pellees were to be paid 45 cents per cubic yard, "special borrow," for which they were to be paid 65 cents per cubic yard, and concrete work at various prices per lineal foot according to its use.

Not all of the specifications are incorporated in the complaint. Those which are incorporated provide: (1) That the engineer may order changes in the plans, or in the character or quantity of the work, as he may find necessary, not to exceed 20 per cent. of the contract price, the contractor agreeing to make the changes at the unit prices bid for the items involved; that work other than that provided for in the contract to be performed by the contractor whenever, in the opinion of the engineer such work is necessary, the work to be done as previously agreed upon by the contractor and the engineer; but "if no such agreement can be made, or where the method of payment is impracticable, the director may order the work to be done" on what is termed a "force account" basis, for which work the contractor is to be paid in the following manner: For all labor and teams, "the current local rate of wage, to be agreed upon in writing before starting the work," for the time employed, plus 10 per cent.; for all materials furnished, the contractor shall receive the actual cost plus 10 per cent.; and for any machine power, tools, or equipment, which it may be deemed necessary or desirable to use, the contractor to be allowed "a reasonable rental price, to be agreed upon in writing before such work is begun," the compensation thus provided "shall be received by the contractor as payment in full for all extra work done on the 'force account' basis." (2) That, "whenever it is necessary to obtain additional material for construction of embankments or shoulders from outside the right of way, such material shall be known as special borrow." (3) That "rock excavation shall include all boulders of over one cubic yard in volume and all forms of solid rock not included in earth excavation; if there is no bid price for rock excavation, and solid rock is encountered, it will be paid for at three times the unit bid price for earth excavation." The specification defining earth excavation, as that term is used in the contract, is not set forth in the complaint.

Following the specifications set out in the complaint, it is averred that the state, through the engineer of the highway commission, made, in writing, many changes in the plans; that among others they changed the center line of the road, which resulted in a change in the kind and character, and increased the amount of, the materials to be excavated and the work to be done; that by reason thereof certain of the changes in the class of work required to be done was of a different classification than that originally provided for, and of such a character that a previous agreement as to the amount and method of payment was impractical; that plaintiffs by the terms of

their contract undertook to move and place. according to the engineer's certificate, 92,727 cubic yards of earth excavation and 2,794 cubic yards of special borrow, but that, by reason of change of plans as to location of the road, plaintiffs were required to move 157,492 cubic yards of all classes of materials, and were compelled to carry on the work throughout the winter under unfavorable weather conditions at a greatly increased expense. It is further averred that, of the materials excavated and moved, 16,496 cubic yards were excavated and moved under conditions similar to those provided for in the contract plans, and specifications for earth excavation, and at 45 cents per cubic yard would come to $8,229.15; that, of the additional work of excavating, 30,297 cubic yards were hauled over long distances when the ground was frozen, for which the cost, plus 10 per cent., was 75 cents per cubic yard, or $22,722.75, the reasonable value of the services rendered; that, of this excess, 4,089 cubic yards had to be moved down from the top of a hill when the ground was frozen; that the cost and reasonable value of this work, plus 10 per cent., was $1 per cubic yard; that, of the extra excavation, 9,825 cubic yards were rock, of which 6,245 cubic yards were moved under conditions similar to those provided for by the contract specifications, the cost and reasonable value of which work, plus 10 per cent., was $8,430.75; that the remainder of the rock, to wit, 3,578 cubic yards were moved under different conditions, the expense of which was $3 per yard, or $10,734, which is a reasonable price for the work; that, during the progress of the work, appellees were paid on estimates the total sum of $77,335.06, leaving a balance due plaintiffs in the sum of $50,252.69. Then follow allegations of the estimates made from time to time and the amounts paid on each. These averments need not be set out here, except that in which it is averred that the estimate covering the period from April 10, 1925, to October 10, 1925, as to which appellant made a reclassification in which all rock excavation, that had been figured at $1.35 per yard, was changed to earth excavation and figured at the contract unit price of 45 cents per cubic yard, and the earth excavation which had been calculated at 45 cents per yard was changed to special borrow at 65 cents per cubic yard, thereby increasing the special borrow to $5,995, and eliminating all rock excavation. It is also averred that according to the last statement and estimate of the highway commission the commission conceded, and now concedes, that the balance due appellees was $5,996.56, and issued to appellees a certificate for that sum in full settlement, which certificate appellees refused to accept in full settlement. It is averred that the total balance due plaintiffs, including interest, is $52,589.06, judgment for which amount is demanded.

A demurrer to the complaint for want of facts, and a motion to require plaintiffs to make their amended complaint more specific, having each been overruled, appellant answered by denial, and filed a counterclaim in two paragraphs. A reply in denial closed the issues.

rant a recovery for the force account items alleged; there being no averment that the wages for labor and the rental price for machine power, tools, and equipment were agreed upon in writing before commencement of the action.

[4] The record shows that, prior to the hearing of evidence, appellant filed a written motion requesting the court to find the facts specially and state thereon its conclusions of law. The motion was overruled, and the court, having heard the evidence, made a gen

[2, 3] It appears that the original complaint was not upon the contract, but was drawn upon the theory that there was an implied contract to pay for extras resulting from a change of the plans, and for that reason a demurrer was sustained thereto. The amended complaint, although it contains many unnecessary and improper averments, is based upon the contract by which appellees agreed to excavate for, and grade, the roadway for a specified sum; it being understood that the amount of material to be excavated and the amount of concrete to be laid, etc., were to be as estimated in the plans. The contract, among other things, provided that, if more excavation should be required than estimated, or if the concrete used in the construction should exceed the estimates, the pay of the contractors should be increased; the increase to be governed by the unit price bid for the class of which there had been an increase over the estimate and by the terms of the contract as found in the specifications. Most of the work and materials for which recovery is sought by the complaint is under the "force account" provision of the contract, but it is not averred that the wages for labor and the rental price for machine power, tools, and equipment were "agreed upon in writing" before the commencement of such work. It is also to be observed that throughout the complaint there are many averments which would have been proper only in a complaint upon an implied contract. It is doubtless true that these averments are due to the fact that the original complaint was upon the theory of implied contract; they do not, however, control the theory of the amended complaint, which, as appellees claim, is based upon the contract. A further allegation of the complaint is that prior to the commencement of this action, the state through its proper officers conceded that there was a balance due appellees in the sum of $5,996.56, and issued to appellees a certificate for that amount, the same to be in full settlement, that appellees refused to accept the certificate in full settlement, and that the amount so certified is due and unpaid. This allegation is sufficient, in itself, to render the complaint good as against a demurrer for want of sufficient facts. The complaint, however, is not sufficient to war161 Ν.Ε.-532

review.

[5, 6] Section 394 of the Code of Civil Procedure (section 603, Burns' 1926) provides:

"Upon trials of questions of fact by the court, it shall not be necessary for the court to state its finding, except generally for the plaintiff or defendant, unless one of the parties requests it, with a view of excepting to the decision of the court upon the questions of law involved in the trial; in which case, the court shall first state the facts in writing, and then the conclusions of law upon them, and judgment shall be entered accordingly."

Under this provision of the Code, the duty of the court to find the facts specially and state its conclusions of law thereon is mandatory. See Shroyer v. Campbell (1902) 31 Ind. App. 83, 67 N. E. 193. But it is contended by appellees, and the court so held, that in the instant case the statute is not applicable, for the reason that the action is before the five judges of the superior court of Marion county sitting together as a court of claims. The contention is without merit. The statute (Burns' Ann. St. 1926, § 1550), which makes provision for the prosecution of all claims against the state in the superior court of Marion county, provides, among other things, that jurisdiction is conferred upon that court "to hear and determine such action, and said court shall be governed by the laws, rules and regulations which govern said superior court in civil actions in the making up of issues, trial and determination of said causes, except that the same shall be tried by all the judges of said court sitting together without a jury." If the action is to be governed "by the laws, rules and regulations" which govern the court in civil actions, as it must be, it follows that the court must, if requested, find the facts specially and state thereon its conclusions of law. The fact that there are five judges can make no difference. If, in the finding of the facts, the five judges should not be in accord, a majority would make the finding for the court. The case of McGlennan v. Margowski (1883) 90 Ind. 150, cited by appellees, is not in point. That case was a habeas corpus proceeding, a summary proceeding instituted and prosecuted under a special statute which does not authorize a special finding of facts by the court. A habeas corpus proceeding, as the court correctly held in that case, is not even a civil action. The prosecution of a claim against the state is not a summary proceeding. It is a proceeding to be tried in the regular and formal way, except that it is to be submitted to "all of the judges of the court" which is given jurisdiction; and it is a civil action.

Under the facts and circumstances of this case, the right of the state to have the trial court make a special finding and state its conclusions of law was a valuable right, and the action of the court in denying the request was reversible error.

From the amended complaint, the contract specification defining "earth excavation" was, by an oversight of the pleader, entirely omitted; and inadvertently many allegations of the original complaint, drawn on the theory of implied contract, were incorporated in the complaint as amended. If the cause is retried, the complaint should be rewritten, the specification defining earth excavation inserted, and the complaint simplified by the elimination of all unnecessary averments, especially those tending to show an implied contract.

Surety is entitled to benefit of all securities for debts that are held by creditor, who may

not release same without affecting remedy against surety, who is discharged to extent to which creditor has parted with such securities.

2. Principal and surety 115(1)-Creditor may not relinquish hold on property of principal, where right of surety is involved.

Where right of surety is involved, creditor is not entitled to relinquish any hold which he has actually acquired on property of principal, and which might have been made effectual for payment of debts.

3. Subrogation 36-Bank, loaning money to contractor, receiving estimates as security, falling to apply money received therefrom to indebtedness, but turning same over to contractor, held not entitled to percentage retained, as against contractor's surety.

Where bank lent money to highway contractor, receiving estimates as security, and, instead of retaining money received from county treasurer and applying it to indebtedness, turned

same over to contractor and permitted contractor to pay other claims, held, that bank was not entitled to percentage retained out of contract, as against surety on contractor's bonds.

4. Trusts30/2 (1) -Estimates assigned to bank to secure indebtedness owed it by contractor constituted trust for that purpose.

Where bank loaned money to contractor, and estimates were assigned to it and set aside for specific purpose of payment of debt which contractor owed, held, that estimates constituted trust for that purpose.

5. Principal and surety 115(1)-Creditor is chargeable with laches in management of security, and if loss ensues surety is discharged to that extent.

Any laches by creditor in care or management of collateral security, if loss ensues, will discharge surety so far as he is actually damnified, and, if surety pays debt of principal, he is entitled to all collaterals held by creditor for payment of debt.

6. Principal and surety 115(1)-Creditor, parting with collaterals held for benefit of self and surety, loses claim against surety to amount surrendered.

If creditor fails to fairly and impartially hold collaterals for benefit of surety, as well as for himself, or if he parts with it without knowledge or against will of surety, creditor loses claim against surety to amount of property so surrendered.

7. Principal and surety 115(2)-Bank held not entitled to judgment against contractor's surety, nor to percentage retained, where it turned funds received on estimates over to contractor, who applied them to other claims.

Where bank, which had advanced money to contractor for payment of debts, received from contractor estimates, which it retained as security, which amounted to more than indebtedness, but, instead of applying funds when received to indebtedness, turned same over to contractor, who applied them to other purposes, held, that bank was not entitled to personal judgment against surety on contractor's bond, and was not in position to object to percentage being paid to surety.

Appeal from Noble Circuit Court; Arthur F. Biggs, Judge.

On petition for rehearing. Rehearing denied.

For former opinion, see 159 N. E. 3.

John R. Browne, of Marion, Fred L Bodenhafer, of Kendallville, and Wm. M. McLaughlin, of Des Moines, Iowa, for appel

lant.

Redmond & Emerick, of Kendallville, and Luke H. Wrigley, of Albion, for appellee.

sent of the surety, would have released the surety from its obligation under the bonds. This right of the surety did not arise out of the assignments by the contractor to it. It arose out of the suretyship.

Appellee agreed to extend to the contractor a "floating credit" and to loan it money "to be used in the execution of the contracts." It entered into a written agreement with the contractor, in which the contractor agreed that the auditor of the county should turn over to appellee all checks issued to the contractor on estimates for work on each contract. When the arrangement for the floating credit and the above agreement was made, it was agreed that the proceeds of all loans made by appellee should be deposited with appellee bank, subject to the checks of the contractor for the purpose set out in the agreement, viz. "to be used in the execution"

of the contracts.

Appellee, in its original brief and in its brief on rehearing, concedes that the assignment of the estimates to it was as security for the loans made by it to the contractor. The court found that appellee had loaned the contractor a total of $63,531.63; that the total amount received by appellee on account of the estimates, so held by it as collateral security, was $67,419.43, which was more than sufficient to have paid all of said loans and the interest thereon. Of the $67,419.43, so received by appellee, it applied $3,760.25, and no more, on the loans made to the contractor. The balance, $63,659.18, was turned over to the contractor, and no part of it was applied on the debt of the contractor to appellee.

Not only did appellee turn this vast sum of money, received by it on the estimates held by it as collateral security, over to the contractor, but, after placing the same to the credit of the contractor, it knowingly and negligently permitted the contractor to check out and use for the payment of claims not connected with or growing out of the construction of the Rich and Kreiger roads more than enough to have wholly paid and satisfied the debt of the contractor to appellee. Appellee not only claims that it is entitled to the reserved percentages, amounting to $29,843.71, but it also claims it should have a personal judgment against appellant for the balance of $10,381.05, which would be due it from the contractor after giving credit for the amount of the reserved percentages, and this, notwithstanding the fact that, if appellee had applied the proceeds received by it from the collateral, the debt owing it by the contractor would have been fully paid.

[1] As was said by the Supreme Court of this state in Weik v. Pugh, 92 Ind. 382, 386:

"It is a settled principle that a surety is entitled to the benefit of all securities for the debt

that are held by the creditor, and it follows from this right of subrogation that the creditor cannot, without the surety's assent, surrender,

release, waste, or render unavailable to the surety any of such securities, without affecting the creditor's remedy against the surety; but the surety is discharged on such ground only to the extent to which the creditor has parted with such securities."

To the same effect, see Wasson v. Hodshire, 108 Ind. 26, 8 N. E. 621.

[2] Where the right of a surety is involved, a creditor is not entitled to relinquish any hold which he has actually acquired on the property of the principal, and which might have been made effectual for the payment of the debt. Robeson v. Roberts, 20 Ind. 155, 83 Am. Dec. 308. In Nichols, Shepard & Co. v. Burch, 128 Ind. 324, 27 N. E. 737, where a note was signed by sureties and also secured by a chattel mortgage, the court, in discussing the effect of fraud of the mortgagee in the sale of the mortgaged chattels, said:

"The sureties, while not parties to the mortgage, were interested in the debt thereby secured, and had a right to expect and insist upon the utmost good faith in the dealings between the creditor and the principals in the notes; they also had the right to insist that the creditor should not waste or unlawfully appropriate to his own use any securities or collaterals held by him to secure the payment of the debt, and, in case of a disregard of this duty by the creditor, the surety is discharged to the extent of the value of the securities so wasted or appropriated."

In Lakenan v. Trust Co., 147 Mo. App. 48, 126 S. W. 547, it was held that, where the maker of a note gave a chattel mortgage on cattle to secure the same and after selling the cattle turned over the proceeds to the creditor, knowing the money turned over to the creditor was the proceeds of the mortgaged property, he owed the duty to the surety to apply the whole amount toward payment of the note, instead of turning a portion of it over to the maker, as the latter course would deprive the surety of his equity of subrogation. To the same effect, see Lee v. First National Bank (Tex. Civ. App.) 254 S. W. 394; Bank v. Kittle, 69 W. Va. 171, 71 S. E. 109, 37 L. R. A. (N. S.) 699, Ann. Cas. 1912D, 113; Montgomery v. Martin, 94 Ga. 219, 21 S. E. 513; Columbia Digger Co. v. Sparks (C. C. A.) 227 F. 780; Labbe v. Bernard, 196 Mass. 551, 82 Ν. Ε. 688, 14 L. R. A. (N. S.) 457; County of Wasco v. New England Equitable Ins. Co., 88 Or. 465, 172 P. 126, L. R. A. 1918D, 732, Ann. Cas. 1918E, 656; Illinois Surety Co. v. Mitchell, 177 Ку. 367, 197 S. W. 844, L. R. A. 1918A, 931; Hardaway v. National Surety Co., 211 U. S. 552, 29 S. Ct. 202, 53 L. Ed. 321.

Union Trust Co. v. Morrison, 125 U. S. 591, 8 S. Ct. 1004, 31 L. Ed. 825, was an action to enjoin the collection of a certain judgment; the bond being conditioned for the payment of the judgment should the injunction be dissolved. The injunction was dissolved. The judgment was not paid, and the holder of the judgment sued the surety on the bond and recovered judgment against him. In the meantime a prior mortgage had been declared due and foreclosed, and a receiver appointed, and the property sold by the receiver. The surety filed a petition, showing the bond had been given for the preservation of part of the property covered by the mortgage, and asking that he be protected from the consequences of signing the bond and from the judgment taken against him. In holding the surety entitled to protection the court said:

"He (the surety) had not paid the judgment against him, it is true; but, in equity (if he had any equity at all), he ought to have been protected from making that payment. It ought to have been made by the receiver out of the property which came into his hands. The reason he (the receiver) did not pay it seems to have been want of pecuniary funds. As will be seen, he had disposed of these funds in other ways. But surely, if Morrison had an equitable right to be protected, he ought not to be shut out from all remedy, because he did not do what ought to have been done by the receiver himself, or by the parties whom the receiver represented."

In Brown v. First National Bank, 50 C. C. A. 602, 605, 112 F. 901, 904, 56 L. R. A. 870, 873, the court quotes Colebrooke, Collateral Securities (2d Ed.) § 239, as follows:

"A creditor holding collateral securities is chargeable with a trust concerning the same for the benefit of the surety, where he has notice of the existence of such relation as between the parties to the note. By his voluntary acceptance of such securities, the creditor assumes responsibilities in relation thereto not ordinarily undertaken by the holder of paper upon which are the names of the principal and surety. The personal obligation of the surety to pay the note upon default of the principal is not affected by the receipt of such collateral securities by the holder from the debtor, but the interest of the surety in the proper management and realization of such securities is recognized at law and in equity. If the creditor, by an act of a positive character, or by his gross negligence or bad faith, and without the knowledge and consent of the surety, releases, surrenders, impairs, destroys, or fraudulently transfers such collateral securities, so as to defeat any claim of the surety, upon payment of the debt, to be subrogated thereto for his indemnification, the surety is discharged to the extent of his actual loss at any rate, and of his whole liability in case of fraud or negligence so gross as to raise a presumption of fraud."

The Supreme Court of Illinois, in speaking on this subject, said:

"There can be no doubt in regard to the principle that, where a creditor receives notes, mortgages, or property in pledge for a debt, such securities may be regarded as an indemnity to the creditor and to the person who may have become bound as surety for the original debtor, and the surety has the right to exact of the creditor proper care and diligence in the management and collection of such collateral secu

rity, and any waste or misapplication of the collaterals would, no doubt, operate as a release of the surety, to the amount of loss actually sustained. This is the doctrine of Rogers v. School Trustees, 46 IIL. 428, and Phares v. Barbour, 49 Ill. 370. Where a creditor holds property in pledge for the payment of a debt, which debt is secured by the indorsement of a third party, the creditor, in so far as the pledged property is concerned, may be regarded as a trustee for the surety, and the surety has the right to exact of the trustee a faithful observance of all duties arising from that relation." Hall, Adm'r v. Hoxsey, 84 III. 616, 618.

To the same effect, see Kirkpatrick v. Howk, 80 Ill. 122; Black River Bank v. Page, 44 N. Y. 453.

"It is well settled that in equity a surety is entitled to the benefit of any property or collateral securities received by the creditor from the principal debtor, and that, if the creditor, knowing the relation between the debtors, surrenders such property or securities, in whole or in part, without the consent of the surety, he

exonerates the surety to the amount so surrendered." Guild v. Butler, 127 Mass. 386, 389.

See, also, Kirkpatrick v. Howk, supra, and Black River Bank v. Page, supra.

Appellee, in support of its petition for a rehearing, contends the principal opinion is in conflict with Kimmel v. State, 75 Ind. App. 168, 128 N. E. 708, 130 N. E. 239, and American Fidelity Co. v. East Ohio, etc., Co., 53 Ind. App. 335, 101 N. E. 671. In this contention appellee is clearly in error. In the second case the Fidelity Company, as surety, had taken no assignment of the assessment roll and the proceeds arising therefrom, as did the surety in the instant case. In that case the Home Bond Company loaned the money to the contractor, but did not thereafter receive the proceeds arising from the estimates and fail to apply the same on the debt which the contractor was owing it, the lender of the money, as in the instant case. In that case the money, when loaned, passed directly into the possession of the contractor, and was by him diverted. In the instant case the money loaned was deposited with the lender, and the lender thereafter received sufficient money on account of the assessment roll to more than pay the money theretofore loaned to the contractor, and, instead of applying the money so received by it to the satisfaction of the debt secured by the assessment roll, appellee, who was the lender, voluntarily turned it over to the contractor by placing it in his checking account, and thereafter negligently and knowingly allowed the contractor to check it out and to divert the same to the payment of claims other than claims growing out of the construction of the Rich and Krieger roads.

In Kimmel v. State, supra, Jenkins, Hines, and Dalton, as partners, entered into a contract for the construction of certain roads. Kimmel signed their bonds. Jenkins and Hines were later declared bankrupts and