The right of re-imbursement is the right of the surety to be re-imbursed for payments made by him; the right of exoneration is the right to have the court to order the debtor to pay in order that the surety need not.
In case of suretyship and guaranty, the principal debtor is of course the real debtor. The burden should ultimately rest on him. The surety or guarantor has simply loaned his credit, even as in the case of surety companies there has been compensation for doing so.
Example. P and S, as principal and surety, sign a penal bond. S is held liable on this bond. S may sue P for reimbursement frequently; of course, P is insolvent is such cases. S's lack of remedy in such case is merely a misfortune of fact, not a deficiency of law.
Courts of equity will take jurisdiction at the suit of the surety to compel a debtor to pay his debt where it is shown that the principal has assets subject to the indebtedness, and can be made to pay. This is called the right of exoneration.
Subrogation is the right of the surety upon paying the debt to have and make use of all the remedies which the creditor had against the principal debtor.
Where the surety pays the debt to the creditor or obligee, the creditor or obligee has no longer any need of his various remedies against the principal debtor and these remedies accrue to the surety. The right of the surety to avail himself of the remedies of the creditor is called the right of subrogation. It is often said that he is entitled " to stand in the shoes " of the principal debtor.
The right of subrogation is an equitable doctrine and enforceable only when it accomplishes justice. It arises independent of contract (though it may also arise out of contract) and is a creature of the courts of equity for purposes of justice.
The doctrine applies to give the surety the right to enforce mortgages, judgments and to apply the securities of the debtor.
Where the creditor's debt is secured by mortgage and the surety pays the debt he is entitled to foreclose the mortgage against the principal debtor. Where the surety was debtor, now, having paid the debt, he becomes creditor, and is entitled in equity to foreclose the mortgage. The mortgage debt is not in equity considered as having been paid in the sense that the remedy is thereby gone; but rather as assigned to the surety.
Where the creditor has a judgment against the principal debtor, the surety pays the debt, he is entitled by filing his bill in a court of equity to avail himself of the rights which one would have to whom the judgment had been assigned. He is said to be subrogated to the rights of the judgment creditor.
Where the creditor has in his hands securities from the principal debtor, the surety upon paying the debt is entitled to these for the purposes of his security.
Subrogation is enforced by filing a bill in a court of equity setting up the facts and praying the court to give the surety the right and remedies of the principal debtor.
A surety may secure his protection by having assignments made to him or to trustees for him at the time of paying the debt. Or he may find it necessary to file his bill in a Court of Equity because of the unwillingness of the parties to clothe him with or to admit his rights.
The right of contribution is the right of a surety to have the cosureties bear their part of the burden when he has borne more than his part.
Where there are several sureties for the same debt or obligation, each surety is liable for the whole debt as far as the creditor or obligee is concerned. But as among themselves, co-sureties ought to bear the burden equally, or in proportion to their undertaking. The right of surety to have his co-sureties reimburse him when he has paid more than his share, is called the right of contribution. This assumes, of course, that the principal is insolvent and cannot be made to reimburse the surety.
The right of contribution accrues when the surety has actually borne more than his share of the burden.
Not until the surety has borne more than his share of the burden does he have any right to insist upon contribution by the others. He must actually have paid more than his proportionate part.
The amount each surety must contribute is determined by the number of responsible sureties.
The amount each surety is liable to contribute is governed by the number of sureties.
Contribution is enforceable in courts of law or courts of equity. In courts of law a surety can compel his co-sureties only to pay the amount as determined by the actual number of sureties, whether any of them are insolvent or not, or in the jurisdiction or not; in courts of equity, however, the surety may have the amount of contribution measured according to the actual number of solvent and accessible sureties.
By releasing the principal, giving him a definite extension of time or surrendering security in his hands, a surety may lose in whole or part his right to contribution.
The surety must be careful not to jeopardize the interests of his principal, or he will lose his right of contribution.
If he pays the debt and then releases the principal from his liability to him, or if he gives the principal a definite, enforceable extension of time, he loses his right of contribution. So if he has security in his hands, belonging to the principal and surrenders it to the principal, he loses his right to contribution to the extent of the value of the security surrendered.