When the holder of a promissory note sells the collaterals that are pledged to secure the payment of the note, and applies the proceeds of the sale to another debt of the maker of the note, without the consent or knowledge of an indorser of the note, he releases the indorser. And, when the holder of a promissory note, having so disposed of the collaterals pledged to secure its payment, erases the memorandum of the collaterals from the list on the back of the note, he materially alters and thereby avoids the instrument, according to section 124 of the Negotiable Instrument Law (Act 64 of 1904, p. 165).
It will not do to say that the stipulations with regard to the pledge of the collaterals, although incorporated in the body of the note *Page 265 are not a part of the instrument. The decision cited in the majority opinion (Farmers' Merchants' Bank v. Davies et al., 80 So. 713, 144 La. 532), is not authority for that proposition. The decision was merely that the stipulations in the note, with regard to the pledge of the collaterals, did not affect the character of the note as a negotiable instrument, and in that sense were not a part of it.
Section 123 of the Negotiable Instrument Law, declaring that an unintentional cancellation of a negotiable instrument is inoperative, has no application to this case. The instrument sued on was not unintentionally canceled. It was materially altered, intentionally. If it was done in error, the error was not an error of fact, but an error of law — an error in failing to consider that the alteration of the instrument would release the indorser.
The decisions cited in the majority opinion, from the second to the sixteenth Louisiana Annual Reports were rendered long before the enactment of the Negotiable Instrument Law, without reference to the law merchant, but with regard to the law of suretyship in the Civil Code, and have no application to this case.