Contract Construction and Loan Documents in Georgia

One reason it is so important to secure legal counsel when entering into a business deal is to make sure that the language of a Georgia contract is as clear and unambiguous as it can be. There are several steps a court will take when interpreting the language of a contract during litigation if the language is not unambiguous and clear. In a recent Georgia appellate decision, Fannie Mae appealed from a lower court’s granting of an LLC and individual’s cross-motion for summary judgment and denial of a motion for judgment regarding its lawsuit asking for a deficiency judgment after confirmation of a foreclosure sale.

The case arose when an LLC refinanced a loan with HSBC in the principal amount of $12,500,00 and also executed a note in the company’s favor. Additionally, a guaranty was executed indicating that the key principal would have personal liability. An apartment building secured the loan, and this was described in a deed. HSBC endorsed the noted and assigned it to Fannie Mae.

Later, multiple businesses recorded materialman’s liens against the building securing the loan. The LLC admitted during discovery that it hadn’t paid or remediated the liens of several construction businesses within 30 days. It also didn’t make payments as required under the note’s terms and Fannie Mae foreclosed on the property in 2010. The court confirmed the foreclosure sale. The apartment building sold to the highest bidder for $5 million, more than its fair market value.

A complaint for a deficiency judgment was filed by Fannie Mae against the LLC and individual based on the personal guaranty he’d executed that he would satisfy the entire unpaid indebtedness. Fannie Mae claimed that the LLC and individual were jointly and severally liable on the Note because the liens were prohibited transfers of the real estate securing the loan and should be considered a default.

The trial court disagreed and summarily adjudicated the matter in favor of the LLC and individual. Under OCGA § 9-11-56, a party moving for summary judgment has to show there’s no genuine dispute of material fact and that the facts should give rise to judgment as a matter of law.

The appellate court reasoned that the construction of a security deed that’s unambiguous is a question that the court should determine. When constructing a contract, the court must determine what the parties intended as stated within the contract. In this case, Fannie Mae argued that the court had made a mistake in determining that its recovery on the Note was restricted to what could be obtained in the foreclosure sale.

The court agreed that there was a clear provision for the personal liability of the LLC and the individual. It explained that when interpreting a contract, the first step is to look at whether the language is unambiguous and clear. If it is, the court simply enforces the contract terms as written. When there’s ambiguity, certain rules of construction must be applied. If the contract is still ambiguous, the question of what ambiguous language means and what the parties meant needs to be resolved by a jury. It is a legal question whether there is any ambiguity to be resolved.

In this case, the note had been structured so the LLC would have no personal liability under the note for loan repayment. Fannie Mae had to exercise its rights regarding the property. There was an ambiguity, but the lower court found the parties’ intent was that Fannie Mae could only recover foreclosure sale proceeds in case of default. It also found that the recording of the materialman’s liens had not caused Fannie Mae any damages.

However, it found the note was unambiguous about personal liability in case of a transfer that is an event of default unless the lien was removed. The guaranty was also unambiguous that the key principal was personally liable. The appellate court found the trial court erred in this regard. It also found that the trial court had erred in finding the LLC and key principal weren’t liable for the deficiency because Fannie Mae had not suffered damages due to the recording of liens. Summary judgment was reversed, and the trial court was instructed to enter summary judgment for Fannie Mae on liability.

Whether you are a plaintiff seeking to pursue a commercial litigation case in Georgia, or a defendant seeking to defend (or perhaps avoid entirely) a case in Georgia, you need skilled Georgia litigation counsel to help you pursue your desired result. The experienced Atlanta contract litigation attorneys at Poole Huffman, LLC have many years of experience effectively handling a wide variety of commercial disputes. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.

More blog posts:

Confirmation Letters – Avoiding Potential Conflict Regarding Agreement Terms, Atlanta Business Litigation Attorneys Blog, April 5, 2016

Facing Jurisdictional Issues in a Breach of Contract Case in Georgia, Atlanta Business Litigation Attorneys Blog, July 16, 2018