Cobb Bank & Trust Co. v. American Mfrs. Mut. Ins. Co., 78-3765
| Decision Date | 22 August 1980 |
| Docket Number | No. 78-3765,78-3765 |
| Citation | 624 F.2d 722 |
| Parties | 29 UCC Rep.Serv. 1305 COBB BANK & TRUST COMPANY, Plaintiff-Appellant, v. AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY, Defendant and Third-PartyPlaintiff-Appellee, Omnibus Group, Inc., Third-Party Defendant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
J. Eric Dahlgren, Alfred S. Lurey, Atlanta, Ga., for plaintiff-appellant.
Phillips, Hart & Mozley, John W. Hinchey, Atlanta, Ga., for defendant and third-party plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before COLEMAN, Chief Judge, RONEY and GARZA, Circuit Judges.
American Manufacturer's Mutual Insurance Company, as surety, issued a guarantee bond for a note from Omnibus Group, Inc. to Getty-Grafton and/or assigns. Getty-Grafton failed to fund the note and assigned the bond to Cobb Bank and Trust, who used it to guarantee a new note from Omnibus to Cobb. Cobb sued the surety on the guarantee when Omnibus failed to repay the loan, and the surety denied liability. The Court below found the Cobb note was not guaranteed by the Getty-Grafton bond and on this basis found the surety not liable on the Cobb note. Cobb Bank and Trust Company appeals, and we affirm.
Omnibus Group, Inc. (hereafter "Omnibus") needed $60,000, but did not have the credit to get a loan on its own. For $1200 it obtained a guarantee of repayment and a guarantee bond from a surety, American Manufacturer's Mutual Insurance Company (hereafter "Surety"). On January 3, 1975, Surety issued a guarantee bond to Hamilton Mortgage Company to induce it to lend Omnibus $60,000. Hamilton did not make the loan and returned the bond to Surety. On April 11, 1975, Surety reissued the bond, this time to Gulf Union Corporation. Gulf Union Corporation was unable to lend Omnibus the money, and it also returned the bond to Surety. On June 4, 1975, Omnibus found another prospective source of money, Getty-Grafton Interests. In this case Surety did not issue a bond identical to that it had issued twice previously. Rather than issuing it solely in the name of the potential source of money, it issued it to "Getty-Grafton Interests and/or assigns."
Harold J. Bowman, Jr., attorney for Omnibus, stated at trial that the purpose for adding the "and/or assigns" was to prevent having to reissue the bond. He stated that he had informed Surety that Getty-Grafton was not a bank but a loan broker. He testified that Surety was well aware that some party other than Getty-Grafton would provide the money for the loan. The note was for 196 days and was due December 18, 1975.
Getty-Grafton was unable to find a lender for Omnibus in Houston. After failing it lost interest in the matter, but it did not return the bond to Surety as had the two previous unsuccessful or unwilling prospective lenders.
Omnibus kept looking for money, and in November 1975 found a lender, Cobb Bank and Trust (hereafter "Cobb"). Cobb wanted as good a guarantee as Hamilton Mortgage Co., Gulf Union Corp., and Getty-Grafton had received, so it made inquiries to determine whether (1) the bond tendered by Omnibus was issued by Surety and whether the signature of W. A. Haynes was authorized and (2) whether Surety would issue the bond in Cobb's name as it had for the three previous potential lenders.
Cobb was reassured that W. A. Haynes was authorized to issue the bond. Its communications with Haynes resulted in confusion on both sides. When Cobb made its initial inquiries, Surety did not understand that Getty-Grafton had not funded the June 4 note. In response to a telephone inquiry from Cobb, Haynes stated that the June 4, 1975, bond was "valid." On November 10, 1975, Haynes wrote V. Fred Aiken, Vice-President of Cobb, that the bond was ". . . made to the obligee of Getty-Grafton Interests to cover a note payable to the principal Omnibus Group, Inc." In fact Haynes had reversed the relationships of the parties. The note was payable to Getty-Grafton Interests, the obligee of the note, and Omnibus was the maker.
Surety refused to redraft the bond to put it specifically in Cobb's name. Surety claims that it had developed doubts about Omnibus because of its three futile attempts to find a lender. Cobb contends that Surety was content to have the bond guarantee a loan by it to Omnibus and that Surety's only reason for refusing to reissue the bond was that it believed such assignment was unnecessary because the Getty-Grafton bond could be assigned to Cobb. Surety disputes this. Cobb admits it did not rely entirely upon Surety's legal judgment on this point. It posed this question to its own attorney, Jerry L. Berthold, who agreed that the bond could be assigned.
Omnibus had contemplated using an assigned bond prior to the contacts between Cobb and Surety. On two occasions, in August 1975 and November 1975, Bowman, who was the attorney for Omnibus, had the obligee of this note, Getty-Grafton, give him a special power of attorney so that he could assign the Getty-Grafton bond to the new lender. 1 He found no lender in August, but in November 1975 he successfully completed the loan agreement with Cobb.
On November 10, 1975, Omnibus executed a new promissory note for $60,000 to Cobb. Bowman, purporting to represent Getty-Grafton in this transaction with his employer, Omnibus, assigned the guarantee bond Surety had given for the Getty-Grafton note along with the unfunded Getty-Grafton note to guarantee the Cobb note. The parties in this transaction did what they could to make the new note conform to the terms of the old guarantee bond. Because the old bond had only 38 of its original 196 days term left, the Cobb note was made due December 18, 1975, and the amount of interest to be paid was reduced from 10% for 196 days to 10% for 38 days, or $633.00. Getty-Grafton had paid nothing for the June 4, 1975 guarantee bond and it received nothing for it from Cobb when it assigned it.
On November 11, 1975 Cobb wrote Surety informing it of the assignment of the Getty-Grafton bond. It did not inform Surety that Getty-Grafton had not funded the June 4, 1975 note. Surety says it believed Getty-Grafton had funded the note until after Cobb made its demand for payment.
Omnibus failed to make its payments on the Cobb note, and on December 22, 1975, Cobb demanded full payment from Surety under the guarantee bond. Surety investigated the claim and denied liability on the Cobb note.
Cobb brought a diversity action in federal court. It claims the case of Davis v. Atlanta National Bank, 66 Ga. 651 (1881) requires a verdict for Cobb. The lower court distinguished Davis on the basis that it concerns a negotiable instrument, which it found the Getty-Grafton bond was not. It stated that since Getty-Grafton had not funded the June 4 note it had no enforceable rights which it could have assigned to Cobb. Therefore, Cobb got no rights through the November 10, 1975 assignment of the Getty-Grafton bond. On this basis the Court found Surety not liable on Omnibus' November 10, 1975 note to Cobb. Cobb appeals, contending the lower court erred in its interpretation of Davis v. Atlanta National Bank, supra, which it contends compels a reversal in this case and a decision for Cobb.
Cobb's appeal rests almost entirely on its interpretation of the 100 year old case, Davis v. Atlanta National Bank, supra. Cobb argues strenuously that this case and Davis are exactly on point and that the legal principles set out by the Georgia Supreme Court in Davis are more applicable here than in Davis.
In Davis, A. B. Davis and C. C. Davis created three notes, two for $100 and one for $50, for the benefit of L. H. Davis. A. B. and C. C. intended to act as sureties for L. H. Davis in his attempt to borrow from John Neal. The note read...
To continue reading
Request your trial
-
Gregoire v. Lowndes Bank
...F.Supp. 529, 535 (W.D.Tenn.1979); Cobb Bank & Trust Co. v. American Mfrs. Mut. Ins. Co., 459 F.Supp. 328, 333 (N.D.Ga.1978) aff'd 624 F.2d 722 (5th Cir.1980); Consolidated Roofing & Supply Co. v. Grimm, 140 Ariz. 452, 456, 682 P.2d 457, 461 (Ariz.Ct.App.1984); Fewox v. Tallahassee Bank & Tr......
-
Keaten v. Paul Revere Life Ins. Co.
...686, 689, 229 S.E.2d 498, 501 (1976). See Cobb Bank & Trust Co. v. Am. Mfrs. Mut. Ins. Co., 459 F.Supp. 328 (N.D.Ga.1978), aff'd, 624 F.2d 722 (5th Cir. 1980); McGhee v. Independent Life & Acc. Ins. Co., 146 Ga.App. 310, 246 S.E.2d 349 (1978); Parris & Son, Inc. v. Campbell, 128 Ga.App. 165......
-
Ideal Mut. Ins. Co. v. Lucas
...Georgia law); Cobb Bank & Trust Co. v. American Manufacturers Mutual Insurance Co., 459 F. Supp. 328, 334 (N.D.Ga.1978), aff'd, 624 F.2d 722 (5th Cir.1980). In the case at bar, plaintiff contends that four provisions designated as exclusions preclude recovery of benefits under the contract.......
-
Sunrizon Homes, Inc. v. American Guar. Inv. Corp.
...to designate a specific payee."8 Cobb Bank & Trust Co. v. American Mfrs. Mut. Ins. Co., 459 F.Supp. 328, 333 (N.D.Ga.1978), aff'd, 624 F.2d 722 (1980); Spratt v. Security Bank, 654 P.2d 130, 135 (Wyo.1982); Spidell v. Jenkins, 111 Idaho 857, 727 P.2d 1285, 1287 (Ct.App.1986); Pascal v. Tard......