CHAPTER WHAT the discharge of the surety may be prevented; 4thly. How it may be waived; 5thly. What conduct of the creditor to the surety will discharge the principal debtor; and, lastly, add a few words on the rights of sureties. First. What parties to a bill are principals, and what PARTIES TO A parties are sureties. BILL ARE PRINCIPALS, AND WHAT Suppose the bill to have been accepted and indorsed for value. The acceptor is the principal debtor, and PARTIES ARE all the other parties are sureties for him, liable only on his default. SURETIES. But though all the other parties are, in respect of the acceptor, sureties only, they are not, as between themselves, merely co-sureties, but each prior party is a principal in respect of each subsequent party. For example, suppose a bill to have been accepted by the drawee, and afterwards indorsed by the drawer and by two subsequent indorsers to the holder. As between the holder and the acceptor, the acceptor is the principal debtor, and the drawer and indorsers are his sureties. But as between the holder and the drawer, the drawer is a principal debtor, and the subsequent indorsers are his sureties. As between the holder and the second indorser, the second indorser is the principal, and the subsequent or third indorser is his surety. A discharge, therefore, to the prior parties, the principals, is a discharge to the subsequent parties, the sureties; but a discharge to the subsequent parties, the sureties, is not a discharge to the prior parties, the principals (e). Where a bill is payable to the order of a third person, the payee is a subsequent party, and so a surety for the drawer. He stands in the same situation as the first indorsee and second indorser of a bill drawn payable to the indorser's order (f). It follows, therefore, that a discharge to the acceptor is a discharge to all the parties to the bill; for, if they were still liable, they could either sue the acceptor, or they could not. If they could, the discharge to the acceptor would be frustrated; if they could not, they must pay the bill without a remedy over, which would extend their liability beyond their contract. So, a discharge to an (e) Where a bill of exchange is drawn by one person upon another, and a third party subscribes his name under that of the drawer, adding the word "surety" to his signature, it has been held in America, that the undertaking of such third party is with the payee or subsequent holder, that the bill shall be accepted and paid, but he incurs no obligation to the drawees. See Byles on Bills, 6th American ed. 374. (f) Claridge v. Dalton, 4 M. & Sel. 226; 16 R. R. 440. indorser is no discharge of the prior indorsers, for they have no remedy against the discharged indorser; but it is a discharge of the subsequent indorsers, for if the holder could notwithstanding recover against them, and they could recover against the prior discharged indorser, his discharge would be frustrated; if they could not, they must pay the bill without a remedy over (g). CHAPTER It was formerly held, that where a bill was accepted On accommowithout consideration for the accommodation of the drawer, dation bills. the drawer was to be considered the principal debtor, and the acceptor as his surety; and, therefore, that time given to the drawer would discharge the acceptor (h), but time given to the acceptor would not discharge the drawer (i). But this distinction has since been overruled at law (k), the acceptor, in all cases of accommodation bills as well as others, being considered as the principal debtor, though the holder, at the time of making the agreement, or even of taking the bill, knew the acceptance to have been without value (1). It was otherwise in equity where the holder had notice, and the equitable doctrine was available under an equitable plea (m). As the acceptor is at law in all cases the principal debtor On promissory on a bill, so the maker is at law the principal debtor on a notes. (g) Smith v. Knox, 3 Esp. 46; Claridge v. Dalton, 4 M. & Sel. 232; 16 R. R. 440; Hall v. Cole, 6 Nev. & M. 124; 4 Ad. & El. 577; 1 Har. & W. 722. (h) Laxton v. Peat, 2 Camp. 185; see Yallop v. Ebers, 1 B. & Ad. 698. (i) Collott v. Haigh, 3 Camp. 281. (k) Fentum v. Pocock, 5 Taunt. 192; 1 Marsh. 14; Carstairs v. Rolleston, 5 Taunt. 551; 1 Marsh, 207; Smith v. Jones, 2 E. & B. 50, note. Now see Code, s. 28 (2). ()"I think," says Parke, J., "that the decision in Fentum v. Pocock was good sense and good law." Price v. Edmunds, 10 B. & C. 578; Harrison v. Courtauld, 3 B. & Ad. 36; Nichols v. Norris, 3 B. & Ad. 41. The doctrine laid down in Fentum v. Pocock has, however, been doubted in equity by Lord Eldon. Ex parte Glendin ning, Buck. 517; Bank of Ireland (m) Baileyv. Edwards, 34 L. J., CHAPTER On a joint and several note. note, though it be given by the maker to the payee without consideration (n), and the holder take it with notice of the absence of consideration (o). The indorsers of a note severally stand, as principals or sureties, iu the same situation as the indorsers of a bill. When of a joint and several note one maker is in reality principal and the other surety, yet it was no defence at law that one is principal and the other is surety, that this was known to the creditor at the time of the contract, and, consequently, that the surety is discharged by time given to the principal (p). But such a defence was plainly available in equity (g), and therefore might be the ground of an equitable plea. (n) Carstairs v. Rolleston, 5 Taunt. 551; 1 Marsh. 207. (0) Nichols v. Norris, 3 B. & Ad. 41. (p) Price v. Edmunds, 10 B. & C. 578; Perfect v. Musgrave, 6 Price, 111; Manley v. Boycott. 2 E. & B. 46; Strong v. Foster, 17 C. B. 201; Hollier v. Eyre, 9 Clark & F. 45. But evidence to. that effect has been admitted. Garrett v. Jull, 1 S. N. P. 11th ed. 407; Hall v. Willcor, 1 M. & Rob. 58. In Clarke v. Wilson, 3 M. & W. 208, it was intended to have raised the question, but on demurrer to defendant's plea judgment was given for the plaintiff. In Rees v. Berrington, 2 Ves. jun. 540; 3 R. R. 3, Lord Loughborough says, referring to legal obligations, "that where two are bound jointly and severally, the surety cannot aver by pleading that he is bound as surety." See Ashbec v. Pidduck, 1 M. & W.564 ; and Thompson v. Clubley, 1 M. & W. 212. But, in equity, a surety may aver and prove that he was only a surety, though the bond was joint and several. Heath v. Key, 1 Y. & J. 434; Nisbett v. Smith, 2 Bro. C. C. 581; Skip v. Hucy, 3 Atk. 91. The authorities are contradictory; but, on principle,such evidence is inadmissible at law as against the creditor; for it is parol evidence to make a written contract conditional, which, on the face of it, is absolute. The evidence does not show absence of consideration as in the case of an accommodation acceptance. Besides, the introduction of such evidence might affect an innocent indorsee with stipulations of which he had no notice. But when the question arises not between the creditor and his debtors, but between those debtors themselves, whether one was principal and the other was surety, parol evidence is admissible at law, as in such a case it clearly is in equity. Craythorne v. Swinburne, 14 Ves. 170; 9 R. R. 261; see ante, p. 9; Reynolds v. Wheeler, 30 L. J., C. P. 350. (1) Hollier v. Eyre, 9 C. & F. 45; Daries v. Stainbank, 6 De G., Mac. & G. 679. See, however, Strong v. Foster, supra. But this case was reflected on in Pooley v. Harradine, 7 E. & B. 431; and see Mutual Loan Fund v. Sudlow, 28 L. J., C. P. 108; Rayner v. Fussey, 28 L. J., Exch. 132; Taylor v. Burgess, 29 L. J., Exch. 7; 5 H. & N. 1; and may be considered to have been finally overruled by the Court of Exchequer Chamber in Greenough v. M'Clelland, 30 L. J., Q. B. 15; Oriental Finance Company v. Overend, Gurney & Co., L. R., 7 H. L. 348. Secondly, as to what conduct of the creditor will discharge the surety. The creditor must not, as we have already seen, conceal from the surety any stipulation in the original contract, disadvantageous to the principal debtor. Such concealment is a fraud, and releases the surety (r). CHAPTER WHAT CON- CREDITOR DOES NOT And the surety is discharged if the actual original contract DISCHARGE between the creditor and the principal debtor varies in THE SURETY. the slightest degree from that for which the surety had stipulated (s). So, in all transactions subsequent to the original contract, the surety's remedies both at law and in equity, against the principal debtor, whether in his own name or in the name of the creditor, must be preserved intact by the creditor (f). The holder of a bill of exchange is not obliged to use active diligence in order to recover against the acceptor (), in the absence of any agreement to do so. He He may defer suing him as long as he pleases; he may even promise not to press him, or not to sue him, if the promise be not binding in law. Thus, where the executrix of an acceptor verbally promised to pay the holder out of her own estate, provided he would forbear to sue, and he forbore accordingly, it was held that, the agreement being invalid under the Statute of Frauds, the drawer was not discharged (r). But, if the holder once destroy or suspend, or, by a binding agreement with the acceptor (1), contract to destroy or suspend, his right of action against the acceptor, the drawer and indorsers are at once discharged, unless the () Pidcock v. Bishop, 3 B. & C. 605; 5 D. & R. 505; 27 R. R. 430; Mayhewy. Crickett, 2 Swan. 193; 19 R. R. 57; Stone v. Compton, 5 Bing. N. C. 142; 6 Scott, 816; Jackson v. Duchaire, 3 T. R. 551 ; Cecil v. Plaistow, 1 Anst. 202; Middleton v. Lord Onslow, P. Wis. 768; Brown v. Wilkinson, 13 M. & W. 14. (*) Sec Bonsor v. Cox, 4 Beav. 379; affirmed on appeal, 4 Beav. 383; 6 Beav. 110-118; Polak v. Everett, L. R., 1 Q. B. D. 669; Croydon Gas Co. v. Dickenson, L. R., 2 C. P. D. 46. (f) And see as to the duty of the creditor, Watts v. Shuttleworth, 5 H. & N. 235; affirmed on appeal, 7 H. & N. 353; Wulff v. Jay, L. R., 7 Q. B. 756; 41 L. J. 322; Rainbow v. Juggins, (u) Orme v. Young, Holt, N. P. (r) Philpot v. Briant, 4 Bing. 717; 1 M. & P. 754; 3 C. & P. 244; 29 R. R. 710. (y) Fraser v. Jordan, 26 L. J., N. S., Q. B. 288; 8 E. & B. 303. But an agreement with a stranger will not have this effect. Ibid. See, however, Lyon v. Holt, 5 M. & W. 250. CHAPTER Receipt of payment. Release. agreement giving time contain a stipulation that the holder shall, in case of default, have judgment at a period as early as he could have obtained judgment if hostile proceedings had continued (z). But if the agreement contain a stipulation that a judgment shall be given, it is not necessary to aver in a plea disclosing such an agreement that the time within which the plaintiff might have obtained judgment was postponed (a). That it was not must either be specially replied, or may possibly (if the form of the averment in the plea admits of it) be proved under a traverse of an actual forbearance (b). If the creditor engages with the surety that he will enforce payment from the principal debtor within a certain time, his neglect to do so is a good defence in equity (). Payment by the principal of course discharges the surety. Payment of money, which has to be refunded as being a fraudulent preference, is no payment so as to discharge a surety (d). The acceptor of a bill, or maker of a note, is bound to pay on the day the bill or note falls due, and therefore he cannot plead in his own discharge a subsequent tender (e). But it has been held that an indorser has a reasonable time within which to pay the bill; and if he pay, or tender payment, within a reasonable time, and before writ issued, perhaps he discharges himself (f). And, therefore, payment by the acceptor or maker, though after the note has been dishonoured, if within a reasonable time, and with interest, and before action brought against the indorser, or a tender of such payment, though it would not discharge himself, would, it should seem, discharge the indorser. A release to the acceptor or maker discharges the indorsers; and a release of one of several joint acceptors or makers is (2) Kennard v. Knott, 4 M. & (a) Kennard v. Knott, 4 M. & (b) In some of the American (c) Lawrence v. Walmsley, 31 L. J.. C. P. 143; Watson V. (d) Pritchard v. Hitchcock, 6 M. & G. 151; Petty v. Cooke, L. R., 6 Q. B. 790. (e) Humev. Peploe, 8 East, 168; 9 R. R. 399. (f) Walker V. Barnes, 5 Taunt. 240; 1 Marsh. 36; 15 R. R. 655; Soward v. Palmer, 2 Mood. 274; 8 Taunt. 277; 19 R. R. 515; but see Siggers v. Lewis, 1 C., M. & R. 370; 4 Tyr. 847; 2 Dowl. 681. |