the time of the maturity of the note and the commencement of the suit, the right of action as against the defendant, who is an accommodation indorser, is lost. This proposition cannot be maintained. It is well settled that mere delay by the creditor to sue the principal debtor will not discharge the surety, for the obvious reason that the surety may at any time discharge his obligation to the creditor, and thus made the principal his debtor. The same rule holds when collaterals are pledged by the principal debtor. The surety may at any time after the debt becomes due and owing, discharge it and take the collaterals. The law implies no contract on the part of the creditor to proceed on the collaterals before he can sue the surety. Nor are the rights of the parties affected by the fact that the collaterals have depreciated between the time of the maturity of the debt, for payment of which they were pledged, and the commencement of suit against the surety. These principles are recognized as sound law by the Court of Appeals of New York, in the well-considered case of Schroeppell v. Shaw, reported in 3 Comstock, 446, 5 Barb. 580. *** Rule to show cause should be discharged. 1

1

§ 201

WOLSTENHOLME v. SMITH.

* * *

34 UTAH, 300.- 1908.

ACTION on promissory note payable to the order of Joseph P. Megeath and signed by Grant H. Smith and J. E. Darmer, the defendants in this action. The note was indorsed to James Megeath, and this action is brought by his administrator. STRAUP, J. The defendant Darmer, answering the complaint, alleged that his co-defendant, Smith, was the principal debtor; that he (Darmer) received no part of the loan or consideration for which the note was given, and that he signed it only as surety, which facts were known to both Joseph P. and James Megeath when the note was executed; that by a binding agreement Smith, and the holder of the note, extended the time of payment to October, 1902, without his knowledge or consent; that no demand was made upon him for payment until more than four years after the note became due; and that, by reason of the extension of time and of the delay in payment, he was prevented from protecting and securing himself. The court

1 If a secured creditor part with the securities, the surety is discharged. 2 Daniel on Neg. Inst., § 1311.

Pain v.

In New York the doctrine prevails that a surety may call on the creditor to proceed promptly against the principal, and failure to do so will dis charge the surety to the extent of the loss suffered by the delay. Packard, 13 Johns. 174; Newcomb v. Hale, 90 N. Y. 326, 329. But the doctrine does not extend to indorsers for value. Trimble v. Thorne, 16 Johns. 152; Newcomb v. Hale, supra. — H.

found the facts substantially as alleged in the answer, but as conclusions of law found that the defendant Darmer was a maker and primarily liable on the note, and therefore rendered judgment against him. From this judgment the defendant Darmer has appealed.

There is no doubt that under the decisions of this court prior to the enactment of chapter 83, p. 122, Laws 1899, relating to negotiable instruments, the facts alleged in the answer and found by the court constituted a defense, and discharged Darmer. It was the law generally in this country that a binding agreement between the principal and holder of a negotiable instrument, whereby the time of its payment was extended, relieved the surety, though he apparently signed as maker, if the holder had knowledge or notice that he was in fact a surety. It is, however, contended by the respondent that the law in this respect has been changed by the act in question. On the other hand, the appellant contends that it has not been changed, and that the law in this regard is now as it was before the enactment. cannot agree with the appellant in this contention. The Negotiable Instruments Law enacted in 1899 is like that of the Bills of Exchange Act of 1882 of England, and of the Negotiable Instruments Law of New York, adopted in 1897, and of about 19 other states.

The particular sections pertinent to the question are:

We

[Quoting §§ 29, 60, 63, 119, 120 and 192 of the Utah statute.]2 By subdivision 6 of section 120 it will be seen that a person secondarily liable on the instrument is discharged by an agreement binding on the holder to extend the time of payment. If, therefore, the appellant was only secondarily and not primarily liable on the instrument, he is discharged. Otherwise not, unless the instrument was discharged. Section 192 makes a person primarily liable on the instrument who by the terms of the instrument is absolutely required to pay it. And by section 29 an accommodation party in fact is liable on the instrument to the holder, notwithstanding such holder at the time of the taking of the instrument knew him to be only an accommodation party. Messrs. Eaton & Gilbert, authors of a recent work ⚫ on negotiable paper, in considering the Negotiable Instruments Law in question, say in section 123f: "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. 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 fol

2 N. Y., §§ 55, 110, 113, 200, 201, and 3.-C.

a N. Y., § 201. — C.

4 N. Y., § 3. — C.

5 N. Y., § 55. — C.

that the judgment of the court below must be affirmed, with costs. It is so ordered.

MCCARTY, C. J., and FRICK, J., concur. 2

2 In addition to the cases cited in the principal case, see also the following cases in accord: Bradley Engin. & Mfg. Co. v. Heyburn, 56 Wash. 628; and Richards v. Market Exch. Nat. Bk., 81 Oh. St. 348 (criticized at length in 8 Ohio Law Reporter, 25-30).

In Richards v. Market Exch. Bank, supra, the additional argument was made that the extension of time worked a material alteration in the instrument, thus discharging the defendant. On this proposition, Spear, J., said: "The question thus made is: Does the extension work a material alteration' in the instrument? The argument in support of the claim that it does is rested upon the proposition laid down by Brandt on Suretyship as follows: 'Any agreement between the creditor and principal which varies essentially the terms of the contract by which the surety is bound without the consent of the surety will release him from responsibility.' We think this does not satisfy the requirements of the sections above quoted. It does not imply an alteration of the instrument. It is but a statement of the equitable rule hereinbefore stated and considered. It must be borne in mind, as an absolute controlling condition, that it is the instrument itself which the foregoing sections of the statute treat of, not the contract which the instrument is intended to evidence. This, it seems to us, is so manifest on the face of the printed word that it cannot be more clearly shown by comment, and hardly needs authority in its support. Nevertheless the question has been considered by text-writers and passed upon in a number of adjudicated cases. See 1 Bouvier, Law Dictionary, 153, under title 'Alteration,' and authorities there cited; also 2 Cyc. of Pl. & Pr. 142, under head of 'Alteration of Instruments,' and authorities there cited; also 2 Am. & Eng. Ency. of Law, 184, under same head, and authorities. Again, if these sections were intended to apply to a condition other than a physical alteration of the instrument, we would expect to find the provisions under section 3175j, [N. Y., § 200] where the subject of discharge of instruments is specially treated, and we would not expect to find it elsewhere repeated. We should be slow to ascribe careless and needless tautology to the lawmaking body."

But in Northern State Bank of Grand Forks v. Bellamy, 125 N. W. (N. Dak.) 888 (April, 1910), it was held that the defendant, who had signed a note as an absolute guarantor of payment of the same, and not as a surety, was released from liability on the note by the act of the plaintiff in extending the time of payment to the principal debtor without the knowledge or consent of the defendant. It was conceded that this was the rule prior to the Negotiable Instruments Law. As to the effect of this enactment, Ellsworth, J., said: "The terms primary and secondary,' when they apply to the parties to an obligation, 'refer to the remedy provided by law for enforcing the obligation, rather than to the character and limits of the obliga tion itself.' Kilton v. Prov. Tool Co., 22 R. I. 605. Therefore, however closely analogous may be the ultimate liability upon the instrument of surety and guarantor, the clear distinction in the character of their respective contracts, and the procedure by which their obligations must be enforced, operates to place these parties in different classes of the persons liable as defined by the new law of negotiable instruments. The purpose in making a classification not provided by the former law would seem to be to strengthen the credit of negotiable paper by protecting the holder against a claim that persons

III. Payment by party secondarily liable.

§ 202

GARDNER v. MAYNARD.

7 ALLEN (MASS.) 456. - 1863.

CONTRACT against the acceptor of a draft for $1,000, drawn by Sandford C. Gardner, in favor of J. & C. Levy & Co., upon the defendant. The draft was duly indorsed and accepted.

At the trial in the Superior Court, before Allen, C. J., it appeared that the draft was protested for non-payment, and returned to Levy & Co., and was afterwards returned to the drawer, who assigned it by bill of sale to the plaintiff, with the indorsement of Levy & Co. remaining uncancelled. A witness testified that he saw the draft indorsed by one of the firm of Levy & Co., and did not see any money paid at

that time.

Upon these facts, the chief justice directed a verdict for the defendant, which was accordingly rendered; and the plaintiff alleged exceptions.

METCALF, J.-These exceptions must be overruled and judgment rendered on the verdict for the defendant, upon the authority of Beck v. Robley, 1 H. Bl. 89, n. That case and this are alike in all particulars. In both, the bill was made payable, not to the drawer's own order, but to a third party, who indorsed it, was accepted by the drawee, but afterwards was dishonored by his refusing to pay it, and was taken up from the indorser by the drawer, with the indorser's name remaining uncancelled. In that case it was decided that the bill was not negotiable, and that the drawer could not reissue it. And that decision has never been overruled or denied, but is cited as established law in all the books that treat of bills of exchange. (See, 1 Steph. N. P. 863; Story on Bills, § 223; Guild v. Eager, 17 Mass. 615; Opinion of Patteson, J., in Williams v. James, 15 Ad. & El. N. S. 505.) The doctrine of that decision is, that a bill of exchange cannot be indorsed or negotiated, after it has once been paid, if such indorsement or negotiation would make any of the parties liable, who would other-wise be discharged. (Bayley on Bills, 6th ed. 166, 167; Chit., Bills,

directly and absolutely liable by the terms of the instrument had in fact signed, not as joint makers, but in some other capacity. As the law now stands, these questions of primary and secondary liability are to be resolved only upon the face of the instrument. All persons by its terms absolutely required to pay the same may be held as primarily liable; all others, secondarily. When a party on signing clearly indicates upon the instrument the capacity in which he is willing to be bound, the holder in accepting it cannot misapprehend its true quality, for he then knows that the party may be held in that capacity and no other. Appellant signed as guarantor, and, as in that capacity he was secondarily liable upon the instrument, he was released, as under the former law, by an extension of time to the principal debtor without his assent. As affecting him the principle governing the relation of holder and guarantor under the former law is unchanged,” — C,

12th Am. ed. 254, 255.) As the first indorser of a bill is liable to every subsequent bona fide holder, although the bill be fraudulently circulated, it follows that if he leaves his name thereon, after he is entitled to a discharge, he exposes himself to liability to such holder. Therefore the bill is held not to be negotiable in such case.

This rule of law applies only to cases in which the negotiation of a bill by the drawer, after he has taken it up on its being returned to him dishonored, would expose a discharged party to a new liability. See Callow v. Lawrence, 3 M. & S. 95; Hubbard v. Jackson, 4 Bing. 390; Bayley, Chit., and 17 Mass. ubi supra; Mead v. Small, 2 Greenl. 207.)

Exceptions overruled. '

§ 202

BLENN v. LYFORD.

70 MAINE, 149. - 1879.

APPLETON, C. J. — This is an action of assumpsit on the following

note:

ST. ALBANS, ME., Dec. 2, 1871. Seven months from date, value received, I promise to pay M. E. Rice, or order, three hundred dollars, at any bank in Bangor.

H. H. LYF OBD.

[The note was indorsed in blank] M. E. RICE. [The following words were also on the back of the note, erased with ink but legible]: Holden without demand or notice. M. E. RICE.

Granting the presumption that the plaintiff is a bona fide holder for value of the note before maturity, that presumption may be overcome by proof.

It appears from the testimony that the note was indorsed to one Richardson, for value, in the April following its date; that it was not paid at maturity, and that about three months after its dishonor he delivered it to Rice, the payee.

The

The plaintiff then received the note in suit, when overdue. note remaining unpaid after maturity was dishonored, and it was the duty of the indorsee to make inquiries concerning it. If he takes it, though he gave a full consideration for it, he does so on the credit of the indorser. He holds the note subject to all equities with which it may be incumbered. As the plaintiff is the indorsee of a dishonored note, it was competent for the defendant to show that it was an accommodation note, and that it had been paid by the party for whose accommodation it was given.

That the note was for the accommodation of the payee is abundantly shown by his receipt of the date of February 22, 1872, as well as by the testimony offered and excluded.

• Accord: Price v, Sharp, 2 Ired, Law (N. C.) 417. — H.