This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
In jurisdictions in which the Negotiable Instruments Law is in force, the construction which the courts have placed upon the statute has revolutionized the effect of an extension of time upon the liability of a surety who is a joint maker. This statute provides:
"A negotiable instrument is discharged: (1) By payment in due course 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) When the principal debtor becomes the holder of the instrument at or after maturity in his own right." 1
1 See Sec. 2074.
2 Britnell v. Smith, 180 Ala. 440, 66 So. 569; Wilkinson v. Conley, 133 Ga. 518, 66 S. E. 372; Hunter v. First National Bank of Fort Wayne, 172 Ind. 62, 87 N. E. 734; Stone-Ordean-Wells Co. v. Taylor, 139 Minn. 432, L. R. A. 1918E, 93, 166 N. W. 1069.
3 England. Ex parte Gifford, 6 Ves.
Arkansas. State Bank v. Bozeman,
13 Ark. 631. Maryland. Smith v. State, 46 Md.
617. Missouri. State of Missouri, ex rel, v. Matson, 44 Mo. 306.
New York. Morgan v. Smith, 70 N. Y. 537.
4 State Bank v. Bozeman, 13 Ark. 631; Smith v. State, 46 Md. 617; State of Missouri, ex rel, v. Matson, 44 Mo. 305; Morgan v. Smith, 70 N. Y. 637.
5 Gillespie v. Smith, 229 Fed. 760; Saint v. Wheeler & Wilson Mfg. Co., 95 Ala. 362, 36 Am. St. Rep. 210, 10 So. 539; Darland v. First National Bank, 177 Ky. 261, 197 S. W. 826; Hal-lock v. Yankey, 102 Wis. 41, 72 Am. St. Rep. 861, 78 N. W. 166.
6 Walsh v. Miller, 51 O. S 462, 38 N. E. 381.
The courts have apparently held that the Negotiable Instruments Law was intended as a codification, not only of the law of negotiable instruments in the limited sense, but also as a codification of collateral topics as far as they involved the validity or effect of negotiable instruments.
While the courts have not carried this idea to its extreme, they have applied it to the effect of an extension of time upon the liability of a non-assenting surety; and they have held that the methods of discharge enumerated in this section are exclusive, and that, since extension of time is not named as a method of discharging a joint maker or other party who appears to be liable primarily, but who is known to be a surety, this section is to be construed as reversing the common-law rule; and accordingly the surety is not discharged by such extension of time.2
The result of this holding has been most unfortunate. It has seemed to be very doubtful whether the statute was intended to codify the law of suretyship as far as it affected a negotiable instrument. If this construction is to be applied generally to statutes which undertake a partial codification of the law, these statutes must contain provisions limiting their scope in unequivocal language to the subject which is to be codified; or the unity of the law will be destroyed, and more harm will thus be done than can be made up by any good which will result from codification, no matter how excellent, and uniformity throughout the commercial nations, no matter how desirable. A concrete illustration of this is found in the topic under discussion. Where the Negotiable Instruments Law is in effect, the law of principal and surety is cut into two parts for practical purposes; one part dealing with suretyship in negotiable contracts, and the other with the other forms suretyship.
1 Sec. 110 Negotiable Instruments Law.
2 Arizona. Cowan v. Ramsey, 15 Ariz. 533, 140 Pac. 501.
Kansas. First National Bank v. Livermore, 90 Kan. 395, 47 L. R. A. (N.S.) 274, 133 Pac. 734.
Kentucky. First State Bank v. Williams, 164 Ky. 143, 175 S. W. 10.
Maryland. Vanderford v. Farmers' ft Mechanics' National Bank, 105 Md. 164, 10 L. R. A. (N.S.) 120, 66 Atl. 47.
Ohio. Richards v. Market Exchange Bank Co., 81 O. S. 348, 26 L. R. A. (N.S.) 00, 00 N. E. 1000.
Oklahoma. Cleveland National Bank v. Bickel, 59 Okla. 279, 150 Pac. 302.
Oregon. Cellers v. Meachem, 49 Or. 186, 80 Pac. 426 [sub nomine, Cellers v. Lyons, 10 L. R. A. (N.S.) 133].
Tennessee. Graham v. Shepherd, 136 Tenn. 418, 180 S. W. 867.
Washington. Bradley Engineering ft Mfg. Co. v. Heyburn, 56 Wash. 628, 106 Pac. 170.
The opposite result has been reached, as between the payee and a surety who is a joint maker, on the theory that the payee can not be a holder in due course. Fullerton Lumber Co. v. Snouffer, 130 la. 176, 117 N. W. 50.
In most jurisdictions, however, the payee may be a bona fide holder.
See Sec. 2364.