Etheridge v. Rawleigh Co. , 29 Ga. App. 698 ( 1923 )

Jenkins, P. J.

(After stating the foregoing facts.) “The contract of suretyship is that whereby one obligates himself to pay the debt of another in consideration of credit or indulgence, or other benefit given to his principal, the principal remaining bound therefor. It differs from a guaranty in this, that the consideration of the latter is a benefit flowing to the guarantor.” Civil Code (1910), § 3538. As has often been said,-it is sometimes very difficult to apply the rules of distinction in determining whether a particular contract is that of suretyship or guaranty. In differentiating a contract of guaranty from that of suretyship the difficulty is manifestly greater where the guaranty is absolute and not con- • ditional. In those cases relating to negotiable instruments, where, from the nature of the transaction and of the instrument, the sole test which need be applied is the one mentioned by the code section quoted, (as in Paris v. Farmers &c. Bank, 143 Ga. 324, 85 S. E. 126; Baggs v. Funderburke, 11 Ga. App. 173, 74 S. E. 937; Maril v. Boswell, 12 Ga. App. 41, 76 S. E. 773), there is no great difficulty in arriving at a conclusion as to the nature of the contract. But since the distinguishing characteristics between these two kinds of contracts are not thus limited by the question of consideration, and since the test which has been mentioned is more in the nature of an earmark, not such as to constitute but such as merely to indicate the true nature of the contract, and since such a test is therefore frequently indecisive (Baggs v. Funderburke, supra, p. 174), it is often necessary to bear in mind the true and fundamental distinctions between the one contract and the other. A contract of suretyship is where one lends his credit by joining in the principal debtor’s obligation, so as to render himself directly and primarily responsible with him and on the same contract, and without any reference to the solvency of the principal. In such a case, the promise of each being one and the same, and their liability being joint and several, they may be joined in the same action. Heard v. Tappan, 116 Ga. 930 (43 S. E. 375). A contract of guaranty exists where one lends his credit for the benefit of another, but under an obligation which is separate and distinct from that of the principal debtor, and where he renders himself secondarily or collaterally liable on account of any inability of the principal to perform his own contract. Manry v. Waxelbaum Co., 108 Ga. 14 (3), 17 (supra). It is evident that a surety, who simply joins the principal in thus becoming liable upon the principal’s obligation, will usually, from the nature of such a transaction, become “ bound with his principal by the same instrument, executed at the same time and on the same consideration” (1 Brandt on Suretyship (3d ed.), § 2, quoted in Ga. Casualty Co. v. Dixie Trust Co., supra); while a guarantor, who enters upon his own separate and distinct undertaking, will usually, from the nature of such a transaction, become bound before or after the obligation of the principal, and the contract “ is often founded on a separate consideration from that supporting the contract of the principal.” Brandt on Suretyship, supra. Thus it is that since the contract of guaranty must, like all other contracts, be founded on a consideration, and since the guarantor’s promise cannot be presumed to be founded on the consideration supporting the separate promise of the principal debtor, in, which the guarantor does not join, it follows that-as a general proposition a contract of guaranty must be expected to be founded on some new or independent consideration flowing directly to the guarantor. Civil Code (1910), § 3538. Such, as already indicated, need not always be the case, however; as, for example, where one has guaranteed payment for goods before their delivery, and on the faith of such guaranty a sale and delivery is thereafter made to the principal. Sims v. Clark, 91 Ga. 302 (2) (supra); Holmes v. Schwab, 141 Ga. 44 (supra); Small Co. v. Claxton, 1 Ga. App. 83 (57 S. E. 977); Sheffield v. Whitfield, 6 Ga. App. 762 (65 S. E. 807); 28 C. J. 915, § 46 et seq. In cases such as these the agreement has been construed and upheld as' a contract of guaranty, although no benefit flowing to the guaranty is apparent, unless it be under the general presumption that some benefit inures to him on account of credit extended to his principal. 1 Brandt on Suretyship (3d ed.), § 25.

Applying the foregoing principles of law to the instant case, what is the nature of the contract under consideration ? It is well recognized that in seeking to ascertain the intention of the contracting parties, the mere use of the words “guarantee” and “guaranty,” by which the parties themselves have characterized the nature of their contract, will not have the effect of thus fixing its character, where, according to the terms of the writing, a contrary purpose and intention is manifested. But, in determining this question, the nomenclature used by the parties is entitled to due consideration, and unless, from the nature of the transaction and the character of the contract, a contrary and different purpose is apparent, then the following language, used by Chief Justice Bleckley in Geiser Co. v. Jones, 90 Ga. 307, 310 (supra), is altogether pertinent: “ Why should it not be held that the parties, one and all, contemplated the class of contract which the words they employed, naturally and fairly construed, import, to wit a contract of guaranty ? This is the safer and better construction.” In this respect the terms of the instrument now under consideration are different from the contract considered in Watkins Medical Co. v. Marbach, 20 Ga. App. 691 (93 S. E. 270). There the contract was expressly designated by the parties as being one of surety-ship ; here it is repeatedly referred to as one of guaranty. The contract before us also differs from the contract in the Watkins case, in that here the intent-of the parties as to the nature and character of their agreement is further manifested by the embodiment therein of provisions relative to acceptance and notice of acceptance of the guaranty, which could have no possible application or relevancy under a contract of suretyship. This should properly be considered as throwing light upon the intent and purpose of the parties. A still more vital distinction between the contract here and the contract in the Watkins case lies in the fact that, while in the former case the undertaking of the sponsor was identical in all respects with the obligation placed by the instrument upon the principal debtor, here the contrary is true, and the writing which the plaintiff seeks to set up as one of suretyship imposes distinct and separate duties and obligations upon the sponsor, which are in no wise assumed under the writing signed by the principal. If, as we have endeavored to show, the most fundamental distinction between contracts of suretyship and those of guaranty lies in the fact that a surety lends his credit by joining in the principal debtor’s obligation, so as to render himself directly and primarily liable with 'him and on the same contract, whereas a guarantor does not join with the principal, but by a separate and distinct obligation merely guarantees his solvency with respect to the matters set forth, then it would seem naturally and necessarily to follow that the undertaking of the surety must be “ identical with that of the principal.” Graham v. Roberson, 79 Ga. 72, 74 (3 S. E. 611). Here, contrary to the facts in Walkins Medical Co. v. Marbach, supra, the contract under seal as signed by the defendant Etheridge obligated him to discharge any and all pre-existing unliquidated accounts owing by the principal to the plaintiff, “ as shown by its books at the date of the acceptance of this contract.” In the Wathins case, the contract in which was signed by the principal as principal, and by the party held to be surety as surety, the prior indebtedness on open account was liquidated and agreed upon, so that by the writing both principal and surety were bound alike.

An obligor on an undertaking by an agent for the faithful performance of his duties has almost universally been classed as a surety. 12 B. C. L. 1057 (6). The cases based upon an application of this well-accepted rule (as McClain v. Georgian Co., 17 Ga. App. 658 (87 S. E. 1090), and cases there cited) cannot, therefore, govern in a case such as is now before us. • The contract sued on, as we construe it, is one of guarant)', whereby the solvency of the principal as pertaining to the matters specified by his agreement was vouched for. In addition to the language of the contract repeatedly designating it as one of guaranty, besides its provisions 'with reference to the acceptance and notice of acceptance, which could have no possible meaning or relevancy to any contract of suretyship, and besides the fact that not only does the sponsor apparently fail to join with the principal in the same obligations, but the scope, effect, and extent of his liability under his promise are actually not the same, — in addition to all of these matters which have been specially pointed out, — it appears to our minds that the very nature and purpose of the instrument are more consonant with the idea that the sponsor seeks to vouch for the ability and solvency of his principal than that he has sought to join with the principal in an indefinite obligation of this particular kind and character. In view of such interpretation of the contract, and under the ruling in the first division of the syllabus, the demurrer of the defendant should have been sustained and the petition as to him dismissed.

Judgment reversed.

Stephens and Bell, JJ., concur.