Scott v. Citizens Bank of Americus

Citations: 373 S.E.2d 633; 188 Ga. App. 618; 8 U.C.C. Rep. Serv. 2d (West) 68; 1988 Ga. App. LEXIS 1117Docket: 76663

Court: Court of Appeals of Georgia; September 6, 1988; Georgia; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

In March 1986, the appellant executed a promissory note for the Bank of Webster, which was subsequently acquired by the appellee, Citizens Bank of Americus. Following the acquisition, the appellant failed to make timely payments on the note, prompting the appellee to initiate legal action for recovery. The appellant raised a defense of failure of consideration and filed a counterclaim for abusive litigation and attorney's fees under OCGA § 9-15-14.

Discovery revealed that the Bank had been previously warned by state examiners about risky loans and had devised a scheme to hide a defaulted loan from scrutiny. The appellant, a personal friend of the Bank's president, was used as a "strawman" to execute the note without receiving the funds, which were instead allocated for purchasing property tied to the defaulted loan. Although the Bank's officers believed the appellant understood the plan, he denied having knowledge of it. The Bank's president had assured the appellant that repayment would occur within weeks, but this did not happen.

Subsequently, cross-motions for summary judgment were filed. The trial court granted summary judgment to the appellee and denied the appellant's motion. The court concluded that the appellant was an accommodation party, meaning he signed the note to assist the Bank's president in a transaction, despite not receiving any proceeds. The court determined that the lack of proceeds to the appellant did not negate his liability under the terms of the note, differentiating this case from prior precedent where no accommodation was established for a future transaction.

The concept of an 'accommodation party' in Georgia law is expansive, allowing for the possibility that the accommodated party need not be a signatory to the note. In this case, even though the appellant signed the note as the maker and the Bank's president did not sign at all, the appellant is deemed an accommodation party for the president. The undisputed circumstances of the appellant's signing indicate that he cannot claim a defense of failure of consideration, as accommodation parties cannot assert lack of consideration for their accommodations since the value received by the accommodated party constitutes the consideration for the arrangement.

Moreover, the appellant's claim of illegality regarding the consideration for the note is invalid because he did not raise illegality as an affirmative defense. Consequently, neither he nor the Court can address it on appeal. Even if the issue had been raised, the underlying transaction was a standard loan repayment, which is not inherently illegal. Although the transaction was structured to conceal a defaulted loan from bank examiners, this does not render the note unenforceable. The legality of a contract hinges on its primary purpose, which must be lawful; any alleged unethical timing or behavior surrounding the loan does not affect the legality of the note itself. The appellant's belief that he was manipulated by a friend to sign the note introduces a moral dimension but does not provide a legal defense against liability.

The appellant is barred from claiming the defense of illegality regarding his obligation as an accommodation party to repay borrowed funds under the executed note. Although the notes were initially blank, this does not negate the appellant's liability since he authorized their completion, with no viable defense regarding lack of consideration offered. The appellant admitted to having executed the note and did not dispute the non-payment of the debt, undermining his defenses and allowing the appellee a prima facie right to judgment for the note's full amount. The trial court's grant of summary judgment for the appellee and denial for the appellant was thus appropriate.

In dissent, Judge Deen argues that the evidence indicated the appellant did not receive funds in exchange for signing the notes; however, this does not affect the enforceability of the renewal note, which does not require new consideration. Deen contends that consideration could exist if any benefit accrued to Scott or any detriment was suffered by the bank. Despite acknowledging some benefits from the notes, Deen maintains that the note was unenforceable due to illegal consideration, as it involved a scheme to conceal critical information from bank examiners, violating public policy. Additionally, Deen disagrees with the majority's classification of Scott as an accommodation party, arguing that the statute requires the accommodated party to be a party to the instrument, a point he believes was misinterpreted in previous rulings. Ultimately, Deen concludes that the note should be deemed void and unenforceable, advocating for a reversal of the trial court's judgment.