Pauly Jail Building & Manufacturing Co. v. Collins

Dodge, J. The conclusion we have reached upon one of the-several questions discussed is so decisive of the rights of the497 parties as to obviate necessity of treating tbe others. Conceding for tbe purposes of argument that tbe sureties upon tbis bond became obligated to pay to tbe plaintiff any sums it might pay in discharge of tbe principal’s indebtedness for material' and labor and not merely such as tbe plaintiff might be compelled or compellable to pay, there arises tbe other question whether defendant has been discharged from liability by the plaintiff’s failure to avail itself of the right given it by the contract to pay all such debts of the principal out of the several instalments due the latter. The rule is abundantly well settled that a creditor owes a known surety the duty to indulge in no transactions or dealings with the principal debtor which shall vary the surety’s position or jeopardize him (Omaha Nat. Bank v. Johnson, 111 Wis. 372, 87 N. W. 237), and that whenever the creditor has a right and opportunity to apply property of the principal to the satisfaction or security of his debt he owes the surety the duty to do so, and release or waiver of that right to the prejudice of the surety and without his consent will discharge the latter, at least pro tanto. Price Co. Bank v. McKenzie, 91 Wis. 658, 65 N. W. 507; Plankinton v. Gorman, 93 Wis. 560, 67 N. W. 1128; Ringenoldus v. Abresch, 119 Wis. 410, 416, 96 N. W. 817; Lowe v. Reddan, 123 Wis. 90, 100 N. W. 1038; Pierce v. Atwood, 67 Neb. 296, 93 N. W. 153; Commercial Nat. Bank v. Henninger, 105 Pa. St. 496; German Nat. Bank v. Foreman, 138 Pa. St. 474, 21 Atl. 20; 1 Daniel, Neg. Inst. § 326a. A mere right or privilege as against the principal becomes a duty to the surety when failure to exercise it may prejudice him. In the present case the plaintiff was accorded in the contract the plain right to discharge any and all of Stewart’s debts for material or labor out of each instalment which at any time became due him or to withhold the payment until receipts were produced. Most, if not all, of the debts which remained unpaid at the time of the suspension of Stewart existed before either the September 26th or the No [498] vember 4th instalment was paid over and were less in amount than those two payments. Having the money thus in hand and having the right as between itself and Stewart to retain or apply the same in discharge of these debts for material and labor, it released that security and paid the money over to Stewart, whose disposal thereof was of course then beyond the control of either the plaintiff or the defendant. Had plaintiff, on the other hand, exercised its right to withhold enough of these instalments to pay those debts, the balance of the contract price remaining unpaid when Stewart defaulted would have been more than enough to pay the expenses of completing his contract. It is obvious that by such act the defendant suffered prejudice to the full extent of the liability now claimed against him, if liable therefor. Lucas Co. v. Roberts, 49 Iowa, 159; Shelton v. Am. S. Co. 127 Fed. 736; McDowell v. Bank of W. & B. 1 Harr. (Del.) 369. We agree with the trial court that thereby he has been discharged and that the judgment in his favor is correct By the Court. — Judgment affirmed. Timlin, J., dissents.