I have a sentence:
"Father, he was writing in your notebook."
Wouldn't that translate into:
"Padre, él estaba escribiendo en su cuaderno."
Wouldn't that be confusing because it could also read:
"Father, he was writing in his notebook."
How would you differentiate the two?
You don't. There is ambiguity. Without context or further clarification is impossible to know in whose notebook he was writing. Ambiguity is an intrinsic characteristic of human conversations and languages.
When you use the usted form you use the conjugation of the third person, not the second, even if usted is used as a polite version of tú (thus, second person singular) and ustedes as a polite version of vosotros (thus, second person plural).
As explained in the question usted and its usage
Usted is grammatically third person singular, such a use is called honorific third person [...] Obviously being grammatical 3rd person singular means that the verbs need to be conjugated as 3rd person singular. Also all pronouns must be 3rd person. see Vartec's answer
So indeed is the same pronoun for
su cuaderno padre, el de usted
and
su cuaderno, el de él
With tuteo insteod of ustedeo, the first one would be
Tu cuaderno, el tuyo
and the sentence wouldn't be ambiguous. But using ustedeo in that specific case or example, there is indeed an ambiguity with the pronouns.
As @Diego says, there is ambiguity. In the case of Mexico, in many places, it is very common to use the third person singular as honorific. In other places, however, it is quite uncommon so it tends to be much confusion. To prevent doubt, many people will add the clarification even if it is not asked for or the context provides enough information. In the case of the central states of Mexico, however, the article (i.e. el, la los, las) is not included so a common phrase would be:
Padre, el estaba escribiendo en su cuaderno de usted.
Padre, el estaba buscando entre sus cosas de usted.
Conversely if he was writing in his own notebook one would say:
Padre, el estaba escribiendo en su cuaderno de el.
Padre, es estaba buscando entre sus cosas de el.
If a true third person is referred the sentence would be:
Padre, el estaba escribiendo en su cuaderno de mi madre.
Padre, el estaba buscando entre sus cosas de mi madre.
Although in the seek of syntactic purity one could argue that this form is to be avoided; the fact is that the cultural component is very strong. In many families, the proper way to address own parents, elders or even any unfamiliar person is to use the third person singular possessive. Although purists would disagree, I consider this form of speech as proper especially if I know that the person family background will compel them to use such form.
An alternative form that avoids the repeated possessive is to omit "su" and "sus" in the sentences and put an article where the possessive would be. So, the alternate examples are as follows:
Padre, el estaba escribiendo en el cuaderno de usted.
Padre, el estaba buscando entre las cosas de usted.Padre, el estaba escribiendo en el cuaderno de el.
Padre, es estaba buscando entre las cosas de el.Padre, el estaba escribiendo en el cuaderno de mi madre.
Padre, el estaba buscando entre las cosas de mi madre.
