Southeast Timberlands, Inc. v. Haiseal Timber, Inc.

Johnson, Judge.

A jury returned a verdict in favor of Haiseal Timber, Inc., and against Southeast Timberlands, Inc., and Jewett Tucker, Southeast’s president (hereinafter collectively referred to as “Southeast”) after Southeast’s default under the terms of a promissory note, deed to secure debt and personal guaranty. Southeast appeals from the judgment entered on the verdict, arguing that the action was actually one for a deficiency judgment, which both parties agree would be barred because Haiseal failed to obtain judicial confirmation of the sale after foreclosing upon the secured property, and that Haiseal had relinquished its interest in one of the two parcels which was the subject of the lawsuit.

The pertinent facts are as follows: Southeast purchased real estate from Haiseal and executed a promissory note in Haiseal’s favor for part of the purchase price. The promissory note was secured by a deed to secure debt. The deed to secure debt, likewise, referenced the note. The security deed contained provisions regarding Southeast’s rights and duties as to the sale of timber from the secured land, including a clause which provided that Southeast had the right to a release of portions of the secured property upon paying Haiseal 80 percent of the proceeds gained from timber sales from the secured property. It further provided that proceeds from the timber would reduce the principal due on the note. Tucker personally guaranteed payment of the note.

Southeast subsequently entered into a lease agreement with Thompson Hardwoods, Inc., giving Thompson the right to harvest timber from a tract of the secured property. Thompson paid approximately one-half of the purchase price of the lease at closing and exe-. cuted a promissory note to Southeast for the balance, which was to be repaid from timber proceeds. The remainder was paid in full to Southeast. Southeast paid 80 percent of the money it received from Thompson at closing to Haiseal but did not pay Haiseal 80 percent of the proceeds it received from Thompson as the timber was harvested. Before the lease agreement between Thompson and Southeast closed, Haiseal executed and delivered a quitclaim deed to Southeast relinquishing any interest in the tract.

Southeast also contracted with S. M. Baxter Timber Company, which harvested timber on another tract of the secured property. According to Haiseal, Southeast paid less than 80 percent of the proceeds derived from the sale of timber to Baxter.

When Southeast failed to make its scheduled interest payments under the deed to secure debt, Haiseal foreclosed upon most of the property described by the deed. The Thompson tract was inadvertently omitted from the foreclosure notice and was not foreclosed upon. The price paid at foreclosure was insufficient to satisfy the indebtedness and resulted in a deficiency of approximately $350,000. Haiseal sought confirmation of the sale, but dismissed its petition without prejudice before the court issued a ruling. Haiseal then filed a complaint against Southeast and Tucker, only the first and third counts of which are relevant on appeal. Count 1 alleges that Southeast breached the covenant contained in the deed to secure debt to pay 80 percent of the timber sale proceeds to Haiseal. Count 3 alleges that Tucker was liable based on his personal guaranty. Southeast moved for summary judgment and a directed verdict on the basis that the action was for a deficiency judgment, which was prohibited because Haiseal failed to obtain judicial confirmation of the sale. The trial court rejected the argument and denied the motions. Southeast appeals from the verdict and judgment for Haiseal.

The parties agree that the critical issue is whether Haiseal is simply suing for breach of contract or is seeking a deficiency judgment, which it cannot do since Haiseal failed to confirm the sale. We hold that the action does seek a deficiency judgment as to the Baxter tract. Whether it seeks a deficiency judgment as to the Thompson tract is not as clear because that tract was not listed in the foreclosure notice and arguably was not foreclosed upon. In any event, Haiseal was not entitled to recover for unpaid timber proceeds from the Thompson tract because Haiseal relinquished its entire interest in the tract and its timber by quitclaim deed. Therefore, we reverse the judgment of the trial court.

“[OCGA § 44-14-161] prohibits an action to obtain a deficiency judgment with respect to real estate sold at a nonjudicial foreclosure sale unless, within 30 days after the sale, the person who instigated the foreclosure proceeding seeks confirmation of the sale by the superior court. . . .” Turner v. Commonwealth Mtg. Assurance Co., 207 Ga. App. 428, 429 (1) (428 SE2d 398) (1993). A deficiency judgment is “a judgment for that part of a debt secured by a mortgage not realized from a sale of the mortgaged property.” (Citation omitted.) Hill v. Moye, 221 Ga. App. 411, 412 (1) (471 SE2d 910) (1996).

The Baxter Tract

Regardless of the characterization given it by Haiseal, the action pending between Haiseal and Southeast as to the Baxter tract is a deficiency action. Haiseal filed this action only after the property Southeast pledged as security did not bring at the foreclosure sale the amount owed on the note.

Haiseal correctly argues that if Southeast’s obligation to pay timber proceeds is an obligation which is independent, unsecured and separate from its obligation under the note, this action is not barred. See Kennedy v. Trust Co. Bank &c., 160 Ga. App. 733, 734-735 (288 SE2d 87) (1981). For example, where there are two separate debts evidenced by two separate notes and secured by two separate security deeds, the failure to confirm foreclosure under one security deed does not bar a creditor from suing on the remaining independent, separate, unsecured obligation. See Baby Days v. Bank of Adairsville, 218 Ga. App. 752, 754 (2) (463 SE2d 171) (1995). Even if the obligations are related, where the notes involved are either secured by separate deeds to different properties or are not secured at all, suit on one note after foreclosure without confirmation on the other note is not prohibited. Ward v. Pembroke State Bank, 212 Ga. App. 322, 324 (441 SE2d 691) (1994). In this case, however, the obligation to share the proceeds was not independent, separate, or unsecured.

The promissory note signed by the parties expressly provided that it was secured by the deed to secure debt; the deed to secure debt provides that it was intended to secure the debt shown in the promissory note; the timber covenant which was allegedly breached is found in that security deed; a violation of the timber provision constitutes a default under the deed to secure debt; and a default under the security deed authorizes foreclosure on the property. Moreover, the timber sale proceeds were expressly intended to reduce the amount of the debt contemplated by the note and secured by the security deed. There was but one promissory note and one deed to secure debt, and the only obligation Southeast owed Haiseal was this note secured by the foreclosed property. See Hill v. Moye, supra. “ ‘When the instrument sued upon is embraced by the previous foreclosure, it is a deficiency judgment.’ ” (Citations omitted; emphasis supplied.) Ward, supra at 324.

Were we to permit Haiseal to sue on the same note after foreclosure and without confirmation, we “would allow the creditor to avoid, without substantial justification, the very purpose of the confirmation statute; that being to protect debtors from deficiency judgments when their property is sold at foreclosure sale for less than its market value. [Cit.]” Id. Southeast’s promise to repay the debt to Haiseal and the security deed’s provision allowing Southeast to satisfy the debt by paying Haiseal a portion of the timber proceeds from the secured property are inextricably intertwined. See C. K. C. v. Free, 196 Ga. App. 280, 282-283 (2) (395 SE2d 666) (1990); see also Tufts v. Levin, 213 Ga. App. 35 (443 SE2d 681) (1994). A verdict in Southeast’s favor was demanded as a matter of law, and the trial court erred in denying its motion for directed verdict. See generally Alexie, Inc. v. Old South Bottle Shop Corp., 179 Ga. App. 190, 194 (5) (345 SE2d 875) (1986).

The Thompson Tract

Southeast contends that a directed verdict was authorized as to the Thompson tract for two reasons: (1) Haiseal relinquished any right to timber proceeds when it executed and delivered a quitclaim deed to the tract; and (2) the action was for a deficiency judgment even though the tract was omitted from the foreclosure notice; the two tracts could not properly be treated as separate parcels during or after foreclosure because the land was pledged for payment of the debt in its entirety and had to be sold as a whole. See Doyle v. Moultrie Banking Co., 163 Ga. 140, 142-143 (135 SE 501) (1926). We need not decide the latter issue, however, because it is clear that Haiseal no longer had any interest in the Thompson tract at the time it commenced this action.

Haiseal executed and delivered a quitclaim deed to Southeast which released all of its interest in the tract, relinquishing any claim, right or title to the premises or its appurtenances. Where a grantor of a quitclaim deed assigns all its right, title, interest, claim or demand in the tract of land conveyed, it is estopped from asserting any title to or interest in the property conveyed, acquired previously to the execution of the quitclaim deed. McDonald v. Dabney, 161 Ga. 711, 714 (9) (a) (132 SE 547) (1926). Haiseal argues that the quitclaim deed was ineffectual because the parties had a verbal agreement that delivery of the deed was conditioned upon the assignment of Thompson’s promissory note to Haiseal. The quitclaim deed, however, contains no conditions as to its delivery or validity. Further, it specifically indicates that Haiseal received valuable consideration before the deed was executed and delivered. A grantor cannot engraft upon a written quitclaim deed an oral contract which would impose an additional affirmative obligation upon the grantee. Dodson v. Phagan, 227 Ga. 480, 482 (181 SE2d 366) (1971). Similarly, parol evidence is not admissible to place conditions upon a quitclaim deed which is absolute on its face. Harden v. Orr, 219 Ga. 54, 55 (1) (131 SE2d 545) (1963). Inasmuch as the quitclaim deed passed title to the parcel and its appurtenances to Southeast, Haiseal’s interest therein was extinguished. See generally McDonald, supra. There is no conflict in the evidence on the material issue of the terms of the quitclaim deed, regardless of any testimony from witnesses purporting to give their understanding of the deed and the existence of any conditions thereto. The trial court erred in denying Southeast’s motion for directed verdict. See Alexie, Inc., supra.

Judgment reversed.

Birdsong, P. J., Andrews and Ruffin, JJ., concur. Blackburn and Smith, JJ., concur specially. Beasley, C. J., McMurray, P. J., and Pope, P. J., dissent.