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(18), a New York case, the defendant was sued as surety on a note, and set up that the plaintiff had released a judgment against the makers of the note, which was a lien on certain real estate belonging to the makers. The court held the defendant was thereby released, to the extent of the value of the lien released by the plaintiff. The doctrine of this case applies to releases of any sort of security, and also to a loss of securities through the neglect of the creditor, as where he takes property of the principal as pledgee and does not take reasonable care of it, so that it is destroyed or injured; or where he holds in his possession the promissory notes of third parties which belong to the principal, and fails to take necessary steps to hold endorsees. But where the creditor holds some lien against property of the principal, his neglect to enforce it does not release the surety; for it is the surety's duty to pay the debt and enforce the lien, if he desires the benefit of it (19). Such a lien is the property of the creditor and not property of the principal placed in the creditor's possession, as in the other cases mentioned above.

§ 32. Same: Reasonable conduct of creditor. There is one limitation on the doctrine that a release of a security against the principal releases the surety pro tanto. When the creditor surrenders the security as a part of a reasonable business move, the surety is not discharged. The creditor may, therefore, exchange one security for an equivalent one, or he may compromise a disputed claim, or give up or surrender a security of no value. The surety

(18) Dunn v. Parsons, 40 Hun (N. Y.) 77.

(19) Fuller v. Tomlinson Brothers, 58 Iowa, 111.

is not in any way injured by such acts of the creditor. For instance, the principal in a certain case gave his creditor a policy of insurance, as security for a debt due the latter. The principal became bankrupt so that he could no longer pay the premiums on the policy, and the creditor surrendered the policy to the insurance company for what he could get for it. It was held the surety was not thereby released, for the creditor was not bound to pay the premiums on the policy and did the best he could with it (20). Perhaps, in this case, had the creditor allowed the policy to lapse, he might have released the surety to the extent of the surrender value, because his negligence would have caused the loss of the surrender value of the policy. If a creditor misappropriates, sells at a sacrifice, or otherwise prejudices the surety by his misconduct in dealing with property in his hands as security, he releases the surety to the extent of the damage done by such misconduct. He cannot wantonly destroy property he holds as security, and then recover the full amount of the debt from the surety.

§ 33. Taking property by attachment and execution. The creditor can acquire possession of the property of the principal by attachment or by levy of execution. He need not attach or make a levy, but, if he does so and acquires possession of the debtor's property, he should not afterwards in any manner relinquish the same or consent to a course of proceedings that will have that effect. If he does so, the surety will be discharged to the extent of the value of the property thus released (21). In the case of attach(20) Coates v. Coates, 33 Beavan, 249.

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ment, since the risk to the creditor in enforcing the proceeding is so great, many states hold the creditor may release such attachment without discharging the surety. Where an execution becomes a lien on the property of the debtor as soon as issued and before any levy is made, the surety is released if the creditor abandons the proceedings. The extent of the surety's release will be the amount which would have been realized by levy and sale of the property.

In the absence of statute, the fact a principal has become insolvent and received a discharge from all indebtedness in a court of bankruptcy does not discharge his surety; so, when an attachment lien is destroyed because the principal has gone through bankruptcy, the surety is still liable. Also a levy of execution on or an attachment of property of no value, the sale of which would bring no return, may be abandoned without release of the surety (22).

§ 34. Tender of payment by principal debtor discharges surety. When the debt is due, if the principal debtor tenders payment and the creditor refuses, this discharges the surety, for the creditor ought to receive the money due him when it is offered. Likewise, if the surety tenders payment and his tender is refused, he is discharged from further liability and so are his co-sureties, if there are any (23). Such tender does not have to be kept good nor paid into court, for the creditor is bound to receive the money, if offered after it is due, and refusal to do so in

(22) Moss v. Pittenger, 3 Minnesota, 217.

(23) Hayes v. Joseph, 26 Cal. 535.

jures the rights of the surety and completely releases him, though of course the creditor can still sue the principal debtor for the debt.

§ 35. Failure of creditor to apply money in his control to debt. When a bank is a creditor, and the principal debtor has enough money on deposit to pay the debt when it matures, the fact that the bank does not apply the money on deposit to the payment of the debt will not discharge a surety for such debt. The bank is not bound to apply such money to the payment of the debt, although under its general banker's lien it would have a right to do so (24). But it is held that if the principal makes a note payable at a bank, and, when the note matures the bank is holder of the note and has enough of the debtor's money on deposit to pay it, an endorser or other surety will be discharged if the bank does not honor the note. If the balance of the debtor in the bank is not large enough to pay the debt, the bank is not obliged to use what is there as part payment, however, for a creditor is not bound to accept a part payment of a debt.

§ 36. Effect of creditor's failure to sue at surety's request. At common law in most states, though the surety specially requests the creditor to sue the principal and the latter fails to do so, this does not release the surety. The creditor need not sue if he does not wish to, it being the surety's duty to pay the debt and sue the principal himself. The surety is not put to any hazard by the forbearance of the creditor, as he has it in his power to protect himself. However, if the delay in enforcing the debt is

(24) National Bank v. Smith, 66 New York, 271.

due to fraudulent connivance between the creditor and principal, or if there is an agreement for a definite extension on a new consideration, the surety will be released. But where the creditor has started a suit against the principal, the surety will not be discharged by the creditor's act in agreeing to continue the suit against the principal, unless the surety is actually prejudiced thereby. A few states, however, hold at common law that if the surety, after maturity of the debt, specially requests the creditor to sue the principal and he neglects to do so, the surety is thereby discharged (25); and this has been enacted by statute in a number of other states whose common-law rule was otherwise.

§ 37. Notice to guarantor of default of principal. The guarantor of an obligation as a rule is not entitled to notice of the principal debtor's default, because he did not contract for such notice. Thus, where the defendant in a suit was sued for rent, the payment of which he had guaranteed, the court held that the fact he was given no notice the rent was not paid was no defense, for it was his duty to take cognizance of the default of the principal debtor (26). There is an exception to this rule where the time and place of payment are indefinite. In such case the guarantor is entitled to notice of the principal's default, for otherwise he cannot pay the debt if he so desires, because he does not know when it is due or where it is payable. In general, the guarantor is entitled to notice, when it would be very difficult for him to discover the time and

(25) Pain v. Packard, 13 Johnson (N. Y.) 174.

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