American Bonding Co. v. Pueblo Inv. Co.

• Decision Date: 07 November 1906
• Docket Number: 2,367.
• Citation: 150 F. 17
• Parties: AMERICAN BONDING CO. OF BALTIMORE v. PUEBLO INV. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

150 F. 17

AMERICAN BONDING CO. OF BALTIMORE v. PUEBLO INV. CO.

No. 2,367.

United States Court of Appeals, Eighth Circuit.

November 7, 1906

(Syllabus by the Court.)

The contract of suretyship is not that the obligee will see that the principal obligor pays his debt or fulfills his contract but that the surety will see that the principal pays or performs.

Written language has the same significance, and its meaning is to be ascertained by the same rules of law where it is found in the contract of a surety as where it appears in other agreements.

The obligation of a surety may not be extended or reduced by construction or by implication beyond the true meaning expressed by the contract.

His agreement, like other contracts, must have a rational interpretation, which, while it carefully restricts his liability to that which he agreed to undertake, does not fail to hold him to that liability which by the plain terms of his agreement he promised to assume.

Tenants agreed by a written lease to put into the premises a heating plant, to renew the plumbing, to make other improvements, and to pay taxes and the premiums on insurance in lieu of rent and to give a bond conditioned for their performance of their contract and to pay for the work and material used in the improvements, to the end that no liens should be fastened upon the property by their creditors. They gave a bond with a surety conditioned that they would perform all the obligations assumed by them by virtue of the lease, but this bond contained no additional condition that they would pay for the work and material. Held, the lease and the bond evidenced an express agreement of the lessees and the surety that the lessees would not only furnish the heating plant and the plumbing, but that they would pay for the work and material employed therein, to the end that no lien of any creditor of theirs should be fastened upon the property, and the surety was liable to the lessor for the amount the latter necessarily paid to relieve its property from a lien for this labor and material.

Any material alteration of the contract guarantied, without the consent of the surety, discharges him.

The wrongful surrender by the obligee of security for the performance of the obligation guarantied, without the knowledge of the surety, discharges him from liability entirely or pro tanto, according to the value of the security surrendered.

The surrender of leased premises by the lessee and their acceptance by the lessor during the term closes the term and the lease, and destroys all rights conditioned on its continuance thereunder.

Such a surrender releases the lessee from liability for rents accruing, but not yet due, from rents to accrue, and from immature obligations, but leaves him liable for all rent accrued and due and for all obligations whose performance is due.

There was a lease for a term of 30 months, which expired on September 12, 1905, in which the lessor granted to the lessees the option to purchase the leased premises during the lifetime of the lease, and the lessees agreed that upon their default the lessor might terminate the lease and take possession as of its former estate. They gave a bond with a surety for the performance of all their obligations under the lease, made default, and the surety was notified thereof in August, 1904. The defaults continued, and on December 27 1904, the lessees, without notice to the surety, surrendered the leased premises and the lessor accepted them. Held this surrender terminated the lease, but it did not relieve the surety from liability for the matured obligations of the lessee, because it did not constitute an alteration, but an enforcement of the terms of the lease.

The option to purchase ceased with the lease, but the surrender did not wrongfully deprive the surety of its right to subsequently exercise this option, because that right was conditioned by the performance by the lessees of their obligations guarantied by the surety, and the lessees and the surety were both in default.

The lien for the work and material used in the heating plant and plumbing was fastened upon the property more than a year before the surrender, but the suit to foreclose it was pending, and did not ripen into a decree which determined its amount until a few days thereafter.

Held, the obligation to pay for this labor and material, as for rent accrued, matured before the surrender, which did not release the lessees nor the surety from liability therefor.

The lessees agreed to pay the taxes of 1904 when they became due and payable. One half of them became due and payable on the last day of February, 1905, and the other half on the last day of July, 1905. The surrender was on December 27, 1904.

Held the obligation to pay these taxes, as for rent accruing, but not completely accrued nor due, had not matured at the time of the surrender, and by that act the lessees and the surety were released from liability therefor.

A surrender between rent days releases the lessees and their sureties from liability for the rent for the current period between them.

The American Bonding Company of Baltimore, a corporation, was a surety upon a bond of R. C. Miller and H. G. Bahne, lessees, which was conditioned that they would perform the obligations by them assumed under the lease. They made default and a judgment was rendered against the surety, upon a directed verdict in the court below, for the sum of $10,000, the penalty of the bond. This writ of error was sued out to reverse that judgment.

The lease was dated March 9, 1903. The Pueblo Investment Company, a corporation, was the lessor, and Miller and Bahne were the lessees. The term of the lease was 30 months, from March 12, 1903, to September 12, 1905. The property was a hotel building and the grounds upon which it stood. The lessor demised the premises to the lessees for the term of the lease, and also granted to them an option to purchase the property for $120,000 at any time within the lifetime of the lease. In lieu of a cash rent for the property, the lessees agreed to make certain improvements and repairs, to pay certain premiums for insurance and certain taxes upon the premises. They covenanted that they would, as rent for the premises, at once upon taking possession of the property, 'put steam heat in the said hotel including seventy-one (71) guest rooms, the said steam-heating plant to be in all respects first class, competent and sufficient properly to heat said rooms, replace the present bath tubs and closets throughout the hotel except in the mineral baths with the latest modern tubs and closets, renew the plumbing in said hotel in first class shape,' recarpet the halls and such of the rooms as might reasonably need it, pay the premiums upon $70,000 of insurance upon the hotel property during the term of the lease so as to keep it insured for that amount, pay the taxes assessed against the property for the years 1903, 1904, and the first half of the taxes for the year 1905, and that they would perform various other acts not material to this action which are specified in the lease. One of the terms of the lease was that if default should be made in any of the covenants or agreements to be kept by the lessees, except as to such matters as might be under arbitration at the time of such default, it should 'be lawful for the party of the first part, its successor, agent, or assigns or attorney, at its election, to declare said terms of lease ended and to enter upon said premises or any part thereof, either with or without process of law, to re-enter and to expel, remove and put out, using such force as may be necessary, the said parties of the second part, or any other person or persons occupying or upon said premises, and re-gain, re-possess and enjoy said premises as in its first and former estate, and shall not in such action be liable to, or indebted for any cause of action or damages upon the part of the parties of the second part, their executors, administrators or assigns. ' Another paragraph of the lease read in this way: 'In case the said parties of the second part fail to purchase or sell the said property at a cash price of one hundred and twenty thousand dollars within the lifetime of this lease, they will, at its expiration, turn back the said property to the party of the first part or its assigns, with all additions thereto made by them in the way of furniture, fixtures, equipment; and, upon the signing of these presents, they will give a good and satisfactory bond to the party of the first part in the penal sum of ten thousand dollars ($10,000) conditioned upon the faithful performance of this contract on their part and of all the provisions therein contained by them to be done and performed; and that they will justly pay for all material and labor used or employed in the betterment or repair of said property and to the end that no liens of any character shall be placed against the said property by any creditor of the parties of the second part.'

On March 12, 1903, the lessees, as principals, and the bonding company, as surety, gave a bond to the investment company in the sum of $10,000, which recited that the investment company had executed the lease with the option to the lessees of purchasing at a certain cash price, and that 'in and by said lease the said lessees in lieu of a fixed rental for the said property are to do and perform certain things in the way of putting the said hotel in first class repair, adding steam-heating and electric light plant thereto, and make certain payment of taxes and insurance, to which said lease reference is hereby made for the purpose of ascertaining in detail the exact obligations assumed by the said lessees thereunder,' and covenanted that,...