COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 71814 : ROCCO H. PUZZITIELLO, JR., : TRUSTEE FOR THE 19420 COMPANY : TRUST : Plaintiff-Appellee : : JOURNAL ENTRY -vs- : AND : OPINION METROPOLITAN SAVINGS BANK : : Defendant-Appellant : DATE OF ANNOUNCEMENT OF DECISION NOVEMBER 13, 1997 CHARACTER OF PROCEEDING: CIVIL APPEAL FROM THE CUYAHOGA COUNTY COMMON PLEAS COURT CASE CP CV-290317 JUDGMENT: AFFIRMED. DATE OF JOURNALIZATION: APPEARANCES: For Plaintiff-Appellee: TIMOTHY J. GRENDELL (#0005827) 6060 Rockside Woods Blvd., Suite 250 Independence, OH 44131 For Defendant-Appellant: DAVID L. PARHAM (#0020957) ELLEN M. BROOKS (#0037758) KAREN E. RUBIN (#0030339) THOMPSON, HINE & FLORY, LLP 3900 Key Center 127 Public Square Cleveland, Ohio 44114-1216 SPELLACY, J.: Defendant-appellant, Metropolitan Savings Bank ( appellant ), appeals the decision of the trial court finding that plaintiff- appellee, Rocco H. Puzzitiello, Jr. ( appellee ), paid in full a 2 real estate mortgage note executed September 19, 1970, in the amount of $1,075,000.00. Appellant assigns the following errors for our review: . THE TRIAL COURT ERRED BY CONCLUDING THAT NOTICE TO AUTHORIZED EMPLOYEES OF THE BORROWER DID NOT CONSTITUTE NOTICE TO THE BORROWER ITSELF, AND THAT BORROWER DID NOT RECEIVE ACTUAL NOTICE OF THE INTEREST RATE INCREASE. (CONCLUSIONS OF LAW, qq 8, 9, 10, 11 and 12). II. THE TRIAL COURT ERRED BY CONCLUDING THAT THE NOTICE PROVISION CONTAINED IN THE CONTRACT AT ISSUE WAS A CONDITION PRECEDENT. (FINDINGS OF FACT, q 6 AND CONCLUSIONS OF LAW, qq 1, 5, 6 AND 10). III. THE TRIAL COURT ERRED BY CONCLUDING THAT BORROWER'S CLAIMS WERE NOT BARRED UNDER THE DOCTRINE OF WAIVER. (CONCLUSIONS OF LAW, q 15). IV. THE TRIAL COURT ERRED BY CONCLUDING THAT BORROWER WAS NOT ESTOPPED FROM DISPUTING THE INTEREST RATE INCREASE. (CONCLUSIONS OF LAW q 14). . THE TRIAL COURT ERRED BY FAILING TO BAR BORROWER'S CLAIMS UNDER THE DOCTRINE OF LACHES. (CONCLUSIONS OF LAW, q 15). Finding appellant's appeal lacks merit, the judgment of the trial court is affirmed. I. On June 1, 1995, appellee filed a verified complaint for declaratory judgment and injunctive relief, as well as a motion for a temporary restraining order. On June 21, 1995, appellee filed his first amended complaint for declaratory judgment and injunctive relief. A second amended complaint for declaratory judgment and injunctive relief was filed by appellee on July 19, 1995. On September 27, 1995, appellant filed a counterclaim against appellee 3 seeking foreclosure and a deficiency judgment. On April 24, 1996, appellee filed his motion for summary judgment. On July 26, 1996, appellant filed its motion for summary judgment. Appellant's motion for summary judgment was denied by the trial court on November 7, 1996. The trial court denied appellee's motion for summary judgment on November 13, 1996. The case proceeded to trial on December 9, 1996, and on December 18, 1996, the trial court submitted its findings of fact and conclusions of law. The trial court found that the loan made to appellee by Westside Federal Savings and Loan Association, which is evidenced by a Real Estate Mortgage Note executed September 19, 1970, and presently held by appellant, was paid in full and that the Mortgage Deed dated September 19, 1970, in the amount of $1,075,000.00was satisfied. (Judgment Entry, December 18, 1996). Appellant's counterclaims for foreclosure and money judgment were dismissed by the trial court. (Judgment Entry, December 18, 1996). II. On June 10, 1970, appellee, the trustee of the 19420 Company Trust (the 19420 Company ) and owner of the real property located at 19420 Lorain Road, Fairview Park, Ohio, made a loan application to West Side Federal Savings and Loan Association of Fairview Park ( Westside Federal ) for a loan in the amount of one million seventy-five thousand dollars ($1,075,000.00), at nine percent (9.0%) interest, for a twenty-five (25) year term. The purpose of this loan was to construct and maintain an apartment building known 4 as the Randall House apartments located at 19420 Lorain Road, Fairview Park, Ohio. On June 17, 1970, appellee received a Business Loan Commitment from West Side Federal. The terms of the commitment were a loan of $1,075,000.00 to be paid back with interest at 9% over 25 years. No balloon payment was stated in or required by the loan commitment. Appellee executed a Real Estate Mortgage Note ( Note ) with West Side Federal on September 19, 1970. The Note was secured by a Mortgage Deed ( Mortgage ), date September 19, 1970, in the amount of $1,075,000.00 encumbering the property. After executing the Note, appellee negotiated and pursued a reduction in the interest rate with West Side Federal. On May 14, 1971, appellee and West Side Federal entered into a Mortgage Loan Interest Rate Adjustment Agreement ( Adjustment Agreement ). The Adjustment Agreement reduced the contractual interest rate on the loan from 9% to 8%, but gave West Side Federal the right to increase the rate up to 9%, provided the Note holder first deliver to the 19420 Company sixty (60) days prior written notice of the Note holder's intention to raise the interest rate. The Adjustment Agreement also provided that any reduction of rate shall be without a corresponding adjustment in the monthly payment. Prior to June 1972, appellee and the 19420 Company made interest-onlypayments of $9,237.26 per month on the loan. On May 30, 1972, West Side Federal unilaterally decreased the monthly principal and interest payments due under the Note from $9,237.26 to $8,529.69 per month. The monthly payment of $8,529.69 began in 5 June, 1972 and continued for 23 years. Appellee made each of these payments over 23 years and expected his last payment of principal and interest to be made in mid-1995. On October 23, 1973, West Side Federal internally attempted to increase the interest rate on the loan from 8% to 8.5%. A West Side Federal Mortgage Loan Advice of Change form reflects such attempted change on October 26, 1973, to be effective five days later on October 31, 1973. The Advice of Change form was an internal bank document and on its face was not intended to be sent, and was not sent, to appellee or the 19420 Company. No evidence reveals that appellee or the 19420 Company was given sixty days prior written notice of West Side Federal's internal interest rate increase effort. Between 1973 and 1995, the loan was transferred, sold and assigned to several different financial institutions. In 1974, West Side Federal merged with another lending institution and changed its name to Cardinal Federal Savings Bank ( Cardinal ). The Note was held by Cardinal until 1990 when the Note was assigned to Columbia Savings. Columbia Savings later merged with, and became, First Nationwide Bank. In May, 1993, First Nationwide Bank assigned the Note to Mountain AMD L.P. First Denver Mortgage Company serviced the loan for Mountain AMD L.P. In January, 1994, Mountain AMD L.P. offered appellant a pool of loans to purchase, including the loan at issue. Appellant purchases loans from third parties to balance its portfolio and to make additional profits for its shareholders. Mountain AMD L.P. 6 advised appellant that rejection of too many of the loans in the loan pool would result in termination of the sale of all of the loans to appellant. As is evidenced by a memorandum dated January 18, 1994, to appellant's loan committee, the loan at issue was described as carrying a principal balance of $350,332.29, a monthly principal and interest payment of $8,529.69, an interest rate of 8.5%, a maturity date of August 1995, and as not containing a balloon payment provision. Appellant claims that it conducted due diligence on each loan in the pool, including the loan at issue. However, appellant's due diligence procedures did not include reviewing any amortization schedules, looking for contractually required prior written notices of interest rate changes, or calling borrowers to verify principal balances or current interest rates. Appellant's review of the loan file did not reveal the Adjustment Agreement and the October 1973, West Side Federal Advice of Change, purportedly changing the interest rate to 8.5%. Furthermore, the loan file did not contain a copy of any 60 days prior written notice concerning the purported interest rate change to 8.5% or any loan payment coupons or invoices showing an 8.5% annual percentage rate, copies of loan balance verifications or year end balance statements sent to appellee or the 19420 Company. Appellant was not given the choice to pick freely and choose among the loans it wanted to buy from Mountain AMD L.P., but rather appellant was under pressure from Mountain AMD L.P. to buy the entire pool of loans or risk losing the purchase of the entire 7 pool. On March 4, 1994, appellant entered into a Loan Sale Agreement with Mountain AMD L.P. to purchase a pool of loans including the loan at issue. The loan was purchased by appellant for its then purported principal balance of $338,193.08. On March 7, 1995, appellant's Michael Simpson wrote to appellee to inform him that the loan would mature in August, 1995, and that all outstanding balances must be paid in full. After receiving the letter, appellee promptly asked his secretary, Mary Jane Tipton, to contact Mr. Simpson regarding the letter. Subsequently, Mrs. Tipton learned that appellant claimed $259,967.23 was still due on the loan. By letter dated March 9, 1995, Mr. Simpson informed appellee that the large balance claimed by appellant was due because the loan interest rate under the Note had been reduced from a rate of 9.0% to 8.5% with a corresponding decrease in the monthly principal and interest payment from $9,237.06 to $8,529.69. This was the first time appellee was made aware that the interest rate for the loan had been purportedly increased from 8.0% to 8.5%. On May 5, 1995, appellee made the last payment of the loan. On June 1, 1995, after discussions with appellant were unsuccessful,appellee filed a declaratory judgment action seeking to declare the Note paid in full and the Mortgage fully satisfied. Appellant filed counterclaims for foreclosure and a money judgment in the amount of the purported balance due on the Note, plus interest. 8 III. For purposes of this appeal, appellant's first and second assignments of error will be addressed together. The principal questions presented by these two assignments of error are 1) whether the notice requirement set forth in the Adjustment Agreement constitutes a condition precedent, and 2) if the notice provision in the Adjustment Agreement is a condition precedent, did appellant perform the conditions making the obligations in the Adjustment Agreement effective. In construing any written instrument, the primary and paramount objective is to ascertain the intent of the parties. Aultman Hosp. Ass'n v. Community Mut. Ins. Co. (1989), 46 Ohio St.3d 51. The general rule is that contracts should be construed so as to give effect to the intention of the parties. Id. citing Employers' Liability Assurance Corp. v. Roehm (1919), 99 Ohio St. 343, syllabus. Thus, it is a fundamental principle in contract construction that contracts should be interpreted so as to carry out the intent of the parties, as that intent is evidenced by the contractual language. Skivolocki v. E. Ohio Gas Co. (1974), 38 Ohio St.2d 244. A condition precedent is a condition which must be performed before the obligations in the contract become effective. Troha v. Troha (1995), 105 Ohio App.3d 327, 334. Essentially, a condition precedent requires `that an act must take place before a duty of performance of a promise arises. If the condition is not fulfilled, the parties are excused from performing.' Id. citing 9 Fortune v. Fortune (May 3, 1991), Greene App. No. 90-CA-96, unreported. Whether a provision of a contract is a condition precedent is a question of the parties' intent. Troha, supra. Intent is ascertained by considering not only the language of a particular provision, but also the language of the entire agreement and its subject matter. Id. In the present case, the following language of the written agreement clearly reflects the parties' intention that appellee's obligation to pay a higher interest rate on the loan is conditioned upon sixty days prior written notice of the rate increase. The Adjustment Agreement states: 2. At its sole discretion the Association may, from time to time, upon sixty (60) days prior written notice to you, increase the rate of interest, but in no event to a rate above the rate of 9%. Testimony in the record reveals that appellee specifically negotiated with appellant for the notification requirement set forth in the Adjustment Agreement. Appellee's intent to maintain a lower interest rate on the loan is confirmed by the provision set forth in the Adjustment Agreement that appellant notify appellee sixty days prior to any change in the interest rate. Furthermore, the language of the notice provision is not ambiguous, in that it provides for the type of notice, written, to be given and the time frame, sixty (60) days, in which to give the notice. Based upon the clear and unambiguous language in the contract, we conclude that the trial court did not err in finding that the parties intended the notification provision in the Adjustment Agreement to 10 be a condition precedent. Accordingly, notice should have been given to appellee sixty days prior to any change in the interest rate. We must now determine whether the notice provision set forth in the Adjustment Agreement was complied with before appellant raised the interest rate from 8.0% to 8.5%. It is undisputed that appellant did not provide appellee with written notice sixty days prior to increasing the interest rate. Appellant, however, contends that appellee received notice through his employees and accountant who were involved in the repayment of the loan. Appellee contests appellant's assertion and claims that he never received notice of the increase in the interest rate until March 1995. As stated supra, the language of Adjustment Agreement clearly requires written notice sixty days prior to any change in the interest rate. Notice may have been given internally within appellant's bank, and appellee's employees may have been making monthly payments based upon coupons which reflected an 8.5% interest rate on the loan, however, neither of these satisfies the requirement that written notice be given to appellant sixty days prior to a rate change. Further, the record reveals that appellee did not receive written notice of the interest rate increase until March 9, 1995, twenty-three years after the interest rate was internally changed by West Side Federal. Because the conditions set forth in the Adjustment Agreement have not been fulfilled, appellee is not obligated to pay the 11 interest rate increase on the loan. Troha, supra at 334. Accordingly, appellant's first and second assignments of error are overruled. IV. Appellant's third and fourth assignments of error are also interrelated and will be treated together. These assignments challenge the trial court's conclusion that appellant could not rely on the principles of estoppel and waiver in arguing that once appellee, through the actions of his agents, continued making payments on the Note, he waived the requirement of sixty (60) days written notice prior to the increase of the interest rate on the loan and through his silence falsely represented to appellant that the 8.5% interest rate on the loan was undisputed. A waiver is the voluntary relinquishment of a known right or such conduct as warrants an inference of a relinquishment of such right. Gollings v. Natl. Life Ins. Co. (1994), 92 Ohio App.3d 726, 730, citing Michigan Auto Ins. Co. v. Van Buskirk (1927), 115 Ohio St. 598. A prima facie case for equitable estoppel requires a plaintiff to prove four elements: (1) that the defendant made a factual misrepresentation; (2) that is misleading; (3) induces actual reliance which is reasonable and in good faith; and (4) which causes detriment to the relying party. Doe v. Blue Cross/Blue Shield of Ohio (1992), 79 Ohio App.3d 369, 379, citing First Fed. S. & L. Assn. v. Perry's Landing, Inc. (1983), 11 Ohio App.3d 135, 12 145. In assessing these four elements in the context of a particular case, relevant factors include: * * *[(a)] the nature of the representation; (b) whether the representation was in fact misleading; (c) the relative knowledge and experience of the parties; (d) whether the representation was made with the intent that it be relied upon; and (e) the reasonableness and good faith of the reliance, given all the facts and circumstances. Id. Appellant's estoppel and waiver arguments are primarily based on its reliance on appellee's continual repayment of the loan without disputing the interest rate of 8.5% as set forth on payment coupons. As stated supra, appellee was not provided with sixty (60) days prior written notice before the interest rate on the loan was increased from 8.0% to 8.5% and therefore lacked any knowledge that the interest rate had changed. As a result, appellee was unable to mislead appellant or make factual misrepresentations to appellant which would cause appellant to detrimentally rely on such misrepresentations. Furthermore, appellant, when it purchased the loan as part of the loan pool, did not during its due diligence procedures review any amortization schedules, look for contractually required prior written notices of interest rate changes, or call appellee to verify the principal balance on the loan or the current interest rate on the loan. Because appellee did not have knowledge of the interest rate increase until March 1995, any actions by appellee prior to March 1995, could not constitute waiver or estoppel. Accordingly, appellant's third and fourth assignments of error lack merit. V. 13 Appellant, in its fifth assignment of error, contends that the appellee's claims are barred by the doctrine of laches because appellee unreasonably and without excuse delayed in asserting that lack of a 60-day written notice excused him from twenty plus years of interest payments at 8.5%. The doctrine of laches applies when there has been `* * * an omission to assert a right for an unreasonable and unexplained length of time, under circumstances prejudicial to the adverse party. It signifies delay independent of limitations in statutes. * * *' . Emrick v. Multicon Builders (1991), 57 Ohio St.3d 107, citing Conninv. Bailey (1984), 15 Ohio St.3d 34, quoting Smith v. Smith (1957), 107 Ohio App. 440, 443-444. The Smith court set forth the following test for invoking the doctrine of laches: Delay in asserting a right does not of itself constitute laches, and in order to successfully invoke the equitable doctrine of laches it must be shown that the person for whose benefit the doctrine will operate has been materially prejudiced by the delay of the person asserting his claim. Smith, supra syllabus at three. Based upon our previous determination that appellant failed to give appellee sixty days notice of the rate change, the doctrine of laches is also inapplicable. Appellee notified appellant that he was not notified of the rate change immediately after learning that the interest rate on the loan was not 8.0%, but rather was 8.5%. Accordingly, appellee did not unreasonably delay in asserting his rights under the contract and appellant's fifth assignment of error is overruled. 14 Judgment affirmed. It is ordered that appellee recover of appellant his 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 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, P.J. and TERRENCE O'DONNELL, J. CONCUR. LEO M. SPELLACY Judge N.B. This is an announcement of the court's decision. See App.R. 15 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(B) 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 .