Clark v. AgGeorgia Farm Credit ACA

• Decision Date: 13 July 2015
• Docket Number: No. A15A0486.,A15A0486.
• Citation: 333 Ga.App. 73,775 S.E.2d 557
• Parties: CLARK v. AgGEORGIA FARM CREDIT ACA.
• Court: Georgia Court of Appeals

333 Ga.App. 73

775 S.E.2d 557

CLARK

v.AgGEORGIA FARM CREDIT ACA.

No. A15A0486.

Court of Appeals of Georgia.

July 13, 2015.

Hall Booth Smith, Joel Lee McKie, Andrew Kevin Hazen, Atlanta, for Appellant.

Martin Snow, Stuart Ellis Walker, John T. McGoldrick Jr., Macon, for Appellee.

Opinion

McMILLIAN, Judge.

Appellant Donald Clark (“Donald”) filed a complaint, as amended and recast several times, against appellee AgGeorgia Farm Credit ACA (“AgGeorgia”)¹ seeking damages arising from the alleged breach of certain deeds to secure debt and the wrongful foreclosure of a 278-acre farm in Wilcox County, Georgia (the “Farm”) that Donald jointly owned² with his brother Harris Edwin Clark (“Edwin”; collectively referred to as “the Brothers”). The trial court granted partial summary judgment to AgGeorgia, and Donald timely filed an appeal to this Court.³ Having carefully considered the issues raised in this appeal, we now reverse.

The underlying facts are essentially undisputed. The Brothers jointly purchased the Farm sometime during the 1980s and operated the Farm together for many years. In 1997, the Brothers obtained individual loans from AgGeorgia's predecessor, at which time they jointly executed two deeds to secure debt pledging the Farm as security for the loans (collectively referred to as the “1997 Deeds”).

According to AgGeorgia, the 1997 Deeds were set to expire on December 1, 2004, and in October 2004, the Brothers jointly executed two new security deeds (DSD No. 1 and DSD No. 2; collectively referred to as the “2004 Deeds”) pledging the Farm to secure certain identified existing loans, which AgGeorgia had individually extended to the Brothers. More specifically, DSD No. 1 identified an existing loan to Donald, who was named as the sole “Borrower” under that deed, and DSD No. 2 identified an existing loan to Edwin, who was listed as the sole “Borrower” in DSD No. 2. Donald and Edwin, who were defined as the “Undersigned, whether one or more,” jointly executed the 2004 Deeds. The 2004 Deeds were in many respects identical to the 1997 Deeds⁴ and contained many of the same terms and conditions, including “open end” and “dragnet” clauses, which made additional loans, advances, and other indebtedness subject to the 2004 Deeds under certain conditions.

Edwin paid off the debt identified in DSD No. 2 in January 2005, and Donald paid off the debt identified in DSD No. 1 in February 2005. In the summer of 2004, the Brothers had a disagreement over a matter unrelated to their farming operations, and in the ensuing months their relationship deteriorated to the point that they ceased farming together shortly after the notes were paid off. However, the Brothers continued to farm separately, and in April 2005 Donald obtained another loan from AgGeorgia, which was evidenced by a promissory note in favor of AgGeorgia for $80,000. In 2007, Donald obtained two additional loans and executed two additional promissory notes in favor of AgGeorgia.⁵

In 2008, AgGeorgia notified Donald that he was in default on his Subsequent Loans and warned him that it intended to initiate a foreclosure action if he did not satisfactorily restructure the loans. Donald failed to cure the default or otherwise restructure the loans, and in April 2009, AgGeorgia notified Edwin and Donald that Donald was in default on his Subsequent Loans as well as an additional note he executed on March 5, 2004,⁶ and that it intended to initiate judicial foreclosure proceedings under the terms of DSD No. 1 if Donald did not satisfy the outstanding debt, which at that time was slightly over $193,000 including interest and fees, within ten days. Although Edwin apparently did not have any outstanding loans to AgGeorgia at that time, after he was notified of the pending foreclosure he requested and received a $190,000 loan from AgGeorgia, which was evidenced by a promissory note he signed on April 9, 2009 (hereinafter referred to as “Edwin's Subsequent Loan”). AgGeorgia did not provide notice to Donald of Edwin's Subsequent Loan, nor did it attempt to obtain Donald's written consent prior to extending the loan.

After providing additional notice of default and advertising the sale, AgGeorgia foreclosed on the 2004 Deeds in August 2009, at which time Donald's outstanding debt amounted to approximately $198,748.70 and Edwin's outstanding debt amounted to $191,838.21. Edwin entered the highest bid at the foreclosure sale, purchasing the Farm for $392,480. Donald was present at the foreclosure sale but did not object to or challenge the sale at that time.

Over three years after the foreclosure sale, Donald instituted the present proceedings, contending, among other things, that AgGeorgia improperly exercised the power of sale in the 2004 Deeds because DSD No. 1 did not secure his previous indebtedness other than indebtedness specifically identified in the deed, and neither his nor Edwin's subsequent indebtedness was secured by the 2004 Deeds because AgGeorgia did not obtain the consent of the “non-borrowing” brother to the other brother's loans. Further, Donald also challenged the foreclosure on the basis that AgGeorgia was not the holder of either the notes or the 2004 Deeds at the time it instituted the foreclosure proceedings.⁷ Both parties filed motions for partial summary judgment, and following a hearing, the trial court entered a written order denying Donald's motion for partial summary judgment and granting partial summary judgment to AgGeorgia on Donald's claims for breach of contract and wrongful foreclosure. We agree with Donald that the trial court erred by granting summary judgment to AgGeorgia and denying Donald's motion on these claims and accordingly reverse.

1. The 2004 Deeds contain three sections that set out the indebtedness secured by the deeds. Section One of each deed identifies a specific pre-existing individual note for a specific loan made to each brother for which the Farm was pledged as security; Section Two addresses only subsequent “additional” loans made to the “Borrower” that are evidenced by a note or notes; and Section Three applies to both pre-existing indebtedness as well as indebtedness that may be “contracted” after the execution of the Deeds. As stated above, the specifically identified indebtedness of each brother specified in Section One has been satisfied, and thus is not at issue here. However, we must determine whether the Brothers' Subsequent Loans were secured under Section Two, and whether Donald's March 2004 loan was secured under Section Three.

“Under Georgia law, a security deed which includes a power of sale is a contract and its provisions are controlling as to the rights of the parties thereto and their privies.” Stewart v. Suntrust Mtg., Inc., 331 Ga.App. 635, 638(3), 770 S.E.2d 892 (2015). And “[t]he construction of an unambiguous deed, like the construction of any other contract, is a question for determination by the court.” Turk v. Jeffreys–McElrath Mfg. Co., 207 Ga. 73, 76(2), 60 S.E.2d 166 (1950). Under Georgia law, the cardinal rule of contract construction is to ascertain the intention of the parties, as set out in the language of the contract. Shepherd v. Greer, Klosic & Daugherty, 325 Ga.App. 188, 189–190, 750 S.E.2d 463 (2013) (the overarching consideration “is to effectuate the intent of the parties as set out in the language of the agreement”).

[I]f that intention is clear and it contravenes no rule of law and sufficient words are used to arrive at the intention, it shall be enforced irrespective of all technical or arbitrary rules of construction. Further, the construction which will uphold a contract in whole and in every part is to be preferred, and the whole contract should be looked to in arriving at the construction of any part. Moreover, no construction is required or even permitted when the language employed by the parties in the contract is plain, unambiguous, and capable of only one reasonable interpretation.

(Citations and punctuation omitted.) Id. at 190, 750 S.E.2d 463.

(a) Section Two and Subsequent Loans. Under Section Two (“open end clause”) of the Deeds, the Farm was pledged to secure not only the loans specifically identified in the Deeds, but also

(2) all additional loans and advances that may subsequently be made to Borrower (or to any one or more of the parties designated as Undersigned or Borrower, with the written consent of the remainder of said Undersigned or Borrower), by Lender, which will be evidenced by a note or notes....”

As set out above, Section Two consists of two parts—a parenthetical and language outside the parenthetical. According to the language outside the parenthetical, the property pledged in the deeds acts as security under the following circumstances: 1) all subsequent loans, 2) evidenced by a note or notes, and 3) made to the “Borrower.” However, in situations where the language inside the parenthetical applies, an additional requirement—written consent by the “remainder” of the Undersigned or Borrower—is clearly imposed as a condition for the deed to secure a subsequent debt. Thus, we cannot simply ignore the language inside the parenthetical because clearly that language applies in some circumstances. The key question then is under what circumstances does the consent requirement apply.

We first examine whether this question can be answered solely by reference to the language of the 2004 Deeds. AgGeorgia seizes on the fact that the parenthetical refers to “parties,” in the plural rather than “party” in the singular, and urges that consent is only required when 1) there are multiple “parties” who have been identified as Borrower, or 2) when there are multiple parties identified as Undersigned and none of them is also the sole identified Borrower. Thus, AgGeorgia argues that Section Two comes into play in only two circumstances—where an additional loan is made to a Borrower, and there are multiple persons designated as Borrower, or when an additional loan is made to an Undersigned, and...