COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 69857 and 69881 JOHN J. JAZWA, ET AL. : : Plaintiffs-appellees : : JOURNAL ENTRY -vs- : AND : OPINION ALESCI, SAM J., ET AL. : : Defendants-appellants : : DATE OF ANNOUNCEMENT : OF DECISION : SEPT. 12, 1996 CHARACTER OF PROCEEDING : Civil appeal from Court of Common Pleas : Case No. CV-154790 JUDGMENT : Affirmed. DATE OF JOURNALIZATION : APPEARANCES: FOR PLAINTIFFS-APPELLEES: FOR DEFENDANT-APPELLANT JOHN J. JAZWA AND THOMAS HOGREFE: SAM J. ALESCI: Ann Marie Hawkins, Esq. Robert W. Monroe, Esq. Hawkins & Co., L.P.A. 526 Superior Avenue, Suite 1240 Cleveland, Ohio 44114 FOR ANGELO ALESCI: Pamela Gillery Meyer, Esq. Melling, Melling & Bell 31 Columbus Road P.O. Box 46311 Bedford, Ohio 44146 -2- Sue A. Urbanowicz, Esq. Bill J. Gagliano, Esq. Rosenzweig, Schulz & Gagliano Co., L.P.A. 700 Euclid Ninth Tower 2000 East Ninth street Cleveland, Ohio 441150-1301 HARPER, J.: Defendants-appellants, Angelo Alesci and Sam Alesci ("Angelo" and "Sam" individually, and "appellants" collectively), appeal from judgments finding them liable as guarantors on a promissory note. Appellants submit that inaction on behalf of plaintiff-appellees, Thomas J. Hogrefe and John J. Jazwa, discharged their individual liabilities. A careful review of the record compels affirmance. I. Appellees agreed in April 1978 to sell the premises located at 3828 East 91st Street, Cleveland, Ohio to AABECO Realty Corporation ("AABECO"). As part of the agreement, AABECO was to assume the existing mortgage on the property in favor of Union Commerce Bank, n.k.a. Huntington National Bank ("Huntington"). AABECO also agreed to pay appellees the sum of $100,000, said sum representing the equity in the property. AABECO thus executed a promissory note ("the note") through both its President, Angelo, and Vice-President, Rocco Esposito. AABECO promised to pay the appellees the $100,000 on or before June 29, 1988. Angelo, Sam, Anthony Alesci ("Anthony"), Frank Alesci and Esposito signed as guarantors of the note, each guaranteeing -3- the payment of $20,000 upon AABECO's default. The signed guarantee specifically referred to the "within note." The note, which was secured by a second mortgage on the property, provided that interest at the rate of 7 percent per annum be paid in semi-annual installments. The note also contained the following provision at paragraph two: If at any time during any given year, the rental of the premises at 3828 E. 91st Street, Cleveland, Ohio, exceeds Forty Thousand Dollars ($40,000) annually, one-half (1/2) of the excess shall be used by maker towards payment of the principal due on this Note. Maker shall not rent any of the first floor area of the premises at 3828 E. 91st Street at a rate less than One and 25/100 Dollars ($1.25) per square foot and should any space be rented for less than said rate of One and 25/100 Dollars ($1.25) per square foot, for the purpose of determining what amount shall be paid upon the principal of this Note, said rate shall be assumed to be One and 25/100 Dollars ($1.25) per square foot and be used for the computation. (Emphasis added.) Although AABECO made all but one interest payment, it failed to pay any amount of the principal by June 29, 1988. Appellees consequently filed a Complaint Upon Promissory Note, To Foreclose Mortgage and Marshall Liens on August 15, 1988 in the Court of Common Pleas of Cuyahoga County. Appellees named, as defendants, AABECO, Angelo, Sam, Anthony, the Estate of Frank Alesci, Esposito, Huntington and the Treasurer of Cuyahoga County. Kinsman Food Distributors, Inc. ("Kinsman") was added as a new party defendant in an amended complaint filed on July 23, 1991. Appellees did not seek damages from this defendant, but merely included it as a party with a potential interest in the property. The only issues addressed in this appeal are issues relating -4- to Sam and Angelo. The Estate of Frank Alesci received judgment in its favor on April 10, 1990 because appellees failed to comply with the notice requirements contained in R.C. 2117.06. In a partial judgment of July 1, 1993, the trial court ordered a foreclosure of the property after rendering judgment in favor of appellees and Huntington and against AABECO. Two attempted sheriff's sales in 1994 were unsuccessful for lack of bidders. The parties filed a stipulation for dismissal of Anthony from the action on June 30, 1995. The trial court issued a default judgment against Esposito on October 25, 1995. AABECO and Esposito did not appeal from the adverse judgments rendered against them. Appellees' claims against Sam and Angelo based upon the signed guaranty came on for hearing before a referee on October 28, 1994. The referee issued her findings of fact and conclusions of law on June 28, 1995. In the referee's report, after noting the existing judgment against AABECO, the referee stated as follows: FINDINGS OF FACT *** Interest on the note was to be calculated and paid semi-annually. Interim payments against principal were to be made only under specific conditions. The second paragraph of the promissory note provides that one-half of rentals in excess of $40,000 are to be paid toward the principal balance. The note further provides that rental of the first floor space shall be calculated at $1.25 per square foot in the event that the space is leased for less than that figure. No evidence was presented to support a finding that rent in excess of $40,000.00 was ever paid to AABECO Realty Corporation. -5- All but the last interest payment was made by the corporation, but no principal payments were made. As part of the original transaction, a personal guarantee was executed by Anthony Alesci, Frank Alesci, Sam Alesci, Angelo Alesci, and Rocco Esposito, all of the shareholders of the purchaser [AABECO]. *** [S]am Alesci, Angelo Alesci and Rocco Esposito, among others, each had an interest in AABECO Realty, therefore, each stood to benefit from the closing of the underlying deal. *** Both Angelo and Sam Alesci owned shares in both corporate lessees [AABECO and Kinsman] and in the maker of the note, AABECO Realty. CONCLUSIONS OF LAW The clear terms of the guarantee provide that each of the guarantors is liable for $20,000.00 of the $100,000.00 debt. The Referee concludes that the guarantee is unconditional as it was part of the original transaction, it was made by all of the shareholders of the maker and its clear terms contain no condition. The Referee further concludes that the guarantee was supported by consideration. The principal defense against enforcement of the guarantee which has been raised by Defendants Sam and Angelo Alesci is that their interests as guarantors were prejudiced by Plaintiffs' failure to enforce the second paragraph of the note during its original ten year term. The leases submitted by both the Plaintiffs and Defendants as exhibits, would appear to show, if viewed only with the original note, an arguable extension of the due date of the note. These documents alone, tend to support Defendants [sic] argument. A closer examination of the specific circumstances, however, fails to provide the Referee with a basis to ignore the obligation of the guarantors. The law is clear where the holder of a promissory note grants an extension in the terms of payment, without the consent of a party who would be negatively affected by such extension, that an impairment of collateral may occur. It is equally clear, however, that a party cannot assert a discharge by release when he has consented to the conduct which he thereafter claims was effective to -6- discharge his liability. (See, Federal Land Bank of Louisville v. Taggart, 31 Ohio St.3d 8 (1987).) Under the facts presented in the present case, the position asserted by the guarantors is untenable. Angelo Alesci was an officer of AABECO Corporation, the first floor tenant. Sam Alesci, was an officer of Kinsman, the second floor tenant. Each testified that he was familiar with the terms of the note. Angelo Alesci was the President and share holder of AABECO Realty the maker of the note. Sam Alesci testified that he knew that AABECO was a tenant on the first floor of the property and that the second floor tenant was owned by Kinsman. Angelo Alesci similarly testified. Even assuming an impairment of collateral or recourse, the Referee can only conclude that each guarantor consented by his conduct to the repayment arrangement which led to such impairment. The five persons who signed as guarantors held all of the shares in the maker of the note. As any extension granted the maker would benefit directly the guarantors, the guarantors cannot now be heard to say that they did not consent. The referee further concludes that no impairment to the collateral or the recourse available to the guarantors has been established. No effort was made to show a decline in the value of the realty resulting from the actions of the Plaintiffs. Further, as the entities with the most knowledge about the leasing arrangements and the financial condition of the maker were controlled by the guarantors, the argument that it was the Plaintiffs who caused any difficulty guarantors may now be facing is not persuasive. *** Based upon the foregoing findings of fact and conclusions of law, the referee recommended that judgments be entered against Angelo and Sam, each in the sum of $20,000 with interest to run from August 15, 1988 at 7 percent per annum. Sam filed objections to the referee's report on July 10, 1995. The trial court rejected these objections when it approved and adopted the referee's report on October 25, 1995. -7- Angelo and Sam filed separate notices of appeal from this final judgment. This court, on December 28, 1995, sua sponte consolidated App. No. 69857, Sam's appeal, and App. No. 69881, Angelo's appeal, for record, briefing, hearing and disposition. II. App. No. 69857 Appellant Sam Alesci assigns error as follows: A. The trial court erred when it ruled that Appellees' failure to enforce the terms of the Note did not prejudice the rights of Appellant, an individual guarantor 1. The trial court should have completely or partially discharged Sam Alesci's liability as guarantor as a matter of law because Appellees failed to enforce the terms of the Note and collect principal payments from Aabeco throughout the term of the Note, and such conduct prejudiced Sam Alesci's rights as a guarantor 2. The trial court erred as a matter of law when it failed to consider that Appellees had actual knowledge and constructive notice that the Property was being leased 3. The trial court, as a matter of law, cannot impute representations made by a corporate president to an individual minority shareholder who has no control over, involvement with or knowledge of the transaction in issue 4. The Note itself requires an assumed rent computation to determine the amount of the principal payments, therefore, the trial court's ruling that no evidence was submitted regarding actual rentals paid is erroneous as a matter of law (emphasis sic) 5. The trial court erred as a matter of law when it ruled that Sam Alesci consented to Appellees' failure to collect principal payments on the Note -8- 6. The trial court erred when it ruled that the guarantors presented no evidence that the Property declined in value B. The trial court erred when it awarded interest under the Guarantee A. Sam premises the first assignment of error on the trial court's allegedly erroneous conclusion that appellees' failure to collect annual principal payments from AABECO or otherwise enforce the terms of the note for a period of ten years, did not prejudice him. He submits that he is entitled to judgment because the court's ultimate conclusion is based upon the six inaccurate underlying legal conclusions listed under his first assignment supra. A review of the promissory note, the arguments presented to the referee and thus the trial court, and the ultimate decision in this case, reveals that the issues to be resolved are much simpler than envisioned by the parties. Even though this court finds the reasons for the trial court's judgment are, for the most part, erroneous, we nonetheless affirm the judgments. See Joyce v. General Motors Corp. (1990), 49 Ohio St.3d 93; Agricultural Ins. Co. v. Constantine (1944), 144 Ohio St. 272. A contract of guaranty against loss occasioned by a party defaulting on a promissory note, constitutes an agreement to answer for the debt undertaken by the maker of the note. See Galloway v. Barnesville Loan, Inc. (1943), 74 Ohio App. 23. A guarantor's liability is secondary to that of the debtor, arising only upon the -9- debtor's default in payment. Madison Natl. Bank of London, Ohio v. Weber (1927), 117 Ohio St. 290, 293. Therefore, the debt owed under the promissory note becomes the guarantor's debt upon the principal debtor's default based upon the guarantor's agreement. See Cincinnati, Hamilton & Dayton Railway Co. v. Kleybolte (1909), 80 Ohio St. 311. There is no dispute that AABECO defaulted on the promissory note when it failed to pay the principal by June 28, 1988. There is also no dispute that Sam signed the guaranty which secured the note. Sam, therefore, is liable as a guarantor upon AABECO's default of the promissory note, and the trial court's judgment which found him liable as a guarantor is proper, unless Sam asserted and then proved a merit worthy defense. The crux of Sam's defense stemmed from paragraph two of the note. A simple reading of the paragraph fails to support his defense that he was discharged from liability because appellees failed to enforce the terms of the note. Generally, if a contract is clear and unambiguous, its interpretation is a matter of law. State ex rel. Parsons v. Fleming (1994), 68 Ohio St.3d 509, 511, citing Davis v. Loopco Industries, Inc. (1993), 66 Ohio St.3d 64, 66; Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, paragraph one of the syllabus. Terms, where possible, should be determined from the four corners of the contract, Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio, Inc. (1984), 15 Ohio St.3d 321, -10- 322, and plain contract language should be given its ordinary meaning, Miller v. Marrocco (1986), 28 Ohio St.3d 438, 439. Paragraph two fails to impose any obligation upon appellees to determine whether AABECO received in excess of $40,000 per year in rental payments. Rather, the paragraph specifically focuses on the maker's responsibilities to not rent any of the first floor premises at lower than $1.25 per square foot, and to apply any excess over $40,000 towards the principal. Moreover, the note is a bare-bones document that does not contain any provisions relating to default, notice of default or appellees' enforcement rights. Sam's interpretation of paragraph two is thus not supported by the clear and unambiguous language contained therein. After all, the intent of the parties to a contract "resides in the language they chose to employ in the agreement." Kelly v. Medical Life Ins. Co. (1987), 31 Ohio St.3d 130, 132. Sam partially relies upon lack of knowledge regarding the terms of the note. However, this reliance fails to alter Sam's liability as a guarantor on the note. The guaranty was attached to the note, and it is unreasonable for any court to assume that a guarantor signs a guaranty without understanding the nature of the document. See Leedy v. Ellsworth Construction Co. (1966), 9 Ohio App.2d 1 (person negligent in failing to read instruments before signing them does not have a defense on the ground of fraud); The Fifth Third Bank of Columbus v. Car-Tom, Inc. (July 28, 1992), Franklin App. No. 92AP-112 (where face of guaranty agreement refers to "this note," loan obligation is easily ascertainable); see, -11- also, Barclays American/Commercial Inc. v. ROYP Marketing Group, Inc. (1988), 61 Ohio App.3d 701 (person who signs a guaranty is charged with knowledge of the contents of the guaranty as a matter of law and cannot avoid liability by claiming lack of knowledge as to the guaranty's content and effect) G.B. Business Equip., Inc. v. Liston (1982), 7 Ohio App.3d (guarantors are bound by precise words of their contractors). Jazwa testified that he would have sought principal payments if he knew that AABECO was in receipt of rental payments exceeding $40,000. However, this acknowledgement does not alter the terms of the note to the point where appellees were required to first determine the amount of rental fees, e.g., through a public records check, and then seek payment of principal. For the same reasons, any mention of extension of a due date and either Sam's consent or failure to consent to the extension, is a non-issue in this case. A party cannot assert a discharge by 1 release under R.C. 1303.72(A) , a statute cited by Sam in support 1 R.C. 1303.72(A) (Section 3-606 of the Uniform Commercial Code) reads as follows: (A) The holder discharges any party to the instrument to the extent that without such party's consent the holder: (1) without express reservation of rights, releases or agrees not to sue any person against whom the party has to the knowledge of the holder a right of recourse or agrees to suspend the right to enforce against such person the instrument or collateral or otherwise discharges such person, except that failure or delay in effecting any required presentment, protest, or notice of dishonor with respect to any such person does not discharge any party as to whom presentment, protest, or notice of dishonor is -12- of his appeal, when he consented to the conduct which he claims to have effectively discharged his liability. See Federal Land Bank of Louisville v. Taggart (1987), 31 Ohio St.3d 8. In Taggart, a surety asserted that he was discharged from his obligation under an original promissory note as a result of a reamortization agreement entered into by a bank and the purchasers of the surety's property. The second agreement, which followed one missed payment, extended the time for payment of the loan, increased the principal owed and increased the charged interest. The Supreme Court of Ohio found that the surety was not entitled to discharge because the bank fully acted in accordance with the original promissory note when it merely rescheduled a late debt. Id., 13. Herein, appellees made no alterations to the promissory note. The only claim by Sam is that appellees failed to enforce the terms of paragraph two. The note specified that AABECO had ten years to pay the principal amount of $100,000, and was required to pay toward the principal if it received in excess of $40,000 per year in rental payments. Whether either the appellees or AABECO breached this provision, even assuming there was a breach, does not mean that there was a change to the terms of the note. effective or unnecessary; or (2) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse. R.C. 1303.72 was repealed effective August 19, 1994. See R.C. 1303.70 (Section 3-605 of the U.C.C.). -13- Additionally, whether appellees impaired the collateral is likewise not an issue in this case. The Taggart court recognized that "[w]here the holder grants an extension, without the consent of the party affected, an impairment of collateral may occur." Taggart, 12. However, as previously stated, there were no extensions granted by appellees. Second, a creditor who is not in possession of collateral cannot be held liable under R.C. 1303.72 for unjustified impairment. Buckeye Fed. S. & L. Assn. v. Guirlinger (1992), 62 Ohio St.3d 312, syllabus. Appellees did not have possession of the premises throughout the ten year promissory note period as AABECO was the buyer of the property, as well as a lessee along with Kinsman. The defense of impairment of collateral was not available to Sam under these circumstances. Id.; see Women's Federal Savings Bank v. Guirlinger (Oct. 1, 1992), Cuyahoga App. No. 61134, unreported; Buckeye Federal Savings & Loan Assoc. v. Baker (Jan. 28, 1992), Franklin App. No. 91AP-851, unreported. All of Sam's assertions relating to appellees' failure to enforce the terms of the promissory note, an omission which allegedly prejudiced the rights of the guarantors, sounds in laches. The elements of a laches defense follow: (1) conduct on the part of the defendant giving rise to the situation of which complaint is made and for which the complainant seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the -14- defendant in the event relief is accorded to the complainant. Stevens v. National City Bank (1989), 45 Ohio St.3d 276, 284, citing Smith v. Smith (1950), 168 Ohio St. 447, 455. Laches, however, is an affirmative defense which must be asserted by way of answer or amended answer under Civ.R. 8(C). The failure to expressly plead the affirmative defense results in its waiver. See, generally, In re Estate of Hicks (1993), 90 Ohio App.3d 438; Mossa v. W. Credit Union Inc. (1992), 84 Ohio App.3d 177. Sam failed to assert the affirmative defense of laches. Sam's first assignment of error is overruled based upon simple contract interpretation and the absence of any valid defense. B. Sam challenges the trial court's award of prejudgment interest in his second assignment of error. He argues that such an award was not authorized by the note/guaranty, and thus is without legal validity. R.C. 1343.03(A) clearly allows an award of prejudgment interest on liquidated obligations which are undisputed and ascertainable. "If the amount of the debt is clear and only liability is in dispute, interest runs from the time the debt was due and payable, as eventually found by the court." General Accident Insurance Co. v. Insurance Company of North America (1993), 90 Ohio App.3d 490, 494, citing Braverman v. Spriggs (1980), 68 Ohio App.2d 58, 60. -15- Appellant's second assignment of error is accordingly overruled. Judgment affirmed in App. No. 69857. III. App. No. 69881 Angelo, in his appeal, assigns the following errors for this court's review: I. THE FAILURE OF THE APPELLEES TO ENFORCE THE TERMS OF THE ORIGINAL AGREEMENT DISCHARGES THE OBLIGATION OF THE GUARANTOR, APPELLANT HEREIN II. THE TRIAL COURT FAILED TO CONSIDER RELEVANT INFORMATION WHEN DETERMINING THE PREJUDICE PLACED UPON THE APPELLANT III. APPELLANT DID NOT CONSENT TO THE APPELLEES' FAILURE TO ENFORCE THE TERMS OF THE NOTE IV. THE TRIAL COURT ERRONEOUSLY AWARDED INTEREST UNDER THE GUARANTEE At the time the referee issued her report on June 28, 1995, Civ.R. 53(E)(6) foreclosed a party from asserting a finding of fact argument on appeal if he failed to file objections to the report. Civ.R. 53(E)(6) was amended and redrafted on July 1, 1995, prior to the trial court's final judgment. The new rule, Civ.R. 53(E)(3)(b), broadens the waiver to include conclusion of law arguments relating to a referee's report when not objected to by the appealing party. Since Angelo failed to file objections to the referee's report, his appeal is without merit under either version of Civ.R. 53(E) based upon either a total waiver of assigned errors or a partial waiver because we previously rejected the same conclusion of law arguments in Sam's appeal. Angelo's assignments of error are accordingly overruled. -16- Judgment affirmed in App. No. 69881. -17- It is ordered that appellees recover of appellants their costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Cuyahoga County Common Pleas Court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. DAVID T. MATIA, J., AND TIMOTHY MCMONAGLE, J., CONCUR PRESIDING JUDGE SARA J. HARPER N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc. App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E), unless a motion for reconsideration with supporting brief, per App.R. 26(A) is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the .