Gibson v. Shehan

Mr. Chief Justice Alvey delivered the opinion of the Court: Without noticing other questions raised by the demurrer to the bill, upon the facts alleged, the question presented by the prayer for relief would seem to be a plain and simple one; and that is, whether the American Surety Company is entitled to occupy the position of co-surety with the two defendants, Shehan and McLeod, by virtue of the alleged assignment from Gibson, or otherwise? In other words, whether there be any ground shown for the claim made by the American Surety Company for contribution from the two defendants as sureties of Karl? If Gibson had no claim for contribution as against his two co-sureties for Karl, it is very clear that the American Surety Company can have none, as the latter company can only claim the rights that Gibson had to contribution. The bond of indemnity furnished to Gibson was the bond of Karl, the principal debtor in the bond to the United States, [394] and the American Surety Company became surety thereon at the instance and by the procurement of Karl, for a premium paid by him for becoming such surety. The bond of indemnity was for the full amount of' the official bond executed to the United States by Karl and his sureties; and while this bond of indemnity was given to Gibson by Karl as one of the sureties on the official bond, it constituted a fund for the protection and indemnity of all three of the sureties on the official bond of Karl; Gibson receiving the bond as a trust fund placed in his hands by the principal debtor with which to discharge the principal debt that might be demandable and recovered by the United States, and as well for the relief of his co-sureties as for the relief of himself. The principle is perfectly well settled, both in the English and in the American courts of equity, that a surety is bound to bring into hotchpot for the benefit of his co-sureties a security given him by the principal debtor, although he only consented to become surety upon having such security given him, and although the other sureties were not consulted and not even aware of his having taken such security. Steel v. Dixon, 17 Ch. D. 825; Berridge v. Berridge, 44 Ch. D. 168. In the note of Hare and Wallace to the leading case of Dering v. Earl of Winchelsea (1 Eq. Lead. Cas., 3d Am. Ed., pp. 162 and 163) there is a full collection of the American cases, and the doctrine upon this subject is very fully and clearly stated by the learned annotators. It is there laid down as a settled principle of equity, that if one of several co-sureties subsequently take a security from the principal, for his own indemnity, it inures to the common benefit of all the sureties. If, therefore, the principal convey property, by a deed of trust, expressly for the benefit of one of the sureties only, the others have an equity to come upon it to the same extent that he can. And again, quoting from the case of Agnew v. Bell, 4 Watts, 31, 33, it is said, that “ when funds are placed by the principal in the hands of one surety, to be applied either to the payment of the debt, or for the purpose of indemnifying him against any loss that may arise from [395] the suretyship, he must be considered as holding them for the common benefit of all concerned. The giving of the funds was the act of the principal, who was equally bound to indemnify all his sureties alike, and upon him, as well as to all his means for that purpose, each of them had an equal and just claim. It is unjust and inequitable that one surety, without the consent of his co-sureties, should derive any exclusive benefit from the act of the principal in giving up what he might and ought to have applied for the common benefit of all.” And in conclusion of the discussion of this particular principle, the editors say: “ If the principal has given sureties to one surety, the latter cannot in chancery recover contribution from his co-sureties, without accounting for the property, and either showing how much he received upon it, and making a ratable allowance of the proceeds, or showing that he could not by reasonable diligence realize from it. Any loss which may arise from his neglect or misconduct will be a defense to the extent of such loss. The surety receiving securities is a trustee for his co-sureties, and is hound to such discreet and reasonable use of them as would be required from a trustee, but no greater.” But, irrespective of other authority, the question here involved would seem to be fully embraced and concluded by the decision of the Supreme Court of the United States, in the case of Hampton v. Phipps, 108 U. S. 260, 264. The facts of that case were quite different from those of the present case, but the principles involved, and applied in the decision of that case, were substantially the same as those involved in this case. That was a case of a bill in equity by a creditor to obtain the benefit of securities held by sureties of the principal debtor; and it involved the question of the rights of all the sureties to the fund. And in deciding the case the court said: “ When a debtor, who has given personal guaranties for the performance of his obligation, has further secured it by a pledge in the hands of his creditor, or an indemnity in those of his surety, it is conformable to the presumed intent of all the parties to the arrangement, [396] that the fund so appropriated shall be administered as a trust for all the purposes which a payment of the debt will accomplish; and a court of equity accordingly will give to it this effect. All this, it is to be observed, as the rule verbally requires, presupposes that the fund specifically pledged and sought to be primarily applied, is the property of the debtor, primarily liable for the payment of the debt; and it is because it is so, that equity impresses upon it the trust, which requires that it shall be appropriated to the satisfaction of the creditor, the exoneration of the surety, and the discharge of the debtor. The implication is, that a pledge made expressly to one is in trust for another, because the relation between the parties is such that that construction of the transaction best effectuates the express purpose for which it was made.” In this case, as we have seen, the bond of indemnity was furnished by Karl, the principal debtor. It was held by Gibson, one of the sureties, and the fund created by the bond was applied, as equity required it to be applied, to the extent necessary to pay off and discharge the debt for which Karl and all three of the sureties were liable. This was in accordance with the trust impressed upon this indemnity fund by the well established principles of equity; and Gibson, not having to pay the debt, had no right of contribution as against the other sureties, and therefore had nothing to assign to the American Surety Company. This latter company did not stand in the relation of co-surety with the defendants; and neither Gibson nor the Surety Company had any right of contribution as against the defendants. It is unnecessary to refer to any other question, as to the sufficiency of the allegations of the bill, raised by the demurrer; and it follows from what we have said, that the decree below, sustaining the demurrer and dismissing the bill, must be affirmed; and it is so ordered. Decree affirmed, with costs to appellees.