Basil v. Vincello

• Decision Date: 18 April 1990
• Docket Number: No. 89-67,89-67
• Citation: 50 Ohio St.3d 185,553 N.E.2d 602
• Parties: BASIL, Trustee of the Basil Trust, Appellee, v. VINCELLO et al., Appellants.
• Court: Ohio Supreme Court

Page 185

50 Ohio St.3d 185

553 N.E.2d 602

BASIL, Trustee of the Basil Trust, Appellee, v. VINCELLO et al., Appellants.

No. 89-67.

Supreme Court of Ohio.

Submitted Jan. 17, 1990.

Decided April 18, 1990.

Syllabus by the Court

1. Equitable interests in real estate cannot be levied upon or sold under execution pursuant to R.C. 2329.01. (Culp v. Jacobs [1930], 123 Ohio St. 109, 174 N.E. 242, approved and followed.)

2. Judgment lien creditors are not bona fide purchasers for value.

Phillip C. Vincello and Robert L. Teague, ¹ defendants-appellants, were title owners of real property known as Parcel No. 2, located at 457 North Lake Street, Madison, Ohio. On June 30, 1978, they executed a mortgage deed to Lake County Federal Savings & Loan Association ("Savings & Loan"), ² as security for a loan of $138,900, to construct a branch bank building for the Savings & Loan. The mortgage was recorded on July 17, 1978. The parties negotiated a lease whereby the bank would occupy Parcel No. 2; the lease payments were to be applied first against the mortgage, and Vincello and Teague would receive the difference. The lease was executed on April 24, 1979, but made effective retroactively to the date the Savings & Loan took possession of Parcel No. 2, November 20, 1978. ³ The lease was recorded on May 11, 1979.

In April 1979, Vincello began negotiating with defendant-appellant Robert G. Slowey for the sale of Parcel No. 2. Slowey formed a joint venture with defendant-appellant Albert D. Perrico for the purpose of obtaining "ownership" of Parcel No. 2. A letter of intent, dated April 9, 1979, between Slowey and Vincello evidenced Slowey and Perrico's intent to purchase a ninety-five percent interest in Parcel No. 2 as tenants in common with Vincello and Teague. Vincello and Teague reserved a five percent interest in the property. The letter acknowledged the existence of the forthcoming lease with the Savings & Loan; stated that the buyer would not be a signatory to, or assume personal liability under, the mortgage; and provided that the sum of $50,887 would be paid as full consideration for the ninety-five percent interest. On April 25, 1979, Perrico and Slowey each issued checks for $25,443.50 to Vincello and Teague, consummating the conveyance of ninety-five percent interest in Parcel No. 2 to Perrico and Slowey.

The parties agreed that Vincello and Teague would execute a quitclaim deed, and formalize the letter of intent for signature by all the parties. However, it was not until sometime in September 1979 that the final documents were actually executed. The agreement was backdated to November 20, 1978, but provided for the immediate transfer of all Vincello and Teague's legal interests and title to the subject real estate to Perrico and Slowey. At trial, however, Vincello maintained that only a ninety-five percent interest was conveyed.

The quitclaim deed was also signed sometime in September 1979. However, the deed, like the agreement, was backdated to show an effective date of November 20, 1978. Furthermore, after all parties signed it, the deed was witnessed and notarized outside their presence at the direction of Perrico and Slowey's attorney. This deed was recorded on December 29, 1981.

In addition to ownership of Parcel No. 2, Vincello and Teague owned eleven other parcels of property. Of these, the only other of concern in this case is Parcel No. 12, located at 732 Mentor Avenue, Painesville, Ohio.

In early 1979, Vincello met Marvin Basil, ⁴ husband of plaintiff-appellee Eleanor Basil, Trustee of the Basil Trust ("Basil"). Vincello and Basil negotiated a loan from the Basil Trust to Vincello for the construction of condominiums on Parcel No. 12. The outline of the terms of the final agreement stated that Vincello and Teague desired to sell fifty percent interest in Parcel No. 12 and fifty percent interest in the proposed condominium units. The Basil Trust agreed to pay $60,000 as consideration for the fifty percent interest in the condominium project, with the profits to be divided fifty percent to Vincello and Teague and fifty percent to the Basil Trust. The proceeds from the sale of the condominium units would first be applied to the Citizens Savings & Loan to extinguish the construction note and mortgage on the units, then to pay commissions to selling brokers, and finally to repay Basil's investment of $60,000 plus $7,200 interest. The final agreement was dated March 22, 1979. The mortgage deed from Vincello and Teague to the Basil Trust for the Painesville property was dated March 1, 1979, and was recorded on March 28, 1979.

As part of these negotiations, on January 10, 1979, Vincello gave Basil a financial statement in which Vincello listed his income and interests he owned in other properties. Included in this list was Vincello's one-half interest in Parcel No. 2, the Madison property. However, Parcel No. 2 formed no part of the agreement with the Basil Trust nor was it given as security for the loan on the mortgage deed executed on March 1, 1979. Vincello testified at trial that he made no representations to Mr. Basil that he would sell his interest in the Madison property.

Vincello and Teague made only one interest payment in December 1979 to the Basil Trust, and subsequently defaulted on the mortgage payments. The Basil Trust filed for and obtained a judgment lien against Vincello and Teague in the amount of $67,200, and filed a certificate of judgment with the clerk of courts on January 23, 1981. In February 1981, plaintiff filed a "Complaint to Marshall [sic] Liens, Foreclosure of Judgment Liens and Equitable Relief and Complaint in Contract," naming the Vincellos and the Teagues, as well as others not parties to this appeal.

The complaint alleges that a judgment lien had been obtained against the interests of Vincello and Teague in twelve separate parcels of property, including Parcel No. 2, upon which the Lake County Federal Savings & Loan had its branch office. Plaintiffs amended the complaint to add the various banks as party defendants. Plaintiffs again amended the complaint to add defendants Albert D. Perrico and Robert G. Slowey, but this time asking the court to marshal liens, foreclose and grant equitable relief relative to Parcel No. 2 only. In this complaint, plaintiffs requested that the Vincellos and the Teagues pay a balance of $32,700 still due from the judgment lien; that plaintiff be found to have a "good, valid and subsisting lien" upon Parcel No. 2; and that the property be foreclosed, sold and the proceeds distributed to all parties according to their respective priorities. Plaintiff subsequently filed a motion to determine the priority of liens against Parcel No. 2.

The Court of Common Pleas of Lake County found that: the quitclaim deed by which Parcel No. 2 was transferred was not executed in compliance with R.C. 5301.01, and therefore legal title did not pass to defendants Perrico and Slowey; defendants became the equitable owners of that property on the date the deed was executed and consideration given; the evidence did not support a finding that the conveyance, or subsequent failure to record the deed, amounted to the perpetration of a fraud on the plaintiff; and that defendants' equitable interest in Parcel No. 2 was entitled to priority over the lien of a judgment taken against the legal owners of the property, some two years after such equitable interest arose.

Plaintiff appealed this decision to the Court of Appeals for Lake County. ⁵ The court of appeals held that the "rule governing liens declares that a lien prior in time is prior in right," but "that if a given lien is legal and was acquired without notice of a prior equitable lien, the given lien is entitled to priority. Standard Oil Co. v. Moon (1930), 34 Ohio App. 123 ." The court calculated that Basil's judgment was obtained on January 22, 1981, foreclosure proceedings were instituted on February 17, 1981, and the backdated deed was filed for record on December 29, 1981. Consequently, the court stated that the backdated deed gave Basil no notice of the prior equitable lien, declared the plaintiff's lien valid, and reversed the judgment of the court of common pleas.

This cause is now before this court upon the allowance of a motion to certify the record.

Gray, Luria & Belkin and Keith E. Belkin, Cleveland, for appellee.

David P. Freed Co., L.P.A., and David P. Freed, Painesville, for appellants.

MOYER, Chief Justice.

The question presented is whether a general judgment creditor may satisfy the unpaid balance of a judgment lien by marshaling a lien against a parcel of property that the debtor conveyed to a third party by means of a defectively executed deed.

The rights and status of the parties must first be defined.

I

Perrico and Slowey paid $50,887 to Vincello and Teague on April 25, 1979. In exchange Vincello and Teague were to execute a quitclaim deed transferring ownership of the property known as Parcel No. 2. Such deeds have the force and effect of a deed in fee simple to the grantee when duly executed in accordance with R.C. Chapter 5301. R.C. 5302.11. Pursuant to R.C. 5301.01, a deed must be signed by the grantor and such signing must be acknowledged in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation. Furthermore, the acknowledgment must be made before a clerk of a court of the state, a county auditor, county engineer, notary public, mayor, or county court judge, "who shall certify the acknowledgment and subscribe his name to the certificate of such acknowledgment."

In this case, the grantors signed the document outside the presence of both witnesses and did not appear before the notary public who certified the acknowledgment. The acknowledgment required by the statute is for the purpose of affording proof of the due execution of the deed by the grantor, sufficient to authorize the register of deeds to record it. It has been...