Marion Production Credit Ass'n v. Cochran

• Decision Date: 30 December 1988
• Docket Number: No. 87-1691,87-1691
• Parties: MARION PRODUCTION CREDIT ASSOCIATION, Appellant and Cross-Appellee, v. COCHRAN et al., Appellees and Cross-Appellants.
• Court: Ohio Supreme Court

Page 265

40 Ohio St.3d 265

533 N.E.2d 325

MARION PRODUCTION CREDIT ASSOCIATION, Appellant and Cross-Appellee, v. COCHRAN et al., Appellees and Cross-Appellants.

No. 87-1691.

Supreme Court of Ohio.

Submitted Sept. 27, 1988.

Decided Dec. 30, 1988. ^*

Syllabus by the Court

1. In an action upon a note secured by a mortgage, the defendant is entitled to interpose all counterclaims and defenses he may have against the creditor. In this regard, trial courts are imbued with authority to hold separate trials upon "any claim, cross-claim, counterclaim, or third-party claim * * *." Civ.R. 42(B). However, whenever the court orders such separate trials on separate issues, the execution of all judgments determined upon a single claim should be stayed pending a final determination of the entire action as to all parties. (Civ.R. 13[I] read in conjunction with Civ.R. 54[B], 56[D] and 62[E].)

2. The Statute of Frauds may not be interposed in furtherance of fraud. An act of fraud against which relief will be granted, notwithstanding the Statute of Frauds, consists in the refusal to perform an agreement upon the faith of which plaintiff has been misled to his injury, and not a mere refusal to perform an agreement, which, by reason of the Statute of Frauds, cannot be enforced by legal action.

3. Whether the alleged misrepresentation is of a promise of future performance or of a then-present fact, it will not defeat the operation of the Statute of Frauds unless such fraudulent inducement is premised upon matters which are wholly extrinsic to the writing. The Statute of Frauds may not be overcome by a fraudulent inducement claim which alleges that the inducement to sign the writing was a promise, the terms of which are directly contradicted by the signed writing. Accordingly, an oral agreement cannot be enforced in preference to a signed writing which pertains to exactly the same subject matter, yet has different terms.

4. When a party voluntarily places his signature upon a note or other writing within the Statute of Frauds, and where that party's sole defense to an action brought upon the writing is that a different set of terms was orally agreed to at that time, such defense shall not be countenanced at law regardless of the theory under which such facts are pled. In such event, the writing alone shall be the sole repository of the terms of the agreement.

Prior to the commencement of these proceedings, Wayne and Edna Cochran, who are the appellees and cross-appellants in the present case, were engaged in farming and farm-related enterprises with their son, Paul Cochran, and his wife, Barbara. Apparently, each couple managed its own multifaceted farming operation, in addition to which both Wayne and Paul were officers and shareholders in the corporation known as Pig Palace, Inc. This company was in the business of selling and breeding livestock. Paul was the president and secretary-treasurer, while Wayne was the vice president of such corporation.

In 1981, there occurred a series of transactions between the Cochrans and Marion Production Credit Association ("PCA"), appellant and cross-appellee, which form the basis of the within action. On May 8, 1981, PCA entered into two written agreements with Paul, Barbara, Wayne and Edna Cochran. The agreements were variable interest promissory demand notes evidencing loans of $107,836 and $513,700. Each note recited the amounts advanced in clear terms as well as the fact that the loans were secured by both security agreements and mortgage deeds. Each note was signed by all four of the debtors. Another note, containing nearly identical provisions, was entered into on August 6, 1981 and was for the loan of an additional $30,907.

The parties also entered into three mortgage agreements to secure the above indebtedness. The first mortgage was dated May 8, 1981, and is entitled "Real Estate Mortgage." It sets forth directly under the title that it is an "Open-End Mortgage; Total Indebtedness Not to Exceed $800,000.00." Paul and Barbara are named as the mortgagors and certain described real property belonging to them is the subject of the mortgage. The purpose of the mortgage is set forth as: "To secure the payment of the indebtedness due from Paul W. Cochran and Barbara M. Cochran, husband and wife, and Wayne Cochran and Edna Cochran, husband and wife, To the Mortgagee in the principal sum of * * * $621,536.00." The mortgage then referenced the two notes of May 8, 1981. At that point, the mortgage again recited that it was given to secure future advances up to $800,000.00. It was signed by Paul and Barbara Cochran, both signatures being attested to, and was filed in the recorder's office on July 27, 1981.

The second mortgage was identical in form to the first except that it was dated July 27, 1981, and named Wayne and Edna Cochran as mortgagors. It also described specific property belonging to the two of them as the mortgaged premises. Both Wayne and Edna signed the document, which signatures were also attested to. The third mortgage, identical in form to the first two, named Pig Palace, Inc. as the mortgagor and its property as the mortgaged premises. It recited that the mortgage was to secure the indebtedness of Pig Palace, Inc. in the amount of $621,536 and listed the notes of May 8, 1981. The mortgage was signed on behalf of Pig Palace, Inc. by Paul Cochran as "President & Sec'y-Treas[urer]" and by Wayne Cochran as "Vice President." Both of the above mortgages were duly filed and recorded on July 27, 1981.

On February 1, 1982, PCA declared all debtors on the above notes in default on their respective obligations, and demanded payment in full of the balances owed under the terms of the agreements. PCA filed a complaint in the court of common pleas on April 7, 1982, seeking, inter alia, foreclosure upon the mortgages. First Federal Savings and Loan Association of Galion, the Federal Land Bank of Louisville, and the National City Bank of Marion all filed answers and cross-claims asserting their respective interests in the properties at issue. The Cochrans and Pig Palace, Inc. answered on May 3, 1982, setting forth their defenses and two counterclaims, the first of which recited in part as follows:

"Plaintiff induced defendants Wayne Cochran and Edna Cochran to execute and deliver Exhibits A and B [the two promissory notes dated May 8, 1981] as guarantors of the debt of Paul Cochran and Barbara M. Cochran and to execute and deliver Exhibit E [the mortgage agreement between PCA and Wayne and Edna Cochran] by falsely representing to defendants that plaintiff had the intent, as soon as the proceeds from the sale or other liquidation of 50,000 bushels of corn by defendant Paul W. Cochran was applied to such debt, to release defendants Wayne Cochran and Edna Cochran from the obligations of Exhibits A, B and E."

The counterclaim additionally alleged that the corn had in fact been sold with the proceeds being applied to the indebtedness, and that PCA had made the indicated false representations "maliciously * * * to deceive and mislead defendants." The prayer for relief asserted that Wayne and Edna had been damaged in the amount of $250,000, and that the court should both cancel all agreements and award them punitive damages in the amount of $250,000. With the filing of these documents began the long and tortuous proceedings set forth hereinafter.

PCA next filed a motion to strike various defenses and the second counterclaim. No mention was made of the first counterclaim. The trial court, which mentioned in its opinion that the Cochrans and their attorney failed to appear at the hearing on the motion, granted the motion to strike on September 28, 1982. PCA then filed a motion for summary judgment on all its claims, asserting that there was no issue of material fact as to the existence and amount of the debt or the security. It also sought a temporary restraining order and represented to the court that the Cochrans and Pig Palace, Inc. were selling both crops and livestock without applying the proceeds to their indebtedness to PCA as previously agreed. The trial court granted such order. Thereafter, pursuant to an affidavit of bias and prejudice, an order issued from this court dated November 8, 1982, assigning a new trial judge to preside over the case. The new judge, who was not from the county in which this action arose, held a hearing on December 7, 1982, upon various pending motions, including a motion pursuant to R.C. 2735.01 to appoint a receiver over the farm operations. During the hearing, counsel for the Cochrans asserted that there were several triable issues as to the validity of the loan agreements:

"MR. INSCORE: You read me wrong, Your Honor. We have a counter claim. We think that we have claims against P.C.W. [sic ] which have not been litigated in this lawsuit.

"THE COURT: They are not going to be litigated in an action for mortgage foreclosure. They are going to be severed. That is a separate matter entirely.

"MR. INSCORE: It is a counter claim growing out of the financing arrangement with P.C.A.

"THE COURT: You better have good authority for that statement. You try an action for mortgage foreclosure. I can't find that. It doesn't mean anything. I want to see legal authority for that. I think you have a separate jury matter entirely on the counter claim.

"MR. INSCORE: There is no question that would be a jury matter. I don't know so far as the mortgage we are not going to deny that these documents were signed. We are not going to deny that. Those things will probably all be able to be stipulated to so far as that is concerned. I don't think they are allowed to go out and sell this farm until after the counter claims have been litigated, because we think they might not be able to sell the farms at that point, Your Honor.

"THE COURT: Difference in opinion. Mr. Garverick, anything you would like to proceed with?"

The trial court then denied PCA's motion to...