insolvent or is discharged from liability, he holds the fund in trust for the creditor.”
In Re Jerome B. Fickett the statement is made that there can only be complete indemnity by applying the security in payment of the debt; how this will be accomplished in the case of a deficiency in the security, the court do not undertake to say. If, for instance, the debt is $1,000, and the value of the security only $500, the surety will have to pay at least a part of the remaining $500 out of his own pocket. He will not only have to forego reimbursement from the security, but he will also be deprived of any remedy against his principal on account of the rule against double proof.
If we hold that in indemnifying the surety the principal creates a fund for the payment of the debt, two consequences follow: first, we preclude the former from ever relinquishing the security, even before insolvency and before the creditor has learned of its existence; second, we render any set-off in favor of the principal impossible. With regard to the first point there seems to be very little authority aside from a strong dictum in the case of Ijames v. Gaither. As to the second point, there appears to be no authority at all. Though these two consequences are the logical and inevitable result of holding that a trust is created, it may nevertheless be doubted whether a court would not in an actual case shrink from these applications of their principle. If this be true, it is obvious that the word “trust” is used in a vague and inaccurate sense, and it follows, as we shall soon see, that there is no real distinction between the cases we have been discussing and those comprised under the next head.
In the second class of decisions the right of the creditor to the security is held to arise on the insolvency of the surety, but not before, and a result of this view is that until insolvency intervenes the surety may release the security if he sees fit. This doctrine
- See to the same effect New Bedford Inst. for Savings v. Fairhaven Bank, 9 Allen, 175; Kelly v. Herrick, 131 Mass. 373; Vail v. Foster, 4 N.Y. 312; Barton v. Croydon, 63 N. H. 417; Harmony v. National Bank, 13 W. N. (Penn.) 117, n. 1; Re Jaycox, 8 B. R. 241; Ex parte Morris, 16 B. R. 572; Re Peirce, 2 Lowell, 343.
- 72 Me. 266.
- 93 N. C. at 363: “We think it clearly to be gathered from the authorities that as soon as such a deed of indemnity is given, the equitable right of the creditor attaches to it, and it is not within the power of the surety to put it beyond the reach of the creditor.”