and the prior indorsers. Upon his payment he is entitled to receive the instrument from the holder, and to enforce it against the prior parties, or, if he wishes, to transfer it by way of sale or gift. The N. I. L. provides:

Sec. 121. Where the instrument is paid by a party secordinarily 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.

§ 179. Same: Illustrations. For example, C sells property worth $100 to B, taking in payment a note of $100 made by A payable to B, indorsed by B to C. C indorses the note to D. A does not pay at maturity, and C is compelled to pay D. D can enforce the instrument against A or B. The instrument is not discharged, because the absolute and unconditional promise of the acceptor or maker to pay has not been fulfilled by the indorser's payment in satisfaction of his own obligation to pay if the maker or acceptor does not. The prior indorsers are not discharged, because they have assumed an obligation to every subsequent holder to pay if the maker did not, and he has not paid. The indorser who has paid and received the instrument is entitled to enforce it against the prior parties, or to transfer it because he has become the holder (6). The indorser who has taken up the instrument can not enforce it against indorsers subsequent to himself. In the example above, had the holder D secured payment from the

(6) Serra v. Berkley, 1 Wilson, 46; Callow v. Lawrence, 3 Maule & S. 95.

first indorser B, instead of from the second C, B would have no rights against C. To allow B to pursue C on the instrument would be futile; for, were C compelled to pay, he could turn about, and, under the general rule that prior indorsers are not discharged, compel B to repay him (7).

§ 180. Cancelation and alteration. In addition to payment by the acceptor or maker, there are two other principal ways in which a negotiable instrument may be discharged, cancelation and alteration. A cancelation includes, as well as canceling, a destruction or mutilation of the paper on which the bill or note is written, or an erasure of the writing. But, "a cancelation made unintentionally, or under a mistake, or without the authority of the holder, is inoperative" (8).

An alteration is any change made in the material terms of the instrument. No matter by whom, or under what circumstances, the alteration is made, it effects a discharge of the instrument unless all of the parties consent (9). But the N. I. L. makes an exception to this strict rule in favor of purchasers, who, ignorant of the alteration, have innocently parted with value for the paper:

Sec. 124. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor.

The N. I. L. enumerates what alterations are material as follows:

(7) Neg. Inst. Law, sec. 120 (4).

(8) N. I. L., sec. 123.

(9) N. I. L., sec. 124.

Sec. 125. Any alteration which changes:

1. The date;

2. The sum payable, either for principal or interest; 3. The time or place of payment;

4. The number or the relations of the parties;

5. The medium or currency in which payment is to be made; Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

§ 181. Discharge of indorsers. The discharge of the instrument by payment, cancelation, or alteration extinguishes the obligation of every party liable on it. But an indorser may be discharged without a discharge of the instrument. For example, he is discharged by an intentional cancelation of his signature (10). An indorser is also discharged by any dealings of the holder with prior parties, which affect the indorser's right to proceed against them in case he is compelled to pay the holder (11). For example, if the holder of a note indorsed by A, B, and C, intentionally cancels A's signature, B and C are discharged. By the cancelation of A's indorsement his liability on the instrument is discharged, and the right of B and C to look to him for reimbursement is gone. In consequence it would be unjust to allow the holder to collect from Band C (12).

CONTRACT OF GUARANTY OR SURETYSHIP.

§ 1. Parties to suretyship agreements. A person who engages to be answerable for the debt, default, or miscarriage of another is called a surety or guarantor. He undertakes to pay either jointly or severally with the principal, the debtor who is primarily liable; or he may undertake to pay only if the latter does not. He is an insurer of the debt, and is usually bound with the principal by the same instrument, executed at the same time, and for the same consideration, and is often an original promisor and debtor from the beginning. When there are two or more sureties bound with the principal for the performance of the same obligation, or parts of the same

obligation, they are co-sureties even though bound for different sums and though they become bound at different times. Thus if A is the principal on a bond for $2,000, and B becomes surety for the entire sum and C surety for $1,500 of it, B and C are co-sureties and may have a right of contribution as to each other, i. e., if one has to pay the debt, he can force the other to contribute or share the burden with him. This right of contribution will be discussed later (§§ 89-99). B and C in the above example are co-sureties, that is, they are bound for the performance, by the same principal, of the same obligation. Cosureties may become bound at different times, for different amounts, and may be ignorant of the fact that there are other co-sureties. So long as it is for the performance of the same obligation they are co-sureties.

§ 2. Capacity of parties. As to the capacity of parties to become sureties, the law is the same in respect to infants and insane persons as in case of any other sort of contract. See Contracts, §§ 67-72, in Volume II of this work. A corporation as a rule has no power to become a surety, unless such power can be implied from the nature of its business. Such power may be implied whenever reasonably necessary or usual in the conduct of its business. Surety and guaranty companies, which are now very common, are organized under express statutes for the purpose of becoming sureties.

§ 3. Distinction between suretyship and guaranty. A strict surety is directly liable to the creditor for the act to be performed. He is bound with and for another, who is primarily liable, and who is called the principal.