Hays v. Edwards , 31 Ga. App. 725 ( 1924 )

Bloodworth, J.

(After stating the foregoing facts.) Only the second headnote needs elaboration.

A. N. Hays, the principal, filed no defense, admits his liability, and is not complaining of the judgment against him. A. S. Hays, one of the sureties, ratified the taking of the interest note by making a payment thereon. On the trial of the case the plaintiff swore: “Mr. Steve Hays (A. S.) paid me the money; paid it out of his own hand; yes, sir, and said he would pay the balance if Alf (A. N.) did not pay it. Alf has not paid me a cent on that note.” Plaintiff also swore: “Steve Hays paid me two hundred and twenty odd dollars, and promised to pay the other if Alf did not pay it. He didn’t object to this interest note being given. He knew about it.” A. S. Hays testified: “I did malee a payment, and got a receipt for it.” This payment by A. S. Hays on the interest note was a ratification by him of the giving of the note by A. N. Hays and its acceptance by Edwards, and he is bound by it.

Were W. M. and J. P. Hays discharged by the plaintiff accepting the interest note? In order for a surety to be discharged because of increasing his risk by the extension of time granted to the principal without his consent, three things are necessary: (1) At the time the indulgence is granted the owner and holder must know that the surety was such; (2) there must be a sufficient consideration;-(3) the indulgence.must be for a definite period. “It makes no difference for how short a period the time is extended, . . that period' must be fixed.” Bunn v. Commercial Bank, 98 Ga. 650 (26 S. E. 64). We will discuss the above propositions in the order named.

The evidence clearly shows that the plaintiff knew, when W. M. and J. P. Hays signed the note, that they did so as sureties. It also shows that neither of these two sureties knew anything of the interest note being given when it was executed, and that they never agreed to it or ratified it in any way.

Was there a consideration for the indulgence granted to the principal? Mr. A. N. Hays swore that the payee of the interest note, Mr. Edwards, “extended the time in consideration of him giving this interest note.” A calculation of the interest on the original note at eight per cent, from January 27, 1914, the date from which it bears interest, to December 1, 1919, the date of the maturity of the interest note, will show that the amount of the interest note is more than the legal interest to that .time would be. It will be noted that the interest note was given some time after the maturity of the principal note. The acceptance of the interest note by the plaintiff amounted to a payment of the interest embodied therein. If we treat this note as embracing interest only to the date of the maturity of the note, then it is for more than the legal interest, is usurious, and the legal effect of taking this note would be to discharge the surety. The headnote in Knight v. Hawkins, 93 Ga. 709 (20 S. E. 266), is as follows: “Where the.holder of a past-due promissory note, in consideration of the prepayment in advance of usurious interest by the maker, extends the time of payment without the knowledge or consent of the surety, the latter is discharged, the creditor, at the time of granting the indulgence, knowing the fact of suretyship.” In Camp v. Howell, 37 Ga. 319, Judge Walker said: “The plaintiff contracted to give time in consideration of the promise of legal interest on his debt, and the usurious interest promised to be paid him; and this, without the consent of the surety, discharged the surety. The case of Stallings v. Johnson, 27 Ga. R. 564, fully sustains the court below in holding that the contract to give time was sufficient to discharge the surety; provided, the plaintiff, at the time of making it, knew that Camp was surety.” See also Owens v, Palmour, 99 Ga. 92 (24 S. E. 859); Clark v. Brice, 64 Ga. 486 (2). If we treat this note as embracing only legal interest, it would pay the interest on the original note beyond its maturity, and this would be interest in advance. In the Knight case, supra, it was said: “Even the prepayment in advance of legal interest on a debt is of itself sufficient to work the discharge of a surety. 2 Brandt, Suretyship, § 352. The precise question made in the case at bar was decided by this court in the case of Scott v. Saffold, 37 Ga. 384, in which it was held, under similar facts, that the surety was discharged. Again, in Randolph v. Fleming, 59 Ga. 776, it was held that where, after a note became due, interest was accepted by the payee from the makers for a short period in advance, a contract for indulgence arose by implication, and an indorser on the note was discharged. See also Parmelee v. Williams, 72 Ga. 42.” “After the note became due, interest was accepted by the payee from the makers for a short period in advance. In the absence of express stipulation (and none took place) a contract for indulgence arose by implication, and the indorser was thus discharged.” See also Tanner v. Gude, 100 Ga. 157 (27 S. E. 938).

Was the indulgence for a definite period? Yes, until December 1, 1919, the date of the maturity of the interest note. In Randolph v. Fleming, 59 Ga. 777 (2), the Supreme Court held: “Prepay-' ment and acceptance of interest to a given time, on a note past due, is evidence of a contract for indulgence until the time has expired; and if no stipulation to the contrary appears, an unconditional contract will arise by implication.” “No stipulation to the contrary appears” in the note which we are discussing. In Scott v. Saffold, 37 Ga. 391, it is said: -“The very idea of payment in advance presupposes that delay of the payment of the principal is to be given for the time. The payment of the interest is the consideration for an agreement implied from the transaction itself if not distinctly expressed, to give time on the principal. The general rule is that the reception of interest in advance upon a note is prima facie evidence of a binding contract to forbear and delay the time of payment; and no suit can be maintained against the maker during the period for which the interest has been paid, unless the right to sue be reserved by the agreement of the parties.” Prom the foregoing it will be seen that the payee of the original note not only tied his own hands and could not sue before the maturity of the interest note, but also placed the sureties where they could not themselves pay the original note and bring suit thereon; thus depriving them of a right which they would otherwise have. This is such conduct on the part of the principal as discharges the sureties W. M. and J. P. Hays.

Judgment affirmed as to A. N. and A. 8. Hays; reversed as to IF. M. and J. P. Hays.

Broyles, G. J., and Luke, J., concur.