O.C.G.A. § 10-7-24 (2019)

Annotations

Law reviews. For article surveying developments in Georgia commercial law from mid-1980 through mid-1981, see 33 Mercer L. Rev. 33 (1981). For article, “A Georgia Practitioner’s Guide to Construction Performance Bond Claims,” see 60 Mercer L. Rev. 509 (2010).

JUDICIAL DECISIONS ANALYSIS GENERAL CONSIDERATION NOTICE SUIT BY CREDITOR WAIVER AND ESTOPPEL General Consideration Editor’s notes. - In Balboa Ins. Co. v. A.J. Kellos Constr. Co., 247 Ga. 393, 276 S.E.2d 599 (1981), it was held that this Code section applied to compensated sureties. However, Ga. L. 1981, p. 870, § 1, amends O.C.G.A. § 10-7-1 so as to abolish the distinction between contracts of suretyship and guaranty. See the Editor’s note to § 10-7-1. Section is in derogation of common law and strictly construed. - This section was made in derogation of the common-law rule upon this subject and introduced a new principle of commercial law. It operates as a restriction upon the rights of the holder and should be strictly construed. Howard v. Brown, 3 Ga. 523, 1847 Ga. LEXIS 133 (1847). The discharge under this section is statutory, and a strict compliance with the requirements of this section by one claiming benefit under the statute is mandatory. Glasser v. Decatur Lumber & Supply Co., 95 Ga. App. 665, 99 S.E.2d 330, 1957 Ga. App. LEXIS 893 (1957). Section affects remedy only. - This section does not affect either the nature, obligation, construction, or validity of the contract, but goes only to the remedy. Sally v. Bank of Union, 150 Ga. 281, 103 S.E. 460, 1920 Ga. LEXIS 140 (1920); Overstreet v. W.T. Rawleigh Co., 75 Ga. App. 483, 43 S.E.2d 774, 1947 Ga. App. LEXIS 566 (1947). Section is like limitation of actions. - This section operates as the extinguishment of a remedy, and not of a right, and is therefore in the nature of a limitation of actions. Vanzant, Jones & Co. v. Arnold, Hamilton & Johnson, 31 Ga. 210, 1860 Ga. LEXIS 316 (1860); Sally v. Bank of Union, 150 Ga. 281, 103 S.E. 460, 1920 Ga. LEXIS 140 (1920); Overstreet v. W.T. Rawleigh Co., 75 Ga. App. 483, 43 S.E.2d 774, 1947 Ga. App. LEXIS 566

(1947); Hearn v. Citizens & S. Nat’l Bank, 154 Ga. App. 686, 269 S.E.2d 486, 1980 Ga. App. LEXIS 2342 (1980). Any conflict between this section and the UCC would be controlled by the UCC as the later expression of the legislature. Gunter v. True, 203 Ga. App. 330, 416 S.E.2d 768, 1992 Ga. App. LEXIS 406 (1992), cert. denied, No. S92C0807, 1992 Ga. LEXIS 449 (Ga. June 4, 1992). Compensated as well as uncompensated sureties are governed by the provisions of O.C.G.A. § 10-7-24. Morrison Assurance Co. v. Preston Carroll Co., 254 Ga. 608, 331 S.E.2d 520, 1985 Ga. LEXIS 752 (1985), cert. denied, 474 U.S. 1060, 106 S. Ct. 805, 88 L. Ed. 2d 781, 1986 U.S. LEXIS 2382 (1986). Purpose of section. - Object of this section was for the benefit and protection of securities. Bank of St. Marys v. Mumford & Tyson, 6 Ga. 44, 1849 Ga. LEXIS 7 (1849). Essential purpose of O.C.G.A. § 10-7-24 is to accord sureties a mechanism to compel creditors to sue the principal debtor upon accrual of the creditor’s cause of action. A.J. Kellos Constr. Co. v. Balboa Ins. Co., 661 F.2d 402, 1981 U.S. App. LEXIS 15993 (5th Cir. 1981). Statutory bonds. - This section has no reference to statutory bonds, such as a forthcoming bond, taken in the progress of a judicial proceeding. Hobbs v. Taylor, 11 Ga. App. 579, 75 S.E. 906, 1912 Ga. App. LEXIS 107 (1912). Guaranty agreements under UCC. - O.C.G.A. § 10-7-24 does not apply to guaranty agreements governed by the UCC. Gunter v. True, 203 Ga. App. 330, 416 S.E.2d 768, 1992 Ga. App. LEXIS 406 (1992), cert. denied, No. S92C0807, 1992 Ga. LEXIS 449 (Ga. June 4, 1992). Section applicable to guarantor. - A guarantor has the same right as a surety by written notice to compel the

General Consideration (Cont’d) institution of a suit against the principal under this section. Fields v. Willis, 123 Ga. 272, 51 S.E. 280, 1905 Ga. LEXIS 440 (1905). Contracts executed in another state. - This section is applicable to a case when the contract sued on in Georgia was executed in another state. J.R. Watkins Co. v. Seawright, 168 Ga. 750, 149 S.E. 45, 1929 Ga. LEXIS 230 (1929). Nonresident principal. - Fact that the residence of the principal was in another state, and was so stated in the notice, would not, under the terms of this section or the statutes from which it is condensed, preclude the sureties from the benefit thereof, the principal being in fact within the jurisdiction of the court. Fricks v. J.R. Watkins Co., 88 Ga. App. 276, 76 S.E.2d 518, 1953 Ga. App. LEXIS 1065, rev’d, 210 Ga. 83, 78 S.E.2d 2, 1953 Ga. LEXIS 481 (1953). Discharge of an endorser for which provision is made in this section is not applicable when the principal in the promissory note resides outside this state. Glasser v. Decatur Lumber & Supply Co., 95 Ga. App. 665, 99 S.E.2d 330, 1957 Ga. App. LEXIS 893 (1957). When it appears that the corporate maker of a note is a foreign corporation, an endorser of the note is not discharged if the creditor, on request, neglects to proceed against the principal, in the absence of an offer of indemnity to the holder against the consequences, risk, delay, or expenses. Glasser v. Decatur Lumber & Supply Co., 95 Ga. App. 665, 99 S.E.2d 330, 1957 Ga. App. LEXIS 893 (1957). Failure to show waiver of confirmation process on part of guarantors. - As to foreclosure deficiency judgment, the trial court erred by denying the guarantors of the mortgage summary judgment because the loan documents failed to include an adequate waiver of the confirmation process required by O.C.G.A. § 44-14-161. Apex Bank v. Thompson, 349 Ga. App. 285, 826 S.E.2d 162, 2019 Ga. App. LEXIS 155 (2019). Surety claim brought in bad faith. - Trial court properly awarded the surety company a bad faith attorney fee award

and struck the counterclaim because the purchaser’s bad faith counterclaim against the surety company as a corporate surety was not only brought under an inapplicable statute, namely O.C.G.A. § 13-6-11, but failed to meet the basic pleading requirements under § 13-6-11. Hicks v. Gabor, 354 Ga. App. 714, 841 S.E.2d 42, 2020 Ga. App. LEXIS 183 (2020). Notice Notice may be given at any time. - This section provides that the surety, “at any time” after the debt on which the surety is liable becomes due, may give the notice. Sally v. Bank of Union, 150 Ga. 281, 103 S.E. 460, 1920 Ga. LEXIS 140 (1920). Notice after suit against surety. - When a surety has been sued separately from a principal, it is not too late to give the notice. Sally v. Bank of Union, 150 Ga. 281, 103 S.E. 460, 1920 Ga. LEXIS 140 (1920); Overstreet v. W.T. Rawleigh Co., 75 Ga. App. 483, 43 S.E.2d 774, 1947 Ga. App. LEXIS 566 (1947). Notice must be written. - Notice to the creditor by a surety to proceed against the principal debtor, required by this section, is written notice, an oral request will not suffice. Timmons v. Butler, Stevens & Co., 138 Ga. 69, 74 S.E. 784, 1912 Ga. LEXIS 192 (1912); Johnson v. Longley, 142 Ga. 814, 83 S.E. 952, 1914 Ga. LEXIS 560 (1914). If it is not claimed that either of the endorsers gave notice in writing to the creditor to proceed to collect the debt out of the principal, the creditor was not barred from bringing suit to recover several years later. Chapman v. Miller, 40 Ga. App. 138, 149 S.E. 70, 1929 Ga. App. LEXIS 48 (1929). Oral notice is not a sufficient compliance with this section. Gettis v. Gormley, 49 Ga. App. 339, 175 S.E. 393, 1934 Ga. App. LEXIS 395 (1934). Creditor may waive requirement by filing suit and then discharge surety by dismissing it. - If oral notice is given by a surety on a note to the creditor to sue on the note, and the creditor agrees to sue and in pursuance to such notice and agreement does actually

enter suit, the creditor thereby treats such notice as sufficient and waives the requirements of this section, and the surety acquires a right and interest in the suit; and when such suit is dismissed without the permission of the surety, the creditor must bring another suit within three months from the date of the original notice and executed agreement to sue, and failure to do so will discharge the surety. Gettis v. Gormley, 49 Ga. App. 339, 175 S.E. 393, 1934 Ga. App. LEXIS 395 (1934). Reliance on assurance of suit will discharge surety to extent of loss. - A parol notice or request to the creditor by a surety upon a promissory note to bring suit will not operate as a compliance with this section; if, however, the surety is assured by the holder of the note that suit will be brought at the next term of court, and because of such assurance the surety foregoes means of indemnity or protection, and the suit is not brought, the surety will be discharged to the extent of the loss. Longley v. Johnson, 22 Ga. App. 96, 95 S.E. 315, 1918 Ga. App. LEXIS 168 (1918). Evidence of oral notice. - If it does not appear that the endorser parted with the means of protecting himself in consequence of any assurances made to him by the creditor and the record discloses nothing that would estop the creditor or relieve the endorser from the necessity of complying with the strict provisions of this section, the court does not err in excluding parol testimony to the effect that the endorser made an oral demand on the officers of the creditor to sue on the note while the principal was solvent and that demand was followed by a promise on the part of the creditor to do so and it failed to do so. Smith v. Morris Fertilizer Co., 18 Ga. App. 217, 89 S.E. 174, 1916 Ga. App. LEXIS 244 (1916). Notice need not indicate benefit of section will be claimed. - To entitle a security or endorser to the benefit of the provisions of this section for the endorser’s relief, it is only necessary for the endorser to notify the holder to sue the note. It is not necessary that the endorser should, in addition, notify the holder that unless the endorser did proceed to collect the note that the endorser would claim the

benefit of this section. Denson v. Miller, 33 Ga. 275, 1862 Ga. LEXIS 25 (1862). Notice must be positive demand to sue. - It must be a positive demand to sue, and so understood by the parties at the time, in order to discharge the surety. If it appeared that it was a request of a favor, and so considered by the parties at the time, then the surety was not discharged by reason of a failure to sue in three months. Bethune v. Dozier, 10 Ga. 235, 1851 Ga. LEXIS 95 (1851). “Lose no time in suing” is a command to sue. Howard v. Brown, 3 Ga. 523, 1847 Ga. LEXIS 133 (1847). Letters properly excluded which contain no command. - When two letters were written by the surety, one being mailed before the maturity of the debt and containing merely the expression of a desire on the part of the surety that the plaintiff would collect when the obligation became due and the other suggesting the advisability of bringing suit and expressing doubt whether the money could be made later, but containing no command, there was no notice given as required by this section, and the letters were rightly excluded. Smith v. Morris Fertilizer Co., 18 Ga. App. 217, 89 S.E. 174, 1916 Ga. App. LEXIS 244 (1916). Notice must state county of principal’s residence. - No notice shall be considered a compliance with the requirements of this section which does not state the county of the principal’s residence. Smith v. Morris Fertilizer Co., 18 Ga. App. 217, 89 S.E. 174, 1916 Ga. App. LEXIS 244 (1916). A notice which states that the principal’s residence is “Waycross, Ga.,” but which does not state the county of the principal’s residence, is not the notice required by this section. Seckinger v. Exchange Bank, 38 Ga. App. 667, 145 S.E. 94, 1928 Ga. App. LEXIS 382 (1928). Written notice that does not state the county of the principal’s residence is not a sufficient compliance with this section. Gettis v. Gormley, 49 Ga. App. 339, 175 S.E. 393, 1934 Ga. App. LEXIS 395 (1934). If the maker resides in this state, in order for the notice for which provision is made in this section to be effective, such notice must state the county in which the

Notice (Cont’d) principal resides. Glasser v. Decatur Lumber & Supply Co., 95 Ga. App. 665, 99 S.E.2d 330, 1957 Ga. App. LEXIS 893 (1957). Notice to a creditor to proceed is ineffective unless the notice states the county in which the principal resides; this requirement is mandatory under the statute. Motz v. Landmark First Nat’l Bank, 154 Ga. App. 858, 270 S.E.2d 81, 1980 Ga. App. LEXIS 2418 (1980). Actual notice is required. Constructive notice, if there is any arising by virtue of an Act of the legislature incorporating a city, that the city is in a particular county, will not suffice as a compliance with this section. Seckinger v. Exchange Bank, 38 Ga. App. 667, 145 S.E. 94, 1928 Ga. App. LEXIS 382 (1928). When city and county have same name. - It is not a compliance with the section to say “of Macon, Georgia,” there being in the state both a County of Macon and a City of Macon, and the notice not indicating that the county was meant rather than the city. Ware v. City Bank, 59 Ga. 840, 1877 Ga. LEXIS 415 (1877). Receipt of notice by creditor does not cure defect as to county. - A notice to sue, given by a surety under this section in order to afford a defense to a subsequent action brought against the surety by the creditor, must state the county of the residence of the principal debtor since, under the mandate of the statute, “no notice shall be considered a compliance with the requirements of this section which does not state the county of the principal’s residence”; a notice fatally defective in this respect, but received by the creditor with the remark “all right,” could amount to nothing more than a mere promise by the creditor, without consideration, to proceed against the principal debtor, which would have no effect upon the obligation of the surety. Bowen v. Mobley, 40 Ga. App. 833, 151 S.E. 667, 1930 Ga. App. LEXIS 722 (1930). Notice by one surety is sufficient. - Notice by one surety is as effectual as if all the sureties were to unite in the notice; a notice by one surety is as available to the creditor as a notice from all. Jones v.

Whitehead, 4 Ga. 397, 1848 Ga. LEXIS 46 (1848). Notice is properly given to creditor holding note. - When a promissory note to which there is a surety is held by a creditor of the owner as a collateral security, such creditor is the proper person to be notified by the surety to sue the maker. McCrary v. King, 27 Ga. 26, 1859 Ga. LEXIS 3 (1859). Notice to agent, such as cashier of bank. - Since notice to sue the principal maker of a note by the surety was directed to the cashier of the bank which was the holder of the note, it was sufficient notice to the bank, especially as it appeared that the bank acted upon such notice. Bank of St. Marys v. Mumford & Tyson, 6 Ga. 44, 1849 Ga. LEXIS 7 (1849). Wrongly designating person giving notice is not grounds for excluding notice. - Fact that the person giving the written notice to sue under this section was designated as “endorser,” when, under both the pleading and the evidence, the person was a technical “surety,” was not cause for excluding such notice as evidence in the case. Milam v. Lewis, 47 Ga. App. 376, 170 S.E. 404, 1933 Ga. App. LEXIS 410 (1933). Nature of surety’s request may be question for jury. - If it is doubtful whether the surety intended to request the creditor to sue the principal as a matter of law, it is proper to submit it to the jury to find from the facts how the parties understood the matter. Bethune v. Dozier, 10 Ga. 235, 1851 Ga. LEXIS 95 (1851). Suit by Creditor Surety is entitled under the law to have the creditor sue the principal debtor, if the debtor can be found, as such was the purpose of the General Assembly in the enactment of this section. W.T. Rawleigh Co. v. Overstreet, 84 Ga. App. 21, 65 S.E.2d 50, 1951 Ga. App. LEXIS 620 (1951). After proper notice, failure to sue principal within state discharges surety. - Under this section, the surety is required only to give the creditor: (a) notice to proceed to collect the debt from the principal; and (b) to state the county

in which the principal resides; thereafter, if the principal is within the jurisdiction of the state, and if the creditor fails to commence an action within three months after such notice, the surety will be discharged. Fricks v. J.R. Watkins Co., 88 Ga. App. 276, 76 S.E.2d 518, 1953 Ga. App. LEXIS 1065, rev’d, 210 Ga. 83, 78 S.E.2d 2, 1953 Ga. LEXIS 481 (1953). Failure of creditor to commence action. - To the extent O.C.G.A. § 10-7-24 provides for the discharge of a guarantor based on the failure of the creditor to commence an action against the principal it is inconsistent with O.C.G.A. § 11-3-416(1). Gunter v. True, 203 Ga. App. 330, 416 S.E.2d 768, 1992 Ga. App. LEXIS 406 (1992), cert. denied, No. S92C0807, 1992 Ga. LEXIS 449 (Ga. June 4, 1992). Filing of petition without service does not operate to commence suit and no suit is pending until the suit has been served. Southeastern Fid. Ins. Co. v. Tesler, 159 Ga. App. 60, 282 S.E.2d 703, 1981 Ga. App. LEXIS 2487 (1981). Suing in wrong county does not comply with notice. - Bringing of a suit by a creditor against a principal in a county other than the principal’s residence is the equivalent of no suit at all when process was not served on the principal and hence cannot be urged as a compliance upon service of notice provided for in this section. Overstreet v. W.T. Rawleigh Co., 75 Ga. App. 483, 43 S.E.2d 774, 1947 Ga. App. LEXIS 566 (1947); Southeastern Fid. Ins. Co. v. Tesler, 159 Ga. App. 60, 282 S.E.2d 703, 1981 Ga. App. LEXIS 2487 (1981). Suit on obligation on which sureties were not liable. - Suit by a creditor against the principal debtor on the second of two obligations for which sureties were liable on only the first obligation will not suffice as a suit within three months since this section refers to the obligation on which the sureties sought to be held liable became obligated to pay the creditor. W.T. Rawleigh Co. v. Overstreet, 84 Ga. App. 21, 65 S.E.2d 50, 1951 Ga. App. LEXIS 620 (1951). New suit is unnecessary if one is pending when notice received. - If a creditor brings suit against the sureties

on a contract, and the sureties give the statutory notice to the creditor to proceed to collect the debt out of the principal, and if upon the trial the creditor admits the creditor’s failure to sue the principal within three months after receiving such notice, but shows that the creditor did file suit against the principal in the county of the residence of the principal after the debt was due, but before the creditor received the notice from the sureties and before the creditor brought suit against the sureties, the filing of another suit is unnecessary. J.R. Watkins Co. v. Seawright, 168 Ga. 750, 149 S.E. 45, 1929 Ga. LEXIS 230 (1929). Creditor has full three months to sue so surety risks principal’s removal. - If notice was given to the holder to sue the maker, but before the expiration of the three months allowed by this section, the maker removed out of the state, so that no suit could be instituted against the maker, the holder has the whole three months allowed by this section within which to sue, and the removal of the maker was at the risk of the endorser and not of the holder. Howard v. Brown, 3 Ga. 523, 1847 Ga. LEXIS 133 (1847). No duty to sue principal when third party not surety. - Creditor is not required to proceed against the principal in order to preserve the creditor’s rights to hold a third party liable when the third party is neither a surety, guarantor, nor an endorser, but has agreed to a primary obligation to pay for goods. Ely & Walker v. Dux-Mixture Hdwe. Co., 582 F. Supp. 285, 1982 U.S. Dist. LEXIS 17649 (N.D. Ga. 1982), aff’d, 732 F.2d 821, 1984 U.S. App. LEXIS 22771 (11th Cir. 1984). Obtaining default judgment. - Creditor who obtained a default judgment against the principal (maker of notes) fulfilled the creditor’s duty under O.C.G.A. § 10-7-24. United States v. Blue Dolphin Assocs., 620 F. Supp. 463, 1985 U.S. Dist. LEXIS 14708 (S.D. Ga. 1985). Waiver and Estoppel Surety may waive benefit of section. - Right created by the legislature, as embodied in this section, was established solely for the benefit of

Waiver and Estoppel (Cont’d) one who has become surety for another, and such surety may therefore waive it without injuring others and without affecting the public interest. J.R. Watkins Co. v. Fricks, 210 Ga. 83, 78 S.E.2d 2, 1953 Ga. LEXIS 481 (1953). Provision agreeing creditor may extend time estops surety from giving notice. - If, for value received, the surety consents that the creditor “may grant any extension on the note that he deems proper,” the surety cannot, by giving the notice contemplated in this section, revoke the surety’s consent allowing the extension of time and be discharged from liability on the note merely because of a failure on the part of the creditor to commence an action against the principal debtor within the period of three months. Armour Fertilizer Works v. Bond, 139 Ga. 246, 77 S.E. 22, 1913 Ga. LEXIS 395 (1913). If the surety has in the surety’s contract consented that the creditor may, within the creditor’s discretion, extend the period of time within which the principal’s indebtedness is due, the surety will be estopped to give notice under this section after the date the debt is due and claim the benefit of the shorter three-month “statute of limitation” within which the creditor must thereafter bring suit against the principal. Hearn v. Citizens &

S. Nat’l Bank, 154 Ga. App. 686, 269 S.E.2d 486, 1980 Ga. App. LEXIS 2342 (1980). Surety waives notice by requesting indulgence to principal. - If the surety gives notice and then asks the creditor for indulgence, the surety waives the notice, provided the surety’s request was made before the expiration of three months after the notice, and provided it was a request for indulgence to the surety’s principal, not to the surety. Bailey v. New, 29 Ga. 214, 1859 Ga. LEXIS 311 (1859). Request after three-month period. - Request for indulgence made after the expiration of three months after the notice will not have the effect of a waiver of notice. Bailey v. New, 29 Ga. 214, 1859 Ga. LEXIS 311 (1859). Provision allowing suit against sureties first does not waive section. - When relationship of principal and surety exists, the creditor for whose protection the sureties become such may proceed against the sureties without first exhausting its remedies against the principal as a matter of law, with or without a provision to that effect in the contract. Therefore, the creditor acquires nothing by such a provision, and the sureties surrender nothing. Overstreet v. W.T. Rawleigh Co., 75 Ga. App. 483, 43 S.E.2d 774, 1947 Ga. App. LEXIS 566 (1947).

RESEARCH REFERENCES Am. Jur. 2d. 74 Am. Jur. 2d, Suretyship, § 28 et seq. C.J.S. 72 C.J.S., Principal and Surety, § 147 et seq. ALR. Incapacity of principal to contract as affecting liability of guarantor or surety, 24 A.L.R. 838; 43 A.L.R. 589. Language or purport of notice to proceed against principal, noncompliance with which will relieve surety, 30 A.L.R. 1285. Endorsing payment upon note before maturity as releasing surety or endorser, 37 A.L.R. 477. Right of surety or his privies to require

creditor to resort to security given by principal before enforcing security given by surety, 37 A.L.R. 1262. Failure to present claim against estate of deceased principal as releasing surety, 50 A.L.R. 1214. Insolvency of obligee as extending time allowed by fidelity bond for discovery of default, 56 A.L.R. 1263. Waiver by surety agreement of benefit of rule which releases surety in event of obligee’s failure to comply with surety’s demand that he proceed against principal, 89 A.L.R. 570. Effect of silence of surety or endorser after knowledge or notice of facts relied upon as releasing him, 101 A.L.R. 1310.

Creditor’s reservation of rights against surety in releasing or extending time to principal debtor, 139 A.L.R. 85. Pledgor of property to secure another’s obligation as within benefit of rule that requires obligee to comply with surety’s demand to proceed against principal, 151 A.L.R. 928.

Applicability to compensated surety or bonding company of statute discharging surety where creditor fails to bring suit against principal after notice, 42 A.L.R.2d 1159.