Davison v. Citizens Bank & Trust Company

FIFTH DIVISION
PHIPPS, P. J.,
DILLARD and PETERSON, JJ.
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
September 21, 2016
In the Court of Appeals of Georgia
A16A1470. DAVISON v. CITIZENS BANK & TRUST
COMPANY.
DILLARD, Judge.
Citizens Bank & Trust Company (“Citizens Bank”) filed suit against Stephen
Davison, Robert Fricks, and HOCO Cubs, LLC (“HOCO”), alleging that HOCO
defaulted on a promissory note and that Davison and Fricks were personally liable
based on a written guaranty. Following a bench trial, the court dismissed HOCO,
found that Fricks was not personally liable, but concluded that Davison was
personally liable, under OCGA § 11-3-403, as an unauthorized signer on the note,
because Citizens Bank, in good faith, took the note for value. On appeal, Davison
contends that the trial court erred in finding that he was liable on the note under
OCGA § 11-3-403. For the reasons set forth infra, we reverse the trial court’s judgment.
At the outset, we note that on appellate review of a bench trial, the factual
findings shall not be set aside unless clearly erroneous, and “due regard shall be given
to the opportunity of the trial court to judge the credibility of the witnesses.”1
Furthermore, in a bench trial, the judge sits as trier of fact, and “the court’s findings
are analogous to a jury’s verdict and should not be disturbed if there is any evidence
to support them.”2 We review any questions of law decided by the trial court,
however, de novo.3
So viewed, the record shows that in 2009, Davison and Fricks were co-owners
of Zoegetics International, LLC, with each owning 25 percent of the company and
two other individuals splitting the remaining 50 percent. In addition to handling most
of Zoegetics’s financial matters, Fricks also separately and solely owned HOCO,
which listed property containing a small youth baseball field as its sole asset.
Davison, however, had no involvement with HOCO in any capacity.
1
Brock Built, LLC v. Blake, 316 Ga. App. 710, 712 (730 SE2d 180) (2012)
(punctuation omitted).
2
Id. (punctuation omitted).
3
Washington v. Harrison, 299 Ga. App. 335, 336 (682 SE2d 679) (2009).
2
In June 2009, Davison and Fricks met with Mac Hardin, the president of
Citizens Bank in Warner Robins, to discuss obtaining a loan for Zoegetics. During
that initial meeting, Davison, Fricks, and Hardin discussed whether Fricks had
property that could serve as sufficient collateral for the loan. And because he did not
want to be personally liable on the loan, Davison emphasized that he would not sign
a promissory note unless there was sufficient collateral to secure it. The issue was not
resolved at that point, and Davison left the meeting without signing any documents.
Nevertheless, a few days later, $300,000 was deposited into Zoegetics’s account, and
thus, Davison assumed that Fricks and Hardin had successfully negotiated a loan with
sufficient collateral.
In September 2009, Hardin contacted Davison to discuss renewing the June
loan, and as part of that process, Davison and Fricks paid $12,500 each to reduce the
overall debt. Thereafter, on September 24, 2009, Davison went to Citizens Bank, met
briefly with Hardin’s assistant, and signed several documents, which he admittedly
did not read but assumed were the renewal note and personal guaranty. That same
month, Fricks also signed a personal guaranty of the September renewal note but not
the note itself. At some point, Fricks also signed a security deed that provided
Citizens Bank with the property owned by HOCO as collateral for the renewal note,
3
but for reasons unclear from the record, Citizens Bank did not record that deed until
July 2010.
Several months later, after the September 2009 renewal note went into default,
Hardin, on behalf of Citizens Bank, began contacting Davison to discuss collection
on the debt. And in an attempt to understand the exact nature of his debt obligations,
Davison went to Citizens Bank, confronted Hardin, and demanded to see all the loan
documents. Hardin complied, and upon reviewing the June 24, 2009 promissory note,
Davison observed that HOCO—a company with which he was not familiar—was
indicated as the borrower and that his name and title as a member of HOCO were
printed below the signature line. Additionally, Davison determined that his signature
had been forged on both the June note and the guaranty of that note. Davison also
reviewed the September 24, 2009 renewal note and guaranty, which he had actually
signed, and now noticed that it similarly indicated HOCO as the borrower and that
he was signing as a member of that company.
Immediately thereafter, Davison reported the forgeries on the June 2009 loan
documents to law enforcement and the local district attorney. Law enforcement and
the FDIC ultimately opened investigations into Hardin’s banking practices and
eventually charged him with offenses related to many of the loans he originated. But
4
these authorities never definitively determined that Hardin forged Davison’s signature
on the June 2009 note and guaranty, and none of the charges filed against him
pertained to that loan. Subsequently, Citizens Bank terminated Hardin’s employment,
but it also continued efforts to collect the HOCO debt from Davison.
On September 9, 2011, Citizens Bank filed a lawsuit against Davison and
HOCO, seeking $363,718, interest, and attorney fees for non-payment of the June
2009 promissory note and guaranty and September 2009 renewal note and guaranty.
Shortly after Davison filed his answer, Citizens Bank successfully moved to add
Fricks as a defendant, and Fricks filed an answer as well. The case proceeded to a
bench trial, during which Davison, Fricks, and a vice-president of Citizens Bank
testified. After the trial’s conclusion, the court dismissed HOCO based on the
undisputed evidence that Citizens Bank never even attempted to serve the company.
Additionally, the court directed the parties to file briefs on the issue of whether
Davison and Fricks were personally liable for the debt in light of HOCO’s dismissal,
and it took the matter under advisement pending its review of those briefs.
The parties then filed post-trial briefs as directed by the trial court. And in its
rebuttal brief, Citizens Bank argued for the first time that even if the June 2009
promissory note and guaranty were unenforceable because Davison’s signature was
5
a forgery, Davison was nevertheless liable for the September 2009 renewal note as
an unauthorized signer under OCGA § 11-3-403. Davison contested this argument
in a further reply. Nevertheless, on November 6, 2015, the trial court issued an order
of judgment finding that Fricks was not personally liable for any of the debt but that
Davison was liable for the full amount of the debt, plus interest and attorney fees,
based on his signing of the September 2009 renewal note. Specifically, the trial court
found that Davison’s signature on the June 2009 note and guaranty was indeed a
forgery and, therefore, that note and guaranty were unenforceable. However, because
Citizens Bank did, in fact, loan $300,000 to HOCO, which Fricks immediately
transferred to Zoegetics’s account, Citizens Bank had an unspecified “quasi ex
contractu” claim. It then found that Davison was liable on the September 2009
renewal note as an unauthorized signer, under OCGA § 11-3-403 (a), and that
Citizens Bank took the note in good faith and for value. The court further reasoned
that Citizen Bank’s quasi ex contractu claim constituted the consideration for the
renewal note, which otherwise would have been lacking given that it was the renewal
of the unenforceable June 2009 note. Finally, the trial court found that neither
Davison nor Fricks were liable under the September 2009 guaranty because Citizens
6
Bank failed to proffer the original or a copy of the guaranty into evidence. This
appeal follows.
In three separate enumerations of error, Davison contends that the trial court
erred in ruling that he was liable on the September 2009 note under OCGA § 11-3-
403 (a). Specifically, he argues that the court erred in finding that he was an
unauthorized signer on the note, that Citizens Bank took the note in good faith, and
that it took the note for value. But pretermitting whether Davison was an
unauthorized signer and whether the September 2009 note was taken for value, the
trial court erred in finding that Citizens Bank took the note in good faith, and thus,
we reverse its judgment.
OCGA § 11-3-403 (a) provides that “[u]nless otherwise provided in this article
or Article 4 of this title, an unauthorized signature is ineffective except as the
signature of the unauthorized signer in favor of a person who in good faith pays the
instrument or takes it for value. An unauthorized signature may be ratified for all
purposes of this article.” And although this section of Georgia’s Uniform Commercial
Code is most commonly applied to instances involving forged checks,4 as noted in the
4
See, e.g., Gerber & Gerber, P.C. v. Regions Bank, 266 Ga. App. 8, 10 (2) (596
SE2d 174) (2004) (noting that because payee’s signatures on check were forgeries,
they were ineffective as endorsements by payee under OCGA § 11-3-403 (a)).
7
UCC official comments5 accompanying OCGA § 11-3-403, an “‘[u]nauthorized’
signature is defined in Section 1-201 (43) as one that includes a forgery as well as a
signature made by one exceeding actual or apparent authority.”6 Consequently, as
Citizens Bank argued below and on appeal, the Code section may also apply to one
such as Davison, who signed his own signature but without authority to do so on
behalf of HOCO.
Turning to the manner in which OCGA § 11-3-403 (a) imposes liability, the
comments provide that
[t]he clause of the first sentence of subsection (a) states the generally
accepted rule that the unauthorized signature, while it is wholly
inoperative as that of the person whose name is signed, is effective to
impose liability upon the signer or to transfer any rights that the signer
may have in the instrument. The signer’s liability is not in damages for
5
This Court has held that “[i]n order to determine the meaning and purpose
behind the enactment of a Georgia Commercial Code provision that is taken verbatim
from the UCC, we turn to the UCC Official Comments for assistance.” Metzger v.
Americredit Fin. Servs., 273 Ga. App. 453, 457 n.3 (615 SE2d 120) (2005); accord
Coleman v. DaimlerChrysler Servs. of N. Am., 276 Ga. App. 336, 339 n.3 (623 SE2d
189) (2005).
6
OCGA § 11-3-403, Official Comment 1.
8
breach of warranty of authority, but is full liability on the instrument in
the capacity in which the signer signed.7
But importantly, the last sentence of the same comment also provides that the signer’s
liability “is, however, limited to parties who take or pay the instrument in good faith;
and one who knows that the signature is unauthorized cannot recover from the signer
on the instrument.”8
Here, Davison undisputedly testified that he has never been a member of
HOCO and, in fact, has never been affiliated with that company in any capacity.
Furthermore, Fricks testified that he was the sole shareholder of HOCO and that
Davison never had any role in the company. But more importantly, Citizens Bank had
information in its possession confirming that Fricks was the sole owner of HOCO and
that Davison had no involvement with the company. Indeed, during the bench trial,
Citizens Bank’s vice president provided the following testimony on cross-
examination:
Q. Okay. The Bank—if the Bank is making a loan to an entity such as
a corporation or a limited liability company, does the bank normally
7
OCGA § 11-3-403, Official Comment 2.
8
Id.
9
require documents in its file to verify who can sign on behalf of the
company?
A. We would.
Q. And so in this case with the loan being made to HOCO Cubs, LLC,
the Bank has obtained an operating agreement from HOCO Cubs, LLC;
is that correct?
A. That is correct.
Q. And that’s in the Bank’s file?
A. That’s correct.
Q. And according to the operating agreement of HOCO Cubs, LLC, Rob
Fricks is the sole member manager; is that correct?
A. From what I can find, correct.
Q. Is there anything in the Bank’s file that would say that Steve Davison
had any authority to sign for HOCO Cubs, LLC?
A. Nothing presented and executed.
Given this undisputed testimony from Davison, Fricks, and Citizens Bank’s own vice-
president, Citizens Bank knew that Davison was not authorized to sign a promissory
10
note on behalf of HOCO and, therefore, cannot recover the debt from Davison in this
regard.9 Thus, the trial court erred in finding that Citizens Bank took the note in good
faith and in ruling that Davison was liable for the debt under OCGA § 11-3-403 (a).
Accordingly, we reverse that ruling and the trial court’s judgment in favor of Citizens
Bank.
Judgment reversed. Phipps, P. J., and Peterson, J., concur.
9
See id.
11