The contract of suretyship is one of strict law; and the surety's liability will not be extended by implication or interpretation.
(Orig. Code 1863, § 2127; Code 1868, § 2122; Code 1873, § 2150; Code 1882, § 2150; Civil Code 1895, § 2968; Civil Code 1910, § 3540; Code 1933, § 103-103.)
Law reviews.- For article, "Enforcing Commercial Real Estate Loan Guaranties," see 15 (No. 2) Ga. St. B. J. 12 (2009). For annual survey on business associations, see 70 Mercer L. Rev. 19 (2018).
JUDICIAL DECISIONSANALYSIS
General Consideration
Strict construction of contract of suretyship or guaranty.
- When a person promises to become a sponsor for the debt of another, the person's promise is to be strictly construed. Musgrove v. Luther Publishing Co., 5 Ga. App. 279, 63 S.E. 52 (1908).
This section calls for a strict construction of a contract of suretyship. American Sur. Co. v. Small Quarries Co., 157 Ga. 33, 120 S.E. 617 (1923); Hannah v. Lovelace-Young Lumber Co., 159 Ga. 856, 127 S.E. 225 (1925).
Courts of this state have construed bonds given by contractors on public works strictly. Durden v. American Sur. Co., 40 Ga. App. 705, 151 S.E. 408 (1930).
Whether the contract is one of guaranty or suretyship, the rule of stricti juris is applicable. LeCraw v. Atlanta Arts Alliance, Inc., 126 Ga. App. 656, 191 S.E.2d 572 (1972) (decided prior to 1981 amendment to O.C.G.A. § 10-7-1, abolishing distinction between contracts of suretyship and guaranty).
Georgia Court of Appeals held that a guaranty contract cannot be extended by implication or interpretation and must be strictly construed. Apex Bank v. Thompson, 349 Ga. App. 285, 826 S.E.2d 162 (2019).
Failure to show waiver of confirmation process on part of guarantors.
- As to the 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).
Construction same at law or in equity.
- Undertaking of a surety being one stricti juris, the surety cannot, either at law or in equity, be bound farther or otherwise than the surety is by the very terms of the contract. Kenney v. Armour Fertilizer Works, 33 Ga. App. 126, 126 S.E. 284 (1924), rev'd on other grounds, 161 Ga. 477, 131 S.E. 281, later appeal, 34 Ga. App. 820, 131 S.E. 915 (1926); Mayor of Savannah v. Glens Falls Ins. Co., 104 Ga. App. 879, 123 S.E.2d 293 (1961), overruled on another point, 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); Johns v. Leaseway of Ga., Inc., 166 Ga. App. 472, 304 S.E.2d 555 (1983); Stone v. Palm Pool Prods., Ltd., 198 Ga. App. 751, 403 S.E.2d 69 (1991).
Section inapplicable where surety's obligation is manifest.
- This section is inapplicable to an action upon an injunction bond if the surety's obligation is made manifest and full by a reference in the bond to certain portions of the injunction proceedings. Richardson v. Allen, 74 Ga. 719 (1885).
Liability cannot be extended by implication.
- If the contract is unambiguous and subject to only one construction, the liability of any surety (whether compensated or not) is not to be extended beyond the terms of the contract by implication or interpretation. Houston Gen. Ins. Co. v. Brock Constr. Co., 241 Ga. 460, 246 S.E.2d 316 (1978) (decided prior to 1981 amendment to O.C.G.A. § 10-7-1, abolishing distinction between contracts of suretyship and guaranty).
Surety's liability on a bond given to dissolve a garnishment is one of strict law and cannot be extended by implication. Roney v. McCall, 128 Ga. 249, 57 S.E. 503 (1907).
Guarantee agreement executed between lessor and lessee three days prior to a lease agreement could not apply to the lease agreement as it would have effectively extended the lessee's liability by implication. Avec Corp. v. Schmidt, 207 Ga. App. 374, 427 S.E.2d 850 (1993).
Any unconsented to change discharges surety.
- Contract of suretyship is one of strict law by virtue of this section, 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).
Liability of a surety cannot be extended beyond the actual terms of the 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. Washington Loan & Banking Co. v. Holliday, 26 Ga. App. 792, 107 S.E. 370, cert. denied, 26 Ga. App. 801 (1921).
Undertaking of a surety being stricti juris, one cannot, in law or equity, be bound further than the very terms of one's contract; and if the principal and obligee change the terms of the contract without consent, the surety is discharged. LeCraw v. Atlanta Arts Alliance, Inc., 126 Ga. App. 656, 191 S.E.2d 572 (1972).
Appearance at specified term of court complies with bond.
- When the condition in a criminal recognizance was that a principal should appear at a particular term of court, but it contained no provision as to appearing from term to term, or other like provision, the appearance of the principal at the specified term was a compliance with the condition, and the principal's failure to appear at a subsequent term to which the case was continued would not subject the sureties to a forfeiture. Colquitt v. Smith, 65 Ga. 341 (1880).
Undertaking of the sureties on a criminal bond is stricti juris by virtue of this section, and when the bond obligates the principal to be present at a specified term of court, but contains no provision for the surety's appearance from term to term, or other like provision, the appearance of the principal at the term specified in the bond would be a compliance with the condition thereof. Roberts v. State, 32 Ga. App. 339, 123 S.E. 151 (1924).
Official bond does not apply to funds received after term of office.
- Under former Civil Code 1910, §§ 291 and 3540 (see now O.C.G.A. §§ 10-7-3 and45-4-24) official bond of the former treasurer of the county did not impose upon the treasurer's sureties any obligation with reference to the county funds received by the treasurer after the treasurer's term of office from the treasurer's successor. Fannin County v. Daves, 23 Ga. App. 220, 98 S.E. 104 (1919).
Recovery is limited to penalty in bond.
- When, pursuant to former Civil Code 1910, §§ 5185, 5186, and 5187, a bond was executed with a penalty value of $20.00, as far as the surety was concerned, the only recovery which could have been had on the bond was the named penalty of $20.00. Gullatt v. Blankenship, 42 Ga. App. 139, 155 S.E. 353 (1930).
Rule of strict construction in surety's favor applies only to gratuitous sureties.
- Rule of "strict law" embodied in O.C.G.A. § 10-7-3 which provides an absolute rule of strict construction of surety contract in favor of the surety applies only to uncompensated sureties (sureties acting gratuitously), not to compensated sureties (sureties engaged in writing surety bonds for profit). Sims' Crane Serv., Inc. v. Reliance Ins. Co., 514 F. Supp. 1033 (S.D. Ga. 1981), aff'd, 667 F.2d 30 (11th Cir. 1982).
Contracts of compensated sureties construed strongly against surety.- Unlike gratuitous sureties, compensated sureties are not favorites of the law; on the contrary, the contract of a surety company, acting for compensation, and of any other surety for hire, is construed most strongly against the surety and in favor of an indemnity which the obligee has reasonable grounds to expect. Sims' Crane Serv., Inc. v. Reliance Ins. Co., 514 F. Supp. 1033 (S.D. Ga. 1981), aff'd, 667 F.2d 30 (11th Cir. 1982).
Cited in Tennille Banking Co. v. Ward, 29 Ga. App. 660, 116 S.E. 347 (1923); Southern Sur. Co. v. Williams, 36 Ga. App. 692, 137 S.E. 861 (1927); Roberts v. Crosby, 43 Ga. App. 267, 158 S.E. 444 (1931); Glens Falls Indem. Co. v. Southeastern Constr. Co., 207 Ga. 488, 62 S.E.2d 149 (1950); H.W. Ivey Constr. Co. v. Southwest Steel Prods., 111 Ga. App. 527, 142 S.E.2d 394 (1965); Conner v. Resolute Ins. Co., 112 Ga. App. 883, 146 S.E.2d 791 (1966); Palmes v. Southern Mechanical Co., 117 Ga. App. 672, 161 S.E.2d 413 (1968); Overcash v. First Nat'l Bank, 117 Ga. App. 818, 162 S.E.2d 210 (1968); Peara v. Atlanta Newspapers, Inc., 120 Ga. App. 163, 169 S.E.2d 670 (1969); Travelers Indem. Co. v. West Ga. Nat'l Bank, 387 F. Supp. 1090 (N.D. Ga. 1974); Dunlap v. Citizens & S. DeKalb Bank, 134 Ga. App. 893, 216 S.E.2d 651 (1975); Sentry Indem. Co. v. Central Elec. Co., 136 Ga. App. 557, 222 S.E.2d 40 (1975); Brock Constr. Co. v. Houston Gen. Ins. Co., 144 Ga. App. 860, 243 S.E.2d 83 (1978); Busbee v. Reserve Ins. Co., 243 Ga. 371, 254 S.E.2d 324 (1979); Cobb Bank & Trust Co. v. American Mfrs. Mut. Ins. Co., 624 F.2d 722 (5th Cir. 1980); Fidelity & Deposit Co. v. West Point Constr. Co., 178 Ga. App. 578, 344 S.E.2d 268 (1986); Arnold v. Indcon, 219 Ga. App. 813, 466 S.E.2d 684 (1996); Rohm & Haas Co. v. Gainesville Paint & Supply Co., 225 Ga. App. 441, 483 S.E.2d 888 (1997); Wickliffe v. Wickliffe Co., 227 Ga. App. 432, 489 S.E.2d 153 (1997); Fontaine v. Gordon Contrs. Bldg. Supply, Inc., 255 Ga. App. 839, 567 S.E.2d 324 (2002); Shah v. Taco Del Sur, Inc., 257 Ga. App. 224, 570 S.E.2d 654 (2002); Capital Color Printing, Inc. v. Ahern, 291 Ga. App. 101, 661 S.E.2d 578 (2008).
Application
Sheriff's surety is not liable for injuries by fellow prisoners allowed by jailer.
- Action against surety on bond of a sheriff for injuries sustained by a prisoner confined, for violation of a municipal ordinance, in a county jail where the prisoner was "kangarooed" by other prisoners confined therein, the jailer knowingly allowing the injuries to be inflicted, was properly nonsuited. Tate v. National Sur. Corp., 58 Ga. App. 874, 200 S.E. 314 (1938).
Defendant was not a compensated surety and thus was entitled to the application of the extremely protective rule of strictissimi juris set forth in the statute; while the defendant had ownership interests in the businesses who were the unnamed principal debtors and may have eventually derived some benefit from their success, the consideration for the defendant signing the guarantees did not flow to the defendant, but instead to the businesses. Workman v. Sysco Food Servs., 236 Ga. App. 784, 513 S.E.2d 523 (1999).
Contract held not to extend to all debts of principal.
- Other than the general statement that the plaintiff would not lease trucks to a company without a guaranty or suretyship agreement, there was no evidence that would alter the clear and unambiguous language of the agreement that the defendant would guarantee the obligation of the company arising from a weekly lease agreement of the same date as the suretyship agreement, nor was any evidence produced of the referenced lease agreement or that the company owed the plaintiff anything under the agreement, the plaintiff failed to prove that the defendant was obligated to pay any sums under the suretyship agreement; and the trial court's factual finding that the purpose of obtaining the defendant's guarantee was to have the defendant be responsible for all the debts of the company and its judgment for the plaintiff were clearly erroneous. Johns v. Leaseway of Ga., Inc., 166 Ga. App. 472, 304 S.E.2d 555 (1983).
Addition of coguarantor held not to alter contract.
- When the contract contemplates more than one guarantor to be jointly and severally liable and the addition of other guaranties, the terms of the contract as to the original guarantor, would not be altered by adding a coguarantor, as the guarantor remains jointly and severally liable, nor would there be any increase in the risk to the guarantor if a coguarantor were added. Daprano v. Sherwin-Williams Co., 166 Ga. App. 811, 305 S.E.2d 655 (1983).
Incorporation of credit application sufficiently identified principal debtor.
- Guaranty agreement that was included at the bottom of the same page as a credit application identified the principal debtor by referring to "the above applicant;" when read in conjunction with the incorporated application, with the word "applicant" bearing its usual meaning, the guaranty agreement identified the principal debtor sufficiently to satisfy the statute of frauds. House Hasson Hardware Co., Inc. v. Lawson's Home Ctr., Inc., 332 Ga. App. 295, 772 S.E.2d 389 (2015).
Debt unenforceable.
- Writing which left blank both the name of the principal debtor and the name of the person individually guaranteeing the indebtedness was unenforceable. Sysco Food Servs., Inc. v. Coleman, 227 Ga. App. 460, 489 S.E.2d 568 (1997).
Directed verdict error when fact of suretyship does not appear on face of contract.
- It was error to grant a motion for directed verdict when the fact of suretyship did not appear on the face of a contract, and since the question is an evidentiary one, the fact finder should hear all the facts in order to determine the parties' intention. Growth Properties of Fla., Ltd. v. Wallace, 168 Ga. App. 893, 310 S.E.2d 715 (1983).
Explicit, limited contract terms governed.
- Trial court did not err in finding that the guaranties had expired when under the explicit terms in each guaranty, the guarantors' obligations were to end on the 42nd month of the lease in the event that no default existed, which was indeed the case. Roswell Festival, L.L.L.P. v. Athens Int'l, Inc., 259 Ga. App. 445, 576 S.E.2d 908 (2003).
Insufficient identification of guarantor.
- Trial court erred in denying a guarantor's motion for summary judgment on grounds that the guaranty was unenforceable by the creditor under the statute of frauds because the guarantor was insufficiently identified in the guaranty; the trial court was not authorized to determine the identity of the guarantor by inference as this entailed consideration of impermissible parol evidence. Haralson v. John Deere Co., 262 Ga. App. 385, 585 S.E.2d 711 (2003).
Lessor was not entitled to recover on an equipment lease guaranty because the guaranty was unenforceable since it omitted essential elements, including the guarantor's identity, and the lease could not supply the missing elements since this required consideration of parol evidence, which was inadmissible for a contract required by the statute of frauds to be in writing. Dabbs v. Key Equip. Fin., Inc., 303 Ga. App. 570, 694 S.E.2d 161 (2010).
Lease holdover.
- Lease guarantor was liable for increased holdover rent since the lease specifically reserved the holdover rent and the guaranty obligated the guarantor; since there was no change in the terms of the lease, the landlord's act of allowing the tenant to remain as a holdover was not a novation of the lease, and the guarantor's reliance on O.C.G.A. § 10-7-3 to refute the landlord's claim under the guaranty was misplaced because the guarantor's liability was established by the terms of the guaranty. Hood v. Peck, 269 Ga. App. 249, 603 S.E.2d 756 (2004).
Expired performance bond.- Because the performance bond, on which the plaintiff's sole claim against an insurer was based, expired before the plaintiff asserted the claims, the insurer's motion for summary judgment was granted; the surety's liability could not be extended by implication or interpretation. Snapping Shoals Elec. Mbrshp. Corp. v. RLI Ins. Corp., F. Supp. 2d (N.D. Ga. Dec. 14, 2005).
Guarantor personally liable on promissory note.
- Trial court did not err by finding a guarantor personally liable on a promissory note because the trial court correctly found that the language of the promissory note, the unconditional guaranty, and the modification to the promissory note were unambiguous, and since the documents' provisions were clear, the trial court's proper role was to apply the terms as written; in the guaranty, the guarantor expressly waived all notices or defenses to which the guarantor could be entitled under the guaranty, to the extent permitted by law, and because the guarantor failed to assert any defense based upon an alleged incompetency to enter into a contract at the time the guarantor executed the guaranty, and because the guarantor failed to show that the guaranty's broad waiver of defenses was prohibited by statute or public policy, the guarantor was bound thereby. Core LaVista, LLC v. Cumming, 308 Ga. App. 791, 709 S.E.2d 336 (2011).
Corporate officers not individually liable.
- Plain language of the document, although poorly drafted, established that the document was a promissory note made between two lenders and a corporation, and the officers signed the document in the officers' representative capacity on behalf of the corporation. A provision that the officers personally guaranteed the debt could not be implied pursuant to O.C.G.A. § 10-7-3. Elwell v. Keefe, 312 Ga. App. 393, 718 S.E.2d 587 (2011).
Acts not covered by bond.
- Trial court erred in granting a purchaser summary judgment and in denying an insurer summary judgment in the purchaser's action to recover against a bond the insurer issued to a mortgage lender under the Georgia Residential Mortgage Act, O.C.G.A. § 7-1-1000 et seq., because the acts that gave rise to the judgment the purchaser obtained against the lender occurred before the bond was in effect, and the lender's failure to pay the judgment was not an act that authorized recovery against the bond; the bond did not contain a specific covenant extending liability to acts prior to the bond's execution. Hartford Fire Ins. Co. v. iFreedom Direct Corp., 312 Ga. App. 262, 718 S.E.2d 103 (2011), cert. denied, No. S12C0408, 2012 Ga. LEXIS 246 (Ga. 2012).
RESEARCH REFERENCES
Am. Jur. 2d.
- 74 Am. Jur. 2d, Suretyship, § 26.
C.J.S.- 72 C.J.S., Principal and Surety, §§ 32, 46 et seq.
ALR.
- Agreement by principal to pay compound or additional interest as releasing surety, 2 A.L.R. 1569.
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.
Right of obligee in guaranty or surety bond to fill blank as to amount, 48 A.L.R. 741.
Liability of guarantor of or surety for bank deposit as affected by reorganization, merger, or consolidation of bank, 78 A.L.R. 381.
Liability of sureties on bond of public officer for acts or defaults occurring after termination of office or principal's incumbency, 81 A.L.R. 10.
Duration of continuing guaranty, 81 A.L.R. 790.
Guaranty of commercial credit of dealer as affected by latter's change of location or field of operation, 89 A.L.R. 651.
Effect of silence of surety or endorser after knowledge or notice of facts relied upon as releasing him, 101 A.L.R. 1310.
Liability of sureties as affected by actual, constructive, or asserted transfer of property or funds by fiduciary acting in one capacity to himself acting in another capacity, 111 A.L.R. 267.
Labor and materials furnished to subcontractor as within coverage of bond of principal contractor under nonpublic building or construction contract, 128 A.L.R. 938.
Guaranty of payment at maturity as covering expense of collection, 4 A.L.R.2d 138.
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.