Court Opinion

ID: 4206388
Source: CourtListenerOpinion
Date Created: 2017-09-26 19:14:48.777828+00
Date Added: 2024-06-11T14:40:45.081395
License: Public Domain

[Cite as Huntington Natl. Bank v. R Kids Count Learning Ctr., L.L.C., 2017-Ohio-7837.]

                             IN THE COURT OF APPEALS OF OHIO

                                  TENTH APPELLATE DISTRICT

The Huntington National Bank,                       :

                Plaintiff-Appellee/                 :
                Cross-Appellant,
                                                    :
v.                                                                         No. 16AP-688
                                                    :                  (C.P.C. No. 14CV-5042)
R Kids Count Learning Center, LLC et al.,
                                                    :               (REGULAR CALENDAR)
                Defendants-Appellees,
                                                    :
The Sehgal Family Limited
Partnership,                                        :

                Defendant-Appellant/                :
                Cross-Appellee.
                                                    :

                                           D E C I S I O N

                                  Rendered on September 26, 2017

                On brief: Plunkett Cooney, and Amelia A. Bower, for The
                Huntington National Bank. Argued: Amelia A. Bower.

                On brief: Butler, Cincione & DiCuccio, and N. Gerald
                DiCuccio, for Scioto Valley Mortgage Company.

                On brief: James A. Zitesman; Giorgianni Law LLC, and
                Paul Giorgianni, for The Sehgal Family Limited Partnership.
                Argued: Paul Giorgianni.

                  APPEAL from the Franklin County Court of Common Pleas
DORRIAN, J.
        {¶ 1} In this appeal and cross-appeal from a decree of foreclosure entered by the
Franklin County Court of Common Pleas, the parties continue their dispute over the
enforceability of a leasehold mortgage.                 Although multiple parties participated (or
declined to participate, resulting in default judgments) in proceedings in the trial court,
No. 16AP-688                                                                                   2
the active parties on appeal are defendant-appellant, The Sehgal Family Limited
Partnership ("Sehgal Family"), holder of the fee interest in the subject property, and
plaintiff-cross-appellant, Huntington National Bank, holder of a note secured by a
mortgage upon a leasehold interest.
I. Facts and Procedural History
       {¶ 2} The facts of this case, while largely undisputed, require recitation in some
detail and will be developed chronologically. In 1977, MedVest Investments ("MedVest")
acquired fee-simple title to a 1.5-acre parcel located at 6725 Karl Road in Franklin County,
Ohio. In 1978, MedVest then leased .6 acres (the "subject property") out of the 1.5 acre
parcel to a related entity, ScioVest Ltd. ("ScioVest"), which planned to construct a daycare
center on the premises. This 99-year renewable lease (the "ground lease") at $100 per
year was not an arms-length transaction. The terms of the ground lease further provided
that ScioVest could not sublet the subject property without the fee owner/lessor's
permission, and that all permanent improvements, including structures and fixtures,
would become the property of the lessor at the termination of the lease. ScioVest then
duly improved the subject property with a building and fixtures and operated a daycare
center on the premises.
       {¶ 3} In 2007, ScioVest executed an assignment of its leasehold to defendant-
appellee R Kids Count Learning Center, LLC ("R Kids") for the price of $311,000.
MedVest, still fee owner of the subject property, consented to the assignment and entered
into a lease modification with its new tenant, R Kids, that shortened the initial lease term
so that it ended in 2032, renewable for 50-year terms. To finance its acquisition of the
leasehold interest, R Kids borrowed $286,400 from Huntington secured by a note and
mortgage on the leasehold interest in favor of Huntington. The mortgage was duly
recorded in Franklin County, although the trial court in this case would ultimately find
that the recordation fell outside the chain of title for the fee interest in the 1.5 acre parcel,
being recorded only under the name of the lessee.             In conjunction with the lease
assignment, MedVest, as lessor, entered into a "subordination, consent, and non-
disturbance agreement" in favor of Huntington that subordinated MedVest's rights as fee
owner and lessor. Huntington chose not to record this instrument.
       {¶ 4} MedVest thereafter transferred its fee-simple title in the entire 1.5 acre
parcel to Karl Road Medical Property, LLC ("Karl Road Medical") by general warranty
deed in 2008, subject to the leasehold held by R Kids. In 2009, the fee interest in the 1.5
No. 16AP-688                                                                             3
acre parcel again changed hands when Karl Road Medical conveyed its interest to Sehgal
Family.
        {¶ 5} Five years after acquiring the leasehold from ScioVest, R Kids decided to
sublet the daycare building. On November 19, 2013, the principals of R Kids purported to
execute a sublease of the subject property to another daycare operator, Just Like
Grandma's Learning Center, LLC, which took over exclusive possession of the daycare
building. R Kids did not seek Sehgal Family's prior consent for the sublease, although R
Kids would later demand a retroactive acquiescence when business relations soured
between R Kids, Sehgal Family, and Huntington.
        {¶ 6} R Kids defaulted on its note payments to Huntington, and, on February 27,
2014, Huntington took a cognovit judgment against R Kids for the unpaid balance.
Huntington filed its initial complaint in foreclosure on May 9, 2014, followed by a first
amended complaint filed July 24, 2014, and a second amended complaint filed
October 14, 2014. In the interim, in June 2014, Sehgal Family sent R Kids a notice of
default and termination of ground lease, based in part on R Kids' attempt to sublease the
daycare property without consent.
        {¶ 7} Sehgal Family's answer to the second amended complaint included a
counterclaim against Huntington seeking declaratory judgment to establish that the
ground lease had terminated and Huntington had no further rights against the subject
property. Sehgal Family brought a cross-claim against R Kids for breach of the ground
lease for improper sublet, failure to pay property taxes, and violations of health and fire
codes. Sehgal Family also brought a cross-claim against Karl Road Medical for breach of
the warranty deed by which Karl Road Medical had conveyed the 1.5 acre parcel to Sehgal
Family.
        {¶ 8} Various parties failed to appear or answer in the case, most significantly R
Kids.     On December 16, 2014, Sehgal Family moved for summary judgment on its
counterclaim against Huntington. On May 12, 2015, Huntington moved for default
judgment or summary judgment, as appropriate, against all defendants. On June 19,
2015, Sehgal Family moved for default judgment against R Kids on its cross-claim.
Huntington attempted to oppose default judgment in favor of Sehgal Family on this claim
by filing a memorandum in opposition based on Huntington's rights as mortgagee with an
interest in R Kids' leasehold. Huntington also proposed to "cure" R Kids' default by
paying the nominal rent owed and requesting that Sehgal Family furnish information
No. 16AP-688                                                                                4
regarding any unpaid taxes that were the responsibility of R Kids under the ground lease.
In connection with Sehgal Family's prior refusal to accept the proffered rent or furnish tax
information, Huntington filed motions to interplead corresponding funds with the court
on January 14, 2015, and March 30, 2016, both of which the trial court granted.
       {¶ 9} The trial court addressed the competing motions for summary judgment
through a series of interlocutory decisions rendered on April 29, and June 19, 2015,
May 12, August 15, and a final entry on September 28, 2016. For purposes of this appeal,
the essential aspects of the trial court's final judgment consist of a finding that Sehgal
Family properly terminated the lease due to breach by R Kids, but that Huntington's
mortgage interest in the leasehold survived termination of the lease by application of
Ohio's lis pendens statute. The court further found that the subordination agreement
executed in favor of Huntington by prior fee-simple owner MedVest was unenforceable
against subsequent fee holders because it was never recorded. The court also expressly
ruled that Huntington's mortgage was recorded outside the chain of title of the 1.5 acre
parcel at the time Sehgal Family purchased its fee interest, but that Sehgal Family was
nonetheless charged with constructive knowledge of Huntington's mortgage interest in
the lease because Sehgal Family had actual knowledge of the underlying lease itself (and R
Kids' presence on the property) at the time of the purchase.
       {¶ 10} Based on these findings, the trial court ordered that judicial sale of the lease
interest could proceed to allow Huntington to collect on its collateral:
              It is further ORDERED, ADJUDGED AND DECREED that
              the Ground Lease attached hereto as Exhibit "B" is
              terminated as between Defendant Sehgal Family Limited
              Partnership    and    Defendant      R    Kids.   However,
              notwithstanding the Court's termination of the Ground Lease
              attached hereto as Exhibit "B" as between Defendant Sehgal
              Family Limited Partnership and Defendant R Kids, the
              Ground Lease attached hereto as Exhibit "B" is not
              terminated as between Plaintiff Huntington and Defendant
              Sehgal Family Limited Partnership. Any interest in the
              leasehold estate acquired by Defendant Sehgal Family
              Limited Partnership is subject to Plaintiff Huntington's
              mortgage.

              The Court, therefore, ORDERS ADJUDICATES AND
              DECREES that Plaintiff Huntington has a right to cure any
              alleged default by Defendant R Kids under the Ground Lease
              attached hereto as Exhibit "B" pursuant to the Mortgage and
              preserves Plaintiff Huntington's right to foreclose the
No. 16AP-688                                                                           5
              leasehold estate with the purchaser at sheriff's sale acquiring
              the rights of Huntington under the Mortgage and under the
              Ground Lease attached hereto as Exhibit "B" as against
              Defendant Sehgal Family Limited Partnership.

(Emphasis sic.) (Sept. 28, 2016 Decision at 6.)
II. Assignments of Error
       {¶ 11} Sehgal Family and Huntington have each appealed from the trial court's
final judgment. Huntington attacks the trial court's determination that the lease was
terminated by Sehgal Family based on a default judgment. Huntington also submits the
complementary argument that if the default judgment is vacated, the facts do not support
any actual breach of the lease by R Kids. Sehgal Family asserts that the trial court
correctly determined the lease was properly terminated in June 2015, but erred in holding
that Huntington's mortgage interest survived that termination.         Defendant-appellee
Scioto Valley Mortgage Company has filed an appellee's brief for the sole purpose of
restating its position that although it was named as a defendant by Huntington and duly
filed an answer, it claims no competing interest in the subject property and denies any
obligation owed toward the other parties.
       {¶ 12} Sehgal Family specifically assigns the following seven assignments of error
for our review:
              [I.] The trial court overruled Sehgal's motion for summary
              judgment.

              [II.] The trial court granted [Huntington's] motion for
              summary judgment.

              [III.] The trial court overruled Sehgal's motion for
              reconsideration.

              [IV.] The trial court dismissed Sehgal's counterclaim for
              declaratory judgment against [Huntington].

              [V.] With respect to [Huntington's] claims against R. Kids,
              the trial court granted [Huntington] a remedy that
              improperly infringes upon Sehgal's property rights.

Conditional Assignments of Error

              [VI.] The trial court dismissed Sehgal's claim against Karl
              Road Medical Property LLC.
No. 16AP-688                                                                               6
              [VII.] The trial court granted [Huntington's] "motion to
              interplead."

Huntington assigns the following single cross-assignment of error for our review:

              THE TRIAL COURT ERRED IN GRANTING APPELLANT
              SEHGAL'S MOTION FOR DEFAULT JUDGMENT
              AGAINST R KIDS, TERMINATING THE GROUND LEASE
              AFTER GRANTING HUNTINGTON'S MOTIONS FOR
              SUMMARY JUDGMENT PERMITTING THE FORE-
              CLOSURE AND SALE OF HUNTINGTON'S LEASEHOLD
              MORTGAGE.

III. Discussion
       A. Huntington's Cross-Assignment of Error
       {¶ 13} We first address Huntington's sole cross-assignment of error on appeal,
which asserts the trial court erred in finding that Sehgal Family could terminate the
ground lease based on a default judgment against R Kids on this issue. Huntington also
asserts that the doctrine of lis pendens precluded default judgment and termination of the
lease. Although the trial court did examine the circumstances of the alleged breach of the
ground lease by the tenant, the trial court's judgment in this respect is essentially based
on a finding of default judgment due to R Kids' failure to answer the cross-claim by Sehgal
Family. Because we conclude that default judgment in favor of Sehgal Family on the
cross-claim against R Kids was appropriate, and termination of the lease on this basis was
proper, we do not reach any of the factual circumstances surrounding R Kids' alleged
breach of the ground lease terms.
       {¶ 14} Civ.R. 55 provides that "[w]hen a party against whom a judgment for
affirmative relief is sought has failed to plead or otherwise defend * * * the party entitled
to a judgment by default shall apply in writing or orally to the court therefor."        An
appellate court reviews the trial court's decision to grant or deny a motion for default
judgment under an abuse-of-discretion standard. Lopez v. Quezada, 10th Dist. No. 13AP-
389, 2014-Ohio-367, ¶ 11. Default judgment is appropriate against a defendant who fails
to respond, because liability is admitted or confessed by the failure to answer and
consequent absence of statements refuting the plaintiff's claims. Id. at ¶ 12, citing Ohio
Valley Radiology Assocs., Inc. v. Ohio Valley Hosps. Assn., 28 Ohio St.3d 118, 121 (1986).
"Consequently, when a defendant fails to contest the factual allegations raised in the
No. 16AP-688                                                                                 7
complaint, default judgment is appropriate because the defendant has admitted to the
facts that establish the plaintiff's claims." Id.
         {¶ 15} On appeal, however, we must ascertain whether the plaintiff pleaded
sufficient facts to support the claim, and otherwise pleaded a claim for which relief may be
granted. Id. at ¶ 13, citing Whiteside v. Williams, 12th Dist. No. 2006-06-021, 2007-
Ohio-1100, ¶ 12; Girard v. Leatherworks Partnership, 11th Dist. No. 2004-T-0010, 2005-
Ohio-4779, ¶ 38; Ford v. Estate of Tonti, 10th Dist. No. 94APE10-1488 (June 15, 1995).
As part of our review of the trial court's exercise of discretion in granting default
judgment, therefore, we must examine the complaint to see whether it can "withstand a
Civ.R. 12(B)(6) motion for failure to state a claim." Quezada at ¶ 17. "[W]hen a plaintiff
fails to state a claim, a court cannot grant default judgment with regard to that alleged
claim." Id.
         {¶ 16} A review of the cross-claim filed by Sehgal Family establishes that it states a
claim for breach and termination of the ground lease, alleging that R Kids' principals
attempted to sublet the property without obtaining consent from the landlord, failed to
pay property taxes, and failed to maintain the premises as required by the lease, and that
these are default events under the express terms of the ground lease agreement. The
complaint contains a copy of the lease as amended. While Huntington on appeal attempts
to contest the facts underlying the default and, therefore, whether there was an actual
breach by R Kids, the taking of evidence in a default judgment matter is discretionary with
the court, and generally contemplated to allow a determination of the amount of damages.
Civ.R. 55(A); Quezada at ¶ 12. Quantifiable money damages are not at issue here, since
Sehgal Family sought only a bare declaration that the lease had been terminated in June
2014.
         {¶ 17} Moreover, although Huntington did file memoranda in the trial court
contesting the propriety of default judgment against R Kids, Huntington does not assert
on appeal that it was thereby purporting to file an actual answer on R Kids' behalf, or even
that the subordination agreement, being unfiled, gave Huntington any legal right to do so.
Huntington has not established any authority to assert such a right to answer on behalf of
R Kids. Huntington, therefore, cannot assert that its memorandum filed in opposition to
default judgment against R Kids was effective to preclude default judgment in the trial
court.
No. 16AP-688                                                                                 8
       {¶ 18} Huntington also argues that the doctrine of lis pendens precluded default
judgment on the cross-claim brought by the Sehgal Family against R Kids. Ohio's lis
pendens statute provides as follows: "When a complaint is filed, the action is pending so
as to charge a third persons with notice of its pendency. While pending, no interest can be
acquired by third persons in the subject of the action, as against the plaintiff's title." R.C.
2703.26.   Here, paradoxically, while the trial court applied lis pendens to preserve
Huntington's right to foreclose on the matter, the court declined to apply lis pendens to
preclude termination of the lease itself. Our discussion of lis pendens, therefore, will
address both applications of the doctrine by the trial court for later development and
discussion in Sehgal Family's assignments of error.
       {¶ 19} R.C. 2703.26 prevents a third person from "acquiring" rights that supersede
or interfere with a litigant's rights, after that litigant has commenced the action. When
properly applied, the "conveyed interest * * * becomes subject to the outcome of the
pending litigation." Cincinnati ex rel. Ritter v. Cincinnati Reds, LLC, 150 Ohio App.3d
728, 2002-Ohio-7078, ¶ 31 (1st Dist.). However, the notice of lis pendens "does not of
itself give the plaintiff rights in the property superior to those who acquire an interest in
the property during the pendency of the suit. The final judgment rendered by the court
ultimately determines the priority of rights in the property." Levin v. George Fraam &
Sons, Inc., 65 Ohio App.3d 841, 847 (9th Dist.1990). "The general intent and effect of the
doctrine of lis pendens is to charge third persons with notice of the pendency of an action,
and to make any interest acquired by such third persons subject to the outcome and
judgment or decree of the pending lawsuit." Bank of New York v. Barclay, 10th Dist. No.
03AP-844, 2004-Ohio-1217, ¶ 10. The direct and most obvious intent of the rule is to
prevent litigants from circumventing the rights of plaintiffs who have initiated litigation
by transferring the subject property while an action is pending, thereby frustrating the
eventual judgment of the court. Stewart v. Railway Co., 53 Ohio St. 151, 164 (1895)
(interpreting predecessor statute).
       {¶ 20} The facts of the present case make clear that Sehgal Family did not "acquire
rights during the pendency of the action." Sehgal Family acquired a fee-simple interest in
the entire 1.5 acre parcel, including the .6 acres subject to the ground lease, in November
2009. Sehgal Family acquired the attendant bundle of contractual rights under the lease
at that time. The exercise of Sehgal Family's contractual rights under the lease at a later
date, based on the alleged default by tenant R Kids, does not represent an "acquisition" as
No. 16AP-688                                                                            9
contemplated by the lis pendens statute.       The trial court therefore did not err in
concluding that lis pendens did not bar default judgment in favor of Sehgal Family against
R Kids and termination of the ground lease.
       {¶ 21} In short, we find that R.C. 2703.26 does not apply against a party that
acquired its interest prior to commencement of the litigation. Sehgal Family's supposed
"acquisition" consisted of the exercise of a pre-existing contractual right in the form of
contractual lease rights that long pre-dated Huntington's foreclosure action. Lis pendens
does not apply to subordinate that contractual right in favor of Huntington's eventual
judgment in foreclosure.
       {¶ 22} Based on the foregoing discussion, we determine the trial court did not err
in its application of general principles of default judgment when addressing Sehgal
Family's cross-claim against R Kids, and that lis pendens did not preclude a grant of
default judgment. Huntington's sole cross-assignment of error is overruled.
       B. Sehgal Family's Assignments of Error
       {¶ 23} We now turn to Sehgal Family's assignments of error, the first five of which
present intertwined issues and will be addressed together. Broadly put, the question is
whether Sehgal Family had constructive notice of the leasehold mortgage and took its fee
interest subject to Huntington's rights as mortgagee.
       {¶ 24} This aspect of the case was decided by the trial court on cross-motions for
summary judgment, which under Civ.R. 56(C) may be granted only when there remains
no genuine issue of material fact, the moving party is entitled to judgment as a matter of
law, and reasonable minds can come to but one conclusion, that conclusion being adverse
to the party opposing the motion. Tokles & Son, Inc. v. Midwestern Indemn. Co., 65 Ohio
St.3d 621, 629 (1992), citing Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64
(1978). Additionally, a moving party cannot discharge its burden under Civ.R. 56 simply
by making conclusory assertions that the non-moving party has no evidence to prove its
case. Dresher v. Burt, 75 Ohio St.3d 280, 293 (1996). Rather, the moving party must
point to some evidence that affirmatively demonstrates that the non-moving party has no
evidence to support each element of the stated claims. Id.
       {¶ 25} An appellate court's review of summary judgment is de novo. Koos v. Cent.
Ohio Cellular, Inc., 94 Ohio App.3d 579, 588 (8th Dist.1994); Bard v. Soc. Natl. Bank,
10th Dist. No. 97APE11-1497 (Sept. 10, 1998). Thus, we conduct an independent review of
the record and stand in the shoes of the trial court. Jones v. Shelly Co., 106 Ohio App.3d
No. 16AP-688                                                                             10
440, 445 (5th Dist.1995). As such, we have the authority to overrule a trial court's
judgment if the record does not support any grounds raised by the movant, even if the
trial court failed to consider those grounds. Bard.
       {¶ 26} Sehgal Family asks this court to review the propriety of the trial court's
denial of summary judgment in favor of Sehgal Family. As a rule, denial of summary
judgment is not a final appealable order. R.C. 2505.02; State ex rel. Overmeyer v.
Walinski, 8 Ohio St.2d 23 (1966); Ohio Civil Serv. Emps. Assn. v. Moritz, 39 Ohio App.3d
132, 133 (10th Dist.1987). However, when the trial court has entered final judgment in
the matter and the case is decided solely on questions of law and undisputed fact, we may
consider whether it was error to deny summary judgment. Holdren v. Garrett, 10th Dist.
No. 09AP-1153, 2011-Ohio-1095.       When addressing such a denial, we consider the
competing motions independently: "The assertion by each party that there are not factual
issues is limited to the purposes of the moving party's motion, and such admissions by the
movant may not be applied to the adversary's motion. The filing of cross-motions for
summary judgment accordingly does not establish the absence of a material issue of fact."
S.E.A., Inc. v. Dunning-Lathrop & Assoc., Inc., 10th Dist. No. 00AP-165 (Dec. 21, 2000).
       {¶ 27} As a general proposition, when a landlord terminates a lease due to the
tenant's default, the leasehold mortgagee will see the mortgage rendered valueless with
the extinction of the tenant's leasehold estate. This is because the mortgage given in a
leasehold estate covers only such rights as are held by the lessee. See generally Abraham
v. Fioramonte, 158 Ohio St. 213, 223 (1952); Mic Bruce, Inc. v. N. Ohio Food Terminal,
8th Dist. No. 38635 (Mar. 29, 1979). "If the lease is declared forfeited, then the leasehold
mortgage ceases to exist." Franklin Steel Co. v. 350 S. High, Ltd., 10th Dist. No. 87AP-
391 (Mar. 29, 1988); see also Culberson Transp. Serv., Inc. v. John Alden Life Ins. Co.,
10th Dist. No. 96APE11-1501 (June 30, 1997) (leasehold interest was only security for
leasehold mortgage and did not encumber fee-simple title to property).
       {¶ 28} Applying this rule, we can see that in order to claim that its mortgage
interest has priority over the right of reversion owned by Sehgal Family, pursuant to the
ground lease, Huntington must establish that Sehgal Family had notice of the mortgage at
the time it purchased the 1.5 acre parcel from Karl Road Medical.
       {¶ 29} We first address and reject the trial court's conclusion that Sehgal Family
had constructive notice of Huntington's mortgage. Because the primary purpose of the
real property recording system is to establish clear rules regarding the rights of a good-
No. 16AP-688                                                                                               11
faith purchaser, R.C. 5301.25(A) establishes that an unrecorded mortgage is
unenforceable against subsequent bona fide purchasers of the fee-simple interest in the
property:
                All deeds, land contracts referred to in division (A)(21) of
                section 317.08 of the Revised Code, and instruments of
                writing properly executed for the conveyance or
                encumbrance of lands, tenements, or hereditaments, other
                than as provided in division (C) of this section and section
                5301.23 of the Revised Code, shall be recorded in the office
                of the county recorder of the county in which the premises
                are situated. Until so recorded or filed for record, they are
                fraudulent insofar as they relate to a subsequent bona fide
                purchaser having, at the time of purchase, no knowledge of
                the existence of that former deed, land contract, or
                instrument.

R.C. 5301.25(A). As a result, "R.C. 5301.25 provides that if a lienholder fails to record an
encumbrance on real property, the lienholder will not have the benefit of being able to
claim constructive notice of the lien against a subsequent purchaser."                          Daniely v.
Accredited Home Lenders, 8th Dist. No. 99208, 2013-Ohio-4373, ¶ 12.
        {¶ 30} In the present case, Huntington recorded its mortgage outside the chain of
title of the 1.5 acre parcel.1 The subordination agreement was not recorded at all. Under
the statute, constructive notice of the recorded encumbrance rises only when the
instrument is recorded in the chain of title. "[S]ince the encumbrance was never recited
in any deed in the chain of title, the purchaser could not be charged with constructive
notice." Emerick v. Multicon Builders, Inc., 57 Ohio St.3d 107, 109 (1991). " 'A searcher
can be fairly supposed to be made acquainted with the contents of such deeds only as, in
the process of tracing, link by link, his chain of title on the record, necessarily pass under
his inspection.' " Baker v. Koch, 114 Ohio App. 519, 521-23 (10th Dist.1960), quoting
Blake v. Graham, 6 Ohio St. 580, 584 (1856). See also Terra Vista Estates, Inc. v.
Moriarty, 8th Dist. No. 61033 (Oct. 15, 1992) (recordation of lien outside of chain of title
did not provide constructive notice of lien).

1 The R Kids ground lease appears in the chain of title for the 1.5 acre parcel because it was recorded under

MedVest, a prior owner, as grantor of the lease. Huntington's mortgage, however, was recorded only under
the name of the tenant lessee, R Kids, and was outside the chain of title of the 1.5 acre parcel. The warranty
deed from MedVest to Karl Road Medical does not refer to Huntington's mortgage or the subordination
agreement. The title and closing agent for this transaction would later submit an affidavit stating that the
mortgage was not in the chain of title when a title search was performed in conformity with industry
standards because the mortgage did not involve a title holder and was not a lien against the fee-simple title.
No. 16AP-688                                                                             12
       {¶ 31} In the present case, Huntington argues that Sehgal Family is charged with
constructive notice because the chain of title did reflect a recorded lease of the partial
property, and the lease and fee-simple interest in the 1.5 acre parcel can be traced back to
a common grantor, MedVest. Huntington, therefore, argues that Sehgal Family was not
only charged with constructive knowledge of recorded instruments directly within the
chain of title, but obligated to follow-up the lease and discover subsequent recorded
documents pertaining to the lease parties. The Supreme Court of Ohio, however, has
rejected this common-grantor theory of constructive notice:
              "* * * [T]he only fair rule is to hold that the record of an
              instrument will not afford constructive notice, if it is outside
              the chain under which a purchaser or incumbrancer claims
              title or lien. To hold otherwise would be to impose upon such
              parties the duty of making a general search of every
              instrument filed for record, without affording facilities
              therefor. * * *"

(Emphasis added.) Spring Lakes, Ltd. v. O.F.M. Co., 12 Ohio St.3d 333, 337 (1984),
quoting 1 Patton on Titles (2 Ed.1957) 231-32, Section 69. As such, the subsequent
purchaser had no duty to check the records of property conveyed by its predecessor to
determine if there were any title transactions within other chains of title other than its
own parcel. Id. Because here the heart of the trial court's reasoning relies on imputed
knowledge based on an obligation for the Sehgal Family to search outside the chain of title
for its fee-simple purchase of 1.5 acres, the trial court erred in concluding that Sehgal
Family had constructive notice.
       {¶ 32} In the alternative, Huntington argues that Sehgal Family had, if not the
constructive notice provided through the real estate recordation system, then actual
knowledge that the leasehold was subject to a mortgage at the time of purchase.
Huntington presented no evidence of this in opposition to summary judgment, beyond
the bald assertion that Sehgal Family was aware of the lease and presence of R Kids on the
property. In addition, Huntington presented no authority for the proposition that actual
knowledge of a leasehold imputes actual knowledge that the leasehold is necessarily
mortgaged.
       {¶ 33} Finally, Huntington argues that equitable principles must prevent Sehgal
Family from securing a windfall by merging the heretofore-unproductive leasehold with
Sehgal Family's fee-simple ownership interest, thereby acquiring not only the underlying
land but the post-1978 daycare structure as well, neither of which would be reflected in
No. 16AP-688                                                                                          13
the price paid by Sehgal Family in 2009. Huntington cites to this court's decision in
Franklin Steel, in which we upheld the trial court's refusal to cancel a lease and thereby
nullify a leasehold mortgage.
        {¶ 34} Sehgal Family's fee-simple interest is encumbered neither by the
unrecorded subordination agreement nor the mortgage recorded outside the chain of title.
The mortgage interest was extinguished on termination of the lease.2 Once the lease
terminated, there remained no interest to which the mortgage held by Huntington could
attach. With the leasehold terminated, no mortgage interest could support foreclosure,
and no recovery on the now-extinguished lease could be had through sheriff's sale or
otherwise. The trial court erred in finding that Huntington could pursue its collateral and
recover its loan by executing on the leasehold interest; Sehgal Family was entitled to
summary judgment on this issue. Sehgal Family's first through fifth assignments of error
have merit and are sustained.
        {¶ 35} Sehgal Family's sixth assignment of error asserts the trial court improperly
dismissed Sehgal Family's cross-claim against Karl Road Medical, the entity from which
the Sehgal Family purchased its fee interest. Because the trial court found this claim was
rendered moot by its conclusions with regard to other aspects of the case, the trial court
must reverse its judgment on this cross-claim, reinstate the cross-claim, and consider the
same. Sehgal Family's sixth assignment of error has merit and is sustained.
        {¶ 36} Sehgal Family's seventh assignment of error asserts the trial court erred in
granting Huntington's motion to interplead funds. Without passing on the propriety of
interpleader in the present case, the trial court will generally revisit its rulings regarding
the respective obligations of the parties involving tax obligations under the lease,
essentially rendering Sehgal Family's seventh assignment of error moot.
IV. Conclusion
        {¶ 37} For the foregoing reasons, Sehgal Family's first, second, third, fourth, fifth,
and sixth assignments of error are sustained, Sehgal Family's seventh assignment of error
is rendered moot, Huntington's cross-assignment of error is overruled, and it is the
judgment and order of this court that the judgment of the Franklin County Court of

2Although Huntington's alleged equitable considerations can be disposed of in summary judgment, 17 Mile,
L.L.C. v. Kruzel, 8th Dist. No. 99358, 2013-Ohio-3005, the trial court never fully addressed Huntington's
equitable arguments because the court chose to apply (wrongly) lis pendens in protection of Huntington's
mortgage interest.
No. 16AP-688                                                                             14
Common Pleas is reversed, and this matter is remanded to that court for further
proceedings in accordance with law and consistent with this decision.
                                                                       Judgment reversed
                                                                     and cause remanded.

                           KLATT and BRUNNER, JJ., concur.
KLATT, J., concurring.

       {¶ 38} I agree with the majority decision. I write separately simply to note that,
because we have held that the leasehold interest in this case was lawfully terminated, it is
unnecessary to address the question of whether Huntington's mortgage interest has
priority over the right of reversion owned by Sehgal Family under the ground lease. As
suggested in the majority decision, Huntington's mortgage encumbers only the leasehold
interest. Once the leasehold interest is lawfully terminated, the mortgage essentially
encumbers nothing.