The Supreme Court of Ohio recently held that a mortgagee may enforce a mortgage against a mortgagor who signed, initialed, and acknowledged the mortgage even though the body of the mortgage agreement does not identify the mortgagor by name.
In so ruling, the Supreme Court of Ohio allowed a mortgagee to use parole evidence to determine the mortgage signatory’s intent where there is an ambiguity.
A copy of the decision in Bank of New York Mellon v. Rhiel is available at: Link to Opinion.
A bank issued a mortgage loan to husband and wife borrowers. Only the husband executed the note. Both borrowers signed the mortgage and acknowledged this before a notary public. Both borrowers initialed every page of the mortgage, including a page that contained the property’s legal description.
In 2014, the borrowers filed a Chapter 7 bankruptcy. The bankruptcy trustee sought a declaration that the mortgage did not encumber the wife’s interest in the property because the body of the mortgage did not identify her.
After a trial, the bankruptcy court used extrinsic evidence and the mortgage to conclude that the wife borrower “executed the mortgage with the intent to pledge her interest in the property.” The trustee appealed.
Given conflicting Ohio law on this issue, the Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Sixth Circuit certified to the Supreme Court of Ohio the question of whether a mortgage agreement is invalid and unenforceable against the interest of a person who initialed, signed, and acknowledged the mortgage when the body of the mortgage does not identify the person by name.
The Supreme Court of Ohio initially observed that Ohio statutes prescribe any mortgage formalities that may exist. Specifically, a mortgage pledges all of the mortgagor’s interest except where the mortgage makes it clear that the mortgagor “intended to convey or mortgage a less estate.” R.C. 5301.02. A mortgagor must sign and “officially acknowledge before a notary public or other authorized official that” they signed the mortgage, R.C. 5301.01(A), “for the purposes stated in the mortgage,” R.C. 147.541(C)(1). When a mortgagor executes a mortgage with a legible signature, the mortgage does not have to include their name in writing elsewhere to be valid for recording. See R.C. 317.11.
The Supreme Court of Ohio noted that Ohio’s statutes do not require the mortgage to include the mortgagor’s name “in the agreement other than in the mortgagor’s signature and acknowledgement” to give the mortgage “operative effect.” Thus, because Ohio does not formally require including a mortgagor’s name in the body of a mortgage, “the failure to include a signatory’s name in the body of a mortgage is not fatal to the instrument as a matter of law.”
The Supreme Court of Ohio also declared that courts may look to general contract rules to interpret a mortgage. The main goal “is to ascertain and give effect to the intention of the parties” by looking at “the writing of the contract” as a whole.
Generally, a contracting party’s signature manifests the party’s intent to be bound by the contract. When there is any ambiguity over which party to charge on a contract, the signature can demonstrate the intent to be bound by a contract’s terms and fix “the actual identity of the party.”
Further when the body of a contract does not identify a party by name, this alone does not “negate a signatory’s intent to be bound by the contract.” Thus, “a person who is not identified in the body of a mortgage, but who signs and initials the mortgage, is a mortgagor of his or her interest so long as the mortgage agreement as a whole evinces the person’s intent to be bound through his or her signature.”
Therefore, the Supreme Court of Ohio held that “the failure to identify a signatory by name in the body of a mortgage agreement does not render the agreement unenforceable as a matter of law against that signatory.”