Shelton v. American Surety Co.

• Decision Date: 13 June 1904
• Docket Number: 32.
• Citation: 131 F. 210
• Parties: SHELTON v. AMERICAN SURETY CO. OF NEW YORK.
• Court: U.S. Court of Appeals — Third Circuit

131 F. 210

SHELTON v. AMERICAN SURETY CO. OF NEW YORK.

No. 32.

United States Court of Appeals, Third Circuit.

June 13, 1904

C Berkeley Taylor, for plaintiff in error.

H Gordon McCouch, for defendant in error.

Before ACHESON, DALLAS, and GRAY, Circuit Judges.

DALLAS Circuit Judge.

But little, if anything, need be added to the opinion of the court below. 127 F. 736. It sufficiently states the material facts and correctly applies the law.

This court has this day decided, in the case of Zeigler v Hallahan 131 F. 205, that any material alteration of the principal contract, to which an undertaking of suretyship is attached, discharges the surety; and the question which this case presents is whether the same consequence results where the contract, though not avowedly altered, is materially departed from, by the principal parties to it, without the surety's knowledge, and to his prejudice. We think it does. He is entitled to rely upon its provision as definitive of the extent of his responsibility, and the law which protects him against any express agreement to materially change them would be of dubious efficacy if the principal parties were permitted to enhance his liability by simply disregarding them. Therefore any dealings with the principal by the creditor which amount to a departure from the contract by which the surety is bound, amount to a departure from the contract by which the surety is bound, and which by possibility might materially vary or enlarge the latter's liabilities without his consent, generally operate to discharge the surety. * * * There must be an assent of the surety to the creditor's dealing with the principal debtor otherwise than in the manner pointed out by the contract. ' Brandt on Suretyship & Guaranty (2d Ed.) § 397, and cases there cited. 'In such cases he contracts in reliance upon the exact terms of his principal's undertaking, and has a right to suppose that no change will be made without his consent; and the courts have gone so far as to hold that any change will exonerate him, though it really rebound to his benefit. ' Guaranty Co. v. Pressed Brick Co., 191 U.S. 416-425, 24 Sup.Ct. 142, 48 L.Ed. 242. We need not pursue the argument. To do so would be but to repeat what already has been well said by the learned judge of the circuit court; and, in our opinion, this case is one which especially called for enforcement of the rule he applied to it. The contract by which the defendant in error was bound provided 'that no payments shall become due until in each case the contractors * * * shall have delivered to the owner a satisfactory release of liens against the premises,' and yet it is for a loss which resulted from the owner making payments without requiring the production of a release of liens that the plaintiff below sought to hold the contractor's surety liable.

The judgment is affirmed.

ACHESON, Circuit Judge (dissenting). I dissent from this judgment. The opinion of the court, which embodies the view of the majority, rests upon the assumption that the contract of suretyship was 'materially departed from by the principal parties to it.' Yet the opinion does not set forth the provisions of the surety bond, nor state the facts. But when we turn to that opinion, we discover that it is silent as to the terms of the bond, although the instrument-- prepared by the surety company itself; and issued for pecuniary compensation paid to it-- expresses the special conditions upon which the surety company took the risk of suretyship.

This action was brought by Frederick H. Shelton against the American Surety Company of New York upon the latter's bond, of which the following is a copy:

'Know all men by these presents, that we, Sherman Orem, trading as Sherman Orem & Company, of the City of Philadelphia, Pa. (hereinafter called the principal), as the Principal, and the American Surety Company of New York (hereinafter called the Surety), as Surety, are held and firmly bound unto Frederick H. Shelton, of the City of Philadelphia Pa. (hereinafter called the Obligee), in the sum of twenty-five hundred dollars ($2,500) for the payment whereof said Principal binds himself, his heirs, executors, administrators, and assigns, and said Surety binds itself and its successors, firmly by these presents.

'Whereas, said Principal has entered into a written contract, dated July 3, 1902, with said Obligee, for the erection, construction, and completion of alterations and additions to the residence No. 228 S. 21st street, in the city of Philadelphia, a copy of which contract is hereto annexed:

'Now therefore, the condition of this obligation is such, that if the said

Principals shall faithfully perform said contract on his part, according to the terms, covenants and conditions thereof (except as hereinafter provided), then this obligation shall be void; otherwise to remain in full force and effect.

'Provided, however, and upon the following further express conditions:

First-- That in the event of any default on the part of the Principal, in the performance of any of the terms, covenants and conditions of said contract, written notice thereof, with a verified statement of the particular facts showing such default, and the date thereof, shall, within twenty days after the discovery of such default, be delivered to the Surety at its office in the City of Philadelphia.

'Second-- That no suit, action or proceeding shall be brought or instituted against the Principal or Surety upon or by reason of any such default, after the first day of June, 1903.

'Third-- That the Principal shall not, nor shall the Surety be liable for any damage resulting from an act of God; or from a mob, riot, civil commotion, or a public enemy; or from employees leaving the work being done in the performance of said contract, or so-called strikes or labor difficulties, or from fire, lightning, tornado, or cyclone; or from injury to person or property resulting from accident or negligence of the performance of such contract; and that the Principal shall not, nor shall the Surety, be liable for the reconstruction or repair of any work or materials damaged or destroyed by said causes, or any of them.

'Fourth-- That Obligee shall retain not less than fifteen per centum (15%) of the value of all work performed and materials furnished in the performance of such contract, until thirty days after the work herein contracted for shall have been fully...