First Place Bank v. Hersh Constr., Inc.

[Cite as First Place Bank v. Hersh Constr., Inc., 2011-Ohio-1790.]

COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT

: JUDGES:
FIRST PLACE BANK : Julie A. Edwards, P.J.
: William G. Hoffman, J.
Plaintiff-Appellee : Patricia A. Delaney, J.
:
-vs- : Case No. 2010CA00074
:
:
HERSH CONSTRUCTION, INC, et al. : OPINION

Defendant-Appellant

CHARACTER OF PROCEEDING: Civil Appeal from Stark County
Court of Common Pleas Case No.
2009-CV-00745

JUDGMENT: Affirmed

DATE OF JUDGMENT ENTRY: April 11, 2011

APPEARANCES:

For Plaintiff-Appellee For Defendant-Appellant

DAVID A. FREEBURG JEROME W. COOK
McFadden & Freeburg Co., L.P.A. ERIN K. WALSH
1370 Ontario Street, Suite 600 McDonald Hopkins LLC
Cleveland, Ohio 44113 600 Superior Avenue, E., Suite 2100
Cleveland, Ohio 44114-2653

DAVID J. WOLFE, JR.
185 East Market Street
Warren, Ohio 44481-1102
[Cite as First Place Bank v. Hersh Constr., Inc., 2011-Ohio-1790.]

Edwards, P.J.

{¶1} Defendant-appellant, Ohio Farmers Insurance Company, appeals from the

March 5, 2010, and March 12, 2010, Judgment Entries of the Stark County Court of

Common Pleas.

STATEMENT OF THE FACTS AND CASE

{¶2} On or about May 5, 2004, Northern Valley Contractors, Inc. executed a

contract with Danbury Glen Estates, Inc. Pursuant to the terms of the contract, Northern

Valley agreed to provide construction-related services for a private construction project

which was known as Danbury Glen Estates Subdivision. Northern Valley specifically

contracted to develop the streets and sanitary sewer system for the subdivision.

{¶3} On July 15, 2004, Danbury Glen Estates, Inc., through its President, John

Hershberger, executed an open end mortgage and security agreement with Fifth Third

Bank, the mortgagee. The mortgage stated that the borrower was indebted to Fifth Third

Bank pursuant to “the Construction Loan and Security Agreement of even date

herewith, by and between Borrower and Bank…” The mortgage was recorded in the

Stark County Recorder’s Office on July 29, 2004, at 2:23 p.m. and was assigned

Instrument No. 200407290054653.

{¶4} On July 29, 2004, at 2:23 p.m., a Notice of Commencement under R.C.

Section 1311.04 was recorded in the Stark County Recorder’s Office as Instrument

20047290054658. John Hershberger, the President of Danbury Glen Estates, had

signed the same on July 15, 2004. The Notice of Commencement stated, in relevant

part, as follows: “Brief description of the improvements to be performed upon the

property containing sufficient specificity to permit lien claimants to identify the
Stark County App. Case No. 2010CA00074 3

improvement: Development of 96 acres to be known as Phases I and II of Danbury

Glen Estates Subdivision located in Hartville, Stark County, Ohio.”

{¶5} Subsequently, on or about March 6, 2006, Danbury Glen Estates, Inc.

conveyed 24 lots to Hersh Construction, Inc. To finance the purchase of the lots, Hersh

Construction obtained a loan from appellee First Place Bank in the amount of

$1,293,840.00. As security for the loan, Hersh Construction executed and delivered to

appellee First Place Bank a mortgage interest in the lots. Such mortgage was recorded

in the Stark County Recorder’s Office on March 6, 2006. From the proceeds of the

note, appellee First Place Bank paid off the Fifth Third Bank mortgage from Danbury

Glen Estates, Inc.

{¶6} On February 28, 2007, Northern Valley Contractor’s Inc., which had

continued performing work on the Danbury Glen Subdivision project, filed a mechanic’s

lien. The lien was later assigned to appellant Ohio Farmers Insurance Company.

{¶7} On August 15, 2008, Danbury Glen Estates, Inc. filed a complaint against

Northern Valley Contractor’s Inc., (Stark County Common Pleas Court Case No. 2008

CV 03574) challenging the validity of the mechanic’s lien. A Stipulated Judgment Entry

was filed in such case on May 6, 2009. The Stipulated Judgment Entry stated, in

relevant part, as follows:

{¶8} “2. The Ohio Rules of Civil Procedure 36 Admissions provided by Danbury

Glen Estates, Inc., Danbury Glen Estates, LLC, and Hersh Construction, Inc., in

response to the Joint Request for Admissions propounded to each Defendant by

Northern Valley Contractors, Inc. (‘NVC’) and Defendant/Counterclaimant Ohio Farmers

are incorporated herein by reference as factual stipulations, as if fully set forth herein,
Stark County App. Case No. 2010CA00074 4

(the ‘Factual Stipulations’). These admissions have been contemporaneously filed with

the Court as part of the record of this case and in support of this Stipulated Judgment

Entry.

{¶9} “3. Plaintiffs Danbury Glen Estates, Inc., Danbury Glen Estates, LLC, and

Hersh Construction, Inc. stipulate that these Factual Stipulations shall be binding upon

them, their successors and assigns, in any other proceeding and hereby waive any Rule

36(B) objections to the contrary.

{¶10} “4. Plaintiffs Danbury Glen Estates, Inc., Danbury Glenn Estates, LLC, and

Hersh Construction, Inc. stipulate that Defendant/Counterclaimant Ohio Farmers may

file this Stipulated Judgment in any other proceeding as res judicata concerning the

Factual Stipulations and the matters of the debt owed by the parties as set forth herein

and relevant to the validity of Defendant NVC’s Mechanic’s Lien (see below) and Ohio

Farmers’ rights thereunder.

{¶11} “6. The Mechanic’s Lien, recorded in the name of NVC on February 28,

2007, as Stark County Instrument No. 200702280010773, is declared to be a valid and

subsisting lien upon all of the land described therein (the ‘Mechanic’s Lien’). The

effective date of the Mechanic’s Lien is July 29, 2004, 2:23:10 P.M., the time and when

the Notice of Commencement was recorded as Stark County Recorder’s Instrument No.

200407290054658. Ohio Farmers is hereby declared the sole owner of the Mechanic’s

Lien.”

{¶12} Thereafter, on February 23, 2009, appellee First Place Bank filed a

complaint in foreclosure, seeking, in part, to foreclose on its mortgage. Appellee First

Place, in its complaint, alleged that it held the first and best lien on 19 lots of real
Stark County App. Case No. 2010CA00074 5

property located in the Danbury Glen Estates Subdivision. After its Motion to Intervene

was granted, appellant Ohio Farmers Insurance Company, on April 17, 2009, filed an

answer and affirmative defenses. Appellant, in its affirmative defenses, alleged that its

“Mechanic’s Lien was timely recorded and served pursuant to Ohio R.C. [Section]

1311.06 and [Section] 1311.07, and its effective date related back to the date of the

recording of the Notice of Commencement, which was July 29, 2004. Thus, Ohio

Farmer’s Mechanic’s Lien constitutes the first and best lien on the real property with

priority over all other liens that are the subjects of Plaintiff’s Complaint.”

{¶13} Appellant Ohio Farmer Insurance Company filed a Motion for Summary

Judgment on February 17, 2010. Appellant, in its motion, argued that its mechanic’s lien

was a valid and subsisting first and best lien on the property. On the same day, appellee

First Place Bank filed a Motion for Summary Judgment arguing, in part, that its

mortgage was entitled to priority.

{¶14} Pursuant to a Judgment Entry filed on March 5, 2010, the trial court

granted appellee’s Motion for Summary Judgment while overruling that filed by

appellant. The trial court held that that the mortgage held by appellee was superior to

the mechanic’s lien held by appellant. A Judgment Entry and Decree in Foreclosure

was filed on March 12, 2010.

{¶15} Appellant now raises the following assignments of error on appeal:

{¶16} “I. THE TRIAL COURT ERRED WHEN IT DENIED APPELLANT OHIO

FARMERS INSURANCE COMPANY’S MOTION FOR SUMMARY JUDGMENT AND

FAILED TO CONFER PRIORITY TO APPELLANT’S OHIO R.C. §1311.13(F).
Stark County App. Case No. 2010CA00074 6

{¶17} “II. THE TRIAL COURT IMPROPERLY GRANTED SUMMARY

JUDGMENT TO APPELLEE FIRST PLACE BANK WHEN IT DETERMINED THAT

APPELLEE’S MORTGAGE WAS ENTITLED TO PRIORITY OVER APPELLANT’S

MECHANIC’S LIEN PURSUANT TO OHIO R.C. §1311.14.

{¶18} “III. THE TRIAL COURT ERRORNEOUSLY (SIC) ASSIGNED A JUNIOR

PRIORITY STATUS TO APPELLANT’S MECHANIC’S LIEN AND A SENIOR, FIRST

AND BEST LIEN PRIORITY TO FIRST PLACE’S MORTGAGE IN THE MARCH 12,

2010 JUDGMENT ENTRY AND DECREE OF FORECLOSURE.”

I, II

{¶19} Appellant, in its first and second assignments of error, argues that the trial

court erred when it overruled appellant’s Motion for Summary Judgment and granted

summary judgment to appellee, holding that appellee’s mortgage was entitled to priority

over appellant’s mechanic’s lien pursuant to R.C. 1311.14. We disagree.

{¶20} Summary judgment proceedings present the appellate court with the

unique opportunity of reviewing the evidence in the same manner as the trial court.

Smiddy v. The Wedding Party, Inc. (1987), 30 Ohio St.3d 35, 36, 506 N.E.2d 212. As

such, we must refer to Civ.R. 56 which provides, in pertinent part: “* * * Summary

judgment shall be rendered forthwith if the pleadings, depositions, answers to

interrogatories, written admissions, affidavits, transcripts of evidence in the pending

case and written stipulations of fact, if any, timely filed in the action, show that there is

no genuine issue as to any material fact and that the moving party is entitled to

judgment as a matter of law. * * * A summary judgment shall not be rendered unless it

appears from such evidence or stipulation and only therefrom, that reasonable minds
Stark County App. Case No. 2010CA00074 7

can come to but one conclusion and that conclusion is adverse to the party against

whom the motion for summary judgment is made, such party being entitled to have the

evidence or stipulation construed most strongly in the party's favor. * * * ”

{¶21} Pursuant to the above rule, a trial court may not enter a summary

judgment if it appears a material fact is genuinely disputed. The party moving for

summary judgment bears the initial burden of informing the trial court of the basis for its

motion and identifying those portions of the record that demonstrate the absence of a

genuine issue of material fact. The moving party may not make a conclusory assertion

that the non-moving party has no evidence to prove its case. The moving party must

specifically point to some evidence which demonstrates the non-moving party cannot

support its claim. If the moving party satisfies this requirement, the burden shifts to the

non-moving party to set forth specific facts demonstrating there is a genuine issue of

material fact for trial. Vahila v. Hall, 77 Ohio St.3d 421, 429, 1997-Ohio-259, 674 N.E.2d

1164, citing Dresher v. Burt, 75 Ohio St.3d 280, 1996-Ohio-107, 662 N.E.2d 264.

{¶22} At issue in the case sub judice is whether or not appellant Ohio Farmer’s

Insurance Company mechanic’s lien has priority over the mortgage lien held by

appellee First Place Mortgage.

{¶23} Appellant, in his brief, argues that R.C. 1311.13(A)(2) applies and that the

trial court erred in failing to confer priority to appellant’s mechanic’s lien “as mandated

by Ohio R.C. 1311.13(F).”

{¶24} R.C. 1311.13(A)(2) states as follows: “(2) Except as provided in division

(A)(3) of this section, liens under sections 1311.01 to 1311.22 of the Revised Code for

labor or work performed or materials furnished after the recording of a notice of
Stark County App. Case No. 2010CA00074 8

commencement pursuant to section 1311.04 of the Revised Code are effective from the

date of the recording of the notice of commencement.” In turn, R.C. 1311.13(F)

provides that “[l]iens which have an effective date described in division (A)(2) of this

section shall be preferred to all other titles, liens, or encumbrances which may attach to

or upon such improvement or to or upon the land upon which it is situated, which either

are given or recorded subsequent to the recording of the notice of commencement.”

Thus, if R.C. 1311.13(A)(2) applied, the mechanic’s lien, with effective date of July 29,

2004, (the date the Notice of Commencement was filed) would have priority over the

mortgage lien held by appellee First Place Mortgage, which was recorded on March 6,

2006.

{¶25} Appellee’s position is that R.C. 1311.14, not R.C. 1311.13 applies in the

case sub judice. Where a mortgagee substantially adheres to the provisions of R.C.

1311.14, it serves to negate R.C. 1311.13, and give priority to an after-recorded

mortgagee. Highland Sav. Ass'n. v. Clinton Constr. Co. (June 28, 1976), Clinton County

App. No. 311, 1976 WL 189219. See also Barr v. Masterpiece Homes (July 21, 1994),

Cuyahoga App. No. 65835, 1994 WL 385998. See also R.C. 1311.14(C) which states

that ‘[t]his section, as to mortgages contemplated by this section controls over all other

sections of the Revised Code relating to mechanic’s … and all liens that can be had

under this chapter.” R.C. 1311.14, the construction mortgage statute, thus controls

when a construction mortgage is at issue.

{¶26} R.C. 1311.14, the construction mortgage statute, gives a construction

mortgage priority over mechanic's liens although the mortgage was recorded
Stark County App. Case No. 2010CA00074 9

subsequent to the effective date of the mechanic's liens. Guernsey Bank v. Milano

Sports Enters, LLC, 177 Ohio App.3d 314, 2008-Ohio-2420, 894 N.E.2d 715.

{¶27} R.C. 1311.14(A) states as follows: “Except as provided in this section, the

lien of a 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 and 1311.03 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, material supplier'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). While appellant contends that R.C. 1311.14 “contemplates that only

mortgages given towards the completion of improvements are entitle to priority,” as

noted by appellee, the language in R.C. 1311.14 allows mortgages which pay off prior

encumbrances to obtain priority over after recorded mechanic’s liens.

{¶28} As noted by the court in Guernsey, “Thus, a mortgage used to finance

improvements or pay off prior encumbrances in compliance with R.C. 1311.14 has
Stark County App. Case No. 2010CA00074 10

priority over any mechanic's liens, even if the mortgage is filed after the first visible work

or labor is performed or the first materials are furnished.” Id at paragraph 57.

{¶29} In the case sub judice, appellee First Place’s Mortgage was recorded on

March 6, 2006, whereas appellant’s mechanic’s lien was filed for record on February 28,

2007. Appellee First Place’s Mortgage was, therefore, filed for record prior to the

mechanic’s lien. Appellant argues that the mechanic’s lien, however, had an effective

date of July 29, 2004.

{¶30} Appellant claims that we must determine whether or not appellee Fifth

Third Bank’s mortgage or appellant’s mechanic’s lien was filed for record first.1

Appellant contends that even if appellee First Place Mortgage was entitled to R.C.

1311.14 priority, “it could only be superior to Ohio Farmer’s Mechanic’s Lien if the prior

encumbrance (i.e., the Fifth Third Mortgage) was recorded earlier than the NOC [Notice

of Commencement].” Assuming arguendo that this is a relevant consideration, we shall

address which was filed first. The Fifth Third Bank mortgage was recorded in the Stark

County Recorder’s Office on July 29, 2004 at 2:23 p.m. and was assigned Instrument

No. 200407290054653. The Notice of Commencement upon which the mechanic’s lien

is based was filed on July 29, 2004 at 2:23 p.m. and was recorded in the Stark County

Recorder’s Office as Instrument 20047290054658, which is a higher number.

{¶31} R.C. 317.12 states, in relevant part, as follows: “Upon the presentation of

a deed or other instrument of writing for record, the county recorder shall indorse

thereon the date, the precise time of its presentation, and a file number. Such file

numbering shall be consecutive and in the order in which the instrument of writing is

1
We note that appellant, at the oral argument in this case, conceded that if we would find that the Fifth
Third Bank Mortgage was filed first, appellant would lose his appeal.
Stark County App. Case No. 2010CA00074 11

received for record, except financing statements, which shall have a separate series of

file numbers and be filed separately, as provided by sections 1309.501 to 1309.527 of

the Revised Code.” (Emphasis added). R.C. 317.13 provides, in relevant part, as

follows: “(A) Except as otherwise provided in division (B) of this section, the county

recorder shall record in the proper record, in legible handwriting, typewriting, or printing,

or by any authorized photographic or electronic process, all deeds, mortgages, plats, or

other instruments of writing that are required or authorized by the Revised Code to be

recorded and that are presented to the recorder for that purpose. The recorder shall

record the instruments in regular succession, according to the priority of presentation,

and shall enter the file number at the beginning of the record. On the record of each

instrument, the recorder shall record the date and precise time the instrument was

presented for record.”

{¶32} Pursuant to such sections, “the county recorder has the ministerial duty of

recording instruments in regular succession, according to the priority of presentation,

giving each instrument a file or transaction number, awarded in consecutive order, and

noting the date and precise time the instrument was presented for record.” Ohio

Attorney General Opinion 99-014 at 7.

{¶33} “Ohio law does not make either the time stamp or the file or transaction

number placed on an instrument presented for record pursuant to RC 317.12 and

317.13 conclusive for purposes of determining priorities among recorded instruments.”

Id. As noted by Ohio Attorney General under the statutes, it appears that, if the date and

time on two or more instruments are the same, the one with the lower transaction

number will have been stamped first. As a general principle, the information endorsed
Stark County App. Case No. 2010CA00074 12

by the recorder may be considered prima facie evidence of the time and order of filing.

Should a controversy arise in a particular case, however, the parties may be permitted

to present evidence to show that the “instruments were in fact presented for filing at a

different time or in a different order than is reflected in the date and time stamps or the

transaction numbers given the instruments by the county recorder pursuant to R.C.

317.12 and R.C. 317.13.” Id. at 6-7.

{¶34} As is stated above, the Fifth Third mortgage was recorded in the Stark

County Recorder’s Office on July 29, 2004, at 2:23 p.m. and was assigned Instrument

No. 200407290054653 and, on the same date and at the same time, the Notice of

Commencement was recorded in the Stark County Recorder’s Office as Instrument

20047290054658. Thus, the Fifth Third Mortgage was filed first. Appellant has not

presented any evidence “that the instruments were in fact presented for filing at a

different time or in a different order.” We find, therefore, that the Fifth Third mortgage

was a “prior encumbrance” on the property that was filed prior to the mechanic’s lien.

{¶35} The question thus becomes whether or not appellee First Place’s

mortgage was used to pay off a “prior encumbrance.”

{¶36} In the case sub judice, the undisputed evidence shows that $1,245,650.00

of appellee First Place Bank’s mortgage was used to pay off the Fifth Third Bank

mortgage. The HUD-1 Settlement statement for appellee First Place’s mortgage, which

is attached to appellee’s Motion for Summary Judgment as Exhibit P, and the Loan

Payoff from Fifth Third, which is attached to appellee’s Motion for Summary Judgment

as Exhibit Q, show that $1,245,650.00 of the First Place mortgage was used to pay-off

the Fifth Third mortgage. As noted by the trial court, appellant failed to present any
Stark County App. Case No. 2010CA00074 13

evidence that such pay off did not occur. The Fifth Third Bank mortgage was a

construction loan against the subject property. As is stated above, the mortgage

specifically stated on its face the borrower was indebted to Fifth Third Bank pursuant to

“the Construction Loan and Security Agreement…” On the Notice of Commencement,

Fifth Third Bank is identified as providing financing for improvements to the Danbury

Glen Estates project.

{¶37} Based on the foregoing, we find that the Fifth Third Bank mortgage was a

prior encumbrance on the property and was also filed prior to the mechanic’s lien and

that appellee First Place Bank mortgage was used to pay off the same. We further find

that, therefore, the trial court did not err in holding that appellee First Place Bank’s

mortgage had priority over appellant’s mechanic’s lien and in granting summary

judgment in favor of appellee while overruling appellant’s Motion for Summary

Judgment.

{¶38} In short, upon our review of the record, we find that the trial court did not

err in granting summary judgment in favor of appellee First Place Bank. We concur with

the trial court that the record establishes that appellee has met the requirements set

forth in R.C. 1311.14 and is entitled to the benefit of R.C. 1311.14 and that its mortgage

takes priority over appellant’s mechanic’s lien.

{¶39} Appellant’s first and second assignments of error are, therefore, overruled.

III

{¶40} Appellant, in its third assignment of error, argues that the trial court erred,

in its March 12, 2010 Judgment Entry and Decree of Foreclosure, in assigning a junior
Stark County App. Case No. 2010CA00074 14

priority status to appellant’s mechanic’s lien and a senior, first and best lien priority to

appellee’s mortgage.

{¶41} This Court, in addressing appellant’s first and second assignments of

error, held that the trial court did not err in holding that appellee’s mortgage had priority

over appellant’s mechanic’s lien. We find, therefore, that the trial court did not err when,

in its March 12, 2010 Judgment Entry and Decree of Foreclosure, it assigned a lower

priority status to appellant’s mechanic’s lien.

{¶42} Appellant’s third assignment of error is, therefore, overruled.

{¶43} Accordingly, the judgment of the Stark County Court of Common Pleas is

affirmed.

By: Edwards, P.J.

Hoffman, J. and

Delaney, J. concur

______________________________

______________________________

______________________________

JUDGES

JAE/d1015
[Cite as First Place Bank v. Hersh Constr., Inc., 2011-Ohio-1790.]

IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO

FIFTH APPELLATE DISTRICT

FIRST PLACE BANK :
:
Plaintiff-Appellee :
:
:
-vs- : JUDGMENT ENTRY
:
HERSH CONSTRUCTION, INC., et al. :
:
Defendant-Appellant : CASE NO. 2010CA00074

For the reasons stated in our accompanying Memorandum-Opinion on file, the

judgment of the Stark County Court of Common Pleas is affirmed. Costs assessed to

appellant.

_________________________________

_________________________________

_________________________________

JUDGES