sides this right at law, the surety is also in equity entitled to be subrogated to whatever rights the creditor has against the principal, and can thus get the benefit of any security which the creditor may have for his debt. In addition to his right of indemnity and of subrogation, where there are co-sureties he has a right of contribution from them. These rights of the surety will be taken up more fully in the next chapter (11) to which the reader is referred for a more detailed explanation. If the surety can show that any of these rights in respect to the principal or in respect to any co-surety have been prejudiced by the act of the creditor, he will have a good defense to an action by the creditor against him as surety; and, if his rights as to a portion of the debt only have been so injured, he will have a defense as to such portion. An idea of what constitutes an injury to the surety's rights can best be obtained by taking up a few of the cases on the subject. It may be well to state here that the question is not whether the surety is actually damaged by the act of the creditor or not, but whether there is a possibility that he might suffer damage.

§ 27. Extending time of payment. The creditor has no right to extend the time of payment of the debt without the surety's consent, and any such extension, even for a few days and even though it appears to be beneficial to the surety, releases the surety from his obligation. In a leading case on this point, a guarantor brought a bill in equity to cancel his guaranty, because the creditor gave the principal additional time to pay for the goods fur

(11) See chapter III, sections 1, 2, and 3.

nished him, the payment of which was guaranteed by the complainant. Lord Eldon, one of the most eminent English chancellors, decided that the guaranty should be cancelled, for the creditor had no right to extend the time of payment without the consent of the guarantor (12). In such a case, the only right of the surety affected is his right of subrogation. If the time is extended a month, for instance, and the surety pays the creditor as soon as the debt matures under the terms of the original contract, as he has a right to do, he cannot enforce the right of the creditor against the principal until the expiration of one month, thus delaying his right of subrogation for that period. This slight interference with the surety's right of subrogation is enough to discharge his liability to the creditor.

§ 28. When suretyship relation is created by agreement among obligors. Several parties may be bound as joint debtors and by agreement arrange that one of them is to assume the debt, thus making him the principal debtor as between the joint obligors. The liability of all these joint obligors to the creditor remains the same, and, until he knows that relation of principal and surety has been created among them by agreement, he cannot be affected by it. But when a creditor knows one of several joint obligors, by agreement with the others, has become primarily liable and the others sureties for him, the rules of the preceding subsection apply; and, if the creditor extends the time of payment to the one who assumes the debt, the others will be thereby released. Thus, a part

(12) Samnell v. Howarth, 3 Merivale, 272.

nership owed some debts and one partner withdrew from the firm, the other partners assuming all the firm debts. The new firm became bankrupt and the creditors of the old firm sued the retired partner, who pleaded that the creditors, knowing the new firm had assumed the debts, had extended time of payment to the new firm without his consent. The court held his liability as surety was discharged (13). Cases similar to this, where the creditor has no part in the creation of the suretyship relation, arise where a purchaser of mortgaged land assumes the mortgage debt, or where a leasehold is assigned, the assignee in both cases being the principal debtor-the one primarily liable for the debt-and the assignor the surety. If a transferee of mortgaged land does not assume the debt, the land is primarily liable, that is, is in the position of principal, while the grantor is surety. In such a case, an extension of time to the grantee of the land to pay off the debt discharges the grantor from liability (14). It suspends for a time the surety's right to pay the debt when due and then enforce the creditor's mortgage on the land.

§ 29. Creditor taking forged or illegal note. When the creditor, without the surety's knowledge, takes a new note which is forged and surrenders the old note, the surety is not released if the creditor did not know that the new note was forged (15); perhaps because the creditor took the invalid note innocently by mistake, and the rights of the surety were not really prejudiced. But,

(13) Rouse v. Bradford Banking Co., [1894] Appeal Cases, 586. (14) Murray v. Marshall, 94 New York, 611.

(15) Hubbard v. Hart, 71 Iowa, 668.

even here, if the surety knew a new note had been given but did not know it was forged, and, thinking he was discharged, did not make any move to assert his right, he would be discharged. A note, illegal because usurious, taken by the creditor in exchange for the old note, releases the surety on the old note because, in this case, the creditor must have notice of the illegality (16). As a general rule we may say, that, when a creditor takes a new bond or note from the principal in exchange for the old one, a surety on the old instrument is discharged, if the new note or bond proves to be void or illegal and the creditor knew or should have known this fact; but not if the creditor acted in good faith and innocently. In the latter case, though he did an affirmative act prejudicial to the surety, he did it innocently.

§ 30. Principal's set-off or counter claim against creditor as a defense to surety. The surety cannot use a set-off or counter claim of the principal in a suit by the creditor against the surety alone, because such set-off or counter claim belongs to the principal and cannot be used in a suit to which the principal is not a party. This was decided in a case where the surety was sued on a note, and set up as a defense that the note was given by the principal in payment of some timber, the quality of which was so misrepresented by the creditor that the damages suffered by the principal therefrom amounted to more than the amount of the note. The court held that, since the debtor was not a party to the suit, the surety could not elect for him to set up this claim for breach of guaranty

(16) Moulton v. Posten, 52 Wisconsin, 169.

against the creditor, and judgment must be for the creditor. Such claim for breach of guaranty belonged to the principal, and he had the sole right to decide whether to enforce it or not (17). While the principal's set-off or counter claim cannot be set up by the surety at law without consent of the principal, it is a good defense in equity, where the principal is made a party to the suit, for all the parties concerned are before the court, and the creditor is seeking to recover from the surety a debt the principal ought to pay. Therefore, any claim which the principal has against the creditor can be raised and used for the benefit of the surety. Equity will, by its decree, deduct the set-off or counter claim due the principal from the amount due the creditor, and enforce payment of any balance remaining from the principal, if possible; and, if not, then from the surety.

§ 31. Surrender of securities by creditor. When a creditor has any security of the principal for the debt due him, he cannot release such security without discharging a surety for the debt, to the extent of the value of the security released. A release of the security is an act of the creditor which prejudices the right of subrogation of the surety; for, as we have seen, the surety is entitled to be subrogated to all the creditor's rights against the principal, and, by release of a security, the surety plainly loses his right to be subrogated to the creditor's right to that security, and may possibly be injured to the extent of the value thereof. The value of the security taken is usually its value at the time it was released. In Dunn v. Parsons

(17) Gillespie v. Torrance, 25 New York, 306.