Rainy Day Rentals, Inc. v. Next Gen. Properties, Inc. , 2022 Ohio 3530 ( 2022 )

[Cite as Rainy Day Rentals, Inc. v. Next Gen. Properties, Inc., 2022-Ohio-3530.]
IN THE COURT OF APPEALS OF OHIO
SEVENTH APPELLATE DISTRICT
MAHONING COUNTY
RAINY DAY RENTALS, INC.,
Plaintiff-Appellant,
v.
NEXT GEN. PROPERTIES, Inc. et al.,
Defendants-Appellees.
OPINION AND JUDGMENT ENTRY
Case No. 21 MA 0096
Civil Appeal from the
Court of Common Pleas of Mahoning County, Ohio
Case No. 2016 CV 00665
BEFORE:
Carol Ann Robb, Gene Donofrio, Cheryl L. Waite, Judges.
JUDGMENT:
Affirmed.
Atty. Bruce M. Broyles, 1379 Standing Stone Way, Lancaster, Ohio 43130 for Plaintiff-
Appellant and
Atty. Christopher Sammarone, 535 North Broad Street, Suite 4, Canfield, Ohio 44406
for Defendants-Appellees.
Dated: September 30, 2022
–2–
Robb, J.
{¶1} Appellant, Rainy Day Rentals, Inc., appeals the September 22, 2021
judgment rendered in favor of Appellees, Next Gen. Properties, Inc., Saroj Singh, and
Prestige Enterprise, Inc., after a bench trial. The trial court found Appellant’s claims for
fraud in the inducement and declaratory judgment lacked merit and rescission of the
parties’ real estate purchase agreement was not warranted.
{¶2} Appellant’s single assignment of error challenges the declaratory judgment
aspect of the court’s decision. Appellant contends the trial court erred by not concluding
the parties’ contract was void. For the following reasons, we affirm.
Facts and Procedural History
{¶3} On July 28, 2015, Appellant entered a real estate purchase contract to
purchase property located on Bryson Street in Youngstown, Ohio. Next Gen. Properties,
Inc. (Next Gen.) was listed as the seller and Saroj Singh (Singh) signed the contract as
Next Gen.’s agent. A handwritten note on the contract indicates the property is owned
by the listing agent’s family. Also handwritten on the contract are the words “selling as-
is condition, no warranties, no guarantees.” (Tr. Plaintiff’s Ex. 1.) After the purchase was
complete, Appellant learned the property was subject to an existing “Notice to Repair or
Raze Structure” issued by the City of Youngstown and the sellers Next Gen. and Singh
were aware of the notice, had repeatedly appealed it to the city, but did not disclose it to
Appellant before selling the property.
{¶4} Appellant filed suit on March 1, 2016 against Next Gen. and Singh,
asserting they fraudulently induced Appellant to enter the purchase agreement by failing
to inform Appellant the structure on the property was subject to this raze or repair order
before executing the agreement. Singh was served with the order in October of 2014,
which Appellees appealed to the city before selling the property to Appellant. (March 1,
2016 Complaint.)
{¶5} Appellant acknowledges purchasing the property as-is and further
acknowledges the structure on the property was in disrepair and in need of numerous
updates. However, Appellant claims it was not aware of the raze or repair order before
entering the purchase agreement and Appellees intentionally failed to disclose the
structure was subject to a demolition order when they agreed to sell. Appellant contended
Case No. 21 MA 0096
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this nondisclosure was designed to fraudulently induce Appellant into purchasing the
property. Appellant sought the trial court to rescind the purchase agreement.
{¶6} Appellant filed its second amended complaint on January 6, 2020 naming
the original defendants as well as Prestige Enterprise, Inc. and the City of Youngstown.
Appellant claimed after its lawsuit was filed, Appellees transferred certain real estate to
another corporation, Prestige Enterprise, Inc., which used the same assets, operated the
same business, and also had Singh as its statutory agent. Appellant sought recission
based on the alleged fraud, successor liability, declaratory judgment, and money
damages for wrongful demolition of the structure situated on the real estate.
{¶7} As for the declaratory judgment claim, Appellant asked the court to
determine the impact of the October 28, 2014 raze or repair order and Appellees’ violation
of the City of Youngstown’s Property Maintenance Code Section 546.07, which dictates
how a seller of real property subject to a city compliance order or notice of violation must
proceed before transferring or selling the property to another. After purchasing the
property, Appellant claimed it was threatened with liability for the city’s costs associated
with razing the structure. (January 6, 2020, Second Amended Complaint.)
{¶8} Appellant also filed a third amended complaint seeking to add an additional
claim for relief and separately moved to add the city as a necessary party defendant
relative to the declaratory judgment claim. The city moved to dismiss. The trial court
denied the motion for leave to file the third amended complaint and granted the city’s
motion to dismiss without prejudice, noting “[s]aid dismissal is without prejudice to enable
the remaining party or parties to subsequently address any possible issues as a result of
the tear down by the city.” (Feb. 5, 2020 Judgment Entry.)
{¶9} Appellant moved for summary judgment and sought the court to find
rescission of the parties’ contract was required since it was void ab initio. Appellant
claimed the purchase agreement was illegal and entered in contravention to Youngstown
City Ordinance 546.07, which prohibits the transfer or sale of real estate subject to an
existing raze or repair order without the owner/seller submitting a notarized statement to
the city verifying the buyer knows about the existing code violations and repair order and
that the buyer assumes responsibility for complying with it. Appellant urged the court to
find the contract was illegal, in violation of public policy, and subject to rescission in light
of Appellees’ failure to satisfy the affidavit requirement set forth in the ordinance.
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Appellees opposed the motion, and Appellant renewed their request for summary
judgment, which the trial court ultimately overruled. (Feb. 5, 2020 Judgment Entry.)
{¶10} A bench trial was held on July 9, 2020, and the parties submitted proposed
findings of fact and conclusions of law. The court subsequently entered judgment in
Appellees’ favor holding in part:
This was not plaintiff’s first venture into the rehab business. Plaintiff
knew the condition of the property and had every opportunity to check on
any demolition orders. The ordinance prohibiting transfer without an
assumption of liability did not void the agreement between the parties.
Accordingly, the plaintiff has failed to prove its case for rescission
and judgment is rendered in favor of the defendants. Costs to plaintiff.
(September 22, 2021 Judgment Entry.)
{¶11} Appellant’s sole assignment of error on appeal contends the court erred by
not finding the purchase agreement void. Appellant does not raise any arguments arising
from its fraud in the inducement claim, and thus, we do not address the court’s resolution
of this claim. App.R. 12(A)(1)(b).
Assignment of Error: Is the Contract Void?
{¶12} Appellant’s assignment of error states:
“The trial court erred in failing to rescind the contract for the sale of real
property that violated City of Youngstown Ordinance 546, which prohibits the
transfer of real property which is the subject of the compliance order or notice of
violation unless certain conditions are met.”
{¶13} Appellant urges us to find Appellees’ violation of Youngstown Ordinance
546.07 renders the purchase agreement void as a matter of law—not because one of the
traditional elements of contract formation failed—but because it is in direct contravention
to the city ordinance. Appellant contends the contract is void because it is illegal and
violates public policy.
{¶14} The construction of written contracts and statutory construction in
declaratory judgment actions present legal issues, which we review de novo. Graham v.
Drydock Coal Co., 76 Ohio St.3d 311, 313, 667 N.E.2d 949 (1996), quoting Alexander v.
Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146 (1978), paragraph one of the
syllabus; Arnott v. Arnott, 132 Ohio St.3d 401, 2012-Ohio-3208, 972 N.E.2d 586, ¶ 13-
14.
Case No. 21 MA 0096
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{¶15} Appellant contends because the transfer of the property from Appellees
violates Section 546.07, the purchase agreement and sale are void ab initio and thus
rescission is required. Section 546.07, Transfer of Ownership, is in the Youngstown
Property Maintenance Code and states:
Transfer of ownership. It shall be unlawful for the owner of any dwelling unit
or structure who has received a compliance order or upon whom a notice
of violation has been served to sell, transfer, mortgage, lease or otherwise
dispose of such dwelling unit or structure to another until the provisions of
the compliance order or notice of violation have been complied with, or until
such owner shall first furnish the grantee, transferee, mortgagee or lessee
a true copy of any compliance order or notice of violation issued by the Code
Official and shall furnish to the Code Official a signed and notarized
statement from the grantee, transferee, mortgagee or lessee,
acknowledging the receipt of such compliance order or notice of violation
and fully accepting the responsibility without condition for making the
corrections or repairs required by such compliance order or notice of
violation. (Ord. 16-119. Passed 4-6-16.)
(Emphasis added.)
{¶16} As alleged, Youngstown City Ordinance 546.07, Transfer of Ownership,
requires any seller of real estate who is subject to a repair or raze order to provide the
buyer with the notice of violation and the city with a signed and notarized statement from
the buyer indicating the buyer accepts responsibility for making the corrections or repairs
required by the compliance order or notice of violation. Alternatively, the seller must make
all the necessary repairs and improvements to ensure compliance with the repair order
or notice of violation before transferring the property. Id.{¶17} Section 546.03, Enforcement, empowers the appointed Code Official with
the power to enforce the Youngstown Property Maintenance Code provisions, and
Section 546.05 provides, “the owner is liable for all violations of this Code.” Section
546.96, titled Administrative Penalties, authorizes the imposition of financial penalties
after certain procedural requirements are satisfied.
Section 546.98, titled Criminal Penalties, provides in pertinent part:
(a) Any person in control who violates or fails to comply with any provision
of Chapter 546 of the Youngstown Codified Ordinances, or any order issued
Case No. 21 MA 0096
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by the Code Official or his or her designee, after notice pursuant to 546.06,
shall be guilty of a misdemeanor of the third degree and shall be fined not
more than $500.00 or imprisoned more than 60 days or both. Completion
of any administrative appeals process is not a prerequisite to criminal
prosecution.
(b) The provisions of this Code are specifically intended to impose strict
liability. (Ord. 16-228. Passed 7-13-16.)
{¶18} At trial, Abigail Beniston testified she was the Youngstown City Code
Enforcement and Blight Remediation Superintendent in 2014. She recalls handing a
notice to repair or raze the structure on Bryson Street to Singh in October of 2014.
(Plaintiff’s Ex. 2.) Singh met with Beniston in her office where she gave Singh a copy of
the three-page notice and had Singh sign the first page. It states in part on the first page:
“YOU ARE HEREBY ORDERED TO REPAIR OR RAZE THE ABOVE-MENTIONED
STRUCTURE(S) WITHIN THIRTY (30) DAYS.” The second page of the notice sets forth
the right to appeal and the prohibition on transferring ownership unless the buyer
acknowledges and accepts compliance with the order. It quotes Youngstown Ordinance
546.07 in full. (Plaintiff’s Ex. 2.) Beniston testified she notified Singh about the violations
and the city’s transfer of ownership stipulation. Singh appealed the order the same date
to the Property Maintenance Appeals Board for additional time to comply. (Tr. 13-17.)
{¶19} Appellees were granted several appeals and extensions of time and initially
were working with the city to satisfy the violations identified in the raze or repair order.
But in May of 2015, Appellees did not appear or call to secure an additional extension of
time to comply, and thus, their appeal and extension was denied. According to Beniston,
Appellees did not provide the notarized statement to Appellant accepting responsibility
for compliance with the violations at the Bryson Street property. The city likewise was not
notified that the property was in compliance before it was transferred to Appellant. After
Appellant acquired the property, the city sent Appellant a notice to repair or raze the
structure in February of 2016. (Tr. 17-21.)
{¶20} Beniston verified that Appellees did not satisfy the notarized statement
requirement when they sold the property to Appellant. (Tr. 21-22.) Beniston also
confirmed the city could charge someone with a third-degree misdemeanor for the failure
to comply with Youngstown Ordinance 546.07. (Tr. 40-41.) As far as Beniston knew, no
Case No. 21 MA 0096
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one was charged with a criminal offense as a result of the transfer of this property to
Appellant and Appellees’ failure to comply with Ordinance 546.07. (Tr. 41.)
{¶21} Beniston agreed anyone who drove by the property would be aware of its
dilapidated condition and would believe the structure was in violation of “numerous codes
and ordinances.” (Tr. 30.) Beniston had never worked with Appellant before. (Tr. 32.)
{¶22} One of Appellant’s owners and representative, Allan Bittner, testified he
lived out of state and knew the building located on Bryson Street was in need of
substantial improvements when his company purchased it. Appellant intended to spend
approximately two years renovating it. Appellant was not, however, aware of the raze or
repair order at the time of purchasing the property. Bittner testified his company learned
about the raze or repair order months after purchasing it. They had no experience with
raze or repair orders. Appellant knew the purchase agreement contained an as-is clause.
(Tr. 55-59.)
{¶23} Singh testified her company also purchased the Bryson Street property
while it was subject to an existing raze or repair order. She worked with city officials to
make the necessary repairs to rehabilitate the structure, but her company was unable to
secure the requisite loans or funding. Thus, Appellees did not make any improvements
to the structure and did not remedy the property code violations before selling it to
Appellant. (Tr. 144-148.)
{¶24} In its decision rendering judgment in Appellees’ favor, the trial court found
in part that Appellant had the opportunity to learn about the demolition order and did not
do so. Appellant does not challenge this finding and instead argues that notwithstanding
Appellant’s ability to learn about the raze or repair order, Appellees’ unambiguous
violation of the city’s ordinance rendered the purchase agreement illegal and void ab
initio.
{¶25} “[I]t is the policy of the law to encourage freedom of contract, and that the
courts should not interfere with this right unless it clearly appears that the execution of
the contract will prejudice the public interest.’” Gross v. Campbell, 26 Ohio App. 460,
471, 160 N.E. 511 (7th Dist.1927), aff'd, 118 Ohio St. 285, 160 N.E. 852 (1928). “‘The
power of courts to declare a contract void as being against public policy is a delicate and
undefined one, and, like the power to declare a statute unconstitutional, should be
exercised only in cases free from doubt.’ Richmond v. Dubuque & S. C. R. Co., 26 Iowa,
191, at page 202.” Id.Case No. 21 MA 0096
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{¶26} A “void contract” is a “contract that is of no legal effect, so that there is really
no contract in existence at all.” Contract, Black's Law Dictionary (11th ed. 2019).
Contracts found void as in violation of law and contrary to public policy are void because
the law disapproves of the purpose of the contract, consideration contemplated, or the
terms of the agreement by which the parties seek to achieve their contractual purpose.
Courts have voided certain agreements when the substance of the contract or the
consideration is malum in se, meaning wrong in its very nature because the matter or
thing contracted for violates the natural or moral norms of society. See Warren People's
Mkt. Co. v. Corbett & Sons, 114 Ohio St. 126, 138, 151 N.E. 51, 54, 4 Ohio Law Abs. 89,
24 Ohio Law Rep. 183 (1926) (explaining courts will not find a contract void when in
violation of a statute or law unless “the act prohibited is detrimental to the welfare or
morals of the public” not just violative of a statute designed to raise revenue or regulate
trade); Hughes v. Ohio Div. of Real Estate, 86 Ohio App.3d 757, 761, 621 N.E.2d 1249(2nd Dist.1993) (“Conduct that is inherently wrong in and of itself or that is illegal from the
very nature of the transaction is said to be malum in se.”).
{¶27} “Malum in se” means “a crime or an act that is inherently immoral, such as
murder, arson, or rape.” Malum in se, Black's Law Dictionary (11th ed. 2019).
{¶28} In Gross v. Campbell, supra, this court considered the legality of a contract
between a company and a private investigator hired to secure evidence to aid the
company in a lawsuit. The defendant company claimed the contract was unenforceable
in part because it was void as against public policy since the terms of the agreement
provided that payment was contingent upon the result of the lawsuit in which the evidence
was to be used. Id. at 470. While emphasizing the importance of freedom of contract,
we held because it was abundantly clear the contract was for the investigator “to procure
and furnish evidence of a particular kind to produce a certain result in a suit of law[,]” it
was void since it was within the “prohibited class” and prejudicial to the public interest.
Id. at 471-474. This court reached this decision only after highlighting it is acceptable to
contract for an investigator to secure evidence to aid in litigation so long as the agreed
compensation does not hinge on “the character of the testimony procured to be used in
a suit to accomplish a particular result.” Id. at 470.
{¶29} In Marchetti v. Blankenburg, 12th Dist. Butler No. CA2010-09-232, 2011-
Ohio-2212, the Twelfth District Court of Appeals affirmed the trial court’s decision refusing
to enforce an agreement for the payment of money in exchange for the plaintiff not to
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inform the applicable legal authorities that the defendant had sexually abused the plaintiff
as a child. The victim filed suit seeking the payment of money from his alleged abuser,
who allegedly agreed to pay the plaintiff in exchange for his silence. The trial court
granted the defendant’s motion to dismiss finding no legal contract to enforce since it was
illegal, immoral, and against public policy. The appellate court agreed the subject matter
of the contract was to prohibit the reporting of a felony offense and contrary to public
policy. Id. at ¶ 13-14.
{¶30} In McCullough Transfer Co. v. Virginia Sur. Co., 213 F.2d 440, 441 (6th
Cir.1954), the plaintiff urged the court to find an insurance contract case was void because
it was not in compliance with an applicable Ohio statute requiring an endorsement to be
approved by Ohio’s Superintendent of Insurance. The Sixth Circuit disagreed explaining,
“[a] contract is not void as against public policy unless it is injurious to the public or
contravenes some established interest of society.” Id. at 443, citing Gugle v. Loeser, 143
Ohio St. 362, 367, 55 N.E.2d 580 (1944). “The insurance contract involved in this case,
under which appellant has had the benefit of full performance by the appellee, is clearly
not of that nature.” Id.{¶31} In reaching this decision, McCullough emphasized courts must also
examine the statute as a whole to determine whether the legislature intended to make
contracts entered in violation of the statute void based on the prohibited act. McCullough
found although insurance contract regulation is a business regulated by the state, the
failure to comply with the regulatory provision at issue did not render the contract of
insurance void. In support, the Sixth Circuit emphasized the applicable statute, which
had been violated, did not indicate a contract entered in violation of it rendered the
contract void. Instead, the statute provided a $500 fine for the failure to comply. Id. at
442. The legislature’s inclusion of the penalty provision and the absence of an indication
that contracts entered in violation of the provision will be held void demonstrates the
legislature’s purpose was not to void contracts not in compliance. Id. citing Warren
People's Market Co. v. Corbett & Sons, 114 Ohio St. 126, 151 N.E. 51, paragraph one of
the syllabus (“‘the court must examine the entire act to determine whether or not it was
the purpose of the Legislature, in addition to imposing express penalties for the violation
of the law, to render void any contract based on the prohibited act.’”).
{¶32} Consistent with McCullough, we must examine the statute violated as a
whole to ascertain the intent of the drafters and whether a violation should render
Case No. 21 MA 0096
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contracts entered in violation of it void. Here, the city was empowered to impose
administrative and criminal sanctions for violations against the property owner. Nothing
in this section or in the city’s Property Maintenance Code indicates the drafters intended
to make a contract entered in contravention to the provisions void.
{¶33} Thus, notwithstanding Appellees’ noncompliance with Section 546.07, the
law does not support the contention that the parties’ purchase agreement is void due to
Appellees’ violation. “Where a statute prohibits an act or annexes a penalty to its
commission, it is true that the act is made unlawful, but it does not follow that the
unlawfulness of the act was meant by the legislature to avoid a contract made in
contravention of it.” Fischer-Liemann Const. Co. v. Haase, 64 Ohio App. 473, 476, 29
N.E.2d 46 (1st Dist.1940), quoting Harris v. Runnels, 53 U.S. 79, 12 How. 79.
{¶34} Moreover, like the contract in McCullough, the underlying purpose of the
agreement of providing insurance is not one that violates public policy. Like selling and
providing insurance, the sale of real estate is not something that is malum in se and
contrary to public policy. Thus, we do not find the contract here violates public policy or
societal norms warranting a finding the contract is void for this reason. Consequently,
Appellant’s sole assigned error lacks merit.
Conclusion
{¶35} Because the substance of the parties’ agreement is not a contract which
contravenes an established interest of society or norm, we find it is not void as against
public policy. Further, because the Youngstown Property Maintenance Code provides
criminal and administrative penalties for violations and does not indicate a contract
entered in violation of these provisions should be void, the parties’ purchase agreement
is not void for this reason as well. Appellant’s sole assignment of error is overruled, and
the trial court’s decision is affirmed.
Donofrio, P J., concurs.
Waite, J., concurs.
Case No. 21 MA 0096
[Cite as Rainy Day Rentals, Inc. v. Next Gen. Properties, Inc., 2022-Ohio-3530.]
For the reasons stated in the Opinion rendered herein, the assignment of error is
overruled and it is the final judgment and order of this Court that the judgment of the Court
of Common Pleas of Mahoning County, Ohio, is affirmed. Costs to be taxed against the
Appellant.
A certified copy of this opinion and judgment entry shall constitute the mandate in
this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that a
certified copy be sent by the clerk to the trial court to carry this judgment into execution.
NOTICE TO COUNSEL
This document constitutes a final judgment entry.