Escambia Chemical Corp. v. Rocker, 46390

• Decision Date: 10 September 1971
• Docket Number: No. 46390,No. 3,46390,3
• Citation: 184 S.E.2d 31,124 Ga.App. 434
• Parties: ESCAMBIA CHEMICAL CORPORATION v. Edwin D. ROCKER et al
• Court: Georgia Court of Appeals

Page 31

184 S.E.2d 31

124 Ga.App. 434

ESCAMBIA CHEMICAL CORPORATION v. Edwin D. ROCKER et al.

No. 46390.

Court of Appeals of Georgia, Division No. 3.

Sept. 10, 1971.

Syllabus by the Court

1. Judgments and issues not appealed or cross appealed from are not considered.

2. In a suit by a creditor against the surety or guarantor of a principal debtor, proper proof of the rendition of a judgment in favor of the creditor against the debtor is not conclusive against the surety or guarantor, but it does establish prima facie that the creditor has a valid claim against the debtor for the amount of the judgment. The burden is upon the surety or guarantor to introduce evidence sufficient to rebut the correctness of the judgment. This rule applies to litigated cases against the principal debtor and, by virtue of CPA § 55(a), to judgments rendered against him by default.

Escambia Chemical Corporation filed its complaint against Edwin D. Rocker, Hattaway Gin & Warehouse, Inc., and J. F. Hattaway, alleging that Rocker and Hattaway Gin & Warehouse, Inc., were indebted on an account to plaintiff in the sum of $27,875.61, and that J. F. Hattaway was indebted in this sum by virtue of a contract of guaranty executed by him in favor of plaintiff. The contract of guaranty, executed by J. F. Hattaway to plaintiff in order to induce it to extend credit or otherwise to become the creditor of Edwin D. Rocker, d/b/a J. F. Hattaway Company, guaranteed 'the prompt payment when due of every claim of the (plaintiff) which may hereafter arise against (Rocker).' The statement of the account attached to the complaint showed the debt to be that of Rocker.

J. F. Hattaway answered, denying the material allegations of the complaint, and the case went into default against Rocker and Hattaway Gin & Warehouse, Inc. The court entered an order making findings of fact and conclusions of law and, reciting that there was no just reason for delay of entry of judgment against the default defendants, entered judgment against them. CPA § 54(b); (Code Ann. § 81A-154(b)). It was further provided that the question of J. F. Hattaway's liability on the guaranty contract should be determined by further proceedings.

J. F. Hattaway, alleging that 'if the said default judgment is allowed to stand, this defendant is apprehensive that he will not be able to contest the liability or the amount thereof as between either of the defendants and the plaintiff,' filed a motion praying that the default judgment against Rocker and Hattaway Gin & Warehouse, Inc., be vacated and set aside. The court denied this motion, but in so doing entered an order (in effect a pre-trial order) holding that the default judgment was 'not binding on the defendant, J. F. Hattaway and that he may challenge the amount alleged to be due by both of said default defendants or either of them or the liability of either of the default defendants to the complainant,' and that 'J. F. Hattaway is not prejudiced by said default judgment in any manner.'

Plaintiff appeals with a certificate, contending that the default judgment is binding and conclusive on J. F. Hattaway in regard to the liability and amount thereof of the default defendants, and that the only question remaining is Hattaway's liability on the guaranty contract.

McLane & Dover, H. Arthur McLane, Valdosta, for appellant.

Smith & Harrington, Will Ed Smith, Eastman, for appellees.

EBERHARDT, Judge.

1. There is no appeal or cross appeal from the denial of J. F. Hattaway's motion to vacate and set aside the default judgment against Rocker and Hattaway Gin & Warehouse, Inc. In addition, J. F. Hattaway's motions and arguments in regard to an irregularity in the summons have not been brought before us for decision. Consequently, we do not consider questions pertaining to these matters.

2. The issue raised by this appeal is whether a guarantor can question the liability or the amount thereof of the principal debtor to the creditor where those matters have been established by a judgment against the debtor in the creditor's favor. The general law is in conflict. 'If the guarantor had notice of the action brought by the creditor against the principal debtor, and had an opportunity to be heard, the guarantor is precluded from questioning the debtor's liability. Where the guarantor did not have an opportunity to be heard in the action between the creditor and the debtor, the cases are in conflict as to the measure of liability. Although the general rule is stated to be that the judgment-if it is not a default judgment or one rendered by consent of the debtor-creates a rebuttable presumption of the debtor's liability to the quarantor, there is authority that such a judgment is binding on the guarantor. Some jurisdictions reach just the opposite conclusion and hold that the judgment is not even admissible in evidence as against the guarantor. Where the judgment is entered by consent, however, courts agree that the judgment is not binding on the guarantor as to the question of the debtor's liability but is admissible as prima facie evidence only. Where the judgment against the debtor was entered by default, the general rules applicable to litigated cases have been applied by some courts-especially when the jurisdiction does not hold the guarantor conclusively bound in litigated cases.' 38 Am.Jur.2d, Guaranty § 77.

The issue appears to be the same whether the contract be called one of guaranty or of suretyship. 'There is no distinction to be made between the liability of one properly denominated a surety and one properly denominated a guarantor where the material question is the conclusive effect of a judgment against a principal debtor.' Empire Steel Corp. v. Omni Steel Corp., 378 S.W.2d 905 (Tex.Civ.App.). As in cases involving guarantors, the authorities are in conflict as to whether a judgment against a principal is, as against his surety, conclusive, or prima facie evidence, or not admissible in evidence at all, to show the existence and amount of the debt. See 50 Am.Jur., Suretyship § 200 et seq.; Simpson on Suretyship § 51. The same confusion abounds with respect to the conclusiveness and effect, upon the surety, of a default or consent judgment against the principal. Annot., 59 A.L.R.2d 752. It has been suggested that the confusion in the law seems to have been largely due to a misunderstanding or misapplication of rules of the civil law, where the surety was notified of the action against the principal and permitted to defend. 10 Williston on Contracts § 1256 and cases cited, n. 6, p. 818 (3d ed. 1967). See Brown v. Chaney, 1 Ga. 410; Napier v. Neal, 3 Ga. 298.

At any rate, it has been stated that the more prevalent view is that such a judgment proves prima facie that the creditor has a claim against the principal for the amount of the judgment. Simpson on Suretyship § 51. This is the view taken in Restatement, which provides: 'Where, in an action by a creditor against a principal, judgment is given, other than by default or confession, in favor of the creditor, and the creditor subsequently brings an action against the surety, proof of the judgment in favor of the creditor created a rebuttable presumption of the principal's liability to the creditor.' Restatement, Security § 139(2). Comment under this subsection sets forth the rationale of the rule: 'c. The rule stated in this Subsection expresses a middle ground between the possible rule that a judgment against the principal is conclusive of the principal's liability, even in an action against the surety, and that such a judgment is evidence only of the fact of its rendition. It is inequitable to bind the surety conclusively by a judgment to which he is not a party. On the other hand, it is not unfair to make a rebuttable presumption of the regularity of the judicial proceedings antecedent to the judgment and of the correctness of the judgment as evidence of the principal's liability. Under the rule stated in Subsection (2), it is open to the surety to prove if he can that judgment should have been rendered for the principal. What must be adduced by the surety to orvercome the rebuttable presumption is a matter to be determined by the law of evidence. The result of the rule stated in Subsection (2) is that in cases where the surety cannot rebut the presumption of the judgment against the principal and where the surety has no other defense, time and expense are saved to courts and litigants by the avoidance of unnecessary duplication of trials on identical issues of fact.'

Prior to Blayton v. General Tire & Rubber Co., 119 Ga.App. 212, 166 S.E.2d 648, both the holdings of the Supreme Court and of this court were in accordance with the 'prevalent' or Restatement view. But in the Blayton case we held: 'Where the pleadings and exhibits in this action on an alleged contract of guaranty show (1) that the defendant guarantor admitted the execution of the contract, (2) that the contract was based upon sufficient consideration (see Woods v. Universal C.I.T. Credit Corp., 110 Ga.App. 394, 397, 138 S.E.2d 593, and cit.), and (3) that the present action was brought after the plaintiff creditor had obtained a judgment and return of nulla bona against the principal, the defendant is liable as a matter of law on said contract whether it be construed as one of guaranty or suretyship.' The Blayton case is thus a holding that in guaranty and suretyship cases the judgment against the principal debtor is conclusive against the guarantor or surety in regard to the debtor's liability to the creditor. ¹ It must be overruled, for since the first volume of our Supreme Court reports, it has been the rule that a person liable as a surety is not conclusively bound by a judgment against his principal, the judgment being only prima facie evidence of the principal's liability to the creditor. In Bryant v. Owen, 1 Ga. 355, a suit against a surety on a guardian's bond, the Supreme Court held that 'A...