p. 290) though in neither of these countries nor in Scotland can
one of several sureties, when sued for the whole guaranteed
debt by the creditor, compel the latter to divide his claim
amongst all the solvent sureties, and reduce it to the share and
proportion of each surety. However, this beneficium divisionis,
as it is called in Roman law, is recognized by many existing
codes (Fr. and Bel. 2025-2027; Spain, 1837; Portugal, 835-836;
Germany, 426; Holland, 1873-1874; Italy, 1911-1912;
Lower Canada, 1946; Egypt [mixed suits], 615,616).
The usual mode in England of enforcing liability under a guarantee is by action in the High Court or in the county court. It is also permissible for the creditor to obtain redress by means of a set-off or counter-claim, in an action brought against him by the surety. On the other hand, the surety may now, in any court in which the action on the guarantee is pending, avail himself of any set-off which may exist between the principal debtor and the creditor. Moreover, if one of several sureties for the same debt is sued by the creditor or his guarantee, he can, by means of a proceeding termed a third-party notice, claim contribution from his co-surety towards the common liability. Independent proof of the surety’s liability under his guarantee must always be given at the trial; as the creditor cannot rely either on admissions made by the principal debtor, or on a judgment or award obtained against him (Ex parte Young In re Kitchin, 17 Ch. Div. 668). Should the surety become bankrupt either before or after default has been made by the principal debtor, the creditor will have to prove against his estate. This right of proof is now in England regulated by the 37th section of the Bankruptcy Act, 1883, which is most comprehensive in its terms.
A person liable as a surety for another under a guarantee possesses various rights against him, against the person to whom the guarantee is given, and also against those who may have become co-sureties in respect of the Rights of sureties. same debt, default or miscarriage. As regards the surety’s rights against the principal debtor, the latter may, where the guarantee was made with his consent but not otherwise (see Hodgson v. Shaw, 3 Myl. & K. at p. 190), after he has made default, be compelled by the surety to exonerate him from liability by payment of the guaranteed debt (per Sir W. Grant, M.R., in Antrobus v. Davidson, 3 Meriv. 569, 579; per Lindley, L.J., in Johnston v. Salvage Association, 19 Q.B.D. 460, 461; and see Wolmershausen v. Gullick, 1893, 2 Ch. 514). The moment, moreover, the surety has himself paid any portion of the guaranteed debt, he is entitled to rank as a creditor for the amount so paid, and to compel repayment thereof. In the event of the principal debtor’s bankruptcy, the surety can in England, if the creditor has not already proved in respect of the guaranteed debt, prove against the bankrupt’s estate, not only in respect of payments made before the bankruptcy of the principal debtor, but also, it seems, in respect of the contingent liability to pay under the guarantee (see Ex parte Delmar re Herepath, 1889, 38 W.R. 752), while if the creditor has already proved, the surety who has paid the guaranteed debt has a right to all dividends received by the creditor from the bankrupt in respect thereof, and to stand in the creditor’s place as to future dividends. This right is, however, often waived by the guarantee stipulating that, until the creditor has received full payment of all sums over and above the guaranteed debt, due to him from the principal debtor, the surety shall not participate in any dividends distributed from the bankrupt’s estate amongst his creditors. As regards the rights of the surety against the creditor, they are in England exercisable even by one who in the first instance was a principal debtor, but has since become a surety, by arrangement with his creditor, duly notified to the creditor, though not even sanctioned by him. This was decided by the House of Lords in the case of Rouse v. The Bradford Banking Co., 1894, A.C. 586, removing a doubt created by the previous case of Swire v. Redman, 1 Q.B.D. 536, which must now be treated as overruled. The surety’s principal right against the creditor entitles him, after payment of the guaranteed debt, to the benefit of all securities, whether known to him (the surety) or not, which the creditor held against the principal debtor; and where, by default or laches of the creditor, such securities have been lost, or rendered otherwise unavailable, the surety is discharged pro tanto. This right, which is not in abeyance till the surety is called on to pay (Dixon v. Steel, 1901, 2 Ch. 602), extends to all securities, whether satisfied or not, given before or after the contract of suretyship was entered into. On this subject the Mercantile Law Amendment Act, 1856, § 5, provides that “every person who being surety for the debt or duty of another, or being liable with another for any debt or duty, shall pay such debt or perform such duty, shall be entitled to have assigned to him, or to a trustee for him, every judgment, specialty, or other security, which shall be held by the creditor in respect of such debt or duty, whether such judgment, specialty, or other security shall or shall not be deemed at law to have been satisfied by the payment of the debt or performance of the duty, and such person shall be entitled to stand in the place of the creditor, and to use all the remedies, and, if need be, and upon a proper indemnity, to use the name of the creditor, in any action or other proceeding at law or in equity, in order to obtain from the principal debtor, or any co-surety, co-contractor, or co-debtor, as the case may be, indemnification for the advances made and loss sustained by the person who shall have so paid such debt or performed such duty; and such payment or performance so made by such surety shall not be pleadable in bar of any such action or other proceeding by him, provided always that no co-surety, co-contractor, or co-debtor shall be entitled to recover from any other co-surety, co-contractor, or co-debtor, by the means aforesaid, more than the just proportion to which, as between those parties themselves, such last-mentioned person shall be justly liable.” This enactment is so far retrospective that it applies to a contract made before the act, where the breach thereof, and the payment by the surety, have taken place subsequently. The right of the surety to be subrogated, on payment by him of the guaranteed debt, to all the rights of the creditor against the principal debtor is recognized in America (Tobin v. Kirk, 80 New York S.C.R. 229), and many other countries (Codes Civil, Fr. and Bel. 2029; Spain, 1839; Port. 839; Germany, 774; Holland, 1877; Italy, 1916; Lower Canada, 2959; Egypt [mixed suits], 617; ibid. [native tribunals], 505).
As regards the rights of the surety against a co-surety, he is entitled to contribution from him in respect of their common liability. This particular right is not the result of any contract, but is derived from a general equity, on the ground of equality of burden and benefit, and exists whether the sureties be bound jointly, or jointly and severally, and by the same, or different, instruments. There is, however, no right of contribution where each surety is severally bound for a given portion only of the guaranteed debt; nor in the case of a surety for a surety; (see In re Denton’s Estate, 1904, 2 Ch. 178 C.A.); nor where a person becomes a surety jointly with another and at the latter’s request. Contribution may be enforced, either before payment, or as soon as the surety has paid more than his share of the common debt (Wolmershausen v. Gullick, 1803, 2 Ch. 514); and the amount recoverable is now always regulated by the number of solvent sureties, though formerly this rule only prevailed in equity. In the event of the bankruptcy of a surety, proof can be made against his estate by a co-surety for any excess over the latter’s contributive share. The right of contribution is not the only right possessed by co-sureties against each other, but they are also entitled to the benefit of all securities which have been taken by any one of them as an indemnity against the liability incurred for the principal debtor. The Roman law did not recognize the right of contribution amongst sureties. It is, however, sanctioned by many existing codes (Fr. and Bel. 2033; Germany, 426, 474; Italy, 1920; Holland, 1881; Spain, 1844; Port. 845; Lower Canada, 1955; Egypt [mixed suits], 618, ibid. [native tribunals], 506), and also by the Indian Contract Act 1872, ss. 146-147.
The discharge of a surety from liability under his guarantee
