CHAPTER IX. Rights of surety on principal's bankruptcy. may be qualified by contract (y), or may thereby be altogether excluded, so as to render a surety not liable to contribute in any degree (≈). So, a contract limiting or negativing liability to contribute may be implied from the circumstances of the transaction. Thus, where sureties were bound by different instruments for distinct portions of a debt due from the same principal, it was held that the suretyship of each was a separate and distinct transaction, and that consequently there was no right of contribution between them (a). There is also a distinction between cases where several persons are strictly co-sureties, and where one person is only a surety for the principal and the other surety; thus, where a person gave a separate bond as a supplemental security for the payment of a debt in default of its being paid by the principal or his surety under a former bond, it was held that he was not liable to contribution in favour of the original surety, the latter being, as to the subsequent surety, a principal (b). iv.-Right to Proof in Bankruptcy.-If the principal debtor becomes bankrupt, the surety may compel the creditor to prove against the estate for the amount due (c). On the bankruptcy of the principal, the surety, if he has paid the whole amount of the debt, may prove for the whole so paid; but if a surety for the whole debt pays only a part, he has no equity to stand in the place of the creditor for such part (d). If, however, a person guarantees a limited portion of a debt, and pays the whole of that portion, he has, in respect of it, all the rights of a creditor (e). There is no provision in the Bankruptcy Act, 1883 (ƒ); expressly entitling a surety, who has paid after the commencement of the principal's bankruptcy, to prove; nor do the rules framed under that Act contain any provision on this point. (y) Swain v. Wall, 1 Rep. in Ch. 149. (z) Pendlebury v. Walker, 4 Y. & C. (a) Coope v. Twynam, T. & R. 426. (c) Exp. Rushforth, 10 Ves. 409. See Field, 12 Ves. 435; Jackson v. Magee, 3 A. & E. 57. (d) Exp. Rushforth, sup., at p. 420. (e) Hobson v. Bass, L. R. 6 Ch. A. 792, at p. 794. See also Exp. Holmes, My. & Cr. 301; Paley v. Field, sup.; Bardwell v. Lydall, 7 Bing. 489; Gee v. Pack, 33 L. J. Q. B. 49; Gray v. Seckham, L. R. 7 Ch. A. 680. (f) 46 & 47 Vict. c. 52. The decisions under the various enactments would seem to CHAPTER IX. exclude the surety's right of proof under such circumstances (g). If, however, a surety pays a creditor who has already tendered a proof, he is entitled to stand in such creditor's place as to securities, dividends past and future, and all other rights (h). Where the principal is deceased or become bankrupt, and the mortgagee has proved the debt, the surety who has paid the debt is entitled to all the dividends, though he did not set off the dividends in the action against him by the creditor (i), and for a proportionate share of the dividend if he is only surety for a part of one debt (k). It would seem that, having regard to the comprehensive terms of sect. 37 of the Act of 1883, whereby all debts and liabilities, present or future, certain or contingent, are made provable in bankruptcy, a surety whose liability has arisen on default of the principal may prove against the principal's estate, although the surety has not actually paid the debt (1). But perhaps this point cannot be regarded as settled (m). Where one of several co-sureties has paid off the debt, he is entitled, notwithstanding sect. 5 of the Mercantile Law Amendment Act, 1856 (n), to the benefit of the creditor's proof against another co-surety for the full amount of the debt, and not merely for the proportion which, as between the sureties, he is liable to pay (0). As a general rule, a surety will not be entitled to receive any dividends out of a bankrupt principal's estate until the creditor has received 20s. in the pound (p). surety both Where the principal and surety both become bankrupt, and Principal and the creditor has been paid in full by dividends from both estates, bankrupt. the trustee of the surety's estate is entitled to prove against the (g) See Abbott v. Hicks, 5 Bing. N. C. 579; Young v. Taylor, 8 Taunt. 315; Exp. Coplestone, 4 Deac. 54; see also Paul v. Jones, 1 T. R. 599; Kittier v. Raynes, 1 Cox, 105; Martin v. Brecknell, 3 M. & S. 39. But see Soutten v. Soutten, 1 D. & Ry. 521. (h) Exp. Johnson, 3 De G. M. & G. 218; Forbes v. Jackson, 19 Ch. D. 316. (i) Thornton v. McKewan, 1 H. & M. 525; Hobson v. Bass, L. R. 6 Ch. A. 792; Midland Banking Co. v. Chambers, L. R. 4 Ch. A. 398; L. R. 7 Eq. 179; Goodwin v. Gray, 22 W. R. 312. (k) Gray v. Seckham, L. R. 7 Ch. A. See Exp. Holmes, M. & Chit. 680. CHAPTER IX. Proof for contribution estate of the principal for all sums paid out of the surety's estate to the creditor (q). Where both principal and surety became bankrupt, and the creditor received dividends of 10s. in the pound from each estate, the assignees of the surety were held entitled to all future dividends under the creditor's proof out of the principal's estate until they should be recouped the amount paid by the surety's estate (»). Where one of several co-sureties becomes bankrupt, his by bankrupt liability to contribution, though unascertained at the time of the bankruptcy proceedings, is a debt provable in the bankruptcy (s). co-surety. Proof against joint and separate estates of partners. Marshalling. Surety can only charge principal with amount actually paid. Right of surety to interest. Sureties who, after payment of the debt, have received a dividend on a proof against the joint estate of a banking firm in which their principal was a partner, cannot prove against the principal's separate estate until they have applied to expunge the joint proof (t). The surety is entitled, as against the trustee in the principal's bankruptcy, to marshal securities so as to obtain repayment of moneys advanced to the principal on mortgage and guaranteed by the surety (u). v.-Extent of Surety's Rights.-Where a surety discharges an obligation at a less sum than its full amount, he cannot, as against his principal, make himself a creditor for the full amount, but can only claim, as against his principal, what he has actually paid in discharge of the obligation (x). As against the principal debtor and his co-sureties, a surety is entitled to interest on sums paid by him (y); but as against the estate of the deceased principal he is not so entitled; though where a fund assigned as a further security had made interest, he was allowed interest out of that interest (≈). Interest may be recovered by a surety on the amount paid by (x) Reed v. Norris, 2 My. & Cr. 361, 375. (y) Lawson v. Wright, 1 Cox, 275; Hitchman v. Stewart, 3 Drew. 271; Set. Dec. pp. 1181, 1182, 4th ed.; Re Swan, Ir. R. 4 Eq. 209; Petre v. Duncombe, 2 Lown. Max. & Poll. Pr. C. 107; Exp. Bishop, Re Fox, Walker & Co., 16 Ch. D. 400, C. A. (*) Caulfield v. Maguire, 2 J. & L. him for the mortgagor, his principal, through the medium of CHAPTER IX. the mortgage security. It seems, however, that if the charge or mortgage paid off by the surety or his estate is not kept alive, interest will not be allowed the surety on the sums so paid, though a fund which has arisen from the sale of the mortgaged estate of the principal debtor be in Court (a). The surety's right of action against the principal debtor may be barred by the Statute of Limitations. Time begins to run against a surety suing his co-surety for contribution as soon as his liability has actually been established, not from the time when the debt became payable (b). a) Lancaster v. Evors, 10 Beav. 266. (b) Wolmershausen v. Gullick, (1893) 2 Ch. 514. Part II. OF THE SUBJECT-MATTER OF MORTGAGES. Conveyance with defeas ance. Demise and sub-demise. CHAPTER X. OF A MORTGAGE OF FREEHOLDS. SECTION I. FORMS OF MORTGAGES OF FREEHOLDS FORMERLY IN USE. In early times, the form of a mortgage of freeholds was simple. It consisted of a feoffment, with a condition contained in the same deed, or sometimes in a separate deed of defeasance (executed at the same time), to be void on payment of a given sum, at a given time. On performance of the condition, the mortgagor was restored to his old estate, paramount to all the charges and incumbrances of the feoffee (a). The objections to a mortgage by way of absolute conveyance, with the clause of redemption in a separate deed of defeasance, were that the defeasance might be lost, and then an absolute conveyance would be set up; or that the estate might be conveyed to a bona fide purchaser without notice, in which case the right to redeem would be wholly defeated, and the mortgagor be left to his remedy against the mortgagee for the fraud. In consequence of the discouragement it received (b), this mode of mortgage has become almost obsolete. In some instances the mortgage was effected by a demise and sub-demise; that is, the mortgagor demised the lands to the mortgagee for a long term of years at a peppercorn rent, and then the mortgagee re-demised them at a pecuniary rent, which covered the interest of the money lent, and there was a condition in the original demise that, on payment of the mortgage debt (a) See ante, p. 4. (b) See Cotterell v. Purchase, Cas. t. Talb. (Williams) 61; Baker v. Wind, 1 Ves. Sen. 160. |