Fielbon Dev. V. Colony Bank of Houston

• Decision Date: 26 March 2008
• Docket Number: No. A07A2019.,No. A07A2020.,A07A2019.,A07A2020.
• Parties: FIELBON DEVELOPMENT COMPANY, LLC et al. v. COLONY BANK OF HOUSTON COUNTY. Colony Bank of Houston County v. Fielbon Development Company, LLC et al.
• Court: Georgia Court of Appeals

290 Ga. App. 847

660 S.E.2d 801

FIELBON DEVELOPMENT COMPANY, LLC et al. v. COLONY BANK OF HOUSTON COUNTY.

Colony Bank of Houston County v. Fielbon Development Company, LLC et al.

No. A07A2019.

No. A07A2020.

Court of Appeals of Georgia.

March 26, 2008.

Reconsideration Denied April 9, 2008.

Greer, Stansfield & Turner, Robert H. Stansfield, Covington, for appellants.

Mills & Larkey, Ben B. Mills Jr., Fitzgerald, for appellee.

ADAMS, Judge.

Colony Bank of Houston County filed suit to recover on promissory notes signed by Fielbon Development Company, LLC, as well as a guaranty provided by R.J. Fields on the notes. During the course of the litigation, all but one of the Fielbon notes was satisfied. Thus the trial concerned the remaining promissory note in the face amount of $116,000 and Fields' guaranty, along with counterclaims filed by Fielbon and Fields against Colony Bank for negligence, attorney fees and punitive damages.

The trial court directed a verdict against Fielbon on the note and against Fields on his guaranty in the amount of $121,770.63, representing principal and interest plus $18,265 in attorney fees. The court dismissed Fields' counterclaim, but sent Fielbon's counterclaim to the jury, which returned a verdict against the bank in the amount of $50,000, together with $25,965.50 in attorney fees for a total of $75,965.50. These cross-appeals ensued.

Fields, an experienced real estate developer, formed Fielbon with Calder Bond,¹ who had considerable construction experience from working in the concrete industry in Macon and elsewhere. The two men formed the company as a vehicle for developing subdivisions and building houses, primarily in Houston and Bibb Counties. Field held a 50 percent ownership and Bond held the remaining 50 percent through a company called Redlac Properties, Inc. Bond was to manage the day-to-day affairs from the company's Macon office, while Fields was to handle the financial aspects, dealing with the banks and obtaining funding, from his office in Covington. Fielbon's first project was the development of Bradshire Subdivision, which began sometime in 2002.

On or about March 15, 2003, Fielbon adopted a consent resolution giving both Fields and Bond the authority to "execute and deliver any and all instruments of any kind whatsoever to sell lots and close transactions related to the [sale] of lots in Bradshire Subdivision." Thus, as Fields acknowledged at trial, Bond could sign documents on behalf of Fielbon and could represent the company at closings. In addition, Fields and Bond had an agreement that Bond could draw $80,000 per year in living expenses on Fielbon accounts.

Sometime later in 2003, Fielbon began to transact business with Colony Bank. The company opened a checking account in June 2003, and gave Bond authority to sign checks on that account. In addition, Fielbon obtained a series of construction loans from the bank, and on June 13, 2003, Fields² signed a personal guaranty of Fielbon's debt. Several months later, on September 26, Fielbon entered into the promissory note at issue in this case. Bond signed the note on behalf of Fielbon, and Bill Gresham signed the note on behalf of the bank as "City President." This loan was secured by a security deed on Lot 4B in Bradshire Subdivision. Fields' guaranty also remained in place, and Fields understood that the guaranty was intended to cover such loans to Fielbon.

The bank immediately advanced Fielbon approximately $27,000 under the loan to purchase Lot 4B. The loan terms allowed Fielbon to make additional draws as construction on the lot progressed. The bank followed a percentage-of-completion method of inspection and funding for such loans. Under this method, the bank would authorize draws on the loan proceeds, after it had inspected the property to ensure that construction was progressing in proportion to the money advanced. Most of the draws on this loan were deposited directly into the Fielbon checking account at Colony Bank.³

Sometime in October 2003, while Gresham was on vacation, Bond came to Colony Bank and complained to Annette Alexander, Gresham's administrative assistant, that Fielbon was not getting enough money under the loan to proceed with construction. Alexander told Bond that a problem existed because the bank's inspector had reported that no construction was occurring on Lot 4B. As a result, the bank could not authorize any further draws under the loan. Alexander showed Bond that the draw sheet for the loan, which the bank used to track the bank's inspections and Fielbon's draws, indicated that Lot 4B was the loan's collateral. Bond replied that the bank's documents were in error, and that the loan was actually secured by Lot 4C in the same subdivision. Unbeknownst to the bank, however, Fielbon had previously obtained another loan from a different bank to finance construction on Lot 4C.

Bond demanded that Alexander call Gresham to convey his complaints. Alexander made the call and explained the situation. Although Alexander and Gresham have differing recollections of this conversation, it is undisputed that, at some point, the draw sheet on the loan was changed to reflect that Lot 4C was the collateral. This change was made by striking the letter "B" and writing in the letter "C" with a green pen.⁴ Despite this handwritten change, no formal substitution of collateral was ever made. The bank's security interest on the loan remained in Lot 4B, as reflected in the deed to secure debt and other loan documents. Despite this discrepancy, the bank authorized subsequent draws based upon inspections it conducted on Lot 4C, not 4B. Construction proceeded apace on Lot 4C, as bank documents reflect that it was "100 percent completed" on January 29, 2004, but it appears that no construction occurred on Lot 4B.

In November 2003, Fields' Covington office began calling to request documentation on the various loans and the checking account Fielbon held with Colony Bank. Fields' employee, Nancy Barber, conducted this internal audit. On December 3, 2003 Fields came to the bank and removed Bond's authority to write checks on Fielbon's account. Even after this change, Fielbon continued to receive additional draws on the construction loan through December and into January 2004.

Fields and Fielbon filed suit against Bond in January 2004,⁵ and while Fields told Gresham about the suit, he did not mention any mistake in the loan's collateral. Gresham testified that he first became aware that the bank had been inspecting the wrong property in March 2004, when Fielbon refused to renew the notes. He said that Fields called him out to the subdivision and showed him Lot 4B and told him that his draw sheet was incorrect. Other evidence indicates, however, that the bank may have become aware of the issue with the collateral as early as January 2004. Sometime later, the bank sent Fielbon and Fields a ten-day demand letter for repayment on the amounts owed the loan and then initiated this lawsuit.

Case No. A07A2019

In Case No. A07A2019, Fielbon and Fields appeal the trial court's directed verdict on both the promissory note and Fields' guaranty. They argue, in particular, that the trial court erred in directing a verdict on Fields' increase-of-risk and novation defenses to the guaranty. They also appeal the trial court's directed verdict on Fields's counterclaim, arguing that the trial court should have allowed the claim to proceed to the jury.

1. Turning first to the directed verdict on Fielbon's promissory note, we find no error. "A plaintiff seeking to enforce a promissory note establishes a prima facie case by producing the note and showing that it was executed. Once that prima facie case has been made, the plaintiff is entitled to judgment as a matter of law unless the defendant can establish a defense." (Punctuation and footnote omitted.) Collins v. Regions Bank, 282 Ga.App. 725, 726, 639 S.E.2d 626 (2006). Colony Bank produced the note signed by Bond and demonstrated that he had the authority to sign such documents on Fielbon's behalf. Accordingly, the bank made out its prima facie case.

In defense to the note, Fielbon and Fields asserted that an issue of fact existed as to whether the note is enforceable against Fielbon because Colony Bank admitted in the pretrial order and at trial that it became aware, after the fact, that Bond had obtained loan funds in October and November 2003 for his own personal use, and not for legitimate business purposes. They also assert that no Fielbon employee ever filed a written approval or request for a draw. Additionally, they contend that Fielbon should not be liable under the note because under OCGA § 14-11-301(c), a limited liability corporation is not liable for acts of a member that are "not apparently for the carrying on in the usual way the business or affairs" of the corporation, and Bond made personal use of some of the loan proceeds. And they argue that had Colony Bank conducted proper inspections, the funds would not have been disbursed at all.

But there is no dispute that Bond had the authority to sign the promissory note, and to make draws under the loan. Fielbon made such loans in the usual course of its business, and in fact, had a number of such loans at Colony Bank. The evidence shows that the draws were either deposited directly into Fielbon's checking account at the bank or issued to Fielbon in the form of a certified check. Fielbon granted Bond the authority to disburse funds from the checking account and to draw $80,000 in funds for his own living expenses. Thus, Bond had the authority to bind Fielbon under the note, to disburse the loan proceeds and to withdraw Fielbon funds for his own personal use. Nothing in Bond's actions in connection with the loan was so dissimilar from the acts the corporation had authorized him to perform as to make them "not apparently for the carrying on in the usual way the business or affairs" of the corporation. ...