Home S. & L. of Youngstown v. Snowville Subdivision , 2012 Ohio 4594 ( 2012 )

[Cite as Home S. & L. of Youngstown v. Snowville Subdivision, 2012-Ohio-4594.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 97985
HOME SAVINGS AND LOAN
OF YOUNGSTOWN, OHIO
PLAINTIFF-APPELLEE
vs.
SNOWVILLE SUBDIVISION JOINT
VENTURE PHASE I, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
REVERSED AND REMANDED
Civil Appeal from the
Cuyahoga County Common Pleas Court
Case No. CV-722294
BEFORE: Boyle, J., Blackmon, A.J., and Keough, J.
RELEASED AND JOURNALIZED: October 4, 2012
ATTORNEYS FOR APPELLANTS
David D. Drechsler
John P. Slagter
Anthony R. Vacanti
Buckingham, Doolittle & Burroughs
1375 East Ninth Street
Suite 1700
Cleveland, Ohio 44114
ATTORNEYS FOR APPELLEE
Frances Floriano Goins
Brad A. Sobolewski
Matthew T. Wholey
Ulmer & Berne LLP
Skylight Office Tower
1660 West 2nd Street, Suite 1100
Cleveland, Ohio 44113-1448
Thomas M. Gacse
P.O. Box 1111
Youngstown, Ohio 44501
MARY J. BOYLE, J.:
{¶1} Defendants-appellants, Snowville Subdivision Joint Venture Phase I
(“Snowville”), South Brecksville Development Company (“South Brecksville”), and
several other entities and individuals1 (collectively referred to as “Developers”) appeal
from a judgment denying their motion to vacate cognovit judgments against them that
were obtained by plaintiff-appellee, Home Savings and Loan of Youngstown, Ohio
(“Home Savings”). They raise two assignments of error for our review:
[1.] The trial court erred by engaging in a mini-trial on the merits
instead of granting the motion to vacate based on specific operative factual
allegations set forth in the motion to vacate and attached affidavit.
[2.] The trial court erred when it denied appellants’ motion to vacate
despite the operative facts set forth in the motion to vacate, attached
affidavit, and the two-day hearing.
{¶2} Finding merit to Developers’ second assignment of error, we reverse and
remand.
Procedural History and Factual Background
{¶3} In March 2010, Home Savings filed a complaint upon a cognovit note
against Developers. According to the complaint, Home Savings agreed to loan
Snowville and South Brecksville $9,032,000 to develop land in Brecksville, Ohio, known
as The Woodlands of Snowville (“Woodlands”). Phase I of the development involved
Snowville Subdivision Joint Venture Phase I (“Snowville”), South Brecksville Development
1
Company (“South Brecksville”), Queenswood Developers, Inc. (“Queenswood”), Infinity
Development of Ohio, Ltd. (“Infinity”), Parkview Financial Group, LLC, Anne Ream, Thomas Ream,
Paul Ream, and Robert Ream.
constructing single family homes on 54 lots; 64 lots would be developed in future phases.
{¶4} Snowville and South Brecksville executed a cognovit promissory note on
November 21, 2006, where they agreed to make interest only payments to Home Savings
until November 21, 2009, after which the entire unpaid principal balance with all accrued
interest was due and payable in full. The other appellants guaranteed the loan.
{¶5} Under the Loan Agreement, Phase I improvements were to be completed
within one year of the agreement, by November 21, 2007. The Phase I improvements
included installation of utilities, roadways, and other infrastructure improvements,
including an off-site sanitary sewer facility.
{¶6} By November 21, 2007, the improvements were not completed. In fact,
none of the actual physical work was done in 2007. Chris Bender, president of land
development for Park Group Companies of America (he signed the Loan Agreement on
behalf of Snowville), testified that they ran into many obstacles from the city of
Brecksville, the county, and the Environmental Protection Agency due to the Woodlands’
close proximity to the Cuyahoga Valley National Park and Cuyahoga River. Bender
stated that the work began in March 2008 and continued through November 2008, with
the bulk of it being done in the summer of 2008.
{¶7} Bender testified that throughout 2008, Home Savings approved Developers’
requests for money to pay subcontractors. Bender explained that Developers would
receive an invoice from subcontractors as work was completed. Developers would then
submit a “draw request” in writing to Home Savings, along with an affidavit of intent to
pay the invoice. Home Savings authorized several draws in 2008 as work was
completed, in the amounts of $100,000, $197,000, $216,000, $80,000, $145,000, and
$168,000. Developers did not request any draws in 2009 because they were contributing
their own funds to the project so that the loan would remain in balance (meaning that the
balance remaining on the loan would cover the cost of the work remaining on the Phase I
improvements).
{¶8} The city of Brecksville (“City”), Home Savings, and Developers were
parties to an agreement (“Escrow Agreement”) dated November 17, 2009. Under the
Escrow Agreement, Home Savings “agreed to hold on deposit and in escrow on behalf of
Developer[s] a credit balance” of $3,634,600 “for the purpose of constructing and
installing sanitary trunk sewer lines, water trunk lines, storm sewer lines, sanitary sewer
lines, the construction of storm water storage and detention facilities, water mains and
appurtenances thereto,” and construction of “deep strength asphalt pavement,” with
concrete curbs, gutters, sidewalks, and other “appurtenances incident to a street.” Per
the Escrow Agreement, the City would contribute $400,000 toward the construction of
the sanitary sewer. Further, under the Escrow Agreement, Developers had 12 months to
complete the project.
{¶9} There is no dispute that Developers made timely interest payments as
required under the Loan Agreement, from the loan’s inception through December 2009.
On December 23, 2009, however, Home Savings sent a letter to Developers informing
them that they were in default because (1) Phase I completions were not done by
November 21, 2007, and (2) Developers had “experienced a material adverse change” in
their financial condition since the inception of the loan. Home Savings further notified
Developers that it was terminating the loan and would not make any further advances.
Home Savings filed its cognovit complaint three months later in March 2010.
{¶10} Home Savings alleged in its complaint that Developers had defaulted on the
loan and owed it $5,047,975.40 plus accrued interest of $68,425.65, plus late fees, at an
interest rate of 5.32 percent per annum from March 3, 2010. Home Savings received a
cognovit judgment on the note upon filing the complaint.
{¶11} Developers immediately moved to stay execution of the cognovit judgment
(which the trial court granted), and moved to vacate the judgment. In their motion to
vacate, Developers alleged that Home Savings, through acquiescence or waiver, agreed to
extend the construction completion date, thereby extending the maturity date of the loan.
Developers further alleged that they properly exercised an option under the Loan
Agreement to extend the maturity date of the loan for one year, until November 21, 2010,
by giving written notice to Home Savings and tendering an “extension check,” which was
accepted by Home Savings.
{¶12} After a two-day hearing in January 2011, the trial court denied the
Developers’ motion to vacate. It is from this judgment that Developers appeal.
Developers’ Case Against Home Savings
{¶13} Before we get to the arguments in the present case, we must discuss a
related case (Developers’ case against Home Savings) because — as all parties in the
present case agree (although they disagree as to how) — it is relevant to the analysis here.
{¶14} In November 2010, Developers filed a complaint against Home Savings for
breach of the Loan Agreement, breach of good faith, negligent misrepresentation,
promissory estoppel, and breach of the Escrow Agreement. See Snowville Subdivision
Joint Venture Phase I, et al. v. Home S. & L. of Youngstown, Cuyahoga C.P. No.
CV-742470. Developers’ case against Home Savings was assigned to a different judge
than the Home Savings’ cognovit case against Developers (the case at issue in the present
appeal). Developers moved to consolidate the two cases, but the trial court denied their
motion. Upon Home Savings’ motion, however, Developers’ case against Home
Savings was transferred to the commercial docket.
{¶15} Home Savings moved to dismiss Developers’ case, claiming that Developers
failed to state a claim for relief. The trial court agreed and dismissed Developers’ case.
Developers appealed to this court. See Snowville Subdivision Joint Venture Phase I, et
al. v. Home S. & L. of Youngstown, 8th Dist. No. 96675, 2012-Ohio-1342. This court
agreed with the trial court that Developers failed to state a claim for breach of duty of
good faith and fair dealing and negligent misrepresentation, but we disagreed with the
trial court regarding Developers’ breach of contract claims. Id. at ¶ 24, 29, and 32. We
determined that Developers sufficiently plead a claim for breach of contract in their
complaint because they asserted that they validly exercised an option to extend the
November 2009 maturity date of the Loan Agreement and that Home Savings waived the
November 2007 completion date of the Phase I improvements. Id. at ¶ 24. We will
further discuss this related case in our analysis of Developers’ second assignment of error.
Motion to Vacate
{¶16} Civ.R. 60(B) applies to relief from all judgments, including cognovit
judgments. Adomeit v. Baltimore, 39 Ohio App.2d 97, 316 N.E.2d 469 (8th Dist.1974),
paragraph one of the syllabus. In general, to prevail on a motion for relief from
judgment brought pursuant to Civ.R. 60(B), “the moving party must demonstrate that ‘(1)
the party has a meritorious defense or claim to present if relief is granted; (2) the party is
entitled to relief under one of the grounds stated in Civ.R. 60(B)(1) through (5); and (3)
the motion is made within a reasonable time[.]’” Cuyahoga Support Enforcement
Agency v. Guthrie, 84 Ohio St.3d 437, 440, 705 N.E.2d 318 (1999), quoting GTE
Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d 146, 351 N.E.2d 113 (1976).
{¶17} This test is modified, however, when a party is seeking relief from a
cognovit judgment. Because the judgment debtor is not afforded notice or the
opportunity to answer the complaint prior to the entry of a cognovit judgment, the
judgment debtor is not required to show entitlement to relief under one of the specific
grounds listed under Civ.R. 60(B). See Medina Supply Co. v. Corrado, 116 Ohio
App.3d 847, 850-851, 689 N.E.2d 600 (8th Dist.1996), citing Soc. Natl. Bank v. Val Halla
Athletic Club & Recreation Ctr., Inc., 63 Ohio App.3d 413, 579 N.E.2d 234 (9th
Dist.1989). “Therefore, a party seeking relief from a cognovit judgment is only required
to demonstrate the existence of a meritorious defense and that the motion is made within
a reasonable time.” Id.{¶18} With regard to the first element of the GTE test, a moving party need only
allege a meritorious defense; it need not prove that it will prevail on that defense. Rose
Chevrolet, Inc. v. Adams, 36 Ohio St.3d 17, 20, 520 N.E.2d 564 (1988); GMAC Mtge.,
L.L.C. v. Herring, 189 Ohio App.3d 200, 2010-Ohio-3650, 937 N.E.2d 1077, ¶ 32 (2d
Dist.). Although proof of success is not required, the moving party must support its
alleged defense with operative facts that have enough specificity to allow the trial court to
judge the merit of the defense. Miller v. Susa Partnership, L.P., 10th Dist. No.
07AP-702, 2008-Ohio-1111, ¶ 16. A proffered defense is meritorious if it is not a sham
and when, if true, it states a defense in part, or in whole, to the claims for relief set forth
in the complaint. Miller at ¶ 15.
{¶19} The decision to grant or deny a Civ.R. 60(B) motion lies within the sound
discretion of the trial court and will not be reversed on appeal absent an abuse of
discretion. Strack v. Pelton, 70 Ohio St.3d 172, 174, 637 N.E.2d 914 (1994). The term
“abuse of discretion” implies that the court’s attitude was unreasonable, arbitrary or
unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140(1983). Because the law favors disposition of cases by a trial on the merits, courts
should resolve doubt as to the establishment of a meritorious defense or a ground for
relief in favor of the moving party. Peter M. Klein Co. v. Dawson, 10th Dist. No.
10AP-1122, 2011-Ohio-2812, ¶ 9; Bank One v. SKRL Tool & Die, Inc., 11th Dist. No.
2003L048, 2004-Ohio-2602, ¶ 16.
{¶20} In this case, Developers filed their motion for relief from judgment less than
a month after the court issued its cognovit judgment. Thus, the only remaining burden
on Developers was to demonstrate the existence of a meritorious defense.
Evidentiary Hearing
{¶21} In Developers’ first assignment of error, we are presented with the unusual
argument that the trial court erred by holding an evidentiary hearing before ruling on their
motion to vacate. Generally, when parties appeal the denial of their Civ.R. 60(B)
motion to this court, they claim that the trial court erred by not holding a hearing. We
find no merit to Developers’ argument.
{¶22} To obtain relief under Civ.R. 60(B), the moving party must present
operative facts that demonstrate the existence of a meritorious defense or claim.
Adomeit, 39 Ohio App.2d 97, 316 N.E.2d 469 at paragraph two of the syllabus. There is
no requirement that a moving party submit evidentiary materials, such as an affidavit, to
support his or her motion for relief. Id. at 103. But good legal practice dictates that the
moving party submit relevant evidence to demonstrate operative facts, as sufficient
factual information is necessary to warrant a hearing on the motion. Id. at 104.
{¶23} “If the movant files a motion for relief from judgment and it contains
allegations of operative facts which would warrant relief under Civ.R. 60(B), the trial
court should grant a hearing to take evidence and verify these facts before it rules on the
motion.” Id. at 105. Moreover, “it is an abuse of discretion for the trial court to
overrule a Civ.R. 60(B) motion for relief from judgment without first holding an
evidentiary hearing where the motion and affidavits contain allegations of operative facts
which would warrant relief under Civ.R. 60(B).” Twinsburg Banking Co. v. RHEA
Const. Co., Inc., 9 Ohio App.3d 39, 458 N.E.2d 440 (9th Dist.1983), syllabus.
{¶24} Here, the court conducted a hearing that allowed Developers to present
evidence to verify their operative facts. Accordingly, Developers’ first assignment of
error is overruled.
Meritorious Defenses
{¶25} In their second assignment of error, Developers argue that the trial court
erred when it denied their motion to vacate because they established the existence of
meritorious defenses — essentially that they were not in default because Home Savings
waived the November 2007 completion date and waived and or extended the November
2009 maturity date.
{¶26} Home Savings contends that Developers do not have meritorious defenses
because (1) the Loan Agreement contained a waiver clause, preventing oral modification
of its terms and modification by waiver, and (2) Developers defaulted on the loan and
breached numerous provisions in the agreement.
A. Waiver of November 2007 Phase I Completion Date
{¶27} Developers argue that Home Savings waived the requirement that Phase I be
completed by November 2007. Home Savings disagrees, citing the waiver provision.
The waiver provision states: “No waiver of any Event of Default shall extend to or affect
any subsequent Event of Default or shall impair any rights, remedies and/or powers
available to lender. No single or partial exercise of any right, remedy or power shall
preclude other or further exercise thereof by [Home Savings].”
{¶28} Further, the Loan Agreement required Developers to obtain advance written
permission from Home Savings for any modification or extension of a deadline. It
states: “[a]ny of the acts that Borrower is required to do or prohibited from doing by any
of the provisions of this Agreement may, notwithstanding such provisions, be omitted or
done, as the case may be, only if Lender by an instrument in writing, has given Lender’s
prior consent thereto.”
{¶29} It is undisputed that Home Savings did not expressly consent in writing to
extend the November 21, 2007 Phase I completion date or the November 21, 2009 loan
maturity date. Regarding written waiver provisions, this court explained in Snowville
Subdivision v. Home S. & L.:
This court has recently held that written waiver provisions are valid
and enforceable in Ohio. “Ohio law is very clear that a contract that
expressly provides that it may not be amended, modified, or waived except
in writing executed by the parties is not subject to oral modification.”
Kelley v. Ferraro, 188 Ohio App.3d 734, 2010-Ohio-2771, 936 N.E.2d 986,
¶ 39 (8th Dist.), citing Freeman-McCown v. Cuyahoga Metro. Hous. Auth.,
8th Dist. Nos. 77182 and 77380, 2000 WL 1594090 (Oct. 26, 2000);
Rosepark Properties, Ltd. v. Buess, 167 Ohio App.3d 366, 2006-Ohio-3109,
855 N.E.2d 140, ¶ 38 (10th Dist.); Chiaverini, Inc. v. Jacobs, 6th Dist. No.
L-06-1360, 2007-Ohio-2394, ¶ 24; Fultz & Thatcher v. Burrows Group
Corp., 12th Dist. No. CA2005-11-126, 2006-Ohio-7041, ¶ 17.
However, even with such a written waiver provision, [Home
Savings], through its actions, may waive a requirement under the
agreement. Discussing no-oral modification clauses, the Twelfth District
reasoned,
if such clauses are rigidly enforced, then a party could simply
insert the clause into an agreement and would be magically
protected in the future no matter what that party said or did.
More simply, by including a no-oral-modification clause in a
contract, a party could orally induce the opposing party in any
way and then hide behind the clause as a defense. (Internal
citations omitted.) Fields Excavating, Inc. v. McWane, Inc.,
12th Dist. No. CA2008-12-114, 2009-Ohio-5925, ¶ 17, citing
Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 381,
122 N.E. 378 (1919).
Snowville Subdivision, 8th Dist. No. 96675, 2012-Ohio-1342, at ¶14-15.
{¶30} This court went on to explain in Snowville Subdivision:
[Home Savings] may have acquiesced when the improvements were
not completed in 2007 when making disbursements. According to
appellants’ complaint, [Home Savings] continued to make disbursements
even though a condition precedent to any disbursement was that appellants
not be in breach of the agreement. Based on these arguments and the facts
alleged in appellants’ complaint, it is difficult to conclude that, as a matter
of law, [Home Savings] did not waive the requirement in the contract that
improvements be completed by 2007.
[Home Savings] argues that its mere silence cannot be construed as a
waiver, especially in light of the anti-waiver provisions. Under the Loan
Agreement, a precondition to any disbursement of funds from Snowville’s
loan account was that appellants not be in breach. [Home Savings] made
disbursements after 2007, indicating they were waiving the requirement for
completion of improvements for loan disbursements. This is more than
mere silence. However, its waiver in one instance does not act to
relinquish its rights to enforce other contract provisions according to the
anti-waiver provision.
The waiver must be clear and unequivocal if it contradicts a written
contract provision. If it is, a written waiver provision, just like any other
provision in a contract, can be waived by actions of the parties.
Glenmoore Builders, Inc. v. Smith Family Trust, 9th Dist. No. 24299,
2009-Ohio-3174, ¶ 41. Based on appellants’ complaint, [Home Savings]
did not enforce the completion date for the improvements or object when
appellants continually failed to timely complete goals under the Loan
Agreement. [Home Savings] continued to make disbursements under the
Loan Agreement.
Id. at ¶ 15-17.
{¶31} Although we were addressing whether Developers sufficiently pled a breach
of contract claim in Snowville Subdivision, the analysis is relevant here. The facts
establish that Home Savings did in fact waive the November 2007 Phase I completion
date. Despite Developers’ breach — by not completing Phase I by November 2007 —
Home Savings continued to make disbursements late into 2008. Indeed, Home Savings
authorized several draws in 2008 as the work was completed — including disbursements
for $100,000, $197,000, $216,000, $80,000, $145,000, and $168,000.
{¶32} Accordingly, we conclude that Developers have presented operative facts
that, if true, establish the existence of a meritorious defense to the Home Savings claim
that they were in default because they did not complete Phase I by November 2007.
B. Waiver of November 2009 Loan Maturity Date
{¶33} Developers further argue that Home Savings waived the November 2009
loan maturity date (1) because it entered into the Escrow Agreement (which gave
Developers 12 months from the date of the agreement to complete construction of the
sanitary sewer, which Developers assert would be until November 2010), and (2) because
Developers exercised their rights under the Loan Agreement and extended the loan
maturation date by one year, extending the completion date until at least November 2010.
1. Escrow Agreement
{¶34} The Escrow Agreement stated:
1. The disbursement of funds by [Home Savings] from [Developers’]
ACCOUNT with respect to the payment of any and all statements for labor
and materials in connection with the aforesaid improvements of Phase I of
the Woodlands of Snowville Subdivision and the improvement plans
therefore, shall be made only upon receipt by [Home Savings] of payment
certificates from the Project Engineer, approved by [Developers] and the
Engineer of City, that said certificates reflect the reasonable cost and
reasonable value of the completion of the development, as verified by
[Home Savings], to the date of each disbursement. Upon receipt of said
payment certificate and upon its own verification, [Home Savings] shall
then make the appropriate disbursement of funds.
{¶35} With respect to the Escrow Agreement, this court explained in Snowville
Subdivision, 8th Dist. No. 96675, 2012-Ohio-1342, that even if we were to assume that
Developers were “correct that the [Escrow] Agreement evidences a waiver of the
completion date, they would still be in breach of the Loan Agreement because the
maturity date occurred without [Developers] repaying the loan.” Id. at ¶ 19. We went
on to explain that under the Escrow Agreement, Home Savings never promised to provide
funds to Developers for construction. We stated, “[i]f anyone had a claim against
[Home Savings] from the [Escrow] Agreement it would be the City if it had taken over
construction[.]” Id. at ¶ 20. Further, we noted that the Escrow Agreement did not
“constitute a clear promise on the part of [Home Savings] to continually advance funds to
appellants outside the terms of the Loan Agreement,” and thus, “ the [Escrow] Agreement
did not evidence a clear intent to extend the maturity date of the loan.” Id.
{¶36} Although the Escrow Agreement alone “did not evidence a clear intent to
extend the maturity date of the loan,” we conclude that the Escrow Agreement, coupled
with other events that were occurring in same time frame, could operate to extend the
loan maturation date.
{¶37} Accordingly, based on our decision in Snowville Subdivision, we conclude
that the Escrow Agreement did not extend the maturity date of the loan.
2. Option to Extend Loan Maturation Date
{¶38} With respect to Developers’ assertion that it validly extended the loan by
exercising its rights under the Loan Agreement, this court stated in Snowville Subdivision:
Appellants have also asserted that the loan was not due because they
validly exercised a provision of the Loan Agreement allowing them to
extend the maturity date for one year. Section 4 of the Loan Agreement
states:
Provided that at the time of such exercise, no Event of Default
or Possible Default * * * then exists hereunder or under any
other Loan Document, Borrower shall have two (2) options to
extend the term of the Loan (each an “Extension Option”).
Each extension option shall be for a period of an additional
twelve (12) months thereafter. * * * Borrower shall
exercise the first Extension Option by providing written
notice of such exercise to [Home Savings] no less than thirty
(30) days prior to the Maturity Date. * * *
Contemporaneously with the exercise of each Extension
Option, Borrower will pay to [Home Savings] an extension
fee in an amount equal to one quarter of one percent (1/4%)
of the outstanding principal balance of the Loan.
Appellants attached documentation to their complaint indicating they
sent an extension notice on October 19, 2009, and that they submitted the
required payment on November 12, 2009, which was processed and
accepted by Home Savings on November 16, 2009. Based on the facts
pled, and accepting their accuracy, appellants have established they may
have validly extended the maturity date of the loan. If Home Savings
accepted the payment, it could waive the requirement within the extension
clause stating that no condition of default exist at the time of the extension.
“[W]aiver of a contract term can occur when a party conducts itself in a
manner inconsistent with an intention to insist on that term.” Vivi Retail,
Inc. v. E & A N.E. Ltd. Partnership, 8th Dist. No. 90527, 2008-Ohio-4705,
¶ 30, citing Convenient Food Mart Inc. v. Atwell, 11th Dist. No.
2003-L-174, 2005-Ohio-704.
Home Savings argues that it did not accept the payment and refused
to extend the maturity date. However, that argument relies on evidence
outside of the complaint. The court could have converted the motion to
dismiss to one for summary judgment to rely on this evidence of refusal to
extend the maturity date, but from the face of the complaint it appears that
Home Savings accepted payment of the fee it required to extend the loan for
one year. Appellants have put forth a set of facts supported by evidence
indicating the maturity date of the loan was extended.
Snowville Subdivision at ¶ 21-23.
{¶39} In Snowville Subdivision, this court was considering a Civ.R. 12(B)(6)
motion to dismiss based upon the complaint. Although relevant, we must now consider
the facts that are in the record before us. Home Savings argues that Developers did not
extend the loan for one year for two reasons: (1) they could not extend the loan because
they were in default, and (2) they were untimely because they failed to send the extension
check “contemporaneously” with the extension letter. After reviewing the record, we
find Home Savings arguments to be without merit.
{¶40} First, we have already determined that Home Savings waived the
requirement that Developers complete the project by November 2007. And it is
undisputed that Developers had never missed paying a monthly interest payment.
{¶41} Regarding Home Savings’ second argument, that Developers were untimely,
we disagree. The record establishes that Chris Bender sent a letter to Home Savings on
October 19, 2009, informing it that Developers were exercising their first 12-month
extension of the loan, until November 21, 2010. Before he did, he called Mark Bobbit,
the loan officer for the Woodlands development project and the person whom he always
dealt with regarding the project. He told Bobbit that Developers were exercising their
right under the contract to extend the maturity date of the loan and asked him how to
calculate the extension fee. Bobbit contacted him in early November and told him the
amount of the extension fee. Bender sent the check to Home Savings. The record
reflects that Home Savings received and deposited the check on November 17, 2009.
The following day, Home Savings sent a check to Developers for the same amount.
{¶42} We conclude that based on this record, Developers sent the check
“contemporaneously” with the extension letter complying with the terms of the Loan
Agreement.
{¶43} Regarding Home Savings’ claim that it rejected the check, we find that
under the Loan Agreement, Home Savings could not refuse Developers’ right to extend
the loan maturity date unless the Developers were in default. And as we stated
previously, Developers were not in default because Home Savings waived the Phase I
completion date.
{¶44} Further, the record establishes that after a December 4, 2009 meeting
between Developers and representatives of Home Savings, Developers — in reliance on
Home Savings’ actions — sent a $37,000 check to the city of Brecksville to pay for
inspection fees for the upcoming sanitary sewer project, which according to several
witnesses (including the subcontractor who testified that he had already scheduled
people), was set to begin in January 2010.
{¶45} Regarding Home Savings’ claim that Developers failed to submit financial
information to it or that Developers experienced a material adverse change in their
financial condition, we find that these claims are in dispute. Developers testified that
they submitted tax returns and financial information to Home Savings when it became
available to them, explaining that businesses often obtain extensions into October of the
following tax year to complete and file their tax returns for the current year. And
although Developers did not submit new financial information to Home Savings after the
December 4, 2009 meeting, we conclude that they never had a chance to; Home Savings
sent the loan termination letter on December 23, 2009. Further, whether Developers
experienced a material adverse change in their financial condition is also in dispute.
Developers contend their financial condition actually improved; Home Savings claims
that Developers’ financial condition deteriorated. But at this point in the proceedings,
Developers needed to only assert operative facts that, if true, present a defense to claims
set forth in the cognovit judgment. We conclude that Developers have done so in this
case.
{¶46} With respect to Home Savings’ other assertions of Developers’ purported
default, we conclude that Home Savings never provided Developers with a 30-day notice
and time to cure, as required under the Loan Agreement.2
{¶47} Accordingly, we conclude that Developers have presented operative facts
that establish the existence of meritorious defenses to Home Savings’ cognovit judgment
because they properly extended the November 21, 2009 loan maturation date to
November 21, 2010. Home Savings’ alternative argument, that even if Developers
properly extended the loan maturation date to November 21, 2010, they still have not met
that completion date, nor have they paid monthly interest payments since December 2009,
and thus, they are in default, is without merit. Developers stopped everything on the
project, including paying interest, upon receiving Home Savings’ loan termination
letter. Developers’ actions were reasonable and understandable under the
circumstances.
Section 15(c) of the Loan Agreement provides that if Developers are in default of “any
2
non-monetary covenant,” they have 30 days to correct or cure the default “after written notice thereof
has been given” to them by Home Savings.
{¶48} Thus, the trial court abused its discretion by denying Developers’ motion to
vacate cognovit judgments, as they have presented the existence of meritorious defenses.
Developers’ second assignment of error is sustained.
{¶49} Judgment reversed and remanded to the lower court for further proceedings
consistent with this opinion.
It is ordered that appellants recover from appellee 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, JUDGE
PATRICIA ANN BLACKMON, A.J., and
KATHLEEN ANN KEOUGH, J., CONCUR