Opinion
Case No. C-1-06-172.
August 16, 2006
ORDER
This matter is before the Court on the appeal by Terrance R. Monnie ("Monnie") from the Bankruptcy Court's Order granting summary judgment in favor of Trustee/Appellee Eileen K. Field ("Trustee") and denying motions for summary judgment filed by Defendant/Appellee Wells Fargo Home Mortgage, Inc. ("Wells Fargo") and Monnie. (Doc. 1, Att. 20). The Order allowed the Trustee to avoid a mortgage in favor of Wells Fargo on the ground that the mortgage is defective under Ohio law because it is not signed. Monnie and the Trustee have filed briefs on appeal. (Docs. 7, 8, and 9). Monnie has requested oral argument. (Doc. 10).
I. Request for oral argument
The Court has determined, in compliance with Bankruptcy Rule 8012, that the facts and legal arguments are adequately presented in the briefs and record and that oral arguments would not significantly aid the Court in deciding the matter. The Court therefore denies the request for oral argument.II. Standard of Review
This Court has jurisdiction under 28 U.S.C. § 158(a), which grants federal district courts jurisdiction over appeals from the final judgments of bankruptcy courts. In reviewing the Bankruptcy Court's decision, the district court must apply a de novo standard of review to all conclusions of law drawn by the Bankruptcy Court. In re Eagle-Picher Industries, Inc., 164 B.R. 265, 269 (S.D. Ohio 1994) (citing In re Caldwell, 851 F.2d 852, 857 (6th Cir. 1988)).
Fed.R.Civ.P. 56 allows summary judgment to secure a just and efficient determination of an action. This Court may only grant summary judgment as a matter of law when the moving party has identified, as its basis for the motion, an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
The party opposing a properly supported motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986) (quoting First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253 (1968)). The evidence of the nonmovant is to be believed and all justifiable inferences are to be drawn in his favor. Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress Co., 398 U.S. 144, 158 (1970)).
The court is not to weigh the evidence and determine the truth of the matter but is to decide whether there is a genuine issue for trial. Anderson, 477 U.S. at 249. There is no genuine issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. Id. at 249 (citing Cities Serv., 391 U.S. at 288-289). If the evidence is merely colorable, Dombrowski v. Eastland, 387 U.S. 82, 84 (1967), or is not significantly probative, Cities Serv., 391 U.S. at 290, judgment may be granted. Anderson, 477 U.S. at 249.
III. Facts and Procedural History
The following facts are undisputed: Debtor Kimberly Marie Bross ("Debtor") filed a Chapter 7 bankruptcy petition on August 5, 2004. She listed residential real estate located at 2340 Buddleia Court, Cincinnati, Ohio 45239 on Schedule A of her petition. At the time, the real estate was purportedly encumbered by a mortgage in favor of Wells Fargo in the amount of $132,700.00. Monnie was the closing agent for the mortgage. The mortgage is dated March 28, 2003. The borrower listed on the mortgage is the Debtor and the lender is First Equity Mortgage Incorporated ("First Equity"). The eleventh page of the mortgage document contains a signature line with the Debtor's name typed underneath it. The signature line is blank. The page is initialed at the bottom by the Debtor with her initials "KMB," as are the 10 preceding pages of the mortgage. There is a notary stamp and a notary's signature on page 11 and a representation by the notary that "The foregoing instrument was acknowledged before me this March 28, 2003 (date) by Kimberly M. Bross, an umarried woman." Attached to the mortgage are a condominium rider and a mortgage insurance rider executed that same date. Both of those documents are initialed "KMB" on the bottom of the first page and are signed on the second page. There is no dispute the Debtor wrote either her name or her initials on every page of the mortgage and the riders.
On the same date that the Debtor initialed and assigned these documents, First Equity assigned the mortgage to Wells Fargo. Wells Fargo accepted the assignment, and the mortgage and assignment were recorded in the Hamilton County, Ohio Recorder's Office. The Debtor signed an Auditor's Conveyance Fee Statement in which she declared under penalty of perjury that she had validly executed the mortgage.
In April 2005, the Trustee filed an adversary proceeding seeking avoidance of the mortgage and possession of the real estate, free and clear of the mortgage, on the ground that the mortgage was not signed by the Debtor, and thus the mortgage created no binding obligation in favor of Wells Fargo. The Trustee named the Debtor and Wells Fargo as defendants to the adversary action. The Debtor filed a third-party complaint against Monnie for negligence. All parties filed motions for summary judgment. The Bankruptcy Court issued its decision on the motions on January 18, 2006. (Doc. 1, Att. 17). The Court noted that a bankruptcy trustee may avoid a transfer that is avoidable by a bona fide purchaser and that under Ohio law, only properly executed mortgages take priority over a bona fide purchaser. The Court further noted that in order for a mortgage to be properly executed in accordance with Ohio law, it must be signed by the mortgagor and the signing must be acknowledged by the mortgagor before a notary public. See Ohio Rev. Code. § 5301.01. The Court recognized that Ohio law requires "substantial compliance" with § 5301.01 but found that there was not substantial compliance in this case because not only was the mortgage not properly executed, it was not executed at all. The Court noted that although the condominium rider and mortgage insurance riders were both signed, neither was notarized. The Court concluded that the omission of the Debtor's signature from the signature line on the mortgage precluded the mortgage from being in substantial compliance with Ohio Rev. Code § 5301.01 and properly executed under Ohio law.
Monnie now appeals from the judgment of the Bankruptcy Court. Monnie claims that the Bankruptcy Court erred in finding that the mortgage could be avoided. He claims that the Debtor executed the mortgage in compliance with § 5301.01, the mortgage was genuine without fraud and therefore satisfies the purpose of the statute, and the manifest intent of the parties was to record a valid and binding mortgage. Monnie also argues that the Court may uphold the mortgage as a validly executed instrument pursuant to Ohio Rev. Code § 2719.01, which provides,
When there is an omission, defect, or error in an instrument in writing or in a proceeding by reason of the inadvertence of an officer, or of a party, person, or body corporate, so that it is not in strict conformity with the laws of this state, the courts of this state may give full effect to such instrument or proceeding, according to the true, manifest intention of the parties thereto.
IV. Opinion
A bankruptcy trustee may avoid a transfer that is avoidable by a bona fide purchaser. 11 U.S.C. § 544(a)(3). State law defines who may be a bona fide purchaser. In re Michigan Lithographing Co., 997 F.2d 1158, 1159 (6th Cir. 1993) (citations omitted). Under Ohio law, only properly executed mortgages take priority over a bona fide purchaser. In re Fryman, 314 B.R. 137, 138 (Bkrtcy. S.D. Ohio 2004) (citing In re Huffman, 369 F.3d 972, 974 (6th Cir. 2004)). Ohio Rev. Code § 5301.01(A) sets forth the requirements of a properly executed mortgage:
A . . . mortgage . . . shall be signed by the . . . mortgagor . . . in the case of a . . . mortgage . . . The signing shall be acknowledged by the . . . mortgagor . . . before a . . . notary public . . . who shall certify the acknowledgment and subscribe the official's name to the certificate of the acknowledgment.
The purpose of the statute is to prevent fraud and provide a reasonable assurance that the document is genuine. In re Fryman, 314 B.R. at 138. All that the statute requires is substantial compliance therewith. Id. (citing Mid-American Bank Trust Co. v. Gymnastics International, Inc., 6 Ohio App.3d 11, 451 N.E.2d 1243 (1982)). The Ohio Supreme Court established long ago that a court must review the nature of an error and look to the balance of the document to determine whether the "instrument supplies within itself the means of making the correction." Id. (citing Dodd v. Bartholomew, 44 Ohio St. 171, 5 N.E. 866 (1886)).
In determining that the mortgage document was not signed, the Bankruptcy Court did not directly consider whether an individual's initials can constitute a signature so as to satisfy § 5301.01's signing requirement. The Trustee has stated that she refuses to recognize the Debtor's initials contained at the bottom of the individual pages of the mortgage as signatures of any type but has not cited any authority in support of her position. This Court has looked to both Ohio case law and to the legal definition of "signature" in order to determine whether initials can constitute a valid signature. The Court found no Ohio cases directly on point. Two of the cases cited by Monnie indicate that Ohio courts have been willing to accept initials as satisfying a statutory signature requirement. See, e.g., Hongosh v. Piszko, 1983 WL 3003 * 4 (May 19, Ohio App. 8 Dist.) (seller's initials were sufficient to comply with the signature requirement of the statute of frauds since a party could be bound by indicating his intention to be bound in any form of writing or typewriting); Morrison v. Devore Trucking, Inc., 68 Ohio App.2d 140, 142, 428 N.E.2d 438, 440 (1980) (an invoice, initialed by an agent of defendant and signed by plaintiffs, held to be a sufficient writing to satisfy the statute of frauds, Ohio Rev. Code § 1302.04).
The legal definition of "signature" indicates that an individual's initials may constitute a valid signature. Black's Law Dictionary (8th ed. 2004) defines "signature" as "1. A person's name or mark written by that person or at the person's direction. 2. Commercial law. Any name, mark, or writing used with the intention of authenticating a document." Following the definition is a statement from the Restatement (Second) of Contracts § 134 (1979) ("The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.") These authorities persuade the Court that initialing a document with the intent to be bound by it may satisfy a statutory signature requirement. The Trustee has not cited the Court to any authority that would convince the Court otherwise.
In this case, there is no dispute that the Debtor initialed the mortgage. The question is whether the Debtor's initialing of the mortgage is sufficient to satisfy § 5301.01's signing requirement under the particular facts presented by this case. For the reasons explained below, the Court agrees with the Bankruptcy Court that the mortgage initialed by the Debtor but with the signature line left blank does not substantially comply with the statute's signing requirement as a matter of law.
First, it is evident from a review of the entire mortgage document that the Debtor wrote her initials at the bottom of each page of the document for some purpose other than to execute the mortgage or to demonstrate an intent to be bound by it. The first ten pages of the mortgage document set forth the terms of the mortgage and do not require the Debtor's signature for any reason. Thus, the Debtor clearly was not executing the mortgage when she initialed the bottom of each of those pages. Similarly, the Debtor cannot be said to have executed the document when she initialed the bottom of page 11 simply by virtue of the fact that page 11 is the last page of the mortgage. Her initials on that page are in precisely the same location as the initials on the preceding ten pages and are not on a signature line. Moreover, there is a signature line with the Debtor's name typed underneath it at the top of page 11 that serves the purpose of allowing the borrower to expressly state her intent to be bound by all the terms and covenants of the mortgage by signing on the line provided. The signature line immediately follows a sentence that reads,
BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in pages 1 through 11 of this Security Instrument and in any Rider executed by Borrower and recorded with it.
Executed this 28th day of March 2003.
The Debtor failed to show that she accepted the terms and covenants of the mortgage by signing on the line provided for that express purpose. Her initialing of the mortgage document on a space other than the signature line does not satisfy the purpose of the signature requirement as set forth directly above the signature line and therefore does not demonstrate an intent to be bound by the mortgage. For this reason, her initials on a space other than the signature line do not constitute a valid signature.
Second, although some individuals may sign their names with only a mark or their initials, it is clear from a review of the entire mortgage document that the Debtor does not. To the contrary, the record shows that when the Debtor intends to sign her name, she writes her full name, just as she did when she signed her name on the signature line of the two riders. For this additional reason, the Debtor's initials on the bottom of each page of the mortgage document cannot reasonably be construed as a valid signature that satisfies § 5301.01's signing requirement. The Court therefore agrees with the Bankruptcy Court that the Debtor's failure to sign the document compels the conclusion that execution of the mortgage never occurred, the mortgage document is defective, and the instrument does not supply the means of making the correction. The Debtor's initialing of the mortgage document on the bottom of each page does not substantially comply with § 5301.01's signing requirement under the facts of this case.
The Court further agrees with the Bankruptcy Court's conclusion that the notary clause is ineffective. Although the clause purports to certify the Debtor's acknowledgment of her signature, there is no signature for the Debtor to have acknowledged. Thus, the mortgage likewise fails to substantially comply with § 5301.01's certification requirement
As a final matter, the Court rejects the Debtor's argument that the courts can give full effect to the mortgage pursuant to § 2719.01. Because the mortgage is not signed, the Debtor's intention to execute the mortgage is not manifest. Nor does the mortgage supply within itself the means of making the correction. It is not within the province of the courts to give effect to a document that does not substantially comply with § 5301.01(A) under these circumstances.
V. Conclusion
For these reasons, the Court agrees with the Bankruptcy Court's determination that the mortgage document does not substantially comply with § 5301.01. The mortgage therefore is avoidable by the Chapter 7 Trustee, who stands in the shoes of a bona fide purchaser. The Order of the Bankruptcy Court granting summary judgment in favor of the Trustee and denying summary judgment in favor of Monnie and Wells Fargo is AFFIRMED. The mortgage is avoided in favor of the Trustee. This case is TERMINATED on the docket of this Court.
IT IS SO ORDERED.