Panzica Constr. Co. v. Bridgeview Crossing, L.L.C.Panzica Constr. Co. v. Bridgeview Crossing, L.L.C.
JUDGMENT: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
BEFORE: Stewart, J., E.A. Gallagher, P.J., and Laster Mays, J.
RELEASED AND JOURNALIZED: August 27, 2015
ATTORNEYS FOR APPELLANTS
William Joseph Baker
Kerin Lyn Kaminski
Giffen & Kaminski, L.L.C.
1300 East Ninth Street, Suite 1600
Cleveland, OH 44114
Charles A. Nemer
Robert T. Glickman
Susan C. Stone
McCarthy, Lebit, Crystal & Liffman Co., L.P.A.
101 West Prospect Avenue, Suite 1800
Cleveland, OH 44115
ATTORNEYS FOR APPELLEES
For Panzica Construction Company
Melissa A. Jones
Andrew J. Natale
Mark Rodio
Frantz Ward L.L.P.
200 Public Square, Suite 3000
Cleveland, OH 44114
For Bridgeview Crossing, et al.
Gerald W. Phillips
Phillips & Company, L.P.A.
P.O. Box 269
Avon Lake, OH 44012
James L. Allen
Miller, Canfield, Paddock & Stone, P.L.C.
840 West Long Lake Road, Suite 200
Troy, MI 48098
Paul E. Perry
Miller, Canfield, Paddock & Stone, P.L.C.
511 Walnut Street, 19th Floor
Cincinnati, OH 45202
Sam P. Cannata
30799 Pinetree Road, Suite 254
Pepper Pike, OH 44124
Megan B. Odell
Simon P.L.C.
37000 Woodward Avenue, Suite 250
Bloomfield Hills, MI 48304
Also listed:
For Aldi, Inc. Ohio
Ralph E. Dill
James B. Harris
Harris, McClellan, Binau & Cox, P.L.L.
37 West Broad Street, Suite 950
Columbus, OH 43215
For Doan Pyramid, L.L.C.
Charles A. LoPresti
1144 Haverston Road
Lyndhurst, OH 44124
For Kelly & Visconsi Associates, et al.
Mark E. Owens
Grubb & Associates, L.P.A.
437 West Lafayette Road, Suite 260-A
Medina, OH 44256
For State of Ohio
Amy Keller Kaufman
Assistant Attorney General
Collections Enforcement Section
150 East Gay Street, 21st Floor
Columbus, OH 43215
For Cuyahoga County Treasurer
Timothy J. McGinty
Cuyahoga County Prosecutor
Anthony J. Giunta
Justice Center, 9th Floor
Cleveland, OH 44113
For United States of America
James R. Bennett
U.S. Attorney‘s Office
801 West Superior Avenue
400 United States Courthouse
Cleveland, OH 44113
For Third Federal Savings and Loan Association of Cleveland
Arthur J. Tassi
75 Public Square, Suite 1230
Cleveland, OH 44113
For Liberty Bank, N.A.
Jeffrey A. Brauer
Hahn, Loeser & Parks, L.L.P.
200 Public Square, Suite 2800
Cleveland, OH 44114
Emerald Group Credit Union
13201 Granger Road, Suite 1
Garfield Heights, OH 44125
Garfield Heights City School District
5640 Briarcliff Drive
Garfield Heights, OH 44125
Shoe Carnival
CT Corporation, Statutory Service Agent
1300 East Ninth Street, Suite 1010
Cleveland, OH 44113
MELODY J. STEWART,
{¶1} Defendant-appellant Garfield Hope Loan Acquisition, L.L.C.1 appeals from the denial of its motion for summary judgment and the grant of summary judgment in favor of plaintiff-appellee Panzica Construction Company in a lien priority dispute over premises collectively known as the Bridgeview Crossing Retail Shopping Center. For the reasons that follow, we reverse the grant of summary judgment in
{¶2} In 2003, two developers, David B. Snider and Sam P. Cannata, sought to develop a commercial shopping mall on an area of land (hereinafter “the project“) located on Transportation Boulevard in the city of Garfield Heights. To effectuate the building process, Snider and Cannata formed two business entities, Bridgeview Crossing, L.L.C. (hereinafter “Bridgeview“) and Snider-Cannata Interests (hereinafter “SCI“). At all times relevant to this appeal, Bridgeview was the owner of the project property.2
{¶3} On September 29, 2006, SCI entered into an contract with Panzica for construction management of the project. The contract identified SCI, not Bridgeview, as the owner of the project property. However, on October 2, 2008 the contract was amended by the parties to include Bridgeview as joint owner of the project with SCI.3 The amendment states “this amendment is required to add Bridgeview Crossing, L.L.C. to the Contract since it was inadvertently omitted from the Contract form.”
{¶4} Bridgeview entered into a construction loan agreement with Huntington National Bank, whereby Huntington agreed to loan Bridgeview $25 million to finance the project. The parties also entered into an agreement for a standby letter of credit in the amount of $5 million.4 To secure the loans, Huntington and Bridgeview executed an open-end mortgage on the project property described in an exhibit (Exhibit A) attached to the mortgage agreement. Because the nature of the project required Bridgeview to later
acquire certain additional residential property near the parcel described in Exhibit A, the mortgage agreement also contained a clause stating that the parties agree that any future acquired property is to become part of the original mortgage. The clause states:
Borrower and Lender acknowledge and agree that Borrower will be acquiring additional property, including that property which may be in right-of-ways to be vacated * * * which will be part of the
Project (as defined by the Loan Agreement) and that upon the acquisition of any such Additional Property, Borrower shall execute an amendment to this Instrument encumbering such Additional Property, which Additional Property will then be deemed as part of the “Property,” secured by this Instrument. Additional Property shall be subject to all of the terms, obligations and conditions set forth in this Mortgage.
Huntington recorded the mortgage on November 22, 2006. On December 12, 2006, Panzica began its first visible work on the project.
{¶5} As planned, Bridgeview purchased additional parcels for the project. In conjunction with these purchases, Bridgeview and Huntington executed several mortgage modifications. Huntington recorded the first modification on December 22, 2006, and the last on October 12, 2007.5 Each modification described the newly acquired parcels and each contained the following clauses:
Borrower is acquiring certain additional real property (“Additional Property“) which is part of the Property, as defined in the Loan Agreement, and which Borrower is obligated under the terms of the Loan Agreement to subject to the lien created by the Mortgage and other applicable Loan Documents.
* * *
The real property described on Exhibit A to the Mortgage, Assignment and Indemnity Agreement is hereby amended to also include the Additional Property, as described on Exhibit A attached hereto and incorporated by reference herein.
* * *
Except as amended and modified hereby, the provision of the Loan Documents remain in full force and effect and are binding upon and shall inure to the benefit of the parties hereto * * *. Nothing in this Agreement shall affect or impair the liens or priority of the Loan Documents at their inception or the rights and remedies that Lender may have thereunder.
{¶6} Panzica was not paid for certain work done on the project, and on October 14, 2008, Panzica filed an affidavit for a mechanic‘s lien on the project. The affidavit stated that Panzica was owed $6,232,541.00 plus interest from the owner, Bridgeview, and its agent, SCI. The affidavit stated that Panzica began working on the project December 12, 2006, and finished on September 16, 2008. Later, Panzica filed a second affidavit for a mechanic‘s lien on the project, amending the amount to $9,138,868.00 plus interest and amended the last date of work to October 21, 2008.
{¶7} Bridgeview defaulted on its loan agreement with Huntington and Huntington won a judgment against Bridgeview in the amount of $29,348,397.05. Huntington also
obtained an additional judgment against Bridgeview for $6,457,621.00, plus interest, on a related loan. Huntingon filed its judgment liens and they continue to constitute valid and existing liens on the property.
{¶8} SCI also filed an affidavit of mechanic‘s lien against the project in the amount of $1,621,047.32. The lien affidavit averred that SCI conducted valuable work on the project for which it was not paid and that it commenced work on June 22, 2006, and concluded work on December 5, 2008.
sought foreclosure on its mortgage. SCI filed a cross-claim against Bridgeview seeking to foreclose on its lien.
{¶10} On December 30, 2010, Garfield Hope purchased and acquired through assignment, Huntington‘s right, title, and interest in the loan, original mortgage, modifications, leases, and rents. Garfield Hope was later substituted for Huntington as the proper party in this action.
{¶11} Following discovery, Panzica filed a motion for summary judgment. In its motion, Panzica argued that, although its lien was second in priority to Garfield Hope‘s lien on the property described in Exhibit A attached to the original mortgage, its lien had priority over the liens on the property listed in the modifications because they were recorded after Panzica began work on the property.
{¶12} Garfield Hope opposed Panzica‘s motion and also filed a motion for summary judgment. Both the opposition and the motion asserted that it had priority over Panzica‘s mechanic‘s lien on the property in the modifications for four reasons: 1) the mortgage is an “open-end mortgage” and the modifications relate back to the date of the original mortgage; 2) the original mortgage was a construction mortgage and the modifications relate back to the date of the original mortgage; 3) Panzica failed to secure its priority by failing to file a notice of furnishing because it was not in privity of contract with Bridgeview, the project‘s owner; and 4) Panzica executed certain lien waivers that had the effect of forfeiting its rights against the property. Garfield Hope also argued that
because its mortgage and modifications have construction mortgage status, they have priority over SCI‘s mechanic‘s lien.
{¶13} Panzica filed a reply in support of its motion for summary judgment and opposed Garfield Hope‘s motion for summary judgment. In its reply/brief in opposition, it argued that it had no statutory obligation to issue a notice of furnishing because it was the original contractor on the project, and that it was in direct privity of contract with Bridgview through its agent, SCI. Panzica also argued that it had superior and first priority on the additional property added through the mortgage modifications because the modifications
{¶14} In its journal entry granting Panzica‘s motion for summary judgment and denying Garfield Hope‘s, the trial court adopted Panzica‘s argument that the mortgage modifications were junior to the mechanic‘s lien because they added significant real property and did not include a construction mortgage covenant. The court did not discuss any of the other arguments raised in the motions for summary judgment, including Garfield Hope‘s arguments regarding Panzica‘s failure to timely file a notice of furnishing and the execution of lien waivers.
{¶15} On appeal, Garfield Hope contends that the trial court erred in denying its motion for summary judgment for the following reasons: 1) that its mortgage lien was superior in priority because it arose from a construction mortgage as defined in
Jurisdiction
{¶16} Before addressing the merits of the appeal, we note what initially appears to be a jurisdictional impediment to our review. See Kohout v. Church of St. Rocco Corp., 8th Dist Cuyahoga No. 88969, 2008-Ohio-1819, ¶ 4 (explaining that although not raised by the parties, appellate courts must address the issue of jurisdiction when it appears uncertain).
{¶17} In Count 6 of its complaint, Panzica sought a declaratory judgment asking the court to declare SCI‘s mechanic‘s lien invalid, and to declare Panzica‘s mechanic‘s lien valid against the property in the amount $9,138,868.00, and that its lien be foreclosed. As previously noted, when the trial court ruled that the mortgage
modifications were junior to Panzica‘s mechanic‘s lien, the court did not address any other argument raised in the summary judgment motions. However, the ruling on both motions concluded by stating: “Panzica‘s motion for summary judgment is granted on all claims, counterclaims, and cross claims. Garfield Hope‘s motion for summary judgment is denied as to lien priority. No just reason for delay.”
{¶18} This court has stated that “when a trial court enters a judgment in a declaratory judgment action, the order must declare all parties’ rights and obligations in order to constitute a final, appealable order.” Stiggers v. Erie Ins. Group, 8th Dist. Cuyahoga No. 85418, 2005-Ohio-3434, ¶ 5; Klocker v. Zeiger, 8th Dist. Cuyahoga No. 92044, 2009-Ohio-3102, ¶ 13.
As a general rule, a trial court does not fulfill its function in a declaratory judgment action when it fails to construe the documents at issue. Hence the entry of a judgment in favor of one party or the
other, without further explanation, is jurisdictionally insufficient; it does not qualify as a final order.
Highlands Business Park, L.L.C. v. Grubb & Ellis Co., 8th Dist. Cuyahoga No. 85225, 2005-Ohio-3139, ¶ 23.
{¶19} Here, the trial court rendered a judgment in favor of Panzica without declaring whether Panzica‘s lien was valid and SCI‘s invalid. Therefore, on its face, the judgment appears to be jurisdictionally deficient. However, the court could not have rendered a judgment in favor of Panzica on all of its claims, counterclaims, and
cross-claims without having found that Panzica‘s lien was a valid lien against the property as sought in its declaratory judgment claim. Further, the court explicitly stated that all of Panzica‘s claims were granted. So even though the court did not specifically declare the parties’ rights, we read the trial court‘s entry as granting Panzica‘s request to have its lien declared valid, and SCI‘s lien declared invalid. Accordingly, we find that the trial court‘s order is final and appealable. See TCIF REO GCM, L.L.C. v. Natl. City Bank, 8th Dist. Cuyahoga No. 92447, 2009-Ohio-4040, ¶ 12 (a judgment that determines priority of liens is a final appealable order).8
Validity of Panzica‘s Mechanic‘s Lien
{¶20} For ease of discussion, we begin our analysis by addressing Garfield Hope‘s argument that Panzica wholly and unconditionally waived its lien rights over the property contained in the mortgage modifications because the lien waiver argument goes straight to the validity of Panzica‘s mechanic‘s lien. Garfield Hope maintains that Panzica waived its priority over the mortgage modifications because it executed lien waivers for its work performed up to October 31, 2007. After reviewing the lien waivers in their entirety, we find that there remains a genuine issue of material fact as to whether Panzica did in fact unconditionally waive its lien rights.
{¶21} Panzica executed 12 different lien waivers between the dates of January 9, 2007, and October 31, 2007. All lien waivers were signed by a duly authorized agent of Panzica and notarized. Garfield Hope claims that each and every lien waiver states:
[Panzica] * * * does hereby waive and release any and all lien or claim of, or right to, lien, under the statutes of the state of Ohio relating to mechanic‘s liens, with respect to and on said above-described premises, and the improvements thereon, and on the material, fixtures, apparatus or machinery furnished, and on the monies, funds or other considerations due or to become due from the owner, on account of labor, services, material, fixtures, apparatus or machinery heretofore furnished, or which may be furnished at any time hereafter, by the undersigned for the above-described premises.
Thus, according to Garfield Hope, the plain language of the statement establishes that Panzica waived its lien rights to all payments due or to become due from the owner for its work on the project.
{¶22} A review of the 12 waivers shows that only one waiver contains the above statement — the waiver dated February 20, 2007. That waiver is on blank letterhead and contains the conspicuous wording
{¶23} All of the other lien waivers, with the exception of two dated April 3, 2007, and April 11, 2007, do not contain the above language but rather provide:
[T]he undersigned [Panzica] does waive and release any and all claims and lien rights for and in connection with the above described project for said labor performed and materials furnished.
These waivers are on Panzica letterhead and do not indicate an amount of money received as consideration for the waiver, but rather each states a different amount of money that is the “balance due and owing” for all labor performed and materials furnished.
{¶24} The two waivers dated April 3, 2007, and April 11, 2007, similar to the waiver dated February 20, 2007, are also on blank letterhead. Each waiver conspicuously states at the top that it is an “unconditional, partial waiver of mechanic‘s lien,” and that it is a “progress payment.”
{¶25} The April 3 waiver states:
[Panzica], in consideration of the sum of $100,283.40 the receipt of which is hereby acknowledged, subject to the reservations contained herein below, does hereby waive, release and relinquish any and all liens and claims for liens for labor or work performed and/or materials furnished to Bridgeview Crossing for premises located at Bridgeview Crossing at the Northwest quadrant of I-480 and Transportation Boulevard through the 28th day of March, 2007.
Additionally, nothing in this Partial Waiver of Mechanic‘s Lien shall in any way affect the priority of any lien filed after the date hereof. Further, [Panzica] specifically reserves all lien rights for labor or work performed and/or material furnished after the 25th day of March, 2007 on or to the above referenced project.
{¶26} The April 11 waiver states:
[Panzica], in consideration of the sum of $17,730.00 the receipt of which is hereby acknowledged, subject to the reservations contained herein below, does hereby waive, release and relinquish any and all liens and claims for liens for labor or work performed and/or materials furnished to Bridgeview Crossing for premises located at Bridgeview Crossing at the Northwest quadrant of I-480 and Transportation Boulevard through April 11, 2007.
Additionally, nothing in this Partial Waiver of Mechanic‘s Lien shall in any way affect the priority of any lien filed after the date hereof. Further, [Panzica] specifically reserves all lien rights for labor or work performed and/or material furnished after the [sic] April 11, 2007 on or to the above referenced project.
{¶27} The February 20, 2007 lien waiver appears to be a full waiver of claims to work done on the property because it states that Panzica is waiving all claims to mechanic‘s liens on the property for work previously furnished or to become furnished in the future, in consideration of a sum it acknowledges was received. However, we find that other language contained in the waiver creates ambiguity as to the parties’ intent. While the body of the waiver purports to be an unconditional and total waiver of liens, the conspicuous language at the top of the form indicates that it is a “partial lien” waiver. When contracts are entered into between parties of equal bargaining power and are ambiguous in their interpretation, any ambiguity is construed in favor of the nondrafting
Therefore, there remains a genuine issue of material fact as to whether this waiver represents a partial waiver of the amount indicated as consideration therein.
{¶28} We do not find any ambiguity in the April 3, 2007 and April 11, 2007 waivers however. The language contained in the body of the waivers comports with the plain language at the top of each document which states that each is an unconditional, partial lien waiver on the property. The language of the waiver states that payment has been received in consideration of waiver of all claims to the property up to their respective specified dates of March 28, 2007, and April 11, 2007. Therefore, we find that Panzica waived its lien claims against the project property for all amounts owed to it for work performed prior to April 11, 2007.
{¶29} Notwithstanding our determination that Panzica waived its lien rights over the amounts that may have remained unpaid to it for work done before April 11, 2007, we find that its priority date of December 12, 2006, (the first date of visible work on the project) for subsequently filed mechanic‘s liens, remains intact. The waiver specifically states that nothing in the document should be construed to affect the priority date of any subsequently filed mechanic‘s lien. The mechanic‘s lien statute states that regardless of when work was performed, a lien against the property takes effect for priority purposes as
application. Tr. 232–233. However, when questioned about defense Exhibit 33C, which is the unconditional, partial lien waiver executed on April 11, 2007, Davis stated, “I believe this is a waiver provided by the bank.” Tr.237. Thus, from Davis’ deposition we are able to infer that some of the waivers were drafted by Panzica, while others were drafted by additional parties, which might include Huntington. On this limited evidence however, we cannot draw any conclusions as to who drafted the February 20, 2007 waiver.
of the first date of visible work on the project.
{¶30} As for the remainder of the lien waivers, we find that these were drafted by Panzica because they appear on Panzica letterhead. We also find that the language of the waiver only waives its claims to work performed for the amount of money specified as due and owing therein. We believe that this is the only reasonable conclusion that can be made considering that the lien waivers state that Panzica is waiving its rights in connection with “said labor performed and materials
Therefore, upon remand, the court must also determine how these waivers affect, if at all, the amount claimed in the affidavit for mechanic‘s lien.
Notice of Furnishing
{¶31} Garfield Hope also argues that Panzica is not entitled to priority over the mortgage modifications that were made subsequent to the filing of the notice of commencement because Panzica was obligated to record a notice of furnishing within 21 days of Bridgeview‘s recording of the notice of commencement. While Panzica did file a notice of furnishing, it did not do so until over a year after the recording of the notice of commencement.
{¶32} In Ohio, owners who contract for improvements to their real property that may give rise to a mechanic‘s lien, must file a notice of commencement with the county recorder in which the real property is located. The notice of commencement should be filed prior to any performance of labor, or work, or furnishing of materials, for the purpose of the improvement.
“overriding purpose” of the notice of commencement is “to put subcontractors or materialmen on notice of who the owner is and where the construction work is to be done.“). Thus, the notice of commencement is less important for original contractors and those entities in privity of contract with the owner of the premises, because they presumably are aware of all of the relevant information necessary to assert their lien rights.
{¶33} With the filing of the notice of commencement comes the concomitant requirement that subcontractors and material suppliers file a notice of furnishing in order to preserve their lien rights. See
{¶34} If an owner does not record a notice of commencement prior to the start
{¶35} Here, Garfield Hope‘s argument that Panzica was required to timely record a notice of furnishing relies exclusively on the assumption that Panzica was a subcontractor, and not an original contractor and construction manager, to the project.
(D) “Subcontractor” includes any person who undertakes to construct, alter, erect, improve, repair, demolish, remove, dig, or drill any part of any improvement under a contract with any person other than the owner, part owner, or lessee.
(E) “Original contractor,” except as otherwise provided in section
1311.011 of the Revised Code, includes a construction manager and any person who undertakes to construct, alter, erect, improve, repair, demolish, remove, dig, or drill any part of any improvement under a contract with an owner, part owner, or lessee.(F) “Construction manager” means a person with substantial discretion and authority to manage or direct an improvement, provided that the person is in direct privity of contract with the owner, part owner, or lessee of the improvement.
{¶36} For purposes of our analysis, the relevant difference between original contractors, construction managers, and subcontractors, is that original contractors and construction managers have contracted with the owner, part owner, or lessee of the project directly. Original contractors and construction managers are not required to take any further action prior to filing a mechanic‘s lien affidavit in order to perfect their liens. On the other hand,
{¶37} In this case, Bridgeview filed the notice of commencement on October 3, 2007, at what appears to be the explicit request of Panzica.11 Panzica filed a notice of furnishing on October 10, 2008.12 Garfield Hope argues that Panzica was not in privity of contract with Bridgeview because SCI, not Bridgeview, was named as the owner of the project in the contract dated September 29, 2006, which established
{¶38} Although it is true that the original contract names SCI as the owner of the project, we nevertheless find that Bridgeview was a party to the contract from its inception. First, the original contract identifies Bridgeview‘s address, 5595 Transportation Bouvlevard, as the owner‘s address. The contract also provides the correct name and location of the project and its premises, which Bridgeview owns. Further, the affidavit testimony of Sam P. Cannata establishes that SCI, Bridgeview, and Panzica all intended that Bridgeview be bound by the agreement, and that SCI was acting as an agent on behalf of Bridgeview when it entered into the contract with Panzica. See
{¶39} Moreover, proof of Bridgeview‘s understanding that it was bound by the contract is evidenced in the notice of commencement that was recorded more than a year before the contract was amended. The notice of commencement states that Bridgeview is the contracting party and the owner of the premises, and that Panzica was the original contractor and construction manager of the project. The notice of commencement was prepared by Sam P. Cannata as a member of Bridgeview.
{¶40} Because Panzica, SCI, and Bridgeview all agree that Bridgeview was the owner of the property, that Bridgeview at all times knew that Panzica was the contract manager of the project, and the contract between the parties was later amended to reflect Bridgeview‘s ownership status, Panzica was not required to record a notice of furnishing. Our resolution of this issue is informed by the purpose the notice of commencement and the notice of furnishing serves — to give subcontractors the relevant information they need to file liens against the property and to protect owners from surprise liens against the premises. As neither of those concerns apply to this case, Panzica‘s lien rights do not fail for failure to file a timely notice of furnishing.
Priority of Liens
{¶41} Garfield Hope next argues that its mortgage lien has first priority over all other liens on the property described in Exhibit A attached to the original mortgage as well as the property described in the mortgage modifications because the original mortgage was a construction mortgage and an open-end mortgage and the priority date of the modifications relate back to the recording date of the original mortgage. Further, Garfield Hope argues that its lien has first priority on the property in the mortgage modifications because the original mortgage put potential lien holders on notice that additional property would be added to the security through modification, and the modifications incorporate the necessary covenant language of
{¶42} In general, a mechanic‘s lien that is filed after the recording of a mortgage for work done before a mortgage is filed has priority over the mortgage.
Except as provided in this section, the lien of mortgage given in whole or in part to improve real estate, or to pay off prior encumbrances thereon, or both, the proceeds of which are actually used in the improvement in the manner contemplated in sections
1311.02 and1311.03 of the Revised Code, or to pay off prior encumbrances, or both, and which mortgage contains therein the correct name and address of the mortgagee, together with a covenant between the mortgagor and mortgagee authorizing the mortgagee to do all things provided to be done by the mortgagee under this section, shall be prior to all mechanic‘s, materialmen‘s and similar liens and all liens provided for in this chapter that are filed for record after the improvement mortgage is filed for record, to the extent that the proceeds thereof are used and applied for the purposes of and pursuant to this section. Such mortgage is a lien on the premises therein described from the time it is filed for record for the full amount that is ultimately and actually paid out under the mortgage, regardless of the time when the money secured thereby is advanced.
(Emphasis added.)
{¶43} Therefore, in order to have a valid construction mortgage the mortgagee must ensure that the mortgage is given to improve real estate or pay off prior encumbrances, the mortgage contains the correct name and address of the mortgagee, that the mortgage contains a covenant between the mortgagor and mortgagee authorizing the mortgagee to do all things provided to be done under the construction mortgage statute, and that the proceeds of the loan were used and applied pursuant to the construction mortgage statute.
{¶44} Further, Ohio‘s open-end mortgage statute,
(A) Whether or not it secures any other debt or obligation, a mortgage may secure unpaid balances of loan advances made after the mortgage is delivered to the recorder for record, to the extent that the total unpaid loan indebtedness, exclusive of interest thereon, does not exceed the maximum amount of loan indebtedness which the mortgage states may be outstanding at any time. With respect to such unpaid balances, division (B) of this section is applicable if the mortgage states, in substance or effect, that the parties thereto intend that the mortgage shall secure the same, the maximum amount of unpaid loan indebtedness, exclusive of interest thereon, which may be outstanding at anytime, and contains at the beginning thereof the words “Open-end mortgage.”
(B) A mortgage complying with division (A) of this section and securing unpaid balances of loan advances referred to in such division is a lien on the premises described therein from the time such mortgage is delivered to the recorder for record for the full amount of the total unpaid loan indebtedness, including the unpaid balances of such advances that are made under such mortgage, plus interest thereon, regardless of the time when such advances are made. If such an advance is made after the holder of the mortgage receives written notice of a lien or encumbrance on the mortgaged premises which is subordinate to the lien of the mortgage, and if such holder is not obligated to make such advance at the time such notice is received, then the lien of the mortgage for
the unpaid balance of the advance so made is subordinate to such lien or encumbrance. If an advance is made after the holder of the mortgage receives written notice of work or labor performed or to be performed or machinery, material, or fuel furnished or to be furnished for the construction, alteration, repair, improvement, enhancement, or embellishment of any part of the mortgaged premises and if such holder is not obligated to make such advance at the time such notice is received, then the lien of the mortgage for the unpaid balance of the advance so made is subordinate to a valid mechanic‘s lien for the work or labor actually performed or machinery, material, or fuel actually furnished as specified in such notice.
Thus, the hallmark of an open-end mortgage is it allows a borrower to go back to the lender to borrow additional funds, up to, and including, a specified amount that is usually set forth in the loan documentation. Those funds are secured by the collateral stated in the loan and mortgage documents.
{¶45} Panzica admits that the original mortgage filed on November, 22, 2006, was both a construction mortgage under
Relation Back of Mortgage Modifications
{¶46} The first question we consider is whether the modifications relate back to November 22, 2006, the filing date of the original mortgage. We find that they do not.14
{¶47}
[Cite as Panzica Constr. Co. v. Bridgeview Crossing, L.L.C., 2015-Ohio-3478.]
| Modification Number | Date Recorded |
|---|---|
| 1 | 12/22/06 |
| 2 | 01/11/07 |
| 3 | 01/19/07 |
| 4 | 02/26/07 |
| 5 | 03/07/07 |
| 6 | 03/16/07 |
| 7 | 05/31/07 |
| 9 | 08/22/07 |
| 12 | 10/12/07 |
{¶48} While the statute does not define the phrase “shall take effect,” we conclude, based on our review of other similar statutes, that it means an amendment or a modification is invalid as against other creditors until recorded and its priority is determined as of the date of recording, not the date of the original mortgage.
{¶49} Our conclusion on this issue is informed by a careful reading of
(A) All properly executed mortgages 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. If two or more mortgages pertaining to the same premises are presented for record on the same day, they shall take effect in the order of their presentation. The first mortgage presented shall be the first recorded, and the first mortgage recorded shall have preference.
{¶50} According to the above statute, the phrase “shall take effect” means that a mortgage is not valid as against other mortgages until recorded and that priority attaches as of the time of recording.
{¶51} Likewise, an analysis of
Super Priority Under R.C. 1311.14
{¶52} Panzica asserts that Garfield Hope‘s mortgage modifications do not have super priority under
{¶53} The purpose of the
{¶54} Furthermore, each modification stated the correct name and address of the mortgagee and mortgagor, and referred to the record instrument number of the original mortgage and any prior modifications. Thus, a bit of due diligence on the part of Panzica, or any other lien holder, would have revealed the construction mortgage status of the latter security instruments. Notably, Panzica does not attempt to claim that it did not have notice of Huntington‘s intent to encumber future property through use of the construction mortgage statute. Rather, Panzica argues that Huntington did not succeed in creating valid construction mortgages because it failed to include, word for word, a recitation of the required statutory covenant.
{¶55} We believe that our holding comports with both the spirit and letter of the law, because there can be no argument that incorporation by reference put Panzica on notice of each modification‘s construction mortgage status, and it is a general principle of Ohio contract law that separate agreements may be incorporated by reference into a signed contract and that when done, both instruments must be read and construed together. Key Bank Natl. Assn. v. Columbus Campus, L.L.C., 10th Dist. Franklin Nos. 11AP-920, 11AP-952, 11AP-955, 11AP-958, 11AP-959, 11AP-963, 11AP-964, 2013-Ohio-1243, ¶ 24. Furthermore, the last paragraph of
This section, as to mortgages contemplated by this section, controls over all other sections of the Revised Code relating to mechanic‘s, material supplier‘s, contractor‘s, subcontractor‘s, laborer‘s, and all liens that can be had under this chapter, and shall be liberally construed in favor of such mortgagees, a substantial compliance by such mortgagees being sufficient.
(Emphasis added.) Accord Barr v. Masterpiece Homes, 8th Dist. Cuyahoga No. 65835, 1994 Ohio App. LEXIS 3211, *8 (July 21, 1994) (stating, “[w]here a mortgagee substantially adheres to the provisions of
{¶56} We do agree, however, that Panzica has created a genuine issue of material fact as to whether the loan disbursements were paid out in accordance with
{¶57}
(B) The mortgagee need not pay out any of the mortgage fund for fifteen days after filing the mortgage. At the end of such period, the mortgagee may refuse to go forward with the loan or to pay out the fund, in which case, if no funds have been advanced, the mortgagee shall make, execute, and deliver to the mortgagor, or to the county recorder to be recorded, a proper release of the mortgage, but if the mortgagee elects to complete the loan, the mortgagee shall, in order to obtain the priority set forth in this section, distribute the mortgage fund in the following order:
(1) The mortgagee may at any time pay off the prior encumbrance, or withhold the amount thereof for that purpose. (2) Out of the residue of the fund, the mortgagee may at any time retain sufficient funds to complete the improvement, according to the original plans, specifications, and contracts, and within the original contract price.
(3) The mortgagee may from time to time pay out on the owner‘s order, directly to the original contractor or subcontractor, or directly to the owner if the owner is the owner‘s own contractor, such sums as the owner certifies to be necessary to meet and pay labor payrolls for the improvement.
(4) The mortgagee shall pay on the order of the owner, the accounts of the material suppliers and laborers who have filed with the mortgagee a written notice as provided in this section, the amounts due for labor or work then performed and material then furnished for the improvement; and shall retain out of the mortgage fund such money to become due as is shown by the notice served and shall hold such money, and shall pay on the order of the owner, the amounts due to such persons who have served such notices, if the mortgagee has sufficient money in the mortgagee‘s hands to do so and also to complete the improvement; but if the mortgagee has funds in the mortgagee‘s hands insufficient to pay all such laborers and material suppliers in full and to complete the improvement, the mortgagee shall retain sufficient money to complete the improvement and to distribute the balance pro rata among the material suppliers and laborers who have filed such notices.
(5) If the owner refuses to issue an order to pay the amount of the notice filed, the mortgagee shall retain the whole amount claimed until the proper amount has been agreed upon or judicially determined provided that the mortgagee may withhold sufficient funds to complete the improvement.
(6) The mortgagee shall pay out on the owner‘s order, directly to material suppliers or laborers who have performed labor or work or furnished material for the improvement.
(7) The mortgagee shall pay the balance of the mortgage fund after the improvement is completed to the owner, or to whomsoever the owner directs.
In case the mortgagee pays out the fund otherwise than as provided in this section, then the lien of the mortgage to the extent that the funds had been otherwise paid, is subsequent to liens of original contractors, subcontractors, material suppliers, and laborers; but in no case is such a mortgagee obligated to pay or liable at law for more than the principal of the mortgage.
{¶58} Panzica argues that the only evidence presented that the loan proceeds were paid out in the manner described by the statute comes from the affidavit testimony of Steven L. Craig, president of Eureka Reality Partners Inc., a company that manages Garfield Hope, and the documents attached thereto. Panzica asserts that this affidavit testimony is inadmissible evidence because it does not establish that Craig had personal knowledge of how the loan disbursements were made while Huntington still owned the note and mortgage. We disagree with Panzica‘s contention that the affidavit testimony is inadmissible because we find that Craig has provided sufficient evidence of his personal knowledge of the business records, but agree that Craig has not presented sufficient evidence of proper payment.
{¶59} Craig‘s affidavit attests that the affidavit was based upon his review of Garfield Hope‘s records relating to the
{¶60} However, we find that the affidavit does not establish whether the loan proceeds were paid out in accordance with the statute and therefore Garfield Hope is not entitled to judgment as a matter of law. While Craig avers that Huntington advanced funds to Bridgeview in accordance with the terms of the mortgage and that “said funds were advanced to fund improvements on the property and were, in fact, used to pay for improvements on the property” — this statement is not sufficient to establish that the loan proceeds were paid out in accordance with
{¶61} At least six of the seven subsections of
Priority Dates of Mechanic‘s Lien
{¶62} There are two priority dates that govern Panzica‘s mechanic‘s lien. When a project notice of commencement is not recorded, a mechanic‘s lien is effective as of the date of its first visible work.
{¶63} December 12, 2006, was Panzica‘s first date of visible work on the project. Bridgeview did not record its notice of commencement until October 3, 2007. Thus, pursuant to
Conclusion
{¶64} In conclusion, we restate the following determinations: 1) a genuine issue of material fact remains regarding the validity of Panzica‘s mechanic‘s lien due to certain lien waivers it executed; 2) Panzica was not required to record a notice of furnishing in order to preserve its lien rights; 3) Garfield Hope‘s mortgage modifications do not relate back to the date of the recording of the original mortgage; 4) the mortgage modifications contain the
{¶65} We therefore reverse the grant of summary judgment in favor of Panzica and affirm the denial of Garfield Hope‘s motion for summary judgment. This cause is remanded to the trial court for further proceedings consistent with this opinion.
It is ordered that appellant and appellee share the 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 common pleas 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
MELODY J. STEWART, JUDGE
EILEEN A. GALLAGHER, P.J., and
ANITA LASTER MAYS, J., CONCUR