Pecora v. First Bank of Georgia

Blackburn, Judge.

This is an appeal of the trial court’s order granting partial summary judgment to the plaintiff First Bank of Georgia (First Bank) in the underlying action for fraud.

Jesse T. Hendrix Builders, Inc. (Hendrix) purchased two lots for residential construction from Joseph Pécora through Pecora’s agent, Gerald Kopp. In connection with the purchase, Hendrix executed two security deeds in favor of Pécora for the purchase price of the lots. At closing, Kopp agreed to not record the security deeds so that Hendrix would be able to get credit from his suppliers. Kopp maintained that he agreed to forebear recording the security deeds in order to facilitate Hendrix’s ability to obtain credit. Thereafter, Hendrix obtained a construction loan from First Bank, which was properly recorded. Hendrix did not inform First Bank of the two unrecorded deeds, and Kopp was unaware that Hendrix obtained such construction loan.

Hendrix subsequently defaulted on the construction loan and First Bank chose to accept a deed in lieu of foreclosure on the subject property. In connection with closing on the deed in lieu of foreclosure, Hendrix signed an owner’s affidavit stating that he knew of “no one claiming under any unrecorded deed, or instrument of any nature, or claiming any interest in said lands whatsoever. . . .” On the same day that Hendrix executed the deed in lieu of foreclosure to First Bank, Kopp recorded Pecora’s security deeds. Pecora’s security deeds did not appear of record when First Bank checked the title on the property several days before the closing.

Approximately four months later, as First Bank prepared to sell one of the lots, it again searched the title to the property and discovered Pecora’s security deeds. First Bank brought the instant action for fraud against Pécora, Kopp, and Hendrix.

1. On appeal, Pécora, Kopp and Hendrix contend the trial court erred in granting partial summary judgment to First Bank because there was no evidence they intentionally deceived First Bank.

“In order to prevail on its cause of action for fraud, [First Bank was required to] prove the following: (1) a false representation by defendant[s]; (2) scienter; (3) an intention to induce [First Bank] to act or refrain from action; (4) justifiable reliance by [First Bank]; and (5) damages.” (Citations and punctuation omitted.) Centennial Life Ins. Co. v. Smith, 210 Ga. App. 194, 195 (435 SE2d 498) (1993). In Sulli *191van v. Ginsberg, 180 Ga. 840, 845-846 (181 SE 163) (1935), the Georgia Supreme Court noted that “[i]n Robinson v. Woodmansee, 80 Ga. 249 (6) (4 S. E. 497), the trial judge [wrongly] instructed the jury that if there was an understanding between the mortgagor and the mortgagees, that the instruments should be kept off the record for the purpose of protecting the financial credit of the mortgagor, the mortgages would be fraudulent as to all persons who thereafter extended credit to him. This charge was held to be erroneous, because ‘it was not, as a matter of law, fraudulent to agree not to record the mortgages,’ it being a question for the jury as to what the intention was — ‘whether the mortgages were given by the debtor for the purpose of hindering, delaying, or defrauding his creditors,’ and whether, if so, the mortgagees knew of such intention or had ‘notice or grounds for reasonable suspicion.’ ”

Kopp’s failure to originally record Pecora’s two security deeds did nothing more than effectively subordinate those deeds to the subsequent security deed obtained by First Bank when it closed on the construction loan made to Hendrix, which deed was recorded April 27, 1990. OCGA § 44-14-63. First Bank’s interests or rights with respect to its security interest in the subject property were not adversely affected by the failure to record Pecora’s security deeds. It is the grantee of an unrecorded security deed that is generally at risk upon the failure to record its deed. Any subsequent grantee of a security interest from the same vendor, who takes without notice of the prior conveyance, is under such circumstances in the same position it would be in if there had been no prior deed. Indeed, had First Bank elected to foreclose on its recorded security deed, Pecora’s position would have been secondary and he would not have received anything from the foreclosure sale until First Bank had been made whole.

First Bank’s decision to take a deed in lieu of foreclosure, rather than foreclosing, was based upon the misrepresentations of Hendrix, not those of Kopp or Pécora. Upon learning of Hendrix’s misrepresentations concerning unrecorded deeds, First Bank could have moved to set aside the deed, and proceeded thereafter with foreclosure as described above.

The issue presented is whether Kopp’s decision to hold the deeds and subsequently record them the same day First Bank closed on its deed in lieu of foreclosure was a fraudulent act of Kopp and Pécora for the purpose of injuring Hendrix’s creditor. First Bank presented no evidence of the essential elements as they relate to Kopp and Pécora, nor did First Bank present evidence of a conspiracy between Hendrix and Kopp and Pécora for the purpose of injuring Hendrix’s creditor. The existence of the conspiracy, its intent, its purpose, and the question of any injury to First Bank arising therefrom, are all jury questions as to Kopp and Pécora under the facts of this case. “Ques*192tions of fraud . . . are, except in plain and indisputable cases, questions for the jury.” Brown v. Techdata Corp., 238 Ga. 622, 625 (234 SE2d 787) (1977). The timing of the ultimate recordation of Pecora’s security deeds, while suspicious, is not sufficient to authorize a partial summary judgment as to fraud.

With regard to the defendants Jesse T. Hendrix and Jesse T. Hendrix Builders, Inc., we find that there was sufficient evidence of fraud because at the closing on First Bank’s deed in lieu of foreclosure, Hendrix executed the owner’s affidavit denying knowledge of any unrecorded deeds or interests and conveyed the deed in lieu of foreclosure with knowledge of the falsity of his affidavit so that First Bank would not foreclose.

2. In Case No. A94A2192, the trial court erred by granting First Bank’s motion for partial summary judgment with respect to its cause of action in fraud against the defendants Gerald Kopp and Joseph Pécora, and we reverse. See Lau’s Corp. v. Haskins, 261 Ga. 491 (405 SE2d 474) (1991). In Case No. A94A2193, the trial court correctly granted First Bank’s motion for partial summary judgment with respect to its cause of action in fraud against Hendrix, and we affirm.

Judgment affirmed in Case No. A94A2193 and reversed in Case No. A94A2192.

Beasley, C. J., McMurray, P. J., Pope, P. J., and Johnson, J., concur. Birdsong, P. J., Andrews, Smith and Ruffin, JJ., concur in part and dissent in part.