McLendon v. Hartford Accident & Indemnity Co.

167 S.E.2d 725, 119 Ga. App. 459, 1969 Ga. App. LEXIS 1139

• Court: Court of Appeals of Georgia
• Decided: March 10, 1969
• Docket: 43962
• Status: Published

Opinions

Hall, Judge.

McLendon operated a peanut storage warehouse where he processed and stored peanuts for G. F. A. Peanut Association, hereinafter referred, to as G. F. A. To be approved as a warehouseman it was necessary that McLendon secure a surety bond guaranteeing the faithful performance of the warehouse contract. Hartford executed the surety bond to McLendon indemnifying G. F. A. for loss resulting from the warehouse storage agreement between G. F. A. and McLendon. McLendon operated the peanut storage warehouse until the latter part of December 1963, at which time there was a disagreement between G. F. A. and McLendon. G. F. A. then took over the operation of the warehouse under the terms and conditions of the contract between it and McLendon. At a later date G. F'. A. made a claim on the bond against Hartford contending the there were shortages in the amount of peanuts that it had stored with McLendon. Hartford, after paying G. F. A.’s claim, filed the present suit for reimbursement under the provisions of the bond.

The bond provided that McLendon would reimburse Hartford for any amounts of money that Hartford paid in consequence of having executed the bond. The bond further provided: “That in any accounting which may be had between the undersigned and the surety, the surety shall be entitled to credit for any and all disbursements in and about the matters herein contemplated, made by it in good faith under the belief that it is or was liable for the amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether such liability, necessity or expediency existed or not . . . Eleventh: That the surety shall have the exclusive right for itself, and for the principal on or in said bond or other instrument, to decide and determine whether any claim, demand, liability, suit, action, judgment or adjudication, made, brought, or entered against the surety or principal on or in said bond or other instrument, or both, whether jointly or severally, or jointly and severally, shall, or shall not, be defended, tried, appealed, or settled, and its decision shall be final, conclusive and binding upon the undersigned.”

McLendon contends that the trial judge erred in sustaining a motion to strike the fifth and sixth defenses of his answer which set up the defense that Hartford failed to exercise good faith in acting under the terms and conditions of the bond. Hartford contends that the trial court did not err for the reason these defenses were not sufficient to meet the requirements for pleading “fraud” under Code Ann. § 81A-109(b). The fallacy of this contention is that allegations that one has failed to exercise “good faith” are totally and completely different from a claim that one has made a “fraudulent misrepresentation.” Lack of “good faith” is not the same as “fraud” under Code Ann. § 81A-109(b).

The bond provisions set forth above made the surety (Hartford) the agent of the principal (McLendon) “to decide and determine whether any claim, demand, liability, suit, action, judgment or adjudication, made, brought, or entered against the surety or principal . . . shall, or shall not, be defended, tried, appealed, or settled, . . .” Being its agent it is elementary that Hartford held a fiduciary relationship with McLendon and was required to act in good faith and with loyalty. See Fort Valley Coca-Cola &c. Co. v. Lumbermen’s Mut. &c. Co., 69 Ga. App. 120 (7) (24 SE2d 846); Williamson, Inman Co. v. Thompson, 53 Ga. App. 821 (187 SE 194). The situation is somewhat similar to that in which a contractor with the State Highway Department agrees that if differences arise the highway engineer shall make all decisions connected with the execution of the agreement and that his decision shall be binding and conclusive. However, a contractor can challenge this decision where he alleges there has been “fraud, or such gross mistake as would necessarily imply bad faith, or a failure to exercise an honest judgment.” State Hwy. Dept. v. MacDougald Constr. Co., 189 Ga. 490 (2) (6 SE2d 570).

McLendon’s fifth and sixth defenses charge in specific detail that Hartford did not act in good faith in paying off G. F. A. The trial court erred in striking these defenses and all further proceedings were thereby rendered nugatory.

Hartford further contends that if this court should conclude that the fifth and sixth defenses of the answer should not have been stricken, the error was harmless in view of the fact the transcript discloses that the defendant was permitted, without objection, to submit some evidence on the matter and that the entire transcript demands a conclusion that it acted in good faith in making the payment to G. F. A. We reject this contention for the simple reason that it rests upon sheer conjecture and speculation. The trial court had stricken this defense. How then can it be said as a matter of law that since McLendon was able to present some evidence at the trial in support of his stricken defenses, a finding is demanded that this was all the evidence he could or would have submitted if the defense had not been stricken?

The trial court erred in granting Hartford’s motion for a judgment notwithstanding the verdict.

Judgment reversed.

Felton, C. J., Bell, P. J., Jordan, P. J., Pannell and Deen, JJ., concur. Ftberhardt, Quillian, and Whitman, JJ., dissent.