Two Banks foreclosed on the same house and then fought over title. Deutsche Bank National Trust Company v. JP Morgan Chase Bank N.A., Court of Appeals of Georgia, Third Division, Case No. No. A10A1509, November 19, 2010.  This error would not have happened in a judicial foreclosure state. However, our non-Judicial foreclosure system leads to these types of errors.
In non-judicial foreclosure, even large sophisticated lenders cannot determine which one owns the property on which they have foreclosed.  Notwithstanding the plethora of unfiled, misfiled, lost and irregular assignments (circa 2010) of Security Deeds in the United States, Deutsch Bank, supra, illustrates the inherent problems associated with non-judicial foreclosures.
While the Deutsch Bank, supra, turned on which bank was a bona fide purchaser (BFP) for value, it mostly illustrates the sorry state of affairs of title in a non-judicial foreclosure state.
Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Atlanta (Tucker), GA 30084
Deutsche Bank National Trust Co. v. JP Morgan Chase Bank N. A., A10A1509 (GACA)(Cert. Applied for December 14, 2010)
DEUTSCHE BANK NATIONAL TRUST COMPANY v. JP MORGAN CHASE BANK N. A.
Court of Appeals of Georgia, Third Division
November 19, 2010
BARNES, P. J., BLACKWELL and DILLARD, JJ.
BARNES, PRESIDING JUDGE.
JP Morgan Chase Bank, N. A. commenced this action against Deutsche Bank National Trust Company f/k/a Banker’s Trust Company after the two banks conducted competing foreclosure sales of certain real property in DeKalb County. JP Morgan’s claim of title to the property was predicated on a 2004 security deed, while Deutsche Bank’s claim of title was predicated on a 2001 security deed. The case turned on the legal effect of a notarized warranty deed recorded in 2003 and on whether JP Morgan was a bona fide purchaser for value based upon the warranty deed. The trial court granted summary judgment to JP Morgan, concluding that JP Morgan’s interest in the property was superior to and not subject to any interest held by Deutsche Bank. We conclude that the uncontroverted evidence shows that the 2003 warranty deed was not a forgery, but was signed by someone fraudulently assuming authority, and that JP Morgan was a bona fide purchaser for value entitled to take the property free of any outstanding security interest held by Deutsche Bank. Thus, we affirm.
To prevail on a motion for summary judgment, the moving party must demonstrate that there is no genuine issue of material fact, and that the undisputed facts, viewed in a light most favorable to the party opposing the motion, warrant judgment as a matter of law. Our review of a grant of summary judgment is de novo, and we view the evidence and all reasonable inferences drawn from it in the light most favorable to the nonmovant.
(Citations and punctuation omitted.) Consumer Solutions Fin. Svc. v. Heritage Bank, 300 Ga.App. 272 (684 S.E.2d 682) (2009). See OCGA § 9-11-56 (c); Lau’s Corp. v. Haskins, 261 Ga. 491 (405 S.E.2d 474) (1991). Guided by these principles, we turn to the record in the present case.
This case involves a dispute over the tract of real property located at 275 Haas Avenue, Atlanta, Georgia 30316 in DeKalb County (the “Property”). The Property was conveyed to Rebecca Diaz by warranty deed recorded in September 2001. On the same date, Diaz executed and recorded a security deed encumbering the Property in favor of People’s Choice Home Loan, Inc. (the “2001 Security Deed”). IndyMac Bank, F. S. B. acquired the 2001 Security Deed by assignment.
In July 2003, a notarized warranty deed from “Indy Mac Bank, F. S. B.” to Diaz was recorded which purported to reconvey the Property to Diaz in fee simple (the “Warranty Deed”). The Warranty Deed was executed by an individual named Pamela Whales, who identified herself as an Assistant Vice President of IndyMac. The Warranty Deed was attested by two witnesses, one of whom was a notary public.
The Property subsequently was deeded to various parties but ultimately to an owner who, in April 2004, executed and recorded a security deed encumbering the Property in favor of OneWorld Mortgage Corporation (the “2004 Security Deed”). Washington Mutual Bank F. A. acquired the 2004 Security Deed by assignment.
In June 2004, IndyMac assigned the 2001 Security Deed to Deutsche Bank. That same month, Deutsche Bank foreclosed upon the Property pursuant to the power of sale provision contained in the 2001 Security Deed. Deutsche Bank was the highest bidder at the foreclosure sale.
In December 2005, Washington Mutual also foreclosed upon the Property pursuant to the power of sale provision contained in the 2004 Security Deed. Washington Mutual was the highest bidder at the foreclosure sale. Thereafter, Washington Mutual was closed by the federal Office of Thrift Supervision, and JP Morgan succeeded to Washington Mutual’s interest in the Property under the terms of a purchase and assumption agreement.
Following the competing foreclosure sales, JP Morgan brought this action against Deutsche Bank for declaratory relief and attorney fees, alleging that its interest in the Property was superior to and not subject to any interest held by Deutsche Bank. Deutsche Bank answered and counterclaimed for a declaratory judgment that its interest in the Property was superior to and not subject to any interest held by JP Morgan.
The parties cross-moved for summary judgment on their declaratory judgment claims. JP Morgan argued that the 2001 Security Deed upon which Deutsche Bank predicated its interest in the Property had been canceled by the Warranty Deed as a matter of law. Alternatively, JP Morgan argued that the uncontroverted evidence showed that it qualified as a bona fide purchaser for value such that it was protected against any outstanding security interest in the Property held by Deutsche Bank. Deutsche Bank strongly disputed these arguments, contending that the Warranty Deed was facially irregular, had been forged, and failed to satisfy the statutory requirements for cancellation of a security deed. The trial court granted summary judgment to JP Morgan and denied it to Deutsche Bank. Deutsche Bank now appeals the trial court’s grant of JP Morgan’s motion for summary judgment. 
1. We affirm the trial court’s grant of summary judgment in favor of JP Morgan because the uncontroverted evidence shows that JP Morgan was afforded the protection of a bona fide purchaser for value, not subject to any outstanding security interest in the Property held by Deutsche Bank.
“ To qualify as a bona fide purchaser for value without notice, a party must have neither actual nor constructive notice of the matter at issue.” (Citation and punctuation omitted. ) Rolan v. Glass, 305 Ga.App. 217, 218 (1) (699 S.E.2d 428) (2010). “Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led.” (Citation and footnote omitted.) Whiten v. Murray, 267 Ga.App. 417, 421 (2) (599 S.E.2d 346) (2004). “A purchaser of land is charged with constructive notice of the contents of a recorded instrument within its chain of title.” (Citation and footnote omitted.) VATACS Group v. HomeSide Lending, 276 Ga.App. 386, 391 (2) (623 S.E.2d 534) (2005). Furthermore, the grantee of a security interest in land and subsequent purchasers are entitled to rely upon a warranty deed that is regular on its face and duly recorded in ascertaining the chain of title. See Mabra v. Deutsche Bank & Trust Co. Americas, 277 Ga.App. 764, 767 (2) (627 S.E.2d 849) (2006), overruled in part on other grounds by Brock v. Yale Mtg. Corp., __ Ga. __ (2) (Case No. S10A0950, decided Oct. 4, 2010).
On motion for summary judgment, JP Morgan argued that it was entitled to protection as a good faith purchaser because the notarized, recorded Warranty Deed purported to transfer the Property back to Diaz, thereby extinguishing the 2001 Security Deed, and there was no reason to suspect a defect in the Warranty Deed calling into question the chain of title. In contrast, Deutsche Bank argued that JP Morgan was not entitled to such protection because the Warranty Deed was facially irregular in that it misidentified the grantor and failed to comply with OCGA § 14-5-7 (b).
We agree with JP Morgan and reject the arguments raised by Deutsche Bank. The Warranty Deed was regular on its face and duly recorded. See OCGA § 44-5-30 (“A deed to lands must be in writing, signed by the maker, and attested by at least two witnesses.”). See also OCGA § 44-2-21 (a) (4), (b) (one of two required attesting witnesses may be a notary public). Also, the Warranty Deed on its face was executed in a manner that conformed with OCGA § 14-5-7 (b), which provides:
Instruments executed by a corporation releasing a security agreement, when signed by one officer of the corporation or by an individual designated by the officers of the corporation by proper resolution, without the necessity of the corporation’s seal being attached, shall be conclusive evidence that said officer signing is duly authorized to execute and deliver the same.
The Warranty Deed appeared to be executed by an assistant vice president of IndyMac, and thus by an “officer of the corporation.” Moreover, the only interest that IndyMac held in the Property prior to execution of the Warranty Deed was its security interest arising from the 2001 Security Deed, and reconveyance of the Property by way of a warranty deed was a proper way to release that security interest. See Clements v. Weaver, 301 Ga.App. 430, 434 (2) (687 S.E.2d 602) (2009) (grantor of quitclaim deed estopped from asserting any interest in property conveyed); Southeast Timberlands v. Haiseal Timber, 224 Ga.App. 98, 102 (479 S.E.2d 443) (1996) (physical precedently only). The Warranty Deed, therefore, facially complied with OCGA § 14-5-7 (b) and would appear to anyone searching the county records to serve as “conclusive evidence” that execution of the deed had been authorized by IndyMac.
(a) In opposing summary judgment, Deutsche Bank argued that the Warranty Deed was facially irregular because it improperly identified the grantor as “Indy Mac Bank, F. S. B.” rather than “IndyMac Bank, F. S. B.” But “a mere misnomer of a corporation in a written instrument... is not material or vital in its consequences, if the identity of the corporation intended is clear or can be ascertained by proof.” (Citation, punctuation, and emphasis omitted.) Hawkins v. Turner, 166 Ga.App. 50, 51-52 (1) (303 S.E.2d 164) (1983). It cannot be said that the mere placement of an additional space in the corporate name (i.e., “Indy Mac” versus “IndyMac”) made the identity of the corporation unclear. As such, the misnomer did not render the Warranty Deed irregular on its face.
(b) Deutsche Bank also argued that the Warranty Deed failed to comply with OCGA § 14-5-7 (b) because the phrase “when signed by one officer of the corporation” should be construed as requiring the signature of the corporate president or vice president. “The cardinal rule of statutory construction requires that we look to the intention of the legislature. And in so doing, the literal meaning of the statute prevails unless such a construction would produce unreasonable or absurd consequences not contemplated by the legislature.” Johnson v. State, 267 Ga. 77, 78 (475 S.E.2d 595) (1996). The words of OCGA § 14-5-7 (b) are unambiguous and do not lead to an unreasonable or absurd result if taken literally: any officer of the corporation has authority to sign the instrument releasing the security interest. There is no basis from the language of the statute to limit that authority to a subset of corporate officers such as a president or vice president.
It is clear that the legislature knew how to specify such a limitation when it chose to do so. In OCGA § 14-5-7 (a),  the legislature imposed a limitation on the specific types of corporate officers who could execute instruments for real estate conveyances other than those releasing security agreements. Consequently, we must presume that the legislature’s failure to include similar limiting language in OCGA § 14-5-7 (b) “was a matter of considered choice.” Transp. Ins. Co. v. El Chico Restaurants, 271 Ga. 774, 776 (524 S.E.2d 486) (1999).
Deutsche Bank further argued that the Warranty Deed failed to comply with OCGA § 14-5-7 (b) because the statute should be construed as requiring the instrument to expressly state that it was “releasing a security agreement, ” and the Warranty Deed did not contain such express language. But nothing in the plain language of OCGA § 14-5-7 (b) imposes an express language requirement, “and the judicial branch is not empowered to engraft such a [requirement] on to what the legislature has enacted.” (Citation omitted.) Kaminer v. Canas, 282 Ga. 830, 835 (1) (653 S.E.2d 691) (2007).
(c) Given the facial regularity of the recorded Warranty Deed, there was no reason to suspect that it might be defective in some manner or that there might be a problem in the chain of title resulting from the deed. Nothing in the Warranty Deed would have excited attention or put a party on inquiry that the 2001 Security Deed might remain in full force and effect. Accordingly, the original grantee of the 2004 Security Deed (OneWorld Mortgage Corporation) was entitled to rely upon the facially regular Warranty Deed and was afforded the protection of a bona fide purchaser of the Property, entitled to take the Property free of the 2001 Security Deed. See generally Farris v. Nationsbanc Mtg. Corp., 268 Ga. 769, 771 (2) (493 S.E.2d 143) (1997) (“A bona fide purchaser for value is protected against outstanding interests in land of which the purchaser has no notice.”). Because OneWorld Mortgage Corporation had the status of a bona fide purchaser, subsequent holders of the 2004 Security Deed were likewise afforded that status, including Washington Mutual (now JP Morgan). See OCGA § 23-1-19 (“If one without notice sells to one with notice, the latter shall be protected[.]”; Murray v. Johnson, 222 Ga. 788, 789 (3) (152 S.E.2d 739) (1966); Thompson v. Randall, 173 Ga. 696, 701 (161 SE 377) (1931). Consequently, summary judgment was appropriate to JP Morgan on the issue of its status as a bona fide purchaser for value.
2. In opposing summary judgment, Deutsche Bank contended that even if JP Morgan qualified as a bona fide purchaser for value, there was a genuine issue of material fact over whether the Warranty Deed constituted a forgery, and thus over whether JP Morgan acquired good title to the Property. JP Morgan responded that the uncontroverted evidence showed that the Warranty Deed did not constitute a common law forgery, which occurs when someone signs another person’s name, since the Warranty Deed was signed by a person using her own name but who fraudulently assumed authority to act on behalf of IndyMac. JP Morgan further maintained that its status as a bona fide purchaser for value protected it against any fraud (rather than forgery) that might have been involved in the execution of the Warranty Deed.
The dispute between the parties centered on the assertions contained in the affidavit of Yolanda Farrow, which was filed by Deutsche Bank in opposition to summary judgment (the “Farrow Affidavit”). Farrow averred that she was a records keeper formerly employed by IndyMac and currently employed at IndyMac’s successor bank. Farrow further averred that her office maintained the IndyMac personnel records in an electronic database; that she had personal knowledge of the maintenance and upkeep of those records; and that she had personally researched and examined the records database for the person identified in the Warranty Deed as Pamela Whales, Assistant Vice President. Based upon her review of the records database, Farrow opined that to the best of her knowledge and belief, no one by that name was an employee or agent of IndyMac when the Warranty Deed was executed. Deutsche Bank maintained that the Farrow Affidavit served as circumstantial evidence creating a genuine issue of material fact over whether the Warranty Deed was a forgery.
[W]e have... long recognized that a forged deed is a nullity and vests no title in a grantee. As such, even a bona fide purchaser for value without notice of a forgery cannot acquire good title from a grantee in a forged deed, or those holding under such a grantee, because the grantee has no title to convey.
(Citations and punctuation omitted.) Brock, __ Ga. at __ (2). See also Second Refuge Church of Our Lord Jesus Christ v. Lollar, 282 Ga. 721, 726-727 (3) (653 S.E.2d 462 (2007). In contrast, a bona fide purchaser is protected against fraud in the execution or cancellation of a security deed of which he or she is without notice. See Murray, 222 Ga. at 789 (4).
We conclude that the Farrow Affidavit filed by Deutsche Bank was insufficient to raise a genuine issue of material fact as to whether the Warranty Deed was a forgery.
A recorded deed shall be admitted in evidence in any court without further proof unless the maker of the deed, one of his heirs, or the opposite party in the action files an affidavit that the deed is a forgery to the best of his knowledge and belief. Upon the filing of the affidavit, the genuineness of the alleged deed shall become an issue to be determined in the action.
OCGA § 44-2-23. While “forgery” is not defined in the statute, we have previously noted that the general principles espoused in the statute were “taken from the common law.” McArthur v. Morrison, 107 Ga. 796, 797 (34 SE 205) (1899). Furthermore, we favor the construction of a statute in a manner that is in conformity with the common law, rather than in derogation of it. See Intl. Indem. Co. v. Bakco Acceptance, 172 Ga.App. 28, 32 (2) (322 S.E.2d 78) (1984). Under the common law, a forgery occurs where one person signs the name of another person while holding out that signature to be the actual signature of the other person. See Barron v. State, 12 Ga.App. 342, 348 (77 SE 214) (1913) (“[T]o constitute forgery, the writing must purport to be the writing of another party than the person making it.”) (citation and punctuation omitted). See also Gilbert v. United States, 370 U.S. 650, 655-658 (II) (82 S.C. 1399, 8 L.Ed.2d 750) (1962) (discussing the common law of forgery); People v. Cunningham, 813 N.E.2d 891, 894-895 (N.Y.2004) (same). On the other hand,
[w]here one executes an instrument purporting on its face to be executed by him as the agent of the principal, he is not guilty of forgery, although he has in fact no authority from such principal to execute the same. This is not the false making of the instrument, but merely a false and fraudulent assumption of authority.
(Citation and punctuation omitted.) Ga. Cas. & Surety Co. v. Seaboard Surety Co., 210 F.Supp. 644, 656-657 (N. D. Ga. 1962), aff’d, Seaboard Surety Co. v. Ga. Cas. & Surety Co., 327 F.2d 666 (5th Cir. 1964) (applying Georgia law) . This common law distinction between forgery and a fraudulent assumption of authority has been discussed and applied in several Georgia cases. See Morgan v. State, 77 Ga.App. 164, 165 (48 S.E.2d 115) (1948); Samples v. Milton County Bank, 34 Ga.App. 248, 250 (1) (129 SE 170) (1925); Barron, 12 Ga.App. at 347-350.
In the present case, the Farrow Affidavit merely asserted that Whales, the individual who signed the Warranty Deed, was not an employee or agent of IndyMac. It is undisputed that the individual signing the Warranty Deed was in fact Whales. Hence, the Farrow Affidavit alleged a fraudulent assumption of authority by Whales, not a forgery, under the common law. See Georgia Cas. & Surety Co., 210 F.Supp. at 656-657; Morgan, 77 Ga.App. at 165; Samples, 34 Ga.App. at 250 (1); Barron, 12 Ga.App. at 347-350.
Arguing for a contrary conclusion, Deutsche Bank maintained that the cases applying the Georgia common law of forgery which have addressed the doctrine of a “fraudulent assumption of authority” have involved an admitted agent with some authority to act on behalf of its principle, but who exceeded that authority. Deutsche Bank asserted that the present case is thus distinguishable, since the Farrow Affidavit reflected that Whales had no authority to act as an agent of IndyMac in any capacity or under any circumstances.
We are unpersuaded. Nothing in the language or reasoning of the cases applying the doctrine of fraudulent assumption of authority suggests that the doctrine should be limited in the manner espoused by Deutsche Bank. See Georgia Cas. & Surety Co., 210 F.Supp. at 656-657; Morgan, 77 Ga.App. at 165; Samples, 34 Ga.App. at 250 (1); Barron, 12 Ga.App. at 347-350. Indeed, in Georgia Cas. & Surety Co., 210 F.Supp. at 652, 656-657, the district court did not hesitate to apply the doctrine, even though the court found that the individuals who had executed the corporate documents were “purely intruders” with “no contract of employment existing nor even in contemplation, ” who lacked any authority whatsoever to act on behalf of the corporation as officers or otherwise.
For these reasons, the trial court correctly rejected Deutsche Bank’s contention that there was evidence that the Warranty Deed had been forged. Because the Farrow Affidavit at best showed a fraudulent assumption of authority by Whales as signatory to the Warranty Deed, JP Morgan, as a bona fide purchaser, was protected against the fraudulent actions alleged by Deutsche Bank. See Murray, 222 Ga. at 789 (4).
3. In opposing summary judgment, Deutsche Bank also maintained that the Warranty Deed could not cause the 2001 Security Deed to be canceled because the Warranty Deed failed to comply with the requirements of OCGA § 44-14-67 (b) (2). That statute provides in pertinent part:
(b) In the case of a deed to secure debt which applies to real property, in order to authorize the clerk of superior court to show the original instrument as canceled of record, there shall be presented for recording:
(2) A conveyance from the record holder of the security deed, which conveyance is in the form of a quitclaim deed or other form of deed suitable for recording and which refers to the original security deed[.]
According to Deutsche Bank, the Warranty Deed did not authorize the clerk of the superior court to cancel the 2001 Security Deed because the Warranty Deed made no express reference to the 2001 Security Deed, as required by this statute. As such, Deutsche Bank argued that, as a matter of law, the Warranty Deed could not effectuate the cancellation of the 2001 Security Deed and thereby extinguish Deutsche Bank’s interest in the Property.
Deutsche Bank’s argument was predicated on the false assumption that OCGA § 44-14-67 (b) provides the exclusive means for the cancellation or extinguishment of a security deed. But as previously noted, a bona fide purchaser for value is entitled to take property free of any outstanding security interest of which the purchaser had no actual or constructive notice. See Farris, 268 Ga. at 771 (2). And it would produce an anomalous result to interpret Georgia’s recording statutes, including OCGA § 44-14-67 (b), in a manner that would defeat the interests of a bona fide purchaser for value. See Lionheart Legend v. Northwest Bank Minn. Nat. Assn., 253 Ga.App. 663, 667 (560 S.E.2d 120) (2002) (noting that Georgia’s recording acts are intended to protect bona fide purchasers for value). It follows that because JP Morgan was a bona fide purchaser for value, it was entitled to take the Property free of the 2001 Security Deed, separate and apart from the procedures for cancellation by the clerk of the superior court set forth in OCGA § 44-14-67.
For these combined reasons, the trial court correctly concluded that the uncontroverted evidence of record showed that JP Morgan’s interest in the Property was superior to and not subject to any interest held by Deutsche Bank. The trial court, therefore, committed no error in granting summary judgment in favor of JP Morgan on its claim for a declaratory judgment.
Blackwell, and Dillard, JJ., concur.
 Deutsche Bank does not appeal the trial court’s denial of its motion for summary judgment.
 OCGA § 14-5-7 (a) provides:
Instruments executed by a corporation conveying an interest in real property, when signed by the president or vice-president and attested or countersigned by the secretary or an assistant secretary or the cashier or assistant cashier of the corporation, shall be conclusive evidence that the president or vice-president of the corporation executing the document does in fact occupy the official position indicated; that the signature of such officer subscribed thereto is genuine; and that the execution of the document on behalf of the corporation has been duly authorized. Any corporation may by proper resolution authorize the execution of such instruments by other officers of the corporation.
As a creditor state with a conservative majority in control of both the Senate and House of Representatives, it is unlikely that the Georgia General Assembly would repeal the right of lenders to proceed to foreclosure via the non-judicial route. However, given the errors and inherent problems associated with non-judicial foreclosures, this author would encourage the General Assembly to consider moving to judicial foreclosures.
Tuesday, December 28, 2010
Monday, December 20, 2010
Can A Debtor Force A Bank To Foreclose On Property Instead of Sue on the Promissory Note? Answer: Generally not. Reese Developers, Inc. et al. v. First State Bank, Court of Appeals of Georgia, Third Division, September 10, 2010, reaffirmed this principle. 
The world of declining real estate values has caused secured creditors (“Bank”) to look to suing on the Promissory Note, instead of foreclosing on the property and putting more non-saleable property on the Bank’s Real Estate Owned (“REO”) books.
In a rising real estate market, we rarely saw this phenomenon (a bank foregoing the real estate to sue only on the Promissory Note). A few years ago, even though Banks had their fill of property, they still were moving to foreclose (in situations where the debtors have no other assets, they still will foreclose). However, in situations where there are (or the Bank perceives) other cash assets, we are seeing Banks move against the cash assets prior to proceeding to foreclosure and a deficiency judgment.
The reason that secured creditors love Georgia so much (well, not all of them), is that they can proceed to foreclosure and obtain a deficiency judgment without any significant court involvement.  If a Bank desires to pursue a judgment on a Promissory Note prior to proceeding against the real estate by foreclosure, it must sue the debtor and suffer any defenses, affirmative defenses and counterclaims the borrower may raise in the lawsuit. While there may be none, lawsuits create their own delay and problems.
In this era of real estate deflation, it is not foolish of a creditor to sue on the Promissory Note and forego foreclosure. A bank is well within its rights to pursue the Promissory Note prior to the foreclosing on the real property.
The law of this state is well-settled that a secured creditor is vested with an election of remedies and [it] “may, either consecutively or concurrently, pursue any number of consistent remedies to enforce the payment of a debt until it is satisfied.” Gentry v. Hibbler-Barnes Co., 113 Ga.App. 1(1) (147 S.E.2d 31) (1966). “[U]pon default in payment[,] the creditor may elect to sue the debtor on the note, without exercising the power of sale, or he may do either. Also he may pursue both remedies concurrently until the debt is satisfied.” Equitable Life Assurance Society v. Pattillo, 37 Ga.App. 398, 400 (140 SE 403) (1927). There is no legal requirement that precludes a secured creditor from obtaining a judgment on the note and levying upon the debtor's property, rather than foreclosing upon the property securing the debt in the first instance. Reese Developers, Inc., supra.
It is unfortunate for the debtor, but if the Bank proceeds to judgment on the promissory note prior to foreclosing on the property, it is not required to file a deficiency judgment suit (a confirmation action) after the foreclosure.
For the benefit of bench and bar we restate the holding of this case as follows: When a creditor who holds a promissory note secured by a deed to secure debt containing a power of sale sues on the note and obtains a money judgment and thereafter elects to exercise the power of sale in the deed to secure debt, and the proceeds of such sale are not sufficient to satisfy the judgment, he is not required to comply with Code Ann. § 67-1503 [now OCGA § 44-14-161] before attempting to enforce further his judgment. We are not unmindful that this holding permits the avoidance of judicial confirmation of such foreclosure sale. However, as previously noted, the confirmation statute is in derogation of the common law and requires strict construction. When the creditor wishes to exercise a power of foreclosure prior to obtaining a judgment on the note and thereby save time and expense, he will be required to comply with the confirmation statute before instituting any action for a deficiency judgment. On the other hand, should a creditor elect to resort to the courts and obtain a judgment on the note prior to exercising the power of sale, he will not be required to have such sale confirmed before attempting further enforcement of the judgment. Taylor, et al. v. Thompson, 158 Ga.App. 671, 673, 282 S.E.2d 157 (1981). 
And, the borrower cannot force the Bank to accept the real property in lieu of suing on the Promissory Note or foreclosing on the property. Stewart v. Diehl, 219 Ga.App. 821,823, 466 S.E.2d 913 (1996). 
While no confirmation action is required when the Bank holds a prior judgment based on a prior suit on the Promissory Note, this author wonders how one challenges defects in the Notice, Service under the Deed to Secure Debt, faulty advertisement and other errors associated with the subsequent foreclosure? Also, how does one determine or challenge the “true market value,” bid by the bank in a foreclosure post in time to a prior successful suit on the note? A judicial foreclosure would cure all these questions, but a post non-judicial foreclosure would not.
Perhaps that is an article for another day.
Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Atlanta (Tucker), GA 30084
Reese Developers, Inc. et al. v. First State Bank, Court of Appeals of Georgia, Third Division, September 10, 2010.
Gus H. Small Jr., Brent William Herrin, for Appellant.J.D. Humphries III, Ron Charles Bingham II, Kenneth Bradley Franklin, for Appellee.
Reese Developers, Inc. and Thomas D. Reese (collectively “the Reese debtors”) appeal from a grant of summary judgment to First State Bank, a secured creditor that brought an action for payment on a promissory note and guaranty. In their sole enumeration of error, the Reese debtors contend that the Bank should have been required to foreclose on the property securing the debt before pursuing a judgment on the note. While acknowledging that as a general rule, the Bank is entitled to its choice of remedies, the Reese debtors argue that special circumstances exist which justify an exception in this case. We are unpersuaded and affirm.
The following facts are undisputed. On February 11, 2008, Reese Developers executed a promissory note in favor of the Bank in the principal amount of $4,163,800 based upon a renewal of a prior loan. Under the terms of the note, Reese Developers agreed to repay the principal amount of the debt, with interest accruing at a variable rate per annum. The note was separately secured by a deed to secure debt, which pledged as collateral a 196.62-acre tract of land located on Snapping Shoals Road in Henry County, and a personal guaranty for repayment executed by Thomas D. Reese.
The Reese debtors subsequently defaulted on the note and guaranty. The Bank filed suit against the Reese debtors to obtain a judgment on the note, plus interest, late fees, attorney fees and court costs. In their answer to the complaint, the Reese debtors admitted the indebtedness, but claimed that the Bank was required to foreclose on the property securing the debt and obtain judicial confirmation of the foreclosure sale prior to seeking a judgment. The Bank filed a motion for summary judgment, which the trial court granted. We discern no error.
The law of this state is well-settled that a secured creditor is vested with an election of remedies and “may, either consecutively or concurrently, pursue any number of consistent remedies to enforce the payment of a debt until it is satisfied.” Gentry v. Hibbler-Barnes Co., 113 Ga.App. 1(1) (147 S.E.2d 31) (1966). “[U]pon default in payment[,] the creditor may elect to sue the debtor on the note, without exercising the power of sale, or he may do either. Also he may pursue both remedies concurrently until the debt is satisfied.” Equitable Life Assurance Society v. Pattillo, 37 Ga.App. 398, 400 (140 SE 403) (1927). There is no legal requirement that precludes a secured creditor from obtaining a judgment on the note and levying upon the debtor's property, rather than foreclosing upon the property securing the debt in the first instance.1 See Gentry, 113 Ga.App. at 2(2).
The Reese debtors nonetheless argue that allowing a judgment on a note secured by a deed to secure debt would unjustly permit the Bank to avoid the debtor protections afforded under Georgia's confirmation statute, which requires that judicial confirmation of a foreclosure sale be obtained prior to seeking a deficiency judgment. See OCGA § 44-14-161(a). This argument is unavailing. In Trust Investment & c. v. First Ga. Bank, 238 Ga. 309, 310(1) (232 S.E.2d 828) (1977), the Georgia Supreme Court rejected this policy argument and reaffirmed the established rule that “the holder of a note who is also the grantee in a deed to secure the indebtedness of the note is not forced to exercise the power of sale in the deed. He may sue on the note or exercise the power of sale.” Id. See also Jamison v. Button Gwinnett Sav. Bank, 204 Ga.App. 341, 342(1) (419 S.E.2d 91) (1992). It is thus clear that
[t]he debtor cannot force the secured creditor to accept the property in satisfaction of the debt. Consequently, the secured [creditor's] failure to foreclose on the security deed[,] and related failure to seek confirmation under OCGA § 44-14-161 et seq.[,] does not raise an issuable defense since the option to sue on the note was one of several remedies available to [Bank].
(Citations and punctuation omitted.) Stewart v. Diehl, 219 Ga.App. 821, 822-823 (466 S.E.2d 913) (1996). See Jamison, 204 Ga.App. at 342(1); Taylor v. Thompson, 158 Ga.App. 671, 672-673 (282 S.E.2d 157) (1981).
While the Reese debtors further claim that special circumstances exist which justify an exception to the established rule in this case, this claim likewise is without merit. In support of their claim, the Reese debtors allege that they cannot pay the debt owed under the note, and thus, the Bank must levy on the property to obtain any significant recovery. Based upon these circumstances, the Reese debtors contend that the choice of remedy is merely illusory. But, the alleged financial inability to pay the debt cannot serve as a special circumstance, because presumably, most, if not all, defaulting debtors are in the same situation. And, even if it is true that the Bank ultimately may need to levy on the property to satisfy the judgment, such does not constitute a special circumstance. See The River Farm v. Suntrust Bank, ---Ga.App. ----, *1-3 (Case No. A10A1500, decided July 21, 2010). Nothing precludes a creditor from obtaining satisfaction of the debt by reducing it to judgment and levying on whatever property he chooses, including the property pledged as security for the debt. See Gentry, 113 Ga.App. at 2(2). Consequently, no special circumstances have been shown to justify departure from the established rule in this case. The trial court's decision granting summary judgment in favor of the Bank on its suit on the promissory note and guaranty was proper. See Trust Investment, 238 Ga. at 310(1); The River Farm, --- Ga.App. at * 1-3; Stewart, 219 Ga.App. at 822-823; Jamison, 204 Ga.App. at 342(1).
1. The Reese debtors do not allege that the loan documents otherwise imposed a contractual requirement that the Bank foreclose on the property securing the debt. The security deed has not been included in the appellate record for our review. Nevertheless, the note provided that in the event of a default, the Bank's remedies included, but were not limited to, the right to “demand immediate payment of all [amounts] owe[d]” and “any remedy [the Bank had] under state or federal law.” The note further stated that “[b]y selecting any one or more of these remedies[,] [the Bank] [did] not give up [its] right to later use any other remedy.”
BARNES, P.J., and Senior Appellate Judge G. ALAN BLACKBURN, concur.
I am downgrading the lawsuit filed pursuant to OCGA § 44-6-161 to a mere summary filing as opposed to viewing it as a full lawsuit.
Taylor, et al. v. Thompson, 158 Ga.App. 671, 673, 282 S.E.2d 157 (1981).
This is an appeal from an order granting appellee Thompson's petition for confirmation of a non-judicial foreclosure sale pursuant to Ga.Code Ann. § 67-1503. Appellants moved to dismiss, contending that there had been no compliance with Code Ann. § 67-1505. The sole issue enumerated as error is the denial of appellants' motion to dismiss for lack of jurisdiction over the person, insufficiency of service of process, insufficiency of process and failure to state a claim.
[282 S.E.2d 158] Pretermitting a determination of the validity of appellants' contention with respect to the alleged noncompliance with the provisions of Code Ann. § 67-1505, we believe that the issues presented in this appeal are moot. The record reveals that appellants executed a promissory note in favor of Thompson in the principal amount of $46,270.00. As security for this note, appellants executed in favor of Thompson a deed to secure debt covering a tract of property located in Jefferson County, Georgia. Following default, Thompson brought suit on the note and recovered a money judgment against appellants in the amount of $57,892.80. Thereafter, Thompson, pursuant to the power of sale in the deed to secure debt, advertised and sold the property for $51,000.00. Within thirty days of the date of the foreclosure sale, Thompson filed his petition pursuant to Code Ann. § 67-1503 seeking confirmation and approval of the non-judicial sale and alleging that proceeds of the sale were insufficient to satisfy the judgment he had obtained on the note. Obviously, Thompson filed this petition for confirmation in contemplation of an action for the deficiency which existed between the amount of the judgment and the proceeds of the foreclosure sale. Therefore, the issue which underlies the instant appeal is whether Thompson would be estopped from further enforcement of his judgment on the note absent confirmation of the sale under power which occurred subsequent to the entry of judgment. If he would not, the instant appeal from the grant of Thompson's petition for confirmation would be moot.
The confirmation statute (Ga.L.1935, p. 381; Code Ann. § 67-1503 et seq.) was enacted during the Depression when many Page 672 mortgagors were forced into bankruptcy by the deficiency judgments which were sought and obtained against them after mortgagees had acquired the property at non-judicial foreclosure sales for nominal or depressed prices. Thompson v. Maslia, 127 Ga.App. 758, 761, 195 S.E.2d 238 (1972). This statute is in derogation of the common law and it has been and must be strictly construed. First Nat. Bank v. Kunes, 128 Ga.App. 565(1), 197 S.E.2d 446 (1973). Through case law interpretation of this statute several principles have evolved, to wit: The confirmation required by the statute is not an equitable proceeding. Dockery v. Parks, 224 Ga. 369, 162 S.E.2d 332 (1968). The failure to obtain confirmation of a sale does not operate to extinguish the remaining debt; rather, it simply precludes the person exercising the power of sale from instituting suit to obtain a deficiency judgment. Powers v. Wren, 198 Ga. 316(4), 31 S.E.2d 713 (1944). Turpin v. North American, etc., Corp., 119 Ga.App. 212, 217, 166 S.E.2d 588 (1969). Failure to confirm does not estop a creditor from pursuing other contractual security on the debt. Salter v. Bank of Commerce, 189 Ga. 328, 6 S.E.2d 290 (1939). "A creditor who holds a promissory note secured by a deed is not put to an election of remedies as to whether he shall sue upon the note or exercise a power of sale contained in the deed, but he may do either, or 'pursue both remedies concurrently until the debt is satisfied.' (Cits.)" Oliver v. Slack, 192 Ga. 7(2), 14 S.E.2d 593 (1941); accord, Marler v. Rockmart Bank, 146 Ga.App. 548, 549, 246 S.E.2d 731 (1978); see also Trust, etc., Co. v. First Ga. Bank, 238 Ga. 309(1), 232 S.E.2d 828 (1977).
Applying the foregoing principles to the instant action, we believe that it was unnecessary that Thompson petition for confirmation of the sale of the property. Thompson, prior to foreclosure, brought suit on the note and obtained a judgment against appellants in the amount of $57,892.80. At this juncture, Thompson could have enforced this judgment by execution as authorized under Code Ann. § 67-1501 or he could have exercised the power of sale in the deed to secure debt. Norwood Realty Co. v. First Federal Savings, etc., Assn., 99 Ga.App. 692(1), 109 S.E.2d 844 (1959); see also Wilson v. Citizens Bank, Peach County, 143 Ga.App. 402, 238 S.E.2d 754 (1977). Thompson elected to exercise the power of sale and, in so doing, obtained $51,000.00 which he applied against the judgment on the note. The question then becomes [282 S.E.2d 159] whether Thompson must comply with the confirmation statute before he can proceed to enforce further his judgment on the note. Under a strict construction of the confirmation statute, we think not. The language of Code Ann. § 67-1503 merely provides that without confirmation "no action may be taken to obtain a deficiency judgment..." By virtue of the judgment obtained on the note prior to foreclosure sale, appellants
were indebted to Thompson for the full amount of such judgment. Because of this prior judgment, appellants are liable to Thompson for any sum remaining after application of the proceeds of the foreclosure sale. Thus, there was no purpose to be served by Thompson filing the petition for confirmation of the sale under power because no action for deficiency was necessary. Cf. Salter v. Bank of Commerce, 189 Ga. 328, 331, 6 S.E.2d 290, supra.
For the benefit of bench and bar we restate the holding of this case as follows: When a creditor who holds a promissory note secured by a deed to secure debt containing a power of sale sues on the note and obtains a money judgment and thereafter elects to exercise the power of sale in the deed to secure debt, and the proceeds of such sale are not sufficient to satisfy the judgment, he is not required to comply with Code Ann. § 67-1503 before attempting to enforce further his judgment. We are not unmindful that this holding permits the avoidance of judicial confirmation of such foreclosure sale. However, as previously noted, the confirmation statute is in derogation of the common law and requires strict construction. When the creditor wishes to exercise a power of foreclosure prior to obtaining a judgment on the note and thereby save time and expense, he will be required to comply with the confirmation statute before instituting any action for a deficiency judgment. On the other hand, should a creditor elect to resort to the courts and obtain a judgment on the note prior to exercising the power of sale, he will not be required to have such sale confirmed before attempting further enforcement of the judgment. Even in the situation where the creditor is not required to obtain judicial confirmation of the sale, the debtor would still be able to have the sale set aside by a court of equity should the circumstances as set forth in Giordano v. Stubbs, 228 Ga. 75, 79, 184 S.E.2d 165 (1971) be present.
A ruling in the instant action on whether or not the trial court erred in confirming the sale would be of no benefit to appellants. Even a reversal of the order of confirmation would be ineffectual since appellants are subject, by virtue of the prior judgment on the note, to pay the difference between the amount of the judgment and the proceeds of the foreclosure sale. Thus, the issue presented on appeal is moot. Olds v. Hair, 116 Ga.App. 401, 157 S.E.2d 559 (1967); Benton v. Singleton, 114 Ga. 548(4), 40 S.E. 811 (1901).
DEEN, P. J., and BANKE, J., concur.
Stewart v. Diehl,
219 Ga.App. 821,823, 466 S.E.2d 913 (1996).
McMURRAY, Presiding Judge.
By warranty deed, plaintiff Donna Diehl conveyed real property to defendant Sandra D. Stewart. The property was subject to an existing first mortgage, "which indebtedness Grantee [Sandra D. Stewart ...] assume[d] and agree[d] to pay." Sandra D. Stewart and her mother, defendant Frances Louise Helms, also signed a purchase money promissory note, representing a "second mortgage," in the principal amount of $6,000. This note was secured by a purchase money security deed to the property, and provided for a default "[s]hould any installment not be paid when due, or should the undersigned [defendants] fail to comply with any of the terms of [the] Purchase Money Security Deed[.]" The purchase money security deed that defendant Sandra D. Stewart gave to plaintiff in turn provided that: "This conveyance is subject to an outstanding Security Deed from Donna B. Diehl to Congressional Mortgage Corporation of Georgia dated July 28, 1986, in the original principal amount of $57,200.00.... Any default under the terms of said loan shall constitute a default hereunder. Additionally, any failure to pay the condominium assessments on the above property shall constitute a default hereunder."
Plaintiff subsequently brought this action on the purchase money promissory note alleging that defendants were in default for "failing to make any mortgage payments since the purchase of the property on the first mortgage or to pay the condominium association fees or special assessment fees." Defendants' pro se answer denied default, averring that "being behind on a first mortgage does not cause default on a second mortgage[, ... and further showing that] the first mortgage
is being assigned to HUD to help me with my payments." In response to requests for admissions, however, defendants' only reply was: "1. The property has been sold, due to close in January." As a consequence, each defendant admitted that "the Purchase Money Deed dated May 12, 1994, ... is true, correct and genuine and that the signatures were placed on it on the day indicated[; that] as of September 13, 1994, [both] Defendant, Sandra D. Stewart [and defendant Frances Louise Helms], had not made payments for the months of June, July, August and September to the first mortgagee, Sunbelt National Mortgage [and ... that she] had not made payments for the months of June, July, August and September to the condominium association ... for special assessments [ ... nor] for the monthly association dues of $120.00 per month."
Based on this prima facie case of indebtedness, plaintiff moved for summary judgment. Defendants, represented by counsel, opposed the motion, relying on a contractual provision that ostensibly forgave the note: "[I]f the undersigned[, i.e., defendants] within 9 months from the date hereof is able to refinance and pay off the existing first mortgage with Sunbelt National Mortgage Corporation, ... or to qualify to assume said loan and release Creditor [i.e., plaintiff] from any liability on said loan, then Creditor agrees to cancel this Note in full at that time without any further payment, to satisfy and cancel the Purchase Money Security Deed executed to secure this Note." Defendants also submitted the affidavit of Sandra D. Stewart, who deposed that she had "only been served with the Demand for Payment of Note[, ... and never had] been served with any Notice of Confirmation," Notice of Foreclosure or any other attempt to foreclose upon the real [466 S.E.2d 915] property securing the second mortgage. They argued that plaintiff should have foreclosed first because the value of the real property would cover any notes due from defendants to plaintiff and so plaintiff would be "relieved from liability upon the note and therefore the note discharged."
The trial court granted plaintiff's motion for summary judgment and this appeal followed. Held:
In their sole enumeration, defendants contend the trial court's grant of summary judgment "on Plaintiff/Appellee's suit on a note violated the provisions of the Georgia Confirmation Statute, O.C.G.A. 44-14-162."
"The holder of a note who is also the grantee in a deed to secure the indebtedness of the note is not forced to exercise the power of sale in the deed. He may sue on the note or exercise the power of sale. Gentry v. Hibbler-Barnes Co., [113 Ga.App. 1(1) (147 S.E.2d 31) ]. See also Oliver v. Slack, 192 Ga. 7(2) (14 S.E.2d 593) (1941)." Trust Investment, etc., Co. v. First Ga. Bank, 238 Ga. 309, 310(1), 232 S.E.2d 828. The debtor "cannot force [the secured creditor] to accept the
property in satisfaction of the debt. [Cits.]" American Mini-Storage, etc. v. Investguard, 196 Ga.App. 862, 863(2), 397 S.E.2d 199. Consequently, the secured lender's "failure to foreclose on the ... security deed [and related failure to seek confirmation under OCGA § 44-14-161 et seq. does not] raise an issuable defense since the option to sue on the note was one of several remedies available to [plaintiff Donna Diehl]. Brown v. Rooks, 240 Ga. 674 (242 S.E.2d 128)." Hart v. Trust Co. of Columbus, 154 Ga.App. 329, 330, 268 S.E.2d 384. "When signatures are admitted or established, production of the instrument entitles a holder to recover on it unless the defendant establishes a defense." OCGA § 11-3-307(2). By her production of the note and the admissions deemed to have been made by defendants in the case sub judice, plaintiff "presented a prima facie case that [she] was entitled to judgment on the promissory note, and [since defendants did not seek to withdraw their admissions, they consequently] failed to come forward with evidence sufficient to create an issue of fact to be decided by a jury." Hart v. Trust Co. of Columbus, 154 Ga.App. 329, 330, 268 S.E.2d 384, supra. The trial court correctly granted plaintiff's motion for summary judgment over defendants' contention that the instant action on a note secured by real property was actually a deficiency action subject to the confirmation procedures of OCGA § 44-14-161.
ANDREWS and BLACKBURN, JJ., concur.
Additional Relevant Citations are:
113 Ga.App. 1 (Ga.App. 1966)
147 S.E.2d 31
E. L. GENTRY
E. L. GENTRY et al.
Nos. 41748, 41749.
Court of Appeals of Georgia, Division No. 2.
January 18, 1966
[147 S.E.2d 32]
A. W. Cain, Jr., Rossville, for appellant.
Frank M. Gleason, Rossville, for appellee.
Syllabus Opinion by the Court
1. A litigant may, either consecutively or concurrently, pursue any number of consistent remedies to enforce the payment of a debt until it is satisfied. 'Obtaining a judgment on the note and foreclosure of the security device are consistent remedies, and the utilization of one will not constitute either an election or abandonment of the other.' Hopkins v. West Publishing Co., 106 Ga.App. 596(2), 127 S.E.2d 849. See Pioneer Investments, Inc. v. Adrine, 97 Ga.App. 520(2), 103 S.E.2d 686.
2. Black's Law Dictionary defines deficiency as 'that part of a debt secured by mortgage not realized from sale of mortgaged property,' citing Harrow v. Metropolitan Life Ins. Co., 285 Mich. 349, 280 N.W. 785, and continues: 'A judgment or decree for the amount of such deficiency is called a 'deficiency judgment' or 'decree'. Phillips v. Union Central Life Ins. Co. C.C.A.Minn., 88 F.2d 188, 189.' Ga.L.1935, p. 381, codified as Code Ann. §§ 37-608-37-611, is entitled, 'Foreclosure sales; deficiency judgments', and the caption of the Act recites that its purposes are (1) to provide for confirmation of sales under foreclosure proceedings; (2) to limit and abate deficiency judgments on secured debts, and (3) to provide for the advertisement of foreclosure sales. Code Ann. § 37-608 lays down a condition precedent to obtaining a deficiency judgment in cases where 'any real estate is sold on foreclosure, without legal process, under powers contained in security deeds,' and the sale does not cover the amount of the debt. On its face, therefore, it refers only to the foreclosure procedure. Code Ann. § 37-611 requires advertisement of the time and place of sale; this section and the Act generally were held unconstitutional in Atlantic Loan Co. v. Peterson, 181 Ga. 266, 182 S.E. 15 as to pre-existing contracts where the security deed contained contradictory provisions as to sale on default. The court in its explication pointed out that the Act was remedial in nature, adding: 'In this case we have the promise to pay the debt as the primary obligation, and the power of sale as a remedy.' P. 270, 182 S.E. p. 17. The method of exercising the power of sale, and the legal consequences of the sale itself, constitute the subject matter of the Act, and the remedy by sale will be taken to have satisfied the primary obligation unless the creditor conforms to the law by making a proper showing that the security in fact brought in its true market value, which is then credited against the primary obligation. There is nothing in this or any other law which says that the creditor may not, if he chooses, obtain satisfaction of the debt by reducing it to judgment and levying it on whatever property he chooses, whether or not it has been pledged as security for the particular debt evidenced by the note. The only defense to the actions on certain promissory notes sued on here attempted to be raised by the answers and pleas in abatement was that Code Ann §§ 37-607 to 37-611 precluded the plaintiff from bringing the suit and seeking a general judgment until the secured property had been foreclosed on and this sale confirmed. Indubitably the position is untenable, and the trial court did not err in sustaining general demurrers to these defenses and thereafter entering up a default judgment in favor of the plaintiff.
NICHOLS, P.J., and HALL, J., concur.
37 Ga.App. 398 (Ga.App. 1927)
140 S.E. 403
EQUITABLE LIFE ASSUR. SOC. et al.
Court of Appeals of Georgia, Second Division
November 18, 1927
Syllabus by the Court.
A promissory note was secured by a deed to land, and the note and the deed both included a stipulation for the payment by the maker of 10 per cent. of the entire debt as attorney's fees in the event of the maker's default in paying the same, and the deed contained also a power of sale authorizing the payee in case of such sale to collect the proceeds and retain the expenses of the sale and the amount of the indebtedness, including such attorney's fees. The payee, after giving the statutory notice in regard to attorney's fees, brought suit on the note to recover such fees in addition to principal and interest. The maker failed to pay the note on or before the return day, or to file any defense. At the appearance term the case was marked in default, and at the trial term a judgment was rendered in favor of the payee for the amount sued for, including the attorney's fees. Between the date of the entry of default and the date of the final judgment the payee, after advertising the land in accordance with the contract, exposed the same for sale and sold it for a sum exceeding the aggregate of the expenses of sale and the amount of the judgment thereafter rendered. Held, in an accounting had between the payee and the maker subsequently to the judgment, the payee was authorized to retain the attorney's fees and costs which it had recovered, in addition to the principal and interest, and the expenses of the sale of the property, and where the payee, after retaining these items, paid over to the maker the balance of the proceeds of the sale, the maker could not then maintain a suit to recover of the payee and its attorneys such attorney's fees and costs. The court in such a suit by the maker erred in striking the answer of the defendant, which set up the facts hereinbefore detailed, and in directing a verdict in favor of the plaintiff.
Error from Superior Court, Floyd County; James Maddox, Judge.
Action by C. F. Pattillo against the Equitable Life Assurance Society and others. Verdict was directed for plaintiff, and defendants bring error. Reversed.
Linton A. Dean and Lamar Camp, both of Rome, for plaintiffs in error.
W. H. Ennis, of Rome, for defendant in error.
C. F. Pattillo became indebted by promissory note to the Equitable Life Assurance Society, and, as security thereto, executed a deed to land. The note and the deed each included a stipulation by the maker for the payment of 10 per cent. of the whole debt as attorney's fees in the event of the maker's default in paying the debt at maturity, and the deed contained also a power of sale, authorizing the payee, in case of such default, to sell the land at public outcry after four weeks' advertisement, and out of the proceeds to retain the expenses of the sale and the amount of the indebtedness, including such attorney's fees, the maker to receive any surplus that might be left. The debt being mature, the payee gave notice of its intention to bring suit to the October term, 1925, of the superior court of Floyd county, and of its intention to claim the attorney's fees in addition to principal and interest as provided in the note. This notice was given in compliance with the terms of section 4252 of the Civil Code of 1910. The return day of the October term was September 22. The maker failed to pay the debt or to answer the suit, and the case was marked in default on December 5, 1925, during the October term. At the succeeding April term, 1926, the payee took judgment for the principal, interest, and attorney's fees. In the meantime, having advertised the property as required by the contract, the payee on December 12 (after the return day and after the entry of default), exposed the property for sale and sold it for an amount exceeding the aggregate sum of the judgment obtained in the following April. The payee made no accounting to the maker until after the procuring of this judgment. In the accounting then made, it retained, not only the principal and interest on its debt, but also the attorney's fees included in the judgment, with the costs of suit.
Thereafter the maker brought suit against the payee and its attorneys for the recovery of the amount so retained. To this suit the defendants in the sixth paragraphs of their separate, but identical, answers, pleaded the facts hereinbefore detailed. These paragraphs were stricken for insufficiency, on a demurrer filed thereto by the plaintiff, and the defendants excepted pendente lite. The trial resulted in a directed verdict in favor of the then plaintiff for the amount in controversy, representing the sum which the payee in the original note had retained as above stated. Whereupon the defendants excepted and the case is here for review.
The execution of a deed to land as security to a promissory note places no legal duty on the creditor to proceed first against the security, even though the deed contains a power of sale. The obligation of the debtor to respond in person is the same as if no security had been given, and upon default in payment the creditor may elect to sue the debtor on the note, without exercising the power of sale, or he may do either. Also he may pursue both remedies concurrently until the debt is satisfied. Ga.
Mills Co. v. Clarke, 112 Ga. 253 (2), 37 S.E. 414; Clark v. Havard, 122 Ga. 273, 50 S.E. 108; Civil Code (1910), § 5522; 21 R.C.L. 685. So in this case the sale under the power did not amount to an abandonment of the suit, nor render fraudulent the judgment therein subsequently obtained. The maker having failed to pay the debt on or before the return day, the claim for attorney's fees became vested and fixed, and would not have been avoided, even by a subsequent payment by the maker. Mt. Vernon Bank v. Gibbs, 1 Ga.App. 662 (3), 58 S.E. 269; Valdosta R. Co. v. Citizens' Bank of Valdosta, 14 Ga.App. 329 (6), 80 S.E. 913. His liability therefor had attached as a part of the principal obligation, and the payee had the right to retain the same out of the proceeds of the sale, in the absence of some act amounting to a waiver; and where the suit, which had thus passed the return day and had been marked in default, was subsequently prosecuted to a judgment, which included the attorney's fees, the payee, in then accounting with the maker, was liable to him only for the difference by which the proceeds of the sale exceeded the amount of the legitimate expenses of the sale and the amount of the judgment including the attorney's fees and costs therein.
It follows that the maker's suit thereafter instituted to recover such attorney's fees and costs was subject to the defense which the payee and its attorneys as defendants interposed as above stated. For the [140 S.E. 405] foregoing reasons the court erred in striking such defense. McCall v. Herring, 116 Ga. 235, 239, 42 S.E. 468; Hamilton v. Rogers, 126 Ga. 27 (3, a), 54 S.E. 926; Evans v. Atlantic Nat. Bank, 147 Ga. 621 (2), 95 S.E. 219; Royal v. Edinburgh Mortg. Co., 143 Ga. 347, 85 S.E. 190; Laurens Cotton Co. v. American Trust Co., 20 Ga.App. 348 (2), 93 S.E. 43; Guarantee Trust Co. v. American Nat. Bank, 15 Ga.App. 778 (2, a), 84 S.E. 222.
Furthermore, the judgment in favor of the payee in the first suit adjudicated its right to the attorney's fees and the costs of that suit, and this judgment continues of force and is not subject to collateral attack.
JENKINS, P.J., and STEPHENS, J., concur.
238 Ga. 309 (Ga. 1977)
232 S.E.2d 828
TRUST INVESTMENT & DEVELOPMENT COMPANY, INC., rt al.
FIRST GEORGIA BANK.
Supreme Court of Georgia.
January 28, 1977
Rehearing Denied Feb. 14, 1977.
G. Robert Howard, Marietta, for appellants.
[232 S.E.2d 829] Troutman, Sanders, Lockerman & Ashmore, William G. McDaniel, John Grubb, Atlanta, for appellee.
In a suit on a promissory note, the First Georgia Bank, holder of the note and the grantee of property in a deed to secure the note, obtained summary judgment against the Trust Investment & Development Co., Inc., as maker, and against Charles C. Wilson, as surety, in the amount of $60,000 principal, plus interest, attorney fees and court costs. A special lien was granted against the property described in the security deed.
The appellants contend that allowing judgment on a note secured by deed to secure debt is improper because it
permits avoidance of the statutory requirement that judicial confirmation of a foreclosure sale be obtained prior to seeking a deficiency judgment. The surety contends that by seeking the judgment in lieu of foreclosure, the holder has failed to reduce the surety's liability in the amount to be obtained through the sale of the security, so that the surety has been discharged. The appellants also contend that the corporate exception in our usury laws denies them equal protection of the law and that in any event the holder is attempting to collect a usurious rate of interest from the surety.
1. Citing ths history of our confirmation requirement, Ga.L.1935, p. 381, Code Ann. § 67-1503 et seq., Thompson v. Maslia, 127 Ga.App. 758, 761-762, 195 S.E.2d 238 (1972), appellants urge us to disapprove Gentry v. Hibbler-Barnes Co., 113 Ga.App. 1, 147 S.E.2d 31 (1966), and repeal judicial foreclosure pursuant to Code § §§ 67-1501, 67-1502. See Pindar, Ga.Real Est.Law, §§ 21-56, 21-91, 21-93. We refuse to do so.
The holder of a note who is also the grantee in a deed to secure the indebtedness of the note is not forced to exercise the power of sale in the deed. He may sue on the note or exercise the power of sale. Gentry v. Hibbler-Barnes Co., supra; see also Oliver v. Slack, 192 Ga. 7(2), 14 S.E.2d 593 (1941).
2. The surety argues that when a creditor chooses to proceed to judgment against a surety without first foreclosing the property provided by the principal debtor as security, the surety's liability is thus increased and, the surety argues, he is discharged under Code Ann. § 103-203.  The bank replies that the contract of surety contains a waiver by the surety of any right to have the creditor proceed first by foreclosure. Although the contract gives the bank various rights, it contains no clear agreement by the surety to waive the right, if any exists, to have the creditor proceed first by foreclosure.
Acknowledging that there is no decision of this court in point, the surety urges that language in Marshall v. Dixon, 82 Ga. 435, 9 S.E. 167 (1889), supports his discharge. In Marshall, although the creditor repurchased the security, a horse, from the principal debtor and thereby extinguished, by merger, the purchase money mortgage formerly held by the creditor, the surety was not discharged. If the surety had then paid the debt, he would have been unable to assert the mortgage against the principal debtor by subrogation to the rights of the creditor. However, because the creditor had fairly reduced the liability of the debtor by the decreased value of the house, which had been abused by the principal debtor, the surety 'received the full benefit of the property' and thus was not injured. In the case before us, there is no indication that [232 S.E.2d 830] the surety will not receive the 'full benefit of the property.'
Similarly, the other cases cited by the surety, Cloud v. Scarborough, 3 Ga.App. 7(2), 59 S.E. 202 (1907) (creditor failed to record the security agreement) and Hartford Accident and Indemnity Co. v. Mauney, 66 Ga.App. 403, 17 S.E.2d 885 (1941) (creditor violated conditions of contract with principal debtor) do not deal with the issue at hand.
When by agreement, the surety's obligation is conditioned upon the creditor's enforcement of security, the surety may be discharged by the creditor's failure to uphold the surety agreement. Matheson v. Jones, 30 Ga. 306 (1860); Taylor v. Scott, 62 Ga. 39 (1878). See also Barrett v. Bass Bros. & Co., 105 Ga. 421, 31 S.E. 435 (1898). However, when no such agreement is found, the courts have not conditioned the creditor's right of recovery from the surety on his first using any security he may
have to satisfy or reduce his claim. Restatement, supra § 132, comment c; Stearns, supra § 7.22. The surety in this case has not urged any special circumstnaces which would justify an exception in his favor, and therefore he presents no basis for holding that the creditor has increased the surety's liability by not exercising the power of sale.
3. Appellants contend that Code Ann. § 57-118, which allows a corporation to be charged a greater amount of interest than a natural person, violates equal protection requirements. Code Ann. § 57-118 is an exception to the general prohibition by the General Assembly of usurious interest rates; it provides that profit corporations may agree to pay interest on amounts exceeding $2,500 without regard to restrictions on usurious rates. Such statutes in other states have generally been held constitutional when challenged on equal protection grounds. See Annot., 63 A.L.R.2d 924, 929 (1959).
The classification of profit corporations and the exception for this classification as provided by the General Assembly in Code Ann. § 57-118 is rational, promotes legitimate governmental ends and provides equal treatment of all within the class. The legislative determination that profit corporations do not need the protection of usury laws is reasonable. The exception is not a denial of equal protection. Griffith v. Connecticut, 218 U.S. 563, 31 S.Ct. 132, 54 L.Ed. 1151 (1910).
The surety argues that since he is not a profit corporation, he is not barred from asserting the defense of usury. The loan between the borrowing company and the bank was not usurious. A surety who vouches for the payment of a debt cannot avoid his obligation by claiming usury when as between the creditor and the principal debtor the loan is not usurious. See Reynolds v. Service Loan & Co., 116 Ga.App. 740, 158 S.E.2d 309 (1967); Waterman v. Howard Paper Co., 124 Ga.App. 511(2), 184 S.E.2d 226 (1971).
We find no error in the grant of summary judgment. Appellee's motion for damages for delay pursuant to Code Ann. § 6-1801 is denied.
All the Justices concur except INGRAM, J., who is disqualified.
 It is important to distinguish two possibly related issues which are not decided in this case: (1) Whether a creditor can be required to proceed to judgment against the principal debtor before proceeding against the surety, see Code Ann. § 103-205; Restatement of Security § 130 (1941); Stearns, Law of Suretyship § 6.38 (Elder's Rev., 5th ed. 1951); and (2) whether a subsequent decrease in the value of the security held by a creditor who seeks judgment without out exercising his power of sale will discharge the surety to the extent of the decrease, see Timmons v. Butler, Stevens & Co., 138 Ga. 69, 74 S.E. 784 (1912); Hattaway v. First National Bank, 175 Ga. 144(2), 165 S.E. 7 (1932); Restatement, supra §§ 131, 132.
204 Ga.App. 341 (Ga.App. 1992)
419 S.E.2d 91
JAMISON et al.
BUTTON GWINNETT SAVINGS BANK, FSB.
Court of Appeals of Georgia.
May 7, 1992
Reconsideration Denied May 27, 1992.
Greer, Klosik & Daugherty, Frank J. Klosik, Jr. and Jeffrey F. Leasendale, Atlanta, for appellants.
Schreeder, Wheeler & Flint, Warren O. Wheeler and Debra A. Wilson, Atlanta, for appellee.
Appellants/plaintiffs David K. Jamison and E.K. Jamison purchased land in Fulton County and built a house on it. Financing for the lot and construction of the house was provided by appellee/defendant Button Gwinnett Savings Bank, FSB (the "bank"). Plaintiffs
executed in favor of and delivered to the bank a promissory note (the "note") in the original principal amount of $434,000.00, which was secured by a deed to secure debt and security agreement (the "security deed"). The note and security deed were later modified. Plaintiffs subsequently defaulted on payments due pursuant to the note. The bank then accelerated the maturity of the note and declared the principal balance, accrued interest and late charges due. The bank did not seek to foreclose against the property.
Plaintiffs filed a complaint against the bank and certain other defendants. In the complaint, plaintiffs sought declaratory relief against the bank asking the trial court to declare that the bank's remedy, if any, against the plaintiffs was to foreclose against the subject property. The bank counterclaimed against the plaintiffs for the amount owing under the note. The bank also filed a motion for summary judgment on its counterclaim and motion to be dismissed as a defendant. The trial court granted both motions and plaintiffs appeal. The bank filed a motion pursuant to OCGA § 5-6-6 seeking to have this court award it damages against plaintiffs in an amount equal to ten percent of the judgment on the basis that this appeal was filed for delay only.
1. We hold that the trial court correctly granted the bank's motion for summary judgment and motion to be dismissed as a party. The law of this state is well-settled that "[t]he holder of a note who is also the grantee in a deed to secure the indebtedness of the note is not forced to exercise the power of sale in the deed. He may sue on the note or exercise the power [419 S.E.2d 92] of sale. [Cits.]" Trust Investment, etc., v. First Ga. Bank, 238 Ga. 309, 310(1), 232 S.E.2d 828 (1977). We have reviewed the note and security deed and find nothing in those documents to support plaintiffs' contention that the bank was required to foreclose on the property first.
2. It does not appear that there was any valid reason for plaintiffs to anticipate reversal of the trial court's judgment. Plaintiffs attempted to distinguish this case from the Trust Investment decision and its progeny by insisting that there are special circumstances in this case, but plaintiffs fail to point out what those circumstances are. We conclude that this appeal was brought only for purposes of delay. Accordingly, we grant the bank's motion for ten percent damages for frivolous appeal pursuant to OCGA § 5-6-6. See Covrig v. Miller, 199 Ga.App. 864(4), 406 S.E.2d 239 (1991); United Controls v. Alpha Systems, 195 Ga.App. 331, 393 S.E.2d 694 (1990). The clerk is directed to enter ten percent damages upon the remittitur.
Judgment affirmed with direction.
CARLEY, P.J., and JOHNSON, J., concur.
On Motion for Reconsideration.
On motion for reconsideration, plaintiffs urge that both the trial court and this court have failed to address the principal issue in this case, i.e., that there are special circumstances existing in this case that justify an exception to the general rule stated in Trust Investment, etc., v. First Ga. Bank, 238 Ga. 309, 232 S.E.2d 828 (1977). As we noted in the original opinion, however, although plaintiffs have consistently argued there are "special circumstances" existing in this case, they have failed to specify what these special circumstances are.
Plaintiffs also urge that an award of ten percent damages for frivolous appeal is inappropriate in this case because their action against defendant was for declaratory relief. If the judgment rendered by the trial court only dealt with plaintiffs' claim against the defendant their argument would be meritorious. In this case, however, the bank counterclaimed against plaintiffs for the amount owing under the note. In the final judgment in this case, the trial court not only granted defendant's motion for summary judgment as to plaintiffs' claim against it, but also granted defendant summary judgment on its counterclaim against plaintiffs for the amount owing under the note in total amount of $509,428.28. That award was clearly a sum certain within the meaning of OCGA § 5-6-6.
Motion for reconsideration denied.