Gift Collection, Ltd. v. Small Business Admin., 738 F. Supp. 487 (N.D. Ga. 1989)

*488 T. Jackson Bedford, Jr., Andrew R. Kirschner, Bedford, Kirschner & Venker, Atlanta, Ga., for plaintiff.

Albert L. Kemp, Jr., Office of the U.S. Atty., Atlanta, Ga., for defendant.

FORRESTER, District Judge.

This matter is before the court on the parties' cross motions for summary judgment. Fed.R.Civ.P. 56.

This is an action to cancel a security deed which plaintiff contends was executed with defendant's actual or constructive knowledge by an individual without authority to bind plaintiff. The parties to this action are plaintiff The Gift Collection, Ltd., a corporation organized and existing under the laws of the State of Georgia with its principal place of business in DeKalb County, Georgia; and defendant the Small Business Administration, an agency of the United States. The court's jurisdiction to hear this action is based upon 15 U.S.C. § 634(b) (1) and 28 U.S.C. § 1346(a) (2). The following statement of facts is based upon the court's review of the record including the parties' briefs and evidentiary materials submitted therewith.

In the summer of 1984, KKS Transportation, Inc. (hereinafter "KKS") applied through North Georgia Savings and Loan Association to defendant for a guarantied loan in the amount of $500,000. The loan would be made by the savings and loan association and guarantied by defendant. After consideration, however, defendant notified KKS in July of 1984 of its decision to reject KKS' application for, among other reasons, insufficient collateral. Defendant was thereafter contacted by KKS' attorney, Alan R. Turem, who requested "further review" of KKS' application and inquired into the amount of collateral required "to enhance the possibility of [KKS'] application being approved."

In August of 1984, KKS reapplied to defendant through Southern National Bank *489 (hereinafter "the bank") for a guarantied loan in the amount of $400,000. On September 13, 1984, KKS' application was approved and defendant agreed to guaranty ninety percent of the requested loan. A closing of the transaction was thereafter scheduled for October 11, 1984 to be held at the bank's offices. It is plaintiff's contention that KKS' reapplication was approved by defendant despite no change in KKS' financial condition since the filing of its original application. Defendant contends that it approved KKS' reapplication based on additional collateral, including real property owned by plaintiff located at 3400 Buford Highway in Atlanta, Georgia.

As originally drafted, the documents prepared for the October 11, 1984 closing indicate that the loan was to be personally guarantied by KKS' attorney, Alan R. Turem, and by plaintiff's corporate president, Gwyn Turem. At the closing, however, the bank became aware that Alan Turem would not be personally guarantying the KKS loan and that the collateral to secure the loan was owned by plaintiff. The bank subsequently notified defendant of these facts and the documents were modified in such a way as to designate plaintiff as guarantor of the loan. In addition, a deed to secure debt was executed pledging the Buford Highway property as security for the KKS loan. It is this security deed which the plaintiff seeks to cancel by this action.

Both the guaranty agreement and the security deed were executed on plaintiff's behalf by Alan R. Turem as plaintiff's corporate vice president. Mr. Turem's authority to execute these documents is evidenced by a corporate resolution captioned "Minutes of a Special Meeting of the Board of Directors of the Gift Collection, Ltd." This resolution, signed by Nora Scott as secretary and Mr. Turem as vice president, provides:

RESOLVED, that the secretary of the corporation and all other officers of the corporation are hereby duly authorized to sign on behalf of the corporation to pledge, hypothecate, or otherwise lend its collateral of the property currently held by the Gift Collection, Ltd., and to sign any and all documents necessary to effect said lien. This is for a loan of $400,000 to pledge said property as part of an SBA financing program on behalf of KKS Transportation, Inc.

Plaintiff's Exhibit 51. Plaintiff challenges Mr. Turem's authority to execute the guaranty and security deed on several grounds, however. First, plaintiff notes that in addition to being plaintiff's corporate president, Gwyn Turem is plaintiff's sole director. This is significant since the above-quoted resolution makes no reference to Ms. Turem and does not bear her signature. In addition, plaintiff denies that any meeting of the "Board of Directors" took place or that any such resolution was otherwise reached. Second, plaintiff asserts that despite the fact Mr. Turem signed the resolution as plaintiff's vice president, he was neither an officer nor director of the plaintiff corporation. Notwithstanding any defects in the corporate resolution or in Mr. Turem's authority to bind plaintiff, the guaranty and security deed were accepted as executed and the KKS loan closed.

In October of 1985, KKS defaulted on the loan. Defendant thereafter conducted a "legal sufficiency review" to determine whether the bank disbursed and closed the loan in compliance with defendant's loan authorization and thus whether defendant was obligated to purchase the loan as agreed. In so doing, defendant noted (1) that the security deed "must" be reexecuted and rerecorded with the names of corporate officers, and (2) that the security deed's validity is "questionable." Defendant asserts that these concerns were addressed to its satisfaction by Mr. Turem's August 29, 1986 affidavit which confirmed that his signature appears both on the security deed and the corporate resolution. Though the defendant apparently refused to honor the guaranty agreement in April of 1986, the KKS loan was subsequently assigned by the bank to defendant September 16, 1986. On October 27, 1987, plaintiff was notified of a public sale of the Buford Highway property. This action followed.

Courts should grant motions for summary judgment when "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Under Rule 56, the movant bears the initial burden of asserting the basis for his motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). This does not require that he negate his opponent's claim, however. Id. Rather, the movant may discharge his burden by merely "showingthat is, pointing out to the district courtthat there is an absence of evidence to support the non-moving party's case." Id. at 325, 106 S. Ct. at 2553. When this burden is met, the non-moving party is then required "to go beyond the pleadings" and present evidence designating "specific facts showing that there is a genuine issue for trial." Id. at 324, 106 S. Ct. at 2553. Where, as here, the parties have filed cross motions for summary judgment, each must come forward with specific evidence of every element essential to its case so as to defeat the other's motion and to demonstrate its entitlement to judgment as a matter of law.

The parties agree that the ultimate resolution of this dispute depends on the court's application of certain provisions of the Georgia Business Corporation Code, O.C.G.A. § 14-2-1, et seq. In this regard, section 14-5-7 provides as follows:

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 ... of the corporation with the corporation's seal attached shall be conclusive evidence that said officers signing are duly authorized to execute and deliver the same.

The undisputed facts of record show that the deed in question was signed by Alan R. Turem as plaintiff's corporate vice president, attested to or countersigned by Nora Scott as plaintiff's corporate secretary, and bore plaintiff's corporate seal. It would thus seem that Mr. Turem's authority to execute the deed on plaintiff's behalf has been conclusively established. As alluded to previously, however, it is plaintiff's contention that Mr. Turem was not its vice president when he executed the deed and other loan documents and thus section 14-5-7 is unavailable to defendant to supply authority where it could not possibly have existed. The only two cases interpreting section 14-5-7 which the court has been able to locate support plaintiff's argument. In Village Creations, Ltd. v. Crawfordville Enterprises, Inc., 232 Ga. 131, 206 S.E.2d 3 (1974), the Georgia Supreme Court determined that a security deed lacking the requisite corporate seal was invalid as having been executed by a corporate officer without authority to do so. In so doing, the court stated, "If the seal does not appear upon a deed executed by the president [or vice president] of a corporation and attested [or countersigned] by the secretary, there is no presumption as to the officer's authority to execute it (emphasis supplied)." 232 Ga. at 133, 206 S.E.2d 3.

Similarly, in In the Matter of Pope and Lord, Inc., 721 F.2d 1321 (11th Cir. 1983), the Eleventh Circuit Court of Appeals affirmed the lower court's decision declining to allow the appellant bank a security interest in certain real property of the debtor corporation. In so doing, the court concluded that strict compliance with section 14-5-7 was a prerequisite to a valid corporate conveyance. Because "[t]he deed was not executed by those persons necessary to make a proper corporate conveyance under Georgia law," the court held that the deed was invalid and unenforceable. 721 F.2d at 1322-23. Based on this authority, the court concludes that unless it is established that the security deed in question (1) was signed by plaintiff's president or vice president; (2) was attested or countersigned by plaintiff's secretary; and (3) bore plaintiff's corporate seal, defendant cannot rely upon section 14-5-7 to supply the requisite authority on Mr. Turem's part to bind plaintiff. A question of fact precludes summary judgment for either party on this issue.

In support of its contention that Mr. Turem was plaintiff's corporate vice president *491 when he executed the security deed on its behalf, defendant places great emphasis on the following response to its first interrogatory number four:

From its inception through approximately 1986 the officers of [plaintiff] are believed to be: Gwyn Turem president; Alan Turem vice president; Selma Gordon secretary/treasurer. Alan Turem is no longer a vice president. Moreover, Alan Turem has had possession of the corporate books and records, but it is believed by plaintiff that he has misplaced same. The above information is predicated on the best information and belief of the plaintiff at the present time. Further information should be requested directly from Mr. Turem. The area of responsibility for each statutory corporate officer was as established by law. Mr. Turem acted as corporate general counsel in his capacity as vice president.

Defendant's Exhibit J. This response is accompanied by the affidavit of Gwyn Turem wherein Ms. Turem testifies that "Plaintiff's response[s] to defendant's first interrogatories ... are true and correct." Id. While this would otherwise seem to resolve the issue, plaintiff now asserts that Ms. Turem's response to defendant's interrogatory is inaccurate. Ms. Turem has since testified that,

The only officers of [plaintiff] during 1984 were me, Gwyn G. Turem, president, Nora Jordan (maiden name "Scott"), secretary, as evidenced by the records of the Secretary of State.... During 1984, Alan R. Turem generally represented the Gift Collection as its attorney.

At no time during 1984 was Mr. Turem a vice president or any other officer of [plaintiff], nor was he authorized by me as president or director to execute any security deed on behalf of [plaintiff] with respect to the SBA guarantied loan which is the subject matter of this action.

Gwyn G. Turem Aff., ¶¶ 3-5. Defendant understandably argues that plaintiff should be bound by its verified response to defendant's discovery request. This argument is contrary to principles of summary judgment, however. In considering a motion for summary judgment, the court is enjoined to consider all the evidence before it and cannot disregard a party's affidavit merely because it conflicts with earlier deposition testimony or other discovery responses. Kennett-Murray Corp. v. Bone, 622 F.2d 887, 893 (5th Cir.1980). The inconsistency is for the ultimate fact-finder to resolve: "An opposing party's affidavit should be considered although it differs from or varies his evidence as given by deposition or another affidavit and the two in conjunction may disclose an issue of credibility." Id. (quoting 6 Moore's Federal Practice ¶ 56-15[4] (2d Ed.1971)). For this reason, and because the records of the Secretary of State support plaintiff's contention, plaintiff's Exhibit 3,^[1] the court concludes that a question exists as to whether Alan R. Turem was in fact acting as plaintiff's corporate vice president when he executed the security deed on plaintiff's behalf.

Under the Georgia Business Corporation Code, third parties are legally justified in relying on the authenticity of documents purportedly executed on the corporation's behalf if certain conditions are met. Section 14-2-4 provides,

(a) With respect to any contract, conveyance, or other similar document executed by and on behalf of a corporation, domestic or foreign, the presence of the corporate seal, or facsimile thereof, attested by the secretary or an assistant secretary of the corporation shall attest:

(2) that any officer of the corporation executing the document does in fact occupy the official position indicated, that one in such position is duly authorized to execute such document on behalf of the corporation, and that the *492 signature of such officer subscribed thereto is genuine;....

(b) When the seal of a corporation, or facsimile thereof, is affixed to any document and is attested by the secretary or an assistant secretary of a corporation, a third party without knowledge, or reason to know, to the contrary may rely on such document as being what it purports to be.

Thus, if the security deed (1) bears plaintiff's corporate seal (2) attested by its corporate secretary, defendant is legally justified in relying on Mr. Turem's apparent status as corporate vice president and authority to bind plaintiff unless (3) it knew or had reason to know facts to the contrary.

Section 14-2-4 is clearly unavailable to defendant. While the security deed bears plaintiff's corporate seal arguably attested by plaintiff's corporate secretary, as well as the signature of Alan R. Turem on behalf of plaintiff, it does not indicate that Mr. Turem signed the document in any particular capacity. Section 14-2-4(a) (2) clearly requires that the supposed corporate officer's official position be indicated on the document before any party may rely thereon. See Computer Maintenance Corp. v. Tilley, 172 Ga.App. 220, 221, 322 S.E.2d 533 (1984) (requirements of section 14-2-4 not met where nothing on face of document indicates signatory's official capacity).^[2]

Moreover, the court finds that a question of fact exists as to whether defendant knew or had reason to know that the security deed was not properly executed. First, plaintiff identifies and presents a letter dated October 12, 1984; i.e., the day after the KKS loan was closed, between bank vice president Thomas B. Glendinning and defendant wherein Mr. Glendinning states,

Inasmuch as [plaintiff] was the entity pledging its real estate as collateral towards the [KKS] loan, and not Mr. and Mrs. Turem[,] Mr. and Mrs. Turem took the position that they were willing for the corporation to be the guarantor, but not themselves individually.

Mr. Turem is not a stockholder of the corporation nor is he an officer of the corporation at this time.

Plaintiff's Exhibit 54. Defendant argues that by the last sentence quoted above, Mr. Glendinning was referring to KKS and not plaintiff. Indeed, Mr. Glendinning has testified to this effect. Glendinning Aff., ¶ 5. The court believes, however, that since both corporations were mentioned in the preceding paragraph, the above-quoted language can reasonably be interpreted as referring to either plaintiff or KKS. Mr. Glendinning's subsequent testimony, though extremely persuasive, is properly reserved for the ultimate fact-finder who must determine from all the evidence whether defendant knew or should have known Mr. Turem's relationship to plaintiff and/or authority to execute the security deed.

Second, plaintiff presents a "pre-purchase report" prepared by defendant's staff attorney, Thomas K. McWhorter, wherein Mr. McWhorter remarks, "The DSD [deed securing debt] of plaintiff must be re-executed after adding the names of the corporate [sic] officer and rerecorded. The validity of the DSD is questionable (emphasis in original)." Plaintiff's Exhibit 57.^[3] Defendant contends that the concerns identified in Mr. McWhorter's report were *493 subsequently addressed to defendant's satisfaction by its acquisition of Mr. Turem's affidavit wherein he testifies that he is in fact the signatory of the security deed. He does not, however, indicate that he signed the document as plaintiff's corporate vice president. The court finds that this evidence likewise creates a question of fact as to whether defendant knew or should have known Mr. Turem's relationship to plaintiff and/or authority to execute the security deed.

Under Georgia law, principles of agency apply to corporations and their officers. See Jack Fred Company v. Lago, 96 Ga.App. 675, 101 S.E.2d 165 (1957). In this regard, defendant argues that by its acts and omissions, plaintiff has ratified the execution of the security deed by Mr. Turem. The principle of ratification is codified at O.C.G.A. § 10-6-52. This section provides, "A ratification by the principal shall relate back to the act ratified and shall take effect as if originally authorized. A ratification may be express or implied from the acts or silence of the principal. A ratification once made may not be revoked."

Defendant's ratification argument fails for several reasons. First, the court has already identified a question of fact as to whether Mr. Turem was truly plaintiff's corporate vice president when he executed the security deed on its behalf. This necessarily means a question of fact also exists as to whether Mr. Turem and plaintiff maintained an agent-principal relationship at that time. Second, before ratification will be found, it must be determined that the principal possessed full knowledge of all material facts relevant to the act ratified. See Shirley v. Couch, 177 Ga.App. 436, 339 S.E.2d 648 (1986). In the case at bar, plaintiff has produced evidence that it had no knowledge of Mr. Turem's actions in connection with the KKS loan. Gwyn G. Turem Aff., ¶¶ 8-10. Finally, plaintiff has asserted without contradiction that it derived no benefit whatsoever from the agreement to supply collateral for the KKS loan. Under Georgia law, ratification generally requires that the principal accept and retain the benefit of the unauthorized act. See Hyer v. Citizens and Southern National Bank, 188 Ga.App. 452, 373 S.E.2d 391 (1988). Thus, a question of fact clearly exists as to whether plaintiff ratified Mr. Turem's execution of the security deed. For these reasons, the court concludes that neither plaintiff nor defendant has demonstrated its entitlement to judgment as a matter of law in this action. Accordingly, both motions for summary judgment are DENIED.

In sum, the parties' cross motions for summary judgment are DENIED. The parties are DIRECTED to resubmit the proposed consolidated pretrial order within thirty (30) days of receipt of this order.

SO ORDERED.

[1] O.C.G.A. § 14-2-350 requires that each domestic corporation in the State of Georgia file an annual registration setting forth, inter alia, "the names and respective addresses of the three principal officers of the corporation." Plaintiff's Exhibit 3 is a certified annual registration form indicating that plaintiff had no corporate vice president between March 19, 1984 and April 1, 1987.

[2] Tilley is a case on point. It is particularly compelling since that case presented no question as to the signatory's capacity as corporate president or his authority to bind the corporation. Moreover, there, as here, the signature in question appears on the line provided for the corporation but in neither case is the signatory's official capacity indicated anywhere on the face of the challenged document.

[3] This report is dated November 19, 1985 and thus was apparently prepared over one year after the security deed was executed. As previously noted, however, the KKS loan was not assigned to defendant until September of 1986. This fact is significant since it was likely sufficient to permit defendant to reject the assignment. See United States v. Lowell, 557 F.2d 70, 72 (6th Cir.1977) (SBA not bound by acts of bank officials in entering into loan agreement); see also Benson v. United States Small Business Administration, 644 F.2d 1366, 1367-68 (9th Cir. 1981) (quoting Lowell).