Kruse v. Holzer ( 1986 )

Whiteside, J.,

dissenting. Being unable to concur in the conclusions reached by the majority, I must respectfully dissent since the trial court correctly interpreted and applied the applicable law.

The majority has made a strained construction of R.C. 5311.27 by lifting certain language out of context and utilizing it to reach a result not justified by either the facts herein or a reasonable construction of the statute.

There does exist a question of fact as to whether defendants violated R.C. 5311.25 or 5311.26 in connection with the “sale” of the condominium to plaintiffs. As the majority points out, there is a sale of a condominium when a contract of purchase is entered into even though the closing and conveyance occurs later. Also, a buyer under an executory purchase contract is a purchaser — not a potential purchaser.

However, the salient issue before us is the application of R.C. 5311.27 to the facts and circumstances herein as to which there is no dispute.

Plaintiffs entered into a lease-purchase agreement with defendant Summertree Homes, Inc., with respect to a condominium unit, the sale being contingent upon sale of plaintiffs’ former home and the obtaining of financing. Plaintiffs paid a security deposit of $2,500 and the lease payments were $600 per month. Plaintiffs moved into the unit in January 1984 and paid rent. Plaintiffs allege that shortly after taking possession of the premises, they learned Summer-tree was having problems and consulted defendant Holzer (the real estate broker involved in the agreement) who allegedly gave them incorrect and misleading information.

As a result of plaintiffs’ unhappiness with the transaction, the parties, by a written agreement signed in December 1984, cancelled the purchase contract stating that it was “in their mutual interest” to do so. Under terms of this agreement, $2,000 of the security deposit, plus interest, was refunded to plaintiffs with the remaining $500 being retained as a security deposit under the lease agreement, it being expressly agreed that the lease would remain in effect for its term. However, the parties further agreed that the cancellation of the purchase agreement and the refund of $2,000, plus $163.40 interest, would not operate as a release of any other claims that plaintiffs might have “including, but not limited to, any claim to recover expenses, the value of any improvements, and any related but unauthorized costs or expenses relating to the premises.”

Now, plaintiffs contend that they are entitled to damages pursuant to R.C. 5311.27(B), even though their “recovery” to date has exceeded $2,000 and the purchase contract has been rescinded by agreement of the parties.

As the majority holds, R.C. 5311.27(B) applies to all condominium sales. However, by the terms of the division, the damages provision can have application only where the purchaser elects not to rescind the purchase agreement pursuant to R.C. 5311.27(A) or otherwise. The basic damages measure set forth in R.C. 5311.27(B) is the difference between the purchase price (amount paid) and the fair market value of the condominium ownership interest involved to be determined either by evidence of fair market value or by the price for which the interest is sold either before or after commencement of a suit to recovery such damages. The issue raised herein pertains to the second sentence of R.C. 5311.27(B)(3) which provides that:

“In no case shall the amount recoverable under this division be less than the sum of five hundred dollars for each violation against each purchaser bringing an action under this division, together with court costs and reasonable attorneys’ fees.”

The majority holds to the effect that this recovery is in addition to the damages recovery provided by R.C. 5311.27(A), in the event the purchaser elects to rescind the purchase agreement consisting of “[a]ny deposit or other prepaid fee or item and any amount paid on the purchase price, and * * * all closing costs paid by the purchaser or for which he is liable in connection with the void sale.” There is nothing in either R.C. 5311.27(A) or 5311.27(B) providing for, or justifying, such double recovery by a purchaser who elects to rescind (or void) the purchase contract. Rather, the two divisions of R.C. 5311.27 provide alternative remedies to be used at the election of the purchaser.

R.C. 5311.27(A) and 5311.27(B) must be read in pari materia. When so read, it is clear that where a seller has violated R.C. 5311.25 or 5311.26, the purchaser has a right to elect to void (rescind) the purchase contract agreement and recover appropriate specified damages pursuant to R.C. 5311.27 (A), or to proceed with the purchase contract and recover appropriate specified damages pursuant to R.C. 5311.27(B). Such a purchaser is not entitled to proceed under both R.C. 5311.27(A) and 5311.27(B), that is, both void or rescind the contract and proceed as if the contract had not been voided and recover damages upon both bases.

The $500 minimum damages provision of R.C. 5311.27(B) is by its terms limited in application to the “amount recoverable under this division.” This necessarily means that the minimum difference between the amount paid for the condominium ownership interest and the fair market value of such interest shall be deemed to be $500. It does not provide for an award of damages of $500 in addition to damages recoverable under division (A) of R.C. 5311.27. Had the legislature so intended, it would have written the words “under this section” rather than the words “under this division.”

Even if the $500 minimum recovery provision of division (B) of R.C. 5311.27 were intended to apply also to damages recoverable under division (A), it is clear that plaintiffs have “recovered” $2,163.40 pursuant to the rescission agreement, an amount much greater than the $500 minimum.

Plaintiffs have made no contention that they are entitled to recover any closing costs or prepaid fees in connection with the void sale pursuant to R.C. 5311.27(A). As indicated above, R.C. 5311.27(A) provides the measure of recovery in connection with a “void” sale while R.C. 5311.27(B) provides the measure of recovery in connection with a sale that is not “void,” and the two recoveries are mutually exclusive, including the $500 minimum recovery provided under R.C. 5311.27(B). Accordingly, the trial court did not err in granting summary judgment for defendants upon plaintiffs’ claim under R.C. 5311.27(B). The first assignment of error is not well-taken.

By their second assignment of error, plaintiffs contend that the trial court erred in failing to give adequate consideration to their claims for common-law fraud and misrepresentation, the fourth claim of their complaint.

By entering into the rescission agreement and accepting the payment thereunder, plaintiffs have elected the remedy of rescission rather than the remedy of damages for the fraud. As was well-stated in 25 American Jurisprudence 2d (1966) 669, Election of Remedies, Section 27:

“In general it may be said that a person defrauded in a sale or other contract has a choice of remedies; he may rescind the contract and recover what he has paid, or he may affirm the contract and recover damages for the fraud and deceit practiced upon him, but he cannot pursue to a final conclusion both the remedy by rescission and by affirmance.”

Defendants contend that the fraud allegations are insufficient especially with respect to detrimental reliance. The amended complaint does indicate that the alleged misrepresentation (as opposed to alleged statutory violations) occurred subsequent to execution of the contract. Since the contract was thereafter rescinded by agreement, detrimental reliance is not demonstrated by the allegations of the amended complaint. In any event, we find no prejudicial error on the part of the trial court with respect to the claim for common-law fraud. The second assignment of error is not well-taken.

Accordingly, both assignments of error should be overruled and the judgment of the trial court should be affirmed.