maker is a satisfaction as to all other parties who are collaterally liable with the maker.61 And it has been held that where the maker of a note, at the request of a payee, gave several new notes, and the old note was given up and canceled, such new notes created a new indebtedness, and constituted an accord and satisfaction of the original debt.62 One of the principles applicable to an accord and satisfaction is that where the debt or demand is liquidated, or certain and is due, payment by the debtor and receipt by the creditor of a less sum is not a satisfaction thereof, although the oreditor agrees to accept it as such, if there be no release under seal, or no new consideration given. So where the amount due on a note or bill is fixed and determined, and is due, a payment of a less amount will not operate as a discharge. But the rule would not apply where the amount due is in dispute. 66 63 d. By renunciation; statutory provision.- The Negotiable Instruments Law provides that: The holder may expressly renounce his rights against any party to the instrument, before, at "or after its maturity. An absolute and unconditional renuncia"tion of his rights against the principal debtor made at or after the maturity of the instrument, discharges the instrument. But a renunciation does not affect the rights of a holder in due course "without notice. A renunciation must be in writing, unless the "instrument is delivered up to the person primarily liable "thereon." The English Bills of Exchange Act contains a similar provision. 65 It seems to be a new rule in America, in the form stated in the statute, although it is probable that any written instrument renouncing the rights of a holder of a note in favor of the maker would operate as a discharge of the note.66 The requirement that the renunciation be in writing, unless the instrument is 61. Story on Promissory Notes, § 402. 62. In re Dixon, 13 Fed. 109, 2 McCrary (U. S.), 556. 63. 1 Cyc. of Law and Proc., p. 319; People v. Hamilton County, 56 Hun (N. Y.), 459, 10 N. Y. Supp. 88. 64. Neg. Inst. L. (N. Y.), § 203. For same section in statutes of other States see Appendix. 65. English Bills of Exchange Act, § 62. 66. Cuyler v. Cuyler, 2 Johns. (N. Y.) 186. In the case of Campbell v. Skinner, 30 Mich. 32, a judgment debtor had given his promissory note for a portion of the amount of the judgment against him, as a part of some contemplated arrangement in reference to the judgment, and this arrangement was afterward abandoned for another compromise arrangement made by the judgment creditor with third persons, which was inconsistent with the idea of leaving such a note outstanding against the debtor to be paid in addition to such compromise; it was held that such latter agreement when performed would operate, in the absence of anything showing a contrary intent, to cut off or invalidate the note as between the parties to it. delivered up, was a new provision in the English act, and was inserted in accordance with the Scotch law." 67 e. By alteration.-A negotiable instrument, which has been materially altered without the assent of all the parties liable thereon, is avoided, except as against a party who has himself made, authorized, or assented to the alteration, and subsequent indorsers.68 The effect of the unauthorized alteration of a negotiable instrument upon the rights of the parties will be considered in the next chapter. f. By operation of law.—When a judgment is obtained on a note or bill, the bill or note is thereby extinguished and merged in the judgment.69 But this doctrine only applies to the relation between the plaintiff and defendant. The judgment alone, without actual satisfaction, is no extinguishment as between the plaintiff and other parties not jointly liable with the original defendant, whether those parties be prior or subsequent to the defendant.70 But a judgment against one of several joint makers, obtained in an action against him alone, is a bar to an action by the plaintiff against the other makers, and the note as to all the makers is merged in the judgment." The issuing of execution against the person or property of one party to a negotiable instrument does not extinguish the plaintiff's remedy against the other parties.72 By the common law the appointment of the maker of a note or acceptor of a bill as an executor of the estate of the holder of the instrument will operate as a discharge;73 as will also a bequest of the instrument to the maker or acceptor by the will of the holder. The intermarriage of the maker of a note with the payee or holder will, unless otherwise provided by statute, discharge the maker from all liability thereon.75 A discharge in bankruptcy, unless otherwise provided by the statute, releases a bankrupt from all his provable debts,76 and, therefore, will dis 74 67. Chalmers on Bills of Exchange, p. 212. 68. Neg. Inst. L. (N. Y.), § 205. For same section in statutes of other States see Appendix. 69. Bayley on Bills, chap. 9, p. 335: Byles on Bills (16th ed.), 314; Story on Promissory Notes, § 407; Claxton v. Swift, 2 Show. (Eng.) 441; Norris v. Aylett, 2 Campb. (Eng.) 329. 70. Claxton V. Swift, 2 Show. (Eng.) 441; Byles on Bills (16th ed.), 314. 71. Suydam v. Barber, 18 N. Y. 468. 72. Byles on Bills (16th ed.), 315; Porter v. Ingraham, 10 Mass. 88; Hayling v. Mulhall, 2 W. Bl. (Eng.) 1235. 73. Freakley v. Fox, 9 B. & C. (Eng.) 130; Story on Bills, § 443. 74. Hobart V. Stone, 10 Pick. (Mass.) 215; Story on Promissory Notes, § 407. 75. Curtis v. Brooks, 37 Barb. (N. Y.) 476. 76. American Bankr. Act, 1898, chap. 3. § 17a; Dean v. Justices Munic. Ct., 173 Mass. 453, 53 N. E. 893, 2 Am. B. R. 163. charge as to the bankrupt, but not as to the other parties, all bills accepted, or notes made by him." 123. Discharge of persons secondarily liable. a. Statutory provision.— The Negotiable Instruments Law provides that: "A person secondarily liable on the instrument is "discharged: "1. By any act which discharges the instrument; "2. By the intentional cancellation of his signature by the "holder; "3. By the discharge of a prior party; "4. By a valid tender of payment made by a prior party; << 5. By a release of the principal debtor, unless the holder's right of recourse against the party secondarily liable is expressly reserved; "6. By any agreement binding upon the holder to extend the "time of payment or to postpone the holder's right to enforce the "instrument, unless the right of recourse against such party is "expressly reserved." 78 liable." 79 b. In general. The person primarily liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are "secondarily The party primarily liable upon a note is the maker; the party primarily liable on a bill of exchange is the acceptor; all others are secondarily liable. The parties primarily liable on a negotiable instrument are for certain purposes, and to a certain extent, principals, and those secondarily liable are sureties to such principals, liable only in case of default of the principals. Although the parties secondarily liable are sureties for those primarily liable, as between themselves they are not merely cosureties, but each prior party is a principal in respect to each subsequent party.80 For example, as between the holder and the maker of a note, the maker is the principal, and each indorser is a surety for him; but as between the holder and the first indorser, the first indorser is the principal, and the subsequent or second. indorser is his surety, and so on in the order of their indorsement. 77. Ex. p. Jacobs, L. R., 10 Ch. (Eng.) 211; Ward v. Johnson, 13 Mass. 148. The liability of a person who is a codebtor with, or a guarantor, or in any manner a surety for, a bankrupt is not altered by the discharge of such bankrupt. 5 Cyc. 401; American 78. Neg. Inst. L. (N. Y.), § 201. For the same section in the statutes of other States see Appendix. 79. Neg. Inst. L. (N. Y.), § 3. And where a bill of exchange has been accepted by the drawee, and is afterward indorsed by successive parties, the drawee becomes acceptor and a principal, and the drawer and each successive indorser becomes a surety for the party immediately preceding. It is important to bear in mind the relationship of the parties to such instruments, for the purpose of determining the general rules of the law of principal and surety as applied to the rights and liabilities of such parties. It is a fixed and established rule of this law, that a discharge of a principal is a discharge of the surety; for the engagement of the surety, being but an accessory to the principal's agreement, terminates with it. We have already seen that a drawer of a bill engages to pay the amount thereof to the holder," or to any subsequent indorser, who may be compelled to pay it;" 81 and a general indorser on a negotiable instrument engages to pay the amount thereof, to the holder, "or to any subsequent indorser who may be compelled to pay it," provided it be duly presented, dishonored, and proper proceedings on dishonor be duly taken. Each party to a bill or note is, therefore, bound to protect and indemnify each subsequent party; and each indorser may, therefore, insist that no transactions be had between the holder and any prior party which will lessen or impair in any way his right of recourse to such prior party.83 c. By discharge of instrument.-Any act which absolutely discharges or extinguishes the instrument releases all parties thereto from liability. Thus, payment by the principal debtor discharges each person secondarily liable. A release of the acceptor or maker discharges each indorser:84 and a release of one of several joint acceptors or makers is a release of all.85 As we have already 81. Neg. Inst. L. (N. Y.), § 111. See § 81, ante. 82. Neg. Inst. L. (N. Y.), § 116. See $86, ante. without a binding contract to give time, will not, under the general rules of commercial law, have that effect, even in the case of a party occupying strictly the contract relation of a surety." 84. Eldredge v. Chacon, Fed. Cas. No. 4,329; Lynch v. Reynolds, 16 Johns. (N. Y.) 41; Shutts v. Fingar, 100 N. Y. 539, 3 N. E. 588, 53 Am. Rep. 231. 83. Ross v. Jones, 22 Wall. (U. S.) 576, 587, where the court said: "If the holder of a negotiable promissory note does anything, the effect of which is to suspend, impair, or destroy the right of the prior parties to indemnity from those otherwise liable over to them, he cannot resort to the parties 85. Byles on Bills (16th ed.), 326. affected by his conduct to make good But if it appear on the face of the the default of the maker of the instru- deed of release that it was the parament. Simple indulgence, however, mount intention of the parties that or mere delay to enforce payment, the others should be held liable, this seen, a discharge of a principal debtor in bankruptcy will not release or discharge the other parties.86 But it has been held that a discharge of the acceptor of a bill by a compromise agreement under bankruptcy proceedings instituted in a foreign country to which the drawer was not made a party, will release the drawer from liability.87 Where a maker is discharged in consideration of the payment of a part of the note, the indorsers are also discharged.88 But where the acceptor has no funds of the drawer in his hands, it has been held that a discharge of the acceptor by the payee does not discharge the drawer.89 The drawer and indorsers are so far regarded in the light of sureties to the acceptor and maker, that they are discharged by the holder's accord and satisfaction of the maker's or acceptor's liability. d. By discharge of prior party. If the holder of a note or bill releases a party from liability it will also release all parties who are liable on the instrument subsequent to the party released. This is a general principle lying at the foundation of the law of commercial paper. It necessarily follows from that other fundamental rule which makes an indorser of commercial paper liable for the amount thereof to the holder or any subsequent indorser who may be compelled to pay it. As between the first and subsequent indorsers, the former must be regarded in the light of a principal; he stands behind them on the paper, and is bound to intention will be carried into effect by disregarding the form of the deed, and construing the release as a covenant not to sue. Solly v. Forbes, 2 Brod. & Bing. (Eng.) 38; Henderson v. Stobart, 5 Exch. (Eng.) 99; Price v. Barker, 4 El. & Bl. (Eng.) 760. 86. See preceding section. that the defendant drawer was thereby released from liability, upon the ground that the foreign discharge would not, in itself, have been a defense as against the American holder of the bill, and the plaintiffs, if they had not surrendered their rights, might have proceeded by attachment against any of the property of the bankrupts within the jurisdiction of the courts of this State; and the acceptance of the composition agreement by the plaintiff's destroyed this right to which the defendant would have succeeded by way of subrogation upon the payment of the debt. 87. Effect of discharge in foreign bankruptcy proceedings.- Phelps v. Borland, 103 N. Y. 406, 9 N. E. 307, 57 Am. Rep. 755. In this case the defendant, a citizen of this country, drew his bill of exchange upon a Liverpool firm, which he sold to plaintiffs, residents of this State. The bill was accepted by the drawees, but they having failed, it was protested for nonpayment. The plaintiffs, who were originally not parties to the bankruptcy proceedings, voluntarily and without the consent of the defendant appeared and proved their claim, 90. Edwards on Bills and Notes, p. and accepted the composition decreed. 294. See Douglass v. White, 3 Barb. In an action on the bill it was held Ch. (N. Y.) 621. 88. Abat v. Holmes, 3 La. 351; Farmers' Bank v. Blair, 44 Barb. (N. Y.) 641. 89. Sargent v. Appleton, 6 Mass. 85, 4 Am. Dec. 90. |