66

66

66

66

66

66

"communication with him before the indorsement), but is "established by the same law. But contracts of this kind, as "well as suretyships proper, are entered into by all the parties “to them, with a knowledge and in view of the law by which 'they are governed. The acceptor, though he may know nothing of any particular indorser, knows that by his acceptance, he does an act which will make him liable to indemnify 'any person who may indorse, and may afterwards pay the bill; "and he knowingly and intentionally undertakes that liability, 66 as much as if the indorsement were the result of direct com"munication between himself and that person. The statement "in Smith's Mercantile Law,' is correct, and is established by 66 many authorities that "in the contract by bill or note, the maker or acceptor is considered the principal, and the indorsers as his "sureties; and consequently if the holder either discharge or suspend his remedy against the former, the latter unless they have "previously consented to it, or afterwards promised to pay with "knowledge of it, are all immediately discharged." "I am unable "to conceive any ground on which the principle which prevails "in cases of suretyship, should go so far as this, in favor "of the drawer or indorser, and not also extend (when the indor"ser is compelled to pay the bill, and when the question arises "between him and the acceptor only), to securities deposited by "the acceptor with the holder. In the present case the holder "has actually in his hands a large sum of money realized by him "from such securities. It is very difficult, on any rational prin"ciple, to distinguish the receipt of such a sum, under such "circumstances, from an actual payment on account by the "tor. Of the creditor's right if he pleases, to apply it in the pay"ment of the bill, there can be no possible question; yet, it is " contended that he may, at his option, give the money back to "the acceptor, and sue the indorser on the bills; nay more, that, "if he does compel the indorser to pay the bill, without applying "that money to it, a Court of Equity is bound to leave the "burden on the indorser, and restore to an insolvent acceptor the money which has been so realized from the securities. I think "that the principles deducible from all the authorities, lead neces"sarily to the conclusion, that under circumstances like the "present, the equity between the indorser and the acceptor is the

66

19th ed., by Dowdeswell, p. 269.

ассер

"same as that between a surety and a principal debtor, when the
"creditor is not a party to the contract of suretyship. That
equity need not interfere with the ordinary operation of a
"general covering security, during the continuance of dealings
"between the secured creditor and the acceptor of bills not
overdue, which the creditor may hold or part with as he
"pleases. It will not incapacitate, Bankers who hold such a
"bill, accepted by a customer and indorsed by a third party,
"from carrying on their dealings with that customer, by vary-
'ing the securities received from him according to the ordinary
course of those dealings, as long as he remains solvent, and
"before the acceptance has been dishonored. It will not, in my
'opinion, tend to paralyze the business of discounting bills of
"exchange. But it is an equity which, in my judgment, does
certainly attach, when the bills, overdue and dishonored, and
"the securities, are found together in the hands of the secured
"creditor, at the time when he requires payment from the
“indorser; when the creditor has no other transactions then
depending with the customer, and no claim upon the securi-
"ties except for the bills themselves; and when the competition

66

66

is between the indorser and the acceptor only."

38. As between the parties so liable as sureties, each prior party is, in the absence of a contract to the contrary, also liable thereon as a principal debtor in respect of each subsequent party.

ILLUSTRATION.

A draws a bill payable to his own order on B, who accepts. A afterwards indorses the bill to C, C to D, and D to E. As between E and B, B is the principal debtor, and A, C and D are his sureties. As between E and A, A is the principal debtor, and C and D are his sureties. As between E and C, C is the principal debtor and D is his surety.

This section must be read with Sec. 35, under which we have fully discussed the position and liability of the indorsers. The section embodies the English law on the subject, and declares that as between themselves, the immediate indorser is a principal debtor to his indorsee, in the absence of a contract to the contrary, and the rule is applicable to hundis, for, where the

Suretyship.

indorser of a hundi, had it returned to him dishonored, it was held, that he might sue the drawer of it.1

39. When the holder of an accepted bill of exchange enters into any contract with the acceptor which, under Sec. 134 or 135 of the Indian Contract Act, 1872, would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such case they are not discharged.

3

This section which provides for the creditor entering into a contract with his principal debtor (the acceptor is the principal debtor, Sec. 37) for his release, or for composition or to give him time for payment, and to reserve his rights against the sureties, is an exception to the general law of contract as laid down in the Contract Act, by which any one of these agreements would discharge the surety. But this is the English law, and as said by Hatherley, C. :^ "We have only to refer to another class of cases which clearly and distinctly establish, that it is competent to creditors to reserve all their rights against the surety, in which case the surety is not discharged" and again "the defendants here could have freed themselves from all difficulty by reserving their rights against the plaintiffs, and it does not matter that the surety was no party to the stipulation, or had no notice of it."5

In one of the early cases, which established that a creditor when entering into a contract with his debtor, could reserve his rights against the surety, the effect of the reservation is thus described; first, that it rebuts the implication, that the surety was meant to be discharged, which is one of the reasons why the surety is ordinarily discharged by such a transaction; and

1 Bijjnath Sahoo v. Racharam, 5 Suth. W. R. 86.

2 See Sec. 134, Contract Act, (App).

3 See Sec. 135, Contract Act, (App).

4 Oriental Finance Corporation v. Overend Gurney, L. R. 7 Ch. App. 142; Affd. Ľ. R. 7 H. L.,

348; see also Owen v. Homan, 4
H. L. C., 997; S. C. 17 Jur. 861;
Muir v. Crawford, L. R., 2 H. L.
Sc. App. 456.

5 Webb v. Hewitt, 3 K. & J., 438; Boaler v. Mayor, 13 W. R., (C. P.) 77; S. C. 19 C. B. (N. S.) 76.

secondly, that it prevents the rights of the surety against the debtor being impaired, the injury to such rights being the other reason, for the debtor cannot complain, if the instant afterwards, the surety enforces those rights against him, and his consent that the creditor shall have recourse to the surety, is impliedly a consent that the surety shall have recourse against him.1 The reservation should be express, as in a deed of

composition.2

The acceptance of interest in advance by a creditor, as a general rule, operates as a giving of time to the principal debtor, and consequently as a discharge of the surety, unless the surety knows of it and consents.3 There are, however, two cases in which it was held on the original side of the Calcutta High Court, that a binding contract to give time to the principal debtor cannot be inferred from the mere receipt by the creditor of interest in advance on the note.4

Section 44 of the Contract Act would seem to apply to a joint promissory note or bill of exchange, and release of one of the makers or acceptors would not release the other.5 This is different from English law, under which discharge of one joint maker of a note discharges the other. Obtaining a judgment against one joint maker discharges the other." A judgment against the acceptor, by the indorsee of the bill, will not however prevent the drawer or other intermediate party who pays the indorsee, from transferring it or suing the acceptor, upon it.

40. Where the holder of a negotiable instrument, without the consent of the indorser, destroys or impairs the indorser's remedy against a prior party, the

1

Kearsley v. Cole, 16 M. & W. 128; per Parke, B.; see also Bateson v. Gosling, L. R. 7 C. P. 9.

Bailey v. Edwards, 34 L. J. (Q. B.) 41; S. C. 11 Jur. (N. S.) 134; S. C., 4 B. & S. 761.

3 Protap Chunder Das v. Gour Chunder Roy, I. L. R., 4 Cal. 132; S. C. Affd., I. L. R. 6 Cal. (P. C.) 241; Kali Prosunna Roy v. Ambica Charan Bose, 9 Beng. L. R. 261; S. C. 18 Suth, W. Ř. 416.

Punchanun Ghose v. Daly, 15 Beng. L. R. 333; Dwarkanath Mitter v. Daly, ib., 338; (note).

5 Kirtee Chunder Mitter v.
Struthers, I. L. R., 4 Cal., 336;
Contract Act, (App.)

6 Nicholson v. Revell, 4 Ad. &
E. 675; S. C. 6 N. & M. 192.
7 King v. Hoare, 13 M. & W.
494.
Woodward v. Pell, L. R. 4
Q B. 55; S. C. 37 L. J. (Q. B.) 41.

Acceptor bound, although indorsement forged.

indorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity.

ILLUSTRATION.

A is the holder of a bill of exchange made payable to the order of B, which contains the following indorsements in blank :

:

First indorsement, "B."

Second indorsement, "Peter Williams."
Third indorsement, "Wright & Co."

Fourth indorsement, "John Rozario."

This bill A puts in suit against John Rozario and strikes out, without John Rozario's consent, the indorsements by Peter Williams and Wright & Co. A is not entitled to recover anything from John Rozario.

The principle involved in this section is very similar to that in Sec. 87 (relating to the material alteration of a negotiable instrument) and lays down, that as by striking out a prior indorser's name, that person is discharged, a subsequent indorser's right of indemnity is impaired, a holder who does so intentionally, shall lose his remedy against such subsequent indorser. It is laid down :- "In an action against an indorser, the plaintiff has no right to strike out indorsements prior to the defendants for they constitute the defendant's title to indemnity.' But under English law the striking out of indorsements by mistake, does not discharge the indorsers from liability, or destroy their right to recover on the instrument.2

41. An acceptor of a bill of exchange already indorsed is not relieved from liability by reason that such indorsement is forged, if he knew or had reason to believe the indorsement to be forged when he accepted the bill.

This section must be read with Sec. 120. It is founded on the principle of estoppel. What will amount to proof of know

3

1 Byles on Bills, 6th American (ed., p. 245); Fairclough v. Pavia, 9 Exch. 690.

2 Wilkinson v. Johnson, 3 B. & C. 428; S. C. 5 Ď. & Ry. 403. 3 Secs. 115 & 117, Evidence Act.