Bank of Am., N.A. v. Pasqualone

[Cite as Bank of Am., N.A. v. Pasqualone, 2013-Ohio-5795.]

IN THE COURT OF APPEALS OF OHIO

TENTH APPELLATE DISTRICT

Bank of America, N.A., :

Plaintiff-Appellee, : No. 13AP-87
(C.P.C. No. 12CVE04-5225)
v. :
(REGULAR CALENDAR)
James E. Pasqualone, :

Defendant-Appellant. :

D E C I S I O N

Rendered on December 31, 2013

Manley Deas Kochalski, LLC, and Matthew J. Richardson,
for appellee.

Thomas L. Sooy, for appellant.

APPEAL from the Franklin County Court of Common Pleas

DORRIAN, J.
{¶ 1} In this mortgage foreclosure case, defendant-appellant, James E.
Pasqualone ("appellant"), appeals from a judgment of the Franklin County Court of
Common Pleas denying his motion for relief from a default judgment granted in favor of
plaintiff-appellee, Bank of America, N.A. ("appellee"). For the reasons that follow, we
affirm.
I. Facts and Case History
{¶ 2} On May 18, 2011, appellant executed a promissory note in favor of MFC
Mortgage, Inc. of Florida ("MFC") in the amount of $100,000 in connection with a loan
made by MFC in the same amount. On the same date, appellant executed a mortgage on
real property located at 5540 Town Hill Dr., Canal Winchester, Ohio ("the real property").
The mortgage described appellant as the mortgagor and borrower and identified MFC as
No. 13AP-87 2

the lender. The mortgage additionally identified Mortgage Electronic Registration
Systems, Inc. ("MERS") as the mortgagee and described MERS as a "separate corporation
that is acting solely as a nominee for Lender and Lender's successors and assigns."
(May 18, 2011 Mortgage, 1.)
{¶ 3} On March 6, 2012, MERS, through a vice-president, executed a document
titled "Assignment of Mortgage" ("the assignment"), which purported to assign all
beneficial interest under the mortgage to appellee.
{¶ 4} On April 24, 2012, appellee initiated this action by filing a complaint for
foreclosure. In its complaint, appellee alleged that the mortgage was executed in
connection with the note and that both the note and the mortgage were in default.
Appellee further alleged that it was "a person entitled to enforce the Note, pursuant to
Section 1303.31 of the Ohio Revised Code," and that the mortgage was given to secure
the note. (Emphasis added.) (Complaint at ¶ 8.) Finally, appellee alleged it had satisfied
all conditions precedent to acceleration of the note and had declared the entire balance
due and payable. Along with the complaint, appellee filed with the court the following
documentary evidence: (1) a copy of the original note naming appellant as the borrower
and MFC as the lender, containing an indorsement from MFC to appellee and a blank
indorsement signed by an assistant vice-president of appellee; (2) a copy of the original
mortgage naming appellant as the mortgagor, MERS as the mortgagee, and MFC as the
lender; (3) a copy of an assignment of the original mortgage naming MERS as assignor,
appellee as assignee, and MFC as the lender; and (4) a copy of a Preliminary Judicial
Report, prepared by the First American Title Insurance Company, reflecting the original
mortgage in favor of MERS, as nominee for MFC Mortgage, Inc., its successors and
assigns, as assigned to appellee.
{¶ 5} Appellee sought judgment against appellant in the amount of the sum it
alleged was unpaid on the note ($99,380.19, plus interest dating from November 1, 2011)
and an order foreclosing the mortgage and ordering sale of the premises to satisfy the
amounts due it. Appellant was served by ordinary mail when service of the complaint by
certified mail failed.
{¶ 6} On July 11, 2012, appellee moved for default judgment against appellant.
Attached to its motion for default judgment, appellee filed an affidavit signed by Carol
No. 13AP-87 3

Ann Yagusee, assistant vice-president of appellee, who averred that the copies of
documents filed were true and correct copies of appellee's business records and that
appellee had possession of the note. On August 10, 2012, the court granted the motion
and entered judgment and a decree in foreclosure finding appellant liable for the unpaid
amount of the note and ordering foreclosure and sale of the real property. Appellant did
not timely appeal the judgment. Appellee prosecuted the matter further to accomplish a
sheriff's sale of the property. On December 7, 2012, the sheriff conducted a public sale of
the real estate, and appellee submitted the highest and best bid for the property.
{¶ 7} On the same day as the sheriff's sale, December 7, 2012, appellant appeared
for the first time in the action and filed a motion pursuant to Civ.R. 60(B) seeking relief
from the default judgment of foreclosure that had been granted nearly four months
earlier. Appellant asserted that he was entitled to relief from the judgment pursuant to
Civ.R. 60(B).
{¶ 8} On January 9, 2013, the trial court confirmed the sheriff's sale and issued a
writ ordering the sheriff to put the purchaser in possession of the real property. On
January 10, 2013, appellant moved for a stay of the proceedings, citing Civ.R. 62(A). That
rule authorizes a trial court to "stay the execution of any judgment or stay any proceedings
to enforce judgment pending the disposition of * * * a motion for relief from a judgment
or order made pursuant to Rule 60." Civ.R. 62(A)
{¶ 9} On January 24, 2013, the trial court entered a formal judgment denying
appellant's Civ.R. 60(B) motion and further denying appellant's January 10, 2013 motion
for stay. The court rejected appellant's challenge to appellee's standing to bring the
foreclosure action and concluded that appellant had failed to demonstrate a meritorious
defense to the foreclosure. It upheld the MERS assignment of the MFC mortgage to
appellee. The court found that the fact that MERS was not named in the note did not
preclude MERS, as nominee, from assigning the mortgage to appellee, citing cases from
the Fifth and Sixth District Courts of Appeals, holding that, where a note refers to the
mortgage and the mortgage refers to the note, the clear intent of the parties is to keep the
note and mortgage together. See Bank of New York v. Dobbs, 5th Dist. No. 2009-CA-
000002, 2009-Ohio-4742, ¶ 31-36, and Mtge. Electronic Registration Sys., Inc. v.
Vascik, 6th Dist. No. L-09-1129, 2010-Ohio-4707, ¶ 25. The court concluded that MERS
No. 13AP-87 4

acted only as the nominee or agent of the lenders, as demonstrated by the mortgage itself,
which included the following provision:
Borrower understands and agrees that MERS holds only
legal title to the interests granted by Borrower * * * but, if
necessary to comply with law or custom, MERS (as nominee
for Lender and Lender's successors and assigns) has the
right to exercise any or all of those interests.

(Mortgage, 4.)
{¶ 10} The trial court concluded that appellant was not entitled to Civ.R. 60(B)
relief because he had not demonstrated the existence of a meritorious defense as required
by GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d 146 (1976).
{¶ 11} In addition, the trial court denied appellant's motion to stay as moot.
{¶ 12} On February 1, 2013, appellant filed a notice of appeal from the January 24,
2013 judgment. Thereafter, on March 11, 2013, he moved the trial court for a stay of
execution of the foreclosure decree. The trial court issued an order granting a stay
pending the filing of a supersedeas bond. Appellant did not, however, file the requisite
bond within the time set by the court. Appellant states in his brief that the sheriff then
removed appellant from the real property.
{¶ 13} In this appeal, appellant asserts the following four assignments of error.
[1.] THE TRIAL COURT ERRED IN ABSTAINING FROM
CONDUCTING AN ANALYSIS OF THE ROLE THAT THE
MORTGAGE ELECTRONIC REGISTRATIONS SYSTEMS,
INC. PLAYS IN THE MORTGAGE LENDING PROCESS.

[2.] THE TRIAL COURT, IN DENYING THE APPELLANT'S
UNOPPOSED MOTION TO VACATE JUDGMENT, ERRED
IN HOLDING THAT THE PLAINTIFF POSSESSED THE
REQUISITE STANDING TO HAVE COMMENCED THIS
FORECLOSURE PROCEEDING.

[3.] THE TRIAL COURT ERRED IN CONFIRMING THE
SHERIFF'S SALE OF THE PROPERTY IN QUESTION
PRIOR TO RULING ON THE APPELLANT'S MOTION TO
VACATE JUDGMENT.

[4.] THE TRIAL COURT ERRED IN NOT RENDERING A
DECISION ON THE APPELLANT'S MOTION FOR TEMPO-
RARY STAY OF EXECUTION OF JUDGMENT PRIOR TO
No. 13AP-87 5

THE APPELLANT BEING EVICTED FROM HIS PROPERTY
AND ULTIMATELY DENYING SAID MOTION DESPITE
THE APPELLANT HAVING BEEN APPROVED FOR A
SUPERSEDEAS BOND.

II. Standard of Review
{¶ 14} Appellant has appealed the trial court's denial of his Civ.R. 60(B) motion.
"[A] party seeking relief from judgment under Civ.R. 60(B) '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[.]' " PHH Mtg. Corp. v. Santiago, 10th
Dist. No. 11AP-562, 2012-Ohio-942, ¶ 11, quoting GTE at 150. Moreover, a movant must
establish all three of these requirements to obtain relief from judgment. Flagstar Bank,
FSB, v. Hairston, 10th Dist. No. 12AP-679, 2013-Ohio-1151, ¶ 7. We review trial court
decisions on Civ.R. 60(B) motions pursuant to an abuse-of-discretion standard of review.
Id. at ¶ 6. We will not reverse the trial court's decision absent a finding that the trial court
acted arbitrarily, unconscionably or unreasonably. Id. In addition," '[i]f a Civ.R.
60(B) motion is premised upon issues which could have been raised on appeal, a trial
court does not abuse its discretion by denying such motion.' " Nkurunziza v.
Nyamusevya, 10th Dist. No. 11AP-222, 2011-Ohio-6133, ¶ 12, quoting Doe v. Trumbull
Cty. Children Servs. Bd., 28 Ohio St.3d 128 (1986), paragraph two of the syllabus.
{¶ 15} Although we are considering the trial court's denial of a Civ.R. 60(B)
motion, the alleged meritorious defense appellant has raised is an issue of standing. For
purposes of appellate review, a question involving standing is typically a question of law
and, as such, it is to be reviewed de novo. ProgressOhio.org, Inc. v. JobsOhio, 10th Dist.
No. 11AP-1136, 2012-Ohio-2655, ¶ 8, citing League of United Latin Am. Citizens v.
Kasich, 10th Dist. No. 10AP-639, 2012-Ohio-947, ¶ 21–23. "Whether established facts
confer standing to assert a claim is a matter of law. We review questions of law de novo."
Portage Cty. Bd. of Commrs. v. Akron, 109 Ohio St.3d 106, 2006-Ohio-954, ¶ 90, citing
Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co., 95 Ohio St.3d 512, 2002-Ohio-
2842, ¶ 4.
No. 13AP-87 6

{¶ 16} Applying either standard, we conclude the trial court did not err in denying
appellant's Civ. R. 60(B) motion.
III. Analysis
{¶ 17} The grounds for relief stated in Civ.R. 60(B)(1) through (5) are as follows:
(1) mistake, inadvertence, surprise or excusable neglect;

(2) newly discovered evidence which by due diligence could
not have been discovered in time to move for a new trial
under Rule 59(B);

(3) fraud (whether heretofore denominated intrinsic or
extrinsic), misrepresentation or other misconduct of an
adverse party;

(4) the judgment has been satisfied, released or discharged,
or a prior judgment upon which it is based has been reversed
or otherwise vacated, or it is no longer equitable that the
judgment should have prospective application; or

(5) any other reason justifying relief from the judgment.

{¶ 18} Appellant argued in the trial court that he met the second prong of the GTE
analysis as Civ.R. 60(B) (1), (2), (4), and (5) applied. In this appeal, however, appellant
has not addressed the question whether one of these grounds for relief existed. Rather,
appellant argues in his first and second assignments of error that appellee did not have
standing to initiate the foreclosure for the following reasons: (1) MERS did not have legal
authority to assign the mortgage that appellant executed to appellee; and (2) in executing
a mortgage naming MERS as the mortgagee (albeit in a "nominee" capacity) and
contemporaneously executing a promissory note naming a different party as the lender,
the parties in this action separated the mortgage and the note, making the mortgage
unenforceable. In his reply brief, he further argues that appellee's standing is a
jurisdictional requirement that can never be waived, citing Fed. Home Loan Mtg. Corp. v.
Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017. Appellant's first and second
assignments of error thereby address only the question whether appellant had a
meritorious defense—not the existence of grounds for relief under Civ.R. 60(B)(1) through
(5). Likewise, the trial court only addressed whether appellant had a meritorious defense.
No. 13AP-87 7

Accordingly, as we address appellant's first and second assignments of error, we will begin
our analysis with appellant's argument that he has a meritorious defense because appellee
lacked standing to bring the foreclosure action.
A. Schwartzwald is not dispositive
{¶ 19} As an initial matter, we address appellant's argument that the October 2012
decision of the Supreme Court of Ohio in Schwartzwald precludes a finding that appellee
had standing to bring the foreclosure action. He argues that, "[i]n large part due to the
aforementioned role of MERS in this mortgage loan transaction," appellee had not
established that it was the real party in interest. (Appellant's Brief, 31.) He claims that the
assignment of the mortgage by MERS was ineffective and invalid and that appellee
therefore did not have standing to sue at the time it filed the foreclosure complaint.
{¶ 20} The Supreme Court held in Schwartzwald that "[t]he lack of standing at the
commencement of a foreclosure action requires dismissal of the complaint." Id. at ¶ 40. In
that case, the assignment of the note and mortgage to the plaintiff took place after the
filing of the complaint. Id. at ¶ 7-11. By contrast, in this case, appellee presented evidence
that the assignment of the note and mortgage took place prior to the filing of the
complaint.1 Moreover, in Schwartzwald, the Supreme Court did not address the role of
MERS in a mortgage transaction or whether the involvement of MERS invalidates
standing. Therefore, Schwartzwald is not dispositive to the issues raised in this appeal.
B. Standing analysis begins with the note to determine whether
appellee is the person entitled to enforce the note

{¶ 21} Appellant suggests that this court must focus our analysis on the
assignment of the mortgage and whether appellee owned both the mortgage and the note
at the time it filed the complaint. He argues that appellee lacked standing because MERS
did not have authority to assign the mortgage to appellee, and, therefore, appellee had no
interest in the mortgage at the time it filed the complaint. He further argues that appellee
was never assigned an interest in the note. In his motion to vacate judgment, appellant
argued "[i]f the plaintiff cannot prove it owned both the note and mortgage deed on the

1 Attached to the complaint, appellee filed a copy of the assignment of the mortgage. It was dated March 6,

2012, indicating that the assignment took place four months prior to the filing of the complaint. Appellee
also filed a copy of the note, which included two indorsements on the face of the note at the time the
complaint was filed, thereby indicating the indorsements took place prior to the filing of the complaint.
No. 13AP-87 8

date the complaint was filed, the complaint must be dismissed." (Emphasis added.)
(Dec. 7, 2012, Motion to Vacate, ¶ 26.) Pursuant to appellant's suggestion, the trial court's
analysis focused on the mortgage and the assignment thereof.
{¶ 22} Contrary to appellant's suggestion, however, we will begin our analysis by
focusing on the note and whether appellee is the person entitled to enforce the note. In
this regard, appellant argued in his motion to vacate that it was not clear whether appellee
was, in fact, the holder2 of the note (Motion to Vacate Judgment, ¶ 27) and, in his brief on
appeal, he points us to several Ohio cases in support of the proposition that the current
holder of a note is the real party in interest.
C. Person entitled to enforce vs. Ownership
{¶ 23} Underlying appellant's argument that the mortgage assignment was invalid
is his argument that appellee did not own the mortgage and the note. As will be explained
below, we conclude that Chapter 1303 of the Ohio Revised Code, Ohio's version of Article
3 of the Uniform Commercial Code ("UCC"), applies to the note in this case. Therefore, it
is important to consider R.C. Chapter 1303's treatment of the issues of ownership and of
the person entitled to enforce the note. Pursuant to this chapter, the question of who has
an ownership interest in a note is different from the question of who is entitled to enforce
a note. Sometimes the person entitled to enforce the note and the owner of the note are
one and the same. Sometimes they are not. Indeed, R.C. 1303.31(B) states that "[a] person
may be a 'person entitled to enforce' the instrument even though the person is not the
owner of the instrument or is in wrongful possession of the instrument." Furthermore, a
plaintiff is not required to plead that it was the "owner" of the note and mortgage in its
complaint. See U.S. Bank Natl. Assn. v. Mitchell, 6th Dist. No. S-10-043, 2012-Ohio-
3732, ¶ 16; Bank of New York Mellon Trust Co. v. Fox, 6th Dist. No. OT-11-046, 2012-
Ohio-6245, ¶ 15. "An assertion of ownership rights does not indicate entitlement to
enforce an instrument, nor does a lack of ownership necessarily prevent a person from
being entitled to enforce an instrument." Mitchell at ¶ 16.

2 Pursuant to the Uniform Commercial Code, as adopted in Ohio, a holder is a person entitled to enforce a
note. R.C. 1303.31(A)(1). However, non-holders may also be entitled to enforce a note if they meet the
criteria outlined in R.C. 1303.31(A)(2) or (3).
No. 13AP-87 9

{¶ 24} The importance of determining whether a plaintiff is the person entitled to
enforce a note under the UCC, and the effect of that legal determination, was recently
addressed by the United States Bankruptcy Appellate Panel for the Ninth Circuit:
A thorough understanding of the concept of a "person entitled
to enforce" is key to sorting out the relative rights and
obligations of the various parties to a mortgage transaction. In
particular, the person obligated on the note – a "maker" in the
argot of Article 3 [R.C. Chapter 1303]3– must pay the
obligation represented by the note to the "person entitled to
enforce" it. UCC § 3-412 [R.C. 1303.52]. Further, if a maker
pays a "person entitled to enforce" the note, the maker's
obligations are discharged to the extent of the amount paid.
UCC § 3-602(a) [R.C. 1303.67(A)]. Put another way, if a
maker makes a payment to a "person entitled to enforce," the
obligation is satisfied on a dollar for dollar basis, and the
maker never has to pay that amount again. Id. See also UCC §
3-602(c) [R.C. 1303.67(A)].

If, however, the maker pays someone other than a "person
entitled to enforce" – even if that person physically possesses
the note the maker signed – the payment generally has no
effect on the obligations under the note. The maker still owes
the money to the "person entitled to enforce," Miller &
Harrell, supra, ¶ 6.03[6][b][ii], and, at best, has only an
action in restitution to recover the mistaken payment. See
UCC § 3-418(b) [R.C. 1303.58(B)].

In re Veal, 450 B.R. 897, 910 (Bankr.9th Cir.2011). See also HSBC Bank USA, N.A. v.
Thompson, 2d Dist. No. 23761, 2010-Ohio-4158, ¶ 71-72, quoting Adams v. Madison
Realty & Development, Inc., 853 F.2d 163, 168 (3d Cir.1988) ("[F]rom the maker's
standpoint: 'it becomes essential to establish that the person who demands payment of a
negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the
obligor is exposed to the risk of double payment, or at least to the expense of litigation
incurred to prevent duplicative satisfaction of the instrument.' "). The relevant provisions
of R.C. Chapter 1303 mirror the UCC sections discussed in Veal, providing that, subject to
certain limitations, "an instrument is paid to the extent payment is made by or on behalf
of a party obliged to pay the instrument and to a person entitled to enforce the

3 Throughout this decision, when we reference general UCC sections, we will include in brackets Ohio's
comparable Revised Code section.
No. 13AP-87 10

instrument. To the extent of the payment, the obligation of the party obliged to pay the
instrument is discharged" R.C. 1303.67(A).4 Consequently, in a promissory note default
case, once the court determines that a plaintiff is the person entitled to enforce the note,
and judgment is entered against a defendant on that basis, the defendant is generally
protected from being subject to subsequent claims for default on the same note to the
extent payment is made to the person entitled to enforce the note whether by the proceeds
of the mortgage foreclosure sale or otherwise. Therefore, a debtor's concern with who is
the person entitled to enforce a note is paramount.
{¶ 25} However, as the court further explained in Veal, the question of ownership
of a note is not the debtor's concern:
This distinction [between an owner of a note and a person
entitled to enforce a note] further recognizes that the rules
that determine who is entitled to enforce a note are concerned
primarily with the maker of the note. They are designed to

4 R.C. 1303.67 states:

(A) Subject to division (B) of this section, an instrument is paid to the
extent payment is made by or on behalf of a party obliged to pay the
instrument and to a person entitled to enforce the instrument. To the
extent of the payment, the obligation of the party obliged to pay the
instrument is discharged even though payment is made with knowledge
of a claim to the instrument under section 1303.36 of the Revised Code
by another person.

(B) The obligation of a party to pay the instrument is not discharged
under division (A) of this section under either of the following
circumstances:

(1) A claim to the instrument under section 1303.36 of the Revised
Code is enforceable against the party receiving payment and either of the
following applies:

(a) Payment is made with knowledge by the payor that payment is
prohibited by injunction or similar process of a court of competent
jurisdiction.

(b) In the case of an instrument other than a cashier's check, teller's
check, or certified check, the party making payment accepted, from the
person having a claim to the instrument, indemnity against loss resulting
from refusal to pay the person entitled to enforce the instrument.

(2) The person making payment knows that the instrument is a stolen
instrument and pays a person it knows is in wrongful possession of the
instrument.
No. 13AP-87 11

provide for the maker a relatively simple way of determining
to whom the obligation is owed and, thus, whom the maker
must pay in order to avoid defaulting on the obligation. UCC §
3-602 (a), (c) [R.C. 1303.67(A)]. By contrast, the rules
concerning transfer of ownership and other interests in a note
identify who, among competing claimants, is entitled to the
note's economic value (that is, the value of the maker's
promise to pay). Under established rules, the maker should be
indifferent as to who owns or has an interest in the note so
long as it does not affect the maker's ability to make payments
on the note. Or, to put this statement in the context of this
case, the Veals [as the makers of the note] should not care
who actually owns the note – and it is thus irrelevant whether
the note has been fractionalized or securitized – so long as
they do know who they should pay. Returning to the patois of
Article 3, so long as they know the identity of the "person
entitled to enforce" the note, the Veals should be content.

Veal at 912-13.5 See also In re Smoak, 461 B.R. 510, 518 (Bankr.S.D.Ohio2011)
("[B]ecause it has been established that Bank of NY Mellon is the holder of the Note, the
Smoaks, as the maker of the Note, need not be concerned with who the owner of the Note
is, but only that payments are being delivered to a person with the right to enforce the
note."); In re Simmerman, 463 B.R. 47, 60 (Bankr.S.D. Ohio 2011) ("While a debtor has
the right to challenge whether the creditor filing a proof of claim is the holder of the note,
a debtor generally lacks standing to challenge who the owner of the note is because it does
not impact who is entitled to enforce the note and who may file the proof of claim.").
{¶ 26} Therefore, particularly in this day and age of high volume and complex
transactions involving promissory notes and mortgages, it is imperative that a court
determine whether a plaintiff is the person entitled to enforce a note in order to protect
debtors from multiple judgments on the same debt.
D. R.C. Chapter 1303 applies to Negotiable Promissory Notes
{¶ 27} The concept of "person entitled to enforce a note" is only relevant if a
promissory note is negotiable. If a promissory note meets the definition of "negotiable,"

5 With respect to ownership issues, the Veal court explained that "[i]nitially, a note is owned by the payee to
whom it was issued. If that payee seeks either to use the note as collateral or sell the note outright to a third
party in a manner not within Article 3, [then] Article 9 [R.C. Chapter 1309] of the UCC governs that sale or
loan transaction and determines whether the purchaser of the note or creditor of the payee obtains a
property interest in the note." Veal at 913, citing UCC § 9-109(a)(3). See R.C. 1309.109(A)(3).
No. 13AP-87 12

then relevant provisions of R.C. Chapter 1303 will apply. Therefore, as a starting point,
we must determine whether the note in question is a negotiable instrument.
{¶ 28} R.C. 1303.03(A) states that a note is negotiable if it is an unconditional
promise to pay a fixed amount of money, with or without interest or other charges
described in the promise, if it meets all of the following requirements:6
(1) It is payable to bearer or to order at the time it is issued or
first comes into possession of a holder.

(2) It is payable on demand or at a definite time.

(3) It does not state any other undertaking or instruction by
the person promising or ordering payment to do any act in
addition to the payment of money, but the promise or order
may contain any of the following:

(a) An undertaking or power to give, maintain, or protect
collateral to secure payment;

(b) An authorization or power to the holder to confess
judgment or realize on or dispose of collateral;

(c) A waiver of the benefit of any law intended for the
advantage or protection of an obligor.

{¶ 29} Ohio courts, including our own, have generally held that a note secured by a
mortgage is a negotiable instrument.7 See U.S. Bank Natl. Assn. v. Gray, 10th Dist. No.
12AP-953, 2013-Ohio-3340, ¶ 23 ("Ohio's version of the Uniform Commercial Code
("UCC"), governs the creation, transfer, and enforceability of negotiable instruments,
including notes secured by mortgages on real estate."); Wright-Patt Credit Union, Inc. v.
Byington, 6th Dist. No. E-12-002, 2013-Ohio-3963, ¶ 11 ("Ohio's version of the Uniform
Commercial Code governs who may enforce negotiable instruments, including promissory
notes secured by mortgages on real estate."); U.S. Bank, N.A. v. Bennett, 7th Dist. No. 11

6 The statute contains an exception providing that "[a] promise or order * * * is not an instrument if, at the
time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however
expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this
chapter." R.C. 1303.03(D).
7 For a comprehensive overview of how the UCC applies to notes secured by mortgages on real estate see the

Report of the Permanent Editorial Board for the Uniform Commercial Code: Application of the Uniform
Commercial Code to Selected Issues Relating to Mortgage Notes, November 14, 2011, American Law
Institute and the National Conference of Commissioners on Uniform State Laws.
No. 13AP-87 13

MA 40, 2012-Ohio-2700, ¶ 19 ("First and foremost, a note secured by a mortgage is
widely considered to be a negotiable instrument.").
{¶ 30} We conclude that the promissory note before us meets the statutory
definition and, therefore, is a negotiable instrument subject to relevant provisions of R.C.
Chapter 1303. The note contains a promise to pay the lender the amount of $100,000,
plus interest. In addition to providing for monthly payments, the note further specified
that payment in full was due on or before June 1, 2041. See Mohammad v. Awadallah,
8th Dist. No. 97590, 2012-Ohio-3455, ¶ 17 (holding that a note "contain[ed] the indicia
generally found in a negotiable instrument as defined by R.C. 1303.03," where it provided
for a fixed amount of money to be paid, plus interest, to a specific individual, at a specific
date); Parmore Group v. G&V Invests., Ltd., 10th Dist. No. 05AP-756, 2006-Ohio-6986,
¶ 17 (holding that a note "contain[ed] the indicia generally found in a negotiable
instrument as defined by R.C. 1303.03," where it contained a promise to pay a fixed
amount on or before a specified date). Moreover, the note does not require any other
undertakings that would render the note nonnegotiable. Having determined that the note
is a negotiable instrument, we must next determine whether appellee is the person
entitled to enforce the note.
E. Definition of "person entitled to enforce"
{¶ 31} Pursuant to R.C. 1303.31(A), a "person entitled to enforce" an instrument
means any of the following persons: (1) the holder of the instrument, (2) a non-holder in
possession of the instrument who has the rights of the holder, or (3) a person not in
possession of the instrument who is entitled to enforce the instrument pursuant
to Section 1303.38 or division (D) of Section 1303.58 of the Revised Code.8 Appellant
argues that appellee is not a holder of the note; therefore, we will first consider whether
appellee is a holder of the note pursuant to R.C. 1301.31(A)(1).
{¶ 32} With respect to a negotiable instrument, a "holder" means: "The person in
possession of a negotiable instrument that is payable either to bearer or to an identified

8 As noted, both a non-holder in possession of an instrument who has the rights of a holder, as well as a
person not in possession of a note meeting criteria in R.C. 1303.38 or division (D) or R.C. 1303.58, may be
entitled to enforce a note. R.C. 1303.31(A)(2) and (3). If, in these situations, the court does not properly
determine that the plaintiff is entitled to enforce the note, a judgment in foreclosure against the debtor could
result in the plaintiff foreclosing on a house, and several years later the debtor being subject to a separate
judgment for the amount of the promissory note to the entity entitled to enforce the note.
No. 13AP-87 14

person that is the person in possession." R.C. 1301.201(B)(21)(a).9 Determining whether a
plaintiff-creditor is a holder requires physical examination not only of the face of the
note but also of any indorsements.10
{¶ 33} In this case, appellee included an affidavit averring that it had possession
of the note and that the copy it presented is true and correct. The note contains two
indorsements. The first indorsement was made by MFC making the note payable to the
order of appellee. This constitutes a "special indorsement" under R.C. 1303.25(A). "An
instrument, when specially indorsed, becomes payable to the identified person." R.C.
1303.25(A). Based on this indorsement, the note became payable to appellee as an
identified person and, because appellee is the identified person in possession of the
note, it was the holder of the note. The note also contains a second indorsement, made
by appellee. The second indorsement is a blank indorsement, which makes the
instrument payable to the bearer. R.C. 1303.25(B). Under this indorsement, appellee
still qualifies as a holder of the note because it is the person in possession of a negotiable
instrument that is payable to the bearer. R.C. 1301.201(B)(21)(a). We conclude that
appellee is the holder of the note and, therefore, appellee is a person entitled to enforce
the note pursuant to R.C. 1303.31(A)(1).
F. Debtor's denials and defenses to the right to payment of a person
entitled to enforce a note

{¶ 34} Under R.C. 1303.36(B),11 if the validity of each signature on a note is
admitted or proved pursuant to R.C. 1303.36(A),12 a person entitled to enforce the note is

9 The section of R.C. Chapter 1301 providing for general definitions under the UCC was amended in 2011 by

the General Assembly through Am.H.B. No. 9. The amendments provided in that legislation became
effective after the note and mortgage relevant to this case were executed but prior to the filing of the
foreclosure action. For purposes of analysis, we conclude that the definition of the "holder" of a negotiable
instrument under the prior law is substantially the same as the definition under the current law. Therefore,
for purposes of analysis, we cite the amended version of the statute.
10 Indorsements can be included in an allonge attached to the note. An allonge is "[a] slip of paper

sometimes attached to a negotiable instrument for the purpose of receiving further indorsements when the
original paper is filled with indorsements." Black's Law Dictionary 88 (9th Ed. 2009).
11 The right to payment of a person entitled to enforce the note, who also has the status as a holder in due

course, is subject to the defenses of the obligor stated in division (A)(1) of R.C. 1303.35 but is not subject to
defenses of the obligor stated in division (A)(2) of R.C. 1303.35 or to claims in recoupment stated in division
(A)(3) of R.C. 1303.35 against a person other than the holder. R.C. 1303.35(B) and 1303.36(B). Holder in
due course status is defined in R.C. 1303.32.
12 R.C. 1303.36(A) provides that "[u]nless specifically denied in the pleadings, in an action with respect to an

instrument, the authenticity of, and authority to make, each signature on an instrument is admitted. If the
No. 13AP-87 15

entitled to payment unless the debtor proves a defense or claim in recoupment as outlined
in R.C. 1303.35.13 R.C. 1303.35 states that the right to enforce the obligation of a party to
pay an instrument is subject to the defenses and claims in recoupment outlined therein.
Appellant argues in this case that he had a meritorious defense because: (1) the note
appeared to have been assigned to an unidentified third party pursuant to appellee's
blank indorsement; and (2) MERS did not have the authority to assign the mortgage and
therefore did not have authority to assign the note.
{¶ 35} In several recent cases, this court has held that "because a debtor is not a
party to the assignment of a note and mortgage, the debtor lacks standing to challenge
their validity." Deutsche Bank Natl. Trust. Co. v. Whiteman, 10th Dist. No. 12AP-536,
2013-Ohio-1636, ¶ 16, citing LSF6 Mercury REO Invests. Trust Series 2008-1 v. Locke,
10th Dist. No. 11AP-757, 2012-Ohio-4499, ¶ 28-29. See also JPMorgan Chase Bank, N.A.

validity of a signature is denied in the pleadings, the burden of establishing validity is on the party claiming
validity but the signature is presumed to be authentic and authorized[.]" However, see R.C. 1303.67(B).
13 Defenses and claims in recoupment are set forth in R.C. 1303.35, which provides, in part, as follows:

(A) Except as stated in division (B) of this section, the right to enforce the
obligation of a party to pay an instrument is subject to all of the
following:

(1) A defense of the obligor based on any of the following:

(a) Infancy of the obligor to the extent it is a defense to a simple contract;

(b) Duress, lack of legal capacity, or illegality of the transaction that,
under other law, nullifies the obligation of the obligor;

(c) Fraud that induced the obligor to sign the instrument with neither
knowledge nor reasonable opportunity to learn of its character or its
essential terms;

(d) Discharge of the obligor in insolvency proceedings.

(2) A defense of the obligor set forth in a section of this chapter or a
defense of the obligor that would be available if the person entitled to
enforce the instrument were enforcing a right to payment under a simple
contract;

(3) A claim in recoupment of the obligor against the original payee of the
instrument if the claim arose from the transaction that gave rise to the
instrument, but the claim of the obligor may be asserted against a
transferee of the instrument only to reduce the amount owing on the
instrument at the time the action is brought.
No. 13AP-87 16

v. Romine, 10th Dist. No. 13AP-58, 2013-Ohio-4212, ¶ 13. The defendant-debtors in
Locke, Whiteman, and Romine challenged the validity of assignments of the mortgages in
their cases. See Locke at ¶ 24; Whiteman at ¶ 16; Romine at ¶ 14. However, our holding
that the assignments could not be challenged was not made in the context of considering
whether the plaintiffs were entitled to enforce the note.14 Accordingly, at this time, we
limit our holdings in Locke, Whiteman, and Romine to the extent that, in cases where
R.C. Chapter 1303 applies, a debtor may challenge the assignment of a note (by
negotiation15 or transfer16) if such challenge fits the criteria of a denial, defense or claim in
recoupment as outlined in R.C. 1303.36 or 1303.35.
{¶ 36} Having considered appellent's alleged meritorious defenses, we determine
that they do not fit the criteria of a denial, defense or claim in recoupment outlined in R.C.
1303.36 or 1303.35. Therefore, appellee's right to payment and right to enforce the
obligation of appellee to pay the promissory note is not subject to appellant's alleged
meritorious defenses.
G. Ownership of the note
{¶ 37} As noted above, much of appellant's argument is based on his assertion that
appellee has not established that it owns the note. He asserts that MFC is still the owner of
the note. R.C. 1303.36(C) states that "[a] person who takes an instrument, other than a
person having rights of a holder in due course, is subject to a claim of a property or
possessory right in the instrument or its proceeds." However, pursuant to R.C.
1303.35(C), an "obligor may not assert against the person entitled to enforce the
instrument * * * a claim of another person to the instrument under division (C) of section

14 In Locke, the appellants did assert that the note was not the "wet ink" original. Locke at ¶ 8. However, said
assertion was made in the second assignment of error, whereas our holding that assignments cannot be
challenged was made in the context of discussing the third assignment of error regarding the assignment of
the mortgage. In Whiteman, although the appellant argued at one point that the appellee did not hold the
note, he did not dispute that Deutsche Bank possessed the note and that it was indorsed in blank. An entity
which possesses a note indorsed in blank is a holder entitled to enforce the note. See Bank of Am. v.
McLaughlin, 6th Dist. No. E-11-057, 2012-Ohio-2341, ¶ 19; In re Smoak at 517-18. Furthermore, his
challenge primarily focused on the robo-signing of the assignment of mortgage and ownership of the note
for lack of compliance with the Pooled Services Agreement. Whiteman at ¶ 15. Likewise, in Romine, the
appellant also argued that the plaintiff was not the holder of the note; however, there was no dispute the
plaintiff was in possession of the note and the note was indorsed in blank. Romine at ¶ 3. Nevertheless, the
premise of his argument was that the assignment of the mortgage was never effectuated.
15 Notes are negotiated pursuant to R.C. 1303.21.
16 Notes are transferred pursuant to R.C. 1303.22.
No. 13AP-87 17

1303.36 of the Revised Code."17 Therefore, appellant, as the obligor, may not assert
against appellee, as the person entitled to enforce the instrument, a claim of a property or
possessory right (including ownership) in the note or its proceeds on behalf of another
person, MFC. For these reasons, it is not necessary for us to conduct a deeper analysis of
MERS' business practices and the role it has played in the assignment transaction.18
H. Mortgage is an accessory to the note
{¶ 38} Finally, notwithstanding the fact that it is not necessary to conduct a deeper
analysis of MERS business practices, we will address appellant's argument that the note
and mortgage were separated when the note identified MFC as the lender, but the
mortgage identified MERS as the mortgagee. "Under Ohio common law, where a
promissory note is secured by a mortgage, the note is evidence of the debt and the
mortgage is a mere incident of the debt." U.S. Bank Natl. Assn. v. Gray, 10th Dist. No.
12AP-953, 2013-Ohio-3340, ¶ 32, citing Edgar v. Haines, 109 Ohio St. 159, 164 (1923),
and Kernohan v. Manss, 53 Ohio St. 118, 133 (1895). In Carpenter v. Longan, 83 U.S.
271, 275 (1872), the United States Supreme Court held:
All the authorities agree that the debt is the principal thing
and the mortgage an accessory. Equity puts the principal and
accessory upon a footing of equality, and gives to the assignee
of the evidence of the debt [the note] the same rights in regard
to both. There is no departure from any principle of law or
equity in reaching this conclusion. There is no analogy
between this case and one where a chose in action [a
mortgage19] standing alone is sought to be enforced. The
fallacy which lies in overlooking this distinction has misled
many able minds, and is the source of all the confusion that
exists. The mortgage can have no separate existence. When

17 The statute contains an exception providing that "the other person's claim to the instrument may be
asserted by the obligor if the other person is joined in the action and personally asserts the claim against the
person entitled to enforce the instrument." R.C. 1303.35(C). At this point in time, there is no indication that
MFC (or any other entity for that matter) is asserting an ownership interest in the note, or that it, rather
than appellee, is entitled to enforce the note.
18 Nevertheless, this case should not be construed as the definitive word on MERS. Nor should it be

construed as our approval of MERS and its authority. Each case, and the role MERS plays therein, is
different. Therefore, analysis should be conducted on a case by case basis.
19 A "chose in action" is defined as "[a] property right in personam, such as a debt owed by another person, a

share in a joint-stock company, or a claim for damages in tort" or "[t]he right to bring an action to recover a
debt, money, or thing." Black's Law Dictionary 275 (9th Ed.2009). "In equity a mortgage is but a chose in
action, given to secure the performance of some act, usually the payment of money." McQuade v. Rosecrans,
36 Ohio St. 442, 447 (1881).
No. 13AP-87 18

the note is paid the mortgage expires. It cannot survive for a
moment the debt which the note represents.

{¶ 39} Recently, this court held that negotiation of a note secured by a mortgage
operates as an equitable assignment of the mortgage, even though the mortgage is
not assigned or delivered. Gray at ¶ 32. "In other words, '[t]he physical transfer of the
note indorsed in blank, which the mortgage secures, constitutes an equitable assignment
of the mortgage, regardless of whether the mortgage is actually (or validly) assigned or
delivered.' " Id., quoting Deutsche Bank Natl. Trust Co. v. Najar, 8th Dist. No. 98502,
2013-Ohio-1657, ¶ 65.
{¶ 40} In Gray, we observed that R.C. Chapter 1309, Ohio's version of Article 9 of
the UCC, incorporates the common law doctrine of equitable assignment at R.C.
1309.203(G). Id. at ¶ 33, citing UCC Official Comment, Section 9-203, Comment 9
(2000); Aurora Loan Servs., L.L.C. v. Louis, 6th Dist. No. L-10-1289, 2012-Ohio-384,
¶ 34; U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-1178, ¶ 53 (7th
Dist.). We also referred to the recent answer of the Permanent Editorial Board for the
Uniform Commercial Code to the question, "[w]hat if a note secured by a mortgage is sold
* * * but the parties do not take any additional actions to assign the mortgage that secures
payment of the note, such as execution of a recordable assignment of the mortgage?" Id.,
citing 9A Hawkland, Uniform Commercial Code Series, Section 9-203:16[Rev] (2012).
The Board's explanation bears repeating here:
U.C.C. § 9–203(g) [1309.203(G)] explicitly provides that, in
such cases, the assignment of the interest of the seller or other
grantor of a security interest in the note automatically
transfers a corresponding interest in the mortgage to the
assignee * * *. ([A] "security interest" in a note includes the
right of a buyer of the note.) * * * [T]he UCC is unambiguous:
the sale of a mortgage note * * * not accompanied by a
separate conveyance of the mortgage securing the note does
not result in the mortgage being severed from the note.

(Emphasis added.) For these reasons, we reject appellant's argument that the note and
mortgage were separated and find that, when the note was indorsed to appellee and
then subsequently in blank, the mortgage was equitably assigned to appellee.
{¶ 41} We overrule appellant's first and second assignments of error.
No. 13AP-87 19

{¶ 42} In his third assignment of error, appellant argues that the trial court should
not have confirmed the sheriff's sale of the real property on January 9, 2013, without
having first ruled on appellant's December 7, 2012 Civ.R. 60(B) motion. Because we have
affirmed the trial court's denial of appellant's Civ. R. 60(B) motion, this assignment of
error is rendered moot. Nevertheless, we are aware of no authority for the proposition
that the filing of a Civ.R. 60(B) motion operates to stay execution of a foreclosure
judgment that is the subject of the motion, and appellant has not proffered any authority
supporting that proposition.
{¶ 43} We also conclude that appellant's fourth assignment of error contending
that the trial court should have granted additional time for appellant to post a
supersedeas bond to stay his eviction during the pendency of this appeal is moot.
{¶ 44} The record reflects that, on February 1, 2013 and, pursuant to Civ.R. 62(A),
appellant again moved for a stay pending this appeal. On February 20, 2013, the court
granted that motion, contingent upon appellant posting a supersedeas bond in the
amount of $4,969. On February 27, 2013, appellant moved the court for an additional 14
days to post the bond and, on February 28, 2013, the parties stipulated that appellant
would be evicted from the property no earlier than March 12, 2013. Appellant was,
however, unable to post the required bond by that date.
{¶ 45} On March 9, 2013, appellant sought additional time to post the bond,
representing to the court that he had obtained initial approval of a bond but that he
needed additional time to meet several conditions imposed by the surety. Appellant did
not, however, ever post a bond. In his brief, appellant suggests that he ultimately was
"removed from his property by the Franklin County Sheriff." (Appellant's Brief, 39.)
{¶ 46} Under these facts, we conclude, as stated above, that appellant's fourth
assignment of error is moot. Moreover, even if not moot, we do not find that the trial
court abused its discretion in failing to stay the execution of the foreclosure decree.
IV. Conclusion
{¶ 47} Finally, we deny as moot appellee's motion to strike, pursuant to our recent
decision in Deutsche Bank Natl. Trust Co. v. Finney, 10th Dist. No. 13AP-373, 2013-Ohio-
4884, in which we held the Schwartzwald case refers to the exercise of jurisdiction, not
subject-matter jurisdiction.
No. 13AP-87 20

{¶ 48} For the foregoing reasons, appellee's motion to strike is moot, appellant's
first and second assignments of error are overruled, and appellant's third and fourth
assignments of error are moot. Therefore, the judgment of the Franklin County Court of
Common Pleas is affirmed.
Motion to strike moot; judgment affirmed.
TYACK, J., concurs.
SADLER, J., concurs separately.

SADLER, J., concurring separately.
{¶ 49} I agree with the majority's disposition of the four asserted assignments of
error and the judgment affirming the trial court's decision. Because I believe the
majority's decision includes analysis and discussion beyond what is necessary to
determine the first and second assignments of error, I concur separately.
{¶ 50} As framed by the majority, the issue raised by appellant in the first and
second assignments of error is whether appellant demonstrated the existence of a
meritorious defense as required by GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47
Ohio St.2d 146 (1976). The only meritorious defense asserted by appellant is appellee's
alleged lack of standing to initiate the instant foreclosure action. I agree with the
majority's conclusion that, as a person entitled to enforce the note at issue, appellee had
standing to initiate this foreclosure action. However, I do not find the facts at issue here
necessitate a limitation of this court's prior holdings as the majority chooses to do in
paragraph 35. Furthermore, I find no basis for the inclusion of footnote 18 because, as
noted by the majority, "it is not necessary for us to conduct a deeper analysis of MERS'
business practices and the role it has played in the assignment transaction."
{¶ 51} For the above reasons, I concur separately.
_______________