Lutz v. Frick Co.

• Decision Date: 26 March 1962
• Docket Number: No. 30229,30229
• Citation: 181 N.E.2d 14,242 Ind. 599
• Parties: Jacob LUTZ, Appellant, v. FRICK COMPANY, a Pennsylvania Corporation, Appellee.
• Court: Indiana Supreme Court

Page 14

181 N.E.2d 14

242 Ind. 599

Jacob LUTZ, Appellant, v. FRICK COMPANY, a Pennsylvania Corporation, Appellee.

No. 30229.

Supreme Court of Indiana.

March 26, 1962.

Dann & Backer, Indianapolis, Evens, Baker & Barnhart, Bloomington, for appellant.

Regester & Regester, Bloomington, Brunner, Brown & Brunner, Shelbyville, for appellee.

LANDIS, Justice.

This case comes to this Court on petition to transfer from the Appellate Court, the Appellate Court opinion appearing in 172 N.E.2d 878.

Appellee, Frick Company, brought suit in the Monroe Circuit Court against appellant, Jacob Lutz, on three promissory notes in the amount of $3,360.00 each, signed by appellant as guarantor ¹ for Shelby Blue River Farms, Inc., the principal debtor.

The complaint alleged the following facts, to-wit: the execution of the notes, the guaranty by appellant Lutz on the back thereof, and that the principal debtor, Shelby Blue River Farms, Inc., was thereafter adjudged to be a bankrupt by the U. S. District Court for the Southern District of Indiana. The notes were secured by a chattel mortgage and thereafter appellee filed petition for reclamation of the mortgaged property which was denied by the referee in bankruptcy, and the mortgaged property was sold by the trustee in bankruptcy at public auction for the sum of $9,100.00.

The complaint further alleges appellee obtained the full amount of $9,100.00 realized on said sale 'through a compromise agreement by which said plaintiff [appellee] agreed to compromise and settle in full its claim against said bankrupt.' That demand was made on appellant Lutz for the unpaid balance on said notes which was due and unpaid. Wherefore appellee demanded judgment, etc.

Appellant filed answer admitting some and controverting other allegations of the complaint, and further alleging:

'That the Plaintiff [appellee] compromised his claim against the bankrupt, Shelby Blue River Farms, Inc., by 'compromise and settlement in full' with the Trustee of said bankrupt in lieu of proceedings with such remedies as the Bankruptcy Act provides for secured creditors, and further that he compromised in full his rights rather than proceed with such remedies as the Bankruptcy Act provides for secured creditors in the event the sale of said property covered by mortgages does not return in sale the amount of the indebtedness.'

Trial was had by the court without a jury, resulting in a finding and judgment for appellee-plaintiff in the sum of $1,949.80 principal, $545.93 interest, and $250.00 attorney fees, or a total sum of $2,745.73 and the costs of the action. Appellant's motion for new trial was overruled and he appealed to the Appellate Court which affirmed the judgment.

Appellant contends on his appeal that the trial court's decision is contrary to law because appellee compromised its claim against the principal debtor, Shelby Blue River Farms, Inc., without the consent or assent of appellant, and that the compromise by a creditor with the principal without the consent of the guarantor discharges the guarantor.

There can be no question but that it is the settled law that any binding change in the principal's contract to which the guarantor or surety does not consent will discharge the latter from liability. Miller v. Stewart (1824), 9 Wheat. 680, 6 L.Ed. 189; Crouch & Son v. Parker (1919), 188 Ind. 660, 125 N.E. 453, 7 A.L.R. 1598. This Court stated in the latter case (p. 667 of 188 Ind., p. 456 of 125 N.E., and p. 1603 of 7 A.L.R.):

'* * * It is a sound and well-settled principle of law that sureties are not to be made liable beyond their contract and any agreement with the creditor, which varies essentially the terms of the contract, without the assent of the surety, will discharge him from responsibility. * * *'

Part payment founded upon a valid agreement and consideration between the principal and creditor discharges the surety. 50 Am.Jur., Suretyship, § 122, p. 984. As stated by this Court:

'* * * The extinguishment of the direct engagement of the principal, no matter how accomplished, extinguishes the collateral liability of the surety. * * *' Bridges, Administrator, v. Blake et al., (1886), 106 Ind. 332, 335, 6 N.E. 833, 835.

'The general rule is that a surety is discharged when the liability of his principal is extinguished. * * *' McKee v. Harwood Automotive Co. (1932), 204 Ind. 233, 236, 183 N.E. 646, 647.

We are unable to see how the pendency of the bankruptcy proceedings as to the principal debtor in the case before us affects the application of this rule.

The case is quite analogous to the case of Quirk v. Smith (1929), 268 Mass. 536, 168 N.E. 174, where the plaintiff-appellant filed a reclamation petition in the bankruptcy court which was compromised and settled for a lesser figure and approved by the court. The Court stated that if plaintiff-appellant in that case failed in his reclamation petition he could prove his claim only as a general creditor, and that under those circumstances plaintiff-appellant and the trustee reached an agreement for compromise, which was approved by the court. It was further stated (p. 541 of 268 Mass., p. 177 of 168 N.E.):

'* * * We are of the opinion that on the pleadings in the bankruptcy court a compromise of the nature here set forth without express reservation of rights against individual partners is the end of the whole claim. The compromise included the claim made by the petition for reclamation of the entire $10,000. That was compromised by order of court and with assent of the plaintiff. It was not in the nature of an allowance of the claim for a specified amount by judicial order. It was a compromise. It gave the plaintiff much more than the percentage by way of dividends due on his proof of claim on the same footing with all the other creditors. A compromise of a claim of that nature wipes out the claim. It stands on the same footing as would a compromise between the parties in the country. 'Money paid, which is to be in full for an unliquidated or a disputed claim, is taken in discharge of it, and constitutes a full defense against any further assertion of the claim.' Stimpson v. Poole, 141 Mass. 502, 505, 6 N.E. 705; Barlow v. Ocean Ins. Co., 4 Metc. 270, 275; Kerr v. Lucas, 1 Allen, 279; Kennedy v. Welch, 196 Mass. 592, 596, 83 N.E. 11; Boston Supply Co. v. Rubin, 214 Mass. 217, 220, 101 N.E. 133; McCoy v. Milbury, 87 N.J.Law 697, 94 A. 621; Bandman v. Finn, 185 N.Y. 508, 78 N.E. 175, 12 L.R.A. (N.S.) 1134; Flegal v. Hoover, 156 Pa. 276, 27 A. 162; Chicago, Terre Haute & Southeastern Railway v. Meurer, 187 Ind. 405, 410, 119 N.E. 714; Barr v. Gilmour, 204 Ky. 582, 588, 265 S.W. 6; United States v. Justice, 14 Wall. 535, 548, 549, 20...