Court Opinion

ID: 9451038
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:04:08.459244+00
Date Added: 2024-06-11T17:32:32.678389
License: Public Domain

SCHNACKENBERG, Circuit Judge
(dissenting).
From the district court’s findings, it appears inter alia that Meyer was president and owner of ITA and TC. On November 12, 1957 ITA contracted with Chrysler to furnish labor and materials for the installation of air conditioning equipment in a bank building in Indiana, for which it was to be paid $140,-000, as follows: 90% for the work and materials furnished during stipulated periods, and 10% upon completion and acceptance of the work by Chrysler. This contract was secured by a performance bond (now in suit), which named Chrysler as obligee.
However, prior to the execution of said contract and bond, TC had become indebted to Chrysler for over half a mil-ion dollars, causing Chrysler to require cash payment for purchases by TC. Then ITA agreed that it would use 30% of the subcontract payments to reduce TC’s indebtedness to Chrysler. This arrangement was followed, except as below mentioned.
ITA defaulted on its bank indebtedness guaranteed by Chrysler and theat-ened to abandon its subcontract and Chrysler was required to satisfy various claims against ITA which was followed by bankruptcy proceedings against ITA and TC.
Hanover, defendant, did not know of the indebtedness of ITA, the guaranteed loan or the arrangement for 30% payment on the TC debt.
Hanover did not appear to protect its interests, if any, in the bankruptcy proceeding.
Chrysler, pursuant to an arrangement with ITA, applied a substantial part of the contract price to the payment of a pre-existing indebtedness of TC. Later Chrysler permitted Meyer to obtain 90% progress payments for four weeks and then resumed the deductions for several more weeks. The court found that Chrysler proposed and ITA agreed that, if it were given the subcontract, ITA would use 30% of the subcontract payments to reduce the TC indebtedness to Chrysler. This arrangement was a condition to Meyer’s getting the contract but the surety had no knowledge of the arrangement, which is on its face material and constitutes a release of the surety.
This conclusion is amply supported by the law of Indiana. In Lutz v. Frick Co., 242 Ind. 599, 181 N.E.2d 14, 16 (1962), the court said:
“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. * * -*»
To the same eifect is Crouch & Son v. Parker, 188 Ind. 660, 125 N.E. 453, at 456, 7 A.L.R. 1598 (1919) where the court, said:
“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. * * * ”
At page 456, the court cited Magee v. Manhattan Life Ins. Co., 92 U.S. 93, 23 L.Ed. 699 (1875).
In Hartford Accident & Indemnity Co. v. State ex rel. Martin, 94 Ind.App. 531, 159 N.E. 21 (1927), the principal defaulted on a bonded contract. The contract contained an express agreement to pay for material and labor. The bond contained the standard defeasance clause. The obligee, suing for the benefit of laborers and materialmen, recovered against the surety. The surety defended on.the ground inter alia that there had been a material change in the contract by substituting iron and steel pipe for vitrified shale tile without its con*658sent. At 25, the court quoted its earlier decision in Weir Plow Co. v. Walmsley, 110 Ind. 242, 11 N.E. 232, as follows:
“Nothing * * * can be clearer, both upon principle and authority, than the doctrine, that the liability of a surety is not to be extended, by implication, beyond the terms of his contract. To the extent, and in the manner, and under the circumstances, pointed out in his obligation, he is bound, and no further. It is not sufficient, that he may sustain no injury by a change in the contract, or that it may even be for his benefit. He has a right to stand upon the very terms of his contract; and if he does not assent to any variation of it, and a variation is made, it is fatal.”
In so holding the court in Weir Plow was quoting from Miller v. Stewart, 22 U.S. 680, 702, 6 L.Ed. 189.
In Fassnacht v. Emsing Gagen Co., 18 Ind.App. 80, 46 N.E. 45 (1897), a surety who had guaranteed payment of a note defended a suit thereon. She prevailed because the court held that when she signed as surety she believed the note was to pay for goods purchased by her son, but in fact a portion thereof was to pay a pre-existing indebtedness and the failure to inform her thereof would be cause to release her.
The rule thus announced gives no authority to the obligee or Meyer, or in fact to the court, to justify a departure from the surety’s obligation, such as was attempted in this case. In other words, facts which have operated to release the surety cannot be erased and its liability reinstated by an ex post facto attempt by the court without the consent of the surety.
In the case at bar Chrysler must have known that anyone writing the bond as surety would believe that the terms of the payment were 90% cash in progress payments and 10% cash at the completion. Since Chrysler did not make those payments, its failure released the surety. Instead Chrysler placed the written subcontract in Meyer’s hands and thus represented that the method of payment was one materially different from that actually agreed upon. Undoubtedly Chrysler thus gave Meyer an opportunity to secure a bond which he could not otherwise have secured.
Thus the district court, in view of these undisputed facts, had no alternative under the law of Indiana but to enter a judgment for the surety. I would reverse for that reason.