Page images
PDF
EPUB

the holder to sue any prior party bound to pay, on pain of discharging such indorser to the extent of any loss he may sustain by failing to sue as requested.

§ 5. ACCOMMODATION CONTRacts.

The foregoing doctrines govern not only indorsement, but all other engagements which are on their face, or are known to be,1 secondary, such as accommodation undertakings. Extending For example: The defendant is one of two joint time. makers of a promissory note, having joined for accommodation, of which fact the plaintiff, holder of the note, was aware when he took it. Without the defendant's consent the plaintiff has made a binding agreement with the principal joint maker for an extension of time. The defendant is discharged.2

Accommoda

Formerly, indeed, the situation of an accommodation party to a note, bill, or cheque was likened in general to that of an ordinary surety. But the later authorities show that the likeness is not general; they declare that tion party as an accommodation acceptor or maker will not be surety. discharged by any agreement, however valid, to extend the time of payment or to give a discharge from liability to the party for whom the accommodation was given, where the accommodated party is liable under a distinct and different kind of contract, such as an indorsement. It makes no difference that the agreement was made with knowledge of the accommodation, at least if the holder had no notice of the fact when he took the paper. For example: The defendant accepts a bill of exchange for the accommodation of the drawer, and the plaintiff becomes holder of the bill in due course, for value, and without notice of the accommodation. Afterwards he is informed of the nature of the acceptance, and later still enters into a valid agreement

1 Evidence of knowledge of the suretyship may be given. Hitchcock v. Frackelton, 116 Mich. 487. It may be shown that one of two or more makers of a note signed as surety to the holder's knowledge, 'not for the purpose of showing that the maker is not liable as he contracted to be, but to show that it would be inequitable to permit the payee to vary the terms of the contract or imperil the rights of the surety by an extension' of time. Hitchcock v. Frackelton, supra.

2 Barron v. Cady, 40 Mich. 259.

not to sue the drawer, discharging him from liability. That does not discharge the defendant.1

That proceeds upon the ground that the holder is entitled to treat the parties as liable according to the contract which they have actually made. The plaintiff, in such a case as that of the example, has presumably bought the paper in reliance upon the contracts as they appear thereon, and that has given to him a right which cannot be taken away without his consent. Consent he has not given. Indeed the case would appear to be the same in principle, though he had had knowledge of the accommodation when he bought the paper, for it would still be presumable that he bought it relying upon the several contracts as they appear on the paper. And so the modern authorities hold.

§ 6. AGREEMENT FOR TIME WITH STRAnger. An agreement for time or the like, if made with one not a party to the paper, and not with the person in whose favor it is made, would not in any case, it is held, have the effect to discharge later parties. The holder has, indeed, in such a case, bound himself not to sue the particular party; but that party could not enforce the agreement or set it up in bar of an action against him.

Not available to surety.

statute.

§ 7. GROUND OF DOCTRINE.

The doctrines above presented do not rest upon the ground that there was any agreement, express or implied, in the origEquity or inal contract, whereby the indorser or other party was to be discharged, in case the holder should do any of the things mentioned. They rest upon grounds of equity or of statute, or, it may be, in some instances of special though doubtful views of the common law. And, let it be repeated, they apply in favor of all persons secondarily liable, within the limitations stated.

1 Farmers' Bank v. Rathbone, 26 Vt. 19; Cases, 342.

2 Id.; Fentum v. Pocock, 5 Taunt. 192 (overruling Laxton v. Peat, 2 Camp. 185, and Collott v. Haigh, 3 Camp. 281); Price v. Edmonds, 10 B. & C. 578, 584; Nichols v. Norris, 3 B. & Ad. 41; Harrison v. Courtauld, id. 36; 3 Kent, 104.

8 Frazer v. Jordan, 8 El. & B. 303.

CHAPTER XIX.

PAYMENT.

§ 1. GENERAL RULE: THE STATUTE: PRESUMPTIVE
PAYMENT: SURRENDER.

PAYMENT and surrender of a negotiable bill of exchange, promissory note, or cheque, made at the right time, to the right person, by the right person, will extinguish Extinction of the liability of all parties to the instrument.' Pay- entire instrument of an unnegotiable bill, note, or cheque made at any time, and proper in other respects, has the same effect. It will not be necessary to say anything more on the subject in regard to unnegotiable instruments.

ment.

The Statute puts the general rule thus: A negotiable instrument is discharged (1) by payment in due course by or on behalf of the principal debtor; (2) by payment in due course by the party accommodated, where the instrument is made or accepted for accommodation; (3) by the intentional cancellation thereof by the holder; (4) by any other act which will discharge a simple contract for the payment of money; (5) by the

1 Taking a bill, note, or cheque for debt should not be confused with the present subject. To take a note for debt suspends the remedy on the debt. Kearslake v. Morgan, 5 T. R. 513. Hence if the creditor sues for the debt, and not on the note, it is for him to show that the note has become unavailable without his fault. See Harvard Law Rev., Jan. 1900, p. 409, referring particularly to suit on the original consideration of altered notes. See Maguire v. Eichmeier, 80 N. W. R. 395 (Iowa); Davis v. Reilly, 1898, 1 Q. B. 1, bill of exchange given for price of goods; Kirkpatrick v. Puryear, 93 Tenn. 409, 413, that a cheque taken on account is not payment unless so intended.

Payment by the maker or acceptor will not stop the Statute of Limitations from running in favor of an indorser. Maddox v. Duncan, 143 Mo. 613.

principal debtor becoming the holder of the instrument at or after maturity in his own right.1 Payment is made in due course when it is made at or after maturity of the instrument to the holder thereof, in good faith and without notice that his title is defective.2

Further, under the Statute the holder may expressly renounce his rights against any party to the instrument before, at, or after maturity. An absolute and unconditional renunciation 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. The renunciation must be in writing, unless the instrument is delivered up to the person primarily liable thereon."

Payment may, in certain cases, be shown by prima facie presumption. Thus, possession of paper after maturity raises Presumptive a presumption of the kind towards parties secondapayment. rily liable, especially if the paper, with an indorsement upon it, is then found in the hands of and taken from the maker or acceptor, or even of the drawee of a bill who had not accepted it. Indeed between several makers of a promissory note, or acceptors of a bill of exchange, possession by one of them after maturity is prima facie evidence against the others of payment by him.

But the presumption, being prima facie, may be rebutted. Indeed the drawee of a bill of exchange or a cheque may prove to be the holder of it, and as such entitled to maintain an action upon it; for, instead of accepting, he may have discounted the bill. For example: The plaintiffs, being drawees of a bill of exchange now sued upon, and bearing the indorsement of the defendants, discount it in favor of the payees (defendants) before it becomes due, not being bound to accept it. At its maturity.

[blocks in formation]

8 See Edwards v. Walters, 1896, 2 Ch. 157. No consideration is necessary any more than for striking out an indorsement.

4 N. I. I. § 129.

McGee v. Prouty, 9 Met. 547; Eckert v. Cameron, 43 Penn. St. 122 • McGee v. Prouty, 9 Met. 547.

the drawer has no funds in their hands, the bill is dishonored, and the usual steps are taken to fix the liability of the defendants. The plaintiffs are entitled to recover; their act of dis counting the bill being proper, and not amounting to a payment of it.1

Unexplained, however, an act of that kind has sometimes been looked upon prima facie as payment, extinguishing the liability of all the parties; though, as will be noticed, the case put is one of possession obtained before maturity. According to such a rule, it would be presumed that the paper must have been in the hands of the drawee, in the ordinary course of business, either for acceptance or after payment. Hence, until the transaction was explained, neither such drawee nor any subsequent holder with notice could be treated as a holder in due course. The like rule would apply to the maker of a note or the acceptor of a bill. But that view has been denied, and the position taken that, though the party primarily liable, for example, the maker of a note, offers the paper indorsed for discount, there is no presumption, from the fact that the paper is in his hands, that it has been paid. The proper inference, it is thought, is that the paper was indorsed for the accommodation of the one offering it, and was left in his hands to enable him to raise money by it; at any rate there would be nothing to fix upon the purchaser notice of payment. And that appears to be

the true view.

While the paper remains in the hands of the maker or acceptor, however, such party cannot sue upon it, obviously; for if he were to recover on the footing of an indorsee suing an indorser, the latter could at once maintain an action against him in turn as maker or acceptor. But the drawee of a bill, not having accepted, is not in such a position; he might either transfer the paper, or, as we have seen, sue upon it, after having

1 Swope v. Ross, 40 Penn. St. 186; Cases, 361.

2 Central Bank v. Hammett, 50 N. Y. 158. But see Witte v. Williams, 8 Rich. N. s. 290, 305.

3 Eckert v. Cameron, 43 Penn. St. 120; Witte v. Williams, supra; Smith v. Weston, 159 N. Y. 194; Morley v. Culverwell, 7 Mees. & W. 174; Harmer v. Steele, 4 Ex. 1.

« PreviousContinue »