surety; and he can, in spite of it, enforce his right of subrogation to this security against all but bona fide purchasers for value and without notice (5). After payment by the surety the creditor has no right to release any security for the debt, but must hold all securities in trust for the benefit of the surety, until the latter is reimbursed for all he has been compelled to pay by reason of the suretyship contract.

§ 61. When stranger pays debt. The right of subrogation is given only to sureties or to those who have to pay the debt to protect their own interests. A mere volunteer or stranger cannot pay a debt for which another is bound, and claim the right to stand in the place of the creditor in respect to his rights against the debtor (6). The right can be claimed only by one bound as surety, or by one who is forced to pay the debt in order to protect his own interest. For instance, when a vendee of land pays a mortgage debt of his vendor, in order to prevent foreclosure of the mortgage on his land, he is entitled to subrogation to the mortgagee's rights against his vendor. This really involves the law of suretyship, for, though the vendee who pays the mortgage is not personally liable as surety for his vendor, the land is liable. Therefore, the land stands as surety for the debt, and in order to protect his interest in it the vendee has to pay the mortgage debt. § 62. When surety is not entitled to subrogation. Subrogation is allowed only under certain circumstances. In the first place, a surety cannot enforce this right until he

(5) Hough v. Insurance Company, 57 Illinois, 318.

has paid the entire debt; because the right will never be allowed where it will result in an injustice to the creditor who is the party who has the right to payment both from principal and surety. His rights against the principal cannot be infringed, so long as any portion of the debt remains unpaid. Thus, a surety on a replevin bond, after he had paid all the damages due on the bond, petitioned for subrogation to the rights of the creditor on the judgment against the principal debtor. The creditor answered that the judgment was not yet fully paid. The court said that subrogation rested on purely equitable grounds and would not be enforced against superior equities. Unless the surety pays the debt in full he is not entitled to subrogation, and, until this is done, the creditor will be left in full possession and control of the debt and the remedies for its enforcement. The right of subrogation will never be allowed to the prejudice and injury of the creditor (7). This being true, then the surety must see that all of the debt is paid, whether he is liable for all of it or not, before he is entitled to subrogation—that is, if the debt is $2,000 and the surety is bound to the extent of $1,000 only, he must pay the entire amount still due the creditor, or any attempt to enforce subrogation would injure the rights of the creditor.

§ 63. When subrogation may be allowed before debt fully paid. Although, as just stated, as a general rule the surety must pay the full debt before subrogation can be had, yet there are cases where it may be allowed before such debt is paid. The chief reason for not allowing it

(7) Musgrave v. Dickson, 172 Pennsylvania, 629.

before payment of the debt being that it would injure the creditor, the right may be allowed when the creditor does not object. The creditor may hold securities for the debt worth much more than the amount due him. Then, when the surety has paid a portion of the debt, he may, with consent of the creditor, reimburse himself out of the creditor's securities. In some respects the surety may rank directly as a creditor of the principal, before he has paid any part of the obligation. The principal's contingent liability to the surety permits the surety to exercise a creditor's right to set aside a fraudulent conveyance, made by the principal (8). Here the object of the suit is to set aside a conveyance so that the principal's creditors can get the property which the principal wrongfully disposed of, and doing this cannot injure the creditor, but would benefit him, since he would have this additional property to proceed against in collecting his debt (see § 65, below).

§ 64. What amounts to payment of debt. It is only required that the debt be paid, no matter by whom, before subrogation may be enforced by a surety. Part may be paid by the principal, or part may be contributed by other sureties. A payment by a surety will discharge securities as between the creditor and the principal, but does not have that effect as between the surety and the principal, for equity will keep the securities alive for the benefit of the surety. Thus, in the case of Uzzell v. Mack, cited above (9), the lien in question was a vendor's lien on the

Longbridge v. Bowland, 52 Mississippi, 546.

(8)
(9) § 59.

land, and payment of the purchase money by the surety extinguished it; but equity nevertheless held the surety was entitled to subrogation. At law, payment of a bond, note, or judgment extinguished it, but nevertheless the surety can in equity enforce such instruments, after paying the creditor. Equity, in general, will keep the right of the creditor alive where it is necessary for the protection of the surety.

§ 65. Surety a creditor of principal debtor. In equity, a surety is regarded as a creditor of a principal debtor. If the latter becomes insolvent, the former may retain any securities in his possession belonging to the principal. Securities taken by one of two or more sureties inure to the benefit of all, for sureties are entitled not only to the benefit of the creditor's securities but also to the benefit of those held by co-sureties.

That a surety, for some purposes, is regarded as a creditor of the principal is shown by the law as to fraudulent conveyances made by the principal. A surety's liability before he pays the debt, though contingent, is as fully protected against a fraudulent voluntary conveyance as after he has paid the debt; for his claim is considered in equity as having existed from the time he became surety, and a subsequent payment of the debt extends back by relation to that date, though no cause of action accrues till payment is made. So, after he pays the debt, he is to be considered as having been a creditor from the time the debt was created, and as such is protected from fraudulent conveyances (10), and can proceed in his own right

(10) Bragg v. Patterson, 85 Alabama, 233.

to set aside any which have been made after he became bound as surety. As to his right before he has paid the debt, see § 63, above.

§ 66. Exemptions of principal. When parties enter into a contract, the laws in force at that time and at that place enter into and become a part of such contract. Thus, parties entering into a contract are presumed to have had in view such exemption laws as were in force at that time. As against a surety, the homestead and other exemption rights of the principal apply as of the date of the contract, and not as of the date of the payment of the debt.

The value of the right of subrogation to the surety is no where better illustrated than in cases involving exemptions. In a Michigan case (11) an administrator of an intestate estate bought a homestead with some of the funds of the estate. The creditors of the estate forced the surety on the administrator's bond to make good the funds misapplied. The surety could not reach the debtor's homestead by an action of law, so he brought a bill in equity asking to be subrogated to the right of the estate to follow the misappropriated trust fund. The court held he was entitled to enforce this right, and could recover out of the homestead the amount of the fund applied to its purchase. The law, then, is that where an exemption law stands in the way of the surety's direct recovery from the principal, if the creditor could have avoided such exemption law, the surety can avoid the exemption by subrogation to the right of the creditor.

(11) Pierce v. Holzer, 65 Michigan, 263.