In re Caldwell, Bankruptcy No. 99-51038. Adversary No. 99-103.
| Decision Date | 22 November 2000 |
| Docket Number | Bankruptcy No. 99-51038. Adversary No. 99-103. |
| Citation | 257 BR 241 |
| Parties | In re Robert L. CALDWELL and Elaine M. Caldwell, Debtors. William B. Logan, Jr., Trustee, Plaintiff, v. U.C. Lending, Inc., Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Kenneth M. Richards, Luper Sheriff & Neidenthal, Columbus, OH, for plaintiff.
David A. Freeburg, Cleveland, OH, for defendant.
Alexander G. Barkan, Columbus, OH, Assistant United States Trustee.
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
This adversary proceeding is before the Court on the motion for summary judgment filed by the Plaintiff, case trustee William B. Logan, Jr. ("Plaintiff"). The Defendant, U.C. Lending, Inc. ("Defendant"), has opposed the motion. For the reasons that follow, the Court finds that, as a matter of law, the mortgage executed by the Debtors on November 20, 1997, was not witnessed in accordance with O.R.C. § 5301.01. Further, the Court finds O.R.C. § 5301.234 does not apply to mortgages executed and recorded prior to the effective date of this statute, June 30, 1999, and therefore, it offers no cure for the facially defective mortgage at issue. Finally, the Court finds that a genuine issue of material fact exists with respect to whether the Defendant was "without knowledge" of the potential voidability of its mortgage, and as a result, whether the Defendant may avail itself of the protection afforded by section 550(b)(1) of the Bankruptcy Code.
On November 20, 1997, the Debtors, Robert and Elaine Caldwell, executed a mortgage in favor of America's Wholesale Lender. Subsequently, on a date not disclosed to the Court, the mortgage was assigned to the Defendant. On February 10, 1999, the Debtors filed a petition for relief under chapter 7 of the Bankruptcy Code. On May 6, 1999, the Plaintiff commenced this adversary proceeding. The Plaintiff seeks avoidance of the Defendant's mortgage on two grounds, only one of which is the subject of the instant motion for summary judgment. First, the Plaintiff seeks to have the mortgage avoided under section 544(a) of the Bankruptcy Code, although he has not specified the subsection under which he proceeds. In his second count, the Plaintiff seeks to avoid the mortgage under section 547 of the Bankruptcy Code. The Plaintiff seeks summary judgment only with respect to his effort to avoid the mortgage under section 544(a).
The mortgage in question was executed by the Debtors in the presence of a witness and a notary public. The witness, James W. Cesear, appropriately signed the mortgage, and his signature was appropriately witnessed by Patricia S. Carr, in her capacity as notary public. The Plaintiff contends that the Ohio Revised Code, section 5301.01, requires any mortgage to be witnessed by two individuals, each of whom must sign his or her name in that capacity. The Plaintiff further contends that because Mr. Cesear appears to have been the only person to sign the mortgage in the capacity of witness, the mortgage is invalid and can be avoided pursuant to section 544 of the Bankruptcy Code.
The Defendant argues that Ms. Carr was intended to serve not only in the capacity of notary public, but also as a witness, and notwithstanding the undisputed fact she did not execute the mortgage in the capacity of a witness, the mortgage should be found valid. The Defendant also argues that, even if the mortgage is found invalid, it should be protected by section 550(b)(1) of the Bankruptcy Code, which prohibits a case trustee (or debtor-in-possession) from recovering a transfer of property of the bankruptcy estate or the value of transferred property of the estate where the transferee accepted the transfer in good faith and without knowledge of the avoidability of the transfer. The Defendant asserts that it had no knowledge of the potential defects in the mortgage when it took the assignment. The Plaintiff counters by arguing that the defects in this mortgage were facially apparent, and the Defendant cannot claim to have taken the assignment without knowledge of the defects.
The Plaintiff's motion for summary judgment raises three issues. First, the Court must determine whether a mortgage, witnessed as this one was, comports with O.R.C. § 5301.01. The Court must then determine whether O.R.C. § 5301.234 affords any cure to the mortgage. Finally, the Court must determine whether the Defendant has met its burden of establishing that genuine issues of material fact exist with respect to whether it took the mortgage "without knowledge" of the alleged defects.
The Court should grant summary judgment to the movant "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c), made applicable to bankruptcy proceedings by Fed. R. Bankr.P. 7056.
The purpose of a motion for summary judgment is to determine if genuine issues of material fact exist to be tried. Lashlee v. Sumner, 570 F.2d 107, 111 (6th Cir. 1978). The party seeking summary judgment bears the initial burden of asserting that the pleadings, depositions, answers to interrogatories, admissions and affidavits establish the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989). The burden on the moving party is discharged by a "showing" that there is an absence of evidence to support the nonmoving party's case. Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. Summary judgment will be appropriate if the nonmoving party fails to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof. Id. at 322, 106 S.Ct. 2548. Thus, the ultimate burden of demonstrating the existence of a genuine issue of material fact lies with the nonmoving party. Id. at 324, 106 S.Ct. 2548. The evidence must, however, be viewed in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).
The nonmoving party must do more than rest upon the allegations found in the pleadings. She must demonstrate that a genuine issue exists for trial through her own affidavits, or depositions, answers to interrogatories, and admissions on file. Id. If the nonmoving party, after adequate time for discovery, fails to establish an essential element of her case or defense, all other facts are rendered immaterial, entitling the moving party to a judgment as a matter of law. Id. at 322-23, 106 S.Ct. 2548.
The standard for summary judgment is identical to the standard for a directed verdict under Federal Rule of Civil Procedure 50(a). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If reasonable minds could differ as to the import of the evidence, granting summary judgment would be improper. Id. However, when a party has the burden of proof by a preponderance of the evidence, that party must present evidence upon which a jury could reasonably find in its favor. Id. at 253, 106 S.Ct. 2505. The mere existence of a scintilla of evidence in support of a proposition would be insufficient. Id. Therefore, there is no issue for trial unless there is sufficient probative evidence for a trier of fact to return a verdict for that party. First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288-89, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968).
Ohio Revised Code section 5301.01 provides, in relevant part, as follows:
A deed, mortgage . . . must be signed by the grantor, mortgagor . . . and such signing must be acknowledged by the grantor, mortgagor . . . in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation. Such signing must be acknowledged by the grantor, mortgagor . . . before a . . . notary public . . . who shall certify the acknowledgment and subscribe his name to the certificate of such acknowledgment.
This statute, by its plain language, clearly requires two witnesses to acknowledge and attest to the execution of a mortgage by the mortgagors. It is not disputed that only one person signed the mortgage in the capacity of a witness to its execution. While the Defendant urges this Court to find that Ms. Carr served in the capacity of both notary public and witness, where a witness has not signed the mortgage in that capacity, the mortgage must be held invalid. In re Hofacker, 34 B.R. 604, 606 (Bankr.S.D.Ohio 1983) (); White v....
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