Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C. , 91 N.E.3d 205 ( 2017 )

[Cite as Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 2017-Ohio-2983.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 104559
BEVERAGE HOLDINGS, L.L.C.
PLAINTIFF-APPELLEE
vs.
5701 LOMBARDO, L.L.C. D.B.A.
VALENTINO-VAL L.L.C.
DEFENDANT-APPELLANT
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-15-846163
BEFORE: Kilbane, P.J., Stewart, J., and S. Gallagher, J.
RELEASED AND JOURNALIZED: May 25, 2017
ATTORNEYS FOR APPELLANT
J. Reid Yoder
Benjamin R. Sorber
Dicaudo Pitchford and Yoder
209 South Main Street, Suite 300
Akron, Ohio 44308
ATTORNEYS FOR APPELLEE
James D. Romer
Joseph T. Burke
Ashley E. Loyke
Polito, Rodstrom & Burke, L.L.P.
21300 Lorain Road
Fairview Park, Ohio 44126
MARY EILEEN KILBANE, P.J.:
{¶1} Defendant-appellant, 5701 Lombardo, L.L.C., d.b.a . Valentino-Val, L.L.C.
(“Lombardo”), appeals from the trial court’s decision granting partial summary judgment
in favor of plaintiff-appellee, Beverage Holdings, L.L.C. (“Beverage”). For the reasons
set forth below, we affirm.
{¶2} On April 29, 2011, Lombardo and Beverage entered into an agreement in
which Beverage purchased from Lombardo a preschool/daycare business known as the
Goddard School and the property upon which it was located for $1,726,000. Lombardo
was not able to sell the building at the time of the sale because of outstanding debt it had
on its mortgage. As a result, Lombardo and Beverage, through related entities, entered
into a sale of the business itself and a lease agreement for Beverage, through its related
company, PRB Development, L.L.C. The lease agreement provided that Beverage
would lease the property and continue to run the Goddard School until Lombardo was
able to sell the real property. The real property purchase agreement permitted closing of
the sale of the real property to occur sometime in the future, with an anticipated closing
being several years from the date the agreement was signed. The agreement provided
Beverage with the right to notify Lombardo when it wanted to close the transaction.
{¶3} In the interim, the parties agreed that Beverage would make monthly rental
payments to Lombardo in the amount of $12,500 until the parties closed on the
transaction. Beverage also paid the real property taxes, assessments, property and fire
insurance, all utilities, all use and occupancy taxes, and all maintenance and repairs.
Under section 3 of the agreement, the calculation of the purchase price was subject to
several adjustments. Section 3 provides in pertinent part:
3. Adjustments to Purchase Price. At closing, the purchase price shall
be adjusted by providing [Beverage] a credit for the following:
a) The Purchase Price shall be decreased by:
***
ii) Rents received by Seller from the tenant of the Premises,
prorated to date of closing.
{¶4} On March 12, 2015, Beverage sent Lombardo a notice of its intent to
purchase the property. On May 19, 2015, Lombardo responded by notifying Beverage
that it was revoking the agreement and disputed Beverage’s interpretation of the section
3(a)(ii), which adjusted the final purchase price for the rents paid by Beverage.
Beverage then filed a complaint against Lombardo for declaratory judgment, damages,
injunction, specific performance, and other legal and equitable relief. Beverage alleges
that Lombardo breached the agreement when it unilaterally revoked and repudiated on the
purchase agreement when Beverage exercised its “notice of intent to close transaction.”
Beverage sought to purchase the premises for $1,202,110.09, which included adjustments
for principal payments, prepayment fee, $462,500 in rent credits, and the security deposit.
Lombardo refused to accept the final purchase price, alleging that Beverage failed to
close within 180 days of signing the purchase agreement. Lombardo further alleged that
the agreement intended to provide credits only for rents received for the period following
the date of closing, prorated to the date of closing. Relevant to this appeal, Beverage
sought a declaratory judgment
a) As to the calculation of the final purchase price pursuant to the terms and
conditions stated in the Purchase Agreement; and
b) The interpretation of how much in rent is subject to the reduction noted
in Section 3 of the Purchase Agreement where it states that the purchase
price will be reduced by: “Rents received by Seller from the tenant of the
Premises, prorated to date of Closing.”
{¶5} Both parties filed motions for summary judgment. After reviewing both
motions, the trial court denied Lombardo’s motion for summary judgment and granted
Beverage’s motion in part. In a thoughtful opinion, the court stated:
[Beverage] seeks a declaratory judgment interpreting Section 3(a)(ii) of the
Agreement. Section 3(a)(ii) states the purchase price for the property shall
be adjusted by providing [Beverage] a credit for “Rents received by
[Lombardo] from [Beverage] of the Premises, prorated to date of closing.”
Both parties agree there is a credit for rents received. [Beverage] believes
the credit applies to all rents received from the date of the Agreement.
[Lombardo] believes the credit applies only to a prorated amount of the last
month’s rent according to the date of closing.
***
When parties to a contract dispute the meaning of the contract language,
courts must first look to the four corners of the document to determine
whether or not ambiguity exists. If the contract terms are clear and precise,
the contract is not ambiguous. See Beasly v. Monoko, Inc., 195 Ohio
App.3d 93, 2011-Ohio-3995, 958 N.E.2d 1003 (10th Dist.).
The Court finds the language at issue to be unambiguous, and supportive of
[Beverage’s] interpretation applying the credit to all rents received by
[Lombardo]. In contrast, the language does not support [Lombardo’s]
interpretation limiting the credit to a prorated amount of a single month’s
rent payment. No such limit exists in the actual language used by the
parties. The Agreement clearly provides [Beverage] a credit for rents
received by [Lombardo], and allows for the final month’s rent credit to be
prorated according to the date of closing.
The interpretation of Section [3(a)(ii)] is appropriate for disposition through
a declaratory judgment action. As there are no issues of material fact and
because reasonable minds can come to but one conclusion, [Beverage] is
entitled to Summary Judgment on Count I of its Complaint as it relates to
the interpretation of Section 3(a)(ii) of the Agreement. The Court finds
that Section 3(ii)(a) of the Agreement provides [Beverage] a credit for all
rents paid from the date of the Agreement until closing.
{¶6} It is from this order Lombardo appeals, raising the following three
assignments of error for review.
Assignment of Error One
The trial erred when it interpreted the contract to provide for a credit of all
rent paid and failed to give full effect to the term “prorated” in the contract.
Assignment of Error Two
The trial court erred when it failed to consider extrinsic evidence in
interpreting the contract.
Assignment of Error Three
The trial court erred when it granted summary judgment in favor of
[Beverage] as to the interpretation of the parties’ contract.
{¶7} Within these assigned errors, Lombardo argues the trial court erred in
interpreting the contract to provide Beverage with a credit for all rents paid from the date
of the agreement until closing, instead of prorating the rent to the month of closing.
Lombardo further argues the court erred when it failed to consider extrinsic evidence in
interpreting the contract.
{¶8} We review an appeal from summary judgment under a de novo standard of
review. Grafton v. Ohio Edison Co., 77 Ohio St. 3d 102, 105, 671 N.E.2d 241 (1996);
Zemcik v. LaPine Truck Sales & Equip. Co., 124 Ohio App. 3d 581, 585, 706 N.E.2d 860
(8th Dist.1998). In Zivich v. Mentor Soccer Club, 82 Ohio St. 3d 367, 369-370,
1998-Ohio-389, 696 N.E.2d 201, the Ohio Supreme Court set forth the appropriate test as
follows:
Pursuant to Civ.R. 56, summary judgment is appropriate when (1) there is
no genuine issue of material fact, (2) the moving party is entitled to
judgment as a matter of law, and (3) reasonable minds can come to but one
conclusion and that conclusion is adverse to the nonmoving party, said party
being entitled to have the evidence construed most strongly in his favor.
Horton v. Harwick Chem. Corp. (1995), 73 Ohio St. 3d 679,
1995-Ohio-286, 653 N.E.2d 1196, paragraph three of the syllabus. The
party moving for summary judgment bears the burden of showing that there
is no genuine issue of material fact and that it is entitled to judgment as a
matter of law. Dresher v. Burt (1996), 75 Ohio St. 3d 280, 292-293,
1996-Ohio-107, 662 N.E.2d 264.
{¶9} Once the moving party satisfies its burden, the nonmoving party “may not
rest upon the mere allegations or denials of the party’s pleadings, but the party’s response,
by affidavit or as otherwise provided in this rule, must set forth specific facts showing
that there is a genuine issue for trial.” Civ.R. 56(E); Mootispaw v. Eckstein, 76 Ohio
St.3d 383, 385, 667 N.E.2d 1197 (1996). Doubts must be resolved in favor of the
nonmoving party. Murphy v. Reynoldsburg, 65 Ohio St. 3d 356, 358-359, 604 N.E.2d
138 (1992).
{¶10} The construction of a written contract is a matter of law. Alexander v.
Buckeye Pipe Line Co., 53 Ohio St. 2d 241, 374 N.E.2d 146 (1978), at paragraph one of
the syllabus. “Generally, courts presume that the intent of the parties to a contract
resides in the language they chose to employ in the agreement.” Shifrin v. Forest City
Ents., Inc., 64 Ohio St. 3d 635, 638, 597 N.E.2d 499 (1992), citing Kelly v. Med. Life Ins.
Co., 31 Ohio St. 3d 130, 509 N.E.2d 411 (1987), paragraphone of the syllabus; Aultman
Hosp. Assn. v. Community 104 Mut. Ins. Co., 46 Ohio St. 3d 51, 544 N.E.2d 920 (1989),
syllabus. Contracts are to be read as a whole, giving effect to every part of the
agreement, and the intent of the parties is to be determined from the contract as a whole.
London Guar. & Acc. Co. v. Empire Plow Co., 115 Ohio St. 684, 689, 155 N.E. 382
(1927). “Common words appearing in a written instrument are to be given their plain
and ordinary meaning unless manifest absurdity results or unless some other meaning is
intended from the face or overall contents of the instrument.” (Citations omitted.)
Alexander at 245-246.
{¶11} Only when the language of a contract is ambiguous, or when the
circumstances surrounding the agreement invest the language of the contract with a
special meaning, will extrinsic evidence be considered in an effort to give effect to the
parties’ intentions. Kelly at 132. Extrinsic or parol evidence is “admissible to explain
an ambiguity or uncertainty arising out of the terms of a written instrument.” Suburban
Ford Tractor Sales, Inc. v. Orlean Co., 8th Dist. Cuyahoga No. 33654, 1975 Ohio App.
LEXIS 6167, *8 (Apr. 3, 1975). However, “[w]hen the terms in a contract are
unambiguous, courts will not in effect create a new contract by finding an intent not
expressed in the clear language employed by the parties.” Shifrin at 638, citing
Alexander at 246.
{¶12} In the instant case, the initial purchase price as provided in the agreement is
$1,726,000.1 Under section 3(a)(ii), this price is to be adjusted as follows:
a) The Purchase Price shall be decreased by:
***
ii) Rents received by Seller from the tenant of the Premises,
prorated to date of closing.
{¶13} The plain reading of this section provides that the initial purchase price will
be reduced by rents received by Lombardo from Beverage, prorated to date of closing.
Lombardo contends the above phrase means that the purchase price is reduced only by the
singular prorated rent paid in the month of closing. We disagree.
{¶14} Relying on the four corners of the agreement and giving these terms their
ordinary meaning, the agreement provides for all rent paid by Beverage to be deducted
from the initial purchase price. In fact, Lombardo’s attorney solely drafted section 3 of
the agreement. It is undisputed the parties were aware that there was a significant delay
of up to five years before the closing of the sale. Lombardo’s lenders conditioned
permission for the lease upon the payoff by Lombardo within five years. This is evident
by the agreement providing Beverage with a credit to the purchase price for all rents paid.
If closing had occurred within the customary few weeks, then the lease would have been
unnecessary. In addition, the rent is prorated because it is prepaid. As a result,
1 The$1,726,000 purchase price was based on the total amount Lombardo
owed its lenders.
Beverage would not receive a credit for rent amounts that were not yet due. The phrase
“prorated to closing” conveys this concept.
{¶15} Lombardo further argues the court erred by not considering parol evidence
when interpreting the contract. Lombardo seeks to introduce parol evidence to give full
effect of the parties’ intent. Parol evidence, however, may only be admitted when the
terms of the contract are ambiguous. Having determined the terms of the agreement are
unambiguous, we find the parol evidence rule inapplicable to the instant case.
{¶16} In light of the foregoing, we find the trial court properly granted partial
summary judgment in Beverage’s favor.
{¶17} Accordingly, the first, second, and third assignments of error are overruled.
{¶18} Judgment is affirmed.
It is ordered that appellee recover of appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common
pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
MARY EILEEN KILBANE, PRESIDING JUDGE
SEAN C. GALLAGHER, J., CONCURS;
MELODY J. STEWART, J., DISSENTS (SEE SEPARATE DISSENTING OPINION)
MELODY J. STEWART, J., DISSENTING:
{¶19} I agree that standing alone, the plain language of the clause stating that the
purchase price of the property would be decreased by “[r]ents received by Seller from the
tenant of the Premises, prorated to date of closing” seems to apply to all rents received
from the tenant, not just the rent paid during the closing period. Nevertheless, we should
not give words used in a contract their ordinary meaning if “manifest absurdity results.”
Cincinnati Ins. Co. v. Anders, 99 Ohio St. 3d 156, 2003-Ohio-3048, 789 N.E.2d 1094, ¶
34. When such a situation exists, the court should engage in fact-finding to give the
contract the most sensible and reasonable interpretation. Kelly v. Med. Life Ins. Co., 31
Ohio St. 3d 130, 132, 509 N.E.2d 411 (1987).
{¶20} An unreasonable and unintended result occurs if we read this contract clause
in isolation from two other contract provisions: the reduction in principal credit and
closing. The real estate purchase agreement states that Lombardo’s financing at the time
made it impractical to currently close the transaction and, in fact, that the sale might not
close for “several years.” In consideration of this fact, the parties agreed that Lombardo
would reduce the purchase price to Beverage Holdings “by the amount of principal
payments made by Seller to Seller’s lender for the mortgage notes currently on the
property” and that, at closing, Beverage Holdings would “receive a credit equal to the
reduction in principal for the mortgage notes from the date of the execution of this
agreement until the closing date.” Given that the parties understood that Lombardo had
issues with its financing prior to entering into the real estate purchase agreement, it would
be absurd to conclude that Lombardo intended to deduct from the purchase price both
principal payments and all rents received during what could be a lengthy lease term (the
parties contemplated a lease term of as much as ten years). Doing so would seem only to
undermine its already precarious financial situation.
{¶21} The closing clause also indicates that the rent proration reduction was meant
to apply only to rent paid after Beverage Holdings gave notice of intent to close. The
parties anticipated a closing time between 120-180 days. Given this amount of time, it
was prudent for the parties to state that any rents, which were payable in advance under
the lease, be prorated to closing.
{¶22} Admittedly, the real estate purchase agreement is not a model of clarity.
But reasonable minds could find that Beverage Holdings is attempting to take advantage
of errors in drafting that go beyond the hard consequences of imprecision and lapse into
absurdity. I would find that questions of fact exist as to what the parties truly intended
with the rent proration clause.