Hanahan v. DPA Dev., L.L.C.

[Cite as Hanahan v. DPA Dev., L.L.C., 2021-Ohio-1212.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
MONTGOMERY COUNTY
JANICE M. HANAHAN, EXECUTOR :
OF THE ESTATE OF JAMES P. :
MCCLOSKEY, DECEASED : Appellate Case No. 28864
:
Plaintiff-Appellant/Cross- : Trial Court Case No. 2018-CV-1018
Appellee :
: (Civil Appeal from
v. : Common Pleas Court)
:
DPA DEVELOPMENT, LLC, et al. :
:
Defendants-Appellees/Cross- :
Appellants :
:
...........
OPINION
Rendered on the 9th day of April, 2021.
...........
RICHARD L. CARR, JR., Atty. Reg. No. 0003180, 110 North Main Street, Suite 1000,
Dayton, Ohio 45402
Attorney for Plaintiff-Appellant/Cross-Appellee
SCOTT G. OXLEY, Atty. Reg. No. 0039285, 325 North Main Street, Suite 204,
Springboro, Ohio 45066
Attorney for Defendants-Appellees/Cross-Appellants
.............
WELBAUM, J.
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{¶ 1} Plaintiff-Appellant/Cross-Appellee, Janice M. Hanahan, as Executor of the
Estate of James P. McCloskey, Deceased (“Hanahan”), appeals from the trial court’s
order on a motion to show cause that Hanahan filed. Defendants-Appellees/Cross-
Appellants, David D’Amico and DPA Development, LLC, cross-appeal from the court’s
order, which found D’Amico and DPA in contempt and also filed an order reflecting the
court’s interpretation of the parties’ settlement agreement.1
{¶ 2} According to Hanahan, the trial court erred by interpreting the parties’
settlement agreement to include a term for repurchase by DPA that was void as against
both law and policy. In turn, Defendants argue that the court erred by finding them in
contempt and by inserting new terms into the settlement agreement.
{¶ 3} For the reasons discussed below, we conclude that the trial court erred in
incorporating DPA’s contractual right of first refusal into its order concerning the parties’
settlement agreement. The right in question was unlimited in time and therefore violates
the rule against perpetuities. In addition, the court erred when it added some terms to a
separate right of refusal provision, because the terms in question were not implied in the
settlement agreement, nor were they matters of custom and practice. However, the
agreement can be modified by deleting the offending language and by including terms
that were implied or supported by custom and practice. Accordingly, the trial court’s
judgment will be affirmed in part, reversed in part, and modified, and this cause will be
remanded to the trial court for further proceedings.
1 Cross-Appellants will be referred to collectively as “Defendants” or individually as
“D’Amico” and “DPA.” D’Amico is the principal member of DPA.
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I. Facts and Course of Proceedings
{¶ 4} On March 5, 2018, Hanahan filed a complaint against Defendants, alleging
that her decedent, James McCloskey (who had died in June 2017), had contracted to
purchase real estate located at 424 Littell Avenue in Dayton, Ohio. The purchase price
of the real estate was $175,000, and DPA was the seller. According to the written
contract, the property was to be surveyed and split into two parcels. Pursuant to the
contract, McCloskey paid the full purchase price to DPA.
{¶ 5} Despite the fact that McCloskey paid for the property, it was never transferred
to him. After McCloskey’s death, D’Amico claimed that DPA had no obligation to transfer
the real estate to McCloskey or to his estate. Defendants also allegedly changed the
locks on the property and claimed possession. The complaint contained eight claims:
(1) breach of contract; (2) specific performance; (3) express trust; (4) constructive trust;
(5) wrongful eviction; (6) trespass; (7) conversion; and (8) punitive damages.
{¶ 6} In April 2018, Defendants filed an answer to the complaint, in which they
admitted that despite having received $175,000, they had failed to deliver title to the real
estate. Answer, p. 1, ¶ 1. Defendants also admitted that they had changed the locks
on the property. Id.
{¶ 7} The case was initially set for trial in October 2018, but the trial was continued
due to Defendants’ failure to provide discovery, which required the court to issue an order
compelling discovery. The court also extended the discovery and summary judgment
deadlines and set a new trial date for February 13, 2019. In November 2018, Defendants
moved for summary judgment on all claims, and Hanahan also moved for summary
judgment, but only asked for partial judgment concerning her claim for specific
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performance.
{¶ 8} In January 2019, the trial court granted Defendants’ motion for summary
judgment in part and overruled it in part. The court also overruled Hanahan’s partial
motion for summary judgment. See Decision, Order and Entry Overruling in Part and
Granting in Part Defendants’ Motion for Summary Judgment; Overruling Plaintiff’s Motion
for Summary Judgment.
{¶ 9} In discussing the submitted facts, the court noted that on November 7, 2013,
DPA signed a contract to buy 424/428 Littell from the existing owner, Tim Rash.
Subsequently, on January 31, 2014, Rash issued a warranty deed for the property to
DPA. In the meantime, DPA and McCloskey had signed a purchase agreement for 424
Littell on November 13, 2013. However, at that time, neither DPA nor D’Amico owned
424 Littell. Id. at p. 1-2.
{¶ 10} The parties intended to split the property, with McCloskey receiving the 424
parcel, and he paid DPA the full amount of the contract price ($175,000) for the parcel on
December 21, 2013. DPA then used this money for the down payment on its purchase
from Rash. Id. at p. 2. Between 2013 and 2017, when McCloskey died, he used a
building located at 424 Littell and stored some personal property there. Id. However,
DPA was still the titled owner of 424/428 Littell when McCloskey died. Id.
{¶ 11} The trial court granted summary judgment to DPA on the following claims:
express trust and wrongful eviction. In addition, the court granted summary judgment to
D’Amico on claims for specific performance and breach of contract, and found the express
trust claims and wrongful eviction claims against him moot. Thus, the issues remaining
for trial against both DPA and D’Amico were constructive trust, trespass, conversion, and
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punitive damages. The claims against DPA for breach of contract and specific
performance also remained.
{¶ 12} In February 2019, the court held a bench trial, and it issued a verdict on
February 19, 2019. See Verdict Entry. In this entry, the court noted that it had granted
Defendants’ Civ.R. 50 motions on the counts for conversion and trespass.2 Id. at p.1.
The court then found in Hanahan’s favor on the claims for breach of contract and specific
performance, and it ordered specific performance as a remedy. Id. at p. 2. In addition,
the court awarded Hanahan damages of $4,126.22. As an alternate remedy, the court
also ordered DPA and D’Amico to hold $175,000 in a constructive trust for Hanahan’s
benefit. Id.
{¶ 13} On February 21, 2019, the trial court filed both a final judgment entry and
an amended final judgment entry reflecting the above orders. Concerning the breach of
contract claim, the court stated:
On Plaintiff’s First Cause of Action, Breach of Contract, the Court
finds in favor of Plaintiff and against Defendant, DPA Development, LLC.
The remedy awarded for Defendant DPA Development, LLC’s breach of
contract shall be specific performance as requested in Plaintiff’s Second
Cause of Action. Defendant, DPA Development, LLC, is ordered to convey
the property known as 424 Littell, and more particularly identified on a
survey drawing as indicated by Defendant, David D’Amico, on Exhibit 4B,
as admitted in this case and incorporated herein by reference. Such
2This would actually have been a dismissal under Civ.R. 41(B)(2), which covers similar
motions in nonjury trials.
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conveyance shall be by DPA Development, LLC delivering to Plaintiff a
transferable and recordable general warranty deed conveying to Plaintiff
marketable title in fee simple as provided in the contract between
Defendant, DPA Development, LLC and Plaintiff, Exhibit 6, as admitted in
this case and incorporated herein.
Amended Judgment Entry, p. 1-2.
{¶ 14} On February 27, 2019, the trial court also issued findings of fact and
conclusions of law in response to a motion for such that Defendants had previously filed
on February 19, 2019. No appeal was taken from the trial court’s judgment entry or the
amended judgment entry.
{¶ 15} On August 30, 2019, Hanahan filed a show cause motion asking that DPA
show cause why the property had not been transferred in accordance with the court’s
order. After continuing the matter twice, the court ultimately set a hearing for October
30, 2019. On that date, the parties appeared and informed the court that they had
reached the following agreement, which was read into the record by Plaintiff’s counsel,
Mr. Conway:
[1.] * * * The Defendant who owns the real estate subject of this case
will provide a deed and a release of any mortgage within 30 days of the
replat approval by the City of Dayton and will cooperate to any extent
necessary in the obtaining of the replat approval.
[2.] Following that, * * * DPA Development and the Plaintiff will then
enter into a lease agreement by which they agree that between the two
buildings of the owner, the DPA Development, and the building that’s on the
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property subject to this case – that area is a fairly narrow area, and the two
have agreed that they will have cross-easement rights for ingress and
egress across the other’s property; not for parking, but to get to their own
parking and buildings. * * *
[3.] The lease will have a ten-year term for parking on five spaces
to the east side of the Plaintiff’s building that’s the subject of this case. That
lease will be assignable. And the Plaintiff will have the right of first refusal
on the sale of the DPA property adjacent to the property subject of this case
during that term.
[4.] And also the Defendant will provide liability insurance over the
five spaces on the east side * * * where they will have the right to park * * *
cars there, for at least a million dollar limits for liability.
[5.] The rent will be $150 a month for those five spaces, subject to
a two percent per year, a two percent increase per month that’s done once
a year. So after 12 months, it’ll increase two percent. After 24 months,
it’ll increase an additional two percent and so on, through the 10 years.
[6] And the Defendant will maintain the property where the five
spaces are including coating and repairing and any blacktop work and
striping and so on.
[7] And the Defendant and I will communicate and have responses,
make responses within seven days, the Defendants’ counsel [Mr. Oxley}
and I [Mr. Conway].”
Transcript of Proceedings (Civil Motion Hearings) (“Tr.”), p. 5-7.
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{¶ 16} The only other items mentioned during the hearing were that the existing
access and utility agreement would be part of the replat, that the five spaces would be
marked, and that the parking lease agreement would be more properly characterized as
a “license” agreement. The parties agreed on these points. Id. at p. 7-8 and 10.
{¶ 17} On March 9, 2020, the trial court sua sponte filed an order of dismissal,
stating that “This case, having been reported settled by counsel, is conditionally
dismissed without prejudice until such time as a final dismissal entry with prejudice is
filed.” Order of Dismissal, p. 1.
{¶ 18} Hanahan then filed a second show cause order on May 29, 2020, asking
the court to hold Defendants in contempt for failing to convey the property, failing to hold
$175,000 for Hanahan’s benefit, and failing to pay damages of $4,126.22. Second
Motion to Show Cause, p. 1. On June 26, 2020, the trial court held an evidentiary hearing
during which it heard testimony from D’Amico, Oxley, and Conway. After hearing the
evidence, the court found Defendants in contempt and made certain findings that were
then reflected in a judgment entry filed on July 13, 2020.
{¶ 19} The court’s July 13, 2020 order, in pertinent part, stated:
2. The parties shall execute a cross access easement at the rear of
their respective buildings as depicted in the parties’ previously submitted
Joint Hearing Ex. i, attached hereto as Exhibit A. Neither Plaintiff nor
Defendant shall block off or fence the access area.
3. The parties shall execute the Parking License Agreement
submitted to the Court as a portion of Plaintiff’s Exhibit 4.
4. Said Parking License Agreement, at paragraph 12(B) shall read
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in full as follows:
Licensor may assign its rights, obligations and/or interests
with Licensee’s prior written consent, which may not be
unreasonably withheld. However, such assignment shall not
infringe upon Licensee’s Option to Purchase as specifically
stated in paragraph 19 of the Purchase Agreement entered
into and between DPA Development LLC and James
McCloskey on or about November 18, 2013. Licensee
acknowledges that Licensor, being an estate, will be
transferring its right to the estate’s heir, the James P.
McCloskey Trust, and that said Trust will be transferring its
rights to its beneficiary, Janice M. Hanahan, and/or an entity
controlled by Janice M. Hanahan and/or the Trust and that all
of such assignments are hereby consented to and do not
trigger Licensee’s said Option to Purchase.
It is the Court’s decision that paragraph 12(b) of the Parking License
Agreement, Exhibit 4 shall not include a provision that the Option to
Purchase referenced in that paragraph shall be in effect only during the term
of such License.
5. Plaintiffs shall have a Right of First Refusal to Purchase Real
Estate as set forth in Plaintiff’s Exhibit 8, which shall be executed by the
parties in the form originally prepared by Plaintiff’s counsel. The Court
expressly finds that any additional terms or revisions to the Right of First
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Refusal as set forth in the parties’ prior agreement are implicit in such
agreement and do not constitute a material deviation from the parties’
agreement.
6. As part of the parking license referenced in paragraph 3, above,
Defendant shall at all times maintain a Comprehensive General Liability
policy of insurance in the sum of $1 million per occurrence, naming Plaintiff
as an additional insured.
7. Defendant shall cooperate with Plaintiff in obtaining a re-plat of
the property located at and including 424 Littell, Dayton, Ohio, as referenced
in this Court’s February 21, 2019 Amended Judgment Entry and Order,
paragraph one, and Defendants shall execute a general warranty deed
conveying such property to Plaintiff within thirty (30) days of the City of
Dayton’s approval of such replat. Defendants shall also provide Plaintiff
with a release of any mortgage or encumbrance on such property.
8. Defendants shall pay to Plaintiff a license fee for the parking
space leased pursuant to the license agreement referenced in paragraph 3,
above, in the initial amount of $150 per month, retroactive from November
1, 2019, and continuing through the term of the License Agreement. Such
license fee shall increase 2% annually beginning November 1, 2020.
9. Defendants DPA and D’Amico shall maintain the blacktop in the
area subject to the licensing agreement at their expense, including
repaving, coating, and striping.
10. The sum of $4,126.22 referenced in paragraph three of this
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Court’s February 21, 2019 Amended Judgment Entry and Order and paid
by Defendants pursuant to that Order shall be immediately negotiable by
Plaintiff, which negotiation shall not constitute Plaintiff’s waiver of any rights
referenced therein. Payment by Defendants satisfies paragraph #2 of this
Court’s Amended Judgment Entry and Order of February 21, 2019.
11. All obligations imposed upon Defendants shall be performed by
them within sixty (60) days following entry of this Order on the docket of this
Court. If Defendants fail to fully comply with every provision in this Order
within such time period, Defendants shall be fined the sum of $250 per day
until Defendants are in full compliance herewith.
Order and Entry, p. 1-3. The court’s order also contained a Civ.R. 54(B) certification.
Id. at p. 4.3
{¶ 20} As indicated, both sides appealed from the July 13, 2020 order. The only
transcript that has been filed is the transcript from the motion hearings. With these facts
in mind, we will consider the assignment and cross-assignment of error.
II. Right of Refusal
{¶ 21} Hanahan’s sole assignment of error states:
The Lower Court Erred When It Interpreted the Parties' Agreement
as Containing a Term Which is Void as Against Both Law and Policy.
{¶ 22} Under this assignment of error, Hanahan contends that the trial court’s
3Even without the certification, the court’s contempt order was a final appealable order.
Docks Venture, L.L.C. v. Dashing Pacific Group, Ltd., 141 Ohio St. 3d 107, 2014-Ohio-
4254, 22 N.E.3d 1035, ¶ 23.
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decision incorrectly included an option to purchase provision freezing the property’s value
in perpetuity at its 2013 value. In response, Defendants argue that Hanahan waived this
issue by failing to raise it in the trial court. On the merits, Defendants assert that the
provision in question is a preemptive right rather than a purchase option and is valid under
Ohio law.
{¶ 23} Civil contempt proceedings are intended “to secure the dignity of the courts
and the uninterrupted and unimpeded administration of justice.” Windham Bank v.
Tomaszczyk, 27 Ohio St. 2d 55, 58, 271 N.E.2d 815 (1971). “Civil contempt sanctions
involve a conditional penalty, * * * ‘designed for remedial or coercive purposes and are
often employed to compel obedience to a court order. * * * [They] are characterized as
violations against the party for whose benefit the order was made.’ ” Docks Venture, 141
Ohio St. 3d 107, 2014-Ohio-4254, 22 N.E.3d 1035, at ¶ 15, quoting State ex rel. Corn v.
Russo, 90 Ohio St. 3d 551, 555, 740 N.E.2d 265 (2001). (Other citation omitted.)
{¶ 24} We review contempt orders for abuse of discretion. City of Toledo v. State,
154 Ohio St. 3d 41, 2018-Ohio-2358, 110 N.E.3d 1257, ¶ 22. “ ‘Abuse of discretion’ has
been defined as an attitude that is unreasonable, arbitrary or unconscionable.” AAAA
Ents., Inc. v. River Place Community Urban Redevelopment Corp., 50 Ohio St. 3d 157,
161, 553 N.E.2d 597 (1990), quoting Huffman v. Hair Surgeon, Inc., 19 Ohio St. 3d 83,
87, 482 N.E.2d 1248 (1985). “It is to be expected that most instances of abuse of
discretion will result in decisions that are simply unreasonable, rather than decisions that
are unconscionable or arbitrary. A decision is unreasonable if there is no sound
reasoning process that would support that decision.” Id.
{¶ 25} As pertinent in this appeal, two options are involved: one allowed DPA to
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purchase Hanahan’s interest in 424 Littell; the other permitted Hanahan to purchase
DPA’s adjacent property should it come up for sale. This assignment of error involves
the first option, which was contained in paragraph 19 of the November 2013 purchase
agreement between DPA and James McCloskey. This provision stated that:
19. Option to Purchase. Seller [DPA] shall have the option to
purchase said real estate from Purchaser for the sum of $175,000.00 if, for
any reason whatsoever, Purchaser, or Purchaser’s representatives,
assigns, executor or administrators decide to sell said real estate following
the closing of this Agreement. Said option to purchase shall be exercised
no later than the 30th day following Seller’s receipt of Notice of Intent to Sell
from Purchaser by 11:59 p.m. by giving written notice of Seller’s intent to
purchase to Lessor. The Closing of said Option shall occur within ninety
(90) days of receipt of said written notice to purchase. The Closing shall
occur at a time and place designated by mutual agreement of the parties.
Ex. A attached to the Complaint, p. 5 (also admitted at trial as Trial Exhibit 6).
{¶ 26} As indicated, this provision gave DPA a right to repurchase the property at
a price of $175,000 after receiving notice from Hanahan of an intent to sell the property.
No time limitations were placed on the exercise of this option. There is no dispute about
the fact that the option was not specifically mentioned either when the case was tried or
during the first show cause hearing, which was held on October 30, 2019. Tr. at p. 14
and 56.
{¶ 27} After the first show cause hearing, when the parties were trying to
memorialize and sign the settlement agreement, DPA, through D’Amico, rejected any
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attempt to limit the term of the option to purchase embodied in paragraph 19 of the original
contract. Tr. at p. 42 and 51-52. This issue was then discussed during the second
contempt hearing, and the court found, as noted, that Hanahan’s ability to assign the
parking agreement could not interfere with DPA’s right to exercise the option to purchase
Hanahan’s property. Tr. at p. 72; Order and Entry (July 13, 2020), at p. 2. In other
words, even if Hanahan assigned the rights in the parking license agreement to a third
party, DPA would still be able to exercise its option to purchase the entire property if
Hanahan later decided to sell the entire parcel.
{¶ 28} Defendants contend that Hanahan waived this issue by failing to raise it in
the trial court. As a general rule, “errors which arise during the course of a trial, which
are not brought to the attention of the court by objection or otherwise, are waived and
may not be raised upon appeal.” Stores Realty Co. v. City of Cleveland, Bd. of Bldg.
Standards & Bldg. Appeals, 41 Ohio St. 2d 41, 43, 322 N.E.2d 629 (1975). However,
Hanahan specifically raised this matter during the second show cause hearing (when it
had become a barrier to memorializing the settlement agreement) and therefore did not
waive the issue. Furthermore, DPA also did not raise the issue at trial, nor did it raise
the matter until after the first show cause hearing. Tr. at p. 49-50.
{¶ 29} We note that the first show cause proceeding was brought specifically to
require DPA to convey the property as was required by the trial court’s amended judgment
entry. See First Motion to Show Cause, p. 1. Instead of raising the purchase option
during this hearing, DPA entered into a settlement agreement that did not mention the
option and instead focused on a parking licensing agreement. DPA then chose to wait
for months before raising the issue when the parties were drafting the licensing
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agreement. Therefore, if anyone waived the matter, it was DPA, who did not raise the
issue with the court during the trial or during the first contempt hearing. Nonetheless,
both sides discussed the issue during the second show cause hearing, and it was properly
before the court at that time, giving the court the opportunity to rule on the matter.
{¶ 30} Turning to the merits of the issue, Hanahan argues that the unlimited term
of the option to purchase in paragraph 19 violates the rule against perpetuities.
Defendants contend that the term was in the original contract and that because Hanahan
asked for specific performance of the contract, she is bound by its terms.
{¶ 31} “ ‘Specific performance of contracts is a matter resting in the sound
discretion of the court, not arbitrary, but controlled by principles of equity, on full
consideration of the circumstances of each particular case.’ ” Sandusky Properties v.
Aveni, 15 Ohio St. 3d 273, 275, 473 N.E.2d 798 (1984), quoting Spengler v. Sonnenberg,
88 Ohio St. 192, 203, 102 N.E. 737 (1913).
{¶ 32} “ ‘Specific performance will not be decreed where the terms of the contract
are indefinite as to any material feature to be performed by either party, or if they are left
open for future determination by the parties, or if they are so uncertain or equivocal in
their meaning that the intention of the parties in regard thereto cannot be determined.
* * * It is the contract as the parties have made it and in its precise terms, and not
otherwise, of which the court decrees performance. Any other performance would not
be specific.’ ” (Emphasis added.) Lyon v. Jackson, 72 Ohio Law. Abs. 5, 7, 132 N.E.2d
779 (2d Dist.1955), quoting 37 Ohio Jurisprudence, Section 21, at 28. See also Harley
E. Rouda & Co. v. Springtime Co., 49 Ohio App. 2d 49, 55, 359 N.E.2d 4504 (10th
Dist.1975) (noting that “[w]hen a party sues for specific performance, he, in substance,
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admits that the contract remains in effect and seeks performance”).
{¶ 33} There is no allegation here that paragraph 19 was uncertain or ambiguous,
and the trial court therefore correctly looked to the contract terms in awarding specific
performance. However, as Hanahan points out, the term’s existence in the contract does
not necessarily mean it is enforceable if it violates the law.
{¶ 34} Before we specifically discuss the rule against perpetuities, we will consider
a point raised in Defendants’ Reply Brief. Defendants argue that Hanahan fails to
understand the differences between options to purchase and DPA’s presumptive right of
having the first refusal to purchase the property, which is a right that is “[c]learly
recognized and valid under Ohio law.” Defendants’ Reply Brief, p. 6.
{¶ 35} Defendants are correct insofar as they maintain that options to purchase
and rights of first refusal are not the same thing. “An option differs from a preemptive
right since an option gives the grantee the power to compel the owner to sell the property.
A preemptive right merely requires the owner to offer the property first to the holder of the
right.” Stratman v. Sheetz, 60 Ohio App. 3d 71, 73, 573 N.E.2d 776 (1st Dist.1989).
Thus, the “option” here is more properly classified as a right of first refusal. Nonetheless,
like an option to purchase, “[a] right of first refusal in the sale of property is subject to the
statute against perpetuities.” Hamilton Cty. Bd. of Commrs. v. Cincinnati, 154 Ohio
App.3d 504, 2003-Ohio-5089, 797 N.E.2d 1027, ¶ 19 (1st Dist.), citing Schafer v. Deszcz,
120 Ohio App. 3d 410, 414, 698 N.E.2d 60 (6th Dist.1997). Accord Natl. City Bank v.
Welch, 188 Ohio App. 3d 641, 2010-Ohio-2981, 936 N.E.2d 539, ¶ 13 (10th Dist.).
{¶ 36} Thus, as Hanahan points out, Defendants’ observation is a “classic
‘distinction without a difference.’ ” Hanahan’s Reply Brief, p. 4. The issue here is not
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whether rights of refusal in general are enforceable in Ohio. Admittedly, they are. The
issue is whether this particular right of refusal is void under the rule against perpetuities.
{¶ 37} “The fundamental purpose of the rule against perpetuities, as it developed
in common law, was to prevent restraints on the alienation of property which might be
perpetual or unreasonably long, while permitting restraints limited within the strict period
of the rule, in recognition of a property owner's rights to the use and disposition of his
property.” Quarto Mining Co. v. Litman, 42 Ohio St. 2d 73, 76, 326 N.E.2d 676 (1975).
“A bare option exercisable outside the period of the rule is generally held to be void as an
unreasonable restraint upon alienation.” (Citations omitted.) Id. at 77.
{¶ 38} In Quarto Mining, the court commented that, “[a]s the courts have
recognized, an option to purchase land can be a severe restraint on the free alienability
of the property. The fundamental defect of a perpetual option is that the right to alienate
the property is divided into two roughly equivalent interests, and these interests may be
so antagonistic as to effectively prevent the transfer of a fee simple estate. Where a
definite option price is stated, an effective ceiling price is imposed on the property, above
which no one may, with safety, purchase the property; the holder of the option in such
case holds the effective power to alienate. Development and improvement of the
property may thereby be severely retarded, for the existence of the option threatens the
developer with loss of the profit from his efforts if the option is exercised. The possibility
of fluctuation in land values and in the buying power of the dollar must further render
imponderable the safety of any purchase of property encumbered by an option.” Id. at
77.
{¶ 39} As a result, the court stated in Quarto Mining that “[b]ecause of this potential
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for the indefinite suspension of the ‘practical’ power of alienation, and because the
exercise of the option is so likely to depend upon changes in market value and level of
development of the property over time, the courts have generally held such an option to
be a non-vested contingent equitable interest in property, subject to the rule against
perpetuities.” Id. See also Blair v. Topovski, 9th Dist. Wayne No. 1800, 1982 WL 2728,
*2 (Sept. 1, 1982) (noting that “a fixed price option, unlimited in duration, which requires
the sale of a fee simple interest at a price less than its fair market value is an invalid
restraint on alienation”).
{¶ 40} In the case before us, paragraph 19 of the original contract granted DPA an
unlimited right to purchase the property for $175,000 upon receiving notice of the intent
of McCloskey or his “representatives, assigns, executor or administrators” to sell the
property. There was no time limitation on DPA’s right, and the restriction of the purchase
price of $175,000, regardless of the land’s value or the offer McCloskey or his assigns
might receive, falls afoul of the principles espoused in Quarto Mining. DPA is also not a
“person,” and there are no restrictions on its existence. Compare Stratman, 60 Ohio
App.3d at 73-74, 573 N.E.2d 776 (preemptive right of first refusal was personal to the
grantee (“a life in being”) and extended only to his lifetime, thereby not violating the rule).
There is no restriction on the life of corporations or LLCs.
{¶ 41} In addition to adhering to the common law doctrine, Ohio has enacted a
statute against perpetuities. This statute, with exceptions not applicable here, states that
“no interest in real or personal property shall be good unless it must vest, if at all, not later
than twenty-one years after a life or lives in being at the creation of the interest.” R.C.
2131.08(A). As originally enacted in 1937, the statute used what is called the “orthodox
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rule.” This rule “applies only to indestructible contingent interests, which it renders
invalid at the time of their creation if, at that time, it is possible that they may remain
contingent longer than lives then in being and twenty-one years thereafter. In a particular
case, the single question to have been determined was whether the prescribed
contingency or event may not arise until after the time allowed by law. If it may happen
beyond the established time limit, the interest was void.” SCN Land & Mineral Co. v. N.
Am. Coal Corp., 7th Dist. Monroe No. 648, 1989 WL 61791, *2 (June 8, 1989), citing 41
Ohio Jurisprudence 3d 613-614, Estates, Etc., Section 219.
{¶ 42} When R.C. 2131.08 was amended in 1967, subsection (C) was added. Id.
at *2. This section (which has not been subsequently amended), states that:
Any interest in real or personal property that would violate the rule
against perpetuities under division (A) of this section shall be reformed,
within the limits of the rule, to approximate most closely the intention of the
creator of the interest. In determining whether an interest would violate the
rule and in reforming an interest, the period of perpetuities shall be
measured by actual rather than possible events.
R.C. 2131.08(C). This is called the “wait and see doctrine.” SCN Land & Mineral at *3.
See also Committee Notes accompanying R.C. 2131.08. The “approach allows the
exercise of a theoretically violative interest, when the exercise occurs in a period not
prohibited by the rule.” Terry Homes, Inc. v. Crocker, 9th Dist. Medina No. 2931-M, 1999
WL 1215108, *2 (Dec. 8, 1999).
{¶ 43} The “wait and see doctrine” is not useful here, because the exercise of the
theoretically violative interest has not occurred. For example, in Hamilton Cty. Bd., a city
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actually exercised its right of first refusal in 1997, “within the life of one in being” at the
time the right was created in 1981. Hamilton Cty. Bd., 154 Ohio App. 3d 504, 2003-Ohio-
5089, 797 N.E.2d 1027, at ¶ 22. The court therefore held that the interest “would not
have failed due to the rule against perpetuities.” Id.
{¶ 44} Given the facts that currently exist, no actual events are available to
measure the period of perpetuities, and it is impossible to determine that DPA’s unlimited
right of first refusal (the “option to purchase” in paragraph 19) would be exercised in the
time allowed by the rule. Therefore, while the trial court did not err in referring to the
contract of purchase, its decision was not based on sound reasoning with respect to
including the option to purchase in its July 13, 2020 order. Specifically, DPA’s right was
not enforceable because it violated the rule against perpetuities.
{¶ 45} Accordingly, Hanahan’s sole assignment of error is sustained.
III. Error in Adding to the Settlement Agreement
{¶ 46} DPA asserts a cross-assignment of error, which states:
The Trial Court Erred in Finding DPA in Contempt Whereby There
Was a Settlement Agreement in Place and the Trial Court Erred by Inserting
Language and Re-Writing the Settlement Agreement Terms as Agreed
Between the Parties.
{¶ 47} In the statement of this assignment of error, Defendants purportedly raise
two issues: (1) the trial court’s error in finding DPA in contempt; and (2) the court’s error
in adding language to the parties’ settlement agreement. However, Defendants have
addressed only the latter point in their brief. They have not discussed the show cause
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motion, which raised several matters, including their failure to convey the property, their
failure to hold the sum of $175,000 for Hanahan’s benefit, and their failure to pay Hanahan
$4,126.22 – none of which involved the specific complaint that Defendants have about
the court’s interpretation of the settlement agreement. See Second Motion to Show
Cause (May 29, 2020), p. 1. Since Defendants failed to address the court’s contempt
finding, we conclude they have abandoned this aspect of their cross-assignment of error.
{¶ 48} As noted in the statement of facts, the parties agreed during the first show
cause hearing that Hanahan would be given a right of first refusal if DPA decided to sell
the part of the property adjacent to Hanahan’s parcel. This is the second option involved
in this appeal.
{¶ 49} Defendants further agreed during the first show cause hearing that the term
for this right would be ten years, the same term as the lease for the five parking spaces.
Tr. at p. 6. The parties did not outline any further terms for the right of refusal. However,
during subsequent negotiations, Hanahan proposed what was labeled and admitted as
Exhibit 8 at the second contempt hearing. Tr. at p. 27-28 and 66-67. This proposal
included terms that were initially proposed by Hanahan and sent to DPA. The trial court
added these terms to its order, concluding that they were “implicit” in the parties’
settlement agreement and did not “constitute a material deviation from” the agreement.
Order and Entry (July 13, 2020), at p. 2.
{¶ 50} The added terms were that if DPA received an offer to purchase its property,
DPA was required to promptly give notice to Hanahan. Hanahan would then have 10
business days to purchase the property at a price equal to the lesser of the offer’s price
or the property’s appraised value. The appraisal would be done by a qualified appraiser
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acceptable to both parties and paid for equally by the parties. Hanahan would then pay
the purchase price in cash at a closing held within 90 days after the parties received the
appraisal. Finally, if Hanahan failed to exercise the right of first refusal, DPA would be
entitled to sell the property in substantial accordance with the offer’s terms; if DPA did not
sell in substantial accordance with the offer’s terms, then the property would remain
subject to Hanahan’s right of first refusal. See Exhibit 8.
{¶ 51} According to Defendants, the trial court erred in adding these items because
they are not supported by the record and were never negotiated. In response, Hanahan
argues that the court was permitted to add terms that are consistent with the general
operation of rights of first refusal.
{¶ 52} “[A] settlement agreement is a contract designed to terminate a claim by
preventing or ending litigation.” Continental W. Condominium Unit Owners Assn. v.
Howard E. Ferguson, Inc., 74 Ohio St. 3d 501, 502, 660 N.E.2d 431 (1996). These kinds
of agreements “are valid and enforceable by either party,” and “are highly favored in the
law.” Id. “Where the parties in an action * * * voluntarily enter into an oral settlement
agreement in the presence of the court, such agreement constitutes a binding contract.”
Spercel v. Sterling Industries, Inc., 31 Ohio St. 2d 36, 285 N.E.2d 324 (1972), paragraph
one of the syllabus.
{¶ 53} “ ‘An agreement is enforceable if it encompasses the essential elements of
the bargain.’ ” Ruffian, L.L.C. v. Hayes, 10th Dist. Franklin No. 09AP-948, 2011-Ohio-
831, ¶ 17, quoting Mr. Mark Corp. v. Rush, Inc., 11 Ohio App. 3d 167, 169, 464 N.E.2d
586 (8th Dist.1983) (Other citation omitted.) “If less essential terms are omitted from an
agreement, they may be resolved by ‘later agreement or judicial resolution.’ ” Id. Where
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parties have intended to be bound, “the court should not frustrate this intention, if it is
reasonably possible to fill in some gaps that the parties have left, and reach a fair and just
result.” Litsinger Sign Co. v. Am. Sign Co., 11 Ohio St. 2d 1, 14, 227 N.E.2d 609 (1967).
Accord Reed Elsevier, Inc. v. Carter, 2017-Ohio-7513, 96 N.E.3d 1213, ¶ 15 (2d Dist.).
{¶ 54} “Where the meaning of terms of a settlement agreement is disputed, or
where there is a dispute that contests the existence of a settlement agreement, a trial
court must conduct an evidentiary hearing prior to entering judgment.” Rulli v. Fan Co.,
79 Ohio St. 3d 374, 683 N.E.2d 337 (1997), syllabus. As indicated, the trial court did so
here and then added several terms to the right of refusal.
{¶ 55} The original settlement agreement read into the record in October 2019
stated, in pertinent part, that:
The lease will have a ten-year term for parking on five spaces to the
east side of the Plaintiff’s building that’s the subject of this case. That lease
will be assignable. And the Plaintiff will have the right of first refusal on the
sale of the DPA property adjacent to the property subject of this case during
that term.
Tr. at p. 6.
{¶ 56} There is no question that the parties intended to be bound by this
agreement. The essential terms, that Hanahan was entitled to a right of first refusal on
the sale of DPA’s property, the location of the property, and the term of the right (10 years)
were all outlined. These terms did not include the basis for the price at which the right
was to be exercised or matters like the time for closing.
{¶ 57} The requirements that DPA give Hanahan prompt notice of a purchase offer
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and that Hanahan respond within 10 business days are reasonable and not material. In
addition, the provision that Hanahan would pay the purchase price in cash at a closing to
be held within 90 days of an appraisal, regardless of the terms in the offer, is also not of
great significance. However, the provision that Hanahan pay a “purchase price equal to
the lesser of (i) the price contained in the Offer, or (ii) the appraised value of the Property
(pursuant to an appraisal paid for equally by the parties from a qualified appraiser
acceptable to the parties)” is not something that can reasonably be implied from the
evidence and settlement agreement. The effect of this provision would be that, even if
DPA received a higher offer for the property, it would be required to sell the property to
Hanahan at a lesser appraised amount. Such a restriction would be of concern to a
seller.
{¶ 58} “When the parties have agreed about issues critical to the transaction, the
courts will determine the meaning of ambiguous terms according to the parties' mutual
understanding, the custom and practice in the trade or community, or other established
legal principles. * * * Similarly, the courts will supplement the parties’ express or implied
agreement about those essential elements with other terms implied by custom and
practice or consonant legal doctrines.” (Citations omitted.) Mr. Mark Corp., 11 Ohio
App.3d at 167, 464 N.E.2d 586.
{¶ 59} A reasonable provision is that Hanahan be required to match the purchase
price of a third-party offer if she exercised her right of refusal. In fact, this type of
provision is typical in cases involving a right of first refusal. For example, in Hamilton
Cty. Bd., 154 Ohio App. 3d 504, 2003-Ohio-5089, 797 N.E.2d 1027, the right of refusal
provided that “if the state offered the real estate for sale at its appraised market value,
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then the city had a right of first refusal for the purchase of the property at its appraised
value.” Id. at ¶ 3. See also Terry Homes, 9th Dist. Medina No. 2931-M, 1999 WL
1215108, at *1 (the party exercising its right of first refusal must match the offer the owner
has received). This idea is also supported by custom and practice. See Latina v.
Woodpath Dev. Co., 57 Ohio St. 3d 212, 214, 567 N.E.2d 262 (1991), fn.1 (noting expert
testimony that “the words ‘right of first refusal’ have a special meaning in the real estate
industry – the right to match a third-party offer”).
{¶ 60} As noted, the remaining provision the trial court added essentially allows
DPA to sell the property in substantial accordance with the offer if Hanahan fails to
exercise the right of refusal; if DPA fails to do so, however, the property is still subject to
the right of first refusal. Id. at Ex. 8. Research discloses no basis for finding that such
a provision is used as a matter of custom and practice in situations like the present. It is
also not implicit in the judgment. Accordingly, the trial court was not warranted in adding
this term to the agreement.
{¶ 61} In light of the preceding discussion, DPA’s cross-assignment of error is
sustained in part and overruled in part. Under App.R. 12(A)(1), we are permitted to
modify the judgment of the trial court. See also Dayton Women's Health Ctr. v. Enix, 2d
Dist. Montgomery No. 10579, 1988 WL 131905, *6-7 (Dec. 5, 1988) (modifying a trial
court's permanent injunction entry by removing paragraphs and inserting other language).
{¶ 62} Consistent with that authority, paragraph 5 of the July 13, 2020 Order and
Entry of the trial court is modified to read as follows:
Plaintiffs shall have a Right of First Refusal to Purchase Real Estate as set
forth as follows:
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Any time after and continuous from the date of this Agreement until
the ___ day of ___________, 20___, Seller receives an offer (an “Offer”) to
purchase the Property, which Seller is willing to accept, Seller shall
promptly, upon receipt of the Offer, transmit notice and a true copy thereof
to Buyer, and Buyer shall have the right, exercisable by notice to Seller (the
“Notice of Exercise”) given within ten (10) business days after such notice,
to purchase the Property at a purchase price equal to the price contained in
the Offer; provided, however, that, regardless of the payment terms
contained in the Offer, Buyer shall pay the purchase price in cash at the
closing (which closing shall be within 90 days of the date the Buyer
exercises the right to purchase).
The Court expressly finds that any additional terms or revisions to
the Right of First Refusal as set forth in the parties’ prior agreement are
implicit in such agreement and do not constitute a material deviation from
the parties’ agreement.
{¶ 63} As a final matter, whether the contractual term voided by sustaining
Hanahan’s First Assignment of error is severable to allow enforcement of the agreement
is a matter for the trial court to consider on remand. Further, since Plaintiff’s Exhibit 8,
as incorporated in the entry, was undated, the trial court and parties will decide on remand
what date to insert into the modified portion of the parties’ agreement.
V. Conclusion
{¶ 64} Hanahan’s sole assignment of error is sustained, and DPA’s sole cross-
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assignment of error is sustained in part and overruled in part. This cause will be reversed
in part and affirmed in part, and remanded to the trial court for further proceedings
consistent with this opinion. On remand, the trial court will remove all references in its
order to the “option to purchase” contained in paragraph 19 of the original purchase
contract between DPA and McCloskey. The trial court’s July 13, 2020 Order and Entry
is also modified as indicated above.
.............
DONOVAN, J. and EPLEY, J., concur.
Copies sent to:
Richard L. Carr, Jr.
Scott G. Oxley
Hon. Timothy N. O’Connell