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Banking & Finance Law Report

Tag Archives: Ohio

A Hypothetical in Agricultural Lending — Meet Farmer Bob, AgBank and Massive Grain Elevator

Posted in Bank Lending, Commercial Lending, Commercial Loans and Leases, Community Banking, Lien Perfection, Ohio Law

In this hypothetical, we will consider the following circumstances.

  • “Farmer Bob” grows wheat (i.e., crops)
  • “AgBank” has loaned Farmer Bob money secured in part by his wheat
  • “Massive Grain Elevator” wants to purchase Farmer Bob’s wheat

Can Massive buy the wheat and not get the shaft from AgBank? It depends. In 1985 Congress passed the Food Security Act; the provision 7 U.S.C. Section 1961, titled Protection for Purchasers of Farm Products (FSA), constitutes a wholesale preemption of the Uniform Commercial Code (UCC). UCC Revised Article 9-320(a) provides that:

“a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, take free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.”

In addition, Official Comment 4 to 9-320(a) provides that:

“this section does not enable a buyer of farm products to take free of the security interest created by the seller … however, a buyer of farm products may take free of a security interest under Section 1324 of the Food Security Act of 1985, 7. U.S.C. Section 1631″

Meanwhile, FSA Section 1324 provides that notwithstanding Article 9 of the UCC, farm product buyers, commission merchants and selling agents (buyers in ordinary course) take free of security interests in farm products created by sellers unless one of two exceptions applies: 1) direct notice or 2) special central filing.…


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Lending License Required for Real Estate Commission Financing

Posted in Ohio Law, Regulation and Compliance

In a triumph of substance over form, on August 22, 2013, the Tenth Appellate District Court of Appeals disregarding self-serving labels and further clarified the distinction between a loan and a sale of accounts receivable in Fenway Financial, LLC dba Commission Express v. Greater Columbus Realty, LLC dba Keller Williams Greater Columbus Realty, LLC, No. 12AP-291. To cut to the chase, the Court found that regardless of the buzz words used, leaving the seller of an account receivable with the risk of collectability is a key factor in characterizing a transaction as a loan, not as a sale, and may implicate state loan licensing requirements and other statutes, including provisions dealing with the scope of UCC Article 9.…


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Collection Victory for an Ohio Equipment Lessor

Posted in Equipment Leasing

On July 8, 2013, Ohio’s 5th District Court of Appeals issued an opinion that will be of interest to commercial equipment lessors in Ohio.  This case concerns the commercial lease of a beverage caddy and the status of the “middle man” lessee when the vendor undergoes bankruptcy.

Elms Country Club, the lessee (“Elms”), believed that the agreement constituted a “zero-net-lease” so that the vendor would pay lessee the monthly payments, which lessee would then pay to the bank. The vendor (“Royal Links”) made only four of the anticipated sixty payments.  Elms made no further payments and retained possession of the caddy because the lessor never repossessed the caddy.

The lessor, a commercial bank, sued for breach of the equipment lease and Elms filed a third party complaint against Royal Links which filed a bankruptcy action. After relief from the bankruptcy stay, some years later, the lessor filed a motion for summary judgment which was granted.…


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Appellate Court Rules That Creditor Cannot Cog on an Accelerated Debt

Posted in Collection and Foreclosure, Ohio Law

In The Henry County Bank v. Stimmels, Inc., et al., 3rd Dist. No. 7-12-19, 2013-Ohio-1607 (Apr. 22, 2013) the Third Appellate District Court rendered a decision that will dismay commercial creditor’s rights attorneys in Ohio in holding that a warrant of attorney to confession judgment R.C. §2323.13 may only be used if the debtor was in default of payment, even where the debt had been accelerated.

The Henry County Bank obtained a cognovit judgment against the defendants, claiming as events of default the defendants’ failures to pay taxes when due and to maintain a stated indebtedness to tangible net worth ratio. After receiving notice of the judgment, the defendants filed a motion under Civil Rule 60(B) to vacate the cognovit judgment. The defendants supported their motion with an affidavit stating that they were not in default of payment, and here is the key: despite having accelerated the debt, the bank stipulated that the defendants were not in default of payment.

The trial court denied the defendants’ motion for relief after a hearing and supplemental briefs, and the defendants filed an appeal. Their sole assignment of error was that the trial court erred in granting judgment on the note without the bank asserting or proving that the defendants failed to pay on time, arguing that a warrant of attorney to confess judgment under R.C. §2323.13 could be used in a payment default situation.

Noting that "cognovit judgments are generally disfavored in the law" {¶8} and that R.C. §2323.13 is to "be strictly construed" …


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An Ohio Supreme Court “Trifecta” of Noteworthy Lending Cases on the Docket

Posted in Ohio Law

At the end of April, the Ohio Supreme Court agreed to hear three notable cases that readers of this blog may wish to monitor – or perhaps even participate in as amici curiae. First, the Court has agreed to resolve a conflict among Ohio’s appellate districts regarding whether the Statute of Frauds precludes a foreclosure defendant from asserting an oral forbearance agreement as a defense. Next, the Court has agreed to answer a question certified from federal court as to whether Ohio recognizes the tort of “wrongful attempted foreclosure.” Third, the Court has agreed to hear a payday-lending case that has attracted media attention, concerning the interplay between Ohio’s Mortgage Lending Act and the more recent Short-Term Lender Law. For additional information about these three cases, read more here.…


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Financing in the Energy Sector: A Primer for Lenders

Posted in Commercial Lending

We hope you enjoyed the four-part series on energy financing that has run in the Banking & Finance Law Report blog during the past few weeks. We’ve compiled those articles into a resource that’s relevant to anyone involved with lending or borrowing in the energy sector. Be sure to download the Energy Financing eBook, and feel free to forward it to colleagues who also will be interested.…


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Ohio Passes Legislation Preventing Recovery on “Cherryland” Insolvency Carveouts in Nonrecourse Loans, Among Other Changes

Posted in Commercial Lending

Bankers and their counsel should note that during its December lame-duck session, the Ohio General Assembly passed the Ohio Legacy Trust Act (Am. Sub. H.B. 479), which will go into effect March 27, 2013.  The Act creates borrower-friendly provisions prohibiting the use of so-called “Cherryland” insolvency carve-outs in nonrecourse loan documents which will be of interest to all financial institutions engaged in commercial lending in Ohio.

“Cherryland” insolvency carve-outs are so named for the 2011 Michigan appellate case, Wells Fargo Bank, NA v. Cherryland Mall Limited Partnership, in which the court upheld a widely-used provision in non-recourse loan documents that caused the loan at issue to become fully recourse to the guarantor upon the insolvency of the borrower.

The Cherryland Mall decision prompted the Michigan legislature to pass the Nonrecourse Mortgage Loan Act, which became effective in Michigan in March of 2012. In order to legislatively overturn the Cherryland Mall decision, the Nonrecourse Mortgage Loan Act provides that a post-closing solvency covenant cannot be used as a nonrecourse carve-out or as the basis for any claim or action against a borrower or guarantor on a nonrecourse loan. It also provides that any provision purporting to create such a carveout is invalid and unenforceable.

"Post-closing solvency covenant" is defined in both Michigan’s Nonrecourse Mortgage Loan Act and the Ohio Legacy Trust Act to mean "any provision of the loan documents for a nonrecourse loan, whether expressed as a covenant, representation, warranty, or default, that relates solely to the solvency of …


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Ohio property data to remain free online

Posted in Real Estate

Put your wallet away and hit print as many times as you like. Because for now, there will be no new charge to download or print property records in Ohio.

As a welcomed early holiday gift, the proposal to charge fees for property records has died in committee. The office of Senate Judiciary Committee chair Senator Mark Wagoner announced last week that the Ohio Recorders’ Association proposal to authorize county offices to charge for downloading or printing public records from their government-funded websites will not be part of House Bill 247, which is pending before the Judiciary Committee.…


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Ohio Corporate Law Changes

Posted in Corporate Law

Recently-enacted legislation makes a number of important changes to the Ohio General Corporation Law and the Ohio Limited Liability Company Act that financial institutions and their executives should consider.  The bill will become effective May 4, 2012.

Here are some key points:

Dissenting Shareholder  Rights:  The bill substantially changes our statutes, which have not been substantively amended since 1970, to make Ohio dissenting shareholder processes similar to those followed in other major commercial states, such as Delaware.  The significant provisions are:…


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Mayer v. Medancic: Is Interest in Ohio as Simple (or Compound) as it Seems?

Posted in Commercial Lending

On December 3, 2009, the Supreme Court of Ohio decided the case of Mayer et al. v. Medancic et al., in an effort to clarify the calculation of interest on an obligation upon the occurrence of a default. As stated by the Court, “compound interest is not available upon a default on a written instrument absent agreement of the parties or another statutory provision expressly authorizing it.” Accordingly, lenders should ensure that their loan documents clearly state that interest will be compounded not only during the term of the loan, but also after default.

The case involved the calculation of default interest on three promissory notes executed and delivered by the Medancics to the Mayers. All principal and accrued interest on each note was due and payable at maturity and the Medancics failed to make those payments in each case. Although the maturity dates fell in 1995 and 1997, the Mayers did not receive judgment on the notes until May of 2006. The Mayers contended that they were entitled to post-judgment interest at the rates set forth in the notes, compounded annually, but the trial court held that the Mayers were entitled to post-judgment simple interest at the rates set forth in the notes. The Eleventh District Court of Appeals reversed, on the basis of the Supreme Court of Ohio case, State ex rel Bruml v. Brooklyn, which the Eleventh District held provided for “interest upon interest” and, therefore, provided for compound default interest. In doing so, the Eleventh …


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