Hidden v. Bishop , 5 R.I. 29 ( 1857 )

The equity which entitles a surety to the benefit of all securities of the principal deposited with the creditor to assure payment of the debt, is wholly independent of any contract between the surety and the creditor, and indeed of any knowledge on the part of the surety of the deposit of the securities. A striking illustration of this equity is afforded by the recent case of Lake v. Bruton, 39 Eng. L. Eq. 443, 444; in which, there having been a contract for specific indemnity to the surety, it was contended, that upon the principle of "expressiounius, exclusio alterius," he became disentitled to the benefit of certain other security deposited by the principal with the creditor, without the privity of the surety. The Lords Justices held, however, that for the very reason that the surety had no knowledge of the deposit, the above maxim could not apply to the construction of the surety's contract for specific indemnity; and, affirming the general equity, allowed him the full benefit of the other security deposited by his principal with the creditor without his knowledge. In such case, the creditor is regarded as a trustee of the security deposited with him, for the benefit of all parties known to him to be interested in it, and is bound to administer the trust created by the deposit, unless discharged by the surety, in his relief, as well as in accordance with his own interests and those of the principal. It follows, that any application of the security by the creditor to other purposes than those marked out by the terms of the deposit, or any decrease of its value by means of his negligence or mistake, discharges the surety from liability to him in that character, to the extent of the misapplication or decrease of value thus occasioned. Matthew v. Crickett and others, 2 Swanst. 190, 191; Samuel v. Howarth, 3 Mer. 277, 278; Law v. The EastIndia Company, 4 Ves. 824; 2 Am. Lead. Cases, Hare Wallace's notes, 343 to 369, inclusive, for American cases.

The equities of a surety are administered by courts of law, so far as their remedial forms will permit, as well as by courts of equity; and applied, as they must be, to the decision of the case at bar, operate with great force to discharge the defendant as guarantor of the check here sued. The defendant is not only a surety, but became such, in the matter of this discount, upon the representation of his principal that the check was to be merely collateral to the note of P. Allen Sons, which was for an amount exceeding it, and that he would thus be protected from any loss in consequence of his suretyship. The plaintiff was apprised of the character in which the defendant engaged himself to him, by the very form of his engagement, as well as by the fact, that the maker of the check procured and received the benefit of the discount; and, under the circumstances, might reasonably have presumed, what turns out to be true, that the defendant indorsed the check upon faith of being protected in some mode by the note of P. Allen Sons. The application of the proceeds of that note by direction of the principal, and without the assent of the defendant, to other paper discounted by the plaintiff, and in relief of other sureties, one of them his near connection, was, far within the rule so well and wisely established for the protection of sureties, a clear breach of the trust created by the original deposit for the benefit of the defendant. As the note of P. Allen Sons has been paid, and in amount exceeds the amount of this indorsement, the equities between these parties are perfectly administered by holding, as we do, the defendant discharged as guarantor.

Judgment for defendant.