O.C.G.A. § 10-7-21 (2019)

Annotations

Editor’s notes. It was held in some cases, prior to 1981, that this section did not apply to compensated sureties, as they were treated as guarantors under O.C.G.A. § 10-7-1 as it then read. See, for example, Travelers Indem. Co. v. Sasser & Co., 138 Ga. App. 361, 226 S.E.2d 121 (1976); Brock Constr. Co. v. Houston Gen. Ins. Co., 144 Ga. App. 860, 243 S.E.2d 83, aff’d, 241 Ga. 460, 246 S.E.2d 316 (1978), overruling Little Rock Furn. Co. v. Jones & Co., 13 Ga. App. 502, 79 S.E. 375 (1913), and Fairmont Creamery Co. v. Collier, 21 Ga. App. 87, 94 S.E. 56 (1917). Other cases

stated that this section did apply to contracts of guaranty. See, for example, Dunlap v. Citizens & S. DeKalb Bank, 134 Ga. App. 893, 216 S.E.2d 651 (1975); Gilbert v. Cobb Exch. Bank, 140 Ga. App. 514, 231 S.E.2d 508 (1976); Ricks v. United States, 434 F. Supp. 1262 (S.D. Ga. 1976). Then in 1981, Ga. L. 1981, p. 870, § 1, amended O.C.G.A. § 10-7-1 to abolish the distinction between contracts of suretyship and guaranty. See the Editor’s note to O.C.G.A. § 10-7-1. Law reviews. For article, “Georgia Law Needs Clarification: Does it Take Willful or Wanton Misconduct to Defeat a Contractual ‘Exculpatory’ Clause, or Will Gross Negligence Suffice,” see 19 Ga. St. B. J. 10 (Feb. 2014).

JUDICIAL DECISIONS ANALYSIS GENERAL CONSIDERATION NOVATION CONSENT APPLICATION EXTENSION General Consideration Section strictly construed. - Georgia courts have given this section strict enforcement. Oellerich v. First Fed. Sav. & Loan Ass’n, 552 F.2d 1109, 1977 U.S. App. LEXIS 13220 (5th Cir. 1977).

Liability of a surety cannot be extended beyond the actual terms of surety’s engagement and will be extinguished by any act or omission which alters the terms of the contract, unless it is done with the surety’s consent.

General Consideration (Cont’d) Washington Loan & Banking Co. v. Holliday, 26 Ga. App. 792, 107 S.E. 370, 1921 Ga. App. LEXIS 642 (1921). Novation Novation discharges surety. - Contract of suretyship was one of strict law under former Code 1863, § 2127 (see now O.C.G.A. § 10-7-3), and any change of the nature or terms of the contract, without the consent of the surety, discharges the surety. Camp v. Howell, 37 Ga. 312, 1867 Ga. LEXIS 163 (1867). Change in the nature or terms of the contract is a novation, and such a novation, without the consent of the surety discharges the surety from liability. Smith v. Georgia Battery Co., 46 Ga. App. 840, 169 S.E. 381, 1933 Ga. App. LEXIS 266 (1933) (change in terms of bond after surety signed). Any change in the terms of the contract is considered a novation and discharges the surety in the absence of the latter’s consent. The surety is also discharged by any act of the creditor which injures the surety or increases the surety’s risk. Brunswick Nursing & Convalescent Ctr., Inc. v. Great Am. Ins. Co., 308 F. Supp. 297, 1970 U.S. Dist. LEXIS 13292 (S.D. Ga. 1970). Any novation without the consent of the surety, or increase in risk, discharges the surety. Dunlap v. Citizens & S. DeKalb Bank, 134 Ga. App. 893, 216 S.E.2d 651, 1975 Ga. App. LEXIS 2210 (1975). Tenant and landlord changed the terms of lease without the consent of the guarantor on the lease, therefore the guarantor was discharged from its obligations; the amendments, which removed the landlord’s obligation to provide additional access to the property and waived the landlord’s liability for leasing portions of the property to competing businesses, were material changes to the lease. SuperValu, Inc. v. KR Douglasville, LLC, 272 Ga. App. 710, 613 S.E.2d 154, 2005 Ga. App. LEXIS 290 (2005), cert. denied, No. S05C1326, 2005 Ga. LEXIS 602 (Ga. Sept. 19, 2005). In a suit to recover on a note, the trial court properly denied a creditor’s motion

for summary judgment, and granted summary judgment to the guarantor of the note, releasing the guarantor from the guaranty the guarantor entered into with the creditor’s debtor, as the execution of an escrow agreement between the creditor and the debtor, which materially changed the debtor’s obligations thereunder without the guarantor’s consent, amounted to a novation, releasing the guarantor from any obligation under the note. Thomas-Sears v. Morris, 278 Ga. App. 152, 628 S.E.2d 241, 2006 Ga. App. LEXIS 272 (2006). Change must be material. - Any material alteration in the original contract, without the knowledge or consent of the guarantor thereof, will relieve the guarantor from the guaranty. H.C. Whitmer Co. v. Sheffield, 51 Ga. App. 623, 181 S.E. 119, 1935 Ga. App. LEXIS 423 (1935). Surety will not be discharged from the contract unless the change or alteration in the contract is material. Brunswick Nursing & Convalescent Ctr., Inc. v. Great Am. Ins. Co., 308 F. Supp. 297, 1970 U.S. Dist. LEXIS 13292 (S.D. Ga. 1970). Changes in lease agreed on in advance by guarantor. - Increased holdover rent was reserved in a commercial lease, and since there was no change in the terms of the lease, the landlord’s act of allowing the corporation to remain as a tenant holding over was not a novation; in any event, the guaranty gave the landlord the authority to change the amount, time, or manner of payment of rent and to amend, modify, change or supplement the lease, and thus, the guarantor consented in advance to changes in the lease. Hood v. Peck, 269 Ga. App. 249, 603 S.E.2d 756, 2004 Ga. App. LEXIS 1129 (2004). Guarantors remained responsible under lease. - In a dispute to recover amounts due under a lease and two guaranties, under the plain terms of the guaranties, the guarantors were liable for rent under the lease renewal as there was no novation because the guarantors explicitly agreed that the guaranties would continue in full force and effect during any renewals of the lease and that the guaranties would not be affected by

any modification, changes, alteration, or revisions to the lease. Sage Atlanta Props. v. Diner Group of Ga., 360 Ga. App. 817, 861 S.E.2d 638, 2021 Ga. App. LEXIS 398 (2021). One who consents to a novation is not discharged as a surety. If notes are accepted by a creditor as security and are signed by the surety, the notes are not “without the consent of the surety” as contemplated by this section. Mauldin v. Lowe’s of Macon, Inc., 146 Ga. App. 539, 246 S.E.2d 726, 1978 Ga. App. LEXIS 2448 (1978). Liability extinguished when changes without consent. - If a party makes a contract in such a manner as is authorized by law, the party has a right to object to being bound by any other, and this elementary general rule has particular application to material changes in contractual obligations of sureties when made without their consent, and their liability is thereby extinguished. Hamby v. Crisp, 48 Ga. App. 418, 172 S.E. 842, 1934 Ga. App. LEXIS 91 (1934). Individually liable guarantors not released by novation. - Nonsettling guarantors of promissory notes who were individually, not jointly, liable were not cosureties under O.C.G.A. § 10-7-21; thus, they were not discharged by plaintiff’s acceptance from other guarantors of less than the total sum owed under the notes. Any novation by virtue of the settlement agreement would not operate to release the nonsettling guarantors from their individual limited liabilities. Marret v. Scott, 212 Ga. App. 427, 441 S.E.2d 902, 1994 Ga. App. LEXIS 286 (1994). No evidence of novation to discharge surety. - Given that the broad language of a guaranty obligated the guarantor to the bank, absolutely and unconditionally guaranteeing the payment and performance of each and every debt that the debtor would owe, and because no issue of fact existed as to whether the guarantor was discharged by any increased risk or any purported novation, the guarantor remained obligated under the guaranty to the bank. Fielbon Dev. Co. v. Colony Bank, 290 Ga. App. 847, 660 S.E.2d 801, 2008 Ga. App. LEXIS 376 (2008).

Trial court did not err in ruling that a promissory note modification was simply a modification of certain terms of the original note instead of a novation that substantially increased a guarantor’s personal liability under the guaranty and, therefore, discharged the guarantor because there was no merit to the guarantor’s contention that, at the time the guarantor executed the note modification, such modification contemporaneously increased the guarantor’s contractual obligations to the creditors; at the time the guarantor executed the note modification on behalf of the debtor, the guarantor was already personally obligated to pay the creditors, pursuant to the guaranty, the original principal amount plus the accrued interest. Core LaVista, LLC v. Cumming, 308 Ga. App. 791, 709 S.E.2d 336, 2011 Ga. App. LEXIS 281 (2011). Change which benefits surety. - Rule enunciated in this section will not be altered by the fact that the change in the contract, which was made without the knowledge or consent of the surety, nevertheless inured to the benefit of the principal and the surety. If the change is made without the knowledge or consent of the surety, the surety’s complete reply is non haec in foedera veni. Little Rock Furn. Co. v. Jones & Co., 13 Ga. App. 502, 79 S.E. 375, 1913 Ga. App. LEXIS 239 (1913), overruled, Brock Constr. Co. v. Houston General Ins. Co., 144 Ga. App. 860, 243 S.E.2d 83, 1978 Ga. App. LEXIS 1824 (1978); Fairmont Creamery Co. v. Collier, 21 Ga. App. 87, 94 S.E. 56, 1917 Ga. App. LEXIS 440 (1917). Any change in the terms of a contract by which a new and materially different contract is created constitutes a novation and, when made without the consent of the surety, operates to discharge the latter; this is true even though such newly created contract is more favorable to the surety than the contract as originally executed. Paulk v. Williams, 28 Ga. App. 183, 110 S.E. 632, 1922 Ga. App. LEXIS 370 (1922). Surety who has not consented to a change in a bond is entitled to claim a discharge, regardless of how the change affected the surety, and even if the change inured to the surety’s benefit. Smith v.

Novation (Cont’d) Georgia Battery Co., 46 Ga. App. 840, 169 S.E. 381, 1933 Ga. App. LEXIS 266 (1933). Change which does not injure surety. - If there is a change in the nature of the contract and it is made without the knowledge or consent of the surety, a release will result, regardless of injury. Alropa Corp. v. Snyder, 182 Ga. 305, 185 S.E. 352, 1936 Ga. LEXIS 339 (1936). Surety is discharged from the terms of the contract, even though the surety is not injured by the contract change. Brunswick Nursing & Convalescent Ctr., Inc. v. Great Am. Ins. Co., 308 F. Supp. 297, 1970 U.S. Dist. LEXIS 13292 (S.D. Ga. 1970). Any change, whether to the surety’s benefit or detriment, is a novation which discharges the surety. Upshaw v. First State Bank, 244 Ga. 433, 260 S.E.2d 483, 1979 Ga. LEXIS 1271 (1979). Release of parties to instrument secured discharges surety. - By virtue of this section, when a surety or accommodation endorser signs a note, the consideration of which is that the note shall be held by the bank when it is negotiated as collateral security for another note or draft due the bank, and the bank, without the knowledge and consent of the surety, changes the contract by releasing the acceptor and endorser of that other note or draft, the security or accommodation endorser of the collateral note is discharged. Stallings v. Bank of Americus, 59 Ga. 701, 1877 Ga. LEXIS 372 (1877). Change in terms of payment to creditor discharges surety. - Change by the obligee and principal in the terms of payments to the contractor from that provided in the building contract operates to discharge the surety. Brunswick Nursing & Convalescent Ctr., Inc. v. Great Am. Ins. Co., 308 F. Supp. 297, 1970 U.S. Dist. LEXIS 13292 (S.D. Ga. 1970). Claim for interest not novation. - Creditor’s claim for interest in an action against the debtor and personal guarantor on an open account agreement did not result in a novation of the agreement. Charles S. Martin Distrib. Co. v. Berhardt Furn. Co., 213 Ga. App. 481,

445 S.E.2d 297, 1994 Ga. App. LEXIS 608 (1994). Increase in rate of interest. - Giving of a new note for a usurious increase in interest, and part payment thereof, in consideration of 12 months delay to sue, discharges the surety on the original note. Camp v. Howell, 37 Ga. 312, 1867 Ga. LEXIS 163 (1867). Under former Civil Code 1885, §§ 2968 and 2971, if, after a promissory note payable to a named payee or bearer has been signed by one as surety, the principal, before it comes into the hands of one who thereafter receives it as bearer in the course of negotiation before due, so alters it as to increase the rate of interest agreed to be paid from 8 to 12 percent, such note is by such alteration rendered void as to such surety; and this is true even though, at the time it comes into the hands of such bearer, one has no notice of the alteration by the principal. Hill v. O’Niell, 101 Ga. 832, 28 S.E. 996, 29 S.E. 996, 1897 Ga. LEXIS 341 (1897). Comaker of the third series of renewal notes was discharged following subsequent renewals at an increased rate of interest since the provisions of the note did not cover subsequent modifications of the interest rate and the comaker had not signed the subsequent notes. Bank of Terrell v. Webb, 177 Ga. App. 715, 341 S.E.2d 258, 1986 Ga. App. LEXIS 1526 (1986). Change in payment terms, costs, and expenses resulted in novation. - New agreement was a novation under O.C.G.A. § 10-7-21 as the agreement changed the payment terms of the original contract by adding the requirement of late charges on unpaid balances, and costs and expenses of collection, including attorney fees; therefore, the novation discharged the guarantor. Builder Marts of Am., Inc. v. Gilbert, 257 Ga. App. 763, 572 S.E.2d 88, 2002 Ga. App. LEXIS 1281 (2002). There is no novation if there is no new consideration. Sens v. Decatur Fed. Sav. & Loan Ass’n, 159 Ga. App. 767, 285 S.E.2d 226, 1981 Ga. App. LEXIS 2800 (1981). Novation not found. - Guarantor argued that a bank’s settlements with two other guarantors constituted a novation

under O.C.G.A. § 10-7-21; however, a novation required a new agreement, and there was no new contract between the bank and the borrower and no new contract between the bank and the borrower. Additionally, the guarantor consented to the settlements in advance in the guaranty agreement. Wooden v. Synovus Bank, 323 Ga. App. 794, 748 S.E.2d 275, 2013 Ga. App. LEXIS 750 (2013). Consent Implied consent makes change immaterial. - Any change or alteration made in an instrument after the instrument’s execution which is impliedly authorized by the signers thereof, and which merely expresses what would otherwise be supplied by intendment, is immaterial, and will not discharge one signing as surety. Watkins Medical Co. v. Harrison, 33 Ga. App. 585, 126 S.E. 909, 1925 Ga. App. LEXIS 615 (1925). Surety may consent in advance to a course of conduct which would otherwise result in the surety’s discharge. Dunlap v. Citizens & S. DeKalb Bank, 134 Ga. App. 893, 216 S.E.2d 651, 1975 Ga. App. LEXIS 2210 (1975). Surety is not discharged by any act of the creditor or obligee to which the surety consents. Consent may be given in advance as at the time the contract of suretyship is entered into. Union Commerce Leasing Corp. v. Beef ’N Burgundy, Inc., 155 Ga. App. 257, 270 S.E.2d 696, 1980 Ga. App. LEXIS 2549 (1980). Guarantor may consent in advance to conduct which would otherwise result in statutory discharge. Regan v. United States Small Bus. Admin., 926 F.2d 1078, 1991 U.S. App. LEXIS 4091 (11th Cir. 1991). If the language of a guaranty specifically contemplated an increase in the obligor’s debt and the creation of new obligations, and included waivers of any “legal or equitable discharge” and of any defense based upon an increase in risk, the protections of O.C.G.A. §§ 10-7-21 and 10-7-22 were waived. Underwood v. NationsBanc Real Estate Serv., Inc., 221 Ga. App. 351, 471 S.E.2d 291, 1996 Ga. App. LEXIS 482 (1996).

By assenting in advance to a waiver of all legal and equitable defenses, the guarantor was foreclosed from asserting that the guarantor was discharged under O.C.G.A. § 10-7-21 or O.C.G.A. § 10-7-22. Ramirez v. Golden, 223 Ga. App. 610, 478 S.E.2d 430, 1996 Ga. App. LEXIS 1241 (1996). Alleged guarantor was not discharged from the obligations of a personal guarantee under O.C.G.A. §§ 10-7-21 and 10-7-22 because, although a subsequent agreement changed the terms of the original guaranty by granting an extension of time regarding the terms of purchase from a company and acted as a novation, the alleged guarantor consented to those changes. Staten v. Beaulieu Group, LLC, 278 Ga. App. 179, 628 S.E.2d 614, 2006 Ga. App. LEXIS 278 (2006). Disregard of condition of surety’s consent makes section apply. - If a surety authorizes the substitution of the new bill on a condition useless to the surety and the condition is disregarded, the surety may claim the principle announced in this section. Central Ga. Bank v. Cleveland Nat’l Bank, 59 Ga. 667, 1877 Ga. LEXIS 368 (1877). Unconsented increase in risk is an independent ground for discharge of a surety. Upshaw v. First State Bank, 244 Ga. 433, 260 S.E.2d 483, 1979 Ga. LEXIS 1271 (1979). Application Rules apply to negotiable instruments. - Agreement (novation) which would discharge the surety or guarantor of a simple contract for the payment of money will also discharge one who is a guarantor or surety on a negotiable instrument. Sewell v. Akins, 147 Ga. App. 454, 249 S.E.2d 274, 1978 Ga. App. LEXIS 2720 (1978). Official bonds. - When, after the execution of the public printer’s performance bond, the legislature by resolution authorized the treasurer (now director of the Office of Treasury and Fiscal Services) to advance to the printer a sum in part payment for the public printing of the session then pending, this was such a novation of the contract as discharged the sureties if done without

Application (Cont’d) the surety’s consent. Walsh v. Colquitt, 64 Ga. 740, 1880 Ga. LEXIS 402 (1880). Taking of a promissory note for an antecedent liability does not constitute a payment of the debt in the absence of an agreement to that effect, or evidence that such was the intention of the parties. Sulter v. Citizens Bank & Trust Co., 51 Ga. App. 798, 181 S.E. 694, 1935 Ga. App. LEXIS 476 (1935). Mutual intention to treat former contract as no longer binding must be shown. - To do away with the stipulations in a contract, the circumstances must show a mutual intention of the parties to treat the stipulations as no longer binding and must be such as, in law, to make practically a new agreement. Pittsburgh Plate Glass Co. v. Jarrett, 42 F. Supp. 723, 1942 U.S. Dist. LEXIS 3262 (D. Ga.), modified, 131 F.2d 674, 1942 U.S. App. LEXIS 2918 (5th Cir. 1942). Promissory note evidence of settlement of accounts. - Under the facts, the taking of a demand promissory note for a preexisting liability which was covered by the guaranty did not constitute a payment of the debt and thereby release the guarantor. Sulter v. Citizens Bank & Trust Co., 51 Ga. App. 798, 181 S.E. 694, 1935 Ga. App. LEXIS 476 (1935). Generally, the execution of a promissory note is prima facie evidence of the full settlement of all accounts up to the date of the note. A compromise, or mutual accord and satisfaction, is binding on both parties. Collier v. Casey, 59 Ga. App. 627, 1 S.E.2d 776, 1939 Ga. App. LEXIS 377 (1939). Accord and satisfaction is effected by each party relinquishing claim. - When each of two persons relinquishes a claim against the other, or each discontinues an action against the other, a mutual accord and satisfaction is effected, regardless of the respective amounts involved; and this bars any further recourse on the part of either as to such claims. Any rights of the parties must now be based upon the new agreement. Collier

v. Casey, 59 Ga. App. 627, 1 S.E.2d 776, 1939 Ga. App. LEXIS 377 (1939). New note for less than old is presumptive evidence of settlement. - New note for a less sum than the old note, given in renewal thereof, is presumptive evidence that all differences between the parties were adjusted and settled when such new note was given. Collier v. Casey, 59 Ga. App. 627, 1 S.E.2d 776, 1939 Ga. App. LEXIS 377 (1939). Other agreement must be clearly shown. - It must be upon clear and satisfactory evidence that both parties agreed and intended that the settlement, made when the new note was given, was not final and that any defense which could have been made to the old note might still be made to the new one. Collier v. Casey, 59 Ga. App. 627, 1 S.E.2d 776, 1939 Ga. App. LEXIS 377 (1939). New note given for old with different terms is novation. - When a note was given by principal and security during the Civil War which, at the close of the war, was scaled to a gold standard, a new note given by a principal alone for the amount thus scaled, and accepted by the payee in the discharge of the first note, was a novation of the original contract under former Code 1868, §§ 2125 and 2828. Hamilton v. Willingham, 45 Ga. 500, 1872 Ga. LEXIS 267 (1872). Substituting absolute deed for mortgage. - Absolute deed conveying land as security for a debt is a security of a higher nature than a mortgage for the same debt on the same premises, and when the mortgage is entered satisfied and surrendered up because of the execution of such deed, the transaction operates as a novation and amounts to a merger. Bostwick v. Felder, 73 Ga. App. 118, 35 S.E.2d 783, 1945 Ga. App. LEXIS 405 (1945). Changing the date from which a promissory note draws interest by erasing the words “from date” and substituting therefor the words “from maturity” is a material alteration creating a new contract and constitutes a novation. Paulk v. Williams, 28 Ga. App. 183, 110 S.E. 632, 1922 Ga. App. LEXIS 370 (1922).

Renewing note at same rate. - By virtue of this section, the mere renewal of a note at the same rate of interest is not a novation. Partridge v. Williams’ Sons, 72 Ga. 807, 1884 Ga. LEXIS 324 (1884). New note to ward and security deed conveying same property conveyed to guardian. - If a guardian holding a note secured by a deed received, for the benefit of two minor wards, payment from the debtor of a sum equal to the share of one of the wards, and settled with such ward at majority, and thereafter the debtor executed a new note and security deed to the other ward at majority, the new note representing the ward’s share of the original indebtedness and the security deed conveying the same property as the original deed to the guardian, it was held that the new note and security deed did not amount to a novation. Kelley v. Spivey, 182 Ga. 507, 185 S.E. 783, 1936 Ga. LEXIS 474 (1936). Failure to enter into contract not relied upon by surety. - Fact that no contract was ultimately entered into between the grantor and grantee in the security deed executed contemporaneously with notes endorsed by a surety does not constitute a fraud upon the surety so as to relieve the surety of liability on the notes; nor does such fact constitute a novation of the notes so as to relieve the surety of the surety’s liability thereon, for if it does not appear that the surety relied upon the existence of such contract as an inducement to sign as surety, there can be no fraud, nor can the failure to enter into the contract, which was cancellable at any time solely by the grantee in the security deed (the payee in the notes), constitute a novation of the notes. Southern Cotton Oil Co. v. Hammond, 92 Ga. App. 11, 87 S.E.2d 426, 1955 Ga. App. LEXIS 506 (1955). Surety will not be released by fraudulent renewal note disaffirmed by creditor. - While under former Civil Code 1910, §§ 3543 and 3544 a surety will be discharged by a novation changing the nature or terms of the surety’s contract without the surety’s consent, and therefore the acceptance by a payee bank, without the agreement or consent of the surety, of a new note in renewal or

payment of the original note signed by the surety will discharge the surety from liability, such an acceptance by the payee bank, when induced by the actual fraud of the maker in presenting the renewal instrument with the signature of the surety forged thereon, and without knowledge or reasonable ground to suspect, on the part of the bank, that the signature was in fact a forgery, will not release the surety, if it appeared that upon discovery of the fraud of the maker the bank promptly disaffirmed the bank’s previous acceptance of the renewal note by regaining possession of the original note and suing thereon. Biddy v. People’s Bank, 29 Ga. App. 580, 116 S.E. 222, 1923 Ga. App. LEXIS 128 (1923). Guarantor who admitted forging co-guarantor’s signature estopped from pleading discharge. - Husband/guarantor was equitably estopped from arguing that a licensor’s discharge of his co-guarantor and wife discharged him pursuant to O.C.G.A. §§ 10-7-20 and 10-7-21 because he signed an affidavit that he had forged his wife’s signature on the guaranty without her knowledge, and the affidavit resulted in the wife’s dismissal from the licensor’s suit. Noons v. Holiday Hospitality Franchising, Inc., 307 Ga. App. 351, 705 S.E.2d 166, 2010 Ga. App. LEXIS 922 (2010), cert. denied, No. S11C0654, 2011 Ga. LEXIS 423 (Ga. May 16, 2011). Guarantor bound by contract. - As there was some evidence to support a determination that a guarantor did not intend that contractual guaranty obligations were contingent upon another individual signing the guaranty as a co-surety, the failure of such signature was not a change in the contract terms or a release that discharged the guarantor from liability. Fletcher v. C. W. Matthews Contr. Co., 322 Ga. App. 751, 746 S.E.2d 230, 2013 Ga. App. LEXIS 604 (2013). Substituting note for account. - By virtue of this section, a guarantor is not released by reason of the mere fact that an account which the guarantor guaranteed has been reduced to a note, when it appears the account was for goods furnished “in pursuance of the contract of guaranty” and it appears that the note

Application (Cont’d) represents the same amount and stands in lieu of the account. Kalmon v. Scarboro, 11 Ga. App. 547, 75 S.E. 846, 1912 Ga. App. LEXIS 101 (1912). Substitution of a promissory note for an original account indebtedness, with the inclusion in the note of an extended time for payment, a higher face amount reflecting accrued interest, and a provision authorizing the recovery of attorney fees in the event of collection by an attorney, did not result in either a novation of the contract nor an increased risk and did not discharge the guarantors of the prior guaranty agreement from liability. Columbia Nitrogen Corp. v. Mason, 171 Ga. App. 685, 320 S.E.2d 838, 1984 Ga. App. LEXIS 2316 (1984). Contract simply giving creditor additional security. - Since a second contract simply gave the seller additional security for the payment of the debt, was not inconsistent with the first contract, and did not increase the risk of the surety, the second contract was not a novation of the first within the meaning of former Code 1933, § 103-202 (see now O.C.G.A. § 10-7-21) and did not release the surety under the provisions of either § 103-202 or former Code 1933, § 103-203. W.T. Raleigh Co. v. Overstreet, 71 Ga. App. 873, 32 S.E.2d 574, 1944 Ga. App. LEXIS 249 (1944). Failure of creditor to record lien. - Since the defendant signed the note as surety, and this fact was known to the plaintiffs when the plaintiffs accepted the note, the failure of the plaintiffs to record the retention of title contract within the time required by law did not discharge the surety. La Boon v. Wright & Locklin, 42 Ga. App. 275, 155 S.E. 770, 1930 Ga. App. LEXIS 335 (1930). Grantor whose debt is assumed is surety if creditor assents to assumption. - When A, the mortgagor, was originally bound as principal to B, the mortgagee, and C, the grantee, assumed the debt to B, as between A and C, the latter assumed the position of principal debtor and the former was changed to a mere surety. The consideration for C’s assumption of the debt was the property

conveyed by A to C. This change of position would not affect B, the mortgagee, if B did not assent to the change. Stapler v. Anderson, 177 Ga. 434, 170 S.E. 498, 1933 Ga. LEXIS 195 (1933). New obligation from grantee to creditor is recognition of suretyship. - When a grantee in a sales agreement, as part of the consideration thereof, assumes and agrees to pay an outstanding indebtedness against the property conveyed, the grantee takes upon the grantee the burden of the debt secured by the deed, and, as between the grantee and the grantor, the grantee becomes the principal and the latter merely a surety for payment of the debt. While the holder of the security deed is not bound by such an agreement unless the holder consents to it, when, with knowledge of such an agreement, the holder enters into an independent stipulation on the holder’s own account with the grantee whereby the holder obtains a new obligation running directly to the holder on the footing that the grantee becomes the principal, then, in the absence of special conditions, the holder is held to have recognized and become bound by the relation of principal and surety existing between the maker of the surety deed and the grantee. Zellner v. Hall, 210 Ga. 504, 80 S.E.2d 787, 1954 Ga. LEXIS 347 (1954). Extension of mortgage without consent of grantor discharges grantor. - A purchased land subject to a mortgage which A assumed, and later sold the land to B under a like assumption; B sold the land to C, who did not assume; thereafter the mortgagee, at the request of C, extended the maturity of the mortgage and of a portion of the debt, without the knowledge or consent of A. It was held that if the mortgagee had knowledge of the new relationships, the grant of the extension operated to release A from liability. Alropa Corp. v. Snyder, 182 Ga. 305, 185 S.E. 352, 1936 Ga. LEXIS 339 (1936). Grant must consent to extension when suretyship was not created by mutual agreement of all parties. - In the absence of a mutual agreement of the grantor, the grantee, and the holder of the encumbrance to that effect, the relation of

principal and surety did not exist between the grantee and grantor, and the latter was not discharged from liability by an agreement between the other parties to extend the time of payment. Alsobrook v. Taylor, 181 Ga. 10, 181 S.E. 182, 1935 Ga. LEXIS 8 (1935). Reduction in interest rate does not release grantor who remains principal. - Change in the rate of interest called for by contract from eight to six percent at the time of the sale of the premises to the grantees, when the grantor remained bound to the holder as principal debtor, would not operate to relieve the grantor from responsibility on the grantor’s note and deed to secure debt. Zellner v. Hall, 211 Ga. 572, 87 S.E.2d 395, 1955 Ga. LEXIS 394 (1955). Creditor’s agreement to allow delay in payment is not an additional consideration as the debtor’s promise to pay debt already due creates no additional obligation. Sens v. Decatur Fed. Sav. & Loan Ass’n, 159 Ga. App. 767, 285 S.E.2d 226, 1981 Ga. App. LEXIS 2800 (1981). Payment of late charges or reinstatement fees authorized by original contract does not furnish new consideration. Sens v. Decatur Fed. Sav. & Loan Ass’n, 159 Ga. App. 767, 285 S.E.2d 226, 1981 Ga. App. LEXIS 2800 (1981). Promise to pay usury does not discharge surety. - Mere promise to pay usury is void, and the surety is not thereby discharged. Lewis, Leonard & Co. v. Brown, 89 Ga. 115, 14 S.E. 881, 1892 Ga. LEXIS 280 (1892). Parol contract does not release surety when statute of frauds applies. - When a written contract which must, under the statute of frauds, be in writing has been signed by a surety for one of the contracting parties, the surety will not be released from liability by reason of the making of a subsequent parol contract between the principals which does not become binding by reason of complete performance or otherwise. Willis v. Fields, 132 Ga. 242, 63 S.E. 828, 1909 Ga. LEXIS 72 (1909). Parol evidence inadmissible to show novation under statute of frauds. - Contract which by law is required to be in writing cannot be

changed by parol evidence so as to substitute therefor, by novation, a contract which is also required by law to be in writing. Evidence of a parol agreement is inadmissible to establish the novation of a contract by law required to be in writing. Ver Nooy v. Pitner, 17 Ga. App. 229, 86 S.E. 456, 1915 Ga. App. LEXIS 314 (1915). When section should be charged. - When Civil Code 1895, §§ 2968, 2971, and 2972 (see now O.C.G.A. §§ 10-7-3, 10-7-21, and 10-7-22), defining a contract of suretyship and the rights of a surety, were pertinent to the issues involved, the statutes should have been given in a charge to the jury on timely written request, or even without request. Haigler v. Adams, 5 Ga. App. 637, 63 S.E. 715, 1909 Ga. App. LEXIS 93 (1909). Instruction proper. - As there was evidence to support a charge on waiver of a guarantor’s right to be discharged by an increase of risk or a novation, and it was not an improper statement of the law, there was no cause to grant the guarantor’s motion for a new trial. Fletcher v. C. W. Matthews Contr. Co., 322 Ga. App. 751, 746 S.E.2d 230, 2013 Ga. App. LEXIS 604 (2013). If the arrangement for the use of a pledged savings account did not deviate from the terms of the subject note as agreed to by plaintiffs, no issue concerning the discharge defenses remained for jury determination, warranting summary judgment. Cohen v. Northside Bank & Trust Co., 207 Ga. App. 536, 428 S.E.2d 354, 1993 Ga. App. LEXIS 260 (1993). Extension Extension of time for payment. - A creditor of a partnership who has notice of the dissolution and of the agreement by the continuing partner to assume the debts of the firm is bound to accord to the retiring partner all the rights of a surety. Hence, if, without the latter’s knowledge or consent, the creditor, upon a sufficient consideration, extends the time of payment of the firm indebtedness, the retiring partner is released from the indebtedness, and the creditor must thereafter look only to the firm assets and to the individual assets of the continuing

Extension (Cont’d) partner. Grigg v. Empire State Chem. Co., 17 Ga. App. 385, 87 S.E. 149, 1915 Ga. App. LEXIS 441 (1915). When the creditor had, for a consideration, extended the time of payment of the note signed by the surety, and in addition thereto had calculated, and undertook to and did collect, usurious interest from the principal, and by reason of such payment did indulge the principal debtor and extend the payment of the note, all of which, according to the evidence, was without the knowledge or consent of the surety, the surety was discharged by virtue of this section. Pickett v. Brooke, 24 Ga. App. 651, 101 S.E. 814, 1920 Ga. App. LEXIS 429 (1920). If after the maturity of a note the debtor pays to the creditor a sum of money representing advance interest upon the principal at the rate of 8 percent per annum for a definite period of time, in consideration of a promise by the creditor to extend the time of payment of the principal, this agreement, although not in writing, constitutes a valid contract between the parties, and, when made without the consent of the surety upon the note, operates to release and discharge the latter by virtue of this section. Lewis v. Citizens’ & S. Bank, 31 Ga. App. 597, 121 S.E. 524, 1924 Ga. App. LEXIS 83 (1924), aff’d, Citizens’ & Southern Bank v. Lewis, 159 Ga. 551, 126 S.E. 392, 1925 Ga. LEXIS 17 (1925). If a valid and binding extension is granted to the principal debtor without the consent of the surety, the latter is discharged. Alropa Corp. v. Snyder, 182 Ga. 305, 185 S.E. 352, 1936 Ga. LEXIS 339 (1936). Period of extension must be fixed by agreement. - In order to discharge a surety by an extension of time to the principal, not only must there be an agreement for the extension, but the proof

must show that the indulgence was extended for a definite period fixed by the agreement. Bunn v. Commercial Bank, 98 Ga. 647, 26 S.E. 63, 1896 Ga. LEXIS 114 (1896); Ver Nooy v. Pitner, 17 Ga. App. 229, 86 S.E. 456, 1915 Ga. App. LEXIS 314 (1915). If a signer of a note was in fact a surety only and the payee, under a valid agreement with the principal and without the consent of the surety, extends the time of maturity as fixed by the obligation, a release of the surety will result, but in order to discharge a surety by an extension of time granted to the principal, not only must there be an agreement for the extension, but the indulgence must be for a definite period fixed by a valid agreement. Duckett v. Martin, 23 Ga. App. 630, 99 S.E. 151, 1919 Ga. App. LEXIS 245 (1919); Benson v. Henning, 50 Ga. App. 492, 178 S.E. 406, 1935 Ga. App. LEXIS 188 (1935); Guaranty Mtg. Co. v. National Life Ins. Co., 55 Ga. App. 104, 189 S.E. 603, 1936 Ga. App. LEXIS 439 (1936), aff’d, 184 Ga. 644, 192 S.E. 298, 1937 Ga. LEXIS 595 (1937). Taking demand note is not extension of time. - Taking of a demand note was not such an extension of time as would release a guarantor because a demand note is instantly due and the moment delivered can be sued upon. Sulter v. Citizens Bank & Trust Co., 51 Ga. App. 798, 181 S.E. 694, 1935 Ga. App. LEXIS 476 (1935). Creditor may rescind extension obtained by fraud. - Under former Code 1882, §§ 2153 and 2154, if the maker of a note induced the payee to extend the time of payment, by fraudulent representations, upon the discovery of such fraud, the creditor can rescind the agreement, but if the creditor failed so to do and retained the benefits of the transaction, this will operate to discharge a surety or accommodation endorser. Burnlap v. Robertson, 75 Ga. 689, 1885 Ga. LEXIS 206 (1885).

RESEARCH REFERENCES Am. Jur. 2d. 74 Am. Jur. 2d, Suretyship, §§ 5, 35. C.J.S. 72 C.J.S., Principal and Surety, § 95 et seq. ALR. Consenting to continuance or extension of time in action as releasing surety, 7 A.L.R. 376. Extension of time or other modification of original contract as releasing indemnitor of surety or guarantor, 43 A.L.R. 1368. Liability of surety or guarantor for partnership in respect of transactions or defaults subsequent to change in personnel of the partnership, 45 A.L.R. 1426. Discharge of accommodation maker or surety by extension of time or release of collateral, under Negotiable Instruments Law, 48 A.L.R. 715; 65 A.L.R. 1425; 108 A.L.R. 1088; 2 A.L.R.2d 260. Taking of demand note in renewal as releasing surety or endorser, 48 A.L.R. 1222. Acceptance of interest in advance as consideration for, or evidence of, an extension of time which will release a guarantor, surety, or endorser, 59 A.L.R. 988. Liability of grantee assuming mortgage debt to grantor, 76 A.L.R. 1191; 97 A.L.R. 1076. Liability of guarantor of or surety for bank deposit as affected by reorganization, merger, or consolidation of bank, 78 A.L.R. 381. Creditor’s knowledge of, or consent to, assumption by third person of debtor’s obligation as release of original debtor or extinguishment of original debt essential to novation, 87 A.L.R. 281. Guaranty of commercial credit of dealer as affected by latter’s change of location or field of operation, 89 A.L.R. 651. Lessee as surety for rent after assignment, and effect of lessor’s dealings (other than consent to assignment or mere acceptance of rent from assignee) to release lessee, 99 A.L.R. 1238. Effect of silence of surety or endorser after knowledge or notice of facts relied upon as releasing him, 101 A.L.R. 1310.

Rule as to discharge of surety by subsequent modification of obligation without his consent as applicable to surety on bond for discharge of lien, 102 A.L.R. 764. Failure of accommodation maker or endorser to disaffirm transaction, or his continued recognition of note after learning of its use for purpose other than intended, as ratification of, or estoppel to assert, the diversion, 105 A.L.R. 437. Construction and application of provision of guaranty or surety contract against release or discharge of guarantor by extension of time or alteration of contract, 117 A.L.R. 964. Remission or waiver of part of principal’s obligation as releasing surety or guarantor, 121 A.L.R. 1014. Necessity of proof of original obligor’s consent to, or ratification of, third person’s assumption of obligation, in order to effect a novation, 124 A.L.R. 1498. Payments or advancements to building contractor by obligee as affecting rights as between obligee and surety on contractor’s bond, 127 A.L.R. 10. Creditor’s reservation of rights against surety in releasing or extending time to principal debtor, 139 A.L.R. 85. Surety’s liability as affected by the addition, without surety’s knowledge or consent, of the personal obligation of a third person, 144 A.L.R. 1266. Creditor’s acceptance of obligation of third person as constituting novation, 61 A.L.R.2d 755. Guarantor of nonnegotiable obligation as released by creditor’s acceptance of debtor’s note or other paper payable at an extended date, 74 A.L.R.2d 734. Liability of lessee’s guarantor or surety beyond the original period fixed by lease, 10 A.L.R.3d 582. Change in name, location, composition, or structure of obligor commercial enterprise subsequent to execution of guaranty or surety agreement as affecting liability of guarantor or surety to the obligee, 69 A.L.R.3d 567.