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ent of, or even to some extent coördinate with the common law may or may not be true. It is distinct from the latter at least to this extent, that the custom of merchants, devised by the cosmopolitan traders of the Middle Ages, was in both inception and growth less local in scope than the common law, and has always been administered, for the sake of that uniformity in commercial transactions at which the Uniform Act itself aims, generally and not locally. But to say that it ever did or now does constitute a separate system corresponding to admiralty or equity is to go farther than even Chancellor Kent 5 and others who have viewed the "law merchant" as lying outside the common law have ever gone. Such statement, if made in earnest, rests upon a misconception of the principles of the “law merchant” fully as profound as that of the courts to whose "ignorance" and lack of uniformity the conference cites us. On the contrary, the “law merchant,” long before the first suggestion of a Uniform Negotiable Instruments Act, had been incorporated into and become part of the great body of common-law rights and remedies. Even Blackstone so defines it:
“The second branch of the unwritten laws of England are particular customs, or laws which affect only the inhabitants of particular districts.
“To this head may most properly be referred a particular system of customs used only among one set of the king's subjects, called the custom of merchants, or lex mercatoria: which, however different from the general rules of the common law, is yet engrafted into it, and made a part of it; being allowed, for the benefit of trade, to be of the utmost validity in all commercial transactions; for it is a maxim of law, that 'cuilibet in sua arte credendum est.'»
In another portion of his work there appears a discussion of negotiable instruments and of the “rules of common law” in connection therewith ?, an error on Blackstone's part almost as deplorable as that of the courts who have been criticised for discussing the “common law of negotiable instruments.” No more than any other law of custom has the “law merchant" ever arisen to the dignity of procedure, process, or tribunal of its own; and, in the present state of the law at least, a court of law merchant would be an anomaly as great as a "common law of equity” or a “common law of admiralty." 8 In short, it is inaccurate to say that the cus3 KENT, COMM. 2. 1 BL., COMM. 74–75.
2 Id., 467–70. * See the quotation from the conference report, ante.
tom of merchants, however controlling in commercial transactions, is a separate system of law, or that the common law does not extend to it, exactly as it would be inaccurate to say of any other set of customs, become law through long observation and usage, that it is separate from or unmodified by the legal system into which it has been incorporated and of which it has become a part.
There is nothing, then, in the relation of the “law merchant" to the other parts of our legal system, to deny suretyship a place in it. A more fatal flaw in the objection to such suretyship, however, is the fact that the effect of the Uniform Negotiable Instruments Act has not been to remove suretyship from the law of negotiable instruments, nor even to correct an erroneous judicial impression, based upon “ignorance of the principles of the law merchant,” that suretyship ever had a place in such law. In this connection it is unnecessary to examine the decisions holding that certain parties to negotiable instruments are “sureties” ! or “in effect sureties, or the cases equally numerous holding that certain parties may be proved sureties by evidence aliunde, even if the instrument itself does not indicate such relation." Nor is it necessary to trace any adoption or transference of the relation from one “legal system" into another. The courts' use of the term in connection with commercial paper being admitted, the question is whether or not such use has any basis in logic. To examine contracts of suretyship and negotiable instruments and, testing them by their resemblances, determine as nearly as possible on first principles whether or not any incidents of the one might in the natural course of things be expected to attach to the other, is the more rational method of approaching this question.
To do this, we need a major premise. What is a contract of surety
9 For example: Deering o. Lord Winchelsea, 2 B. & P. 270 (1800); Good o. Martin, 95 U. S. 90 (1877); Guild v. Butler, 127 Mass. 386 (1879); Flour City Nat. Bank u. McKay, 86 Hun 15, 33 N. Y. Supp. 365 (1895); Morehead o. Bank, 130 Ky. 414, 419, 113 S. W. 501, 23 L. R. A. (N. S.) 141 (1908).
10 Lock Haven State Bank v. Smith, 85 Hun 200, 32 N. Y. Supp. 999 (1895); Byers v. Coal Co., 106 Mass. 131 (1870); Gunnis v. Weigley, 114 Pa. St. 191, 6 Atl. 465 (1886).
11 Denton o. Peters, L. R. 5 Q. B. 475 (1870); Good v. Martin, supra; Patch o. Washburn, 16 Gray (Mass.) 82 (1860); Pursifull v. Banking Co., 97 Ky. 154, 30 S. W. 203 (1895); Oriental Financial Corporation v. Overend, L. R. 7 Ch. 142 (1876), aff'd L. R. 7 H. L. 348 (1874); Bailey v. Edwards, 4 B. & S. 761 (1864); Coulter o. Richmond, 59 N. Y. 478 (1875).
ship, and what are its primary characteristics? The answer appears, roughly stated, in the Statute of Frauds: “... a promise to answer for the debt, default, or miscarriage of another,” though this definition is perhaps too general, as including also guaranty. Lord Selborne, after classifying by itself technical suretyship i.e., the agreement to constitute for a particular purpose the designated relation of principal and surety — defines suretyship in the general sense as the relation which arises where, without any such technical contract of suretyship, there is a primary and secondary liability of two persons for the same debt, the debt being, as between the two, that of one only and not equally of both, so that the other, if he should be compelled to pay it, would be entitled to reimbursement from the person by whom (as between the two) it ought to have been paid.2 In other words, a surety is a party who will have to pay or perform if the party who really ought to pay or perform fails to do so, yet whose obligation so to perform is as to the obligee immediate and primary, not dependent upon any exhaustion of remedy against the principal debtor.
Obligations similar to this one, it needs no searching examination to see, are imposed by certain contracts very frequently made with reference to commercial paper. Such is the obligation of the "anomalous" or "irregular” indorser - the signer not otherwise
” a party, who puts his name on the back of the instrument before delivery. Such also is that of the “accommodation" party, who signs as maker, acceptor, drawer, or indorser, not as a recipient of value, but merely to lend credit to and for the “accommodation" of the party to whom the consideration actually runs. Obviously the undertaking of both the anomalous and the accommodation party is to pay the instrument if the party actually responsible does not, this obligation being as to the holder absolute, in that the latter is not required first to exhaust his remedy against the party actually responsible, yet as between the credit-lender and the actual recipient of value strictly the latter's obligation. Even the ordinary indorser's contract has in it something of this element, and like that of the accommodation or anomalous party suggests to the mind, by
12 Duncan, Fox & Co. v. North & South Wales Bank, 6 App. Cas. 1, 11 (1880). De Colyar adopts this definition of suretyship (or “guarantees") generally. Law of GUARANTEES AND OF PRINCIPAL AND SURETY, 3 ed., 65-161; 12 Ency. BRIT., II ed., 652. Mr. Chief Justice Cooley, in Smith o. Shelden, 35 Mich. 42, 47 (1876), uses almost identical language.
its very nature, the notion of suretyship. As the Supreme Court of Georgia has remarked, there is an element of suretyship in every unqualified indorsement of a negotiable instrument.13 In view, however, of the holding of Judge Collin, that the indorsement in due course is an independent contract, entered into not to secure the payee but to obtain a transfer of the instrument, and to which no “secondary” liability such as that of a surety can attach,14 the ordinary indorser's obligations need not concern us here.
These resemblances, as study of decisions shows, are the real basis of judicial application to both the anomalous and the accommodation party's obligations at “law merchant” of the doctrines of suretyship. Thus Mr. Chief Justice Shaw says of the liability of the anomalous indorser:
“He is not liable as indorser, for the note is not negotiated or title to it made through his indorsement, nor as guarantor, because there is no separate or distinct consideration; but he means to give security and validity to the note by his credit and promise to pay it if the promisor does not, and that upon the original consideration, and therefore he is a promisor and surety. ... This is the legal import and effect of such a note, independent of any extrinsic evidence." 15
By a similar process of reasoning Mr. Chief Justice Gray, in the conspicuous case of Guild v. Butler,16 views the liability of an accommodation party as that of a surety; while in Duncan, Fox & Co. v. North & South Wales Bank,17 the capsheaf of a shock of decisions on the subject, Lord Selborne applies directly to accommodation parties his definition of suretyship, and holds that the resemblance between the relationships justifies giving to accommodation parties the equities of sureties, in so far as those equities do not interfere with the necessities of commercial intercourse.
This recognition of fundamental resemblance the courts have consistently followed up by imposing upon accommodation parties liabilities, and granting them rights, similar to those of sureties. For example, the accommodation party like the surety having agreed to pay the debt, like the surety he is absolutely and "prima
13 Tanner o. Gude, 100 Ga. 157, 27 S. E. 938 (1896).
rily” liable to the payee or holder in due course, even though as between him and the party accommodated he may be only “secondarily” liable. Hence the holder is not required first to exhaust remedies against the accommodated party, but may proceed against all signers, whether for value or for accommodation, jointly. Since the latter signs not as a recipient of value but as a lender of credit, like the surety he is entitled to the benefit of the implied contract of indemnity between him and the party to whom his credit is loaned. Finally, since he is in no respect a beneficiary of the contract represented by the instrument, like the surety he is favored in equity, and not only subrogated to any rights acquired by the holder against the beneficiary, but also released by any act of a holder with knowledge of his accommodation character, and especially of a payee where the question arises between the original parties to the instrument, releasing or impairing his remedy against the real maker.
These rules of law require repetition, not because they are not so universally accepted as to be elementary, but to show the extent to which the resemblances between the contract of suretyship and that of the accommodation party hold good. It is in the matter of the equities incident to both contracts that the courts most consistently follow up these resemblances. The rule as to release of the surety is not part of the common law of suretyship,” any more than that as to release of the credit-lender is part of the “common law of negotiable instruments.” Both rules, like subrogation and other doctrines governing tripartite relations like these, had their origin in equity, and were not originally part of the common law of either suretyship or negotiable paper. They rest upon the broad equitable principle, sufficiently axiomatic to require no justification here, that one in possession of full knowledge of all facts surrounding a transaction, and of the means of protecting all parties to it, is bound to apply such means to the other parties' protection as well as his own, and by virtue of such application acquires for the others the same rights as he does for himself.
The relation between holder (especially original payee), maker, and accommodation party may therefore be said to have an analogue in that between obligee, principal, and surety. Certainly, on first principles again, the analogy goes far enough, and the situations of the parties are sufficiently similar, to warrant the conclusion that the equities which release or protect the accommodation party