payment of his principal's debt. While the former is regarded as payment, entitling the surety to recover indemnity, acceptance of a non-negotiable instrument by the obligee will not avail the surety in his action against the principal to recover reimbursement. Non-negotiable paper does not pass as currency, as does negotiable paper.54

§ 160. Payment by instalments. The guarantor or surety may compel the principal to reimburse him by an action at law for any portion of the obligation paid by the former. This differs from the right of subrogation, which does not arise until the principal's debt is wholly discharged. The statute of limitation begins to run from the payment of any part of the principal's debt.55 It is obvious the creditor could bring but one action to recover from the principal; but by paying in instalments, the guarantor can sue for indemnity as each instalment is paid. This does no violence to the rule preventing the splitting of causes of action, because the surety's right against the principal, differing from that of the obligee, arises whenever he makes any payment. But it appears that a guarantor who pays his principal's debt by instalments cannot bring an action to

54 Lord Ellenborough, in Taylor v. Higgins (1802) 3 East 169, 102 Eng. Reprint 562, said: "There is no pretense for considering the giving this new security as so much money paid for the defendant's use. Supposing even the case of the note of hand or bill of exchange, as the current representative of money, to have been rightly decided, still this security, consisting of a bond and warrant of attorney, is not the same as that, and nothing like money. Adm'r Robinson Boulware, (1852) 8 Texas 327, 58 Am. Dec. 117.

V.

It was stated in the opinion in Jackson et al. v. Shaffer (1814) 11 Johns. (N. Y.) 513, that: ""

where a creditor takes a new security, of an equal or inferior degree,

it is not an extinguishment of the original debt."

55 Baron Parke in Davies V. Humphreys (1840) 6 M. & W. 153, 151 Eng. Rep. Reprint 361, said: "... for it is clear that each sum the plaintiff, the surety, paid, was in ease of the principal, and ought to have been paid in the first instance by him, and that the plaintiff had a right of action against him the instant he paid it, for so much money paid to his use. However convenient it might be to limit the number of actions in respect of one suretyship, there is no rule of law which requires the surety to pay the whole debt before he can call for reimbursement."

recover indemnity without demand or notice, actual or structive, to the principal. In such a case, the statute of limitations does not begin to run on the surety's claim until demand has been made or notice given of the payment of the instalments.56

§ 161. Set-off. The surety is entitled to set off any amount he has paid against any sum he may owe the principal; but prior to payment by him, no right of set-off at law would seem to exist, for "the principal does not become the debtor of the surety until the latter pays the debt for which he is liable as surety. "57 In an action by the administrator of a principal against a surety for a debt admitted to exist, the defendant could not set off an obligation on which he was surety for the intestate, undue and unpaid at the principal's death, even though the surety subsequently paid it. The administrator is suing for money due the estate at the death of the intestate, and rights not then attached cannot be set up.58 If, however, the surety pays the obligee after the principal has begun suit against him, he is entitled to credit for the sum so paid,59 although if the surety has property or money in his hands which is attached or garnisheed after the obligation is due, and before the surety has paid it, the surety is not entitled to retain it.60 In an action by a distributee against a surety on an administration bond, the surety is entitled to set off the amount received by the plaintiff in the distribution of the estate.61

In equity, however, the surety may be allowed to retain funds belonging to the principal, in his hands, even before he pays the debt. This is an equitable set-off.62

56 Williams' Adm'rs v. Williams' Adm'rs (1832) 5 Ohio 444.

57 Walker v. McKay (1859) 59 Ky. 294, 295. Accord: Tyree v. Parham's Executor (1880) 66 Ala. 424.

58 Convery, Adm'r v. Langdon (1879) 66 Ind. 311.

59 Beaver v. Beaver (1854) 23 Pa. St. 167.

60 Ingalls v. Dennett (1829) 6 Greenleaf (Me.) 79.

61 Fisher v. Cassidy (1892) 49 Oh. St. 421, 34 N. E. 696.

62 Williams v. Helme (1828) 1 Devereaux's Eq. (N. C.) 151, 18 Am. Dec. 580. It was said in Walker v. Dicks (1879) 80 N. C. 263, that: "The principle seems well established by the current of authorities, that a surety, before he has suffered from his suretyship, may use his liabilities as equitable sets-off against the debt he owes his insol

§ 162. The surety must not be a party to an illegal con. tract. The right of reimbursement, though at law, is founded upon equitable principles. The surety cannot recover from the principal if he has been a party to an illegal transaction knowingly. His hands must be clean. A gambling contract, to which the surety was a party, even though a foreign court has given judgment to the obligee against him, will prevent the surety from recovering reimbursement.63 Sureties for a State Treas

urer cannot recover from the principal, where in violation of a statute, they agreed to go upon the principal's bond, with the secret understanding with him that the State money collected by him should be deposited in banks in which the sureties were interested, and the principal should be paid interest thereon. Though an obligee, who was not a party to such an illegal agreement might recover from the surety,64 the sureties could not recover from the principal, because the implied contract of

vent principal, and this defense will avail him equally against an assignee, provided the note is overdue when assigned, or assigned with notice."' Mattingly v. Sutton et al. (1881) 19 W. Va. 19. See Richardson v. Merritt (1898) 74 Minn. 354, 77 N. W. 234, 407, 968.

63 Harley v. Stapleton's Adm'r (1857) 24 Mo. 248. Likewise, where the instrument which principal and surety was known to be usurious. Roe v. Kiser (1896) 62 Ark. 92, 34 S. W. 534; Mims v. McDowell (1848) 4 Ga. 182. But see Ford v. Keith (1804) 1 Mass. 139, 2 Am. Dec. 4, and Jackson v. Jackson (1878) 51 Vt. 253. In the latter case, the plaintiff as surety on the defendant's note, paid it with ten per cent interest, as stipu lated, while the legal rate was six per cent. Plaintiff was permitted to recover from the principal debtor, not only the principal, but the ten per cent interest. It is obvious that there is a difference between usury

statutes, and the result will depend upon statutory provisions as to the effect of usury.

64 In Board of Education of Hartford Township v. Thompson et al. (1877) 33 Oh. St. 321, litigation arose between the Board of Education and the Township Treasurer over the custody of funds. The Board of Education was held to be entitled to the money. The Board of Education then agreed with the Treasurer of the Township to leave the funds with him at seven per cent interest if he would give a note with sureties for its payment. The parties were prohibited from making such an agreement by statute, which defined it as embezzlement. The sureties on the note did not know of this illegal agreement. It was held that the agreement and the note were "contrary to public policy," and no action by the obligee, a party to the illegal understanding, could be maintained thereon against the sureties.

indemnity related back and became effective when the surety became responsible; and "the consideration moving from the sureties was not a single one, free from unlawful taint, but included pecuniary gain and advantage to the Treasurer by an unlawful agreement, under which they paid interest to him.” 65

§ 163. Sureties on criminal bail bonds. While the surety on bonds given in civil proceedings is entitled to reimbursement, this right does not extend to sureties on bail bonds in criminal actions. The reason for denying the right of indemnity to sureties on criminal bail bonds was given by the United States Supreme Court in this language:

"The object of bail in civil cases is, either directly or indirectly, to secure the payment of a debt or other civil duty; whilst the object of bail in criminal cases is to secure the appearance of the principal before the court for the purposes of public justice. Payment by the bail in a civil case discharges the obligation of the principal to his creditor, and is only required to the extent of that obligation, whatever may be the penalty of the bond or recognizance; whilst payment of the bail of their recognizance in criminal cases, though it discharges the bail, does not discharge the obligation of the principal to appear in court; that obligation still remains and the principal may at any time be retaken and brought into court.

66

It has been held that the surety can recover costs on an implied agreement of his recognizance.67 It has been suggested that an express contract for reimbursement between the surety and principal on a bail bond required in a criminal action, is enforceable; 68 but if the implied agreement cannot be enforced in a court of law because it is contrary to public policy, an ex

65 Ramsay, Estate of v. Whitbeck et al. (1900) 183 Ill. 550, 56 N. E. 322.

66 United States v. Ryder (1883) 110 U. S. 729, 736, 28 L. Ed. 308, 4 Sup. Ct. Rep. 196. Accord: Cripps v. Hartnoll (1863) 4 B. & S.

415, 122 Eng. Rep. Reprint 514; Herman v. Jeuchner (1885) L. R. 15 Q. B. D. 561. See Sec. 71, supra.

67 Jones v. Orchard (1855) 16 C. B. 614, 139 Eng. Rep. Reprint 900.

68 Stearns on Suretyship (1922, 3d Ed.) Sec. 279.

press agreement would seem to be violative of the same policy.69 Collateral deposited by a third person as security for another who signed a bail bond as surety, is an arrangement which is illegal and void.70

§ 164. Effect of a judgment in favor of or against the principal. In an action by the obligee against the principal, if judgment is in the defendant's favor because of anything except a personal defense or discharge by operation of law, no action can be maintained against the surety. If judgment is obtained against the surety, and subsequently one is rendered