trust; in the second, the rights of the creditor must be worked out, if at all, by a proceeding in the nature of an equitable trustee-process. These two classes we propose to exclude altogether from this discussion; our attention will be turned solely to those cases in which the security is given purely for indemnity.
The result will frequently be the same whether the security be applied in discharge of the debt, or whether it be retained for reimbursement; this is true where the surety is solvent and where the indemnity fund is equal in amount to the debt, but it will be readily seen that in case of insolvency or bankruptcy it makes a great difference whether the creditor be allowed to reach the security directly or whether he be obliged to rank with the general creditors.
The question has been frequently before the courts both in this country and in Great Britain, and various results have been reached which cannot be reconciled. It is proposed to consider the cases under the following four heads, which, it is believed, will be found to comprise most of the decisions: first, where the security for personal indemnity is held to constitute a trust fund for the payment of the debt; second, where the equity of the creditor does not arise until the insolvency of the surety; third, the English cases, following the rule of Ex parte Waring, that in the event of double bankruptcy the creditor may reach the security; fourth, the Scotch decisions, according to which the holder of the obligation has no claim to the security, though indirectly he may, in common with the general creditors, derive a benefit from its existence.
The first case on record is that of Maure v. Harrison,[1] in which it is stated that “a bond creditor shall in this court have the benefit of all the counter-bonds or collateral securities given by the principal to the surety; as, if A owes B money, and he and C are bound for it, and A gives C a mortgage or bond to indemnify him, B shall have the benefit of it to recover his debt.” This case has remained a solitary decision in England, and is at variance with Ex parte Waring.[2] The doctrine as it stands, without qualification, is that all securities given by a principal to his surety are held in trust; the case was so interpreted in New York,[3] at an early period, and may be said to lie at the basis of most of the
