Grafton v. Hinkley

Cassoday, C. J. Before the plaintiff had rested his case, and during the cross-examination of Mr. Conover,— one of the architects mentioned, and a witness on the part of the plaintiff,— the trial court ruled that the judgment in the lien suit in favor of Grafton Hall was conclusive, not only on the firm of Hinkley & Powers, but also on their sureties, two of the defendants in this action. In pursuance of such ruling, that court struck out all such cross-examination as related to the alleged counterclaim of Hinkley & Powers, and also excluded all evidence as to such counterclaim. The important question here presented is whether the judgment in the lien action is res adjudícala upon all the defendants in this — 53 — action. That action was brought by Hinkley & Powers on the theory that their contract with Mr. Grafton- terminated December 1,1895, by reason of his failure to give written notice on or before October 1,1895, mentioned, and the complaint alleged two causes of action. The first was that at that time there was due to them from Mr. Grafton $1,132.93 for materials furnished and services rendered under the contract, and the second was for a balance of $3,955.45 for services rendered and materials furnished between January 21, 1896, and October 31,1896,— not under the contract, but for what the same were reasonably worth; and the action was to enforce both claims as a lien upon the building, then and since owned by a corporation known as Grafton Hall. The action was against the corporation alone, and the defense was that all the materials so furnished and all the services so rendered by Hinkley & Powers were under the contract, which they had failed to perform, and hence that they were not entitled to such lien; and the trial court so held, and its judgment was affirmed by this court. Hinkley v. Grafton Hall, 101 Wis. 69. Of course, the corporation Grafton Hall merely defended against the enforcement of such claims as liens against the building. Since Grafton Hall was not a party to the contract, it is obvious that Hinkley & Powers could not, and did not attempt to, recover any personal judgment against the corporation for extras, or deficiency, or anything. It is equally obvious that Grafton Hall, in that action, could not and did not attempt to recover from Hinkley & Powers any damages for a breach of the contract to which it was not a party, by way of counterclaim or otherwise. Mr. Grafton was not a party to that action, and, of course, any claim he might have had against Hink-ley & Powers for damages for the breach of his contract with them could not be determined as against him in that action, and no attempt was made to have the same determined in that action. Since such claim of Mr. Grafton for — 54 — such damages could not have been determined in that action, it follows that the liability of Hinkley & Powers and their sureties on the bond could not have been determined in that action. True, the question whether. Hinkley & Powers were entitled to a lien on the building depended upon the question whether they had or had not broken their contract with Mr. Grafton; and hence .the question whether Hinkley & Powers had breached such contract to the extent of defeating such lien was involved in that suit, and the question of such breach is involved in this suit. But we are constrained to hold that such judgment is not conclusive upon the sureties on the bond upon which this action is brought. They were not parties to that action. At common law a mere surety for the payment of a debt, without any agreement, express or implied, to be bound by a suit between the principal parties, is not concluded by its determination. Thomas v. Hubbell, 15 N. Y. 405; S. C. 35 N. Y. 120. In that case it was held on the first appeal that “ except in cases where, upon the fair construction of the contract, the surety may be held to have undertaken to indemnify his principal against the result of a suit, or when he is made a privy to the suit by notice, an opportunity to defend being given to him, a judgment against the principal is proof against the surety only of the fact of its recovery, and not that the facts in pais against which the surety agreed to indemnify were established in the litigation.” And on the second appeal it was held that “ the sureties on a deputy sheriff’s bond are not concluded by a recovery against the sheriff, where they have had no opportunity to appear and defend.” See, also, Bridgeport F. & M. Ins. Co. v. Wilson, 34 N. Y. 275. In this state it has been held “ that one not a party, nor in privity with a party, to an action, is not bound by the judgment unless he had not only notice of such action, but also an opfort/unitry to defend it.” Saveland v. Green, 36 Wis. 612. See, also, De Greiff v. Wilson, 30 N. J. — 55 — Eq. 435; Smith v. Milwaukee, 18 Wis. 369; Somers v. Schmidt, 24 Wis. 417, 421; McCoy v. Quick, 30 Wis. 521, 527; Stephens v. Shafer, 48 Wis. 54. It is true that soon after the .commencement of the lien suit the corporation served notice on the sureties of the pendency of the action and their liability for Hinkley & Powers’s breach of the bond; but the amount of such liability was not determined in that suit, to which neither they nor Mr. Grafton were parties, and they had no opportunity to defend against the same. Had Mr. Grafton been made defendant in the lien suit, and interposed a counterclaim for damages by reason of the breach of contract alleged in this action, and the sureties then been notified, a different question would have been presented. Here the condition of the bond sued upon is that if Hink-ley & Powers “ shall well and faithfully perform all the conditions contracted to be performed by [them] as by the terms of said contract stipulated, without fraud or delay, and shall pay all bills for labor and material incurred therein, then this bond to be void and of no effect; otherwise, to remain in full force and virtue.” The rule is different where a surety has contracted with reference to the conduct of one of the parties to a suit or proceeding in court. In such cases it has often been held that the surety is concluded by the judgment against the principal. Smith v. Lockwood, 34 Wis. 72; Shepard v. Pebbles, 38 Wis. 373, 378; Kellam v. Toms, 38 Wis. 592; Krall v. Libbey, 53 Wis. 292; Meyer v. Barth, 97 Wis. 352; Roberts v. Weadock, 98 Wis. 400, 405; Ingersoll v. Seatoft, 102 Wis. 476, 480. In such cases the statute, in connection with the contract, contemplates proceeding in court and judgment. Mr. Ereeman points out the same distinction, and the great confusion among the adjudications of different states on the subject. • 1 Ereeman, Judgments, 1180. Counsel further contend that the sureties were released from liability on the bond by reason of the failure of Mr. — 56 — Grafton to notify them or.Hinkley & Powers, in writing, on or before October 1, 1895, to complete the work on the building. There is nothing in the contract requiring such notice to be served on the sureties. In the former case we held that such provision in the contract “ was apparently made for the sole benefit of Mr. Grafton,” and that, as Hinkley & Powers did not exercise their privilege of quitting the job by.reason of such failure to give such notice, and as ‘Mr. Grafton made no objection to their continuing work under the contract,” but, on the contrary, “ acquiesced in and consented to such continuance,” such written notice was waived; and that all services rendered and materials furnished thereafter by Hinkley & Powers were under the contract. In other words, we held, under the circumstances stated, that the contract continued, and covered the whole job, and was binding upon the parties, the same as though such notice in writing had been given. In this case it was found by the trial court that such written notice had been waived by Hinkley & Powers, and parol notice accepted by them instead thereof; and that all work and labor done and all materials furnished by them were so done and furnished under the original contract and subject to its limitations, specifications, and conditions, and not otherwise; and that such waiver did not increase, change, or alter the responsibility of the sureties, and in no wise changed the contract nor the liability intended to be entered into and assumed by the sureties when they executed the bond. Of course, all concede that sureties for the performance of a contract are discharged by any subsequent material change therein. Sage v. Strong, 40 Wis. 575; Nichols v. Palmer, 48 Wis. 110; W. W. Kimball Co. v. Baker, 62 Wis. 526; Cowdery v. Hahn, 105 Wis. 455. In the case at bar there was no material change in the contract. . The liability of the defendants on the ‘bond is predicated wholly on the failure of Hinkley & Powers to perform the contract and pay all — 57 — bills as required. It contains no reference to the termination of the contract by the failure to give such written notice, nor to any omission to act on the part of Mr. Grafton. In a case in the supreme court of the United States upon a written guaranty of a contract to furnish machinery, the contractors had informed the other party of their liability to complete the work “ by the first safe and navigable rise of the river,” as required by the contract; and Mr. Justice OaMpbell, speaking for' the whole court, said: “It is clear that the mere prolongation of the term of payment of the principal debtor, or of the time for the performance of his duty, will not discharge a surety or guarantor. There must be another contract substituted for the original contract, or some alteration in a point so material as, in effect, to make a new contract without the surety’s consent, to produce that result’. But when the essential features of the contract and its objects are preserved, and the parties, without objection from the surety, and without any legal constraint on themselves, mutually accommodate each other, so as better to arrive at their end, we can find no ground for the surety to complain.” Benjamin v. Hillard, 23 How. 149, 165, 166. Such rulings have been sanctioned by the late decisions in the federal court. Harper v. National L. Ins. Co. 56 Fed. Rep. 281, 284; Fertig v. Bartles, 78 Fed. Rep. 866. In this last case it was held that “ a surety is not released from his •obligation by the voluntary extension to his principal of a credit greater than that for which the surety has agreed to become bound, when no change is made in the terms of the contract between the principal and his creditor.” In a late case in New York notice was given to terminate a building contract, as therein provided, on the contractor’s failure to perform. Soon after, the owner recalled the notice and allowed the contractor to resume work; and, on a second failure to perform, the owner took possession as provided by the contract, and it was held that the effort at performance after the recall of the notice was not to be deemed a new contract, — 58 — so as to relieve the surety of the original contract from subsequent liability, since, under the -terms of the contract, such notice did not, of itself, terminate the contract, and the owner had the power to recall it, and the contract was actually terminated only by the owner’s taking possession on the contractor’s final failure to perform. Smith v. Molleson, 148 N. Y. 241. In that case it was further held that “ when a building contract provides that payments shall be made upon certificates of work done, the fact that payments were made without the certificate does not constitute a change in the position of a surety for the.contractor to his prejudice, and so operate his release, when it is manifest that the provision was inserted in the contract for the benefit of the owner alone, and that the payments so made were not greater in amount than they should have been if the certificate had been exacted.” See, also, Ulster Co. S. Inst. v. Young, 161 N. Y. 23; New York L. Ins. Co. v. Hamlin, 100 Wis. 17. In a recent case this court has held that “ a surety for the performance of a contract will be released from liability by a change or alteration of such contract without his consent only when such change is material and substantial.” Stephens v. Elver, 101 Wis. 392. In that case Mr. Justice Bardeen- quotes approvingly a part of the language of Mr. Justice CaMpbell above quoted. For other cases see his opinion. 101 Wis. 396-401. The waiver of the written notice and the acceptance of parol notice in the case át bar did not enlarge or change the liability of the sureties. On the contrary, such liability remained the same as though such written notice had been given. Upon the trial of this case there was, apparently, a misapprehension as to the rights of the parties, on both sides. ' By the Gowrt. — The judgment of the circuit court is reversed, and the cause is remanded for a new trial. — 59 — Dodge, J. I fully agree with the decision of the court that the judgment in this case must be reversed for the error of the circuit court' in receiving in evidence and treating as res acbjudicata against the defendants the judgment rendered in an action to which the present plaintiff, Oha/rles 0. Grafton, was not a party, either in for,m or by representation. As such judgment could not estop him, it cannot be invoked as an estoppel in his favor without ignoring the rule that estoppels must be mutual. I find myself unable, however, to reach the further conclusion of my brethren that the defendant sureties are bound for that portion of the building contract which, according to its-terms, was to be performed only after, and upon the condition of, the giving of a written notice by the plaintiff declaring his option to that'effect. The contract, as originally made, absolutely bound ITinkley & Powers to perform certain work amounting to about $14,000. It provided that they might become bound to perform additional work to the extent of about $16,000 upon the happening of a specified contingency, namely, the giving of a written notice. This contingency never happened, and therefore I cannot persuade myself that the sureties ever became bound. They had a right to insist on the strict letter of their con-, tract, and neither Grafton nor Hinkley & Powers had any right to waive' any of its provisions. Even if it were necessary that the court should discover the materiality of the requirement that Hinkley & Powers should be bound for the additional work only upon the giving of written notice, I think it would not be difficult to do so. Anything which facilitated Hinkley & Powers in the performance of their contract, or added certainty to their position, was material and beneficial to the sureties. So long as there did not exist a written notice signed by Grafton, the question of his liability for this additional work must depend upon the ability of Hinkley & Powers to prove his assent by parol. — 60 — Thus, during a period of many months, while the work was progressing, the position of the contractors with reference to procuring credit was weakened. It depended upon their own assertions that Grafton was liable to them, instead of being supported by written evidence of such liability. TÍie sureties had a right to provide in advance that they should not be liable unless this written evidence was furnished, just as they would have had a right to stipulate in a bond that they should become liable only in case a written contract were made between their principal and the owner of the property. In such case I think none would contend that they could be bound to an oral contract.