## Facts

- Melco, Inc. (Melco), acting through its president, Charles W. Melvin, made and issued a negotiable promissory note in the principal amount of $12,000 payable to Marjorie Irene Floor.
- On the note (on the reverse side), there was a written statement providing that, in consideration of funds advanced to Melco, the signer(s) “irrevocably” guaranteed Floor against “loss” resulting from nonpayment of the note.
- Melvin signed the guarantee statement.
- After Melvin died, Floor filed a claim against Melvin’s estate in the probate proceeding seeking recovery based on the signed guarantee.
- Floor alleged that Melvin’s signed language made him a guarantor of payment, so she could proceed directly against his estate.
- Floor’s claim did not allege that she had obtained a judgment against Melco on the note, attempted execution on such a judgment, or that Melco was insolvent or otherwise unable to pay.
- The estate moved to dismiss the claim for failure to state a cause of action, arguing the guarantee was only one of collection and that Floor had not alleged the required conditions to trigger liability.
- The trial court dismissed the claim, and Floor appealed.

## Issues

1. Whether the note language guaranteeing the payee against “loss” from nonpayment created a guaranty of payment or a guaranty of collection.
2. If it was a guaranty of collection, whether a probate claim states a cause of action when it fails to allege prior pursuit of the maker to judgment/unsatisfied execution or facts showing the maker’s insolvency or similar inability to pay.

## Decision

- The appellate court affirmed the dismissal.
- The court construed the “against loss” guarantee as a guaranty of collection rather than an unconditional guaranty of payment.
- Because a guaranty of collection is conditional, Floor had to plead facts showing she had exhausted ordinary remedies against Melco (such as judgment and execution) or that such efforts would be useless (such as insolvency).
- Floor’s failure to allege those conditions meant her claim did not state a cause of action against the guarantor’s estate.

## Legal Principles

- A guaranty of payment is an absolute promise: upon the principal obligor’s default, the creditor may proceed directly against the guarantor without first suing the principal obligor.
- A guaranty of collection is conditional: the guarantor’s duty arises only after the creditor uses reasonable collection efforts against the principal obligor and remains unpaid, or shows that collection efforts would be futile.
- Wording that guarantees the creditor “against loss” from nonpayment generally indicates a collection guaranty, because “loss” implies the creditor has tried and failed to collect from the principal obligor.
- When liability depends on a condition precedent (such as unsuccessful collection from the maker or the maker’s insolvency), the pleading must allege facts satisfying that condition; omission supports dismissal for failure to state a claim.
- In a claim against a deceased guarantor’s estate, the claimant must still plead the facts necessary to show the guarantor’s obligation has matured under the type of guaranty at issue.

## Conclusion

The Illinois Appellate Court held that Melvin’s signed promise to guarantee Floor “against loss” from nonpayment was a guaranty of collection, not an immediate promise to pay; because Floor did not allege that she pursued Melco to judgment and execution or that Melco was insolvent or otherwise unable to pay, her probate claim against Melvin’s estate failed to state a cause of action and was properly dismissed.


In re Estate of Melvin, 5 Ill. App. 3d 463, 283 N.E.2d 303 (1972)