tion for the jury whether the expenses and costs, which he has incurred, were reasonably incurred. Tindall v. Bell, 11 M. & W. 228.

§ 12. Right to retain funds of the principal. As the relation of principal and surety is an equitable one, and the surety has the strongest claim in justice against his principal, the courts favor all just modes of relief. If the surety has in his hands money or goods of the principal, or is indebted to him, it would be useless as well as unjust, to compel him to account for them, while he was liable to be called upon for immediate payment of the debt. Constant v. Matteson, 22 III. 546. If the surety after payment is appointed administrator of the principal's estate, he may apply sums he receives in that capacity to his claim, the estate being solvent. Bates v. Vary, 40 Ala. 421. If his principal becomes insolvent, he is a creditor and may claim to set off any funds of the principal which he has in his hands. Battle v. Hart, 2 Dev. (N. C.) Eq. 31; Abbey v. Van Campen, 1 Freem. (Miss.) Ch. 273 ; McKnight v. Bradley, 10 Rich. (S. C.) Eq. 557. But in Ohio he was only allowed to retain enough to make him equal with the other creditors. Creager v. Minard, Wright (Ohio), 519; Sharp v. Caldwell, 7 Humph. (Tenn.) 415. He may pay the debt as soon as it becomes due, and look to the funds in his hands. Constant v. Matteson, 22 Ill. 546. One who carries on a store for another, and has exclusive possession, has a lien on the remaining goods for repayment of any sums which he has laid out to replenish the stock and against any liability which he has incurred for that purpose. Gray v. Wilson, 9 Watts (Pa.), 512. Until payment, he has no demand which amounts either to a set-off or equitable discount. Walker v. McKay, 2 Metc.

(Ky.) 294.

Where one was surety for a person deceased, insolvent, to whom the surety was indebted, if the debt for which the surety is liable was due whether before or after the principal's death, he may retain enough of what he owes to indemnify him until he is released. Beaver v. Beaver, 23 Penn. St. 167.

§ 13. Surety taking security. The fact that the surety has received indemnity from the principal does not deprive him of his rights against the principal, unless it is agreed that he shall look to the indemnity alone. Cornwall v. Gould, 4 Pick. 444; West v. Bank, 19 Vt. 403. Where security is taken from a stranger, it is presumed to be cumulative, and the implied obligation of the principal is not affected. Wesley Church v. Moore, 10 Penn. St. 273. If the principal deposit funds for the indemnity of the surety, there is a sufficient consideration for the contract and the receiver becomes bailee for the surety. Keller v. Rhoads, 39 Penn. St. 513. But if the

debtor procures a third person subsequently to sign a contract of indemnity to the surety, there is no consideration, even if the surety promise to continue such for an indefinite time. Rix v. Adams, 9 Vt. 233. He is authorized to realize upon any securities pledged, whenever he is in danger of being forced to pay the debt, and before payment. Bird v. Benton, 2 Dev. (N. C.) L. 179. If the security is a mortgage note or other contract which is due, the surety can and perhaps ought to collect it and turn it into money, for it is his duty as toward his principal to realize the most possible from it, and to take all due care of it. Hunter v. Levan, 11 Cal. 11. Money so realized goes to extinguish the claims of the surety for payments made by him for the principal in the order in which they are made. Whipple v. Briggs, 30 Vt. 111. When the surety is sued, he ought to convert his security into money, and, if possible, save his property from levy, and if he without necessity allows it to be sold on levy, he cannot claim against the principal any loss caused by its selling below its value. Vance v. Lancaster, 3 Hayw. (Tenn.) 130. If a bond for the conveyance of land is delivered to him as indemnity, he acquires no lien on the land, but after payment may go into equity for re-imbursement. Porter v. Howard, 1 A. K. Marsh. (Ky.) 358. If the security is a note or bond from the principal, he can only recover the sum he has paid although the nominal value may be more. Child v. Eureka Works, 44 N. H. 354; Monell v. Smith, 5 Cow. (N. Y.) 441. If the suretyship has ceased, the surety can no longer hold the security given him, and after ten years it will be presumed to have ceased in the absence of evidence to the contrary. Waller v. Todd, 3 Dana (Ky.), 503. If the payment is a voluntary one, the surety cannot look to his indemnity for re-imbursement. Bachellor v. Priest, 12 Pick. 399. If the surety absolutely assumes the 'debt and becomes principal, he cannot look to a deed of indemnity given him by the principal. U. S. Bank v. Stewart, 4 Dana (Ky.), 27. A surety who has been discharged by acts of the creditors may still enforce a mortgage given him for the benefit of the creditor (Newsam v. Finch, 25 Barb. 175), and he will continue to hold any collateral security given him by the debtor for the benefit of the creditor, and, therefore, his relation to the other parties will not cease in many cases where he would otherwise have been discharged. Section 3, ante

§ 14. Insolvency of principal. The insolvency of the principal has been made a reason for granting more full and prompt relief to the surety. There is no longer any reason to delay proceedings in order to allow the principal to ac.. It is now made certain that the sureties will be called upon and their relation to the contract has become pracVOL. V.-27.

tically less conditional. Battle v. Hart, 2 Dev. (N. C.) Eq. 31; Abbey v. Van Campen, Freem. (Miss.) Ch. 273. Thus the surety, who may not be able to pay at once, can proceed at once before payment against the principal for indemnity. Polk v. Gallant, 2 Dev. & B. (N. C.) Eq. 395. Where a judgment has been rendered against the principal and surety, and the principal is insolvent, the surety may sue in equity to reach credits of the principal and apply them in payment though he has paid nothing. McConnell v. Scott, 15 Ohio, 401. Where land is sold under an order of court, and the legal title is retained till the purchase-money is paid and the principal becomes insolvent, the sureties may at once subject the land to a lien. Egerton v. Alley, 6 Ired. (N. C.) Eq. 188. But if the property has passed into the hands of a purchaser without notice, they have no claim on it. Miller v. Miller, Phil. (N. C.) Eq. 85. The surety for one who has died insolvent, and who is a debtor of the estate is entitled to retain so much of his debt as will indemnify him until he is released, and this whether the debt of the deceased became due before his death or not. Beaver v. Beaver, 23 Penn. St. 167. But in Ohio he was held entitled to retain only so much as would be his share with the other creditors. Creager v. Minard, Wright (Ohio), 519. Equity will authorize a surety having in his hands funds of his principal who is insolvent to apply them on the debt. McKnight v. Bradley, 10 Rich. (S. C.) Eq. 557.

§15. Sureties' right to priority. In cases where the law distinguishes between the different classes of creditors giving some a right to be paid before others, the courts have differed on the question whether the surety who pays the debt is entitled to take the creditor's place. The preferred debts are usually of one of two classes, debts to the United States or debt on specialties or judgments. In the former case it was held in United States v. Preston, 4 Wash. (C. C.) 446, that the surety on a custom-house bond was a preferred creditor. Reed v. Emory, 1 Serg. & R. (Penn.) 339. But in Gallagher v. Davis, 2 Yeat. (Penn.) 548, he was not allowed a preference unless the principal has made an assignment, or an attachment has issued against him, or he has been declared a bankrupt. In case of a surety on a bond who has paid it, he has been treated as a creditor on simple contract only. Buckner v. Morris, 2 J. J. Marsh. (Ky.) 121; Cunningham v. Smith, 1 Harp. (S. C.) Ch. 90; Copis v. Middleton, 1 Turn. & R. 224; contra: Shultz v. Carter, Spears' (S. C.) Ch. 533; Robinson v. Wilson, 2 Madd. 434. A surety on a judgment debt who pays it is treated as a judgment creditor in equity. Lenoir v. Winn, 4 Des. (S. C.) 65; contra: Sanders v. Watson, 14 Ala. 198. The surety may also gain a priority against some particular property by

contract. Thus sureties on bonds given for the purchase of real estate have been allowed a lien to protect them. Egerton v. Alley, 6 Ired. (N. C.) Eq. 188. An unrecorded agreement that the surety shall have a lien on the land will avail against an attaching creditor with notice. Bailey v. Welch, 4 B. Monr. (Ky.) 244. Where the title is retained with the bond so that the legal estate does not pass, the surety has the first equity to be indemnified and the question of notice is immaterial. Shoffner v. Fogleman, 1 Wins. (N. C.) Eq. 12.

§ 16. Part payment by surety. A surety who has made a partial payment is given the benefit of it and protected so far as it goes. He is not, however, entitled to an assignment on the possession of securities held by the creditor, unless the rest of the debt has been paid by the principal (Hess Estate, 69 Penn. St. 272; Field v. Hamilton, 45 Vt. 35; Magee v. Leggett, 48 Miss. 139); or unless the surety is only bound for part. For the obligation of the principal is not divisible. See further, post, 213, 214, and Gannett v. Blodgett, 39 N. H. 150. If the surety pays part of a judgment recovered against the principal and himself, it gives him an equitable interest in the judg ment to that extent which he may release or transfer, but it does not operate as a partial assignment so as to enable him to exercise any control over the judgment or execution. Grove v. Brien, 1 Md. 438. Partial payments on a cashier's bond during suit are deducted from the penalty, and interest is allowed on the remainder of the penalty from the date of suit. McGill v. U. S. Bank, 12 Wheat. (U. S.) 512. Where the sureties have each paid a share of the bond, they may sue separately for re-imbursement. Peabody v. Chapman, 20 N. H. 418; Gould v. Gould, 8 Cow. (N. Y.) 168. The implied contract of indemnity between the principal and sureties is not joint but several. Brand v. Boulcott, 3 B. & P 235; Wright v. Hunter, 5 Ves. 792.

§ 17. Demand or notice. The liability of the principal to the surety becomes absolute when the surety pays the debt. The law does not require that any notice should be given to the principal or any demand made upon him, for he must be presumed to know that he has not performed his contract with the creditor, and a breach of duty toward the creditor is one toward the surety also. It is also a right of the surety, in the event of the impending insolvency of the debtor, or for any other reason, to pay the debt and at once secure himself by suit; and to require notice or demand might delay his proceedings to his injury. It is, therefore, held that he may, after payment, sue without demand or notice. Collins v. Boyd, 14 Ala. 505; Odlin v. Greenleaf, 3 N. H. 270; Williams v. Williams, 5 Ohio, 444; Sikes v. Quick, 7 Jones' (N. C.) L. 19. But if the demand is doubtful or he is involved

in litigation to compel its payment, he should notify the principal that he may have the opportunity to defend, for, as we have seen, the surety in some cases cannot deprive the principal of the defenses which were open to him against the creditor and may, by a payment without notice, transfer those defenses to himself. The principal will not be bound by a judgment against the surety without notice to himself. Gates v. Renfroe, 7 La. Ann. 569; Randolph v. Randolph, 3 Rand. (Va.) 490; Whiteworth v. Tillman, 40 Miss. 76. So if the surety intends to claim expenses of litigation beyond the debt, if they are incurred without notice to the principal, the burden will be on the surety to justify them. Beckley v. Munson, 22 Conn. 299; Holmes v. Weed, 24 Barb. 546. He ought to notify the principal before incurring expenses. The purpose of giving notice is not in order to give a ground of action, but if a demand be made which the party indemnifying is bound to pay, and notice be given to him, and he refuse to defend the action in consequence of which the person indemnified is obliged to pay the demand, the principal is estopped from saying that the surety was not bound to pay the money. Duffield v. Scott, 3 T. R. 374.

18. Defense to sureties' action. The principal may defend against the suit of the surety by proving that he has performed his contract with the creditor or with the surety, that the surety has released him, or that the relation between them either was never that of principal and surety, or has ceased to be such. He may prove that the transaction was one in which the surety and himself stood in the relation of partners. Pollard v. Stanton, 5 Ala. 451. He may prove that he has deposited money in the sureties' hands to indemnify him, or that money has been realized from securities so deposited. Whipple v. Briggs, 30 Vt. 111. He may prove that the payment was a voluntary one on the part of the surety, his liability having ceased (Bachellor v. Priest, 12 Pick. 399; Randolph v. Randolph, 3 Rand. [Va.] 490; Morrison v. Cassell, 25 Ill. 368; Kimble v. Cummins, 3 Metc. [Ky.] 327); or that the relation never existed, as where the surety signed the contract without his request or consent.

Where a creditor with the consent of the surety released the principal debtor in consideration of the payment of part of the debt upon a promise by the surety to pay the remainder, he cannot claim repayment from the principal. Moore v. Isley, 2 Dev. & B. (N. C.) Eq. 372. Where the complaint of the surety is that his goods have been sold on an execution for the debt, the principal may prove that a vendee of the goods from the surety has recovered the goods from the execution purchaser. Head v. McDonald, 7 T. B. Monr. (Ky.) 205.