sufficient consideration. However, when the surety's promise is subsequent to the creation of the debt, and the creation of the debt is not an inducement to it, there must be some new consideration or such promise will be void. An agreement by the creditor, to forbear the collection of a debt for a definite time, is a good consideration for a surety's promise,2 as is also an agreement to extend the time of payment. Any other consideration sufficient to support a contract may be given to make the surety's promise binding. See Chapter I, §§ 26-36.

§ 5. Creditor not bound to press his claim against principal debtor. The fact the creditor might have recovered the money due him, had he been diligent in pressing his claim against the principal, is no defense to the surety, for the creditor is not obliged to sue the principal. He may wait as long as he pleases before pressing his claim, so long as he does no affirmative act which is prejudicial to the surety's rights. The surety, if he considers the creditor is not diligent enough in pressing his claim, always has the privilege of paying the claim and then proceeding against the principal to secure reimbursement.

§ 6. Discharge of surety by affirmative act of creditor. It is well settled law that when the creditor does an affirmative act which prejudices any right of the surety, the surety is thereby released from his obligation to the creditor. An idea of what constitutes an injury to the surety's rights can best be obtained by taking up a few of the cases on the subject. It may be well to state here that the question is not whether the surety is actually damaged by the act of the creditor or not, but whether there is a possibility that he might suffer damage.

87. Extending time of payment. The creditor has no right to extend the time of payment of the debt without the surety's consent, and any such extension, even for a few days and even though it appears to be beneficial to the surety, releases the surety from his obligation. In such a case, the only right of the surety affected is his right of subrogation, which is the right of the surety, after paying the debt, to stand in the shoes of the

'Jackson v. Jackson, 7 Alabama, 791.

Pratt v. Hedden, 121 Massachusetts, 116.

creditor and enforce the latter's right against the debtor. If the time is extended a month, for instance, and the surety pays the creditor as soon as the debt matures under the terms of the original contract, as he has a right to do, he cannot enforce the right of the creditor against the principal until the expiration of one month, thus delaying his right of subrogation for that period. This slight interference with the surety's right of subrogation is enough to discharge his liability to the creditor.

88. When suretyship relation is created by agreement among obligors. Several parties may be bound as joint debtors and by agreement arrange that one of them is to assume the debt, thus making him the principal debtor as between the joint obligors. The liability of all these joint obligors to the creditor remains the same, and, until he knows that the relation of principal and surety has been created among them by agreement, he cannot be affected by it. But when a creditor knows one of several joint obligors, by agreement with the others, has become primarily liable and the others sureties for him, the rules of the preceding subsection apply; and, if the creditor extends the time of payment to the one who assumes the debt, the others will be thereby released. Thus, a partnership owed some debts and one partner withdrew from the firm, the other partners assuming all the firm debts. The new firm became bankrupt and the creditors of the old firm sued the retired partner, who pleaded that the creditors, knowing the new firm had assumed the debts, had extended time of payment to the new firm without his consent. The court held his liability as surety was discharged.1 Cases similar to this, where the creditor has no part in the creation of the suretyship relation, arise where a purchaser of mortgaged land assumes the mortgage debt,2 or where a leasehold is assigned, the assignee in both cases being the principal debtor-the one primarily liable for the debt-and the assignor the surety. If a transferee of mortgaged land does not assume the debt, the land is primarily liable, that is, is in the position of principal, while the grantor is surety. In such a case, an extension of time to the grantee of

1 Rouse v. Bradford, (1894) Appeal Cases, 586.

2 See Chapter VIII, Section 3.

the land to pay off the debt discharges the grantor from liability.3 It suspends for a time the surety's right to pay the debt when due and then enforce the creditor's mortgage on the land.

§ 9. Creditor taking forged or illegal note. When the creditor, without the surety's knowledge, takes a new note which is forged and surrenders the old note, the surety is not released if the creditor did not know that the new note was forged,* perhaps because the creditor took the invalid note innocently by mistake, and the rights of the surety were not really prejudiced.

But, even here, if the surety knew a new note had been given but did not know it was forged, and, thinking he was discharged, did not make any move to assert his right, he would be discharged. A note, illegal because usurious, taken by the creditor in exchange for the old note, releases the surety on the old note because, in this case, the creditor must have notice of the illegality. As a general rule we may say, that, when a creditor takes a new bond or note from the principal in exchange for the old one, a surety on the old instrument is discharged, if the new note or bond proves to be void or illegal and the creditor knew or should have known this fact; but not if the creditor acted in good faith and innocently. In the latter case, though he did an affirmative act prejudicial to the surety, he did it innocently.

§ 10. Surrender of securities by creditor. When a creditor has any security of the principal for the debt due him, he cannot release such security without discharging a surety for the debt, to the extent of the value of the security released.

§ 11. Same: Reasonable conduct of creditor. There is one limitation on the doctrine that a release of a security against the principal releases the surety pro tanto. When the creditor surrenders the security as a part of a reasonable business move, the surety is not discharged. The creditor may, therefore, exchange one security for an equivalent one, or he may compromise a disputed claim, or give up or surrender a security of no value. The surety is not in any way injured by such acts of the creditor.

3 Murray v. Marshall, 94 New York, 611.

4 Hubbard v. Hart, 71 Iowa, 668.
'Moulton v. Posten, 52 Wisconsin, 169.

§ 12. Subrogation of surety to creditor's rights. Subrogation is an equitable right which a party who pays money at the request of or for the benefit of another has to stand in the shoes of the creditor and enforce the latter's rights against the party benefited. Under certain circumstances, the surety, after he has paid the debt of the principal, may be subrogated to the creditor's rights against the principal debtor. He cannot enforce his right of subrogation before paying the debt, as this would tend to injure the creditor. He may be subrogated to all the creditor's securities, equities, liens, remedies, and priorities against the principal, and is entitled to enforce them aganst the principal in a court of equity. The right is one given by equity and is independent of any contract. The surety ordinarily can exercise it only after he has paid the entire debt. As we have seen in subsections 6 and 7, the creditor must take care not to injure the surety's rights by any affirmative act, and any act of his which injures them will release the surety from liability. Hence any release of securities or extension of time will either destroy or suspend the surety's right of subrogation, in part at least.

§ 13. Right to contribution. If one co-surety pays the debt after the principal has defaulted, he has a right to contribution from the other co-sureties. This right of contribution, like subrogation, is not founded upon any contract between the co-sureties, for there is none; but it is founded on the principal of equity arising from the proposition that, when two or more sureties stand in the same relation to the principal, they are entitled equally to all the benefits and must bear equally all the burdens of the position. Hence, it does not matter that the several sureties were ignorant of each other's liability; they are entitled to contribution if they stand in the same position in respect to the principal, unless some have equities which give them an advantage over others.

CHAPTER XIII.

PARTNERSHIP.

Section 1. Nature of a Partnership.

81. Definition of partnership. A partnership is an association of two or more persons for the purpose of carrying on a business together and dividing the profits.1

The conclusion reached by the best recent authorities is that whether an association constitutes a partnership depends on the intention of the members at the time when the association was formed. The question is whether they intend to enter into the relation of partners: 2 that is, to form an association for the purpose of carrying on a business together as joint principals, and dividing the profits. The rule is, that, in determining whether the association or relation is a partnership, the test whether a man is a partner is, not whether he has actually received a share of the profits, but whether he has entered into an association formed for the purpose of carrying on a business and dividing the profits. The fact that a person shares in the profits, or that a mutual agency of the members is created, or that the members have a community of interest in certain property, or that each has a right to an accounting from the others, is simply a circumstance that tends strongly to show that the parties meant to enter into the relation of partners.

§ 2. What definition implies: Mutual consent. To have a

This is in substance the definition given in Beale's edition of Parsons on Partnership (4th ed.) p. 1, and is adopted in the codes of several states: Cal. Civil Code, § 2395; Mont. Rev. Civ. Code of 1907, § 5466; N. Dak. Rev. Civ. Code of 1905, § 5818; S. Dak. Civ. Code of 1903, § 1723. Many other definitions are given in Lindley on Partnership (2d ed.), 2-4.

'Parsons on Partnership (4th ed.) 47, § 54; Burdick on Partnership (24 ed.), 57.