5.) Lee signed as guarantor of a promissory note signed by Akins and payable to

Question

5.) Lee signed as guarantor of a promissory note signed by Akins and payable to Vaughn. Lee expressly inserted a provision into the note that if the principal debtor defaulted, Lee must be notified promptly if he was to be liable. After the maker defaulted, Vaughn gave no notice of that fact to Lee. When Vaughn sued Lee for payment, Lee contended that the lack of notice discharged this liability. When a surety contract expressly requires notice of the default, is the surety liable on the note if the payee does not promptly notify the surety? Why or why not?'

Explanation / Answer

According to the Negotiable Instruments Act, a promissory note is an instrument in writing signed by the maker that he is liable to pay the stated sum of money to the bearer of the instrument. A surety is a person who takes liability of the primary debtor if the debtor defaults. Since this is a writing agreement, any clause in the writing agreement needs to be followed. In this case, since it was expressly mentioned in the promissory note that if the principal debtor defaults, then Lee must be notified promptly if he was to be liable. A promissory note is a principal contract of agreement between the creditor, debtor and the guarantor. If the debtor fails to pay, then as per the provision in the contract, then the creditor should promptly inform of the default to the guarantor or surety. In other words, the surety must be promptly notified of the default by the principal before taking any action against him. The promissory note is a written document or a contract of agreement. The surety is discharged of his liabilities if the creditor fails to act as per the provisions in the contract of agreement.

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.