American law on this point. The reasons given by the courts for deciding that this transaction creates a trust, even where the funds are given for the surety's indemnity alone, are, to say the least, unsatisfactory; but the statement is generally made that, in accordance with a settled principle in equity, securities in the hands of sureties enure to the benefit of creditors, though in carrying out this principle the intention of the parties be entirely disregarded. In this view of the case it goes without saying that assent or knowledge on the part of the creditor is not necessary to perfect the trust; the transaction being for his benefit, his assent will be presumed.[1] It is as though the debtor had originally constituted the surety a trustee of funds with which to extinguish the debt when it became due, whereas the real object doubtless was to gain credit for the bond, note, or other obligation through the name of the surety, and at the same time leave him with the means of protection. True, the principal intended his debt should be paid, but it was to remain merely a personal claim against himself or his surety, and not to become a claim against any specific fund. The security is for indemnity against any loss the surety may incur on the credit given his principal. No holder is named as beneficiary in any contingency; the instrument is negotiated alone on the personal credit of the parties. Now, if a trust is created, it must be either express or constructive; if the former, it would appear from the language or intention of the parties; if the latter, it must be in order to accomplish justice. But there is nothing in the phrase “to indemnify the surety” from which to infer an express trust; and should the security, on the other hand, realize less than the debt, it is clear that if the creditor is allowed to appropriate it and then claim against the insolvent estate for the balance, the latter may be left without any means of reimbursement. This fact is in itself sufficient to negative the idea of a constructive trust, based on any principle of justice.
Frequently an analogy is drawn between the case we are now discussing and that of a creditor whose remedies against the principal debtor are transferred to a surety who has paid the debt.[2] In answer to this argument it is sufficient to say that in the latter case payment by the surety extinguishes the creditor’s claim, and what he petitions for is a substitution to the creditor’s remedies against
