Reece v. Chestatee State Bank

• Citation: 579 S.E.2d 11,260 Ga. App. 136
• Decision Date: 06 February 2003
• Docket Number: No. A02A1957.,A02A1957.
• Parties: REECE et al. v. CHESTATEE STATE BANK.
• Court: United States Court of Appeals (Georgia)

579 S.E.2d 11

260 Ga. App. 136

REECE et al. v. CHESTATEE STATE BANK.

No. A02A1957.

Court of Appeals of Georgia.

February 6, 2003.

Reconsideration Denied March 11, 2003.

Certiorari Denied June 2, 2003.

William R. Hurst, Dunwoody, for appellants.

Stewart, Melvin & Frost, Frank Armstrong III, Rex J. McClinton, Gainesville, for appellee.

MIKELL, Judge.

Chestatee State Bank (the "Bank") filed the underlying action against Terri and Woody Reece, alleging that the defendants defaulted on two promissory notes. Mr. and Mrs. Reece filed a counterclaim for intentional infliction of emotional distress. The trial court granted summary judgment to the Bank on both the breach of contract action and the counterclaim. Mr. and Mrs. Reece appeal, arguing that genuine issues of material fact remain. We disagree and affirm.

To prevail at summary judgment under OCGA § 9-11-56, the moving party must demonstrate that there is no genuine issue of material fact and that the undisputed facts, viewed in the light most favorable to the non-moving party, warrant judgment as a matter of law. OCGA § 9-11-56(c).... Our review of an appeal from summary judgment is de novo.

(Citations omitted.) Vasquez v. Smith, 259 Ga.App. 79, 576 S.E.2d 59 (2003).

We have attempted to decipher the underlying facts in this case, although the parties provided very few accurate record citations that meet the requirements of Court of Appeals Rule 27(a)(1) and (c)(3)(i) and (iii). Viewed in favor of the Reeces as the nonmoving parties, the record shows that two promissory notes were executed in favor of the Bank. The first note, loan no. XXXXXXXXX ("Note 1"), was signed by both Woody and Terri Reece on August 12, 1998. Note 1 had a principal loan amount of $74,206.64 and a maturity date of February 10, 2002. It provided for 42 payments in the amount of $2,087.67, due on the tenth day of each month, beginning on September 10, 1998. Note 1 was secured by a deed to 58.4133 acres of real property owned by Kenneth Stephens,¹ which was also dated August 12, 1998. Woody and Terri Reece personally guaranteed Note 1.

A second promissory note was executed in favor of the Bank on December 1, 1998, by Terri Reece and Kenneth Stephens. Loan no. XXXXXXXXX ("Note 2") was in the principal amount of $57,764.53, and had a maturity date of December 1, 2003. Note 2, like Note 1, was secured by the August 12, 1998, security deed to Stephens's real property. This note provided for 60 payments of $1,195.65, due on January 1, 1999, and the first day of each month thereafter. There is no personal guaranty in the record referring to Note 2.

On December 9, 1998, Stephens's wife, Carolyn, executed a security deed to the same piece of real property in favor of the Bank. This deed appeared to have been executed in connection with Note 1, as it referenced an indebtedness of $74,206.64, due and payable on February 10, 2002. Carolyn Stephens signed a modification agreement on December 10, 1998, which referred to the December 9 security deed and Note 1. The agreement increased the total principal owed to $131,971.17,² due on December 1, 2003. Both Kenneth and Carolyn Stephens executed a third security deed to the same property on October 19, 1999. The third deed referred to the original principal amount and maturity date of Note 1, rather than to the modified amount contained in the December 10, 1998, agreement. The reasons behind the execution of the second and third security deeds and the modification agreement are not clear from the record or the briefs.

On February 6, 2001, Rex McClinton, a lawyer representing the Bank, sent Woody and Terri Reece a letter notifying them that Note 1 was past due and therefore in default, and that the remaining principal balance of the debt, plus accrued interest, was immediately due and payable. According to the letter, the current balance on the note was $65,628.18. The record does not reveal what steps, if any, were taken by the Reeces in response to the default letter. The Bank filed suit against the Reeces, but not against Kenneth or Carolyn Stephens, on March 6, 2001.

On May 14, 2001, after the action against the Reeces had commenced, two additional modification agreements were filed. Significantly, the Reeces were not parties to either agreement. First, Kenneth and Carolyn Stephens executed a modification agreement which referred to the October 19, 1999, deed securing Note 1. The agreement provided that the Bank modified the original indebtedness such that the total principal amount owed became $50,127.50, "represented by a note having a final payment date of May 14, 2002." On that same day, Kenneth Stephens executed a modification agreement referring to the August 12, 1998, deed and Note 1, which provided that the total indebtedness was $131,971.17, due on December 1, 2003.

In connection with the pending litigation against the Reeces, Jean Walden, an assistant vice president of the Bank, provided an "affidavit in verification of debt." Walden swore that as of September 21, 2001, both notes were in default; that the balance owed on Note 1 was $28,002.96; that $36,752.18 was owed on Note 2; and that the total principal balance due on both notes was $64,755.14. Walden's affidavit does not mention the three modification agreements.

Woody Reece submitted an affidavit in which he admits executing Note 1 but states that he cannot confirm the balance owed. Terri Reece provided a similar affidavit, in which she admits executing both notes but says that "I shouldn't have to pay off a note alone that is executed by both my father and me." Both affidavits state that Terri's sister, Marsha Hansard, was employed as a vice president of the Bank and that there was some animosity between Terri Reece and Hansard. Additionally, both Terri and Woody mention that Kenneth Stephens was under indictment by the federal government for drug trafficking, and they allude to the fact that they were not on good terms with Stephens. Significantly, neither Woody nor Terri disputes the fact that the notes are in default. 1. The Reeces contend that the trial court erred in concluding that they were both liable to the Bank under Note 1 and that Terri was liable on Note 2. They argue that the modification agreements executed by Kenneth and Carolyn Stephens somehow extinguished their obligations under the notes. We disagree.

It is undisputed that Woody and Terri Reece executed Note 1, as well as the guaranty of that note, and that Terri Reece executed Note 2. Furthermore, the Reeces have presented no evidence to rebut the Bank's showing that they are currently in default. "Once the record evidence, as here, shows a promissory note has been duly executed and is in default, a prima facie right to judgment is established and the burden shifts to the debtor to establish an affirmative defense." (Citation omitted.) Miller v. Calhoun/Johnson Co., 230 Ga.App. 648, 649-650(3)(b), 497 S.E.2d 397 (1998). Because the Reeces failed to establish a valid defense, the trial court properly granted summary judgment to the Bank on the notes.

First, the personal guaranty signed by both Woody and Terri Reece unconditionally obligated them for payment of Note 1. In fact, the guaranty expressly provides that "the Undersigned hereby absolutely and unconditionally guarantees to Lender the full and prompt payment when due ... of the debts, liabilities and obligations" arising out of Note 1, "and any extensions, renewals, or replacements thereof." The guaranty also states that "no act or thing, except full payment and discharge of all indebtedness, shall in any way exonerate the Undersigned or modify, reduce, limit, or release the liability of the Undersigned hereunder" and that the guaranty "shall continue to be in force and be binding upon the Undersigned, whether or not all Indebtedness is paid in full, until this guaranty is revoked by written notice actually received by the Lender." "The unconditional guaranty agreement at issue here is unambiguous, explicit, and unconditional as to its material terms." Ramirez v. Golden, 223 Ga.App. 610, 611, 478 S.E.2d 430 (1996). Accordingly, the trial court did not err in enforcing the Reeces' obligation under Note 1.

Mr. and Mrs. Reece argue that the modification agreements signed by the Stephenses somehow discharged or altered their obligations under the notes. However, there is no basis for this argument, as the modification agreements simply reflect the total indebtedness secured by the Stephenses' property. The appellants' reliance on OCGA § 11-3-117 is misplaced. That Code section provides, in pertinent part:

[T]he obligation of a party to an instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument.... To the extent an obligation is modified, supplemented, or nullified by an agreement under this Code section, the agreement is a defense to the obligation.

The appellants' only argument regarding the applicability of OCGA § 11-3-117 is that "[t]his section would appear to apply to the appellants." They fail to explain how their obligation was discharged by a modification agreement to which they were not parties.

Furthermore, even assuming, arguendo, that the Reeces were accommodation parties³ to the notes at issue, the modification agreements did not release their obligation. OCGA § 11-3-605(c) provides that the obligation of an accommodation party may be discharged as the result of an agreement to extend the due date of the instrument at issue "to the extent the ... accommodation party proves that the extension caused loss to the ... accommodation party with respect to the right of recourse." Similarly, subsection (d) also requires a showing of loss in order for an accommodation party to be discharged when an obligation is modified in some way other than...