## Facts

- A general contractor (Hall) hired a masonry subcontractor (Ace) on a federal construction project.
- A performance bond was issued by a surety (Capitol) guaranteeing Ace’s performance to Hall.
- A dispute arose alleging Ace failed to complete its work; Hall asserted claims against Ace and sued Capitol on the bond.
- In an earlier trial, the court directed a verdict for Capitol on the bond claim based on Hall’s failure to formally declare Ace in default as required by the bond.
- After the directed verdict, Hall and Ace entered an on-the-record settlement and stipulated to a mutual “release and dismissal of any claims they had against each other,” which resulted in dismissal with prejudice.
- In a prior appeal, the directed verdict for Capitol was reversed and the bond claim was remanded.
- On remand, Capitol sought summary disposition, arguing Hall’s release of Ace discharged Capitol as surety; the trial court granted the motion.

## Issues

1. Whether an obligee’s broad release and dismissal with prejudice of all claims against the principal obligor discharges the surety’s liability on a performance bond when the release contains no reservation of rights against the surety and the surety did not consent to remain liable.

## Decision

- The court affirmed summary disposition for Capitol.
- Hall’s unqualified release of Ace extinguished the underlying obligation that the bond secured.
- Because the release did not reserve rights against Capitol and Capitol did not consent to continued liability, Capitol was discharged as a matter of suretyship law.

## Legal Principles

- A surety’s obligation on a performance bond is generally secondary and derivative of the principal obligor’s duty; release of the principal commonly discharges the surety.
- A release of the principal does not discharge the surety if the surety consents to remain liable or the obligee expressly reserves rights against the surety in the release.
- A broad release of the principal without reservation typically impairs the surety’s reimbursement/subrogation recourse against the principal, supporting discharge to the extent of the impairment.

## Conclusion

The court held that when an obligee settles with and fully releases the bonded principal without expressly reserving rights against the surety, and without the surety’s consent, the surety is discharged from performance-bond liability.


Will H. Hall & Son, Inc. v. Capitol Indem. Corp., 260 Mich. App. 222, 677 N.W.2d 51 (Mich. Ct. App. 2004)