Article courtesy of Jeff Dutson of King & Spalding
Issue of triable fact exists as to whether there was a mutual departure from the terms of a forbearance agreement when the bank repeatedly accepted late, partial payments and later sought to exercise remedies.
Underwood v. Colony Bank, No. A21A1639, 2022 WL 414579 (Ga. Ct. App. Feb 10, 2022)
A debtor (the “Debtor”) that was indebted to the bank (the “Bank”) under three separate promissory notes (the “Notes”), some of which were secured by a mortgage on the Debtor’s home, entered into a forbearance agreement (the “Forbearance Agreement”) with the Bank after falling behind on his loan payments and defaulting under the Notes. After the Debtor missed a scheduled payment under the Forbearance Agreement, the Bank granted the Debtor an extension in exchange for a deed in lieu of foreclosure on his home. Thereafter, the Debtor continued to make late and partial payments, which were accepted by the Bank to pay off one of the Notes. After the Debtor failed to make any payments for two months, the Bank informed the Debtor that the Bank would file the deed in lieu and take possession of his home if he failed to pay one of the remaining Notes in full and bring the other Note current within five days.
The Debtor commenced an action against the Bank for breach of contract, promissory estoppel, to set aside the deed in lieu of foreclosure, and conversion or trover of real property. The trial court entered summary judgment in favor of the Bank on all counts.
On appeal, the Court of Appeals of Georgia (the “Court”) affirmed the trial court’s grant of summary judgment in favor of the Bank on the Debtor’s claims for promissory estoppel, to set aside the deed in lieu of foreclosure, and for conversion or trover. The Court reversed the trial court’s grant of summary judgement on the Debtor’s breach of contract claim, finding that the Bank’s acceptance of late, partial payments created issues of fact as to whether the Forbearance Agreement was further modified and, if so, whether the Bank provided enough notice that it intended to enforce the exact terms of the Forbearance Agreement. Specifically, the Court noted that (i) there was no evidence that the Bank communicated with the Debtor about immediate payment, exacted a penalty, or exercised its default remedies when the Debtor failed to make timely payments under the Forbearance Agreement and (ii) allegedly telling the Debtor “not to worry” about selling its convenience store to satisfy the debt under the Notes could support a claim that the Bank did not intend to adhere to the Forbearance Agreement. Thus, the trial court erred in granting summary judgment in favor of the Bank on the breach of contract claim.