[Cite as First State Bank v. K & B Indus. Supply, Inc., 2020-Ohio-3376.]




                              IN THE COURT OF APPEALS OF OHIO
                                 FOURTH APPELLATE DISTRICT
                                      LAWRENCE COUNTY


THE FIRST STATE BANK,                              :        Case No. 19CA22

        Plaintiff-Appellant,                       :

v.                                                 :        DECISION AND
                                                            JUDGMENT ENTRY
K & B INDUSTRIAL                                   :
SUPPLY, INC., et al.,
                                :     RELEASED 6/12/2020
     Defendants-Appellees.
______________________________________________________________________
                            APPEARANCES:

Daniel T. Yon, Esquire, Bailes, Craig, Yon & Sellards, PLLC, Huntington, West Virginia,
for appellant.

James R. Havens, Adam M. Schwartz, and Wesley W. Gilliland, Havens Limited,
Columbus, Ohio, for appellee JPMorgan Chase Bank, N.A.
______________________________________________________________________
Hess, J.

        {¶1}     The First State Bank (“First State”) appeals from a judgment of the

Lawrence County Court of Common Pleas ordering the sale of real property in a

foreclosure action. First State challenges the trial court’s determination that it could not

foreclose on a mortgage on the property and that JPMorgan Chase Bank, N.A.

(“JPMorgan”) had a superior lien position over it. For the reasons that follow, we affirm

the trial court’s judgment.

                             I. FACTS AND PROCEDURAL HISTORY

        {¶2}     In October 2015, First State filed a complaint against K & B Industrial

Supply, Inc. (“K&B”), Titan Industries, Inc. (“Titan”), Bobby Adkins, the Ohio Bureau of

Workers’ Compensation (“BWC”), and the Lawrence County Treasurer. First State
Lawrence App. No. 19CA22                                                              2


alleged Titan and Adkins were “borrowers and signatories” on a promissory note dated

January 8, 2009, for the principal sum of $118,750, and First State was the owner and

holder of the note.   According to a copy of the note attached to the complaint, full

payment of $122,906.25 was due on July 7, 2009. First State alleged the note was

secured by three mortgages (one dated January 8, 2009, and recorded January 30,

2009, and two dated August 9, 2012, and recorded September 4, 2012) on real property

K&B owned in Lawrence County. First State alleged there had been a default under the

terms of the note and mortgages and sought a judgment on them for $117,899.68 plus

interest from September 30, 2015 and accrued late charges. In addition, First State

sought foreclosure of the mortgages and sale of the real property to satisfy the debt.

First State asserted that under the terms of the mortgages, it was entitled to attorney’s

fees, court costs, and other expenses incurred in the action “as additional debt secured

by the Mortgages.” First State alleged that BWC might claim an interest in the property

for unpaid workers’ compensation taxes and that the county treasurer might claim an

interest in the property for unpaid real property taxes. First State later amended its

complaint to add JPMorgan as a defendant, alleging it might claim an interest in the

property for an unreleased recorded mortgage.

      {¶3}   None of the defendants filed an answer except JPMorgan, which also filed

a counterclaim and “third party complaint.” JPMorgan alleged that around May 5, 2010,

K&B executed and delivered to it two promissory notes, one for the principal sum of

$327,722.84 and one for the principal sum of $750,000. To secure payment of the first

note, K&B executed and delivered to JPMorgan a mortgage on the real property, which

was recorded on May 6, 2010. To secure payment of the second note, K&B executed
Lawrence App. No. 19CA22                                                                      3


and delivered to JPMorgan a Security Agreement and Financing Statement which

granted it a “first lien security interest” in K&B’s current and future inventory, chattel

paper, accounts, equipment, and general intangibles. JPMorgan alleged that K&B had

defaulted on the notes, mortgage, and security agreement. JPMorgan sought judgment

against K&B on the first note for $288,954.07 plus interest from September 30, 2015,

until entry of judgment, and judgment against K&B on the second note for $653,861.80.

JPMorgan requested foreclosure of its mortgage and the sale of the real property to

satisfy the debt. JPMorgan alleged that First State, BWC, and the treasurer might claim

liens on the real property and requested a finding that its lien was the first and best lien

inferior only to that of the treasurer for unpaid ad valorem real property taxes. JPMorgan

also asked the court to marshal liens on the collateral subject to the security agreement

(which it alleged might include a lien of First State), find that its lien was the first and best

lien, and either order that the collateral be sold and the proceeds be applied to K&B’s

debt or that the collateral be turned over to JPMorgan for disposition. JPMorgan alleged

that under the terms of its mortgage and security agreement, K&B had to reimburse it for

expenditures necessary to protect the real property and collateral.

       {¶4}   The parties stipulated that with regard to JPMorgan’s first note and

mortgage, as of July 18, 2017, K&B owed JPMorgan $306,560.58 ($262,783.68 in

principal; $42,471.46 in past-due interest, and $1,315.44 in late fees and costs), and a

magistrate conducted a bench trial to resolve the lien position of First State in relation to

JPMorgan regarding the real property. JPMorgan claimed that it had paid off the First

State note, so First State’s first mortgage, which was recorded before JPMorgan’s

mortgage, had been satisfied, and JPMorgan had the superior lien. In its closing
Lawrence App. No. 19CA22                                                                4


argument, JPMorgan also asserted that First State could not enforce its note or foreclose

on its first mortgage because the six-year statute of limitations for an action on the note

expired before First State filed its complaint, and First State failed to prove there had

been a default or the amount of principal and interest due. The magistrate found the

loan that was the subject of First State’s note and first mortgage “was not paid off” and

First State had the senior lien on the real property. The magistrate also found that there

had been a default on the note and mortgage, and First State was entitled to

$117,899.68 plus interest from September 30, 2015, accrued late charges, attorney fees,

and costs.

      {¶5}   JPMorgan filed objections to the magistrate’s decision reasserting its

earlier arguments. On December 19, 2017, the trial court concluded First State filed its

complaint outside the six-year statute of limitations “as to the Note, Mortgage, and debt

owed to First State Bank,” rejected the magistrate’s decision, and concluded JPMorgan

had a superior lien position to First State. First State moved for reconsideration

suggesting that JPMorgan forfeited its statute of limitations argument and arguing that

First State had evidence that the maturity date on its note had been modified to August

15, 2013, thereby extending the statute of limitations. First State also appealed from the

December 19, 2017 entry, but we later granted a joint motion of First State and

JPMorgan to dismiss the appeal for lack of a final appealable order. First State Bank v.

K & B Indus. Supply, Inc., 4th Dist. Lawrence No. 18CA2 (Mar. 12, 2018).

      {¶6}   The trial court denied the motion for reconsideration because First State

did not enter the loan modification agreement into evidence, so “the facts and evidence

have not changed from the original trial * * *.” First State moved for leave to amend its
Lawrence App. No. 19CA22                                                                  5


complaint to allege modification of its note and incorporate a copy of the loan

modification agreement into the complaint. The magistrate denied the motion, and the

trial court adopted that decision.

       {¶7}   First State filed a second motion for reconsideration of the December 19,

2017 entry asserting that even if an action on its promissory note was time-barred, it

could still file a foreclosure action on a mortgage, which is governed by a longer statute

of limitations, and its first mortgage was superior to JPMorgan’s later recorded mortgage.

JPMorgan agreed that “First State’s inability to obtain a judgment on its Note does not

affect its priority” but argued that First State still could not foreclose for other reasons,

including a failure to prove a default and the amount of principal and interest due.

       {¶8}   The trial court denied the second motion for reconsideration, concluding it

       must find that First State Bank cannot enforce its Note or foreclose on its
       mortgage due to the fact that First State Bank would have to prove that
       there was a default and the appropriate amount of principle [sic] and
       interest due. This did not occur in the trial of this case and accordingly,
       would not be appropriate under a Motion for Reconsideration.

First State appealed, we sua sponte raised the issue whether the trial court’s decision

was a final appealable order, and JPMorgan moved to dismiss. First State Bank v. K &

B Indus. Supply, Inc., 4th Dist. Lawrence No. 18CA18, 2018-Ohio-5243, ¶ 1-2. We

granted the motion and dismissed the appeal for lack of a final appealable order. Id. at ¶

3.

       {¶9}   Subsequently, the trial court issued an entry ordering the sale of the real

property. The court held that JPMorgan had “a superior lien position” over First State

and entered judgment on JPMorgan’s first note and mortgage. The court concluded that

JPMorgan was entitled to a judgment against K&B for $306,560.58 plus “interest at the
Lawrence App. No. 19CA22                                                                              6


statutory rate from the date of judgment and costs as permitted by law.” The court held

that if K&B failed to pay the “sums hereinbefore found due, together with the costs of this

action” within three days, its equity of redemption shall be foreclosed and the sheriff shall

proceed with a sale of the real property “free and clear of the interests of all parties to

this action.” The court also held that the treasurer’s interest in the property would “be

protected in accordance with Ohio law at the confirmation phase of these proceedings”

and that the sale proceeds “shall be first applied to satisfy any ad valorem real property

taxes and costs herein in full, then applied to satisfy JPMorgan’s lien in full, and any

remaining amounts shall be paid to the Court for further determination regarding to

whom such amounts are properly owed[.]” The court implicitly rejected First State’s

claims on its note and three mortgages that allegedly secured the note, confirming the

prior determination that the bank failed to prove there was a default on the note and the

amount of principal and interest due. Although the court did not resolve JPMorgan’s

claims regarding its second promissory note and security agreement, it made a

determination that there was “no just reason for delay” pursuant to Civ.R. 54(B). This

appeal followed.

                                  II. ASSIGNMENT OF ERROR

       {¶10} First State assigns one error for our review: “The Court failed to recognize

under case law that although the statute of limitations may have expired on the

promissory note, the First State Bank still could enforce its rights under its mortgage.”1




1Although First State alleged its note was secured by three mortgages, its assignment of error references
only a single “mortgage” and appears to focus on the first mortgage.
Lawrence App. No. 19CA22                                                                    7


                                 III. LAW AND ANALYSIS

                              A. Motion to Amend Complaint

       {¶11} First State contends that the trial court erred when it denied First State’s

motion for leave to amend the complaint to address the modification of its promissory

note. However, First State did not assign the trial court’s ruling as error, so we need not

address this issue. See App.R. 16(A)(3) (an appellant’s brief “shall include * * * [a]

statement of the assignments of error presented for review, with reference to the place in

the record where each error is reflected”); App.R. 12(A)(1)(b) (an appellate court “shall *

* * [d]etermine the appeal on its merits on the assignments of error set forth in the briefs

under App. R. 16”); State v. Fannon, 2018-Ohio-5242, 117 N.E.3d 10, ¶ 135 (4th Dist.)

(an appellate court is “charged with deciding assignments of error, not mere

arguments”).

                                  B. Statute of Limitations

       {¶12} First State contends the trial court erred when it found First State could not

foreclose on its first mortgage because the statute of limitations on the underlying note

had expired and erred when it denied reconsideration of this ruling. The trial court

implicitly retracted this ruling when it denied the second motion for reconsideration on the

basis that First State still could not foreclose due to an evidentiary problem, i.e., it failed

to prove that there was a default and the amount of principal and interest due.

Therefore, First State’s contention is moot.

                         C. Default and Principal and Interest Due

       {¶13} First State appears to contend that the trial court applied the wrong legal

standard when it concluded that First State could not foreclose on its first mortgage
Lawrence App. No. 19CA22                                                                   8


because it failed to prove there was a default and the amount of principal and interest

due. First State asserts that it “must only establish that it is the holder of the Mortgage

and entitled to the remedies thereunder.” First State notes that “the default and balance

were pled in the Complaint and the borrower did not file an answer denying that a default

had not [sic] occurred.” In addition, First State suggests the trial court’s decision is

against the manifest weight of the evidence because the trial transcript shows “default

and balance was proven at trial without objection.”          JPMorgan contends that the

assignment of error does not raise these issues, that First State had to but did not prove

the amount of principal and interest due, that First State’s mortgage did not secure its

note, and that the note has been paid off.

       {¶14} Even if the assignment of error is broad enough to encompass First State’s

arguments about default and the amount of principal and interest due, the arguments

lack merit. The issue whether the trial court applied the correct legal standard is a

question of law we review de novo.        Name Change of Rowe, 2019-Ohio-4666, 135

N.E.3d 782, ¶ 16 (4th Dist.). And “[w]hen an appellate court reviews whether a trial

court’s decision is against the manifest weight of the evidence, the court weighs the

evidence and all reasonable inferences, considers the credibility of the witnesses and

determines whether in resolving conflicts in the evidence, the finder of fact clearly lost its

way and created such a manifest miscarriage of justice that the judgment must be

reversed.”   Wootten v. Culp, 2017-Ohio-665, 85 N.E.3d 198, ¶ 19 (4th Dist.).              “A

reviewing court may find a trial court’s decision against the manifest weight of the

evidence only in the ‘ “exceptional case in which the evidence weighs heavily against the

[decision].” ’ ” (Alteration in Cline.) Cline v. Rogers Farm Ents., LLC, 2017-Ohio-1379,
Lawrence App. No. 19CA22                                                                     9


87 N.E.3d 637, ¶ 20 (4th Dist.), quoting State v. Thompkins, 78 Ohio St.3d 380, 387, 678

N.E.2d 541 (1997), quoting State v. Martin, 20 Ohio App.3d 172, 175, 485 N.E.2d 717

(1st Dist.1983). “[W]hen reviewing evidence under the manifest weight of the evidence

standard, an appellate court generally must defer to the fact-finder’s credibility

determinations.” Id. at ¶ 20.

       {¶15} The trial court correctly concluded that First State could not foreclose on its

mortgage without proof that K&B was in default and the amount of principal and interest

due. To prevail in a foreclosure action, a plaintiff must show that: “ ‘ “(1) the [plaintiff] is

the holder of the note and mortgage, or is a party entitled to enforce the instrument; (2) if

the [plaintiff] is not the original mortgagee, the chain of assignments and transfers; (3)

the mortgagor is in default; (4) all conditions precedent have been met; and (5) the

amount of principal and interest due.” ’ ” Beneficial Fin. I Inc. v. Saunders, 4th Dist.

Gallia No. 18CA5, 2019-Ohio-3577, ¶ 15, quoting HSBC Mtge. Servs., Inc. v. Watson, 3d

Dist. Paulding No. 11-14-03, 2015-Ohio-221, ¶ 24, quoting Wright-Patt Credit Union, Inc.

v. Byington, 6th Dist. Erie No. E-12-002, 2013-Ohio-3963, ¶ 10 (explaining evidence a

plaintiff must present to properly support a summary judgment motion in a foreclosure

action); See also Deutsche Bank Natl. Trust Co. v. Holden, 147 Ohio St.3d 85, 2016-

Ohio-4603, 60 N.E.3d 1243, ¶ 28 (“A mortgagee bears the burden to demonstrate the

extent of the mortgage lien, which is measured by the amount of the outstanding

mortgage debt. * * * Generally, ‘the promissory note is the primary evidence of the debt,’

Washer v. Tontar, 128 Ohio St. 111, 113, 190 N.E. 231 (1934), and the borrower's

history of payments is evidence of amounts credited to reduction of the principal, which

proportionately reduce the mortgage lien * * *”). First State cites no legal authority that
Lawrence App. No. 19CA22                                                                   10


stands for the proposition that evidence of default and the amount of principal and

interest due is not required. It also cites no legal authority to support its suggestion that

it did not need to introduce evidence of those matters because they were pled in the

complaint and the borrower did not deny them in an answer.

       {¶16} First State’s manifest weight of the evidence argument is not well-taken.

First State directs our attention to a portion of the trial transcript in which Matthew Call,

Vice President of First State, testified that there was “a default for non payment” on First

State’s note. Counsel for JPMorgan objected on the basis of a lack of foundation. The

magistrate asked Call how he knew the loan was in default, and he testified, “I work

these loans, I work with the loans every single day. Um, and based off of histories and

reports [sic].” The magistrate did not specifically rule on the objection, and Call went on

to testify that the bank’s customary practice when there is a default on a note is to

engage in collection activity and depending on the collateral, repossession and

foreclosure. Counsel for First State asked Call, “As we sit there today, um, default under

this note and the mortgage have not been insured? [sic]” Call testified, “Correct.” First

State claims the word “cured” was improperly transcribed as “insured” but did not seek to

correct this purported error under the appellate rules. See App.R. 9(E) (“If anything

material to either party is omitted from the record by error or accident or is misstated, the

parties by stipulation, or the trial court, either before or after the record is transmitted to

the court of appeals, or the court of appeals, on proper suggestion or of its own initiative,

may direct that omission or misstatement be corrected, and if necessary that a

supplemental record be certified, filed, and transmitted”).
Lawrence App. No. 19CA22                                                               11


       {¶17} Even if there was a transcription error and Call’s testimony was sufficient to

establish that a default occurred, First State did not introduce any evidence to

demonstrate the amount of principal and interest allegedly owed it, such as the history of

payments on the note. Therefore, the trial court’s determination that First State could not

foreclose on its mortgage was not against the manifest weight of the evidence.

       {¶18} For the foregoing reasons, we overrule the sole assignment of error and

affirm the trial court’s judgment.

                                                                 JUDGMENT AFFIRMED.
Lawrence App. No. 19CA22                                                             12


                                   JUDGMENT ENTRY

         It is ordered that the JUDGMENT IS AFFIRMED and that Appellant shall pay the
costs.

         The Court finds there were reasonable grounds for this appeal.

      It is ordered that a special mandate issue out of this Court directing the Lawrence
County Common Pleas Court to carry this judgment into execution.

       Any stay previously granted by this Court is hereby terminated as of the date of
this entry.

      A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.

Smith, P.J. & Abele, J.: Concur in Judgment and Opinion.



                                   For the Court




                                   BY: ________________________________
                                       Michael D. Hess, Judge




                                  NOTICE TO COUNSEL

       Pursuant to Local Rule No. 14, this document constitutes a final judgment
entry and the time period for further appeal commences from the date of filing with
the clerk.
