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Subrogation, suretyship, and the law of restitution Jackson, Michael Ian 1988

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SUBROGATION, SURETYSHIP, AND THE LAW OF RESTITUTION By MICHAEL IAN JACKSON LLB(Hons), The University of Auckland, 1981 A THESIS SUBMITTED IN THE REQUIREMENTS MASTER PARTIAL FULFILLMENT OF FOR THE DEGREE OF OF LAWS in THE FACULTY OF GRADUATE STUDIES (Faculty of Law) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA September 1988 (c) Michael Ian Jackson, 1988 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date ft 3UIV \ 3 DE-6(3/81) ABSTRACT Subrogation i s well known to the common law legal system. It has existed in one form or other for at least three centuries, and quite possibly even longer. It was developed in the English courts of equity, and adapted for use in a variety of situations. Today, "rights" of subrogation l i e at the heart of a number of commonplace legal relationships, including those of suretyship and insurance. Yet, despite i t s antiquity, subrogation has never been well explained. Fundamental questions about i t s nature have never been f u l l y resolved. Is i t a "right"? Or a "remedy"? Or a "remedial technique"? Is i t perhaps a l l of these? Or none? How exactly does i t operate? And why? The answers forthcoming have varied almost from one case or piece of legal literature to the next. As a result, subrogation has remained something of a legal will-o-the-wisp - known to exist, experienced by many, but lacking theoretical substance. Recently, however, the prospect of f i n a l l y giving this theoretical substance to subrogation has improved. The catalyst for this has been the development and increasing acceptance in the common law world of a law of restitution premised upon a fundamental principle of unjust enrichment. For restitution writers have been quick to argue that subrogation, in i t s many guises, i s fundamentally restitutionary in nature - that i t i s essentially a means of ensuring that one person in a trip a r t i t e relationship i s not unjustly enriched at the expense of another in that relationship. This explanation, i t i s argued, more than any other in the past, offers the means of unifying subrogation in i t s various guises. - i i -This paper i s about t h i s view of subrogation. I t s general thesis i s that subrogation i s e s s e n t i a l l y r e s t i t u t i o n a r y i n nature. Subrogation can and should, i t i s submitted, be viewed as a remedial device or technique used to effect r e s t i t u t i o n i n t r i p a r t i t e relationships when one party to that relationship would otherwise be unjustly enriched at the expense of another. As a necessary corollary, i t i s submitted that the existing "rights" of subrogation i n our le g a l system can be s a t i s f a c t o r i l y explained and understood i n these terms. To test t h i s general thesis and i t s corollary, t h i s paper examines one i n p a r t i c u l a r of the exi s t i n g "rights" of subrogation, that of the surety. The surety's rig h t of subrogation i s one of the most established of the "rights" of subrogation. I t many respects, i t i s the paradigm, or quintessential, t r i p a r t i t e case i n which subrogation has been used. I t should, therefore, f u l l y r e f l e c t the re s t i t u t i o n a r y p r i n c i p l e s upon which subrogation i s said to be premised. The question whether, and the extent to which, t h i s i s so i s the central question that i s explored i n t h i s paper. Preliminary to that question, t h i s paper explores and outlines the nature and content of the surety's "right" of subrogation i t s e l f , for t h i s i s an issue that i s almost equally surrounded by uncertainty. The general conclusion of t h i s paper i s that the surety's "right" of subrogation does f u l l y r e f l e c t r e s t i t u t i o n a r y p r i n c i p l e s , and can be s a t i s f a c t o r i l y explained i n re s t i t u t i o n a r y terms, thus lending considerable support to t h i s paper's general thesis. Further support for t h i s conclusion i s obtained by also considering the extent to which i t holds true i n r e l a t i o n to the close l y related subrogation rights of parties to b i l l s of exchange. TABLE OF CONTENTS TITLE PAGE ABSTRACT TABLE OF CONTENTS TABLE OF CASES TABLE OF STATUTES ACKNOWLEDGMENT INTRODUCTION 1 Chapter 1 Introduction 2 PART I THE ORIGINS AND GENERAL DEVELOPMENT OF SUBROGATION .15 Chapter 2 Origins 16 Chapter 3 The General Development of Subrogation: Steps and Obstacles 22 PART II SURETYSHIP AND SUBROGATION 32 Chapter 4 Suretyship 33 A. Introduction 33 B. Meanings: "sureties" and "quasi-sureties" 35 C. Reimbursement and Contribution 42 (i) Reimbursement 43 (i i ) Contribution 46 l i i i v v i i x i i i xiv - i v -PART II SURETYSHIP AND SUBROGATION (cont'd) Chapter 5 The Surety's Right of Subrogation 52 A. Introduction 52 B. The Content of the Surety's Right of Subrogation 55 (i) Equitable right to securities 56 (i i ) Equitable right to "stand i n the place of another" 64 ( i i i ) Statutory rights 71 (iv) A composite of rights 77 PART III THE SURETY'S RIGHT OF SUBROGATION AND THE LAW OF RESTITUTION 80 Chapter 6 The Restitutionary Nature of the Surety's Right of Subrogation 81 A. Introduction 81 B. The Restitutionary Features of a Surety's Right of Subrogation 84 (i) Receipt of a benefit at the surety's expense 84 ( i i ) Voluntariness and volition 90 ( i i i ) Owen v Tate - an il l u s t r a t i v e case 98 (iv) Unjust retention 116 C. Conclusion 118 - v -PART IV SUBROGATION AND BILLS OF EXCHANGE 120 Chapter 7 Subrogation and B i l l s of Exchange 121 A. Introduction 121 B. Subrogation and Accommodation Parties to B i l l s of Exchange 123 C. Subrogation and Indorsers and Drawers for Value of B i l l s of Exchange 137 D. Conclusion 162 CONCLUSION 164 Chapter 8 Conclusion 165 BIBLIOGRAPHY 169 - v i -TABLE OF CASES A Debtor r e [1937] 1 Ch. 156 Aga Ahmed Ispahany v C r i s p (1891) 8 T.L.R. 132 A l d r i c h v Cooper (1803) 8 Ves. Jun. 382, 32 E.R. 402 A l l e n v De L i s l e (1857) 5 W.R. 158 Anon, ( c i r c a 1557) 21 E.R. 1 Anson v Anson [1953] 1 Q.B. 636 Asprey v Levy (1847) 16 M. & W. 851, 153 E.R. 1436 Bagge v Slade (1616) 3 B u l s t . 162, 81 E.R. 137 Ba r c l a y ' s Bank v Simms [1980] Q.B. 677 B a t c h e l l o r v Lawrence (1861) 9 C.B.(N.S.) 543, 142 E.R. 214 Batson v King (1859) 4 H. & N. 739. 157 E.R. 1032 Bishop, ex p., re Fox, Walker & Co. (1880) 15 Ch. D. 400 Bosden v Thinne (1603) Ye l v . 40, 80 E.R. 29 Brandon v Brandon (1859) 3 De G. & J . 524, 44 E.R. 1371 Brooks Wharf & B u l l Wharf L t d . v Goodman Bros. [1937] 1 K.B.534 Cheeseborough v M i l l a r d (1815) 1 Johns. Ch. 409 Cole v Saxby (1800) 3 Esp. 159, 170 E.R. 572 Conley r e [1938] 2 A l l E.R. 127 Copis v Middleton (1823) 1 Turn. & R. 224, 37 E.R. 1083 Cowell v Edwards (1800) 2 Bos. & P u l . 268, 126 E.R. 1275 C r i s p , ex p. (1744) 1 Atk. 133, 26 E.R. 87 Craythorne v Swinburne (1807) 14 Ves. Jun. 160, 33 E.R. 482 - v i i -Darby v Boucher (1693) 1 S a l k e l d 279, 91 E.R. 244 Davies v Humphries (1840) 6 M. & W. 153, 151 E.R. 361 Peering v E a r l of Winchelsea (1787) 2 Bos. & P. 270, 126 E.R. 1276 (Reported a l s o as Dering v E a r l of Winchelsea (1787) 1 Cox Eq. Cas. 318, 29) Deglman v Guar. Trust Co. of Canada [1954] S.C.R. 725, [1954] 3 D.L.R. 785 Dixon v S t e e l [1901] 2 Ch. 602 Duncan, Fox, & Co. v North & South Wales Bank (1880) 6 App. Cas. 1 E.R. 1184 E a r l of S u f f o l k v G r e e n v i l l (1631) Freem. Ch. 146, 22 E.R. I l l E a r l e v O l i v e r (1848) 2 Exch. 71, 154 E.R. 410 E a r l e v Peale (1712) 1 S a l k e l d 386, 91 E.R. 336 Enders v Brune 4 Rand (Va.) 438 Ewart v L a t t a (1865) 4 Macq. H.L. 983 Ferguson v Gibson (1872) L.R. 14 Eq. 379 Fernandes r e , ex part e Hope (1844) 3 Mont. D. & De. G. 720 F i b r o s a Spolka Akcy.jna v F a i r b a i r n Lawson Combe Barbour L t d . [1943] A.C. 32 F i d e l i t y - P h e n i x F i r e Insurance Co. of New York v Forest O i l Corp. (1962) 141 So. 2d 841 Fleetwood v Charnock (1629) Nels. 10, 21 E.R. 776 Forbes v Jackson (1882) 19 Ch. D. 615 Ford v Stobridge (1632) Nels. Ch. 24, 21 E.R. 780 - v i i i -Freeburg v Farmers' Exchange Bankers [1922] 1 W.W.R. 845 Goddard v Whyte (1860) 2 G i f f . 449, 66 E.R. 188 Grace v Kuebler (1918) 38 D.L.R. 149, [1918] 1 W.W.R. 182 Greenough v McC l e l l a n d (1860) 2 E. & E. 429, 121 E.R. 162 Greerside v Benson (1745) 3 Atk. 248, 26 E.R. 944 H a r r i s v Lee (1718) 1 P. Wms. 482, 24 E.R. 482 Hayes v Ward (1819) 4 Johns. Ch. 123 Hirachand Punamchand v Temple [1911] 2 K.B. 330 Hobbs v Marlowe [1978] A.C. 16 Hodgson v Shaw (1834) 3 My. & K. 183, 40 E.R. 70 Holland Can. Mge Co. v Hutchings [1936] S.C.R. 165, [1936] 2 D.L.R. 481 Home Ins. Co. v Highway Ins. Underwriters (1953) 222 La. 540 Houston v Branch Bank 25 A l a . 404 Howe r e , Ex part e B r e t t (1871) L.R. 6 Ch. App. 838 John Edwards & Co. v Motor Union Insurance Co. [1922] 2 K.B. 249 Jones v Broadhurst (1850) 9 C.B. 173, 137 E.R. 858 Knighton v Curry 62 A l a . 404 L i q u i d a t o r s of Overend, Gurney, & Co. v L i q u i d a t o r s of O r i e n t a l F i n a n c i a l Corp. (1874) L.R. 7 H.L. 348 London Ass, v Sainsbury (1783) 3 Doug. K.B. 245, 99 E.R. 636 Marlow v P i t f i e l d (1719)1 P. Wms. 588, 24 E.R. 516 Mason v Sainsbury (1782) 3 Doug. K.B. 61, 99 E.R. 538 - i x -Mayhew v C r i c k e t t (1818) 2 Swanst. 185, 36 E.R. 585 Midland Banking Corporation v Chambers (1869) L.R. 4 Ch. App. 398 M'Myn r e , Lightbown v M'Myn (1886) 33 Ch. D. 575 Moore v Moore (1611) 1 B u l s t . 169, 80 E.R. 859 Morgan v Seymour (1637) 1 Chan. Rep. 120, 21 E.R. 525 Morrice v Redwyn (1731) 2 Barn. K.B. 26, 94 E.R. 333 Mor r i s v Ford Motor Co. L t d . [1973] Q.B. 792 Newton v Ch o r l t o n (1853) 10 Hare 646, 68 E.R. 1087 O f f l e y & Johnson's case (1584) 2 Leon. 166; 74 E.R. 448 Orakpo v Manson Investments L t d . [1978] A.C. 95 O r i e n t a l F i n a n c i a l Corp. v Overend, Gurney, & Co. (1871) 7 Ch. App. 142 Owen v Homan (1851) 3 Mac. & G. 378, 10 E.R. 752 Owen v Tate [1976] Q.B. 402 Owen & Gutch v Homan (1853) 4 H.L. Cas. 997, 10 E.R. 752 Parsons v Briddock (1708) 2 Vern. 608, 23 E.R. 997 P e a r l v Deacon (1857) 24 Beav. 186, 1 De G. & J . 461, 53 E.R. 328 Peter v R i c h (1629) 1 Ch. Rep. 34, 21 E.R. 499 Pettkus v Becker [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257 Pooley v Harradine (1857) 7 E. & B. 431, 119 E.R. 1307 Porteous v Watney (1873) 3 Q.B.D. 534 Pownal v Ferrand (1827) 6 B.& C. 439 P r i n c e A l b e r t v Underwood, McLellan & A s s o c i a t e s L t d . [1969] S.C.R. 305 Q.B. 676 - x -Quebec F i r e Insurance Co. v Augustin St. Louis and John Molson (1851) 7 Moo. P.C. 286, 13 E.R. 891 R v 0'Bryan (1900) 7 Can. Exch. 19 Randal v Cockran (1748) 1 Ves. Sen. 98, 27 E.R. 916 Renton r e , ex p. Glendinning (1819) Buck. 517 Reynolds v Doyle (1840) 1 Man. & G. 753, 133 E.R. 536 Reynolds v Wheeler (1861) 10 C.B. (N.S.) 561, 142 E.R. 572 Rooke v Rooke (1610) Cro. Jac. 245, Yel v . 175, 79 E.R. 210 Rouquette v Overmann [(1875) L.R. 10 Q.B. 525 Rouse v Bradford Banking Co. [1894] A.C. 586 S c h o l e f i e l d Goodman and Sons L t d . v Zyngier [1986] A.C. 562 Scot v Stephenson (1662) 1 Lev. 71, 83 E.R. 302 Sc o t t v L i f f o r d (1808) 1 Camp. 246, 170 E.R. 945 Shinn v Budd 14 N.J. Eq. 234 Stevens v Cooper (1815) 1 Johns. Ch. 425 S t r i n g e r v The E n g l i s h and S c o t t i s h Marine Insurance Co. L t d . (1869) L.R. 4 Swain v Wall (1641) 1 Chan. R. 149, 21 E.R. 534 Taylor v L a i r d (1856) 25 L . J . Ex. 329, a t 332 Turner v Davies (1796) 2 Esp. 478, 170 E.R. 425 Wolmershausen v G u l l i c k [1883] 2 Ch. 514 Wormleighton v Hunter (1613) Godbolt 243, 78 E.R. 141 Wrexham r e , Mold and Connah's Quay Ry. [1899] 1 Q.B. 440 - x i -Wright v Hunter (1801) 5 Ves. Jun. 792, 31 E.R. 861 Wright v Morley (1805) 11 Ves. Jun. 12, 32 E.R. 992 Wulff v Jay (1872) L.R. 7 Q.B. 756 Yonge v R e y n e l l (1852) 9 Hare 809, 68 E.R. 744 Y o r k s h i r e Insurance Co. L t d . v Nisbet Shipping Co. L t d . [1962] 2 Q.B. 330 - x i i -TABLE OF STATUTES United Kingdom Bankruptcy Act 1869, s s . 125, 127 B i l l s of Exchange Act 1882, 45 & 46 V i c t . , c. 61 Ju d i c a t u r e Act of 1873 (36 & 37 V i c t . , c. 66) Ju d i c a t u r e Act of 1875 (38 & 39 V i c t . , c. 77) Law Reform (Married Women and Tor t f e a s o r s ) Act of 1935 (25 & 26 Geo. 5, c. 30), s. 4 (1) M e r c a n t i l e Law Amendment Act of 1856, 19 & 20 V i c t . , c. 97, s. 5 Canada B i l l s of Exchange A c t , R.S.C. 1970, c. B-5 C i v i l Code of Quebec, A r t i c l e s 1154-57 M e r c a n t i l e Law Amendment Act, R.S.O. 1980, c. 265, s . 2 ( l ) ( 2 ) Other The C i v i l Law (1 Domat, b.3, s.6, art . 1 ) L o u i s i a n a C i v i l Code, A r t i c l e s 2159-62 Supreme Court Act 1958, V i c t o r i a ( A u s t r a l i a ) ACKNOWLEDGEMENT This t h e s i s has taken me much longer t o complete than i t ever should have done. Many persons have been more t o l e r a n t and p a t i e n t w i t h me along the way than I had any r i g h t t o expect. My w i f e , my f a m i l y , and my colleagues can f i n a l l y r e s t a l i t t l e e a s i e r and f i n d another t o chasten. I am indebted t o my s u p e r v i s o r s , i n p a r t i c u l a r P r o f e s s o r A.F. Sheppard, f o r t h e i r v a l u a b l e guidance and advice. - x i v -INTRODUCTION 1 -Chapter 1 INTRODUCTION Subrogation i s a remedial technique, or device, whereby one person, A, i s "stood i n the place (or shoes)" of another, B, i n order t o r e c e i v e the b e n e f i t of B's p r e - e x i s t i n g r i g h t s and remedies a g a i n s t a t h i r d person, C. I t s use enables A, who i s thought t o deserve a remedy ag a i n s t C, t o o b t a i n t h a t remedy, not d i r e c t l y , but i n d i r e c t l y through B. I t s use i s g e n e r a l l y considered f a i r and j u s t , s i n c e A i s simply t a k i n g advantage of pre-e x i s t i n g r i g h t s and remedies a g a i n s t C, who thus seems no worse o f f . I t i s a r e l a t i v e l y obvious and appealing method of e f f e c t i n g remedial j u s t i c e i n t r i p a r t i t e s i t u a t i o n s . I t i s not s u r p r i s i n g , t h e r e f o r e , t o f i n d t h a t such a remedial technique has been recognised i n Anglo-American law. Indeed, subrogation i s of c o n s i d e r a b l e a n t i q u i t y i n Anglo-American law. 1 I t s use has been t r a c e d a t l e a s t t o the seventeenth century i n England, 2 although i t s o r i g i n s may w e l l l i e even e a r l i e r i n E n g l i s h l e g a l h i s t o r y . 3 S u r e t i e s , the q u i n t e s s e n t i a l "deserving p a r t y " i n a t r i p a r t i t e s i t u a t i o n , were apparently 1 See g e n e r a l l y M.L. Marasinghe, "An H i s t o r i c a l I n t r o d u c t i o n t o the Doctrine of Subrogation: The E a r l y H i s t o r y of the Do c t r i n e - I & I I " , (1975) 10 Valp. U.L. Rev. 45, and 275. 2 See eg. S i r R. Goff & G. Jones, THE LAW OF RESTITUTION (3rd ed., 1986)(hereafter "GOFF & JONES"), p. 524; G. Palmer, THE LAW OF RESTITUTION (1978), v o l . I , p. 21. 3 Marasinghe argues, l o c . c i t . , I , p. 48, th a t the technique of subrogation i n E n g l i s h law may have been f i r s t recognised and used by the courts o f e q u i t y n e a r l y a century e a r l i e r , i n a c o n t r i b u t i o n case: Anon. ( c i r c a 1557) 21 E.R. 1. - 2 -- 3 -the f i r s t t o b e n e f i t from i t s use, i n Morgan v Seymour 4 i n 1637. In t h a t case, the Chancery ordered a c r e d i t o r "to a s s i g n over" t o c o - s u r e t i e s a bond p r e v i o u s l y given t o the c r e d i t o r by the p r i n c i p a l debtor so t h a t the c o - s u r e t i e s c o u l d "help themselves a g a i n s t the ...[debtor] f o r the s a i d Debt." 5 A l i t t l e over a century l a t e r , i n 1749, the Ch a n c e l l o r , Lord Hardwicke, i n Randal v Cockran, 6 h e l d , without any reference t o Morgan v Seymour or subsequent s u r e t y cases, t h a t an i n s u r e r who had made f u l l payment t o an ins u r e d "had the p l a i n e s t e q u i t y t h a t c o u l d be" 7 and was e n t i t l e d t o the b e n e f i t of an insured's r i g h t s o f recovery a g a i n s t t h i r d p a r t i e s . The r e c o g n i t i o n o f these two uses of the remedial technique of subrogation was the p r i n c i p a l development i n the h i s t o r y o f subrogation i n Anglo-American common law. But they were not the only s i t u a t i o n s i n which the use of subrogation was recognised. In the i n t e r v e n i n g century, f o r example, the Chancery had a p p l i e d the technique of subrogation i n a t l e a s t one other context, t h a t of loans of money t o married women and i n f a n t s t o purchase " n e c e s s a r i e s " . 8 S i m i l a r l y , i n the years f o l l o w i n g i t s a p p l i c a t i o n i n insurance cases, the co u r t s found s e v e r a l other d i v e r s e uses f o r the technique. 9 Subrogation has, t h e r e f o r e , e x i s t e d i n E n g l i s h law, and subsequently i n Canadian law, f o r w e l l over two c e n t u r i e s . 4 (1637) 1 Chan. Rep. 120, 21 E.R. 525. 5 I b i d . , a t 121, a t 525. 6 (1748) 1 Ves. Sen. 98, 27 E.R. 916. 7 I b i d . , a t 98, a t 916. 8 See i n f r a , p. 23. 9 See i n f r a , pp. 23-24. - 4 -Despite t h i s c o n s i d e r a b l e h e r i t a g e , the t o p i c of subrogation remains a source of c o n s i d e r a b l e u n c e r t a i n t y and disagreement. The b r i e f e s t examination of the v a r i o u s uses of subrogation o n l y serves t o b r i n g t o l i g h t and emphasise the numerous d i f f i c u l t i e s and i n c o n s i s t e n c i e s t h a t surround the s u b j e c t . I t has, f o r example, been v a r i o u s l y d e s c r i b e d as a " d o c t r i n e " , a " r i g h t " , a "remedy", a "technique", and a "device". I t s o r i g i n s i n E n g l i s h law have o f t e n been a s c r i b e d t o Roman and c i v i l law, but i t has a l s o been p r a i s e d as an o r i g i n a l development of the E n g l i s h common law l e g a l system. I t s development w i t h i n the E n g l i s h l e g a l system i s g e n e r a l l y a s c r i b e d t o the courts of e q u i t y , but there are a l s o o c c a s i o n a l a s s e r t i o n s , p a r t i c u l a r l y i n r e l a t i o n t o subrogation i n insurance law, t h a t i t was an o r i g i n a l development of the common law c o u r t s . 1 0 I t has been s a i d t o operate both as an " e q u i t a b l e assignment", and e q u a l l y as "a t r a n s f e r of r i g h t s from one person t o another, without assignment or a s s e n t . . . " . 1 1 The attempt, t h e r e f o r e , t o d i s c e r n the e s s e n t i a l c h a r a c t e r i s t i c s of subrogation, w i t h a view t o proposing a c o n c e p t u a l l y i n t e g r a t e d model of subrogation i n a l l i t s contexts, faces c o n s i d e r a b l e d i f f i c u l t i e s . I t has r e c e n t l y been suggested t h a t the task may even prove t o be impossible: "['Subrogation'] embraces more than a s i n g l e concept i n E n g l i s h law. I t i s a convenient way of d e s c r i b i n g a t r a n s f e r of r i g h t s from one 1 0 The s t r o n g e s t advocate of t h i s i n recent years appears t o be Lord D i p l o c k . I n Y o r k s h i r e Insurance Co. L t d . v Nisbet Shipping Co. L t d . [1962] 2 Q.B. 330, a t 339-40, as D i p l o c k J . , he a s s e r t e d t h a t subrogation i n insurance cases i s an i n c i d e n t of the indemnity element l y i n g a t the h e a r t of an insurance c o n t r a c t , and thus a r i s e s by v i r t u e of an i m p l i e d term i n the c o n t r a c t . He r e - a s s e r t e d t h i s i n h i s judgments i n Orakpo v Manson  Investments L t d . [1978] A.C. 95, a t 104, and Hobbs v Marlowe [1978] A.C. 16, at 39. But t h i s view has been considered i n depth, and s e r i o u s l y doubted: see S.R. Derham, SUBROGATION IN INSURANCE LAW (1985), pp. 6-22. 1 1 Orakpo v Manson Investments L t d . [1978] A.C. 95, a t 104, per Lord D i p l o c k . - 5 -person t o another, without assignment or. assent of the person from whom the r i g h t s are t r a n s f e r r e d and which takes place by o p e r a t i o n of law i n a whole v a r i e t y of w i d e l y d i f f e r e n t circumstances. Some r i g h t s by subrogation are c o n t r a c t u a l i n o r i g i n ... . Others . . . are i n no way based on c o n t r a c t and appear t o defeat c l a s s i f i c a t i o n except as an e m p i r i c a l remedy to prevent a p a r t i c u l a r k i n d of u n j u s t enrichment. This makes p a r t i c u l a r l y p e r i l o u s any attempt t o r e l y upon analogy t o j u s t i f y a p p l y i n g t o one s e t of circumstances which would otherwise r e s u l t i n u n j u s t enrichment a remedy of subrogation which has been h e l d t o be a v a i l a b l e f o r t h a t purpose i n another and d i f f e r e n t set of c i r c u m s t a n c e s . " 1 2 S e v e r a l reasons f o r these d i f f i c u l t i e s can be i d e n t i f i e d . F i r s t , and most simply, the term "subrogation" was a r e l a t i v e late-comer t o E n g l i s h l e g a l vocabulary, not apparently being introduced u n t i l the mid t o l a t e n ineteenth c e n t u r y , 1 3 two c e n t u r i e s a t l e a s t a f t e r the f i r s t use of the technique i t s e l f . Instead, the metaphor of "standing one person i n the p l a c e (or shoes) of another" was g e n e r a l l y used by the courts t o d e s c r i b e 1 2 Idem. Goff & Jones, i n the forward t o t h e i r second, now outdated, e d i t i o n of THE LAW OF RESTITUTION (2nd ed., 1978), r e f e r t o "what some say i s the impossible, i f not f r u i t l e s s , task of formulating p r i n c i p l e s which u n i t e a l l c a t e g o r i e s of subrogation. ... We consider t h a t subrogation i s one of the most important, i f most i n t r a c t a b l e , s u b j e c t s i n the law of r e s t i t u t i o n . " 1 3 Marasinghe, l o c . c i t . , I I , p. 289, i d e n t i f i e s S t r i n g e r v The  E n g l i s h and S c o t t i s h Marine Insurance Co. L t d . (1869) L.R. 4 Q.B. 676 as the f i r s t case i n the E n g l i s h c o u r t s e x p r e s s l y t o adopt the term. He does, however, i d e n t i f y an e a r l i e r case - a d e c i s i o n of the P r i v y C o u n c i l on appeal from the Court of Appeals of the Province of Lower Canada, namely, Quebec F i r e Insurance Co. v Augustin St. Louis and John Molson (1851) 7 Moo. P.C. 286, 13 E.R. 891 - where the term was used. This d e c i s i o n concerned "subrogation" under the c i v i l law of Quebec and thus i s not an a u t h o r i t y on subrogation i n E n g l i s h law. Nonetheless, i t may have been the c a t a l y s t f o r the subsequent use of the term. As Marasinghe notes, l o c . c i t . , I I , pp. 287-8, "... the word 'subrogation' and the [ E n g l i s h d e c i s i o n s ] ... blended i n t o a d o c t r i n e of subrogation a p p l i c a b l e as such i n E n g l i s h law ... . The succeeding E n g l i s h cases gave not the s l i g h t e s t i n d i c a t i o n t h a t i t was r e c e i v e d from a f o r e i g n l e g a l system where the word was used t o connote a meaning d i f f e r e n t from what both e q u i t y and Lord Hardwicke envisaged". - 6 -the whys and wherefores of s u b r o g a t i o n . 1 4 But even the use of t h i s metaphor was not adopted i n every case. The r e s u l t i s considerable d i f f i c u l t y i n i d e n t i f y i n g a c c u r a t e l y the v a r i o u s examples of subrogation i n the case-law. This l a c k of a s e t t l e d terminology, and the u n c e r t a i n t y thereby created, l i e s a t the heart of many of the d i f f i c u l t i e s encountered w i t h subrogation. A second problem i s t h a t many of the subrogation cases c o n t a i n no c l e a r e x p o s i t i o n of the reasons f o r i t s use. A l l t h a t many of these cases say i s t h a t , according t o the circumstances of the case, i t was i n some general sense " e q u i t a b l e " t o grant r e l i e f by t h i s means. Subrogation has, f o r example, been s a i d t o be a matter of the " p l a i n e s t e q u i t y " , 1 5 or of " n a t u r a l j u s t i c e " . 1 6 "Explanations" along these l i n e s , however, d i d l i t t l e t o advance understanding of the concept beyond the rudimentary. To a great extent, t h i s t h e o r e t i c a l weakness p e r s i s t s . Thus, even e s t a b l i s h e d e q u i t y t e x t s g i v e the s u b j e c t of subrogation l i m i t e d treatment, g e n e r a l l y being merely d e s c r i p t i v e of the v a r i o u s r i g h t s of subrogation, r a t h e r than a n a l y t i c a l of t h e i r t h e o r e t i c a l u n d e r p i n i n g s . 1 7 1 4 The use of t h i s metaphor has not always been welcomed. See, eg., GOFF & JONES, p. 525: "Metaphor has a l s o c o n t r i b u t e d t o the confusion." B i r k s , INTRODUCTION TO THE LAW OF RESTITUTION (1985), pp. 93-98, goes even f u r t h e r . He suggests, p. 93, t h a t subrogation i t s e l f " i s i n the nature of a metaphor which can be done without." 1 5 Randal v Cockran (1748) 1 Ves. Sen. 98, a t 98, 27 E.R. 916, a t 916, per Lord Eldon L.C. 1 6 Craythorne v Swinburne (1807) 14 Ves. J r . 160, a t 162, 33 E.R. 482, a t 483, per S i r Samuel R o m i l l y , arguendo. 1 7 This i s not t o say t h a t there were no attempts a t a l l t o d e a l w i t h t h i s d e f i c i e n c y i n e a r l i e r times, f o r there were. The most s t r i k i n g example i s Sheldon's work on subrogation, H.N. Sheldon, THE LAW OF SUBROGATION, the f i r s t e d i t i o n of which was p u b l i s h e d i n 1882. See a l s o D.G. Maclay, "Theory and A p p l i c a t i o n of the Doctrine of Subrogation", (1885-86) 2 The Columbia J u r i s t 38. But more o f t e n than not, the e n t i t l e m e n t t o subrogation i n any p a r t i c u l a r case was simply an h i s t o r i c a l - 7 -The t h i r d f e a t u r e compounding the d i f f i c u l t i e s i n t h i s area i s the almost automatic l i n k t h a t i s drawn i n many cases between subrogation and matters of s e c u r i t y or p r i o r i t y . I t i s c e r t a i n l y t r u e t h a t subrogation i s o f t e n h i g h l y r e l e v a n t when questions of s e c u r i t i e s and p r i o r i t i e s a r i s e , as w i l l be s e e n , 1 8 but there i s no reason, i t i s submitted, why the two should n e c e s s a r i l y be l i n k e d . Nonetheless, i t i s o f t e n assumed t h a t they are. Given the t h e o r e t i c a l shortcomings evident i n the case-law, t h i s i s perhaps not s u r p r i s i n g . But i t has a l s o been promoted by the simple f a c t t h a t many of the e a r l y cases concerned w i t h subrogation, p a r t i c u l a r l y i n the s u r e t y s h i p context, were p r i m a r i l y concerned w i t h matters of s e c u r i t y and p r i o r i t y . I f subrogation could a f f o r d s e c u r i t y or p r i o r i t y t h i s t o a surety, as i t was h e l d t h a t i t could, t h i s gave a s u r e t y a tremendous advantage over mere unsecured c r e d i t o r s i n the event of the p r i n c i p a l debtor's i n s o l v e n c y . The assumption t h a t t h i s must always be the case i s , however, the cause of some of the g r e a t e s t d i f f i c u l t i e s i n the development of subrogation. Most i m p o r t a n t l y , i t can l e a d t o the r e j e c t i o n of subrogation as a remedial technique because of the p e r c e p t i o n t h a t subrogation, i f permitted, would l e a d i n e v i t a b l y t o the c o n f e r r a l of s e c u r i t y and p r i o r i t y upon a p a r t y who d i d not m e r i t t h a t degree of b e n e f i c i a l t r e a t m e n t . 1 9 f a c t - e q u i t y had t h i s remedial technique i n i t s armoury, f o r whatever the reason, and i t was used when and as necessary. 1 8 I n f r a , p. 56 et seq.. 1 9 This was the approach adopted i n Re Wrexham, Mold and Connah's  Quay Ry. [1899] 1 Q.B. 440. Goff & Jones commented on t h i s as f o l l o w s : "[Sjome judges thought t h a t t o subrogate A t o C must r e s u l t i n A succeeding to C's s e c u r i t y . Consequently, subrogation was dismissed as i r r e l e v a n t and A was given an independent, e q u i t a b l e r i g h t which put him i n the same p o s i t i o n as any other general c r e d i t o r . In our view, t h i s d i s t i n c t i o n was - 8 -F i n a l l y , there was no general p e r c e p t i o n of any necessary connection between the v a r i o u s r i g h t s o f subrogation. Other than the f a c t t h a t these r i g h t s were l a r g e l y developed i n the Chancery, and were e x p l a i n e d i n terms of " e q u i t y and good conscience", they remained s u b s t a n t i a l l y independent of each other. This was p a r t i c u l a r l y t r u e w i t h regard t o subrogation i n the law of s u r e t y s h i p , and subrogation i n the law of insurance, both of which have developed a c o n s i d e r a b l e body of case-law on subrogation but without any s p e c i a l c r o s s - r e f e r e n c i n g . Overcoming these d i f f i c u l t i e s , i t i s submitted, o n l y began t o take p l a c e w i t h the r e c o g n i t i o n and f o r m u l a t i o n of a s u b s t a n t i v e body of law known as the law of r e s t i t u t i o n premised on the p r i n c i p l e of u n j u s t enrichment. Development of t h i s body of law occurred f i r s t i n America, w i t h the p u b l i c a t i o n of the Restatement of the Law.of R e s t i t u t i o n 2 0 i n 1937, and the f o r m u l a t i o n t h e r e i n of the f o l l o w i n g general p r i n c i p l e : 2 1 "A person who has been u n j u s t l y enriched a t the expense of another i s r e q u i r e d t o make r e s t i t u t i o n t o the other." unnecessary and c o n t r a r y t o precedent; moreover, i t would i n e v i t a b l y cause, and has caused, confusion as t o the scope of e q u i t a b l e subrogation. Much of the confusion would never have a r i s e n i f the c o u r t s had accepted the f u l l i m p l i c a t i o n s o f the p r i n c i p l e t h a t subrogation i s e s s e n t i a l l y a remedy, which i s fashioned t o the f a c t s of the p a r t i c u l a r case and which i s granted i n order t o prevent the defendant's unj u s t enrichment ... ", GOFF & JONES, p. 526. 2 0 American Law I n s t i t u t e , RESTATEMENT OF THE LAW OF RESTITUTION-QUASI CONTRACTS AND CONSTRUCTIVE TRUSTS (1937). 2 1 I b i d . , p. 12, para. 1. In the t e n t a t i v e d r a f t of the RESTATEMENT OF THE LAW OF RESTITUTION 2ND, t h i s has been reformulated t o read: "A person who r e c e i v e s a b e n e f i t by reason of an infringement of another person's i n t e r e s t , or of l o s s s u f f e r e d by the other, owes r e s t i t u t i o n t o him i n the manner and amount necessary t o prevent u n j u s t enrichment"; noted i n GOFF & JONES, p.13, note 64a. - 9 -E n g l i s h and Canadian law took longer t o acknowledge t h i s development and progress towards the fo r m u l a t i o n of a subs t a n t i v e law of r e s t i t u t i o n premised on the n o t i o n of unju s t enrichment. I n England, the f i r s t r e a l impetus d i d not come u n t i l 1966 and the p u b l i c a t i o n of the f i r s t e d i t i o n of Goff and Jones's Law of R e s t i t u t i o n . 2 2 Now i n i t s t h i r d e d i t i o n , t h i s work formulated the p r i n c i p l e of unju s t enrichment i n the f o l l o w i n g t e r m s : 2 3 "[T]he p r i n c i p l e of unju s t enrichment i s capable o f e l a b o r a t i o n and refinement. I t presupposes three t h i n g s : f i r s t , t h a t the defendant has been enriched by the r e c e i p t of a b e n e f i t ; secondly, t h a t he has been so enriched a t the p l a i n t i f f ' s expense; and t h i r d l y , t h a t i t would be unjust t o a l l o w him t o r e t a i n the b e n e f i t . " The E n g l i s h c o u r t s , however, have been slow t o accept and adopt the n o t i o n of u n j u s t enrichment as a general p r i n c i p l e of r e s t i t u t i o n a r y l i a b i l i t y . This was r e c e n t l y emphasised by the House of Lords i n Orakpo v Manson Investments L t d . , 2 4 where Lord D i p l o c k s t a t e d : 2 5 "My Lords, there i s no general d o c t r i n e of unju s t enrichment recognised i n E n g l i s h law. What i t does i s t o provide s p e c i f i c remedies i n p a r t i c u l a r cases of what might be c l a s s i f i e d as unju s t enrichment i n a l e g a l system t h a t i s based upon the c i v i l law." 2 2 Goff & Jones, THE LAW OF RESTITUTION (1st ed., 1966). Se v e r a l of the Law Lords had e a r l i e r made s i g n i f i c a n t e f f o r t s i n t h i s regard. The most i n f l u e n t i a l of these was probably Lord Wright. H i s best known j u d i c i a l pronouncement i n t h i s regard i s perhaps t h a t i n F i b r o s a Spolka Akcyjna v F a i r b a i r n Lawson Combe Barbour L t d . [1943] A.G. 32, where he s t a t e d , a t 61-62: " I t i s c l e a r t h a t any c i v i l i s e d system of law i s bound t o provide remedies f o r cases of what had been c a l l e d unjust enrichment or unjust b e n e f i t , t h a t i s t o prevent a man from r e t a i n i n g the money of or some b e n e f i t d e r i v e d from another which i t i s a g a i n s t conscience t h a t he should keep. Such remedies i n E n g l i s h law are g e n e r i c a l l y d i f f e r e n t from remedies i n c o n t r a c t or i n t o r t , and are now recognized t o f a l l w i t h i n a t h i r d category of the common law which has been c a l l e d q u a s i - c o n t r a c t or r e s t i t u t i o n . " 2 3 GOFF & JONES, p. 16. 2 4 [1978] A.C. 95. 2 5 I b i d . , a t 104. - 10 -The Canadian c o u r t s , on the other hand, have been more w i l l i n g to embrace the n o t i o n of a su b s t a n t i v e body of law - the law of r e s t i t u t i o n -based i n l a r g e p a r t on a p r i n c i p l e of unjust enrichment. The t u r n i n g p o i n t came i n 1954 i n Deglman v Guar. Trust Co. of Canada. 2 6 There, the Supreme Court of Canada adopted the view t h a t a r i g h t t o be p a i d the f a i r value o f s e r v i c e s rendered c o u l d be based not on c o n t r a c t , but "on an o b l i g a t i o n imposed by l a w . " 2 7 This adopted what had been e a r l i e r s a i d by Lord Wright i n F i b r o s a Spolka Akcyjna v F a i r b a i r n Lawson Combe Barbour L t d . , 2 8 t h a t : 2 9 "The law i m p l i e s a debt or o b l i g a t i o n ... . [T]he o b l i g a t i o n i s as e f f i c a c i o u s as i f i t were upon a c o n t r a c t . The o b l i g a t i o n i s a c r e a t i o n o f the law, j u s t as much as an o b l i g a t i o n i n t o r t . The o b l i g a t i o n belongs t o a t h i r d c l a s s , d i s t i n c t from e i t h e r c o n t r a c t or t o r t though i t resembles c o n t r a c t r a t h e r than t o r t . " The subsequent Canadian case-law, and the body of su b s t a n t i v e p r i n c i p l e s t h a t can be der i v e d from the wealth of cases, have been r e c e n t l y brought together and considered i n two Canadian works, one by Fridman and McLeod, 3 0 and the other by K l i p p e r t . 3 1 I n a l l these works, the authors scan f a r and wide i n t o the case-law i n b u i l d i n g t h e i r law of r e s t i t u t i o n , and i n amassing examples of the ope r a t i o n of i t s fundamental p r i n c i p l e of unjus t enrichment. I n the 2 6 [1954] S.C.R. 725, [1954] 3 D.L.R. 785. 2 7 I b i d . , a t 794, per Cartwright J . 2 8 [1943] A.C. 32. 2 9 I b i d . , a t 62. 3 0 G.H.L. Fridman & J.G. McLeod, RESTITUTION (1982) ( h e r e a f t e r "FRIDMAN 86 McLEOD") . 3 1 G.B. K l i p p e r t , UNJUST ENRICHMENT (1983) ( h e r e a f t e r "KLIPPERT"). See a l s o G.B. K l i p p e r t , "The J u r i d i c a l Nature of Unjust Enrichment", (1980) U.T.L.J. 356. process, a wide range of r i g h t s , remedies, techniques, and causes of a c t i o n , some common law i n o r i g i n and some e q u i t a b l e , have been s a i d t o be e x p l i c a b l e i n terms of unju s t enrichment and deserving o f i n c l u s i o n i n the burgeoning law of r e s t i t u t i o n . Subrogation, t r a d i t i o n a l l y based on notio n s of " e q u i t y and j u s t i c e " , i s one remedial technique t h a t has been s a i d t o be e x p l i c a b l e i n terms of "unjust enrichment", and thereby s u i t a b l e f o r a s s i m i l a t i o n i n t o the new law of r e s t i t u t i o n . This can be supported by the f a c t t h a t , h i s t o r i c a l l y , many of the s i t u a t i o n s i n which subrogation has been used have been the source of v a r i o u s other q u a s i - c o n t r a c t u a l r i g h t s and a c t i o n s , which i n t u r n have formed the bulk o f the newly formulated law of r e s t i t u t i o n . Furthermore, w i t h i n t h i s context, subrogation has been seen t o be e x p l i c a b l e l e s s i n terms of a " r i g h t " , than i n terms of a general r e s t i t u t i o n a r y remedial technique or device, whereby the unju s t enrichment i n s i t u a t i o n s i n v o l v i n g a t l e a s t three p a r t i e s - t r i p a r t i t e , i n other words - can be remedied. Subrogation's p a r t i c u l a r d i s t i n g u i s h i n g f e a t u r e , and t h a t which l i m i t s i t , i s , of course, i t s a p p l i c a t i o n o n l y i n t r i p a r t i t e s i t u a t i o n s . Subrogation thus found i t s way i n 1937 i n t o the American Restatement of the Law on R e s t i t u t i o n . 3 2 There, under the general heading " C o n s t r u c t i v e T r u s t s and Analogous E q u i t a b l e Remedies", the authors formulated a general p r i n c i p l e d e a l i n g w i t h subrogation: "Where propert y of one person i s used i n d i s c h a r g i n g an o b l i g a t i o n owed by another or a l i e n upon the propert y of another, under such circumstances t h a t the other would be u n j u s t l y enriched by the r e t e n t i o n of the b e n e f i t thus conferred, the former i s e n t i t l e d t o be subrogated t o the p o s i t i o n of the o b l i g e e o r l i e n - h o l d e r . " 3 3 3 2 American Law I n s t i t u t e , o p . c i t . . 3 3 I b i d . , p. 653, para. 162. - 12 -In time, other, i n c r e a s i n g l y s o p h i s t i c a t e d attempts t o e x p l a i n and understand subrogation as a r e s t i t u t i o n a r y remedial technique were advanced. Dawson, f o r example, touched on the s u b j e c t i n h i s work on unjust enrichment i n 1951; 3 4 Goff and Jones covered i t more f u l l y i n 1966 i n the f i r s t e d i t i o n 3 5 of t h e i r seminal work on the E n g l i s h law of r e s t i t u t i o n , and developed i t l a t e r i n the second and now t h i r d e d i t i o n s thereof i n 1978, 3 6 and 1986, 3 7 r e s p e c t i v e l y ; Palmer reconsidered i t i n the American context i n 1978 i n h i s four volume t r e a t i s e on r e s t i t u t i o n ; 3 8 and Fridman and Macleod, 3 9 and K l i p p e r t 4 0 have now considered i t i n the Canadian context. This development has i n e v i t a b l y brought w i t h i t both an o p p o r t u n i t y and a need t o r e c o n s i d e r the e s t a b l i s h e d c a t e g o r i e s , or " r i g h t s " , of subrogation t o determine the extent t o which they can be reformulated i n terms of r e s t i t u t i o n a r y p r i n c i p l e s , and the i m p l i c a t i o n s t h a t such a r e f o r m u l a t i o n has f o r them. One of the foremost of these " r i g h t s " of subrogation recognised i n Anglo-American law i s the surety's r i g h t of subrogation. T h i s , as has 3 4 J.P. Dawson, UNJUST ENRICHMENT: A COMPARATIVE ANALYSIS (1951), pp. 36-37. 3 5 R. Goff & G. Jones, THE LAW OF RESTITUTION (1st ed., 1966). 3 6 R. Goff & G. Jones, THE LAW OF RESTITUTION (2nd. ed., 1978), chap. 27. 3 7 GOFF & JONES, chap. 27. 3 8 Op. c i t . , v o l . I , pp. 20-24. 3 9 FRIDMAN & McLEOD, chap. 14. 4 0 KLIPPERT, pp. 205-15. - 13 -alr e a d y been o u t l i n e d , 4 1 was probably the o r i g i n a l s i t u a t i o n i n E n g l i s h common law i n which the technique of subrogation was used. Consequently, i t i s one of the most e s t a b l i s h e d of the " r i g h t s " of subrogation. I t could even be s a i d t o be the paradigm, or q u i n t e s s e n t i a l , t r i p a r t i t e case i n which subrogation has been used. As such, one would expect i t f u l l y t o r e f l e c t the r e s t i t u t i o n a r y p r i n c i p l e s - i n p a r t i c u l a r , the p r i n c i p l e of unjust enrichment - upon which subrogation i s s a i d t o be premised. The question whether t h i s i s so - whether the surety's r i g h t of subrogation does r e f l e c t and i s e x p l i c a b l e i n r e s t i t u t i o n a r y terms - i s the c e n t r a l q uestion t h a t w i l l be explored i n t h i s paper. The t h e s i s of t h i s paper i s t h a t subrogation i n general i s r e s t i t u t i o n a r y i n nature, and t h a t t h i s i s f u l l y r e f l e c t e d i n the surety's " r i g h t " of subrogation i n p a r t i c u l a r . In attempting t o answer t h i s q uestion, an immediate d i f f i c u l t y a r i s e s . I t might be assumed, given the consi d e r a b l e h e r i t a g e of the surety's r i g h t of subrogation, t h a t the nature and content of the " r i g h t " i s s e t t l e d and r e a d i l y understood. But t h i s i s f a r from being so. There i s , as w i l l be seen, a great d e a l of u n c e r t a i n t y surrounding the r i g h t . P a r t of t h i s paper, t h e r e f o r e , i s concerned w i t h o u t l i n i n g the surety's r i g h t of subrogation, i t s nature, and i t s content. In a l l , t h i s paper i s d i v i d e d i n t o four p a r t s . In the f i r s t , the o r i g i n s and general development of subrogation i n E n g l i s h common law w i l l be o u t l i n e d . In the second, the general nature and content of the surety's r i g h t of subrogation w i l l be o u t l i n e d . In the t h i r d , the extent t o which t h i s r i g h t r e f l e c t s and can be expla i n e d i n r e s t i t u t i o n a r y terms w i l l be explored. And i n the f o u r t h , the t h e s i s of t h i s paper - t h a t subrogation i n 4 1 Supra, pp. 2-3. - 14 -general i s r e s t i t u t i o n a r y i n nature, and t h a t t h i s i s f u l l y r e f l e c t e d i n the surety's " r i g h t " of subrogation i n p a r t i c u l a r - w i l l be t e s t e d by c o n s i d e r i n g the extent to which the subrogation r i g h t s of p a r t i e s t o b i l l s of exchange, who are considered to be s u r e t i e s and q u a s i - s u r e t i e s i n c e r t a i n r e s p e c t s , conform t o t h i s t h e s i s . PART I THE ORIGINS AND GENERAL DEVELOPMENT OF SUBROGATION - 15 -Chapter 2 ORIGINS 1 Subrogation as i t p r e s e n t l y e x i s t s i n Canadian common law 2 o r i g i n a t e d i n and was r e c e i v e d from the common law of England. I t s e a r l i e r o r i g i n s i n the E n g l i s h l e g a l system i t s e l f have never been a u t h o r i t a t i v e l y e s t a b l i s h e d , however, and, t o quote Goff and Jones 3, remain "obscure". 4 Commonly, they are s a i d t o l i e i n Roman p r i v a t e law, or i n l a t e r d o c t r i n e s of i t s c i v i l law i n h e r i t a n t s . 5 Reference i n t h i s regard i s 1 For a f u l l d i s c u s s i o n , see M.L. Marasinghe, "An H i s t o r i c a l I n t r o d u c t i o n t o the Do c t r i n e of Subrogation: The E a r l y H i s t o r y of the Doct r i n e - I & I I " , (1975) 10 Valp. U.L. Rev. 45, and 275. 2 As d i s t i n c t from the c i v i l law system adopted by Quebec. Subrogation e x i s t e d i n the c i v i l law of property and c i v i l r i g h t s , based on the pre-conquest law of France, t h a t was adopted by the Province of Quebec i n 1774 pursuant t o the p r o v i s i o n s of the Quebec Act of t h a t year. I n 1866, when Quebec (or Lower Canada) enacted a C i v i l Code of property and c i v i l r i g h t s , f o l l o w i n g the example of the French Code Napoleon and the C i v i l Code of L o u i s i a n a , subrogation was s p e c i f i c a l l y provided f o r i n the Code. See i n f r a , p. 18, note 12. Subrogation as p r a c t i s e d i n the c i v i l law of Quebec i s not considered i n extenso i n t h i s paper. 3 S i r R. Goff & G. Jones, THE LAW OF RESTITUTION (3rd ed., 1986), ( h e r e a f t e r "GOFF & JONES"). 4 GOFF & JONES, p. 523. See a l s o J . O'Donovan & J.C. P h i l l i p s , THE MODERN LAW OF GUARANTEE (1985), p. 503: "Roman law recognised a r i g h t o f subrogation but the h i s t o r y of i t s r e c e p t i o n i n t o E n g l i s h law i s l a r g e l y uncharted. While i t i s c l e a r t h a t i t was o r i g i n a l l y a creature of e q u i t y and t h a t i t p r i m a r i l y developed out of the p r i n c i p a l - s u r e t y r e l a t i o n s h i p , l i t t l e e l s e i s known of i t s e a r l y h i s t o r y i n the E n g l i s h l e g a l system." 5 See eg.: J . Story, EQUITY JURISPRUDENCE (2nd ed., 1893), p. 419, para. 635; H.H. Sheldon, THE LAW OF SUBROGATION (2nd ed., 1893), p. 2. See a l s o John Edwards & Co. v Motor Union Insurance Co. [1922] 2 K.B. 249, a t 252, per McCardie J . ; R v O'Bryan (1900) 7 Can. Exch. 19, a t 25, per Burbidge J . ; Grace v Kuebler (1918) 38 D.L.R. 149, a t 152-53, [1918] 1 W.W.R. 182, a t 186, per Beck J . ; Freeburg v Farmers' Exchange Bankers [1922] 1 W.W.R. 845, a t 847, per Turgeon J.A. (Sask. C.A.). Numerous American d e c i s i o n s a s s e r t t h i s view: see eg. Enders v Brune 4 Rand (Va.) 438, Houston v Branch Bank 25 A l a . 404, Knighton v Curry 62 A l a . 404, Shinn - 16 -- 17 -u s u a l l y made t o the Roman law d o c t r i n e "of c e s s i o actionum 6 which enured to the advantage o f s u r e t i e s , or f i d e i u s s o r e s 7 . This e n t i t l e d a surety: "before payment, o r, i n gener a l , i s s u e j o i n e d , [to] r e q u i r e the c r e d i t o r t o t r a n s f e r t o him, by way of p r o c u r a t i o i n rem suam, a l l h i s r i g h t s and s e c u r i t i e s a g a i n s t the debtor or other s u r e t i e s . This demand ... [had to] be accompanied by o f f e r of f u l l payment, and ... [had to] be made before payment." 8 v Budd 14 N.J. Eq. 234. See g e n e r a l l y on the r e l e v a n t Roman law d o c t r i n e s : F. Schulz, CLASSICAL ROMAN LAW (1951), pp. 499-502; W.W. Buckland, A TEXTBOOK OF ROMAN LAW FROM AUGUSTUS TO JUSTINIAN (3rd ed., r e v i s e d , 1963), pp. 449-50; R.W. Leage, ROMAN PRIVATE LAW (3rd ed., 1961), pp. 344-45. 6 More f u l l y , beneficium cedendarum actionum. The r e l e v a n t passage i n the Digest - Digest 46-1-17 - has been t r a n s l a t e d as f o l l o w s : "He t o whom a c r e d i t o r makes over a debt i s s u b s t i t u t e d t o the r i g h t , and he acq u i r e s , together w i t h the c r e d i t , the mortgage and p r i v i l e g e s which are annexed t o i t , whether the assignment be made f o r a v a l u a b l e c o n s i d e r a t i o n or g r a t i s . For, although i t be t r u e t h a t the payment e x t i n g u i s h e s the debt, and t h a t i t seems, f o r t h a t reason, t h a t the c r e d i t o r cannot t r a n s m i t t o another a r i g h t which i s e x t i n g u i s h e d i n h i s person by the payment, yet the assignment, which i s made a t hte same time, has the same e f f e c t as i f the c r e d i t o r had s o l d h i s r i g h t t o him who pays him. And, as v t o the e f f e c t of the assignment, i t i s the same t h i n g t o him who pays f o r the debtor, whether i t be the person who i s bound j o i n t l y w i t h him f o r the debt, or h i s surety, or a t h i r d person." The C i v i l Law (1 Domat, b.3, s.6, a r t . l ) . According t o Marasinghe, t h i s d o c t r i n e "... bore the c l o s e s t resemblance t o subrogation, as .known i n England, and ... had been regarded as the precursor of subrogation...", l o c . c i t . , I , p. 50. 7 Roman law a l s o recognised other forms of s u r e t y s h i p , i n c l u d i n g adpromissio (where two or more persons j o i n t l y made a promise t o pay or perform some other o b l i g a t i o n ) and mandatum q u a l i f i c a t i o n (whereby a man who requested another t o len d money t o a t h i r d person was h e l d t o promise repayment h i m s e l f i f the t h i r d person made d e f a u l t . This d i f f e r e d from f i d e i u s s i o i n s e v e r a l r e s p e c t s : most im p o r t a n t l y , whereas the f i d e j u s s o r was l i a b l e w i t h the p r i n c i p a l debtor f o r the. same debt, the mandator was l i a b l e on a separate c o n t r a c t . Payment by the mandator d i d not t h e r e f o r e , as i t d i d i n f i d e i u s s i o , a u t o m a t i c a l l y discharge the c r e d i t o r ' s claims a g a i n s t the person t o whom the money was l e n t ; thus the mandator, even a f t e r payment, c o u l d s t i l l demand t h a t the c r e d i t o r ' s claims a g a i n s t the debtor should be t r a n s f e r r e d t o him). See Buckland, op. c i t . , pp. 445-52; Leage, op. c i t . , p. 369. 8 Buckland, op. c i t . , p. 449. Buckland a l s o noted, op. c i t . , p. 449, t h a t the demand "was never i m p l i e d " . - 18 -Leage explained the nature of t h i s a c t i o n i n terms more c l o s e l y approximating those a s s o c i a t e d w i t h subrogation i n E n g l i s h law: 9 "a s u r e t y c a l l e d upon t o pay the whole debt might ... r e q u i r e the c r e d i t o r before payment t o hand over t o him a l l h i s remedies ( i n c l u d i n g mortgages t o secure the debt), and so, standing i n the plac e of the c r e d i t o r , sue the p r i n c i p a l debtor f o r the amount p a i d , or the other s u r e t i e s f o r t h e i r f a i r share". The demand had t o be made before payment was e f f e c t e d because, as Buckland e x p l a i n s , 1 0 " [ t ] h e r e was i n t h i s system an obvious d i f f i c u l t y . I f the c r e d i t o r was p a i d , he had no longer any r i g h t s t o cede, and though he ceded them before payment, the payment would destroy them. The d i f f i c u l t y was met by t r e a t i n g the s u r e t y who p a i d , not as d i s c h a r g i n g the debt, but as buying i t . " 1 1 This mechanism f o r i n v e s t i n g s u r e t i e s w i t h r i g h t s and remedies a g a i n s t both the p r i n c i p a l debtor and a l s o c o - s u r e t i e s e v e n t u a l l y found i t s way i n t o most c i v i l law systems. I t e x i s t s , f o r example, i n the C i v i l Code of Quebec, 1 2 and i n the C i v i l Code o f L o u i s i a n a i n A m e r i c a . 1 3 N e i t h e r code, 9 Op. c i t . , p. 345. 1 0 Op. c i t . , p. 449. 1 1 See a l s o Leage, op. c i t . , p. 345: "he was regarded, not as having p a i d the debt, but as having purchased the r i g h t of the c r e d i t o r . The ce s s i o n of a c t i o n s a g a i n s t the p r i n c i p a l debtor had t o be made before the surety's payment because t h a t payment would a u t o m a t i c a l l y have e x t i n g u i s h e d a l l the c r e d i t o r ' s r i g h t s a g a i n s t the p r i n c i p a l . " 1 2 See g e n e r a l l y A r t i c l e s 1154-57 of the C i v i l Code, headed "Of payment w i t h subrogation" ( d e r i v e d p r i m a r i l y from A r t i c l e s 1249-52 of the e a r l i e r French Code Napoleon). These provide f o r "subrogation i n the r i g h t s of a c r e d i t o r " ( A r t . 1154). The Code d i v i d e s subrogation i n t o two types: "conventional" ( e s s e n t i a l l y subrogation by agreement)(Art. 1155), and " l e g a l " ( e s s e n t i a l l y subrogation by ope r a t i o n o f law without the consent of the c r e d i t o r ) ( A r t . 1156). The sure t y ' s r i g h t s of subrogation are e x p r e s s l y provided f o r i n A r t . 1155(1) and A r t . 1156(3). A r t . 1157 recognises t h a t subrogation may take e f f e c t both a g a i n s t p r i n c i p a l debtors and a l s o other s u r e t i e s (see a l s o A r t . 1118 re subrogation a g a i n s t s u r e t i e s ) . - 19 -however, l i m i t s subrogation t o s u r e t y s h i p cases; both extend subrogation more g e n e r a l l y t o a v a r i e t y of s i t u a t i o n s . And, im p o r t a n t l y , both recognise the mechanism by the name "subrogation". These Roman and c i v i l law d o c t r i n e s are o f t e n s a i d t o be the i n t e l l e c t u a l o r i g i n s of subrogation i n E n g l i s h law. I t i s d i f f i c u l t completely t o deny t h i s connection; i f nothing e l s e , i t seems probable t h a t the term "subrogation" i t s e l f was d e r i v e d from the c i v i l l a w . 1 4 Beyond t h i s , however, the view t h a t E n g l i s h law owes an i n t e l l e c t u a l debt t o Roman or c i v i l , law i n respect of subrogation cannot be a s s e r t e d w i t h confidence. Not o n l y i s the t e x t u a l evidence f o r t h i s " s l i g h t " , as Goff and Jones remark, 1 5 but, more s i g n i f i c a n t l y , there i s arguably a fundamental d i f f e r e n c e between subrogation as i t developed i n E n g l i s h law and subrogation i n Roman and c i v i l law. This r e l a t e s t o the manner i n which the c o n f e r r a l of r i g h t s and remedies inherent i n subrogation i s e f f e c t e d . As Marasinghe has pointed o u t , 1 6 although: "both d o c t r i n e s impart a t r a n s f e r of r i g h t s from one person t o another ... [ a ] t common law, subrogation a p p l i e s i p s o .jure without any 1 3 See g e n e r a l l y A r t i c l e s 2159-62 of the L o u i s i a n a C i v i l Code. These a r t i c l e s , l i k e those of the Quebec C i v i l Code, are v i r t u a l l y l i t e r a l t r a n s l a t i o n s of the corresponding a r t i c l e s of the French Code Napoleon ( A r t s . 1249-52); they a c c o r d i n g l y provide f o r conventional and l e g a l subrogation. Subrogation i n L o u i s i a n a i s considered t o be a su b s t a n t i v e r i g h t created by the c i v i l law; e q u i t a b l e subrogation does not e x i s t i n the s t a t e , see F i d e l i t y - P h e n i x F i r e Insurance Co. of New York v Forest O i l  Corp. (1962) 141 So. 2d 841; Home Ins. Co. v Highway Ins. Underwriters (1953) 222 La. 540. See a l s o J.T. Hood, J r . , "Subrogation", i n ESSAYS ON THE CIVIL LAW OF OBLIGATIONS (ed. by J . Dainow), p. 174 et seq• 1 4 See supra, p. 5, note 13, f o r reference t o a c i v i l law case from the c o u r t s o f Quebec which may have i n f l u e n c e d the adoption of the term "subrogation" i n E n g l i s h and Canadian law. 1 5 GOFF & JONES, p. 523. 1 6 Marasinghe, l o c . c i t . , I I , pp. 298-9. - 20 -requirement of any express agreement t o t r a n s f e r r i g h t s . In c o n t r a s t , ... i n c e s s i o actionum an express agreement t o t r a n s f e r r i g h t s must always precede the payment." In h i s view, there i s no c l e a r or acceptable e x p l a n a t i o n "to show how the d o c t r i n e o f subrogation [ i n E n g l i s h law] became capable of e f f e c t i n g an i p s o .jure succession t o another's r i g h t s . . . " , 1 7 without p r i o r express demand and c e s s i o n . "Legal" subrogation - i n other words, subrogation by operation of law without any express agreement t o t r a n s f e r r i g h t s - i s , however, known t o the c i v i l l a w . 1 8 This came about, i t has been s a i d , 1 9 when: "a merger of [the r i g h t of beneficium cedendarum actionum] occurred w i t h the r i g h t s under negotiorum g e s t i o of an o u t s i d e r who p a i d the debt and those under mandate when the c r e d i t o r (mandatory) had loaned money under a mandate from the s u r e t y (mandator). This r e s u l t e d i n the concept of the automatic l e g a l subrogation of the s u r e t y t o the c r e d i t o r ' s r i g h t s under s p e c i f i e d circumstances, a p o s i t i o n adopted by modern c i v i l codes." This might provide the e x p l a n a t i o n sought by Marasinghe and other w r i t e r s . Nonetheless, the u n c e r t a i n t y t h a t e x i s t s i n t h i s regard has promoted the suggestion t h a t subrogation i n E n g l i s h law may w e l l be a home-grown product of the E n g l i s h common law l e g a l system, separate from, although s i m i l a r i n o p e r a t i o n t o , the d o c t r i n e adopted by European c i v i l law l e g a l systems. 2 0 I t s e v o l u t i o n , on t h i s view, i s a t t r i b u t a b l e more t o 1 7 I b i d . , I , p. 54. 1 8 See supra, pp. 18-19, notes 12 & 13. 1 9 P.K. Jones, J r . , "Roman Law Bases of S u r e t y s h i p i n Some Modern C i v i l Codes", (1977) 52 T u l . L.R. 129, p. 135. 2 0 See eg., Marasinghe, l o c . c i t . , P a r t I , p. 45; D.G. Maclay, "Theory and A p p l i c a t i o n of the Doctrine of Subrogation", (1885-86) 2 The Columbia J u r i s t 38, p. 39. There are a l s o a number of comments i n e a r l y American d e c i s i o n s which r e f e r t o the p a r a l l e l development of the d o c t r i n e i n both the common and c i v i l law l e g a l systems: see eg. Cheeseborough v M i l l a r d (1815) 1 Johns. Ch. 409, a t 413, per Chancellor Kent: "This - 21 -the f a c t t h a t i t i s an obvious means of e f f e c t i n g an e q u i t a b l e r e s u l t i n t r i p a r t i t e s i t u a t i o n s , and presumably occurred t o E n g l i s h judges i n t h a t l i g h t , than t o a pe r c e p t i o n t h a t i t was a r e l e v a n t d o c t r i n e of Roman or c i v i l law t o adopt i n t o the E n g l i s h l e g a l system f o r t h i s purpose. I t i s not intended to explore t h i s i s s u e f u r t h e r i n t h i s paper. What i s more important, i t i s submitted, i s t h a t once the technique of subrogation gained a f o o t h o l d i n E n g l i s h law, i t s subsequent a p p l i c a t i o n and development was e f f e c t e d w i t h only l i m i t e d overt reference t o p o s s i b l e a n c e s t r a l r o o t s i n Roman or c i v i l l a w . 2 1 d o c t r i n e of s u b s t i t u t i o n , which i s f a m i l i a r t o c i v i l law ... and the law of those c o u n t r i e s i n which t h a t system e s s e n t i a l l y p r e v a i l s ... i s e q u a l l y w e l l known i n the E n g l i s h Chancery." See a l s o Hayes v Ward (1819) 4 Johns. Ch. 123, a t 130, per Chance l l o r Kent; and Stevens v Cooper (1815) 1 Johns. Ch. 425, a t 431-32, per Chance l l o r Kent. 2 1 Cf., the American c o u r t s where references t o the d o c t r i n e of subrogation i n the c i v i l law were much more frequent. See the cases noted supra, pp. 16-17, note 5. Chapter 3 THE GENERAL DEVELOPMENT OF SUBROGATION STEPS AND OBSTACLES1 Subrogation i s g e n e r a l l y thought t o have been f i r s t invoked i n the E n g l i s h l e g a l system by the Chanc e l l o r i n a i d of s u r e t i e s around the beginning of the seventeenth century. At the time, s u r e t i e s were undoubtedly favoured by the law. One commentator has noted: 2 "In former times the s u r e t y was i n the t y p i c a l i n stance a f r i e n d of the borrower, o f t e n more generous than d i s c r e e t , who assumed g r a t u i t o u s l y the c o l l a t e r a l o b l i g a t i o n and thereby subjected h i m s e l f to p o s s i b i l i t y of f i n a n c i a l l o s s . I n h i s favour, t h e r e f o r e , a l l doubts of c o n s t r u c t i o n of the c o n t r a c t of s u r e t y s h i p were r e s o l v e d . For h i s r e l i e f the c h a n c e l l o r imported from the c i v i l law the remedy of subr o g a t i o n . " 3 1 See g e n e r a l l y S i r R. Goff & G. Jones, THE LAW OF RESTITUTION (3rd ed., 1986) ( h e r e a f t e r "GOFF & JONES"), p. 532 e t seq: G.H.L. Fridman and J.G. McLeod, RESTITUTION (1982) ( h e r e a f t e r "FRIDMAN & McLEOD"), p. 391 et seq. 2 "The Extent o f the Subrogee's Remedy", Note i n (1925-26) 35 Yal e L. J . 484. See a l s o Holland Can. Mge Co. v Hutchings [1936] S.C.R. 165, a t 172, [1936] 2 D.L.R. 481, a t 488. 3 I b i d . , p. 484. The reference t o the c i v i l law as the source of subrogation can be a t t r i b u t e d t o the f a c t t h a t the commentator i s American; as noted, supra, note 5, American law draws a much c l o s e r l i n k between common law and c i v i l law noti o n s of subrogation. The commentator went on, pp. 484-5, t o note an i n t e r e s t i n g change i n the a t t i t u d e of the c o u r t s towards s u r e t i e s , i n America a t l e a s t : " With the r i s e of modern business methods, the p r e v a i l i n g n o t i o n s of f a i r n e s s have changed, and some of the r u l e s r e l a t i n g t o s u r e t y s h i p have been modified. The t y p i c a l s u r e t y today i n business t r a n s a c t i o n s o f any s i z e i s the s u r e t y company, organized f o r p r o f i t and, of course, allowed t o exact i t i n the form of premiums. Inasmuch as the s u r e t y company i s more l i k e an i n s u r e r than an ancient surety, . . . the r u l e of c o n t r a c t c o n s t r u c t i o n has been reversed as t o i t , a l l doubts being construed a g a i n s t the s u r e t y company". See a l s o D.M. K e r l y , AN HISTORICAL SKETCH OF THE EQUITABLE JURISDICTION OF THE COURT OF CHANCERY (1890), pp. 251-3. - 22 -- 23 -S o c i a l and economic changes i n England a t the time a l s o provided a powerful i n c e n t i v e f o r the j u d i c i a l development of new r i g h t s and remedies. As another commentator has pointed o u t : 4 "A no l e s s powerful reason f o r ... subrogation's slow development was the l a t e r i s e of commercial a c t i v i t y ; f o r undoubtedly, the d o c t r i n e r e c e i v e d i t s g r e a t e s t impetus i n the n e c e s s i t y of a r e l i e f from the co m p l e x i t i e s and hardships a r i s i n g from the v a r i o u s r e l a t i o n s of guarantor, s u r e t y and c r e d i t o r to each other, increased as they must have been by the i n f l e x i b l e r u l e s of the e a r l y law." I n combination, these f o r c e s f o r change induced the Chancery i n 1637, i n Morgan v Seymour, 5 t o confer on a s u r e t y an e q u i t a b l e r i g h t t o the assignment of s e c u r i t i e s upon payment of the guaranteed debt. This p a r t i c u l a r r i g h t - t o s e c u r i t i e s - i s g e n e r a l l y regarded as being a t the centre of the surety's " r i g h t of subrogation". 6 Morgan v Seymour thus serves as a seminal case i n the development of subrogation i n E n g l i s h law. S i m i l a r f o r c e s on l a t e r occasions l e d the Chancery, step-by-step, to apply the technique of subrogation i n favour of persons other than s u r e t i e s - f i r s t , i n favour of persons who l e n t money t o married women and i n f a n t s t o purchase n e c e s s a r i e s , 7 then i m p o r t a n t l y i n favour of i n s u r e r s a f t e r 4 D.G. Maclay, l o c . c i t . , p. 39. 5 (1637) 1 Chan. Rep. 120, 21 E.R. 525. 6 See d i s c u s s i o n i n f r a , p. 56 et seq.. 7 This use of subrogation was recognised i n two chancery cases e a r l y i n the eighteenth century, namely, H a r r i s v Lee (1718) 1 P. Wms. 482, 24 E.R. 482; and Marlow v P i t f i e l d (1719)1 P. Wms. 588, 24 E.R. 516. The common law cou r t s had e a r l i e r denied recovery by way of assumpsit of a loan used t o purchase n e c e s s a r i e s ; see Darby v Boucher (1693) 1 S a l k e l d 279, 91 E.R. 244; and E a r l e v Peale (1712) 1 S a l k e l d 386, 91 E.R. 336. - 24 -payment t o the i n s u r e d , 8 and e v e n t u a l l y t o s e v e r a l other c a t e g o r i e s of deserving p l a i n t i f f . 9 In each case, the step-by-step extension of the use of subrogation was p r i m a r i l y undertaken by the Chancery employing broad notions of " n a t u r a l j u s t i c e " and "eq u i t y " as the j u s t i f i c a t i o n f o r doing so. As a r e s u l t , subrogation i n E n g l i s h law i s g e n e r a l l y regarded as " e q u i t a b l e " i n o r i g i n and nature. Recording the course o f development of subrogation i n the E n g l i s h l e g a l system i s not, however, f r e e from d i f f i c u l t i e s . F i r s t , as has a l r e a d y been suggested, 1 0 there was no great rush t o develop the scope and use of the technique i n the years immediately f o l l o w i n g i t s i n i t i a l r e c o g n i t i o n . Instead, the e a r l y p a r t of i t s development i n the Chancery was r e l a t i v e l y slow. I t appears t h a t i t was on l y w i t h the quickening of the pace of the i n d u s t r i a l r e v o l u t i o n i n E n g l a n d 1 1 t h a t the c r e a t i v e hand of the Chance l l o r became i n c r e a s i n g l y adept a t usin g subrogation where i t had not p r e v i o u s l y been used. Secondly, the Chancery's expanding use of subrogation was not by any means a product of planning and f o r e s i g h t . Although a court o c c a s i o n a l l y a p p l i e d one instance of subrogation, by analogy, t o another s i m i l a r 8 See Randal v Cockran (1748) 1 Ves. Sen. 98, 27 E.R. 916. The common law cou r t s recognised the use of subrogation i n t h i s context i n Mason v Sainsbury (1782) 3 Doug. K.B. 61, 99 E.R. 538. See a l s o London Ass. v Sainsbury (1783) 3 Doug. K.B. 245, 99 E.R. 636. 9 See i n f r a , p. 27. 1 0 Supra, p. 3. 1 1 For a comprehensive, and i l l u m i n a t i n g , d i s c u s s i o n of the e f f e c t s of the i n d u s t r i a l r e v o l u t i o n on the E n g l i s h l e g a l system - and, i n p a r t i c u l a r , the law of c o n t r a c t - see P.S. A t i y a h , THE RISE AND FALL OF FREEDOM OF CONTRACT (1979). - 25 -s i t u a t i o n , 1 2 more commonly the technique was simply used, without overt r e c o g n i t i o n of t h a t f a c t , as and when necessary t o achieve an e q u i t a b l e r e s u l t i n the p a r t i c u l a r case before the c o u r t . Subrogation's development was, i n t h i s r espect, more piece-meal than planned; as a r e s u l t , i t came t o be a p p l i e d i n a host o f d i v e r s e circumstances o f t e n bearing l i t t l e apparant f a c t u a l s i m i l a r i t y t o each other. As a f u r t h e r r e s u l t , d i s c u s s i o n s of subrogation can nowadays be found i n a wide range of contexts, i n c l u d i n g s u r e t y s h i p , 1 3 i n s u r a n c e , 1 4 t r u s t s , 1 5 mortgages, and company law. T h i r d l y , although subrogation was broadly " e q u i t a b l e " i n nature, the haphazard nature of i t s development d i d not r e a d i l y promote or f a c i l i t a t e e i t h e r a n a l y s i s of i t s t h e o r e t i c a l underpinings, or u n i f i c a t i o n of the v a r i o u s instances of s u b r o g a t i o n . 1 6 Instead, subrogation i s l a r g e l y t r e a t e d as simply an h i s t o r i c a l f a c t . Only r e l a t i v e l y r e c e n t l y , i t i s submitted, w i t h the r e c o g n i t i o n and development of a law of r e s t i t u t i o n , has t h i s begun t o change t o any marked degree. F o u r t h l y , the course of subrogation's development was complicated by the f a c t t h a t subrogation d i d not remain the s o l e preserve of the Chancery. 1 2 Eg., e a r l y cases on the use of subrogation i n favour of persons who had made u l t r a v i r e s loans t o a company which then used the l o a n t o pay o f f other e a r l i e r i n t r a v i r e s loans reasoned by analogy t o the cases a l l o w i n g subrogation t o a lender of money to purchasers of nec e s s a r i e s . 1 3 See t e x t s r e f e r r e d t o i n f r a , p. 33, note 1. 1 4 See eg. S.R. Derham, SUBROGATION IN INSURANCE LAW (1985). 1 5 See eg. Meagher, Gummow, & Lehane, EQUITY - DOCTRINES AND REMEDIES (2nd ed., 1975). 1 6 One of the more comprehensive treatments of the s u b j e c t amongst e q u i t y w r i t e r s i s t o be found i n Meagher, Gummow, & Lehane, op. c i t . , chap. 9, but even t h i s merely h i g h l i g h t s the d i f f i c u l t i e s attendant on subrogation. One e a r l y exception was the American w r i t e r , Sheldon, op.  c i t . , who publ i s h e d the f i r s t e d i t i o n of h i s work on subrogation i n 1882. - 26 -Subrogation, or r i g h t s of s i m i l a r e f f e c t , were e v e n t u a l l y recognised and adopted by the common law cou r t s i n a number of cases. Accommodating subrogation w i t h i n the s t r i c t u r e s of common law t h i n k i n g , however, posed problems f o r common law judges, given the avowedly e q u i t a b l e nature of the technique. The response of the common lawyers was t o su b j e c t subrogation t o a tr a n s f o r m a t i o n of s o r t s . Instead of being a technique of r e l i e f whereby one p a r t y , A, f o r e q u i t a b l e reasons was "stood i n the p l a c e (or shoes) o f " another, B, so as t o o b t a i n the b e n e f i t of the l a t t e r ' s r i g h t s , remedies, and s e c u r i t i e s a g a i n s t a t h i r d p a r t y , C, aga i n s t whom A may or may not have had concurrent r i g h t s i n e q u i t y o r common law, subrogation i n the eyes of the common lawyers became a su b s t a n t i v e r i g h t - a " r i g h t o f subrogation". Furthermore, i t was commonly s a i d t h a t the r i g h t arose by way of an "i m p l i e d c o n t r a c t " between A and B, or A and C. In t h i s sense, t h e r e f o r e , the common law cou r t s went a consi d e r a b l e way towards transforming the e q u i t a b l e technique of subrogation i n t o a q u a s i - c o n t r a c t u a l " r i g h t " of subrogation. This i n e v i t a b l y added t o the u n c e r t a i n t y and t h e o r e t i c a l c onfusion surrounding subrogation. These d i f f i c u l t i e s s t i l l l a r g e l y b e d e v i l d i s c u s s i o n s of the theory and nature of subrogation. Subrogation i s as a r e s u l t s t i l l g e n e r a l l y approached by way of the i d e n t i f i c a t i o n and e l u c i d a t i o n of the general c a t e g o r i e s of case i n which the technique of subrogation has been used t o provide a deserving p a r t y w i t h a remedy. Even r e s t i t u t i o n w r i t e r s , i n s i f t i n g through the v a r i o u s r i g h t s o f subrogation w i t h a view t o c o n s t r u c t i n g a " r e s t i t u t i o n a r y " e x p l a n a t i o n of subrogation, have more o f t e n than not found themselves constrained t o approach the subj e c t i n t h i s way. - 27 -Goff and Jones, f o r example, i d e n t i f y four " e s t a b l i s h e d " c a t e g o r i e s of use, namely: ( i ) s u r e t i e s ; ( i i ) i n d o r s e r s of b i l l s of exchange; ( i i i ) i n s u r e r s ; and ( i v ) c r e d i t o r s of a business c a r r i e d on by a t r u s t e e or personal r e p r e s e n t a t i v e ; 1 7 and two f u r t h e r general c a t e g o r i e s , the second of which they concede i s l e s s c l e a r l y accepted as a category of use of subrogation: (v) a u t h o r i s e d borrowings: the discharge of the borrower's v a l i d l i a b i l i t i e s ; and ( v i ) unauthorised borrowings: the discharge of the borrower's v a l i d l i a b i l i t i e s . 1 8 Fridman and McLeod, on the other hand, i n the most d e t a i l e d d i s c u s s i o n to date of subrogation i n the Canadian law of r e s t i t u t i o n , 1 9 adopt Goff and Jones's f i r s t f our c a t e g o r i e s , but c l a s s i f y the f i f t h and s i x t h c a t e g o r i e s according t o the two s p e c i f i c f a c t u a l s i t u a t i o n s h i s t o r i c a l l y g i v i n g r i s e to them: (v) loans to i n f a n t s , l u n a t i c s , and married women to purchase n e c e s s a r i e s ; and ( v i ) i n v a l i d loans t o c o r p o r a t i o n s used t o discharge other v a l i d l i a b i l i t i e s of the c o r p o r a t i o n . 2 0 1 7 GOFF & JONES, p. 533 e t seq, 1 8 Idem. 1 9 FRIDMAN & McLEOD, chap. 14. 2 0 I b i d . , p. 391 e t seq. - 28 -Other w r i t e r s adopt other systems of c l a s s i f i c a t i o n , according t o t h e i r p a r t i c u l a r view of s u b r o g a t i o n . 2 1 But even when the t o p i c of subrogation i s approached i n t h i s way, many of the d i f f i c u l t i e s a l r e a d y i d e n t i f i e d seem t o p e r s i s t . Is subrogation a " r i g h t " ? Or a remedy? Does i t n e c e s s a r i l y e n t i t l e a p a r t y t o s e c u r i t i e s and p r i o r i t y ? And so on. One of ' the p r i n c i p a l reasons f o r these c o n t i n u i n g d i f f i c u l t i e s , i t i s submitted, i s the f a i l u r e t o recognise t h a t the expression "subrogation", as used i n the cases and l e g a l l i t e r a t u r e , serves a number of purposes. I n p a r t i c u l a r , i t can be seen to r e f e r v a r i o u s l y t o a t l e a s t three aspects of the law regarding subrogation. F i r s t , i t i s used t o r e f e r to the remedial technique i t s e l f of "standing one person i n the p l a c e (or shoes) of another" t o endow the former w i t h the r i g h t s and remedies of the l a t t e r (or some of them) ag a i n s t a t h i r d p a r t y . Secondly, i t i s used t o r e f e r t o the e n t i t l e m e n t to have the remedial technique of subrogation used or a p p l i e d i n one's favour. Here, i t i s appropriate t o t a l k of a " r i g h t of 2 1 B i r k s , INTRODUCTION TO THE LAW OF RESTITUTION (1985), pp. 93-98, takes a d i f f e r e n t tack. He suggests t h a t f o r the purposes of the law of r e s t i t u t i o n , i t i s not even l e g i t i m a t e t o t r e a t subrogation as a separate s u b j e c t . In h i s view i t i s " i n the nature of a metaphor which can be done without", op. c i t . , p. 93. He e x p l a i n s t h i s f u r t h e r through the f o l l o w i n g i l l u s t r a t i o n : " I f I pay you £5000 and you use £2000 of i t t o pay o f f your o v e r d r a f t , then a c o n c l u s i o n i n the form and language of subrogation w i l l be t h a t I am subrogated t o the c l a i m which the bank had a g a i n s t you. I stand where the bank stood; and you, who are s i t t i n g on a s u r v i v i n g enrichment of £2000, i n the form of a burden removed which would otherwise s t i l l impend, w i l l thus be compelled t o give up t h a t enrichment. The metaphorical nature of t h i s d e s c r i p t i o n i s brought out by the f a c t t h a t e x a c t l y the same c o n c l u s i o n can be expressed without speaking of any s u b s t i t u t i o n . I t c o u l d be s a i d simply t h a t I a c q u i r e a r i g h t having c h a r a c t e r i s t i c s and content i d e n t i c a l t o t h a t formerly enjoyed by the bank. The d i f f e r e n c e i s between the language of s u b s t i t u t i o n and the language of comparison: 'the bank's r i g h t ' and 'a r i g h t l i k e the bank's'. The n o t i o n of a s u b s t i t u t i o n i s v i v i d . But s t r i c t l y speaking i t i s unnecessary", op.  c i t . , pp. 94-94. - 29 -subrogation", or a " r i g h t t o subrogation". And t h i r d l y , i t i s used t o r e f e r t o the a c t u a l body of r i g h t s and remedies made a v a i l a b l e through the use of the remedial technique of subrogation. The second and t h i r d of. these uses of the expression "subrogation" are themselves v a r i a b l e . Thus, the e n t i t l e m e n t , or " r i g h t " , t o subrogation may be e i t h e r c o n t r a c t u a l , or i t may be e s s e n t i a l l y r e s t i t u t i o n a r y i n nature. That i s t o say, i t may be e i t h e r the product of agreement between the p a r t i e s , whether express or i m p l i e d , or i t may be simply an expression of the e x i s t e n c e of u n j u s t enrichment i n a p a r t i c u l a r t r i p a r t i t e s i t u a t i o n . In t h i s l a t t e r case, once the e x i s t e n c e of u n j u s t enrichment i n a t r i p a r t i t e s i t u a t i o n has been i d e n t i f i e d , i t may be t h a t r e s t i t u t i o n of the u n j u s t enrichment can be e f f e c t e d simply through the c o n f e r r a l of d i r e c t r i g h t s or remedies on the p a r t y a t whose expense the enrichment was obtained. But i t may be t h a t d i r e c t r i g h t s and remedies w i l l be i n e f f e c t i v e . In t h i s case, s i n c e the s i t u a t i o n i s t r i p a r t i t e i n c h a r a c t e r , the remedial technique of aubrogation may be a p p l i e d cis the best j or perhaps the o n l y means of e f f e c t i n g r e s t i t u t i o n of the enrichment u n j u s t l y r e t a i n e d . E q u a l l y , the a c t u a l body of r i g h t s and remedies a v a i l a b l e as a r e s u l t of using the technique of subrogation may v a r y i n each case. In p a r t i c u l a r , i t may i n c l u d e o n l y personal r i g h t s or remedies of the person whose shoes are f i l l e d by another; or i t may a l s o i n c l u d e r i g h t s of s e c u r i t y or p r i o r i t y . The p a r t i c u l a r r i g h t s and remedies a v a i l a b l e i n any p a r t i c u l a r case, i t i s submitted, w i l l or a t l e a s t should depend on and c o r r e l a t e t o the f a c t s of the p a r t i c u l a r case. I f an agreement e x i s t e d , then one should ask what was agreed regarding subrogation and the r i g h t s and remedies a v a i l a b l e by v i r t u e of i t s a p p l i c a t i o n . I f there was no agreement, then one - 30 -should ask questions such as "what was the nature of the b e n e f i t conferred?", "are there other i n t e r e s t e d p a r t i e s ? " , and so on. The f a c t s , i n other words, w i l l , i t i s submitted, be h i g h l y r e l e v a n t i n determining the a c t u a l body of r i g h t s and remedies a v a i l a b l e through use of the remedial technique of subrogation. Furthermore, there i s no necessary d i s t i n c t i o n i n t h i s regard between subrogation as a c o n t r a c t u a l " r i g h t " , and subrogation as an expression of unju s t enrichment. Where, f o r example, i t i s agreed t h a t one p a r t y , A, s h a l l be " e n t i t l e d to subrogation", t h i s may mean t h a t A i s e n t i t l e d t o a l l the r i g h t s and remedies of the subrogee, no matter what t h e i r nature. In t h i s case, the a c t u a l body of r i g h t s and remedies rendered a v a i l a b l e t o A i s not l i m i t e d by the perce i v e d extent of unjust enrichment i n the circumstances. But where t h i s i s not c l e a r , then, i t i s submitted, the a c t u a l body of r i g h t s and remedies a v a i l a b l e becomes l a r g e l y a matter of common law; i n other words, i t becomes l a r g e l y a matter of determining the body of r i g h t s and remedies t h a t have over time come t o be accepted as app r o p r i a t e t o remedy the i n j u s t i c e - the unjus t enrichment - perceived t o e x i s t i n the s i t u a t i o n warranting subrogation. Thus, even where the en t i t l e m e n t t o subrogation i s c o n t r a c t u a l , i t w i l l o f t e n , i t i s submitted, be the un d e r l y i n g u n j u s t enrichment i n the s i t u a t i o n under c o n s i d e r a t i o n t h a t w i l l d i c t a t e the r i g h t s and remedies a v a i l a b l e t o the aggrieved p a r t y . I f these d i s t i n c t i o n s are drawn and kept i n mind, then, i t i s submitted, many of the apparent d i f f i c u l t i e s surrounding subrogation become more r e a d i l y e x p l i c a b l e . And, e q u a l l y i m p o r t a n t l y , the e s s e n t i a l r e s t i t u t i o n a r y nature of subrogation can be seen more c l e a r l y . In P a r t s I I I and IV of t h i s paper, these p r o p o s i t i o n s w i l l be considered i n r e l a t i o n to - 31 -the surety's " r i g h t " of subrogation. PART I I SURETYSHIP AND SUBROGATION - 32 -Chapter 4 SURETYSHIP1 A. I n t r o d u c t i o n When one person, A, promises t o answer t o another, C, f o r the due performance of an o b l i g a t i o n of a t h i r d , B, i n the event t h a t B f a i l s t o perform t h a t o b l i g a t i o n as r e q u i r e d , then A i s i n E n g l i s h 2 and Canadian 3 law a "surety", and the r e l a t i o n s h i p between him or her and B and C i s one of " s u r e t y s h i p " . 4 Commonly, B and C are debtor and c r e d i t o r r e s p e c t i v e l y , and A's promise i s a c c o r d i n g l y t o answer f o r B's debt. Promises of t h i s type were h e l d t o be enforceable a g a i n s t A e a r l y on i n E n g l i s h l e g a l 1 See g e n e r a l l y on the law of s u r e t y s h i p : K.P. McGuinness, THE LAW OF GUARANTEE (1986) ( h e r e a f t e r "McGUINNESS"); D.G.M. Marks & G.S. Moss, ROWLATT ON THE LAW OF PRINCIPAL AND SURETY (4th ed., 1982)(hereafter "ROWLATT"); T.D. Putnam, SURETYSHIP (1981); J . O'Donovan & J.C. P h i l l i p s , THE MODERN CONTRACT OF GUARANTEE (1985). An e a r l y E n g l i s h t e x t i s H.A. de Colyar, THE LAW OF GUARANTEES (3rd ed., 1897). American t e x t s i n c l u d e H.W. Arant, HANDBOOK ON THE LAW OF SURETYSHIP AND GUARANTEE (1931); E.A. Arnold, OUTLINES OF SURETYSHIP AND GUARANTY (1927); and L.P. Simpson, HANDBOOK ON THE LAW OF SURETYSHIP (1950). 2 See eg., ROWLATT, p. 1: "A s u r e t y may be def i n e d as one who c o n t r a c t s w i t h an a c t u a l or p o s s i b l e c r e d i t o r of another t o be r e s p o n s i b l e t o him by way of s e c u r i t y , a d d i t i o n a l t o t h a t other, f o r the whole or p a r t of the debt." 3 See McGUINNESS, p. 1: "In i t s s i m p l e s t form, a guarantee i s a promise by one person t o answer f o r the due performance o f the o b l i g a t i o n of another person (whether imposed by law or co n t r a c t ) i n the event t h a t the other person f a i l s t o perform t h a t o b l i g a t i o n as r e q u i r e d . In most, but by no means a l l , cases the guaranteed o b l i g a t i o n w i l l be a debt." Although McGuinness gives t h i s as a d e f i n i t i o n of "guarantee", he uses the term "surety" to r e f e r t o the person undertaking the o b l i g a t i o n t o answer f o r another, McGUINNESS, p. 22. 4 "Guarantor" and "guarantee" may e q u a l l y be used. For d i s c u s s i o n of these v a r i o u s terms, see McGUINNESS, pp. 21-27. - 33 -- 34 -h i s t o r y . Indeed, they were were among the e a r l i e s t forms of c o n t r a c t u a l o b l i g a t i o n recognised i n E n g l i s h law. 5 At the same time, as has a l r e a d y been seen, 6 these promisors - " s u r e t i e s " - were favoured by the law. Consequently, s u r e t y s h i p proved a f e r t i l e ground f o r the development of r i g h t s and remedies i n E n g l i s h law. The range of r i g h t s and remedies a v a i l a b l e t o a s u r e t y i s con s i d e r a b l e . I t i n c l u d e s r i g h t s and remedies before the s u r e t y i s c a l l e d upon t o pay or perform, r i g h t s and remedies when c a l l e d upon t o pay or perform, and r i g h t s and remedies upon or a f t e r payment or performance. I t i n c l u d e s r i g h t s and remedies a g a i n s t (a) the person whose o b l i g a t i o n the s u r e t y has promised t o answer f o r - known as the " p r i n c i p a l " ; (b) the person who i s e n t i t l e d t o payment or performance by the s u r e t y - known as the " c r e d i t o r " ; and (c) other persons who have a l s o promised, along w i t h the s u r e t y , t o answer f o r the p r i n c i p a l - known as " c o - s u r e t i e s " . One r i g h t i n p a r t i c u l a r i s the " r i g h t of subrogation". 7 Broadly speaking, t h i s e n t i t l e s A, upon performing B's o b l i g a t i o n to C, t o "stand i n C's p l a c e (or shoes)" and e x e r c i s e f o r A's own b e n e f i t a l l the r i g h t s and remedies, i n c l u d i n g s e c u r i t i e s , possessed i n law by C a g a i n s t B a t the time A pays or performs the guaranteed duty. The e s s e n t i a l purpose of t h i s r i g h t i s t o a s s i s t A i n o b t a i n i n g r e s t i t u t i o n from B of the b e n e f i t c onferred on B by A i n performing B's o b l i g a t i o n t o C. This r i g h t i s not, however, always expressed i n these terms. Often, f o r example i t i s 5 Holdsworth, HISTORY OF ENGLISH LAW (2nd ed.), p. 185 et seq. See a l s o Loyd, "The Surety", (1917) 66 U. Pa. L. Rev. 40. 6 Supra, p. 22. 7 Subrogation i s u s u a l l y spoken of i n t h i s context as a " r i g h t " of the s u r e t y , r a t h e r than as a technique of r i g h t s c o n f e r r a l . - 35 -expressed as being one of the c o n t r a c t u a l r i g h t s a r i s i n g e x p r e s s l y or i m p l i e d l y from the c o n t r a c t of s u r e t y s h i p between the p a r t i e s . I t i s a l s o o f t e n l i n k e d w i t h c e r t a i n other r i g h t s possessed by the surety, e s p e c i a l l y those of i n d e m n i f i c a t i o n or reimbursement, and c o n t r i b u t i o n . In t h i s P a r t , t h i s " r i g h t " of subrogation, i t s nature and i t s scope, w i l l be examined. Before doing so, however, i t i s f i r s t necessary t o consider b r i e f l y two r e l a t e d matters. The f i r s t concerns the meaning of the expressions "surety" and " s u r e t y s h i p " ; the second concerns the other two b a s i c r i g h t s of a s u r e t y upon payment or performance, namely reimbursement and c o n t r i b u t i o n . These l a t t e r two r i g h t s , i t i s submitted, are c l o s e l y l i n k e d a t a j u r i d i c a l l e v e l t o subrogation. B. Meanings: " s u r e t i e s " and " q u a s i - s u r e t i e s " Where A makes a promise along the l i n e s of t h a t o u t l i n e d above, i t gi v e s r i s e t o a r e l a t i o n s h i p t h a t i s e s s e n t i a l l y c o n t r a c t u a l i n nature. I t a r i s e s i n a c o n t r a c t u a l s e t t i n g , and depends upon an express or i m p l i e d agreement between three persons: (1) the promisor (the " s u r e t y " ) , (2) the person whose o b l i g a t i o n he or she has agreed t o answer f o r (the " p r i n c i p a l d e b t o r " ) , and (3) the person e n t i t l e d t o performance of t h a t o b l i g a t i o n (the " c r e d i t o r " ) . The s u r e t y s h i p thereby a r i s i n g and the v a r i o u s r i g h t s enjoyed by the p a r t i e s t o i t d e r i v e i n essence from t h a t agreement, and may be considered terms of i t , e i t h e r express or i m p l i e d . R e l a t i v e l y e a r l y on, however, E n g l i s h lawyers recognised t h a t there c o u l d be persons who, f o r v a r i o u s l e g a l or f a c t u a l reasons, become l i a b l e t o perform the o b l i g a t i o n of another even though they have not e x p r e s s l y - 36 -promised t o do so. These persons, i t was r e a l i s e d , are i n a p o s i t i o n analogous t o t h a t of a c o n t r a c t u a l s u r e t y s t r i c t l y speaking, even though t h e i r l i a b i l i t y i s not a product of a t r i p a r t i t e s u r e t y s h i p agreement. I t was a l s o e v e n t u a l l y r e a l i s e d t h a t these persons - who can be termed "qua s i -s u r e t i e s " t o d i s t i n g u i s h them from t r u e c o n t r a c t u a l s u r e t i e s - are no l e s s deserving of the a s s i s t a n c e of the law than c o n t r a c t u a l s u r e t i e s . A c c o r d i n g l y , E n g l i s h law came t o confer the r i g h t s of a " c o n t r a c t u a l s u r e t y " , or a t l e a s t r i g h t s analogous t h e r e t o , upon these " q u a s i - s u r e t i e s " , not upon the b a s i s of c o n t r a c t , but r a t h e r upon e q u i t a b l e p r i n c i p l e s , o r , l a t e r i n h i s t o r y , q u a s i - c o n t r a c t u a l notions ( i n s o f a r as a f i c t i o n a l agreement between the p a r t i e s c o u l d be " i m p l i e d " based upon "request" f o r example). D i s c u s s i o n of the " r i g h t s " of " s u r e t i e s " , i n c l u d i n g the r i g h t of subrogation, i s not, t h e r e f o r e , l i m i t e d t o the r i g h t s of c o n t r a c t u a l s u r e t i e s s t r i c t l y speaking. I t extends t o and encompasses both s u r e t i e s s t r i c t l y speaking, and a l s o these " q u a s i - s u r e t i e s " , t o adopt t h a t term. This has been c l e a r s i n c e a t l e a s t the l a t e n i n e t e e n t h century, and the judgment o f the House of Lords i n Duncan, Fox, & Co. v North & South Wales Bank. 8 In t h a t case, Lord Selborne L.C., d e l i v e r i n g the l e a d i n g speech, o u t l i n e d three general ' c l a s s e s of undertaking g i v i n g r i s e t o s u r e t y s h i p r i g h t s , i n c l u d i n g the r i g h t of subrogation: "(1.) Those i n which there i s an agreement t o c o n s t i t u t e , f o r a p a r t i c u l a r purpose, the r e l a t i o n of p r i n c i p a l and su r e t y , t o which the c r e d i t o r thereby secured i s a p a r t y ; (2) Those i n which there i s a s i m i l a r agreement between the p r i n c i p a l and s u r e t y only, t o which the c r e d i t o r i s a stranger; and (3) Those i n which, without any such c o n t r a c t of s u r e t y s h i p , there i s a primary and a secondary l i a b i l i t y of two persons f o r one and the same debt, the debt being, as between (1880) 6 App. Cas. 1. - 37 -the two, t h a t of one of those persons only, and not e q u a l l y of both, so t h a t the other, i f he should be compelled t o pay i t , would be e n t i t l e d t o reimbursement from the person by whom (as between the two) i t ought t o have been p a i d . " 9 The r i g h t s enjoyed by each c l a s s of surety, however, are not the same, as was emphasised by Lord Selborne L.C. 1 0 A su r e t y i n the f i r s t c l a s s enjoys the r i g h t s o f a s u r e t y i n f u l l , f o r t h i s c l a s s of s u r e t y s h i p i s based upon a t r i p a r t i t e agreement and i s c l e a r l y c o n t r a c t u a l i n nature. The r i g h t s themselves can a l s o be s a i d t o be c o n t r a c t u a l i n nature, a t t a c h i n g as they do as express or i m p l i e d terms of the s u r e t y s h i p agreement. This c l a s s of s u r e t y s h i p provides the paradigm case. "Suretyships" of the second and t h i r d c l a s s e s - or "q u a s i - s u r e t y s h i p s " - do not n e c e s s a r i l y enjoy the same body of r i g h t s . 1 1 Lord Selborne L.C. i l l u s t r a t e d t h i s by reference t o the r i g h t s of the su r e t y a g a i n s t the c r e d i t o r , i n p a r t i c u l a r i n r e l a t i o n t o the p r o t e c t i o n of s e c u r i t i e s . 1 2 Since the c r e d i t o r i s not a p a r t y t o the agreement or circumstances g i v i n g r i s e t o the second and t h i r d c l a s s e s of s u r e t y s h i p , other than as the immediate r e c i p i e n t of payment or performance, the qu a s i - s u r e t y c o u l d not per se a s s e r t the same r i g h t s a g a i n s t the c r e d i t o r , as attached by v i r t u e of the agreement i n the f i r s t c l a s s , p a r t i c u l a r l y p r i o r t o payment or 9 I b i d . , a t 11. i° I b i d . , a t 11-12. 1 1 I b i d . , a t 11, per Lord Selborne L . C : " I t i s , I conceive, t o the f i r s t of these c l a s s e s of case, and t o t h a t c l a s s only, t h a t the d o c t r i n e s l a i d down i n such a u t h o r i t i e s as Owen v Homan [(1851) 3 Mac. & G. 378, 10 E.R. 752], Newton v Chorlton [(1853) 10 Hare 646, 68 E.R. 1087], and P e a r l v Deacon [(1857) 24 Beav. 186, 1 De G. & J . 461, 53 E.R. 328] apply i n t h e i r f u l l extent." 1 2 This r i g h t i s d iscussed more f u l l y i n f r a , p. 56 et seq.• - 38 -performance. 1 3 Something more was necessary before subrogation and other r i g h t s comparable t o those of the c o n t r a c t u a l s u r e t y arose i n favour of these q u a s i - s u r e t i e s . The a d d i t i o n a l requirement i n the second c l a s s was seen by Lord Selborne L.C. t o be the g i v i n g of n o t i c e to the c r e d i t o r of the s u r e t y s h i p agreement between the s u r e t y and the debtor g i v i n g r i s e t o the s u r e t y s h i p . 1 4 I n the t h i r d c l a s s , i t was r a t h e r seen t o be something i n the circumstances themselves t h a t l e d to l i a b i l i t y . I n n e i t h e r the second nor the t h i r d c l a s s e s of case do the r i g h t s d e r i v e d i r e c t l y from c o n t r a c t . This i s c l e a r l y so i n r e l a t i o n t o the t h i r d c l a s s s i n c e i t a r i s e s independent of any agreement. I t i s a l s o t r u e of the second c l a s s , even though there i s an agreement, s i n c e the c r e d i t o r i s not a p a r t y t o i t . I n both cases, i n Lord Selborne L.C.'s view, the c o n f e r r a l of r i g h t s d e r i v e s p r i m a r i l y from e q u i t a b l e c o n s i d e r a t i o n s a r i s i n g from the circumstances of the c a s e . 1 5 1 3 (1880) 6. App. Cas. 1, a t 11, per Lord Selborne L.C.: " I f , so f a r as the c r e d i t o r i s concerned, there i s no c o n t r a c t f o r s u r e t y s h i p , i f the person who has ( i n f a c t ) made h i m s e l f answerable f o r another man's debt i s , towards the c r e d i t o r , no surety, but a p r i n c i p a l , then I t h i n k t h a t the c r e d i t o r would not be subje c t t o those s p e c i a l o b l i g a t i o n s which were described by Lord Truro i n Owen v Homan I i b i d . , a t 396-97], and would not, g e n e r a l l y , have h i s powers of d e a l i n g w i t h s e c u r i t i e s c i r c u m s c r i b e d and r e s t r i c t e d i n the manner des c r i b e d by V i c e - C h a n c e l l o r Wood i n Newton v Chorlton f i b i d . , a t 651], and by Lord R o m i l l y and the Lords J u s t i c e s i n P e a r l v Deacon f i b i d . 1 . " 1 4 I b i d . , a t 12: " I t i s , however, c o n s i s t e n t w i t h t h i s t h a t the person who, as between h i m s e l f and another debtor, i s i n f a c t a s u r e t y (though the c r e d i t o r i s no p a r t y t o t h a t c o n t r a c t of s u r e t y s h i p ) , has, aga i n s t t h a t other debtor, the r i g h t s of a surety; and t h a t the c r e d i t o r , r e c e i v i n g n o t i c e of h i s c l a i m t o those r i g h t s , w i l l not be a t l i b e r t y t o do anything t o t h e i r p r e j u d i c e , or t o ref u s e (when a l l h i s own j u s t claims are s a t i s f i e d ) t o give e f f e c t t o them." 1 5 Idem: "In such cases the e q u i t y i s d i r e c t i n favour of the surety-debtor a g a i n s t the p r i n c i p a l debtor; but i t a f f e c t s the c r e d i t o r towards whom thay are both p r i n c i p a l s o n l y as a man who has n o t i c e of the o b l i g a t i o n s of one of h i s own debtors towards the other. As between the two - 39 -More s p e c i f i c a l l y , i n the second c l a s s , although A and B may be p r i n c i p a l and s u r e t y i n t e r se, they are i n i t i a l l y j o i n t debtors from the c r e d i t o r C's p o i n t of view. This changes, however, once A and B g i v e n o t i c e of the agreement between them r e s t i n g primary r e s p o n s i b i l i t y f o r payment of the debt or performance of the duty upon the former; the c r e d i t o r upon n o t i c e i s o b l i g e d t o recognise t h a t a l l o c a t i o n of r e s p o n s i b i l t y . "[T]he e q u i t y " , s a i d Lord Selbourne L.C., 1 6 " i s d i r e c t i n favour of the s u r e t y -debtor a g a i n s t the p r i n c i p a l debtor; ... i t a f f e c t s the c r e d i t o r ...". This takes e f f e c t o n l y from the time of n o t i c e , and thus may e n t a i l the c o n f e r r a l of r i g h t s on the s u r e t y a g a i n s t the c r e d i t o r even p r i o r t o payment or performance. 1 7 The c o n f e r r a l of r i g h t s i n the t h i r d c l a s s of s u r e t y s h i p c l e a r l y does not a r i s e from an agreement, not even one between the p r i n c i p a l debtor and surety. Indeed, the persons w i t h i n t h i s t h i r d c l a s s might bear o n l y a l i m i t e d resemblance t o c o n t r a c t u a l s u r e t i e s s t r i c t l y speaking. Instead, the c o n f e r r a l of r i g h t s a r i s e s from the i n t e r p l a y of two f a c t o r s : f i r s t , the f a c t t h a t there i s something i n the circumstances of the case, other than an agreement, which l e g a l l y compels the "quasi-surety" t o pay the debt or perform the o b l i g a t i o n of another; and, secondly, the f a c t t h a t there i s debtors, the ' e s t a b l i s h e d p r i n c i p l e s of a Court of E q u i t y , ' ... are f u l l y a p p l i c a b l e . " Although n o t i c e of the c r e a t i o n of a s u r e t y s h i p must be given i n r e l a t i o n t o the second c l a s s , i t need not n e c e s s a r i l y be given p r i o r to the agreement i n t e r se: Rouse v Bradford Banking Co. [1894] A.C. 586. 1 6 Idem. 1 7 The same a n a l y s i s can be a p p l i e d t o the f i r s t of Lord Selborne L.C.'s c l a s s e s of. s u r e t y s h i p . I t i s not the c o n t r a c t per se, i n other words, t h a t g i v e s r i s e t o the surety's r i g h t s a g a i n s t the v a r i o u s p a r t i e s , but r a t h e r the f a c t of n o t i c e t o them of the s u r e t y s h i p , t h i s n o t i c e being a necessary consequence of the f a c t t h a t a l l the p a r t i e s p a r t i e s t o the c o n t r a c t of s u r e t y s h i p . See eg., ROWLATT, p. 3. - 40 -something i n the circumstances - perhaps the same t h i n g , but again something other than an agreement - which d i c t a t e s t h a t as between the two of them, the one who f a i l s t o perform or pay the debt was the one who bore the primary l i a b i l i t y f o r i t , w h i l e the other who i s compelled t o pay or perform bore o n l y secondary r e s p o n s i b i l i t y . I t i s these two f a c t o r s t h a t g i v e r i s e t o the e q u i t y i n favour of the "quasi-surety" of the t h i r d c l a s s e n t i t l i n g him or her to the r i g h t s of a s u r e t y a g a i n s t the " p r i n c i p a l debtor" and the " c r e d i t o r " , or a t l e a s t t o r i g h t s analogous t h e r e t o . As Lord Selbourne L.C. s t a t e d : 1 8 "these p r i n c i p l e s of E q u i t y [ a p p l i c a b l e t o the second c l a s s ] are not l e s s a p p l i c a b l e t o cases of the t h i r d c l a s s . . . " . Importantly, t h i s t h i r d c l a s s of case r e q u i r e s payment or performance under " l e g a l compulsion". Not u n t i l then does the "equity" a r i s e as between the "quasi-surety" and the " p r i n c i p a l debtor", and the c r e d i t o r . 1 9 Thus, i t i s c l e a r t h a t the r i g h t s of t h i s t h i r d c l a s s of s u r e t y do not i n c l u d e r i g h t s a g a i n s t the p r i n c i p a l or c r e d i t o r p r i o r t o c o n f e r r a l of the b e n e f i t on the p r i n c i p a l . I t i s thus the " e q u i t i e s " of the s i t u a t i o n , and not c o n t r a c t , i t i s submitted, t h a t d i c t a t e s the extent t o which q u a s i - s u r e t i e s - those i n the second and t h i r d of Lord Selborne L.C.'s c l a s s e s - enjoy r i g h t s t h a t are the same as or analogous t o those of t r u e l y c o n t r a c t u a l s u r e t i e s . Thus, d i s c u s s i o n of " s u r e t y s h i p " and the " r i g h t s " a t t a c h i n g to i t , i n c l u d i n g the " r i g h t of subrogation", has a broad sweep t o i t . I t i n c l u d e s 1 8 (1880) 6 App. Cas. 1, at 13. 1 9 I t can, of course, be s a i d t h a t there i s no n o t i c e of the " s u r e t y s h i p " , or " q u a s i - s u r e t y s h i p " , t o the c r e d i t o r u n t i l the f a c t of payment or performance by someone other than the person a g a i n s t whom the c r e d i t o r has the most d i r e c t or immediate r i g h t of payment or performance. - 41 -not o n l y those r i g h t s which attend c o n t r a c t u a l r e l a t i o n s h i p s as an i n c i d e n t of the c o n t r a c t ; but a l s o r i g h t s a t t e n d i n g non-contractual r e l a t i o n s h i p s -" q u a s i - s u r e t y s h i p s " - as an i n c i d e n t of the " e q u i t i e s " of the case. Furthermore, i t i s p o s s i b l e f o r there to be more than one s u r e t y or "quasi-surety" i n a given s i t u a t i o n . A simple example would be i f two persons, A l and A2, j o i n t l y and s e v e r a l l y promise t o answer t o C f o r the due performance of the o b l i g a t i o n s of the p r i n c i p a l , B. In t h i s case, both A l and A2 are s u r e t i e s of B's o b l i g a t i o n , and C may a c c o r d i n g l y seek performance from e i t h e r or both of them. V i s - a - v i s each other, A l and A2 are s a i d t o be " c o - s u r e t i e s " , and t h e i r r i g h t s are consequently s l i g h t l y d i f f e r e n t t o those of a s i n g l e s u r e t y or "quasi-surety". In p a r t i c u l a r , as i s d i s c u ssed below, 2 0 w h i l e A l and A2 w i l l each have the same r i g h t s a g a i n s t the p r i n c i p a l , B, and the c r e d i t o r , C, as s u r e t i e s or " q u a s i -s u r e t i e s " normally do, each w i l l a l s o have a r i g h t of c o n t r i b u t i o n from the other i n the event t h a t one o n l y of them i s r e q u i r e d by C to perform the o b l i g a t i o n j o i n t l y and s e v e r a l l y guaranteed by them. I t i s a l s o p o s s i b l e f o r there t o be d i f f e r e n t l e v e l s of s u r e t y s h i p or " q u a s i - s u r e t y s h i p " - f o r someone to be a "surety t o a surety". I f , f o r example, A has promised t o answer t o C f o r the performance of B's o b l i g a t i o n , and i s thus a s u r e t y of B's o b l i g a t i o n , and D then promises t o answer t o C i n the event t h a t A f a i l s t o perform, D i s not considered t o be a co-surety w i t h A of B's o b l i g a t i o n ; r a t h e r , D i s considered t o be a s u r e t y of A's o b l i g a t i o n as s u r e t y - a "surety f o r a surety". As between A and D, A i s i n other words considered t o be D's p r i n c i p a l , and D w i l l I n f r a , p. 46 et seq. - 42 -a c c o r d i n g l y be e n t i t l e d t o the normal r i g h t s and remedies o f a s u r e t y a g a i n s t h i s or her p r i n c i p a l . The p o s s i b i l i t y of there being " c o - s u r e t i e s " or " s u r e t i e s f o r s u r e t i e s " i n a given s i t u a t i o n , or indeed both a t once, and the consequential e f f e c t on the r i g h t s and remedies of the va r i o u s p a r t i e s , i s something t h a t must a d d i t i o n a l l y be taken i n t o account i n the d i s c u s s i o n of "su r e t y s h i p " and the " r i g h t s " a t t a c h i n g t o i t , and endows the d i s c u s s i o n w i t h an even g r e a t e r sweep. C. Reimbursement and C o n t r i b u t i o n When a s u r e t y or q u a s i - s u r e t y i s c a l l e d upon or compelled by the c r e d i t o r or the circumstances of the case t o answer f o r the p r i n c i p a l debtor, and does s o 2 1 - u s u a l l y by paying money t o the c r e d i t o r - he or she has three general r i g h t s . Subrogation i s o n l y one of them. The other two are, broadly, the r i g h t s of reimbursement and c o n t r i b u t i o n . As there i s a consid e r a b l e degree of overlap both i n ope r a t i o n and i n theory between these r i g h t s of reimbursement, c o n t r i b u t i o n , and subrogation, i t w i l l h e l p the d i s c u s s i o n of subrogation t o o u t l i n e the nature and t h e o r e t i c a l underpinings of reimbursement and c o n t r i b u t i o n before c o n s i d e r i n g subrogation i n some d e t a i l . 2 1 A su r e t y a l s o has r e l a t e d r i g h t s (a) even before being c a l l e d upon t o perform, and (b) a f t e r being c a l l e d upon t o perform but before a c t u a l performance of h i s undertaking. See g e n e r a l l y : McGUINNESS, p. 193 et seq; ROWLATT, p. 131 et seq; Putnam, op. c i t . , p. 79 et seq; O'Donovan & P h i l l i p s , op. c i t . , p. 404 et seq. - 43 -( i ) Reimbursement The surety's r i g h t of "reimbursement", "indemnity", " i n d e m n i f i c a t i o n " , or "recoupment", 2 2 as i t i s v a r i o u s l y known, 2 3 i s the fundamental r i g h t of a s u r e t y upon payment or performance. I t e n t i t l e s the s u r e t y or q u a s i -s u r e t y t o be compensated by the p r i n c i p a l debtor t o the extent of the payment made by the s u r e t y t o the c r e d i t o r on the p r i n c i p a l debtor's behalf pursuant t o the s u r e t y s h i p o b l i g a t i o n . I t i s a d i r e c t r i g h t of recovery a g a i n s t the p r i n c i p a l debtor. C o n s i s t e n t w i t h the d i s t i n c t i o n between c o n t r a c t u a l and r e s t i t u t i o n a r y s u r e t y s h i p s , t h i s r i g h t may be c o n t r a c t u a l or r e s t i t u t i o n a r y i n o r i g i n . 2 4 I t i s c o n t r a c t u a l when there i s an a c t u a l 2 2 See McGUINNESS, p. 211 et seq: ROWLATT, p. 134 et seq: Putnam, op. c i t . , p. 61 e t seq; O'Donovan & P h i l l i p s , op. c i t . , p. 445 e t seq. 2 3 See McGUINNESS, pp.301-356, f o r a d e t a i l e d d i s c u s s i o n of the general development and nature of r i g h t s of " i n d e m n i f i c a t i o n " . 2 4 McGuinness p o i n t s out t h a t r i g h t s of " i n d e m n i f i c a t i o n " may a r i s e (a) by c o n t r a c t , as e i t h e r an express or i m p l i e d term of the c o n t r a c t , (b) by s t a t u t e , or (c) by v i r t u e of " l e g a l and e q u i t a b l e c o n s i d e r a t i o n s ... [ g i v i n g ] r i s e t o a r i g h t of indemnity founded upon a r i g h t of r e s t i t u t i o n " ; McGUINNESS, pp. 302-3. The second of these i s not germane t o the d i s c u s s i o n . Goff & Jones contend t h a t there i s an important d i f f e r e n c e according t o whether the r i g h t i s c o n t r a c t u a l - which they say i s p r o p e r l y termed a r i g h t of "indemnity" or " i n d e m n i f i c a t i o n " - or r e s t i t u t i o n a r y -which i s a r i g h t of "reimbursement" or "recoupment". The d i f f e r e n c e , they a s s e r t , GOFF & JONES, pp.324-25, r e l a t e s t o the amount t h a t can be recovered by the s u r e t y : "In ... [the case of indemnity], the p l a i n t i f f ' s r i g h t of recovery i s not l i m i t e d t o the b e n e f i t , i f any, conferred on the defendant by the p l a i n t i f f ' s payment. The p l a i n t i f f w i l l be e n t i t l e d t o be indemnified a g a i n s t h i s expenditure, even though h i s payment may have conferred no b e n e f i t on the defendant, by d i s c h a r g i n g a l i a b i l i t y or otherwise. Where, however, the p l a i n t i f f ' s c l a i m i s q u a s i - c o n t r a c t u a l , h i s r i g h t i s not t o indemnity but t o reimbursement t o the extent t h a t h i s payment has conferred a b e n e f i t on the defendant." This d i s t i n c t i o n i s not n e c e s s a r i l y maintained i n the case law or l e g a l l i t e r a t u r e . I t w i l l , however, be adopted f o r the purposes of t h i s paper t o d i s t i n g u i s h between r i g h t s of recovery over a g a i n s t the p r i n c i p a l debtor which are c o n t r a c t u a l i n o r i g i n , and those which are q u a s i - c o n t r a c t u a l or more p r o p e r l y r e s t i t u t i o n a r y i n o r i g i n and nature. - 44 -(ra t h e r than a f i c t i o n a l " i m p l i e d " or "quasi-contract") c o n t r a c t u a l o b l i g a t i o n of in d e m n i t y / i n d e m n i f i c a t i o n , express or i m p l i e d , between the p r i n c i p a l and surety. This o b l i g a t i o n may e x i s t i n a separate c o n t r a c t between the p r i n c i p a l debtor and surety, or be an express or i m p l i e d term of the c o n t r a c t of s u r e t y s h i p i t s e l f . The r i g h t i s r e s t i t u t i o n a r y , on the other hand, when the en t i t l e m e n t - t o "reimbursement" or "recoupment"-r e s t s i n s t e a d upon the exis t e n c e of a r e l a t i o n s h i p of primary and secondary l i a b i l i t y , and the e q u i t a b l e or q u a s i - c o n t r a c t u a l p r i n c i p l e s a r i s i n g t h e r e f r o m . 2 5 " Q u a s i - c o n t r a c t u a l " r i g h t s of reimbursement are more r e a d i l y e x p l a i n e d i n modern l e g a l t h i n k i n g i n r e s t i t u t i o n a r y terms. These r i g h t s of indemnity and reimbursement have long been recognised i n E n g l i s h law. According t o Ba r b o u r , 2 6 they were f i r s t recognised and enforced i n the Chancery i n the f i f t e e n t h century. Other w r i t e r s , however, rec o r d Ford v S t o b r i d g e 2 7 i n 1632, as the f i r s t case c l e a r l y r e c o g n i s i n g the surety's r i g h t o f reimbursement i n the Chancery. Contemporaneously, r i g h t s of indemnity were being recognised and enforced by way of i n d e b i t a t u s assumpsit i n the common law c o u r t s , 2 8 but only i f the s u r e t y could show an a c t u a l request by the p r i n c i p a l debtor to the su r e t y t o 2 5 See Re a Debtor [1937] 1 Ch. 156, a t 163, per Greene L . J . ; Anson v Anson [1953] 1 Q.B. 636, a t 641-42, per Pearson J . See a l s o Brooks Wharf  & B u l l Wharf L t d . v Goodman Bros. [1937] 1 K.B.534, at 545, per Lord Wright M.R. 2 6 W.T. Barbour, "The H i s t o r y of Contract i n E a r l y E n g l i s h E q u i t y " , pp. 135-37, i n 4 OXFORD STUDIES IN SOCIAL AND LEGAL HISTORY (1914, ed. P. Vi n o g r a d o f f ) . 2 7 (1632) Nels. Ch. 24, 21 E.R. 780. 2 8 Rooke v Rooke (1610) Cro. Jac. 245, Yel v . 175, 79 E.R. 210. - 45 -become such, and a promise by the p r i n c i p a l debtor t o repay the s u r e t y . 2 9 In the terminology of r e s t i t u t i o n w r i t e r s , 3 0 t h i s was a c o n t r a c t u a l r i g h t o f "indemnity" or " i n d e m n i f i c a t i o n " ; i t thus d i f f e r e d from the Chancery's r e s t i t u t i o n a r y r i g h t of recovery from the p r i n c i p a l debtor, based upon e q u i t a b l e p r i n c i p l e s a r i s i n g from the e x i s t e n c e of primary and secondary l i a b i l i t y . The r e c o g n i t i o n by the common law co u r t s of t h i s broader r e s t i t u t i o n a r y r i g h t o f reimbursement d i d not occur u n t i l over a century l a t e r , i n Morrice v Redwyn i n 1731. 3 1 Recovery i n t h i s case was a l s o by way of i n d e b i t a t u s assumpsit - i n p a r t i c u l a r by way of the count of "money p a i d a t r e q u e s t " 3 2 - but the necessary "request" was e s s e n t i a l l y i m p l i e d from the circumstances of the case i n the f i c t i o n a l manner t h a t underpined the law of q u a s i - c o n t r a c t f o r so long. Today, these r i g h t s of indemnity and reimbursement are a t the very heart of the surety's claims f o r recovery upon payment. 2 9 Idem. See a l s o Moore v Moore (1611) 1 B u l s t . 169, 80 E.R. 859; Bagge v Slade (1616) 3 B u l s t . 162, 81 E.R. 137. The "promise" t o support the i n d e b i t a t u s assumpsit c o u l d by t h i s time be e i t h e r express or i m p l i e d . I t was i m p l i e d by v i r t u e of an antecedent request t o the s u r e t y t o be a su r e t y f o r the p r i n c i p a l debtor. 3 0 Supra, p. 43, note 24. 3 1 (1731) 2 Barn. K.B. 26, 94 E.R. 333. Sev e r a l cases had e a r l i e r denied the e x i s t e n c e of any such general r i g h t : see Bosden v Thinne (1603) Y e l v . 40, 80 E.R. 29; Scot v Stephenson (1662) 1 Lev. 71, 83 E.R. 302. 3 2 In f u l l , "money p a i d t o the defendant's use a t the defendant's request". For an account of the development of t h i s count, see GOFF & JONES, pp. 52-4; S.J. S t o l j a r , THE LAW OF QUASI-CONTRACT (1964), pp. 127-31. - 46 -( i i ) C o n t r i b u t i o n The second r i g h t enjoyed by s u r e t i e s and q u a s i - s u r e t i e s upon payment or performance i s c o n t r i b u t i o n . C o n t r i b u t i o n broadly e n t i t l e s a s u r e t y or q u a s i - s u r e t y to recover from any person e q u a l l y l i a b l e w i t h the s u r e t y f o r payment or performance of the guaranteed o b l i g a t i o n - co-surety(s) or co-debtor (s) - a p r o p o r t i o n a t e share of the amount p a i d by the former t o the c r e d i t o r . 3 3 The p r o p o r t i o n payable i s determined by the number of co-s u r e t i e s and t h e i r r e l a t i v e l i a b i l i t i e s t o the c r e d i t o r , and, i n the case of e q u i t a b l e c o n t r i b u t i o n , t h e i r s o l v e n c y . 3 4 R i g h t s of c o n t r i b u t i o n , l i k e those of indemnity and reimbursement, were f i r s t recognised by the Chancery. This occurred perhaps as e a r l y as 1557, 3 5 but c e r t a i n l y by 1630 a f t e r two Chancery cases i n 1629, namely Fleetwood v Charnock 3 6 and Peter v R i c h . 3 7 The f u l l r e p o r t of the former reads: "The P l a i n t i f f and Defendant were j o i n t l y bound f o r a t h i r d Person, who d i e d l e a v i n g no E s t a t e ; the P l a i n t i f f was sued and p a i d the Debt, and brought h i s B i l l a g a i n s t the Defendant f o r C o n t r i b u t i o n , who was decreed t o pay h i s p r o p o r t i o n a b l e P a r t . " 3 3 I f two s u r e t i e s are not c o - s u r e t i e s , but stand i n s t e a d i n a r e l a t i o n s h i p of p r i n c i p a l and s u r e t y - i e . one of the two s u r e t i e s i s i n f a c t a "surety f o r a s u r e t y " - then no r i g h t of c o n t r i b u t i o n w i l l a r i s e between them. For a recent i l l u s t r a t i o n , see S c h o l e f i e l d Goodman and Sons  Ltd . v Zyngier [1986] A.C. 562 ( P . C ) , discussed i n f r a , p. 154 et seq. . 3 4 See i n f r a , p. 49, note 45. 3 5 Marasinghe, l o c . c i t . , I , p.54, i d e n t i f i e s an anonymous case i n 1557 i n v o l v i n g the payment of rentcharges as the e a r l i e s t reported i l l u s t r a t i o n of c o n t r i b u t i o n . . 3 6 (1629) Nels. 10, 21 E.R. 776. 3 7 (1629) 1 Ch. Rep. 34, 21 E.R. 499. - 47 -Peter v R i c h was f a c t u a l l y more complicated. The p l a i n t i f f and defendant, together w i t h a t h i r d person, Sheppard, had bound themselves f o r the payment of v a r i o u s debts of yet another person. Having been c a l l e d upon to do so, Peter p a i d o f f what he thought was h i s p r o p o r t i o n of the debts. He assumed t h a t he was thereby f r e e d from f u r t h e r l i a b i l i t y on the bonds he and the others had e a r l i e r given, but t h i s proved not t o be so. Peter was subsequently compelled t o pay a f u r t h e r £100 together w i t h £5 i n t e r e s t thereon which remained outstanding. Peter a l l e g e d t h a t t h i s amount was due from Sheppard, and not him. Sheppard, however, had u n f o r t u n a t e l y become i n s o l v e n t . The question before the court was whether Peter c o u l d recover any of the f u r t h e r £105 he had been compelled t o pay from R i c h . The court was of the o p i n i o n t h a t : "the s a i d £105 ... ought t o be e q u a l l y p a i d and born by the P l a i n t i f f and Defendant R i c h , and decreed a c c o r d i n g l y . " 3 8 This case thus e s t a b l i s h e d the e q u i t a b l e r u l e t h a t a l l s o l v e n t s u r e t i e s should c o n t r i b u t e p r o p o r t i o n a t e l y according t o t h e i r r e s p e c t i v e l i a b i l i t i e s f o r the guaranteed d e b t ( s ) . A p p l i c a t i o n s by s u r e t i e s f o r c o n t r i b u t i o n t h e r e a f t e r became w e l l e s t a b l i s h e d . I t was not, however, u n t i l l a t e r , i n the l e a d i n g case of Peering v E a r l of W i n c h e l s e a 3 9 i n 1787, t h a t the t h e o r e t i c a l foundations of t h i s e q u i t a b l e r i g h t of c o n t r i b u t i o n were considered i n depth. There, i n response t o an argument t h a t c o n t r i b u t i o n between s u r e t i e s r e s t e d on "the foundation of c o n t r a c t i m p l i e d from t h e i r being p a r t i e s i n the same engagement..." and c o u l d not t h e r e f o r e be a v a i l a b l e t o persons who though 3 8 (1629) 1 Chan. R. 34, a t 35; 21 E.R. 499, a t 500. 3 9 (1787) 2 Bos. & P. 270, 126 E.R. 1276. Reported a l s o as Dering v E a r l of Winchelsea (1787) 1 Cox Eq. Cas. 318, 29 E.R. 1184. - 48 -bound f o r the same debt were strangers t o each other, Lord C h i e f Baron Eyre i n the Chancery a f f i r m e d : " I f a view i s taken of the cases, i t w i l l appear t h a t the bottom of c o n t r i b u t i o n i s a f i x e d p r i n c i p l e of j u s t i c e , and i s not founded i n c o n t r a c t " . 4 0 The underlying j u s t i f i c a t i o n , he went on, f o r c o n t r i b u t i o n i n the many cases both e q u i t a b l e and common law c i t e d t o the c o u r t was t h a t the s u r e t i e s : "are a l l i n a e q u a l i j u r i , and as the law r e q u i r e s e q u a l i t y they s h a l l e q u a l l y bear the burden. This i s considered as founded i n e q u i t y ; c o n t r a c t i s not mentioned. The p r i n c i p l e operates more c l e a r l y i n a cour t of e q u i t y than a t l a w . " 4 1 I t was i n e q u i t a b l e , i n other words, t h a t persons who were e q u a l l y l i a b l e f o r the performance of an o b l i g a t i o n should l e t performance f a l l upon one of them alone - a l l who c o u l d pay, should p a y . 4 2 Although, as mentioned by Baron Eyre, a r i g h t of c o n t r i b u t i o n was a l s o recognised by the common law c o u r t s , they had i n i t i a l l y been much more r e s i s t a n t t o the acceptance of such a r i g h t . 4 3 C e r t a i n l y , they recognised a r i g h t of c o n t r i b u t i o n where, as w i t h the r i g h t of indemnity, an a c t u a l 4 0 I b i d . , a t 272, a t 1277. For a recent r e - a f f i r m a t i o n of t h i s view of c o n t r i b u t i o n , see S c h o l e f i e l d Goodman and Sons L t d . v Zyngier [1986] A.C. 562 ( P . C ) . 4 1 I b i d . , a t 273, a t 1278. 4 2 The Chancery subsequently allowed a s u r e t y t o sue h i s co-s u r e t y ^ ) f o r c o n t r i b u t i o n even before the former had p a i d e i t h e r the whole debt or h i s share, so long as the c r e d i t o r had a l r e a d y obtained judgment a g a i n s t the surety; see Wolmershausen v G u l l i c k [1883] 2 Ch. 514. 4 3 I n O f f l e y & Johnson's case (1584) 2 Leon. 166; 74 E.R. 448, Johnson sought c o n t r i b u t i o n i n the King's Bench from h i s co-surety O f f l e y . The court commented t h a t although such a c l a i m was enforceable by the custom of London, "upon t h i s matter no a c t i o n l i e t h by the course of the common law", i b i d . , a t 167, a t 448. - 49 -promise of c o n t r i b u t i o n had been given t o the s u r e t y , 4 4 but otherwise i t was f e l t t h a t t o recognise a general r i g h t of c o n t r i b u t i o n would be a "great cause of s u i t s " . 4 5 Nonetheless, a general r i g h t of c o n t r i b u t i o n was subsequently recognised by the common law c o u r t s . For many years, however, i t was seen t o be a v a i l a b l e simply as a matter of e q u i t y and j u s t i c e r a t h e r than c o n t r a c t or q u a s i - c o n t r a c t . This more or l e s s remained so u n t i l the t u r n o f the nineteenth century. In 1800, i n Cowell v Edwards, 4 6 recovery from c o - s u r e t i e s was allowed by way of the q u a s i - c o n t r a c t u a l count o f money p a i d "at request", the request being i m p l i e d i n the f a s h i o n of q u a s i -c o n t r a c t u a l a c t i o n s g e n e r a l l y . This placed the r i g h t of c o n t r i b u t i o n upon a f o o t i n g t h a t was more acceptable although i t was s t i l l g e n e r a l l y O c c a s i o n a l l y , the common law e x p l a i n t h i s q u a s i - c o n t r a c t u a l r i g h t t o common law t h i n k i n g of the time, considered " e q u i t a b l e " i n nature, c o u r t s went f u r t h e r and attempted t o to c o n t r i b u t i o n without reference t o i t s e q u i t a b l e nature, on the b a s i s t h a t the r i g h t was an i m p l i e d term i n a 4 4 See eg., Bagge v Slade (1616) 3 B u l s t . 162, 81 E.R. 137. 4 5 Wormleighton v Hunter (1613) Godbolt 243, 78 E.R. 141. C o n t r i b u t i o n i n the common law cou r t s was a l s o l i m i t e d by the f a c t t h a t the solvency or otherwise of the c o - s u r e t i e s was ignored i n assessi n g the r e l a t i v e l i a b i l i t y of each co-surety. Thus, a su r e t y who was fo r c e d t o pay the debt t o the c r e d i t o r and then sought c o n t r i b u t i o n . from c o - s u r e t i e s would recover o n l y from those who were s o l v e n t . I f , f o r example, A, B, and C were c o - s u r e t i e s i n equal p r o p o r t i o n f o r a debt of $300, and A p a i d the debt, B and C would be ordered t o pay $100 each t o A by way of c o n t r i b u t i o n , being t h e i r one t h i r d share. I f however B was i n s o l v e n t , then although A would recover $100 from C, he would recover nothing from B. A would thus end up c a r r y i n g two t h i r d s of the debt. E q u i t y would assess shares according t o t h e i r solvency and order payment of a l i q u o t shares. Thus, i n the above example, there being o n l y two so l v e n t c o - s u r e t i e s , each would be ordered t o c o n t r i b u t e h a l f of the debt. A would thus recover $150 from C and be bound t o c a r r y o n l y $150 hi m s e l f . 4 6 (1800) 2 Bos. & P u l . 268, 126 E.R. 1275. This development had been foreshadowed four years e a r l i e r i n Turner v Davies (1796) 2 Esp. 478, 170 E.R. 425. See a l s o Cole v Saxby (1800) 3 Esp. 159, 170 E.R. 572. - 50 -c o n t r a c t between the c o - s u r e t i e s , i t s e l f g e n e r a l l y " i m p l i e d " . I n Craythorne v Swinburne, 4 7 f o r example, the Lord Chancellor, Lord Eldon, commented t h a t : 4 8 " I t has been long s e t t l e d , t h a t , i f there are c o - s u r e t i e s by the same instrument, and the c r e d i t o r c a l l s upon e i t h e r of them t o pay the p r i n c i p a l debt, or any p a r t o f i t , t h a t s u r e t y has a r i g h t i n t h i s Court, e i t h e r upon a p r i n c i p l e of e q u i t y , or upon c o n t r a c t , t o c a l l upon h i s co-surety f o r c o n t r i b u t i o n ; and I t h i n k , t h a t r i g h t i s p r o p e r l y enough s t a t e d as depending r a t h e r upon a p r i n c i p a l [ s i c ] of e q u i t y than upon c o n t r a c t : unless i n t h i s sense: t h a t , the p r i n c i p l e of e q u i t y being i n i t s op e r a t i o n e s t a b l i s h e d , a c o n t r a c t may be i n f e r r e d upon the i m p l i e d knowledge of t h a t p r i n c i p l e by a l l persons, and i t must be upon such a ground, of i m p l i e d assumpsit, t h a t i n modern times Courts of Law have assumed a j u r i s d i c t i o n upon t h i s s u b j e c t : a j u r i s d i c t i o n convenient enough i n a case simple and uncomplicated; but attended w i t h great d i f f i c u l t y , where the s u r e t i e s are numerous; e s p e c i a l l y s i n c e i t has been h e l d ... t h a t separate a c t i o n s may be brought ag a i n s t the d i f f e r e n t s u r e t i e s f o r t h e i r r e s p e c t i v e quotas and p r o p o r t i o n s . I t i s easy t o foresee the m u l t i p l i c i t y o f s u i t s t o which t h a t l e a d s . " 4 9 E i t h e r way, whether t r e a t e d as e q u i t a b l e or q u a s i - c o n t r a c t u a l i n nature, the surety's r i g h t of c o n t r i b u t i o n can be broadly d e s c r i b e d as r e s t i t u t i o n a r y i n nature, being based l a r g e l y upon a n o t i o n of " e q u a l i t y " of treatment, r a t h e r than c o n t r a c t u a l . More p a r t i c u l a r l y , u s i n g modern r e s t i t u t i o n a r y theory, the "equity" upon which c o n t r i b u t i o n i s s a i d t o be based can be t r a n s l a t e d according to the p r i n c i p l e of unjust enrichment upon which the law of r e s t i t u t i o n i s based. Thus, i t can be s a i d t h a t i f one o n l y of two or more persons who are e q u a l l y l i a b l e i s compelled t o pay or perform the whole of t h e i r common o b l i g a t i o n , he or she thereby confers a b e n e f i t upon the others (by r e l e a s i n g them from t h e i r p r o p o r t i o n a t e share 4 7 (1807) 14 Ves. Jun. 160, 33 E.R. 482. 4 8 I b i d . . a t 164, a t 483-4. 4 9 See a l s o Davies v Humphries (1840) 6 M. & W. 153, 151 E.R. 361. In Wright v Hunter (1801) 5 Ves. Jun. 792, 31 E.R. 861, the Chancery a f f i r m e d t h a t the e q u i t a b l e r i g h t of c o n t r i b u t i o n was s t i l l a v a i l a b l e . - 51 -of the common l i a b i l i t y ) which i t would be unjust f o r them t o r e t a i n a t the expense of the one paying or performing. I n t h i s way, i t i s submitted, the appropriateness of c o n t r i b u t o r y r e l i e f i n a p a r t i c u l a r f a c t u a l s i t u a t i o n may be more r e a d i l y assessed. Chapter 5 THE SURETY'S RIGHT OF SUBROGATION A. I n t r o d u c t i o n The surety's " r i g h t of subrogation" i s w e l l e s t a b l i s h e d i n the law of s u r e t y s h i p . Nonetheless, there i s no c l e a r consensus amongst commentators on the p r e c i s e nature and scope of t h i s " r i g h t " . I t has, f o r example, been s a i d t o be the r i g h t : "to take under, or t o stand i n the shoes of, the c r e d i t o r i n e n f o r c i n g the p r i n c i p a l o b l i g a t i o n of the debtor as w e l l as i n a s s e r t i n g any s e c u r i t i e s , p r i o r i t i e s and remedies which the c r e d i t o r enjoyed p r i o r t o the performance of the p r i n c i p a l o b l i g a t i o n . " 1 This i s a r e l a t i v e l y broad d e f i n i t i o n of the surety's r i g h t of subrogation. I t employs the t r a d i t i o n a l metaphorical language a s s o c i a t e d w i t h subrogation - " i n the shoes o f " - yet i t a l s o r e f e r s t o the more s p e c i f i c r i g h t commonly s a i d t o be enjoyed by a s u r e t y under the name of "subrogation", namely the r i g h t t o enjoy "any s e c u r i t i e s , p r i o r i t i e s and remedies" p r e v i o u s l y enjoyed by the c r e d i t o r . Other commentators, however, have adopted a more l i m i t e d e x p l a n a t i o n of the surety's r i g h t of subrogation. Goff and Jones, f o r i n s t a n c e , d e f i n e the r i g h t i n the f o l l o w i n g terms: 2 "A s u r e t y , who pays o f f the debt owed by the p r i n c i p a l debtor, i s subrogated t o any s e c u r i t i e s given by the debtor t o the c r e d i t o r as s e c u r i t y f o r the debt." 1 J . 0'Donovan and J.C. P h i l l i p s , THE MODERN CONTRACT OF GUARANTEE (1985), p. 502. See a l s o Duncan, Fox, & Co. v North & South Wales Bank (1880) 6 App. Cas. 1. 2 S i r R. Goff & G. Jones, THE LAW OF RESTITUTION (3rd ed., 1986) ( h e r e a f t e r "GOFF & JONES"), p. 533. - 52 -- 53 -They e f f e c t i v e l y r e s t r i c t subrogation i n the s u r e t y s h i p context, t h e r e f o r e , to the s p e c i f i c r i g h t of the s u r e t y t o have s e c u r i t i e s h e l d by the c r e d i t o r assigned t o him or her (the s u r e t y ) . Other w r i t e r s see d i f f i c u l t i e s w i t h both these d e f i n i t i o n s . McGuinness, f o r example, w r i t e s : 3 "A su r e t y who i s c a l l e d upon t o perform the p r i n c i p a l ' s o b l i g a t i o n i s subrogated t o the f u l l r i g h t s t o which the c r e d i t o r i s e n t i t l e d a g a i n s t the debtor. For in s t a n c e , a s u r e t y who pays a judgment i n respect of the guaranteed debt i s e n t i t l e d t o an assignment of the judgment and a l s o any s e c u r i t i e s h e l d i n respect of the guaranteed o b l i g a t i o n . " T his bears considerable s i m i l a r i t y t o the d e f i n i t i o n s above - i t i s broad, r e f e r r i n g t o the " f u l l r i g h t s " of the c r e d i t o r , yet i t a l s o encompasses by way of i l l u s t r a t i o n the s p e c i f i c r i g h t r e f e r r e d t o by Goff and Jones. But McGuinness then a s s e r t s t h a t t h i s broad approach - one t h a t places the above r i g h t s a t the heart of the surety's " r i g h t of subrogation" - i s m i s l e a d i n g . 4 These r i g h t s a g a i n s t the p r i n c i p a l , he a s s e r t s : 5 "are not t r u l y subrogatory, as they are independent r i g h t s t o which the s u r e t y i s e n t i t l e d . The s u r e t y i s e n t i t l e d t o proceed against the p r i n c i p a l i n h i s own name when a s s e r t i n g these r i g h t s . " McGuinness does not deny the ex i s t e n c e of these r i g h t s . He simply a s s e r t s t h a t they operate s t r i c t l y speaking without apparent recourse t o the technique of subrogation. In h i s view, i t i s thus a misnomer t o c a l l them r i g h t s of "subrogation". 3 K.P. McGUINNESS"), p. McGuiness 199. THE LAW OF GUARANTEE (1986) ( h e r e a f t e r I T 4 Idem. Idem. - 54 -Other r i g h t s of the surety, McGuinness would concede, do operate through s u b r o g a t i o n : 6 "In c o n t r a s t , where the s u r e t y pays the c r e d i t o r i n f u l l and the c r e d i t o r i s e n t i t l e d t o c l a i m a g a i n s t some person other than the debtor i n respect of the breach by the p r i n c i p a l (as, f o r i n s t a n c e , a r i g h t of c l a i m based upon the negligence of a p r o f e s s i o n a l employed t o monitor the performance of the p r i n c i p a l ) , the s u r e t y i s subrogated t o th a t r i g h t of c l a i m . This i s a t r u e r i g h t o f subrogation, and thus any such c l a i m must be brought i n the name of the c r e d i t o r . " 7 McGuinness thus looks t o the operation of the v a r i o u s r i g h t s enjoyed by the s u r e t y t o determine whether or not any p a r t i c u l a r r i g h t can p r o p e r l y be s a i d t o be subrogatory. The other w r i t e r s c i t e d , by way of c o n t r a s t , look t o and r e l y on t r a d i t i o n a l n o t i o n s of the "surety's r i g h t of subrogation", even though the d e f i n i t i o n s thereby o f f e r e d may, i f McGuinness's argument i s sound, be found t o be flawed. These d i f f e r e n c e s , and the d i f f i c u l t i e s t h a t consequently a r i s e i n any d i s c u s s i o n of subrogation i n the context of s u r e t y s h i p , are a product, i t i s submitted, of two f a c t o r s . The f i r s t i s simply t h a t the expression "the surety's r i g h t of subrogation" i s not, as McGuinness p o i n t s out, used o n l y t o r e f e r t o r i g h t s which s t r i c t l y speaking depend upon the use of the technique o f subrogation. More commonly, t h a t expression i s used broadly t o r e f e r t o a range of r i g h t s and remedies enjoyed by a s u r e t y t h a t operate i n s i m i l a r ways and t o s i m i l a r e f f e c t , but without n e c e s s a r i l y adopting the conventions of subrogation e i t h e r as t o language or as t o operation. The d i f f e r e n c e between these two ways of t a l k i n g about "subrogation" - between the narrow use of i t t o r e f e r t o r i g h t s which are dependent upon the 6 Idem. 7 McGuinness c i t e s the Canadian case of P r i n c e A l b e r t v Underwood,  McLellan & A s s o c i a t e s L t d . [1969] S.C.R. 305, as a u t h o r i t y f o r t h i s l a t t e r p o i n t ; McGUINNESS, p. 199, note 38. - 55 -technique of subrogation f o r t h e i r o p e r a t i o n , and the broad use of i t t o r e f e r t o a range of r e l a t e d r i g h t s - i s , broadly speaking, the d i f f e r e n c e between McGuinness and the other w r i t e r s c i t e d above. I t i s a l s o both a major reason f o r , and, to a consi d e r a b l e extent, an e x p l a n a t i o n o f , the d i f f i c u l t i e s a s s o c i a t e d w i t h subrogation i n t h i s context. The second, r e l a t e d f a c t o r i s t h a t the body of r i g h t s and remedies represented by the expression "the surety's r i g h t o f subrogation", used i n the broad sense, i s not drawn un i f o r m l y from one source. Instead, i t encompasses overlapping r i g h t s and remedies drawn both from e q u i t y and s t a t u t e . Common law had l i t t l e t o add t o t h i s body of r i g h t s and remedies. At best, i t recognised r i g h t s of subrogation as a matter o f c o n t r a c t , express or i m p l i e d , between the va r i o u s p a r t i e s t o the s u r e t y s h i p , but i t never r e a l l y developed an independent means of p u r s i n g these r i g h t s and remedies i n the common law c o u r t s , as i t had by way of the q u a s i -c o n t r a c t u a l count of money p a i d a t request i n r e l a t i o n t o the surety's r i g h t s of reimbursement and c o n t r i b u t i o n . I t o n l y e v e n t u a l l y managed t h i s w i t h s t a t u t o r y a s s i s t a n c e i n the mid-nineteenth c e n t u r y . 8 B. The Content of the Surety's Right o f Subrogation Used accumulatively, the expression "the surety's r i g h t of subrogation" broadly encompasses two, perhaps three, r i g h t s (or remedies, depending upon how they are t r e a t e d ) . They are: (1) the e q u i t a b l e r i g h t t o have any s e c u r i t i e s given t o the c r e d i t o r by the debtor, or indeed by 8 See the M e r c a n t i l e Law Amendment Act of 1856, 19 & 20 V i c t . , c. 97, s. 5. See i n f r a , p. 71 e t seq.. - 56 -others, assigned t o the s u r e t y t o enforce i n the surety's own name; (2) the e q u i t a b l e r i g h t t o "stand i n the place of the c r e d i t o r " and e x e r c i s e f o r the surety's own b e n e f i t any r i g h t s and remedies enjoyed by the c r e d i t o r a g a i n s t the debtor, or indeed other persons; and (3) the s t a t u t o r y r i g h t s contained i n the E n g l i s h M e r c a n t i l e Law Amendment Act of 1856, 9 and i t s Canadian c o u n t e r p a r t s . 1 0 Each of these r i g h t s needs t o be examined i n some d e t a i l . ( i ) E q u i t a b l e r i g h t t o s e c u r i t i e s The f i r s t of the r i g h t s subsumed by the expression "the surety's r i g h t of subrogation" i s the surety's e q u i t a b l e r i g h t to have any s e c u r i t i e s given t o the c r e d i t o r f o r the p r i n c i p a l debt assigned t o him (the surety) by the c r e d i t o r . 1 1 This p r i m a r i l y r e l a t e s t o s e c u r i t i e s given t o the c r e d i t o r by the p r i n c i p a l debtor, but may a l s o extend t o s e c u r i t i e s g iven by others such as c o - s u r e t i e s . In general, i t does not matter when the s e c u r i t i e s were given t o the c r e d i t o r , or whether the s u r e t y had any knowledge of them. 1 2 Upon assignment, the s u r e t y i s e n t i t l e d t o enforce the 9 19 & 20 V i c t . , c. 97, s. 5. 1 0 Eg.: M e r c a n t i l e Law Amendment Ac t , R.S.O. 1980, c.265, s . 2 ( l ) ( 2 ) . 1 1 Morgan v Seymour (1637) 1 Chan. Rep. 120, 21 ER 525. I n Wulff v Jay (1872) L.R. 7 Q.B. 756, Cockburn C.J. accepted t h a t a c r e d i t o r has a c o r r e l a t i v e duty, as soon as the s u r e t y has p a i d the debt, t o make over t o him a l l the s e c u r i t i e s h e l d by the c r e d i t o r i n order t h a t the s u r e t y may recoup h i m s e l f . 1 2 Forbes v Jackson (1882) 19 Ch. D. 615, a t 621. See a l s o Mayhew v C r i c k e t t (1818) 2 Swanst. 185, a t 191, 36 E.R. 585, a t 587; Newton v Cho r l t o n (1853) 10 Hare 646, a t 651, 68 E.R. 1087, a t 1089; P e a r l v Deacon (1857) 24 Beav. 186, 53 E.R. 328; Goddard v Whyte (1860) 2 G i f f . 449, 66 E.R. 188. - 57 -assigned s e c u r i t i e s a g a i n s t the debtor i n the surety's own name, r a t h e r than t h a t of the c r e d i t o r . 1 3 I f the c r e d i t o r r e fuses t o a s s i g n , the s u r e t y can b r i n g an a c t i o n i n e q u i t y t o compel him t o do s o . 1 4 I f the c r e d i t o r a c t s i n r e l a t i o n t o any of the s e c u r i t i e s h e l d by him i n such a way as to p r e j u d i c e the surety's e n t i t l e m e n t t o have them assigned t o him upon payment of the debt, then the s u r e t y may be discharged from l i a b i l i t y t o the c r e d i t o r e i t h e r i n t o t o or i n p a r t . 1 5 This e q u i t a b l e r i g h t i s , t h e r e f o r e , as McGuinness p o i n t s o u t , 1 6 very much i n the nature of an "independent r i g h t " enjoyed by the s u r e t y a g a i n s t the c r e d i t o r , o s t e n s i b l y e x i s t i n g without recourse t o the technique of subrogation. The s u r e t y does not "stand i n the p l a c e o f " the c r e d i t o r ; r a t h e r he becomes a secured c r e d i t o r i n h i s own r i g h t by v i r t u e of what i s o f t e n e x p l a i n e d as being i n the nature of an "e q u i t a b l e assignment" of the s e c u r i t i e s . Nonetheless, f o r many commentators, t h i s e q u i t a b l e r i g h t t o assignment stands a t the centre of and t y p i f i e s "the sur e t y ' s r i g h t of subrogation". Goff and Jones's d e f i n i t i o n of the sur e t y ' s r i g h t of subrogation along these l i n e s 1 7 i s i l l u s t r a t i v e of t h i s f a c t . The reasons f o r t h i s appear t o be twofold. One i s h i s t o r i c a l ; the other i s p r a c t i c a l . The h i s t o r i c a l reason r e s t s simply on the f a c t t h a t t h i s r i g h t i s g e n e r a l l y thought t o have been the e a r l i e s t of the va r i o u s r i g h t s and remedies subsumed w i t h i n the expression "the surety's r i g h t of subrogation" 1 3 McGUINNESS, pp. 204-5. 1 4 Goddard v Whyte (1860) 2 G i f f . 449, 66 E.R. 188. 1 5 P e a r l v Deacon (1857) 24 Beav. 186, 53 E.R. 328. 1 6 McGUINNESS, pp. 204-5. 1 7 GOFF & JONES, p. 533. - 58 -to have been recognised by the c o u r t s . This occurred, i t i s g e n e r a l l y thought, i n the Chancery case of Morgan v Seymour, 1 8 i n 1637. The r e p o r t of t h a t case reads: "The P l a i n t i f f w i t h S i r Edward Seymour the Defendant being bound w i t h S i r W i l l i a m St. Johns f o r the proper Debt of the s a i d S t . Johns, to the Defendant Rowland i n a Bond of 200 f o r the payment of 100, and the s a i d Rowland sued the P l a i n t i f f o n l y on the s a i d Bond, the P l a i n t i f f seeks t o have the s a i d Seymour c o n t r i b u t e and pay h i s p a r t of the s a i d Debt and Damages, the s a i d S t. Johns being i n s o l v e n t . This Court was of Opinion, t h a t the s a i d Seymour ought t o c o n t r i b u t e and pay one Moiety [ h a l f ] t o the s a i d Rowland, and decreed Rowland t o a s s i g n over  the s a i d Bond t o the P l a i n t i f f , and Seymour to help themselves a g a i n s t  the s a i d S t. Johns f o r the s a i d Debt." 1 9 Morgan's c l a i m , i t must be observed, was f o r c o n t r i b u t i o n from h i s co-sur e t y , Seymour. That was du l y ordered, presumably i n accordance w i t h the e q u i t a b l e p r i n c i p l e s s h o r t l y before a f f i r m e d by the Chancery. 2 0 Upon payment, Morgan and Seymour were e n t i t l e d t o reimbursement from S i r W i l l i a m ; again, a r i g h t o n l y s h o r t l y before a f f i r m e d i n the Chancery. 2 1 But t h i s r i g h t was of l i m i t e d value, f o r i t was i n personam i n nature, and S i r W i l l i a m was i n s o l v e n t . Morgan and Seymour could not t h e r e f o r e c l a i m any p r i o r i t y over other unsecured c r e d i t o r s of S i r W i l l i a m by v i r t u e of t h e i r r i g h t of reimbursement. To remedy t h i s , the c o u r t , f o r the f i r s t time i t i s thought i n E n g l i s h law, ordered the c r e d i t o r t o a s s i g n over t o the co-s u r e t i e s the Bond given t o him by the p r i n c i p a l debtor, t o be enforced by them. This changed t h i n g s markedly, f o r i t meant t h a t Morgan and Seymour, upon assignment of the Bond, would a l s o o b t a i n any p r i o r i t y or preference 1 8 (1637) 1 Chan. Rep. 120, 21 ER 525. 1 9 Idem. [Emphasis added] 2 0 Supra, p. 46 et seq.. 2 1 Supra, p. 43 et seq.. - 59 -i t c a r r i e d v i s - a - v i s other unsecured c r e d i t o r s i n S i r W i l l i a m ' s bankruptcy. Needless t o say, t h i s order was a tremendous p r a c t i c a l advantage over mere i n personam r i g h t s of reimbursement and, f o r reasons which are s e l f -e vident, goes a co n s i d e r a b l e way towards e x p l a i n i n g the a s s o c i a t i o n between the surety's r i g h t t o the assignment of s e c u r i t i e s , and the " r i g h t of subrogation" as i t has come to be p o p u l a r l y known. Se v e r a l f u r t h e r p o i n t s concerning t h i s seminal case bear emphasis. F i r s t , there i s no reference i n the case t o "subrogation". Nor i s there even terminology along the l i n e s of "standing the s u r e t y i n the p l a c e of the c r e d i t o r " , as was l a t e r t o become the i d e n t i f y i n g metaphor f o r subrogation. I t i s d i f f i c u l t t h e r e f o r e to a s s e r t t h a t the judges i n t h i s case saw themselves as r e l y i n g s p e c i f i c a l l y on a technique of subrogation to achieve the r e s u l t t h a t they d i d . More than l i k e l y , they would have seen themselves r a t h e r as r e s t i n g t h e i r order on the notions and p r i n c i p l e s u n d e r l y i n g e q u i t a b l e assignment. 2 2 L a t e r cases c e r t a i n l y supported t h i s l a t t e r view when they confirmed t h a t the s u r e t y could enforce the assigned s e c u r i t i e s i n h i s own name, and not t h a t of the c r e d i t o r as s t r i c t l y speaking would be r e q u i r e d i f t h i s r i g h t was thought or seen t o r e s t upon the technique of subrogation. Nonetheless, the c o n f e r r a l of remedies upon Morgan and Seymour, as s u r e t i e s , was e f f e c t e d by g i v i n g them the b e n e f i t of r i g h t s possessed by another, the c r e d i t o r , and t h i s made i t s u f f i c i e n t l y s i m i l a r i n o p e r a t i o n 2 2 The d o c t r i n e s of e q u i t a b l e assignment were being developed a t about the same time according t o Ashburner, PRINCIPLES OF EQUITY (2nd ed., 1933), p. 236: "In e q u i t y , however, from the seventeenth century onward, an assignment of a debt f o r v a l u a b l e c o n s i d e r a t i o n , even though by p a r o l , was upheld a g a i n s t the a s s i g n o r ... ". In support, Ashburner c i t e s a case decided o n l y two years before Morgan v Seymour, namely E a r l o f S u f f o l k v G r e e n v i l l (1631) Freem. Ch. 146, 22 E.R. 1119. - 60 -to the technique of subrogation s t r i c t l y speaking t o have l e d t o the i d e n t i f i c a t i o n of t h i s case as a "subrogation" case. Secondly, the cour t d i d not o f f e r any c l e a r e x p l a n a t i o n o f the b a s i s upon which Morgan and Seymour were e n t i t l e d to have the Bond assigned t o them, other than t h a t i t was was "to help themselves a g a i n s t the s a i d S t. Johns f o r the s a i d Debt." While t h i s suggests some connection between the exis t e n c e of a r i g h t of recovery a g a i n s t the p r i n c i p a l debtor, and t h i s new r i g h t t o s e c u r i t i e s , t h i s connection was not developed i n the case. E q u a l l y , although the court presumably j u s t i f i e d i t s order and the outcome of the case on some broad e q u i t a b l e b a s i s , i t made no express attempt t o def i n e the nature of t h a t e q u i t y i n t h i s case. This task, however, was taken up l a t e r . Broadly speaking, two explanations f o r the ex i s t e n c e of t h i s r i g h t presented themselves. One adopted the l i n e t h a t t h i s r i g h t d e r i v e s from and i s a consequence of the debtor's undertaking, express or i m p l i e d , t o indemnify or reimburse the surety. Lord Selborne L.C. i n Duncan, Fox, & Co. v North & South Wales Bank 2 3 provides an i l l u s t r a t i o n of t h i s view. There, i t w i l l be r e c a l l e d , Lord Selborne L . C , i n c l a s s i f y i n g the c l a s s e s of surety, s t a t e d as h i s t h i r d c l a s s : 2 4 "Those i n which, without any such c o n t r a c t of s u r e t y s h i p , there i s a primary and a secondary l i a b i l i t y of two persons f o r one and the same debt, the debt being, as between the two, t h a t of one of those persons only, and not e q u a l l y of both, so th a t the other, i f he should be  compelled t o pay i t , would be e n t i t l e d t o reimbursement from the person by whom (as between the two) i t ought t o have been p a i d . " 2 5 2 3 (1880) 6 App. Cas. 1. 2 4 I b i d . , a t 11. 2 5 Emphasis added. - 61 -The s urety's r i g h t of subrogation, on t h i s view, i s dependent upon the s u r e t y e s t a b l i s h i n g a r i g h t of reimbursement. 2 6 This view has the advantage of s i m p l i c i t y . But t h i s i s a l s o i t s main d e f i c i e n c y , f o r i t assumes t h a t the a v a i l a b i l i t y of a r i g h t of reimbursement i s s e t t l e d law. T his i s not so. As has been s e e n , 2 7 a r i g h t of indemnity or reimbursement may a r i s e on c o n t r a c t u a l , q u a s i - c o n t r a c t u a l , or e q u i t a b l e grounds. Often i t w i l l be c l e a r whether i t a r i s e s or not. Sometimes, however, i t w i l l be necessary t o examine the circumstances of the p a r t i c u l a r case t o determine whether any such r i g h t of reimbursement e x i s t s . Those circumstances, i t i s submitted, w i l l a l s o u l t i m a t e l y j u s t i f y the e x i s t e n c e or absence of a r i g h t of subrogation, not the e x i s t e n c e of the r i g h t of reimbursement per se. Both r i g h t s , i n other words, a r i s e from the same f a c t s and, i t i s submitted, f o r s i m i l a r r e s t i t u t i o n a r y reasons. Thus, to r e l a t e the r i g h t of subrogation to the r i g h t of reimbursement i s , i t i s submitted, t o beg the q u estion, f o r i t f a i l s t o e x p l a i n the circumstances t h a t w i l l j u s t i f y a court i n c o n f e r r i n g r i g h t s , whether by way of reimbursement or subrogation, upon a surety. U l t i m a t e l y , i t i s submitted, i t i s the i d e n t i f i c a t i o n of those circumstances and the " j u s t i c e " i n them, t h a t e x p l a i n s the a v a i l a b i l i t y of the surety's e q u i t a b l e r i g h t t o have s e c u r i t i e s assigned. The second e x p l a n a t i o n f o r the r i g h t t o have s e c u r i t i e s assigned recognises t h i s f a c t , and consequently r e s t s the r i g h t upon an "equity" a r i s i n g from the f a c t s of the r e l a t i o n s h i p . This i s the more common expl a n a t i o n of t h i s r i g h t . I t gained p a r t i c u l a r f o r c e under the 2 6 See a l s o : Yonge v R e y n e l l (1852) 9 Hare 809, a t 819, 68 E.R. 744, a t 748-49. 2 7 Supra, p. 43 et seq.. - 62 -C h a n c e l l o r s h i p of Lord Eldon i n the e a r l y p a r t of the nineteenth century. In A l d r i c h v Cooper, 2 8 f o r example, Lord Eldon L.C. s t a t e d t h a t the surety's e q u i t y r e s t e d upon the same p r i n c i p l e s as those u n d e r l y i n g the r e l a t e d d o c t r i n e of m a r s h a l l i n g 2 9 : " [ I ] t i s not by f o r c e of the c o n t r a c t ; but t h a t e q u i t y , upon which i t i s considered a g a i n s t conscience, t h a t the holder of the s e c u r i t i e s should use them t o the p r e j u d i c e of the s u r e t y ; and t h e r e f o r e there i s nothing hard i n the a c t of the Court, p l a c i n g the s u r e t y e x a c t l y i n the s i t u a t i o n of the c r e d i t o r . " 3 0 This view, w h i l e more e n l i g h t e n i n g i n c e r t a i n r e s p e c t s , s t i l l does not go f a r enough, however, f o r i t f a i l s t o e x p l a i n the nature of t h i s " e q uity", or why the f a c t s of the case g i v e r i s e t o i t . What, i n other words, i s the u n d e r l y i n g " i n e q u i t y " ? The answer t o t h a t q u e s t i o n , i t i s submitted, r e s t s i n the law of r e s t i t u t i o n and i t s notions of unjust enrichment. Thus, w h i l e Morgan v Seymour 3 1 i s p i v o t a l i n the development of the surety's r i g h t s of subrogation, and undeniably e s t a b l i s h e d t h a t the Chancery would a i d a s u r e t y by o r d e r i n g a c r e d i t o r t o a s s i g n any s e c u r i t i e s 2 8 (1803) 8 Ves. Jun. 382, 32 E.R. 402. 2 9 The d o c t r i n e of m a r s h a l l i n g o s t e n s i b l y a l l o w s a s u r e t y t o c a l l upon a c r e d i t o r who has two or more funds out of which he could s a t i s f y h i s c l a i m a g a i n s t the p r i n c i p a l debtor, one or more of which would not be a v a i l a b l e t o the s u r e t y , t o r e s o r t f i r s t t o the l a t t e r fund, so as t o enable the s u r e t y t o b e n e f i t from the others i n the event of h i s making payment t o the c r e d i t o r . 3 0 (1803) 8 Ves. Jun. 384, a t 389, 32 E.R. 402, a t 405. Four years l a t e r , i n Craythorne v Swinburne (1807) 14 Ves. Jun. 160, 33 E.R. 482, he equated the e q u i t y u n d e r l y i n g subrogation t o t h a t which underlay the d o c t r i n e of e q u i t a b l e c o n t r i b u t i o n , a t 165, a t 484: "the p r i n c i p l e of E q u i t y operates ... upon the maxim, t h a t e q u a l i t y i s E q u i t y : the c r e d i t o r , who can c a l l upon a l l , s h a l l not be a t l i b e r t y t o f i x one w i t h payment of the whole debt; and upon the p r i n c i p l e , r e q u i r i n g him t o do j u s t i c e , i f he w i l l not, the Court w i l l do i t f o r him." 3 1 (1637) 1 Chan. Rep. 120, 21 E.R. 525. i - 63 -h e l d by him t o the s u r e t y a f t e r payment of the debt, i t o f f e r s o n l y l i m i t e d guidance on the theory of the r i g h t t o s e c u r i t i e s recognised by i t . I t a l s o e s t a b l i s h e d from the very beginning the c l o s e connection between the surety's a s s e r t i o n of r i g h t s d e r i v e d from the c r e d i t o r , and the o b t a i n i n g of p r i o r i t y a g a i n s t an i n s o l v e n t p r i n c i p a l debtor. This i s of course the predominant advantage of t h i s r i g h t over the other r i g h t s of indemnity or reimbursement enjoyed by the s u r e t y a g a i n s t the p r i n c i p a l debtor. Since t h i s r i g h t to the assignment of s e c u r i t i e s operates to much the same e f f e c t as r i g h t s by subrogation s t r i c t l y s p e a k i n g , 3 2 i t i s h a r d l y s u r p r i s i n g , t h e r e f o r e , t o f i n d i t d iscussed i n the same breath as other s i m i l a r r i g h t s by way of subrogation. The advantages o f f e r e d t o the s u r e t y by t h i s r i g h t t o s e c u r i t i e s a l s o meant t h a t i t was not long before i t took h o l d and became an e s t a b l i s h e d a c t i o n i n the Chancery. A c t i o n s t o enforce t h i s r i g h t f i g u r e i n c r e a s i n g l y i n the case law throughout the seventeenth and eighteenth c e n t u r i e s . 3 3 By the e a r l y nineteenth century, much of the law on t h i s e q u i t a b l e r i g h t was w e l l s e t t l e d , although, as has been seen, the theory of the r i g h t was never r e a l l y worked out i n d e t a i l . I t was a l s o c l e a r by the e a r l y nineteenth century t h a t the common law 3 2 The p r i n c i p a l d i f f e r e n c e i s , of course, i n the en t i t l e m e n t t o enforce the s e c u r i t i e s i n the surety's own name, r a t h e r than t h a t of the c r e d i t o r . 3 3 See eg., Parsons v Briddock (1708) 2 Vern. 608, 23 E.R. 997; Ex parte C r i s p (1744) 1 Atk. 133, 26 E.R. 87; Greerside v Benson (1745) 3 Atk. 248, 26 E.R. 944; Wright v Morley (1805) 11 Ves. Jun. 12, 32 E.R. 992. See a l s o the d i s c u s s i o n i n f r a , p. 74, i n r e l a t i o n t o the r u l e i n Copis v Middleton (1823) 1 Turn. & R. 224, 37 E.R. 1083. - 64 -c o u r t s were unable t o countenance the e x i s t e n c e of a s i m i l a r r i g h t at common l a w . 3 4 ( i i ) E q u i t a b l e r i g h t t o "stand i n the place of another" The second of the three r i g h t s t h a t can be subsumed w i t h i n the expression "the surety's r i g h t of subrogation" i s the e q u i t a b l e r i g h t o f the s u r e t y t o "stand i n the p l a c e (or shoes) o f " the c r e d i t o r , as i t i s commonly expressed, and, u s i n g the c r e d i t o r ' s name, e x e r c i s e a l l the c r e d i t o r ' s r i g h t s and remedies whether a g a i n s t the p r i n c i p a l debtor, or o t h e r s , 3 5 f o r h i s own (the surety's) b e n e f i t . Because the r i g h t s and remedies enjoyed by the s u r e t y pursuant t o t h i s " r i g h t " are d e r i v e d from those of the c r e d i t o r and must be e x e r c i s e d i n the c r e d i t o r ' s name, t h i s r i g h t i s q u i t e c l e a r l y subrogative i n nature, i n the s t r i c t sense of t h a t term. The surety's " r i g h t " i s more a c c u r a t e l y expressed as h i s or her e n t i t l e m e n t t o have the technique of subrogation used i n h i s or her favour so as t o endow him or her w i t h r i g h t s and remedies whereby the p r i n c i p a l debtor (or perhaps others such as c o - s u r e t i e s ) can be prevented from t a k i n g unjust advantage of the surety's payment - t o prevent the p r i n c i p a l 3 4 I t i s c l e a r from s e v e r a l cases i n the f i r s t h a l f of the nineteenth century, i n p a r t i c u l a r Copis v Middleton (1823) 1 Turn. & R. 224, 37 E.R. 1083, and Hodgson v Shaw (1834) 3 My. & K. 183, 40 E.R. 70, t h a t the common law c o u r t s considered 'payment by the s u r e t y t o have the e f f e c t of d i s c h a r g i n g both the guaranteed debt and s e c u r i t i e s h e l d f o r i t , thus rendering i t impossible f o r the s u r e t y t o have the b e n e f i t of them e i t h e r by way of assignment or otherwise. See a l s o B a t c h e l l o r v Lawrence (1861) 9 C.B.(N.S.) 543, 142 E.R. 214. 3 5 I n c l u d i n g c o - s u r e t i e s and even t h i r d p a r t i e s l i a b l e t o the c r e d i t o r i n respect of the p r i n c i p a l debtor's performance of h i s o b l i g a t i o n t o the c r e d i t o r : see P r i n c e A l b e r t v Underwood, McLellan & A s s o c i a t e s L t d . [1969] S.C.R. 305. - 65 -debtor's u n j u s t enrichment, i n other words. This i n j u s t i c e i s remedied by making the extant r i g h t s and remedies of the c r e d i t o r a v a i l a b l e to the su r e t y t o enforce f o r h i s or her own b e n e f i t . But because they are the r i g h t s and remedies of the c r e d i t o r , and not separate r i g h t s and remedies enjoyed by the surety, they must be e x e r c i s e d i n the name of the c r e d i t o r . There i s c o n s i d e r a b l e u n c e r t a i n t y surrounding t h i s r i g h t i n e q u i t y . In p a r t i c u l a r , i t i s u n c l e a r how f a r t h i s r i g h t can be separated from the eq u i t a b l e r i g h t t o the assignment of s e c u r i t i e s a l r e a d y discussed. There are a number o f reasons f o r t h i s u n c e r t a i n t y . In the f i r s t p l a c e , there i s no express reference t o an e q u i t a b l e r i g h t o f the s u r e t y t o "stand i n the pl a c e of the c r e d i t o r " u n t i l the t u r n of the nineteenth c e n t u r y . 3 6 P r i o r t o t h a t , the r e l e v a n t cases g e n e r a l l y spoke i n terms of the r i g h t t o "as s i g n " , c l e a r l y t r e a t i n g t h a t as the e s s e n t i a l b a s i s upon which e q u i t y conferred r i g h t s upon s u r e t i e s , and thus making t h i s second r i g h t but one aspect of the e s t a b l i s h e d e q u i t a b l e r i g h t t o have s e c u r i t i e s assigned. Secondly, even when the more f a m i l i a r terminology began t o be used, i t was s t i l l g e n e r a l l y intermixed w i t h references t o the r i g h t t o haVe s e c u r i t i e s assigned. In Wright v M o r l e y , 3 7 f o r i n s t a n c e , the Master of the R o l l s , S i r W Grant, when asked by a s u r e t y who had been compelled t o pay the guaranteed debt t o "stand [the surety] i n the pla c e of the c r e d i t o r [who had access t o a fund out of which he cou l d have s a t i s f i e d the de b t ] , and a v a i l h i m s e l f of the pledge t o reimburse h i m s e l f " , 3 8 h e l d t h a t : 3 6 The terminology had been used i n other contexts, i n p a r t i c u l a r i n the context of loans t o married women, i n f a n t s , and the insane, f o r the purchase of ne c e s s a r i e s . See supra, p. 23. 3 7 (1805) 11 Ves. Jun. 12, 32 E.R. 992. 3 8 I b i d . , a t 19, a t 994. - 66 -"the s u r e t y has f u l l as good an e q u i t y t o the b e n e f i t of a l l the s e c u r i t i e s the p r i n c i p a l gives to the c r e d i t o r . ... [Parsons v B r i d d o c k 3 9 i n 1708] e s t a b l i s h e d , t h a t the s u r e t y had p r e c i s e l y the same r i g h t t h a t the c r e d i t o r had; and was t o stand i n h i s pl a c e . The s u r e t y had no d i r e c t c o n t r a c t or engagement, by which the b a i l were bound t o him; but o n l y a c l a i m a g a i n s t them through the medium of the c r e d i t o r ; and was e n t i t l e d o n l y t o a l l h i s r i g h t s . " 4 0 In Craythorne v Swinburne, 4 1 the Lord Chancellor, Lord Eldon, s i m i l a r l y approved the f o l l o w i n g o u t l i n e of a surety's r i g h t s by S i r Samuel R o m i l l y , 4 2 counsel i n t h a t case f o r the s u r e t y p l a i n t i f f seeking c o n t r i b u t i o n : 4 3 "The c o n t r i b u t i o n r e s u l t s from the maxim, th a t e q u a l i t y i s e q u i t y : proceeding where the instruments are s e v e r a l , very much upon t h i s ; t h a t a s u r e t y w i l l be e n t i t l e d t o every remedy, which the c r e d i t o r has aga i n s t the p r i n c i p a l debtor; t o enforce every s e c u r i t y and a l l means 3 9 (1708) 2 Vern. 608, 23 E.R. 582. 4 0 (1805) 11 Ves. Jun. 12, a t 22-23, 32 E.R. 992, a t 995-96. I n t e r e s t i n g l y , i n Parsons v Briddock (1708) 2 Vern. 608, 23 E.R. 582, r e f e r r e d t o by S i r W Grant i n Wright v Morley, the then Lord C h a n c e l l o r , Lord Cowper, had used the teminology of "standing one person i n the pl a c e of another", but i n r e l a t i o n to a person who had agreed t o give b a i l f o r another a r r e s t e d f o r non-payment of h i s debts. When subsequently the p r i n c i p a l f a i l e d to pay, judgment on the b a i l bond was obtained a g a i n s t the b a i l . Payment of the debts was, however, made by two s u r e t i e s on the o r i g i n a l bond, who now sought t o have the judgment ag a i n s t the b a i l assigned t o them t o enforce. Lord Cowper h e l d t h a t "the b a i l stand i n the pla c e o f the p r i n c i p a l , and cannot be r e l i e v e d on other terms than on payment of p r i n c i p a l , i n t e r e s t , and c o s t s " , and thus ordered the-judgment aga i n s t the b a i l t o be assigned to the s u r e t i e s " i n order t o reimburse them what they had p a i d , w i t h i n t e r e s t and c o s t s . " I t was not, t h e r e f o r e , the s u r e t i e s who were seen t o stand i n the place o f another, although t h a t i n substance i s the e f f e c t of the judgment - the s u r e t i e s were allowed t o stand i n the pl a c e of the c r e d i t o r s who had obtained a judgment ag a i n s t the b a i l . The court t r e a t e d t h i s e n t i t l e m e n t , however, as an aspect of the e q u i t a b l e r i g h t t o have " s e c u r i t i e s " assigned. 4 1 (1807) 14 Ves. J r . 160, 33 E.R. 482. 4 2 S i r Samuel R o m i l l y has been described as "the g r e a t e s t e q u i t y lawyer of h i s day", see K e r l y , o p . c i t . , 266. I t i s worth n o t i n g t h a t S i r Samuel R o m i l l y a l s o appeared as counsel i n Wright v Morley (1805) 11 Ves. Jun. 12, 32 E.R. 996., though n o t ( a s counsel f o r the sur e t y . 4 3 (1807) 14 Ves. Jun. 160, a t 162, 33 E.R. 482, a t 483. - 67 -of payment; t o stand i n the place of the c r e d i t o r s ; not o n l y through the medium of c o n t r a c t , but even by means of s e c u r i t i e s , entered i n t o without the knowledge of the surety; having a r i g h t t o have those s e c u r i t i e s t r a n s f e r r e d to him; though there was no s t i p u l a t i o n f o r t h a t ; and to a v a i l h i m s e l f of a l l those s e c u r i t i e s a g a i n s t the d e b t o r . " 4 4 This submission was l a t e r r e l i e d upon by Lord Brougham, L . C , i n Hodgson v Shaw, 4 5 i n which he s a i d t h a t S i r R o m i l l y ' s argument had "luminously expounded" the extent of the surety's r i g h t , but "placed [ i t ] as h i g h as i t ever can be p l a c e d " 4 6 : "The r u l e here [ i n e q u i t y ] i s undoubted, and i t i s one founded on the p l a i n e s t p r i n c i p l e s o f n a t u r a l reason and j u s t i c e , t h a t the s u r e t y paying o f f a debt s h a l l stand i n the place of a c r e d i t o r , and have a l l the r i g h t s which he has, f o r the purpose of o b t a i n i n g h i s reimbursement. I t i s h a r d l y p o s s i b l e t o put t h i s r i g h t of s u b s t i t u t i o n too high, and the r i g h t r e s u l t s more from e q u i t y than from c o n t r a c t or q u a s i c o n t r a c t ; ... Thus the s u r e t y paying i s e n t i t l e d to every remedy which the c r e d i t o r h a s . " 4 7 Here, then, i s the f i r s t c l e a r use i n the s u r e t y s h i p context of the terminology now so c l o s e l y a s s o c i a t e d w i t h r i g h t s of subrogation. I t should be observed, though, t h a t these cases, while u s i n g the terminology of "standing i n the place of", nonetheless seem t o assume the existence of a broad e q u i t a b l e r i g h t i n the s u r e t y t o enjoy the b e n e f i t of a l l the r i g h t s and remedies of the c r e d i t o r , d a t i n g from e a r l i e r times. One instance of t h i s i s the reference i n Wright v Morley 4 8 t o Parsons v B r i d d o c k 4 9 i n 1708. In the l a t t e r case, the Lord C h a n c e l l o r ordered a 4 4 Emphasis added. 4 5 (1834) 3 My. & K. 183, 40 E.R. 70. 4 6 I b i d . , a t 191, a t 73. 4 7 Idem. 48 49 (1805) 11 Ves. Jun. 12, 32 E.R. 996. (1708) 2 Vern. 608, 23 E.R. 997. - 68 -judgment obtained a g a i n s t a b a i l t o be "assigned" t o the p l a i n t i f f s u r e t i e s who had been sued on t h e i r o r i g i n a l bond and had p a i d , i n order to reimburse themselves what they had p a i d . Although the case speaks i n terms of the r i g h t t o have s e c u r i t i e s assigned, the judgment was not as such a " s e c u r i t y " f o r the o r i g i n a l guaranteed debt. I t r e l a t e d r a t h e r t o the subsequent l i a b i l i t y of the p r i n c i p a l under enforcement proceedings. I t was thus i n the nature of a r i g h t or remedy a v a i l a b l e t o the judgment c r e d i t o r s , but i t was s t i l l made a v a i l a b l e t o the s u r e t i e s t o enforce. They obtained t h a t r i g h t , i n substance, by standing i n the p l a c e of the p a i d - o f f judgment c r e d i t o r . This case thus provides an i l l u s t r a t i o n of the apparent e a r l i e r r e c o g n i t i o n of t h i s broader e q u i t a b l e r i g h t , even though s t i l l g e n e r a l l y expressed i n terms more c l o s e l y r e p r e s e n t a t i v e of the r i g h t of assignment. One w r i t e r 5 0 has taken t h i s f u r t h e r and argued t h a t the technique of standing the s u r e t y i n the pla c e of the c r e d i t o r i n order t o confer the c r e d i t o r ' s r i g h t s and remedies upon the s u r e t y was f i r s t recognised before even the r i g h t t o assignment of s e c u r i t i e s , more than e i g h t y years e a r l i e r i n f a c t , i n the context of the surety's r i g h t of c o n t r i b u t i o n . 5 1 C o n t r i b u t o r y recovery a g a i n s t c o - s u r e t i e s was e f f e c t e d , t h i s view a s s e r t s , not by means of a d i r e c t e q u i t a b l e r i g h t of c o n t r i b u t i o n as was l a t e r e s t a b l i s h e d , but i n substance by a l l o w i n g the paying s u r e t y t o "stand i n the p l a c e o f " the c r e d i t o r and e x e r c i s e the l a t t e r ' s c o n t r a c t u a l or other r i g h t s of recovery a g a i n s t any persons e q u a l l y l i a b l e w i t h the paying 5 0 Marasinghe, l o c . c i t . , I . 5 1 I b i d . , pp. 54-56. - 69 -s u r e t y . 5 2 T h i s , i t i s s a i d , was the e a r l i e s t m a n i f e s t a t i o n of the technique of subrogation i n favour o f s u r e t i e s i n E n g l i s h law - indeed, i t would be the e a r l i e s t m a n i f e s t a t i o n of subrogation i n E n g l i s h law i n any guise. A l t e r n a t i v e l y , i t might be s a i d t h a t t h i s e n t i t l e m e n t to the b e n e f i t of the c r e d i t o r ' s r i g h t s and remedies was recognised a t l e a s t i m p l i c i t l y i n Morgan v Seymour, 5 3 i n s o f a r as the Chancery there d i s p l a y e d a w i l l i n g n e s s t o enhance the surety's r i g h t s and remedies a g a i n s t the p r i n c i p a l debtor by lo o k i n g t o the r i g h t s and remedies of the p a i d - o f f c r e d i t o r . That the r i g h t subsequently f a i l e d t o f i n d c l e a r r e c o g n i t i o n and e l u c i d a t i o n as a separate r i g h t u n t i l much l a t e r may perhaps be a product of contemporaneous developments i n the Chancery and the cou r t s of common law. In p a r t i c u l a r , i t may be t h a t i t was not u n t i l l a t e r , w i t h the i n t r o d u c t i o n of the terminology of "standing i n the pla c e of another" i n the necessaries cases i n the f i r s t q u arter of the eighteenth c e n t u r y , 5 4 t h a t the Chancery judges began to t h i n k of t h i s r i g h t other than i n terms o f the r i g h t t o the assignment of s e c u r i t i e s . But by then both the Chancery and the common law cour t s had recognised and were e n f o r c i n g i n favour of s u r e t i e s d i r e c t e q u i t a b l e and q u a s i - c o n t r a c t u a l r i g h t s of reimbursement from the p r i n c i p a l d e b t o r 5 5 and c o n t r i b u t i o n from c o - s u r e t i e s . These developments t o an extent rendered an e q u i t a b l e r i g h t t o stand i n the c r e d i t o r ' s place i n order t o recover a g a i n s t the p r i n c i p a l debtor or c o - s u r e t i e s s l i g h t l y superfluous, a t l e a s t w i t h respect t o c o n t r a c t u a l s u r e t i e s , f o r the sur e t y c o u l d seek 52 Idem. 53 (1637) 1 Chan. Rep. 120, 21 E.R. 525. 54 See supra, p. 23. 5 5 See supra, p. 43 et seq.. - 70 -recovery d i r e c t l y from the debtor through these then newly recognised e q u i t a b l e and q u a s i - c o n t r a c t u a l a c t i o n s . Where necessary the s u r e t y c o u l d a l s o r e l y on the s p e c i f i c e q u i t a b l e r i g h t t o the assignment of s e c u r i t i e s t o enhance these r i g h t s of reimbursement and c o n t r i b u t i o n . Thus there was at t h a t time no need f o r the s u r e t y t o ask the c o u r t t o stand him i n the place o f the c r e d i t o r so as t o endow him or her w i t h a l l the r i g h t s and remedies o f the c r e d i t o r . L a t e r , however, when the r i g h t s and o b l i g a t i o n s of c o n t r a c t u a l s u r e t y s h i p were extended t o q u a s i - s u r e t y s h i p s , there was arguably a need f o r t h i s r i g h t s i n c e , as has a l r e a d y been s e e n , 5 6 q u a s i -s u r e t i e s were not a u t o m a t i c a l l y e n t i t l e d t o a l l , or the same, r i g h t s as those of a s u r e t y i n the s t r i c t c o n t r a c t u a l sense. In p a r t i c u l a r , q u a s i -s u r e t y s h i p s d i d not n e c e s s a r i l y a t t r a c t i n f u l l the e q u i t a b l e r i g h t t o the assigment of s e c u r i t i e s . 5 7 That being so, the o n l y way i n which the q u a s i -s u r e t y c o u l d o b t a i n the b e n e f i t of any s e c u r i t i e s h e l d by the c r e d i t o r and the p r i o r i t y they accorded, was i f he or she was allowed t o stand i n the c r e d i t o r ' s p l a c e and take the b e n e f i t of those s e c u r i t i e s . There was one d i f f e r e n c e , however: the s u r e t y had t o e x e r c i s e the r i g h t s i n the c r e d i t o r ' s name, r a t h e r than h i s own. These u n c e r t a i n t i e s a s i d e , i t i s c l e a r t h a t by the e a r l y p a r t of the nineteenth century there was a general p e r c e p t i o n t h a t a s u r e t y was e n t i t l e d t o a broader range o f e q u i t a b l e r i g h t s than the e q u i t a b l e e n t i t l e m e n t t o have any s e c u r i t i e s h e l d by the c r e d i t o r assigned t o him or her. Supra, p. 35 et seq.. Idem. - 71 -( i i i ) S t a t u t o r y r i g h t s The t h i r d of the surety's " r i g h t s of subrogation" comprises the s t a t u t o r y r i g h t s enjoyed by s u r e t i e s pursuant t o s e c t i o n 5 of the M e r c a n t i l e Law Amendment Act of 1856. 5 8 This as enacted provided: "Every Person who, being s u r e t y f o r the Debt or Duty of-another, or being l i a b l e w i t h another f o r any Debt or Duty, s h a l l pay such Debt or perform such Duty, s h a l l be e n t i t l e d t o have assigned t o him, or t o a Trustee f o r him, every Judgment, S p e c i a l t y , or other S e c u r i t y which s h a l l be h e l d by the C r e d i t o r i n respect of such Debt or Duty, whether such Judgment, S p e c i a l t y , or other S e c u r i t y s h a l l or s h a l l not be deemed a t Law t o have been s a t i s f i e d by the Payment of the Debt or Performance of the Duty, and such Person s h a l l be e n t i t l e d t o stand i n the P l a c e of the C r e d i t o r , and t o use a l l the Remedies, and, i f need be, and upon a proper Indemnity, t o use the Name of the C r e d i t o r , i n any A c t i o n , or other Proceeding, a t Law or i n E q u i t y , i n order t o o b t a i n from the p r i n c i p a l Debtor, or any Co-Surety, Co-Contractor, or Co-Debtor, as the Case may be, I n d e m n i f i c a t i o n f o r the Advances made and Loss su s t a i n e d by the Person who s h a l l have so p a i d such Debt or performed such Duty, and such Payment or Performance so made by such Surety s h a l l not be pleadable i n bar of any such A c t i o n or other Proceeding by him : Provided always, t h a t no Co-Surety, Co-Contractor, or Co-Debtor, s h a l l be e n t i t l e d t o recover from any other Co-Surety, Co-Contractor, or Co-Debtor, by the Means a f o r e s a i d , more than the j u s t P r o p o r t i o n t o which, as between those P a r t i e s themselves, such last-mentioned Person s h a l l be j u s t l y l i a b l e . " The e f f e c t of t h i s p r o v i s i o n was considered by B y l e s J . i n B a t c h e l l o r v Lawrence: 5 9 "In England, p r i o r t o the passing of t h i s a c t , a s u r e t y or co-debtor who had been compelled t o pay the debt f o r which he was l i a b l e , c o u l d not o b t a i n the b e n e f i t of any s e c u r i t i e s h e l d by the c r e d i t o r without having recourse t o a court of e q u i t y ; and not always then. The s e c t i o n i n q u estion, I t h i n k , meant t o a f f o r d the p a r t y a t l e a s t the same remedy a t law as he would have had i n e q u i t y . " This p r o v i s i o n thus conferred a s t a t u t o r y e n t i t l e m e n t upon a s u r e t y both t o "stand i n the place o f " the c r e d i t o r and e x e r c i s e f o r h i s own b e n e f i t - but i n the c r e d i t o r ' s name - a l l the l a t t e r ' s remedies, i n the 5 8 19 & 20 V i c t . , c. 97. 5 9 (1861) 9 C B . (N.S.) 543, a t 555-6, 142 E.R. 214, a t 218. - 72 -same general way t h a t the courts of e q u i t y had apparently a l r e a d y allowed, and a l s o t o have a l l the l a t t e r ' s s e c u r i t i e s assigned t o him t o e x e r c i s e f o r h i s own b e n e f i t i n h i s own name, again as e q u i t y had a l r e a d y allowed. In substance, i t c o d i f i e d the two e q u i t a b l e " r i g h t s " recognised by the Chancery, and made them e q u a l l y a v a i l a b l e i n the common law c o u r t s , where the a v a i l a b i l i t y of such r i g h t s had p r e v i o u s l y been denied. Did t h i s s e c t i o n confer any new r i g h t s or remedies upon the surety? This i s not e n t i r e l y c l e a r . At f i r s t s i g h t , i t simply g i v e s the e s t a b l i s h e d e q u i t a b l e r i g h t s a new and a l t e r n a t i v e s t a t u t o r y b a s i s . On the other hand, c e r t a i n features about the s t a t u t o r y r i g h t s might suggest t h a t the draftsman intended them t o operate more generously than had been the case i n the Chancery. Thus, the s e c t i o n a p p l i e s not o n l y to s u r e t i e s f o r "Debts", but a l s o to persons who are s u r e t y " f o r the Duty of another", and a l s o t o persons who are " l i a b l e w i t h another f o r any Debt or Duty". T h i s , however, was arguably t r u e of the e q u i t a b l e r i g h t s , f o r , as has been seen, they a l s o were h e l d t o be a v a i l a b l e t o persons who were not s u r e t i e s s t r i c t l y speaking, but o n l y q u a s i - s u r e t i e s , e s p e c i a l l y those whose r i g h t s were based upon the e x i s t e n c e of a r e l a t i o n s h i p of primary and secondary l i a b i l i t y r a t h e r than any agreement. C o - s u r e t i e s , co-debtors, those j o i n t l y l i a b l e f o r the performance of some duty other than the payment of a debt, and the l i k e , c o u l d on t h i s b a s i s stake a c l a i m f o r comparable e q u i t a b l e r i g h t s t o those of the surety. E q u a l l y , although the s t a t u t o r y r i g h t s and remedies are e x e r c i s e a b l e not o n l y a g a i n s t the p r i n c i p a l debtor, but a l s o a g a i n s t "any Co-Surety, Co-Contractor, or Co-Debtor", sub j e c t t o the r e s t r i c t i o n t h a t recovery be o n l y f o r "the j u s t P r o p o r t i o n t o which, as between those P a r t i e s themselves, - 73 -such last-mentioned Person s h a l l be j u s t l y l i a b l e " , t h i s again was probably so i n e q u i t y . C o - s u r e t i e s , co-debtors, and c o - c o n t r a c t o r s who are e q u a l l y 6 0 l i a b l e f o r payment of a debt or performance of a duty are e s s e n t i a l l y l i a b l e t o each other f o r c o n t r i b u t i o n . I t i s arguable t h a t a s u r e t y ' s e q u i t a b l e e n t i t l e m e n t t o c o n t r i b u t i o n from h i s c o - s u r e t i e s , and the l i k e , e x i s t s not o n l y d i r e c t l y i n e q u i t y but a l s o i n d i r e c t l y through the c r e d i t o r ' s r i g h t s a g a i n s t the c o - s u r e t i e s . 6 1 Again, t h e r e f o r e , the s e c t i o n arguably d i d no more than r e c o r d the s t a t u s quo. T h i r d l y , s e c t i o n 5 s t a t e s t h a t the persons e n t i t l e d by the s e c t i o n t o the assignment of s e c u r i t i e s are e n t i t l e d not j u s t t o the assignment of any " s e c u r i t i e s " given by the debtor t o the c r e d i t o r , but more broadly t o "every Judgment, S p e c i a l i t y , or other S e c u r i t y " given by him t o the c r e d i t o r . Furthermore, t h i s e n t i t l e m e n t accrues even though the judgment, s p e c i a l t y , or other s e c u r i t y may have been "deemed a t Law t o have been s a t i s f i e d by the Payment of the Debt or performance of the Duty". I t i s here t h a t the s t a t u t o r y r i g h t s do appear t o d i f f e r s i g n i f i c a n t l y from those a v a i l a b l e i n e q u i t y . While the language of the chancery judges i n e x p l a i n i n g the scope of the e q u i t a b l e r i g h t s was c e r t a i n l y wide enough to cover more than " s e c u r i t i e s " s t r i c t l y speaking, and i n p a r t i c u l a r judgments and s p e c i a l i t i e s , f o r a long time i t was not c l e a r l y decided whether 6 0 I f they are not e q u a l l y l i a b l e , t h e i r r i g h t s i n t e r se w i l l be determined by t h e i r r e s p e c t i v e l i a b i l i t i e s f o r payment of the debt or performance of the duty. I f , as between themselves, e i t h e r because of an agreement or some other r e l e v a n t f a c t o r , one or more of them i s or are o n l y s e c o n d a r i l y l i a b l e then t h a t person(s) w i l l be a s u r e t y or q u a s i - s u r e t y f o r the other(s) and be e n t i t l e d a c c o r d i n g l y t o the r i g h t s of a s u r e t y or q u a s i - s u r e t y . 6 1 As has been discussed, supra, p. 68, Marasinghe has argued t h a t t h i s was the f i r s t m a n i f e s t a t i o n of the technique of subrogation i n favour of s u r e t i e s ; l o c . c i t . , I . - 74'-payment of the debt by the s u r e t y had the e f f e c t i n e q u i t y , as i t d i d a t l a w , 6 2 of d i s c h a r g i n g both the debt and a l s o any primary s e c u r i t i e s 6 3 given t o the c r e d i t o r by the debtor f o r the debt. This question was e v e n t u a l l y considered by the Chancery i n Copis v M i d d l e t o n 6 4 i n 1823. In t h a t case, the Lord C h a n c e l l o r , Lord Eldon, h e l d t h a t payment of the debt i n e q u i t y discharged not o n l y the debt but a l s o primary s e c u r i t i e s . That meant t h a t they were us e l e s s i n the hands of the s u r e t y ; t h i s was so even i f the c r e d i t o r had p r e v i o u s l y purported t o a s s i g n them t o the s u r e t y i n accordance w i t h the surety's undoubted e q u i t a b l e r i g h t t o assignment. The case concerned a deceased debtor. Some of h i s c r e d i t o r s were s p e c i a l i t y c r e d i t o r s , 6 5 e n t i t l e d thereby according t o the law of the time t o rank i n p r i o r i t y t o o r d i n a r y c r e d i t o r s i n the a d m i n i s t r a t i o n of the deceased's e s t a t e . A s u r e t y f o r the deceased, who had p a i d o f f some of those s p e c i a l i t y debts p r i o r t o the deceased's death, and who was s u r e t y f o r f u r t h e r unpaid s p e c i a l i t y debts, claimed not the r i g h t t o be reimbursed out of the e s t a t e as an o r d i n a r y c r e d i t o r , 6 6 but the r i g h t t o rank i n the p l a c e of the p a i d o f f s p e c i a l i t y c r e d i t o r s as a s p e c i a l i t y c r e d i t o r h i m s e l f . I t was conceded t h a t a t law payment of the debt discharged not 6 2 See Copis v Middleton (1823) 1 Turn. & Russ. 224, 37 E.R. 1083. 6 3 But not c o l l a t e r a l s e c u r i t i e s such as a mortgage. 6 4 (1823) 1 Turn. & Russ. 224, 37 E.R. 1083. 6 5 A s p e c i a l i t y was a c o n t r a c t under s e a l . A s p e c i a l i t y debtor, t h e r e f o r e , was one whose debt was acknowledged by a c o n t r a c t under s e a l , and a s p e c i a l i t y c r e d i t o r was thus one t o whom the debtor had acknowledged h i s l i a b i l i t y under s e a l . 6 6 This r i g h t i s i n personam o n l y and thus makes the s u r e t y an o r d i n a r y c o n t r a c t or q u a s i - c o n t r a c t u a l c r e d i t o r , thus a f f o r d i n g him or her no p r i o r i t y over other o r d i n a r y c r e d i t o r s . o n l y the debt but a l s o the s p e c i a l i t y bond which created the debt, thereby preventing the s u r e t y a t law from t a k i n g advantage of the s p e c i a l i t y . 6 7 Even an assignment of i t p r i o r t o payment of the debt would have been t o no a v a i l s i n c e payment was s t i l l considered t o have discharged i t ; o n l y c o l l a t e r a l s e c u r i t i e s could be kept a l i v e i n t h i s manner f o r the b e n e f i t of the surety. But, argued the surety, t h a t was not the p o s i t i o n i n e q u i t y . He was e n t i t l e d , he argued, t o rank as a s p e c i a l i t y debtor: "because a Court of E q u i t y would keep a l i v e the bond f o r h i s b e n e f i t , and on the p r i n c i p l e on which i t i n t e r f e r e s t o prevent l e g a l bars from being s e t up, would permit an a c t i o n t o be brought upon the bond, and r e s t r a i n the p r i n c i p a l from s e t t i n g up the payment." 6 8 This was not so, h e l d Lord Eldon L.C. While there was: "a general r u l e t h a t i n e q u i t y a s u r e t y i s e n t i t l e d t o the b e n e f i t of a l l the s e c u r i t i e s which the c r e d i t o r has a g a i n s t the p r i n c i p a l , " 6 9 the nature of those s e c u r i t i e s had t o be considered. When there was a bond merely, and no c o l l a t e r a l s e c u r i t y , then: " i f an a c t i o n was brought upon the bond, i t would appear upon oyer of the bond t h a t the debt was e x t i n g u i s h e d ; the general r u l e t h e r e f o r e must be q u a l i f i e d , by c o n s i d e r i n g i t t o apply t o such s e c u r i t i e s as continue t o e x i s t , and do not get back upon payment to the person of the p r i n c i p a l debtor ... ".7 0 E q u i t y , i n other words, would f o l l o w the law on t h i s p o i n t . The e f f e c t of t h i s judgment, had i t s u r v i v e d , would have been to devastate the e q u i t a b l e r i g h t s of subrogation p r e v i o u s l y a f f o r d e d t o a s u r e t y . F o r t u n a t e l y , i t d i d not s u r v i v e . One of the prime o b j e c t i v e s of s e c t i o n 5 of the M e r c a n t i l e Law Amendment Act of 1856 was t o reverse t h i s 6 7 (1823) Turn. 86 R. 224, a t 228, 37 E.R. 1083, a t 1084. 6 8 Idem. 6 9 I b i d . , a t 229, a t 1085. 7 0 Idem. - 76 -judgment. Thus, i t became immaterial whether the "Judgment, S p e c i a l i t y , or other S e c u r i t y " was or was not deemed a t law or i n e q u i t y to be discharged by payment or performance. "Payment or Performance", provides s e c t i o n 5, " s h a l l not be pleadable i n bar of any such A c t i o n or other Proceeding" by the s u r e t y . By way of c o n t r a s t , the f o u r t h p o t e n t i a l d i f f e r e n c e between the eq u i t a b l e and the s t a t u t o r y r i g h t s i s a product of case-law. In 1886, i t was h e l d t h a t the s t a t u t o r y r i g h t of assignment e n t i t l e d the su r e t y t o sue the p r i n c i p a l debtor upon the s e c u r i t i e s h e l d by the c r e d i t o r i n the surety's own name without n e c e s s a r i l y t a k i n g an a c t u a l assignment from the c r e d i t o r . 7 1 The s e c t i o n operated, i t was h e l d , 7 2 upon payment i n f u l l , on the b a s i s of an " i m p l i e d assignment". I n t h i s respect the s t a t u t o r y r i g h t s d i f f e r e d from the surety's e x i s t i n g e q u i t a b l e r i g h t s o f subrogation, f o r e q u i t y r e q u i r e d s u i t i n the name of the c r e d i t o r , or an a c t u a l assignment (although the Chancery would order the c r e d i t o r t o e f f e c t such an assignment). As a r e s u l t , s e c t i o n 5 cou l d be s a i d t o go f u r t h e r than e q u i t y and not j u s t " a f f o r d the p a r t y a t l e a s t the same remedy a t law as he would have had i n e q u i t y " , as Byles J . suggested i n B a t c h e l l o r v Lawrence. 7 3 The enactment of s e c t i o n 5, together w i t h the procedural changes i n England consequential upon the subsequent f u s i o n of the courts of common 7 1 Re M'Myn, Lightbown v M'Myn (1886) 33 Ch. D. 575. 7 2 Idem. 7 3 (1861) 9 C.B. (N.S.) 543, a t 555-6, 142 E.R. 214, a t 218. - 77 -law and e q u i t y , 7 4 a l s o had the p r a c t i c a l e f f e c t t h a t s u r e t i e s g e n e r a l l y had no need t o continue t o r e l y upon t h e i r former e q u i t a b l e r i g h t s i n seeking recovery of monies expended on behalf of e i t h e r the p r i n c i p a l debtor or co-s u r e t i e s . Instead they could simply r e l y upon the s t a t u t o r y r i g h t s a f f o r d e d to them by s e c t i o n 5. To an extent, t h e r e f o r e , the e q u i t a b l e r i g h t s o u t l i n e d above were rendered superfluous. ( i v ) A composite of r i g h t s Used broadly, t h e r e f o r e , the expression "the surety's r i g h t of subrogation" thus encompasses these three r e l a t e d r i g h t s . As a l r e a d y suggested, the most important from the s u r e t y ' s p e r s p e c t i v e , w i l l g e n e r a l l y be the r i g h t of assignment of s e c u r i t i e s , whether s t a t u t o r y or e q u i t a b l e , f o r o n l y t h i s w i l l enable a s u r e t y t o o b t a i n p r i o r i t y over other o r d i n a r y c r e d i t o r s of an i n s o l v e n t p r i n c i p a l debtor. Indeed, unless the p r i n c i p a l debtor i s i n s o l v e n t , then p r a c t i c a l l y speaking, questions of the s u r e t y ' s r i g h t s of subrogation may never a r i s e . Instead, the s u r e t y can simply r e l y on the broad, r e a d i l y enforceable r i g h t s of indemnity or reimbursement o u t l i n e d above (and s i m i l a r l y , h i s r i g h t s of c o n t r i b u t i o n a g a i n s t co-s u r e t i e s ) . This has the consequence t h a t i t i s g e n e r a l l y only when the debtor i s i n s o l v e n t t h a t the s u r e t y needs t o a s s e r t h i s r i g h t s of assignment, and thus a l s o subrogation. The other r i g h t s subsumed w i t h i n the expression "the surety's r i g h t of subrogation" - i n p a r t i c u l a r the e q u i t a b l e and s t a t u t o r y r i g h t s t o stand i n the p l a c e of the c r e d i t o r and 7 4 See the J u d i c a t u r e Acts of 1873 (36 & 37 V i c t . , c. 66) and 1875 (38 & 39 V i c t . , c. 77). e x e r c i s e the l a t t e r ' s r i g h t s and remedies - w i l l g e n e r a l l y be immaterial. I n s o f a r as they confer i n personam r i g h t s o n l y a g a i n s t the debtor, they w i l l be of l i m i t e d value. I n s o f a r as they c a r r y w i t h them the en t i t l e m e n t to the b e n e f i t of any s e c u r i t i e s i n the hands of the c r e d i t o r , and the p r i o r i t y they a f f o r d , they are superfluous, f o r the r i g h t s of assignment achieve the same r e s u l t more s a t i s f a c t o r i l y from the sur e t y ' s p e r s p e c t i v e s i n c e he can enforce the s e c u r i t i e s i n h i s own name. In p r a c t i c e , t h e r e f o r e , i t i s the e q u i t a b l e and s t a t u t o r y r i g h t s of assignment t h a t are most c l o s e l y a s s o c i a t e d w i t h , indeed even t r e a t e d as, the s u r e t y ' s " r i g h t of subrogation". I t can be seen, t h e r e f o r e , t h a t the expression the "surety's r i g h t of subrogation" may r e f e r i n any given case t o a panoply of overlapping, r e l a t e d r i g h t s , or o n l y a s e l e c t i o n of them. "Subrogation" i n the s u r e t y s h i p context does not, t h e r e f o r e , n e c e s s a r i l y r e f e r simply t o the technique of subrogation as a means of e f f e c t i n g r e s t i t u t i o n , but a l s o t o the "ends" achieved by i t s use - i n other words, the accumulated e f f e c t s of i t s use i n e q u i t y , a t common law, and by s t a t u t e . The danger o f t h i s , from the t h e o r e t i c a l viewpoint, i s twofold: not o n l y does i t confuse subrogation as a means t o an end w i t h the end i t s e l f , and thus encourage the i d e n t i f i c a t i o n of subrogation w i t h t h a t s p e c i f i c end even though i t may be achieved without the use of the technique of subrogation; but i t a l s o separates the v a r i o u s r i g h t s and remedies acquired by subrogation i n s u r e t y s h i p cases from the j u r i s p r u d e n t i a l or j u r i d i c a l c o n s i d e r a t i o n s t h a t u n d e r l i e t h e i r a v a i l a b i l i t y . T his i n t u r n tends t o create a schematised, r a t h e r black and white view of the " r i g h t " of subrogation: e i t h e r subrogation w i t h i t s panoply of r e l a t e d r i g h t s and the advantages of - 79 -p r i o r i t y they c a r r y w i t h them i s a v a i l a b l e i n f u l l , or i t i s not a v a i l a b l e a t a l l . Nonetheless, t h i s broadly speaking was the p o s i t i o n which obtained by the second h a l f of the nineteenth century. T h e r e a f t e r , the process of development of "the surety's r i g h t of subrogation" became p r i m a r i l y a matter of f l e s h i n g out t h i s s k e l e t o n of r i g h t s . This paper i s not concerned w i t h many of these d e t a i l s . What i s r a t h e r of concern i s the fundamental nature of the r i g h t s , and the extent t o which these r i g h t s of subrogation can be s a i d t o be e x p l i c a b l e i n terms of r e s t i t u t i o n a r y p r i n c i p l e s . These questions w i l l be considered i n the next P a r t . PART I I I THE SURETY'S RIGHT OF SUBROGATION AND THE LAW OF RESTITUTION - 80 -Chapter 6 THE RESTITUTIONARY NATURE OF THE SURETY'S RIGHT OF SUBROGATION A. I n t r o d u c t i o n The law of r e s t i t u t i o n , as has a l r e a d y been seen, 1 i s g e n e r a l l y premised upon the p r i n c i p l e of u n j u s t enrichment. 2 That i s t o say, i t i s the e x i s t e n c e of u n j u s t enrichment t h a t gives r i s e i n law t o an o b l i g a t i o n t o make r e s t i t u t i o n . To e f f e c t r e s t i t u t i o n - t o remedy t h a t u n j u s t enrichment - the law employs v a r i o u s remedies, or remedial techniques known to the law. These may be drawn from the common law, such as a simple money judgment; or from e q u i t y , such as imposing a c o n s t r u c t i v e t r u s t over property, or d e c l a r i n g p r o p e r t y t o be s u b j e c t t o an e q u i t a b l e l i e n , or subrogating one p a r t y t o the p l a c e of a second i n order t o have a remedy aga i n s t a t h i r d . Subrogation, i n other words, i s drawn i n t o the law of r e s t i t u t i o n as an e q u i t a b l e remedy, or remedial technique, a v a i l a b l e t o e f f e c t r e s t i t u t i o n . I t s p a r t i c u l a r d i s t i n g u i s h i n g f e a t u r e i s t h a t i t can o n l y be used i n t r i p a r t i t e s i t u a t i o n s . When a remedy i s granted, or a remedial technique such as subrogation i s used, the nature of the remedy and the r e s u l t of using the remedial 1 Supra, pp. 8-11. 2 Not a l l recent w r i t e r s i n the f i e l d of r e s t i t u t i o n agree w i t h the view t h a t the law of r e s t i t u t i o n i s premised or founded on a p r i n c i p l e of unjust enrichment. One notable exception occurs i n the Canadian l i t e r a t u r e , f o r Fridman & McLeod e x p r e s s l y r e j e c t "unjust enrichment" as the j u r i d i c a l foundation of the law of r e s t i t u t i o n . While accepting t h a t the n o t i o n of "unjust enrichment" perhaps provides a j u r i s p r u d e n t i a l b a s i s f o r r e s t i t u t i o n a r y p r i n c i p l e s , they see the n o t i o n of " r e s t i t u t i o n " i t s e l f as the best foundation f o r the law of r e s t i t u t i o n ; G.H.L. Fridman & J.G. McLeod, RESTITUTION (1982) ( h e r e a f t e r "FRIDMAN & McLEOD"), pp. 55-57. - 81 -- 82 -technique w i l l be d i c t a t e d i n essence by (a) the nature o f the enrichment, and (b) the circumstances rendering the r e t e n t i o n of t h a t enrichment un j u s t . Further f a c t o r s , however, such as t h a t the r e c i p i e n t of the b e n e f i t has subsequently changed h i s or her circumstances i n a way he or she would not otherwise have done, may a l s o have t o be taken i n t o account, i n s o f a r as they a f f e c t the question whether i t would be "unjust" t o a l l o w the r e c i p i e n t of the b e n e f i t t o r e t a i n the b e n e f i t . "Unjust enrichment" thus p l a y s a dominating r o l e i n the fo r m u l a t i o n and p r e s e n t a t i o n of a r e s t i t u t i o n a r y c l a i m . Not only does i t g i v e r i s e t o the o b l i g a t i o n t o make r e s t i t u t i o n , but i t d i c t a t e s the nature of the r e l i e f e f f e c t e d . The p r i n c i p l e of "unjust enrichment", however, as has al r e a d y been pointed out, 3 i s not merely a vague expression of i n t u i t i v e or "palmtree j u s t i c e " as i t i s sometimes accused of being. As Goff and Jones s t a t e i n t h e i r l e a d i n g t e x t : 4 "[T]he p r i n c i p l e of unju s t enrichment i s capable of e l a b o r a t i o n and refinement. I t presupposes three t h i n g s : f i r s t , t h a t the defendant has been enriched by the r e c e i p t o f a b e n e f i t ; secondly, t h a t he has been so enriched a t the p l a i n t i f f ' s expense: and t h i r d l y , t h a t i t would be unjust t o a l l o w him t o r e t a i n the b e n e f i t . " Each of the three c e n t r a l concepts, namely " b e n e f i t " , "at the p l a i n t i f f ' s expense", and "unjust", can then, they emphasise, 5 themselves be elaborated and r e f i n e d . For example, Goff and Jones break down the t h i r d of these 3 Supra, p. 9. 4 S i r R. Goff & G. Jones, THE LAW OF RESTITUTION (3rd ed., 1986) (h e r e a f t e r "GOFF & JONES"), p. 16. 5 I b i d . , p. 16 et seq.. - 83 -elements, t h a t of "unjust r e t e n t i o n " , i n t o s i x broad c l a s s e s of reason f o r denying r e s t i t u t i o n : 6 "(1) the p l a i n t i f f c onferred the b e n e f i t as a v a l i d g i f t or i n pursuance o f a v a l i d common law, e q u i t a b l e o r s t a t u t o r y o b l i g a t i o n which he owed t o the defendant; (2) the p l a i n t i f f submitted t o , or compromised, the defendant's honest c l a i m ; (3) the p l a i n t i f f c o n ferred the b e n e f i t w h i l e performing an o b l i g a t i o n which he owed t o a t h i r d p a r t y or otherwise w h i l e a c t i n g v o l u n t a r i l y i n h i s own s e l f i n t e r e s t ; (4) the p l a i n t i f f acted o f f i c i o u s l y i n c o n f e r r i n g the b e n e f i t ; (5) the defendant cannot be r e s t o r e d t o h i s o r i g i n a l p o s i t i o n or i s a bona f i d e purchaser; (6) p u b l i c p o l i c y precludes r e s t i t u t i o n . " Goff and Jones's expression of the p r i n c i p l e of "unjust enrichment" i s one which has r e c e i v e d considerable favour from judges and l e g a l commentators a l i k e , both i n Canada 7 and elsewhere, although other formulations of the p r i n c i p l e have a l s o been put forward. K l i p p e r t , 8 f o r example, has suggested t h a t an examination of the Canadian case-law i n the r e s t i t u t i o n a r y f i e l d r e v e a l s a s l i g h t l y d i f f e r e n t expression of the p r i n c i p l e of u n j u s t enrichment. According t o K l i p p e r t , there are four elements, or " c o n t r o l devices" as he terms them, on a r e s t i t u t i o n a r y c l a i m i n Canada: 9 "The c o n t r o l devices u n d e r l y i n g the p r i n c i p l e of unju s t enrichment i n Canadian law might be reformulated i n the f o l l o w i n g f a s h i o n : ( i ) t h a t the defendant r e c e i v e d a b e n e f i t a t the p l a i n t i f f ' s expense, ( i i ) evidence of v o l i t i o n i n the r e c e i p t or r e t e n t i o n of the b e n e f i t , ( i i i ) t h a t the b e n e f i t was not v o l u n t a r i l y c o n ferred, and 6 I b i d . , pp. 29-30. 7 See eg., the recent d e c i s i o n of the Canadian Supreme Court i n Pettkus v Becker [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257. 8 G.B. K l i p p e r t , UNJUST ENRICHMENT (1983) ( h e r e a f t e r "KLIPPERT"). 9 KLIPPERT, pp. 37-38. See a l s o G.B. K l i p p e r t , "The J u r i d i c a l Nature of Unjust Enrichment", (1980) 30 U.T.L.J. 356. - 84 -(iv) that the benefit is unjustly retained by the defendant. A claimant who establishes these elements makes a prima facie case of l i a b i l i t y against a defendant." Like Goff and Jones, Klippert emphasises that these control devices are themselves capable of elaboration and refinement. Klippert also emphasises that the law of restitution i s not concerned only with l i a b i l i t y , but also with questions of remedies and defences. Thus, he suggests: 1 0 "The control devices in unjust enrichment cases can be classified under three headings of substantive rights, defences, and remedies." In asserting, therefore, that subrogation in general, and the surety's right of subrogation in particular, are essentially restitutionary in nature, as restitutionary writers do, and has been submitted in this paper, the assertion i s made that one can find in the law governing restitution claims a l l these elements, or control devices, in one form or another. The object of the discussion in this Part i s to consider whether and to what extent this i s so. B. The Restitutionary Features of a Surety's Right of Subrogation (i) Receipt of a benefit at the surety's expense The f i r s t , and most obvious, restitutionary feature of the surety's right of subrogation - and the various rights and remedies subsumed within that notion - i s the requirement of payment or performance before the right i s enforceable. This feature i s common to a l l the rights, both equitable 1 0 KLIPPERT, p. 37. - 85 -and s t a t u t o r y , enjoyed by a s u r e t y i n the name of subrogation. The requirement was i m p l i c i t r a t h e r than e x p l i c i t i n the e a r l y d e c i s i o n s on subrogation, s i n c e payment had i n f a c t been made by the s u r e t y i n those cases before the c l a i m f o r assignment or otherwise was brought. I t was made more e x p l i c i t l a t e r , p a r t i c u l a r l y when cases i n the t h i r d of the c l a s s e s of s u r e t y s h i p subsequently o u t l i n e d by Lord Selborne L.C. i n Duncan, Fox, & Co. v North & South Wales Bank 1 1 began to be recognised. Lord Selborne L.C. hi m s e l f , i n d i s c u s s i n g the e q u i t a b l e r i g h t s of t h i s t h i r d c l a s s of s u r e t i e s ( q u a s i - s u r e t i e s whose r i g h t s arose from the f a c t of t h e i r being o n l y s e c o n d a r i l y l i a b l e ) , s t a t e d t h a t the r i g h t s arose when the debt " i s p a i d by the person who i s not p r i m a r i l y l i a b l e " . 1 2 On occasion i t has been s t a t e d t h a t a c t u a l payment i s not r e q u i r e d , t h a t the r i g h t s of the su r e t y a r i s e not a t the time of payment but a t the time of c r e a t i o n of the s u r e t y s h i p . Dixon v S t e e l 1 3 provides a l e a d i n g example of t h i s view. There, Cozens-Hardy J . commented: 1 4 " I t c e r t a i n l y i s not the law tha t a s u r e t y has no r i g h t s u n t i l he pays the debt due from h i s p r i n c i p a l . " Where, as i n t h a t case, there was a c o n t r a c t u a l s u r e t y s h i p , then, h e l d Cozens-Hardy J . , the p a r t i c u l a r r i g h t there under c o n s i d e r a t i o n , namely, the surety's r i g h t a g a i n s t the c r e d i t o r t o have s e c u r i t i e s preserved f o r 1 1 (1880) 6 App. Cas. 1, a t 11. 1 2 I b i d . , a t 13 [emphasis added]. See a l s o Lord Blackburn, a t 18: "Though the in d o r s e r i s p r i m a r i l y l i a b l e as p r i n c i p a l on the b i l l , and i s not s t r i c t l y a s u r e t y f o r the acceptor, he has t h i s i n common w i t h a s u r e t y f o r the acceptor, t h a t he i s e n t i t l e d t o the b e n e f i t of a l l payments made by the acceptor, and i s e n t i t l e d , on paying the ho l d e r , to be put i n a s i t u a t i o n t o have a r i g h t t o sue the acceptor." [emphasis added] 1 3 [1901] 2 Ch. 602. 1 4 I b i d . , a t 607. - 86 -h i s b e n e f i t , arose, a t l e a s t i n an inchoate form, a t the time the p a r t i e s entered i n t o the agreement forming the b a s i s of the c o n t r a c t u a l s u r e t y s h i p . This view was not without support i n the case-law. In Duncan, Fox, &  Co., 1 5 f o r example, Lord Selborne L.C. had s a i d 1 6 t h a t the r i g h t s enjoyed by s u r e t i e s a g a i n s t c r e d i t o r s arose i n h i s f i r s t c l a s s of s u r e t y s h i p upon the making of the c o n t r a c t of s u r e t y s h i p ; and i n h i s second c l a s s , upon the p r i n c i p a l and s u r e t y g i v i n g n o t i c e t o the c r e d i t o r of t h e i r agreement t h a t the p r i n c i p a l would be p r i m a r i l y , and the s u r e t y o n l y s e c o n d a r i l y , l i a b l e f o r performance of the e x i s t i n g o b l i g a t i o n . 1 7 Lord Selborne L.C.'s comments were not, however, d i r e c t e d a t the s u r e t y ' s e q u i t a b l e r i g h t s i n general. Rather, they were d i r e c t e d a t the p a r t i c u l a r e q u i t a b l e r i g h t of the s u r e t y a g a i n s t the c r e d i t o r o b l i g i n g the c r e d i t o r not t o d e a l w i t h s e c u r i t i e s h e l d by the l a t t e r t o the p r e j u d i c e of the surety's e q u i t a b l e r i g h t s t o them. This r i g h t a g a i n s t the c r e d i t o r , as has a l r e a d y been pointed o u t , 1 8 i s i n the nature of an independent r i g h t 1 5 (1880) 6 App. Cas. 1. 1 6 I b i d . , a t 11. 1 7 See a l s o In re A Debtor [1937] Ch. 156, where the Court of Appeal h e l d t h a t the p r i n c i p a l debtor's " o b l i g a t i o n " t o reimburse the s u r e t y was " i n c u r r e d " , a t l e a s t f o r the purposes of s. 4 (1) of the Law Reform (Married Women and T o r t f e a s o r s ) Act of 1935 (25 & 26 Geo. 5, c. 30), a t the time t h a t the s u r e t y agreed t o guarantee the debtor and entered i n t o a c o n t r a c t of guarantee. The court l e f t open the question of when the " o b l i g a t i o n " arose or was i n c u r r e d "where a guarantee i s given without any antecedent request on the p a r t of the debtor" (at 166, per Greene L . J . ) . "That case", s a i d Greene L . J . , a t 166, " i s merely one example of a number of cases where the law r a i s e s an o b l i g a t i o n t o indemnify i r r e s p e c t i v e of any a c t u a l antecedent c o n t r a c t u a l r e l a t i o n s h i p between the p a r t i e s ... ", [such as e x i s t e d i n t h i s case] . 1 8 Supra, p. 57. - 87 -a g a i n s t the c r e d i t o r , and as such does not depend upon the o p e r a t i o n of the technique of subrogation f o r i t s e x i s t e n c e . In c o n t r a s t , when the s u r e t y seeks t o b r i n g an a c t i o n i n e q u i t y a g a i n s t the debtor employing, by v i r t u e of subrogation, the r i g h t s and remedies of the c r e d i t o r , then a t t h a t p o i n t , i t i s submitted, a c t u a l payment i s a p r e - r e q u i s i t e of the surety's r i g h t s and remedies. The comments of Cozens-Hardy J . i n Dixon v S t e e l 1 9 do not n e c e s s a r i l y c o n f l i c t w i t h t h i s , f o r , as i n d i c a t e d , the p a r t i c u l a r r i g h t of the s u r e t y there under c o n s i d e r a t i o n was the surety's r i g h t a g a i n s t the c r e d i t o r not t o have the s e c u r i t i e s h e l d by the l a t t e r d e a l t w i t h t o the p r e j u d i c e of the former's r i g h t s t o them. The s e c u r i t i e s themselves, i t i s submitted, would not have been enforceable by the s u r e t y i n the e x e r c i s e of her e q u i t a b l e r i g h t s of subrogation u n t i l she had p a i d the guaranteed debt. Payment or performance, i t i s submitted, i s t h e r e f o r e a necessary p r e r e q u i s i t e of the r i g h t s of subrogation, i n the sense t h a t u n t i l payment or performance, the r i g h t s of subrogation cannot be enforced by the surety. Payment or performance i s a l s o r e q u i r e d before a s u r e t y or q u a s i -s u r e t y can enforce the s t a t u t o r y r i g h t s of subrogation. This f o l l o w s from the wording of s e c t i o n 5 of the M e r c a n t i l e Law Amendment Act of 1856: "Every Person who ... s h a l l pay such Debt or perform such Duty ...".20 T h i s , i t has been h e l d , r e q u i r e s a c t u a l payment or performance i n f u l l . 2 1 U n t i l payment i s made i n f u l l , or performance e f f e c t e d i n f u l l , then, i t 1 9 [1901] 2 Ch. 602. 2 0 19 & 20 V i c t . , c. 97. [Emphasis added] 2 1 Ferguson v Gibson (1872) L.R. 14 Eq. 379, a t 386, per Wickers V.C. - 88 -has been h e l d , 2 2 the v a r i o u s r i g h t s conferred by s e c t i o n 5 - i n p a r t i c u l a r the r i g h t t o the assignment of judgments, s e c u r i t i e s and so on - do not a r i s e . The r i g h t s subsumed w i t h i n the expression "the surety's r i g h t of subrogation" can o n l y be enforced, i n other words, when the s u r e t y or qu a s i - s u r e t y a c t u a l l y confers a " b e n e f i t " upon another, whether by way of the s a t i s f a c t i o n of some monetary l i a b i l i t y of t h a t other t o a t h i r d person, or by way of the performance of some duty of t h a t other t o a t h i r d person. The id e a t h a t r i g h t s and remedies a g a i n s t another begin w i t h or are o n l y enforceable upon the c o n f e r r a l of a b e n e f i t upon t h a t other, whether d i r e c t l y , or i n d i r e c t l y as i n subrogation cases, i s , of course, the cornerstone p r i n c i p l e of c u r r e n t notions of r e s t i t u t i o n . Furthermore, i t i s s e l f - e v i d e n t t h a t the payment or performance must have been by the s u r e t y or qu a s i - s u r e t y , s i n c e payment or performance by the p r i n c i p a l would have discharged the surety's o b l i g a t i o n t o answer f o r the p r i n c i p a l . The b e n e f i t thus conferred on the p r i n c i p a l by the surety's payment or performance i s , t h e r e f o r e , by d e f i n i t i o n "at the expense of" the surety. Payment or performance, or the " b e n e f i t " thereby conferred, a l s o operates as a l i m i t a t i o n upon the surety's r i g h t s o f recovery from the p r i n c i p a l debtor. In seeking reimbursement from the p r i n c i p a l debtor, or 2 2 Re Howe; Ex part e B r e t t (1871) L.R. 6 Ch. App. 838, a t 841, per M e l l i s h L . J . See a l s o Ewart v L a t t a (1865) 4 Macq. H.L. 983 ( S c o t . ) , where Lord Westbury L.C., i n c o n s i d e r i n g whether a s u r e t y c o u l d compel the c r e d i t o r t o r e s o r t t o - or "d i s c u s s " - the p r i n c i p a l before seeking s a t i s f a c t i o n from the surety, s t a t e d : " I t i s q u i t e a misapprehension t o suppose t h a t there i s any e q u i t y e n t i t l i n g the s u r e t y to compel the c r e d i t o r t o d i s c u s s the p r i n c i p a l - unquestionably the s u r e t y has no r i g h t unless he pays the whole debt." - 89 -from c o - s u r e t i e s , and i n r e l y i n g on subrogation as a means of o b t a i n i n g the b e n e f i t of the r i g h t s , remedies, and s e c u r i t i e s of the c r e d i t o r and thereby b e t t e r s e c u r i n g reimbursement, the s u r e t y i s l i m i t e d by the amount a c t u a l l y p a i d by h i m s e l f or h e r s e l f , or by the value of h i s or her a c t u a l performance. 2 3 So, i f the s u r e t y s e t t l e s the c r e d i t o r ' s c l a i m f o r l e s s than the f u l l amount of the guaranteed debt, he or she cannot then recover the f u l l amount of the debt from the debtor, e i t h e r d i r e c t l y by way of reimbursement or i n d i r e c t l y through subrogation. The " b e n e f i t " conferred upon the debtor can be recovered, but no more. The s u r e t y i s e n t i t l e d t o r e s t i t u t i o n only, and i s not e n t i t l e d t o t u r n a p r o f i t on the t r a n s a c t i o n . 2 4 "Payment" or "performance" must, however, be proved by the sur e t y . I n t h i s regard, "payment" and "performance" mean payment or performance both i n f a c t and i n law. The l a t t e r requirement - payment or performance i n law - can be a source of cons i d e r a b l e d i f f i c u l t y . The reason f o r t h i s i s t h a t the mere f a c t of payment w i l l not of i t s e l f n e c e s s a r i l y amount t o "payment" i n law. The f a c t of payment, i n other words, i n the s u r e t y s h i p context, w i l l not n e c e s s a r i l y operate i n law as a discharge of the guaranteed debt. The payment may, f o r example, have been made i n circumstances i n which the l e g a l e f f e c t i v e n e s s o f the payment can be v i t i a t e d . This would be so, f o r example, i f the payment were made under duress, or under undue i n f l u e n c e . At law, the payment i n these circumstances may be v i t i a t e d , i n which event 2 3 Assessment of the value of performance - of s e r v i c e s i n other words - can be problematic. See g e n e r a l l y GOFF & JONES, pp. 18-22. 2 4 E x c e p t i o n a l l y , where the claimant can e s t a b l i s h a p r o p r i e t a r y r i g h t , r a t h e r than j u s t a personal c l a i m a g a i n s t the p r i n c i p a l debtor, the claimant may appear t o recover more than he or she conferred upon the debtor. See g e n e r a l l y , GOFF & JONES, chap. 2; FRIDMAN & McLEOD, chap. 20. - 90 -the payment w i l l not be h e l d t o be l e g a l l y e f f e c t i v e t o discharge the debt. The debt i n respect of which the payment was i n f a c t made w i l l a t law remain i n t a c t and enforceable by the c r e d i t o r a g a i n s t the debtor. Since the debt i s not thereby discharged, the payment i n f a c t confers no b e n e f i t i n law on the debtor - the p r i n c i p a l - a t the expense o f the payor. The law w i l l not, t h e r e f o r e , impose an o b l i g a t i o n on the debtor t o make r e s t i t u t i o n of the b e n e f i t t o the payor. The payor, however, w i l l not n e c e s s a r i l y be without any remedy. Since the c r e d i t o r can s t i l l sue the debtor f o r the debt, i t would be unjus t f o r the c r e d i t o r a l s o t o r e t a i n the payment made t o him or her by the payor. To l e t the c r e d i t o r do so would be t o a l l o w him or her u n j u s t l y to r e t a i n the b e n e f i t conferred upon the c r e d i t o r - the payment - a t the payor's expense. The p r i n c i p l e of u n j u s t enrichment would apply t o impose an o b l i g a t i o n on the c r e d i t o r t o e f f e c t r e s t i t u t i o n of the payment to the payor. This the law recognises, and a r e s t i t u t i o n a r y c l a i m may be brought by the payor ag a i n s t the c r e d i t o r f o r a simple money judgment, based on the t r a d i t i o n a l q u a s i - c o n t r a c t u a l count of "money had and r e c e i v e d " . 2 5 ( i i ) V o l u n t a r i n e s s and v o l i t i o n The question whether payment or performance by the s u r e t y of the guaranteed o b l i g a t i o n has con f e r r e d a b e n e f i t upon the p r i n c i p a l debtor so as t o g i v e r i s e t o a r e s t i t u t i o n a r y r i g h t of recovery from the p r i n c i p a l debtor may a r i s e i n a s l i g h t l y d i f f e r e n t form. For example, the payment may 2 5 See g e n e r a l l y , GOFF & JONES, chaps. 3,4, 9; FRIDMAN & McLEOD, chaps. 3, 4, 6. - 91 -have been made by someone who i s not a c t u a l l y bound t o pay i t but chooses to do so, without however i n t e n d i n g the payment t o be a g i f t t o the d e b t o r , 2 6 or by someone who f e l t compelled by circumstances t o pay i t even though he or she may not have p r e v i o u s l y agreed t o do so. The payor i n these cases encounters a d i f f e r e n t problem i n seeking recovery from the p r i n c i p a l debtor. I t i s a c a r d i n a l p r i n c i p l e o f the law of c r e d i t o r and debtor t h a t a person who i s a "stranger" t o the debt of another cannot " v o l u n t a r i l y " or " o f f i c i o u s l y " pay o f f t h a t debt, and thereby s u b s t i t u t e h i m s e l f as a c r e d i t o r o f t h a t other i n pla c e of the o r i g i n a l c r e d i t o r , a g a i n s t the wishes of the debtor. I f he or she purports t o do so, he or she w i l l i n general be denied r i g h t s of recovery from the debtor i n r e l a t i o n t o the payment. 2 7 T r a d i t i o n a l l y , the d e n i a l o f r i g h t s of recovery i n these circumstances has been j u s t i f i e d on the b a s i s t h a t n e i t h e r the common law nor e q u i t y w i l l r e q u i r e persons who have had " b e n e f i t s " " f o r c e d " upon them by others, a g a i n s t t h e i r wishes and without t h e i r request or acquiescence, t o pay f o r those b e n e f i t s . Such b e n e f i t s , i t i s s a i d , are conferred " v o l u n t a r i l y " or 2 6 G i f t s , i f e f f e c t e d i n the manner r e q u i r e d by law, cannot of course be recovered by the donor, whether on r e s t i t u t i o n a r y p r i n c i p l e s or otherwise. 2 7 The law does, however, a l l o w the payor t o ask the c r e d i t o r t o a s s i g n the debt t o the payor i n c o n s i d e r a t i o n of the payment. The debt w i l l then be enforceable by the assignee payor a g a i n s t the debtor, provided t h a t n o t i c e of the assignment i s given t o the debtor. The debtor's consent t o the assignment i s not necessary. See g e n e r a l l y : Halsbury, LAWS OF ENGLAND, (4th ed., 1974), v o l . 6, Choses i n A c t i o n . - 92 -" o f f i c i o u s l y " . 2 8 The essence of t h i s i s encapsulated i n the o f t - r e p e a t e d comment of P o l l o c k C.B. i n T a y l o r v L a i r d : 2 9 "One cleans another's shoes; what can the other do but put them on?" This approach does not deny th a t a " b e n e f i t " - the discharge of the debt e f f e c t e d by the payment i n the context of s u r e t y s h i p - was conferred upon the intended b e n e f i c i a r y of the payment. Rather, i t expresses the p e r c e p t i o n t h a t the b e n e f i c i a r y i s not i n any way "at f a u l t " i n the t r a n s a c t i o n ; having had the b e n e f i t forced upon him or her, he or she should not t h e r e f o r e be r e q u i r e d by the law t o make r e s t i t u t i o n t o the person who conferred the " u n s o l i c i t e d " b e n e f i t upon him or her. As between the two, using r e s t i t u t i o n a r y terminology, i t would be e q u a l l y , i f not more, "unjust" t o r e q u i r e the r e c i p i e n t to make r e s t i t u t i o n as i t would be t o l e t the person who conferred the b e n e f i t thereby s u f f e r a l o s s occasioned by h i s or her own " o f f i c i o u s " , "voluntary", or " u n s o l i c i t e d " conduct. 2 8 I t has, however, been pointed out t h a t terms such as " v o l u n t a r i l y " , " o f f i c i o u s l y " , and so on, are e f f e c t i v e l y j u s t a "form of l e g a l shorthand" used t o express the f a c t t h a t none of the numerous reasons t h a t serve t o negate " v o l u n t a r i n e s s " or " o f f i c i o u s n e s s " e x i s t s i n the p a r t i c u l a r case; see J.P. Dawson, UNJUST ENRICHMENT : A COMPARATIVE ANALYSIS (1951), pp. 127 e t seq•; see a l s o GOFF & JONES, pp. 42-44. Goff & Jones i d e n t i f y seven general grounds which they say w i l l serve t o negate a f i n d i n g of " o f f i c i o u s n e s s " . They are: ( i ) i f money had been p a i d under a mistake of f a c t ; ( i i ) i f l a n d has been mistakenly improved w i t h the defendant's acquiescence; ( i i i ) i f c h a t t e l s have been mistakenly improved; ( i v ) i f s e r v i c e s have been mistakenly rendered; (v) i f b e n e f i t s have been conferred under duress, or undue i n f l u e n c e , or compulsion of law; ( v i ) i f b e n e f i t s have been conferred under c o n t r a c t s v o i d f o r want of a u t h o r i t y , mistake or u n c e r t a i n t y ; and ( v i i ) i f b e n e f i t s have been conferred i n a n t i c i p a t i o n of a t r a n s a c t i o n which does not m a t e r i a l i s e ; GOFF & JONES, p. 43. Grounds ( i ) , ( v ) , ( v i ) and ( v i i ) can be a p p l i e d t o payments of money. 2 9 (1856) 25 L . J . Ex. 329, a t 332. - 93 -This use of the n o t i o n of " v o l u n t a r i n e s s " , or " o f f i c i o u s n e s s " , as a c o n t r o l device on recovery by the payor, i s another r e f l e c t i o n of the r e s i t u t i o n a r y nature of the surety's r i g h t s upon payment, i n c l u d i n g the r i g h t o f subrogation. As has alr e a d y been s e e n , 3 0 " v o l u n t a r i n e s s " or " o f f i c i o u s n e s s " i s one of the fundamental c o n t r o l devices b u i l t i n to the p r i n c i p l e of unju s t enrichment. Recently, however, i t has been suggested 3 1 t h a t there i s another, perhaps more fundamental reason why the " o f f i c i o u s s u r e t y " who purports t o pay o f f the debt o f another cannot recover from the debtor. The reason, i t i s s a i d , goes back t o the n o t i o n of " b e n e f i t " i t s e l f . The "voluntary" o r " o f f i c i o u s " payment, i t i s s a i d , does not i n law discharge the debt, c o n t r a r y t o the assumption made i n the above view. The debt i s o n l y discharged, i t i s s a i d , i f the payment was e i t h e r made w i t h the debtor's " a u t h o r i t y " , or was "subsequently r a t i f i e d " by the d e b t o r . 3 2 In the absence of a u t h o r i t y or r a t i f i c a t i o n , the debt i s not i n general discharged a t law, and no " b e n e f i t " i s t h e r e f o r e conferred upon the debtor. C o r r e l a t i v e l y , there can be no question of r e s t i t u t i o n a r y recovery of the payment by the sur e t y o r q u a s i - s u r e t y from the p r i n c i p a l debtor. To be e n t i t l e d t o r e s t i t u t i o n a r y recovery of the payment from the debtor, according t o t h i s view, i t i s incumbent upon the payor t o p o i n t t o something i n the circumstances surrounding the payment which shows t h a t the 3 0 Supra, p. 83. 3 1 For a d e t a i l e d d i s c u s s i o n of the a u t h o r i t i e s , see P. B i r k s & J . Beatson, "Unrequested Payment of Another's Debt", (1976) 92 L.Q.R. 188. See a l s o W.R.C., "Intervenors and Unjust Enrichment", (1975) 38 Mod. L.R. 563; D. Friedmann, "Payment of Another's Debt", (1983) 99 L.Q.R. 534; GOFF & JONES, pp. 16-18 (esp. a t n. 90), pp. 528-31. 3 2 GOFF & JONES, p. 17 (esp. a t n. 90). - 94 -payment was not made " v o l u n t a r i l y " , or t h a t even i f i t was made v o l u n t a r i l y , the debtor nonetheless subsequently "assented t o " or " r a t i f i e d " the payment. 3 3 Only then, i t i s s a i d , w i l l the law h o l d t h a t the debt has been e f f e c t i v e l y discharged; and on l y then can the payor c l a i m indemnity or reimbursement from the debtor, and c a l l i n a i d such f u r t h e r remedial techniques as subrogation. In s u r e t y s h i p cases, the s u r e t y w i l l g e n e r a l l y p o i n t e i t h e r t o the p r i o r agreement w i t h the debtor whereby the s u r e t y undertook t o pay the debt of the p r i n c i p a l , or t o a p r i o r request, express o r i m p l i e d , from the l a t t e r t o the former t o pay the debt, t o e s t a b l i s h t h a t a payment by the sur e t y was not v o l u n t a r y v i s - a - v i s the debtor. I f an agreement or a request i s e s t a b l i s h e d , t h i s w i l l l e a d t o the c o n c l u s i o n t h a t the payment was i n a general sense "authorised" by the debtor, and t h a t w i l l i n t u r n , according t o t h i s view, mean t h a t the debt i s considered discharged a t law by the payment. I f the payor cannot p o i n t e i t h e r t o p r i o r agreement, or t o a p r i o r request, then the payment w i l l prima f a c i e be "voluntary" i n the eyes of the law, and thus, i t i s s a i d , be i n e f f e c t i v e a t law. The payor may s t i l l be able t o d i s p e l t h i s c o n c l u s i o n , however, by p o i n t i n g i n s t e a d to subsequent "assent", or " r a t i f i c a t i o n " by the d e b t o r ; 3 4 something, i n other words, which amounts t o an adoption of the payment. I f t h i s i s proved, i t i s s a i d , i t w i l l e q u a l l y l e a d t o the l e g a l c o n c l u s i o n t h a t the payment was not "voluntary", t h a t i t was consequently l e g a l l y e f f e c t i v e t o discharge 3 3 Idem. B i r k s & Beatson, l o c . c i t . , use "assent t o " ; whereas Goff & Jones, us i n g the analogy of agency, t a l k o f subsequent " r a t i f i c a t i o n " , GOFF & JONES, p. 17, (esp. a t note 90). 3 4 Idem. - 95 -the debt, and t h a t the p r i n c i p a l d e b t o r 3 5 should a c c o r d i n g l y be prima f a c i e l i a b l e t o reimburse the payor. This a n a l y s i s of the payor's r i g h t s of recovery from the debtor thus places a premium upon the requirement of "payment" as a p r e r e q u i s i t e of the surety's r i g h t s , i n c l u d i n g the r i g h t s of subrogation. I f there i s payment i n f a c t , and some f a c t o r such as p r i o r agreement or request, or subsequent assent or r a t i f i c a t i o n , then, according t o t h i s view, two consequences f o l l o w : f i r s t , the payment i s not "voluntary"; and secondly, and i n consequence,the payment i s l e g a l l y e f f e c t i v e , and a " b e n e f i t " i s conferred on the d e b t o r . 3 6 The t r a d i t i o n a l approach, on the other hand, p l a c e s l e s s o f a premium upon payment and " b e n e f i t " as the main c o n t r o l device on r e s t i t u t i o n a r y recovery. Instead, i t considers t h a t a " b e n e f i t " has been conferred upon the debtor, but t h a t because i t was "fo r c e d " upon the debtor, " j u s t i c e " d i c t a t e s t h a t the debtor should not be made l i a b l e t o the payor. K l i p p e r t ' s f o r m u l a t i o n of the p r i n c i p l e of unjust enrichment 3 7 o f f e r s yet a t h i r d p o s s i b l e a n a l y s i s o f the payor's r i g h t s of recovery from the debtor. According t o K l i p p e r t , Canadian law has placed some emphasis on the n o t i o n of " v o l i t i o n " i n the r e c e i p t or r e t e n t i o n of a b e n e f i t as a c o n t r o l device on a r e s t i t u t i o n a r y c l a i m . I t i s not enough, he suggests, t h a t a 3 5 The payor and the debtor may be e q u a l l y l i a b l e , i n which case the payor's primary r i g h t i s t o c o n t r i b u t i o n , not reimbursement; see d i s c u s s i o n supra, p. 46 e t seq.. 3 6 Goff J . (as he then was) adopted t h i s "discharge or not?" approach i n B a r c l a y ' s Bank v Simms [1980] Q.B. 677, i n h o l d i n g t h a t a bank which had mist a k e n l y honoured a cheque i n d i s r e g a r d of a stop i n s t r u c t i o n was e n t i t l e d t o recover t h a t sum from the payee. But see Friedmann, l o c .  c i t . , pp. 546-47. 3 7 Supra, pp. 83-84. - 96 -b e n e f i t has been conferred, and t h a t i t was not conferred v o l u n t a r i l y ; there must be evidence of v o l i t i o n on the p a r t of the person on whom the b e n e f i t was conferred before a r e s t i t u t i o n a r y r i g h t of recovery should be recognised. Applying t h i s t o the problem of the "voluntary" payment, one could t h e r e f o r e say t h a t i t i s the exi s t e n c e of v o l i t i o n i n the r e c e i p t or r e t e n t i o n of the b e n e f i t t h a t w i l l u l t i m a t e l y d i c t a t e whether or not the p r i n c i p a l debtor i s l i a b l e t o the surety. Payment by a "stranger" w i l l prima f a c i e be "voluntary", and w i l l n e i t h e r discharge the debt, nor confer a b e n e f i t upon the debtor, unless the debtor has, i n other words, done something- " v o l i t i o n a l " t o make t h a t payment l e g a l l y e f f e c t i v e . What the debtor does, of course, t h a t evidences and e s t a b l i s h e s t h i s necessary element of " v o l i t i o n " i s (1) t o c o n t r a c t f o r or request the payment p r i o r t o payment, or (2) assent t o or r a t i f y i t a f t e r the f a c t of payment. H i s " v o l i t i o n " transforms what would otherwise be an i n e f f e c t i v e "voluntary" payment i n t o a l e g a l l y e f f e c t i v e payment t h a t discharges the debt and thereby confers a b e n e f i t on the debtor. The debtor's r e s t i t u t i o n a r y l i a b i l i t y t o the s u r e t y who made the payment on the debtor's behalf thus r e s t s i n substance on the debtor's own a c t i o n s or conduct. The i n j u s t i c e of l e t t i n g the debtor r e t a i n the b e n e f i t i s a l l the more heightened. There i s , however, a t h i r d general means of negating the suggestion t h a t a payment was made " v o l u n t a r i l y " and thus can not be the b a s i s of a r e s t i t u t i o n a r y r i g h t of recovery. This i s t o show t h a t there was some other f a c t o r i n the circumstances of the case, besides agreement or request, t h a t " l e g a l l y compelled" the payor t o make the payment i n the f i r s t p l a c e . 3 8 One 3 8 Of course, the payor may a l s o be s a i d t o have been " l e g a l l y compelled" by v i r t u e o f the guarantee he or she gave pursuant t o an agreement w i t h the debtor (and perhaps a l s o w i t h the c r e d i t o r ) . - 97 -such f a c t o r would be a s t a t u t o r y p r o v i s i o n , as i n Brook's Wharf & B u l l  Wharf L t d . v Goodman B r o s . , 3 9 where the p l a i n t i f f s were compelled by s t a t u t e t o pay customs d u t i e s which the defendants were p r i m a r i l y l i a b l e t o pay. That l e g a l compulsion meant t h a t the p l a i n t i f f s ' payment was not "voluntary" or " o f f i c i o u s " i n the eyes of the law, but was f u l l y e f f e c t i v e at law i n d i s c h a r g i n g the defendants' l i a b i l i t y to pay the customs d u t i e s . Since, under the s t a t u t e , the defendants were p r i m a r i l y l i a b l e f o r payment of the d u t i e s , the p l a i n t i f f s were t h e r e f o r e e n t i t l e d t o recover the amount of the payment by way of d u t i e s from the d e f e n d a n t s . 4 0 Furthermore, i t would seem t h a t the p l a i n t i f f s would be e n t i t l e d , by v i r t u e of t h e i r r i g h t of subrogation, to have the b e n e f i t of the r i g h t s and remedies of the Crown, as the p a i d - o f f c r e d i t o r , a g a i n s t the defendants, as the p r i n c i p a l d e b t o r . 4 1 In the absence, t h e r e f o r e , of agreement, request, subsequent r a t i f i c a t i o n , or some other f a c t o r g i v i n g r i s e t o l e g a l compulsion, there i s then l i t t l e l i k e l i h o o d of recovery from the debtor on a r e s t i t u t i o n a r y b a s i s , whether t h i s i s so because there was no " b e n e f i t " c onferred on the debtor by the payment, because any b e n e f i t t h a t was conferred was 3 9 [1937] 1 K.B. 534. 4 0 I b i d . , a t 546. * 4 1 There i s one important general c o n s t r a i n t upon recovery where the payor says t h a t he or she was " l e g a l l y compelled" t o pay the debt, whether by v i r t u e o f some " e x t e r n a l " f a c t o r , or of a guarantee agreement w i t h the c r e d i t o r (without the debtor's agreement, request, or subsequent r a t i f i c a t i o n ) . The payor must a l s o show t h a t he or she d i d not v o l u n t a r i l y or o f f i c i o u s l y c r e a t e , or subject h i m s e l f or h e r s e l f t o , the circumstances or f a c t o r subsequently g i v i n g r i s e t o the l e g a l compulsion t o pay. The payor cannot, i n other words, v o l u n t a r i l y assume l i a b i l i t y and then purport to r e l y on payment pursuant t o t h a t l e g a l l i a b i l i t y i n order t o r a i s e a r i g h t of recovery a g a i n s t the debtor. This was e s s e n t i a l l y what happened i n Owen v Tate [1976] Q.B. 402; discussed i n f r a , p. 98 et seq.. - 98 -" v o l u n t a r i l y " or " o f f i c i o u s l y " " forced" upon the debtor, o r because there was no v o l i t i o n on the p a r t of the debtor i n r e c e i v i n g or r e t a i n i n g any b e n e f i t . The payor consequently obtains n e i t h e r r i g h t s of reimbursement ag a i n s t the debtor, nor, c o r r e l a t i v e l y , r i g h t s of subrogation t o a s s i s t i n o b t a i n i n g reimbursement. Nevertheless, the payor should not be considered e n t i r e l y without remedy. As i n the case of a v i t i a t e d payment, he or she should i n p r i n c i p l e be e n t i t l e d t o recover from the c r e d i t o r the money p a i d t o the c r e d i t o r , r e l y i n g e s s e n t i a l l y on the q u a s i - c o n t r a c t u a l , or r e s t i t u t i o n a r y , c l a i m of money had and r e c e i v e d based upon a t o t a l f a i l u r e of c o n s i d e r a t i o n . 4 2 Thus, i t i s t h e o r e t i c a l l y p o s s i b l e t o see concepts t h a t l i e a t the heart of the law of r e s t i t u t i o n and form elements of the p r i n c i p l e of unj u s t enrichment evidenced and r e f l e c t e d i n the law governing s u r e t i e s and t h e i r r i g h t s upon payment, i n c l u d i n g the r i g h t of subrogation. I t has t o be s a i d , however, t h a t the case-law i n t h i s regard has not always a p p l i e d these concepts c o n s i s t e n t l y . One p a r t i c u l a r case i n t h i s regard which has been the focus of a great d e a l of c r i t i c i s m i s the r e l a t i v e l y recent d e c i s i o n of the E n g l i s h Court of Appeal i n Owen v T a t e . 4 3 ( i i i ) Owen v T a t e 4 4 - an i l l u s t r a t i v e case Owen v Tate does not e x p r e s s l y r e l a t e t o or consider subrogation. T h i s , as w i l l be seen, i s one of the c r i t i c i s m s d i r e c t e d a t the Court of 4 2 B i r k s & Beatson, l o c . c i t . , p. 205; GOFF & JONES, p. 17 (n. 90). 4 3 [1976] Q.B. 402. 4 4 Idem. - 99 -Appeal. Nonetheless, i t i s perhaps the l e a d i n g recent case i n E n g l i s h law upon the nature and e f f e c t of "voluntary" or " o f f i c i o u s " payments by a surety, and t h e r e f o r e j u s t i f i e s c o n s i d e r a t i o n i n some d e t a i l . The f a c t s were r e l a t i v e l y simple. Mr and Mrs Tate obtained a lo a n from Lloyds Bank. I t was secured by a charge by way of l e g a l mortgage upon the property of a Miss L i g h t f o o t . Owen, who was i n no way connected w i t h the t r a n s a c t i o n , but was a former employer of Miss L i g h t f o o t , was subsequently approached by her f o r advice as t o how t o r e g a i n her deeds from the bank. To h e l p her, but without c o n s u l t i n g the Tates, Owen deposited £350 w i t h Lloyds Bank and signed a form of guarantee by which he guaranteed payment of a l l money, l i m i t e d t o £350, due, owing, or i n c u r r e d t o Lloyds Bank by the Tates. The bank thereupon, apparently a g a i n s t the p r o t e s t of the Tates, r e l e a s e d Miss L i g h t f o o t from her o b l i g a t i o n s t o the bank and returned her deeds. Subsequently, the bank a p p l i e d the £350 i n repayment of the Tates' debt t o the bank. Various l e t t e r s w r i t t e n on behalf o f the Tates p r i o r t o the bank ap p l y i n g the £350 t o s e t t l e t h e i r debt appeared t o i n v i t e the bank to c l e a r the debt by recourse t o the £350 deposited by Owen. 4 5 Owen brought an a c t i o n a g a i n s t the Tates c l a i m i n g reimbursement of the sum of £350.' He argued t h a t he was a surety, t h a t he had e f f e c t e d payment of the guaranteed debt pursuant t o the guarantee given by him t o the bank, and t h a t he was thereby, on e s t a b l i s h e d p r i n c i p l e s , e n t i t l e d t o reimbursement from the Tates. P a r t i c u l a r r e l i a n c e was placed upon a passage of Greene L.J. i n I n re A D e b t o r . 4 6 S p e c i f i c a l l y , i n c o n s i d e r i n g the 4 5 There was some dis p u t e as t o the f a c t s on t h i s p o i n t . 4 6 [1937] Ch. 156, a t 166. - 100 -when r i g h t s of reimbursement were created i n a c o n t r a c t u a l s u r e t y s h i p case, Greene L . J . commented:4 7 "A question may a r i s e as t o the a p p l i c a t i o n o f the sub-section [under c o n s i d e r a t i o n i n t h a t case] i n a case where a guarantee i s given without any antecedent request on the p a r t of the debtor. That case i s merely one example of a number of cases where the law r a i s e s an  o b l i g a t i o n t o indemnify i r r e s p e c t i v e of any a c t u a l antecedent  c o n t r a c t u a l r e l a t i o n s h i p between the p a r t i e s . " 4 8 This passage, argued Owen, a p p l i e d t o h i s payment. He had been "compelled by law", he argued, as a r e s u l t of the guarantee he had entered i n t o , and the Tates' a c t i o n s , t o "pay" 4 9 the debt i n circumstances which should l e a d the law t o impose an o b l i g a t i o n of reimbursement upon the Tates. The Tates r e s i s t e d Owen's cl a i m . H i s argument, they r e p l i e d , was f a u l t y . Owen, they s a i d , had acted " v o l u n t a r i l y " o r " o f f i c i o u s l y " i n e n t e r i n g i n t o the guarantee i n the f i r s t p l a c e . How then, they asked, c o u l d he say t h a t he had t h e r e f o r e been "compelled by law" t o "pay" the debt? Owen had fo r c e d h i m s e l f upon them, they argued, i n circumstances such t h a t they had had no choice but t o accept the b e n e f i t of h i s payment. The law, they argued, would go too f a r were i t t o impose an o b l i g a t i o n of reimbursement upon them on those f a c t s . 4 7 I b i d . . a t 166. 4 8 Emphasis added. 4 9 "Payment" on the f a c t s of t h i s case r e a l l y r e f e r r e d t o the a p p l i c a t i o n of the funds, p r e v i o u s l y deposited by Owen, by the bank i n settlement of the Tates' debt t o the bank. This the bank d i d pursuant t o the guarantee Owen had given, t o the bank. C l e a r l y , Owen was not "compelled by law" t o enter t h a t guarantee or deposit the funds w i t h the bank. The " l e g a l compulsion" occurred when the bank enforced t h a t guarantee a g a i n s t him and a p p l i e d the funds on d e p o s i t , pursuant t o the Tates' i n v i t a t i o n t o do so. I t was o n l y a t t h i s p o i n t t h a t there c o u l d be s a i d t o be "payment" of the debt. - 101 -The d i f f i c u l t y w i t h t h i s argument, countered Owen, was t h a t the Tates had "requested" the bank t o have recourse t o the fund deposited by him w i t h the bank, i n order t o discharge t h e i r debt. Without t h a t , he argued, the bank would not have had recourse t o Owen pursuant t o the terms of the guarantee. Even i f h i s i n i t i a l a c t i o n s were "voluntary" or " o f f i c i o u s " , as c e r t a i n l y i t seems they were, t h i s "request", he argued, evidenced the Tates' adoption of h i s payment t o t h e i r advantage. That, he argued, j u s t i f i e d the law i n imposing an o b l i g a t i o n of reimbursement upon them. The Court of Appeal r u l e d a g a i n s t Owen. In the view of Scarman L . J . , w i t h whom both Stephenson and Ormrod L . J J . broadly a g r e e d , 5 0 there was a need f o r : "a broad approach ... t o the question whether i n circumstances such as these a r i g h t of indemnity a r i s e s , and t h a t broad approach r e q u i r e s the court to look a t a l l the circumstances of the case. ... [T]he fundamental question i s whether i n the circumstances i t was reasonably necessary i n the i n t e r e s t s of the volunteer or the person f o r whom the payment was made, or both, t h a t the payment should be made -whether i n the circumstances i t was ' j u s t and reasonable' t h a t a r i g h t of reimbursement should a r i s e . " 5 1 On the other hand, Owen was c l e a r l y a "volunteer" a t the time he p u r p o r t e d l y assumed l i a b i l i t y as the Tates' surety: "[Owen] assumed the o b l i g a t i o n of a guarantor behind the back of the [Tates] a g a i n s t t h e i r w i l l , and d e s p i t e t h e i r p r o t e s t . ... [Owen] was as absolute a volunteer as one c o u l d conceivably imagine anyone t o be when assuming an o b l i g a t i o n f o r the debt of a n o t h e r . " 5 2 On those f a c t s alone, Owen would c l e a r l y have no r i g h t s of recovery from Tates. The important question, t h e r e f o r e , was whether the l a t e r a c t i o n s of 5 0 Both judges, however, added t h e i r own comments on the reasons f o r the f a i l u r e of the p l a i n t i f f ' s c l a i m . 5 1 [1976] Q.B. 402, a t 409-10. 5 2 I b i d . , a t 410. - 102 -the Tates i n apparently "requesting" the bank t o have recourse t o Owen's funds t o pay o f f t h e i r debt a l t e r e d the l e g a l p o s i t i o n ? "[M]ust one read the subsequent l e t t e r s t o the bank ... as an adoption by the [Tates] ... of a b e n e f i t c onferred upon them by the p l a i n t i f f ? " 5 3 Scarman L. J . went on: "[The Tates] never wished t o l o s e the s e c u r i t y of Miss L i g h t f o o t ' s deeds. They l o s t i t through circumstances o u t s i d e t h e i r c o n t r o l and notwithstanding t h e i r p r o t e s t . When the bank decided to c a l l i n the debt the defendants no longer had the s e c u r i t y f o r the o v e r d r a f t which was acceptable t o them: they had t o put up w i t h a s e c u r i t y which without t h e i r consent or a u t h o r i t y had been s u b s t i t u t e d by [Owen] ... f o r t h a t which was, or had been, acceptable t o them and agreed by them. I do not c r i t i c i s e the [Tates] ..., nor do I t h i n k they can be reasonably c r i t i c i s e d , f o r making the best of the s i t u a t i o n i n which they then found themselves, a s i t u a t i o n which they d i d not d e s i r e , and one which I doubt ever appeared t o them as b e n e f i c i a l . " 5 4 He concluded: "[Owen] ... has f a i l e d t o make out a case t h a t i t would be j u s t and reasonable i n the circumstances t o grant him a r i g h t t o reimbursement." 5 5 Scarman L . J . then formulated what he thought was "the t r u e p r i n c i p l e of the matter ... without reference t o v o l u n t e e r s or t o the compulsions of the l a w " : 5 6 " I f without an antecedent request a person assumes an o b l i g a t i o n or makes a payment f o r the b e n e f i t o f another, the law w i l l , as a general r u l e , r efuse him a r i g h t of indemnity. But i f he can show t h a t i n the p a r t i c u l a r circumstances of the case there was some n e c e s s i t y f o r the o b l i g a t i o n t o be assumed, then the law w i l l grant him a r i g h t of reimbursement i f i n a l l the circumstances i t i s j u s t and reasonable t o do s o . " 5 7 5 3 I b i d . , a t 411. 5 4 Idem. 5 5 Idem. 5 6 Idem. 5 7 I b i d . , a t 411-12. - 103 -Stephenson L . J . , i n agreeing, 5 8 commented t h a t he c o u l d not see: " i n the circumstances of l o a n and guarantee as f a r as they emerged a t t h i s t r i a l any s u f f i c i e n t reason f o r imposing t h a t o b l i g a t i o n t o indemnify on t h i s debtor i n favour of t h i s guarantor. ... [Owen] was not under such c o n s t r a i n t as may be one of the ways of c r e a t i n g a r i g h t which i t i s j u s t and reasonable t h a t a guarantor should have, as a general r u l e , t o be indemnified by the debtor whose debt he has  d i s c h a r g e d . " 5 9 Ormrod L . J . a l s o a g r e e d , 6 0 but was more cautious i n h i s general approach t o the question c o n f r o n t i n g the c o u r t . He o b s e r v e d : 6 1 "This case demonstrates c l e a r l y ... the wisdom of the common law approach t o the v o l u n t e e r , which may be c a u t i o u s , and perhaps unkind, i f not c y n i c a l , because looked a t s u p e r f i c i a l l y t h i s case c o u l d be s a i d t o be one i n which the [Tates] . . . had acquired a c o n s i d e r a b l e b e n e f i t from the a c t s of ... [Owen] and had given nothing i n r e t u r n . But a glance through the correspondence i n d i c a t e s t h a t the t r a n s a c t i o n i n t h i s case i s only a p a r t of a much more complex s e r i e s of t r a n s a c t i o n s which have been going on between v a r i o u s people f o r some years. ... I f i n d i t q u i t e impossible t o s o r t out the r i g h t s and wrongs i n t h i s case, and c e r t a i n l y q u i t e impossible t o say whether or not the [Tates] ... i n f a c t r e c e i v e d a b e n e f i t by [Owen] ... undertaking an o b l i g a t i o n of guarantor which had p r e v i o u s l y been undertaken by Miss L i g h t f o o t . I t seems t o me p o s s i b l e t h a t the [Tates'] ... p o s i t i o n was worsened ... by the i n t r u s i o n of [Owen] ... r a t h e r than helped ...". The Court of Appeal thus dismissed Owen's c l a i m f o r reimbursement from the Tates. What, i n the view of the recent w r i t e r s , i s wrong w i t h the d e c i s i o n ? Broadly speaking, two general c r i t i c i s m s have been l e v e l l e d a t the reasoning of the members of the Court of Appeal. The f i r s t i s t h a t the members of the Court of Appeal f a i l e d i n substance t o d i r e c t t h e i r minds t o the question whether Owen's payment had e f f e c t i v e l y discharged the debt a t 5 8 I b i d . , a t 412. 5 9 I b i d . , a t 413. [Emphasis added] 6 0 Idem. 61 Idem. - 104 -l a w . 6 2 The c o n c l u s i o n the judges came t o , i t i s s a i d , i s i n t e r n a l l y i n c o n s i s t e n t . As Goff and Jones a r g u e : 6 3 " i n E n g l i s h Law a debt can o n l y be discharged w i t h the consent or subsequent r a t i f i c a t i o n of the debtor. I f the debt had been discharged by the surety's payment, i t can o n l y have been because the debtor has adopted t h a t payment; the p l a i n t i f f should have been able t o recover from the debtor. However, i n Owen v Tate, the Court of Appeal found t h a t the debtor had not adopted the payment, even though 'they i n v i t e d the bank [the c r e d i t o r ] t o c l e a r t h e i r o v e r d r a f t by recourse t o the p l a i n t i f f . ' I t must f o l l o w t h a t the debt was not discharged a t law. In such circumstances, the p l a i n t i f f should normally be able t o recover h i s payment from the c r e d i t o r on the ground of t o t a l f a i l u r e of c o n s i d e r a t i o n . " In other words, recovery from the Tates was denied because Owen's payment was not l e g a l l y e f f e c t i v e ; y e t recovery from the . bank on the ground of t o t a l f a i l u r e of c o n s i d e r a t i o n was a l s o denied. T h i s , i t would seem, meant t h a t the payment must have been l e g a l l y e f f e c t i v e , a t l e a s t as between Owen and the bank. Goff and Jones suggest an exp l a n a t i o n f o r t h i s : 6 4 "In Owen v Tate, however, i t would appear t h a t the bank would have been able t o r e t a i n i t s payment, f o r the bank had r e l e a s e d another . s u r e t y , a t the p l a i n t i f f ' s request and i n c o n s i d e r a t i o n of h i s guarantee." The r e s u l t , Goff and Jones argue, i s t h a t : "The bank would then be a t law i n a p o s i t i o n t o r e t a i n the p l a i n t i f f ' s payment and t o recover the debt, which i s a p a l p a b l y i n d e f e n s i b l e r e s u l t . Conversely, i f the bank d i d not sue f o r the debt, the debtor would be i n c o n t r o v e r t i b l y b e n e f i t e d . " 6 5 B i r k s and Beatson, i n a d e t a i l e d c o n s i d e r a t i o n of the law regarding 6 2 Stephenson L . J . assumed i t had, as i s c l e a r from the passage quoted a t n. 59 above. N e i t h e r Scarman nor Ormrod L . J J . e x p r e s s l y decided whether the payment discharged the debt i n law. 6 3 GOFF & JONES, p. 530. 6 4 Idem.  6 5 Idem. - 105 -the payment of another's d e b t , 6 6 a l s o c r i t i c i s e the d e c i s i o n i n Owen v Tate on t h i s score. They argue t h a t Owen's c l a i m c o u l d not be supported on the ground t h a t Owen had been " l e g a l l y compelled" t o pay the debt when he was onl y s e c o n d a r i l y l i a b l e f o r i t , s i n c e there i s : "no b a s i s f o r adve r s e l y d i s t i n g u i s h i n g the p o s i t i o n of one who v o l u n t a r i l y assumes an o b l i g a t i o n t o pay and then pays from t h a t of one who merely p a y s . " 6 7 I n e i t h e r case, the payor i s simply a "volunteer". Owen's "strong q u a s i -c o n t r a c t u a l " c l a i m , as they termed i t , 6 8 based on " l e g a l compulsion", was, th e r e f o r e , c o r r e c t l y dismissed. But, they argue, Owen could a l s o r a i s e what they termed a "weak q u a s i -c o n t r a c t u a l " c l a i m , based upon the f a c t t h a t the debtor had subsequently "approved" the payment. The general r u l e , where payment has been assented t o , they submit, i s : "the v o l u n t e e r can recover from an ass e n t i n g debtor, unless the assent i s given i n the b e l i e f t h a t the i n t e r v e n e r acted donandi animo or i s not m a t e r i a l t o the p e r f e c t i o n of the d i s c h a r g e . " 6 9 Since, on the f a c t s , assent appeared t o e x i s t , and s i n c e there was no ques t i o n of Owen a c t i n g donandi animo, prima f a c i e recovery by the payor should have been permitted; yet recovery was denied. The exp l a n a t i o n f o r t h i s , they suggest, must be t h a t the assent was "not m a t e r i a l to the p e r f e c t i o n of the discharge"; t h a t : 6 6 B i r k s & Beatson, l o c . c i t . . 6 7 I b i d . , p. 209. 6 8 The terms "strong q u a s i - c o n t r a c t " and "weak q u a s i - c o n t r a c t " were adopted by B i r k s and Beatson from an e a r l i e r a r t i c l e by B i r k s , " R e s t i t u t i o n f o r S e r v i c e s " , (1974) 27 C.L.P. 13, 13-14. 6 9 B i r k s & Beatson, l o c . c i t . , p. 209. - 106 -"contra r y t o the u s u a l r u l e [regarding v o l u n t a r y payments], t h i s v o l u n t a r y payment a u t o m a t i c a l l y discharged the d e b t . " 7 0 But, i n t h e i r view, there was n e i t h e r a u t h o r i t y nor reason f o r drawing such a d i s t i n c t i o n between a payment by a person who had v o l u n t a r i l y assumed l i a b i l i t y t o pay and then p a i d pursuant t o the " l e g a l compulsion" of t h a t l i a b i l i t y , and a s t r a i g h t f o r w a r d payment. Both cases were e q u a l l y c l a s s i f i a b l e as "voluntary". I f payment i n the l a t t e r case does not a u t o m a t i c a l l y discharge the debt, there i s no reason, they argue, why i t should do so i n the former c a s e . 7 1 The r e s t i t u t i o n a r y consequences f o r the payor i f the debt was a u t o m a t i c a l l y discharged i n the former case, they argued, would be "savage". 7 2 But i f t h a t was the law, then assent was m a t e r i a l , indeed c r u c i a l , t o the r e s u l t of the case. I f i t e x i s t e d , then the debt was discharged a t law and recovery from the debtor was normally granted. I f i t d i d not, then the debt was not discharged and no recovery was p o s s i b l e : " i f the payment d i d not a u t o m a t i c a l l y discharge the debt, the respondent's discharge l a y i n h i s own e l e c t i o n and h i s assent s a t i s f i e d the c o n d i t i o n s f o r the weak q u a s i - c o n t r a c t u a l c l a i m . " 7 3 This "weak q u a s i - c o n t r a c t u a l " c l a i m , they observe, was not, i n substance, considered by the Court of Appeal, which i n s t e a d : " t r e a t e d ... [Owen's] case as r e s t i n g s o l e l y on strong q u a s i - c o n t r a c t and, i n p a r t i c u l a r , on the question whether secondary l i a b i l i t y , however i n c u r r e d , was i n v a r i a b l y s u f f i c i e n t to negative the v o l u n t a r y c h a r a c t e r of the payment." 7 4 7 0 Idem. 7 1 I b i d . , p. 209-10. 7 2 I b i d . , p. 210. 7 3 I b i d . , p. 209. 7 4 I b i d . , p. 208. - 107 -Since t h a t q uestion, they a g r e e d , 7 5 had t o be answered a g a i n s t Owen, h i s c l a i m f o r reimbursement was i n e v i t a b l y dismissed. Both Goff and Jones, and B i r k s and Beatson, thus c r i t i c i s e the d e c i s i o n of the Court of Appeal i n Owen v Tate f o r f a i l i n g t o consider or analyse c o h e r e n t l y the l e g a l e f f e c t of Owen's payment i n r e l a t i o n t o the debt. Had the judges i n the case done t h a t a n a l y s i s , both se t s of w r i t e r s suggest, the d e c i s i o n may have been d i f f e r e n t . In the f i r s t p l a c e , as j u s t d iscussed, i f the c o u r t had e x p r e s s l y h e l d t h a t the Tates had adopted or assented t o the payment, then the payment could not be s a i d t o be "voluntary". A c c o r d i n g l y , the debt would have t o be considered discharged, and t h i s would i n t u r n l e a d t o a r i g h t of recovery from the b e n e f i c i a r y of the payment, i e . the Tates. In other words, i f the court had a p p l i e d the law regarding discharge of debts as these w r i t e r s a s s e r t i t t o be, then the exi s t e n c e of assent ought t o have l e d t o recovery. I f , however, a f t e r a n a l y s i s , the cour t concluded t h a t the Tates had not "assented", and the debt was h e l d not t o have been discharged by Owen's payment, then the r e s u l t would prima f a c i e be t h a t the Tates never r e c e i v e d the " b e n e f i t " of Owen's payment, and recovery from them ought consequently t o be denied, as indeed i t was. Prima f a c i e , t h i s a n a l y s i s does not a f f e c t the question of the r i g h t s of recovery from the bank on the b a s i s o f t o t a l f a i l u r e of c o n s i d e r a t i o n . Both s e t s of w r i t e r s agree t h a t i f the debt was not l e g a l l y discharged, a c l a i m a g a i n s t the bank would s t i l l probably f a i l because, on the f a c t s , the bank's agreement t o discharge Miss Lightwood and accept Owen i n her pla c e 7 5 I b i d . , p. 209. - 108 -as s u r e t y would c o n s t i t u t e s u f f i c i e n t c o n s i d e r a t i o n t o prevent Owen c l a i m i n g t o t a l f a i l u r e of c o n s i d e r a t i o n . The bank could, i n other words, r e t a i n the payment as aga i n s t Owen, even though as a g a i n s t the Tates the payment d i d not discharge t h e i r debt a t law. This would l e a d i n theory t o the anomalous r e s u l t t h a t , s i n c e the debt remains due, the c r e d i t o r bank could enforce i t a g a i n s t the Tates, thereby r e c o v e r i n g t wice; I f i t chose not t o do so, then, say Goff and Jones, t h i s would confer an " i n c o n t r o v e r t i b l e b e n e f i t " upon the T a t e s . 7 6 The r e s u l t , they a s s e r t , would be "palpably i n d e f e n s i b l e " . 7 7 This suggests t o them t h a t perhaps something was overlooked by the cour t i n Owen v Tate. That something, they and other w r i t e r s suggest, i s s u b r o g a t i o n . 7 8 Goff and Jones, f o r example, argue t h a t : 7 9 "though the s u r e t y may have been o f f i c i o u s v i s - a - v i s the debtor, he had not acted o f f i c i o u s l y v i s - a - v i s the c r e d i t o r , the bank, which v o l u n t a r i l y and c o n s c i o u s l y accepted h i s s u r e t y s h i p and h i s payment. For t h a t reason, and t o prevent the p o s s i b i l i t y of the bank's un.just  enrichment, the s u r e t y should i n such circumstances be e n t i t l e d t o be subrogated t o the bank." Thus, even though Owen may not have been e n t i t l e d t o a d i r e c t r i g h t of reimbursement from the Tates, on the ground t h a t h i s payment was "voluntary" or " o f f i c i o u s " , i t i s s a i d t h a t he should nonetheless on the 7 6 GOFF & JONES, p. 530. 7 7 Idem. 7 8 Other methods a l s o present themselves as a means of a v o i d i n g t h i s r e s u l t . Goff & Jones suggest t h a t i t might be considered a fraud on the payor were the c r e d i t o r t o seek recovery o f the debt from the debtor (see Hirachand Punamchand v Temple [1911] 2 K.B. 330); or t h a t there may i n these circumstances be a defence i n e q u i t y (see Porteous v Watney (1873) 3 Q.B.D. 534, a t 540, per Thesinger L . J . ) ; GOFF & JONES, p. 530 (at n. 57). Other methods which suggest themselves i n c l u d e perhaps estoppel by conduct, and c o n s t r u c t i v e t r u s t . 7 9 GOFF & JONES, pp. 530-31. [Emphasis added] - 109 -f a c t s of the case have been subrogated t o the r i g h t s of the bank ag a i n s t the Tates, i n c l u d i n g i n p a r t i c u l a r - perhaps even l i m i t e d t o 8 0 - the bank's personal c l a i m a g a i n s t the Tates on the debt. In t h i s way, argue Goff and Jones, r e s t i t u t i o n c o u l d be done between Owen, the Tates, and the bank, where i t would not otherwise b e . 8 1 They are, a c c o r d i n g l y , c r i t i c a l of the the Court of Appeal i n Owen v Tate f o r not having considered subrogation i n t h i s way. B i r k s and Beatson l e v e l the same c r i t i c i s m a t the Court of Appeal i n Owen v Tate. Owen, they a s s e r t , should have been e n t i t l e d t o subrogation on the f a c t s of the case as a means of e f f e c t i n g recovery from the debtor: " I f we are wrong t o argue t h a t the v o l u n t a r y surety's payment does not a u t o m a t i c a l l y discharge the p r i n c i p a l debt [ i e . the payment does discharge the debt even though i t i s 'voluntary' i n the sense t h a t i t was n e i t h e r p a i d pursuant t o a p r i o r agreement or request nor given e f f e c t t o by the assent of the d e b t o r ] , we t h i n k t h a t he ought nevertheless t o be subrogated t o the c r e d i t o r ' s r i g h t s a g a i n s t the debtor i n order t o recoup h i s payment." 8 2 Such a r i g h t , they concede, would: " c o n f l i c t w i t h a b a s i c r u l e of r e s t i t u t i o n , namely t h a t a v o l u n t e e r cannot recover from h i s b e n e f i c i a r y unless the c o n d i t i o n s of the weak 8 0 Goff & Jones suggest t h a t i t i s a " d i s t i n c t question whether a s u r e t y whose guarantee has been accepted by the c r e d i t o r should succeed t o the c r e d i t o r ' s l i e n over s e c u r i t i e s deposited by the debtor"; GOFF & JONES, p. 530 (at n. 57a). 8 1 I t i s not e n t i r e l y c l e a r , however, whether Goff & Jones see t h i s argument f o r subrogation as a p p l y i n g o n l y i n the event t h a t the payment d i d not discharge the debt a t law, or a l s o i n the event t h a t the payment does discharge the debt a t law but s t i l l does not give r i s e t o a r i g h t o f reimbursement because the payor " t h r u s t h i m s e l f on the debtor", (GOFF & JONES, p. 530). T h e i r e a r l i e r comments regarding adoption of the debt suggest the former, s i n c e they are u n q u a l i f e d i n a s s e r t i n g t h a t a r i g h t of recovery from the debtor a r i s e s where the debt has been discharged at law. 8 2 B i r k s & Beatson, l o c . c i t . , p. 210. - 110 -q u a s i - c o n t r a c t u a l c l a i m are s a t i s f i e d . I t would t h e r e f o r e be an anomaly w i t h i n the law of r e s t i t u t i o n ... " . 8 3 The " j u s t i f i c a t i o n " f o r c o n f e r r i n g such a r i g h t , they continue, "would be t h a t the d e n i a l of r e s t i t u t i o n i s e q u a l l y anomolous s i n c e , from the narrower p e r s p e c t i v e of the law r e l a t i n g t o v o l u n t a r y discharge, the unintended consequence of the r u l e decreeing automatic discharge i s t o render the p o s i t i o n o f the v o l u n t a r y s u r e t y u n i q u e l y h a r d . " 8 4 B i r k s and Beatson thus advocate the c o n f e r r a l of a r i g h t of subrogation upon the "voluntary" or " o f f i c i o u s " payor i n the event t h a t the debt i s a t law discharged by the payment; but not, i t would seem, i n the event t h a t the debt i s not discharged. In t h e i r view, the f a c t t h a t the debt has been discharged means t h a t the debtor has t h e r e f o r e been "be n e f i t e d " by the payment. Subrogation, they argue, would r e l i e v e the debtor of the unjust enrichment he would thereby otherwise o b t a i n a t the payor's expense. Though both Goff and Jones, and B i r k s and Beatson, thus advocate the use o f subrogation as a means of remedying the " i n j u s t i c e " apparent, i n t h e i r views, i n Owen v Tate, and c r i t i c i s e the Court of Appeal f o r not having considered t h i s , there are marked d i f f e r e n c e s between t h e i r r e s p e c t i v e arguments. Most s i g n i f i c a n t l y , whereas Goff and Jones argue t h a t subrogation should be used t o confer on the payor r i g h t s of recovery a g a i n s t the debtor i n order t o prevent the c r e d i t o r ' s unjust enrichment, even though the debt i s not discharged and no b e n e f i t i s n e c e s s a r i l y c onferred upon the d e b t o r , 8 5 B i r k s and Beatson l i m i t recovery from the 8 3 Idem. 8 4 Idem. 8 5 Goff & Jones argue t h a t i f , on the f a c t s of Owen v Tate, the payment cannot be recovered from the debtor because the debt was not discharged, but recovery of the payment from the c r e d i t o r i s a l s o not p o s s i b l e because p a r t i a l c o n s i d e r a t i o n f o r i t passed t o the payor, t h i s debtor by way of subrogation t o the case where the debt i s discharged i n law by the payment, d e s p i t e being "voluntary", thereby c o n f e r r i n g a b e n e f i t upon the debtor. The w r i t e r s , i n other words, have q u i t e a d i f f e r e n t sense of how subrogation c o u l d be used i n t h i s case, and why. Both s e t s of w r i t e r s , however, e s s e n t i a l l y see subrogation as a means of c o n f e r r i n g r i g h t s and remedies where no r i g h t of reimbursement can be granted. I t i s not easy t o r e c o n c i l e these d i f f e r e n c e s . Nor i s i t easy t o agree w i t h the w r i t e r s i n a l l r e s p e c t s . F i r s t , i t i s d i f f i c u l t t o see why, i f the debt i s discharged by the payment and a " b e n e f i t " i s thereby conferred upon the debtor, subrogation but not a l s o reimbursement should be a v a i l a b l e . E i t h e r the circumstances surrounding the payment give r i s e t o an e n t i t l e m e n t t o r e s t i t u t i o n a r y r e l i e f i n favour of the payor a g a i n s t the debtor, or they do not. Since r i g h t s of reimbursement 8 6 are i n essence as much r e s t i t u t i o n a r y i n nature as r i g h t s of subrogation, i t f o l l o w s , i t i s submitted, t h a t e i t h e r both reimbursement and subrogation should be a v a i l a b l e i n the circumstances of the p a r t i c u l a r case, or n e i t h e r should be. I t i s d i f f i c u l t t o see how any other r e s u l t can be j u s t i f i e d when the p a r t y u l t i m a t e l y l i a b l e , whether by way of reimbursement or by way of subrogation, i s the same. I f , according t o the e s t a b l i s h e d t e s t s , the payor leaves the c r e d i t o r w i t h the o p t i o n of both keeping the payment and a l s o suing on the debt. I f he does' not, they suggest, the debtor i s " i n c o n t r o v e r t i b l y b e n e f i t e d " by the payor's payment, thereby j u s t i f y i n g recovery from the debtor; GOFF & JONES, p. 530. T h i s however means t h a t r e s t i t u t i o n a r y recovery i s granted a g a i n s t the debtor t o prevent him from being u n j u s t l y enriched by the r e t e n t i o n of t h a t " i n c o n t r o v e r t i b l e benefit"', not t o prevent the c r e d i t o r from being u n j u s t l y enriched as Goff and Jones suggest. I f the c r e d i t o r chose t o sue f o r the debt, and the debtor was h e l d l i a b l e t o pay i t , i t c o u l d not be s a i d t h a t the debtor r e c e i v e d any b e n e f i t from the payment such as might give r i s e t o a r e s t i t u t i o n a r y r i g h t of recovery i n the payor. 8 6 But not n e c e s s a r i l y r i g h t s of indemnity, supra, p. 43, note 24. - 112 -has acted " v o l u n t a r i l y " or " o f f i c i o u s l y " i n c o n f e r r i n g the b e n e f i t on the debtor, then t h a t should g e n e r a l l y l e a d t o the d e n i a l of a l l r e s t i t u t i o n a r y r i g h t s or remedies. 8 7 Secondly, by r a i s i n g the prospect of subrogation as a means of preventing the c r e d i t o r ' s u n j u s t enrichment, Goff and Jones appear t o t r e a t subrogation as a r i g h t a g a i n s t the c r e d i t o r . As has been seen, t h i s i s t r u e i n some res p e c t s . For example, the surety's r i g h t t o have s e c u r i t i e s given to the c r e d i t o r t o secure the guaranteed debt not d e a l t w i t h t o the surety's p r e j u d i c e can be t r e a t e d e f f e c t i v e l y as an independent r i g h t a g a i n s t the c r e d i t o r . But t h i s i s not t r u e of subrogation as a remedial device. In t h a t context, subrogation operates a g a i n s t the person who has obtained a b e n e f i t a t the expense of another, by enabling t h a t other t o e x e r c i s e r i g h t s and remedies a g a i n s t t h a t b e n e f i c i a r y so as t o s t r i p him of the enrichment he or she would otherwise u n j u s t l y r e t a i n . In the s u r e t y s h i p 8 7 Putnam makes t h i s p o i n t i n h i s t e x t on s u r e t y s h i p , SURETYSHIP (1981), p. 85: "The d i f f i c u l t y which the author sees i n t h i s academic argument [ t h a t the s u r e t y obtains r i g h t s of subrogation though not reimbursement] i s t h a t i t would be a strange r e s u l t i f e q u i t y were t o deny one remedy, i e indemnity a g a i n s t the debtor, but a l l o w another, i e subrogation. There i s a u t h o r i t y f o r the p r o p o s i t i o n t h a t the r i g h t s of indemnity and subrogation are based on the same e q u i t y : Yonge v R e y n e l l (1852) 9 Hare 809 a t 818; N i c h o l a s v R i d l e y [1904] 1 Ch. 192." Putnam suggests, however, op. c i t . , p. 85, t h a t a "surety" such as Owen "could s u c c e s s f u l l y have argued t h a t , i r r e s p e c t i v e of h i s r i g h t s i n e q u i t y , by s t a t u t e [ i e . M e r c a n t i l e Law Amendment Act 1856, s. 5] he was e n t i t l e d t o use a l l the remedies which.the c r e d i t o r bank, had a g a i n s t the debtor." This r i g h t , he f u r t h e r suggests, op. c i t . , p. 85, i s not s u b j e c t t o the c o n d i t i o n t h a t the debtor have "accepted" the payment by the "surety" before i t can g i v e r i s e to r i g h t s a g a i n s t the debtor: "So long as the su r e t y , being l i a b l e w i t h another f o r any debt or duty, s h a l l pay such debt, the s u r e t y i s e n t i t l e d t o r i g h t s of subrogation. I t would be d i f f i c u l t t o argue s e r i o u s l y t h a t , where S, the o f f i c i o u s s u r e t y , pays a bank £100, such payment being i n respect of a debt of £100 owed by D, the debtor, t o the bank, the terms of the guarantee being i n the standard form 'I hereby agree t o pay the bank ... a l l sums which s h a l l ... remain due t o the bank', S's payment was not a payment of D's debt." - 113 -context, the b e n e f i c i a r y i s the debtor. But i f the debt has not been discharged a t law, then no " b e n e f i t " has been conferred upon the debtor, and there i s no b a s i s f o r a r e s t i t u t i o n a r y c l a i m a g a i n s t the debtor through subrogation or otherwise. I f the c r e d i t o r has been " u n j u s t l y enriched a t the expense" of the payor, r e s t i t u t i o n a r y r i g h t s and remedies should perhaps be conferred upon the s u r e t y a g a i n s t the c r e d i t o r , but these would presumably operate d i r e c t l y by way of reimbursement. Indeed, t h i s i s e x a c t l y what the q u a s i - c o n t r a c t u a l a c t i o n by way of money had and r e c e i v e d on the grounds of t o t a l f a i l u r e o f c o n s i d e r a t i o n purports t o do. I f , on the f a c t s of the case, t h a t a c t i o n f a i l s , then i t may be t h a t no r e s t i t u t i o n a r y r e l i e f ought t o be a v a i l a b l e . T h i r d l y , and most im p o r t a n t l y , as has a l r e a d y been emphasised, r e s t i t u t i o n a r y theory r e q u i r e s , i n a d d i t i o n t o proof t h a t a b e n e f i t has been conferred, proof t h a t i t would be "unjust" f o r the r e c i p i e n t of the b e n e f i t t o r e t a i n t h a t b e n e f i t a t the expense of the p a y o r . 8 8 In the s u r e t y s h i p context, t h i s means t h a t i t i s not enough f o r the payor merely t o e s t a b l i s h t h a t h i s or her "voluntary" or " o f f i c i o u s " payment was l e g a l l y e f f e c t i v e . I t must a l s o be shown t h a t i t would be "unjust" t o a l l o w the debtor t o " r e t a i n " the b e n e f i t of the payment. I f the payor f a i l s t o e s t a b l i s h t h i s , then, discharge or not, h i s or her c l a i m f o r r e s t i t u t i o n a r y r i g h t s o f recovery a g a i n s t the debtor should f a i l . T h is w i l l a l s o be the case i f the debtor has some defence recognised by the law t o the c l a i m f o r recovery. N e i t h e r Goff and Jones, nor B i r k s and Beatson, e x p r e s s l y advert to t h i s i n t h e i r d i s c u s s i o n s of the i n t e r a c t i o n between " v o l u n t a r i n e s s " , 8 8 See g e n e r a l l y GOFF & JONES, pp. 29-51. - 114 -discharge, and subrogation. Instead, they seem t o have assumed t h a t i f the payment was l e g a l l y e f f e c t i v e , t h a t of i t s e l f means th a t the debtor would be " u n j u s t l y " enriched i f permitted t o r e t a i n the b e n e f i t of the payment. This assumption, i t i s submitted, may be unfounded. " V o l u n t a r i n e s s " , or " o f f i c i o u s n e s s " , i t i s submitted, r a i s e s two d i s t i n c t questions. The f i r s t i s t h a t which has been a l r e a d y been o u t l i n e d i n d e t a i l , namely, whether payment discharged the debt a t law. The answer t o t h i s q uestion, i t has been seen, i s e s s e n t i a l l y a matter of determining whether any one or more of the f a c t o r s which w i l l negate " v o l u n t a r i n e s s " e x i s t s on the p a r t i c u l a r f a c t s of the case a t hand. I f no such f a c t o r ( s ) e x i s t s , then the debt w i l l not be considered discharged a t law, no b e n e f i t i s conferred upon the debtor, and there i s no b a s i s f o r the c o n f e r r a l of r e s t i t u t i o n a r y r i g h t s or remedies upon the payor a g a i n s t the d e b t o r . 8 9 I f , on the other hand, the debt i s discharged because of the presence of some r e l e v a n t f a c t o r negating v o l u n t a r i n e s s , i t i s s t i l l necessary, i t i s submitted, t o ask whether i t would be "unjust" i n a l l the circumstances of the case f o r the debtor who has thereby been b e n e f i t e d t o r e t a i n t h a t b e n e f i t a t the expense of the payor. T h i s , i t i s submitted, i s a d i s t i n c t q uestion. In answering i t , i t i s f u r t h e r submitted, f a c t o r s which were not r e l e v a n t t o the f i r s t q uestion - "discharge or not?" - may p l a y an important r o l e . In p a r t i c u l a r , i t i s submitted, broad e q u i t a b l e f a c t o r s which may not have been p e r t i n e n t t o payment may f i g u r e prominently i n answering t h i s second question. Thus, the f a c t t h a t the debtor "assented" to the c r e d i t o r ' s a p p l i c a t i o n of the payment t o s e t t l e the debt may mean 8 9 I t i s a d i s t i n c t q u e s t i o n i n t h i s case whether the payor should be able t o recover the payment from the c r e d i t o r on the grounds of t o t a l f a i l u r e of c o n s i d e r a t i o n . - 115 -t h a t the payment w i l l be considered "non-voluntary" f o r the purposes of the f i r s t q uestion; but i t may not h o l d equal sway i n answering the second. I t does not, i n other words, f o l l o w from the f a c t t h a t the payment was "non-vo l u n t a r y " t h a t i t i s a l s o "unjust" f o r the debtor t o r e t a i n the b e n e f i t of t h a t payment. Other f a c t o r s may i n t r u d e . T h i s , i t i s submitted, i s an ex p l a n a t i o n of the d e c i s i o n of the Court of Appeal i n Owen v Tate which does not appear t o have been c l e a r l y considered by the above w r i t e r s . Yet t h i s seems t o be p r e c i s e l y what Scarman L . J . was saying when he decided t h a t "the p l a i n t i f f has f a i l e d t o made out a case t h a t i t would be j u s t and  reasonable i n the circumstances t o grant him a r i g h t t o reimbursement." 9 0 Thus, even i f Owen's payment had discharged the debt and thereby c o n f e r r e d a b e n e f i t upon the Tates, t h a t d i d not n e c e s s a r i l y mean i t was " j u s t and reasonable" t o grant him a r e s t i t u t i o n a r y r i g h t of reimbursement. This view of the d e c i s i o n i n Owen v Tate, i t i s submitted, e q u a l l y accords w i t h and i s supported by the a n a l y s i s of the other two judges, p a r t i c u l a r l y Ormrod L.J . who, i t w i l l be r e c a l l e d , e x p r e s s l y adverted t o these broader i s s u e s : "the t r a n s a c t i o n i n t h i s case i s o n l y a p a r t of a much more complex s e r i e s of t r a n s a c t i o n s which have been going on between v a r i o u s people f o r some years. ... I f i n d i t q u i t e impossible t o s o r t out the r i g h t s and wrongs i n t h i s case ...".91 In other words, the undeniably "voluntary" or " o f f i c i o u s " nature of Owen's payment, i n the context of a long h i s t o r y of t r a n s a c t i o n s between the p a r t i e s , "outweighed" the f a c t of assent, and m i l i t a t e d a g a i n s t the c o n f e r r a l of a r e s t i t u t i o n a r y r i g h t of reimbursement. Owen f a i l e d t o prove 9 0 Owen v Tate [1976] 1 Q.B. 402, a t 411. [Emphasis added] 9 1 I b i d . , a t 413-14. - 116 -t h a t i t would be "unjust" f o r the Tates t o r e t a i n the b e n e f i t of the payment he had "for c e d " upon them. "Vo l u n t a r i n e s s " , i t i s submitted, thus operates as a "form of l e g a l shorthand" a t two l e v e l s . F i r s t , i t may s i g n i f y t h a t there i s nothing i n the f a c t s of the case t o overcome the primary r u l e t h a t one person cannot " v o l u n t a r i l y " pay the debt of another and e f f e c t i v e l y disharge i t a t law. But secondly, i t may i n d i c a t e t h a t even where there i s something i n the circumstances of the case t o render the payment e f f e c t i v e a t law i n di s c h a r g i n g the debt, nonetheless, the o v e r a l l c h a r a c t e r of the payor's conduct may be such t h a t r e t e n t i o n of the enrichment would not be "unjust". Owen, i t i s submitted, f a i l e d a t t h a t second l e v e l of i n q u i r y , not a t the f i r s t . ( i v ) Unjust r e t e n t i o n S u r e t y s h i p , as has been seen, i s premised upon the ex i s t e n c e of primary and secondary l i a b i l i t y . I t i s s e l f evident t h a t i t would i n general be "unjust" t o a l l o w the p a r t y who i s p r i m a r i l y l i a b l e - the p r i n c i p a l - t o r e t a i n the b e n e f i t of the payment by the p a r t y o n l y s e c o n d a r i l y l i a b l e - the surety. In general, t h e r e f o r e , t h i s element of the p r i n c i p l e of unjus t enrichment can be r e a d i l y i d e n t i f i e d i n a s u r e t y s h i p s i t u a t i o n . D i f f i c u l t i e s i n doing so may nonetheless occur, as has j u s t been seen i n the d i s c u s s i o n of Owen v T a t e , 9 2 p r i m a r i l y centred around questions of v o l u n t a r i n e s s . 9 2 [1976] Q.B. 402. - 117 -Two other f a c t o r s may a l s o be r e l e v a n t i n a s s e s s i n g the i n j u s t i c e of the p r i n c i p a l r e t a i n i n g the b e n e f i t of the surety's payment a t the surety's expense, and the appropriateness of subrogation as a remedy t o e f f e c t r e s t i t u t i o n of t h a t enrichment. The f i r s t i s the f a c t t h a t although the surety's r i g h t of subrogation i s not g e n e r a l l y considered c o n t r a c t u a l i n nature, i t may nonetheless be m o d i f i e d or waived by c o n t r a c t . 9 3 This may be the r e s u l t e i t h e r of an express p r o v i s i o n i n the c o n t r a c t of s u r e t y s h i p , 9 4 or of a term i m p l i e d i n t o the s u r e t y s h i p r e l a t i o n s h i p . 9 5 I n s o f a r as r e s t i t u t i o n a r y claims and r i g h t s are always sub j e c t t o and a f f e c t e d by any express agreement of the p a r t i e s regarding t h e i r r e s p e c t i v e r i g h t s and remedies, t h i s a l s o r e f l e c t s the r e s t i t u t i o n a r y underpinings of the surety's r i g h t s of subrogation. The second a d d i t i o n a l f a c t o r t h a t may be r e l e v a n t t o the j u s t i c e or i n j u s t i c e of the p r i n c i p a l r e t a i n i n g the b e n e f i t of the surety's payment and to the appropriateness of subrogation t o e f f e c t r e s t i t u t i o n of t h a t b e n e f i t i s r i g h t s on the p a r t of the p r i n c i p a l debtor a g a i n s t the c r e d i t o r . The surety's e n t i t l e m e n t t o enforce the r i g h t s , remedies, and s e c u r i t i e s of the c r e d i t o r a g a i n s t the p r i n c i p a l debtor, or any c o - s u r e t i e s , i s subject t o any r i g h t s or remedies which the p r i n c i p a l debtor, or co-surety, may have ag a i n s t the c r e d i t o r , whether by way of s e t - o f f or otherwise, and 9 3 This i s e q u a l l y t r u e of the surety's e q u i t a b l e r i g h t s of reimbursement and c o n t r i b u t i o n . See, eg., Swain v Wall (1641) 1 Chan. R. 149, 21 E.R. 534. 9 4 See eg., Re Fernandes, ex p a r t e Hope (1844) 3 Mont. D. & De. G. 720; E a r l e v O l i v e r (1848) 2 Exch. 71, 154 E.R. 410; Midland Banking  Corporation v Chambers (1869) L.R. 4 Ch. App. 398. See a l s o M o r r i s v Ford  Motor Co. L t d . [1973] Q.B. 792. 9 5 See A l l e n v De L i s l e (1857) 5 W.R. 158; Brandon v Brandon (1859) 3 De G. & J . 524, 44 E.R. 1371. - 118 -which could have been used by him or her i n d i m i n u t i o n of the c r e d i t o r ' s c l a i m . This l i m i t a t i o n on the surety's subrogative r i g h t s f o l l o w s n a t u r a l l y from the f a c t t h a t the r i g h t s and remedies which the s u r e t y i s e n t i t l e d t o enjoy through the o p e r a t i o n of subrogation are n e i t h e r d i r e c t r i g h t s of recovery a g a i n s t the debtor, nor o r i g i n a l i n nature. They are d e r i v e d from the r i g h t s and remedies of the c r e d i t o r , and operate i n d i r e c t l y a g a i n s t the debtor through the medium of the c r e d i t o r . The s u r e t y "stands i n the p l a c e (or shoes) of" the c r e d i t o r and has t o make do w i t h them, even i f they do not f i t p e r f e c t l y or are not e x a c t l y t o h i s p r e f e r r e d design; he does not o b t a i n a brand-new p a i r of custom-made shoes. They are as good as, but not b e t t e r than, those of the c r e d i t o r . Were the law otherwise, the s u r e t y would be a b l e , by payment or performance, t o deprive the debtor or co-s u r e t y of any l e g i t i m a t e claims he or she may otherwise have ag a i n s t the c r e d i t o r . Such a r e s u l t would be i n e q u i t a b l e and u n j u s t , and c o n t r a r y t o the e s s e n t i a l l y e q u i t a b l e nature of the surety's r i g h t s of subrogation. C. Conclusion This examination of the nature of the surety's r i g h t of subrogation r e v e a l s , i t i s submitted, a number of b a s i c f e a t u r e s which support the view th a t both the s u r e t y ' s r i g h t o f subrogation i n p a r t i c u l a r , and subrogation i n g eneral, are e s s e n t i a l l y r e s t i t u t i o n a r y i n nature and operation. The use of subrogation i s based upon the c o n f e r r a l of a b e n e f i t on the p r i n c i p a l debtor. The extent of recovery by the s u r e t y i s l i m i t e d t o the amount of t h a t b e n e f i t - the extent of the p r i n c i p a l ' s enrichment, i n other words. Recovery w i l l be denied i f the s u r e t y acted v o l u n t a r i l y or o f f i c i o u s l y , - 119 -e i t h e r i n becoming a surety, or simply i n making payment. Recovery w i l l a l s o be denied i f i t would be unj u s t t o r e q u i r e the p r i n c i p a l debtor t o make r e s t i t u t i o n of the enrichment because, f o r example, the p r i n c i p a l debtor has r i g h t s a g a i n s t the c r e d i t o r . Subrogation i n the s u r e t y s h i p context i s a l s o c l o s e l y l i n k e d t o the surety's r i g h t s o f reimbursement and c o n t r i b u t i o n , which are e q u a l l y s a i d to be e s s e n t i a l l y r e s t i t u t i o n a r y i n nature. C e r t a i n l y , i t i s submitted, there i s l i t t l e which c o u l d be pointed t o as an overt challenge t o the a s s e r t i o n t h a t the surety's r i g h t of subrogation i l l u s t r a t e s and h i g h l i g h t s the e s s e n t i a l l y r e s t i t u t i o n a r y nature of subrogation. PART IV SUBROGATION AND BILLS OF EXCHANGE - 120 -Chapter 7 SUBROGATION AND BILLS OF EXCHANGE1 A. I n t r o d u c t i o n A second c l a s s o f case i n which the use of subrogation has been recognised by the law i s t h a t of b i l l s of exchange. The use of subrogation i n t h i s context has flowed i n p a r t from a r e c o g n i t i o n t h a t the r e l a t i o n s h i p of c e r t a i n types of p a r t y t o a b i l l of exchange - i n p a r t i c u l a r , accommodation p a r t i e s - can g e n e r a l l y be c a t e g o r i s e d as one of s u r e t y s h i p . As such, the use of subrogation i n favour of an accommodation p a r t y i s g e n e r a l l y regarded as simply a s p e c i f i c i l l u s t r a t i o n of subrogation i n the s u r e t y s h i p context, and not as a d i s t i n c t category of s u b r o g a t i o n . 2 The same view i s not, however, taken of the use of subrogation i n favour of c e r t a i n other p a r t i e s to b i l l s o f exchange - i n p a r t i c u l a r , i n d o r s e r s and drawers f o r value. These p a r t i e s are not g e n e r a l l y considered to be s u r e t i e s i n the s t r i c t sense, 3 so t h a t t h e i r r i g h t s , i n c l u d i n g t h a t 1 See g e n e r a l l y re England: B i l l s of Exchange Act 1882, 45 & 46 V i c t . , c. 61; M. Megrah & F.R. Ryder, BYLES ON BILLS OF EXCHANGE (25th ed., 1983)(hereafter "BYLES"). Re Canada, see B i l l s of Exchange Ac t , R.S.C. 1970, c. B-5; Crawford & Falconbridge, BANKING AND BILLS OF EXCHANGE (11th ed., 1986); Falconbridge, THE LAWS OF NEGOTIABLE INSTRUMENTS IN CANADA (1967). 2 See eg. S i r R. Goff & G. Jones, THE LAW OF RESTITUTION (3rd ed., 1986) ( h e r e a f t e r "GOFF & JONES"), p. 417. 3 See g e n e r a l l y Duncan, Fox, & Co. v North & South Wales Bank (1880) 6 App. Cas. 1. See a l s o Re Conley [1938] 2 A l l E.R. 127, a t 131, where S i r W i l f r i d Greene M.R. commented: "... i n the case of a b i l l accepted f o r value, the r e l a t i o n s h i p between drawer and i n d o r s e r s , on the one hand, and the acceptor, on the other, i s r e f e r r e d to as one of - 121 -- 122 -of subrogation, cannot simply be seen as an i l l u s t r a t i o n of the surety's r i g h t of subrogation. Such p a r t i e s are, however, seen t o be i n an analogous p o s i t i o n i n c e r t a i n respects t o s u r e t i e s i n the s t r i c t sense, and e n t i t l e d thereby t o some a t l e a s t of the r i g h t s of such s u r e t i e s , i n c l u d i n g the r i g h t t o s e c u r i t i e s which, as has been seen, l i e s a t the heart of the surety's r i g h t of subrogation. This was c l e a r l y recognised by the House of Lords i n Duncan, Fox, & Co. v North & South Wales Bank, 4 where i t was considered t h a t cases such as t h a t of p a r t i e s t o b i l l s of exchange co u l d be t r e a t e d as a t h i r d c l a s s of " s u r e t y s h i p " based not on agreement and n o t i c e , but simply on the e x i s t e n c e of primary and secondary l i a b i l i t y . 5 Because of t h i s d i f f e r e n c e , r e s t i t u t i o n a r y w r i t e r s commonly c a t e g o r i s e subrogation i n the context of b i l l s of exchange, other than i n r e l a t i o n t o accommodation p a r t i e s , as a d i s t i n c t r i g h t t o t h a t possessed i n the o r d i n a r y way by a s u r e t y i n the normal, or " s t r i c t " sense. 6 Furthermore, t h i s d i s t i n c t r i g h t i s seen t o be c l e a r l y r e s t i t u t i o n a r y i n nature, based as i t i s g e n e r a l l y accepted t o be simply on notions of primary and secondary l i a b i l i t y and the c o n f e r r a l of a b e n e f i t (payment or performance) by the p a r t y only s e c o n d a r i l y l i a b l e upon the p a r t y p r i m a r i l y l i a b l e . 7 s u r e t y s h i p by Cockburn, C.J., and Lush and Quain, J J . , i n Rouquette v Overmann [(1875) L.R. 10 Q.B. 525]. We have the a u t h o r i t y of the House of Lords [ i n Duncan, Fox, & Co.1 f o r saying t h a t t h i s r e l a t i o n s h i p i s not one of s u r e t y s h i p , although i t i s analogous t h e r e t o . " 4 (1880) 6 App. Cas. 1. 5 See d i s c u s s i o n supra, p. 39 et seq.. 6 See eg. GOFF & JONES, p. 417; G.H.L. Fridman & J.G. McLeod, RESTITUTION (1982) ( h e r e a f t e r "FRIDMAN & McLEOD"), p. 401. 7 See d i s c u s s i o n supra, p. 39 et seq.. - 123 -I f , however, the t h e s i s of t h i s paper holds t r u e - t h a t subrogation, both i n the s u r e t y s h i p context and g e n e r a l l y , i s e s s e n t i a l l y r e s t i t u t i o n a r y i n nature, whether the o r i g i n of the " s u r e t y s h i p " i s an agreement, or j u s t the e x i s t e n c e of primary and secondary l i a b i l i t y between two of the p a r t i e s to a t r i p a r t i t e r e l a t i o n s h i p 8 - then the d i s t i n c t i o n drawn between the use of subrogation i n favour of accommodation p a r t i e s t o b i l l s of exchange, and i n favour of other p a r t i e s f o r value t o b i l l s of exchange, 9 should i n l a r g e p a r t prove t o be i l l u s o r y . Instead, the p r i n c i p l e s g u i d i n g the a v a i l a b i l i t y and use of subrogation i n favour of each should t o a l a r g e extent c o i n c i d e . This d i s t i n c t i o n and the supposed d i f f e r e n c e i t r e f l e c t s i n the nature of the p a r t i e s r e s p e c t i v e r i g h t s of subrogation according t o whether they are s u r e t i e s i n the normal sense or o n l y " q u a s i - s u r e t i e s " , and the support or otherwise t h a t i t give s t o the t h e s i s of t h i s paper, i s the focus of t h i s p a r t of t h i s paper. B. Subrogation and Accommodation P a r t i e s t o B i l l s of Exchange 1 0 An "accommodation p a r t y " t o a b i l l of exchange, according to the r e l e v a n t b i l l s of exchange l e g i s l a t i o n , 1 1 i s : 8 I e . , Lord Selborne L.C.'s t h i r d c l a s s of case, and the one t h a t a p p l i e s t o p a r t i e s other than accommodation p a r t i e s to b i l l s of exchange. 9 And, i t should be added, other r i g h t s of the p a r t i e s t o a b i l l of exchange a f t e r payment, such as reimbursement and c o n t r i b u t i o n . 1 0 See g e n e r a l l y D. P a r t l e t t , "The Right of Subrogation i n Accommodation B i l l s of Exchange", (1979) 53 Aust. L . J . 694. 1 1 See the B i l l s of Exchange Act 1882, 45 & 46 V i c t . , c. 61 (U.K.); B i l l s of Exchange A c t , 1970 R.S.C., c. B-5 (Can.). The Canadian B i l l s of Exchange Act contains s i m i l a r p r o v i s i o n s g e n e r a l l y t o those of the E n g l i s h Act. For ease of d i s c u s s i o n , o n l y the p r o v i s i o n s of the E n g l i s h Act w i l l be - 124 -"... a person who has signed a b i l l as drawer, acceptor, or i n d o r s e r , without r e c e i v i n g value t h e r e f o r , and f o r the purpose of le n d i n g h i s name t o some other p e r s o n . " 1 2 By s i g n i n g a b i l l , an accommodation p a r t y becomes l i a b l e on the b i l l t o the holder f o r value, i n the same way as do a l l other p a r t i e s t o the b i l l . 1 3 Since t h i s i ncreases the l i k e l i h o o d of the holder being p a i d on the b i l l , the value and n e g o t i a b i l i t y of the b i l l i n the hands of the "other person" - the p a r t y accommodated - i s thus enhanced. 1 4 The c r e a t i o n of l i a b i l i t y t o the holder f o r value a r i s e s upon si g n a t u r e by the accommodation p a r t y and i s not a f f e c t e d by whether or not the holder knew, when he or she took the b i l l , t h a t the person was an accommodation p a r t y . 1 5 s p e c i f i c a l l y r e f e r r e d t o . 1 2 B i l l s of Exchange Act 1882, s. 28(1). The Act a l s o r e f e r s t o "accommodation b i l l s " ; see s. 59(3). "Accommodation b i l l " i s not however s p e c i f i c a l l y d e f i n e d i n the l e g i s l a t i o n . In a loose sense, any b i l l t o which there i s an accommodation p a r t y c o u l d be c a l l e d an "accommodation b i l l " , but t h i s i s not s t r i c t l y speaking c o r r e c t . An "accommodation b i l l " i s more c o r r e c t l y a b i l l where the accommodation p a r t y i s the acceptor; see S c o t t v L i f f o r d (1808) 1 Camp. 246, 170 E.R. 945. 1 3 I b i d . , s. 28(2). 1 4 One commentator give s the f o l l o w i n g example: "Suppose A being pressed f o r money, arranges w i t h h i s wealthy f r i e n d B t h a t A s h a l l draw a 3 months b i l l on B and t h a t B s h a l l accept the b i l l . B, i n acce p t i n g , becomes l i a b l e f o r payment i n 3 months' time although A has given him no value. As the p a r t y p r i m a r i l y l i a b l e f o r payment i s the wealthy B the b i l l i s f i r s t -c l a s s s e c u r i t y and A can r a i s e money on i t ( i e . 'discount' i t ) immediately. A hopes t h a t , i n 3 months' time when B w i l l be c a l l e d on t o pay, h i s f i n a n c i a l s t r i n g e n c y w i l l have disappeared and t h a t he w i l l be able t o provide B w i t h funds t o pay the b i l l . B has signed the b i l l as acceptor t o o b l i g e or accommodate A. Consequently B i s an accommodation p a r t y " ; D. Richardson, GUIDE TO NEGOTIABLE INSTRUMENTS AND THE BILLS OF EXCHANGE ACTS (7th ed., 1983), p. 80. 1 5 I b i d . , s. 28(2). The accommodation p a r t y ' s l i a b i l i t y to the holder f o r value may however be subsequently discharged. One important circumstance where t h i s may occur a r i s e s from the f a c t t h a t an accommodation p a r t y i s considered t o be a s u r e t y v i s - a - v i s the p a r t y - 125 -The f a c t t h a t a p a r t y t o a b i l l o n l y signed the b i l l i n order t o accommodate another p a r t y t o i t does, however, a f f e c t the r i g h t s and l i a b i l i t i e s of the accommodation p a r t y v i s - a - v i s the p a r t y accommodated. I n the f i r s t p l a c e , s i n c e the p a r t y accommodated has not given the accommodation p a r t y any value or c o n s i d e r a t i o n f o r s i g n i n g the b i l l and thereby undertaking l i a b i l i t y on i t , the accommodation p a r t y i s not l i a b l e t o the p a r t y accommodated on the b i l l . T h i s i s so r e g a r d l e s s of the p a r t i c u l a r c a p a c i t y i n which the accommodation p a r t y signed the b i l l . 1 6 The o r d i n a r y r u l e s regarding the r e s p e c t i v e l i a b i l i t y of the p a r t i e s t o a b i l l of exchange, i n other words, i n s o f a r as they would make the accommodation p a r t y l i a b l e t o the p a r t y accommodated, do not apply as between the accommodation p a r t y and the p a r t y accommodated. 1 7 Where the r e a l nature of the t r a n s a c t i o n , as proved, i s t h a t one p a r t y t o a b i l l signed i t t o accommodate another p a r t y to i t , then t h i s means th a t the p a r t y who has been accommodated w i l l be h e l d l i a b l e t o the accommodation pa r t y . This w i l l be so even though the o r d i n a r y r u l e s regarding l i a b i l i t y on a b i l l would not l e a d t o t h i s r e s u l t , or indeed, would a c t u a l l y d i c t a t e t h a t the former was not l i a b l e t o the l a t t e r . For example, according t o the o r d i n a r y r u l e s a p p l y i n g t o b i l l s of exchange as s t a t e d i n Batson v K i n g , 1 8 the acceptor i s considered t o be the p a r t y accommodated. This i s discussed more f u l l y below; i n f r a , p. 126. 1 6 I e . , i t does not matter whether the accommodation p a r t y signed the b i l l as drawer, acceptor, or i n d o r s e r . 1 7 Batson v King (1859) 4 H. & N. 739, 157 E.R. 1032. 1 8 Idem. - 126 -p r i m a r i l y l i a b l e on the b i l l . 1 9 As a r e s u l t , the acceptor must normally indemnify an i n d o r s e r of the b i l l who has been compelled t o pay the b i l l . 2 0 I f , however, i t i s proved t h a t the acceptor o n l y accepted the b i l l i n order to accommodate the i n d o r s e r i n question, the acceptor - an accommodation acceptor - w i l l not be l i a b l e t o the i n d o r s e r - the p a r t y accommodated - i n the event t h a t the l a t t e r i s compelled t o pay the b i l l . The r i g h t s and l i a b i l i t i e s of the accommodation p a r t y and the p a r t y accommodated i n t e r se have thus been v a r i e d . The e x p l a n a t i o n f o r t h i s , as has a l r e a d y been o u t l i n e d , i s t h a t the law views the r e l a t i o n s h i p between the p a r t y accommodated and the accommodation p a r t y as one of s u r e t y s h i p . The p a r t y accommodated and the accommodation p a r t y are considered t o be p r i n c i p a l and s u r e t y r e s p e c t i v e l y . Thus, i n Jones v B r o a d h u r s t 2 1 i t was s a i d t h a t : "... i n the case of an accommodation b i l l , 2 2 ... the acceptor i s a mere su r e t y , as between him and the drawer, and e n t i t l e d t o recover a g a i n s t the drawer whatever he may be compelled t o pay i n discharge of h i s s u r e t y s h i p . " 2 3 S i m i l a r l y , i n the l e a d i n g a u t h o r i t y of L i q u i d a t o r s of Overend, Gurney, & 1 9 This i s the e f f e c t of the B i l l s of Exchange Act 1882, 45 & 46 V i c t . , c. 61, s. 54. And see eg. Jones v Broadhurst (1850) 9 C B . 173, a t 181, 137 E.R. 858, a t 861: "The acceptor i s p r i m a r i l y and a b s o l u t e l y l i a b l e t o pay the b i l l , according t o i t s tenor. The drawers are l i a b l e o n l y upon the contingencies of the acceptor's or drawee's making d e f a u l t , and of the holder's performing c e r t a i n c o n d i t i o n s precedent 2 0 See B i l l s of Exchange Act 1882, s. 57. 2 1 (1850) 9 C B . 173, 137 E.R. 858. 2 2 "Accommodation b i l l " i s here used t o r e f e r t o a b i l l of exchange i n respect of which the acceptor i s the accommodation p a r t y ; see supra, p. 124, note 12. 2 3 (1850) 9 C B . 173, a t 181, 137 E.R. 858, a t 862. - 127 -Co. v L i q u i d a t o r s of O r i e n t a l F i n a n c i a l C o r p . , 2 4 the House of Lords h e l d t h a t an accommodation acceptor was t o be considered a s u r e t y o n l y v i s - a - v i s the p a r t y accommodated. The Lord C h a n c e l l o r , Lord C a i r n s , s t a t e d : 2 5 "The g i v i n g of these b i l l s o f exchange, the drawing of them, and the acceptance of them [by O r i e n t a l F i n a n c i a l C o r p o r a t i o n ] , were f o r the b e n e f i t of McHenry and h i s p r i n c i p a l s . McHenry was bound t o provide the funds f o r the payment of the b i l l s as between h i m s e l f and the acceptors; and the r e l a t i o n s h i p of p r i n c i p a l and s u r e t y p l a i n l y e x i s t e d between the p a r t i e s . " This r e l a t i o n s h i p i s g e n e r a l l y considered t o be s u r e t y s h i p i n the s t r i c t sense. That i s , the source of the s u r e t y s h i p i s seen t o be an agreement - a c o n t r a c t - by the p a r t i e s t o the s u r e t y s h i p , t o c o n s t i t u t e themselves p r i n c i p a l and s u r e t y i n t e r se. However, s i n c e the p a r t y t o the b i l l e n t i t l e d t o enforce payment by the accommodation p a r t y - the h o l d e r -w i l l not g e n e r a l l y have been a p a r t y t o the agreement or t r a n s a c t i o n g i v i n g r i s e t o the s u r e t y s h i p , the accommodation pa r t y ' s r i g h t s , as s u r e t y , a g a i n s t the h o l d e r , r a t h e r than the p a r t y accommodated, w i l l o n l y a r i s e i f n o t i c e of the s u r e t y s h i p has been given t o the holder. Thus, although i t i s e s s e n t i a l l y the product of agreement, the s u r e t y s h i p w i l l g e n e r a l l y f a l l w i t h i n the second of Lord Selborne L.C.'s three c l a s s e s of s u r e t y s h i p i n Duncan, Fox & Co. v North & South Wales Bank. 2 6 There i s , however, a problem w i t h t h i s approach. According t o Lord Selborne L.C.'s c l a s s i f i c a t i o n , the circumstance g i v i n g r i s e t o s u r e t y s h i p s 2 4 (1874) L.R. 7 H.L. 348. 2 5 I b i d . , a t 354-55. See a l s o the d e c i s i o n of the Court of Appeal i n t h i s case: O r i e n t a l F i n a n c i a l Corp. v Overend, Gurney, & Co. (1871) 7 Ch. App. 142. 2 6 (1880) 6 App. Cas. 1, a t 11. This was the case i n L i q u i d a t o r s of  Overend, Gurney, & Co. v L i q u i d a t o r s of O r i e n t a l F i n a n c i a l Corp. (1874) L.R. 7 H.L. 348. - 128 -of the second c l a s s w i l l g e n e r a l l y be a c o n t r a c t . But l o g i c a l l y , t h i s cannot be so i n r e l a t i o n to accommodation p a r t i e s . For, although there may be an agreement between the accommodation p a r t y and the p a r t y accommodated, by which the former agrees t o s i g n the b i l l "to accommodate" the l a t t e r , there i s by d e f i n i t i o n no value or c o n s i d e r a t i o n given t o the former f o r adding h i s sig n a t u r e to the b i l l . I n the absence of value or c o n s i d e r a t i o n , 2 7 the agreement under which the accommodation p a r t y s i g n s and assumes l i a b i l i t y on the b i l l cannot, t h e r e f o r e , be s a i d to be c o n t r a c t u a l , a t l e a s t not i n the normal sense. This problem can, perhaps, be overcome i f the "c o n t r a c t " i s s a i d t o be an " i m p l i e d c o n t r a c t " i n the q u a s i - c o n t r a c t u a l sense. That i s , f o r the purpose of c o n f e r r i n g r i g h t s and remedies upon the accommodation p a r t y a t common law, a " f i c t i o n a l c o n t r a c t " c o u l d be i m p l i e d between the p a r t i e s . This f i c t i o n a l c o n t r a c t would be i m p l i e d from the request of the p a r t y accommodated t o the accommodation p a r t y t o s i g n the b i l l f o r the b e n e f i t of the former, and the c o n s i d e r a t i o n would be the agreement on the p a r t of the p a r t y accommodated t o indemnify the accommodation p a r t y . The appr o p r i a t e form of a c t i o n a t common law by which the accommodation p a r t y would enforce h i s r i g h t s a r i s i n g under t h i s i m p l i e d c o n t r a c t - such as the r i g h t o f indemnity or re-imbursement - would be by way of the i n d e b i t a t u s assumpsit count of money p a i d a t request. This view of the nature of the " c o n t r a c t u a l " r e l a t i o n s h i p between accommodation p a r t i e s can be seen i n the case-law. For example, i n Asprey v 2 7 "Value" has an extended meaning under the B i l l s of Exchange Act 1882, s.27. - 129 -Levy, 2 8 in 1847, the p l a i n t i f f accepted a b i l l of exchange for £25 for the accommodation of a person named Faucher, who owed £7 to the defendant. The intention of the p l a i n t i f f and Faucher was that Faucher would discount the b i l l with the defendant who would accept i t in satisfaction of Faucher's debt to him. Any balance would be given to the p l a i n t i f f . The defendant indorsed the b i l l and, wrongfully i t was alleged, kept the whole proceeds. The holder of the b i l l subsequently sued the p l a i n t i f f who duly paid the b i l l . The p l a i n t i f f then commenced assumpsit proceedings against the defendant, claiming that the payment he had been compelled to make to the holder had been "paid to the defendant's use". The court held that the p l a i n t i f f ' s remedy in the circumstances was not against the defendant, but against Faucher. Parke B. stated: 2 9 "If a man gives his acceptance to another for the accommodation of that other, and the b i l l i s disposed of according to the original intention of the parties, and the acceptor afterwards pays i t accordingly, he cannot c a l l on the indorsers, but his remedy i s on the original contract against the drawer. Here the p l a i n t i f f ' s remedy i s against Faucher, for the breach of his contract to indemnify the p l a i n t i f f against the consequences of accepting the b i l l for his accommodation. ... The p l a i n t i f f ' s remedy i s against Faucher, to whom he lent his acceptance on his implied contract of indemnity." This notion of a fi c t i o n a l , implied contract based upon a request has, however, been discarded in modern legal thinking, and replaced according to restitutionary theory with restitutionary rights and remedies based upon the principle of unjust enrichment. Thus, the premise from which the law regarding the rights and remedies of accommodation parties to b i l l s of exchange i s derived, namely that their relationship i s based upon a contract (which dictates their rights inter 2 8 (1847) 16 M. & W. 851, 153 E.R. 1436. 2 9 Ibid., at 859, at 1439-40. [Emphasis added] - 130 -se, though n o t i c e of i t w i l l be necessary before r i g h t s a r i s e a g a i n s t the holder of the b i l l ) , can be s a i d t o be flawed. In t r u t h , i t i s submitted, i t i s the circumstance t h a t the p a r t y accommodated has requested the accommodation p a r t y to s i g n the b i l l f o r the former's b e n e f i t on the understanding t h a t the former w i l l meet the b i l l when due, and i s i n t h a t sense the p a r t y p r i m a r i l y l i a b l e as between the two, t h a t g i v e s r i s e t o the accommodation p a r t y ' s r i g h t s and remedies a g a i n s t the p a r t y accommodated when the accommodation p a r t y i s compelled t o pay the b i l l . For i t would be u n j u s t i n these circumstances t o a l l o w the p a r t y accommodated t o r e t a i n the b e n e f i t of the accommodation p a r t y ' s payment on h i s behalf. The accommodation p a r t y ' s r i g h t s and remedies, i n other words, are, i t i s submitted, e s s e n t i a l l y r e s t i t u t i o n a r y i n nature. Nonetheless, upon the view t h a t the accommodation p a r t y stands i n a r e l a t i o n s h i p of s u r e t y s h i p i n the s t r i c t sense, i t would f o l l o w t h a t the accommodation p a r t y ' s r i g h t s i n c l u d e not o n l y r i g h t s a f t e r payment by him or her, but a l s o a d d i t i o n a l r i g h t s , a l r e a d y o u t l i n e d , 3 0 p r i o r t o payment aga i n s t both the p a r t y accommodated and, a f t e r n o t i c e , the " c r e d i t o r " . In the context of b i l l s of exchange, the " c r e d i t o r " w i l l be the p a r t y p r e s e n t l y e n t i t l e d t o seek payment of the b i l l . In the normal case, t h i s w i l l be the holder f o r value. Thus, i n L i q u i d a t o r s of Overend, Gurney, &  Co. v L i q u i d a t o r s of O r i e n t a l F i n a n c i a l C o r p . , 3 1 the House of Lords h e l d t h a t the accommodation p a r t y - the s u r e t y - was discharged from l i a b i l i t y t o the holder on the b i l l as a r e s u l t of the conduct of the holder i n 3 0 Supra, p. 34 et seq.. 3 1 (1874) L.R. 7 H.L. 348. - 131 -gr a n t i n g time t o the p a r t y accommodated - the p r i n c i p a l . 3 2 T h i s , as has alr e a d y been s e e n , 3 3 i s one of the " r i g h t s " of a t r u e s u r e t y p r i o r t o payment of the debt or performance of the o b l i g a t i o n i n respect of which he or she i s s u r e t y . This r i g h t , as has a l s o been s e e n , 3 4 would not be a v a i l a b l e t o the accommodation p a r t y were the r e l a t i o n s h i p not considered t o be a s u r e t y s h i p i n the f i r s t or second of Lord Selborne L.C.'s c l a s s e s , but r a t h e r a s u r e t y s h i p i n the t h i r d c l a s s . 3 5 E q u a l l y , i f the p a r t y accommodated and the accommodation p a r t y are p r i n c i p a l and surety, then i t should f o l l o w t h a t payment of the b i l l by the p a r t y accommodated - the p r i n c i p a l - w i l l e f f e c t i v e l y discharge the accommodation p a r t y - the su r e t y - from l i a b i l i t y on the b i l l , i n accordance w i t h the normal s u r e t y s h i p r u l e s . 3 6 This i s e x p r e s s l y provided 3 2 See a l s o Pooley v Harradine (1857) 7 E. & B. 431, 119 E.R. 1307; Greenough v McC l e l l a n d (1860) 2 E. & E. 429, 121 E.R. 162; Rouse v Bradford  Banking Co. [1894] A.C. 586. 3 3 Supra, p. 57. 3 4 Idem. 3 5 Nor would i t apply i f the c r e d i t o r had reserved h i s r i g h t s a g a i n s t the accommodation p a r t y i n g i v i n g time t o the p a r t y accommodated-the p r i n c i p a l ; see eg. Re Renton, ex p. Glendinning (1819) Buck. 517; Owen  & Gutch v Homan (1853) 4 H.L. Cas. 997, 10 E.R. 752. 3 6 Supra, p. 33 et seq.. - 132 -f o r by s t a t u t e , a t l e a s t i n r e l a t i o n t o "accommodation b i l l s " , 3 7 f o r the A c t 3 8 s t i p u l a t e s t h a t : "Where an accommodation b i l l i s p a i d i n due course by the p a r t y accommodated the b i l l i s d i s c h a r g e d . " 3 9 Payment of the b i l l by the accommodation p a r t y , on the other hand, should not discharge the p a r t y accommodated - the p r i n c i p a l - from l i a b i l i t y , a t l e a s t t o the sur e t y . Instead, the accommodation p a r t y i n t h i s case should have a l l the us u a l r i g h t s of a s u r e t y a f t e r payment. Thus, the accommodation p a r t y should have the normal r i g h t of indemnity or re-imbursement ag a i n s t the p r i n c i p a l . I t i s c l e a r law t h a t t h i s i s so. The o b l i g a t i o n t o indemnify the s u r e t y was recognised, f o r example, i n Jones v B r o a d h u r s t , 4 0 when i t was s a i d t h a t the accommodation par t y , the acceptor i n t h a t case, was: " e n t i t l e d t o recover a g a i n s t the drawer [the p a r t y accommodated] whatever he may be compelled to pay i n discharge of h i s s u r e t y s h i p . " 4 1 3 7 I e . , b i l l s i n respect of which the accommodation p a r t y i s the acceptor. As one commentator has pointed out: "['Accommodation b i l l ' ] should be used o n l y t o de s c r i b e a b i l l where the accommodation p a r t y i s the acceptor. The reason f o r t h i s can be found i n s e c t i o n 59(3) which s t a t e s t h a t an accommodation b i l l i s discharged on payment by the p a r t y accommodated. A moment's thought w i l l show t h a t t h i s must be the case o n l y where the acceptor i s the accommodation p a r t y . I f any other p a r t y , say an i n d o r s e r , was the accommodation p a r t y , then, i f the p a r t y accommodated p a i d the b i l l the l a t t e r , though unable t o sue the accommodation p a r t y , c o u l d nevertheless sue the acceptor and the b i l l would not be discharged w h i l s t the acceptor remains l i a b l e on i t " ; D. Richardson, op. c i t . , p. 81. 3 8 B i l l s of Exchange Act 1882. 3 9 I b i d . , s. 59(3). 4 0 (1850) 9 C.B. 173, 137 E.R. 858. See a l s o Reynolds v Doyle (1840) 1 Man. & G. 753, 133 E.R. 536. 4 1 I b i d . , a t 181, a t 862. [Emphasis added] See a l s o , g e n e r a l l y : Duncan, Fox, & Co. v North & South Wales Bank (1880) 6 App. Cas. 1. - 133 -This may a l s o be the e f f e c t of the r e l e v a n t b i l l s of exchange l e g i s l a t i o n . 4 2 Secondly, the accommodation p a r t y should be e n t i t l e d t o seek c o n t r i b u t i o n from any other p a r t y t o the b i l l who i s e q u a l l y l i a b l e w i t h the accommodation p a r t y ; any other p a r t y t o the b i l l who i s , i n other words, a co-surety. This a l s o i s c l e a r l a w . 4 3 T h i r d l y , the accomodation p a r t y should be e n t i t l e d t o be subrogated to the holder's r i g h t s and remedies a g a i n s t the p a r t y accommodated, i n c l u d i n g i n p a r t i c u l a r the r i g h t t o have the b e n e f i t of any s e c u r i t i e s g iven by the p a r t y accommodated t o the holder. The d e c i s i o n of the House of Lords i n Duncan, Fox, & Co. 4 4 i s a u t h o r i t y f o r t h i s . There, the Lords, i n concluding t h a t a p a r t y f a l l i n g w i t h i n the t h i r d of Lord Selborne L.C.'s c l a s s e s of 4 2 For example, i f the accommodation p a r t y i s an i n d o r s e r , he i s e n t i t l e d upon payment of the b i l l t o recover the amount p a i d , together w i t h i n t e r e s t and expenses, from e i t h e r the acceptor or the drawer or any p r i o r i n d o r s e r ; see B i l l s of Exchange Act 1882, s. 57(1). S i m i l a r l y , i f the accommodation p a r t y i s the drawer, he may recover the same sums from the acceptor; s. 57(1). 4 3 See eg. Reynolds v Wheeler (1861) 10 C B . (N.S.) 561, 142 E.R. 572. There E r i e C.J. h e l d , a t 565, a t 573: "The machinery adopted here was, the drawing of a b i l l by Cheeseman [ p a r t y accommodated] upon Reynolds [accommodation a c c e p t o r ] , and the indorsement of i t by Wheeler [accommodation i n d o r s e r ] . As between these three p a r t i e s and the h o l d e r s , the acceptor would be p r i m a r i l y l i a b l e , and, on h i s f a i l u r e to pay, recourse would be had t o the drawer and the i n d o r s e r . But t h e i r r e l a t i o n t o the holder has no bearing on t h e i r r e l a t i o n t o one another. Reynolds and Wheeler each became a s u r e t y f o r the same debt or l i a b i l i t y of t h e i r p r i n c i p a l , Cheeseman. Reynolds, t h e r e f o r e , [who had been compelled t o pay the b i l l ] c l e a r l y had a r i g h t t o c a l l upon Wheeler f o r c o n t r i b u t i o n . " This r i g h t arose, according t o W i l l i a m s J . , upon the p r i n c i p l e of e q u i t y recognised by Lord Eldon i n Craythorne v Swinburne (1807) 14 Ves. Jun. 160, 33 E.R. 402. See a l s o BYLES, pp. 420-21. A r i g h t of c o n t r i b u t i o n would not, however, a r i s e i f the two s u r e t i e s i n t e r se are not c o - s u r e t i e s , but r a t h e r p r i n c i p a l and s u r e t y ; see eg., S c h o l e f i e l d Goodman and Sons L t d . v Zyngier [1986] A.C. 562 ( P . C ) , discussed i n f r a , p. 154 et seq. . (1880) 6 App. Cas. 1. - 134 -su r e t y s h i p was e n t i t l e d t o some a t l e a s t of the r i g h t s of a f u l l s urety, i n c l u d i n g the r i g h t t o r e c e i v e the b e n e f i t of s e c u r i t i e s i n the hands of the c r e d i t o r , c l e a r l y accepted t h a t the same was t r u e o f s u r e t i e s i n the second of Lord Selborne L.C.'s c l a s s . Lord Selborne L.C. s t a t e d : 4 5 " I t i s , however, c o n s i s t e n t ... t h a t the person who, as between himse l f and another debtor, i s i n f a c t a s u r e t y (though the c r e d i t o r i s no p a r t y t o t h a t c o n t r a c t of s u r e t y s h i p ) , has, aga i n s t t h a t other debtor, the r i g h t s of a surety; and t h a t the c r e d i t o r , r e c e i v i n g n o t i c e of h i s c l a i m t o those r i g h t s , w i l l not be a t l i b e r t y t o do anything t o t h e i r p r e j u d i c e , or t o ref u s e (when a l l h i s own j u s t claims are s a t i s f i e d ) t o give e f f e c t t o them. ... [T]he e q u i t y i s d i r e c t i n favour of the surety-debtor a g a i n s t the p r i n c i p a l debtor; but i t a f f e c t s the c r e d i t o r towards whom they are both p r i n c i p a l s o n l y as a man who has n o t i c e of the o b l i g a t i o n s of one of h i s own debtors towards the other." In support of t h i s , Lord Selborne L.C. c i t e d , i n t e r a l i a , the d e c i s i o n of the House of Lords i n L i q u i d a t o r s of Overend, Gurney, & Co. v L i q u i d a t o r s  of O r i e n t a l F i n a n c i a l C o rp., 4 6 which serves as a u t h o r i t y t h a t an accommodation p a r t y on a b i l l of exchange i s o n l y a s u r e t y f o r the p a r t y accommodated. 4 7 C l e a r l y , t h e r e f o r e , accommodation p a r t i e s , as s u r e t i e s , are e n t i t l e d t o be subrogated t o the p o s i t i o n of the holder p a i d o f f by the accommodation pa r t y , and take the b e n e f i t of a l l the r i g h t s and remedies of the holder, i n c l u d i n g any s e c u r i t i e s h e l d by him i n r e l a t i o n t o the p a r t y accommodated, i n order t o enable the accommodation p a r t y t o o b t a i n r e -imbursement from the p a r t y accommodated, the p r i n c i p a l . Further support f o r t h i s can be found i n s e v e r a l cases d e a l i n g w i t h , the r i g h t s of accommodation p a r t i e s t o promissory notes, which are 4 5 I b i d . , a t 12. 4 6 (1874) L.R. 7 H.L. 348. 4 7 Supra, pp. 126-27. - 135 -e s s e n t i a l l y the same as those under b i l l s of exchange. 4 8 Thus, i n P e a r l v Deacon 4 9 i t was h e l d t h a t a p a r t y who had j o i n e d a promissory note as su r e t y was e n t i t l e d t o have the value of c e r t a i n s e c u r i t i e s h e l d by the holder of the note brought i n t o account i n assessi n g the l i a b i l i t y of the su r e t y t o the holder. S i m i l a r l y , i n Aga Ahmed Ispahany v C r i s p , 5 0 S i r Richa r d Couch, i n the P r i v y C o u n c i l , i n c o n s i d e r i n g the r i g h t s of an accommodation endorser of a promissory note, s t a t e d : 5 1 " I t ... [ i s ] a r u l e of e q u i t y t h a t i f the endorser of a b i l l of exchange pays the holder of i t he i s e n t i t l e d t o the b e n e f i t of the s e c u r i t i e s given by the acceptor, which the holder has i n h i s hands a t the time of payment, and upon which he has no c l a i m except f o r the b i l l i t s e l f - Duncan, Fox, & Co. v North & South Wales Bank. The same r u l e ... [ i s ] a p p l i c a b l e t o the endorser o f a promissory note." What then i s the b a s i s of the r i g h t t o subrogation possessed by an accommodation p a r t y t o a b i l l of exchange? C l e a r l y , i t c o u l d be seen as simply a consequence of c l a s s i f y i n g the r e l a t i o n s h i p between the accommodation p a r t y and the p a r t y accommodated as one of s u r e t y s h i p , and a c o n t r a c t u a l s u r e t y s h i p i n p a r t i c u l a r . According t o t h a t c l a s s i f i c a t i o n , the su r e t y has c e r t a i n r i g h t s , i n c l u d i n g a r i g h t of subrogation, d e r i v e d from the " c o n t r a c t " of s u r e t y s h i p . The d i f f i c u l t i e s w i t h the n o t i o n of " c o n t r a c t " i n t h i s context have 4 8 The law r e l a t i n g t o promissory notes i s s i m i l a r to th a t r e l a t i n g t o b i l l s of exchange. Both are d e a l t w i t h i n the r e l e v a n t b i l l s of exchange Ac t s . See g e n e r a l l y , B i l l s of Exchange Act 1882 (U.K.); B i l l s of Exchange Act (Can.). The p r o v i s i o n s of the Acts r e l a t i n g t o b i l l s o f exchange, i n c l u d i n g those r e l a t i n g t o accommodation p a r t i e s , apply e q u a l l y t o promissory notes, though w i t h the necessary m o d i f i c a t i o n s . 4 9 (1857) 1 De G. & J . 461, 44 E.R. 802. 5 0 (1891) 8 T.L.R. 132. 5 1 I b i d . , a t 132. - 136 -a l r e a d y been d i s c u s s e d . 5 2 Given the absence of value or c o n s i d e r a t i o n , there can be no a c t u a l c o n t r a c t of s u r e t y s h i p from which the accommodation par t y ' s r i g h t s can be d e r i v e d . Nor i s i t easy t o s u s t a i n the f i c t i o n of an i m p l i e d c o n t r a c t based on request i n the face of modern l e g a l a n a l y s i s , i n order t o g i v e a c o n t r a c t u a l b a s i s t o the accommodation p a r t y ' s r i g h t o f subrogation. But once the i d e a of a f i c t i o n a l i m p l i e d c o n t r a c t as the b a s i s of an accommodation pa r t y ' s r i g h t s and remedies a g a i n s t the p a r t y accommodated i s discarded, then the immediate problem i s t o f i n d some other b a s i s f o r the c o n f e r r a l of these r i g h t s and remedies on the accommodation p a r t y . The answer comes w i t h the r e c o g n i t i o n t h a t the r e l a t i o n s h i p between the accommodation p a r t y and the p a r t y accommodated i s c l a s s i f i e d as one of s u r e t y s h i p because the p a r t i e s are not viewed by the law as e q u a l l y l i a b l e i n t e r se f o r payment or performance of the r e l e v a n t o b l i g a t i o n . Once t h i s i s recognised, i t f o l l o w s t h a t i f the p a r t y not e q u a l l y l i a b l e , but o n l y s e c o n d a r i l y l i a b l e , i n the circumstances i s compelled t o make payment, or otherwise perform the r e l e v a n t o b l i g a t i o n , he or she should be a b l e t o seek recompense from the p a r t y p r i m a r i l y l i a b l e . Furthermore, s i n c e b i l l s of exchange are e s s e n t i a l l y t r i p a r t i t e i n nature, the p a r t y o n l y s e c o n d a r i l y l i a b l e should be e n t i t l e d t o have fhe technique of subrogation used i n h i s favour, i e . be enabled t o e x e r c i s e f o r h i s own b e n e f i t the r i g h t s and remedies of the t h i r d p a r t y p a i d o f f by him i n order t o enforce h i s or her r i g h t of recompense a g a i n s t the p a r t y p r i m a r i l y l i a b l e . But t h i s , i t i s submitted, i s e s s e n t i a l l y an expression of the accommodation pa r t y ' s r i g h t s and remedies ag a i n s t the p a r t y accommodated, 5 2 Supra, pp. 127-30. - 137 -i n c l u d i n g the r i g h t of subrogation, i n r e s t i t u t i o n a r y terms. The p a r t y p r i m a r i l y l i a b l e would, i n other words, be u n j u s t l y enriched - because of the very f a c t t h a t he or she has undertaken t o bear primary r e s p o n s i b i l i t y f o r payment or performance - a t the expense of the p a r t y o n l y s e c o n d a r i l y l i a b l e were the former allowed t o r e t a i n the b e n e f i t of the l a t t e r ' s "compulsory" payment on h i s or her behalf; i n order t o remedy t h i s p o t e n t i a l u n j u s t enrichment, the l a t t e r should t h e r e f o r e have both a r e s t i t u t i o n a r y r i g h t of reimbursement a g a i n s t the former, and a l s o , s i n c e the s i t u a t i o n i s t r i p a r t i t e , the r e s t i t u t i o n a r y r i g h t t o stand i n the p l a c e of the t h i r d p a r t y and e x e r c i s e f o r h i s own b e n e f i t a l l the r i g h t s and remedies of the t h i r d p a r t y i n s o f a r as they would f a c i l i t a t e recovery of the enrichment from the p a r t y p r i m a r i l y l i a b l e . T h is view of the accommodation p a r t y ' s r i g h t of subrogation - h i s e n t i t l e m e n t i n other words t o have the technique of subrogation a p p l i e d i n h i s favour t o prevent the p a r t y accommodated from u n j u s t l y e n r i c h i n g h i m s e l f a t the expense of the accommodation p a r t y - e n t i r e l y supports, i t i s submitted, the t h e s i s of t h i s paper. C. Subrogation and Indorsers and Drawers f o r Value of B i l l s of Exchange 5 3 The r i g h t s and l i a b i l i t i e s of persons who, f o r value, e i t h e r draw b i l l s of exchange or subsequently indorse them are l a r g e l y d i c t a t e d by 5 3 See g e n e r a l l y r e England: B i l l s of Exchange Act 1882, 45 & 46 V i c t . , c. 61; and BYLES. Re Canada, see B i l l s of Exchange Act, R.S.C. 1970, c. B-5; Crawford & Falconbridge, op. c i t . ; Falconbridge, op. c i t . . - 138 -s t a t u t o r y p r o v i s i o n s . 5 4 In some res p e c t s , these r i g h t s and l i a b i l i t i e s are e s s e n t i a l l y the same as those of accommodation drawers and i n d o r s e r s . But there are a l s o d i f f e r e n c e s . The b a s i c p r i n c i p l e s l a i d down i n the l e g i s l a t i o n can be s h o r t l y s t a t e d . A person "draws" a b i l l of exchange, and i s thus the "drawer" of the b i l l , when he or she u n c o n d i t i o n a l l y addresses an order i n w r i t i n g t o another person (the "drawee") r e q u i r i n g t h a t other person t o pay on demand or a t a f i x e d or determinable f u t u r e time a sum c e r t a i n i n money t o or t o the order of a s p e c i f i e d person, or t o b e a r e r . 5 5 The s i g n a t u r e of the drawer i s necessary before the b i l l i s v a l i d l y drawn. 5 6 By drawing a b i l l , the drawer undertakes t h a t i t w i l l be accepted by the person to whom i t i s addressed ( i e . the d r a w e e 5 7 ) , and t h a t i t w i l l be p a i d on the due d a t e . 5 8 I f e i t h e r of these undertakings i s not honoured, then a l l p a r t i e s t o the b i l l other than the acceptor may have recourse t o the drawer. 5 9 Since there i s no acceptor i f the f i r s t undertaking i s not honoured, the e f f e c t of the s t a t u t o r y p r o v i s i o n s i s t h a t the drawer w i l l be the p a r t y u l t i m a t e l y l i a b l e f o r payment of the b i l l . 6 0 I f , however, the f i r s t undertaking i s honoured 5 4 B i l l s of Exchange Act 1882, (U.K.) 45 & 46 V i c t . , c. 61; B i l l s of Exchange Act, (Can.) R.S.C. 1970, c. B-5. 5 5 I b i d . , s. 3(1). 5 6 Idem. See a l s o s. 23. 5 7 Where the order addressed t o the drawee r e q u i r e s payment a t some f u t u r e date, the drawee must agree t o pay the b i l l on the due date. This c o n s t i t u t e s "acceptance" of the b i l l and the drawee i s t h e r e a f t e r known as the "acceptor". And see s. 17. 5 8 B i l l s of Exchange Act 1882, s. 55(1). 5 9 I b i d . , s. 55(1), s. 57. 6 0 I b i d . , s. 43. - 139 -and the b i l l i s d u l y accepted, then the e f f e c t of the l e g i s l a t i o n i s t h a t the acceptor becomes the p a r t y p r i m a r i l y l i a b l e on the b i l l . 6 1 I f the b i l l i s then dishonoured by the acceptor when the h o l d e r presents i t f o r payment, and recourse i s had t o the drawer, the payment by the drawer w i l l not discharge the b i l l . 6 2 The acceptor remains l i a b l e on the b i l l and the drawer who i s "compelled t o pay the b i l l " 6 3 can recover over a g a i n s t the a c c e p t o r . 6 4 An " i n d o r s e r " of a b i l l of exchange i s a p a r t y t o the b i l l who e f f e c t s the n e g o t i a t i o n or t r a n s f e r of the b i l l by w r i t i n g h i s or her name on the b i l l as t r a n s f e r o r and then d e l i v e r i n g the b i l l thus indorsed t o the 6 1 I b i d . , s. 54. This was a l s o the p o s i t i o n a t common law. In Jones v Broadhurst (1850) 9 C B . 173, a t 181, 137 E.R. 858, a t 861, f o r example, i t was s a i d : "The acceptor i s p r i m a r i l y and a b s o l u t e l y l i a b l e t o pay the b i l l , according t o i t s tenor. The drawers are l i a b l e o n l y upon the contingencies of the acceptor's or drawee's making d e f a u l t , and of the holder's performing c e r t a i n c o n d i t i o n s precedent ... ." 6 2 I b i d . , s. 59(2). Goff & Jones query whether t h i s needs t o be the r u l e ; GOFF & JONES, pp. 317-18: "No doubt b i l l s of exchange are s u b j e c t t o s p e c i a l c o n s i d e r a t i o n s . Nevertheless, on general p r i n c i p l e there i s much to b°e s a i d a g a i n s t the r u l e . . . e s t a b l i s h e d [ i n Jones v Broadhurst (1850) 9 C B . 173, 137 E.R. 858, and s. 59(2) B i l l s of Exchange Act 1882]. I t i s t r u e t h a t the i n d o r s e r of a b i l l of exchange i s not, s t r i c t l y speaking, a surety; nor has he, s t r i c t l y speaking, indorsed the b i l l a t the request of the acceptor. Yet the primary l i a b i l i t y r e s t s upon the acceptor, t h a t of the i n d o r s e r being 'only secondary'; and i t i s c e r t a i n l y w i t h i n the contemplation of acceptors of b i l l s of exchange t h a t others w i l l indorse the b i l l s and so render themselves l i a b l e thereon. I t i s d i f f i c u l t t o see, t h e r e f o r e , why the payment of a drawer or i n d o r s e r should not operate t o discharge the acceptor, pro tanto, i f the payment i s p a r t i a l , and completely, i f the payment i s i n f u l l . The i n d o r s e r i s not an o f f i c i o u s i n t e r v e n e r and he should be e n t i t l e d t o recover the amount of any such payment from the acceptor." 6 3 I b i d . , s. 57(2). 6 4 Idem. - 140 -t r a n s f e r e e . 6 5 The' s i g n a t u r e of the i n d o r s e r i s necessary before the indorsement operates as a v a l i d n e g o t i a t i o n of the b i l l . 6 6 There may be more than one i n d o r s e r of a b i l l , according t o the number of times the b i l l was n e gotiated by indorsement. Indorsers rank according t o the stage a t which they indorsed the b i l l . The r i g h t s and l i a b i l i t i e s of an i n d o r s e r are s i m i l a r t o those of a drawer. Thus, the i n d o r s e r a l s o undertakes t h a t on due p r e s e n t a t i o n the b i l l w i l l be accepted and p a i d ; 6 7 i f i t i s not, then l i k e the drawer, the i n d o r s e r w i l l be l i a b l e to a l l subsequent p a r t i e s . 6 8 An i n d o r s e r w i l l not, however, be l i a b l e t o p r i o r i n d o r s e r s or the drawer. Instead, i f recourse i s had by the holder or a subsequent i n d o r s e r t o the i n d o r s e r , the i n d o r s e r who i s as a r e s u l t "compelled t o pay the b i l l " , 6 9 may i n h i s or her t u r n have recourse t o those p r i o r i n d o r s e r s or the drawer. In t h i s regard, the r i g h t s and l i a b i l i t i e s of an i n d o r s e r d i f f e r s l i g h t l y from those of the drawer. But payment by an i n d o r s e r no more discharges the b i l l than does payment by the drawer; 7 0 i n the event of payment, t h e r e f o r e , the i n d o r s e r , l i k e the drawer, may a l s o have recourse t o the a c c e p t o r 7 1 who remains u l t i m a t e l y , or p r i m a r i l y , l i a b l e . 7 2 6 5 I b i d . . s. 2. See a l s o Halsbury, LAWS OF ENGLAND (4th ed., 1973), v o l . 4 " B i l l s of Exchange and Other Negotiable Instruments", para. 308. 6 6 I b i d . . s. 32. See a l s o s. 23. 6 7 I b i d . , s. 55(2). 6 8 Idem. See a l s o s. 57. 6 9 I b i d . . s. 57(2). 7 0 I b i d . . s. 59(2). 7 1 I b i d . , s s. 57, 59(2). 7 2 I b i d . . s. 54. - 141 -Two f a c t s r e l e v a n t t o subrogation are n o t i c e a b l e from t h i s b r i e f account of the r i g h t s and l i a b i l i t i e s of drawers and i n d o r s e r s f o r value of b i l l s of exchange. The f i r s t i s t h a t the s i t u a t i o n s o u t l i n e d are t r i p a r t i t e - they i n v o l v e a t l e a s t three p a r t i e s , namely the drawer or i n d o r s e r , the holder, and the a c c e p t o r . 7 3 The second i s t h a t the recourse r i g h t s of the drawer and i n d o r s e r a g a i n s t the acceptor and, i n the case of an i n d o r s e r , a g a i n s t p r i o r i n d o r s e r s and the drawer a l s o , a r i s e when the drawer or i n d o r s e r i s "compelled t o pay the b i l l " . 7 4 These two f a c t s might be thought t o i n d i c a t e t h a t the recourse r i g h t s of a drawer or i n d o r s e r f o r value are d e r i v e d from and through the holder who compelled the payment; i n other words, t h a t they are e s s e n t i a l l y the r e s u l t of subrogation, of standing the drawer or i n d o r s e r i n the p l a c e of the h o l d e r so as t o enable the drawer or i n d o r s e r t o have the b e n e f i t of the holder's r i g h t s and remedies ag a i n s t other p a r t i e s t o the b i l l , and, i n p a r t i c u l a r , the acceptor. But t h i s i s not so. The recourse r i g h t s of the drawer and i n d o r s e r are not d e r i v e d from and through the holder; r a t h e r , they emanate from the f a c t t h a t upon payment, the drawer or i n d o r s e r becomes the "holder" of the b i l l . This was the e f f e c t of payment a t common l a w , 7 5 and i s s p e c i f i c a l l y provided f o r i n the r e l e v a n t b i l l s of exchange l e g i s l a t i o n . 7 6 Thus, s. 59(2)(b) of the B i l l s of Exchange Act 1882 (U.K.) provides: 7 3 I t i s n e c e s s a r i l y the case t h a t there w i l l be three p a r t i e s . One person may, however, bear more than one s t a t u s on a b i l l of exchange. 7 4 I b i d . , s. 57(2). 7 5 Ex p. Bishop, re Fox. Walker & Co. (1880) 15 Ch. D. 400. At 411, James L . J . s t a t e d t h a t "an i n d o r s e r of a b i l l i s not e n t i t l e d t o sue upon i t , unless he becomes the h o l d e r . " 7 6 B i l l s of Exchange Act 1882, s. 59. - 142 -"Where a b i l l i s p a i d by an i n d o r s e r , or where a b i l l payable t o drawer's order i s p a i d by the drawer, the p a r t y paying i t i s r e m i t t e d t o h i s former r i g h t s as regards the acceptor or antecedent p a r t i e s , and he may, i f he t h i n k s f i t , s t r i k e out h i s own [and] subsequent indorsements, and again n e g o t i a t e the b i l l . " 7 7 The recourse r i g h t s of the drawer and i n d o r s e r are t h e r e f o r e l a r g e l y a r e s u l t of the f a c t t h a t , by s t a t u t e , he or she, upon payment of the b i l l , becomes the holder of the b i l l and able t o sue upon and enforce i t i n the normal way. There are, however, s e v e r a l circumstances which are not c l e a r l y c atered f o r by the s t a t u t o r y p r o v i s i o n s , and where r e s o r t must be had t o the common law, and p o s s i b l y t o subrogation, to determine the recourse r i g h t s of the drawer and i n d o r s e r a g a i n s t the acceptor, or, i n the case of an i n d o r s e r , the drawer and any p r i o r i n d o r s e r s . F i r s t , i t i s c l e a r t h a t a drawer or i n d o r s e r i s r e m i t t e d t o h i s former r i g h t s o n l y i n the event of f u l l payment of the b i l l by h i m . 7 8 P a r t i a l payment w i l l not be s u f f i c i e n t . The p a r t y t o whom the p a r t i a l payment i s made remains the holder of the b i l l , and may s t i l l seek f u l l payment of the b i l l from the acceptor. I f , i n t h i s case, the holder does subsequently r e c e i v e f u l l payment from the acceptor, does the drawer or i n d o r s e r have any r i g h t t o recover h i s p a r t i a l payment? A u t h o r i t y suggests t h a t t h i s i s p o s s i b l e , although the b a s i s f o r recovery i s not c l e a r . In Pownal v F e r r a n d , 7 9 i n 1827, the court h e l d t h a t an i n d o r s e r who had p a i d the hol d e r i n p a r t , c o u l d proceed d i r e c t l y a g a i n s t the acceptor i n an a c t i o n f o r money p a i d , on the b a s i s t h a t the acceptor 7 7 7 8 7 9 Emphasis added. The s t a t u t e reads " i s p a i d " . (1827) 6 B.& C. 439, 108 E.R. 513. - 143 -had r e c e i v e d the b e n e f i t of the i n d o r s e r ' s p a r t i a l payment. 8 0 Goff and Jones suggest, however, th a t t h i s case "must now be regarded as of d o u b t f u l a u t h o r i t y " , 8 1 because: " I t i s d i f f i c u l t t o see how t h i s case can be r e c o n c i l e d w i t h Jones v Br o a d h u r s t , 8 2 [which of course h e l d t h a t the i n d o r s e r ' s payment d i d not discharge the acceptor i n whole or i n p a r t ; i e . no " b e n e f i t " was conf e r r e d on the acceptor] o r , indeed, w i t h s. 59(2) of the B i l l s of Exchange Act 1882, except on the r a t h e r d o u b t f u l ground t h a t the acceptor should be taken t o have r a t i f i e d the i n d o r s e r ' s payment." 8 3 An a l t e r n a t i v e e x p l a n a t i o n f o r recovery by the drawer or i n d o r s e r , and one advanced i n Jones v B r o a d h u r s t , 8 4 i s t o t r e a t the p a r t l y p a i d h o l d e r , who has subsequently r e c e i v e d f u l l payment from the acceptor, as a t r u s t e e f o r the drawer or i n d o r s e r of an amount equal t o the p a r t i a l payment p r e v i o u s l y made by the drawer or i n d o r s e r . 8 5 In t h i s way, the drawer or 8 0 I b i d . , a t 443-46, a t 514-15. Each of the four judges i n t h i s case expressed themselves along l i n e s s i m i l a r t o Lord Tenterden C.J., a t 443, a t 514: " I am of o p i n i o n t h a t ... [the p l a i n t i f f , an i n d o r s e r of the b i l l ] i s e n t i t l e d t o recover upon t h i s general p r i n c i p l e , t h a t one man, who i s compelled t o pay money which another i s bound by law to pay, i s e n t i t l e d t o be reimbursed by the l a t t e r ; and I t h i n k , t h a t money p a i d under such circumstances may be considered as money p a i d t o the use of the person who i s so bound t o pay i t . " 8 1 GOFF & JONES, p. 536. 8 2 (1850) 9 C.B. 173, 137 E.R. 858. 8 3 GOFF & JONES, pp. 318-19. 8 4 (1850) 9 C.B. 173, 137 E.R. 858. 8 5 C r e s s w e l l J . , i n c o n s i d e r i n g e a r l i e r a u t h o r i t i e s on the r i g h t s of an i n d o r s e r who has p a r t l y p a i d the hold e r , suggested, a t 185, a t 863: " I t may be t h a t what was intended to be s a i d was, th a t such a payment by the acceptor would make the indorsee [ i e . the holder] a t r u s t e e f o r the drawer, and l i a b l e t o refund to him what should be p a i d by the acceptor: Goff & Jones see t h i s as a b e t t e r e x p l a n a t i o n f o r recovery of the p a r t i a l payment, GOFF & JONES, p. 536: "The best course f o r an i n d o r s e r who has p a i d a b i l l i n p a r t i s t o persuade the holder t o recover the f u l l amount of the b i l l from the acceptor. The holder w i l l then h o l d on t r u s t f o r the in d o r s e r an amount equal t o the sum which the l a t t e r has p a i d on the b i l l . " - 144 -i n d o r s e r can recover whatever was p r e v i o u s l y p a i d by him t o the holder. The d i f f i c u l t y w i t h t h i s e x p l a n a t i o n l i e s i n i d e n t i f y i n g the f a c t o r g i v i n g r i s e t o the t r u s t i n favour of the drawer or i n d o r s e r . The court i n Jones v Broadhurst i t s e l f expressed doubt about t h i s e x p l a n a t i o n of a r i g h t of recovery, f o r the e a r l i e r a u t h o r i t i e s suggested i t was the acceptor, not the holder, who was l i a b l e t o refund the drawer. 8 6 I t i s submitted t h a t a f u r t h e r e x p l a n a t i o n f o r recovery by the drawer or i n d o r s e r i s p o s s i b l e . I f , as the cases and s t a t u t o r y p r o v i s i o n s s t a t e , the drawer or i n d o r s e r ' s p a r t i a l payment to the holder does not discharge the b i l l , and the holder can s t i l l seek f u l l payment from the acceptor, i t i s arguable t h a t the c o n s i d e r a t i o n given by the holder i n r e t u r n f o r which the p a r t i a l payment was made, namely, discharge of the b i l l a t l e a s t i n p a r t or non-recovery a t l e a s t i n p a r t from the acceptor, has w h o l l y f a i l e d . I f so, then i t can be argued t h a t the holder has no l e g a l e n t i t l e m e n t t o r e t a i n the.money p r e v i o u s l y p a i d t o him by the drawer or i n d o r s e r ; q u a s i -c o n t r a c t u a l , or r e s t i t u t i o n a r y , proceedings based on t h i s t o t a l f a i l u r e of c o n s i d e r a t i o n c o u l d a c c o r d i n g l y be taken t o recover the same from h i m . 8 7 Recovery, i n other words, would not be on the b a s i s t h a t the p a r t i a l payment i s l e g a l l y e f f e c t i v e t o discharge the acceptor's l i a b i l i t y i n p a r t , but on the opposite b a s i s , t h a t i t i s not l e g a l l y e f f e c t i v e . I n t h i s way, 8 6 I b i d . , a t 185, a t 863, per C r e s s w e l l J . : "... but i t i s by no means c l e a r t h a t t h i s [ i d e a of a t r u s t ] was intended t o be s a i d , because the remarks [ i n an e a r l i e r case] r e f e r t o the acceptor's l i a b l i t y t o refund, i n terms, and speak of a payment by the acceptor, a f t e r n o t i c e of payment by the drawer, - which would be q u i t e immaterial, upon the question whether the indorsee would become a t r u s t e e f o r the drawer, i n regard t o the sum r e c e i v e d from the acceptor." [Emphasis added] 8 7 The i n d e b i t a t u s assumpsit count of money had and r e c e i v e d was used where a t o t a l f a i l u r e of c o n s i d e r a t i o n was a l l e g e d ; see g e n e r a l l y GOFF & JONES, p. 3, pp. 54-55. - 145 -i t i s submitted, the money could be recovered without doing any v i o l e n c e t o the b a s i c p r i n c i p l e s of l i a b i l i t y l a i d down i n Jones v Broadhurst 8 8 or s. 59(2) of the B i l l s of Exchange Act 1882. A second s i t u a t i o n which i s not c l e a r l y catered f o r i n the l e g i s l a t i o n , and where subrogation has i t s p r i n c i p a l r o l e i n r e l a t i o n t o drawers and i n d o r s e r s f o r value, concerns s e c u r i t i e s deposited by the acceptor or, i n the case of an i n d o r s e r , by the drawer or p r i o r i n d o r s e r s , w i t h the holder of-the b i l l of exchange. The question t h a t a r i s e s i s whether a drawer or i n d o r s e r who has p a i d the holder i n f u l l , and thereby been "remitted t o h i s former r i g h t s as regards the acceptor or antecedent p a r t i e s " , 8 9 can c l a i m the b e n e f i t of these s e c u r i t i e s i n seeking recourse from the acceptor or antecedent party? A p o s i t i v e answer w i l l , of course, be p a r t i c u l a r l y important i f , as i s u s u a l l y the case when s e c u r i t i e s are concerned, the p a r t y who deposited the s e c u r i t i e s has subsequently become bankrupt or i n s o l v e n t . In t h a t event, the drawer or i n d o r s e r w i l l wish t o c l a i m the b e n e f i t of the s e c u r i t i e s i n order t o o b t a i n p r i o r i t y over general unsecured c r e d i t o r s . The f a c t t h a t the drawer or i n d o r s e r becomes the holder and i s r e m i t t e d t o h i s former r i g h t s when he or she pays the b i l l w i l l not a s s i s t him or her i n c l a i m i n g these s e c u r i t i e s , f o r i t i s " h i s former r i g h t s " t o which he i s r e m i t t e d , not those of the holder t o whom payment was made. The drawer can o n l y c l a i m the b e n e f i t of the s e c u r i t i e s given by the acceptor or other antecedent p a r t y t o the former holder of the b i l l i f the drawer or i n d o r s e r can compel the former holder t o a s s i g n the s e c u r i t i e s t o him or 8 8 (1850) 9 C.B. 173, 137 E.R. 858. 8 9 B i l l s of Exchange Act 1882, s. 59(2)(b). - 146 -her, or can otherwise take the b e n e f i t of them through the former holder. Can a drawer or i n d o r s e r do so? C l e a r l y , he or she could i f the r e l a t i o n s h i p between them and the p a r t y d e p o s i t i n g the s e c u r i t i e s can be c l a s s e d as one of s u r e t y s h i p , f o r the drawer or i n d o r s e r , as s u r e t y , would thereby be e n t i t l e d t o subrogation. As has been s e e n , 9 0 subrogation i n the s u r e t y s h i p context e n t a i l s and i s t y p i f i e d by the assignment of s e c u r i t i e s h e l d by the c r e d i t o r t o the surety; or a l t e r n a t i v e l y , the e n t i t l e m e n t of the s u r e t y t o be stood i n the p l a c e of the c r e d i t o r t o whom the s e c u r i t i e s were given i n order t o r e c e i v e the b e n e f i t of them. The question, t h e r e f o r e , can be expressed as the q u e s t i o n whether a drawer or i n d o r s e r has a r i g h t of subrogation. In answering t h i s q u e stion t h i s paper comes f u l l c i r c l e , f o r the l e a d i n g case on the r i g h t of drawers or i n d o r s e r s of a b i l l of exchange t o the b e n e f i t of s e c u r i t i e s deposited by the acceptor of the b i l l w i t h the holder i s Duncan, Fox, & Co. v North & South Wales Bank. 9 1 In t h a t case, i t w i l l be r e c a l l e d , the House of Lords extended the n o t i o n of s u r e t y s h i p t o i n c l u d e c e r t a i n analogous r e l a t i o n s h i p s , i n order t o endow the p a r t i e s t o those r e l a t i o n s h i p s w i t h some a t l e a s t of the r i g h t s and remedies of s u r e t i e s i n the normal sense, i n c l u d i n g the r i g h t of s u b r o g a t i o n . 9 2 The p a r t i c u l a r r e l a t i o n s h i p and problem under c o n s i d e r a t i o n i n t h a t case was e x a c t l y the problem here o u t l i n e d , namely, the r i g h t of a i n d o r s e r f o r value of a b i l l of exchange t o the b e n e f i t of s e c u r i t i e s deposited by the 9 0 Supra, p. 56. 9 1 (1880) 6 App. Cas. 1. 9 2 Supra, p. 35 et seq.. - 147 -acceptor of the b i l l w i t h the holder t o whom the i n d o r s e r i s r e q u i r e d t o make payment. The problem arose because the b i l l s i n t h a t case, indorsed by Duncan, Fox, & Co., and discounted t o North & South Wales Bank, were dishonoured upon p r e s e n t a t i o n t o the acceptor, Radford & Sons, f o r payment. 9 3 The holder of the b i l l s , North & South Wales Bank, gave formal n o t i c e of dishonour t o Duncan, Fox, & Co. and demanded payment of the b i l l s . The acceptor i n the meantime had become i n s o l v e n t and had executed a deed of i n s p e c t o r s h i p . 9 4 Duncan, Fox, & Co. admitted t h e i r l i a b i l i t y on the b i l l s but, having learned t h a t the acceptor had deposited c e r t a i n deeds of f r e e h o l d p r o p e r t y w i t h the bank as s e c u r i t y f o r the acceptor's l i a b i l i t y t o the bank, claimed t h a t they were e n t i t l e d , i n c a l c u l a t i n g the amount due by them on the b i l l s , t o the b e n e f i t of these s e c u r i t i e s , on the ground t h a t Duncan, Fox, & Co. was merely a s u r e t y f o r the acceptor. P r i o r t o payment of the b i l l s , Duncan, Fox, & Co. thus a p p l i e d t o the bank t o r e a l i z e the s e c u r i t i e s and apply the proceeds i n payment of the amounts due on the b i l l s , or t o render t o Duncan, Fox, & Co. an account of what was due from the acceptor and, on payment, t r a n s f e r the s e c u r i t i e s f o r the same amount remaining i n the bank's hands. The acceptor's other unsecured general c r e d i t o r s contested t h i s c l a i m and i n s t e a d claimed t h a t the s e c u r i t i e s should be p a i d over t o the i n s p e c t o r s f o r general d i s t r i b u t i o n . The North & 9 3 Two s e t s of b i l l s were a c t u a l l y i n v o l v e d i n the case, w i t h s l i g h t l y d i f f e r e n t p a r t i e s . The d i s c u s s i o n here o u t l i n e s the f a c t s as they r e l a t e t o the b i l l s indorsed by Duncan, Fox, & Co. The d e c i s i o n and p r i n c i p l e s o u t l i n e d a p p l i e d e q u a l l y t o the other set of b i l l s . 9 4 A deed of i n s p e c t o r s h i p was an instrument entered i n t o between an i n s o l v e n t debtor and h i s c r e d i t o r s , a p p o i n t i n g a person or persons t o i n s p e c t and oversee the winding up of such i n s o l v e n t a f f a i r s on behalf of the c r e d i t o r s ; see Bankruptcy Act 1869, ss. 125, 127. - 148 -South Wales Bank thereupon sought the d i r e c t i o n of the c o u r t as t o what should be done w i t h the s e c u r i t i e s . The House of Lords r e j e c t e d Duncan, Fox,.& Co.'s c l a i m t h a t i t was a s u r e t y i n the normal sense - i e . , a s u r e t y w i t h i n e i t h e r the f i r s t or second of Lord Selborne L.C.'s three c a t e g o r i e s 9 5 - f o r the acceptor or antecedent p a r t i e s on the b i l l . 9 6 To f a l l w i t h i n these two c l a s s e s of s u r e t y s h i p , the Lords recognised, the drawer or i n d o r s e r of a b i l l must have agreed - or c o n t r a c t e d - w i t h the acceptor, or antecedent p a r t i e s , t h a t the former w i l l o n l y be a s u r e t y v i s - a - v i s the l a t t e r f o r payment of the b i l l . T h i s , the Lords accepted, was not normally so i n b i l l s o f exchange. 9 7 Thus, i n d o r s i n g a b i l l f o r value d i d not per se c o n s t i t u t e the i n d o r s e r a s u r e t y f o r the acceptor w i t h a l l the attendant r i g h t s of a s u r e t y , i n c l u d i n g the r i g h t t o have the b e n e f i t of any s e c u r i t i e s lodged by the acceptor w i t h the holder of the b i l l . However, as has a l r e a d y been s e e n , 9 8 the law does not view a l l the p a r t i e s t o a b i l l of exchange as being e q u a l l y l i a b l e i n t e r se f o r payment of the b i l l , though t h i s may be so as f a r as the holder i s concerned. The chain of recourse r i g h t s stops a t someone. A h i e r a r c h y of l i a b i l i t y thus e x i s t s , according t o which one p a r t y t o the b i l l may be s a i d t o be only s e c o n d a r i l y l i a b l e on the b i l l i n r e l a t i o n t o another p a r t y , w i t h t h a t l a t t e r p a r t y consequently bearing primary l i a b i l i t y f o r payment. The 9 5 Supra, pp. 36-37. 9 6 I b i d . , a t 13-14, per Lord Selborne L.C. 9 7 Of course, the p a r t i e s t o a p a r t i c u l a r b i l l of exchange may have reached such an agreement. 9 8 Supra, p. 140. - 149 -immediate l e g a l consequence of c l a s s i f y i n g the r e l a t i o n s h i p between two p a r t i e s t o the b i l l as one of primary and secondary l i a b l i t y i s t h a t i f the p a r t y o n l y s e c o n d a r i l y l i a b l e i s compelled t o pay the b i l l , then, according t o the common law, he or she should be able t o recover the amount of t h a t payment from the p a r t y p r i m a r i l y l i a b l e . T his was recognised by the Lords i n Duncan, Fox, & Co. i n r e f e r r i n g t o c a s e s : 9 9 " i n which there i s , s t r i c t l y speaking, no c o n t r a c t of s u r e t y s h i p , but i n which there i s a primary and secondary l i a b i l i t y of two persons f o r one and the same debt, by v i r t u e of which, i f i t i s p a i d by the person who i s not p r i m a r i l y l i a b l e , he has a r i g h t t o re-imbursement or indemnity from the other ...". Such cases, s t a t e d Lord Selborne L.C., 1 0 0 formed a t h i r d c l a s s of s u r e t y s h i p f o r the pupose of ass e s s i n g the r i g h t s and l i a b i l i t i e s of the p a r t i e s t o them. It has a l r e a d y been s e e n 1 0 1 t h a t the law views the acceptor of a b i l l of exchange as the p a r t y who i s u l t i m a t e l y l i a b l e on the b i l l . Thus, a drawer of the b i l l can be s a i d t o be only s e c o n d a r i l y l i a b l e f o r payment of the b i l l v i s - a - v i s the acceptor; and an i n d o r s e r can be s a i d t o be s e c o n d a r i l y l i a b l e f o r payment v i s - a - v i s not o n l y the acceptor, but a l s o the drawer and p r i o r i n d o r s e r s . I n each of these cases, t h e r e f o r e , i f the drawer or i n d o r s e r i s compelled by the holder t o pay the b i l l , he or she w i l l have a t l e a s t a r i g h t of re-imbursement a g a i n s t the acceptor. To t h i s extent, the drawer or i n d o r s e r upon payment possesses r i g h t s analogous t o those of a s u r e t y i n the normal sense. 9 9 (1880) 6 App. Cas. 1, a t 13, per Lord Selborne L.C. 1 0 0 I b i d . , a t 11. 1 0 1 Supra, pp. 125-26. - 150 -By the same reasoning, concluded the House of Lords, a drawer or in d o r s e r who has been compelled t o pay the b i l l should be e n t i t l e d t o the b e n e f i t of any s e c u r i t i e s lodged by the acceptor w i t h the holder t o secure the acceptor's l i a b i l i t y t o the holder. Lord Selborne L.C. c o n c l u d e d : 1 0 2 " I am unable t o conceive any ground on which the p r i n c i p l e [of e q u i t y upon which a s u r e t y i s discharged i f the c r e d i t o r discharges or suspends h i s r i g h t s a g a i n s t the p r i n c i p a l without the consent of the surety] which p r e v a i l s i n cases of s u r e t y s h i p should go so f a r as t h i s , i n favour of the drawer or i n d o r s e r , and not a l s o extend (when the i n d o r s e r i s compelled t o pay the b i l l , and when the question a r i s e s between him and the acceptor only) t o s e c u r i t i e s deposited by the acceptor w i t h the holder. ... No case before the present has been c i t e d , i n which the r i g h t of a drawer or i n d o r s e r t o the b e n e f i t of such s e c u r i t i e s , as between h i m s e l f and the acceptor, has ever been denied or doubted. ... I t h i n k t h a t the p r i n c i p l e s deducible from a l l the a u t h o r i t i e s l e a d , n e c e s s a r i l y , t o the c o n c l u s i o n , t h a t , under circumstances l i k e the present, the e q u i t y between the i n d o r s e r and the acceptor i s the same as t h a t between a s u r e t y and a p r i n c i p a l debtor when the c r e d i t o r i s not a p a r t y t o the c o n t r a c t o f s u r e t y s h i p [ i e . Lord Selborne L.C.'s second c l a s s of s u r e t y s h i p ] . " Thus, an i n d o r s e r f o r value of a b i l l o f exchange, o r, i t would seem, a drawer f o r value, who has been compelled t o pay the ho l d e r of the b i l l i s e n t i t l e d , i n a d d i t i o n t o h i s or her recourse r i g h t s under the b i l l s of exchange l e g i s l a t i o n by v i r t u e of h i s or her becoming the holder, a l s o t o have the b e n e f i t of any s e c u r i t i e s deposited by the acceptor (or other antecedent p a r t i e s ) w i t h the former holder i n respect of the acceptor's (or other's) l i a b i l i t y on the b i l l . T h is l a t t e r e n t i t l e m e n t , i t i s submitted, i s the r e s u l t of subrogating the i n d o r s e r or drawer t o the p o s i t i o n of the p a i d o f f holder. What i s the nature of t h i s e n t i t l e m e n t t o subrogation? C l e a r l y , i t i s not c o n t r a c t u a l i n nature. This was accepted i n Duncan, Fox, & Co. v North 1 0 2 (1880) 6 App. Cas. 1, a t 14-15. - 151 -& South Wales B a n k . 1 0 3 Instead, according t o Lord Selborne L . C , as j u s t seen, i t i s broadly based upon notions of "equity". Lord Blackburn agreed, but saw the source of t h i s e q u i t y i n cases such as Peering v E a r l of  W i n c h e l s e a , 1 0 4 and Craythorne v Swinburne. 1 0 5 In h i s view, these cases e s t a b l i s h e d t h a t : "[W]here a c r e d i t o r has a r i g h t t o come upon more than one person or fund f o r the payment of a debt, there i s an e q u i t y between the persons i n t e r e s t e d i n the d i f f e r e n t funds t h a t each s h a l l bear no more than i t s due p r o p o r t i o n . This i s q u i t e independent of any c o n t r a c t between the p a r t i e s thus l i a b l e . ... I t h i n k t h a t though the i n d o r s e r of a b i l l i s not e x a c t l y a s u r e t y f o r the acceptor, or a co-surety w i t h those who are s u r e t i e s f o r the acceptor, yet he stands i n a p o s i t i o n s u f f i c i e n t l y analogous t o t h a t of a s u r e t y t o b r i n g him w i t h i n the p r i n c i p l e of Peering v Lord W i n c h e l s e a . " 1 0 6 Lord Watson a l s o saw the i n d o r s e r ' s r i g h t of subrogation t o be a product of "equi t y " : " [ I ] t has long been a s e t t l e d r u l e of E q u i t y t h a t , i n circumstances analogous t o those of the present case, the c r e d i t o r i s bound t o take payment from t h a t one of h i s debtors who i s i n t e r eos p r i m a r i l y l i a b l e f o r h i s d e b t . " 1 0 7 This n o t i o n of " e q u i t y " , i t has a l r e a d y been s u b m i t t e d , 1 0 8 i n essence a r i s e s from the i n t e r p l a y of two f a c t o r s i n the circumstances of t h i s case: f i r s t , the f a c t t h a t there i s something i n the circumstances of the case, other than a c o n t r a c t , which l e g a l l y compels the "quasi-surety" t o pay the debt of another; and secondly, the f a c t t h a t there i s something i n the 1 0 3 (1880) 6 App. Cas. 1. 1 0 4 (1787) 2 Bos. & P. 270, 126 E.R. 1276. 1 0 5 (1807) 14 Ves. Jun. 160, 33 E.R. 482. 1 0 6 Duncan, Fox. & Co. v North & South Wales Bank (1880) 6 App. Cas. 1, a t 19. 1 0 7 I b i d . , a t 22. 1 0 8 Supra, pp. 39-40. - 152 -circumstances - perhaps the same t h i n g , but again something other than a co n t r a c t - which d i c t a t e s t h a t as between the two of them, the one who f a i l e d t o pay the debt was the one who bore the primary l i a b i l i t y f o r i t , w h i l e the other who was compelled t o pay bore o n l y secondary r e s p o n s i b i l i t y . The "equity" t h a t then a r i s e s i s i n essence, i t i s submitted, an expression of the i n j u s t i c e t h a t would be seen to r e s u l t were the p a r t y who bore primary r e s p o n s i b i l t y i n the circumstances permitted t o r e t a i n the b e n e f i t o f the payment made under compulsion by the p a r t y o n l y s e c o n d a r i l y l i a b l e . The n o t i o n of "equity" used i n t h i s case, i n other words, i s an encapsulation of the p r i n c i p l e of un j u s t enrichment, and the b a s i s , t h e r e f o r e , f o r e f f e c t i n g r e s t i t u t i o n of the b e n e f i t c o n f e r r e d on the acceptor. Subrogating the i n d o r s e r t o the p o s i t i o n of the holder of the b i l l t o enable him or her to r e c e i v e the b e n e f i t of s e c u r i t i e s lodged by the acceptor w i t h the holder f o r the common debt on the b i l l i s , t h e r e f o r e , i t i s submitted, an expression of t h i s need t o e f f e c t r e s t i t u t i o n i n the circumstances of the case. I t i s the f a c t t h a t the acceptor (the p a r t y p r i m a r i l y l i a b l e on the b i l l ) would be u n j u s t l y enriched, a t the expense of the i n d o r s e r (the p a r t y o n l y s e c o n d a r i l y l i a b l e as a g a i n s t the acceptor) i f the former were allowed t o r e t a i n the b e n e f i t of the l a t t e r ' s payment under compulsion to the ho l d e r , t h a t leads t o the use of the technique o f subrogation t o e f f e c t r e s t i t u t i o n . The r e s t i t u t i o n a r y nature of subrogation i n t h i s context i s emphasised by the f a c t t h a t t h i s r i g h t of the in d o r s e r t o stand i n the pla c e of the holder and r e c e i v e the b e n e f i t of s e c u r i t i e s i n the hands o f the l a t t e r does not a r i s e u n t i l the i n d o r s e r has been compelled by the holder t o pay - 153 -the b i l l . The "equity", the "unjust" enrichment i n other words, does not a r i s e u n t i l a b e n e f i t , an enrichment, has been conferred on the acceptor. This was recognised by the Lords i n Duncan, Fox, & Co.. 1 0 9 Lord Selborne L . C , f o r example, s t a t e d t h a t the e q u i t y arose "... when the i n d o r s e r i s compelled to pay the b i l l . . . " . 1 1 0 Lord Blackburn a l s o recognised the n e c e s s i t y f o r payment before the e q u i t y i n favour of the i n d o r s e r a r o s e : 1 1 1 "[Tjhere i s n e i t h e r p r i n c i p l e nor a u t h o r i t y f o r saying t h a t the ind o r s e r s are, during the currency of the b i l l , s u r e t i e s , or i n the nature of s u r e t i e s t o the indorsee, or t h a t they have any e q u i t y t o prevent the indorsee from d e a l i n g as i t may seem t o him most d e s i r a b l e , w i t h any other p a r t i e s ... . But though the i n d o r s e r s had no such r i g h t by c o n t r a c t , yet a f t e r the b i l l s were dishonoured and n o t i c e of dishonour had been given t o the i n d o r s e r s , the p o s i t i o n of the p a r t i e s i s a l t e r e d . Though the in d o r s e r i s p r i m a r i l y l i a b l e as p r i n c i p a l on the b i l l , and i s not s t r i c t l y a s u r e t y f o r the acceptor, he has t h i s i n common w i t h a s u r e t y f o r the acceptor, t h a t he i s e n t i t l e d t o the b e n e f i t of a l l payments made by the acceptor, and i s e n t i t l e d , on paying the holder, t o be put i n a s i t u a t i o n t o have the r i g h t t o sue the acceptor." Lord Watson emphasised another fea t u r e of the i n d o r s e r ' s r i g h t o f subrogation t h a t can be seen t o be an i n d i c a t i o n of the r e s t i t u t i o n a r y nature of the r i g h t , namely, t h a t r e t e n t i o n of the b e n e f i t conferred on the p a r t y p r i m a r i l y l i a b l e by the p a r t y o n l y s e c o n d a r i l y l i a b l e , must be unjus t . This i s not n e c e s s a r i l y so, and other f a c t o r s may need t o be taken i n t o account i n a p a r t i c u l a r case. He s t a t e d : 1 1 2 " [ W ] h i l s t ... the in d o r s e r i s not i n the l i k e n e s s , and t h e r e f o r e cannot c l a i m the e q u i t i e s of a su r e t y , so long as the b i l l i s c u r r e n t , I am not prepared t o h o l d t h a t he becomes n e c e s s a r i l y , and i n a l l circumstances, e n t i t l e d t o these e q u i t i e s whenever the b i l l matures. I t i s p o s s i b l e t h a t , a f t e r m a t u r i t y , the holder o f the b i l l may have 1 0 9 (1880) 6 App. Cas. 1. 1 1 0 I b i d . , a t 14. 1 1 1 I b i d . , a t 18. [Emphasis added] 1 1 2 I b i d . , a t 22-23. - 154 -such i n t e r e s t , a r i s i n g from h i s r e l a t i o n s w i t h the acceptor, as w i l l e n t i t l e him even then t o d e a l w i t h h i s s e c u r i t i e s without respect t o the i n t e r e s t s of the i n d o r s e r . " This passage a l s o re-emphasises the d i s t i n c t i o n between c o n t r a c t u a l and r e s t i t u t i o n a r y r i g h t s of subrogation, as regards the range of r i g h t s a v a i l a b l e t o the i n d o r s e r - i e . p a r t y paying o f f the b i l l - p r i o r t o payment by the i n d o r s e r . In the l a t t e r has been s e e n , 1 1 3 the range i s much wider, and c l e a r l y i n c l u d e s p r o t e c t i v e r i g h t s a g a i n s t conduct by the c r e d i t o r which might have the e f f e c t of d e p r i v i n g the l a t t e r of h i s e n t i t l e m e n t t o have the use of the holder's r i g h t s and remedies a g a i n s t the acceptor, i n c l u d i n g s e c u r i t i e s . I t would f o l l o w , of course, t h a t a r i g h t of subrogation should not be h e l d t o e x i s t i n favour of a drawer or i n d o r s e r i n the absence of the " e q u i t y " , or "unjust enrichment", t h a t , i t has been submitted, underpins the r i g h t of subrogation. That t h i s i s indeed so was u s e f u l l y i l l u s t r a t e d i n a recent d e c i s i o n of the P r i v y C o u n c i l on appeal from the Supreme Court of V i c t o r i a , namely S c h o l e f i e l d Goodman and Sons L t d . v Z y n g i e r . 1 1 4 In t h a t case, the a p p e l l a n t , S c h o l e f i e l d Goodman and Sons L t d . ( " S c h o l e f i e l d " ) , had, during 1976, drawn f i v e b i l l s of exchange on a company, Z i n a l d i & Co. Pty. L t d . ( " Z i n a l d i " ) , payable t o the Commercial Bank of A u s t r a l i a L t d . (subsequently renamed Westpac Banking Corporation) ("the bank"). Each b i l l had been accepted by Z i n a l d i , and then d e l i v e r e d t o and discounted by the bank, which a c c o r d i n g l y became the holder of the b i l l s . The discounted value of the b i l l s was p a i d t o Z i n a l d i . A l l f i v e b i l l s were dishonoured by Z i n a l d i upon p r e s e n t a t i o n i n e a r l y 1977. The bank thereupon presented the 1 1 3 Supra, p. 37. H 4 [1986] A.C. 562. - 155 -b i l l s t o S c h o l e f i e l d as drawer, and was d u l y p a i d by the l a t t e r , which thus became the holder of the b i l l s . S c h o l e f i e l d c ould, t h e r e f o r e , as h o l d e r of the b i l l s of exchange, and a l s o because, as has a l r e a d y been s e e n , 1 1 5 the r e l a t i o n s h i p between acceptor and drawer i s e s s e n t i a l l y one of p r i n c i p a l and s u r e t y , have demanded reimbursement from Z i n a l d i . I t seems, however, t h a t Z i n a l d i was not i n a f i n a n c i a l p o s i t i o n t o reimburse S c h o l e f i e l d . Instead, S c h o l e f i e l d subsequently claimed c o n t r i b u t i o n from the respondent, Mrs Zyngier, who was a l l e g e d by S c h o l e f i e l d t o be e q u a l l y l i a b l e w i t h i t as s u r e t y f o r payment of the dishonoured b i l l s of exchange. S c h o l e f i e l d ' s c l a i m a g a i n s t Mrs Zyngier was based upon a mortgage given by her t o the bank i n e a r l y 1976 over p r o p e r t y owned by her, i n which she had guaranteed both Z i n a l d i ' s and her own indebtedness t o the bank. In p a r t i c u l a r , she had guaranteed Z i n a l d i ' s indebtedness by way of o v e r d r a f t , and i t s indebtedness " f o r or i n respect of any b i l l s of exchange ... t o which ... Z i n a l d i i s or may h e r e a f t e r be a p a r t y and on which ... Z i n a l d i i s or may h e r e a f t e r be l i a b l e ( s o l e l y or j o i n t l y w i t h any other person) e i t h e r p r i m a r i l y or o n l y i n the event of any other f a i l i n g t o d u l y pay the same which are or may h e r e a f t e r be discounted or p a i d or which may f o r the time being be h e l d by the bank . . . " . 1 1 6 S c h o l e f i e l d ' s c l a i m a g a i n s t Mrs Zyngier was not brought t o her n o t i c e u n t i l 1978, when the bank c a l l e d on Mrs Zyngier, pursuant t o the terms of the mortgage, t o discharge Z i n a l d i ' s outstanding indebtedness on i t s o v e r d r a f t t o the bank. When she d u l y d i d so, and then asked the bank t o discharge the mortgage, she was o n l y then informed of S c h o l e f i e l d ' s c l a i m 1 1 5 Supra, pp. 125-26. 1 1 6 I b i d . , a t 568. - 156 -agai n s t her f o r c o n t r i b u t i o n i n respect of i t s payment of the sum due on the f i v e b i l l s of exchange. Furthermore, S c h o l e f i e l d by then claimed t h a t i t was a l s o e n t i t l e d by v i r t u e of s e c t i o n 72 of the V i c t o r i a Supreme Court Act 1 9 5 8 1 1 7 t o be subrogated t o the r i g h t s of the bank as mortgagee i n order t o secure payment of the c o n t r i b u t i o n claimed by i t . S c h o l e f i e l d advanced these claims w i t h the a s s e r t i o n t h a t the bank could have sought payment of Z i n a l d i ' s indebtedness on the b i l l s of exchange e i t h e r from Mrs Zyngier pursuant t o the terms of the mortgage, or from S c h o l e f i e l d as a p a r t y t o the b i l l s o f exchange, and t h a t " i t would be i n e q u i t a b l e to a l l o w the choice of the c r e d i t o r t o determine the matter [and throw the whole of the l i a b i l i t y upon S c h o l e f i e l d ] . " 1 1 8 Mrs Zyngier and S c h o l e f i e l d , i n other words, were both a l l e g e d t o be s u r e t i e s of Z i n a l d i ' s indebtedness on the b i l l s of exchange - Mrs Zyngier according t o the terms of the mortgage, and S c h o l e f i e l d according t o the s t a t u t o r y r u l e s r e g u l a t i n g the r i g h t s of the r e s p e c t i v e p a r t i e s t o b i l l s of exchange - and e q u a l l y l i a b l e t h e r e f o r e t o the bank. "The d o c t r i n e of c o n t r i b u t i o n " , i t was a r g u e d , 1 1 9 " i s designed t o e q u i t a b l y a p p o r t i o n the l o s s i n such a s i t u a t i o n . " The a l l e g e d r i g h t t o subrogation was i n t u r n s a i d t o flow from the e x i s t e n c e of a r i g h t t o c o n t r i b u t i o n - from the same e q u i t a b l e c o n s i d e r a t i o n s i n other words t h a t underpined the a l l e g e d r i g h t t o c o n t r i b u t i o n . 1 1 7 This i s the V i c t o r i a n e q u i v a l e n t of s e c t i o n 5 of the M e r c a n t i l e Law Amendment Act 1856, discussed supra, p. 71 e t seq.. 1 1 8 I b i d . , a t 569. 1 1 9 Idem. - 157 -Mrs Zyngier denied these claims and sought a d e c l a r a t i o n t h a t S c h o l e f i e l d was not e n t i t l e d t o c o n t r i b u t i o n from her, and an order t h a t the bank discharge the mortgage. Her argument r e s t e d i n essence on the f a c t t h a t she was not a p a r t y t o the r e l e v a n t b i l l s of exchange. Because of t h i s , she argued, her l i a b i l i t y i n respect of the b i l l s of exchange arose only from the mortgage and was t h e r e f o r e d i f f e r e n t i n nature t o t h a t of S c h o l e f i e l d as a p a r t y t o the b i l l s of exchange. The two l i a b i l i t i e s , she argued, "were not such co-ordinate l i a b i l i t i e s as would a t t r a c t the p r i n c i p l e s of c o n t r i b u t i o n . ... [T]he l i a b i l i t i e s ... were not of equal s t a t u s , and ... [Mrs Zyngier and S c h o l e f i e l d ] were not c o - s u r e t i e s f o r the purpose of the d o c t r i n e of c o n t r i b u t i o n . " 1 2 0 She was, she s a i d , "a s u r e t y i n a d i f f e r e n t degree of s u r e t y s h i p from the s u r e t y s h i p of the drawer S c h o l e f i e l d " ; 1 2 1 "... not a co-surety but a s u r e t y f o r a s u r e t y . " 1 2 2 The t r i a l judge, the Supreme Court of V i c t o r i a , and u l t i m a t e l y the P r i v y C o u n c i l a l l h e l d i n Mrs Zyngier's favour. S c h o l e f i e l d was not e n t i t l e d t o c o n t r i b u t i o n from Mrs Zyngier i n respect of Z i n a l d i ' s l i a b i l i t y on the f i v e b i l l s of exchange. Nor was i t e n t i t l e d t o be subrogated t o the r i g h t s of the bank as mortgagee. In reaching t h i s c o n c l u s i o n , the P r i v y C o u n c i l accepted and a f f i r m e d t h a t c o n t r i b u t i o n was e s s e n t i a l l y an e q u i t a b l e r i g h t . Lord Brightman, d e l i v e r i n g the judgment of the P r i v y Counc i 1 , s t a t e d : 1 2 3 1 2 0 I b i d . , a t 570. 1 2 1 Idem. 1 2 2 Idem. 1 2 3 I b i d . , a t 571. - 158 -"The r i g h t of one of two or more s u r e t i e s t o c o n t r i b u t i o n from a co-s u r e t y i s founded upon e q u i t a b l e p r i n c i p l e s , and e x i s t s independently of whether the s u r e t i e s are bound by the same or d i f f e r e n t instruments, and whether one s u r e t y became bound w i t h or without the knowledge of h i s c o - s u r e t i e s . "The p r i n c i p l e of e q u i t y operates...upon the maxim, t h a t e q u a l i t y i s e q u i t y : the c r e d i t o r , who can c a l l upon a l l , s h a l l not be a t l i b e r t y t o f i x one w i t h payment of the whole debt; and upon the p r i n c i p l e , r e q u i r i n g him t o do j u s t i c e , i f he w i l l not, the court w i l l do i t f o r him.' Per Lord Eldon L.C. i n Craythorne v Swinburne (1807) 14 Ves. Jun. 160, 165." S i m i l a r l y , the drawer or i n d o r s e r ' s r i g h t of subrogation, though put forward i n terms of the r e l e v a n t s t a t u t o r y p r o v i s i o n , was a l s o seen to r e s t upon e q u i t a b l e c o n s i d e r a t i o n s - the same ones t h a t underpined the r i g h t t o c o n t r i b u t i o n : " S c h o l e f i e l d sought t o argue i n the a l t e r n a t i v e t h a t s e c t i o n 72 of the Supreme Court Act 1958 ... gave i t a r i g h t of recourse a g a i n s t the s e c u r i t y h e l d by the bank. I t i s however c l e a r from the wording of the s e c t i o n , and i m p l i c i t i n the p r o v i s o t h e r e t o , t h a t i t does not confer  on a person c l a i m i n g t o be a s u r e t y , a r i g h t of subrogation  e x e r c i s a b l e a g a i n s t another who i s under no e q u i t a b l e o b l i g a t i o n t o  make c o n t r i b u t i o n . " 1 2 4 A f t e r c o n s i d e r i n g s e v e r a l l e a d i n g cases on c o n t r i b u t i o n and subrogation i n the context of b i l l s of exchange, i n c l u d i n g Craythorne v S w i nburne 1 2 5 and, i m p o r t a n t l y , Duncan, Fox, & Co. v North & South Wales Bank, 1 2 6 the P r i v y C o u n c i l concluded t h a t the fundamental question i n the appeal was simply one of c o n s t r u c t i o n : "[Wjhether upon the t r u e c o n s t r u c t i o n of the bargain between the bank and Mrs Zyngier, Mrs Zyngier placed h e r s e l f , as regards b i l l s of exchange accepted by Z i n a l d i and t h e r e a f t e r dishonoured, i n the p o s i t i o n of a co-surety alongside the drawer or i n d o r s e r ; or whether, upon the t r u e c o n s t r u c t i o n of the bargain, her l i a b i l i t y t o the bank upon a b i l l was intended t o be l i m i t e d t o a case of d e f a u l t by the p a r t i e s l i a b l e upon the b i l l . I f i t were the t r u e meaning of the 1 2 4 I b i d . , a t 575. [Emphasis added] 1 2 5 (1807) 14 Ves. Jun. 160, 33 E.R. 482. 1 2 6 (1880) 6 App. Cas. 1. - 159 -mortgage t h a t the bank was r e q u i r e d t o c a l l upon the p a r t i e s t o the b i l l before i t c a l l e d upon Mrs Zyngier t o make good a d e f a u l t , then ex . hypothesi no i n j u s t i c e ensued t o the drawer upon the bank's adoption  of t h a t course and no case f o r the i n t e r v e n t i o n of a court of e q u i t y  c o u l d a r i s e . " 1 2 7 A f t e r c o n s i d e r i n g the nature of Mrs Zyngier's c o n t r a c t w i t h the bank, and d i s t i n g u i s h i n g both Craythorne v S w i n b u r n e 1 2 8 and Duncan, Fox, & Co. v North & South Wales B a n k 1 2 9 on t h e i r f a c t s , the P r i v y C o u n c i l concluded t h a t Mrs Zyngier was not l i a b l e as a co-surety on the b i l l s of exchange alongside the drawer and i n d o r s e r . Lord Brightman e x p l a i n e d t h i s c o n c l u s i o n on the f o l l o w i n g b a s i s : 1 3 0 " I f a t h i r d p a r t y ... guarantees a b i l l of exchange f o r the b e n e f i t of a bank which discounts i t , the normal understanding w i l l be t h a t the su r e t y guarantees t h a t payment w i l l be made by one or other of the p a r t i e s t o the b i l l who are l i a b l e upon i t , whether as acceptor or drawer or i n d o r s e r . I t w i l l not be the normal understanding t h a t the su r e t y intends t o pla c e h i m s e l f on a l e v e l w i t h the drawer, so as t o be answerable e q u a l l y w i t h the drawer i f the acceptor d e f a u l t s . There i s no reason why he should be. There i s no reason t o suppose t h a t , i n a c o n t r a c t between the bank and the surety, the s u r e t y d e s i r e s t o confer a b e n e f i t on the drawer and t o share w i t h him the r e s p o n s i b i l i t y f o r the dishonoured acceptance. ... I t would be p o s s i b l e f o r a bank guarantee t o be so worded t h a t the s u r e t y d e l i b e r a t e l y p l a c e s h i m s e l f upon an equal f o o t i n g w i t h the drawer or in d o r s e r of the b i l l discounted by the bank, but i t would produce an i r r a t i o n a l r e s u l t . ... In the o p i n i o n of t h e i r Lordships the mortgage imposed no l i a b i l i t y on Mrs Zyngier i n respect of the b i l l s unless  there was d e f a u l t both by the acceptor and the drawer." Thus, as between Z i n a l d i and S c h o l e f i e l d on the one hand, and Mrs Zyngier on the other, having regard t o the circumstances of the case, and the terms of the mortgage granted by Mrs Zyngier i n p a r t i c u l a r , Mrs Zyngier's l i a b i l i t y on the b i l l s was o n l y secondary t o t h a t of Z i n a l d i and 1 2 7 I b i d . , a t 574 [emphasis added]. 1 2 8 (1807) 14 Ves. Jun. 160, 33 E.R. 482. 1 2 9 (1880) 6 App. Cas. 1. 1 3 0 I b i d . , a t 574-75. [Emphasis added] - 160 -S c h o l e f i e l d . This was so even though the r e l a t i o n s h i p between Z i n a l d i and S c h o l e f i e l d , as acceptor and drawer, was i t s e l f , as has a l r e a d y been s e e n , 1 3 1 one of primary and secondary l i a b i l i t y on the b i l l s . "Consequently," the P r i v y C o u n c i l c o n c l u d e d , 1 3 2 " S c h o l e f i e l d , upon paying as drawer the amount due upon the b i l l , had no r i g h t of c o n t r i b u t i o n a g a i n s t Mrs Zyngier." N e i t h e r , of course, f o r the same reason, was i t e n t i t l e d t o be subrogated t o the r i g h t s of the bank as mortgagee under the mortgage granted by Mrs Zyngier to secure her guarantee. I t i s submitted t h a t t h i s case f u l l y supports the t h e s i s of t h i s paper. According t o t h i s t h e s i s , S c h o l e f i e l d should o n l y have succeeded i n i t s c laims a g a i n s t Mrs Zyngier f o r subrogation - and, i t c o u l d be added, f o r c o n t r i b u t i o n - i f i t c o u l d show t h a t Mrs Zyngier had been " u n j u s t l y enriched" a t S c h o l e f i e l d ' s expense by i t s payment t o the bank of the amount due on the f i v e dishonoured b i l l s of exchange. Undoubtedly, Mrs Zyngier had been "enriched" by S c h o l e f i e l d ' s payment t o the bank, f o r the bank co u l d not subsequently seek payment from her, as i t might otherwise have done p r e v i o u s l y pursuant t o the terms of her guarantee. She was, i n other words, "enriched" i n the sense t h a t she was discharged from her l i a b i l i t y t o the bank as Z i n a l d i ' s s u r e t y i n respect of the f i v e b i l l s o f exchange - she was "saved expense". But S c h o l e f i e l d a l s o had t o e s t a b l i s h t h a t there was something i n the circumstances of the case which made i t "unjust" or " i n e q u i t a b l e " f o r Mrs Zyngier t o r e t a i n t h a t enrichment or b e n e f i t a t i t s expense. Only then would S c h o l e f i e l d be e n t i t l e d t o the e q u i t a b l e or r e s t i t u t i o n a r y remedies 1 3 1 Supra, pp. 125-26. 1 3 2 I b i d . , a t 575. - 161 -of subrogation and c o n t r i b u t i o n . That "something", S c h o l e f i e l d contended, was the f a c t t h a t pursuant t o the mortgage, Mrs Zyngier was, l i k e i t s e l f , a s u r e t y f o r Z i n a l d i ' s performance of i t s o b l i g a t i o n s t o the bank. Both i t s e l f and Mrs Zyngier, i t contended, were i n the same p o s i t i o n , and were e q u a l l y l i a b l e when Z i n a l d i dishonoured the f i v e b i l l s of exchange. The P r i v y C o u n c i l accepted t h a t i f t h i s was the c o r r e c t c o n s t r u c t i o n of Mrs Zyngier's l i a b i l i t y under the mortgage, then her r e t e n t i o n of the b e n e f i t of S c h o l e f i e l d ' s payment to the bank would have been " i n e q u i t a b l e " or "unjust", and S c h o l e f i e l d would have been e n t i t l e d t o c o n t r i b u t i o n and subrogation t o remedy t h a t r e s u l t . But, i n t h e i r Lordships' view, as has been s e e n , 1 3 3 t h i s was not the c o r r e c t c o n s t r u c t i o n of the mortgage. In the absence of any c l e a r i n d i c a t i o n i n the mortgage t o the c o n t r a r y , the c o r r e c t c o n s t r u c t i o n i n t h e i r view was t h a t Mrs Zyngier was o n l y l i a b l e i n respect of the b i l l s of exchange i n the event of " d e f a u l t both by the acceptor and the drawer." I t would be " i r r a t i o n a l " , s a i d Lord B r i g h t m a n , 1 3 4 were the mortgage t o be construed i n the manner contended f o r by S c h o l e f i e l d . This being the c o r r e c t c o n s t r u c t i o n , i t was not, t h e r e f o r e , i n e q u i t a b l e or u n j u s t f o r Mrs Zyngier t o r e t a i n the b e n e f i t of S c h o l e f i e l d ' s payment to the bank. As Lord Brightman expressed i t , upon t h i s c o n s t r u c t i o n of the mortgage: "ex hypothesi no i n j u s t i c e ensued t o the drawer upon the bank's adoption of t h a t course [ i e . c a l l i n g upon the p a r t i e s t o the b i l l s of exchange before c a l l i n g upon Mrs Zyngier] and no case f o r the i n t e r v e n t i o n of a court of e q u i t y c o u l d a r i s e . " 1 3 5 1 3 3 Supra, p. 159. 1 3 4 [1986] A.C. 562, a t 575. 1 3 5 [1986] A.C. 562, a t 574. - 162 -Had the bank adopted the course of c a l l i n g upon Mrs Zyngier f i r s t , then i n j u s t i c e might have ensued, not however t o S c h o l e f i e l d , but r a t h e r to Mrs Zyngier. For, upon the above c o n s t r u c t i o n of her l i a b i l i t y , Mrs Zyngier was o n l y s e c o n d a r i l y l i a b l e v i s - a - v i s S c h o l e f i e l d on the b i l l s of exchange. Yet her payment would thereby discharge S c h o l e f i e l d ' s l i a b i l i t y , as a p a r t y to the b i l l s of exchange, t o the bank as holder of the b i l l s . Given t h a t S c h o l e f i e l d was p r i m a r i l y l i a b l e v i s - a - v i s Mrs Zyngier f o r payment of the b i l l s of exchange, i t would be u n j u s t f o r S c h o l e f i e l d t o r e t a i n the b e n e f i t of her payment. A r e s t i t u t i o n a r y case f o r the i n t e r v e n t i o n of a c o u r t of e q u i t y by way of reimbursement and subrogation would thus have a r i s e n . I t would not n e c e s s a r i l y have t o be pursed i n t h i s way, however, f o r the same r e s u l t i s achieved by the r e l e v a n t b i l l s of exchange l e g i s l a t i o n , as the P r i v y C o u n c i l r e c o g n i s e d : 1 3 6 " [ I ] f Mrs. Zyngier had taken over the b i l l s from the bank [as she would be e n t i t l e d to do upon payment by h e r ] , she as holder could have demanded payment from S c h o l e f i e l d as drawer, and i t i s not immediately apparent on what ground S c h o l e f i e l d could have r e s i s t e d payment. This suggests t h a t there may be an u n d e r l y i n g f a l l a c y i n S c h o l e f i e l d ' s c l a i m [ f o r c o n t r i b u t i o n and subrogation i n the event t h a t i t p a i d the bank]." Thus, i t i s submitted, the r e s u l t and reasoning i n t h i s case f u l l y support and provide a u s e f u l i l l u s t r a t i o n of the t h e s i s of t h i s paper. D. Conclusion This examination of the o p e r a t i o n of subrogation i n r e l a t i o n t o b i l l s of exchange r e v e a l s yet again, i t i s submitted, the e s s e n t i a l l y r e s t i t u t i o n a r y nature and o p e r a t i o n of subrogation. There i s l i t t l e 1 3 6 [1986] A.C. 562, a t 569. - 163 -d i f f e r e n c e , i t i s submitted, a t base between the op e r a t i o n of subrogation i n favour o f accommodation p a r t i e s t o b i l l s of exchange, and i t s o p e r a t i o n i n r e l a t i o n t o those who indorse or draw b i l l s f o r value, d e s p i t e the misle a d i n g p e r c e p t i o n t h a t accommodation p a r t i e s are s u r e t i e s i n the s t r i c t sense, whereas i n d o r s e r s and drawers f o r value are o n l y q u a s i - s u r e t i e s a t best. The r i g h t of subrogation possessed by both c l a s s e s of p a r t y , i t i s submitted, r e s t s i n substance on the e x i s t e n c e of unj u s t enrichment between the p a r t y c l a i m i n g subrogation, and the p a r t y a g a i n s t whom r e l i e f , i n p a r t i c u l a r the r i g h t t o s e c u r i t i e s , i s sought. In the absence of t h i s u n j u s t enrichment, i t has a l s o been seen, a r i g h t t o subrogation should be denied. The t h e s i s of t h i s paper, i t i s submitted, holds t r u e . CONCLUSION - 164 -Chapter 8 CONCLUSION Subrogation i s a subj e c t fraught w i t h d i f f i c u l t i e s . Even fundamental questions - "what i s subrogation?", "where does i t come from?", "how does i t operate?", "what i s the b a s i s of i t s operation?" - are f a r from being e a s i l y answered. One of the p r i n c i p a l reasons f o r t h i s i s simply t h a t subrogation i s a l l too o f t e n considered i n a fragmented form, f i l t e r e d through the perceptions of a p a r t i c u l a r category o f user, r a t h e r than as a d i s c r e t e s u b j e c t worthy of study i n i t s own r i g h t . Thus, subrogation i s d e a l t w i t h i n t e x t s on s u r e t y s h i p , i n t e x t s on insurance, i n t e x t s on b i l l s of exchange, and so on, i n each case according t o the precepts of those areas of law. Only r a r e l y do such t e x t s attempt t o i n t e g r a t e t h e i r p a r t i c u l a r treatment of subrogation w i t h treatments of subrogation i n other contexts. Examination of p a r t i c u l a r c a t e g o r i e s of user - such as the sur e t y ' s r i g h t of subrogation - do not n e c e s s a r i l y r e v e a l a b e t t e r s t a t e of a f f a i r s . Even i n t h i s l i m i t e d context, subrogation i s s t i l l o f t e n subject to the same fundamental d i f f i c u l t i e s - " i s there a r i g h t of subrogation?", "what i s i t s nature?", "what does i t e n t i t l e one t o ? " , "how does i t operate?". Furthermore, t h i s may be so notwithstanding the a n t i q u i t y of the p a r t i c u l a r category of use. Time, of i t s e l f , i s no guarantee t h a t these d i f f i c u l t i e s have been overcome. This i s t r u e , i t has been submitted i n t h i s paper, even i n r e l a t i o n to the surety's r i g h t of subrogation, d e s p i t e the f a c t t h a t t h i s p a r t i c u l a r category of use of subrogation i s g e n e r a l l y considered the o l d e s t , most - 165 -- 166 -e s t a b l i s h e d use of subrogation. Thus, the t r a d i t i o n a l e xplanations and analyses of the surety's " r i g h t of subrogation" are beset w i t h problems. They are o f t e n i n c o n s i s t e n t ; they o f t e n f a i l t o comprehend and consider a l l the v a r i o u s r i g h t s subsumed by the expression "the surety's r i g h t of subrogation"; they are u n c e r t a i n whether subrogation i s p r i m a r i l y a " r i g h t " or a "remedy"; and they g e n e r a l l y f a i l t o e x p l a i n s a t i s f a c t o r i l y the t h e o r e t i c a l b a s i s of the " r i g h t " or "remedy", beyond the expression of general notions of "equ i t y and j u s t i c e " . Many of these problems have been o u t l i n e d and explored i n some d e t a i l i n t h i s paper. The o v e r r i d i n g impression one cou l d e a s i l y be l e f t w i t h , a f t e r examining these t r a d i t i o n a l explanations and analyses of the surety's r i g h t of subrogation, i s th a t there i s l i t t l e hope of ever s a t i s f a c t o r i l y e x p l a i n i n g e i t h e r t h i s p a r t i c u l a r category of subrogation, or subrogation g e n e r a l l y . But t h i s , i t has been submitted, i s not n e c e s s a r i l y so. For Anglo-Americn law, as i t has developed over the course of the tw e n t i e t h century, and p a r t i c u l a r l y i n the l a s t two or three decades, has o f f e r e d a new exp l a n a t i o n and a n a l y s i s of subrogation, one which views subrogation i n r e s t i t u t i o n a r y terms, based upon the p r i n c i p l e of unjust enrichment. Subrogation, i t i s s a i d , i s e s s e n t i a l l y a remedial technique t h a t can be used t o e f f e c t r e s t i t u t i o n i n c e r t a i n g iven s i t u a t i o n s . The o n l y e s s e n t i a l p r e c o n d i t i o n s f o r i t s use are a t r i p a r t i t e r e l a t i o n s h i p , and unju s t enrichment between two of the p a r t i e s t o t h a t t r i p a r t i t e r e l a t i o n s h i p . Subject t o other r e s t i t u t i o n a r y c o n s t r a i n t s , the p a r t y who has conferred the enrichment on the other may prima f a c i e be subrogated t o the pla c e of the t h i r d i n order t o e x e r c i s e f o r h i s own b e n e f i t any r i g h t s or remedies the t h i r d may have a g a i n s t the p a r t y u n j u s t l y enriched. - 167 -This e x p l a n a t i o n and a n a l y s i s of subrogation i s an a t t r a c t i v e one, f o r i t o f f e r s a t h e o r e t i c a l b a s i s f o r r e c o n c i l i n g a l l the v a r i o u s c a t e g o r i e s o f use of subrogation, and f o r d e v i s i n g new uses of subrogation i n the f u t u r e . The immediate i m p l i c a t i o n of t h i s approach, however, i s t h a t the e s t a b l i s h e d c a t e g o r i e s or " r i g h t s " o f subrogation need t o be reassessed, w i t h a view t o t h e i r being i n d i v i d u a l l y e x p l a i n e d i n r e s t i t u t i o n a r y terms based on the u n i f y i n g p r i n c i p l e of u n j u s t enrichment. I f t h i s cannot be done, then the a t t r a c t i v e n e s s of t h i s new r e s t i t u t i o n a r y e x p l a n a t i o n of subrogation may prove t o be both s u p e r f i c i a l and, i n the end r e s u l t , as inadequate as the t r a d i t i o n a l e x p l a n a t i o n s . The t h e s i s of t h i s paper has been t h a t t h i s new view of subrogation as a general r e s t i t u t i o n a r y remedial technique does o f f e r a sound b a s i s f o r understanding and e x p l a i n i n g subrogation, both g e n e r a l l y , and i n r e l a t i o n to p a r t i c u l a r e s t a b l i s h e d c a t e g o r i e s of subrogation. The p a r t i c u l a r category of use p r i m a r i l y considered i n t h i s paper has been the o l d e s t , most e s t a b l i s h e d o f the va r i o u s s o - c a l l e d " r i g h t s " of subrogation, namely the surety's r i g h t of subrogation. Examination of t h i s r i g h t of subrogation has revealed, i t has been submitted, many features t h a t do evidence and r e f l e c t the view t h a t i t i s e s s e n t i a l l y r e s t i t u t i o n a r y i n nature and can be expla i n e d i n accordance w i t h the p r i n c i p l e o f unjust enrichment. I t has been submitted t h a t the t h e s i s of t h i s paper t h e r e f o r e holds t r u e i n r e l a t i o n t o the paradigm, or q u i n t e s s e n t i a l , t r i p a r t i t e r e l a t i o n s h i p . T his has been f u r t h e r t e s t e d by c o n s i d e r i n g the use of subrogation i n the context of b i l l s of exchange. I t has been seen t h a t the remedial technique of subrogation has been used i n a i d of v a r i o u s p a r t i e s t o b i l l s of exchange. This i s done i n some instances on the b a s i s t h a t the r e l e v a n t - 168 -p a r t i e s are e s s e n t i a l l y s u r e t i e s , and e n t i t l e d thereby t o subrogation; and i n some instances on the b a s i s t h a t the p a r t i e s are i n a s u f f i c i e n t l y analogous p o s i t i o n t o s u r e t i e s t o m e r i t the use of subrogation i n t h e i r favour. I t has been shown, i t i s submitted, t h a t the supposed d i f f e r e n c e s i n t h i s regard between the v a r i o u s p a r t i e s t o b i l l s of exchange are l a r g e l y i l l u s o r y , a t l e a s t i n r e l a t i o n t o the a v a i l a b i l i t y and e x p l a n a t i o n of the use of subrogation. Instead, the use and o p e r a t i o n of subrogation i n t h i s context, i t has been submitted, a l s o evidences and supports the t h e s i s of t h i s paper t h a t subrogation, both g e n e r a l l y and as i t operates i n i t s p a r t i c u l a r e s t a b l i s h e d c a t e g o r i e s , i s e s s e n t i a l l y r e s t i t u t i o n a r y i n nature and can be e x p l a i n e d i n accordance w i t h the p r i n c i p l e o f unjust enrichment. This i s not t o say, however, t h a t t h i s e x p l a n a t i o n of subrogation i n r e s t i t u t i o n a r y terms n e c e s s a r i l y s o l v e s a l l the problems surrounding subrogation, e i t h e r a t a general l e v e l or i n r e l a t i o n to a p a r t i c u l a r category of use. Quite c l e a r l y , i t would be going too f a r a t t h i s stage i n the process of a s s i m i l a t i n g subrogation i n t o the law of r e s t i t u t i o n t o say t h a t i t does. But t h i s o b j e c t i o n , i t i s submitted, i s , i n l a r g e measure, a p e r i p h e r a l o b j e c t i o n t o the r e f o r m u l a t i o n of subrogation i n r e s t i t u t i o n a r y terms. For, a t base, t h i s r e s t i t u t i o n a r y view of subrogation provides us w i t h a c o n c e p t u a l l y i n t e g r a t e d , t h e o r e t i c a l model of subrogation which can be used t o understand and e x p l a i n subrogation both g e n e r a l l y and p a r t i c u l a r l y , now and i n the f u t u r e . U l t i m a t e l y , t h i s i s perhaps the g r e a t e s t reward t h a t the law of r e s t i t u t i o n has t o o f f e r the common law. With respect, i t i s a reward t h a t should not l i g h t l y be denied. SELECT BIBLIOGRAPHY A r t i c l e s Barbour, W.T., "The H i s t o r y of Contract i n E a r l y E n g l i s h E q u i t y " , pp. 135-37, i n 4 OXFORD STUDIES IN SOCIAL AND LEGAL HISTORY (1914, ed. P. Vinogradoff) , B i r k s , P. . " R e s t i t u t i o n f o r S e r v i c e s " , (1974) 27 C.L.P. 13 B i r k s , P., & Beatson, J . , "Unrequested Payment of Another's Debt", (1976) 92 L.Q.R. 188 Friedmann, D., "Payment of Another's Debt", (1983) 99 L.Q.R. 534 Hood, J.T., J r . , "Subrogation", i n ESSAYS ON THE CIVIL LAW OF OBLIGATIONS (ed. by J . Dainow), p. 174 Jones, P.K., J r . , "Roman Law Bases of Sur e t y s h i p i n Some Modern C i v i l Codes", (1977) 52 T u l . L.R. 129 K l i p p e r t , G.B., "The J u r i d i c a l Nature of Unjust Enrichment", (1980) U.T.L.J. 356 Loyd, "The Surety", (1917) 66 U. Pa. L. Rev. 40 Maclay, D.G., "Theory and A p p l i c a t i o n of the Doc t r i n e of Subrogation", (1885-86) 2 The Columbia J u r i s t 38 Marasinghe, M.L., "An H i s t o r i c a l I n t r o d u c t i o n to the Doctrine of Subrogation: The E a r l y H i s t o r y of the Doc t r i n e - I & I I " , (1975) 10 Valp. U.L. 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