Morgan v. Salmon

OPINION OP THE COURT. LEIB, District Judge, Acting as Justice. — A number of questions are raised by appellants in their assignment of errors, but the findings of fact of the lower court upon conflicting evidence are probably binding upon us as to all these. The court concluded that the surety was not released by the failure of the obligee to retain 15% of the value of the work performed and material furnished, as required by the bond. Nowhere has the appellee shown that he has complied with this condition, and it was necessary for him to do so before he could recover. On the contrary, he admits in his evidence that payments had been made in full. This question can, therefore, be considered by us, and, as it goes to the very heart of the matter, it will be unnecessary for us to consider any other. The bond sued upon was given to guarantee the faithful performance of the contract to erect the building for the appellee. This was to be constructed in accordance with the terms of said contract, except as the same is limited and varied by the provisions of the bond set out in the statement of the case. The contract, amended by the bond, then, is what we are to consider. Where the two conflict, the terms of the latter control. In other words, the terms of the bond, which change or qualify the terms of the contract are the limits of the surety’s obligation, and, so far as the surety is concerned, take the place of such provisions upon the same subject as are contained in the contract and the specifications. “If the main contract is broader in its scope than the limits fixed by the bond, a reference to the contract will only incorporate so much of the same as is within the limits of the terms of the bond.” Stearns on the Law of Suretyship, sec. 143; Asplund v. Aetna Indemnity Co., 81 Pac. 579. The surety had the right to specify the conditions under which it would be held liable. The obligee was not compelled to accept these conditions, but, having done so, he is bound by them. The provisions of the bond that 15% of the amount due for labor performed and material furnished be retained was obviously for the 'benefit of the surety, and without it therein, the bond no doubt would .never have been written. Had it been complied with by the obligee, not only would -there have been a sum remaining in his hands for the protection of the surety, but there would also have been an additional incentive for the contractor to carry out the terms of his contract and go on and complete 'the building. By payment in full, the temptation for dishonesty was increased, and the hope of reward for further labor decreased, it made a different obligation that subjected the surety to risks for which it had not contracted. We can but conclude, therefore, that the failure of the obligee to retain 15% of the value of the labor performed and material furnished in the construction of the building was a material variation of the bond. 1 Having reached this conclusion, it logically follows that the surety is released. There are but few rules of law better settled than the one that the surety has the right to stand upon the exact terms of his bond. If, without his assent, the' obligee departs therefrom in a material matter, it operates as a discharge. As said in Ryan v. Morton, 65 Tex. 288, “The liability of a surety cannot be extended beyond the terms of the contract out of which the obligation arises. If the contract be altered without his consent, whether he sustain injury or the contract be to his advantage, it ceases to be his contract, and with that ceases his obligation.” This is squarely in'line with the overwhelming weight of authority. From, the leading case of Calvert vi London Dock Company, 2 Keen 639, down to the present time, there is a long line of authorities holding, in substance, the doctrine just enunciated. See County of Glenn v. Jones, 146 Cal. 518, 80 Pac. 695, and the extensive note thereto in 2 A. & E. Annotated Cases, at page 766, where a large number of authorities are collected. In that case it is said: ‘‘The liability of a surety is not to be extended by implication beyond the terms of his contract. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no further. He has a right to stand.on its very terms.” Additional authorities sustaining the same doctrine are Sheldon v. American Surety Co., 131 Fed. 210; St. Mary’s College v. Meagher, 11 Ky. L. Rep. 112, 11 S. W. 608; Evans v. Gooden, 28 S. W. (Mo.) 439; McNally v. Mercantile Trust Co., 204 Pa. 596, 54 Atl. 360; Gato v. Warrington. 37 Fla. 542, 19 So. 883; United States v. American Bonding Co., 89 Fed. 925, and Prairie State National Bank v. United States, 164 U. S. 233, 41 L. Ed. 417; in Miller v. Stewart, 9 Wheat., 6 L. Ed. 189, the court said: “It is not sufficient that he (the surety) may sustain no injury by the change in the contract, or that it may even be for his benefit. He has a right to stand upon the very terms of his contract, and, if he does not assent to any variation of it, and a variation is made, it is fatal.” We are not unmindful of the fact that there are some authorities holding that a variation, such as we find in this case, operates only pro tanto to discharge the surety. This, however, as we have seen, is contrary to authority and cannot be sustained by reason. Who can tell, in any given case of this character, to what extent the surety is injured? It may be that had the stipulated sums been withheld, there would have been no default. It may be that it would have made no difference. Between these two extremes of conjecture, there is a wide field for what would be, at best, very uncertain computation. Where is the Court that can approximate the damages, even after weighing, as best it can, all the complex forces that influence each individual, and are' transmuted into action ? Would not such an attempt lead the courts to adopt as many different rules of construction as there are contractors involved? Should not the courts enforce the contracts made by the parties, and not other and different ones? And what right have the courts to extend by implication contracts that in terms are fixed and definite? These questions answer themselves. We think it the better rule to hold in such cases as the one before us that the surety is entirely released. For the reasons above stated, the decision of the lower Court is reversed, and this cause is remanded with instructions that the same be dismissed as to the appellant, the American Surety Company, and it is so ordered. Hanna, J., having been of counsel in the court below, did not participate in this decision.