(dissenting):
I believe that the majority’s disposition' of this case is contrary to both the intent of the principal and obligee on the bond and to the general principles of surety-ship law as applied to the peculiar facts of this case. I do not believe that the principal and obligee intended by their settlement to release the surety, nor do I believe that the principles of suretyship law require that the surety should be released.
My brethren hold that the settlement of Greene & Dyer’s claim against Gunnell effected a release of the surety, Hartford, despite the attempted reservation of rights against Hartford. The fact that the settlement was negotiated after Greene & Dyer was adjudged a bankrupt is ignored, as are the terms of the settlement itself. Since the fact of the intervention of the bankruptcy proceeding is, in my view, crucial to the proper disposition of this ease, I believe it necessary to consider at some length just precisely what went on in the proceeding.
At the time of the bankruptcy proceeding, there were four claims in litigation between Greene & Dyer and Gunnell, one of which claims involved the Blue Plains job the subject of Hartford’s bond in the present action. The trustee in bankruptcy negotiated a settlement with counsel for Gunnell of the four claims. Settlement was made outright on one claim, the agreement being that Gunnell would pay Greene & Dyer (id est, the trustee) $1,750.00. The other three claims (one of which was the Blue Plains job) were settled together, Gunnell agreeing to pay the trustee $15,000.00. In these three *281suits, Greene & Dyer was alleging that Gunnell owed it approximately $102,000.-•00 on the three jobs; however, Gunnell’s proof of claim in the bankruptcy proceeding indicates claims against Greene & Dyer on these three jobs of approximately $130,000.00.
As noted, the trustee in bankruptcy negotiated the settlement on behalf of Greene & Dyer. In his “Petition to Confirm Compromise of Pending Litigation and Disputed Claims,” the trustee stated to the Referee in Bankruptcy that:
“your petitioner commenced negotiations with Harry Ryan, Esquire, attorney for Gunnell Construction Co., Inc. and effected a blanket settlement of all litigation for the payment of the sum of $15,000.00 by the Gunnell Construction Co., Inc. to the Trustee in Bankruptcy and the withdrawal of its proof of claim filed herein upon the conditions that * * * (2) although all litigation between the bankrupt and Gunnell Construction Co., Inc. would be settled and ended, the said Gunnell Construction Co., Inc., would not waive its right to claim against the payment and performance bond of the bankrupt posted through the Hartford Accident and Indemnity Co. for the Blue Plains job which said claim is in the approximate amount of $20,000.00.” (Emphasis added.)
In the “Order Confirming Compromise of Pending Litigation and Disputed Claims,” the Referee in Bankruptcy specifically stated:
“1. Civil Actions 3482-59, 650-60 and 2792-60 relating to the House Office Building, Children’s Center at Laurel, Maryland and the Blue Plains Sewage Treatment Plant will be dismissed, both complaint and counterclaim, for the payment of $15,000.00 to the Trustee, reserving to Gunnell Construction Co., Inc., any right it may now have to claim against the payment and performance bond of the bankrupt corporation on the Blue Plains Sewage Treatment Plant and the right to subrogation, following formal proceedings therefore to the extent that they have been caused to expend funds to satisfy bonded claims by creditors of the bankrupt corporation having properly filed claims in this proceeding.”
After securing the agreement of counsel for Gunnell to the settlement, the Trustee then confirmed the settlement with counsel for Greene & Dyer, who also agreed to its terms, including the reservation of Gunnell’s rights against Hartford on the Blue Plains job. The trustee quoted counsel for Greene & Dyer to the effect that he agreed with “your petitioner in the feeling that said offer was fair, reasonable and in the best interests of the bankrupt estate.” It was only after all of the foregoing that the praecipe noted by the majority was entered in the Blue Plains case. The language of the praecipe takes on a different coloration when illumed by the above-quoted portions:
“The Clerk of said Court will please enter this cause as settled by compromise and dismissed with prejudice as to all claims, setoffs, and counterclaims.” (Emphasis added.)
It is clear, then, that the agreement and understanding among counsel for Gunnell, counsel for Greene & Dyer and the trustee in bankruptcy, as confirmed by the referee in! bankruptcy, was that Gunnell should reserve its rights against Hartford. Moreover, the fact that counsel for Greene & Dyer approved the compromise containing the reservation of rights against its surety on the Blue Plains job at least implies (if it does not in fact conclusively establish) that Greene & Dyer was, in fact, in breach of that contract. In view of the fact that Hartford would have a right of subrogation against Greene & Dyer if it had to pay Gunnell, counsel for Gunnell would hardly have agreed to the compromise with reservation unless Greene & Dyer was, in fact, liable on the Blue Plains contract.
In spite of the clearly manifested intent of the parties to the contrary, the District Court, now affirmed by the majority, refused to give effect to the reservation. The majority of this panel states that
*282“[t]he compromise was followed by the unconditioned praecipe filed in the District Court action, which unqualifiedly discharged Greene & Dyer in respect of the Blue Plains project, thus by operation of law discharging its surety in connection with the same matter.” Supra, p. 280 (footnote omitted)
The praecipe can only be considered “unconditioned” (as the majority states) by completely ignoring all that went on in the bankruptcy proceeding which provided the raison d’etre for the praecipe in the first place. Moreover, the majority, sub silentio, passes over the reservation question, simply holding that the discharge of the principal discharges the surety.
I believe that in so doing the majority ignores a respectable body of law which gives effect to reservations such as the one present here and that, in any event, those cases and authorities which would hold to the contrary are not apposite here. Although it is well settled that the obligee’s release of the principal or his agreement to extend time to the principal discharges the surety (Stearns, Surety-ship, § 102, p, 146 (2d ed. 1934); Simpson, Suretyship, § 63, p. 296 (1950)), it is equally well settled that the surety is not released by a release or extension of time to the principal by the obligee if the obligee reserves his rights against the surety. (Stearns, supra, § 92, p. 131; Simpson, supra, § 64, p. 302; Restatement, Security, § 122(b), comment (d)). It is true, as noted by the District Court, that the reservation doctrine as applied to sureties has been the subject of criticism (see, e. g., 2 Williston Contracts, § 339 (3d ed. 1959)) on the basis that the release of the principal “varies the risk” of the surety without its consent and the surety should therefore be released to the extent its risk is, in fact, varied. Such variation of risk is found to exist where the release of the principal impairs or destroys the surety’s right of indemnity, subrogation or exoneration against the released principal.
In the instant case, the District Court, although recognizing the general rule giving effect to reservations, held that the settlement here effected a complete release of the surety because it completely abrogated the rights of the surety as against the principal which, of course, constituted a variation of the surety’s risk. However, I believe that close analysis of the circumstances of the settlement itself and the actions of the surety at that time will demonstrate that Hartford could easily have protected itself against any possible variation in its risk but that it failed to do so.
Here the principal had been adjudged "a bankrupt prior to the settlement. Although the surety had no notice of the settlement negotiations, it was informed of its final terms and was on notice of the possible effects such negotiations would have upon its rights in the matter. The surety could have protected itself at that point by the simple expedient of filing a claim for contingent liability against the bankrupt estate for the amount of the bond, thereby preserving its rights against the principal. Hartford could have gone even further to protect itself. Although it did make an oral objection to the petition of Greene & Dyer’s trustee in bankruptcy, it failed to file any formal objection thereto. If it had filed such objection, Hartford could have petitioned the court to make a judicial determination as to the extent of the liability, if any, of Greene & Dyer on the Blue Plains job as determined in the settlement. Hartford did none of these things, despite the fact that appellant had previously demanded that Hartford complete performance on the job, despite its knowledge of the bankrupt condition of its principal, and despite the fact of the reservation of rights against it.
Again, whatever validity the criticism of the general rule has in other contexts, it is apparent that in these circumstances any variation of the surety’s risk has come about because of its failure to protect itself. I would give effect to the reservation in conformance with the intention of the parties and what I believe to be the correct law on the subject.
I respectfully dissent.