Walter E. Heller & Co. v. Aetna Business Credit, Inc., 57553
| Decision Date | 23 October 1979 |
| Docket Number | No. 57553,57553 |
| Citation | 262 S.E.2d 151,151 Ga.App. 898 |
| Court | Georgia Court of Appeals |
| Parties | WALTER E. HELLER & COMPANY v. AETNA BUSINESS CREDIT, INC. |
Don W. Johnson, Dalton, S. Phillip Heiner, Barbara A. Speck, Atlanta, for appellant.
Warren N. Coppedge, Jr., James A. Bisson, III, Dalton, for appellee.
Aetna Business Credit, Inc. maintained a factoring arrangement with Chem-Tech Finishers, Inc. under which Aetna, in consideration of advance fees and interest charges, advanced funds to Chem-Tech in return for its assignment to Aetna of invoices representing accounts receivable generated by Chem-Tech in the normal course of its carpet finishing business. At the same time Walter E. Heller & Company (later determined to be doing business as Walter E. Heller & Company of Georgia) was providing various types of financing to Garrison Carpet Mills, Inc., which was in the carpet manufacturing business, in which it at times guaranteed payment of invoices involved in the business.
Essentially, there is involved in this case a chattel loan secured by receivables and equipment which Aetna made to Chem-Tech, and it agreed to factor accounts receivable for Chem-Tech. However, it could and did refuse invoices over an approved credit limit of $150,000 or where a customer's credit was withdrawn or not approved, or for any reason in Aetna's discretion. Aetna maintained a contractual right to reassign or charge back to the client (Chem-Tech) any invoice which came into dispute between Chem-Tech and one of its customers. Invoices were generally marked and pre-printed with a notice that they were assigned to Aetna, and Aetna only advanced monies on guaranteed invoices.
This case arose by reason of certain guaranties by Walter E. Heller & Company which were issued by Heller to Chem-Tech with reference to certain invoices allegedly assigned by Chem-Tech to Aetna. Aetna Business Credit, Inc. sued Garrison Carpet Mills, Inc. and Walter E. Heller & Company of Georgia for nonpayment of the invoices. Plaintiff alleges that certain disputes arose concerning various invoices factored to the plaintiff, whereupon it exercised its rights under its factoring contract with Chem-Tech Finishers, Inc. and charged back to it all of those items where dispute existed. Plaintiff then called upon the defendants to pay the balance of the account due and owing from defendant Garrison Carpet Mills, Inc. as to invoices in which there had been no dispute or claim. The claim amounted to the sum of $142,901.20 together with interest and reasonable attorney fees after the demand had been refused.
Defendant Garrison answered admitting jurisdiction as to itself but denying that it had any obligation to pay the amount claimed by plaintiff inasmuch as the services allegedly furnished to it were not of an acceptable quality, hence it had no obligation to pay for them. It also added an affirmative defense of conspiracy between Chem-Tech Finishers, Inc. and plaintiff to bring this suit knowing of certain prior existing litigation initiated by defendant Garrison against Chem-Tech. However, by separate motion to dismiss it raised certain defenses of failure to state a claim, lack of jurisdiction over the subject matter and person of the defendant Walter E. Heller & Company of Georgia, as well as an insufficiency of process and service of process upon that defendant and also because of a failure to join a necessary party.
Walter E. Heller & Company answered denying the claim because the services allegedly furnished to defendant Garrison were not accepted by Garrison and it had no obligation to pay for them under the alleged guaranties by the terms of said guaranties. It also filed the same affirmative defense of conspiracy between plaintiff and Chem-Tech Finishers, Inc. with reference to prior existing litigation by the defendant Garrison and against Chem-Tech.
The case then came on for trial following considerable discovery and amendments of the petition, as well as the answers. The case thus involves such issues as failure to state a claim, improper venue and lack of jurisdiction, including numerous defenses as to the alleged liability of the defendant Heller under the guaranties, including the nonassignability thereof, actions by other parties that increased its risk and destroyed its right of subrogation, the nonoccurrence of various conditions precedent to its liability under the guaranties, and its right to set-off various claims by defendant Garrison against Chem-Tech based primarily upon the alleged defective nature of the carpet finishing services performed by Chem-Tech for defendant Garrison.
On June 21, 1978, during a four-day trial, the trial court directed a verdict against both defendants in favor of Aetna in the amount of $142,901.20. Both defendants filed separate motions for new trial which were later amended. Considerable post-judgment discovery then occurred, including plaintiff's request for supersedeas bond. After a hearing the motions were denied and although the motion for supersedeas bond had originally been denied in the event either of the defendants should seek to appeal, a supersedeas bond was then required to appeal. The defendant Heller appeals. However, because of its defunct status defendant Garrison did not prosecute its appeal. Held:
1. The guaranties issued by Heller and addressed to Chem-Tech provided that they be governed by the law of Illinois. The case was tried and considered with this provision in mind and numerous decisions of the appellate courts of Illinois were submitted to the trial court. See in this regard, Code Ann. § 81A-143(c) (Ga.L.1966, pp. 609, 654; 1968, pp. 1104, 1108). Heller contends that under Illinois law a guaranty could not be assigned to Aetna as Chem-Tech had purported to do.
The general rule under Illinois law is that a guarantor is released from his obligations where the creditor assigns his contract to a third party. This rule is predicated upon the assumption that the assignment would be a material alternation depriving the surety of expectations in an original party or materially affecting the operation of the instrument by addition of a party. This case does not fall within the general rule as Chem-Tech performed under the contract in its relationship with Garrison, and there was no assignment of this contract. The involvement of Aetna affects only the direction of the payment from the principal. This has been held not to be a material alteration under the Illinois appellate decisions. See Claude Southern Corp. v. Henry's Drive-In, Inc., 51 Ill.App.2d 289, 304(17-19), 201 N.E.2d 127.
2. In Illinois when the guaranty, as here, is a collateral continuing one, the general rule is that the guarantor is entitled to reasonable notice of the default of the creditor. The right to this notice, however, is not absolute, and the failure to give it can only be availed of when it is made to appear that the guarantor has suffered a loss by such failure. Showing failure of notice and resultant loss is a burden resting with the guarantor. In this case Heller was given notice of the default of Garrison by a letter in regard to a portion of the sum sued upon, but no notice of failure to pay sums subsequently coming due is shown. There is, however, no showing of any harm whatsoever to Heller by the lack of notice in regard to the later invoices. The defendant Heller having failed to carry its burden of showing harm, Heller may not escape liability solely due to the lack of notice. Taussig v. Reid, 145 Ill. 488, 32 N.E. 918; George Mamerow v. National Lead Co., 206 Ill. 626, 69 N.E. 504.
3. In order to leave Aetna with only "clean" invoices relating to transactions involving no dispute between Chem-Tech and Garrison, the disputed invoices were reassigned by Aetna back to Chem-Tech with Aetna retaining a security...
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