Koppitz-Melchers Brewing Co. v. Schultz (68 Ohio St. 407, 1903)

Crew, J.

The contract and bond relied upon and pleaded by plaintiff in error were contemporaneously executed, were parts of the same transaction, and must be construed together as one instrument.

The plaintiff in error by accepting this contract, and as obligee in said bond, impliedly undertook and agreed with Herman Schultz, the surety in said bond,, that Hall should at no time have a total credit with it on the purchase of beer under said contract, exceeding two car loads at any one time, and that it would not ship said Hall a third car load of beer until the first car load received by him should have been' paid for, and it would not ship him a fourth car' load until the second had been paid for, etc. The surety in said bond had the right to rely upon this implied undertaking on the part of the brewing company that it would extend credit and would make shipments to Hall only in accordance with the stiptdations and provisions of said contract. It is elementary that the obligation of a surety is not to be extended beyond what the terms of the contract of suretyship fairly import. The surety has a right to stand upon the very terms of his contract, the exact letter of his bond, and if he does not consent to any variance of it and a variation is made, such variation operates to annul his contract and to discharge him from liability, and if the obligee in a bond given to secure the faithful performance of a contract, without right, does that which injures the surety or his rights, or fails to do that which the contract enjoins upon him as a duty to do, and such omission operates to the prejudice and injury of the surety in the bond, the surety is thereby discharged. Brandt on Suretyship, Sec. 397. In this case the defendant in error, Angie Schultz, in her original answer to plaintiff’s amended petition, averred among other things that Herman Schultz, as surety, was released from the obligations of the bond in suit, by reason of the fact “that the said Henry T. Hall was not required to pay for the first car load of beer, for which he was given credit, nor did he pay for the first car load of beer when he ordered the third car load of beer; that the said Henry T. Hall was not required by the plaintiff to pay for the second car load of beer when he ordered the fourth car load of beer; that the plaintiff wholly disregarded its contract with the said Henry T. Hall, and at no time required the said Henry T. Hall to pay for the beer as provided in the contract; that the said Henry T. Hall ordered and received from plaintiff on credit three car loads of beer before he paid for any part of the beer bought and ordered under the contract.”

The demurrer of plaintiff to this answer being a general demurrer, these allegations were admitted to be true. These limitations as to shipments of beer, and the provisions and stipulations of said contract as to the times and manner of payment for the same were for the benefit and protection of the surety, and their observance by the brewing company was a condition precedent to its right to recover against the surety on said bond. It being admitted by the plaintiff, by its demurrer, that it had violated its obligation and engagement with the surety as recited in tlie contract and bond, it was without right to recover against such surety for a breach of said bond, especially when the breach complained of, and for which recovery was sought, might never have occurred but for such unauthorized and excessive shiqiments of beer by plaintiff in violation of the express provisions and stipulations of said contract. Again, this answer of defendant alleging as it did certain specific breaches of said contract on the part of the brewing company, was the equivalent of a denial and had the effect to put in issue the averment of plaintiff’s amended petition that: “Plaintiff performed all its part to be performed under said contract.” Such performance on the part of plaintiff being, as we have seen, an essential prerequisite to its right to maintain an action on said bond, the effect of these averments in the answer ivas therefore to deny and put in issue a material averment of the plaintiff’s petition. The matter thus pleaded, if admitted or proven, constituted a defense, and by way of denial tendered a material issue. The demurrer of plaintiff to said answer was therefore improperly sustained.

On the trial of this cause in the court of common pleas the court charged the jury in part as'follows: “The plaintiff brings this suit as upon a bond executed and delivered for the performance of a contract with said-Henry T. Hall, and if you find by a preponderance of the testimony, that plaintiff, without the knowledge and consent of said Herman Schultz, violated the contract with Hall, and thereby increased the risk of said Schultz, then the said Schultz would be released from the obligations thereof, and your verdict would then be in favor of the defendant as administratrix. So that the main issue submitted to you by the pleadings and testimony is whether or not plaintiff and said Hall did change and modify and violate, said contract as alleged by defendant, and if so, was it without the knowledge and consent or acquiescence of said Schultz, and this puts the burden of proof upon said defendant, to prove and establish it by a preponderance of the evidence, and you are the sole judges of the credibility of the several witnesses and the credit to be given to them as to what they testified.”

This charge was excepted to by the defendant Angie Schultz, and was found and held by the circuit court to be erroneous, in so far as the jury was thereby instructed that the burden of proof was on the defendant to show and prove that the violation of said contract by the brewing company was without the knowledge and consent of Schultz, the surety in said bond. As we have already seen when considering the demurrer, the contract in suit was conditioned and it provided that the brewing company would not ship to Hall the third car load of beer until he had paid for the first and would not ship him the fourth until he had paid for the second, and a compliance with these covenants and provisions on the part of the brewing company was an essential prerequisite to its right of recovery against the surety on said bond, and any violation of these covenants and conditions by the brewing company which increased the risk or liability of Schultz under said contract would discharge him as surety on said bond, and the failure on the part of the brewing company — obligee in said bond — to observe and comply with these provisions was the matter alleged and relied upon by defendant in her answer, as and for her defense. In its amended petition the brewing company averred that it had complied with and performed all the terms and conditions of said contract on its part to be performed, but the effect of the matters specially pleaded in the answer of Angie Schultz was, as above stated, to deny and put in issue this averment of plaintiff’s amended petition, and upon the issue so tendered the burden was upon the plaintiff to show and prove performance on its part as averred in its petition. The defendant in this case, Angie Schultz, did not rely upon or plead a change or modification of the original contract, or the making and substitution of a new contract in its stead, but she relied upon the nonperformance by plaintiff of the express terms of the contract in suit, performance of which was a prerequisite to its right to recover on said bond. Hence the authorities cited and relied upon by counsel for plaintiff in error in this case, relating as they do, in nearly every instance, to cases where the defense relied upon and pleaded by defendant — was that of the making’ and substitution of a new contract — such as for the extension of time on negotiable paper, are without application.

The attitude of the defendant Angie Schultz in this case is purely defensive, and her answer in effect merely a denial of the performance by plaintiff of the terms and conditions of said contract necessary to be performed by it in order to put the surety on said bond in default and to entitle plaintiff to recover thereon against him. If as alleged in defendant’s answer there was on the part of the brewing-company such failure to perform the terms and conditions of said contract as released the surety, then if the brewing company would excuse such nonperformance on its part and relieve itself from the penalty of such violation because of the consent thereto of the surety in said bond, the burden is upon it to plead and prove such consent, and not upon the surety to show and prove that such failure to perform was without his consent. The denial by plaintiff in its reply of the allegations of defendant’s answer pleading- nonperformance, was wholly unnecessary, inasmuch as it had already averred in its amended petition full performance of said contract on its part, and the effect of defendant’s answer was simply to deny such averment. In this case no reply by plaintiff was necessary, and the filing of one did not have the effect to change the issue arising on the amended petition and the answer thereto, nor did it operate to shift the burden of proof. The charge as given was therefore erroneous.

Judgment of the circuit court, affirmed.

Biirket, C. J., Spear, Davis, Shauck and Price, 33., "concur.