Stone v. Natl. City Bank

• Decision Date: 05 September 1995
• Docket Number: No. 67579,67579
• Citation: 665 N.E.2d 746,106 Ohio App.3d 212
• Parties: STONE, Appellant, v. NATIONAL CITY BANK, Appellee. NATIONAL CITY BANK, Appellee, v. STONE, Appellant. * /67709.
• Court: Ohio Court of Appeals

Page 212

106 Ohio App.3d 212

665 N.E.2d 746

STONE, Appellant, v. NATIONAL CITY BANK, Appellee.

NATIONAL CITY BANK, Appellee, v. STONE, Appellant. ^*

No. 67579/67709.

Court of Appeals of Ohio,

Eighth District, Cuyahoga County.

Decided Sept. 5, 1995.

McDonald, Hopkins, Burke & Haber Co., L.P.A., Kenneth J. Walsh, and Robert S. Stone, Cleveland, for appellant.

Jones, Day, Reavis & Pogue, Marc Alan Silverstein, and Robert S. Faxon, Cleveland, for appellee.

PORTER, Judge.

Plaintiff-appellant Maxeen Stone in case No. 67579 appeals from a summary judgment granted by the trial court in her declaratory judgment action against National City Bank, which held that she was liable on her partial guaranty of a real estate loan and had no priority rights of subrogation or indemnity in other collateral which the bank held to secure the loan. Stone also appeals in case No. 67709 from a cognovit judgment entered against her on the guaranty. We find no error in the judgments below and affirm.

This case arose out of a refinanced real estate loan for $1,600,000 made by the bank to 21111 Chagrin Corporation ("the borrower") on May 9, 1989. At the same time, Stone, president and sole shareholder of the borrower, and her husband (now deceased) executed a guarantee agreement in which they personally "absolutely and unconditionally guarantee[d] the prompt and punctual payment when due to acceleration or otherwise, of the first $400,000.00 (from $1,600,000.00 to $1,200,000.00) of principal due under said [borrower's] promissory note together with all other interest, charges and penalties accruing thereon."

The guarantee also provided:

"It shall not be necessary for Bank to resort to or exhaust its remedies against Borrower or against any other party or parties liable thereon or to resort to property held as security therefor or pertaining thereto, before calling upon the undersigned for payment of the Guaranteed Obligation.

" * * *

"This Guarantee shall become immediately effective and shall continue until the first $400,000.00 of principal under Borrower's said promissory note shall have been paid in full at which time the undersigned shall be released of any and all obligations set forth herein."

The guarantee also contained a cognovit provision authorizing confession of judgment in favor of the bank against the guarantors "after the indebtedness guaranteed hereunder becomes due by acceleration or otherwise."

To further secure the loan, the bank also took a cognovit promissory note from the borrower, a first mortgage on the premises, and an assignment of rents derived from tenants on the premises.

The borrower defaulted on its loan payments and failed to cure its defaults, and the bank accelerated the payment of the entire principal amount. Without proceeding against its other collateral, the bank made a written demand on Stone to honor the obligations of her guarantee, since the amount still due on the loan at the time of default was $1,537,092 plus interest and late charges. Stone brought an action for a declaratory judgment and an injunction (common pleas case No. 264512) to enjoin the bank from seeking a cognovit judgment against her. She contended that the bank was required to execute on its other collateral first, i.e., foreclose on the real estate mortgage, thereby relying on the proceeds of a sheriff's sale to be sufficient to reduce the remaining indebtedness below $1,200,000 and excusing the guarantor's obligations altogether. To bolster this argument, on January 26, 1994, the borrower tendered a quitclaim deed to the mortgaged premises, which the bank declined to accept. A motion for a temporary restraining order to prevent the bank from proceeding against Stone on the guarantee was denied on January 26, 1994.

Following the denial, that same day, the bank filed a complaint for cognovit judgment (common pleas case No. 264696) against Stone, and the court entered cognovit judgment for the bank on the guarantee in the sum of $337,092 plus interest and charges. A motion to set aside the cognovit judgment, for a stay, and for leave to answer was filed on February 9, 1994 by Stone in case No. 264696. At the same time she filed an amended complaint in her original action (case No. 264512). Both actions were assigned to the same common pleas judge.

The parties agreed that both actions involved the same issues and agreed to consolidate the cases. They then filed cross-motions for summary judgment, complete with affidavits, deposition transcripts, documentary exhibits and briefs on the legal issues involved. On June 14, 1994, the trial court granted the bank's motion for summary judgment and denied Stone's motion for summary judgment. Stone's motion to set aside and vacate was denied, and this timely appeal ensued. The appeals have been consolidated for oral argument and disposition.

Appellant's two assignments of error will be treated together, as the issues arising therefrom are interrelated.

"I. The court below erred in failing to recognize and declare as a matter of law the rights of appellant as a limited, secondary guarantor of the top portion of the principal debt of the primary debtor to be protected by subrogation, reimbursement, indemnification, or an equivalent lien in the bank's primary security from proceeds of any future sale of that property.

"II. The court erred in granting summary judgment in favor of the appellee-bank where the bank presented mutually exclusive contradictory evidence creating a genuine material issue of fact going to the heart of its own claimed intent, construction, and interpretation of the loan documents at issue, all while denying appellant her admitted legal status as a limited secondary guarantor."

The critical and dispositive legal issue on this appeal is whether the bank was obliged to exercise its rights to liquidate its other collateral (e.g., the real estate mortgage) before it required payment from the guarantor. In other words, was the obligation of the guarantor secondary to the primary security of the real estate mortgage? As a corollary to this claim, the guarantor argues that she is entitled to be subrogated or indemnified to the extent that she fulfills her guarantee obligation from any foreclosure proceeds of the real estate sale before the bank applies those proceeds to the remaining indebtedness.

The bank argues that the guarantee was absolute and unconditional and not subordinate to the real estate mortgage. Therefore, the bank argues that it is entitled to full satisfaction of the original $1,600,000 indebtedness before the guarantor can claim indemnity or subrogation. We find that the guarantor's obligation was absolute and unconditional and that she has no claim to indemnity or subrogation until the indebtedness to the bank is fully satisfied from the collateral at its disposal.

Under Civ.R. 56, summary judgment is proper when "(1) no genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to the party against whom the motion for summary judgment is made. State ex rel. Parsons v. Fleming (1994), 68 Ohio St.3d 509, 511, 628 N.E.2d 1377, 1379; Temple v. Wean United, Inc. (1977), 50 Ohio St.2d 317, 327, 4 O.O.3d 466, 471, 364 N.E.2d 267, 273-274. It is well settled that the party seeking summary judgment bears the burden of showing that no genuine issue of material fact exists for trial. Celotex Corp. v. Catrett (1987), 477 U.S. 317, 330, 106 S.Ct. 2548, 2556, 91 L.Ed.2d 265; Mitseff v. Wheeler (1988), 38 Ohio St.3d 112, 115, 526 N.E.2d 798, 801-802. Doubts must be resolved in favor of the nonmoving party. Murphy v. Reynoldsburg (1992), 65 Ohio St.3d 356, 358-359, 604 N.E.2d 138, 139-140.

However, the nonmoving party must produce evidence on any issue for which that party bears the burden of production at trial. Wing v. Anchor Media, Ltd. of Texas (1991), 59 Ohio St.3d 108, 111, 570 N.E.2d 1095, 1099; Celotex, supra, 477 U.S. at 322-323, 106 S.Ct. at 2552-2553, 91 L.Ed.2d at 273. In accordance with Civ.R. 56(E), "a nonmovant may not rest upon the mere allegations or denials of his pleadings, but must set forth specific facts showing there is a genuine issue for trial." Chaney v. Clark Cty. Agricultural Soc. (1993), 90 Ohio App.3d 421, 424, 629 N.E.2d 513, 515.

"This court reviews the lower court's granting of summary judgment de novo." Koos v. Cent. Ohio Cellular, Inc. (1994), 94 Ohio App.3d 579, 588, 641 N.E.2d 265, 271; Brown v. Scioto Cty. Bd. of Commrs. (1993), 87 Ohio App.3d 704, 711, 622 N.E.2d 1153, 1157 ("We review the judgment independently and without deference to the trial court's determination.").

In resolving the issues presented by this appeal, we are mindful that "[t]he construction of written contracts and instruments of conveyance is a matter of law." Latina v. Woodpath Dev. Co. (1991), 57 Ohio St.3d 212, 214, 567 N.E.2d 262, 264.

The principles of contract construction are no different in the interpretation of guarantee agreements. As this court held in Camardo v. Timm (May 2, 1991), Cuyahoga App. No. 57795, unreported, 1991 WL 69343:

"Courts construe guaranty agreements in the same manner as they interpret contracts. G.F. Business Equip. v. Liston (1982), 7 Ohio App.3d 223, 224 , 454 N.E.2d 1358 [1359-1360]. The interpretation of a written agreement is a matter of law for the court. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241 , 374 N.E.2d 146. The purpose of contract construction is to effectuate the intent of the parties. Skivolocki v. East Ohio Gas (1974), 38 Ohio St.2d 244 , 313 N.E.2d 374, paragraph one of syllabus. The intent of the parties to a contract is presumed to reside in the language they...