Hardaway Co. v. Amwest Sur. Ins. Co.
| Decision Date | 22 November 1993 |
| Docket Number | No. S93Q1083,S93Q1083 |
| Citation | 436 S.E.2d 642,263 Ga. 698 |
| Parties | The HARDAWAY CO. v. AMWEST SURETY INSURANCE CO. |
| Court | Georgia Supreme Court |
Steven E. Scheer, Lee, Black, Scheer & Hart, Savannah, and Geoffrey Johnson and Frederick P. Alimonti, Lewis & McKenna, Saddle River, for Hardaway Co.
Jefferson B. Slagle, Thompson & Slagle, P.C., Norcross and Roy E. Paul, David J. Merbaum, Bouhan, Williams & Levy, Savannah, for Amwest Sur.
This case is before us on a certified question from the United States Court of Appeals for the Eleventh Circuit. The facts and procedural history of the case, as established in the opinion of the Eleventh Circuit 1 may be summarized as follows. Hardaway was prime contractor on a project of the Georgia Department of Transportation. Hardaway contracted with B & F Contractors, Inc. for the performance of certain grading work. Amwest guaranteed B & F's performance. B & F demanded payment from Hardaway for additional costs incurred on the job, but Hardaway referred B & F to the Department of Transportation. When B & F continued to experience financial difficulty, Hardaway demanded that Amwest fulfill the subcontract, which Amwest did. B & F subsequently sued Hardaway for payment of the additional costs. In a settlement of that suit, Hardaway agreed to release B & F from Hardaway's claims regarding default under the subcontract, but specifically reserved its warranty claims against B & F and specifically provided that it retained its rights against Amwest. For its part, B & F bargained away all claims it might have against Hardaway. Hardaway then sued Amwest for damages for B & F's default. Amwest defended on the basis of the release from Hardaway to B & F, contending that the release terminated Hardaway's rights against Amwest as surety. Amwest also filed a counterclaim for cost overruns which it contended it was entitled to do as subrogee of B & F. The district court granted summary judgment to Amwest and, pursuant to a voluntary withdrawal, dismissed Amwest's counterclaim. The Eleventh Circuit reviewed the district court's holdings and agreed that the surety contract did not contain Amwest's consent to Hardaway's release of B & F. However, noting confusion in Georgia case law on the subject, the Eleventh Circuit declined to rule on the effect of Hardaway giving the release without Amwest's consent, and certified to this court the following question:
Whether a creditor's agreement to release a principal debtor, which contains an express reservation of rights against the surety, is a release of the surety's liability to the creditor on the surety bond or a mere covenant by the creditor not to sue the principal debtor when the surety has not consented to the creditor's release of the principal debtor.
Hardaway Co. v. Amwest Sur. Ins. Co., 986 F.2d 1395, 1401 (11th Cir.1993).
The correct rule is that stated in Schwitzerlet-Seigler Co. v. C & S Bank, 155 Ga. 740, 746, 118 S.E. 365 (1923):
[T]he release of the principal debtor, without the consent of the surety, releases the surety, unless the right to go against the surety is reserved in the instrument of release, or it appears from the whole transaction that the surety should remain bound.
The confusion the Eleventh Circuit perceived between the rule as stated in Schwitzerlet-Seigler, supra, and the statement of the rule by the Georgia Court of Appeals in Hendricks v. Davis, 196 Ga.App. 286, 395 S.E.2d 632 (1990), apparently arose from the use of the conjunctive rather than the disjunctive in Hendricks, 2 requiring both consent by the surety and reservation of rights by the creditor. To that extent, Hendricks is overruled. Either the consent of the surety or the reservation of rights by the creditor will suffice to ensure the survival of the surety's obligation after the release of the principal debtor.
To apply the rule to the question certified by the Eleventh Circuit, the mere absence of the surety's consent to the release would not release the surety so long as the creditor had reserved in the instrument of release the right to proceed against the surety. The effect in the present case is that the release of B & F by Hardaway did not release Amwest.
Amwest has asserted that, notwithstanding the question of reservation of rights, the release...
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