SURETYSHIP (from surety, from OF. surety, seurte, Fr. surety, from Lat. sccuritas, freedom from care, from SccUITR, free from care, from se-, apart + cure, care, anxiety). The en gagement by which one person becomes legally bound to another for the liability of a third. It therefore involves three parties: the creditor, the principal debtor, and the surety. The dis tinction between this term and another which is often used interchangeably with it has been pointed out under GUARANTY (q.v.), and need not be repeated here.
It is generally held that surety agreements are subject to the ordinary rule of interpretation that a written contract is to be construed strong ly against the party executing it. This will always be enforced when it appears that the lan guage was chosen by the signer, whether he enters into the contract for his. own benefit or for the benefit of a third person. Another important rule is that such contracts shall be interpreted so as to give effect to all of their provisions if possible.
After the contract is made it is the duty of the creditor not to enter into any binding engage ment with the principal, modifying that contract, without the assent of the surety. The law favors the surety and protects him with much jealousy. Accordingly, if the creditor varies the terms of the original contract or changes securities put into his hands by the principal debtor, or discharges a co-surety, or gives time to the principal debtor, or negligently causes a loss to the surety, the latter will be discharged sinless he has assented to this conduct of the creditor. If, however, the principal debtor or a co-surety is discharged from liability by opera tion of law, as by a discharge in bankruptcy, the sureq• still remains bound.
The rights of the surety may be considered under three heads. First: Against the principal debtor. As soon as the debt becomes due, the surety is entitled to call on him for exoneration. This relief is obtainable in a court having equit able powers, it being unreasonable that the surety should have such a cloud hanging over him. If the surety has heen compelled by the cred itor to pay the debt he is entitled to call on the principal for reimbursement; for the money paid by him was paid for the principal's use. Second: Against the creditor. As soon as the debt be comes due the surety may compel the creditor to sue the principal and collect the debt from him. In some of our States the surety is dis charged irons liability if the creditor does not sue the principal upon the surety's request. One who is surety for the honesty or good conduct of an employee is entitled to have the employee dis charged from service for serious defaults or breaches of duty, or to he freed from his surety ship. Another and very important right of the surety is to have the benefit of all securities which the creditor holds against the principal. This is known as the right of subrogation (q.v.). Third: Against co-sureties. It often happens that one surety is compelled by the creditor to pay the whole debt, and that the debtor is worthless. In such a case the unlucky surety is entitled to call upon his co-sureties fnr contribu tion. See SUnROGATION. Consult authorities cited under GUARANTY.