Court Opinion

ID: 6899183
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:53:12.113914+00
Date Added: 2024-06-11T16:06:06.767825
License: Public Domain

Mr. Justice Wodverton,
after stating the facts, delivered the opinion of the court.
Two questions are presented by the record: (1) Is the contract, to secure the faithful performance of which the bond *390sued on was given, severable, so that it may be construed as a several contract for tbe construction or improvement of each of the four separate buildings involved, and (2) are the sureties relieved of their obligation by the premature payment of the amounts due for work and labor performed by Denham, if such payments may be considered prematurely made?
1. The first question may be determined by an inspection of the contract. The bond was given to insure its faithful performance, and, in order to determine the liability of the sureties under such bond, the contract must be read into it and made a part of it, and its effect determined by a proper construction thereof. The contract was for the construction, improvement, and repairing of all four of the buildings designated, the stipulated consideration therefor being a gross sum, namely, $4,678.50. This sum the board covenanted and agreed to pay in the following manner: Semimonthly payments to be made 75 per cent of labor performed and materia! used. The balance, or 25 per cent of the total contract price, to be made thirty-three days after the buildings are completely finished and delivered, and accepted by the architect and the board. Thus far there can be no inference deduced that there was any intended segregation in the minds of the parties when they entered into contractual relations. Indeed, the language precludes any such inference, and by the plainest statement possible treats the matter as if the entire work was to be performed under one inseverable undertaking. The last clause seems to cast a shade of doubt upon this interpretation. It provides that the total sum of $4,678.50 shall be so segregated and divided in the payment thereof as to require the sum of $585.50 for machinery hall, $707.50 for the creamery building, $695.75 for the farm cottage, and $2,689.75 for additions to pavilion; but, when considered along with the rest of the contract, it does not qualify or vary in any particular the manner of payments as previously stated and agreed upon, — that is, 75 per cent of the value of the labor performed and materials used, semimonthly, as the work progressed, and 25 per cent of the total contract price thirty-three days after completion, — and is not, *391in our opinion, effective to render the contract severable as to each or either of the buildings concerned. Just why the latter clause was inserted is not apparent unless it was to avoid any semblance on the part of the board of having exceeded the specific appropriations made by the legislature for these several buildings and improvements. In support of this interpretation, see Broxton v. Nelson, 103 Ga. 327 (30 S. E. 38, 68 Am. St. Rep. 97); Clark v. Collier, 100 Cal. 256 (34 Pac. 677).
2. Under this construction of the contract, it is manifest that, on the 9th of July, 1901, the plaintiff paid Denham more than it had stipulated to pay him at that time by one fourth of the amount required to be paid for machinery hall and the farm cottage when completed, and a much larger sum without first having obtained the proper certificate of the architect as to the manner in which the work had been done; and thus is the second question, previously stated, presented. The question is not one of first impression, as we considered it in Hand Mfg. Co. v. Marks, 36 Or. 523 (59 Pac. 549), a case which it is contended by respondents is decisive of this. It should be observed that there has been no material change or alteration made in the wording or stipulations of the contract. If such a change or alteration had been made, it would have ipso facto discharged the noneonsenting sureties, whether it operated to their injury or not. They have a right to stand upon the very letter of their undertaking, and cannot be bound by any other to which they have not assented. This doctrine applies to parties as well as to sureties, wherever there is an unwarranted change or alteration in the contract or agreement.
3. The defense here is that plaintiff has failed to perform as it undertook to do, by anticipating payments to the contractor, and making them without requiring the proper certification of the work done as stipulated. It is clear that such premature payments would not discharge a party to the contract, as they would involve assent thereto, the one paying and the other accepting.
4. As to the surety, however, a different rule obtains. In such a ease, it does not seem to us that the doctrine that the *392surety may stand upon the strict letter of his contract has exact application. If what has been done by the obligee could not by any possibility have materially varied or enlarged the liability of the surety, it is difficult to see how it could discharge him. The general rule may be stated as it is in Mayhew v. Boyd, 5 Md. 102 (59 Am. Dec. 101), namely:’ “Any dealings with the principal debtor by the creditor which amount to a departure from the contract by which a surety is to be bound, and which by possibility might materially vary or enlarge the latter’s liability without his assent, operate as a discharge of the surety.” In a case like the present, where the payments are required to be made in certain proportions as the work progresses, the balance remaining in the hands of the principal for a stated period after the completion of the work, it is fair to assume that the provision is for the benefit of the surety, as he might not have obligated himself if it had been otherwise. The amounts to be withheld, therefore, become a fund in the-hands of the principal for his protection. . This is within the case of Calvert v. London Dock Co. 2 Keen, 638, the leading case upon the subject, and which has been subsequently followed with scarcely a dissenting judicial utterance. In that ease, the company, as the board has done here, anticipated payments largely in advance of the stipulated conditions, and the court said: “What the company did was perhaps calculated to make it easier for Streather to complete the. work, if he acted with prudence and good faith; but it also took away that particular sort of pressure which, by the contract, was intended to be applied to him. And the company, instead of keeping themselves in the situation of debtors, having in their hands one fourth of the value of the work done, became creditors to a large amount, without any security; and, under the circumstances, I think that their situation with respect to Streather was so far altered that the sureties must be considered to be discharged from their suretyship. ’ ’
And, wherever it is manifest that the security intended to be reserved for the benefit of the surety has become impaired by what has been done by the obligee in the nonobservance of his *393undertaking, or which might by possibility materially vary or enlarge the surety’s liabilities, it will operate to the latter’s absolute discharge. The obligee owes a duty to the surety as well as to the other contracting party, and is bound to respect his rights in his dealings under the contract, and if he fails in this, to the surety’s possible injury in a material respect, he absolves the latter from his obligation. This is the doctrine of Hand Mfg. Co. v. Marks, 36 Or. 523 (59 Pac. 549), and is controlling in the case at bar. In further support thereof, we cite the following additional cases: St. Mary’s College v. Meagher, 11 Ky. Law Rep. 112 (11 S. W. 608); Evans v. Graden, 125 Mo. 72 (28 S. W. 439); Bell v. Trimby (Tenn. Ch. App.), 38 S. W. 100; Ryan v. Morton, 65 Tex. 528; City Council of Greenville v. Ormand, 51 S. C. 121 (28 S. E. 147); Peters v. Mackay, 20 Wash. 172 (54 Pac. 1122); Brennan v. Clark, 29 Neb. 385 (45 N. W. 472); Gray v. School Dist. 35 Neb. 438 (53 N. W. 377); Taylor v. Jeter, 23 Mo. 244.
In coming to this conclusion, we have not overlooked the case of Cochran v. Baker, 34 Or. 555 (52 Pac. 520, 56 Pac. 641), wherein it was held that a premature payment on a building contract by the principal operated as a discharge pro tanto only of the surety. By an examination of that case it will be seen that the holding was not necessary to a decision thereof. The real question was whether a nonsuit should have been granted. As said in the opinion, it was elicited “that defendant knew in most part the manner in which payments were being made, and to a considerable extent directed how and when they should be made; so that, in any event,' it would have been manifestly improper to grant the nonsuit. ’ ’ It follows, therefore, that the ease itself was rightly and properly decided, but, in so far as the holding there announced is in conflict with the present one, it should be considered as overruled. It follows that the judgment of the court below should be affirmed, and it is so ordered.
Affirmed.