Tedesco v. CDC Federal Credit Union

Citations: 306 S.E.2d 397; 167 Ga. App. 337; 1983 Ga. App. LEXIS 2451Docket: 65585

Court: Court of Appeals of Georgia; July 7, 1983; Georgia; State Appellate Court

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Ferdinand Tedesco entered a credit agreement with CDC Federal Credit Union, allowing him to borrow up to $30,000 while encumbering his residence with a Deed to Secure Debt. The agreement mandated annual lump-sum payments and required Tedesco to maintain a zero balance for 14 consecutive days each year. It also allowed CDC to refuse future advances and to terminate the account "with or without cause." The deed included a dragnet clause for future advances and specified that repaying the original debt would not cancel the deed.

After fully repaying the initial loan, Tedesco maintained a zero balance before borrowing additional funds, some of which remained owed when he filed the action seeking to have the deed canceled, arguing it was voidable due to full repayment of the original debt. CDC sought a declaratory judgment affirming the deed's validity. The trial court ruled in favor of CDC, stating that it had provided consideration for the deed, which remained in effect despite the repayment of the original debt.

On appeal, Tedesco challenged the court's findings regarding consideration and his waiver of statutory rights for cancellation. The appellate court upheld the trial court's decision, confirming that open-end clauses for future advances are enforceable and that the agreement itself constituted consideration, providing the lender security not only for lent amounts but also for potential future loans to the borrower.

The statutory provisions OCGA 44-14-60 and 44-14-67 regarding satisfaction and cancellation of deeds to secure debt do not operate automatically to cancel a deed upon the discharge of the initial debt if a future advances agreement exists. If interpreted as such, lenders would face impractical choices: either cancel the original deed and require a new deed for any additional loans, or provide loans without security. The appellant's insistence on immediate cancellation after paying off the original debt, while retaining the option for future borrowing, illustrates a desire to maintain available credit without the burden of a lien on property. The appellant's claim that the lender's ability to decline loan requests negates consideration is unfounded, as is the argument that a zero balance implies no consideration exists. The appellant can terminate the credit agreement and request cancellation of the security deed after paying off debt, with legal remedies available if the lender refuses. The trial court found that the appellant waived the right to cancellation by agreeing to a provision in the agreement that the deed would remain effective despite the original debt being satisfied. Under Georgia law, deeds with open-end clauses remain effective as long as any indebtedness exists between the parties, allowing new advances to be added. The exception of dragnet provisions complicates the definition of "indebtedness," raising questions about whether it refers solely to the initial debt or any debt under the credit agreement and deed.

The term in question encompasses both the original indebtedness and any additional debts incurred under the credit agreement, contradicting the appellant's narrower interpretation. The appellant cannot demand cancellation of the deed to secure debt because he has received further advances with outstanding balances. Even if the appellant had a zero balance at the time of cancellation demand, he would still need to terminate the credit agreement to be entitled to such cancellation, as consideration must cease for the borrower to reclaim the proffered consideration. By choosing to maintain the credit line, the appellant waived the right to immediate cancellation of the lien. Contractual waivers are permitted unless they require impossible or illegal actions. Concerns regarding potential harm to purchasers of encumbered property remain until legislative action is taken, but current law must be applied with equitable principles in mind. The court upheld the decision that the deed to secure debt is not voidable and remains effective. Judgment affirmed, with concurring opinions from Banke, J. and Carley, J.