
    Samuel v. Fidelity & Casualty Co.
    
      (Supreme Court, General Term, First Department.
    
    June 19, 1888.)
    1. Principal and Surety—Contract to Become Surety—Public Policy.
    A contract for the payment of money to sureties upon a bond given to secure the performance of a contract with the United States government is not against public policy.
    3. Same—Breach op Contract to Become Surety—Measure oe Damages.
    The measure of damages in an action to recover for breach of a contract to become surety upon a contractor’s bond is the expense to which plaintiff is put in supplying a new bond; and the fact that defendant was only one of the sureties does not alter the rule where a wholly new bond becomes necessary.
    3. Corporations—Contracts—Rules.
    It is no defense to an action for breach of a contract by a corporation that, in entering into the contract, it violated its own rules, which fact was within its knowledge at the time the contract was entered into.
    Appeal from circuit court, Hew York county; George L. Ingraham, Justice.
    
      Action by Lewis S. Samuel against the Fidelity & Casualty Company of New York, to recover damages for breach of contract. Judgment for plaintiff. Defendant appeals.
    Argued before Van Brunt, P. J., and Brady and Daniels, JJ.
    
      Moore, Low & Wallace, {T. S. Moore, of counsel,) for appellant. Samuel Qreenbaum, (Daniel P. Hays, of counsel,) for respondent.
   Van Brunt, P. J.

This action was brought to recover damages arising out of the breach of a contract entered into between the plaintiff and the defendant, in which the defendant, in consideration off the payment of $200 on or about the 14th of May, 1885, agreed to become surety for the plaintiff in conjunction with one Horace Ripley, in the sum of $20,000, on a government contract which the plaintiff had for the furnishing- of jute canvass mail-bags, for the use of the post-office department, for and during the term of four years. The plaintiff entered into the contract with the government, and by the rules of the department a person entering into such contract must furnish a bond, within a certain period of time after the receipt of the contract, for execution. Pursuant to this requirement the plaintiff applied to the defendant to become one of his sureties, and entered into an agreement with the defendant for the payment of the sum of $200 yearly to the defendant as a premium or charge for going upon said bond, and paid the defendant the first premium of $200, and the defendant executed, in conjunction with Horace Ripley and the plaintiff, the requisite bond. This bond had been submitted to Mr. Pearson, the postmaster of New York, who certified the sureties to be good and sufficient, and it was then sent to Washington. Before the postmaster general had passed upon the sufficiency of the bond, the defendant addressed a letter to the plaintiff, informing him that it had decided to withdraw from the bond, not from anything personal to himself, but because it was its rule never to issue a bond of this kind unless it had security which could be converted into cash at any time in case of default; and as the security given was not of that class, they had written to the department at Washington to relieve them from the guaranty. To this letter the plaintiff sent a reply, stating that the contract was complete, and the money had been paid, and that he did not admit their right to withdraw from the contract. Upon the department receiving the letter from the defendant desiring to be relieved from the bond, the bond was returned, and the question as to the sufficiency of the bond was not passed upon or determined. The plaintiff thereupon proceeded to procure new sureties upon his bond, and he finally succeeded in obtaining new sureties upon the payment of some $3,000, together with certain expenses he had incurred.

This action was brought to recover the amount, of these damages, and they were assessed by the jury at the sum of $2,227.54, and interest, the jury having been instructed that if, under the circumstances, the sum which the plaintiff was required to pay in order to get new sureties was a fair and reasonable charge, that he was entitled to recover therefor. Among other points which the defendant made upon the trial of this case was that the payment of money to sureties upon a bond given to secure the performance of a contract with the United States government is against public policy, and the plaintiff cannot recover for money so paid. This seems to be a remarkable proposition in view of the business which the defendant claims to be carrying on. It charges a premium for becoming a surety, and when it is sought to be charged, where it has entered into such a contract of suretyship, it claims that the payment of money to it was a breach of public policy, and the party cannot recover damages by reason of the breach of its contract. It may be that the proposition is not couched in these exact words, but the legal result is necessarily the same. The very business of the defendant itself is embraced within the proposition which it is sought to have the court pronounce to be illegal. We have before us, upon the conceded facts, the breach of a contract, and the ground upon which this breach was justified, in the correspondence, is the existence of a fact which the defendant well knew when it entered into the contract, viz., that it was violating its own rules, and because of that fact the claim seems to be advanced that it is not liable for damages, and had a right to withdraw from this contract. Certainly no such defense could avail an individual who had entered into a contract of this character, and it is difficult to see how this corporation can escape. The claim which it is sought to infuse into the case at the trial is that they were fearful that the department would reject the bond,-and that they did not like to have the odium cast upon their corporation of having one of their bonds rejected by the government. It may be that this was the true reason, but it was certainly not the one which was stated to the plaintiff at the time at which they proposed to violate their contract, or, on the other hand, they stated the true reason to the plaintiff, and endeavored to deceive the court upon the trial. It is apparent from the interrogatories, which were propounded to the government officials, examined as witnesses for the defendant, that the reason of the withdrawal was the fear of rejection, and not that they had deliberately violated their own rules in entering into the contract witli the plaintiff, as stated in the letter to him, whether the government would accept or not is immaterial. That condition of affairs had been anticipated by the contract. If their bond was rejected, that ended the contract; but until it was rejected they had no power of withdrawal, because the contract, having been entered into and partially performed, could not be determined except upon completion. The attempted withdrawal of the defendant from its contract was a breach thereof, and the plaintiff was entitled to recover as damages the expenses to which he was put in supplying the new bond. The fact that the defendant was but one of the sureties does not alter the rule of damages. It became necessary, in consequence of its withdrawal, that a wholly new bond should be procured, and the direct result of the breach was the expense which the plaintiff was put to in procuring the new bond. It seems to us, therefore, that the learned court was correct in holding the defendant liable for the damages sustained by the deliberate breach of its obligation, and, the jury having found the disbursements made by the plaintiff to be fair and reasonable, the defendant cannot complain of being called upon to repair the damage which it deliberately did. The judgment and order should therefore be affirmed, with costs.

Brady and Daniels, JJ., concur.  