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When Creditor Entitled to Securities Held by the Surety


WHEN CREDITOR ENTITLED TO SECURITIES HELD BY THE SURETY. Securities given by the principal to the surety for indemnity against the payment of the debt, are generally subject to the equitable claim of the creditor and may be taken for his indemnity, though they did not influence him in giving credit to the principal, or were not known of by him. (Kramer & Rahm's Appeal, 37 Pa. St., 71; Owens v. Miller, 29 Md., 144.) The creditor may take such security without having exhausted his remedies at law, or reducing his debt to a judgment. (Kinsey v. Mc Dearmon, 5 Cold., 392.) The surety is regarded as a trustee for the benefit of the creditor, and such trust subsists until the debt is paid, and may be enforced against any one taking the trust property with notice of its character. (Eastman v. Foster, 8 Met., 19; Carpenter V. Brown, 42 Miss., 28.) And it is held that the creditor would be entitled to a judgment confessed by the principal in favor of the surety after the surety had been discharged. (Crosby v. Crafts, 5 Hun., 327.) But it is held that where the indemnity fund or security given by the principal to the surety is "against a contingent liability," there can be no substitution in favor of the creditor until the liability has become absolute. "If a mortgage or other security is given to the surety, not to secure the debt or provide a fund for its payment, but to save harmless from a contin gent liability or loss, that contingency must come or the injury be sustained before a right to the indem nity inures to the creditor." (Per Simrall, J., in Osborn V. Noble, 46 Miss., 449.) It is also held that indemnity given by a stranger to the surety, or by a co-surety, cannot be claimed by the creditor by subrogation. (Taylor V. Farmer's Bank, 87 Ky., 398; Hampton v. Phipps, Io8 U. S., 26o.) Nor can the creditor be subrogated to personal indemnity given the surety, that is, not given as a pledge for the payment of the debt, after such surety has been discharged, since the possibility of the surety being damnified has ceased with his discharge. (Constant v. Matteson, 22 III., 546.)

indemnity, debt and principal