§ 124. Rights of parties who discharge instruments.

a. Statutory provision.- The Negotiable Instruments Law provides that: "Where the instrument is paid by a party secondarily "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, except:

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"1. Where it is payable to the order of a third person, and has "been paid by the drawer; and

"2. Where it was made or accepted for accommodation, and "has been paid by the party accommodated." 12 A somewhat similar provision is contained in the English Bills of Exchange Act;13 the difference in the two provisions is one of language and form, but not of substance or effect.

b. Rights against maker or acceptor.-At any time after the maturity of a note an indorser may pay the amount thereof to the holder and recover such amount in a suit against the maker.14 And where an indorser has been compelled to pay a note he may recover the amount of the maker. 15 And where a suit is brought prior to the intervention of the Statute of Limitation, but judgment is recovered and payment made by the indorser subsequent thereto, the amount may be recovered of the maker in a suit against him by the indorser although at the time such suit is brought the statute has intervened and the holder could not have recovered of the maker; the statute begins to run as against the indorser when the payment was made by him on the judgment.' But the indorser of a note does not become a creditor of the maker of the note until he has paid the amount thereof to the holder.17 Where a

12. Neg. Inst. L. (N. Y.), § 202. For the same section in statutes of other States see Appendix.

13. English Bills of Exchange Act, § 59 (2 a, b, and 3).

14. Tuscaloosa Cotton Seed Oil Co. v. Perry, 85 Ala. 158, 4 South. 635; Folsom v. Carli, 5 Minn. 333, 80 Am. Dec. 429.

15. Morgan v. Reintzel, 7 Cranch (U. S.) 273, 3 L. Ed. 340; Godfrey v. Rice, 59 Me. 308; Ainslee v. Wilson, 7 Cow. (N. Y.) 532.

16. Godfrey v. Rice, 59 Me. 308. 17. Farmers' Bank v. Gilpin, 1 Harr. (Del.) 561.

The indorser cannot maintain an action upon a note against the maker, so long as the indorsee has the right

16

to demand payment of the maker. If the indorsee has obtained a judgment against the indorser, and collected part of it, that will not entitle the indorser to maintain an action upon the note against the maker. Little v. Ingalls, 13 N. H. 44. And where the maker of a note gave to his indorsers a mortgage to indemnify them, with a covenant to pay the notes subsequent to their maturity, all recovery against the maker on account of the notes prior to that period is precluded, although the indorsers are compelled to pay the notes earlier. Duval V. Farmers' Bank, 9 Gill & J. (Md.) 31.

As to assignment for benefit of creditors as a release of the maker from a suit in behalf of indorsers see Reed

suit is brought jointly against a maker and an indorser, and after judgment was recovered against them both, the indorser paid it, he is entitled to the benefit of the judgment against the maker.18 Where a judgment is obtained by the holder against the maker, and an indorser pays the amount thereof, he has the same right to an assignment of the judgment that he has to the note when he pays it.19 An indorser who has been sued upon his indorsement, and a judgment recovered with costs, cannot recover the amount of the costs of the maker, 20 It has been held that an indorser may recover the whole amount due on a note in an action brought in his own name against the maker although a part thereof has been paid by a prior indorser to the holder of the note, and a proportional part of the amount recovered will be held by the plaintiff in trust for such indorser.21

c. Rights as against prior party.— The payment or discharge of a note or bill by an indorser does not release a prior party of his liability, but an action may be maintained against him by the

himself of the payment by the indorser as a defense in the suit against him.

19. State Bank v. Wilson, 1 Dev. (N. C.) 484; Allin v. Williams, 97 Cal. 403, 32 Pac. 441; Folsom v. Carli, 5 Minn. 333, 80 Am. Dec. 429.

v. Tarbell, 4 Metc. (Mass.) 93. If the indorser and maker of a note are both insolvent, the holder may prove the note for the full amount thereof against the estate of each, but the amounts received from the two estates will not in any event be permitted to exceed in the aggregate the amount of the note. In re Meyer, 78 Wis. 615, 48 N. W. 55, 23 Am. St. Rep. 435; Miller's Estate, 82 Pa. St. 113, 22 Am. St. Rep. 754; Citizens' Bank v. Kendrick, etc., Co., 92 Tenn. 437, 21 S. W. 1070, 36 Am. St. Rep. 96. In 21. Recovery of whole amount the last case it was also held that an where part is paid by receiver.indorser for an insolvent debtor is, Ward v. Tyler, 52 Pa. St. 393. before the payment of the debt, entitled to prove his claim as such indorser against the estate of the insolvent.

20. Peers v. Kirkham, 46 Mo. 146; Fenn v. Dugdale, 31 Mo. 580; Woodman v. Eastman, 10 N. H. 359; Steele v. Sawyer, 2 McCord (S. C.), 459; Overton v. Hardin, 6 Coldw. (Tenn.) 375.

In the case of Madison Square Bank v. Pierce, 137 N. Y. 444, 33 N. E. 557, 20 L. R. A. 335, it was held that an indorsee of a promissory note 18. Payment of judgment by in- given and transferred for value may dorser.-Davis v. Perrine, 4 Edw. Ch. recover the whole amount from the (N. Y.) 62. In the case of Mechanics' maker, although a portion of such Bank v. Hasard, 13 Johns. (N. Y.) amount has been paid by the receiver 353, where suits are brought against in insolvency of the indorser, and hold the maker and indorser of a promis- the judgment pro tanto as trustee for sory note, and the indorser pays the the indorser, since upon the merger amount, and it is agreed between the of the note in the judgment, the inholder and indorser that the suit dorser can only proceed through the against the maker shall be prosecuted judgment or against its proceeds, and for the benefit of the indorser, it such judgment and payment therewas held that the maker cannot avail under will discharge the note utterly.

indorser for the amount paid by him.22 And the payment by an indorser, of a judgment rendered on a bill against a prior indorser, does not extinguish the bill as between him and such prior indorser, but gives him a right of action thereon against such prior indorser and all other prior parties.23 The general rule is that payment of a bill or note by an indorser is a satisfaction of it only in respect to subsequent indorsers; for a bill is not discharged, and finally extinguished, until paid by or in behalf of the acceptor; nor a note until paid by or in behalf of the maker.24 The rights and liabilities of accommodation indorsers inter se are the same as those of ordinary indorsers.25 We have considered in another place the rights and liabilities of successive accommodation indorsers:26 the rule is that unless there be an agreement to the contrary, successive indorsers for the accommodation of a third person are liable in the same order as indorsers for value, though each of them knew that the indorsement was for accommodation.27 And where a subsequent accommodation indorser pays the note he may recover the whole amount paid of a prior accommodation indorser.28

West Virginia.- Nichols v. Porter, 2 W. Va. 13, 94 Am. Dec. 500; Conaway v. Odbert, 2 W. Va. 25.

23. Cotten v. Bradley, 38 Ala. 506. 24. Edwards on Bills and Notes, p. 535.

25. Crutcher v. Bank of Kentucky, 4 Litt. (Ky.) 436; Keeler v. Bartine, 12 Wend. (N. Y.) 110.

Where several persons have indorsed a bill, separately and necessarily, for the accommodation of the drawee, they are not bound to pay in equal proportions as cosureties, unless there is a special agreement to that effect; and where one of them pays the bills he has a right to assign the bill as collateral security for a pre-existing debt, or otherwise negotiate, and the assignee or transferee may sue the payee who was also an indorser. McCarty v. Roots, 21 How. (U. S.) 432, 16 L. Ed. 162.

26. See § 89, (c), ante.

27. Moore v. Cushing, 162 Mass. 594, 39 N. E. 177, 44 Am. St. Rep. 393.

28. Kirscher v. Conklin, 40 Conn. 77; Rowland v. Smith, 49 Conn. 404; McGurk v. Huggett, 56 Mich. 187, 22 N. W. 308; Kelly v. Burroughs, 102 N. Y. 93, 6 N. E. 109.

d. Right to negotiate. If an indorser takes up a dishonored note or bill, he is at liberty to put it again in circulation.20 This is in view of the rule that a bill or note does not lose its negotiable character by being dishonored, and the indorsement, although made after dishonor, follows the nature of the original contract, and is negotiable unless it contains express words of restriction.30 The Negotiable Instruments Law provides that: "An instru"ment negotiable in its origin continues to be negotiable until it "has been restrictively indorsed or discharged by payment or "otherwise." 31 Upon the payment or discharge of the instrument by a party secondarily liable, he is entitled to its possession, and he may then treat it as any other instrument received by him. in the due course of commercial transactions.32 The only exceptions to this rule are those stated in the statute. Where an accommodation note is paid at its maturity by the real debtor, although he is not a party to it, it cannot be thereafter transferred by him so as to give it validity against the accommodation maker and indorser.33

29. Edwards on Bills and Notes, p. 535.

30. Leavitt v. Putnam, 3 N. Y. 494. 31. Neg. Inst. L. (N. Y.), § 77. For same section in statutes of other States see Appendix. See also § 67, ante, p. 343.

upon its face the stamp of dishonor. (2) That payment of a dishonored note by an indorser does not extinguish its negotiability, though it discharges the liability of subsequent indorsers, whose liability will not be revived by his putting the note in circulation."

33. Cottrell v. Watkins, 89 Va. 801, 17 S. E. 328, 19 L. R. A. 754.

32. Rule as to transfer of overdue paper. The following rules are stated in the case of Cottrell v. Watkins, 89 Va. 801, 17 S. E. 328, 19 L. R. A. In the case of Chester v. Dorr, 41 754, as bearing upon the rights of an N. Y. 279, it was held that an accomindorser who has paid the instrument: modation indorser, without considera"(1) A negotiable note may be trans- tion, of a promissory note is not liable ferred at any time while it remains to a transferee of the note after maa good subsisting, unpaid note, turity from the person for whose acwhether before or after maturity, and commodation it was indorsed, although in the latter case even though it be such transferee paid a full consideraprotested for nonpayment, and bear tion.

CHAPTER XI.

Alteration and Forgery.

§ 125. Effect of Alteration.

a. Statutory provision.

b. Effect of alteration.

c. Authority and consent of parties.
d. Presumptions as to alterations.

§ 126. What Constitutes a Material Alteration.

a. Statutory provision.

b. In general.

c. Date, time, and place of payment.

d. Amount; medium of payment; addition of interest clause.

e. Change in number or relation of parties.

f. Alterations affecting negotiability.

§ 127. Statutory Provisions as to Forged Signature.

§ 128. Forged Instrument or Indorsement Thereon. a. In general.

b. Making or alteration of instrument.

c. Forged indorsement.

§ 129. When Party is Precluded from Setting up Forgery. a. Estoppel.

b. Ratification.

$130. Forgery as a Defense.

§ 131. Recovery of Money Paid on Forged Instrument. a. In general.

b. Forged signature of drawer.

c. Forged indorsement.

§ 125. Effect of alteration.

a. Statutory provision.- The Negotiable Instruments Law provides that: "Where a negotiable instrument is materially altered "without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized or "assented to the alteration and subsequent indorsers. But when