property at the time of the extension. Murray v. Marshall (1884) 94 N. Y. 611 (overruling Penfield v. Goodrich (1877) 10 Hun, 41); Spencer v. Spencer (1884) 95 N. Y. 353; Re Piza (1896) 5 App. Div. 181, 38 N. Y. Supp. 540; Winslow v. Stoothoff (1905) 104 App. Div. 28, 93 N. Y. Supp. 335; Wiener v. Boehm (1908) 126 App. Div. 703, 111 N. Y. Supp. 126; Cohen v. Hecht (1908) 128 App. Div. 511, 112 N. Y. Supp. 809; Cohn v. Spitzer (1911) 145 App. Div. 104, 129 N. Y. Supp. 104, affirmed on opinion of court below in 207 N. Y. 738, 101 N. E. 1098; Meuser v. Kirschbaum (1914) 84 Misc. 259, 145 N. Y. Supp. 677; Metzger v. Nova Realty Co. (1915) 214 N. Y. 26, 107 N. E. 1027; Walter v. Nova Realty Co. (1915) 214 N. Y. 610, 107 N. E. 1029; Neukirch v. McHugh (1914) 165 App. Div. 406, 150 N. Y. Supp. 1032; Bunnell v. Carter (1896) 14 Utah, 100, 46 Pac. 755.

In discussing the question whether the extension of a bond and mortgage under such circumstances operates to discharge the grantor of the mortgaged premises from liability, and, if so, to what extent, Finch, J., delivering the opinion of the court in Murray v. Marshall (1884) 94 N. Y. 611, said: "While, as we have said, no strict and technical relation of principal and surety arose between the mortgagor and his grantee from the conveyance subject to the mortgage, an equity did arise which could not be taken from the mortgagor without his consent, and which bears a very close resemblance to the equitable right of a surety, the terms of whose contract have been modified. We cannot accurately denominate the grantee a principal debtor, since he owes no debt, and is not personally a debtor at all, and yet, since the land is the primary fund for the payment of the debt, and so his property stands specifically liable to the extent of its value in exoneration of the bond, it is not inaccurate to say that as grantee, and in respect to the land, and to the extent of its value, he stands in the relation of a principal debtor, and to the same extent the grantor has the equities of a surety. This follows inevitably from the right of subrogation which inheres in the original contract of sale and conveyance. It is a definite and recognized right which, in the absence of an express agreement, will be founded upon one implied. (Gans v. Thieme (1883) 93 N. Y. 232.) When the mortgagor in this case sold expressly subject to the mortgage, remaining liable upon his bond, he had a right as against his grantee to require that the land should first be exhausted in the payment of the debt. Presumably the amount of the mortgage was deducted from the purchase price, or at least the transfer was made and accepted in view of the mortgage lien. Seller and buyer both acted upon the understanding that the land bound for the debt should pay the debt as far as it would go, and their contract necessarily implied that agreement. Through the right of subrogation the vendor could secure his safety, and that right could not be invaded with impunity. It was

invaded. When the creditor extended the time of payment by a valid agreement with the grantee, he at once, for the time being, took away the vendor's original right of subrogation. He suspended its operation beyond the terms of the mortgage. He put upon the mortgagor a new risk not contemplated, and never consented to. The value of the land, and so the amount to go in exoneration of the bond, might prove to be very much less at the end of the extended period than at the original maturity of the debt, and the latter might be increased by an accumulation of interest. The creditor had no right thus to modify or destroy the original right of subrogation. What he did was a conscious violation of this right, for the fact that he dealt with the grantee for an extension of the mortgage shows that he knew of the conveyance, and that it left the land bound in the hands of the grantee. Knowing this, he is chargeable with knowledge of the mortgagor's equitable rights, and meddled with them at his peril. But it does not follow that the vendor was thereby wholly discharged. The grantee stood in the quasi relation of principal debtor only in respect to the land as the primary fund, and to the extent of the value of the land. If that value was less than the mortgage debt, as to the balance he owed no duty or obligation whatever, and as to that the mortgagor stood to the end, as he was at the beginning, the sole principal debtor. From any such balance he was not discharged, and as to that no right of his was in any manner disturbed. The measure of his injury was his right of subrogation, and that necessarily was bounded by the value of the land. The extension of time, therefore, operated to discharge him only to the extent of that value. At the moment of the extension his right of subrogation was taken away, and at that moment he was discharged to the extent of the value of the land, since the extension barred his recourse to it, and once discharged he could not again be made liable. From that moment the risk of future depreciation fell upon the creditor, who by the extension practically took the land as his sole security to the extent of its then value, and assumed the risk of getting that value out of it in the future. But the special term went further, and held that the mortgagor was absolutely discharged by the extension. That might or might not be, and depended upon the question. whether the value of the land equaled or fell below the debt. For conceding the general rule that the surety is discharged utterly by a valid extension of the time of payment, and that the mortgagor stands in the position and has the rights of a surety, it must be steadily remembered that he can only be discharged so far as he is surety; that he holds that position only up to the value of the land; and beyond that is still principal debtor without any remaining equities."

So, where the mortgaged premises have been conveyed subject to the mortgage, which, however, is not assumed by the grantee, a fail

ure of the mortgagee to proceed to collect the mortgage when due, though requested to do so, will release the original mortgagor from liability to the extent of the then value of the property. Osborne v. Heyward (1899) 40 App. Div. 78, 57 N. Y. Supp. 542.

In Metzger v. Nova Realty Co. (1915) 214 N. Y. 26, 107 N. E. 1027 (affirming 160 App. Div. 394, 145 N. Y. Supp. 549), and Walter v. Nova Realty Co. (1915) 214 N. Y. 610, 107 N. E. 1029, it was held that the following clause in the agreement for extension, that "nothing herein contained shall impair the security now held for said debt, or any condition or agreement contained in said bond and mortgage, which bond and mortgage the party of the second part hereby ratifies and confirms as modified by this agreement," was not sufficient to take the case out of the rule laid down in the foregoing decisions.

It has been held that an extension of time granted to one to whom the mortgaged premises had been conveyed by the heirs of the original mortgagor will operate to release such heirs from their liability as heirs of the mortgaged property, and as heirs of other real estate from the deceased mortgagor, liable in case of deficiency of personal assets for the latter's debts. Olmstead v. Latimer (1896) 9 App. Div. 163, 41 N. Y. Supp. 44.

Extension of time to original debtor as discharging grantee of mortgaged premises.

In conclusion, reference may be made to some cases involving the converse situation,-Blanchard v. Naquin (1906) 116 La. 806, 41 So. 99, where it was held that the owner of notes secured by a mortgage containing a pact de non alienando does not lose his mortgage by consenting with the maker of the notes and mortgagor, without consulting a third person to whom the mortgagor's property may have been sold, to an extension of the time for the payment of the notes; and Montague County v. Meadows (1899) 21 Tex. Civ. App. 256, 51 S. W. 556, where it is held that inasmuch as the land when originally mortgaged was not a mere surety for the payment of the debt, but a primary security, an extension of time on the note secured by the mortgage, without the consent of a subsequent grantee of the mortgaged premises, cannot have the effect of releasing them from the lien.

Extension as releasing guarantor of mortgage.

An assignor of the mortgage who has guaranteed its payment is wholly released from liability on such guaranty by the extension of time given to a grantee of the mortgaged premises, even though the person to whom such extension is granted is not personally liable for

the mortgage debt. Antisdel v. Williamson (1901) 165 N. Y. 372, 59 N. E. 207; Bristol & W. of E. Land Co. v. Taylor (1893) 24 Ont. Rep. 286. E. S. O.

[ENGLISH DIVISIONAL COURT.]

HERDMAN v. WHEELER.

[1902] 1 K. B. 361.

Also Reported in 71 L. J. K. B. N. S. 270, 50 Week. Rep. 300, 86 L. T. N. S. 48, 18 Times L. R. 190.

Promissory note - Inchoate instrument — Negotiation - Bills of exchange act 1882 (45 & 46 Vict. chap. 61), § 20.

The defendant, having agreed to borrow the sum of 15l. from A, signed and handed to A a blank stamped paper which he authorized A to fill up as a promissory note payable to A and for the sum of 151. only. The stamp upon the paper, however, was sufficient to cover a sum of 301. A, in breach of his authority, fraudulently filled up the paper as a promissory note for 301. and payable to the plaintiff; and he handed it to the plaintiff, who gave value for it without notice of A's breach of authority. A misappropriated the proceeds. In an action by the plaintiff on the promissory note:—

Held, that the delivery of the note by A to the plaintiff was not a negotiation of the note within the meaning of the proviso to § 20, subsec. 2, of the bills of exchange act 1882, so as to entitle the plaintiff to recover.

Quare, whether the payee of a note can, under any circumstances, be a holder of it in due course.

(December 16, 1901.)

APPEAL by the plaintiff from a judgment of the judge of the Newcastle County Court in favor of the defendant. The action was by the payee against the maker of a promissory note for 301. The defendant applied to one Anderson to lend him a sum of 15., which Anderson promised to do. The defendant, at Anderson's request, signed his name upon a blank stamped paper and handed it to Anderson, with authority to fill it up as a promissory note for 157. payable to Anderson only. The paper in question was stamped with a ninepenny stamp, which was sufficient to cover a note for 751. Anderson, having the defendant's

signature to the note in blank, asked the plaintiff through the telephone if he would lend the [362] defendant 251. upon the defendant's promissory note for 301. at a month. The plaintiff agreed to do so, and wrote a cheque for 251., payable to the order of the defendant, and left it with his wife to be exchanged for the promissory note. Anderson then sent the promissory note filled up for 301., with the plaintiff's name inserted as payee, by a clerk, and received the cheque. The plaintiff's cheque for 251. was presented at the bank on which it was drawn with an indorsement purporting to be the defendant's, but which was not his. In the result the defendant received no part of the proceeds of the promissory note.

Arthur Powell, for the plaintiff. The question is which of two innocent parties is under the circumstances of the case to bear the loss; and the answer to it depends upon the construction to be placed on § 20 of the bills of exchange act 1882.1

It is said on the part of the defendant that the proviso in the section as to negotiation does not apply as between the immediate parties to a promissory note. But that contention cannot be supported. All that the proviso requires is that the note shall, "after completion," be "negotiated to a holder in due course." Now 31 shows that all that is meant by "negotiated" is that the note shall be "transferred from one person to another in such a manner as to constitute the transferee [363] the holder." Here the note was transferred to the plaintiff in such a manner

1 By the bills of exchange act, 1882, § 20, "(1) Where a simple signature on a blank stamped paper is delivered by the signer in order that it may be converted into a bill, it operates as a prima facie authority to fill it up as a complete bill for any amount the stamp will cover, using the signature for that of the drawer, or the acceptor, or an indorser; and in like manner, when a bill is wanting in any material particular, the person in possession of it has a prima facie authority to fill up the omission in any way he thinks fit.

"(2) In order that any such instrument when completed may be enforceable against any person who became a party thereto prior to its completion, it must be filled up within a reasonable time, and strictly in accordance with the authority given. Reasonable time for this purpose is a question of fact.

"Provided that if any such instrument after completion is negotiated to a holder in due course, it shall be valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up within a reasonable time and strictly in accordance with the authority given."