In Timmons v. SunTrust Bank, No. A19A1262, 2019 Ga. App. LEXIS 547, at *1-6 (Ct. App. Oct. 9, 2019), the Georgia Court of Appeals held that an auto finance lender was not a holder-in-due-course, but instead was subject to the FTC Holder Rule contained in the RISC.
[O]n July 9, 2015, the Plaintiffs purchased a 2015 GMC Sierra from the Dealer. On that day, the Affidavit of Sale was signed by the Plaintiffs and a representative of the Dealer; it lists identifying information about the Sierra, including the 6,738-mile odometer reading, and states that “the above described vehicle is free of all liens and encumbr[a]nces in the buyer’s name except: SUNTRUST BANK.” The “Customer Order” document, also dated July 9, 2015, identifies the Sierra and the vehicle that the Plaintiffs traded to the Dealer, details the line items of the transaction, including purchase price, trade allowance, etc., and states: “LIEN TO SUNTRUST BANK.” A third document (“the Contract”), which identifies the Plaintiffs as co-buyers and the Dealer as “Creditor-Seller,” contains Federal Truth In-Lending Disclosures specifying the annual percentage rate, the finance charge, the total amount financed, and details regarding the monthly payments, including amount, due date, and number. In the Contract, the Plaintiffs agreed “to pay the Creditor-Seller” the amount financed and the finance charge pursuant to the payment schedule listed. The Contract provides that “[t]he Seller may assign this Contract,” which “contains the entire agreement between you and us relating to this contract.” It also states: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. In March 2017, the Plaintiffs sued GM Motors, LLC, the Dealer, and the Bank, seeking to revoke acceptance of the vehicle and alleging various claims including breach of warranty and breach of the GFBPA, contending that the truck sold as “new” had collision damage that was unrepaired. In the complaint, the Plaintiffs alleged that their truck is financed by [the] Bank and that financing was arranged through [the Dealer]. As a result[, the Bank] is not a holder in due course and is subject to any defenses that the Plaintiffs have against [the Dealer]. As a result[,] the Plaintiffs owe little if anything to [the Bank]. The note should be cancelled as to the Plaintiffs. The Plaintiffs reiterated such claims against the Bank in a subsequent amended complaint. In their answers to the initial and amended complaints, the Bank “admit[ted] that it financed the purchase of the Plaintiffs’ vehicle[, but] denie[d] the remaining allegations. …” The Bank moved for summary judgment on the ground that it is a holder in due course of Plaintiff’s “financial note” for the vehicle. The trial court granted the motion, concluding that the Bank entered into a loan agreement with the Plaintiffs and that the Bank “was assigned the financing for the subject vehicle, via a note and financial agreement in which financing terms were agreed upon and signed by [the] Plaintiffs and [the Dealer]”; the court cited only the complaint and the single-paged Contract as support for this conclusion. The court then concluded that the Bank “is a holder in due course of the financial note for the subject vehicle, and [the] Plaintiffs’ allegations do not meet any of the available defenses under Georgia law. Therefore, [the Bank] has the right to enforce the terms of the vehicle note.” This appeal followed. The Plaintiffs contend that the (1) trial court erred by granting summary judgment to the Bank based on its conclusion that the Bank was a holder in due course. We agree. “ ‘Holder in due course’ status gives the holder of an instrument [*5] … the right to enforce it and to cut off certain defenses of the obligor under the instrument.” Under Georgia law, the holder of an instrument is holding “in due course” if: (1) the instrument is not apparently forged, altered, irregular, or incomplete “as to call into question its authenticity,” and (2) the holder took the instrument for value; in good faith; and without notice that the instrument was overdue, dishonored, contained an unauthorized signature, was subject to claims as set forth in OCGA § 11-3-306, or was subject to defenses or recoupment under OCGA § 11-3-305 (a) (infancy, duress, fraud, bankruptcy). OCGA § 11-3-106 (d), however, provides: If a promise or order at the time it is issued or first comes into possession of a holder contains a statement, required by applicable statutory or administrative law, to the effect that the rights of a holder or transferee are subject to claims or defenses that the issuer could assert against the original payee, the promise or order is not thereby made conditional for the purposes of subsection (a) of Code Section 11-3-104; but, if the promise or order is an instrument, there cannot be a holder in due course of the instrument. Here, assuming that the Contract, which the parties agree was thereafter assigned [*6] to the Bank, was a negotiable instrument, the first page explicitly states that any holder of the Contract is subject to all claims and defenses that the Buyers could assert. Thus, pursuant to OCGA § 11-3-106 (d), the Bank is not a holder in due course, and the trial court erred by granting summary judgment to the Bank on this basis.