In order that a banker may be entitled to claim upon a debtor's estate, and, if necessary, to require payment in full of the guarantee, the guarantee should be drawn so as to cover all moneys which now are or shall at any time hereafter be due and owing and to apply to and secure any ultimate balance that shall remain after the banker has obtained dividends or compositions from the debtor's estate. In the case of In re Sass, Ex parte National Pro, zlzcial Bank of England (1896, 2 Q.B. 121, a surety guar anteed the payment of all sums of money which were or might from time to time become due or owing to the bank on the account of S. and the guarantee was limited to the amount of 1300. The guarantee gave the bank the right to receive dividends from the debtor's estate. On the bank ruptcy of S. the bank, after receiving the ,g00 from the surety, claimed to prove on the estate for the full amount due. It was held by Vaughan Williams, J., that although the surety's liability was limited, still " his suretyship was in respect of the whole debt, and he, haying paid only a part of that debt, has in my judgment no right of proof in preference or priority to the bank to whom he became guarantor." Under an ordinary banker's guarantee form, the banker can prove upon his cus tomer's estate for the full amount of the debt (allowing for any securities held from the debtor himself) and require payment in full. if necessary, from the guarantor of the amount of his guarantee.
Upon receiving notice of the death of a surety, the debtor's account should be stopped pending fresh arrangements, unless the guarantee expressly provides that the estate of the deceased surety is to continue liable.
Where there are several sureties and one of them dies, the account should be broken, until a fresh guarantee is signed or the surviving sureties have given a written request that the existing guarantee be continued.
If a deceased surety's estate is to be held liable, notice of the guarantee should be given to the legal representatives.
Upon default of a debtor, a banker should require payment at once from a surety of the amount of his guarantee. When the guar antor pays up, the amount should be placed to a separate account, and not go directly in reduction of the debtor's account, if the banker intends to claim upon the debtor's estate. If the sum tendered by the guar antor is sufficient to clear off the debt, the amount is usually placed at once to credit of the debtor's account.
When a surety has paid off the full amount of the debt on the account for which he is guarantor, he is entitled to the rights of the banker, that is to sue the debtor and to receive the benefit of any securities held by the banker for the debt, whether the securities were held at the time the guarantee was given, or were subsequently received.
By the Mercantile Law Amendment Act, 1856, Section 5 : " Every person who, being surety for the debt or duty of another, or being liable with another for any debt or duty, shall pay such debt or perform such duty, shall be entitled to have assigned to him, or to a trustee for him, every judgment, specialty, or other security which shall be held by the creditor in respect of such debt or duty, whether such judgment, specialty, or other security shall or shall not be deemed at law to have been satisfied by the payment of the debt or performance of the duty, and such person shall be entitled to stand in the place of the creditor, and to use all the remedies, and, if need be, and upon a proper indemnity, to use the name of the creditor, in any action, or other proceeding, at law or in equity, in order to obtain from the principal debtor, or any co-surety, co-contractor, or co-debtor, as the case may be, indemnification for the advances made and loss sustained by the person who shall have so paid such debt or performed such duty, and such payment or performance so made by such surety shall not be pleadable in bar of any such action or other proceeding by him ; provided always, that no co-surety, co-contractor, or co-debtor, shall be entitled to recover from any other co-surety, co-contractor, or co debtor, by the means aforesaid, more than the just proportion to which, as between those parties themselves, such last-mentioned person shall be justly liable." When a surety pays off an account and requires any securities to be given up to him, the hanker should, before parting with them, communicate with the debtor or any other parties concerned with the account.
If, under a joint and several guarantee, a banker obtains payment of the full amount of the guarantee from one of the sureties, that surety can call upon his co-sureties to pay him their proportion of the amount. Unless specially provided against in the guarantee, if a banker releases one of several joint co-sureties that release may have the effect of releasing all the sureties. Before releasing one of several sureties a banker should, unless the guarantee provides for such a release, obtain the written assent of the other sureties, or take a fresh guarantee.
When a surety gives notice to terminate a guarantee, the banker should, if possible, obtain the notice in writing.
If after all dividends have been received from the bankrupt's estate, the guarantee money in the banker's hands should be more than sufficient to clear off the indebtedness, the balance remaining should be returned to the surety, or, if several sureties, to each one in proportion to the amount he paid.