Chapel Real Estate Co. v. Burris

2016 Ohio 7550

• Court: Ohio Court of Appeals
• Decided: October 31, 2016
• Docket: 2015-L-136
• Status: Published

Opinion

[Cite as Chapel Real Estate Co. v. Burris, 2016-Ohio-7550.]

IN THE COURT OF APPEALS

ELEVENTH APPELLATE DISTRICT

LAKE COUNTY, OHIO

CHAPEL REAL ESTATE COMPANY, : OPINION

Plaintiff-Appellee, : CASE NO. 2015-L-136 - vs - :

SANFORD A. BURRIS, :

Defendant-Appellant. :

Civil Appeal from the Lake County Court of Common Pleas, Case No. 2013 CV 002245.

Judgment: Affirmed.

Shannon M. Cianciola, and Francis P. Manning, Manning & Manning Co., L.P.A., 6982 Spinach Drive, Mentor, OH 44060 (For Plaintiff-Appellee).

Robert D. Wilson, Robert D. Wilson Co., L.P.A., 16716 Chillicothe Road, Suite #100, Chagrin Falls, OH 44023-4594 (For Defendant-Appellant).

THOMAS R. WRIGHT, J.

{¶1} Appellant, Sanford A. Burris, appeals the denial of his Civ.R. 60(B) motion

for relief from an earlier money judgment, based on a cognovit clause in a lease

guaranty. He primarily asserts that the trial court erred in concluding that he does not

have a meritorious defense. For the following reasons, the judgment is affirmed.

{¶2} Appellant is the sole owner of Quantum Research, LLC. In early 2012, he

negotiated an agreement on behalf of his company to lease a building and property owned by appellee, Chapel Real Estate Company. During negotiations, Bill Chapel

acted as appellee’s representative.

{¶3} On February 23, 2012, appellant sent Chapel an e-mail, raising six issues

regarding the proposed lease. Under one issue, he stated: “I will personally guarantee

the first 12 months of the lease.” In his responding e-mail, Chapel indicated that he did

not have any problems with “most” of appellant’s requests, but he still wanted to discuss

certain matters over the phone. According to appellant, even though the two men had

subsequent discussions about the terms of the lease, no further discussions were had

on the extent of the guarantee.

{¶4} Ultimately, Chapel and appellee prepared the lease agreement and the

lease guaranty. Both documents were executed by the respective parties. Under the

lease, Quantum Research rented the premises for two years, from March 1, 2012 until

February 28, 2014, at $2,500 a month, with a $2,500 security deposit. In relation to

default, the agreement provides:

{¶5} “If Tenant defaults in the payment of Rent or other charges and such

payment is not made within five (5) days after the same are due, or in the performance

of any other of Tenant’s obligations hereunder and Tenant fails to remedy such default

within ten (10) days after written notice from Landlord * * *, Landlord shall have the right

to exercise any and all rights or remedies available to Landlord at law, in equity or

otherwise, arising from such default, including but not limited to the right to terminate

this Lease, or to enter upon the Premises without terminating this Lease and relet the

Premises in Landlord’s name for the account of Tenant for the remainder of the term at

the highest rent then obtainable and immediately recover from Tenant any deficiency for

the balance of the term, plus expenses of reletting, or any time after such default and

2 the lapse of any applicable notice period, to make such payments in default or perform

such act in default for the account and at the expense of Tenant, and all sums so paid

by Landlord, including reasonable attorney fees, and all other sums payable by Tenant

to Landlord hereunder shall accrue interest at the rate of two percent (2%) above the

prime lending rate, * * *.” (Emphasis added.)

{¶6} At the same date, appellant executed the lease agreement on behalf of

Quantum Research, he signed the lease guaranty in his personal capacity. The lease

guaranty states:

{¶7} “1. Guarantors hereby, jointly and severally, personally guarantee to

Landlord, and Landlord’s successors and assigns, the prompt payment of rent and other

sums of money and the full performance of the covenants and agreements to be made

and performed by Tenant under the lease for the term of one (1) year only. If Tenant

shall at any time and in any manner default in the payment of rent and other sums or

charges to be paid by Tenant under the Lease, and such default is not fully cured within

ten (10) days of the occurrence thereof, then upon written notice, Guarantors shall

immediately (i) pay to Landlord all of said rent and other charges, (ii) fully satisfy such

covenants and agreements, and (iii) pay to Landlord the amount of damages and

expenses incurred by Landlord by reason of such default.” (Emphasis added.)

{¶8} After paying the initial security deposit, Quantum Research timely made all

monthly rent payments during the first year of the two-year lease. However, beginning

in March 2013, the company did not make any further rent payments. Accordingly, in

October 2013, appellee filed a cognovit complaint against appellant in the Lake County

Court of Common Pleas. Under its sole claim, appellee maintained that the lease

guaranty, as signed by appellant, had a warrant of attorney to confess judgment. Thus,

3 in light of Quantum Research’s default, the complaint alleged that appellant was liable

for the final year of rent, $2,250 in late fees, and attorney fees.

{¶9} On the same day the cognovit complaint was filed, the trial court issued a

final judgment ordering appellant to pay appellee the sum of $32,250, plus interest and

costs. The judgment further ordered him to pay $1,100 in attorney fees.

{¶10} Approximately eleven months after issuance of the money judgment,

appellant moved for relief from judgment under Civ.R. 60(B). First, he asserted that he

could not be held liable for the second year of rent payments because the guaranty

covers the first year of the lease agreement only. In support, appellant attached to the

motion a copy of the e-mail he sent to Bill Chapel during the negotiations. Second, he

contended that, even if he were responsible for the second year under the guaranty, he

still could not be found liable for the entire year of rent because appellee filed the case

in October 2013, four months before the lease termination. Based upon this, he argued

that appellee failed to mitigate its damages by finding a replacement tenant. Third,

appellant submitted that appellee’s calculation of damages was incorrect because it did

not account for the unreturned security deposit.

{¶11} During the evidentiary hearing, appellant testified that no further

negotiations were had as to the length of his guaranty after he sent the e-mail stating

that he was only willing to guarantee the first year of rent payments.

{¶12} Ultimately, the trial court ruled in appellant’s favor on his third argument;

i.e., the court concluded that appellee was only entitled to recover eleven months of

unpaid rent because Quantum Research’s security deposit was not returned.

Therefore, the trial court amended its original judgment to only award appellee the sum

of $29,500, covering the unpaid rent and the late fees. The award of attorney fees was

4 not modified. As to appellant’s first two arguments, the court denied his request for

60(B) relief. First, the trial court held that the language of the guaranty did not support

appellant’s contention that he was only personally obligated to pay the first year of the

lease; thus, appellant’s testimony regarding the e-mail was inadmissible under the parol

evidence rule. Second, the court concluded that, even though appellee filed the

underlying action before the two-year term ended, the provisions of the lease still gave

appellee the ability to recover “any deficiency” in rent payments from appellant as

guarantor for the Quantum Research.

{¶13} In appealing the 60(B) determination, appellant asserts three assignments

of error:

{¶14} “[1.] The trial court erred by not granting appellant’s motion for relief from

judgment vacating the cognovit judgment against appellant in its entirety.

{¶15} “[2.] The trial court erred by granting appellant’s motion for relief from

judgment only reducing the cognovit judgment awarded against appellant to $29,500,

instead of recovery to the date of filing the action being a maximum of seven months’

rent (April 2013 through October 2013) of $2,500.00 per month totaling $17,500.00.

{¶16} “[3.] The trial court erred by awarding $1,100 for attorney fees against

appellant.”

{¶17} Under his first assignment, appellant maintains that the trial court erred in

finding him liable for unpaid rent during the final eleven months of the lease. He argues

that the applicable term obligates him to pay rent payments not made during the first

year of the lease only. He further contends that this interpretation is supported by the

wording of the guaranty and his testimony concerning his e-mail to Bill Chapel.

{¶18} “Civ.R. 60(B) applies to relief from all judgments, including cognovit

5 judgments. Adomeit v. Baltimore (1974), 39 Ohio App.2d 97, 316 N.E.2d 469,

paragraph one of the syllabus. In general, to prevail on a motion for relief from

judgment brought pursuant to Civ.R. 60(B), ‘the moving party must demonstrate that

“(1) the party has a meritorious defense or claim to present if relief is granted; (2) the

party is entitled to relief under one of the grounds stated in Civ.R. 60(B)(1) through (5);

and (3) the motion is made within a reasonable time[.]”’ Cuyahoga Support Enforcement

Agency v. Guthrie, 84 Ohio St.3d 437, 440, 1999 Ohio 362, 705 N.E.2d 318, quoting

GTE Automatic Elec., Inc. v. ARC Industries, Inc. (1976), 47 Ohio St.2d 146, 351

N.E.2d 113.

{¶19} “However, this test is modified when a party is seeking relief from a

cognovit judgment. Because the judgment debtor is not afforded notice or the

opportunity to answer the complaint prior to the entry of a cognovit judgment, the

judgment debtor is not required to show entitlement to relief under one of the specific

grounds listed under Civ.R. 60(B). Nappi v. Cantagallo (Nov. 24, 1995), 11th Dist. No.

95-A-0016, 1995 Ohio App. LEXIS 5169, at *4. ‘Therefore, a party seeking relief from a

cognovit judgment is only required to demonstrate the existence of a meritorious

defense and that the motion is made within a reasonable time.’” Natl. City Bank v. Rini,

162 Ohio App.3d 662, 2005-Ohio-4041, ¶17-18 (11th Dist.).

{¶20} In this case, meritorious defense is at issue. Under the first argument of

his motion, appellant asserted that the guaranty covers rent payment for the first year

only. The language at issue states that appellant guaranties “the prompt payment of

rent and sums of money” owed by Quantum Research “under the Lease for the term of

one (1) year only.”

{¶21} That language, however, does not restrict appellant’s liability to the first

6 year of the lease. Instead, the phrase limits the duration of appellant’s liability to “a term

of one year only.” It does not specify when the term falls.

{¶22} Furthermore, the second sentence of the guaranty’s first term states that if

Quantum Research defaults “at any time” and does not cure the default within ten days,

appellant becomes immediately liable for the unpaid rent. The phrase “at any time”

does not limit the guarantee to the first year of the lease.

{¶23} As a general proposition, parol evidence is only admissible to explain the

meaning of a contract term when the language of the term is unclear. Schraff & King

Co., L.P.A. v. Casey, 11th Dist. Lake No. 2012-L-010, 2012-Ohio-5829, ¶25, quoting

Barnes v. Barnes, 5th Dist. Stark No. 2003CA00383, 2005-Ohio-544, ¶18. But if the

wording of a term is unambiguous, the words must be construed in accordance with

their plain and common meaning. Id. In this case, the lack of ambiguity in the

guarantee renders appellant’s statements as to intent inadmissible.

{¶24} The first assignment of error lacks merit.

{¶25} Under his next assignment, appellant submits that, even if his guarantee

covers the relevant time period, he should only have been held liable for unpaid rent

from April 2013 until October 16, 2013, the date appellee instituted the underlying case.

He argues that the lease between Quantum Research and appellee did not have an

“acceleration” clause, and that any unpaid rent accruing after October was speculative

because appellee could have found a new tenant for the leasehold.

{¶26} The trial court concluded that the lease has an acceleration clause. The

court relied on language from the previously quoted default term stating that, upon

default, appellant could “immediately recover from Tenant any deficiency for the

balance of the term * * *.” The use of “immediately” gives appellee the right to

7 accelerate payment of any rent it could not recoup as a result of leasing the premises to

a new tenant.

{¶27} Appellant further argues that appellee was not entitled to recover rent for

the period after October 16, 2013 because it failed to prove it attempted to mitigate its

damages by seeking a new tenant. Under Ohio law, a landlord has an implied duty to

mitigate the damages it sustains as a result of a breach of the lease. Frenchtown

Square Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 2003-Ohio-3648, ¶20. But

the failure to mitigate damages is considered an affirmative defense for which the tenant

has the initial burden of proof. Manor Park Apts., LLC v. Delfosse, 11th Dist. Lake No.

2006-L-036, 2006-Ohio-6867, ¶17.

{¶28} Regarding the “mitigation” issue, the trial court held that appellant was not

entitled to 60(B) relief because he failed to submit any evidence substantiating his claim

as to the lack of mitigation. The record supports the trial court’s holding. The partial

transcript of the evidentiary hearing before us consists solely of appellant’s testimony,

during which he did not address mitigation.

{¶29} Citing Tokai Financial Services, Inc. v. Mathews, 11th Dist. Lake No. 95-L-

098, 1995 Ohio App. LEXIS 5163, *5 (Nov. 24, 1995), the dissent concludes the lease’s

acceleration clause is unenforceable because the contract does not contain a mitigation

clause. However, this was not raised before the trial court or on appeal. More

importantly, the duty to mitigate is implied by law, Frenchtown Square Market, supra.

Accordingly, requiring it in writing serves no purpose. Therefore, to the extent that

Tokai Financial Services is inconsistent with Frenchtown Square Market, it is expressly

overruled.

{¶30} Given that the lease has an acceleration clause and appellant did not

8 carry his burden of proof on mitigation, appellee was entitled to damages covering the

remainder of the lease. As appellant did not establish a meritorious defense, his

second assignment lacks merit.

{¶31} Under his final assignment, appellant maintains that the trial court erred in

awarding attorney fees to appellee as part of the cognovit judgment. However, in filing

his Civ.R. 60(B) motion for relief from that judgment, appellant did not raise this specific

issue. As a result, he has waived the right to assert the issue on appeal. See Whitaker

v. Paru Salvam, LLC, 2d Dist. Montgomery Nos. 26103 and 26108, 2014-Ohio-3263,

¶49. Thus, the third assignment is without merit.

{¶32} The judgment of the Lake County Court of Common Pleas is affirmed.

CYNTHIA WESTCOTT RICE, P.J., concurs,

DIANE V. GRENDELL, J., concurs in part and dissents in part, with a Dissenting Opinion.

____________________

DIANE V. GRENDELL, J., concurs in part and dissents in part, with a Dissenting Opinion.

{¶33} While I concur with the majority’s analysis and judgment as to the first and

third assignments of error, I dissent on the second assignment of error. Since the

acceleration clause contained in the lease lacks an accompanying mitigation

requirement, the clause cannot be enforced to justify an award of damages to Chapel

Real Estate and reversal is warranted on this issue.

{¶34} The majority holds that, since the lease has an acceleration clause and

the appellant did not prove that Chapel, the landlord, failed to mitigate its damages, the

9 trial court’s award was proper. Whether a lack of mitigation was proven, however, need

not be considered since it is not determinative in this case. Upon a finding that the

lease could not be accelerated, the award of the damages upheld by the majority

becomes impermissible.

{¶35} There was no dispute that the lease contained an acceleration clause but

had no term requiring Chapel to mitigate its damages. This court has held that an

acceleration clause is enforceable when it is accompanied by a mitigation clause, which

assures “a rational relationship between the impact of the acceleration clause and the

actual damages sustained.” Tokai Fin. Servs. v. Mathews, 11th Dist. Lake No. 95-L-

098, 1995 Ohio App. LEXIS 5163, 6 (Nov. 24, 1995). Also Graines v. Y.D.C. Corp.,

11th Dist. Lake No. 2000-L-053, 2001 Ohio App. LEXIS 2141, 9 (May 11, 2001)

(Grendell, J., dissenting) (applying Tokai to support the trial court’s correct conclusion

that the acceleration clause was invalid as a matter of law on the grounds that such

clauses are valid only when they provide that the lessor must mitigate his damages).

Similar conclusions have been reached by other appellate districts as well, emphasizing

that acceleration clauses lacking an accompanying obligation to minimize damages are

“not enforceable as a matter of public policy.” Information Leasing Corp. v. Chambers,

152 Ohio App.3d 715, 2003-Ohio-2670, 789 N.E.2d 1155, ¶ 44 (1st Dist.); see also

Frank Nero Auto Lease, Inc. v. Townsend, 64 Ohio App.2d 65, 71, 411 N.E.2d 507 (8th

Dist.1979).

{¶36} The majority contends that Tokai should be reversed, under the authority

of Frenchtown Square Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 2003-Ohio-

3648, 791 N.E.2d 417. Tokai, however, is not inconsistent with Frenchtown.

Frenchtown did not rule upon whether an acceleration clause must be accompanied by

10 a mitigation clause, the key matter at issue here. Importantly, Tokai and other cases

cited above specifically recognized that, under common law, a commercial landlord had

a duty to mitigate damages, the same holding that was subsequently reached in

Frenchtown. Even when recognizing that this duty existed independent of a

requirement for mitigation in the contract, Tokai still required the inclusion of a mitigation

clause to accompany the acceleration clause. This is based, in part, upon the principle

outlined above, protecting the lessee and ensuring “a rational relationship between the

impact of the acceleration clause and the actual damages sustained.” Tokai at 6. The

majority’s analysis does not provide sufficient or convincing grounds to overturn the

established precedent of this court, as “judicial precedents should not be lightly

disregarded.” Cleveland v. Luttner, 92 Ohio St. 493, 498, 11 N.E. 280 (1915) (Jones, J.,

dissenting).

{¶37} In the absence of a valid, enforceable acceleration clause, Chapel was not

entitled to receive the rent that was due after the date the present action was filed. It

follows, then, that it was unnecessary for appellant to prove that Chapel failed to

mitigate its damages since it cannot recover damages for the remainder of the lease.

{¶38} For the foregoing reasons, I respectfully dissent as to the second

assignment of error and would reverse the award of rent given under the invalid

acceleration clause. On the remaining assignments of error, I concur.