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case could not be brought within the terms or the reason of the rule; "for as the property, in respect to which the creditors assert a lien, was not the property of the principal debtor, and has never been expressly pledged to the payment of the debt, so no equitable construction can convert it by implication into a security for the creditor. It is urged that the logic of the rule would extend it so as to cover the case of all securities held by sureties for purposes of indemnity of whatsoever character and by whomsoever given. But this suggestion is founded on a misconception of the scope of the rule and the rational grounds on which it is established. Of course, if an express trust is created, no matter by whom nor of what, for the payment of the debt, equity will enforce it, according to its terms, for the benefit of the creditor, as a cestui que trust; but the question concerns the creation of a trust, by operation of law, in favor of a creditor, in a case where there was no duty owing to him, and no intention of bounty. A stranger might well choose to bestow upon a surety a benefit and a preference from considerations purely personal, in order to make good to him exclusively any loss to which he might be subjected in consequence of his suretyship for another. In such case, neither co-surety nor creditor could, upon any ground of priority in interest, claim to share in the benefit of such a benevolence."
§ 536. That one surety has pledged his own property to another surety for the same debt, does not release the principal debtor from his implied contract to repay either surety any sum he may have to pay upon the debt. A private arrangement between co-sureties for the distribution of liability inter sese, does not, unless expressly so stipulated, release the liability of the common principal to either of them. That one of several signers of a note pledges his own property to another, does not necessarily prove that he is really the principal debtor; for one surety may find it for his interest to pledge his property to another surety.'
1 Water Power Co. v. Brown, 23 Kan. 676.
§ 537. A surety's right of subrogation does not arise until he has paid the debt. This is true of his right as against the creditor, and as against his co-surety as well. Therefore, if two co-sureties agree between themselves to share the responsibility for the debt in certain proportions, and accordingly indemnify each other by mortgage for such proportions, and both become insolvent without paying any part of the debt, the right of subrogation never arises between them; and for this reason, as well as for the reason that the security was not the property of the principal debtor, the creditor can not enforce the security for his own benefit. "Unless one of them had been compelled to pay, and had in fact paid, an excess beyond his agreed share of the debt, there could have been no breach of the conditions of the mortgage, and consequently no right to a foreclosure and sale of the mortgaged premises. And the amount which the mortgagor could be required to pay, as a condition of redeeming the mortgaged premises, in case of foreclosure, would be, not the amount which the mortgagee, as between himself and the common creditor, was bound to pay on account of the debt, but the amount which, as between himself and his co-surety, the mortgagor, he had paid beyond the proportion which, by the terms of the agreement between them, was the limit of his liability. The mortgages were not created for the security of the principal debt, but as security for a debt possibly to arise from one surety to the other. As to which of them has there been as yet any default? Plainly none as to either. And yet the complainants assert the right to foreclose them both; a claim that is self-contradictory, for, by the very nature of the arrangement, it is impossible that there should be a default as to both. The fact that one mortgagor had failed to perform his part of the agreement could only be on the supposition that the other had not fully performed it on his part, but had paid that excess against which his co-surety had agreed to indemnify him. There is, therefore, no right to the subrogation insisted on, because there is nothing to which it can apply.'
'Hampton v. Phipps, 108 U. S. 260, 2 S. C. Rep. 622, 626, per Matthews, J.
§ 538. A surety is subrogated to securities placed in the hands of the creditor by his co-surety only to the amount he has actually paid for such co-surety.' Ordinarily and in the absence of any express agreement co-sureties as between themselves are liable for equal shares of the principal debt. Thus in case there are two co-sureties, one of them upon paying the whole debt can enforce against the other the payment of only half of it; and in case one such co-surety is insolvent, the surety who has paid the debt can prove against his estate for only half the amount of the debt paid by him. He can prove for no more, although in his settlement with the creditor he has received an assignment of the debt and of the proof of the debt, which the creditor has already made for the full amount of the debt against the estate of his co-surety. In such case the creditor's proof for the whole amount of the debt against the estate of the co-surety will be expunged, and the surety who has received an assignment of the debt will be allowed to prove for only half of the amount of it. Mr. Justice Devens, delivering the opinion of the supreme court of Massachusetts in a case relating to the rights of co-sureties under such circumstances, said: "If it be conceded that the surety paying the debt is equitably entitled to the benefit of such security as may have been deposited with the creditor by the other surety, or may have been obtained against him, the question still remains whether he is entitled to such security only to the extent of enforcing a claim for that which he has paid on behalf of the co-surety, or whether he may enforce the full claim which the creditor had against the co-surety, provided that he does not himself thus obtain more than he has actually paid on behalf of the co-surety. The latter is the contention of the plaintiff. Upon the inquiry involved, the authorities are certainly conflicting." After reviewing the authorities the learned judge continued: "In this conflict of authority, we are brought to the
1 Glasscock v. Hamilton, 62 Tex. 143.
'New Bedford Institution for Savings v. Hathaway, 134 Mass. 69, 45 Am. Rep. 289. See Bowditch v.
Green, 3 Metc. (Mass.) 360. See, however, Apperson v. Wilbourn, 58 Miss. 439; Hess's Estate, 69 Pa. St. 272.
conclusion that neither in his own name nor in that of the creditor ought the surety paying the debt to enforce any claim against his co-surety, except for the amount actually paid by him for his co-surety; and if, by reason of the insolvency of such surety, there is a loss, it is one to which the relation in which they stand to each other compels him to submit."
§ 539. The fact that one surety has misappropriated property delivered to him by the debtor as collateral security for his liability, is no defense to an action by the creditor against a co-surety. The creditor having no possession or control of the security in such case, can not be held responsible for a fraudulent conversion of it by the surety.'
1 Prather v. Young, 67 Ind. 480.
PAYMENT AND REDEMPTION.
I. Effect of payment or tender of IV. Action for conversion by the
I. Effect of Payment or Tender of Payment.
§ 540. Payment of the debt for which the collateral security was taken discharges the pledge, and the security will not apply to any new or other indebtedness unless there be an agreement of the parties that it shall so apply.' Whether the security be a chattel or a chose in action, the payment of the debt by the pledgor revests in him the beneficial interest, and he becomes again the absolute owner. And payment or tender of payment is the only means whereby the pledgor can by his own act reinvest himself with the right of possession of the pledge.'
Anything that effects a satisfaction of the debt is payment.* Payment may be made as well by the delivery and acceptance of personal property as by the delivery and acceptance of money. But there must be a substantial satisfaction of the debt in some way in order to discharge the lien. Two notes
1 Biebinger v. Continental Bank, 99 U. S. 143; National Safe Deposit Sav. & Trust Co. v. Gray, 12 App. Cas. (D. C.) 276; Gilpen v. Leksell, 54 Kan. 674, 39 Pac. Rep. 176; Callanan v. Smart, 60 Iowa 305, 14 N. W. Rep. 328. 2 Lapping v. Duffy, 65 Ind. 229; Compton v. Jones, 65 Ind. 117; Ward v. Ward, 37 Mich. 253; Merrifield v.