Krueger v. Swineford , 2015 Ohio 3518 ( 2015 )

[Cite as Krueger v. Swineford, 2015-Ohio-3518.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
ERIE COUNTY
Carl M. Krueger Court of Appeals No. E-14-095
Appellant Trial Court No. 2014 CV 0189
v.
Dawn Swineford, et al. DECISION AND JUDGMENT
Appellees Decided: August 28, 2015
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Linda C. Ashar and Michael K. Ashar, for appellant.
D. Jeffery Rengel and Thomas R. Lucas, for appellee Mickey Mart, Inc.
Kevin J. Zeiher, for appellee Dawn Swineford.
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PIETRYKOWSKI, J.
{¶ 1} Appellant, Carl Krueger, appeals the June 10, 2014 judgment of the Erie
County Court of Common Pleas which, following a trial to the court, found that the right
of first refusal executed in conjunction with a note and mortgage was unenforceable.
Because we find that the court did not err when it denied appellant’s claim for specific
performance, we affirm.
{¶ 2} The undisputed, relevant facts are as follows. On February 22, 2013,
appellee, Dawn Swineford, was the owner of a gas station and carry-out located in Berlin
Heights, Ohio. On that date and due to financial difficulties operating the business,
appellee agreed to appellant’s offer to loan her $25,000 so she could purchase fuel to sell
at the gas station. The loan was evidenced by a promissory note and secured by a
mortgage. The note provided a five percent interest rate and required repayment within
25 months. The note further provided for “the permanent and irrevocable right of first
refusal to purchase the Premises secured by this note in its entirety” and the
permanent and irrevocable right, at Creditor’s cost less any due and
unpaid installments hereunder, any applicable late fees and any accrued
interest, to order fuels (diesel, kerosene and motor gas) at Debtor’s
supplier’s prices in minimum delivery quantities of standard semi-
tractor/trailer tanker loads normally received by Debtors in the regular
course of Debtor’s business practice.
{¶ 3} The note further specified:
Creditor’s right of first refusal to purchase the premises and right to
order fuels as herein provided shall permanently and irrevocably continue
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past Debtor’s full repayment of (i) the principal funds advanced hereto, plus
(ii) any applicable late fees and, (iii) accrued interest thereon, for Creditor’s
entire lifetime.
The note provided that after a 30-day written notice of default, the creditor would be
entitled to, inter alia, an automatic right of first refusal “to purchase the Premises secured
by this note in its entirety”
{¶ 4} The mortgage deed, also executed on February 22, 2013, defines “the
Premises” as:
Situated in the Village of Berlin Heights, County of Erie and State of
Ohio: being that part of Lot No. 7 in Subrange No. 7 in Section No. 3,
bounded and described as follows: Beginning at the point of intersection of
the south westerly line of Main Street and the westerly line of South Street;
running thence south westerly, along the southeasterly line of Main Street,
149.16 feet * * * said premises being also known as Lot 59 in the Flat of
Parson’s Survey so-called, as recorded in Volume 1 of Plats, page 50, Erie
County, Ohio records.
{¶ 5} On March 17, 2014, appellee paid the $13,032.04 balance owed on the loan.
Appellant refused to sign a document provided by appellee stating that he released her
from the mortgage and, specifically, the right of first refusal. Just prior to repayment of
the loan, appellant and appellee exchanged a series of text messages beginning with
appellee’s message to appellant informing him that she was considering selling the gas
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station and acknowledging that appellant had a “first option to buy.” Appellant indicated
that he wanted profit and loss statements and to be notified when Daniel Coles of
DANOP, LTD., the prospective purchaser, made an offer.
{¶ 6} Appellee’s negotiations with DANOP, Ltd., dba Mickey Mart, Inc. (also an
appellee in this matter), to purchase the business known as Berlin Heights Carry Out,
Inc., resulted in a bill of sale signed on March 20, 2014, with an effective date of March
18. A management agreement was simultaneously entered into which allowed Mickey
Mart to operate the business with appellee’s liquor permit. The agreement would expire
upon the transfer of the liquor permit.
{¶ 7} Thereafter, the parties entered in to a commercial land installment contract
with an option to convert to a lease or purchase. Referencing the bill of sale and the
tender of payment in full to appellant, appellee agreed to sell and Mickey Mart agreed to
purchase the real property located at 5 South, Berlin Heights, Ohio 44814, for the sum of
$350,000. The contract provided for $1000 weekly payments and a balloon payment to
be made on or before June 1, 2014. If the payment was not tendered, the vendee would
have the option to extend the date for the payment to December 31, 2015, or convert the
contract to a lease.
{¶ 8} On March 26, 2014, appellant commenced this action for preliminary and
permanent injunctive relief, declaratory judgment and specific performance. Appellant
claimed that by virtue of the promissory note and mortgage he had a “perpetual right of
first refusal” to buy the real property, the carry-out, and the fuels in bulk quantities.
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Appellant stated that appellee, by selling or transferring, in whole or in part, her interest
in the real property and the business deprived him of his right of first refusal. Appellant
claimed that he suffered irreparable harm including the ability to acquire prime
commercial real estate and the only gasoline and carry-out in Berlin Heights, and an
adverse impact on his reputation and loss of good will. Appellant requested that the court
enjoin appellee from entering in to any transfer or sale conflicting with the terms of the
note and mortgage, declare that the note and mortgage were enforceable, and that
appellee be ordered to specifically perform the offer of first refusal.
{¶ 9} On March 26, 2014, the trial court granted a temporary restraining order
preventing any property transfers. On April 3, 2014, Mickey Mart, Inc., was permitted to
intervene as a party defendant. On April 21, 2014, appellee filed her answer and asserted
a counterclaim for damages for slander of title and punitive damages and attorney fees.
{¶ 10} Following discovery, the matter proceeded to a bench trial on May 27,
2014, where the parties presented testimony and evidentiary materials. On June 10,
2014, the trial court entered its decision and judgment entry in favor of appellee. The
court first found that neither party came to the litigation with “clean hands.” The court
found that appellant had an “ulterior motive” in lending the money to appellee but that
appellee was dishonest about the source of the payout funds.
{¶ 11} The court then noted that, equities aside, the right of first refusal was not
valid and was unenforceable. Specifically, the court first found that the note was paid-in-
full and that appellant had not requested to enforce his right prior to acceptance of the
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pay-off; thus, the right of first refusal had extinguished. Next, because the “unrecorded”
promissory note failed to specify how the right would be exercised and the definition of
“the Premises” it was too vague to be enforceable. Further, the recorded mortgage failed
to reference the right of first refusal. The court suggested that the right of first refusal
violated the rule against perpetuities. Finally, the court noted that under the land
installment contract, no sale or lease had yet occurred. All pending counterclaims and
motions for sanctions were denied. This appeal followed.
{¶ 12} Appellant raises four assignments of error for our review:
Assignment of Error No. 1: The trial court erred as a matter of law
and against the manifest weight of the evidence in finding that Krueger did
not have a valid right of first refusal to purchase the Premises from
Swineford, or that he did not exercise such right.
Assignment of Error No. 2: The trial court erred as a matter of law
and against the manifest weight of the evidence in finding that Swineford’s
tender of payment of the balance of the loan to Krueger extinguished his
right of first refusal to purchase the Premises.
Assignment of Error No. 3: The trial court erred as a matter of law
and against the manifest weight of the evidence in finding that Swineford’s
transaction with Mickey Mart was not a “sale” to justify Krueger’s exercise
of his right of first refusal.
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Assignment of Error No. 4: The trial court erred as a matter of law
and against the manifest weight of the evidence in dissolving the
preliminary injunction against Swineford’s sale of the Premises to Mickey
Mart, and failing to issue a final injunction against the sale to Mickey Mart
and to order specific performance of Krueger’s exercise of his superior
right to purchase the premises.
{¶ 13} In appellant’s first assignment of error, he argues that the court erroneously
determined that he did not have a valid right of first refusal to purchase the premises. It
is well settled that the trial court’s decision to grant or deny declaratory relief will not be
overturned on appeal absent a finding of abuse of discretion. Four Howards, Ltd. v. J &
F Wenz Rd. Invest., L.L.C., 179 Ohio App. 3d 399, 2008-Ohio-6174, 902 N.E.2d 63, ¶ 57
(6th Dist.), citing Englefield v. Corcoran, 4th Dist. Ross No. 06CA2906, 2007-Ohio-
1807, ¶ 11; Arbor Health Care Co. v. Jackson, 39 Ohio App.3d 183, 185, 530 N.E.2d 928(10th Dist.1987). An abuse of discretion connotes more than a mere error of law, it
requires a finding that the trial court’s decision was unreasonable, arbitrary, or
unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140(1983).
{¶ 14} Similarly, specific performance as a remedy for breach of contract 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.
Hog Heaven of New Philadelphia, Inc. v. M & M W. High Ave., L.L.C., 5th Dist.
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Tuscarawas No. 2014 AP 02 0006, 2014-Ohio-5125, ¶ 16-17, citing Roth v. Habansky,
8th Dist. Cuyahoga No. 82027, 2003-Ohio-5378.
“The remedy of specific performance is governed by the same
general rules which control the administration of all other equitable
remedies. The right to it depends upon elements, conditions, and incidents
which equity regards as essential to the administration of all its peculiar
modes of relief. When all these elements, conditions, and incidents exist,
the remedial right is perfected in equity. These elements, conditions, and
incidents, as collected from the cases, are the following: The contract must
be concluded, certain, unambiguous, mutual, and based upon a valuable
consideration; it must be perfectly fair in all its parts; it must be free from
any misrepresentation or misapprehension, fraud or mistake, imposition or
surprise; it cannot be an unconscionable or hard bargain; its performance
must not be oppressive upon the defendant; and, finally, it must be capable
of specific execution through a decree of the court.” Id. at ¶ 17, quoting
Roth at ¶ 16.
“[A] ‘right of first refusal,’ is a promise to present offers to buy property
made by third parties to the promisee in order to afford the promisee the
opportunity to match the offer.” Christiansen v. Schuhart, 193 Ohio App.3d 89,
2011-Ohio-1199, 951 N.E.2d 107, ¶ 53 (5th Dist.), quoting Latina v. Woodpath
Dev. Co., 57 Ohio St.3d 212, 567 N.E.2d 262 (1991). As with any case involving
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contract interpretation, the language employed is given its “ordinary meaning
unless manifest absurdity results, or unless some other meaning is clearly
evidenced from the face or overall contents of the instrument.” Alexander v.
Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146, (1978), paragraph two
of the syllabus.
{¶ 15} In a similar action involving the request for specific enforcement of a right
of first refusal, the reviewing court addressed whether the scope of “the premises” was
uncertain and subject to more than one interpretation. Progress Properties, Inc. v. Baird,
8th Dist. Cuyahoga Nos. 70286, 70287, 1997 WL 661898 (Oct. 23. 1997). In Baird, the
plaintiff, Progress, had leased parking spaces on the property at issue and the lease
contained a right of first refusal. Id. at *1. The owners agreed to sell the property to a
third party and Progress commenced an action for specific performance to enforce the
right of first refusal. Examining the lease agreement, the court found that the language in
the lease did “not sufficiently define whether the lease cover[d] just the parking spaces or
the entire property” which included a building. Id. at *4. The court then concluded:
“The language of the lease can reasonably be interpreted to cover either the entire parcel
or merely the area on which parking spaces are leased. The ambiguity and lack of
certainty within the four corners of this lease make impossible the remedy of specific
performance.” Id. at *5.
{¶ 16} In the present case, as set forth above, the promissory note at issue
provided for the right of first refusal to purchase “the Premises” as set forth in the
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mortgage. The mortgage note defines the premises as the real property located on the
parcel. At trial, and in his complaint, appellant stated that the premises included the
building as well as the business, including anything physically attached to the property.
In fact, appellant indicated that the right of refusal encompassed everything except items
that “if you picked it [the property] up and shook it around whatever fell out the door * *
*.” Conversely, appellee testified that she believed the right was extinguished when she
repaid the loan.
{¶ 17} We find that this inconsistency, as in Baird, renders the provision which
was drafted by appellant too uncertain to enforce. We further reject appellant’s claim for
reformation of the contract. The evidence presented at trial demonstrated no prior
discussion of the right of first refusal. Further, the fuel rate provision included in the
right implicated a third, non-contracting party.
{¶ 18} Accordingly, we find that because the right of first refusal was too vague or
uncertain to be enforceable, the trial court did not err when it denied appellant’s claim for
specific performance. Appellant’s first assignment of error is not well-taken. Based
upon our disposition of appellant’s first assignment of error, we find that appellant’s
second, third, and fourth assignments of error are moot and are not well-taken.
{¶ 19} On consideration whereof, we find that substantial justice was done the
party complaining and the judgment of the Erie County Court of Common Pleas is
affirmed. Pursuant to App.R. 24, appellant is ordered to pay the costs of this appeal.
Judgment affirmed.
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E-14-095
Krueger v. Swineford, et al.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
Stephen A. Yarbrough, P.J.
_______________________________
James D. Jensen, J. JUDGE
CONCUR.
_______________________________
JUDGE
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.sconet.state.oh.us/rod/newpdf/?source=6.
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