Ameritrust Company, N. A. v. White

United States Court of Appeals,

Eleventh Circuit.

No. 94-8370.

AMERITRUST COMPANY, N.A., a national banking association,
Plaintiff-Counter Defendant-Appellant, Cross Appellee,

v.

C.K. WHITE, Defendant-Counterclaimant-Appellee, Cross Appellant.

Feb. 6, 1996.

Appeals from the United States District Court for the Northern
District of Georgia. (No. 1:90-CV-2691-JEC), Julie E. Carnes,
Judge.

Before TJOFLAT, Chief Judge, BARKETT, Circuit Judge, and CLARK,
Senior Circuit Judge.

CLARK, Senior Circuit Judge:

This is a suit on a promissory note by the owner of the note,

plaintiff-appellant Ameritrust Company, N.A. ("Ameritrust"),

against the maker, defendant-appellee C.K. White ("White"). White

executed the note as part of the purchase price of a limited

partner's share in a limited partnership known as Amberwood

Apartments of Bartow County, II, Ltd. ("Amberwood"). White made

the note payable to Amberwood. Thereafter, Amberwood's general

partner, Cardinal Industries, Inc. ("Cardinal"), endorsed the note

on behalf of Amberwood to one of Cardinal's affiliates, Cardinal

Industries of Georgia Service Corporation ("CISC"). CISC

subsequently endorsed the note to Ameritrust as security for a loan

from Ameritrust to CISC.

The district court held that White was not liable on the note

after determining, first, that the note was not a negotiable

instrument and, second, that White had a valid defense to payment
of the note, having properly exercised an "option to put" that

relieved him of liability. We agree with the district court that

the note is not a negotiable instrument. We disagree, however,

that the option to put was a valid defense, finding instead (1)

that the option to put was an agreement between White and Cardinal

and the latter was not a party to the note transaction underlying

Ameritrust's cause of action and (2) that even if Cardinal were a

party to the note transaction through some inter-corporate

relationship with CISC, White would be barred from making a claim

(or defense) against Cardinal by the Georgia Uniform Limited

Partnership Act. Accordingly, we reverse the district court's

judgment in this very difficult case, and we remand the case for

the district court to address in the first instance the propriety

of the assignment of the note by Amberwood to CISC to Ameritrust.

I. FACTS

Amberwood was formed as a Georgia limited partnership in

August 1985 with the filing of a Certificate of Limited Partnership

with the Clerks of the Superior Courts of Bartow County, Georgia,

and Fulton County, Georgia. The primary assets of the partnership

were the land, buildings, and improvements comprising an apartment

complex in Cartersville, Georgia. Cardinal was the general partner

of Amberwood, as well as the general partner of numerous other real

estate limited partnerships.1 The original limited partner of

1
Cardinal went bankrupt in May, 1989, and at that time was
the general partner in approximately 1000 real estate
partnerships. See In re Cardinal Industries, Inc., 109 B.R. 755
(Bankr.S.D.Ohio 1990). The bankruptcy court in Ohio succinctly
summarized Cardinal's operations:

[Cardinal] was organized in 1954. Since that time
Amberwood was a Cardinal affiliate, Cardinal Industries Development

Corporation.

White invested in Amberwood in 1986. In soliciting White to

purchase all of the limited partnership interests in Amberwood,

Cardinal provided White with a Private Placement Memorandum, which

included, among other things, the Amended Certificate and Agreement

of Limited Partnership for Amberwood, the Subscription Documents to

be executed by investors in Amberwood, and the accounting

projections for the project. The Private Placement Memorandum

it developed two significant independent businesses.
First, it became a major manufacturer of modular
housing which is used in various configurations as
apartments, motels, retirement villages, single family
homes, student housing, day care centers, offices and
other shelter products. Its other business was real
estate development and syndication of partnership
interests in its developed properties, by which it
created a captive market for its manufacturing
enterprise. [Cardinal] and its wholly owned
subsidiaries ... constitute a vertically integrated
operation that plans, manufactures, constructs, and
ultimately manages and services real estate projects.
Through those operations Cardinal developed more than
one thousand real estate projects in twenty states and
manages approximately 50,000 apartment units, 200
motels, sixteen retirement villages and other
miscellaneous properties.

109 B.R. at 757-58.

The Tax Reform Act of 1986 eliminated benefits to
investors from operating losses typically experienced by the
Cardinal partnership properties during their developmental
stages. The bankruptcy court explained that despite the tax
law changes, Cardinal continued its primary focus on the
manufacture of modules to be developed into properties owned
by limited partnerships: "[t]he reason given for that
continued activity was a perception that investors would
return to the real estate market after a temporary period of
adjustment and would want to purchase investment interests
in developed properties." Id. When the market failed to
regenerate as quickly as Cardinal had gambled it would, it
was forced to declare bankruptcy.
specifically advised potential investors that "the Promissory Notes

representing the deferred contributions of the investors'

subscriptions may be assigned or pledged to Cardinal Industries of

Georgia Service Corporation, who in turn may pledge the same to a

lender as security for a loan."2

On June 30, 1986, White subscribed to all 35 units of limited

partnership interest in Amberwood. At the closing on this

purchase, White executed the subscription documents that Cardinal

required to be signed by all investors in its limited partnership

ventures. These documents included an Investor Suitability

Disclosure, a Subscription Agreement and Power of Attorney, and two

Promissory Notes totaling $769,090. The total purchase price for

the limited partnership interest was $896,980. White paid $127,890

to Amberwood in cash at closing and executed the two notes to

Amberwood for the remainder. The first note was in the principal

amount of $322,560, and the second note was in the principal amount

of $446,530.

The notes provided that White would make payments to

Amberwood, or to holder, according to the following schedule:

First Promissory Note:

$176,120 due and payable on June 1, 1987, and

$146,440 due and payable on June 1, 1988.

Second Promissory Note:

$150,780 due and payable on June 1, 1989,

$153,580 due and payable on June 1, 1990, and

$142,170 due and payable on June 1, 1991.

2
Defendant's Exh. 2 at 26.
Both of the notes contained a forfeiture clause providing that if

payments were not timely made, White would lose his interest in the

partnership and the partnership would have no obligation to account

for any payments previously made. It is this clause that led the

district court to its holding that the promissory notes were not

negotiable and thus not governed by Georgia's Uniform Commercial

Code. The notes also contained a modification clause stating that

the notes could not be changed orally, but only by a written

agreement attached to the notes.

At the June 30, 1986 closing, at White's insistence, Cardinal

and Cardinal Industries Development Corporation (the original

limited partner of Amberwood) executed an Amendment to the Amended

Certificate and Agreement of Limited Partnership. This document,

which was not typically included in Cardinal's standard

subscription package, permitted White to put to Cardinal certain

obligations under the notes:

. . . . .

(c) The Limited Partner(s) are required to make the 1986
and 1987 payments, and their interest shall vest on a pro-rata
basis for said payments at the time of the 1987 payment. The
Limited Partner(s) have the option to put to Cardinal
Industries, Inc. their obligations for each of the years 1988,
1989, 1990 and 1991, and in the event the option to put is
exercised in any of these years, Cardinal Industries, Inc.
agrees to purchase for its own account (but may re-sell) that
pro-rata share of the Limited Partnership interest. The
option to put must be exercised in writing by the Limited
Partner(s) and must be delivered to Cardinal Industries, Inc.
at least forty-five (45) days prior to the June 1 payment date
for the year in which it is exercised.

. . . . .

(e) The option to the Limited Partner(s) to put any
year's payment to Cardinal Industries, Inc. must be exercised
separately for each of the years of the option, under the
terms and conditions set forth herein.
(emphasis added). This option to put was also set out in an

Amendment to the Private Placement Memorandum.

On July 17, 1986, a Certificate of Amendment to Limited

Partnership Agreement of Amberwood was filed with the Clerks of the

Superior Courts of Bartow and Fulton Counties. This Certificate

indicates that Cardinal Industries Development Corporation has

withdrawn from the partnership, that White owns all of the limited

partnership units, and that White's total contribution to the

partnership will be $896,980. The Certificate does not mention the

option to put.

In July 1987, White made his first payment on the first note,

$176,120. In September 1987, Amberwood, acting by and through its

general partner, Cardinal, endorsed both notes to CISC. CISC then

endorsed the notes to Ameritrust as security for a loan of

$592,970. Although the loan was made to CISC, the proceeds of the

loan were deposited in one of Cardinal's bank accounts. Acting

without knowledge of the transfer of the notes, White paid the

second installment on the first note, $146,440, thus paying off the

first note in full. Cardinal forwarded these funds to Ameritrust.

On February 1, 1989, Amberwood defaulted on its first mortgage

payment to Crossland Bank. On March 2, 1989, Crossland Bank placed

Amberwood in receivership. After receiving notice of the

receivership, White decided not to forward any additional funds for

the Amberwood project. Thus, by a letter dated April 7, 1989,

White gave notice that he was exercising his option to put his June

1, 1989, payment to Cardinal and that he intended to exercise his

option to put his 1990 and 1991 payments as well. Cardinal
received White's April 7, 1989, notice, as well as subsequent

notices White sent in 1990 and 1991.

Cardinal filed for bankruptcy on May 15, 1989. On January 31,

1990, Ameritrust notified White that it was in possession of the

unpaid promissory note and that he was required to make his 1990

payment to Ameritrust. White responded by informing Ameritrust

that he had exercised his option to put and, therefore, that he had

no further liability on the note. White's response caused

Ameritrust's loan officer to review the Amberwood Private Placement

Memorandum that was in Ameritrust's vault. The loan officer found

the Amendment to the Private Placement Memorandum, which sets out

the option to put, on the first inside page of the memorandum.

On December 4, 1990, Ameritrust filed this action against

White to collect on the second note. Both parties filed motions

for summary judgment, and White filed a motion to add a

counterclaim against Ameritrust. The counterclaim alleged that

Ameritrust's actions "constitute participation in and conspiracy

with Cardinal in the conversion of the Notes for the benefit of

Cardinal [and] further constitute participation in and conspiracy

with Cardinal in the breach of fiduciary duties owed to White and

Amberwood by Cardinal under the Partnership Agreement and

applicable law."3 The district court denied the motions for

summary judgment, but granted the motion to add the counterclaim.

Prior to trial, at the parties' request, the district court

ruled on the negotiability of the note. The court determined that

the forfeiture clause destroyed the note's negotiability: Relying

3
R8-79-3.
on O.C.G.A. § 11-3-104(1)(b), which provides that a negotiable

instrument must contain "an unconditional promise or order to pay

a sum certain in money and no other promise, order, obligation, or

power given by the maker or drawer," the court held that the

forfeiture clause vested an impermissible "other power" in

Amberwood.4 Thus, the district court concluded that as a

non-negotiable instrument, the note was not governed by Article

Three of the Uniform Commercial Code, but rather by Georgia's

common law relating to the assignment of a contractual right to

pay. Consequently, Ameritrust took the note subject to any

defenses that White could assert against the assignors of the note.

The case proceeded to a bench trial on October 25, 1993.

After the trial, the district court issued a written order granting

judgment for White on Ameritrust's suit on the unpaid note, and

judgment for Ameritrust on White's counterclaim.5 The court found

that all the documents executed by White and Cardinal on June 30,

1986, constituted one integrated contract. Thus, the court

rejected Ameritrust's argument that the put option agreement could

not vary the terms of the unpaid note. Ameritrust had contended

that under the modification clause contained in the note, any

changes would have to be attached to the note to be effective. The

court found that the put option agreement was part of the entire

contract and, therefore, that it was "attached." The district

court further found that under the contract, White had a

"contingent obligation" to pay the 1988, 1989, 1990, and 1991

4
Ameritrust v. White, 1:90-cv-2691 (N.D.Ga. Oct. 20, 1993).
5
Ameritrust v. White, 848 F.Supp. 1001 (N.D.Ga.1994).
installments, "if, and only if, [he] failed to properly exercise

his option to put such payment[s] to Cardinal." The court held

that White failed to exercise his option to put for 1988, but that

he properly exercised this option for each of the following years;

thus, he had fully performed his obligations under the contract.

As to White's counterclaim, the district court held that the

evidence was insufficient to establish that Ameritrust had

conspired with Cardinal. We hold the district court correctly

decided this claim and affirm without further discussion.

II. DISCUSSION

We agree with the district court that the note at issue in

this case is not negotiable. We also agree that the documents

executed at the Amberwood closing on June 30, 1986, constitute one

integrated contract. We do not agree, however, that the option to

put agreement relieves White of all obligations under the note. We

amplify these holdings in the following discussion.

A. Negotiability of the Promissory Note

We turn first to an examination of the note's negotiability,

as the determination on this issue is potentially dispositive. If

the note is negotiable, then Ameritrust may qualify as a holder in

due course, in which case White's defense, the put option, is

ineffectual. On the other hand, if the note is non-negotiable,

then it is governed by Georgia common law relating to the

assignment of a contractual right, rather than by Article Three of

the Uniform Commercial Code, in which case Ameritrust took the note

subject to any defenses that White could assert against the

assignors, including the put option defense.
 The district court determined that the note was not a

negotiable instrument and, therefore, that Ameritrust was not a

holder in due course. The court predicated its decision on the

forfeiture clause contained in the note, which provides:

The undersigned agrees that, in the event any payment due
pursuant to the terms of this Note be not timely made, the
undersigned shall retroactively lose any interest in the
Partnership from the date hereof and the Partnership shall
have no obligation to account for any payments theretofore
made by the undersigned, and that this remedy is in addition
to other remedies afforded by the Partnership Agreement.

In reaching its decision, the court relied on O.C.G.A. § 11-3-

104(1), which reads: "Any writing to be a negotiable instrument

within this article must: ... (b) Contain an unconditional promise

or order to pay a sum certain in money and no other promise, order,

obligation, or power given by the maker or drawer except as

authorized by this article." The court found that the forfeiture

clause was an impermissible "other power" within the meaning of the

statute.

Ameritrust argues that the forfeiture clause does not destroy

negotiability because it is merely a provision regarding security

and collateral. As to security, O.C.G.A. § 11-3-105(1)(e) states:

"A promise or order otherwise unconditional is not made conditional

by the fact that the instrument ... states that it is secured,

whether by mortgage, reservation of title, or otherwise." As to

collateral, O.C.G.A. § 11-3-112(1)(b) provides: "The negotiability

of an instrument is not affected by ... [a] statement that

collateral has been given for the instrument or in the case of

default on the instrument the collateral may be sold." Ameritrust

contends that these statutes render the note negotiable. We
disagree.

Both parties cite Signet Bank v. Weaver,6 a case very similar
to this one. Signet Bank, like this case, was a suit on a note,

and the defendant, like White, was a limited partner in a Cardinal

Industries, Inc., limited partnership venture. In addition, the

forfeiture clause in the note at issue in Signet Bank was virtually

identical to the clause at issue in this case.7 Like the district

court in this case, the district court in Signet Bank found that

the clause was an "other power" given by the maker, and not merely

a statement of collateral. The court noted that the partnership,

"not the holder of the note, has the option of causing the

defendant to retroactively lose any interest in the partnership.

Collateral, in the sense of security for a debt, follows the debt.

Here, there is a separation between the holder of the debt and the

holder of the option to cause a forfeiture." In this case,

Ameritrust is the holder of the note. Amberwood is the holder of

6
4-90-CV-49 (N.D.Ga. May 13, 1991).
7
The forfeiture clause in the promissory note at issue in
Signet Bank read:

The undersigned agrees that, in the event any
payment due pursuant to the terms of this Note be not
timely made, at the option of the Partnership, the
undersigned shall retroactively lose any interest in
the Partnership from the date hereof and that the
Partnership shall have no obligation to account for any
payments theretofore made by the undersigned, and that
this remedy is in addition to other remedies afforded
by the Partnership Agreement.

The italicized words are the only ones that differ from the
words in the promissory note at issue in this case. We find
this difference to be insignificant. The italicized words
are surplusage, as only the partnership may invoke the
forfeiture clause.
the option to cause a forfeiture and the "would be" beneficiary of

any forfeiture. The district court in Signet Bank further stated

that "although the forfeiture provisions may not explicitly make

the obligor's promise to pay less certain, the practical effect of

the provision may cause this result." The court then quoted from

an Ohio decision involving a virtually identical promissory note:

A situation could develop, by mistake or otherwise, wherein
the partnership exercises its option before the holder
declares a default. In such case, the maker might well
decline to cure an overdue payment or to make future payments
because of the forfeiture. This exemplifies the reason why
negotiable instruments may contain no other promise, order,
obligation, or power except as authorized by the statute.

We agree with the reasoning of the district court in Signet

Bank and the district court in this case. To be negotiable, a note

must be a courier without luggage; it must move unencumbered.

However unlikely the scenario described in the quotation above,

this potential created by the forfeiture clause destroys the note's

negotiability.

Ameritrust relies upon Citizens & Southern National Bank v.

Johnson,8 in which the Georgia Supreme Court held that, under the

former Negotiable Instruments Law ("NIL"), a forfeiture clause in

a promissory note did not render the promise to pay conditional.

Ameritrust points out that the present law, O.C.G.A. § 11-3-104(1),

is, in part, a combination of sections 14-201 and 14-205 of the

former NIL:

O.C.G.A. § 11-3-104(1)(b): "Any writing to be a negotiable
instrument within this article must: ... (b) contain an
unconditional promise or order to pay a sum certain in money
and no other promise, order, obligation, or power given by the
maker or drawer except as authorized by this article."

8
214 Ga. 229, 104 S.E.2d 123 (1958).
 NIL 14-201: Required a negotiable instrument to "contain an
unconditional promise to pay a sum certain."

NIL 14-205: Provided that a negotiable instrument could not
contain "an order or promise to do any act in addition to the
payment of the money."

In response to Ameritrust's argument, White points out that the

language of O.C.G.A. § 11-3-104(1)(b)—"... no other promise, order,

obligation, or power"—was not contained in the NIL. He argues that

the forfeiture provision is an impermissible "other power" under

the current law. White's contention is supported by the case law.
9
In Geiger Finance Co. v. Graham, the Georgia Court of Appeals

explicitly noted that § 11-3-104(1) "was specifically intended to

be an expansion of the NIL. The words "no other ... obligation or

power given by the maker' are new. The intent is that a negotiable

instrument carries nothing but the simple promise to pay, with

certain limited exceptions."10

We hold that the district court correctly determined that the

forfeiture clause destroyed the note's negotiability and,

therefore, that Ameritrust did not qualify as a holder in due

course. As such, Ameritrust took the note subject to White's put

option defense and any other defenses.

B. Integration of the Agreements

Ameritrust argues that the district court erred in

determining that all the documents executed on June 30, 1986,

constituted one integrated contract. Ameritrust contends that the

note stands alone as a single, integrated contract and that the put

9
123 Ga.App. 771, 182 S.E.2d 521, 524 (1971).
10
Id.
option agreement cannot vary the terms of this contract. In

support of its argument, Ameritrust relies on the following

language in the note:

This Note may not be changed or terminated orally, but only by
an agreement in writing and signed by the party against whom
enforcement of any waiver, change, modification, or discharge
is sought, with such agreement being effective and binding
only upon attachment hereto.

Ameritrust contends that under the terms of this modification

clause, the put option agreement, which was not attached to the

promissory note, does not modify the terms of the note.

In support of its finding that all the documents executed on

June 30, 1986, constituted one integrated contract, the district

court relied on Manry v. Hendricks,11 in which the court held: "A

contract is not necessarily contained in a single paper, and our

Code provides in § 38-502 that all contemporaneous writings shall

be admissible to explain each other." Code § 38-502 is now

codified at O.C.G.A. § 24-6-3(a), which provides: "All

contemporaneous writings shall be admissible to explain each

other." Thus, as an evidentiary matter, all documents executed on

June 30, 1986, are admissible to explain the promissory note.

The district court also relied on Wardlaw v. Woodruff,12 in
which the court held: "Where a promissory note is given

contemporaneously with a written agreement between the same parties

which states the consideration of the note, the two instruments

constitute one contract and are to be construed together." While

the put option agreement does not state the consideration of the

11
66 Ga.App. 442, 18 S.E.2d 97, 104 (1941).
12
175 Ga. 515, 165 S.E. 557, 560 (1932).
promissory note, the subscription agreement does. The promissory

note, the subscription agreement, and the partnership agreement

cross-reference each other. All of the documents signed on June

30, 1986, were signed contemporaneously and appear as parts of a

whole.

Ameritrust relies on Irvindale Farms, Inc. v. W.O. Pierce

Dairy, Inc.13 In Irvindale, the court, relying on Wardlaw, held

that the seller's fulfillment of a provision in a sales contract

was a condition precedent to the seller's right to recover on a

series of notes executed by the buyer. In so holding, the court

reasoned: "The contract referred to and described the notes and

stated the terms and provisions of the sale, and the notes referred

to the contract and stated that they were given subject to its

terms. In these circumstances, the notes and contract are to be

construed together as constituting one contract."14 Ameritrust

argues that the note at issue in this case does not refer to the

put option agreement; thus, the two cannot be construed together

as one contract. Contrary to Ameritrust's assertion, the court in

Irvindale did not go so far as to hold that a note must refer to a

contract for the two to be construed together. While a note's

reference to a contract certainly supports such a construction,

Irvindale does not hold that the reference is necessary to such a

construction.

Ameritrust also relies on Kiser v. Godwin,15 in which the court

13
78 Ga.App. 670, 51 S.E.2d 712 (1949).
14
Id. 51 S.E.2d at 721.
15
90 Ga.App. 825, 84 S.E.2d 474 (1954).
declined to enforce a letter agreement pursuant to which the buyer

agreed to pay more than specified in the contemporaneous sales

contract. In concluding that the letter agreement was not a part

of the sales contract, the court relied on an express merger clause

in the sales contract:

The merger clause in the contract of sale answers these
contentions. The parties provided against the use of any
evidence, other than the writing itself, as to their intent in
the transaction. The paper itself, together with any
modification attached and signed by both parties, is to be the
"sole and entire agreement." It is also provided that only
the promises, representations, or inducements made in the
writing shall be binding upon the parties.16

The court distinguished Manry, noting that the contract at issue in

Manry did not have an express merger clause.

This case is distinguishable from Kiser in that the note at

issue here does not contain an express merger clause like that in

Kiser. Ameritrust relies on the modification clause; while this

clause provides that any modification must be attached to the note,

it says nothing about the note being the sole and entire agreement.

Thus, Kiser does not support Ameritrust's position.

Finally, Ameritrust relies on a line of cases that, like Craig

v. Citizens & Southern National Bank, 17 stand for the proposition

that the maker of a note "will not be allowed to prove that his

obligation to pay was dependent or conditional upon the promisee's

compliance with a prior or contemporaneous agreement not expressed

in the note, unless the execution of the note was induced by fraud,

accident, or mistake." Craig and the cases cited are not apropos

16
Id. 84 S.E.2d at 475.
17
142 Ga.App. 474, 236 S.E.2d 166, 167 (1977).
to any issue in this case. Craig and those cases merely stand for

the proposition that "where parties have reduced to writing what

appears to be a complete and certain agreement, it will in the

absence of fraud, accident, or mistake be conclusively presumed

that the writing contains the entire contract." 18 This is merely

a statement of the "parole evidence" rule which is not involved

here.

After careful consideration, we hold that the district court's

conclusion that all of the documents executed on June 30, 1986,

constitute one contract is supported by the law and the facts of

this case. Thus, it is irrelevant that the put option agreement

was not attached to the promissory note in accordance with the

modification clause.

C. Construction of the Put Option

Ameritrust argues that the district court erred in concluding

that White had only a "contingent obligation" to pay the

installments on the note. Ameritrust points out that, under the

put option agreement, Cardinal granted to White the option to put

his obligations under the note to Cardinal. Ameritrust argues that

the put option agreement did not release White from his obligations

to Amberwood to make payments on the note; rather, the put option

agreement only gave White a contractual right against Cardinal to

require Cardinal to assume White's obligations under the note.

Thus, Ameritrust argues, White is still obligated under the note to

make payments to Amberwood or its assignee, although White may have

a contractual right to collect these payments from Cardinal under

18
Id.
the put option agreement.

In support of its position, Ameritrust relies on the same

Signet Bank v. Weaver case discussed in Part A above.19 Signet Bank
involved a put option clause identical to that at issue in this

case. The district court in Signet Bank concluded that this put

option did not release the defendant from liability on the note;

the court reasoned:

Defendant contends that by exercising its rights under
this provision he is released from his obligation to pay
Palmside [the limited partnership] the specified payment for
the year in question. Defendant's support for this position,
however, is tenuous. Defendant argues nothing more than that
the plain language of the provision abrogates Defendant's
liability on the note upon exercise of the "put" option, and
that there would be no logical reason for the provision were
it held to not have this effect.

As this Court reads the provision, however, all Defendant
gains by exercise of his right to "put" payment obligations to
Cardinal Industries Inc. is Cardinal Industries Inc.'s promise
to purchase the attendant Limited Partnership interest. The
provision does not abrogate any continuing liability to
Palmside. "Palmside" is not mentioned in the provision.
Under this provision Defendant's exercise of its right to
"put" does not release it from liability but simply perfects
for Defendant a breach of contract remedy for Cardinal
Industries Inc.'s failure to perform its contractual
obligation. This Court is unable to read into a contract
things which simply are not there.20

We agree with this reasoning. Under the terms of the

promissory note at issue in this case, White is obligated to pay

Amberwood or its assignee $446,530. The put option clause does not

mention Amberwood, and Amberwood is not a signatory on the put

19
See text accompanying notes 7 and 8. Like the district
court in this case, the district court in Signet Bank set out its
holding on negotiability of the note and on construction of the
put option agreement in two separate opinions. The holding on
construction of the put option agreement is set out in the
following opinion: 4:90-CV-49-HLM (N.D.Ga. Sept. 18, 1991).
20
Id.
option agreement; the agreement is signed only by Cardinal and

Cardinal Industries Development Corporation. While the put option

clause gives White "the option to put to Cardinal" certain

obligations under the notes, it does not abrogate White's liability

to Amberwood, or its assignee, under the notes. Accordingly, we

hold that the district court erred in concluding that the put

option agreement relieved White of liability on the promissory

note.

Our construction of the option to put is consistent with the

Amberwood Certificates on file with the Clerks of the Superior

Courts of Bartow and Fulton Counties. In the counties' files are

the Certificate of Limited Partnership, filed in August 1985, and

the Certificate of Amendment of Limited Partnership Agreement,

filed in July 1986. This latter document indicates that White is

the sole limited partner and that his total contribution to the

partnership will be $896,980; it does not mention the option to

put. Under O.C.G.A. § 14-9A-25(b), a certificate of limited

partnership must be amended whenever "[t]here is a change in ...

the amount or character of the contribution of any limited

partner." If, as White contends, his exercise of option to put

relieved him of his obligation to contribute $446,530 to Amberwood

under the terms of the second promissory note, this would certainly

constitute a "change in ... the amount or character" of his

contribution within the meaning of O.C.G.A. § 14-9A-25(b). Yet,

such a "change" is not reflected in the documents in the counties'

files. What is reflected in these documents—that White is

obligated to contribute $896,980 to Amberwood—is consistent with
our conclusion that White's exercise of the option to put did not

relieve him of liability under the promissory note.

Although the put option agreement does not relieve White of

his obligation to make payments on the promissory note, it does, by

its terms, give White a contractual right to collect these payments

from Cardinal. White cannot rely on this contractual right against

Cardinal to set off his obligations under the note because Cardinal

was not a party to the note transaction; that is, Cardinal is

neither the original obligor nor an assignee. White made the note

payable to Amberwood, Amberwood endorsed the note to the CISC, and

CISC endorsed the note to Ameritrust. Cardinal was not in this

chain of assignment. Thus, White's contractual right against

Cardinal is no defense to Ameritrust's cause of action against

White.

Moreover, even if Cardinal were a party to the note

transaction through some inter-corporate relationship with CISC,

White's contractual right against Cardinal under the put option

agreement is unenforceable due to application of the Georgia

Uniform Limited Partnership Act. O.C.G.A. § 14-9A-47 provides:

14-9A-47. Withdrawal or reduction of contribution.

(a) A limited partner shall not receive from a general partner
or out of partnership property any part of his contribution
until:

(1) All liabilities of the partnership, except
liabilities to general partners and to limited partners
on account of their contributions, have been paid or
there remains property of the partnership sufficient to
pay them; [and]

. . . . .

(3) The certificate required under Code Section 14-9A-20
is canceled or so amended as to set forth the withdrawal
 or reduction.

The Georgia courts have construed this statute only once, in the
21
case of Mills v. Kochis. Kochis, like this case, involved a

limited partnership that owned an apartment complex. The articles

of partnership contained a repurchase commitment by the general

partners to the limited partners in the event of foreclosure on the

property. After the property was foreclosed, the limited partners

brought suit against the general partners to recover on the

repurchase commitment. The Georgia Supreme Court upheld a ruling

in favor of the general partners, finding that "the repurchase

provision found in the partnership agreement [is] in violation of

[O.C.G.A. § 14-9A-47] and [is] not enforceable absent a showing

that obligations to third party creditors have been satisfied."22

We find that White's contractual right against Cardinal under

the put option agreement, like the repurchase commitment at issue

in Kochis, is unenforceable under O.C.G.A. § 14-9A-47 absent a

showing that all obligations to Amberwood's third party creditors

have been satisfied. Under the two promissory notes, White was

obligated to contribute $896,980 to Amberwood. White's contractual

right against Cardinal under the put option agreement amounts to a

right to receive from Cardinal, the general partner, a part of this

contribution. Thus, O.C.G.A. § 14-9A-47 is applicable to render

White's contractual right unenforceable absent satisfaction of

Amberwood's debts.

21
132 Ga.App. 492, 208 S.E.2d 352 (1974), aff'd, 233 Ga.
652, 212 S.E.2d 823 (1975).
22
212 S.E.2d at 825.
 Accordingly, we conclude that the district court erred in

holding that White's exercise of this option to put relieved him of

his liability under the note. For the reasons explained above, we

hold that White may not rely on the put option agreement as a

defense against Ameritrust's cause of action on the note.

D. Propriety of the Assignments

White argues that, even if this court holds that the option

to put is not a valid defense to payment of the promissory note, he

is not obligated on the note because the assignment of the note was

improper. Specifically, he contends that:

He executed the promissory notes in favor of Amberwood as part
of the purchase price of his limited partnership interest.
Cardinal Industries, Amberwood's general partner, took the
notes and assigned them to Ameritrust as collateral for the
general corporate borrowings of the Cardinal entity, in order
to fund Cardinal's corporate cash needs. In doing so, the
general partner converted the notes and acted in violation of
its fiduciary duties and in violation of the Partnership
Agreement, which prohibited the general partner from assigning
Mr. White's notes as collateral for a loan, except for a loan
"to be obtained by the partnership," "to be made to the
partnership," or "on behalf of the partnership." The loan
that Cardinal obtained from Ameritrust using the Amberwood
notes as collateral did not meet any of these three standards,
and Amberwood received nothing in exchange for assignment.
There was thus a failure of consideration as to Mr. White's
notes, in that Cardinal and Amberwood materially failed to
perform, and Mr. White was excused from performance to
Amberwood. Mr. White's defense to payment as against
Amberwood operates as a defense against Amberwood's assignee,
Ameritrust.23
White presented to the district court both evidence and argument to

support this defense. The district court did not address the

merits of this defense. Rather, the district court assumed,

without deciding, that the note was properly assigned, finding a

decision on the propriety of the assignment unnecessary given its

23
White's Appellate Brief of August 9, 1994, at 35-36.
construction of the put option agreement.

We now find a decision on the propriety of the assignment of

the note necessary. Because we affirm the district court's

decision as to the non-negotiability of the note, Ameritrust took

the note subject to any defenses White could assert against

Amberwood. White's allegation that Amberwood and Cardinal violated

the Partnership Agreement by assigning the note to Ameritrust is a

potentially viable defense as against Amberwood and, therefore, as

against Ameritrust. The district court understandably did not rule

on this potentially viable defense, as it held that the put option

agreement relieved White of liability to Ameritrust. Because we

reverse the district court's holding as to the put option

agreement, we must now ask the district court to rule on White's

alternative defense, the alleged impropriety of the assignment of

the note.

Ameritrust contends that a remand to the district court for a

decision on the propriety of the assignment is unnecessary. First,

Ameritrust argues that "the chain of title issue was decided in In

re Cardinal Industries, Inc., Civil Action No. 2-90-62087, slip op.

(Bkr.S.D.Oh. June 7, 1990)," 24 a bankruptcy court decision in the
Cardinal bankruptcy proceedings. Ameritrust repeatedly refers to

this unpublished decision as Plaintiff's Exhibit 23. The decision

is not Plaintiff's Exhibit 23, and we have been unable to locate a

copy of the decision in the extensive record in this case. In any

event, Ameritrust concedes that the decision is merely an order

granting Ameritrust relief from the automatic stay, and we fail to

24
Ameritrust's Appellate Brief of Sept. 19, 1994, at 45.
see how such an order resolves the propriety of the assignment of

the note. Second, Ameritrust contends that White has failed to

deny the propriety of the assignment of the note. This contention

is belied by the record before us. Accordingly, we find it

necessary to remand this case for the district court to decide

whether the assignment of the promissory note was proper.

III. CONCLUSION

For the reasons explained above, we REVERSE the district

court's entry of judgment for White on Ameritrust's suit on the

note, AFFIRM the district court's entry of judgment for Ameritrust

on White's counterclaim, and REMAND the case for further

proceedings consistent with this opinion.