[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
