Donald L. Clark v. Aggeorgia Farm Credit Aca

WHOLE COURT
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules/
July 13, 2015
In the Court of Appeals of Georgia
A15A0486. CLARK v. AGGEORGIA FARM CREDIT ACA.
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
1
As the name implies, AgGeorgia makes loans for agricultural purposes.
2
The Brothers each owned a one half undivided interest in the Farm.
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 1980’s 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
3
Donald also moved for partial summary judgment, and the trial court denied
his motion in the same order.
2
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
4
The 1997 Deeds and 2004 Deeds will be collectively referred to as “the
Deeds.”
5
The April 2005 and 2007 loans will be referred to as “Donald’s Subsequent
Loans.”
3
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 in 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,
6
The purpose of the March 4, 2004 loan was to finance Donald’s share of the
purchase price of an irrigation pivot he had purchased with Edwin, and AgGeorgia
was granted a security interest in the pivot to secure the loan.
4
purchasing the Farm for $392,480. Donald was present at the foreclosure sale but did
not object 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
7
Pursuant to a General Financing Agreement, AgGeorgia assigned the notes
and deeds to AgFirst Farm Credit Bank (“AgFirst”), which provided funding for
AgGeorgia’s loans through a line of credit.
5
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., ___ Ga. App.___ (3) (Case No.
A14A2047, decided March 27, 2015). And [t]he construction of an unambiguous
deed, like the construction of any other contract, is a question for determination by
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the court.” Turk v. Jeffreys-McElrath Mfg. Co., 207 Ga. 73, 76 (2) (60 SE2d 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 SE2d 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.
(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
7
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
8
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 there are multiple persons designated
as Undersigned and the Undersigned who receives the additional loan is not also the
sole borrower. But AgGeorgia’s reading of Section Two on the one hand appears to
ignore that the phrase “or to any one or more” immediately precedes the word
“parties,” and on the other hand appears to read into the clause conditions that do not
appear in the parenthetical.
Donald argues that the proper meaning of Section Two is best understood by
inserting the proper names of the parties into the deeds. For example, according to
Donald, DSD No. 1 secured all subsequent loans “made to [Donald] (or to any one
or more of the parties designated as [Edwin and Donald] or [Donald] with the written
consent of the remainder of said [Edwin and Donald] or [Donald]).” Thus, Donald
argues, under this interpretation, the consent of the non-borrowing brother was
required.
Although both of these interpretations are strained and appear to read language
into or out of the parenthetical in order to reach their interpretation, we cannot say
9
that either interpretation is unreasonable. Further, any interpretation we place on the
section would suffer from the same defects. “[W]e have defined ambiguity to mean
‘duplicity, indistinctness, an uncertainty of meaning or expression used in a written
instrument, and it also signifies being open to various interpretations.” (Citation and
punctuation omitted.) Shepherd, 325 Ga. App. at 190. Horwitz v. Weil, 275 Ga. 467,
468 (569 SE2d 515) (2002) (“Ambiguity in a contract is defined as duplicity,
indistinctness or an uncertainty of meaning or expression.”). In other words, “[a]
word or phrase is ambiguous when its meaning is uncertain and it may be fairly
understood in more ways than one.” Freund v. Warren, 320 Ga. App. 765, 769, n.4
(740 SE2d 727) (2013). Accordingly, we conclude that Section Two is ambiguous to
the extent that it fails to specify when consent to subsequent loans is required as a
condition precedent to a subsequent debt being secured by the deed.
Because Section Two is ambiguous, we must now attempt to resolve that
ambiguity by applying the statutory rules of construction to ascertain the intent of the
parties. See OCGA § 13-3-2. “If a term used in a contract is of uncertain meaning and
may be fairly understood in more ways than one, it is ambiguous, and we apply the
rules of contract construction in an effort to resolve the ambiguity. The proper
construction of a contract is a question of law for a court to determine.” (Citations and
10
punctuation omitted.) Garrett v. Southern Health Corp. of Ellijay, Inc., 320 Ga. App.
176, 182 (1) (739 SE2d 661) (2013). Thus, “it is only when the ambiguity remains
after applying the rules of construction that a jury must resolve the issue of what the
ambiguous language means.” Shepherd, 325 Ga. App. at 192.
One primary rule of statutory construction requires us to construe any
ambiguity most strongly against the party who drafted the agreement. Hertz Equip.
Rental Corp. v. Evans, 260 Ga. 532 (397 SE2d 692) (1990); See also Willesen v.
Ernest Communications, Inc., 323 Ga. App. 457, 460 (1) (746 SE2d 755) (2013). It
is undisputed in this case that AgGeorgia drafted the 2004 Deeds, and thus as an
initial matter the Deeds must be construed against AgGeorgia.
Further, if a party intends to contract away a substantial right, such as having
future encumbrances placed on their property interests without their knowledge or
consent, such must plainly appear from the contract. Covington v. Brewer, 101 Ga.
App. 724, 729 (3) (115 SE2d 368) (1960) (“since contracts must be construed
according to the intention of the parties at the time of their execution it will not be
presumed that parties intend to contract away their legal rights in regard to a subject
matter not clearly appearing therein”). Additionally, “[t]he laws which exist at the
time and place of the making of a contract, enter into and form a part of it; and the
11
parties must be presumed to have contracted with reference to such laws and their
effect on the subject matter.” (Citations and punctuation omitted.) Magnetic
Resonance Plus, Inc. v. Imaging Systems Intl., 273 Ga. 525, 527 (2) (543 SE2d 32)
(2001).
Pursuant to OCGA § 44-14-1 (b), “open-end” or “dragnet” clauses contained
in mortgages or deeds conveying realty to secure a debt have been limited to “debts
or obligations arising ex contractu, . . . between the original parties to the security
instrument.” (Emphasis supplied.) Thus, “[u]nless the security instrument clearly
contemplates joint and several liability, all of the grantors to the security instrument
containing the open-ended clause must be parties to the separate indebtedness, though
not all of the parties to the separate indebtedness must be parties to the security
instrument.” (Footnotes omitted.) Frank S. Alexander, Georgia Real Estate Finance
and Foreclosure Law, p. 37, § 2-3 (2014-2015 ed.). See also Hill v. Perkins, 218 Ga.
354 (127 SE2d 909) (1962); Cordele Banking Co. v. Powers, 217 Ga. 616, 619 (1)
& (2) (124 SE2d 275) (1962) (the individual indebtedness of one of the grantors is
not the debt of both of grantors and does not fall within the open-end clause of the
security deed); In re Felker, 181 Bankr. 1017 (Bankr. M.D. Ga. 1995); Americus
Finance Co. v. Wilson, 189 Ga. 635 (1) (7 SE2d 259) (1940); cf. Sutton v. Atlantic
12
Bank & Trust Co., 167 Ga. App. 861, 863 (307 SE2d 746) (1983) (subsequent debts
were deemed secured where it was clear that the grantors included either the singular
or the plural grantors and that it was uncontradicted that all the parties to the deed
intended that the debts of one borrower would be secured by deed). As our Supreme
Court has explained, “it is obvious that an additional debt of one creditor cannot
operate as a hook to grab a dragnet which carries with it the property interests of a
party other than the creditor in the separate transaction.” Willis v. Rabun County
Bank, 249 Ga. 493, 494 (291 SE2d 715) (1982).
In this case, the 2004 Security Deeds were expressly “made . . . between H.
Edwin Clark and Donald L. Clark,” as “Undersigned, . . . and AgGeorgia.” Both
Edwin and Donald are the Grantors under the 2004 Deeds and they, along with
AgGeorgia, as the Grantee, are the original parties to the deeds. The consent
requirement, as asserted by Donald, is thus wholly consistent with existing law in that
without the express consent of the non-borrowing brother, the property would not be
automatically pledged to secure the debt of the borrowing brother.8
8
If AgGeorgia wanted to avoid the limitation without obtaining the express
consent of the other brother, it could have included language in the deed specifically
referencing OCGA § 44-14-1 and plainly and unambiguously provided that the non-
borrowing brother consented to his share of the realty acting as security for the other
brother’s future loans.
13
Additionally,”[t]he parties’ interpretation is entitled to great, if not controlling,
influence, and will generally be adopted and followed by the courts, particularly when
the parties’ interpretation is made before any controversy, or when the construction
of one party is against his interest.” (Citations and punctuation omitted.) Anderson
v. Anderson, 274 Ga. 224, 226 (2) (552 SE2d 801) (2001). Thus, “the construction
placed upon a contract by the parties thereto, as shown by their acts and conduct, is
entitled to much weight and may be conclusive upon them.” (Citations and
punctuation omitted.) Cohen v. Sandy Springs Crossing Assocs., L.P., 238 Ga. App.
711, 712-713 (520 SE2d 17) (1999).
Although not expressly acknowledged by AgGeorgia, it appears undisputed
that AgGeorgia had routinely obtained the non-borrowing brother’s consent to loans
extended to the other brother under the virtually identical Section Two of the 1997
deeds,9 and the only reason that appears in the record to explain why AgGeorgia
ceased obtaining the written consents was testimony by an AgGeorgia former
employee that due to changes in its computer program, the consents were no longer
9
One such consent, executed by Edwin in 2002, is contained in the record.
That consent provides: “[t]he undersigned (whether one or more), having an interest
in the real property described in the security instrument above referenced, hereby
consent to the making of an advance in the amount of $217,300.00 and acknowledge
that such is secured by the security instrument.”
14
automatically generated when the loan documents were generated. Further, Donald
testified and averred that AgGeorgia had requested that he take a consent form to
Edwin to sign for one of his subsequent loans. Accordingly, AgGeorgia’s own
practices demonstrate that at least up until a certain point, it had adhered to the
language inside the parenthetical when extending a loan to one of the Brothers.
Application of these well-established rules of statutory construction resolves
the ambiguity in this case in favor of the construction placed on Section Two by
Donald. Accordingly, we conclude that Section Two required written consent from
the non-borrowing brother in order for the Farm to be pledged as security for future
loans to the other brother. It follows that AgGeorgia wrongfully foreclosed on
Donald’s Subsequent Loans and Edwin’s 2009 Loan because no consent was
obtained and none of those debts were secured by the 2004 Deeds.
(b) Section Three and the March 2004 Loan. But that does not end our analysis
because AgGeorgia argues that even if AgGeorgia was required to obtain consent
under Section Two, its failure to do so did not render the foreclosure “wrongful”
because Donald’s March 2004 loan was secured by Section Three of DSD No. 1,
which did not contain any consent requirement. Once again, however, the parties
place varying interpretations on this provision of the deed.
15
Section Three provides in relevant part that “all other indebtedness of Borrower
to Lender, now due or to become due, (whether directly or indirectly) or hereafter to
be contracted, . . .” is secured under the terms of the deed. Donald argues that because
Section Three refers to “other” loans, both pre-existing and those that might occur
later, and Section Two refers to subsequent loans that are evidenced by a note,
Section Three must necessarily refer only to loans which are not evidenced by a note
or notes. In contrast, AgGeorgia directs our attention to the word “other” and argues
that the use of this word merely distinguishes the debts covered by Section Three
from those covered by Sections One and Two.
However, we need not belabor the meaning of Section Three, because we
believe the March 2004 note was unsecured for another reason. As explained in
Division 1, OCGA § 44-14-1 (b) specifically limits the operation of such open-end
or dragnet clauses to “the original parties to the security instrument,” and thus neither
the pre-existing nor the subsequent debts of the individual brothers were secured by
the note without a clear and unambiguous expression of such an intent. See Sutton,
167 Ga. App. at 863. Here, the March 2004 loan was obtained for an express purpose
of securing a certain piece of farm equipment, and the farm equipment purchased with
the loan proceeds was pledged as security for the loan. Only one outstanding loan was
16
specified in the deed, and Donald testified that the parties never discussed the Farm
being pledged as additional security for the March 2004 equipment loan.
Because none of the notes declared in default were secured by the 2004 Deeds,
AgGeorgia had no authority to foreclose under the terms of those deeds. Accordingly,
the trial court erred by granting partial summary judgment to AgGeorgia; instead,
partial summary judgment should have been granted to Donald.
2. Because of our holdings in Divisions 1 and 2, we need not reach the question
of whether AgGeorgia improperly exercised the power of sale contained in the deeds
because it had assigned both the notes and the 2004 Deeds to AgFirst prior to
instituting the foreclosure proceedings.
Judgment reversed. Andrews, P. J., Dillard and Boggs, JJ., concur. Barnes, P.
J., Phipps, P. J., and Ray, J., dissent.
17
A15A0486. CLARK v. AGGEORGIA FARM CREDIT ACA.
RAY, Judge, dissenting.
While I agree with the majority's decision to reverse the summary judgment
which was granted in favor of AgGeorgia, although I do not necessarily agree with
everything that was written in support of that conclusion, I must dissent from the
majority's decision that the trial court should have instead granted summary judgment
in favor of Donald. In my view, the entirety of this dispute should be resolved in a
jury trial. Due to the inherent inconsistency in the applicable clauses in the loan
documents, as well as the unique circumstances of this case wherein Donald's claims
have evolved during the litigation to cast himself in a position of even greater harm
despite the implicit acknowledgment in his original complaint that some action by
AgGeorgia as to the subject property was proper given his indebtedness thereto, and
the fact that ambiguity remains as to both the meaning of the contract provisions and
the intent of the parties even after the application of the normal rules of construction,
I would instead return this case to the trial court to allow the parties to present their
claims to a jury to sort out the respective contract rights and equities of the situation.
I am authorized to state that Presiding Judge Barnes and Presiding Judge
Phipps join in this dissent.
2