Cadlerock Joint Venture, L.P. v. Freeway Circle Properties, L.L.C.

2011 Ohio 3986

• Court: Ohio Court of Appeals
• Decided: August 11, 2011
• Docket: 96003
• Status: Published

Opinion

[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 2

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 3

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 4

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 5

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. 6

{¶ 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 7

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 8

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 9

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 10

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 11

(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 12

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