equitable, and it should not be pushed beyond equitable limits, and especially in recent years courts have shown a tendency to hold the surety where it sufficiently appears that the overpayment of the principal has caused no loss. 14 Therefore, payments without requiring the production of architects' certificates called for by the contract do not discharge the surety, if, in fact, the work had been properly done for which a payment was made.15 Because of the equitable nature of the

surety's defence, also, if the owner overpays the contractor on forged or mistaken estimates, in the honest belief in their correctness, the surety is not discharged; 16 and the mere permission by the creditor to the principal to perform the contract between them in a different way from that originally agreed upon, will not discharge the surety if there was no binding agreement for variation between creditor and principal, and the change permitted is not material to the surety's risk."

Where a surety has received compensation for his undertaking, it has been held that he is discharged by such an unauthorized payment only if his contract with the creditor makes a stipulation in regard to the time of payments, 18 or if it can be affirmatively shown that the surety was injured. 19 It is hard to justify such distinctions. 20 The interpretation of an ambiguous contract may depend on whether the surety was compensated; 21 but the liability under an unambiguous one should not vary.

Martin v. Whites, 128 Mo. App. 117, 106 S. W. 608; Southwestern Surety Ins. Co. v. Minnetonka Lumber Co., 46 Okl. 701, 148 Pac. 1038. Unless this can be shown the surety will be discharged by payment without the certificate. Fidelity, etc., Co. v. Agnew, 152 Fed. 955, 82 C. C. A. 103; Chester v. Leonard, 68 Conn. 495, 509, 37 Atl. 397; Harris v. Taylor, 150 Mo. App. 291, 129 S. W. 995; Kunz v. Boll, 140 Wis. 69, 121 N. W. 601. See also St. Johns College v. Etna Indemnity Co., 201 N. Y. 335, 94 N. E. 994. In Alabama Fidelity, etc., Co. v. Alabama, etc., Iron Co., 190 Ala. 397, 67 So. 318, the waiver by the creditor of a provision in his contract with the principal requiring the latter to make monthly statements and payments was held to discharge the surety. But where the contract provided for payments on the 15th of each month or certificates delivered on or before the 5th, variation from those dates without more will not discharge the surety. New Haven v. National Steam Econo

mizer Co., 79 Conn. 482, 65 Atl. 959. See also People v. Banhagel, 151 Mich. 40, 114 N. W. 669.

16 New Haven v. National Steam Economizer Co., 79 Conn. 482, 65 Atl. 959; Chicago v. Agnew, 264 Ill. 288, 106 N. E. 252; Van Buren County v. American Surety Co., 137 Ia. 490, 115 N. W. 24, 126 Am. St. Rep. 290; Wakefield ”. American Surety Co., 209 Mass. 173, 95 N. E. 350.

17 George A. Fuller Co. v. Doyle, 87 Fed. 687; Martin v. Whites, 128 Mo. App. 117, 106 S. W. 608.

18 Young Men's Christian Assoc. v. United States, etc., Guaranty Co., 90 Kan. 332, 133 Pac. 894, L. R. A. 1915 C. 170; School District v. DeLano (United States, etc., Guaranty Co., 96 Kan. 499, 152 Pac. 668.

19 Manhattan Co. v. United States Fidelity, etc., Co., 77 Wash. 405, 137 Pac. 1003.

20 See National Surety Co. v. Long, 79 Ark. 523, 96 S. W. 745. 21 See supra, § 625.

The failure on the part of the creditor to exercise an option given him by the contract may be as fatal to his right against the surety as the failure to perform or to require performance of matters for which the contracting parties have absolutely bound themselves, 22 since he has thrown an unnecessary risk on the surety. Indeed, as any performance due from the principal, might as between himself and the creditor be waived or excused, the creditor's right against the principal as to any performance is in a sense optional; but it does not follow that if the option is not exercised the surety can be held.

A loan by an employer to a contractor, even though the lender is given the right to reimburse himself by retaining future amounts due under the contract, has been held not to discharge a surety for the contractor. 23 But it seems obvious that if the surety's defence from overpayment, is, as seems the case, based on principles of equity and not on the assumption that the surety's promise is in terms conditional on the payments to the principal being made only as the contract between him and the creditor provided, loans to the principal may be under some circumstances quite as prejudicial to the surety as a prepayment.

It seems generally assumed that where a payment is in violation of the surety's rights he is altogether discharged; but some decisions limit the discharge to the extent of the security surrendered. 24 The argument for the commonly prevailing view is that the retention by the employer of the price for the work until it is completed, acts as an incentive to the contractor to complete the contract.25

22 Pauly, etc., Mfg. Co. v. Collins, 138 Wis. 494, 120 N. W. 225.

23 Museum v. American Bonding Co., 211 Mass. 124, 97 N. E. 633; See also Bateman v. Mapel, 145 Cal. 241; Meyer v. Bichow, 133 La. 975, 63 So. 487; St. Johns College v. Ætna Indemnity Co., 201 N. Y. 335, 94 N. E. 994; Elmohar Co. v. Phillips, 176 N. Y. S. 440. Cf. Fidelity, etc., Co. v. Agnew, 152 Fed. 955, 82 C. C. A.

103; McKnight v. Lange Mfg. Co. (Tex. Civ. App.), 155 S. W. 977.

24 Picard v. Shantz, 70 Miss. 381, 12 So. 554; Gray v. School District, 35 Neb. 438, 53 N. W. 377; Cochran v. Baker, 34 Oreg. 555, 52 Pac. 520, 56 Pac. 641.

25 Cf. the analogous situation where security is surrendered. See supra, § 1232.

§ 1244. When non-compliance with a condition on which a contract is delivered by a surety relieves him from liability.

If the surety delivers his contract to the creditor upon a condition 26 or in return for a counter promise," and the creditor fails to observe the condition or to keep his promise, he cannot hold the surety; but often the surety's contract is not delivered by him directly to the creditor, but to the principal or to a co-surety to whom some condition is stated. It is a common situation for a surety to have signed a bond or other contract, and the principal or a co-surety who was expected to join in the contract, and whose name is perhaps recited in the instrument as a party, to have failed to execute it. The signature of the principal or co-surety may be altogether lacking, or it may appear but be signed without authority.

Whether the surety is bound depends (1) upon whether he has ever made a contract, or is bound by estoppel with similar effect, and (2) if this is true, whether the circumstances are such as to render it inequitable for the creditor to enforce liability thereon. Lack of delivery may prevent the formation of a formal contract, and lack of mutual assent may prevent the formation of a simple contract. Delivery as a completed instrument is necessary for the validity of a bond; so that if a surety delivers an incomplete bond with the condition that the signature of another surety or of the principal shall thereafter be obtained, and that then, and not before, the instrument shall become valid, the delivery is merely in escrow." 28 Yet in the absence of notice of the surety's intention either

28 See infra, § 1246.

27 Fay v. Jenks, 93 Mich. 130, 53 N. W. 163. See also Hermitage Nat. Bank v. Carpenter, 131 Tenn. 136, 174 S. W. 263.

28 In Horton v. Stone, 32 R. I. 499, 80 Atl. 1, 3, the court said of such a bond: "No valid delivery of the bond was ever made, so as to make it a binding obligation upon this defendant. As shown above, it is the undisputed testimony that the defendant, when signed as surety,

at the request of Wood, did so upon the express condition that the plaintiff in replevin, Stone, should sign the bond as principal before it should become binding. The delivery of the bond upon this condition to Wood was a mere delivery in escrow, and Wood had no authority to deliver this paper to anybody until it had been signed by Stone." See also Pawling v. United States, 4 Cranch, 219, 2 L. Ed. 601.

extrinsic or from the form of the instrument, the creditor is
held entitled to enforce the promise of the surety.29 If the
principal delivers the obligation in violation of some other con-
dition imposed by the surety than that of procuring an ad-
ditional signature, here also the surety is liable.30