of principal — Demand or notice not required.

A guarantor of payment or performance is liable to the guarantee immediately upon the default of the principal and without a demand or notice.

Source:

Civ. C. 1877, § 1660; R.C. 1895, § 4636; R.C. 1899, § 4636; R.C. 1905, § 6086; C.L. 1913, § 6662; R.C. 1943, § 22-0110.

Derivation:

Cal. Civ. C., 2807.

Notes to Decisions

Complete Guaranty.

A guaranty to “satisfy all orders Mr. G. gives this spring, such as plows and cultivators” is complete in itself. Gilbert v. Moline Plough Co., 119 U.S. 491, 7 S. Ct. 305, 30 L. Ed. 476, 1886 U.S. LEXIS 2018 (U.S. 1886).

Direct Action Against Guarantors.

Where the obligation of the guarantors was absolute and a guaranty of payment, creditor could proceed directly against guarantors for a money judgment and was not required to first proceed against the principal debtor. Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 1980 N.D. LEXIS 265 (N.D. 1980).

Guaranty of Payment of Note.

When the payee of a negotiable promissory note transfers it by endorsing thereon a guaranty of payment, the purchaser is an endorsee, within the rule protecting an innocent purchaser of such paper for value and before maturity, against defenses good between the original parties. Dunham v. Peterson, 5 N.D. 414, 67 N.W. 293, 1896 N.D. LEXIS 42 (N.D. 1896).

Under a guaranty of payment, the guarantor undertakes unconditionally that the debtor will pay, and the creditor may, upon default, proceed directly against him without taking any step to collect from the principal debtor. Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 1980 N.D. LEXIS 265 (N.D. 1980).

Guaranty on Contract.

Where a written guaranty to pay the same in accordance with the terms of the contract is endorsed upon the back of a contract for the purchase of goods, no demand or notice is required. McConnon & Co. v. Laursen, 22 N.D. 604, 135 N.W. 213, 1912 N.D. LEXIS 61 (N.D. 1912).

Incidental Beneficiary of Guaranty.

Party who was an incidental beneficiary of the guaranty had no right to enforce the provisions of the guaranty. First Fed. Sav. & Loan Ass'n v. Compass Inv., 342 N.W.2d 214, 1983 N.D. LEXIS 441 (N.D. 1983).

Laches.

Laches in pursuing legal remedies against debtor operates to exonerate guarantors. Roberts, Throp & Co. v. Laughlin, 4 N.D. 167, 59 N.W. 967, 1894 N.D. LEXIS 25 (N.D. 1894).

Mortgage Foreclosure.

Guarantors who had secured a renewal of corporate mortgage indebtedness by guaranteeing payment at maturity were proper parties to be sued in a foreclosure action. Agricultural Credit Corp. v. Land Inv. Co., 66 N.D. 343, 265 N.W. 410, 1936 N.D. LEXIS 174 (N.D. 1936).

Notice of Acceptance.

A notice of acceptance is not necessary to render an absolute guarantor liable. Fisk v. Stone, 50 N.W. 125, 6 Dakota 35, 1888 Dakota LEXIS 48 (Dakota 1888).

Solvency of Makers.

“Guaranty of collection of the within note” guarantees that the makers were solvent when the note was made. Roberts, Throp & Co. v. Laughlin, 4 N.D. 167, 59 N.W. 967, 1894 N.D. LEXIS 25 (N.D. 1894).

Collateral References.

Collection expense as within guaranty of payment at maturity, 4 A.L.R.2d 138.

Application of payments as between debts for which a surety or guarantor is bound and those for which he is not, 57 A.L.R.2d 855.

Forbearance as sufficient consideration for guaranty, 78 A.L.R.2d 1414.

Endorsement: guaranty of payment as covering principal debtor’s liability as an endorser on third person’s note or other negotiable instrument, 85 A.L.R.2d 1183.

22-01-11. Liability on conditional obligation — When notice to guarantor required.

The liability of a guarantor who guaranties a conditional obligation is commensurate with that of the guarantor’s principal and the guarantor is not entitled to notice of the default of the principal unless the guarantor is unable, by the exercise of reasonable diligence, to acquire information of such default and the creditor has actual notice thereof.

Source:

Civ. C. 1877, § 1661; R.C. 1895, § 4637; R.C. 1899, § 4637; R.C. 1905, § 6087; C.L. 1913, § 6663; R.C. 1943, § 22-0111.

Derivation:

Cal. Civ. C., 2808.

22-01-12. Limitations upon obligation of guarantor.

The obligation of a guarantor must be neither larger in amount, nor in other respects more burdensome, than that of the principal. A stockholder or partner of any entity, including a limited liability company, business corporation, professional corporation, and partnership, may enter into a separate contract of guaranty for the real estate mortgage debt of the entity. If in its terms the obligation exceeds that of the principal, the obligation is reducible in proportion to the principal obligation.

Source:

Civ. C. 1877, § 1662; R.C. 1895, § 4638; R.C. 1899, § 4638; R.C. 1905, § 6088; C.L. 1913, § 6664; R.C. 1943, § 22-0112; S.L. 1993, ch. 246, § 2.

Derivation:

Cal. Civ. C., 2809.

Notes to Decisions

Anti-Deficiency Statutes.
—In General.

By 1993 legislation, the Legislature removed anti-deficiency protection from a group that the Supreme Court had previously held was protected. The Legislature has clearly signaled an intent not to protect guarantors with the anti-deficiency statutes. First Nat'l Bank & Trust Co. v. Anseth, 503 N.W.2d 568, 1993 N.D. LEXIS 148 (N.D. 1993).

The district court erred in dismissing a bondholder’s action on guaranties and ordering compliance with the anti-deficiency statutes. First Nat'l Bank & Trust Co. v. Anseth, 503 N.W.2d 568, 1993 N.D. LEXIS 148 (N.D. 1993).

—General Partners.

When general partners personally guaranty a general partnership mortgage debt, the anti-deficiency statutes are applicable, and the procedures for deficiency judgments outlined in First State Bank v. Ihringer, 217 N.W.2d 857 (1974), must be satisfied. However, because of contractual expectations, this decision will be applied prospectively. First Interstate Bank v. Larson, 475 N.W.2d 538 (N.D. 1991), overruling Mandan Sec. Bank v. Heinsohn, 320 N.W.2d 494 (N.D. 1982), decided prior to the amendment to this section by Session Laws 1993, ch. 246.

General Partners.

General partners who personally guaranty a general partnership’s mortgage debt have not changed the nature of their obligation on the debt. The partners are parties personally liable for the partnership’s debt and, pursuant to former subdivision (1) (now subdivision (2)) of section 22-01-01, the partners have not personally guarantied the debt of another. First Interstate Bank v. Larson, 475 N.W.2d 538 (N.D. 1991), decided prior to the amendment to N.D.C.C. §§ 22-01-12 and 45-06-07, by Session Laws 1993, ch. 246.

22-01-13. Nonliability of guarantor on unlawful contract — Personal disability of principal.

A guarantor is not liable if the contract of the principal is unlawful, but the guarantor is liable notwithstanding any mere personal disability of the principal even though the disability is such as to make the contract void as against the principal.

Source:

Civ. C. 1877, § 1663; R.C. 1895, § 4639; R.C. 1899, § 4639; R.C. 1905, § 6089; C.L. 1913, § 6665; R.C. 1943, § 22-0113.

Derivation:

Cal. Civ. C., 2810.

22-01-14. Revocation of continuing guaranty.

A continuing guaranty may be revoked at any time by the guarantor in respect to future transactions unless there is a continuing consideration as to such transactions which the guarantor does not renounce. If the contract of guaranty signed by the guarantor so states, the revocation must be in writing and delivered to the guarantee. If the contract does not so state, an oral attempt to revoke is not effective if at the time of the oral communication the guarantee requests delivery of a written revocation and confirms the request in writing.

Source:

Civ. C. 1877, § 1665; R.C. 1895, § 4641; R.C. 1899, § 4641; R.C. 1905, § 6091; C.L. 1913, § 6667; R.C. 1943, § 22-0114; S.L. 1989, ch. 297, § 1.

Derivation:

Cal. Civ. C., 2815.

Notes to Decisions

Release by Alteration.

If the terms of the agreement guaranteed were altered without consent of the guarantors, they are released. Moline Plow Co. v. Gilbert, 15 N.W. 1, 3 Dakota 239, 1882 Dakota LEXIS 21 (Dakota 1882).

Collateral References.

Guaranty as covering renewals, after revocation, of claims within coverage at time of revocation, 58 A.L.R.5th 325.

22-01-15. When guarantor exonerated.

A guarantor is exonerated, except insofar as the guarantor may be indemnified by the principal, if, by any act of the creditor without the consent of the guarantor:

  1. The original obligation of the principal is altered in any respect; or
  2. The remedies or rights of the creditor against the principal in respect thereto are impaired or suspended in any manner.

Source:

Civ. C. 1877, § 1666; R.C. 1895, § 4642; R.C. 1899, § 4642; R.C. 1905, § 6092; C.L. 1913, § 6668; R.C. 1943, § 22-0115.

Derivation:

Cal. Civ. C., 2819.

Notes to Decisions

Alteration of Obligation.

In three-party agreement to lend money for purchase, feeding, and sale of cattle, where first and second parties guaranteed to absorb any loss suffered by third party if third party would use his credit to secure loans, the third party was the principal and his obligation was completely satisfied without alteration as soon as he secured the loans; thus, first party was not exonerated of liability based on his oral guarantee. State Bank v. Rauh, 288 N.W.2d 299, 1980 N.D. LEXIS 180 (N.D. 1980).

Alterations in Contract.

Changes or alterations in the terms of original construction contract, made without the knowledge, participation, or consent of the obligee or creditor, do not discharge or exonerate the surety, but neither do they obligate the surety beyond the express terms of its contract. Brioschi-Minuti Co. v. Elson-Williams Constr. Co., 41 N.D. 628, 172 N.W. 239, 1919 N.D. LEXIS 103 (N.D. 1919).

Guarantor of first note was exonerated and discharged from further liability where second note contained substantial increase in principal debt and increased monthly payments extended over a longer period of time. Liberty Nat'l Bank & Trust Co. v. Dvorak, 199 N.W.2d 414, 1972 N.D. LEXIS 147 (N.D. 1972).

The assignor of a lease was released from obligation as guarantor where the lease for rental of automatic pin spotting equipment was changed so as to discontinue advisory services by the lessor, to release the lessor from liability and claims for defects in the equipment, to discontinue inspections by the lessor, to delete provision for an increase in the lineage charge, to extend the period of the lease, and to reduce the annual rental; even though the amendments were not injurious or detrimental to the guarantors, this section requires only that the obligation of the principal be changed in any respect and injury or damage to the obligor is immaterial. AMF, Inc. v. Fredericks, 212 N.W.2d 834, 1973 N.D. LEXIS 132 (N.D. 1973).

Companies had always arranged for and provided janitorial services in the leased space, and the business was ultimately responsible for payment of the costs, but the companies and the corporation agreed to change this practice, and the finding that this change altered the contractual obligations of the parties was not clearly erroneous; as the contractual obligations regarding janitorial services were altered without the owner's knowledge or consent, he was properly exonerated of his obligations under the guarantees. Sterling Dev. Group Three, LLC v. Carlson, 2015 ND 39, 859 N.W.2d 414, 2015 N.D. LEXIS 41 (N.D. 2015).

Bond for Paid Premium.

The contract of a surety company in issuing a bond for a paid premium will be interpreted ordinarily according to the rules of insurance rather than according to the law of suretyship. Long v. American Sur. Co., 23 N.D. 492, 137 N.W. 41 (N.D. 1912).

Change in Obligation.

The matter of prejudice by or materiality of a change in the principal’s obligation is not open to inquiry as regards the exoneration of the guarantor. Atlas Assurance Co. v. Lawrence, 34 F.2d 401, 1929 U.S. App. LEXIS 3250 (8th Cir. N.D. 1929).

Continuing and Absolute Guaranty.

There was no alteration and guarantor was not exonerated where note executed by debtor in 1975 was different in terms and interest rate than note executed in 1972 when guarantor had agreed in writing to unconditionally guarantee the payment of all notes of the debtor then existing and thereafter arising. First Nat'l Bank & Trust Co. v. Hart, 267 N.W.2d 561, 1978 N.D. LEXIS 136 (N.D. 1978).

Discharge of Principal.

The discharge of the principal debtor through release or settlement does not relieve the guarantor of liability where the right of recourse against the guarantor is expressly reserved in the guaranty agreement. General Elec. Credit Corp. v. Larson, 387 N.W.2d 734, 1986 N.D. LEXIS 321 (N.D. 1986).

Extension of Time.

Mere fact that creditor takes new notes as collateral security for debt, which mature after the time the debt for which surety is liable comes due, will not discharge surety if there is an express condition that their acceptance should not operate to extend the time of payment. Foster County State Bank v. Hester, 18 N.D. 135, 119 N.W. 1044, 1909 N.D. LEXIS 10 (N.D. 1909).

Prior to the enactment of the Negotiable Instruments Act, the extension of the time of payment of a guaranteed note for valuable consideration, and without the consent of the guarantor, released the guarantor from liability. Northern State Bank v. Bellamy, 19 N.D. 509, 125 N.W. 888, 1910 N.D. LEXIS 36 (N.D. 1910).

An agreement extending the time within which payment of the principal obligation must be made, if without the assent of the guarantor thereof, and if binding on the creditor so as to prohibit him from enforcing the obligation for the extended period, exonerates the guarantor from liability, except so far as may be indemnified by the principal. Rogers Lumber Co. v. Clark, 52 N.D. 607, 204 N.W. 184, 1925 N.D. LEXIS 126 (N.D. 1925).

Filling of Blanks.

An unauthorized filling of blanks in a surety bond by creditor, so as to contain the amount of the existing indebtedness owing by the principal to the creditor, is a material alteration which avoids the instrument. J. R. Watkins Co. v. Keeney, 52 N.D. 280, 201 N.W. 833, 1924 N.D. LEXIS 105 (N.D. 1924).

Insurance Agent’s Bond.

A gratuitous surety on a bond securing moneys and securities received by an insurance agent is released by an amendment of the employment contract materially reducing the agent’s commissions. Atlas Assurance Co. v. Lawrence, 34 F.2d 401, 1929 U.S. App. LEXIS 3250 (8th Cir. N.D. 1929).

Laches.

Laches in pursuing legal remedies against the debtor operates to exonerate the guarantor. Roberts, Throp & Co. v. Laughlin, 4 N.D. 167, 59 N.W. 967, 1894 N.D. LEXIS 25 (N.D. 1894).

Materiality of Alteration.

Materiality of an alteration is irrelevant; a guarantor is exonerated if, by any act of the creditor without the consent of the guarantor, the original obligation of the principal is altered in any respect. Tri-Continental Leasing Corp. v. Gunter, 472 N.W.2d 437, 1991 N.D. LEXIS 117 (N.D. 1991).

Lender’s unilateral assessment of service charges and legal fees to farmer’s loan account which farmer refused to pay since charges violated loan agreement did not alter farmer’s obligation and, as a matter of law, guarantor was not exonerated. Ag Servs. of Am. v. Midwest Inv. Ltd. Pshp., 1998 ND 189, 585 N.W.2d 571, 1998 N.D. LEXIS 199 (N.D. 1998).

No Injury Requirement.

It is not necessary to inquire into or determine to what extent, if at all, the surety or guarantor was injured or prejudiced by the alteration made in the principal contract. Tri-Continental Leasing Corp. v. Gunter, 472 N.W.2d 437, 1991 N.D. LEXIS 117 (N.D. 1991).

Notice to Guarantor.

Where guaranty is absolute and continuing, guarantor is not entitled to notice of each transaction in order to bind him. First Nat'l Bank & Trust Co. v. Hart, 267 N.W.2d 561, 1978 N.D. LEXIS 136 (N.D. 1978).

Original Obligation.

Creditor’s oral guaranty to third party who loaned money to debtor was exempted from statute of frauds by this section, since leading object of creditor’s guarantee was protection of his interest in the money owed him by debtor. State Bank v. Rauh, 288 N.W.2d 299, 1980 N.D. LEXIS 180 (N.D. 1980).

Outlaw of Claim against Debtor.

The guarantor of a note is not exonerated from liability thereon by the failure of the creditor to enforce payment against the debtor, so that as between debtor and creditor the claim is outlawed. Cassidy v. Reuter, 63 N.D. 267, 247 N.W. 890, 1933 N.D. LEXIS 181 (N.D. 1933).

Renunciation of Rights.

A renunciation of rights against a principal debtor normally discharges a surety; however, a renunciation of rights against or discharge of a surety does not discharge the principal debtor. First Interstate Bank, N.A. v. Rebarchek, 511 N.W.2d 235, 1994 N.D. LEXIS 18 (N.D. 1994).

Waiver of Right to Object to Alterations.

Guarantor of a lease waived her right to object to subsequent alterations or modifications of the lease, and her right to claim exoneration under this section, where the guaranty she signed contained language making it an absolute guaranty and explicitly providing that guarantor’s liability shall not be affected by modification of the lease terms. Wallwork Lease & Rental Co. v. Decker, 336 N.W.2d 356, 1983 N.D. LEXIS 321 (N.D. 1983).

Collateral References.

Extension of net credit in excess of specified amount as discharging or releasing guarantor, 57 A.L.R.2d 1209.

Bar of statute of limitations as against primary debtor as release or discharge of, or defense available to, guarantor, 58 A.L.R.2d 1272.

Note: guarantor of nonnegotiable obligation as released by creditor’s acceptance of debtor’s note or other paper payable at an extended date, 74 A.L.R.2d 734.

Appointment of guardian or conservator for guarantor, termination of continuing guaranty by, 55 A.L.R.3d 344.

22-01-16. Void or voidable promise of creditor does not exonerate.

A promise by a creditor, which for any cause is void or voidable by the creditor at the creditor’s option, does not alter the obligation nor suspend nor impair the remedy within the meaning of section 22-01-15.

Source:

Civ. C. 1877, § 1667; R.C. 1895, § 4643; R.C. 1899, § 4643; R.C. 1905, § 6093; C.L. 1913, § 6669; R.C. 1943, § 22-0116.

Derivation:

Cal. Civ. C., 2820.

22-01-17. Guarantor liability not revived after exoneration.

The rescission of an agreement altering the original obligation of a debtor or impairing the remedy of a creditor does not restore the liability of a guarantor who has been exonerated by such agreement.

Source:

Civ. C. 1877, § 1668; R.C. 1895, § 4644; R.C. 1899, § 4644; R.C. 1905, § 6094; C.L. 1913, § 6670; R.C. 1943, § 22-0117.

Derivation:

Cal. Civ. C., 2821.

22-01-18. Reduction of obligation by partial performance.

The acceptance by a creditor of anything in partial satisfaction of an obligation reduces the obligation of a guarantor thereof in the same measure as that of the principal, but does not otherwise affect it.

Source:

Civ. C. 1877, § 1669; R.C. 1895, § 4645; R.C. 1899, § 4645; R.C. 1905, § 6095; C.L. 1913, § 6671; R.C. 1943, § 22-0118.

Derivation:

Cal. Civ. C., 2822.

22-01-19. Delay on creditor’s part does not exonerate guarantor.

Mere delay on the part of a creditor to proceed against the principal or to enforce any other remedy does not exonerate a guarantor.

Source:

Civ. C. 1877, § 1670; R.C. 1895, § 4646; R.C. 1899, § 4646; R.C. 1905, § 6096; C.L. 1913, § 6672; R.C. 1943, § 22-0119.

Derivation:

Cal. Civ. C., 2823.

Notes to Decisions

Delay in Proceeding Against Principal.

Where the guaranty of payment was unconditional, guarantors became absolutely liable upon default, and failure or delay of creditor to proceed against principal would not exonerate guarantors. Porter v. Andrus, 10 N.D. 558, 88 N.W. 567, 1901 N.D. LEXIS 75 (N.D. 1901).

Liability upon Default.

A guarantor is absolutely liable upon the default of the principal if he guarantees on the back of a contract for the purchase of goods that he will pay for them according to the terms of the contract. McConnon & Co. v. Laursen, 22 N.D. 604, 135 N.W. 213, 1912 N.D. LEXIS 61 (N.D. 1912).

Collateral References.

Creditor’s duty of disclosure to surety or guarantor after inception of suretyship or guaranty, 63 A.L.R.4th 678.

22-01-20. Indemnified guarantor — Liability.

A guarantor who has been indemnified by the principal is liable to the creditor to the extent of the indemnity notwithstanding that the creditor, without the assent of the guarantor, may have modified the contract or released the principal.

Source:

Civ. C. 1877, § 1671; R.C. 1895, § 4647; R.C. 1899, § 4647; R.C. 1905, § 6097; C.L. 1913, § 6673; R.C. 1943, § 22-0120.

Derivation:

Cal. Civ. C., 2824.

22-01-21. Discharge of principal by operation of law does not constitute exoneration.

A guarantor is not exonerated by the discharge of the guarantor’s principal by operation of law without the intervention or omission of the creditor.

Source:

Civ. C. 1877, § 1672; R.C. 1895, § 4648; R.C. 1899, § 4648; R.C. 1905, § 6098; C.L. 1913, § 6674; R.C. 1943, § 22-0121.

Derivation:

Cal. Civ. C., 2825.

CHAPTER 22-02 Indemnity

22-02-01. Indemnity defined.

Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties or of some other person.

Source:

Civ. C. 1877, § 1639; R.C. 1895, § 4615; R.C. 1899, § 4615; R.C. 1905, § 6065; C.L. 1913, § 6641; R.C. 1943, § 22-0201.

Derivation:

Cal. Civ. C., 2772.

Cross-References.

Borrower of property, indemnity of for concealed defects, see N.D.C.C. §§ 47-12-09, 47-13-05.

Employee, indemnity of, see N.D.C.C. §§ 34-02-01, 34-02-03.

Word defined by statute always has same meaning, see N.D.C.C. § 1-01-09.

Notes to Decisions

Agent Not Indemnitor.

Where the authorized agent receives payment from a debtor of the principal, the agent is not an indemnitor of the principal. Bovey Shute Lumber Co. v. Conners, 43 N.D. 382, 175 N.W. 222, 1919 N.D. LEXIS 47 (N.D. 1919).

Bond for Negligence.

This section does not enlarge the liability of a third person on an indemnity bond for negligence causing injury to a pedestrian on a street. Keller v. Fargo, 49 N.D. 562, 192 N.W. 313, 1923 N.D. LEXIS 66 (N.D. 1923).

Implied Contract.

A contract of indemnity need not be express, and indemnity may be recovered if the evidence establishes an implied contract of indemnity. Johnson v. Haugland, 303 N.W.2d 533, 1981 N.D. LEXIS 223 (N.D. 1981).

Statute of Frauds.

District court properly found that the seller's CEO had authority to execute a stock purchase agreement on behalf of his wife and the other selling shareholders because the statute at issue authorized the action, the shareholders and board of directors authorized the CEO, individually and as their agent, to execute the stock purchase agreement, and the stock purchase agreement included two paragraphs relating to the judgment creditor's litigation and indemnification, and nothing statutorily relating to indemnity required a contract for indemnity to be in writing. SNAPS Holding Co. v. Leach, 2017 ND 140, 895 N.W.2d 763, 2017 N.D. LEXIS 136 (N.D. 2017).

Collateral References.

Construction and effect of indemnity clause in spur track agreement, 20 A.L.R.2d 711.

Judgment obtained by third person against indemnitee as conclusive against the latter, irrespective of its conclusiveness against indemnitor, in indemnitee’s action against indemnitor for amount paid in satisfaction of judgment, 24 A.L.R.2d 329.

Motor vehicle owner: right of motor vehicle owner liable to injured third person because of negligence of one permitted to drive, to indemnity from the latter or the latter’s employer to whom vehicle was bailed, 43 A.L.R.2d 879.

Highways and streets: sufficiency and timeliness of notice by indemnitee to indemnitor of action by one injured on highway or street, 73 A.L.R.2d 504.

Wanton misconduct: right of tort-feasor guilty of only ordinary negligence to be indemnified by one guilty of intentional wrongdoing, wanton misconduct, or gross negligence, 88 A.L.R.2d 1355.

Municipality: claim for indemnification from another tort-feasor as within provisions of statute or ordinance requiring notice of claim against municipality, 93 A.L.R.2d 1385.

Construction contractor’s duty to indemnify contractee held liable for injury of third person, in absence of express contract for indemnity, 97 A.L.R.2d 616.

Liability insurance policy as covering insured’s obligation to indemnify, or make contributions to, cotort-feasor, 4 A.L.R.3d 620.

Railroad: validity, construction, and effect of agreement, in connection with real estate lease or license by railroad, for exemption from liability or for indemnification by lessee or licensee, for consequences of railroad’s own negligence, 14 A.L.R.3d 446.

Building contractor’s liability, upon bond or other agreement to indemnify owner, for injury or death of third persons resulting from owner’s negligence, 27 A.L.R.3d 663.

Products liability: right of manufacturer or seller to contribution or indemnity from user of product causing injury or damage to third person, and vice versa, 28 A.L.R.3d 943.

Intoxicating liquors: right of one liable under Civil Damage Act to contribution or indemnity from intoxicated person, or vice versa, 31 A.L.R.3d 438.

Antitrust laws: right of corporation to indemnity for civil or criminal liability incurred by employee’s violation of antitrust laws, 37 A.L.R.3d 1355.

Relative fault: contribution or indemnity between joint tort-feasors on basis of relative fault, 53 A.L.R.3d 184.

Employer’s liability insurer: subrogation of employer’s liability insurer to employer’s right of indemnity against negligent employee, 53 A.L.R.3d 631.

Nuisance: right of one compelled to discontinue business or activity constituting nuisance to indemnity from successful plaintiff, 53 A.L.R.3d 873.

Limitations: what statute of limitations covers action for indemnity, 57 A.L.R.3d 833.

Limitations for tort: when statute of limitations commences to run against claim for contribution or indemnity based on tort, 57 A.L.R.3d 867.

Building contractors: liability of subcontractor upon bond or other agreement indemnifying general contractor against liability for damage to person or property, 68 A.L.R.3d 7.

Public officer: validity and construction of statute authorizing or requiring governmental unit to indemnify public officer or employee for liability arising out of performance of public duties, 71 A.L.R.3d 90.

Medical attendant: right of tort-feasor initially causing injury to recover indemnity or contribution from medical attendant causing new injury or aggravating injury in course of treatment, 72 A.L.R.4th 231.

22-02-02. When indemnity against unlawful act void.

An agreement to indemnify a person against an act thereafter to be done is void if the act is known by such person at the time of doing it to be unlawful.

Source:

Civ. C. 1877, § 1640; R.C. 1895, § 4616; R.C. 1899, § 4616; R.C. 1905, § 6066; C.L. 1913, § 6642; R.C. 1943, § 22-0202.

Derivation:

Cal. Civ. C., 2773.

22-02-03. Indemnity against wrongful act done is valid — Exception.

An agreement to indemnify a person against an act already done is valid, even though the act was known to be wrongful, unless it was a felony.

Source:

Civ. C. 1877, § 1641; R.C. 1895, § 4617; R.C. 1899, § 4617; R.C. 1905, § 6067; C.L. 1913, § 6643; R.C. 1943, § 22-0203.

Derivation:

Cal. Civ. C., 2774.

22-02-04. Indemnity against acts of certain person includes agents.

An agreement to indemnify against the acts of a certain person applies not only to that person’s acts and their consequences, but also to those of that person’s agents.

Source:

Civ. C. 1877, § 1642; R.C. 1895, § 4618; R.C. 1899, § 4618; R.C. 1905, § 6068; C.L. 1913, § 6644; R.C. 1943, § 22-0204.

Derivation:

Cal. Civ. C., 2775.

22-02-05. Indemnification of several persons includes each person.

An agreement to indemnify several persons applies to each unless a contrary intention appears.

Source:

Civ. C. 1877, § 1643; R.C. 1895, § 4619; R.C. 1899, § 4619; R.C. 1905, § 6069; C.L. 1913, § 6645; R.C. 1943, § 22-0205.

Derivation:

Cal. Civ. C., 2776.

22-02-06. Indemnitor jointly and separately liable.

One who indemnifies another person against an act to be done by the latter is liable jointly with the person indemnified and separately to every person injured by such act.

Source:

Civ. C. 1877, § 1644; R.C. 1895, § 4620; R.C. 1899, § 4620; R.C. 1905, § 6070; C.L. 1913, § 6646; R.C. 1943, § 22-0206.

Derivation:

Cal. Civ. C., 2777.

Cross-References.

Joint tort-feasors, contribution among, see N.D.C.C. ch. 32-38.

Notes to Decisions

Joint Liability.

The right of allowing at least some indemnitors to be included as defendants with the indemnitees has long been recognized under our laws. James v. Young, 77 N.D. 451, 43 N.W.2d 692, 1950 N.D. LEXIS 142 (N.D. 1950).

22-02-07. Rules applied in interpretation of a contract of indemnity.

In the interpretation of a contract of indemnity, unless a contrary intention appears, the following rules are to be applied:

  1. Upon an indemnity against liability, expressly or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable.
  2. Upon an indemnity against claims, demands, damages, or costs, expressly or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof.
  3. An indemnity against claims, demands, or liability, expressly or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith and in the exercise of reasonable discretion.
  4. The person indemnifying is bound, on the request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defense if that person chooses to do so.
  5. If, after request, the person indemnifying neglects to defend the person indemnified, a recovery against the latter, suffered by the latter in good faith, is conclusive in the latter’s favor against the former.
  6. If the person indemnifying, whether that person is a principal or a surety in the agreement, has not had reasonable notice of action or proceedings against the person indemnified or is not allowed to control its defense, judgment against the latter is only presumptive evidence against the former.
  7. A stipulation that a judgment against the person indemnified shall be conclusive upon the person indemnifying is inapplicable if the person indemnifying had a good defense upon the merits which, by want of ordinary care, the person indemnifying failed to establish in the action.

Source:

Civ. C. 1877, § 1645; R.C. 1895, § 4621; R.C. 1899, § 4621; R.C. 1905, § 6071; C.L. 1913, § 6647; R.C. 1943, § 22-0207.

Derivation:

Cal. Civ. C., 2778.

Notes to Decisions

Administrator’s Bond.

The surety on an administrator’s bond was concluded by and could not attack collaterally a final settlement from which there had been no appeal. Joy v. Elton, 9 N.D. 423, 83 N.W. 875, 1900 N.D. LEXIS 251 (N.D. 1900).

Applicability.

Indemnity language was limited to indemnifying the city for liability resulting from the contractor’s negligence and only in an amount proportionate to the contractor’s culpability; the statutory duty to defend in N.D.C.C. § 22-02-07(4) did not apply because the indemnity provision expressed a contrary intent. Specialized Contr., Inc. v. St. Paul Fire & Marine Ins. Co., 2012 ND 259, 825 N.W.2d 872, 2012 N.D. LEXIS 269 (N.D. 2012).

Collateral References.

Conflict of laws: what law governs right to indemnity between tort-feasors, 95 A.L.R.2d 1096.

22-02-08. Engagement to answer for violation of duty of another — Reimbursement.

When one person at the request of another person engages to answer in damages, whether liquidated or unliquidated, for any violation of duty on the part of the latter, the former is entitled to be reimbursed in the same manner as a surety for whatever the former may pay.

Source:

Civ. C. 1877, § 1646; R.C. 1895, § 4622; R.C. 1899, § 4622; R.C. 1905, § 6072; C.L. 1913, § 6648; R.C. 1943, § 22-0208.

Derivation:

Cal. Civ. C., 2779.

22-02-09. When sureties in indemnity contracts called bail — Provisions governing bail.

Upon those contracts of indemnity which are taken in legal proceedings as security for the performance of an obligation imposed or declared by the tribunals and known as undertakings or recognizances, the sureties are called bail.

Source:

Civ. C. 1877, § 1647; R.C. 1895, § 4623; R.C. 1899, § 4623; R.C. 1905, § 6073; C.L. 1913, § 6649; R.C. 1943, § 22-0209.

Derivation:

Cal. Civ. C., 2780.

Collateral References.

State statutes making default on bail a separate criminal offense, 63 A.L.R.4th 1064.

22-02-10. Indemnity agreement in motor carrier transportation contracts void.

  1. As used in this section:
    1. “Motor carrier transportation contract” means a contract, agreement, or understanding covering the transportation of property for compensation or hire by the motor carrier; entrance on property by the motor carrier for the purpose of loading, unloading, or transporting property for compensation or hire; or a service incidental to activity described in this subdivision, including storage of property. The term does not include the uniform intermodal interchange and facilities access agreement administered by the intermodal association of North America or any other agreement providing for the interchange, use, or possession of intermodal chassis, containers, or other intermodal equipment.
    2. “Promisee” includes any agent, employee, servant, or independent contractor who is directly responsible to the promisee. The term does not include a motor carrier that is party to a motor carrier transportation contract with the promisee, and does not include that motor carrier’s agent, employee, servant, or independent contractor directly responsible to that motor carrier.
  2. Notwithstanding any provision of law to the contrary, any portion of a provision, clause, covenant, or agreement contained in, collateral to, or affecting a motor carrier contract which purports to indemnify, defend, or hold harmless, or has the effect of indemnifying, defending, or holding harmless, the promisee from or against any liability for loss or damage resulting from the negligence or intentional acts or omissions of the promisee is void and unenforceable to the extent that the loss or damage:
    1. Occurs during the motor carrier’s presence on the promisee’s premises and is caused by or results from the negligent or intentional acts or omissions of the promisee; or
    2. Is caused by or results from defects of the equipment used to transport the promisee’s property, unless the defects:
      1. Relate to equipment owned by the motor carrier or as to which the motor carrier has the responsibility to visually and audibly check before use; or
      2. Were caused by or resulted from the negligent or intentional acts or omissions of the motor carrier or the motor carrier’s agency, employee, vendor, or subcontractor.
  3. Under subsection 2, the motor carrier is responsible to visually and audibly check before use of equipment as listed in exhibit A of the uniform intermodal interchange and facilities access agreement that was in effect on November 4, 2008.

Source:

S.L. 2009, ch. 211, § 1.

Notes to Decisions

Applicability.

Contract covering multiple services not limited to transportation was not a motor carrier transportation contract as defined in this section, absent language stating the contract was for transportation of property for compensation or hire by a motor carrier, or for a service incidental to such activity; thus, honoring an Oklahoma choice-of-law provision in a contract for services and enforcing an indemnity provision under Oklahoma law did not violate a fundamental public policy of North Dakota. Chapman v. Hiland Partners GP Holdings, LLC, 862 F.3d 1103, 2017 U.S. App. LEXIS 12676 (8th Cir. 2017).

CHAPTER 22-03 Suretyship

22-03-01. Surety defined.

A surety is one who, at the request of another and for the purpose of securing to the latter a benefit, becomes responsible for the performance by the latter of some act in favor of a third person or hypothecates property as security therefor.

Source:

Civ. C. 1877, § 1673; R.C. 1895, § 4649; R.C. 1899, § 4649; R.C. 1905, § 6099; C.L. 1913, § 6675; R.C. 1943, § 22-0301.

Derivation:

Cal. Civ. C., 2831.

Cross-References.

Word defined by statute always has same meaning, see N.D.C.C. § 1-01-09.

Notes to Decisions

Bond for Depository of Public Funds.

One signing a bond for a depository of public funds is a surety for the benefit of the debtor, and cannot be held beyond the expressed terms of his contract which will be interpreted as other contracts are interpreted. Mountrail County v. Farmers' State Bank, 53 N.D. 789, 208 N.W. 380, 1926 N.D. LEXIS 35 (N.D. 1926).

Where main object of furnishing bond was to assure school district of payment of its deposits in bank, the sureties became equally responsible with the principal for payment on demand of funds so deposited. Keystone Sch. Dist. No. 7 v. Oster, 55 N.D. 245, 212 N.W. 928 (1927).

Conveyance Subject to Mortgage.

Although a conveyance made subject to an existing and specified incumbrance does not alone obligate the grantee to pay the mortgage debt, a grantee who assumes a mortgage debt becomes primarily liable for the debt. Under these circumstances, the assuming grantee, if the original mortgagee assents to the arrangement, becomes the principal, the grantor becomes a surety and the grantee, upon default, is subject to foreclosure of the property. First Interstate Bank, N.A. v. Rebarchek, 511 N.W.2d 235, 1994 N.D. LEXIS 18 (N.D. 1994).

Where, under the terms of a warranty deed, a transferee assumed and agreed to pay a mortgage, and received and made use of the property, the transferee became the principal obligor and the transferor a surety, the party secondarily liable. First Interstate Bank, N.A. v. Rebarchek, 511 N.W.2d 235, 1994 N.D. LEXIS 18 (N.D. 1994).

Endorsement of Note Before Delivery.

An accommodation endorser, endorsing a promissory note before delivery, is not a surety within meaning of this chapter. Bank of Conway v. Stary, 51 N.D. 399, 200 N.W. 505, 1924 N.D. LEXIS 188 (N.D. 1924).

Notice of Default.

In the absence of a provision in the contract, a surety can be sued on his obligation without notice of default. Ireland's Lumber Yard v. Progressive Contractors, 122 N.W.2d 554, 1963 N.D. LEXIS 95 (N.D. 1963).

Rights of Surety As to Creditor.

The rights of a surety as to a creditor do not differ from the rights which equity enforced prior to the adoption of the statutes. Storing v. Stutsman, 54 N.D. 701, 210 N.W. 653, 1926 N.D. LEXIS 80 (N.D. 1926).

Signing Mortgage But Not Note.

In signing a mortgage on real estate with her husband, without signing the note secured, a wife becomes a surety only. People's State Bank v. Francis, 8 N.D. 369, 79 N.W. 853, 1899 N.D. LEXIS 21 (N.D. 1899).

Collateral References.

Conclusiveness and effect, upon surety, of default or consent judgment against principal, 59 A.L.R.2d 752.

Parties: person who signs contract of suretyship but is not named in body thereof as party to contract and liable thereunder, 94 A.L.R.2d 691.

22-03-02. Surety appearing as principal may show status as surety — Exception.

One who appears to be a principal, whether by the terms of a written instrument or otherwise, may show that the person in fact is a surety except as against persons who have acted on the faith of that person’s apparent character of principal.

Source:

Civ. C. 1877, § 1674; R.C. 1895, § 4650; R.C. 1899, § 4650; R.C. 1905, § 6100; C.L. 1913, § 6676; R.C. 1943, § 22-0302.

Derivation:

Cal. Civ. C., 2832.

Notes to Decisions

Evidence of Suretyship.

Fact that mortgagee knew that wife who signed mortgages was not principal debtor and that she refused to sign notes was competent to show that wife was merely a surety for her husband. People's State Bank v. Francis, 8 N.D. 369, 79 N.W. 853, 1899 N.D. LEXIS 21 (N.D. 1899).

Parol Evidence.

This section provides a specific exception to the parol evidence rule by allowing extrinsic or parol evidence to show that although one appears to be a principal under a written instrument he is, in fact, only a surety. Farmers & Merchants Nat'l Bank v. Ostlie, 336 N.W.2d 348, 1983 N.D. LEXIS 323 (N.D. 1983).

22-03-03. Limitations on liability of surety.

A surety cannot be held beyond the express terms of the surety’s contract and if such contract prescribes a penalty for its breach, the surety cannot be liable in any case for more than the penalty.

Source:

Civ. C. 1877, § 1675; R.C. 1895, § 4651; R.C. 1899, § 4651; R.C. 1905, § 6101; C.L. 1913, § 6677; R.C. 1943, § 22-0303.

Derivation:

Cal. Civ. C., 2836.

Notes to Decisions

Consent to Alteration.

Where sureties give written consent to resolution of county commissioners releasing defaulting bank from liability, sureties cannot later maintain that such release resulted in a novation which discharged their liability. County Of Hettinger v. Trousdale, 72 N.D. 203, 5 N.W.2d 417 (1942).

Discharge.

A surety cannot discharge himself by requesting the creditor to proceed against the principal. Narveson v. Schmid, 77 N.D. 814, 46 N.W.2d 288, 1951 N.D. LEXIS 115 (N.D. 1951).

Dissolution of Partnership.

Sureties who sign a bond for the fidelity of a firm as agents for the obligee are not liable for misappropriation by a member of such firm after dissolution of the partnership and retirement of the other partner from the business of such agency. Standard Oil Co. v. Arnestad, 6 N.D. 255, 69 N.W. 197, 1896 N.D. LEXIS 22 (N.D. 1896).

Expiration of Bond.

The surety on a warehouseman’s bond is not liable for default of principal more than three years after the bond had expired by its express terms, notwithstanding default was in connection with grain stored during period in which bond was in effect. State ex rel. Reilly v. Farmers' Co-op. Elevator Co., 39 N.D. 235, 167 N.W. 223, 1918 N.D. LEXIS 22 (N.D. 1918).

Express Terms of Contract.

A surety cannot be held beyond the express terms of his contract. Northern Light Lodge, I. O. O. F. v. Kennedy, 7 N.D. 146, 73 N.W. 524, 1897 N.D. LEXIS 62 (N.D. 1897); Stutsman County v. Dakota Trust Co., 47 N.D. 228, 181 N.W. 586, 1921 N.D. LEXIS 91 (N.D. 1921); Rosedal v. Harding, 64 N.D. 431, 252 N.W. 884, 1934 N.D. LEXIS 217 (N.D. 1934).

One signing a bond for a depository of public funds is a surety for the benefit of the debtor, and cannot be held beyond the express terms of his contract, which will be interpreted as other contracts are interpreted. Mountrail County v. Farmers' State Bank, 53 N.D. 789, 208 N.W. 380, 1926 N.D. LEXIS 35 (N.D. 1926).

A surety cannot be held for more than the penalty prescribed for its breach. Rosedal v. Harding, 64 N.D. 431, 252 N.W. 884, 1934 N.D. LEXIS 217 (N.D. 1934).

Existing law at the time of contract forms a part of the contract as though the law were expressly incorporated in the writing. Ireland's Lumber Yard v. Progressive Contractors, 122 N.W.2d 554, 1963 N.D. LEXIS 95 (N.D. 1963).

Extension of Time.

If creditor extends the time of payment to a time certain, without the knowledge or consent of the surety, such extension operates to discharge the surety from his contract. Scandinavian Am. Bank v. Westby, 41 N.D. 276, 172 N.W. 665, 1918 N.D. LEXIS 171 (N.D. 1918).

Gratuitous Surety.

A gratuitous surety on a bond securing moneys and securities received by an insurance agent is released by an amendment of the employment contract materially reducing the agent’s commissions. Atlas Assurance Co. v. Lawrence, 34 F.2d 401, 1929 U.S. App. LEXIS 3250 (8th Cir. N.D. 1929).

Insolvency Before Maturity.

The insolvency of a bank does not justify a school district’s action against the sureties on the bank’s depository bond for the time deposits before the maturity date of the certificates. Forthun Sch. Dist. v. Altner, 58 N.D. 673, 227 N.W. 190, 1929 N.D. LEXIS 266 (N.D. 1929).

Material Changes.

Where a contractor, without knowledge of the sureties, on the order of the owner, made material changes increasing the cost of the building, the sureties were released. Northern Light Lodge, I. O. O. F. v. Kennedy, 7 N.D. 146, 73 N.W. 524, 1897 N.D. LEXIS 62 (N.D. 1897).

Company that issued a bond which guaranteed a subcontractor’s performance on a road construction project on an Indian reservation was not liable under the bond for work a construction company performed on the project before an Indian tribe issued a contract to the subcontractor and the Bureau of Indian Affairs issued a notice to proceed. However, the district court’s judgment awarding the construction company $ 84,049.32 for work it performed after the tribe issued a contract to the subcontractor was not clearly erroneous because the subcontractor knew about additional charges the construction company demanded to perform the work and approved those charges. Larson v. Granite Re, Inc., 532 F.3d 724, 2008 U.S. App. LEXIS 14498 (8th Cir. N.D. 2008).

Recovery of Interest.

The fact that recovery on a bond, with interest, exceeds the penalty of the bond does not render the allowance of interest unwarranted. City of Dickinson v. White, 25 N.D. 523, 143 N.W. 754, 1913 N.D. LEXIS 137 (N.D. 1913).

Collateral References.

Application of payments as between debts for which a surety or guarantor is bound and those for which he is not, 57 A.L.R.2d 855.

Proportionate payment: right of guarantor or surety, in order to avoid paying amount in excess of his proportionate share, to compel coguarantors or cosureties to pay their share to creditor, 38 A.L.R.3d 680.

Change in name, location, composition, or structure of obligor commercial enterprise subsequent to execution of guaranty or surety agreement as affecting liability of guarantor or surety to the obligee, 69 A.L.R.3d 567.

22-03-04. Interpreting contract of suretyship.

In interpreting the terms of a contract of suretyship, the same rules are to be observed as in the case of other contracts.

Source:

Civ. C. 1877, § 1676; R.C. 1895, § 4652; R.C. 1899, § 4652; R.C. 1905, § 6102; C.L. 1913, § 6678; R.C. 1943, § 22-0304.

Derivation:

Cal. Civ. C., 2837.

Cross-References.

Interpretation of contract, see N.D.C.C. ch. 9-07.

Notes to Decisions

Ambiguity.

A contract of suretyship which is ambiguous and uncertain will be interpreted most strictly against the party who drew it and thus caused the ambiguity and uncertainty. Watkins Prods. v. Anhorn, 193 N.W.2d 228, 1971 N.D. LEXIS 102 (N.D. 1971).

Bond for Paid Premium.

The contract of a surety company in issuing a bond for a paid premium will be interpreted ordinarily according to the rules of insurance rather than according to the law of suretyship. Long v. American Sur. Co., 23 N.D. 492, 137 N.W. 41 (N.D. 1912).

Bond for Public Depository.

A bond for a depository of public funds is a surety for the benefit of the debtor, and will be interpreted as other contracts are interpreted. Mountrail County v. Farmers' State Bank, 53 N.D. 789, 208 N.W. 380, 1926 N.D. LEXIS 35 (N.D. 1926).

Gratuitous Surety.

A gratuitous surety is a favorite of the law, and the contract must be strictly construed so as to impose on the surety only the burdens clearly within its terms, and it cannot be extended by implication, presumption, or construction. Watkins Prods. v. Anhorn, 193 N.W.2d 228, 1971 N.D. LEXIS 102 (N.D. 1971).

Gratuitous surety’s obligation was limited to amount on agreement when signed and not amount for which principal was obligated to creditor, even though agreement contained an open-ended provision, because agreement was otherwise misleading and ambiguous and construed against the creditor-maker. Watkins Prods. v. Anhorn, 193 N.W.2d 228, 1971 N.D. LEXIS 102 (N.D. 1971).

Interpretation.

A depository bond must be reasonably interpreted, remembering that sureties are favorites of the law and have a right to stand on the strict terms of the obligation. Keystone Sch. Dist. No. 7 v. Keystone Sch. Dist. No. 7 v. Oster, 55 N.D. 245, 212 N.W. 928 (1927).

22-03-05. Suretyship survives judgment.

A surety still occupies the position of surety even though a creditor recovers a judgment against the surety.

Source:

Civ. C. 1877, § 1677; R.C. 1895, § 4653; R.C. 1899, § 4653; R.C. 1905, § 6103; C.L. 1913, § 6679; R.C. 1943, § 22-0305.

Derivation:

Cal. Civ. C., 2838.

22-03-06. Exoneration of surety — Methods.

A surety is exonerated:

  1. In like manner with a guarantor;
  2. By performance of the principal obligation or tender of such performance duly made as provided in this code;
  3. To the extent to which the surety is prejudiced by any act of the creditor which would naturally prove injurious to the remedies of the surety or inconsistent with the surety’s rights, or which lessens the surety’s security; or
  4. To the extent to which the surety is prejudiced by an omission of the creditor to do anything when required by the surety which it is the creditor’s duty to do.

Source:

Civ. C. 1877, §§ 1678, 1679; R.C. 1895, §§ 4654, 4655; R.C. 1899, §§ 4654, 4655; R.C. 1905, §§ 6104, 6105; C.L. 1913, § 6680, 6681; R.C. 1943, § 22-0306.

Derivation:

Cal. Civ. C., 2839, 2840.

Cross-References.

Exoneration of guarantor, see N.D.C.C. § 22-01-15.

Extinction of contract by offer of performance, see N.D.C.C. § 9-12-08.

Notes to Decisions

Amendment of Employment Contract.

A gratuitous surety on a bond securing moneys and securities received by an insurance agent is released by an amendment of the employment contract materially reducing the agent’s commissions. Atlas Assurance Co. v. Lawrence, 34 F.2d 401, 1929 U.S. App. LEXIS 3250 (8th Cir. N.D. 1929).

Death of Joint Maker.

A wife who signs a note with her husband as joint maker is not released by failure of holder of the note to file it as a claim against the estate of her husband after his decease. Yerxa v. Ruthruff, 19 N.D. 13, 120 N.W. 758, 1909 N.D. LEXIS 61 (N.D. 1909).

Extension of Time.

The extension of time to a debtor for a sufficient consideration and to a definite time without the consent of the surety exonerates the surety. McCormick Harvesting Mach. Co. v. Rae, 9 N.D. 482, 84 N.W. 346, 1900 N.D. LEXIS 256 (N.D. 1900).

Failure to Present Claim.

Failure of payee to present his claim against the estate of the deceased principal by request of surety or otherwise does not release the surety. Yerxa v. Ruthruff, 19 N.D. 13, 120 N.W. 758, 1909 N.D. LEXIS 61 (N.D. 1909).

Filling Blanks.

Where blanks in a surety bond are filled without authority by a creditor so as to contain the amount of the existing indebtedness owing by the principal to the creditor, there is a material alteration avoiding the instrument. J. R. Watkins Co. v. Keeney, 52 N.D. 280, 201 N.W. 833, 1924 N.D. LEXIS 105 (N.D. 1924).

Matters Outside Contract of Suretyship.

The favor with which the law regards sureties cannot affect the determination of collateral questions which, though indirectly touching the interests of the sureties, do not arise out of the contract of suretyship itself. State Bank v. Nester, 385 N.W.2d 95, 1986 N.D. LEXIS 288 (N.D. 1986).

Notice of Default.

Where the bond requires notice of any default in any of its terms and conditions, notice must be given to the sureties within the specified time, or the sureties are released. Mountrail County v. Farmers' State Bank, 53 N.D. 789, 208 N.W. 380, 1926 N.D. LEXIS 35 (N.D. 1926).

Where the surety received timely notice of default and the amount claimed was fixed, the right of the surety was not prejudiced by a failure of creditor to file a second claim within the time provided in the bond, and the creditor could recover from the surety on the second claim. Ireland's Lumber Yard v. Progressive Contractors, 122 N.W.2d 554, 1963 N.D. LEXIS 95 (N.D. 1963).

Where claimant fails to give timely notice of default to any of persons named in bond and brings suit on bond against sureties, sureties are exonerated only to extent to which they were prejudiced by the omission; materialman’s failure to give notice of claim to anyone other than principal did not bar action against sureties where latter were not prejudiced thereby. Robertson Lumber Co. v. Progressive Contractors, 160 N.W.2d 61, 1968 N.D. LEXIS 65 (N.D. 1968), cert. denied, 394 U.S. 714, 89 S. Ct. 1451, 22 L. Ed. 2d 671, 1969 U.S. LEXIS 1874 (U.S. 1969).

Partial Exoneration.

If the holder of the note, at time of signing thereof by the surety, takes collateral security from the principal debtor, he holds such collateral in trust, and if surety pays obligation, he is entitled to reimburse himself by having such collateral applied in reduction of amount of money which surety has paid the holder. Scandinavian Am. Bank v. Westby, 41 N.D. 276, 172 N.W. 665, 1918 N.D. LEXIS 171 (N.D. 1918).

Ratable Distribution Among Sureties.

Payee bank’s failure to distribute the proceeds from a collateral sale ratably among the three notes was prejudicial to the remedies and rights surety of two notes had in the collateral. The extent of this prejudice is not the entire amount due on the one note at issue, but rather the difference between surety’s full liability on that note and his liability which remains after a ratable distribution of the proceeds has reduced the amount surety owes on the note. State Bank v. Nester, 385 N.W.2d 95, 1986 N.D. LEXIS 288 (N.D. 1986).

Renunciation of Rights.

A renunciation of rights against a principal debtor normally discharges a surety; however, a renunciation of rights against or discharge of a surety does not discharge the principal debtor. First Interstate Bank, N.A. v. Rebarchek, 511 N.W.2d 235, 1994 N.D. LEXIS 18 (N.D. 1994).

Suit Against Sureties.

Where the form of obligation is such that the sureties may be sued in a separate action, the creditor may proceed against them in the first instance without being held to have exonerated the sureties. Bottineau County Bank v. Stafford, 49 N.D. 942, 194 N.W. 393, 1923 N.D. LEXIS 39 (N.D. 1923).

Surety As Insurer.

Where a surety has been paid a premium for a bond it may be treated as an insurer rather than according to the strict law of suretyship and the bond provisions will be construed reasonably as to both parties. Ireland's Lumber Yard v. Progressive Contractors, 122 N.W.2d 554, 1963 N.D. LEXIS 95 (N.D. 1963).

Surrender of Security.

Surrender or release by the holder of a bill or note of security for the payment of the instrument operated as a discharge of endorsers or known sureties to the extent of the value of the securities surrendered. Bank of Conway v. Stary, 51 N.D. 399, 200 N.W. 505, 1924 N.D. LEXIS 188 (N.D. 1924).

Collateral References.

Discharge of surety by release of mortgage or other security given for note, 2 A.L.R.2d 260.

Applicability to compensated surety or bonding company of statute discharging surety where creditor fails to bring suit against principal after notice, 42 A.L.R.2d 1159.

Dismissal or vacation of indictment as terminating liability or obligation of surety on bail bond, 18 A.L.R.3d 1354.

Change in name, location, composition, or structure of obligor commercial enterprise subsequent to execution of guaranty or surety agreement as affecting liability of guarantor or surety to the obligee, 69 A.L.R.3d 567.

22-03-07. Rights of surety same as rights of guarantor.

A surety has all the rights of a guarantor whether the surety becomes personally responsible or not.

Source:

Civ. C. 1877, § 1680; R.C. 1895, § 4656; R.C. 1899, § 4656; R.C. 1905, § 6106; C.L. 1913, § 6682; R.C. 1943, § 22-0307.

Derivation:

Cal. Civ. C., 2844.

Notes to Decisions

Gratuitous Surety.

A gratuitous surety on a bond securing moneys and securities received by an insurance agent is released by an amendment of the employment contract materially reducing the agent’s commissions. Atlas Assurance Co. v. Lawrence, 34 F.2d 401, 1929 U.S. App. LEXIS 3250 (8th Cir. N.D. 1929).

Rights of Surety.

The rights of a surety as to a creditor do not differ from the rights which equity enforced prior to the adoption of the statutes. Storing v. Stutsman, 54 N.D. 701, 210 N.W. 653, 1926 N.D. LEXIS 80 (N.D. 1926).

22-03-08. Surety may require creditors to proceed against principal.

A surety may require the surety’s creditor to proceed against the principal or to pursue any other remedy in the creditor’s power which the surety cannot pursue and which would lighten the surety’s burden. If the creditor neglects to do so, the surety is exonerated to the extent to which the surety is prejudiced by such neglect.

Source:

Civ. C. 1877, § 1681; R.C. 1895, § 4657; R.C. 1899, § 4657; R.C. 1905, § 6107; C.L. 1913, § 6683; R.C. 1943, § 22-0308.

Derivation:

Cal. Civ. C., 2845.

Cross-References.

Execution against principal required before execution against surety, see N.D.C.C. § 28-21-17.

Notes to Decisions

Accommodation Endorser.

An accommodation endorser who endorses a promissory note before delivery is not a surety having a right to require the creditor to proceed against the principal or to pursue any other remedy. Bank of Conway v. Stary, 51 N.D. 399, 200 N.W. 505, 1924 N.D. LEXIS 188 (N.D. 1924).

Applicability.

Contract executed by guarantors guarantying prompt payment, at maturity, of all notes of debtor corporation was an absolute, unconditional, continuing guaranty of payment as distinguished, from a guaranty of collection and from a surety contract, and thus guarantors were not exonerated by creditor’s refusal to proceed against principal debtor; even if guarantors were considered as sureties, this section would not have exonerated them where they had the same privilege and opportunity to sue debtor as creditor had. State Bank v. Porter, 167 N.W.2d 527, 1969 N.D. LEXIS 102 (N.D. 1969).

Bank’s Surety Bond.

Where county was creditor, it did not have to sue and recover from bank before resorting to suit on bank’s surety bond. Northern Trust Co. v. First Nat'l Bank, 25 N.D. 74, 140 N.W. 705, 1913 N.D. LEXIS 88 (N.D. 1913).

Care of Additional Security.

Where the holder of a negotiable instrument has additional security for the payment of the debt, such holder must use ordinary care to protect the security and to preserve it, in order that it may be applied to the discharge of the original obligation, or in order that the surety may be reimbursed to the extent of the security. Scandinavian Am. Bank v. Westby, 41 N.D. 276, 172 N.W. 665, 1918 N.D. LEXIS 171 (N.D. 1918).

Equitable Enforcement.

In cases characterized by exceptional features equity may compel the creditor to resort first to the property of the principal debtor, where this will occasion no delay or inconvenience to the creditor. Bingham v. Mears, 4 N.D. 437, 61 N.W. 808, 1894 N.D. LEXIS 50 (N.D. 1894).

Exhaustion of Remedies.

In the absence of notice under this section, a creditor is not required to proceed originally against the principal debtor, and where he holds a real estate mortgage securing indebtedness, and where he obtains judgment against the debtor, he is not required to exhaust remedies on the mortgage or judgment before proceeding against the surety at the peril of exonerating the surety under N.D.C.C. § 22-03-06. Bottineau County Bank v. Stafford, 49 N.D. 942, 194 N.W. 393, 1923 N.D. LEXIS 39 (N.D. 1923).

Notice to Creditor.

Notice by a surety to a creditor to proceed against the principal must be specific to relieve the surety. Kennedy v. Falde, 29 N.W. 667, 4 Dakota 319, 1886 Dakota LEXIS 13 (Dakota 1886).

To avail itself of the defense of exoneration, a surety must allege in its answer a reasonable notice and demand to proceed against the principal, and prejudice resulting to the surety by reason of the failure of the creditor to do so. Brioschi-Minuti Co. v. Elson-Williams Constr. Co., 41 N.D. 628, 172 N.W. 239, 1919 N.D. LEXIS 103 (N.D. 1919).

This section gives a surety a right to require a creditor to proceed against the principal but failure to comply with the request exonerates the surety only to the extent to which he has been prejudiced. J. R. Watkins Co. v. Vangen, 116 N.W.2d 641, 1962 N.D. LEXIS 86 (N.D. 1962).

Payment to Assignor.

The payment of the amount of a mortgage and the notes secured to a mortgagee who has assigned the notes and mortgage before maturity does not discharge such notes and mortgage. Cosgrave v. McAvay, 24 N.D. 343, 139 N.W. 693, 1913 N.D. LEXIS 3 (N.D. 1913).

Collateral References.

Creditor’s duty of disclosure to surety or guarantor after inception of suretyship or guaranty, 63 A.L.R.4th 678.

22-03-09. Surety may compel principal to perform obligation when due.

A surety may compel the surety’s principal to perform the obligation when due.

Source:

Civ. C. 1877, § 1682; R.C. 1895, § 4658; R.C. 1899, § 4658; R.C. 1905, § 6108; C.L. 1913, § 6684; R.C. 1943, § 22-0309.

Derivation:

Cal. Civ. C., 2846.

Notes to Decisions

Principal’s Property.

When both principal and surety have, by the same instrument, mortgaged their property for the debt of the principal, equity will direct that the principal’s property be first sold. Bingham v. Mears, 4 N.D. 437, 61 N.W. 808, 1894 N.D. LEXIS 50 (N.D. 1894).

22-03-10. Reimbursement of surety by principal — Claims for reimbursement against others.

If a surety satisfies the principal obligation, or any part thereof, with or without legal proceedings, the principal is bound to reimburse the surety for what the surety has disbursed, including necessary costs and expenses. A surety has no claim, however, for reimbursement against other persons though they may have been benefited by the surety’s act, except as prescribed by section 22-03-11.

Source:

Civ. C. 1877, § 1683; R.C. 1895, § 4659; R.C. 1899, § 4659; R.C. 1905, § 6109; C.L. 1913, § 6685; R.C. 1943, § 22-0310.

Derivation:

Cal. Civ. C., 2847.

Cross-References.

Engagement to answer for violation of duty of another, reimbursement, see N.D.C.C. § 22-02-08.

Notes to Decisions

Assignment of Mortgage.

The transferor of property subject to a mortgage, as a surety for the debt, was not a “party who has himself no right of action or recourse on the instrument” under subsection 3 of former N.D.C.C. § 41-03-68. The transferor (surety), if it had satisfied the principal’s obligation, would have a right of action against the principal, or any cosureties. First Interstate Bank, N.A. v. Rebarchek, 511 N.W.2d 235, 1994 N.D. LEXIS 18 (N.D. 1994).

Depository Bond.

Where a surety has made payment for its principal under the depository bond, its rights as subrogee relate back to the date of the indemnity contract. Gilbertson v. Northern Trust Co., 53 N.D. 502, 207 N.W. 42, 1925 N.D. LEXIS 11 (N.D. 1925).

Intervention of Principal.

Where principal is bound to reimburse his sureties should they be required to pay any judgment against them in a suit between creditor and sureties, the principal has such an interest in the litigation as to permit him to intervene. Braatelien v. Burns, 74 N.D. 29, 19 N.W.2d 827, 1945 N.D. LEXIS 48 (N.D. 1945).

Notice to Creditor.

In order for a surety to partially exonerate itself from liability by requesting the creditor to proceed first against the principal, it must show a seasonable notice and demand to the creditor and the creditor’s refusal to the prejudice of the surety. Brioschi-Minuti Co. v. Elson-Williams Constr. Co., 41 N.D. 628, 172 N.W. 239, 1919 N.D. LEXIS 103 (N.D. 1919).

Offset by Surety.

A surety may not offset liability on a depository bond of a national bank against his notes to the bank. Storing v. Stutsman, 54 N.D. 701, 210 N.W. 653, 1926 N.D. LEXIS 80 (N.D. 1926).

Rights of Surety Company.

Fact that surety company was a surety for compensation did not deprive it of the rights that it was entitled to under rules governing relation of principal and surety. Gilbertson v. Northern Trust Co., 53 N.D. 502, 207 N.W. 42, 1925 N.D. LEXIS 11 (N.D. 1925).

22-03-11. Remedies of surety — Contribution from cosureties.

A surety, upon satisfying the obligations of the principal, is entitled to enforce every remedy which the creditor then has against the principal, to the extent of reimbursing what the surety has expended, and also to require all of the surety’s cosureties to contribute thereto without regard to the order of time in which they became such.

Source:

Civ. C. 1877, § 1684; R.C. 1895, § 4660; R.C. 1899, § 4660; R.C. 1905, § 6110; C.L. 1913, § 6686; R.C. 1943, § 22-0311.

Derivation:

Cal. Civ. C., 2848.

Notes to Decisions

Assignment of Mortgage.

The transferor of property subject to a mortgage, as a surety for the debt, was not a “party who has himself no right of action or recourse on the instrument” under subsection 3 of former N.D.C.C. § 41-03-68. The transferor (surety), if it had satisfied the principal’s obligation, would have a right of action against the principal, or any cosureties. First Interstate Bank, N.A. v. Rebarchek, 511 N.W.2d 235, 1994 N.D. LEXIS 18 (N.D. 1994).

Contribution from Cosureties.

Parties to a note may be cosureties as to the payee of a note, but if they are not also cosureties as between themselves, contribution will not lie. Harris v. Jones, 23 N.D. 488, 136 N.W. 1080, 1912 N.D. LEXIS 103 (N.D. 1912).

Depository Bond.

A surety may not offset liability on a depository bond of a national bank against his notes to the bank. Storing v. Stutsman, 54 N.D. 701, 210 N.W. 653, 1926 N.D. LEXIS 80 (N.D. 1926).

Subrogation.

Where a surety has paid the debt owing by a defaulting county officer, it is subrogated to the rights of the county. Northern Trust Co. v. First Nat'l Bank, 25 N.D. 74, 140 N.W. 705, 1913 N.D. LEXIS 88 (N.D. 1913).

The surety upon the bond of a bank which has failed, which has paid to the state the amount of its deposit, is entitled to be subrogated to all the rights of the state. State ex rel. Miller v. Buttzville State Bank, 26 N.D. 196, 144 N.W. 105, 1913 N.D. LEXIS 60 (N.D. 1913).

In case a public depositor proceeds first against the surety on a bank’s bond, the surety will have the benefit of every security held by the principal and will be subrogated to the rights of the public corporation in the securities. Divide County v. Baird, 55 N.D. 45, 212 N.W. 236, 1926 N.D. LEXIS 42 (N.D. 1926).

Surety’s Right of Subrogation.

Surety’s right of subrogation to the payee bank’s right in the collateral does not arise until maker’s debt is paid in full, even though surety’s payment of the judgment may be the full amount for which he is liable as surety. State Bank v. Nester, 385 N.W.2d 95, 1986 N.D. LEXIS 288 (N.D. 1986).

Collateral References.

Proportionate payment: right of guarantor or surety, in order to avoid paying amount in excess of his proportionate share, to compel coguarantors or cosureties to pay their share to creditor, 38 A.L.R.3d 680.

Promise by one other than principal to indemnify one agreeing to become surety or guarantor as within statute of frauds, 13 A.L.R.4th 1153.

22-03-12. Security to which surety is entitled — Subrogation.

A surety is entitled to the benefit of every security for the performance of the principal obligation held by the creditor or by a cosurety at the time of entering into the contract of suretyship or acquired by the surety afterwards, whether the surety was aware of the security or not.

Source:

Civ. C. 1877, § 1685; R.C. 1895, § 4661; R.C. 1899, § 4661; R.C. 1905, § 6111; C.L. 1913, § 6687; R.C. 1943, § 22-0312.

Derivation:

Cal. Civ. C., 2849.

Notes to Decisions

Additional Security.

If a surety discharges the original obligation of his principal, then the surety may reimburse himself from additional security in the hands of the creditor. Scandinavian Am. Bank v. Westby, 41 N.D. 276, 172 N.W. 665, 1918 N.D. LEXIS 171 (N.D. 1918).

Bank Depositors.

Receiver of bank cannot recover from the surety for the benefit of the depositors after the obligation to pay the public deposit has been discharged by a sale of the pledge. Divide County v. Baird, 55 N.D. 45, 212 N.W. 236, 1926 N.D. LEXIS 42 (N.D. 1926).

Negligence of Surety.

A surety’s negligence in enforcing subrogation, unless it injures another or increases the burden of other lien holders, does not estop him to claim subrogation. Farmers' State Bank v. Stieg, 56 N.D. 851, 219 N.W. 776, 1928 N.D. LEXIS 206 (N.D. 1928).

Note and Mortgage.

If a surety pays a note secured by a chattel mortgage, he becomes vested with the title to the note and mortgage and can sue in conversion to recover the value of the mortgaged property to the extent of the lien. Thurston v. Osborne-McMillan Elevator Co., 13 N.D. 508, 101 N.W. 892, 1904 N.D. LEXIS 69 (N.D. 1904).

Security.

A surety is entitled to the benefit of every security for the performance of a principal obligation held by the creditor. State ex rel. Miller v. Buttzville State Bank, 26 N.D. 196, 144 N.W. 105, 1913 N.D. LEXIS 60 (N.D. 1913).

Rights arising by subrogation relate back to the date of the execution of the performance bond and the surety is entitled to the benefit of every security for the performance of the principal obligation held by the creditor at the time of entering into the contract of suretyship. United States use of Home Indem. Co. v. American Employers' Ins. Co., 192 F. Supp. 873, 1961 U.S. Dist. LEXIS 4039 (D.N.D. 1961).

A surety is protected only upon his payment of bankrupt maker’s entire debt to the payee bank, at which point surety is subrogated to the bank’s rights and entitled to the benefit of the security. State Bank v. Nester, 385 N.W.2d 95, 1986 N.D. LEXIS 288 (N.D. 1986).

Surety was entitled to the benefit of the collateral securing the three notes and it is of no moment that the bank had earlier perfected a security interest in the collateral. State Bank v. Nester, 385 N.W.2d 95, 1986 N.D. LEXIS 288 (N.D. 1986).

Setoff in Insolvency.

A surety jointly bound with his principal may offset independently of statute against the joint indebtedness his individual claim against the creditor in such joint indebtedness, if both the creditor and the principal are insolvent. Clark v. Sullivan, 2 N.D. 103, 49 N.W. 416, 1891 N.D. LEXIS 28 (N.D. 1891).

Surety’s Lien.

A surety subrogated to a creditor’s rights through paying a mortgage has a lien superior to that of a subsequent mortgagee with notice of the surety’s claim. Farmers' State Bank v. Stieg, 56 N.D. 851, 219 N.W. 776, 1928 N.D. LEXIS 206 (N.D. 1928).

22-03-13. Property of surety and principal hypothecated — Property of principal applied to discharge of obligation.

Whenever property of a surety is hypothecated with the property of the principal, the surety is entitled to have the property of the principal first applied to the discharge of the obligation.

Source:

Civ. C. 1877, § 1686; R.C. 1895, § 4662; R.C. 1899, § 4662; R.C. 1905, § 6112; C.L. 1913, § 6688; R.C. 1943, § 22-0313.

Derivation:

Cal. Civ. C., 2850.

Notes to Decisions

Promissory Note.

The creditor does not need to liquidate the collateral security in his possession before enforcing the obligation of the accommodation endorser or the surety on a promissory note. Bank of Conway v. Stary, 51 N.D. 399, 200 N.W. 505, 1924 N.D. LEXIS 188 (N.D. 1924).

Refusal to Apply Security.

It is no defense to an action against sureties on an undertaking on appeal that the plaintiff holds security sufficient to pay the claim for which the sureties are bound and that the plaintiff has refused to resort to such security, there being no proof that the sureties were prejudiced by the refusal. Bingham v. Mears, 4 N.D. 437, 61 N.W. 808, 1894 N.D. LEXIS 50 (N.D. 1894).

Warehouseman’s Bond.

Surety on insolvent warehouseman’s bond was liable only for any balance necessary for the redemption of storage receipts and sale tickets after proceeds from the sale of grain were exhausted. Larkin v. Wheat Growers' Warehouse Co., 64 N.D. 491, 253 N.W. 757, 1934 N.D. LEXIS 226 (N.D. 1934).

22-03-14. Creditor entitled to security of debtor given to surety.

A creditor is entitled to the benefit of everything which a surety has received from the debtor by way of security for the performance of the obligation, and upon the maturity of the obligation the creditor may compel the application of such security to the satisfaction of the obligation.

Source:

Civ. C. 1877, § 1687; R.C. 1895, § 4663; R.C. 1899, § 4663; R.C. 1905, § 6113; C.L. 1913, § 6689; R.C. 1943, § 22-0314.

Derivation:

Cal. Civ. C., 2854.

Collateral References.

Creditor’s duty of disclousure to surety or guarantor after inception of suretyship or guaranty, 63 A.L.R.4th 678.

22-03-15. Joint control over moneys and assets of fiduciary.

It is lawful for any party of whom a bond, undertaking, or other obligation is required, to agree with that party’s surety or sureties for the deposit of any or all moneys and assets for which that party and that party’s surety or sureties are or may be held responsible, with a bank, savings bank, safe deposit or trust company, authorized by law to do business as such, or with other depository approved by the court or a judge thereof, if such deposit is otherwise proper, for the safekeeping thereof, and in such manner as to prevent the withdrawal of such money or assets or any part thereof, without the written consent of such surety or sureties, or an order of court, or a judge thereof made on such notice to such surety or sureties as such court or judge may direct. Such agreement does not in any manner release from or change the liability of the principal or sureties as established by the terms of the said bond.

Source:

S.L. 1947, ch. 197, § 1; R.C. 1943, 1957 Supp., § 22-0315.

Cross-References.

“Corporate surety” defined, see N.D.C.C. § 1-01-45.

CHAPTER 22-04 Letter of Credit [Repealed]

[Repealed by S.L. 1965, ch. 296, § 32]

Note.

For present provisions, see N.D.C.C. ch. 41-05.