Scarboro v. Universal CIT Credit Corporation

• Decision Date: 25 July 1966
• Docket Number: No. 22273.,22273.
• Citation: 364 F.2d 10
• Parties: J. W. SCARBORO, Jr., and Mrs. Nan C. Scarboro, Appellants, v. UNIVERSAL C. I. T. CREDIT CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

364 F.2d 10 (1966)

J. W. SCARBORO, Jr., and Mrs. Nan C. Scarboro, Appellants, v. UNIVERSAL C. I. T. CREDIT CORPORATION, Appellee.

No. 22273.

United States Court of Appeals Fifth Circuit.

July 25, 1966.

Eric L. Jones, Dublin, Ga., for appellants.

Cubbedge Snow, Macon, Ga., Martin, Snow, Grant & Napier, Macon, Ga., of counsel, for appellee.

Before JONES, WISDOM, and GEWIN, Circuit Judges.

WISDOM, Circuit Judge:

The defendants in this case appeal from a summary judgment against them in an action on a contract of "guaranty." Only two questions are raised: (1) Does the contract of "guaranty" fail as a void contract of suretyship under the Georgia Married Woman's Act? (2) Does the evidence raise a genuine fact issue of novation or release by the executors of a subsequent guaranty? We answer no to both these questions and affirm the judgment.

I.

In January 1961 Mr. and Mrs. J. W. Scarboro, Jr., the defendants, owned one half the capital stock of Dublin Motors, Inc., the Buick automobile dealership in Dublin, Georgia. Mr. Scarboro owned 49 per cent and was the secretary of the corporation; Mrs. (Nan) Scarboro held only one per cent and had no active role in the business. The other half of the Dublin Motors stock was held by Mr. and Mrs. M. Doug Smith. Mr. Smith served as president of the corporation; his wife had no active part in the business.

January 31, 1961, Dublin Motors entered into a Repurchase Plan agreement with the plaintiff Universal C. I. T. Credit Corporation. This form agreement stated the terms by which Dublin Motors would sell its automobile chattel paper to Universal C. I. T. As is common in these arrangements, Universal C. I. T. agreed to make an "initial payment" to Dublin Motors for the unpaid cash balance of the time price (less a "holdback" for certain contracts until they were fully paid). Universal C. I. T. also promised a periodic "reserved payment" based upon, among other things, the commissions rebated for paper sold to it by the dealership.¹

May 1, 1961, Dublin Motors entered into a form Floor Plan Credit Agreement with Universal C. I. T. for future inventory financing. Again as is common in these "floor plans," Dublin Motors agreed to execute trust receipts and pay nominal interest for automobiles in its possession. It promised to pay forthwith by cash or commercial paper for each car sold. Universal C. I. T. was to retain title to the inventory.²

In addition, May 1, the defendants and their co-shareholders, the Smiths, entered into a personal contract of guaranty for all credit Universal C. I. T. would extend to Dublin Motors under the floor plan or any other arrangement. The main clause of the guaranty was as follows:

"Each of us request you to extend credit to, make advances under wholesale floor plan or other arrangements * * * or otherwise continue to do business with, or to renew or to extend any existing obligation of, or to forbear for any period of time the strict enforcement of any existing obligation of Dublin Motors, and to induce you so to do * * * and in consideration thereof * * *, each of us as a primary obligor jointly, severally and unconditionally guarantees * * * that Dublin Motors will fully, promptly and faithfully perform, pay and discharge all * * * its present and future obligations to you * * *; and agrees, without your * * * first having to proceed against Dublin Motors or to liquidate paper or any security therefore, and irrespective of any offset or defense available to Dublin Motors, to pay on demand all sums due and to become due to you from Dublin Motors * * *."

The instrument further stated that the guaranty could be terminated only by three days notice sent by registered mail to Universal C. I. T.

Shortly after the execution of these agreements, the defendant J. W. Scarboro discovered that Dublin Motors April 10, 1961 assigned to Universal C. I. T. a conditional sales contract that had been rescinded prior to its transfer to the finance company. Dublin Motors itself was making the monthly installments on the contract, while imposing upon Universal C. I. T. that they were paid by the former customer. Mr. Scarboro at this time asked his co-shareholder Doug Smith to buy him out or find someone else who would purchase his interest. Later Scarboro threatened to tell Universal C. I. T. about the misrepresented sales contract unless Smith found a buyer for his stock.

In July 1961 Smith persuaded a man named Don R. Riley to buy Mr. Scarboro's stock. About July 5 Scarboro received Riley's check for $4,000 in payment for his 49 per cent interest in the dealership. The record does not disclose the negotiations, if any, between Scarboro and Riley for the transfer of this stock. Mrs. Scarboro transferred her one per cent interest in Dublin Motors to Doug Smith for an undisclosed consideration. Neither of the Scarboros had any subsequent connection with the dealership other than their continuing liability on the May 1 guaranty.

August 10, 1961, Doug Smith, Don R. Riley, and another man, L. D. Woods, executed a new guaranty for Universal C. I. T. on a form identical with the guaranty of May 1. The new guaranty did not purport to replace the old one or to release the Scarboros. According to Mr. Scarboro's deposition, the local Universal C. I. T. office manager had promised him in July that the receipt of a guaranty and financial statement from Riley and Woods would release both the Scarboros from their May 1 guaranty. The Universal C. I. T. district manager did not deny this promise, but asserted in his affidavit that neither Smith, Riley, nor Woods had any discussion or agreement with his company as to releasing the Scarboros from the May 1 guaranty. An employee of Dublin Motors promised to secure Woods' signature on the new guaranty and later assured Scarboro that the instrument had been signed and sent to Universal C. I. T. The record on appeal contains no evidence that the Scarboros sent Universal C. I. T. a notice of cancellation of their guaranty as provided in the contract.

In subsequent months, the defalcations of Dublin Motors multiplied and its financial condition worsened. By December 1961 Dublin Motors was insolvent. January 9, 1962 Universal C. I. T. sued Dublin Motors on the outstanding chattel paper and joined all the individual signers of the May 1 and August 10 guaranties as co-defendants.³ The Scarboros pleaded novation and release. Mrs. Scarboro entered a separate defense that the guaranty was void against her as a suretyship of a married woman under Georgia law. The Scarboros demanded a jury trial of factual issues. In December 1963 the plaintiff moved for summary judgment as to the novation and release defense. The district court granted the motion on the ground that the alleged contract of novation lacked consideration and that all parties to the new guaranty had not agreed to release the Scarboros from their old obligation.⁴ The record does not show a specific ruling by the trial court on Mrs. Scarboro's suretyship defense, although the defendants' brief on appeal assumes that the summary judgment did cover this issue. In any event the Scarboros' appeal raises both the novation and the suretyship questions.

II.

The defendant Nan Scarboro bases her plea of suretyship on the Georgia statute that prohibits a wife from binding her separate estate by any contract of suretyship or assumption of debts for her husband.⁵ She concedes that Georgia courts have repeatedly held that married women are bound by contracts of guaranty. But she insists that the guaranty she executed for Universal C. I. T. was in effect an unenforceable suretyship contract.

We had the identical question before us on similar facts in McCallum v. Griffin, 5 Cir. 1961, 289 F.2d 135. In that case the woman, her husband, and a relative owned all the shares of a carpet manufacturer that obtained a loan from the Small Business Administration. As a condition of the loan, the SBA had required the three shareholders to execute form guaranties that were separate from the principal contract of the corporation. This Court analyzed the Georgia statutes and cases distinguishing guaranty from suretyship and held the wife's obligation valid as a guaranty. The Court noted that the applicable Georgia statute distinguishes a contract of guaranty as one in which consideration flows to the guarantor as well as to the principal.⁶ The leading Georgia cases, the Court concluded, supplement this distinction with requirements that a guaranty be both (1) "a separate and distinct contract entered into to induce the creditor to extend credit" and (2) "a separate undertaking from the primary undertaking of the principal debtor to pay the debt." General Finance Corporation of Atlanta, Northeast v. Welborn, 1958, 98 Ga.App. 280, 105 S.E.2d 386, 389. See National Acceptance Co. v. Fulton National Bank of Atlanta, April 5, 1966, Ga.App., 148 S.E.2d 907.

We find that, under the McCallum analysis, Mrs. Scarboro's contract in this case constitutes a guaranty. The contract was separate and distinct from the Repurchase Plan and Floor Plan Credit agreements, and it did induce Universal C. I. T. to extend credit to the dealership. The undertaking by the individual shareholders was separate from the primary undertakings, trust receipts, and other chattel paper, by the principal debtor Dublin Motors. Sufficient consideration flowed to Mrs. Scarboro in the form of protection for her investment in the dealership. The inclusion of a condition in the contract that the creditor need not first proceed against the principal will not in itself transform a contract of "guaranty" into one of "suretyship." National Acceptance Co. v. Fulton National Bank of Atlanta; General Finance Corporation of Atlanta, Northeast v. Welborn. We hold that the guaranty in this case qualifies under Georgia law as an enforceable contract for obligations accruing after its execution.⁷

III.

Mr. and Mrs. Scarboro both contend that...