Emerson v. Cousins Mortg. & Equity Investments, 55009

• Decision Date: 13 April 1978
• Docket Number: No. 55009,No. 3,55009,3
• Citation: 244 S.E.2d 890,145 Ga.App. 883
• Court: Georgia Court of Appeals
• Parties: W. A. EMERSON et al. v. COUSINS MORTGAGE & EQUITY INVESTMENTS

Page 890

244 S.E.2d 890

145 Ga.App. 883

W. A. EMERSON et al. v. COUSINS MORTGAGE & EQUITY INVESTMENTS.

No. 55009.

Court of Appeals of Georgia,Division No. 3.

April 13, 1978.

Rehearing Denied May 12, 1978.

Hurt, Richardson, Garner, Todd & Cadenhead, J. Wayne Pierce, Nall & Miller, J. Robert Howard, Atlanta, for appellants.

Troutman, Sanders, Lockerman & Ashmore, William G. McDaniel, John J. Dalton, Atlanta, for appellee.

BANKE, Judge.

The appellee, Cousins Mortgage and Equity Investments, sued the appellants, William A. Emerson and Phillip H. Dohn, Jr. to recover on matured promissory notes. The appellants appeal the grant of summary judgment for appellee and the denial of their own motion for summary judgment. They also appeal the denial of their motion to compel discovery.

The appellants were limited partners in Crestway Properties. Crestway obtained a loan from the appellee in August 1973 which was secured by a first deed to secure debt on the property (apartments being converted into condominiums). In January 1974 Crestway filed for bankruptcy under Chapter XII of the Federal Bankruptcy Act. A Plan of Arrangement was proposed and confirmed by the bankruptcy judge. The Plan provided, in part, that the appellee could foreclose on the property by exercising its power of sale; that Crestway would have an option to repurchase the property at a specified price if the appellee was the purchaser at foreclosure; and that the appellants would each give the appellee a promissory note, which would mature on November 11, 1975, in payment for the appellee's agreeing to grant the option to repurchase.

The appellee was the only bidder at the June 1975 foreclosure sale; and the appellants as successors in interest to Crestway, did not exercise their option to repurchase. The notes became due, and appellee filed this action when the appellants refused to pay the notes after demand.

1. The appellants contend that no outsiders bid on the property because the appellee "chilled" the foreclosure proceedings and that the appellee's bid was below fair market value and below the minimum amount agreed upon in the Plan of Arrangement. They argue that they are released from any obligation to pay the promissory notes because of the above irregularities and because appellee failed to obtain a confirmation of sale.

( a) The promissory notes signed by the appellants stated that the notes were "executed and delivered to payee (the appellee) in compliance with the requirements relating to 'four notes' . . . set forth on page 4 of an Arrangement Under Chapter XII of the Bankruptcy Act in the Matter of Crestway Properties . . . said Arrangement having been confirmed by the court at a meeting commencing on April 1, 1975, and being continued and concluded on April 3, 1975." Thus, each promissory note and the written contract (Plan of Arrangement) out of which it arose constitute one contract and are to be construed together. Adams v. Hatfield, 17 Ga.App. 680(2), 87 S.E. 1099 (1915). The fact that the notes were conditioned on the appellee's purchase of the property at a forthcoming foreclosure sale did not destroy the validity of the notes; and undisputed evidence of the payee's failure to comply with the stated condition precedent is a defense to the maker's liability. See McCook v. Parker, 38 Ga.App. 426, 144 S.E. 142 (1928); Rudder v. Belle Isle, 46 Ga.App. 336, 167 S.E. 753 (1932). These rulings are consonant with the rule that the maker can always plead failure of consideration in defense to a suit on a promissory note. Slaton v. Fowler, 124 Ga. 955(3), 53 S.E. 567 (1905); Pryor v. Ludden & Bates Southern Music House, 134 Ga. 288, 67 S.E. 654 (1910).

The appellants, here, have pleaded failure of consideration. They claim that numerous irregularities existed with regard to the foreclosure sale of partnership property conducted by the appellee and that, consequently, the sale was invalid and the consideration for which the promissory notes were given (option to the bankrupt partnership to repurchase the foreclosed property from its creditor) failed.

In this regard we note that the Plan of Arrangement provides that "In the event (the appellee) purchases 'The Property' at such foreclosure sale, it shall grant to Crestway the first option . . . to purchase 'The Property' for $4,100,000 . . . ." A later provision of the Plan states that the four promissory notes given to the appellee by Crestway's two general partners and the appellants (limited partners) were ". . . a condition to confirmation of the plan . . ." and ". . . shall be deemed to be given by the respective makers thereof as partial, consideration for (the appellee's) agreement to grant the option in the circumstances provided above; provided, however, such notes shall be deemed to be payment for the option itself . . ." The bankruptcy judge ruled that he "approved and confirmed" the foreclosure sale "in all . . . respects" except purchase price on which he made no ruling.

After a long and in-depth consideration of the issues and arguments raised by the parties to this appeal, we hold that the defense to payment (failure of consideration) urged by the appellants fails. We base our ruling on this court's 1912 decision in Tobin v. Pursley, 11 Ga.App. 352, 75 S.E. 265 (1912) which we find to be fully applicable in this modern factual situation. The Tobin decision is quoted below in its entirety:

"It is no defense to an action on a promissory note that the note was given for the purchase price of a mule, secured by a mortgage thereon; that the defendant delivered the mule to the plaintiff (the mortgagee) upon his agreement to foreclose the mortgage in a justices court sell the mule at constable's sale (the note and mortgage being for more than $100), and notify defendant of the time and place of sale; that the plaintiff foreclosed the mortgage in the superior court, had the mule sold by the sheriff, and failed to notify the defendant of the time and place of sale, and that, in consequence of this failure, the defendant did not appear at the sale, and the mule was sold for a sum greatly less than its value. If the defendant has any remedy, it is by an independent action against the plaintiff." (Emphasis supplied.)

( b) The appellants' argument that appellee's bid was less than the minimum price agreed upon in the Plan of Arrangement is also without merit. Section II of the Plan provided that CMEI (the appellee) agreed to bid "an amount not less than...