
    The Koppitz-Melchers Brewing Co. v. Schultz as Admx., and Hall.
    
      Bond given as security for performance of contract — Conditions of contract violated by party secured — Action by violating party against obligor of bond — Burden of proof on plaintiff —Answer by defendant that liability on bond was enlarged by act of plaintiff — Answer good against general demurrer— Error for court to charge that burden of proof rests on defendant — Contracts—Surety—Evidence—Court practice.
    
    1. Where a bond is given by H as principal with S as his surety to secure the faithful performance by H of a oontraJet made and entered into between H and a brewing company, which contract was conditioned and provided that, H should purchase beer of said brewing company in car load lots, should have a total credit with said company on the purchase of beer under said contract of not to exceed two car loads at any one time, and providing further that H, on ordering the third car load of beer, should pay for the first, and that the third car load should not be shipped by said brewing company until the first car load had been paid for, a failure of the brewing company to require payment for the first car load of beer before shipping the third, and the giving by it of a credit to H in excess of two car loads at any one time, is a material breach and violation of the terms and conditions of said contract and, if without the consent of the surety, operates to release him from liability on said bond.
    2. In an action on said bond by the brewing company, obligee therein, when it alleges in its petition full performance of all of the terms and conditions of said contract on its part, an answer by the surety which controverts and puts in issue said allegation of performance, and alleges and pleads such specific breaches of said contract on the part of said brewing company as materially vary and enlarge the liability of the surety on said bond, states a defense and is therefore sufficient as against a general demurrer.
    S. Where, in an action brought by the obligee in such bond, the allegation of performance, in plaintiff’s petition, is controverted by the answer of the surety, the burden is on the •plaintiff to establish on the trial, by a preponderance of the evidence, the facts showing such performance, and it is error lor the court in such case to instruct the jury that the burden is on the defendant — the surety — to show and prove that such violation and non-performance by plaintiff was without 'his, the surety’s consent.
    (Decided June 2, 1903.)
    Error to the Circuit Court of Guernsey county.
    On July 27, 1898, the plaintiff in error, The Koppitz-Melchers Brewing Co., entered into a contract in writing with the defendant in error, Henry T. Hall, whereby it agreed to sell and deliver beer to said Henry T. Hall, at Cambridge, Ohio. By the terms of said contract shipments of beer were to be made by said brewing company in “car load lots,” and Hall Avas to pay for the same at the times and in the manner stipulated and provided in said contract. Among other stipulations and provisions, said contract contained the follOAving:
    “It is further agreed that the second party shall have a total credit Avith the party of the first part on the purchase of beer under the terms of this agreement, not exceeding at any one time tAvo car loads of beer, and this credit shall be for the beer itself, exclusive of the value of the packages, and the second party agrees to remit to the first party for the first car of beer Avhen he orders the third car and the third car shall not be shipped unless the first car shall have been paid for. He shall pay for the second car of beer when he orders the fourth car and the fourth car shall not be shipped unless the second car* has been paid for, and this rule shall follow and hold good on all subsequent orders, and in no case shall the second party OAve the first party more than sixty days for beer shipped to him.”
    Contemporaneous Avith the making of said contract, and for tlie purpose of securing the faithful performance of the same upon his part, said Henry T. Hall, as principal, with Herman Schultz as his surety, executed and delivered to said brewing company his certain bond in the words and figures following, to-wit:
    “Know all men by these presents, that we, Henry T. Hall, of Cambridge, Ohio, as principal, and Herman Schultz, of Cambridge, Ohio, as surety, are held and firmly bound unto the Koppitz-Melchers Brewing Co., a Michigan corporation, of Detroit, Michigan, in the sum of $1,200 good and lawful money of the United States, for the payment of which well and truly to be made, we bind ourselves, severally and collectively our heirs and representatives firmly by these presents.
    “Sealed with our seals and dated this twenty-seventh day of July, 1898.
    “Whereas, the said Henry T. Hall is in the business of selling beer and has made a contract with the said Koppitz-Melchers Brewing Co., of Detroit, Michigan, to buy its beer in car load lots, both in cooperage and in bottles, or either or both; now, therefore, the conditions of this obligation are such that if the said Henry T. Hall shall promptly pay and discharge all his debts and obligations to said Koppitz-Melchers Brewing Co., as provided for and specified in the contract hereto attached, then this obligation to be void, otherwise in full force.
    “Henry T. Hall,
    “Herman Schultz.
    “In presence of
    “Carl Behrendt,
    “Jay G. Philpott.
    “ (Stamp.) ’’
    
      On August 2, 1899, plaintiff in error commenced an action on said bond against said Henry T. Hall and Herman Schultz, in the court of common pleas of Guernsey county, Ohio. Herman Schultz, surety in said bond, died in January, 1900, and the defendant in error, Angie Schultz, was appointed administratrix of his estate, and became a party to said suit by revivor. On January 13, 1900, by leave of court, plaintiff in error filed an amended petition in said cause, alleging due performance of said contract upon its part, claiming there was due to it from said Henry T. Hall, on account, under said contract, the sum of $1,254.67, and alleging a breach of said bond by the nonpayment of said sum and praying for judgment against the defendants, Henry T. Hall and Angie Schultz, as administratrix, for the full penalty of said bond, $1,200, with interest from October 24, 1899. To this amended petition Angie Schultz, administratrix, filed her answer admitting the execution by Herman Schultz of said bond and contract as claimed in plaintiff’s amended petition, but alleging a violation of the terms and conditions of said contract on the part of said brewing company, in that it did not require Hall to pay for the first car load of beer before it shipped to him the third car load, and did not require him to pay for the second car load before shipping him the fourth, and averred that said brewing company “at no time required Hall to pay for the beer furnished him as provided in said contract, that Hall ordered and received from plaintiff three car loads of beer before he paid for any part bought and ordered under the contract.” To this answer the brewing company demurred and this demurrer was sustained by the court of common pleas, that court holding that the answer was insufficient, for the reason that it did not contain the averment that such violation of the contract on the part of the brewing company was without the knowledge and consent of Schultz, the surety in said bond. To the sustaining of said demurrer the defendant, Angie Schultz, at the time duly excepted. Thereupon an amended answer was filed by her, which amended answer among other averments contained the following:
    “This defendant says that notwithstanding the terms and provisions of said contract and bond the plaintiff, without the knowledge or consent of the said Herman Schultz, and in violation of said contract and bond, sold and shipped to the said Henry T. Hall, upon his order, the third car load of beer before the said Hall had paid for the first, and likewise without the knowledge or consent of the said Schultz sold and shipped to the said Hall, on his order, the fourth car load of beer before the said Hall had paid for the second, and the plaintiff without the knowledge or consent of the said Schultz, wholly disregarded said contract and shipped beer to the said Hall whenever he ordered it without him having paid for the previous beer ordered, according to the terms of the contract, and the plaintiff wholly disregarded all the terms of the contract.”
    Plaintiff replied, admitting “that said plaintiff and Henry T. Hall entered into a contract, and that the terms are as alleged in said amended answer and that the terms of the bond are as stated therein,” but denied any breach of, or nonperformance on its part, of the terms and conditions of said contract. The case was tried to a jury and resulted in a verdict for plaintiff for the full amount claimed. Upon this verdict judgment was entered by the court. A motion for neAV trial was overruled, and Angie Schultz,, as administratrix, etc., prosecuted error to the circuit court of Guernsey county. That court reversed the judgment of the court of common pleas for the reasons: (1) “That said court of common pleas erred in sustaining the demurrer to the ansAver of plaintiff in error to the amended petition of the defendant in error, The Koppitz-Melchers Brewing Co.” (2) “For the further reason that the court erred in its charge to the jury.” To reverse this judgment of the circuit court this proceeding in error is prosecuted.
    
      Mr. John F. Stockdale, for plaintiff in error.
    Our claim is, that the departure from the contract as stated in this answer, does not of itself constitute a defense; but that in order to make it available as a defense in this case, it must not only allege, as it does, that the principal debtor was not required to pay as provided in said contract and that the dealings between the creditor and principal debtor were different from the provisions of the contract, but that such dealings or such changes, were had or made without the knoAvledge or consent of the surety. In support of this proposition, we cite the case of Bank v. Leavitt et al., 5 Ohio St., 207; cited also in 2 Am. Lead. Gas., 288; Brandt on Suretyship, Sec. 345.
    It will be seen that these dealings, which amount to a departure from the original contract, only release the surety when such dealings are without his consent. United States v. Howell, 4 Wash., 620; 2 Am. Lead. Gas., 284; Suydam v. Vance, 2 McLean, 99; Adams v. Way, 32 Conn., 161.
    By the foregoing cases cited it will be seen that laAV governing bonds as to alteration and change is. the same as that which governs notes; and in Brandt on Suretyship, Sec. 335, this language is used: “A material alteration of a bond signed by a surety, has the same effect to discharge him as in case of note or instrument not under seal.”
    The assent of the surety- may be proved by parol. Brandt on Suretyship, Sec. 345; Horr v. Hawkhurst, 7 Re., 168; 1 Bull., 225; Wyke v. Rogers, 12 Eng. L. & Eq., 162; Crosby v. Wyatt, 10 N. H., 318; Woodcock v. Railway Co., 21 Eng. L. & Eq., 285; Truesdell v. Hunter, 28 Ill. App., 292, where the court say: “In an action against a surety on a note, the burden of the proof to support the plea of alteration, is upon the surety.” Dempsey v. Moran, 9 Re., 212; 11 Bull., 213.
    The following additional cases are cited as sustaining the view held by this plaintiff in error: Bramble v. Ward, 40 Ohio St., 267; McComb v. Kittridge, 14 Ohio, 348; Ide v. Churchill et al., 14 Ohio St., 372; Blazer v. Bundy et al., 15 Ohio St., 57; Boling v. Young, 38 Ohio St., 135; Erwin v. Shaffer, 9 Ohio St., 43; Jones v. Brown, 11 Ohio St., 601; Boice v. Hodge et al., 51 Ohio St., 236; Bever v. Butler et al., Wright, 368; Slagel v. Pow, 41 Ohio St., 603.
    
      Mr. Robert T. Scott, for defendant in error.
    We contend that the bond entered into by and between the company and Hall and Schultz, must be* construed with reference to and in connection with the contract, and a failure of the brewing company to substantially perform the contract according to its terms, would be a breach of the bond, and thereby release Schultz.
    Schultz would not become liable to the brewing company, unless Hall violated the contract; and the company was duly bound to substantially perform its part of the contract, in order to make Schultz liable, in the event that Hall violated his part. 4 Am. & Eng. Enc. Law (2 ed.), 685; Grim v. Semple, 39 Ia., 570; Locke v. McVean, 33 Mich., 473; Dunbar v. Fleisher, 137 Pa. St., 85; Fletcher v. Jackson, 56 Am. Dec., 98; Peake v. United States, 16 App. D. C., 415.
    The common pleas court sustained the demurrer to the answer, for the reason it did not contain an allegation that-the contract was violated by the company, without the knowledge and consent of Schultz.
    The court made no distinction between the violation of the express terms of a written contract and the making of a new and separate contract, such as the extension of time, etc., on negotiable paper. We do not claim that there was a new contract between Hall and the brewing company, or that they had agreed upon any variation of the contract; our contention is that the brewing company violated the express terms of.the contract, and that the violation of the contract would be a violation of the conditions of the bond, and would release Schultz as a surety.
    Schultz was not a mere surety, such as is known on negotiable paper, but he was more properly a limited guarantor for Hall (limited by the express terms of the contract and bond), and as such he became and was a favorite of the law, and the brewing company was required to treat him as such and protect him, if it was in its power to do so. But instead of protecting him, the answer alleges that it wholly disregarded the provisions of the contract as to credit and time of payment.
    It is elementary that sureties are favorites of the law and have the right to stand upon the strict terms-of their obligation when, ascertained. Beyond the burdens thus taken upon themselves they are not-bound. This proposition is supported by authorities, so numerous that we will not attempt to cite all, but. only call the court’s attention to. a few. State v. Medary, 17 Ohio, 554; Gerke et al. v. Brewing Co.,. 11 Circ. Dec., 206; 24 Am. & Eng. Enc. Law (1 ed.), 749; Miller v. Stewart, 9 Wheat., 680; Lafayette v. James, 92 Ind., 240; 47 Am. Rep., 140; Sewing Machine Co. v. Brock, 113 Mass., 194; Montefiore v. Lloyd, 15 C. B. N. S., 203; Bill v. Barker, 16 Gray, 62; State v. Boon, 44 Mo., 254; Cremer v. Higginson, 1 Mason, 323; Crawford et al. v. Satterfield, 27 Ohio St., 421.
   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.  