Cadlerock Joint Venture, L.P. v. Freeway Circle Properties, L.L.C. , 2011 Ohio 3986 ( 2011 )

[Cite as Cadlerock Joint Venture, L.P. v. Freeway Circle Properties, L.L.C., 2011-Ohio-3986.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 96003
CADLEROCK JOINT VENTURE, L.P.
PLAINTIFF-APPELLEE
vs.
FREEWAY CIRCLE PROPERTIES, LLC, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Common Pleas Court
Case No. CV-679111
BEFORE: Boyle, P.J., S. Gallagher, J., and Keough, J.
RELEASED AND JOURNALIZED: August 11, 2011
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ATTORNEY FOR APPELLANT
Robert G. Miller
1940 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115
ATTORNEYS FOR APPELLEES
Joseph D. Datchuk
100 North Street Center
Newton Falls, Ohio 44444
Brian J. Green
Shapero & Green LLC
Signature Square II
25101 Chagrin Boulevard, Suite 220
Beachwood, Ohio 44122
MARY J. BOYLE, P.J.:
{¶ 1} Defendants-appellants, Freeway Circle Properties, LLC (“Freeway
Properties”), and Sally and Abraham Schwartz (collectively the “Schwartzes”), appeal
from a judgment in favor of plaintiff-appellee, Cadlerock Joint Venture, L.P.
(“Cadlerock”), in the amount of $502,192.95 ($345,269.94 principal balance, plus
accrued interest as of September 2, 2010). Appellants raise one assignment of error for
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our review, namely, that the trial court erred in finding in favor of Cadlerock. We find
no merit to the appeal and affirm.
Procedural History
{¶ 2} In March 2006, Sally Schwartz, as manager of and on behalf of Freeway
Properties, executed an open-end mortgage note (“Note”), in which Freeway Properties
promised to pay $1,560,000, plus interest, to Fifth Third Bank. That same day, Sally
and Abraham Schwartz also signed a contract personally guaranteeing payment of the
note. The loan was for the purchase of property with an office building located at 7850
Freeway Circle, in Middleburg Heights, Ohio.
{¶ 3} In December 2008, Cadlerock filed a complaint upon a cognovit note and
cognovit guaranty against appellants, alleging that the Schwartzes had executed and
delivered the Note to Fifth Third Bank, owing a balance due of $449,428.50, and that the
Schwartzes had personally guaranteed payment of the Note. Cadlerock further alleged
that it was the “owner and holder of the note by virtue of an allonge” attached to the
Note.
{¶ 4} Cadlerock attached the Note and personal guaranties to the complaint, as
well as the allonge. The allonge, executed on August 29, 2008, stated:
{¶ 5} “Reference is made to the $1,560,000.00 open-end mortgage note, dated
March 14, 2006, from Freeway Circle Properties, LLC, as borrower and Sally Schwartz
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as manager, payable to the order of Fifth Third Bank. (‘Note’). It is intended that this
allonge be attached to and made a permanent part of the note.
{¶ 6} “Pay to order of Cadlerock Joint Venture, L.P., (“assignee”), without
recourse, representations or warranties of any kind.”
{¶ 7} The trial court immediately granted a cognovit judgment against appellants
in the amount of $449,428.50, plus 8.5 percent interest continuing to accrue. Six
months later, appellants moved for relief from judgment pursuant to Civ.R. 60(B), which
the trial court granted.
{¶ 8} The trial court held a bench trial on the matter in September 2010, after
which it found in favor of Cadlerock. It is from this judgment that appellants appeal.
{¶ 9} In their sole assignment of error, appellants raise three issues. They claim
that Cadlerock: (1) failed to prove that it was an assignee of the promissory note; (2)
failed to prove that it was an assignee of the Schwartzes’ personal guaranties; and (3)
failed to prove its damages.
Standard of Review
{¶ 10} Appellants argue that the trial court erred in granting judgment to
Cadlerock because Cadlerock failed to prove its case. Thus, appellants essentially raise
a challenge to the manifest weight of the evidence. In a civil case, “[j]udgments
supported by some competent, credible evidence going to all the essential elements of
the case will not be reversed by a reviewing court as being against the manifest weight of
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the evidence.” C.E. Morris Co. v. Foley Constr. Co. (1978), 54 Ohio St. 2d 279, 376
N.E.2d 578, syllabus. “A reviewing court should not reverse a decision simply because
it holds a different opinion concerning the credibility of the witnesses and evidence
submitted before the trial court. A finding of an error in law is a legitimate ground for
reversal, but a difference of opinion on credibility of witnesses and evidence is not.”
Seasons Coal Co., Inc. v. Cleveland (1984), 10 Ohio St. 3d 77, 81, 461 N.E.2d 1273.
Assignment of the Note
{¶ 11} Appellants first argue that Cadlerock did not prove that it was the assignee
of the Note, or the real party in interest, and therefore, was not entitled to enforce the
Note. Cadlerock counters that it proved that it was the assignee of the Note based on
the allonge that was attached to the Note. We agree with Cadlerock.
{¶ 12} “The use of an allonge to add [endorsements] to an instrument when there
is no room for them on the instrument itself dates from early common law.”
Southwestern Resolution Corp. v. Watson (1997), 964 S.W.2d 262, 263. Historically,
allonges were only permitted when no room existed on the note for further
endorsements. Id. But the current version of the UCC, codified as R.C.
1303.24(A)(2), allows allonges even where room exists on the Note for further
endorsements. The paper, however, must be affixed to the instrument in order for the
signature to be considered part of the instrument. Id.
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{¶ 13} Appellants agree that the allonge and an Asset Sale Agreement, which was
the agreement between Fifth Third Bank and Cadlerock where Fifth Third Bank sold the
Note to Cadlerock, establish that Cadlerock was the assignee of the Note. But
appellants argue that the trial court erred in admitting the allonge and the Asset Sale
Agreement into evidence. They claim that the allonge was signed by an employee of
Cadlerock pursuant to a limited power of attorney set forth in the Asset Sale Agreement.
Appellants argue that because Cadlerock failed to identify the Fifth Third Bank
representative who signed the Asset Sale Agreement, the trial court erred in admitting
these two exhibits, and without these two exhibits, there is no evidence that Cadlerock
was the assignee of the Note.
{¶ 14} The trial court’s discretion to admit or exclude evidence is broad “so long
as such discretion is exercised in line with the rules of procedure and evidence.” Rigby
v. Lake Cty. (1991), 58 Ohio St. 3d 269, 271, 569 N.E.2d 1056. After a review of the
transcript, we find no fault on the part of the trial court. Robert Ellcessor, an account
officer and custodian of records for Cadlerock, testified that he had responsibility over
the Note and documents relating to it. He identified the Note and the allonge, as well as
the Asset Sale Agreement as being documents that he had control and custody of in the
ordinary course of business.
{¶ 15} Robert Rutt testified that he was the officer assigned to the Note when the
Schwartzes stopped paying it. Rutt said that he obtained approval from senior
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management at the bank for the Schwartzes to sell the Freeway Circle property for
$1,100,000, which was less than the amount still owed on the loan. Rutt explained that
the bank never released the Freeway Circle Properties or the Schwartzes from the
deficiency balance still owed under the loan.
{¶ 16} Accordingly, the trial court did not err in admitting them, and Cadlerock
proved that it was the assignee of the Note.
Assignment of Personal Guaranties
{¶ 17} Appellants next argue that Cadlerock failed to prove that it was the
assignee of the personal guaranties. We disagree.
{¶ 18} In Audiovox Corp. v. Schindler, 2d Dist. No. 20209, 2005-Ohio-2231, the
court explained:
{¶ 19} “A guaranty is a promise by one person to pay the debts of another. 52
Ohio Jurisprudence 3d (1997) 238, Guaranty and Suretyship, Section 2. Further
defined, a contract of guaranty is:
{¶ 20} “‘[a] collateral engagement for the performance of the undertaking of
another, and it imports the existence of two different and distinct obligations — one
being that of the principal debtor and the other that of the guarantor. The obligation of
a guarantor is collateral and secondary to the obligation of the principal debtor.’
{¶ 21} “‘The principal debtor is not a party to the guaranty, and the guarantor is
not a party to the principal obligation. The undertaking of the former is independent of
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the promise of the latter; and the responsibilities which are imposed by the contract of
guaranty differ from those which are created by the contract to which the guaranty is
collateral.’ 52 Ohio Jurisprudence 3d (1997) 239-240, Guaranty and Suretyship,
Section 3. See, also, Madison Natl. Bank v. Weber (1927), 117 Ohio St. 290, 293, 158
N.E. 543.” Audiovox at ¶37-39.
{¶ 22} In Audiovox, a case relied upon by appellants in support of their argument,
the Second Appellate District explained:
{¶ 23} “[O]n March 20, 1985, Schindler executed an unconditional guaranty in
which he agreed to be personally responsible for the ‘prompt full payment when due of
every claim of Audiovox which now exists and which may hereafter arise in favor of
Audiovox as against customer [Factory Direct].’ Additionally, the guaranty included a
provision that specifically stated that ‘it shall bind the undersigned [Schindler], his legal
representatives and assigns and inure to Audiovox, its successors and assigns.
{¶ 24} “On February 25, 1992, Audiovox Midwest Corporation merged ‘with and
into’ Audiovox Corporation, as evidenced by the ‘Joint Plan and Agreement of Merger.’
The magistrate had this document before her when she held that Audiovox, as it
presently exists, was entitled to enforce Schindler’s guaranty. This document provides in
pertinent part:
{¶ 25} “‘1. Upon the effectiveness of the merger the separate existence of
MIDWEST shall cease and be extinguished and AUDIOVOX (hereinafter) sometimes
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referred to as the ‘Surviving Corporation’ shall survive such merger and continue to exist
under and be governed by the laws of Delaware and shall have the name AUDIOVOX
CORPORATION.
{¶ 26} “‘2. All of the property of MIDWEST, real, personal and mixed, tangible
and intangible, including real estate, plants and equipment, furniture and fixtures, cash,
accounts receivable, notes receivable, choses in action, going concern value, corporate
name and good will, and any other assets of any character or description of which it may
be possessed shall be taken and deemed to be transferred to and vested int he (sic)
Surviving Corporation upon the merger becoming effective without further deed or act,
and the Surviving Corporation shall assume and from and after the effective time of the
merger shall be responsible for all of the liabilities and obligations whatsoever nature. If
at any time the Surviving Corporation shall deem or be advised that any further
assignments, desirable to vest or confirm in the Surviving Corporation the title to any
property or assets of MIDWEST, the officers and directors of MIDWEST (or the persons
holding such positions immediately prior to the merger) shall and will do all acts and
things to confirm such property and assets in the Surviving Corporation and otherwise to
carry out the purposes of this Plan and Agreement.’ (Emphasis added).” Audiovox at
¶40-43.
{¶ 27} The Second Appellate District concluded: “It is clear from the language
contained in the Individual Guaranty executed by Schindler, as well as the language in
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the merger agreement, that Audiovox is the designated successor and/or assign of
Audiovox Midwest. The language in both documents is specific and leaves no room
for the interpretation Hemsath suggests. Thus, Audiovox is entitled to enforce
Schindler’s guaranty as a matter of law. We conclude that no genuine issue of material
fact exists with respect to whether Schindler’s personal liability to Audiovox was
terminated or modified in any way when Audiovox Midwest Corporation merged ‘with
and into’ Audiovox Corporation.” Audiovox at ¶44.
{¶ 28} In another case cited by appellants, Hurst v. Stith Equip. Co. (1974), 133
Ga.App. 374, 210, 210 S.E.2d 851, the court disagreed that “the assignment of the
principal obligation automatically passes the guaranty.” But it explained that in certain
circumstances, “the transfer of the principal obligation may operate as an assignment of
the guaranty (38 Am.Jur.2d 1034, Guaranty s 36 (1968).” Id. at 377. The court
further explained that “this rule *** appl[ies] only where the assignor of the principal
obligation is also the obligee of the guaranty.” Id. In Hurst, “the assignor of the
principal obligation, Leasing Service, [was] not shown to be the obligee of the guaranty.”
Id.
{¶ 29} In the present case, unlike Hurst, the assignor — Fifth Third Bank —
was the obligee of the Schwartzes’ personal guaranties.
{¶ 30} Further, the Note here states that it is secured by, inter alia, “a separate
Guaranty of even date herewith executed by each Guarantor in favor of Bank
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(collectively the ‘Guaranties’) ***.” Sally and Abraham Schwartz were identified as
the individual Guarantors in the Note. The Note also identifies the personal guaranties,
as well as other instruments securing the Note, as “Security Instruments.” The Note
further explains that “[a]ll of the terms, agreements, conditions, covenants, warranties,
representations, provisions, and stipulations made by or imposed upon Borrower in the
Security Instruments are hereby made part of this Note to the same extent, and with the
same force and effect, as if they were fully recited herein.”
{¶ 31} Each Guaranty likewise states that “[t]his Guaranty shall bind Guarantor
and Guarantor’s heirs, executors, administrators, personal representatives, successors and
assigns, and shall inure to the benefit of the Bank and its successors and assigns.”
{¶ 32} It is therefore clear from the language of the two instruments that the
original parties to the agreement intended to keep the personal guaranties and the Note
together. Accordingly, we conclude that Cadlerock proved that it was the assignee of
the personal guaranties.
Damages
{¶ 33} Finally, appellants argue that Cadlerock failed to prove its damages. We
disagree.
{¶ 34} Ellcessor testified that the total balance due as of September 2, 2010, was
$502,192.95. This was sufficient evidence to prove damages. Appellants arguments
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that Cadlerock may have incorrectly calculated the amount of interest or late fees are
merely speculative.
{¶ 35} Accordingly, we conclude that Cadlerock proved its damages.
{¶ 36} As such, appellants’ sole assignment of error is overruled.
Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment
into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
MARY J. BOYLE, PRESIDING JUDGE
SEAN C. GALLAGHER, J., and
KATHLEEN ANN KEOUGH, J., CONCUR