Opinion
41767.
ARGUED JANUARY 11, 1966.
DECIDED FEBRUARY 9, 1966. REHEARING DENIED FEBRUARY 25, 1966.
Action on note. DeKalb Civil and Criminal Court. Before Judge Mitchell.
Haas, Dunaway, Shelfer Haas, Hugh F. Newberry, George A. Haas, for appellant.
Martin McFarland, for appellee.
1. A plea of coverture by a married woman in an action against her on a contract which is an original undertaking or which is in the nature of an indemnity agreement, but which is not one of suretyship, is unavailable.
2. The indebtedness represented by a note of a corporation to a bank, though indorsed by her husband, is not the debt of the husband and an agreement of the wife to pay it is not proscribed as an agreement to pay the debts of her husband.
3. An agreement to pay or to indemnify and hold harmless a third party against any liability or loss on account of the debts of a corporation in which she is a stockholder in consideration of the surrender by the third party of his stock in the corporation is not without consideration.
ARGUED JANUARY 11, 1966 — DECIDED FEBRUARY 9, 1966 — REHEARING DENIED FEBRUARY 25, 1966.
Robert Rankin and his wife Jane, and James Smith and his wife Zelma organized a corporation known as Rankin-Smith, Inc., in which these four owned all of the stock and each was an officer. In the course of its operation the corporation borrowed from First National Bank of Atlanta $5,000, giving its note with the personal indorsements of Robert Rankin and James Smith. Thereafter the Rankins sold their stock in the corporation to the Smiths and in connection therewith Smith and his wife entered into a written agreement with the Rankins "to assume and pay all outstanding debts and obligations of the corporation from this date forward [and] to hold harmless and release Robert W. Rankin and Jane M. Rankin from any and all liability and obligations resulting from their association as stockholders and/or officers of said Rankin-Smith, Inc."
The Rankin stock was retired on the books of the corporation, leaving Smith and his wife as the sole stockholders. When the note to First National Bank matured neither the corporation nor Smith was able to pay it in full. The bank was willing to renew the note only if both Rankin and Smith continued their indorsements. The note was reduced to $3,500 and renewed with the indorsements. When it matured again neither the corporation nor Smith could pay, and Rankin was forced to pay off the note and have it transferred to himself. He brought suit to recover the amount that he had paid, with interest and attorney's fees, against Smith and his wife on the agreement above referred to. Mrs. Smith filed a plea of coverture, contending that as to this obligation she was a surety only and thus could not be held. At the conclusion of the evidence a verdict was directed against Smith but in favor of his wife, and Rankin appeals.
1. Is the position of Mrs. Smith sustainable that the contract was one of suretyship, that her plea of coverture was good and that the direction of a verdict in her favor was proper under Code §§ 103-101, 53-503? While she asserts that by the contract she became surety for the debt of her husband, the fact is that the debt was that of Rankin-Smith, Inc. But, if the contract be one of suretyship it matters not whether the debt was that of her husband or of the corporation. Saulsbury, Respess Co. v. Weaver, 59 Ga. 254.
However, we cannot agree that it is a surety contract. "A contract of suretyship is where, in consideration of the benefit extended to the principal debtor, one lends his credit by joining the principal debtor's obligation, so as to render himself directly and primarily responsible on the same contract . . ." Durham v. Greenwold, 188 Ga. 165, 167 ( 3 S.E.2d 585). Certainly the obligation of Mrs. Smith was not extended to and did not run to the principal debtor, Rankin-Smith, Inc., nor was it on the same contract.
While there is no proscription against the making of a guaranty contract by a married woman ( Wilson Brothers v. Heard, 46 Ga. App. 497 ( 167 S.E. 913)), this one does not have the characteristics of a guaranty agreement. The defendant did not obligate herself to pay the debts of Rankin-Smith, Inc., if it did not pay, or guarantee its solvency. Rather, she entered into an original undertaking whereby, as to the Rankins, she assumed and agreed to pay the corporation's debts. Additionally, she agreed to hold them harmless against any liability on account thereof. This second portion of the agreement is in the nature of an indemnity contract. See National Bank of Monroe v. Wright, 77 Ga. App. 272 ( 48 S.E.2d 306); Copeland v. Beville, 93 Ga. App. 442 ( 92 S.E.2d 54). Cf. Walton County Bank v. Stanton, 38 Ga. App. 591 ( 144 S.E. 815); Stanton v. Walton County Bank, 169 Ga. 40, 43 ( 149 S.E. 573). "Like the contract of suretyship, the contract of indemnity has as its purpose security of the promisee against loss. The great difference between the two lies in the character of the promisee. In suretyship the promise runs to an obligee or creditor, present or prospective. In indemnity the promise runs to an obligor or debtor present or prospective. In suretyship the promisee has or is about to extend credit to a third person, the principal, and the promise is made to protect the promisee creditor in case the principal fails to perform. In indemnity, the promisee owes or is about to assume an obligation to a third person, the creditor, and the promisor agrees to save him harmless from a loss as a result of his assuming that obligation." Simpson, Suretyship (1950), p. 28, § 17.
In the present contract the promise of Mrs. Smith runs to the Rankins — not to the corporation or to the creditor bank. Mr. Rankin had already become obligated as an indorser on the note from the corporation to the bank, and it was to save him harmless as a result of his having assumed that obligation that this contract was entered into.
Unless the contract is one of suretyship the plea of coverture was unavailable. "The only restriction upon the right of a married woman to contract is that she can not make herself liable to pay her husband's debts, and `can not bind her separate estate by any contract of suretyship.' Civil Code (1910) §§ 2993, 3007 [now §§ 53-502, 53-503]. These restrictions should not be extended beyond their clear import. Since the law makes a distinction between a contract of suretyship and one of guaranty (Civil Code § 3538 [now § 103-101]), and this difference in the two contracts is often very material to a determination of the rights of the parties . . . the inhibition upon a married woman's execution of a contract of suretyship should not apply to any other contract made by her." Wilson Brothers v. Heard, 46 Ga. App. 497, supra. This applies when she has entered into a contract of indemnity, or of an original undertaking, as well as when she has made a guaranty contract.
2. Her contention that this was a contract on her part to pay her husband's debt is wholly without merit. The obligation of Rankin-Smith, Inc. to First National Bank was not her husband's debt, nor did the fact that he, along with Mr. Rankin, indorsed the note make it so. It was the debt of the corporation, albeit Mr. Smith could be held on his indorsement.
3. Mrs. Smith urges that the contract was, as to her, without consideration, but this is unsupported by the facts. She held 40 shares of stock in Rankin-Smith, Inc. and the contract recites that in consideration of the surrender by the Rankins of "all their respective shares, rights, title and interest to Rankin-Smith, Inc." leaving Mrs. Smith and her husband the "sole shareholders in said corporation" she and her husband do agree to assume and pay all outstanding debts and obligations of the corporation and to hold the Rankins harmless from any and all liability and obligation resulting from their association as stockholders and officers of the firm. The evidence disclosed that the Smiths paid to the Rankins $2,913.54 for the surrender and retirement of their 340 shares of stock, and it was canceled out on the books of the company, leaving 340 shares issued to the Smiths as all of the outstanding capital stock.
Inevitably the value of the shares of Mrs. Smith was increased proportionately. She continued to hold the office of treasurer of the corporation and, as such, could have had full access to the books and records of the corporation at any time. That the 40 shares of stock issued to her and her election to the office of treasurer may have been pursuant to the arrangements of Mr. Smith and Mr. Rankin in the organization of the corporation and that she never paid anything for the stock, is immaterial. She entered into the contract reciting that she was a stockholder and that as a result of the surrender by the Rankins of their stock she and her husband were "now the sole shareholders in said corporation." If the issuance of the stock to her was at her husband's instance she had accepted it, and in making the contract was accepting the benefits to be derived from the surrender of the Rankin stock.
Whether the contract be treated as an original undertaking or as an indemnity agreement (Cf. Dixie Auto Ins. Co. v. Smith, 109 Ga. App. 13 (1) ( 134 S.E.2d 863)), it is not one of suretyship. The liability of Mrs. Smith under it is in no wise different from that of her husband. Each is obligated by its terms. Direction of a verdict in Mrs. Smith's favor was error.
Judgment reversed. Bell, P. J., and Jordan, J., concur.