River Forest, Inc. v. MultiBank 2009-1 RES-ADC Venture, LLC, A14A2204.

• Decision Date: 20 March 2015
• Docket Number: No. A14A2204.,A14A2204.
• Citation: 771 S.E.2d 126,331 Ga.App. 435
• Parties: RIVER FOREST, INC. et al. v. MULTIBANK 2009–1 RES–ADC VENTURE, LLC.
• Court: Georgia Court of Appeals

331 Ga.App. 435

771 S.E.2d 126

RIVER FOREST, INC. et al.

v.MULTIBANK 2009–1 RES–ADC VENTURE, LLC.

No. A14A2204.

Court of Appeals of Georgia.

March 20, 2015.

Certiorari Denied July 6, 2015.

Kyler Lee Wise, Atlanta, for Appellant.

Samuel Robinson Arden, Kristen Anne Yadlosky, Atlanta, for Appellee.

Opinion

BARNES, Presiding Judge.

The trial court granted summary judgment in favor of Multibank 2009–1 Res–ADC Venture, LLC (“Multibank”) on its claims for breach of a promissory note and guarantees and for attorney fees brought against River Forest, Inc. and David W. Aldridge (collectively, the “defendants”). On appeal, the defendants contend that the trial court must be reversed because Multibank (1) failed to show that it was the “holder” under the Uniform Commercial Code (“UCC”) of a “note modification” entered into after the original note; (2) failed to establish a prima facie right to recover the underlying debt from the defendants by not producing the note modification; (3) failed to properly sue on, or move for summary judgment on, the note modification in addition to the original note; and (4) failed to pierce the defendants' affirmative defenses. For the reasons discussed below, we conclude that the trial court committed no error in granting summary judgment to Multibank and therefore affirm.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9–11–56(c). A de novo standard of review applies to an appeal from a grant of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant.

(Citation omitted.) Salahat v. F.D.I.C., 298 Ga.App. 624, 625, 680 S.E.2d 638 (2009).

So viewed, the record shows that on January 29, 2007, River Forest executed and delivered to FirstCity Bank a promissory note in the principal amount of $971,000 (the “Original Note”). The Original Note provided that the principal balance would be due on February 1, 2009, and established a variable interest rate between 9.25 percent and 18 percent during the term of the loan. If collection efforts were instituted by FirstCity, the Original Note provided that River Forest would pay attorney fees in the amount of 15 percent of the unpaid principal and interest, plus court costs. The Original Note further provided that FirstCity “may at [its] option extend this note or the debt represented by this note ... without affecting [River Forest's] liability for payment of the note.”

On the same day that the Original Note was executed, Aldridge, the President of River Forest, executed and delivered to FirstCity a personal guaranty for the debt owed by River Forest (the “Original Guaranty”). The Original Guaranty obligated Aldridge to repay the indebtedness evidenced by the Original Note and “any and all extensions, renewals, modifications, amendments, replacements and consolidations of such note.”

On February 1, 2009, River Forest and FirstCity entered into a “Note Modification” that modified and extended the terms of the Original Note. Among other things, the Note Modification extended the maturity date of the Original Note to February 1, 2010, and lowered the interest rate on the Original Note to a fixed rate of 6 percent. The Note Modification also recited that upon an additional interest payment by River Forest on the date of the modification, “the principal balance of the indebtedness will be $693,900.” Additionally, the Note Modification recited that “[River Forest] affirms all terms and conditions of the [Original] Note, ... except as otherwise modified herein.”

On the same day that the Note Modification was executed, Aldridge executed and delivered to FirstCity a related personal guaranty (the “Second Guaranty”). The Second Guaranty obligated Aldridge to repay any indebtedness owed by River Forest to First City as evidenced by any promissory note and “any and all extensions, renewals, modifications, amendments, replacements and consolidations of such note.”

On March 20, 2009, FirstCity was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (“FDIC”) was named as receiver. On February 9, 2010, the FDIC assigned all of its right, title, and interest in the Original Note “and any amendments, modifications or changes thereto,” the Original Guaranty, and the Second Guaranty to Multibank. The FDIC also transferred to Multibank the loan transaction records and payment history for the loan made to River Forest.

River Forest and Aldridge failed to repay the outstanding principal balance and accrued interest on the Original Note by the revised maturity date of February 1, 2010. Multibank thereafter brought the instant suit against them, seeking the unpaid principal balance, accrued interest, and attorney fees. Attached to Multibank's complaint were the Original Note, the Original Guaranty, and the Second Guaranty, but not the Note Modification. The complaint alleged that River Forest had breached the Original Note “as renewed” and that Aldridge had breached the Original Guaranty and Second Guaranty. It did not make specific reference to the Note Modification.

Multibank moved for summary judgment on its claims against the defendants and submitted the affidavit of Jonathan Levy, the attorney-in-fact for the entity serving as manager of Multibank. Levy averred that he had personal access to and control of Multibank's loan files and records, which were created and maintained by Multibank in the ordinary course of its business, and that he had personal knowledge of their contents, including knowledge of the status and payment history of the Original Note and “all modifications and renewals thereto.” Levy further averred that Multibank had possession of the Original Note, the Original Guaranty, and the Second Guaranty, and he referenced and authenticated the originals of those instruments, which were attached as exhibits to his affidavit. According to Levy, Multibank received these instruments when the FDIC assigned and transferred them to Multibank in the ordinary course of business, pursuant to an allonge, omnibus assignment, and limited power of attorney document, all of which also were attached to his affidavit and authenticated by him. Finally, Levy referenced and authenticated as business records the loan transaction records and payment history for the Original Note, which included entries reflecting the extension of the maturity date to February 1, 2010, and the lowering of the interest rate to a fixed rate of 6 percent. Levy, however, did not expressly make reference to the Note Modification or attach it to his affidavit.

In opposing summary judgment, the defendants did not dispute that they had executed the Original Note, First Guaranty, and Second Guaranty, or come forward with any evidence contradicting the payment history attached to Levy's affidavit. Rather, the defendants focused on the Note Modification, a copy of which was attached to and authenticated in an affidavit submitted by Aldridge. Because Multibank had not produced or otherwise shown that it possessed the Note Modification in addition to the Original Note, the defendants argued, among other things, that Multibank had failed to establish that it was the “holder” of the “full and complete” negotiable instrument under the UCC and had failed to establish a prima facie case for recovery.

The trial court rejected the arguments raised by the defendants and granted summary judgment in favor of Multibank on all of its claims. The trial court determined that the uncontroverted evidence showed that Multibank was entitled to enforce the obligations set forth in the Original Note, Note Modification, Original Guaranty, and Second Guaranty against the defendants. This appeal followed.

1. The defendants contend that the trial court's summary judgment order must be reversed because Multibank failed to prove that it was the “holder” of the full and complete negotiable instrument under the UCC. According to the defendants, Multibank was not entitled to recover the debt evidenced by the Original Note because Multibank failed to show that it was in possession of the Note Modification, and thus failed to show that it was in possession of the entire negotiable instrument. We are unpersuaded.

A promissory note is a negotiable instrument subject to Article 3 of the UCC. You v. JP Morgan Chase Bank, N.A., 293 Ga. 67, 73(1), 743 S.E.2d 428 (2013). See OCGA § 11–3–104(a) (defining “negotiable instrument”). Article 3 provides that the ability to recover on a particular note is held by the “person entitled to enforce” the note under OCGA § 11–3–301. To enforce a note under the most frequently employed method under Article 3, the person must be the “holder” of the note. OCGA § 11–3–301(i).¹ See You, 293 Ga. at 73(1), 743 S.E.2d 428 ; Salahat, 298 Ga.App. at 628(2), 680 S.E.2d 638. The person is the “holder” of the note if he is “in possession” of a note that is “payable either to bearer or to an identified person that is the person in possession.” OCGA § 11–1–201(20) (2002).² This statutory language makes clear that possession of the note is a prerequisite to obtaining the status of “holder.” See Jenkins v. Wachovia Bank, N.A., 309 Ga.App. 562, 564(1), 711 S.E.2d 80 (2011).

The question in this case is whether Multibank had to possess both the Original Note and the Note Modification to be a “holder” entitled to bring suit and enforce the underlying debt obligation against the defendants. We conclude that Multibank did not have to possess both the Original Note and Note Modification because the Note Modification was a renewal of the Original Note rather than a novation.

Notably, the statutory provisions at issue in this case do not specifically address “holder” status under the circumstance where a promissory note has been renewed. However, we have held that “a note taken in renewal of an existing note is but a...