& L. Assn. v. Heller, 314 Pa. 237, 242, 171 A. 464." Spring Garden B. & L. v. Rhodes, 126 Pa. Super. 102, 190 A. 530 (1937). Defendant IFIC contends that the terms of the contract were materially altered when Elfinwild and Hamerly came to a new understanding and when the admitted advance payment of $ 50,000 was made to Hamerly, prior to the completion of the truck, with the balance of the contract price to be paid on delivery. IFIC further asserts that the performance bond was written on the basis of the "cash on delivery" terms in the contract, and on that basis it calculated its risks and agreed to be bound.
The Court finds the Defendant's arguments to be persuasive and in accord with common sense-the best policy. The advance payment of $ 50,000 to Hamerly prior to the delivery of the truck, substantially increased the chances of a loss due to a default or insolvency of Hamerly which was insured against by IFIC. Phillips v. American Liability & Surety Co., 309 Pa. 1, 162 A. 435 (1932). When IFIC initially reviewed its risks as a surety for the contract, payment to Hamerly was to be made in full only upon delivery of the firetruck in final form and in accordance with the specifications. Hamerly was provided with an incentive to complete the construction and deliver the firetruck, if it wanted to be compensated for its efforts. Because Elfinwild changed the method of compensation by advancing $ 50,000 to Hamerly, prior to the completion and delivery of the truck and contrary to the terms of the purchase agreement, the incentive for Hamerly to finish the work was diminished, thereby substantially increasing the likelihood of the work being abandoned prior to completion when Hamerly became insolvent.
Since the advance payment removed the incentive for Hamerly to complete the work in order to receive payment and therefore increased the risk of non-performance, the surety is released to the extent of said $ 50,000. IFIC should not be subjected to a risk which is materially and adversely different from the risk it undertook to guarantee in the first instance. Defendant, IFIC is therefore discharged from liability only in the amount of $ 50,000, which is the amount by which it was prejudiced due to the improper advance payment to Hamerly.
Elfinwild alternatively argues that even if there was a material alteration which prejudiced IFIC, the right to be discharged was waived because of IFIC's silence in failing to inform Elfinwild that it was discharged as a surety. This argument is without merit. Waiver of IFIC's rights would have required an affirmative act with full knowledge of the discharge which would indicate the continuation of the suretyship relationship which Elfinwild detrimentally relied upon. Spring Garden B. & L. It is undisputed that IFIC took no affirmative act after it was aware of the material alteration that reasonably could be construed by Elfinwild to signify that IFIC was continuing to act as a surety after the payment of said $ 50,000 to Hamerly.
It is noted that, Plaintiff, in making its demand on the Defendant for damages, received an estimate from another manufacturer that an equivalent firetruck would cost an additional $ 21,737, above the contract price. Plaintiff then on May 8, 1980, demanded from Defendant "$ 21,737, which is the difference between the contract price with Hamerly and the estimate to have this contract performed by another manufacturer." See attached Plaintiff's Exhibit No. 31. Defendant, IFIC, in its role as a surety for the performance of the contract admitted liability to the Plaintiff for the "difference between the contract amount and the amount which must be paid to another company to obtain the required vehicle." See attached Plaintiff's Exhibit No. 35. It is agreed to and undisputed between the parties that the increased cost of the contract for the construction of the firetruck caused by Hamerly's default is the sum amount of $ 21,737. Of course, Elfinwild still retains the sum of $ 40,933, which is the difference between the original contract price and $ 50,000. It is therefore the conclusion of the Court, that as matter of law Elfinwild is entitled to $ 21,737, with interest at the legal rate, there being no genuine issue as to the amount of damages caused by the default.
May 8, 1980
R. H. Shepherd, Jr.
International Fidelity Insurance Company
24 Commerce Street
Newark, New Jersey 07102
CERTIFIED MAIL : Number 2518241
In re: Hamerly Custom Productions, Inc.
In re: Bond Number: 064586
In re: SBG Number: 30309-045035
Dear Mr. Shepherd:
Pursuant to the above bond dated July 24, 1979, International Fidelity Insurance Company is bound in the penal sum of Ninety Thousand Nine Hundred Thirty Three ($ 90,933.00) Dollars for the faithful performance of a written contract dated May 9, 1979 between Hamerly Custom Productions, Inc., P.O. Box 15, Shartlesville, Pa. 19554 and the Elfinwild Volunteer Fire Department, Glenshaw, Pennsylvania 15116.
Please be advised that Hamerly Custom Productions, Inc., has breached the said contract. It is Elfinwild's position that Hamerly has repudiated said contract by its failure and/or refusal to provide adequate assurance of due future performance since requested to do so on March 24, 1980.
Demand is hereby made that International Fidelity Insurance Company pay the following:
1) $ 50,000.00 plus interest at twelve (12%) per cent per annum from October 13, 1979 till date of repayment to reimburse Elfinwild for monies deposited with Hamerly;
2) $ 21,737.00 which is the difference between the contract price with Hamerly and the estimate to have this contract performed by another manufacturer.