Oryann, Ltd. v. SL & MB, L.L.C.

[Cite as Oryann, Ltd. v. SL & MB, L.L.C., 2015-Ohio-5461.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
LAKE COUNTY, OHIO
ORYANN, LTD., : OPINION
Plaintiff-Appellee/ :
Cross-Appellant, CASE NO. 2014-L-119
- vs - :
SL & MB, LLC, et al., :
Defendants-Appellants/ :
Cross-Appellees.
:
Civil Appeal from the Lake County Court of Common Pleas, Case No. 12 CV 003055.
Judgment: Affirmed in part, reversed in part, and remanded.
Richard D. Eisenberg, 1413 Golden Gate Boulevard, Suite 200, Mayfield Heights, OH
44124 (For Plaintiff-Appellee/Cross-Appellant).
Dennis J. Ibold, Petersen & Ibold, Inc., 401 South Street, Bldg. 1-A, Chardon, OH
44024-1495 (For Defendants-Appellants/Cross-Appellees).
CYNTHIA WESTCOTT RICE, J.
{¶1} Appellants, SL & MB, LLC, et al., appeal the judgment of the Lake County
Court of Common Pleas, following a bench trial, finding its contract to sell the assets of
its horse-boarding business to appellee, Oryann LTD., is unenforceable for lack of
consideration. Oryann cross-appeals the trial court’s judgment finding that Oryann
failed to prove its fraud claim against SL & MB. For the reasons that follow, we affirm in
part; reverse in part and remand.
{¶2} Gregg Battersby and his former wife, appellant, Amy Virant, bought the
subject 24-acre horse farm on Billings Road in Kirtland, Ohio in 1992. The property
included a main house, a barn, a cottage, an office building, and an arena. They
operated the property as a horse farm and a horse-boarding facility and also resided in
the main house. Sometime after they bought the farm, Gregg and Amy formed a limited
liability company called SL & MB, LLC. They transferred ownership of the farm to SL &
MB, and continued to operate the horse-boarding business and reside on the farm.
Gregg was the managing member of SL & MB and Amy was its only other member.
{¶3} In or about 2006, Gregg and Amy divorced. Amy continued to reside on
the property, and Gregg moved to South Carolina. In 2006, SL & MB listed the property
for sale for $1.2 million. SL & MB received two offers to purchase the property, but
neither sale was completed. In August 2010, a realtor contacted Gregg, and said he
had an interested buyer for the property, one Denver Barry.
{¶4} Over the course of nearly one year, Gregg and Denver engaged in
extensive negotiations for the purchase of the farm. Denver told Gregg he was buying
the property for his daughter, Tracy Barry, for her to keep her horses and to operate the
property as a horse farm. During these negotiations, Gregg remained in South
Carolina, and did not return to the property. Gregg and Denver spoke on the telephone
many times and sent each other over 100 e-mails and letters concerning the condition
of the property, various issues Denver had with the property, and the terms of the sale.
{¶5} On October 8, 2010, Denver sent Gregg an offer, which was prepared by
Denver’s attorney, to buy the property for a total price of $640,000. The offer was for
the land and buildings only and did not include any business assets. $150,000 was to
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be paid as a down payment, and the balance of $490,000 was to be owner-financed by
SL & MB.
{¶6} In his second offer, dated August 11, 2010, Denver valued the land alone
at $330,000, and the buildings at $310,000, for a total price of $640,000. No part of the
price was attributed to any business assets.
{¶7} On July 14, 2011, Denver sent Gregg a third offer, which was only for the
real estate and not any business assets, and the purchase price was still $640,000.
{¶8} Then, five days later, on July 19, 2011, Denver sent Greg a fourth offer,
which still involved a purchase price of $640,000 for the land and buildings only. Like
the other offers, it did not involve any business assets.
{¶9} Later in July 2011, Denver presented a fifth offer, which included a
provision that if any third party asserted a claim against the farm while payments were
still being made on the contract and SL & MB still owned the farm, Denver would be
entitled to pay the claim and then deduct 200 percent of the amount he paid from the
principal balance owed on the farm. So, for example, if a $10,000 claim was presented,
Denver could pay it and then deduct $20,000 from the amount that he and Tracy still
owed for the farm.
{¶10} Gregg testified he was uncomfortable with this provision because, around
that time, he learned Denver had an extensive criminal history, which included grand
theft, theft, perjury, and tampering with evidence. Denver was also convicted of felony
impersonation of a police officer in 2006 in Cuyahoga County. As a result, Gregg
became suspicious of Denver’s motives in making this proposal and rejected it.
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{¶11} Between August 23, 2011 and August 29, 2011, the parties signed two
agreements that comprised the final version of their purchase contract. They consisted
of: (1) a “Real Estate Purchase Agreement” and (2) an “Agreement for Purchase and
Sale of Assets.”
{¶12} The parties to these agreements were SL & MB; Patriot Partners, a
partnership between Gregg and Amy; Oryann, a limited liability company Denver
created to take title to the subject property; and Denver personally.
{¶13} According to the Real Estate Purchase Agreement, Oryann and Denver
are the buyers, and agreed to pay $350,000 “for the land only” with $50,000 down. The
balance was to be owner-financed with monthly installments of $10,000 to be paid to SL
& MB.
{¶14} Pursuant to the Agreement for Purchase and Sale of Assets, Oryann and
Denver agreed to pay Patriot Partners $290,000 for “all of the Seller’s properties,
assets, stock, and business as a going concern.” These assets were to be listed in the
attached Exhibit A, but that exhibit was left blank.
{¶15} Further, Oryann and Denver signed a “Note and Security Agreement” for
$640,000, giving SL & MB a note for this amount and a security interest in Oryann LTD.
to secure payment of the note. Oryann also signed a Mortgage in favor of SL & MB to
secure the amount owed for the real property ($350,000). In addition, Oryann signed
another Mortgage in favor of Patriot Partners on the real property to secure the amount
owed under the asset purchase agreement.
{¶16} On October 20, 2011, the sale closed and the property transferred by
deed to Oryann.
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{¶17} After the closing, Oryann and Denver made the first 13 monthly payments
($130,000) pursuant to the terms of the parties’ agreements, but they did not make the
November 2012 payment or any subsequent payment.
{¶18} On November 20, 2012, Oryann filed a complaint against SL & MB and
Amy personally. In Oryann’s Second Amended Complaint, Oryann asserted two claims.
In Count I, Oryann alleged the sellers defrauded it by concealing the following defects
on the property: (1) water intrusion in the basement of the main house; (2) shifting
foundation and some rotted floor joists in the cottage; (3) nonfunctional septic systems
for the cottage and office building; (4) leaks in the barn roof; and (5) clogged or
nonfunctional drain tiles. In Count II, Oryann alleged SL & MB breached the asset
purchase agreement by failing to deliver the assets of the horse-boarding business to
Oryann.
{¶19} SL & MB filed an answer and counterclaim, alleging Oryann breached the
agreements by not making the agreed payments. SL & MB later joined Denver as a
new-party defendant and filed a cross-claim against him, alleging he and Oryann jointly
agreed, but failed, to make those payments.
{¶20} Denver filed an answer to SL & MB’s cross-claim, denying its material
allegations.
{¶21} The case was tried to the court. Following the trial, the trial court entered
judgment, finding that Oryann failed to prove its fraud claim and that SL & MB failed to
prove a meeting of the minds and the existence of consideration with respect to the
asset purchase agreement. The court found that the real estate purchase agreement
was enforceable and that Oryann and Denver unjustifiably stopped making payments
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on it. The court granted judgment in favor of SL & MB with respect to the balance owed
by Oryann and Denver under that contract in the amount of $170,000; dismissed SL &
MB’s counterclaim for $290,000 against Oryann and Denver on the asset purchase
agreement; and dismissed Oryann’s fraud claim against SL & MB and Amy.
{¶22} SL & MB and Amy appeal only that part of the trial court’s judgment
relating to the parties’ asset purchase agreement, asserting the following for their sole
assignment of error:
{¶23} “The trial court erred in holding that the Agreement for Purchase and Sale
of Assets, and the promissory note and mortgage deed securing the obligations
contained therein, are void and unenforceable on the grounds that there was no
meeting of the minds between the parties with respect to the consideration to be given
from sellers to buyers.”
{¶24} “‘A contract is generally defined as a promise, or a set of promises,
actionable upon breach. Essential elements of a contract include an offer, acceptance,
* * * consideration * * *, [and] a manifestation of mutual assent * * *.’ Perlmuter Printing
Co. v. Strome, Inc., 436 F. Supp. 409, 414 (N.D.Ohio 1976). A meeting of the minds as
to the essential terms of the contract is a requirement to enforcing the contract.
Episcopal Retirement Homes, Inc. v. Ohio Dept. of Indus. Relations, 61 Ohio St.3d 366,
369 (1991) * * *.” Kostelnik v. Helper, 96 Ohio St.3d 1, 2002-Ohio-2985, ¶16. “‘The
existence of an enforceable contract is a prerequisite to a claim for breach of contract.’”
Spoerke v. Abruzzo, 11th Dist. Lake No. 2013-L-093, 2014-Ohio-1362, ¶29, quoting
Ireton v. JTD Realty Invests., L.L.C., 12th Dist. Clermont No. CA2010-04-023, 2011-
6
Ohio-670, ¶38. The existence of a contract is a question of law that we review de novo.
Spoerke, supra, at ¶27.
{¶25} Further, our primary goal in interpreting a contract is to ascertain and give
effect to the intent of the parties. Hamilton Ins. Servs., Inc. v. Nationwide Ins. Cos., 86
Ohio St.3d 270, 273 (1999). We presume the intent of the parties to a contract resides
in the language used in the written instrument. Kelly v. Med. Life Ins. Co., 31 Ohio
St.3d 130 (1987), paragraph one of the syllabus. The interpretation of a contract is a
question of law that we review de novo. Allstate Indemn. Co. v. Collister, 11th Dist.
Trumbull No. 2006-T-0112, 2007-Ohio-5201, ¶15. Since the construction of a contract
is a matter of law, this court will give no deference to the trial court’s interpretation of the
contracts involved herein. Graham v. Drydock Coal Co., 76 Ohio St. 3d 311, 313 (1996).
{¶26} If contractual terms are unambiguous, a court may not interpret the
contract in a manner inconsistent with the clear language of the instrument. Shifren v.
Forrest City Ents., Inc., 64 Ohio St.3d 635, 638 (1992). A court may consider parol or
extrinsic evidence, however, to interpret a contract if its terms are ambiguous or
unclear. Sugarhill Ltd. v. Brezo, 11th Dist. Geauga No. 2004-G-2579, 2005-Ohio-1889,
¶35. Contractual terms are ambiguous if the terms are reasonably susceptible to more
than one interpretation. Id. at ¶33. Such extrinsic evidence includes the circumstances
surrounding the parties at the time the contract was made and the objectives they
intended to accomplish by entering the contract. Career & Tech. Ass’n v. Auburn Voc.
Sch. Dist. Bd. of Educ., 11th Dist. Lake No. 2013-L-010, 2014-Ohio-1572, ¶18. Further,
“it is a longstanding principle of contract law that when contract language is unclear, a
court may look to the course of conduct between the parties as evidence of the
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construction which they gave to the agreement.” Mentor Indus. Complex v. N. Coast
Wood Prods., 11th Dist. Lake No. 2000-L-116, 2001 Ohio App. LEXIS 3290, *7 (Jul. 20,
2001). In addition, the parties’ negotiations may be considered for the purpose of
explaining ambiguous language in a contract. Pharmacia Hepar, Inc. v. Franklin, 111
Ohio App.3d 468, 475 (12th Dist.1996).
{¶27} The trial court construed the parties’ contracts and found that the Real
Estate Purchase Agreement was enforceable and that Oryann and Denver were jointly
liable to SL & MB for the unpaid balance in the amount of $170,000.
{¶28} In contrast, the court found there was no meeting of the minds with
respect to the asset purchase agreement and that it was illusory because it failed to
identify with sufficient clarity the assets to which it applied. Alternatively, the court found
there was no consideration given by SL & MB for that agreement. As a result, the court
found that agreement was unenforceable.
{¶29} However, the express language of the two contracts demonstrates that
both contracts were part of the same transaction and that the parties intended to be
bound by both.
{¶30} “It is well settled that contracts must be read as a whole, and they must be
interpreted in such a manner as to give effect to every provision.” Prudential Ins. Co. of
Am. v. Corporate Circle, LTD, 103 Ohio App.3d 93, 98 (8th Dist.1995), appeal not
allowed at 73 Ohio St.3d 1453 (1995). “Moreover, as a general rule of construction,
Ohio courts construe multiple documents together if they concern the same
transaction.” Prudential, supra, citing Center Ridge Ganley, Inc. v. Stinn, 31 Ohio St.3d
310 (1987); accord Manufacturing Management Systems, Inc. v. Data Solutions, Inc.,
8
11th Dist. Lake Nos. 11-074, 11-076, 1987 Ohio App. LEXIS 6173, *5-*6 (Mar. 20,
1987). “Thus, all writings that are a part of the same transaction should be interpreted
together, and effect should be given to every provision of every writing.” Prudential,
supra.
{¶31} In Prudential, supra, the plaintiff/holder of the mortgage note sought
judgment on the note and foreclosure of the mortgage. The debtor also signed an
assignment of rentals, and the plaintiff also pursued a claim for the rentals. The note
contained an “exculpation clause,” which arguably limited the plaintiff to recovery on the
note and mortgage. Thus, the debtor argued he was entitled to dismissal of the
plaintiff’s claim for recovery of the rentals. The trial court agreed with the debtor and
dismissed the plaintiff’s claim as to the rentals. The Eighth District reversed, holding:
{¶32} The trial court’s interpretation of the exculpation clause nullifies the
* * * assignment of rentals and fails to interpret the loan documents
together, giving effect to every provision of those writings. Under
the interpretation made by the trial court * * *, the * * * assignment
of rentals [is] rendered meaningless, as if [it was] never negotiated
or signed.
{¶33} Turning to the facts of this case, the express language of the real estate
purchase agreement and the asset purchase agreement demonstrate the parties’ intent
to treat both contracts as part of one transaction. This intent is shown by the fact that
both agreements were entered contemporaneously by the parties and each contract
referenced the other. In fact, each contract is dependent on the other. Specifically, the
real estate purchase agreement provided: “The purchase price herein shall first be
applied against the * * * agreement for the purchase and sale of assets attached hereto
* * *.” (Emphasis added.) Further, the asset purchase agreement provides that Oryann
shall pay to Patriot Partners $290,000 for the assets of the business and that “[t]he
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purchase price shall be paid as part of the purchase price for the real estate, a copy of
such agreement is attached hereto * * *.” (Emphasis added.)
{¶34} In addition, the extrinsic evidence supports our holding that the parties
intended these two contracts to be part of the same transaction. The farm was listed for
sale at $1.2 million and the listing was for the real estate only; the listing did not include
any business assets or items of personal property.
{¶35} Further, during the parties’ year-long negotiations, while Oryann presented
several different versions of its offer to purchase the property, the total amount offered
in each was always the same, $640,000. Significantly, in the first five versions of its
offer, Oryann offered $640,000 for the real estate alone, and did not attribute any part of
the purchase price to business assets. In the final version of Oryann’s offer, for the first
time, $290,000 of the $640,000 purchase price was attributed to the business assets.
However, according to Gregg’s testimony, the assets were valued this way so Oryann
would only have to pay real estate tax on the property valued at $350,000, rather than
$640,000. Thus, the valuation of the assets at $290,000 was solely for Oryann’s tax
benefit, and did not reflect the true value of the assets.
{¶36} Based on the foregoing, the parties intended both contracts to be part of
the same transaction and to be bound by both. However, the trial court’s construction of
the contracts nullified the asset purchase agreement. Moreover, the court failed to
interpret the contracts together, giving effect to every provision of those writings. Under
the interpretation made by the trial court, the foregoing contracts as a whole were
rendered meaningless by only giving effect to the real estate purchase agreement and
cancelling the asset purchase agreement, as if it was never negotiated and signed by
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the parties. Prudential, supra. Perhaps the best indication that the trial court’s
construction of the contracts did not reflect the parties’ intent was that, under this
construction, Oryann and Denver would end up paying only about one-half of the price
the parties had always agreed would be the purchase price for the farm. The trial court
thus erred in cancelling the asset purchase agreement.
{¶37} In addition, contrary to the trial court’s findings, there was a meeting of the
minds regarding the consideration given by Patriot Partners to Oryann for the asset
purchase agreement.
{¶38} “[A] contract is not binding unless supported by consideration.” Williams v.
Ormsby, 131 Ohio St.3d 427, 2012-Ohio-690, ¶15. “Consideration * * * is a ‘bargained
for’ legal benefit and/or detriment.” Prendergast v. Snoeberger, 154 Ohio App.3d 162,
2003-Ohio-4742, ¶28 (7th Dist.), citing Kostelnik, supra, at ¶16. “A benefit may consist
of some right, interest, or profit accruing to the promisor, while a detriment may consist
of some * * * loss * * * undertaken by the promisee.” Williams, supra. In other words, in
order for there to be consideration, the promisor (the party binding himself to perform)
must receive some benefit, and/or the promisee (the party receiving the benefit of the
promisor’s performance) must sustain some detriment. Further, the existence of
consideration is a question of law, which we review de novo. Orwell Natural Gas Co. v.
Fredon Corp., 11th Dist. Lake No. 2014-L-026, 2015-Ohio-1212, ¶37.
{¶39} The express language of the asset purchase agreement reflects the
parties’ meeting of the minds regarding the consideration given by Patriot Partners. The
asset purchase agreement provided: “the Purchaser [Oryann and Denver] agree[ ] to
purchase from the Seller [Patriot Partners], and the Seller agrees to sell and deliver to
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the Purchaser on the Closing Date, all of the Seller’s properties, assets, stock, and
business as a going concern.” While Exhibit A to that agreement, which was supposed
to list the assets to be conveyed to Oryann, was not filled out by the parties, Oryann and
Denver signed the contract as written, indicating that the contract was sufficiently
specific for their purposes. Their understanding was that they were to receive all of
Patriot Partners’ business assets as consideration, and the contract set forth this
understanding.
{¶40} Further, the extrinsic evidence supports our holding that the parties had a
meeting of the minds regarding consideration. After Oryann and Denver signed this
contract, they took possession of the farm and made regular payments in the amount of
$10,000 per month for 13 months, without objecting to any lack of specificity in the
contract.
{¶41} Moreover, Amy testified regarding the assets Patriot Partner’s delivered to
Oryann in connection with this transaction. In her testimony, she referred to a list of
these assets that was provided by SL & MB to Oryann in discovery. Amy confirmed at
trial that Patriot Partners delivered its business assets to Oryann, including the
following: (1) “horse jumps including rails and standards;” (2) “four propane fueled
heaters,” which were left in the pole building; (3) “tractor equipment - back blade, plow
blade and a brush hog,” which were left in the outbuildings; (4) eight portable window air
conditioners, (5) 25 four foot by six foot rubber horse stall mats; (6) three 1,000-gallon
and two 300-gallon propane tanks; and (7) numerous lamps and free-standing light
fixtures.
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{¶42} Thus, as a matter of law, there was a meeting of the minds regarding
consideration and consideration was given by Patriot Partners in exchange for the asset
purchase agreement. As a result, that agreement is enforceable, and the trial court
erred in concluding otherwise. Consequently, the trial court also erred in finding the
“Note and Security Agreement” unenforceable (because it secured the asset purchase
agreement) and in finding the Mortgage securing the asset purchase agreement
unenforceable. On remand, the trial court shall take all steps necessary to reinstate
those instruments, which shall remain in full force in effect.
{¶43} SL & MB’s assignment of error is sustained.
{¶44} For Oryann’s sole cross-assignment of error, it contends:
{¶45} “The trial court committed error in determining that Oryann did not rely on
misrepresentations or concealment in the purchase of real estate and that each of the
material defects was open and obvious.”
{¶46} In order for Oryann to prevail on its claim for fraudulent misrepresentation
or concealment, it was required to prove: (1) there were defects on the property; (2)
which were material to the transaction; (3) Amy and/or Greg misrepresented or actually
concealed those defects; (4) with knowledge of the defects they misrepresented or
concealed; (5) with the intent of inducing Oryann’s reliance; (6) Oryann actually relied
on those misrepresentations or concealment, (6) its reliance was reasonable; and (7)
Oryann sustained damages as a result of its reliance. Doctor v. Marucci, 11th Dist. Lake
No. 2013-L-056, 2013-Ohio-5831, ¶11-12; Thaler v. Zovko, 11th Dist. Lake No. 2008-L-
091, 2008-Ohio-6881, ¶39.
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{¶47} “The elements of fraud must be established by clear and convincing
evidence. Clear and convincing evidence is that measure or degree of proof that will
produce in the mind of the trier of facts a firm belief or conviction as to the allegations
sought to be established.” Rapport v. Kochovski, 185 Ohio App.3d 309, 2009-Ohio-
6880, ¶15 (5th Dist.), citing Cross v. Ledford, 161 Ohio St. 469 (1954). “The burden to
prove fraud rests upon the party alleging the fraud.” Id.{¶48} “The doctrine of caveat emptor, although virtually abolished in the area of
personal property, remains a viable rule of law in real estate sales.” Layman v. Binns,
35 Ohio St.3d 176, 177 (1988). “‘The principle of caveat emptor applies to sales of real
estate relative to conditions open to observation. Where those conditions are
discoverable and the purchaser has the opportunity for investigation and determination
without concealment or hindrance by the vendor, the purchaser has no just cause for
complaint even though there are misstatements and misrepresentations by the vendor
not so reprehensible in nature as to constitute fraud. * * *’” Id., quoting Traverse v.
Long, 165 Ohio St. 249, 252 (1956).
{¶49} Caveat emptor precludes recovery in an action by a purchaser for a defect
in real estate when (1) the defect complained of is open to observation or discoverable
on reasonable inspection, (2) the purchaser had an unimpeded opportunity to examine
the property, and (3) there is no fraud on the part of the vendor. Bencivenni v. Dietz,
11th Dist. Lake No. 2012-L-127, 2013-Ohio-4549, ¶45.
{¶50} Oryann argues the trial court’s finding that it failed to present credible
evidence regarding most of the elements of its fraud claim is against the manifest
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weight of the evidence. The parties presented conflicting evidence on each of the
elements of fraud, and the trial court made findings of fact regarding each element.
{¶51} First, the court found that, although Oryann proved there were defects in
the property, it failed to prove that the defects were material to the transaction. In the
context of a claim for fraud, a misrepresentation of fact is material when, under the
circumstances, it would likely affect the conduct of a reasonable person in deciding
whether to enter into the transaction at issue. Brannon v. Mueller Realty & Notaries, 1st
Dist. Hamilton No. C-830876, 1984 Ohio App. LEXIS 11140 (Oct. 24, 1984). The trial
court found that Tracy was the managing member of Oryann and had the sole authority
to accept or reject a contract on Oryann’s behalf. The court also found that Tracy did
not testify that she would have declined to purchase the property on the stated terms if
she had known more about the defects. The court found that, although Denver
negotiated the transaction on behalf of Oryann, there was no evidence that he had the
authority to accept or reject the contract on Oryann’s behalf. Significantly, Oryann does
not challenge this finding on appeal.
{¶52} Second, the court found that Oryann failed to prove that SL & MB
misrepresented or concealed any allegedly material defect. The court found that there
was no evidence Gregg knew anything more than Denver told him about the defects,
since there was no evidence Gregg observed them or learned about them from any
other source. The trial court noted that, instead of denying that there was any water
intrusion in the basement or any septic system malfunction, Gregg sent to Denver a
“Residential Property Disclosure form,” which confirmed the existence of these
problems. Gregg faxed this completed form to Denver on August 2, 2011, before the
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contracts were signed. Under the heading “Water Intrusion,” Gregg stated there is
water in the basement from this year’s heavy rain and also from condensation of the
water lines. Thus, rather than concealing this condition, Gregg confirmed there was
water in the basement.
{¶53} With respect to the drain tiles, Gregg testified he had them professionally
cleaned in October 2010, one year before the contracts were signed.
{¶54} With respect to the septic systems, Gregg said that they were functioning
properly; that he did routine maintenance on them throughout the years he and Amy
owned the property; and that he periodically had the tanks pumped.
{¶55} Moreover, Gregg was living in South Carolina during the parties’
negotiations, and retained contractors in Ohio to address some of Denver’s complaints.
Gregg relied on these contractors to make repairs to the property, including the drain
tiles, barn roof repair, and cottage foundation repair.
{¶56} The court found that the only alleged representation by Amy relating to
basement water was that she attributed it to condensation or a temporary break in a
basement drain connection. Denver testified the downspouts were removed from the
drain tile and the inlets to the drain tiles were covered, showing the sellers obviously
meant to conceal that there was water in the basement. However, Amy testified she
diverted the downspout flow by attaching pieces of black flexible piping to the bottom of
the downspouts and led them away from the house and covered the inlets with tape to
reduce ground water pressure during heavy rains. She said she had good reason to
believe her corrective efforts were readily observable. While Denver testified the plastic
piping and covered inlets were concealed by ground cover, the photographs introduced
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at trial contradicted his testimony and showed that Amy’s corrective efforts were open
and obvious and not hidden. After this was pointed out on cross-examination, Denver
admitted that he saw the downspout extensions during his visits to the property.
Significantly, Gregg testified there are no public storm sewers to tie into along Billings
Road, and residents are not allowed to attach their downspouts to the drain. Rather,
they are required to attach piping to the end of the downspouts to allow water to be
directed away from the house and drain onto the ground. He said this is how rain water
has been diverted on the property since the home was built in the 1960s. The court
found that there was no credible evidence that Amy knew about any of the other alleged
material defects or that she made any effort to conceal any defect.
{¶57} Third, the court found that Oryann failed to prove it relied on any
misrepresentation or concealment of any allegedly material defect. The court
referenced the evidence that for over one year before signing the contracts, Denver
aggressively investigated the property’s condition and declined to rely on any
representation. He repeatedly complained about defects he perceived on the property
and Gregg’s efforts to correct them. The court found Denver and Tracy had possession
of the property for two months before the closing and in that period, Denver had
employees from Tracy’s other companies explore and correct most of the alleged
material defects on the property before Oryann participated in the closing and accepted
the title transfer.
{¶58} In addition, the court noted that a paragraph in the Real Estate Purchase
Agreement, entitled “CONDITION OF PROPERTY – INSPECTION, provided:
{¶59} The * * * Buyer has already inspected the property and accepts it in
its present condition. The Seller has made no promises concerning
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the land and is selling the land as is with no condition or promises
being made. The buyer accepts the property in this as is condition
and expects nothing further from the Seller than clear title.”
{¶60} Before completing the sale, Oryann required SL & MB to modify this
provision in the Real Estate Purchase Agreement with an addendum to warrant that the
well, well pipes and drain tile are functional and not leaking at the time of sale and that
the barn roof is not leaking at the time of the sale. The court found that these
warranties evidenced Oryann’s awareness of these issues and thus belie its alleged
reliance on any misrepresentation or concealment of those conditions.
{¶61} Fourth, the court found that each of the allegedly material defects was
open and obvious or discoverable by a reasonable inspection and that any reliance by
Oryann on any alleged misrepresentation or concealment of Gregg or Amy was not
reasonable. In support of this finding, the court noted that both Barrys had unrestricted
access to the property and unrestrained opportunities to inspect the property
themselves or to retain any more knowledgeable inspector before Oryann agreed to
purchase the property. Denver admitted he personally inspected the property on his
own at least four times. He also admitted that he never hired an inspector to perform a
standard inspection and that Gregg did nothing to hinder him from hiring an inspector.
Denver was thus free to have the property inspected by the inspector(s) of his choosing,
but simply chose not to. Denver said he was not required to obtain an inspection
because Gregg had answered his questions. However, because Denver was on notice
of potential problems with the property, he was not justified in relying on any
representations of the sellers and was on notice of the need for further inspection.
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Niermeyer v. Cook’s Termite & Pest Control, Inc., 10th Dist. Franklin No. 05AP-21,
2006-Ohio-640, ¶26.
{¶62} Fifth, the trial court found that Oryann failed to prove the reasonable
amount of any damage resulting from any specific defect on the property. Damages
caused by fraud are measured by the resulting reduction of the value of the property
below the purchase price or the reasonable cost to repair those defects. Northpoint
Props. v. Charter One Bank, 8th Dist. Cuyahoga No. 94020, 2011-Ohio-2512, ¶30. The
court found that Oryann presented no evidence that the defects reduced the fair value
of the property below the purchase price or any evidence showing the reasonable cost
to repair any alleged defect. Instead, Oryann relied solely on cancelled checks written
by unidentified individuals apparently on behalf of two unrelated companies, which
Tracy owned, to pay various unidentified individuals and companies for purposes that
were not described on the checks or by any testimony. Denver said he did not hire any
contractors to perform work in order to save money, but Oryann presented no witnesses
to testify regarding the reasonable cost to repair any alleged defects. Nor did Oryann
present any bills, invoices, or statements for any repairs. Thus, none of the checks
were supported by corresponding invoices from contractors to show that any of the
checks were issued to pay workers for any labor or materials provided to the property.
As a result, the court found no reliable evidence was presented that any of the checks
offered at trial had anything to do with this case.
{¶63} In determining witness credibility, the court was entitled to consider the
frank and direct nature of Gregg and Amy’s testimony; that Denver’s testimony was
often based on speculation and assumptions rather than facts; and that Denver was
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convicted of felony impersonation of a police officer in 2006 in Cuyahoga County.
Based on our review of the record, the trial court did not err in making its findings as to
each element of fraud as each was supported by competent, credible evidence.
{¶64} Oryann’s cross-assignment of error is overruled.
{¶65} For the reasons stated in this opinion, it is the order and judgment of this
court that the judgment of the Lake County Court of Common Pleas is affirmed in part
and reversed in part, and this case is remanded for further proceedings consistent with
this opinion.
COLLEEN MARY O’TOOLE, J., concurs,
THOMAS R. WRIGHT, J., concurs in judgment only.
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