SB 37 was introduced during the 2019 legislative session of the Georgia General Assembly and was signed by Governor Kemp on May 7. SB 37 amends O.C.G.A. § 13-5-30, Georgia’s statute of frauds, so as to clarify that an agreement to release or rescind an agreement subject to the statute of frauds must be in writing and signed by all parties to the original agreement.

SB 37 is a direct response to a 2018 Georgia Court of Appeals decision, Crop Production Services, Inc. v. T.E. Moye [1]. In Crop Production, the Court held that the rescission of a guaranty (an agreement subject to the statute of frauds) need not be in writing when the parties mutually agree to the rescission.

Crop Production dealt with a guarantor who alleged that the lender had orally released him from his obligations under a guaranty agreement. The implication of Crop Production is that an oral release of a party from any agreement subject to the statute of frauds will be enforceable if the released party can establish a mutual agreement between the parties to the original contract.

While Crop Production acknowledged the long-standing rule that a contract subject to the statute of frauds cannot be subsequently modified by an oral agreement, the Court distinguished the modification of a contract from the rescission of a contract. In doing so, Crop Production reversed nearly three decades of Georgia case law that provided that the rescission or release of a party to a contract subject to the statute of frauds must be in writing.

Georgia’s banking industry was particularly impacted by the holding in Crop Production, as a “commitment to lend money” and “a promise to answer for the debt … of another” (guaranty) are both agreements that are subject to the statute of frauds.

After relying for decades on a rule that a release from a promissory note or guaranty must be in writing, lenders were suddenly placed in the position where borrowers could claim they were orally released from their loan obligations. Given the facts of Crop Production,a further appeal of the decision to the Supreme Court was unlikely. Accordingly, the legislature had to take action and amend O.C.G.A. § 13-5-30 so as to codify the prior rule.

O.C.G.A. § 13-5-30, as amended by SB 37, goes into effect on July 1.

Click here to see the amended legislation.

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