The National Bank of Monroe v. Wright

The contract was properly construed as a contract of guaranty, and not a contract of indemnity, and the court did not err in holding that the action was barred by the statute of limitations.

DECIDED MAY 22, 1948. REHEARING DENIED JUNE 5, 1948. The National Bank of Monroe, as successor to Bank of Monroe, sued J. E. Wright and others in Walton Superior Court on the following contract:

"Whereas, Bank of Monroe, Georgia, has this day agreed to make a loan to Union Banking Company of Monroe, Georgia, in the principal sum of Seventy-five Thousand Dollars ($75,000) for the purpose of paying off all obligations by said Union Banking Company to its depositors and all its other creditors, and the Union Banking Company has agreed to pledge as collateral for said loan, all the assets of every kind owned and held by Union Banking Company, said assets to be held by Bank of Monroe, Georgia, and administered for the purpose of liquidating said loan of $75,000 and for the interest of the stockholders;

"And whereas, the capital stock of Union Banking Company has become and is now impaired, and the Superintendent of Banks of the State of Georgia, has called on said Union Banking Company to make an assessment on its stockholders to cover said impairment in its capital stock;

"Now, in consideration of the loan made by said Bank of Monroe, Georgia, to Union Banking Company as above set out, and for the purpose of avoiding an assessment at the present time on the stock owned by us, we the undersigned stockholders of Union Banking Company, hereby guarantee payment of the said $75,000 note executed by Union Banking Company to Bank of Monroe, Georgia, in an amount equal to the par value of the stock owned by each of us respectively in Union Banking Company at this date, the same being the amount to which we would be subject for an assessment under the laws of the State of Georgia.

"Now, if in the future, the Superintendent of Banks of the State of Georgia, demands that such assessment be made for the purpose of paying any remainder due on said debt of $75,000 and interest, or to take care of the impaired capital stock of the Union Banking Company, we, the undersigned stockholders in Union Banking Company, do hereby empower the Board of Directors of Union Banking Company to make such assessment on the stockholders of said bank, as is provided by law, necessary to pay such debt and impairment; and in stockholders' meeting called for the purpose, we hereby empower the Directors of Union Banking Company, and do hereby direct them to vote our stock for such assessment to be so made. And such power is hereby made irrevocable, so long as any part of such debt is due to Bank of Monroe, Georgia, or the capital stock of Union Banking Company is impaired."

Opposite the names of the defendants who signed the contract the number of shares of stock held by each of them respectively in Union Banking Company is stated, and judgment was sought against each defendant based on the par value of his shares of stock, less whatever amount had been paid by him on the indebtedness of the Union Banking Company to the Bank of Monroe.

A plea of the statute of limitations (with other defenses) was filed by the defendants alleging that the obligation sued on was a simple contract, that is, a contract not under seal; that the obligation of said contract, if any ever existed, matured and became enforceable on November 29, 1926, and that the suit was not filed until April 28, 1936, more than 6 years after the maturity of the obligation; that the right of action in the plaintiff had accrued more than 6 years before the commencement of the suit and was barred by the statute of limitations.

The case was referred to an auditor who made certain findings of law and certain findings of fact. The documentary evidence introduced included a note for $45,000, dated August 31, 1926, due on or before 90 days after date, made by Union Banking Company and payable to Bank of Monroe; a note for $30,000 bearing the same date and due at the same time and made by the Union Banking Company to the Bank of Monroe; a security deed bearing the same date and made by Union Banking Company to the Bank of Monroe, securing the two notes aggregating $75,000, conveying certain real estate described therein; the contract sued on of the same date, signed by the several defendants, and a judgment and execution in favor of the Bank of Monroe and against Union Banking Company, based on a suit on the notes in Walton Superior Court, May term, 1930, for $21,500 principal, with interest, counsel fees and costs.

The auditor found against the plea of the statute of limitations. This finding was based on his conclusion that the contract was not one of suretyship or guaranty, but was a contract of indemnity; and that no right of action accrued thereon until the assets of the Union Banking Company had been liquidated. Under this finding the action was not barred. The defendants filed exceptions to the report of the auditor, both as to findings of law and findings of fact. Upon the trial of the case as it then stood the court sustained certain exceptions of law, and held that the contract was one of guaranty, and that the action was barred by the statute of limitations. A verdict was directed by the court finding in favor of the exceptions of fact, and a judgment was thereupon rendered against the plaintiff for the costs. The plaintiff excepted to these rulings and judgment of the trial court. 1. The motion to dismiss the writ of error is denied.

2. The controlling question in this case is determined by the construction of the contract. If it is a contract of guaranty the cause of action was barred when the suit was filed. If it is a contract of indemnity the action was not barred. It is often difficult to tell whether a particular contract is one of guaranty or indemnity. "The contract of suretyship is one whereby a person 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." Code, § 103-101. "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." Etheridge v.Rawleigh Co., 29 Ga. App. 698, 702 (116 S.E. 903); Manry v. Waxelbaum Co., 108 Ga. 14 (3), 17 (33 S.E. 701);Arkansas Fuel Oil Co. v. Young, 66 Ga. App. 33, 35 (16 S.E.2d 909). An indemnity contract is defined by Black's Dictionary of Law as "An agreement between two parties, whereby the one party, the indemnitor, either agrees to indemnify and save harmless the other party, the indemnitee, from loss or damage, or binds himself to do some particular act or thing, or to protect the indemnitee against liability to, or the claim of, a third party." Citing 10 Am. Eng. Enc. Law, 402. "Indemnity" means "reimbursement, restitution, or compensation." TravelersIns. Co. v. Georgia Power Co., 51 Ga. App. 579, 583 (181 S.E. 111). "In a contract of indemnity the indemnitor, for a consideration, promises to indemnify and save harmless the indemnitee against liability of the indemnitee to a third person, or against loss resulting from such liability. The contract of the indemnitor is an original undertaking." 1 Brandt, Suretyship and Guaranty, § 5, pp. 19, 20; National Bank of Tifton v.Smith, 142 Ga. 663, 665 (83 S.E. 526, L.R.A. 1915B, 116). As stated in the written opinion of the trial court, "An indemnity contract differs from a guaranty in that the former is an original rather than a collateral undertaking and generally undertakes to make good the promisee's loss resulting from his liability to another rather than from another's liability to him." 38 C. J. S., Guaranty, § 5.

In determining whether a contract is one of guaranty or of indemnity, the language of the instrument should first be considered, and the surrounding circumstances should be taken into account only if the language is indefinite or ambiguous. 38 C. J. S., Guaranty, § 5. The intention of the parties to a contract "is to be gathered largely from what the parties say, the words they use." Myers v. Philip Carey Co., 17 Ga. App. 535 (87 S.E. 825), citing Malsby v. Young, 104 Ga. 205,213 (30 S.E. 854). In finding the intention of the parties to a contract, the language they used will be looked to for that purpose. McKibben v. Fourth Nat. Bank, 32 Ga. App. 222 (122 S.E. 891). In discussing guarantors and indorsers, Judge Bleckley used these words: "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 better and the safer construction." Geiser Mfg. Co. v. Jones, 90 Ga. 307, 310 (17 S.E. 81). The contract here provides that the defendants "guarantee payment of the said $75,000 note executed by Union Banking Company to Bank of Monroe, Georgia."

We do not think the contract in this case can properly be construed as a contract of indemnity. We think it is a contract of guaranty. It was a contract to pay the debt of the Union Banking Company to the Bank of Monroe, evidenced by notes for $75,000, for which it remained bound, based on a consideration flowing to the guarantors. Their liability was a separate obligation, collateral to that of the Union Banking Company and was not an original undertaking. The contract uses no words indicating it was a contract to indemnify the Bank of Monroe on account of any particular losses or damages it might sustain. On the other hand, the defendants contracted merely to guarantee the payment of a certain amount and not to indemnify the Bank of Monroe for all loss or damage it might sustain in the transaction. The court properly construed the contract as a guaranty, and ruled properly that the action thereon was barred by the statute of limitations.

The plaintiff relies on the case of Walton County Bank v.Stanton, 38 Ga. App. 591 (144 S.E. 815), which was affirmed by the Supreme Court in 169 Ga. 40 (149 S.E. 573). The contract there involved was an agreement signed by certain stockholders of the Bank of Social Circle, to stand the losses, if at the final settlement of certain notes of named persons there should be any loss sustained by said bank, or a consolidated or merged bank. This court held that agreement to be a contract of indemnity. We do not think the Stanton case is contrary to our holding in this case. The plaintiff cites the case of Union Banking Co. v.Abercrombie, 180 Ga. 491 (179 S.E. 342), in which the same contract here involved was before the court. There is no ruling in that case applicable to the instant case.

Judgment affirmed. Sutton, C. J., concurs. Felton, J.,concurs specially.