FOURTH D I VI SI ON

BA RNES, P. J.

, RA Y and M CM I LLI A N, JJ.

N O T IC E : M otions for r e c ons i de r a tion m us t be

ph y sic a l ly r e ce iv ed i n our c le r k ’s offic e w ithin te n

da y s of the da te of de c is ion to be de e m ed tim e ly file d.

http://w w w .ga a ppe a ls .us /r ule s /

Jul y 16, 2015



# I n th e Co u r t o f

A p p eals o f

G eo r g ia

A1 5 A0 43 1

. COM M UNITY & SOUTHERN BANK v

. CLEAR

CREEK PROPERTIES et al

.

M C M ILLI A N , J u dg e.

Co m m un i t y & So u t h e r n B a n k (t h e “ Ban k ”) ap peal s aft er a ju ry ret u rn ed a

v erd i ct i n fav o r o f Garry Hay g o o d (“ Hay g o o d”) an d Hay g o o d Fam i l y In v es t m en t s

,

L LC (“ HFI”) i n t h e Ban k ’ s co n t ract act i o n ag ai n st t h em

. Fo r t h e reas o ns s et fo r t h

b el o w, we rev ers e.

“ On ap p eal fo l l o wi ng a ju ry v erd i ct an d ju d g m en t

, t h i s Co u rt m u st co n s t ru e t h e

ev i d en ce wi t h ev ery i nferen ce an d p res u m p t i o n i n fav o r o f u ph o ld i n g t h e v erd i ct

, an d

aft er ju d g m en t

, th e ev i den ce m us t b e co n s t ru ed t o u ph o l d t h e v erd i ct ev en wh ere t h e

ev i d en ce i s i n co n fl ict .” (Ci tat i o n an d p u n ct u at i o n o m i t t ed .) On e Bl uf f Dr i ve, LLC v.

K. A. P., In c. , 3 3 0 Ga. Ap p. 4 5 , 4 5 (7 6 6 SE2 d 5 0 8) (2 01 4 ).So v i ewed t h e ev i den ce s h o ws t hat HFI an d H ay g oo d

, al o n g wi t h Cl ear Creek

Pro p ert i es

, LLC (“ Cl ear Creek ”), Leg acy M o u n t ai n Pro p ert i es

, LLC (“ Leg acy ”), A.

S. D o ver Dev e l o p m e n t

, In c. (“ A. S. Do v er”), Do v er-Pfi s t er, L L C n / k / a Do v er

Dev el o pm en t

, LLC (“ Do v er Dev el o p m en t ”), an d Al an S. Do v er (“ Do v er”), ex ecu t ed

n i n e p r o m i s s o ry no t es an d n um ero u s co m m erci al g u aran t i es in fav or o f Gi l m er

Co u n t y Ban k (“ GCB”) 1 in co n n ect i o n wi t h real es t at e d ev el op m e n t p r o ject s

,

i n cl u d i n g a p ro

j ect k n o wn as “ Fal l i ng W at ers .” Hay g o o d an d Do v er b o t h h el d a

p ercen t ag e o wn ers h i p i n t eres t i n Leg acy an d Cl ear Creek

, an d bo t h m en p art i ci p at ed

i n b o r r o wi n g m o n ey t o fi n an ce Fal l i n g W at ers

. 2 Ul t i m at el y

, Cl ear Creek

, HFI,

Leg acy

, A. S. Do v er, Do v er Dev el o p m en t

, Hay go o d

, an d D o v er al l d efau l t ed o n t h ei r

rep ay m en t o b l i g at i on s u n d er t h ei r res p ect i v e p ro m i s s ory n o t es an d g u aran t i es

. Th e

Geo rg i a Dep art m en t o f Ban k i ng an d Fi n an ce cl o s ed GCB i n M arch 2 0 1 0

, 3 an d t h e

1 GCB was a d i v i si o n o f Ap p al ach i an Co m m u n it y Ban k (“ ACB”).

2 Do v er t es t i fi ed t h at D ov er Dev el op m en t o wn ed Leg acy an d Cl ear Creek

, an d

i n co nn ect i o n wi t h Hay g o o d ’ s in v es t m en t i n Fal l i n g W at ers

, h e recei v ed a 2 5 p ercen t

s t ak e i n Leg acy

an d Cl ear Creek

.

3 Th e ev i d en ce i n d i cat ed t h at frau du l en t l o an s m ad e b y GCB p res i d en t Tracy

Newt o n an d ch i ef l oan o ffi cer Ad am Teag u e u l t i m at el y

l ed t o t he b an k’ s fai l u re.

2l o an s were as s i g n ed an d t ran s ferred t o t h e Ban k p u rs u an t t o a Pu rch as e an d

As s um p t i o n Ag reem en t w i th t he Fed eral Dep o s i t In s u ran ce Co rp o rat i o n

. (“ FDIC”).

At t h e p ert i n en t t i m e, Do v er w as a real es t at e d ev el o p er an d a d i rect or at GCB,

s erv i ng o n t h e l o an co m

m i t t ee. Do v er o ri g i n al l y p u rch a s e d t h e l an d fo r th e Fal l i n g

W at ers p ro

ject fo r aro u n d $3 6 m i l l i o n in A u g u s t 2 0 0 6 . He b o rro wed t he m o n ey fo r

t h i s pu rch as e fro m G C B a n d d i d n o t p u t u p an y o f h i s o wn m o n ey t o fu n d t h e

t ran s act io n

. Do v er was t h e l arg es t b o rro wer at GCB, an d h i s l o a n req u es t s were

ro u t i nel y ap p ro ved

. Ad d i t i o n al l y, h e w as s o m et i m es p res en t at l o an co m m i t t ee

m eet i n g s i n wh ich h i s l oan s were ap p ro v ed

, al t h o ug h h e d i d n o t v o t e o n h i s o wn

l o an s

. Do v er d i d n o t pro vi d e hi s fi n an ci al i n fo rm at i on t o GCB i n co nn ect i o n wi t h h i s

l o an ap p l i cat i o n s

, an d GCB d i d n o t m ai n t ai n an y fi n an ci al i n fo rm at i o n o n h i m

.

Nev ert h el es s

, G CB ro u t i n el y ren ewed Do v er’ s lo an s o ver a p eri od o f 1 3 y ears

.

Ov er t i m e, as Do ver’ s l o an s ap p ro ach ed o r ex ceed ed leg al l en di n g l i m i t s

, GCB s o ld

p o rt i on s o f t h e l o an s t o o t her ban k s p u rs uan t t o part i ci p at i on ag reem en t s

. As o n e

fo rm er G CB l o an o ffi cer ex p l ai n ed

, fed eral ban k i n g l aws p r o v i d e t h at a s i n g l e

b o rro wer can on l y b o rro w a cert ai n p ercen tag e o f a b an k ’ s cap i t a l

. If t h e b o rro wer

ex ceed s t h at l i m it

, t h e b an k m u s t d i v es t it s el f o f t h e lo an s

. On ce GCB d iv es t ed i t s el f

o f s o m e o f Do v er’ s l o an s

, i t co u l d t h en l en d h i m ad d i ti o nal fu n d s

.

3Hay g o o d al s o was i n v o l v ed i n real es t at e d ev el o p m en t an d co n st ru ct io n dur i n g

t h e rel ev an t p eri o d

. 4 At i ss u e in t h i s ap peal i s a $ 3 m i l l i o n l o an GCB ex t en d ed to

Hay g o o d i n d i v i d u al l y o n Sep t em b er 2 1

, 2 0 0 7 i n co n n ect io n wi t h t h e Fal l i n g W at ers

p ro ject (t he “ H ay g o o d Lo an ”). (See A d d en du m “ A” fo r a l i s t o f t h e o t h er p ro m i s s o ry

n o t es an d g u aran t i es at i s s u e at t ri al

, h erei naft er referred t o co l l ect i v el y as t h e “ Ot h er

No t es .”) Hay g o o d t es t i fi ed t h at h e was s o li ci t ed b y Do ver t o i n v es t m o n ey i n Fal l i n g

W at ers i n o r aro u n d Sep t em b er 2 0 0 7

. Do v er fi rs t s u gg es ted t h at Hay g oo d b u y a 4 9

p ercen t in t eres t i n t he p ro

ject

, b ut Hay g o o d h ad “ n o in t eres t i n t h at at al l .” Do v er l at er

s u g g es t ed t h at Hay g oo d bu y 2 5 p ercen t o f t he p ro ject fo r $ 5.2 m il li o n. Hay g o o d was

h es i t an t ; h e di d n o t h av e m u ch cas h at t h e t im e b ecau s e h e h ad recen t l y p ai d o ff al l

o f h i s d eb t

. Nev ert h el es s

, h e t ol d Do v er th at h e co ul d rai s e ab o u t $2 m i l l io n t o i n v es t

.

Do v er k n ew t h at H ay go o d o wn ed real p ro p ert y o n Rack l ey Ro ad i n Hal l Co u n t y (t h e

“ Rack ley Ro ad Pro p ert y ”) d eb t-free, an d h e su g g es t ed t h at Hay g o o d u s e th e p ro p ert y

as co l l at eral t o ap p l y fo r a l o an at G C B

. H ay g oo d u l t i m at el y ag reed t o t h e $ 5

. 2

m i l l io n i n v es t m en t

, i f he co u l d b o rro w $ 3 m i l l i o n fro m GCB o n t h e Rack l ey Ro ad

Pro p ert y

.

4 Hay g o o d serv ed on t h e bo ard o f d irect o rs o f a Ch ero k ee Co u n t y b an k an d was

a s h areh o l d er i n GCB, h av i n g i n v es t ed $ 7 5

, 0 0 0

.

4In co n n ect i o n wi th t h e Hay g o o d Lo an

, G CB o rd er e d a n a p p rai s al o n t h e

Rack l ey Ro ad Pro p ert y

at Hay g o o d’ s ex p en s e. Th at ap p rai s al , d at ed Sep t em b er 1 3,

2 0 0 7

, s et t h e v al ue fo r t h e Rack l ey Ro ad Pro p ert y at $ 2 ,6 4 0

, 0 0 0

, wh i ch was n o t h i g h

en o ug h to s u p p o rt t h e l o an as GCB req u i red an 8 5 p ercen t l o an -t o -v al u e rat i o

. GCB

s u b s eq u en t l y o rd ered an o th er ap p rai s al

, fro m t h e sam e ap p rai ser, wh i ch refl ect ed a

v al u e fo r th e Rack l ey Ro ad Pro p ert y o f $ 3

, 5 1 0 ,0 0 0 as o f S e p t em b er 2 0

, 2 0 0 7.

Becau s e Do v er n eed ed t h e fu n d s q u i ck l y

, t h e Hay g o od Lo an cl o s ed t he nex t d ay

, an d

Hay g o o d was n o t p ro v id ed a co p y o f ei t h er ap p rai s al

, al t h o u g h GCB’ s p o l i cy was to

g i v e t h e b o rro wer an ap p rai s al t h ree day s befo re cl o s i n g. Al s o i n co n nect i o n wi t h t h e

Hay g o o d Lo an

, Hay g o o d s i g n ed a Secu ri t y Deed an d Ag reem en t dat ed Sep t em b er 2 1,

2 0 0 7

, wh i ch co n t ai n ed a d rag n et cl au s e p ro v i di n g t h at an y s u bs eq u en t d eb t i n cu rred

b y H a yg o o d c o u l d b e co n s ol id at ed u n d er i t s t erm s

, al l o wi n g fo recl o s u re o n t h e

Rack l ey Ro ad P r o p e r t y i n co n n ect i o n wi t h s uch d eb t. Hay g o o d g av e Do v er t h e

p ro ceed s o f t h e Hay g oo d L o an an d $ 2.2 m il l io n in cas h t o fu n d h i s $ 5 .2 m i l l i o n

i n v es t m en t i n Fal l i n g W at er. 5

5 Th e Hay g oo d Lo an ap p aren t l y w as ren ewed o n t wo o ccas i o n s

, an d t h e Ban k

u l t i m at el y b r o u g h t s u i t o n a p ro m i s s ory no t e d at ed Sep t em b er 30

, 2 0 0 9 i n fav o r o f

GCB i n t h e pri n ci p al am o u nt o f $ 3 ,0 02 ,3 6 3

, p l u s i nt eres t a n d a Co m m erci al Lo an

Ag reem en t d at ed Oct o b er 1

, 2 0 0 9

, each s i gn ed b y H ay g oo d

, i n d i v i d ual l y

. Th e

Sep tem b er 3 0

, 2 00 9 p ro m i ss ory n o t e st at es th at i t i s a re-fi n an ci n g o f an earl i er n o t e

5In Decem b er 2 0 08

, Ad am Tea g u e

, ch i ef l o an o ffi cer at GCB, i n fo rm ed

Hay g o o d o f a p ro b l em wi th t he l o an s rel at i ng t o Fal l i n g W at ers

, an d h e s ch ed u l ed a

m e e t i ng t o d i s cu s s t he m at t er wi t h Hay g o o d

, Do v er, GCB p res i d en t T racy Newt o n

a n d J o s e p h C. Hen s l ey

, a m em b er of t h e GCB b o ard o f d i rect o rs

, wh o s erv ed o n

GCB’ s Au d i t Co m

m i t t ee. Hen sl ey

, a CPA, al s o wo rk ed fo r D o v er. At t h e m eet i n g,

GCB i nfo rm ed Hay g oo d t h at Un i t y Ban k h ad en t ered in t o a p art i ci p at i o n ag reem en t

wi t h reg ard t o a p o r t i o n o f a $ 7 .5 m i l l i o n l o an i s s ued t o Leg acy i n co nn ect i o n wi th

t h e p u rch as e o f t h e Fal l i n g W at ers p ro p ert y

. (See No t e 5 i n Ad d en d u m “ A”) A l t h o u g h

GCB h ad re n e wed t h e l o an s ev eral m o nt h s earl i er, Un it y was n o lo n g er wi l l i n g to

p art i ci p at e i n i t

, an d GCB w a s u n a b l e t o carry t h e fu l l l o an o n i ts b o o k s b ecau s e

Do v er h ad reach ed h i s leg al l en d i n g l i m i t s

. Acco rd i n g l y

, GCB t o ld Hay g o o d t h at

u n l es s t h e l o an was p ai d i n fu l l

, GCB wo u l d h av e t o fo recl o s e o n th e Fal l i n g W at ers

p ro p ert y

. Hay g o o d w as as k ed t o as s u m e $ 3 m i l l i o n o f t h e l o an

. Pri o r t o t h i s m eet i n g,

Hay g o o d was un aware o f Un it y Ban k o r an y

p ro b l em s wi t h Do ver’ s l o an s

.

At fi rs t

, Hay g o o d refu s ed t o as s um e an y p o rt i o n o f t h e l o an

, b u t l at er, o n b eh al f

o f HFI, h e s i g n ed a Decem b er 2 3 , 2 0 0 8 p ro m i s s o ry no t e i n t h e p ri n ci p al am o u n t o f

$ 4 ,6 2 3 ,0 0 0

, p l u s i n t eres t (“ Fi rs t HFI No t e”). Hay g o o d s t at ed t h at h e si g n ed t h e l o an

d at ed Sep t em

b er 2 1 , 2 0 08 i n t h e am o u n t o f $ 3 m i l l i o n

.

6d o cu m en t s b eca u s e “ [i ] t w as j u s t a fu nct i o n, bas i cal l y

, t o

. . . g et t h e b an k o u t o f

t r o u b l e an d to k eep t h e p ro ject fro m g o in g i n t o fo recl o s u re an d [t o k eep t h e l o a n ]

cu rren t .” He s t at ed t h at t h e l o an al s o g av e t h e Fal l i n g W at ers p ro ject s om e op erat i n g

m o ney

. H ay g o od s ai d t h at i f h e h ad n o t s i g ned t h e l o an

, t h e Fal l i n g W at er Pro ject

wo u l d h av e b een “ d ead ,” an d h e wo u l d h av e l os t t h e m o ney h e i n v es ted

.

On Ap ri l 2 1, 2 00 9

, th e FDIC i ss u ed an “ O r d er t o Ceas e an d Des i s t ” (t h e

“ Ord er”) ag ai ns t G C B d irect i n g i t t o ceas e an d d es i s t fro m a l i s t o f “ u n s afe o r

u n s o un d b a n k i n g p ract i ces an d v i o l at i o n s o f l aw an d /o r reg u l at i o n s .” Hay g o o d d id

n o t recei v e a co p y o f t h e Ord er an d was u n aware of it wh en

, o n Au g u s t 2 7

, 2 0 0 9

, h e

s i gn ed an o t h er p ro m i s s o ry n o t e i n t h e p ri n ci p al am o u nt o f $ 4 ,0 2 2

, 2 8 6 .5 0

, p l u s

i n t eres t

, o n b eh al f o f HFI (t h e “ Seco n d HFI N ot e”). 6 Th e p ro ceed s o f th at l o an were

u s ed t o bri ng al l t h e o t h er l o an s c u r r e n t

. Hay g oo d s t at ed t h at h e wo u l d n ev er h av e

s i gn ed Seco n d HFI No t e i f h e h ad k n o wn o f t h e Ord er. Hay g oo d di d n o t recei v e an y

o f t h e p ro ceed s o f t h e t wo HFI l o an s

.

6 Hay g o o d, Do v er, an d A. S. Do v er si gn ed co m m erci al g u aran ti es wi t h GCB

g u aran teei ng rep ay m en t o f t h e Fi rs t an d Seco n d HFI No t es (co l l e c ti v el y

, t h e “ HFI

Gu aran ti es ”).

7At t ri al

, Hay g o od as s ert ed t h e d efen s e of i l l eg al i t y t o t h e Hay g o o d Lo an b as ed

o n th i s ev i d en ce, an d t h e Ban k m o v ed fo r a d i rect ed v erd ict o n th at d efen se, wh i ch

t h e t ri al co u rt den i ed

. Th e ju ry s u b s eq u en t l y ret u rn ed a v erd ict i n fav o r o f Hay g o o d

o n th e Hay go o d Lo an an d i n fav o r o f Hay g o o d an d HFI o n t h e Fi rs t an d Seco n d HFI

No t es an d t h e Ot h er No tes

. 7

1

. Th e Ban k fi rs t as sert s t h at t h e t ri al co u rt erred i n d en y i n g i t s m o t i o n fo r

d i rect ed v erd i ct o n Hay g o o d ’ s i l l eg al i t y d efen s e. W e ag ree.

Un d er Geo rg i a l aw, “ [ a ] co n t ract t o d o an i m m oral o r i ll eg al t h i n g i s v o i d

. If

t h e co n t ract is sev erab l e, h o wev er, th e p art o f t he co nt ract wh i ch is l eg al wi l l n o t b e

i n v al i d at ed b y t h e p art o f t h e co n t ract wh i ch i s il l eg al .” O CGA § 1 3 -8 -1 (a). An d

“ [t ] h e ch aract er o f t h e co n t ract i n s u c h cas e i s d et erm i n ed b y t h e i n ten t i o n o f t h e

p art i es .” OCGA § 1 3 -1 -8 (b ). Bu t OCGA § 1 3 -8 -1 “ h as been h el d i n ap p l i cab l e wh ere

t h e o b j ect o f t h e co n t ract i s no t i l l e g a l o r ag ai n st p u b l ic p o li cy

, b u t wh ere t h e

i l leg al i t y o r i m

m oral i t y i s o n l y co l l at eral o r rem o tel y co n n ect ed t o th e co n t ract .”

(Ci t at i o n an d p u n ct uat i o n o m i t t ed ; em p has i s in o ri g i n al .) Kel l ey v. Co o p er

, 3 2 5 Ga.

Ap p . 1 4 5 , 1 4 7 (1 ) (7 5 1 SE2 d 8 8 9 ) (2 0 1 3 )

.

7 Th e ju ry

, h o wev er, fo u n d i n fav o r o f t he Ban k an d ag ai n s t Cry s t al C r e e k

, Leg acy

, A. S. Do v er, Do v er Dev el o pm en t

, a n d D o v er on th e Ot h er No t es

, b u t t h at

d et erm i n at i o n i s n o t a p art o f t h i s ap p eal

.

8In co n n ect i o n wi t h t h at d efen s e, H ay g oo d ’ s co u n s el arg u ed t o th e ju ry t h at t h e

Ban k’ s act i o n s wi th reg ard t o t h e Hay go o d Lo an co ns t i t u ted t h e cri m e o f res i d en t i al

m o rt g ag e frau d i n v i o l at i o n o f OCGA § 16 -8 -1 02 (2 ). 8 In part i cu l ar, co un s el arg u ed

t h at t h e ap p rai sal u s ed t o acq ui re t h e l o an was frau d u l en t

, wh i ch h e arg u ed v i o l at ed

t h e s t at u t e. He al s o arg u ed t h at t h e Ban k en t ered i nt o t h e Hay go o d Lo an t o g et aro u n d

t h e cap o n Do v er’ s l en d in g l i m i t s an d as p art o f a “ sch em e ” t o av o i d h av i n g t h e

reg u l at o rs i n v es t i g at e t h e Ban k ’ s p ract i ces

. Hay g oo d ’ s co un s el fu rt her a r gue d tha t t h e

i l leg al i t y o f t h e Hay g o o d Lo an “ i n fect ed ev ery o n e o f t h e l at er l o an s .” W e fi n d t h at

an y al l eg ed i l l eg al i t y i s on l y co l l at eral t o t h e H ay g o od Lo an

, an d t h erefo re d o es n ot

ren d er t h e Hay g o o d Lo an

, t h e HFI No t es , o r t h e Ot h er No t es v o i d

.

8 OCGA § 1 6 -8 -1 0 2 (2 ) p ro v i d es :

A p ers o n co m

m i t s t h e offen s e o f res i d en t ial m o rt gag e frau d wh en

, w i t h

t h e i n ten t t o d efrau d

, s uch p ers o n

. . . [k ] n owi n gl y u s es o r faci l i tat es th e

u s e o f an y d el i b erat e m i s s t a t em en t

, m i s rep res en t at i o n

, o r o m i s s i o n

,

k n o wi n g t h e s am e t o co n t ai n a m i s st at em en t

, m i s rep res en t a t i o n

, o r

o m i s s i o n

, d u ri n g th e m o rt g ag e l en d in g pro ces s wi t h t h e i n t en t i on t hat i t

b e rel i ed o n b y a m o r t g a g e l en der, b o rro wer, o r an y o t h er p art y t o th e

m o rt g ag e l en di n g p ro ces s

.

9In reach i n g t h i s co n cl u s i o n

, we fi n d t he cas e o f S co t t v

. Ci t iz en s Ba n k of

Amer i cu s

, 1 8 8 Ga. Ap p

. 6 1 8 (3 7 3 SE2 d 63 3 ) (1 9 8 8 ), t o be i n s tru ct iv e. 9 In t h at cas e,

t h e b an k was b ei n g i nv es t ig at ed b y s t at e ban k i ng ex a m i n e r s f o r en t eri n g i n t o a

n u m b er o f “ ‘ cr i t ici zed lo an s ,’ ” as t h e b an k co n t i n u ed t o o p erat e p urs u an t t o a

“ ‘ m em o r a n d u m o f u n d ers t an d i n g .’ ” Id

. at 6 1 8

. Aft er th e st at e b an k ex am i n ers

co m p l et ed t h ei r i n v es t i g at i o n

, b an k offi ci al s fo u n d a d efau lt ed real es t at e l o an t h at t h e

ex am i n ers h ad fai l e d t o d i s co ver. Th e b an k ’ s p res i d en t an d i t s l o an o ffi cer d eci d ed

n o t to d i s cl o s e t h i s l o an to t h e ex am in ers

, b u t i n st ead t h ey “ d ev i s ed a p lan t o rem o v e

t h i s d efau l t ed l o an fro m t h e [b ] an k ’ s b o o k s befo re i t was d i s co v ered .” Id

. Un d er t h e

p l an

, t h e ap pel lan t

, wh o w a s “ a cl o s e p ers o n al fri en d o f t h e [b ] an k ’ s p res i d en t ,”

s i gn ed a p ro m i s s o ry n o t e i n fa v o r o f th e b an k

, an d t h e fu n ds fro m t h at n o t e were

g i v e n t o a t h i rd p art y

, wh o u s ed t h em t o pu rch as e t h e p ro p ert y u n derl y i n g t h e

d efau l t ed l oan

. Id

. “ T h e p res i d en t an d t h e l o an o ffi cer o f t h e [ b ]a n k ack n o wl ed g ed

t h at t h ei r p lan was t o creat e a ‘ p ap er t rai l ’ an d t o u s e ap p el l an t ‘ as s o rt o f a s t rawm an

,

t h i rd part y

, ju s t as so m eb od y t o s i g n t h e n o t es an d creat e t he d o cu m en t s t o s at i s fy

9 Th ere, b ecau s e t h e ap p el l an t d i d n ot as s ert t h e affi rm at i v e d efen s e o f

i l leg al i t y

, t h i s Co u rt ’ s an al y s is o n t h e i s s u e co u l d b e co n s i d ered d i ct a. N ev ert h el es s

, we fi n d t h e reas on i n g pers uas i v e an d ad op t i t

.

10b an ki n g req ui rem en t s .’ ” Id

. Th e ap p el l an t den ied an y k n o wl ed g e o f t h i s p l an o r h i s

ro l e i n i t, an d h e s u bs eq u en t l y d efau l t ed o n t h e n o t e. Id . at 6 1 8 -6 1 9.

W h en t h e ban k su ed to co l l ect o n th e n ot e, t h e ap p el l an t

, o n ap p eal

, ap p aren t l y

rai s ed t h e d efen se o f i l l eg al i t y b as ed o n t h e b an k o f f i c ial s ’ p l an t o rem o v e t h e l o an

fro m t h ei r b o o k s

. H owev er, t hi s Co u rt fo u nd th at t h e ap p el l an t’ s d efen s e o f i l l eg al i t y

was n ot v i ab l e as t o t h e n o t e at i s s u e. As t h e Co urt ex p l ai n ed

,

[t ] h e un derl y i n g t ra n s a c t i o n at i s s ue was m erel y an ad v an cem en t o f

fu n d s wh i ch ap p el l an t ag reed t o rep ay as ev i d en ced b y hi s ex ecu t i o n o f

t h e n o t e. Th i s t r a n s a c t i on was n o m o re il l eg al t h an an y o t h er l o an

t ran s act i o n ev i d en ced by a p ro m i s so ry n ot e. It m ay h av e b een i nt en d ed

t h at t h e t ran s act i o n serv e as a m ean s fo r rem o v i ng a d efau l t ed real es t at e

l o an fro m t h e [b ] an k’ s b o o k s

, b ut t h is wo ul d no t ren d er t h e t ran s act i o n

i l leg al

. Fi n an ci al i n s t i t u t i o n s are cert ai n l y au t h ori zed t o arran ge fo r th e

rem o v al o f s u ch lo an s fro m i t s b oo k s u n d er t h e m o s t fav o rab l e t erm s

t h at can b e n eg o t iat e d

. T h ere m ay h av e b een an el em en t o f u net h i cal

b eh av i o r u n d erl y i ng th i s p art i cu l ar t ran s act i o n

, becau s e i t w as t i med s o

as t o rem o ve th e d efau l t ed l o an fro m t h e Ban k’ s b o o k s p r i o r t o i t s

d i s co v ery by th e b an k ex am in ers

. Ho wev er, t h i s un et h i c a l b eh av i o r

wo u ld n o t ren d er t he n o t e u n en fo r c e a b l e ag ai n s t ap p el l an t. S co t t

, 1 8 8

Ga. Ap p . at 6 2 0 (2 ).

Here, H ay g o o d ’ s i l l e g a l i t y d efen s e cen t ered o n t h e i l l eg al ap p rai s al s in

co n nect io n wi t h t h e Hay g o o d Lo an i n Sep t em b er 2 00 7 , wh i ch h e arg u ed t ai n t ed al l

11s u b s eq u en t l o an s

. W e d i sag ree. It i s ap p aren t fro m t h e reco rd t h at GCB ad v an ced t h e

fu n d s t o Hay g o o d t o faci l i t at e h i s p u rch as e o f a 2 5 percen t in t eres t i n L eg acy an d / o r

Cl ear Creek an d th ereb y i n v es t i n Fal l i n g W at ers

. In s i g n i n g t h e n ot e, Hay g o o d

ag reed to rep ay t h e fu n d s bo rro wed

. An d

, i n d eed

, s h ort l y aft er si gn i n g t h e Hay g o o d

Lo an

, o n Oct o b er 1 1

, 2 0 0 7

, Hay g o o d an d Do v er s ig ned a “ Tran s fer an d As s i g n m en t

o f M em bers h i p In t eres t,” wh i ch t ran s ferred a 2 5 percen t i n t eres t i n Leg acy to HFI in

ex ch an g e fo r co ns i derat i o n o f $ 5 ,1 2 8

, 2 05 ; an am en d m en t t o t h e L eg acy ’ s op erat i n g

ag reem en t

, refl ect i n g t hat HFI o wn ed 2 5 p ercen t o f t h e co m p an y ; an d an “ In d em

n i t y

an d Gu aran t y A g reem en t ,”u n d er wh i ch HFI ag reed t o i n d em n ify A. S. Do v er fo r

c e r t ai n li s ted lo an s s i g n ed i n co nn ect i o n wi t h Fal l i n g W at ers

. A d d i ti o n al l y

, t h e

ev i d en ce at t ri al i n d i cat ed t h at Hay g o o d s o u g h t l eg al ad v ice b efo re en t eri ng i n t o t h i s

i n v es t m en t

. Th es e ev en t s o ccu rre d a ppr oxim a te l y one y e a r be f or e U nity Ban k d eci d ed

t h at i t wo u l d no l o n g er p art i ci p at e i n D o v er’ s l oan s an d ap p ro x i m at el y o ne y ear an d

o n e-h al f b efo re t h e Ord er.

Acco rd i ng l y

, “ [t ] h i s t ran s act i o n was n o m o re i l l eg al t h an an y o t h er l o an

t ran s act io n ev id en ced b y a p ro m i s s o ry n o t e.” S co t t

, 1 8 8 Ga. Ap p

. at 6 2 0 (2 ). An d n o

ev i d en ce ex i s t s t h at th e co n t ract was b as ed on i l l eg al o r im m oral co n s id erat i o n

. Do v er

was l eg al l y en t i t l ed t o s eek o t h er i n v es t ors t o su p po rt t he Fal li ng W at ers p ro ject an d

12t o red u ce h i s o wn deb t

. Hay g o o d h a d t h e l eg al ri g h t t o i nv es t i n t h e Fal l i n g W at ers

p ro ject

, an d t h e Ban k was l eg al l y en t i t l ed t o l o an h i m m on ey fo r t h at p urp o s e. No

ev i d en ce ex is t s t h at Hay g o o d was ap p ro ach i n g h i s len d i ng l i m i t s wi t h t h e Ban k; to

t h e co n t rary , h e i n d i cat ed t h at h e h ad ju s t p ai d d o wn h i s d eb t

.

Al t h ou g h t h e Ban k m ay

h av e as k ed fo r a seco n d

, h i gh er ap prai s al t o s u p p o rt

t h e Hay g oo d Lo an

, wh i ch Hay g o o d co n t en ds was frau du l en t an d ev en cri m i n al

, 1 0 an d

m ay h av e en g ag ed i n o t h er su b seq u en t i l l eg al act i vi t y

, an y s u ch i l l eg al act i v i t y was

,

at m o s t

, m erel y co l l at eral t o t h e Hay g o o d L o an ; it was no t t h e o b ject o f t h e l o an

. As

o u r Su p rem e Co u rt ex p l ai ned i n R.R.R., Lt d

. Pa r t n er sh i p v. Recr ea t i o n a l S

vcs

., In c.

,

2 6 4 Ga. 4 9 4 (4 4 8 SE2 d 2 1 1 ) (1 9 9 4 ), s u ch in ci d en t al i l l eg al i t y i s i n s u ffi ci en t to ren d er

an o t h e rwi s e val i d p ro m i s so ry n ot e un en fo rceab l e. Th ere, t h e Co urt reject ed t h e

d efen s e o f i l l eg al i ty i n co n n ect i o n wi t h a p ro m i ss o ry n o t e, wh ere the bor r o wer al l eg ed

t h at t h e l en d er t h reat en ed v i o l en ce i f th e l o an was n o t rep ai d p ro m p t l y

, res u l t i n g in

a n ex t o rt i o n at e ex t en s i o n o f cred i t i n v i o lat i o n o f 1 8 USC § 8 9 1 (c). T h e S u p r e m e

Co u rt ex p l ai n ed t h at

1 0 Al t h o u g h Hay go o d p res en t ed ex p ert t es t i m o ny at t ri al at t a c k i n g t h e

m et h o do l o gy an d v al i di ty o f t h es e ap p rai s al s

, we n o t e t hat in a fi nan ci al s t at em en t

d at ed Ap ri l 2 0 0 8

, Hay g o o d h i m s el f rep res en t ed th e v a l u e o f th e Rack l ey Ro ad

Pro p ert y t o b e $ 3 ,6 0 0 ,0 0 0

.

13t h e fed eral s t at u t e u p on wh i ch ap p e l l e e rel i es m erel y s erv es t o

cri m i n al ize t he l en d er’ s al l eg ed act o f m ak ing a n “ ex t o rt i o n at e ex t en s i o n

o f cred i t.” 1 8 USC § 89 2 (a). N o t h i n g wh at so ev er i n t h at fed eral st at ut e

p u rp o rt s t o ren der t h e u n d erl y i n g l o an ag reem en t i t sel f i l l eg al an d ci v i l l y

u n en fo rceab l e ag ai ns t t h e b o rro we r. In t h i s s t at e, a co n t ract t o d o an

i l leg al t hi ng i s v o id [u n d er] O CGA § 1 3 -8 -1

. Ho w ev er, t h ere i s n o t h i n g

i n h eren t l y “ i l l eg al ” in an ag reem en t wh ereb y o n e p art y m erel y ag rees t o

l en d m o n ey

an d t he o t h er p art y

m erel y ag rees t o rep ay

i t

.

(Ci t at i o n s a n d p u n ct u at i o n o m i t t ed ; em p h as i s i n ori g i n al .) Id

. Th u s

, t h e Su p rem e

Co u rt fo u n d t h at t h e b reach o f t h e s t at u t e was n o t a v i ab l e d efen s e t o t h e b o rro wer’ s

o b l i g at i o n t o rep ay

t h e l o an i n fu l l , n o t in g t h at

[t ] h e ru l e t h at an ag r e e m en t in v i o l at i o n o f l aw i s i n val i d d o es n o t

al way s ap p l y wh ere th e ex i s t e n c e o f t h e th i n g i n q u es ti o n i s d u e t o a

v i o l at i o n o f l aw o n l y in t h e s en s e t hat in ci d en t al l y s o m e l aw w as

v i o l at ed i n i t s p ro d u ct i o n, wh ere i t m i g ht h av e b een creat ed wi t h o u t s u ch

v i o l at i o n

. Here, t h e co n t ract was fo r a l eg al p urp o s e, an d d id no t r eq u i r e

a v i o l at i o n o f an y s t at u t e i n o rd er fo r [ t h e b o rro w er] t o p erfo rm u nd er

t h e co n t ract

. Th ere m ay o r m ay n o t h av e b een a v i o l at i o n of t h e fed eral

cri m i n al s t at ut e, b u t s u ch v i o l at io n w as n o t req u i red b y t h e co n t ract an d

was i n ci d en t al t o co n t ract u al p erfo rm an ce.

(Ci t at i o n an d p u n ct u at i o n o m i t t ed ; em p has i s i n ori g i n al .) Id

. at 4 9 6 -4 9 7 ( 2) A nd, h ere,

ev en if t h e Ban k v i o l at ed t h e l aw i n co n n ect io n wi t h o b tai n i n g t he ap p rai s al s to

14s u p p ort t h e Hay g o o d Lo an o r s ub s eq u en t l y v io l at ed Geo rg i a b an k i n g l aws

, an y s u ch

v i o l at i o n was no t req u i red b y t h e Hay g o od Lo an an d was m erel y in ci d en t al t o i t s

p u rp os e.

Acco rd i ng l y

, we fi n d t h at t h e t ri al co u rt erred i n d en y i n g t h e Ban k ’ s m o t i o n fo r

d i rect ed v erd i ct a s t o H a yg oo d ’ s d efen se o f i l l eg al i t y

. See R.R.R. Lt d

. Pa rt n er s h i p

,

2 6 4 G a. at 4 95 -4 96 (2 ); Cr o o ke v. Gi l d en

, 26 2 Ga. 1 2 2

, 1 2 3 (2 ) (4 1 4 SE2 d 6 4 5 )

(1 9 9 2); S mi t h v. S au l s b ur y

, 2 86 Ga. Ap p

. 3 22

, 3 2 3 -3 2 4 (1 ) (b ) ( 6 4 9 S E 2 d 3 4 4 )

(2 0 0 7); Do u g l a s v. Bi

g l ey

, 2 78 Ga. Ap p

. 1 1 7

, 1 24 (1 ) ( d ) (6 2 8 SE2 d 1 9 9 ) (2 0 0 6 );

Bo o t v. Beel en

, 2 2 4 Ga. A p p. 3 8 4

, 3 8 6 (1 ) (4 8 0 SE2 d 26 7 ) (1 99 7 ) (wh ere p ro m i se to

b e en fo rced i s o n e t o p ay a d eb t

, p art i es ’ m eret ri ci o u s rel at i o n s h ip was in ci den t al to

t h e co n t ract ). Co m

p are Mi n o r v. McDa n i el

, 2 1 0 Ga. Ap p

. 1 46 (4 3 5 SE2 d 5 0 8 ) (1 9 9 3 )

(p ro m i s s o ry no t e b et ween b ro k er an d cl i en t to rei m b u rs e b ro k er fo r m o ni es b o rro wed

t o p ay p art o f cl o s i n g co s t s was i l l eg al wh ere b ro k er i n d u ced cl i en t t o fal sel y cert i fy

t h at t h e res i d en ce was free an d cl ear o f al l l i en s, t h at s h e wo u l d n o t h a v e a n y o t h e r

o u t s t an d i n g u n pai d o b li g at i o ns i n co n n ect i o n wi th t h e m ort g ag e t ran s act i o n

, an d t h at

s h e h ad p ai d al l t h e cl o si n g co s t s an d cl i en t kn ew su ch cert i fi cat i o ns were f a l s e ) ;

S o u t h er n Fl ou r & Gr a in Co

. v. S mi t h

, 3 1 Ga. Ap p

. 5 2

, 5 3 (1 2 0 SE 3 6 ) (1 9 2 3 )

(co n t ract i l l eg al wh ere t erm s o f co n t ract i n v o l v ed d i rect l y i n v ol v ed s al e o f

15“ co n cen t rat ed co m m erci al feed i n g -s t u ffs ” i n n o n-s t an d ard wei g h t b ag s, a d i rect

i n fract i o n o f a ci v i l s t at u t e).

Th erefo re, we al s o ag ree wi t h t h e Ban k t hat t h e t ri al co u rt erred i n d en y i n g i t s

d i rect ed v erd i ct o n t h e Fi rs t an d Seco n d HFI No tes an d t he Ot h er No t es

, i n s u b m i t t i n g

t h e i s s u e o f wh et h er t h e Ban k h ad v i ol at ed t h e O CGA § 1 6-8 -1 0 2 t o t he ju ry

, an d in

ch arg i n g t h e ju ry o n t h e s t at u t e. M o reo ver, b ecau s e H ay g o o d o ffered h i s ex p ert ’ s

t es t i m o ny i n co n n ect i o n wi t h h i s affi rm at iv e d efen s e of i l l eg al i t y

, we n eed n o t reach

t h e i s s u e o f w h et h er t h e tri al co u rt p ro p e r l y a p p l i e d t h e s t an d ard u nd er Da u b er t v.

Mer rel l Do w Ph a r ma ceu t i ca ls

, 5 0 9 U.S. 57 9 (1 13 SCt 2 7 86

, 1 2 5 LE2 d 4 69 ) (1 9 9 3 ).

Acco rd in g ly

, we rev ers e t h e ju d g m en t i n fav or o f Hay g o o d an d HFI an d rem an d fo r

en t ry o f ju d g m en t i n fav or o f t he Ban k o n t h e Hay g o o d No t e, t h e HFI No t es an d t h e

Ot h er No t es i n acco rd an ce wi t h t h i s o p i n i o n.

Ju d g men t r ever sed . Ba r n es , P. J., a n d

Ra y, J., co n cu r

.

16A ddendum “ A ”

– Other No tes

Cl ea r Cr eek No tes

Th e reco rd i nd i cat es t hat Cl ear Creek s i gn ed t h e fo l lo wi n g t h r e e p ro m i s s o ry

n o t es i n fav o r o f GSB:

– a De c em

b er 1 4, 20 0 7 p ro m i s so ry n o t e i n t h e p ri n ci pal

am o u n t o f $ 3 ,0 0 0 ,0 0 0 , p lu s i n teres t (“ No t e 1 ”);

– a Sep t em

b e r 2 6

, 2 0 0 8 p r o m i s s o r y n ot e i n t h e p ri n ci pal

am o u n t o f $ 8 0 0

, 0 0 0 , p lu s i n t eres t (“ No t e 2 ”); an d

– an A u g u s t 2 7

, 2 0 0 9 p r o m i s s o r y n o t e in t h e p ri n ci pal

am o u n t o f $ 3 ,0 8 7 ,0 0 0

, p lu s i n t eres t (“ No t e 3 ”). Leg acy

, A.

S. Do v er, Do v er Dev el o pm en t

, HFI, Hay go o d

, an d Do v er

ente r e d i nto c om

m e r c ia l gua

ran t i es wi t h GCB gu aran t eei n g

rep ay m en t o f N o t e s 1, 2

, an d 3 (co l l ect i vel y

, t h e “ Cl ear

Creek Gu aran t i es ”).

Leg a cy No t es

Leg acy al s o en t ered i n to t wo p ro m i s s ory n o t es i n fav o r o f GCB, as fo l l o ws :

– an Au g u st 3 0

, 2 0 0 8 p ro m i ss o ry n o t e i n t h e p ri n ci pal

am o u n t o f $ 1 ,0 0 0 ,0 0 0 , p lu s i n teres t (“ No t e 4 ”); an d

– an Au g u st 3 0

, 2 0 0 8 p ro m i s s o ry n o te i n t h e p ri n ci pal

am o u n t o f $ 7 ,5 0 0 ,0 0 0 , p lu s i n teres t (“ No t e 5 ”).

17A. S. Do v er, Do v er Dev el o p m en t , an d Do v er ex ecu t ed co m m erci al g u aran t i es wi th

GCB g u aran t eei n g rep ay m en t of t h es e no t es (co l l ect i v el y t h e “ Leg acy Gu aran t i es ”).

Do ver Devel o p men t

On M arch 26

, 20 0 9

, Do v er Dev el o p m en t en t ered i n t o a p ro m is s o ry n o t e wi th

GCB i n t h e p ri n ci p al am o un t o f $ 1 1 1 ,3 8 0 .8 6, p l us in t eres t (“ No te 6 ”). Do v er en t ered

i n t o a g u aran t y

o f t h is n ot e wi th GCB, g u aran t eei n g rep ay m en t o f t h e n o te (“ Do v er

Gu aran ty ”).

18