Story Case

The Los Angeles Construction Company purchased $2,000 worth of lumber from the California Lumber Company, giving its six months' Bote for $1,500 as part payment, indorsed by Winfield Meade, the president, as surety. One month after this note was accepted, the lumber company became dissatisfied with its security, and requested that the construction company have Abel Whitman, its treasurer, and Howard Burnham, a director, give their guaranty for the payment of the obligation. Whitman and Burnham, thereupon, signed the following letter, "We guarantee the payment of $1,500 owing by the Los Angeles Construction Company to the California Lumber Company." When the note became due, the construction company was embarrassed financially, because of the money stringency caused by the Great European War. It failed to pay the obligation, and suit was brought against Meade, who finally paid the entire sum. He now seeks $500 from Whitman and $500 from Burnham, by way of contribution as co-sureties. Can Meade compel this payment?

Ruling Court Case No. 1. Bugger Vs. Wright, Volume 51 Arkansas Reports, Page 232; Volume 14 American State Reports, Page 38

This is a suit brought by the distributees of the estate of John S. Dugger against the sureties, to recover $291.50, as value of the property converted to his own use by the executor of the estate.

Two of the securities on the executor's bond became such before the executor converted the property to his own use, and three others signed the new bond as sureties after the wrong was done by the executor, but before the accounting had been made by him. The question in this case is whether the last three are liable on their bonds.

Judge E. H. Powell rendered the opinion of the court: "The wrong of the executor was a continuing one, because it was still his duty to account to the probate court for the property. When he failed to comply with the order of the court, directing him to pay over the amount with which his account had been charged, the new sureties became liable by the terms of the agreement, undertaking to make good the executor's default. The new bond, or the obligation of the new sureties, relates back, and the two sets of sureties are jointly liable to the distributees. Where there are two or more sureties for the same principal, they are co-sureties, whether on the same or on different instruments, and as between themselves are under obligation to equalize their burdens. Judgment entered in accordance with this opinion.

Ruling Court Case No. 2. Salyer Vs. Benjamin And Samuel Ross, Volume 15 Indiana Reports, Page 130

This is a suit for contribution between the sureties of an administrator who wrongfully appropriated property put in his charge. Salyer and one Taylor - now deceased - became sureties on the bond of Robert Taylor, as administrator on the estate of Isaac Riggs. The bond was in the penalty of $10,000, and was conditioned that Taylor would truthfully and faithfully perform his duties as administrator.

Later, Taylor, the administrator, showed in court that the personal property in his charge was not sufficient to pay the debts of Isaac Riggs, and he further petitioned for leave to sell sufficient real estate to pay these debts. His petition was allowed, and he gave a new bond guaranteeing his faithful sale of the real estate. Benjamin and Samuel Ross became sureties for $4,000 on this new bond.

Taylor sold the real estate for $1,232, but he did not account for the money. There were also various outstanding obligations which Taylor failed to pay, appropriating the assets of the estate. Later, he became insolvent, and Salyer, as surety on the original bond, was sued. Judgment was secured against him for $3,600, which was paid.

Salyer now wishes to hold the Rosses for $1,232, the amount received on the sale of real estate. The question is whether the sureties on this second bond are liable for contribution to the surety on the first bond.

Justice Davison gave the opinion: "The bond given on the application to sell real estate is not a primary security, but merely subsidiary to the original bond given by the administrator. When separate bonds are given, with different sureties, and one is intended to be subsidiary to the security for the other, in case of default and payment by the latter, the sureties of the second bond will not be compellable to aid those on the first bond by contribution. The plaintiff and defendants are really not co-sureties; they are not equally bound for the same prospective duties; nor are their engagements of the same legal operation. The plaintiff, as surety, is bound for the performance of every duty, while the defendants are bound merely for the faithful application of the money arising from the sale of real estate, and only in the event that the principal's original bond has become insufficient as security. Not being co-sureties, the plaintiff cannot hold the defendants for contribution." Judgment was given for Benjamin and Samuel Ross.

Ruling Law. Story Case Answer

Sureties who are bound by like contracts for the same debt, are co-sureties, although they are bound by separate instruments, executed at different times, and in ignorance of each other's obligations. Sureties who sign one note with a maker, are presumed to be co-sureties, although they execute it at different times. An officer may give two or more bonds at different times, yet the sureties on all the bonds would be cosureties, if the obligations were all conditioned on the non-performance of the same duties. Also, if an agent assumes an obligation for several persons, and gives the notes of each of them as his security, the makers of the notes are co-sureties for the agent.

But, if the contracts entered into by way of giving security, are not of like character, although they may be given to secure the same debt, the parties are not co-surieties. Thus, if one bond has been given as further security to another, the obligors are not cosureties, or if the duties secured are different, as in the Ruling Court Case of Salyer vs. Ross, they are not co-sureties. Supplemental sureties are not co-sureties. Where a surety signing after others have signed, adds the words to his name, "surety to the above," he is a supplemental surety and those that preceded him are his principals. Where two or more persons indorse a negotiable instrument, each is a surety as to those preceding. They are not co-sureties but supplemental sureties. Therefore, if the first indorser must pay he cannot demand contribution from any of the rest, but if the second or any following pays the obligation, he can demand the entire sum from any of those who indorsed before him, since they are all his principals. Guarantors are supplemental sureties to those who are strict sureties for the same obligation. Thus, in the Story Case, Meade was primarily liable upon the note. The lumber company could demand payment directly from him. It could not demand payment from Whitman or Burnham until the construction company or Meade failed to pay, because Whitman and Burnham merely guaranteed that the obligation would be paid. Therefore, the three men were not co-sureties. Meade was a principal with his company as to Whitman and Burnham; therefore, when he paid, he could not demand contribution from the other two. Whitman and Burnham, however, were co-sureties as between themselves, and, had either been compelled to pay, he could demand contribution from the other.