A discharge of him, take it up in case of default of the maker. therefore, by the holder, on general principles operates to release them.91 Bearing in mind that the relationship existing between the first indorser and the subsequent indorsers is that of principal and sureties, it follows that if the holder does any act impairing the claim of a surety against the principal, it may be shown in defense by the surety.92 And if, by the laches or act of the holder, the surety's means of indemnity are impaired, his liability is discharged to the extent of the loss sustained by reason of the neglect or act.93 The necessary implication from this rule would seem to require the surety's absolute discharge, when the responsibility of the principal, who is liable to him for the whole debt, has been lost by the act of the holder. The release of an indorser does not affect the liability of a prior indorser.95 e. By extension of time or postponing right to sue.— The rule of the statute is declaratory of that which exists at common law. The rule as stated by Judge Story is: "If there be any valid agreement (that is, one founded upon a valuable consideration and operative in point of law) between the maker and the holder, whereby the holder agrees to give credit to the maker of the note after it is due, or whereby the payment is postponed to a future day, and this agreement is made without the consent of the indorser, they will be thereby absolved from all obligation to pay the same." 96 It is a general principle of the law of principal and surety, which is peculiarly applicable to the case of a maker or 91. Newcomb v. Raynor, 21 Wend. (N. Y.) 108, 34 Am. Dec. 219. Effect of discharge of parties.— In the case of Shutts v. Fingar, 100 N. Y. 539, 3 N. E. 588, 53 Am. Rep. 231, the court said: "It is a general rule that whatever discharges the maker or acceptor of a bill or note discharges the drawer and indorser, who are sureties, for the contract which they undertook to assume thus passes out of existence by the act of the beneficiary. It is also said that whatever discharges a prior indorser discharges all subsequent indorsers for the reason that he stood between them and the holder, and on making payments each one could have had recourse against him but from which his discharge precludes him.' The contracts of the parties to a note are said to be like the links of a pendant chain, if the holder dissolves the first every link falls with it." An agreement by the holder of a note to release an indorser thereon from all liability, after such indorser had assigned his property for the benefit of creditors, and the holder had acquired a lien by presenting a claim to the assignee, releases a subsequent indorser. Plankington v. Gorman, 93 See also Wis. 560, 67 N. W. 1128. Hawkins v. Thompson, Fed. Cas. No. 6,246, 2 McLean (U. S.), 111. 92. Beardsley v. Warner, 6 Wend. (N. Y.) 613. 93. Barhydt v. Ellis, 45 N. Y. 111. 94. Shutts v. Fingar, 100 N. Y. 539, 3 N. E. 588, 53 Am. Rep. 231. 95. Kennon V. McRea, 7 Port. (Ala.) 175; Bank of Kentucky v. Floyd, 4 Metc. (Ky.) 159. 96. Story on Promissory Notes, § 413. acceptor of a negotiable instrument and the indorsers or drawer thereof, that any act of the creditor, or holder, by which he precludes himself from demanding performance of the principal, or entitles the latter to claim an exemption from performance of his contract during an appreciable interval of time, however small, will inure as a discharge of the surety." 97 Any agreement entered into by the holder of a negotiable instrument with the person primarily liable thereon, without the consent of the indorsers, so as to preclude the holder from suing on the instrument at its maturity, discharges the indorsers from their liability.98 The reason for the rule may be stated thus: "If the holder enters into a valid contract for delay, he thereby suspends his own remedy on the bill for the stipulated period; and if the indorser were to pay the bill, he could only be subrogated to the rights of the holder, and 97. Scott v. Saffold, 37 Ga. 384. 98. Extension of time.-A large number of cases might be cited in which this doctrine has been declared; it will perhaps be sufficient to call at tention to the following: United States.- McLemore v. Powell, 12 Wheat. 554; Sprigg v. Bank, 14 Pet. 207, 10 L. Ed. 422; Ross v. Jones, 22 Wall. 587, 589, 22 L. Ed. 734; Bank of U. S. v. Hatch, 6 Pet. 260, 8 L. Ed. 391; Bank of U. S. v. Lee, Fed. Cas. No. 921, 3 Cranch C. C. 288. Alabama.- Inge v. Branch Bank of Mobile, 8 Port. 108. Missouri. Noll v. Oberhellman, 20 Mo. App. 336; Owings v. McKenzie, 133 Mo. 323, 33 S. W. 802; Commercial Bank of Lexington v. Wood, 56 Mo. App. 214. New Jersey.— Bell v. Martin, 3 Har. 167; Westervelt v. Frech, 33 N. J. Eq. 451; Nightingale v. Meginnis, 34 N. J. L. 461. New York.- Mothram v. Mills, 2 Sandf. 189; Greene v. Bates, 74 N. Y. 333; Pomeroy v. Tanner, 70 N. Y. 547; Carey v. White, 52 N. Y. 138; Board of Education v. Fonda, 77 N. Y. 350; German-American Bank v. Niagara Connecticut.- Lockwood V. Craw- Cyc. Co., 13 App. Div. 450, 43 N. Y. ford, 18 Conn. 361. Delaware.- McDowell V. Wilmington, 1 Harr. 369. Supp. 602; Myers v. Wells, 5 Hill, Bank of 463; Sizer v. Heacock, 23 Wend. 81: Taylor v. Allen, 36 Barb. 294; Bank of Chenango v. Curtiss, 19 Johns. 326. Florida.- Fridenburg v. Robinson, 14 Fla. 130. Georgia.- Parmelee v. Williams, 72 Ga. 42; High v. Cox, 55 Ga. 662; Scott v. Saffold, 37 Ga. 384. Kentucky. Higgins v. Morrison, 4 Dana, 100; Kentucky Bank v. Floyd, 4 Metc. 159. Louisiana.- Hine v. Bailey, 16 La. 213, 35 Am. Dec. 214; Shaw v. Nolan, 8 La. Ann. 25. Maine.- Pierce v. Whitney, 22 Me. 113; Lowney V. Perham, 20 Me. 235. Maryland.-Williams V. Gill, 347. Hall, 9 Massachusetts.-Way v. Dunham, 166 Mass. 263, 44 N. E. 220; Hutchins v. Nichols, 10 Cush. 299; Allen v. Brown, 124 Mass. 77. North Carolina.- First Nat. Bank v. Lineberger, 83 N. C. 454, 35 Am. Rep. 582. Ohio.- Duble v. Cincinnati & C. R. Co., 3 Ohio Dec. 346; Raught v. Black, 2 Disn. 477. Pennsylvania.- Delaware County Trust, etc., Co. v. Haser, 199 Pa. St. 17, 48 Atl. 694; Schiebeneck v. Anchor Sav. Bank, 111 Pa. St. 187, 2 Atl. 485; Hagey v. Hill, 75 Pa. St. 108; Okie v. Spencer, 2 Whart. 253, 30 Am. Dec. 251. South Carolina.- Sharpe v. Bingley, 1 Mill Const. 367, 12 Am. Dec. 643; Shirtliffe v. Gilbert, 1 Bay, 466. Wisconsin.- Hamilton V1 Prouty, 50 Wis. 592, 7 N. W. 659, 36 Am. Rep. 866. the maker could or might have the same equities against him as against the holder himself. If, therefore, such a contract be entered into without his consent, it is to his prejudice, and discharges him." 99 But mere delay in enforcing payment of a bill or note will not release the indorser.1 Nor is a mere indulgence sufficient; there must be a fixed and definite contract, for a good and valid consideration, obligatory upon the holder, by which he is precluded from proceeding to enforce his remedies against prior parties, and thus affecting the legal or equitable rights of the indorsers. A discharge by a holder of the person primarily 99. Per Story, J., in McLemore v. Powell, 12 Wheat. (U. S.) 554. The reason given why the extension of time for payment discharges the indorser, drawer, or surety, is because the creditor thereby inflicts an injury on him, and deprives him of the means of relieving himself, either by paying the debt, and immediately proceeding against the principal (being substituted to the creditor's rights) or by filing his bill quia timet to compel the debtor to pay the creditor, for the surety's exoneration; for, if the creditor could not himself, in consequence of his own agreement, compel the principal debtor to pay neither could the indorser, drawer, or surety, who, in such case, asserts the rights of the creditor for his own safety. Wright v. Independence Nat. Bank, 96 Va. 728, 32 S. E. 459, 70 Am. St. Rep. 889, citing Norris v. Crummey, 2 Rand. (Va.) 333; Shannon v. McMullin, 25 Gratt. (Va.) 212. 1. Powell v. Waters, 17 Johns. (N. Y.) 176; Powers v. Silberstein, 19 Jones & S. (N. Y.) 321; Hurst v. Trow's Printing and Bookbinding Co., 2 Misc. (N. Y.) 361, 22 N. Y. Supp. 371, 30 Abb. N. C. 1; Higgins v. Morrison, 4 Dana (Ky.), 100; Inge v. Branch Bank of Mobile, 8 Port. (Ala.) 108. An indefinite extension of time for payment, granted by the holder to the maker, does not release the indorser. Peoples' Bank v. Le Grand, 103 Pa. St. 309, 49 Am. Rep. 123. And in the case of Edwards v. Bedford Chair Co., 41 Ohio St. 17, where, after a promissory note had been protested, the maker asked the holder "for additional time as a favor," and the holder said that he was willing to show any reasonable favor;" the maker then said that he would give paper drawn on his customers, and did so when he got it; no time for the indulgence was named. It was held that as the time granted was not specified, and the arrangement furnished no means for determining it, the holder retained the right to sue the maker at pleasure. And the court said: "Nothing was said as to the number of days, or months, asked for or granted; no time was named for delivering the drafts. The authorities are united in holding that unless the extension agreed upon is for a time certain, or so described that it can be rendered certain, it does not discharge the surety; it does not take away the right of the holder to bring suits against the maker at pleasure." 2. Mere indulgence or delay on the part of the holder toward a principal debtor in enforcing payment does not discharge the indorser. Wilson V. Foot, 11 Metc. (Mass.) 285; Agricultural Bank v. Bishop, 6 Gray (Mass.), 317; Allen v. Brown, 124 Mass. 77; Wilson v. Powers, 130 Mass. 127; Haydenville Sav. Bank v. Parsons, 138 Mass. 53. "To discharge the defend ant there must have been a valid agreement between the plaintiff and the debtor to extend the time or vary the contract, or the defendant must have been led by the representations of the plaintiff to change his situation, either, for instance, by surrendering security or forbearing to take security, or otherwise to his loss." Way v. Dunham, 166 Mass. 263, 44 N. E. 220. See also Lockwood v. Crawford, 18 Conn. 361; Freemans v. Rollins, 13 Me. 202; Page v. Webster, 15 Me. 249, 33 Am. Dec. 608; Bank of Utica v. 3 liable on the instrument will not discharge the indorser, if there be an agreement between the holder and such person that the indorser be not thereby discharged. The extension of time given to one of two or more makers does not discharge the others, unless they are sureties to the knowledge of the holder.* But where a joint maker signs for accommodation, and this fact is known to the holder, an extension granted to the principal maker without the consent of the accommodation maker will release him from liability." f. Effect of extension upon accommodation parties. It has been frequently held that where the holder of a bill or note knew that the acceptor or maker of an instrument was for accommodation of the drawer or indorser, an extension of time given to the drawer or indorser, to the prejudice of such acceptor or maker, Ives, 17 Wend. (N. Y.) 501; Taylor Maine.-Williams v. Smith, 48 Me. v. Allen, 36 Barb. (N. Y.) 294. 135; National Bank v. Dow, 79 Me. 275, 9 Atl. 730. Validity of agreement; consideration. The indulgence which will release an indorser must be given upon a good consideration, for a limited and definite time, within which the creditor's right of action is suspended; and the payment of a part of the debt by the principal, and accepting claims to be applied when collected in further payment under a verbal agreement not to sue, constitute no such legal consideration for the promise of forbearance. Varnum v. Bellamy, Fed. Cas. No. 16,886, 4 McLean (U. S.), 87. Contract to give time must be enforceable. A contract by the holder of a note to give time to the maker must be a valid and enforceable contract as against the holder or it will not operate to discharge the indorser. See the following cases: United States.- Ex parte Balch, Fed. Cas. No. 789, 2 Low. 440; Corbett v. Woodward, Fed. Cas. No. 3,223, 5 Sawy. 403; Cooper v. Gibbs, Fed. Cas. No. 3,194, 4 McLean, 396. Maryland. Ives v. Bosley, 35 Md. 262; Planters' Bank v. Sellman, 2 Gill & J. 230. Massachusetts.- Wilson v. Powers, 130 Mass. 127; Jennings v. Chase, 10 Allen, 526. New Jersey.- Nightingale v. Meginnis, 34 N. J. L. 461. New York.- Van Rensselaer V. Kirkpatrick, 46 Barb. 194. In the case of McLemore v. Powell, 12 Wheat. (U. S.) 554, it was held: (1) That an agreement between the creditor and principal debtor for delay, or otherwise changing the nature of the contract to the prejudice of the surety, in order to discharge the latter, must be an agreement having a sufficient consideration, and binding in law upon the parties; and (2) that a mere agreement by the holder of a bill with the drawer for delay, without any consideration for it, and without any communication with or assent of the indorser, will not discharge the latter, after he has been fixed in his responsibility by the refusal of the drawee, Alabama.- Branch Bank of Hunts- California. Smith v. Pearson, 52 Georgia.- Stallings v. Johnson, 27 Ga. 564. Indiana.- State Bank v. Wymond, 7 Blackf. 363. 3. Hagey v. Hill, 75 Pa. St. 108, 15 Am. Rep. 583; Morse v. Huntington, 40 Vt. 488. 4. Williams v. Scott, 83 Ind. 405. But see contra, Thompson v. Bowne, 39 N. J. L. 2. 5. Barron v. Cady, 40 Mich. 259. will discharge such parties. If the holder have no knowledge of the fact that the maker or acceptor is an accommodation party, an extension given to the indorser or drawer will not discharge the maker or acceptor; this is upon the principle that each party to a negotiable instrument is liable in accordance with the clearly apparent capacity which he has voluntarily assumed in respect to such instrument. The English rule has been opposed to the discharge of an accommodation maker or acceptor by an indulgence to an indorser or drawer, for whose benefit the bill or note was accepted or made; and the cases are nearly all to the effect that such a maker or acceptor is to be regarded and treated as a principal debtor.8 And there are also American cases which have adopted the English rule." The statute only provides for the discharge by an extension of time of a person secondarily liable on the instrument. By the terms of the statute a person is primarily liable who by the terms of the instrument is absolutely required to pay the same; all others are secondarily liable.10 An accommodation maker or acceptor is absolutely liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party." It would seem to follow that the statute has disposed of the conflict of authority upon this question by holding the accommodation acceptor or maker to his apparent engagement as a principal debtor, and making him liable notwithstanding an indulgence given to the indorser or drawer for whose benefit he became a party to the instrument. 6. Gordon v. Third Nat. Bank, 144 U. S. 97, 12 Sup. Ct. 657, 36 L. Ed. 360; In re Goodwin, Fed. Cas. No. 5,549, 5 Dill. 140; American, etc., Mtge. & Ins. Co. v. Marquam, 62 Fed. 960; Hall v. Capital Bank of Macon, 71 Ga. 715; McInerney v. Lindsay, 97 Mich. 238, 56 N. W. 603. 7. Hoge v. Lansing, 35 N. Y. 136; Grafton Bank v. Kent, 4 N. H. 221, 17 Am. Dec. 414; Canadian Bank v. Coumbs, 47 Mich. 358; Commercial Bank v. Cunningham, 24 Pick. (Mass.) 270. 8. Fentam V. Pocock, 5 Taunt. (Eng.) 192; Bank of Ireland v. Beresford, 6 Dow. (Eng.) 234; Nichols v. Norris, 3 B. & Ad. (Eng.) 41; Strong v. Foster, 17 C. B. (Eng.) 201. 9. Yates v. Donaldson, 5 Md. 389, 61 Am. Dec. 283, where it was held that the maker of an accommodation note is liable to the holder, although the latter knew that it was for the indorser's accommodation; and that giving an extension of time to the indorser did not discharge the maker. See also Cronise v. Kellogg, 20 Ill. 11; Anderson v. Anderson, 4 Dana (Ky.), 352; Howard Banking Co. v. Welchman, 6 Bosw. (N. Y.) 280; Montgomery County Bank v. Walker, 9 Serg. & R. (Pa.) 229. 10. Neg. Inst. L. (N. Y.), § 3. 11. Neg. Inst. L. (N. Y.), § 55. See § 55 (g), ante. |