Financial v. S &

• Decision Date: 12 February 2010
• Docket Number: No. H-09-004.,H-09-004.
• Citation: 186 Ohio App.3d 275,2010 Ohio 464,927 N.E.2d 623
• Parties: CRANBERRY FINANCIAL, L.L.C., Appellee,v.S & V PARTNERSHIP et al.; Schindley et al., Appellants.
• Court: Ohio Court of Appeals

186 Ohio App.3d 275

927 N.E.2d 623

2010 Ohio 464

CRANBERRY FINANCIAL, L.L.C., Appellee,v.S & V PARTNERSHIP et al.; Schindley et al., Appellants.

No. H-09-004.

Court of Appeals of Ohio Sixth District, Huron County.

Decided Feb. 12, 2010.

David J. Coyle and Nathan A. Hall, Toledo, for appellee.

James J. Martin, Willard, for appellants.

HANDWORK, Judge.

{¶ 1} This is an appeal of a judgment ordering foreclosure. Appellants, Robert and Carol Schindley, appeal the judgment of the Huron County Court of Common Pleas, which granted summary judgment to Cranberry Financial, L.L.C. For the following reasons, the judgment is affirmed.

{¶ 2} Appellants have filed two assignments of error for review:

{¶ 3} “The trial court erred in granting summary judgment to appellee because there was a genuine factual issue regarding whether the bank had agreed to release appellants' real estate as collateral for the loan.

{¶ 4} “The trial court erred in its construction of the agreement between the parties. An ambiguous agreement is construed against the drafter.”

{¶ 5} Since appellants have argued both assignments of error jointly in their brief, and since both assignments of error challenge the grant of summary judgment, we will likewise address the assignments of error jointly.

{¶ 6} An appellate court reviews a grant of summary judgment de novo, the same standard applied by the trial court. Grafton v. Ohio Edison Co. (1996), 77 Ohio St.3d 102, 105, 671 N.E.2d 241. Civ.R. 56(C) provides:

{¶ 7} “Summary judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. No evidence or stipulation may be considered except as stated in this rule.”

{¶ 8} Summary judgment is proper where (1) no genuine issue of material fact remains to be litigated, (2) the moving party is entitled to judgment as a matter of law, and (3) when the evidence is viewed most strongly in favor of the nonmoving party, reasonable minds can come to but one conclusion, a conclusion adverse to the nonmoving party. Tokles & Son, Inc. v. Midwestern Indemn. Co. (1992), 65 Ohio St.3d 621, 629, 605 N.E.2d 936. The evidentiary materials submitted must be viewed in the light most favorable to the opponent of the summary-judgment motion. Hounshell v. Am. States Ins. Co. (1981), 67 Ohio St.2d 427, 433, 21 O.O.3d 267, 424 N.E.2d 311; Jackson v. Kings Island (1979), 58 Ohio St.2d 357, 360, 12 O.O.3d 321, 390 N.E.2d 810.

{¶ 9} The instant dispute involves a promissory note, a mortgage executed to secure the note, and a subsequent agreement altering a term of the note. A promissory note is a contract, and rules of contract interpretation apply to the interpretation of promissory notes. Commercial Credit Co. v. Bishop (1927), 34 Ohio App. 217, 225, 170 N.E. 658, citing Holzworth v. Koch, Mayer & Goldsmith (1875), 26 Ohio St. 33, 1875 WL 4. “If a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241[, 7 O.O.3d 403, 374 N.E.2d 146].” Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio, Inc. (1984), 15 Ohio St.3d 321, 322, 15 OBR 448, 474 N.E.2d 271.

{¶ 10} If, however, an ambiguity is present such that parol evidence is necessary to resolve the ambiguity, a factual determination of intent or reasonableness may be necessary to supply the missing term. Id. The fact-finder may also examine the surrounding circumstances of the transaction to determine the parties' intent. Smith v. Vaughn, 174 Ohio App.3d 473, 2007-Ohio-7061, 882 N.E.2d 941; Huron Cty. Banking Co., N.A. v. Knallay (1984), 22 Ohio App.3d 110, 22 OBR 311, 489 N.E.2d 1049.

{¶ 11} Further, it is axiomatic that contracts-including promissory notes-are construed against the drafter. “[T]he rule is well established that where there is doubt or ambiguity in the language of a contract it will be construed strictly against the party who prepared it. Smith v. Eliza Jennings Home [1964], 176 Ohio St. 351[, 27 O.O.2d 305, 199 N.E.2d 733]. In other words, he who speaks must speak plainly or the other party may explain to his own advantage.” McKay Mach. Co. v. Rodman (1967), 11 Ohio St.2d 77, 80, 40 O.O.2d 87, 228 N.E.2d 304.

{¶ 12} This complaint in foreclosure was brought by Lehman Brothers Bank ¹ against, inter alia, S & V Partnership, and, as individuals, appellants Robert Schindley and Carol Schindley. The complaint alleged a default on a promissory note and sought foreclosure on three mortgages securing the note.

{¶ 13} The first mortgage was executed by Kipton Van Fleet and Jill Van Fleet, general partners of S & V Partnership, for an interest in 228 Sheffield Street. Underneath their signatures, a typewritten sentence states, “BEING ALL PARTNERS IN SAID PARTNERSHIP.” The second mortgage was executed by Carol Schindley, individually, for an interest in 224 Sheffield Street. Robert Schindley signed a release of dower for the mortgage. The third mortgage was executed by appellants Carol and Robert Schindley, both individually, for an interest in 403 Brinker Street.

{¶ 14} All three mortgages secured one note, in the amount of $630,000. On the second page of the note, a paragraph provides: “COLLATERAL. Borrower acknowledges this Note is secured by * * *.” A description of the three mortgages and the three corresponding properties follows. The note was executed by Kipton and Jill Van Fleet, both signing again as general partners of S & V Partnership.

{¶ 15} Approximately eight months after the execution of the three mortgages and note, Clyde Savings Bank and Kipton and Jill Van Fleet executed a “Change in Terms Agreement,” which modified the promissory note. The change-in-terms agreement provides the point of dispute in this foreclosure.

{¶ 16} The agreement mirrors the promissory note in form, with some exceptions. First, on the top of the front page of the agreement, the following paragraphs state:

{¶ 17} “DESCRIPTION OF EXISTING INDEBTEDNESS. A commercial real estate installment loan in the initial amount of $530,000 maturing April 27, 2026.

{¶ 18} “DESCRIPTION OF COLLATERAL. Mortgage on property located at 224 and 228 Sheffield Street, Bellevue, Ohio 44811.

{¶ 19} “DESCRIPTION OF CHANGE IN TERMS. Change in terms as follows: Rate of loan to be changed to 7.5% based on the New York prime index, currently 4.75%, with a margin of 2.25% to be adjusted every three (3) years. Next rate adjustment will be May 27, 2004. In addition, the floor will be reduced to 4.75% from 7.00%. New payment amount is $4541.82 beginning January 27, 2002. All other terms of the original agreement will remain in effect.”

{¶ 20} The second page of the agreement also states the following:

{¶ 21} “COLLATERAL. Borrower acknowledges this Agreement is secured by a Mortgage dated April 27, 2001, to Lender on real property located in Huron County, State of Ohio, all the terms and conditions of which are hereby incorporated and made part of this Agreement.

{¶ 22} “CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. * * *.”

{¶ 23} Both parties moved for summary judgment. Appellants argued that the change-in-terms agreement demonstrated an intent by Clyde Savings Bank and S & V to “drop” the third mortgage as collateral securing the note. Therefore, appellants argued that the mortgage for 403 Brinker Street, signed by them individually, could not be foreclosed upon a default on the note. In granting Lehman Brothers Bank's motion for summary judgment, the trial court reconciled the difference in the description of collateral between the original note and the change-in-terms agreement by stating:

{¶ 24} “Defendants assert that the 403 Brinker Street property was ‘deleted’ by the bank as collateral and argues that the Change in Terms Agreement dated December 18, 2001 evidenced this change in the collateral. A review of the Original Promissory Note and the Change in Terms Agreement shows that there are some discrepancies. At the top of the Change in Terms Agreement under the heading ‘Description of Collateral,’ only the 224 and 228 Sheffield Street properties are referenced. Nowhere in the Change in Terms Agreement is there any mention of the 403 Brinker Street property. However, under the heading ‘Description of the Change in Terms' there is likewise no mention of the 403 Brinker Street property. Thus, one could make the inference that the ‘Description of Collateral’ was the result of an agreement to remove the 403 Brinker Street property from the collateral. One could also make the inference that the 403 Brinker Street property's status as collateral was not intended to be changed due to the fact that it was not mentioned in the ‘Description of the Change in Terms.’ ”

{¶ 25} The trial court resolved these competing inferences by reference to the “Continuing Validity” clause in the change-in-terms agreement. The clause provides as follows: “Except was expressly changed by this Agreement, the terms of the original obligation or obligations, including all...