Shimrak v. Goodsir

2014 Ohio 3716

• Court: Ohio Court of Appeals
• Decided: August 28, 2014
• Docket: 100612
• Status: Published

Opinion

[Cite as Shimrak v. Goodsir, 2014-Ohio-3716.]

Court of Appeals of Ohio EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

JOURNAL ENTRY AND OPINION No. 100612

PETER E. SHIMRAK, ET AL.

PLAINTIFFS-APPELLEES

vs.

SUSAN GOODSIR, ET AL. DEFENDANTS-APPELLANTS

JUDGMENT: REVERSED AND REMANDED

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-12-794008

BEFORE: Stewart, J., Rocco, P.J., and Keough, J.

RELEASED AND JOURNALIZED: August 28, 2014 ATTORNEY FOR APPELLANT

Mark I. Wachter Wachter Kurant, L.L.C. Pepper Pike Place 30195 Chagrin Boulevard, Suite 300 Cleveland, OH 44124

ATTORNEYS FOR APPELLEES

Amanda A. Barreto Steven M. Ott Ott & Associates Co., L.P.A. Penton Media Building 1300 E. Ninth Street, Suite 1520 Cleveland, OH 44114 MELODY J. STEWART, J.:

{¶1} This is an appeal on questions of law concerning the interpretation of a

financing contingency clause in a residential property purchase agreement. The seller of

the property alleged that after the buyers were neither approved nor denied financing for

the purchase within a certain period of time, the contingency clause in the agreement gave

the buyers two options: either request that the seller grant a written extension of time to

obtain financing or remove the contingency in writing. The seller maintained that the

buyers did not request an extension of time nor did they waive the financing contingency

in writing, so the buyers breached the purchase agreement by not going forward with the

purchase. The buyers claimed that a failure to obtain financing under the terms of the

contingency clause rendered the purchase agreement null and void. The court agreed

with the buyers and this appeal followed.

I

{¶2} On May 24, 2006, defendant-appellant Susan Goodsir, the successor trustee

to the William Meyer Trust and seller, agreed with plaintiffs-appellees Peter and Patricia

Shimrak, buyers, to a purchase agreement for the sale of a house that was an asset of the

trust. The Shimraks paid $2,000 in earnest money and the parties set a closing date of

August 24, 2006, for the transaction.

{¶3} Paragraph E of the purchase agreement contained the following financing

contingency: This transaction is conditioned upon BUYER obtaining a commitment for a first mortgage loan (the “Loan”) from Howard Hanna Mortgage Services or such other lending institution chosen by BUYER in the amount set forth in D(3) above, or in a lesser amount acceptable to BUYER. BUYER agrees to apply in writing for the loan within five (5) Days, as defined in Section Q, after the date of Acceptance, to cooperate fully with the lender’s requests for information and to use good faith efforts to obtain the Loan. If BUYER’s loan application is neither approved nor denied within 30 days after the date of Acceptance, then BUYER may either request a written extension or remove this contingency in writing.

If BUYER’s loan application is denied, or if SELLER refuses an extension and BUYER does not remove this contingency, then this agreement (“AGREEMENT”) shall be null and void, neither BUYER, SELLER, nor any REALTOR(S) involved in this transaction shall have any further liability or obligation to each other, and both BUYER and SELLER agree to sign a mutual release whereupon the earnest money shall be returned to BUYER.

{¶4} The uncontested facts show that the Shimraks applied for financing, but were

unable to obtain a commitment from a lender. On August 4, 2006, Goodsir first learned

about the Shimraks’s difficulties in obtaining financing and that the Shimraks might be

requesting a delay in closing. On August 7, 2006, the Shimraks were told that their

lender would approve financing only upon the sale of their house. They asked Goodsir

to amend the purchase agreement to add a new contingency making their purchase of

Goodsir’s house contingent upon the Shimraks selling their home. Goodsir formally

rejected the proposed amendment of the purchase agreement. With no financing

forthcoming because they had yet to sell their home, the Shimraks notified Goodsir on

August 18, 2006, that they would be withdrawing from the transaction. Goodsir then

relisted the house for sale, eventually agreeing with another buyer in May 2007 to sell the

house for $65,000 less than what the Shimraks had agreed to pay. {¶5} The Shimraks initiated this action in the Rocky River Municipal Court

seeking return of the $2,000 they paid as earnest money for the purchase. Goodsir then

counterclaimed for breach of contract relating to the Shimraks’ failure to perform as

outlined in the purchase agreement. She also sought a declaratory judgment of her rights

under the purchase agreement. With Goodsir’s counterclaim exceeding the monetary

jurisdiction of the municipal court, the case was transferred to the court of common pleas.

The court of common pleas then released the earnest money to the Shimraks without

objection from Goodsir.

{¶6} The court conducted a hearing on the declaratory judgment action. Goodsir

argued at the hearing, as she does in this appeal, that the financing contingency in

Paragraph E gave the Shimraks one of two options in the event they were neither

approved nor denied financing within 30 days after she accepted the purchase agreement:

either request a written extension of time or remove the contingency in writing. She

maintained that the Shimraks offered a third option by proposing to amend the purchase

agreement to make it contingent on the sale of their house. Goodsir argued that the

Shimraks’ proposal was not an option authorized by the purchase agreement and that their

failure to exercise one of the two options stated in the purchase agreement meant that they

were obligated to complete the purchase and their failure to do so was a breach of the

purchase agreement.

{¶7} The Shimraks argued that the two options contained in Paragraph E — either

make a request for a written extension of time or remove the financing contingency — were discretionary courses of action for them, neither of which superseded their right to

walk away from the purchase agreement if they were not approved for financing after the

30-day period.

{¶8} In a written opinion, the court found that Paragraph E’s use of the word

“may” when referring to the two options available to a buyer in the event the loan

application was neither approved nor denied meant that those options were discretionary.

The court stated:

As the Court reads the Agreement, if after thirty (30) days, approximately June 24, 2006, [Shimrak] was unable to secure the financing then [Shimrak] has the option to do at any point in time, one or none of the following: 1. Request an additional extension; 2. Remove the contingency. Furthermore, if at whatever point [Shimrak] requested such an extension and [Goodsir] denied said extension, then the Agreement was null and void.

Here, at the end of the thirty (30) day time period, [Shimrak] was unable to secure the financing. Some ninety (90) days after the Agreement was entered into, in August 2006, [Shimrak] requested an extension pursuant to Section E. [Goodsir] denied the request for an extension. Upon that denial, the Agreement was null and void pursuant to Section E. [Shimrak] should not be punished here for [Goodsir’s] use of a poorly written contract that failed to specify a time frame for the request for an extension or removal of the clause.

II

{¶9} R.C. 2721.03 states that any person interested in a contract may have

determined any question of construction arising under the contract. The interpretation of

a contract is a question of law for the court. In re All Kelley & Ferraro Asbestos Cases,

104 Ohio St.3d 605, 2004 Ohio-7104, 821 N.E.2d 159, ¶ 28. The court must give the

words used in a contract their plain and ordinary meaning in order to ascertain the intent of the parties to the contract, Penn Traffic Co. v. AIU Ins. Co., 99 Ohio St.3d 227,

2003-Ohio-373, 790 N.E.2d 1199, ¶ 9, unless the common words result in a “manifest

absurdity or some other meaning is clearly evidenced from the face or overall contents” of

the agreement. Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146

(1978), paragraph two of the syllabus.

III

{¶10} The court’s ruling made three points: first, that the options set forth in

Paragraph E of the agreement were discretionary; second, that the agreement imposed no

time limitations on when those options were to be exercised; and third, that the request to

add a contingency for the sale of the Shimraks’ home constituted a request for an

extension that Goodsir denied, thus rendering the contract null and void. Goodsir argues

that the court erred on all three points. We agree.

A

{¶11} The disputed language of Paragraph E states: “If BUYER’s loan

application is neither approved nor denied within 30 days after the date of Acceptance,

then BUYER may either request a written extension or remove this contingency in

writing.” (Emphasis added.)

{¶12} The court made the error of construing the word “may” in isolation from the

word “either.” We interpret the disputed sentence to mean that if the buyer’s application

for financing is neither approved nor denied within 30 days of the seller accepting an

offer to purchase the property, the buyer must exercise one of the two stated options: and the buyer has the discretion to choose which of the two options to exercise. In other

words, we do not read the discretionary word “may” in isolation, but as “may either” —

the word “either” being mandatory and the word “may” being discretionary as to which of

the two required options the buyer must exercise. Admittedly, the language used in

Paragraph E is not a model of clarity, but to interpret it as the court did (that the Shimraks

could invoke “one or none” of the options listed) would render the clause completely

meaningless: agreements are made to evoke performance, not to encourage the lack

thereof. Courts must employ the construction of a contract that makes the agreement fair

and reasonable and gives the agreement meaning and purpose. See GLIC Real Estate

Holdings, LLC v. Bicentennial Plaza Ltd., 2012-Ohio-2269, 971 N.E.2d 404, ¶ 10 (10th

Dist.). The court’s interpretation of Paragraph E inserted a new option that had no basis

in the overall context of the agreement.

{¶13} In Perhavec v. Rosnack, 11th Dist. Lake No. 2003-L-157, 2005-Ohio-138,

the court of appeals construed identical language to mean that should a loan application

be neither approved nor denied within a stated number of days after the date of

acceptance, the buyers “should request a written extension of this contingency or request

this contingency be removed from the contract.” Id. at ¶ 15. The court of appeals’ use

of the word “should” suggested that the options provided were mandatory and the seller’s

discretion extended only as far as deciding which option to exercise. Compare State v.

James, 4th Dist. Ross No. 13CA3371, 2013-Ohio-5322 (stating that when a plea bargain,

which is governed by the law of contract, is violated by the state, the court “may either” allow the negotiated plea to be withdrawn or require the state to fulfill its end of the

bargain, but nonetheless must choose one of those two options).

{¶14} Our conclusion is reinforced by the nature of the options available to the

buyer in the event the buyer’s application for financing is neither approved nor denied

within 30 days of the seller accepting the purchase offer. Those options — requesting an

extension of time to obtain financing or removing the contingency — put the obligation

solely on the buyer after the 30-day period had expired. The only time that Goodsir had

the obligation to act was if the Shimraks exercised the option of seeking an extension of

time to obtain financing. If the Shimraks had requested an extension of time to obtain

financing, the onus would have shifted to Goodsir to either grant the extension or deny it,

making the purchase agreement null and void. The Shimraks did not pursue this option

and cannot complain that Goodsir somehow failed to act as required by the purchase

agreement.

{¶15} Contrary to the court’s conclusion, there is no option that simply allows the

buyer to walk away from the purchase agreement with impunity, nor could that option be

inferred under the circumstances. Having offered to purchase the property, the buyers

“cannot defeat the contract by their own fault” and “must make a bona fide effort” to

obtain financing. Graham-Chrysler Plymouth, Inc. v. Warren, 9th Dist. Summit No.

9222, 1979 Ohio App. LEXIS 9939 (Aug. 15, 1979). While the parties agree that the

Shimraks acted in good faith to obtain financing, the fact remains that the Shimraks had performance obligations under the terms of the agreement and could not unilaterally

withdraw from the purchase agreement.

{¶16} It is important to acknowledge that this is not a case where the Shimraks

were denied financing yet were forced to go through with the purchase. The purchase

agreement made it clear that had financing been denied, the purchase agreement would

become null and void. The Shimraks’ request for financing was neither approved nor

denied, leaving them in limbo, but not without recourse. They could have requested an

extension of time to obtain financing and shifted the burden of action to Goodsir, who

could either grant the request and allow the contract of sale to continue on or deny the

request and void the purchase agreement. The Shimraks could also have removed the

financing contingency to allow the sale to continue to closing. What they could not do

was simply take no action after the 30-day time period had expired, not act as required by

Paragraph E, and then renege on their promise to buy the property.

B

{¶17} Having found that the purchase agreement required the Shimraks to choose

one of two options in the event their application for financing was neither approved nor

denied, we next consider the court’s ruling that the Shimraks “did elect one of the

enumerated options” under Paragraph E. Judgment entry at 5. The court considered the

Shimraks’ proposed addendum dated August 7, 2006, to make the purchase agreement

contingent upon the sale of their house, to be an option under the agreement. {¶18} The court erred by finding that the Shimraks elected one of the enumerated

options available under Paragraph E. The purchase agreement provides only two options

in the event a buyer’s application for financing is neither approved nor denied within 30

days after the date of acceptance: request a written extension or remove the financing

contingency. The Shimraks did not elect one of these options, but instead offered a third:

they requested an addendum to the purchase agreement making the purchase agreement

contingent on the sale of their house.

{¶19} The court erroneously equated the Shimraks’ request to add a contingency

relating to the sale of their home as being the same thing as a request for an extension of

time to obtain financing. A contingency is very different from an extension. In a

contract, a “contingency” is a condition precedent that must occur for the parties’

promises to be binding. Hussey v. Daum, 2d Dist. Montgomery No. 14246, 1994 Ohio

App. LEXIS 2338 (June 1, 1994). If the stated contingency does not occur, there is no

duty to perform under the terms of the contract. An extension of time to perform the

obligations of a contract does not excuse performance, but merely delays it. The

proposed addendum was not a request for an extension of time, but a fundamental change

to the purchase agreement.

{¶20} In addition, the court’s conclusion that Goodsir “denied the request for an

extension,” judgment entry at 4, is wholly contradicted by the Shimraks’ evidence. In a

letter dated August 18, 2006, Peter Shimrak responded to Goodsir’s contention that the

Shimraks breached the purchase agreement by noting that “I have not signed anything removing the contingency, and I have not asked you for an extension * * *.” See

Plaintiff’s exhibit No. 6. With the Shimraks having conceded in writing that they did not

request an extension of time even though their financing had been neither approved nor

denied, the court erred by finding that Goodsir denied a request for an extension of time

and thus rendered the purchase agreement null and void.

C

{¶21} Although we have found that the court incorrectly concluded that the

Shimraks did employ one of the options set forth in Paragraph E of the purchase

agreement, the court nonetheless concluded that there were no time limitations on when

an option had to be exercised. Goodsir argues that this finding gave the Shimraks an

unstated additional option under the purchase agreement: do nothing. Goodsir argues

that by so ruling, the court made the 30-day time period in which to obtain financing

meaningless and allowed the Shimraks to wait until just before the time of closing to

inform her that they had not obtained financing.

{¶22} Paragraph E sets forth two time frames: (1) within five days after

acceptance of the offer to purchase, the Shimraks had to apply in writing for a

commitment for a first mortgage loan; and (2) if the Shimraks’ loan application was

neither approved nor denied within 30 days after the date Goodsir accepted the Shimraks’

offer to purchase the property, the Shimraks had to elect to either request a written

extension in which to obtain financing or remove the financing contingency in writing.

The question we must resolve then is when did the Shimraks have to elect one of the options after their loan application was neither approved nor denied within the 30-day

time frame.

{¶23} At the outset, we find the court erred by concluding that Paragraph E’s

failure to state a time frame for when the Shimraks had to elect which option to pursue

was the fault of Goodsir, who used a “poorly written contract that failed to specify a time

frame for the request of an extension or removal of the [financing contingency] clause.”

Judgment entry at 4. The undisputed evidence showed that the Shimraks’ real estate

agent prepared the offer using an “Offer to Purchase Real Estate and Acceptance” form

prepared on her company’s letterhead. Not only did Goodsir’s real estate agent not

prepare the offer submitted by the Shimraks, Goodsir’s real estate agent worked for a

different real estate company. The evidence showed that the Shimraks selected the form

on which they offered to purchase the property, so the court should not have blamed

Goodsir for the use of a “poorly written contract.” To the extent that the court believed

the Shimraks were being “punished” by the terms of the purchase agreement, that

punishment was their own doing.

{¶24} Finding that Paragraph E of the purchase agreement should have been

construed against the Shimraks begs the question of whether the contract is ambiguous.

Silence in a contract is not the same as an ambiguity. E. Ohio Gas Co. v. Akron, 81 Ohio

St. 33, 54-55, 90 N.E. 40 (1909). Paragraph E omitted any reference to a time frame in

which a buyer whose application for financing is neither approved nor denied must elect

one of the provided options. Unlike an ambiguity that exists when contract language is susceptible of more than one interpretation, State ex rel. Toledo Edison Co. v. Clyde, 76

Ohio St.3d 508, 513, 668 N.E.2d 498 (1996), the purchase agreement was simply silent

on when the Shimraks had to exercise the options provided in Paragraph E. Absent any

ambiguity, the court should not have endeavored to construe that part of the purchase

agreement in favor of either party, let alone in favor of the Shimraks.

{¶25} With the purchase agreement silent on when a buyer was required to elect

one of the two options available under Paragraph E, we employ the rule that if a contract

is silent on a point, “[t]he parties to a contract are required to use good faith to fill the

gap.” Burlington Res. Oil & Gas Co. v. Cox, 133 Ohio App.3d 543, 547, 729 N.E.2d

398 (4th Dist.1999). “‘Good faith’ is a compact reference to an implied undertaking not

to take opportunistic advantage in a way that could not have been contemplated at the

time of drafting, and which therefore was not resolved explicitly by the parties.” Ed

Schory & Sons v. Francis, 75 Ohio St.3d 433, 443-444, 662 N.E.2d 1074 (1996), quoting

Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357-1358

(7th Cir.1990). “What the duty of good faith consists of depends upon the language of

the contract in each case which leads to an evaluation of reasonable expectations of the

parties.” Fultz & Thatcher V. Burrows Group Corp., 12th Dist. Warren No.

CA2005-11-126, 2006-Ohio-7041, ¶ 34, citing B-Right Trucking Co. v. Interstate Plaza

Consulting, 154 Ohio App.3d 545, 2003-Ohio-5156, 798 N.E.2d 29, ¶ 32 (7th Dist.).

The court therefore erred by concluding as a matter of law that there was no particular time frame in which the Shimraks had to elect one of the options available under

Paragraph E.

{¶26} It is unnecessary in this case for us to establish a bright-line rule under

which the Shimraks had to exercise one of the options under Paragraph E because we find

as a matter of law that, based on the facts of this case, the Shimraks did not act within a

reasonable period of time after the expiration of the 30-day period to inform Goodsir that

their application for financing had neither been approved nor denied. The 30-day period

for obtaining financing expired on June 24, 2006, yet the Shimraks waited until August 7,

2006 to inform Goodsir that their application had been neither approved nor denied.

Nothing in the evidence showed why the Shimraks could not have communicated with

Goodsir immediately after the 30-day period or shortly thereafter. Indeed, the Shimraks

appeared unconcerned about the consequences of any delay to Goodsir: when Goodsir’s

attorney pointed out to Peter Shimrak that August 7, 2006 (the date on which the

Shimraks proposed to amend the purchase agreement) was well beyond the 30-day time

period set forth in Paragraph E, Peter Shimrak responded, “Whatever.” Tr. 30.

{¶27} The consequence of the Shimraks’ failure to timely exercise one of the

options set forth under Paragraph E of the purchase agreement was manifest. The

Shimraks knew that Goodsir had received at least one other offer on the house — the

existence of another bidder is what prompted the Shimraks to offer the list price for the

house. When the bank neither approved nor denied their application for financing within

30 days of applying for financing, the Shimraks did nothing. Surely it was their hope that their house would sell and they would have the funds to purchase the Goodsir

property. By their own admission, the Shimraks “really wanted the place[.]” But by

waiting so long after the expiration of the 30-day period, the Shimraks must have known

that any chance Goodsir had to entertain and/or accept other offers on the house was

stifled. From the time the Shimraks’ offer was accepted to the time when they formally

withdrew their offer, almost three months had elapsed. It was highly unlikely that any

potential buyer who tendered a competing offer would wait that long and renew the same

offer previously made. Under the circumstances, their action was untimely and

unreasonable.

IV

{¶28} Despite our finding that the Shimraks did not timely exercise one of two

options available to them under Paragraph E when their lender had neither approved nor

denied their application for financing, a final question remains: was the Shimraks’ loan

application ultimately denied so as to render the purchase agreement null and void?

{¶29} The plain language of the purchase agreement states that a denial of a loan

application renders the agreement null and void. The Shimraks argue that the August 7,

2006 email sent by their bank stating that it would “provide financing to Peter Shimrak *

* * once his current home sells” was a denial of financing that rendered the purchase

agreement null and void.

{¶30} Even if we assume that the Shimraks are correct that their lender making

financing contingent upon the sale of their house constituted a denial of financing, we must reject the Shimraks’ argument because they were already in breach of the purchase

agreement by failing to timely exercise one of the options listed in Paragraph E of the

agreement when they were informed of their claimed denied financing. They cannot rely

on a subsequent denial of their loan application to purge an earlier breach.

{¶31} In any event, the Shimraks try to have it both ways when they argue that

their lender denied their loan application on August 7, 2006, by telling them that it would

approve financing only if they sold their home. If that was truly the case, their

application for financing would have been denied within 30 days of making their

application for financing because the same situation existed. Yet at that point in time,

the Shimraks plainly did not consider their application for financing rejected and the

purchase agreement null and void. They concede in their appellate brief that their “loan

application was not approved or denied within 30 days after Goodsir’s acceptance.”

Appellee’s brief at 6. Having conceded that point, they cannot argue that their lender

rejected their application for financing by setting forth a condition that had existed all

along.

{¶32} In fact, it was disingenuous for the Shimraks to argue that their lender’s

August 7, 2006 notice that it would approve financing only upon the sale of the Shimraks’

home was the first time that they were aware this would be a condition of financing. The

record suggests that the Shimraks knew all along that their application for financing

would be approved only upon the sale of their house. In his testimony before the court, Peter Shimrak testified that he and his wife had suffered certain financial reversals and

needed financing to buy the Goodsir property. He was asked:

Q. Did you apply for financing by May 30th, 2006?

A. Of course we did.

Q. Okay.

A. But we were never able to get financing because we couldn’t sell our home.

Tr. 20.

{¶33} The above testimony was consistent with other testimony by Peter Shimrak;

namely, that he did not remove the financing contingency after the 30-day window for

obtaining financing closed because “I had to have financing.” Tr. 28. And in response

to a question of why the Shimraks had not made the purchase agreement contingent on

the sale of their house, Peter Shimrak testified it was “[b]ecause I was convinced we were

going to sell our home and buy this nice home, and it just didn’t work out.” Tr. 29.

Based on this testimony, the Shimraks knew at the time they entered into the purchase

agreement that they would have to sell their home in order to obtain financing for the

Goodsir property. They could not credibly argue that August 7, 2006 was the first time

they learned that their loan application would be approved only on the condition that they

sell their home. What is more, it is apparent from the circumstances that the Shimraks

did not consider their application for financing to have been denied at the time they were

obligated to exercise one of the options listed under Paragraph E. Indeed, having

conceded that point, they cannot argue that their lender rejected their application for financing by setting forth a condition that had existed all along. To hold otherwise

would allow a buyer to indefinitely string along a seller and then walk away from an

agreement, leaving the seller with no recourse.

V

{¶34} In conclusion, we find that the court erred as a matter of law by granting

judgment to the Shimraks. The assigned errors are sustained. This matter is reversed

and remanded to the trial court with instructions to enter judgment for Goodsir. We

express no opinion on the amount of damages to be awarded. That determination must

first be made by the trial court.

{¶35} This cause is reversed and remanded to the trial court for further

proceedings consistent with this opinion.

It is ordered that appellant recover of appellees her 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 Cuyahoga

County Court of Common Pleas 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.

________________________________________ MELODY J. STEWART, JUDGE

KENNETH A. ROCCO, P.J., and KATHLEEN ANN KEOUGH, J., CONCUR