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If payment is made by a surety, he is entitled to be exonerated by his principal; 396 and, if he tenders payment, he is entitled to an assignment of the instrument from the holder, and will be discharged if such assignment is refused.387 But a tender by the surety after suit begun against the principal maker will only effect his discharge if indemnity against costs is provided. 398 On the other hand, part payment made by a surety for his own release by the payee cannot be set up by the maker or inure to his benefit.3
Where a bill or note is paid by the surety, his action against the principal will be for money paid, and not on the paper itself.400 But the surety cannot recover against his principal until he has actually paid the bill.401 Payment, however, by giving his own note, will support an action against the principal,402 even though the note ac
Fitch, 145 Mass. 567, 14 N. E. 650; or by continuing the holder's original action, Fifth Nat. Bank v. Woolsey (Sup.) 52 N. Y. Supp. 827. As to action by a guarantor against his principal, see 862, supra.
396 See $8978-981, supra. So, payment by the surety's agent. LOW v. Blodgett, 21 N. H. 121.
397 Merriken v. Godwin, 2 Del. Ch. 236. 39% Hampshire Manufacturers' Bank v. Billings, 17 Pick. (Mass.) 87. 399 Gilstrap v. Smith (Ga.) 28 S. E. 608. 490 Frevert v. Henry, 14 Nev. 191. So, too, where the surety's name was used as payee and indorser instead of a principal, who was not a party to the paper, Abraham v. Mitchell, 112 Pa. St. 232, 3 Atl. 830. But see, contra, where he is a party, Tutt v. Thornton, 57 Tex. 33; although he need not have possession of the note, Saunders v. Ireland, 87 Tex. 316, 28 S. W. 271.
401 And his discharge on a ca. sa. against him will not be sufficient. Powell 1. Smith, 8 Johns. (N. Y.) 192. But if A. agrees to pay C.'s note, in consideration of the indebtedness of A. to B. and B. to C., C. may sue A, for nonperformance, whether C. has paid the note or not. Sapp v. Faircloth, 70 Ga. 6m. So, if C., as surety, become liable by drawing on his principal, A., and the draft is not accepted or paid by A. Sapp v. Aiken, 68 Iowa, 699, 28 N. W. 24.
492 Doolittle v. Dwight, 2 Metc. (Mass.) 561; Keough v. McNitt, 6 Minn. 513 (GII. 357); Rizer v. Callen, 27 Kan. 339. But see Wright v. Lawton, 37 Conn. 167. And such payment by note will support an action for contribution against a co-surety. Prescott v. Newell, 39 Vt. 82. But if the surety gives his individual note, knowing the original contract to be usurious, it will not be a payment which will deprive the principal of such defense. Mims v. McDowell, 4 Ga. 182. And a surety cannot recover usurious interest voluntarily and knowingly paid by him. Lucking v. Gegg, 12 Bush (Ky.) 298.
cepted by the creditor in payment was not stamped or collectible. 403 So, if his note has been received in satisfaction of a judgment upon the original note against the principal, although the judgment has not been satisfied of record. 40
Even where the payment by the surety has been made in Confederate currency, he may recover against the principal the value of the currency at the time of payment. 405 But if the surety pays in depre. ciated bank notes, furnished by the principal himself, the payment will inure to the principal's benefit, and discharge him from further liability. 106
And if the original principal, by a subsequent agreement with the surety, changes places with him, and becomes himself the surety, and afterwards pays the note as such, it will amount to a purchase of the note, and not a payment, and will entitle him to the security of a collateral mortgage made by the original surety to the holder, even as against subsequent mortgagees.407 So, if a surety purchases a note on which he is liable, with the expectation of buying out and controlling the corporation by which the note was made, it will not amount to a payment of the note, although he afterwards gives up the
$ 1436. If a surety pays a bill or note, he may afterwards reissue it; 408 but he cannot thereby render other parties liable on it to the purchaser. 110 Payment by the surety entitles him to be subrogated to the collateral securities. 111 But if he has become in effect the principal by purchasing the land covered by a collateral mortgage and assuming the mortgage, and taking security for the amount due on it, over and above the consideration for the land (the mortgage cov
403 Hardin v. Branner, 25 Iowa, 364.
406 Kirtland r. Railroad Co., 4 Lea (Tenn.) 414. And a payment with money borrowed by the principal on his note with a surety, which is afterwards paid by the surety, is a payment by the principal, and not by the surety. Gerdone v. Gerdone, 70 Ind. 62.
407 Fields v. Sherrill, 18 Kan. 365.
409 Although he is one of the makers. Wilkinson v. Daniels, 1 G. Greene (Iowa) 179.
410 Hopkins v. Farwell, 32 N. H. 425. 411 See $8 982–985, supra.
ering other land also), he will not be entitled to subrogation to the mortgage against the rest of the property upon payment of the mortgage note which he has assumed.412 On the other hand, if the owner of mortgaged premises pays off notes secured by the mortgage for his own security, he will be held to have done so as a purchaser, without discharging the maker of the notes, and can proceed against the maker on the note without first foreclosing the mortgage. 413
If one of several sureties pays a bill or note, he is entitled to contribution from his co-sureties. 414 But the payment by a surety in general extinguishes the note, and the action for contribution will not be on the note, but on an implied assumpsit, 415 although it has been held that if one of the makers of a joint and several note, who is in reality a surety for the other, pays the note, it will not operate as a payment unless so intended, and an action may be brought for his benefit on the note in the name of the payee.* But if B. and C., two of the makers of a joint note which is signed "A., B., C., Surety," each pay one-half of the note, and B. is, in fact, also a surety for A., in an action against him by the surety C., he may prove his character as a surety for A. as a defense against further liability to C.417 And where one surety signs as a co-maker, and the other as an accommodation indorser for the same maker, the former cannot claim contribution against the latter as a co-surety.418
Payment Supra Protest.
1437. Where payment is made for the honor of another party, according to the law merchant, the person making such payment has his action against the party honored, 419 and takes the bill as through an indorsement from such party, with all rights and remedies belong
412 Rugg v. Brainerd, 57 Vt. 364.
+19 See $ 1194, 1195, supra. But it has been held that recovery in such case should be on the common counts, and not on the bill itself. Bachus v. Richmond, 5 Yerg. (Tenn.) 109.
ing to him. 420
Thus, if he pays for the honor of an indorser, he has the rights of a purchaser by indorsement from him.421 So, if one accepts a bill for the honor of an indorser at the request of the drawer, and afterwards pays it, he may recover against the indorser honored. 4 2 2 But if a stranger pays a note for the indorser's honor as a volunteer, without the indorser's request, he will thereby get no rights against prior parties to the note. 423
One who pays a bill for the honor of the indorser may bring his action against the drawer as a purchaser for value. 424 So, if a bill is paid for the honor of an accommodation drawer, the payor may have his action against the acceptor for whose accommodation the bill was drawn, only parties subsequent to the party honored being discharged by the payment. 4 25 And it seems that, where a bill is paid for the honor of an acceptor, his estate will be liable to the party paying, even though there has been no formal protest of the bill, or statement of its payment supra protest. 4 2 6 The payment of a bill supra protest is in effect a purchase of the bill, and entitles the party paying to recover the damages provided by statute upon dishonor. 127 But, in general, an indorser is not liable to one who pays a bill or note for his honor without notice of such payment.428 And where a bill is drawn by an agent, and paid for the honor of the principal, who is not named on its face, he cannot be held liable for such payment without formal notice. 429
Payment by Stranger.
§ 1438. If a bill or note is paid, after its maturity, by a stranger to the paper, it will, in general, be held to be a purchase, and not a payment of the instrument.430 Whether it is a payment or a pur
420 Mertens v. Winnington, 1 Esp. 113. 421 Goodall v. Polhill, 1 C. B. 2:33. 4 22 Konig v. Bayard, 1 Pet. 250. 423 Smith v. Sawyer, 55 Me. 139. 424 Mertens v. Winnington, 1 Esp. 112. 425 Ex parte Swan, L. R. 6 Eq. 34. 426 Ex parte Wyld, 2 De Gex, F. & J. 612. 427 Pratalongo v. Larco, 47 Cal. 378. 428 Wood v. Pugh, 7 Ohio, 156. 429 Grosvenor v. Stone, 8 Pick. (Mass.) 79. 430 Thomas v. Fenton, 5 Dowl. & L. 28; McDonnell v. Burns, 28 C. C. A.
chase is, however, a question of fact.431 If one who is not a party to the bill takes it up, and makes payment to the banking house where it is payable, the payment will not be presumed to have been made in behalf of the acceptor.432 And even where part payments have been previously made, after maturity, by the drawer and acceptor, and the bill is subsequently paid by a stranger, and the payment receipted in general terms on the bill, it will not be conclusive evidence of an intention to pay the bill, but a contrary intention may be shown by parol, and the party paying may recover, as a purchaser, the balance due from the drawer.438
If a note in the hands of the administrator of the last holder is duly accounted for by him as so much cash, it will amount to a transfer of the note to him individually by operation of law. 434 And a note may be purchased from the payee by the maker's firm, and held by the firm as a set-off against a debt due from the payee. 185 And even where a note is taken up with money loaned to the maker for the purpose by his father, the jury may find such transaction to be a purchase rather than a payment, where the note was not canceled by the maker, but was delivered by him to his father, and remained in his father's possession at his death. 436
But where a note is paid by the maker's son, and is given up to him, and is understood by the holder to be a payment, it has been held to be such in a subsequent action brought by the son's firm against a surety on the note. 437 So, where a note is paid by the maker's bail, it has been held to be a payment, and not a purchase, although the payor took an instrument reciting his purchase,
174, 83 Fed. 866 (as against later notes secured by the same collateral); especially if made without intending to satisfy the note, Dodge v. Trust Co., 93 U. S. 379; and paid by the stranger with his own money, Swope v. Lettingwell, 72 Mo. 318; although not understood to be a purchase at the time, Barney v. Clark, 46 N. H. 514. So, a fortiori, if paid on an express agreement for transfer of the note. Casco Nat. Bank v. Shaw, 79 Me. 376, 10 Atl.
431 Wilcoxon v. Logan, 91 N. C. 449; Swope v. Leffingwell, supra.
432 Byles, Bills, 226; Deacon v. Stodhart, 2 Jan. & G. 317; Jones v. Broadhurst, 9 C. B. 173.
433 Graves v. Key, 3 Barn. & Adol. 313.