This is an appeal from an order sustaining a demurrer to certain paragraphs in the answer on the ground that the matters alleged do not constitute a defense to the cause of action alleged in the complaint. The cause of action is based upon the breach of a contract whereby the defendant and appellant, upon selling his stock in the First International Bank of Columbus, North Dakota, amounting to a controlling interest, guaranteed the payment of the bills receivable. The portion of the contract which is material upon this appeal is as follows: “ . . . and in part consideration for the purchase of any payment of said stock I, the said A. N. Beiseker, hereby guarantee to the said First International Bank of Columbus, North Dakota, the payment at maturity of each and every note or other obligation now owned and held by said bank promptly at the maturity thereof, and do hereby agree to pay the same in case said notes or other obligations are not paid to said bank at the maturity thereof, and I do hereby waive presentment, protest, and notice of nonpayment to the said bank of any and all of such notes and obligations as may not be paid at maturity, with interest at the rate of (8) eight per cent from maturity, I, the said A. N. Beiseker, to have twelve (12) months from the date of maturity of any and every unpaid obligation due to said *449bank to make payment thereof, and upon payment thereof by me such note or obligation to be turned over and assigned to me by said bank without recourse.”
The complaint alleges the nonpayment of notes aggregating the principal sum of $1,375.61. The date of maturity of each of the notes is set forth, it appearing from the allegations that there are three demand notes, dated in the spring of 1915, and that the remainder, twelve in number, fall due either September 1st, October 1st, October 15th, or November 1st, 1915. The portions of the answer to which the demurrer is directed allege that the bank and the purchasers of the defendant’s stock exonerated, released, and discharged the defendant from all liability as guarantor by reason of their failure to avail themselves of their full opportunity to collect the notes from the makers in the fall of 1915 and in the year 1916; that if they had used reasonable diligence in the collection of the same they would have been fully paid by the makers, who were primarily liable; that the defendant in the fall of 1915 demanded of the plaintiff a list of the unpaid notes in order that he might use such efforts as he deemed advisable to force the collection thereof, with which demands the plaintiff neglected and refused to comply. Also that in November, 1915, the defendant sent a collector to the bank to get all of the guaranteed paper remaining unpaid, with instructions to go into the country, see the makers personally, and use his best efforts to secure payment, but that the cashier of the bank refused to allow the defendant’s collector to have the notes for collection, which refusal resulted in depriving the defendant of his right to enforce payment of the guaranteed paper in the fall of 1915.
In paragraph 5 the defendant alleges as to two notes given by one Conrad Berg, aggregating $285, that the bank failed to avail itself of its right to apply in payment funds which Conrad Berg had on deposit with the bank subsequent to the maturity of the notes in amount more than sufficient to pay them. Similar allegations are set forth regarding a note of North St. Olaf Church for $16.75; and, as to a note of M. A. Maher for $182.60, it is alleged at the time the stock of the defendant was sold the bank held ample security in the shape of a chattel mortgage upon certain hogs belonging to Maher, in Burke county, which mortgage was released by the bank without the knowl*450edge or consent of the defendant in the fall of 1915 upon the payment of a small amount which was due upon the note, which release operated to deprive the defendant of the benefit of the security previously held by the bank.
The guaranty in the instant case is concededly a guaranty of payment, but the appellant contends that the portions of the answer referred to set forth defenses to the liability sought to be enforcd on the ground that the acts alleged discharged the guarantor as a matter of law. It is practically conceded by the appellant that the delay of the plaintiff bank and its failure to take active steps for the collection of the notes when they became due in the fall of 1915 would not amount to a discharge of the guarantor or constitute a defense.
But it is seriously urged that, as to the Maher notes, the waiver and release of the chattel security without the knowledge or consent of the defendant constitute a defense to that part of the cause of action wherein it is sought to recover on the defendant’s guaranty of the Maher notes. To sustain this portion of the answer the defendant and appellant relies upon the principle according to which the creditor is required to exercise care in conserving security which he holds for the payment of the debt at the peril of discharging a surety or guarantor to the extent of the damage suffered through the dissipation of the secui’ity. (See Scandinavian American Bank v. Westby, 172 N. W. 665.) We are of the opinion that the allegations in this portion of the answer set forth matter which is properly available to the defendant in this action. It is true that the damage which the defendant has sustained, if any, by reason of the facts alleged, might more properly be set forth as a counterclaim, but we are not concerned here with the formality of the pleading, — only with its substance. Under well-recognized principles of law it is the right of the surety or guarantor to demand that the creditor shall carefully utilize or preserve any security he may hold from the principal debtor for the payment of the debt. If the creditor fails to fulfil his obligation in this respect, the surety is relieved to the extent of the damages suffered.
It is also contended that the allegations in paragraph 4, to the effect that the bank refused to furnish the defendant with the list of unpaid notes which he required for his protection, constituted a matter of defense. There is no merit in this contention. Neither was the bank *451required to deliver the notes to the defendant’s collector. Under the contract the bank was not obliged to transfer the notes, either to the guarantor or the principal debtor, until they were paid. While the guarantor was granted a year’s time in which to meet his obligation to the creditor, the obligation was nevertheless fixed and became absolute upon the failure of any debtor to pay his obligation at maturity. Had the guarantor required possession of the notes for his own protection, he could readily have discharged them by making payment to the bank and could then have demanded their transfer under the contract.
With respect to the allegations concerning the failure of the bank to assert what is termed its banker’s lien upon the funds of some of the makers of the notes who were alleged to have had money on deposit after the maturity of the notes sufficient to meet them, we are of the opinion that these allegations do not constitute a good defense. The contract contemplates that the purchasers of the stock will continue to operate the bank, and that they would consequently be interested in maintaining the good will of their patrons. To require the bank, therefore, to apply money subsequently deposited by those debtors, subject to general checking, at the peril of discharging an absolute liability which the guarantor had voluntarily assumed and which it was to his own advantage to assume, would tend to deprive the bank of a portion of the benefit contemplated. It is a doubtful proposition in any case whether a surety or guarantor is relieved by the failure of a bank to apply in liquidation of the guaranteed debt money which the principal debtor places on general deposit. (See 1 Brandt on Suretyship, 3d ed. § 487.) But we are satisfied that the guarantor is not relieved by such failure, where the effect would be as above stated.
While upon this appeal it is found necessary to modify the order appealed from, there is no occasion for costs being imposed upon the respondent. That portion of the pleading which is found to state matters of defense should have been separately pleaded as counterclaim. For the above reasons the order appealed from is modified to the extent of overruling the demurrer as to the matters alleged concerning the Maher notes. As so modified, the order appealed from is affirmed. Neither party is entitled to costs upon this appeal.