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no longer a surety, he cannot have any of the rights growing out of such relation. In short, a surety not legally bound to pay, if he does pay, occupies no better position than any other person paying the debt of another without request or authority, express or implied.

§ 79. Surety to one of two or more partners. A surety can look only to his principal for indemnity, so a surety on the bond of one partner cannot look to the partnership for indemnity, even though the bond be given to secure a partnership debt. No privity exists between the parties, except that which arises out of the bond. Privity between the parties must be shown by the contract, and there is no privity shown on the bond except as to the one partner who signs it. But it was held, where a note was given by one partner for the hire of a man for the benefit of the firm with the knowledge and consent of both partners, and the entire consideration of the note went to the benefit of the firm and was so intended by the partners, that, since the benefit enured to the firm, a surety on the note might maintain an action against the partners jointly for money he had been forced to pay on the note (23). Perhaps this might be on the quasicontractual ground that the firm got the benefit, and therefore ought to pay for it whatever sum such benefit increased the value of the firm assets.

§ 80. Note of surety given in payment. The law is that if the surety gives his bond or non-negotiable note in satisfaction of the debt, he cannot recover indemnity until such bond or note is actually paid, because such note or

(23) Burns v. Parish, 3 B. Monroe (Ky.) 8.

bond is not the same as money. But when he gives his negotiable note in payment of the debt after it is due, if the creditor receives such note as payment, he may recover reimbursement, for the debt is absolutely satisfied by the transaction. In some states, however, a negotiable note must be actually paid by the surety before any right of action for indemnity arises against the principal. In any case when the surety gives his note in payment, it must be taken by the creditor in satisfaction of the debt against the principal; that is, the debt against the principal must be extinguished, or no indemnity can be had. When the debt is extinguished, the principal is as much benefited as if payment had been made in money.

§ 81. Debt satisfied from surety's property. If the surety pays the principal's debt by giving property for it, or if his property is taken by legal process, he can at once sue the principal for indemnity. Thus, where a surety's land was levied on and sold to satisfy the suretyship debt, and the surety then brought an action against the principal for indemnity, it was held he could recover (24). The surety can also, when his property is taken for the debt, recover contribution from a co-surety.

§ 82. Recovery of consequential damages. When a surety can show that, by reason of the non-payment of the debt by the principal, he has suffered damages in excess of the principal and interest he has been compelled to pay, he may recover such excess damage from the principal (25). But he is seldom able to show this, and, as a general rule, he cannot recover from the prin

(24) Lord v. Staples, 23 New Hampshire, 448. (25) Whereatt v. Ellis, 103 Wisconsin, 348.

cipal remote or consequential damages arising out of the suretyship contract. He is not entitled to remuneration for loss sustained by a forced or hasty sale of his property in order to raise money to pay the debt, but can recover only principal and interest actually paid. The same is true when his goods are sold on execution or attachment by the creditor. Losses from such causes may be quite heavy, yet the surety has no relief except that he may bring a bill of equity, before any such damage occurs, and compel the principal to exonerate him. This right of exoneration will be discussed later (26).

§ 83. When surety's right of action is complete. It is well settled law that no action can be maintained by the surety upon an implied promise, if default has been made by the principal, without first paying the debt; except where the principal has made an express promise to do or refrain from doing some particular act or to save the surety from some particular charge or liability, and has broken such promise. For instance, suppose a principal, who makes a note, agrees with the surety on the note that he will pay the note on a given day. Then, if the principal does not pay it on that date as he promised, the surety can sue him and recover without first paying the note himself. Likewise, if a partner retires from the partnership and the new firm agrees with him to pay all the debts of the old firm and save him harmless from any liability on account of the same, upon default of the new firm he can recover at once without paying the debt (27).

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If, however, there be no affirmative promise to do a certain act or to pay certain money, then actual damages must be shown by the surety or the debt paid by him, before any action can be maintained by him against the principal.

§ 84. Principal liable for surety's costs and interest. A surety can recover money paid by him for the principal, with interest, and is also entitled to recover such reasonable costs as he has been compelled to pay in his action to recover from the principal. He can also recover costs he has had to pay in defending a suit by the creditor against him. But the principal is not liable for costs and expenses, unnecessarily incurred by the surety in litigation carried on, in order to defeat the efforts of the creditor seeking to recover from him. It is therefore required that the surety seeking to recover costs of litigation with the creditor show that such litigation was entered into in good faith and upon reasonable grounds, and was a measure of defense necessary to the interests of himself and his principal (28). A surety has a right to defend a suit on the debt brought by the creditor against the principal, when the principal does not defend with due diligence, and costs of such suit may be recovered from the principal.

§ 85. Amount surety can collect. The surety can collect from the principal only the amount he has paid, with interest and costs. This is because the implied contract between the principal and surety is that, if the surety will enter into the suretyship contract, the principal will re

(28) Ledfield v. Haight, 27 Connecticut, 31.

pay the surety anything he may be compelled to pay by reason of such contract. In other words, the implied contract is a contract of indemnity only, and therefore, if the surety satisfies the debt by compromise or otherwise for less than its face value, he can recover only what he actually paid for such satisfaction. An accommodation endorsee of a negotiable note, however, if he purchases the instrument he indorsed, can recover the full face value. This is because an endorsee has as much right as anyone else to purchase negotiable paper, and can enforce it in the same way as others, without regard to what he paid for it.

§ 86. When principal is not liable. In general, in order to make the principal reimburse the surety, the principal must be liable for the debt, though the surety may be liable and may have to pay when the principal is not liable. The surety's recovery can arise only from payment of money he was legally bound to pay. If the surety knows of facts which will discharge him or his principal and yet pays the creditor, he cannot recover indemnity from the principal. But where he pays without fraud or negligence on his part, though there is a good defense to the obligation of which he does not know, he can recover from the principal; for the latter should see that the surety knows of any defense there may be. The surety is not bound to allow himself to be sued before he pays the debt, but may pay it as soon as due when he knows of no defense to it. When the surety pays a debt which, as between the principal and creditor, is barred by a statute of limitations, he can nevertheless recover in

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