§ 122. Same: To hold indorsers. With respect to indorsers also a check must be presented more promptly than other bills. When the parties all reside in the same place, the holder should present the check on the day it is received or on the following day; and, when payable at a different place from that in which it is negotiated, the check should be forwarded by mail on the same or the next succeeding day for presentment.

Section 10. Discharge of Instrument.

§ 123. Payment. Payment by the acceptor or maker to the holder, at or after maturity, discharges the contract of the acceptor or maker and the contract of every other party to the instrument.

§ 124. Payment must be to the holder. Payment to effect a discharge must be to the holder, i. e., the legal owner of the instrument. In consequence, payment to the person in possession of a bill or note payable to order, upon which the payee's indorsement is forged, is not a discharge of the instrument.2

§ 125. Payment must be at or after maturity. Payment before maturity does not discharge a negotiable instrument.3 Its utmost effect is to make it unconscientious for the holder who has received payment to enforce the instrument. In such a case therefore, the person paying it should insist upon a surrender or cancelation of the bill or note, in order to prevent the holder from transferring it to an innocent purchaser.

§ 126. Payment by drawer or indorser. Payment by the drawer of a bill, or the indorser of a bill or note, satisfies his liability to the holder, but does not discharge the instrument, or the obligations of the maker or acceptor and the prior indorsers. Upon his payment he is entitled to receive the instrument from the holder, and to enforce it against the prior parties, or, if he wishes, to transfer it by way of sale or gift. The N. I. L. provides:

Sec. 121. Where the instrument is paid by a party second

Smith v. Janes, 20 Wend. 192 (N. Y.).

1N. I. L., secs. 119 (1), 88.

2 Smith v. Sheppard, Chitty on Bills (10th Ed.) 180, note.

Neg. Inst. Law, secs. 119 (1), 88.

arily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regards all prior parties, and he may strike out his own and all subsequent indorsements, and again negotiate the instrument.

§ 127. Same: Illustrations. For example, C sells property worth $100 to B, taking in payment a note of $100 made by A payable to B, indorsed by B to C. C indorses the note to D. A does not pay at maturity, and C is compelled to pay D. C can enforce the instrument against A or B. The instrument is not discharged, because the absolute and unconditional promise of the acceptor or maker to pay has not been fulfilled by the indorser's payment in satisfaction of his own obligation to pay if the maker or acceptor does not. The prior indorsers are not discharged, because they have assumed an obligation to every subsequent holder to pay if the maker did not, and he has not paid. The indorser who has paid and received the instrument is entitled to enforce it against the prior parties, or to transfer it because he has become the holder. The indorser who has taken up the instrument can not enforce it against indorsers subsequent to himself.

§ 128. Cancelation and alteration. In addition to payment by the acceptor or maker, there are two other principal ways in which a negotiable instrument may be discharged, cancelation and alteration.

The N. I. L. enumerates what alterations are material as follows:

Sec. 125. Any alteration which changes:

1. The date;

2. The sum payable, either for principal or interest;

3. The time or place of payment;

4. The number or the relation of the parties;

5. The medium or currency in which payment is to be made; or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

§ 129. Discharge of indorsers. The discharge of the instru

Serra v. Berkley, 1 Wilson, 46; Callow v. Lawrence, 3 Maule & S. 95.

ment by payment, cancelation, or alteration extinguishes the obligation of every party liable on it. But an indorser may be discharged without a discharge of the instrument. For example, he is discharged by an intentional cancelation of his signature." An indorser is also discharged by any dealings of the holder with prior parties, which affect the indorser's right to proceed against them in case he is compelled to pay the holder. For example, if the holder of a note indorsed by A, B, and C, intentionally cancels A's signature, B and C are discharged. By the cancelation of A's indorsement his liability on the instrument is discharged, and the right of B and C to look to him for reimbursement is gone. In consequence it would be unjust to allow the holder to collect from B and C."

Neg. Inst. Law, sec. 120 (2).

N. I. L., sec. 120.

'See Newcomb v. Raynor, 21 Wend. 108.

CHAPTER XII.

GUARANTY AND SURETYSHIP.

§1. Parties to suretyship agreements. A person who engages to be answerable for the debt, default, or miscarriage of another is called a surety or guarantor. He undertakes to pay either jointly or severally with the principal, the debtor who is primarily liable; or he may undertake to pay only if the latter does not. He is an insurer of the debt, and is usually bound with the principal by the same instrument, executed at the same time, and for the same consideration, and is often an original promisor and debtor from the beginning. When there are two or more sureties bound with the principal for the performance of the same obligation, or parts of the same obligation, they are co-sureties even though bound for different sums and though they become bound at different times. Thus if A is the principal on a bond for $2,000, and B becomes surety for the entire sum and C surety for $1,500 of it, B and C are co-sureties and may have a right of contribution as to each other, i. e., if one has to pay the debt, he can force the other to contribute or share the burden with him. B and C in the above example are co-sureties, that is, they are bound for the performance, by the same principal, of the same obligation. Co-sureties may become bound at different times, for different amounts, and may be ignorant of the fact that there are other co-sureties. So long as it is for the performance of the same obligation they are co-sureties.

§ 2. Statute of frauds. The fourth section of the old English statute of frauds provided that no action should be brought whereby to charge the defendant upon any special promise to answer for the debt, default, or miscarriage of another person, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, should be in writing and

signed by the party charged therewith or by some other person thereunto, by him lawfully authorized. This section of the statute of frauds has been re-enacted throughout the United States with but few modifications. Although there are technical distinctions between classes of contracts which are and which are not required by these statutes to be put in writing, the safe course to follow is to make all contracts of guaranty or suretyship in writing.

83. Common forms of suretyship. Suretyship may be created by express contract or may arise by operation of law, but the law is the same no matter in what manner created. A grantee of mortgaged land, who assumes the mortgage debt, becomes principal and his grantor his surety for the debt, as between themselves. Likewise, where a lessee who is personally bound to pay rent on his lease assigns the lease, he stands in the position of a surety for the rent as to the assignee of the lease. A similar case of suretyship arises, when a partnership is dissolved and one partner assumes the firm debts. He thereby becomes principal and the other party surety for the debts, as between themselves. Indorsers on promissory notes are sureties as to the makers. Property may stand in the position of surety for a debt, as where a man pledges his property as security for the performance of an obligation of another. Parties may even be placed in the position of sureties against their wills, as for instance where A and B each makes his negotiable note and sends it to C to sell on commission, and C wrongfully pledges the note to D to secure debts due D from him. A and B are in effect sureties for the debt of C, for D, being a bona fide purchaser of the notes, can sue on them, while of course the debt secured is the debt of C.1

§ 4. Consideration. A contract of suretyship must be supported by a sufficient consideration. This must consist of some detriment to the promisor. Whatever consideration is sufficient to sustain the promise of a principal will sustain a surety's promise which is concurrent with that of the principal. When the contract between creditor and principal is induced by the surety's promise to the creditor, the making of such contract is

1 McBride v. Potter, Lovell Co., 169 Massachusetts, 7.