Community Action Commt. of Pike Cty., Inc. v. Maynard

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[Cite as Community Action Commt. of Pike Cty., Inc. v. Maynard, 2003-Ohio-4312.] IN THE COURT OF APPEALS OF OHIO FOURTH APPELLATE DISTRICT PIKE COUNTY COMMUNITY ACTION COMMITTEE OF PIKE COUNTY, INC., : : : Case No. 02CA695 Plaintiff-Appellee, : : v. : : JEFFREY MAYNARD, ET AL., : DECISION AND JUDGMENT ENTRY : Defendants-Appellants. : : Released 8/12/03 ___________________________________________________________ APPEARANCES: Amelia A. Bower, Plunkett & Cooney P.C., Columbus, Ohio, for appellant Morequity, Inc.1 Ed Rhoads, Waverly, Ohio, for appellee. ___________________________________________________________ Harsha, J. {¶1} Pleas Morequity, Court s Community Action Inc. decision appeals the granting Committee of Pike Pike summary County, County Common judgment Inc. to (CAC). Morequity contends CAC does not have a first and best lien on the property at issue because the modification of CAC s loan agreement invalidated its mortgage. Morequity argues that because the modification is not a valid extension of 1 Different counsel represented Morequity during the proceedings below and during the first stages of the appellate process. A substitution of counsel occurred after the filing of Morequity s merit brief. the mortgage, it invalidates the original mortgage. We find no support for Morequity s argument that an invalid extension of a mortgage invalidates the mortgage itself. Thus, even if we were to agree with Morequity s argument that the new loan agreement is an invalid modification of the mortgage, we conclude the invalidate the original mortgage. that if CAC property, applied. does the have doctrine a of first modification does not Morequity also argues and marshaling best lien assets on should the be We conclude the doctrine of marshaling assets is inapplicable because CAC and Morequity are not creditors of a common debtor. {¶2} In December 1997, Jeffrey Maynard entered into a land installment contract with Leslie Clark for the sale of property located at 981 Gilbert Street, Columbus, Ohio. In 1999, Maynard applied to CAC for a loan to start a trucking business. in April 1999. U.C.C. s . He executed a promissory note with CAC The note indicates that it is secured by It also contains a security agreement granting CAC a security interest in a 1986 FRHT Model FLC and a 1986 Trailmobile Platform TRL Model F71. One month after executing the note, Maynard executed an open-end mortgage against the Gilbert Street Property to secure the note.2 CAC recorded its mortgage on May 12, 1999. {¶3} Also in 1999, Clark filed a loan application with Old Kent Mortgage Company (Old Kent) to pay-off the debt owed to Maynard on the land installment contract. Old Kent approved Clark s loan and established a settlement date of May 29, 1999. On that day, Clark executed a mortgage against the Gilbert Street Property to secure the loan. addition, Maynard executed a general warranty conveying the Gilbert Street Property to Clark. recorded its mortgage on June 7, 1999. In deed Old Kent However, Ticorp National Title Agency of Ohio, Inc., the escrow and closing agent, failed to record the deed from Maynard to Clark. {¶4} In May 2000, he had and fallen CAC restructured Maynard s loan payments. Maynard executed a new promissory note with CAC on May 5, 2000. because Maynard behind in his The new note specifically states that it is a rewritten loan. Like the original note, the new note indicates that it is secured by UCC s . It also contains a in security note. 2 agreement identical to that the original However, the new note extends the time for repayment According to CAC, the parties intended to execute both the mortgage and promissory note together but were unable to do so because Maynard of the original loan and reduces Maynard s monthly assigned Clark s payments. {¶5} In November 2001, mortgage to Morequity. Old the In Kent meantime, defaulted on his loan obligation to CAC. CAC filed a complaint in foreclosure Clark, Clark s wife, and Morequity. defendant to file an answer. Maynard had In January 2002, against Maynard, Morequity was the only In April 2002, CAC filed a motion for default judgment against Maynard and the Clarks and a motion for summary judgment against Morequity. trial court granted both of CAC s motions. The Morequity now appeals, raising the following assignment of error: The trial court erred in granting plaintiff-appellee's motion for summary judgment and denying defendant-appellant's motion for summary judgment." {¶6} In reviewing a summary judgment, the lower court and the appellate court utilize the same standard, i.e., we review the judgment independently and without deference to the trial court s determination. Midwest Specialties, Inc. v. Firestone Tire & Rubber Co. (1988), 42 Ohio App.3d 6, 8, 536 N.E.2d 411. following have Summary judgment is appropriate when the been established: (1) that there is no genuine issue as to any material fact; (2) that the moving failed to provide a copy of the property s legal description on the day party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, that party being entitled to have the evidence construed most strongly in its favor. 146, 524 Bostic v. Connor (1988), 37 Ohio St.3d 144, N.E.2d 881, citing Harless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 66, 375 N.E.2d 46; cf., also, State ex rel. Coulverson v. Ohio Adult Parole Auth. (1991), 62 Ohio St.3d 12, 14, 577 N.E.2d 352; Civ.R. 56(C). The burden of showing that no genuine issue exists as to any material fact falls upon the moving party in requesting summary judgment. Mitseff v. Wheeler (1988), 38 Ohio St.3d 112, 115, 526 N.E.2d 798. If the moving party satisfies this burden, the nonmoving party then has a reciprocal burden outlined in Civ.R. 56(E) to set forth specific facts showing that there is a genuine issue for trial, and if the nonmovant does not so respond, summary judgment, if appropriate, nonmoving party. shall be entered against the Kulch v. Structural Fibers, Inc., 78 Ohio St.3d 134, 145, 1997-Ohio-219, 677 N.E.2d 308, citing Dresher v. Burt (1996), 75 Ohio St.3d 280, 295, 662 N.E.2d 264. he executed the promissory note. Morequity {¶7} assignment contends of advances error. the In its modification invalidated its mortgage. two arguments first of under argument, CAC s loan its Morequity agreement Morequity contends the May 5, 2000 promissory note invalidates the mortgage because it is not a valid extension of the mortgage. that the new promissory note must be Morequity argues recorded and must intelligibly refer to the mortgage in order to be a valid extension of the mortgage. Morequity contends the failure to record the promissory note and the lack of intelligible reference to the mortgage results in an invalid extension of the mortgage, which invalidates the mortgage itself. Morequity relies on R.C. 5301.231 and the Supreme Court of Ohio s opinion in Choteau, Merle & Sandford v. Thompson & Campbell (1853), 2 Ohio St. 114, to support its argument. However, we are not convinced. {¶8} R.C. 5301.231(A) provides: "All amendments or supplements of mortgages, or modifications or extensions of mortgages or of the debt secured by mortgages, that have been executed in the manner provided in section 5301.01 of the Revised Code shall be recorded in the office of the county recorder of the county in which the mortgaged premises are situated and shall take effect at the time they are delivered to the recorder for record. * * *" It is undisputed that CAC did not record its new promissory note. However, we question whether the statute requires this type of modification to be recorded. Initially, we note the that CAC s promissory note is not type of instrument encompassed by R.C. 5301.01, which addresses the requirements necessary for execution of deeds, mortgages, land contracts, leases, and memoranda of trust. Moreover, the modification at issue is a routine extension of the repayment date lienholders. that is unlikely Nevertheless, to even if prejudice the junior statute does require this type of modification to be recorded, we do not believe that a failure to comply with the statute results in invalidation of the original mortgage and loss of priority. See Farmers Prod. Credit Assoc. of Ashland v. Kleinfeld (Jan. 15, 1986), Medina App. No. 1408 (holding that the failure to record an extension of a debt, which extended the time for repayment, did not result in loss of priority.) that would a There is nothing in the statute to indicate failure result Rather, the to in record the invalidation statute indicates modification of that extension original the or mortgage. the modification or extension takes effect when it is delivered for record. Thus, the natural conclusion is that a modification or extension that is not recorded is an ineffective extension or modification of the mortgage and is not secured by the original mortgage. This, however, does not affect the validity and priority of the original mortgage. {¶9} In addition to R.C. 5301.231, Morequity also relies on the Supreme Court of Ohio s opinion in Choteau, Merle & Sandford v. Thompson & Campbell (1853), 2 Ohio St. 114, to support his argument. In Choteau, at paragraph eleven of the syllabus, the Supreme Court of Ohio held: "Where * * * a mortgage is duly made and recorded, and subsequently an indorsement executed and acknowledged, with the formalities of a deed, is made on the mortgage, providing that the said mortgage, in all its provisions and terms, shall extend to the securing of a further sum, the indorsement may be recorded in another part of the record book than that containing the original mortgage, without recording the original again; and if the subsequent record intelligibly refer to the first record, the said indorsement will be a valid extension of the condition of the mortgage as first made and recorded." However, Choteau addressed the extension of a mortgage to secure the loan of additional funds. CAC s new promissory contemplate a loan of additional funds. note does not Rather, the new note evidences the same debt as the old note but extends the time for repayment and reduces Maynard s monthly payment. Moreover, there is no language in Choteau to suggest that an invalid extension of the original mortgage would invalidate the mortgage. priority Choteau. recorded of the original In fact, the validity and mortgage was not at issue in Rather, Choteau focused on whether subsequently indorsements to a mortgage constituted valid extensions of the mortgage. {¶10} Having find no analyzed support modification of original mortgage. for R.C. 5301.231 Morequity s CAC s loan and Choteau, we that the invalidated the argument agreement In Riegel v. Belt (1928), 119 Ohio St. 369, 164 N.E. 347, paragraph three of the syllabus, the Supreme Court of Ohio held: "The purpose of a mortgage is to secure the payment of a debt. A note described in the condition of a mortgage is only evidence of the debt. No change in the form of the evidence, or the mode or time of payment, not amounting to actual payment of the debt, or an express release, will operate to discharge the mortgage." Moreover, where one note is merely substituted for the note originally secured by the mortgage, the priority of the mortgage will not be impaired. Farmers Prod. Credit Assoc. of Ashland v. Kleinfeld (Jan. 15, 1986), Medina App. No. 1408, citing Kratovil & Werner, Modern Practice (1981), 549, Section 38.03(a). Mortgage Law & As one treatise states: An extension that merely alters the time period for the payment of the obligation generally has no effect on the priority position of the extended against intervening junior encumbrances. mortgage as If, however, the extension also affects the amount of principal to be paid, or increases the interest rate, then the extended mortgage may lose priority obligation. as to the amount of the increased 4 Powell on Real Property (1997), 37-219, Section 37.31. {¶11} CAC s mortgage is an open-end mortgage securing future advances up to $9,500.00. The May 5, 2000 promissory note merely modified the original note secured by the open-end mortgage. extension monthly of the payments month. The new additional funds established in modification of The new note granted a ten-month repayment period reduced from $315.70 note did not provide nor did it raise the CAC s original per and month note. promissory note to for the Maynard s $290.28 the per loan interest We allow rate conclude to of for the an extension of the repayment period did not invalidate CAC s mortgage. Moreover, the modification did not affect the priority of CAC s mortgage. lien on the property. Thus, CAC had a first and best {¶12} In its second argument, Morequity contends that if CAC has a first and best lien on the property, the doctrine of marshaling assets should be applied. It contends CAC should be required to foreclose on the 1986 FRHT Model FLC and 1986 Trailmobile Platform TRL Model F71 before being permitted to foreclose on the Gilbert Street Property. {¶13} The doctrine of marshaling assets is an equitable remedy under common law. Toledo Blank, Inc. v. Pioneer Steel Serv. Co. (1994), 98 Ohio App.3d 109, 115, 648 N.E.2d 1. The equitable remedy of marshaling securities, with that of marshaling assets, depends upon the principle that a person having two funds to satisfy his demands shall not, by his election, disappoint a party having but one fund. The general rule is, that if one creditor, by virtue of a lien or interest, can resort to two funds, and another to one of them only * * * the former must seek satisfaction out of that fund which the latter cannot touch. (Example omitted.) Parker v. Wheeler (1933), 47 Ohio App. 301, 306307, 191 N.E. 798, quoting Pomeroy s Equity Jurisprudence, Second Edition, Vol. 5, page 5078, §2288. However, the doctrine of marshaling assets is only available if the two parties are creditors of a common debtor. Mason v. Hull (1896), 55 Ohio St. 256, 45 N.E. 632, paragraph two of the syllabus; Homan v. Michles (1963), 118 Ohio App. 289, 291, 194 N.E.2d 162. {¶14} Morequity contends Maynard is a common debtor of both CAC and Morequity because, due to Ticorps failure to record the general warranty deed from Maynard to Clark, Maynard is the record owner of the Gilbert Street Property. We disagree. Maynard does not become Morequity s debtor by virtue of being the record owner of property upon which Morequity has a mortgage. (1999) defines another. money, Maynard debtor Webster s New College Dictionary as one who owes something to While the record indicates that Maynard owes CAC there owes is nothing Morequity in the record indicate Rather, anything. to the that record indicates that Clark, not Maynard, is Morequity s debtor. Because CAC and Morequity are not creditors of a common debtor, the doctrine of marshaling assets is not available. Thus, the trial court acted properly in granting summary judgment to CAC. {¶15} Finally, Morequity s reply brief raises a number of arguments promissory challenging note and the mortgage. validity of Morequity the original contends the mortgage does not secure the original loan agreement due to a discrepancy in dates. Morequity points out that the mortgage indicates it secures a note dated the same date as the mortgage; however, the promissory secures is dated one month earlier. that the mortgage was given to note the mortgage Morequity also argues a non-existent entity. Morequity acknowledges that Community Action Committee of Pike County, Inc., is a valid Ohio corporation. However, Morequity contends CAC of Pike Co., Inc., the mortgagee identified in the corporation. original mortgage, Furthermore, promissory note does not exist Morequity violates Truth as an contends in Ohio CAC s Lending Laws because it does not indicate a security interest in the Gilbert Street Property. {¶16} Morequity did not raise these arguments in the trial court. Rather, Morequity arguments in its reply brief. argument in argument for the trial purposes court of first raises these The failure to raise an results appeal. in waiver Stores Realty of that Co. v. Cleveland (1975), 41 Ohio St.2d 41, 43, 322 N.E.2d 629; Lippy v. Society Natl. Bank (1993), 88 Ohio App.3d 33, 623 N.E.2d 108. Moreover, an appellant may not use a reply brief to raise new issues or assignments of error. Durham v. Pike Cty. Joint Vocational School, 150 Ohio App.3d 148, 2002-Ohio-6300, 779 N.E.2d 1051, at ¶12; In re Haubeil, Ross App. No. 01CA2631, 2002-Ohio-4095, at ¶25. Reply briefs are to be used only to rebut arguments raised in appellee s brief. Accordingly, we App.R. 16(C); Durham; In re Haubeil. overrule Morequity s assignment of error and affirm the judgment of the trial court. JUDGMENT AFFIRMED. JUDGMENT ENTRY It is ordered that the JUDGMENT BE AFFIRMED and that Appellee recover of Appellant costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Pike County Common Pleas Court to carry this judgment into execution. Any stay previously granted by this Court is hereby terminated as of the date of this entry. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. Exceptions. Evans, P.J. & Abele, J.: Concur in Judgment and Opinion. For the Court BY: _______________________ William H. Harsha, Judge NOTICE TO COUNSEL Pursuant to Local Rule No. 14, this document constitutes a final judgment entry and the time period for further appeal commences from the date of filing with the clerk.

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