Payment by a surety or endorser of a debt past due shall entitle him to proceed immediately against his principal for the sum paid, with interest thereon, and all legal costs to which he may have been subjected by the default of his principal.
(Orig. Code 1863, § 2139; Code 1868, § 2134; Code 1873, § 2161; Code 1882, § 2161; Civil Code 1895, § 2980; Civil Code 1910, § 3552; Code 1933, § 103-302.)
Cross references.- Accommodation party's right of recourse on negotiable instrument against party accommodated, § 11-3-415(5).
JUDICIAL DECISIONS
Independent remedies provided surety.
- Former Civil Code 1910, §§ 3551, 3553, 3559, and 3560 were remedies to which the surety can resort for the surety's protection, independently of any voluntary action by the creditor. McMillan v. Heard Nat'l Bank, 19 Ga. App. 148, 91 S.E. 235 (1917).
Subrogation not applicable to rights under this section.
- Subrogation by which a guarantor takes rights of a creditor is not the same thing as a guarantor's right to recoup payment of a debt from the debtor's principal under O.C.G.A. § 10-7-41. Fabian v. Dykes, 214 Ga. App. 792, 449 S.E.2d 305 (1994).
Voluntary payment entitles surety to proceed against principal.
- Voluntary payment by a surety of a past due debt entitles the surety to proceed immediately against the principal for the amount paid in the principal's behalf. Shattles v. Baker, 18 Ga. App. 300, 89 S.E. 373 (1916).
Recovery upon note or upon other obligation.
- If one who signs a note ostensibly as a coprincipal is in fact a surety, one may, after paying the amount due by the principal, recover the amount in a suit against the principal, either in a suit upon the note after a transfer or upon an obligation of the defendant arising otherwise. Campbell v. Rybert, 46 Ga. App. 461, 167 S.E. 924 (1933).
Effect of release of principal.
- Even though the creditor released the principal from liability on a note, the guarantor who paid the note on the principal's behalf and who was not a party to the release had an independent legal right to collect from the principal under O.C.G.A. § 10-7-41. Fabian v. Dykes, 214 Ga. App. 792, 449 S.E.2d 305 (1994).
Right is not affected by paying fraudulent renewal note.
- When the surety has paid the debt, the surety is entitled to reimbursement. The fact that the payment was accomplished by paying a fraudulent renewal note would not affect the right to recover on the original note. Frye v. Sims, 144 Ga. 74, 86 S.E. 249 (1915).
Written assignment of note to surety is unnecessary.
- When a negotiable promissory note, endorsed in blank and discounted at a bank, is paid to the bank at maturity by a surety thereon, title to the note passes to the surety by mere delivery and no written assignment by the bank is necessary. Electric City Brick Co. v. Hagler, 168 Ga. 836, 149 S.E. 126 (1929).
Dispute as to date debt was paid with stock and amount paid.
- Guarantor's were not entitled to summary judgment on indemnification claim since the guarantor failed to establish when the stock used to satisfy the debt, in part, was actually transferred to the creditor or when the creditor exercised control over it. Lahaina Acquisitions, Inc. v. GCA Strategic Inv. Fund Ltd., 261 Ga. App. 800, 584 S.E.2d 51 (2003).
Recovery of stipulated attorney's fees.
- Attorney's fees stipulated in note may be recovered by surety. Youmans v. Puder, 13 Ga. App. 785, 80 S.E. 34 (1913).
Surety or endorser is subrogated to payee's rights to extent of payment.
- When the plaintiff was a surety or endorser, the plaintiff is to be subrogated to the rights of the payee in the notes in controversy to the extent of payment. Electric City Brick Co. v. Hagler, 168 Ga. 836, 149 S.E. 126 (1929).
Spouse is not entitled to be subrogated.
- Spouse of the grantor in the security deed paying debt secured by another deed was not entitled to be subrogated to the grantee's rights. Hiers v. Exum, 158 Ga. 19, 122 S.E. 784 (1924).
Waiver.
- Guaranty executed by a guarantor contained a very broad waiver clause which plainly and unambiguously waived any claims the guarantor might have had against the debtor and extended to claims arising in equity, or under contract, statute, or common law, and which obviously included a claim under O.C.G.A. § 10-7-41; the trial court erred by denying summary judgment to the debtor and other defendants, and erred in granting summary judgment in favor of the guarantor. Brookside Cmtys., LLC v. Lake Dow N. Corp., 268 Ga. App. 785, 603 S.E.2d 31 (2004).
Relationship to bankruptcy law.- Although the court found that the debtor owed a specific amount to the creditor at the time the bankruptcy case was filed and as scheduled, affirmative defenses of recoupment and setoff were preserved, and the party objecting to the creditor's claim could assert those defenses to reduce the creditor's claims if the defenses were permitted under state law (here, Georgia). Whether called setoff or recoupment, it was undisputed that the debtor paid an amount to the bank to satisfy the creditor's primary obligation to that bank, and it was also undisputed that the obligation of the debtor to the creditor arose when the debtor borrowed money that originated from the bank; thus, under any theory the debtor would get the benefit of the amount the debtor paid on the bank's debt, reducing the creditor's claim accordingly. In re Bay Circle Props., LLC, Bankr. (Bankr. N.D. Ga. Apr. 3, 2020).
Setoff allowed.- Equity holders were not entitled to disallow the scheduled claims of an affiliate of a bankruptcy debtor because bankruptcy rules allowed the affiliate to amend its bankruptcy schedules at any time until the case was closed, judicial estoppel did not bar an amendment based on a change in circumstances, and the affiliate was entitled to setoff of the amount it paid to the creditor post-petition to reduce the debtor's claim under state law since the bankruptcy law opened up the possibility for others to raise the defense to minimize recovery from the estate. In re Bay Circle Props., LLC, Bankr. (Bankr. N.D. Ga. Mar. 21, 2020).
Cited in Reed v. Liberty Nat'l Bank & Trust Co., 44 Ga. App. 544, 162 S.E. 154 (1932); In re Seigel, 43 F. Supp. 778 (N.D. Ga. 1942); Continental Cas. Co. v. White, 160 F. Supp. 611 (M.D. Ga. 1957); Betts v. Brown, 219 Ga. 782, 136 S.E.2d 365 (1964); Redman Indus., Inc. v. Tower Properties, Inc., 517 F. Supp. 144 (N.D. Ga. 1981); Ragsdale v. Bank S. (In re Whitacre Sunbelt, Inc.), 206 Bankr. 1010 (Bankr. N.D. Ga. 1997); Progressive Elec. Servs. v. Task Force Construction, Inc., 327 Ga. App. 608, 760 S.E.2d 621 (2014).
RESEARCH REFERENCES
ALR.
- Incapacity of principal to contract as affecting liability of guarantor or surety, 24 A.L.R. 838; 43 A.L.R. 589.
Liability of grantee assuming mortgage debt, to grantor, 76 A.L.R. 1191; 97 A.L.R. 1076.
Right of surety to recover against principal for expenses incurred in defeating a claim by the obligee, 124 A.L.R. 1175.
Right of building contractor's surety who completes contract, to money earned by contractor but unpaid before default, 134 A.L.R. 738; 164 A.L.R. 613.
Construction and application of contractual provision regarding payment by surety of claim as evidence of principal's liability to surety ("conclusive evidence" clause), 144 A.L.R. 521.
What constitutes action on bond, executed under law of United States, so as to be within Federal District Court's jurisdiction under 28 USCS § 1352, 105 A.L.R. Fed. 716.