CHAPTER XIII.

PRINCIPAL AND SURETY.

1. General meaning of the words.

2. Suretyship may arise on the Bill or Note, or by independent contract.

3. Of the different relations of principal and surety arising among the parties to a Bill or Note.

Discharge of principal is discharge of surety, &c. 4. What indulgence the holder may grant to acceptor or maker, without discharging drawer and indor

sers.

5. Of suretyships by independent contract, or guaranties, and the rights under them.

6. Sureties-when discharged by taking a renewal Bill.

7. Judgment.-Taking composition from acceptor or maker.

8. Under what circumstances the sureties will remain

liable.

9. Where the principal and surety jointly sign a Bill or Note.

10. Surety who has paid may sue his principal.—Con. tribution among co-sureties.-Insolvent surety. 11. Position of acceptor for honor.

1. Without an elaborate definition of the word "Principal," it will be understood that the principal debtor is the man who is primarily liable as the person himself owing the money; and the surety is, in relation to the principal, one who in some way or other may be obliged to pay the money in default of the principal; i.e. the surety is the person secondarily liable.

2. This relationship may attach to a person either by his becoming party to a bill or note, or by an independent contract. See the case mentioned in chap. iv, s. 6. 3. First, as to the relation of principal and surety arising upon the instrument itself.

The acceptor of a bill and the maker of a note are the principals, being the persons primarily liable upon the

instrument.

All the other parties are sureties to the principals; but each is a principal to those who follow him.

Looking at the matter from the holder's point of view, the acceptor is, at maturity, his principal debtor, and the drawer and indorsers are all the acceptor's sureties; the indorsers are again sureties for the drawer, and the third indorser is surety for the second indorser (the first indorser being the drawer).

When the acceptor of a bill or maker of a note is discharged, all the other parties are discharged, for the surety is always discharged by the discharge of the principal. (See chap. xii, s. 7.)

In the case of a note, the relations are the same, the indorsers being sureties for the maker. It makes no difference if the note be given gratuitously. But this is, of course, subject to the rule that no man can sue on a bill or note the person from whom he gratuitously received it.

4. The holder may be as negligent as he pleases in suing, prosecuting his suit, obtaining judgment, and issuing execution against the person primarily liable, and he may still, until the suit is barred by the Statute of Limitations, sue the persons liable as sureties.

But, if the holder once, by a binding contract, part with or suspend, for however short a time, the right of suing to judgment, or of obtaining the fruits of a judgment against the person primarily liable, those liable as sureties are discharged, unless the loss or suspension of the rights against the principal took place with their sanction; for the surety always has a right to pay off the debt and recover.

But, to effect the discharge of the sureties, the sus pension of the remedy against the principal must be by an agreement, which, whether written or verbal, binds the creditor; a mere promise of forbearance without consideration will not have this result.

A bargain may, however, be made not to sue for a certain time, with a proviso that if the money be not paid, the creditor may have a judgment as soon as he might in the regular course. This will leave untouched the liability of the sureties.

There is another way in which the creditor may bind himself to give time to the debtor without releasing the sureties. The reason why the sureties are released by the release of the principal is that, the debt being gone, the surety cannot pay it off and recover against the

principal, which the surety has always the right to do when the debt is due. Therefore, if the creditor, when giving time to the debtor, express on the face of the instrument that he, the creditor, reserves his right against the sureties, the latter are not discharged, for, being liable to be sued, they have the right of paying off the debt at any time after it is due and then of suing the principal debtor. This is a very common way of giving time; but the principal debtor, if solvent, does not benefit much by it, for it is no more than saying, "I will give you time directly but may sue you at once circuitously.

5. The same rules apply equally to suretyships, contracted by agreement, independent of the bill. These agreements, usually called guaranties, can only be made in writing, and cannot be made binding, unless they are either made by deed, or there is some consideration.

6. The taking a new bill or note from the person primarily liable, payable at a future day, discharges the sureties, for it interferes with the right of the surety at any time to pay off the debt, and recover against his principal.

This is the same whether they are sureties on the bill, or by independent contract.

If, however, the second bill be taken only by way of collateral security, i. e. if the right to sue on the first be not thereby suspended the sureties, whether on the bill itself, or by independent contract, are not discharged.

Taking a new bill from, or suspending the remedy against a subsequent party, never discharges a prior party.

7. The holder of a bill may sue all the parties at the same time, or one after the other, and a judgment against any will not be a satisfaction as to the rest, except when two parties are jointly liable, as for instance, two acceptors, in which case judgment obtained against one of them only will be a discharge of the other.

If the holder takes a composition from the acceptor or maker, the other parties are discharged. Part payment, of course, has no such effect.

It is presumed, also, that the drawer and endorsers of an unaccepted draft will be discharged if the holder gives

the drawee a longer time to accept than according to the tenor of the draft.

8. But if it be agreed between the holder and the principal debtor that the sureties shall remain liable, they will then remain so; for it is presumed the sureties can then at sany time pay off the debt, and recover against the principal debtor, and it is on the continuance of this right that the continuance of the surety's liability depends.

But this is subject to the rule that if one person, jointly liable, be discharged, the other joint contractors are discharged also. [As to the distinction between joint and joint and several liability, see chap. xx, sec. 1.]

[Throughout this chapter, the word "principal debtor " may be used as synonymous with "person primarily liable;" the holder will then be, in general, the creditor, and the drawer and indorsers (or, in case of a note, the indorsers) the sureties.]

Again, if the surety consent to the principal debtor having time to pay, the former will not be discharged; so also if after the time has been bargained for between the principal debtor and creditor, the surety ratify the course adopted, he will not be discharged, but will have waived his right.

Both the prior consent and the subsequent ratification may be verbal as well as in writing. It is very easy to see what will constitute a consent; but a surety should be very careful that what he says does not amount to a ratification. If the surety says, "I know I am liable," or, "I will pay, if he does not," this will constitute a ratification; but merely saying, "It is the best thing that can be done," has been held not to do so.

9. It sometimes happens that a person, in order to obtain credit, procures another to join him in making a joint note, or, jointly accepting a bill (see chap. xx, sec. 1). In this case, the relation of principal and surety is only by arrangement with one another, and differs from that which appears on the face of the instrument or is created by an independent contract with the creditor; for as both are jointly liable, the discharge of either operates as the discharge of both. Whereas, in ordinary cases, the surety may be discharged, and the principal held liable.

10. When a surety has paid an overdue bill, he has

his remedy against his principal; nay, if he pay by instalments, he may bring a separate action for each instalment.

Where there are several sureties for the whole amount, each is liable to the creditor for the whole, but, among one another, each is only liable for his share; therefore, if one pay more than the others, he may sue the others for contribution.

If one become bankrupt or insolvent, and can pay nothing, each of the others is, at law, only liable to contribute to the extent of his original proportion; but in a Court where equity is administered, each is liable for a proportion of what is left uncovered by the bankrupt's dividend.

11. The acceptor for honor (see chap. vi, sec. 8) is a surety for the person for whose honor he accepts, whether drawer or indorser, and for all parties antecedent to him.

It is not till the bill has been presented for payment to the drawee when due, that the acceptor for honor becomes primarily liable to all parties subsequent to him for whose honor he accepts. When the bill accepted for honor has been presented for payment to the drawee and dishonored, the holder, after noting or protest, may sue the acceptor for honor.

But the latter is, as between himself and the person for whose honor he accepted and parties antecedent to that person, a mere surety; and therefore, when he has paid the bill, he can compel any of such parties to reimburse him.

And the holder must not discharge the person for whose honor the bill was accepted, or any person prior to him, for then the acceptor for honor, being but a surety, will be discharged.

1. Necessity for and object of the Notice.

2. Tenor of the Notice, with examples and Form. 3. Who alone can give an effectual Notice.

4. Who benefits by Notice by Holder.