Electronically Signed Email Exchange May Constitute Enforceable Real Estate Contract

By: Stephen D. Richman, Esq. - Senior Counsel- Kohrman, Jackson & Krantz

(A Watch Your Language Series Article)

(Watch your language when creating contracts [and when not intending to create a contract])

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will typically uphold commercial document provisions unless they are contrary to public policy or statutory law, or the subject of a mutual mistake. Courts traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial transactions, since both parties will usually have attorneys to review their documents. More and more, parties to residential real estate contracts are being held to the same standard governing commercial transactions. Because courts often defer to the specific language of real estate documents, unintended results are often the norm for parties who do not carefully draft their documents.

 Because of this judicial deference to “plain language” within real estate and other documents, and the fact that courts, as a general rule will not look outside the four corners of a document (to consider extrinsic evidence of intent) if the language is unambiguous, you must “watch your language, and say what you mean, precisely, or a judge will decide what you meant.”

This watch your language precept is just as (if not more) important in cases determining whether or not a contract has been created, than it is in cases determining the meaning of language within a legally created contract. The Court of Appeals for the First Appellate District of Ohio was recently faced with this very issue in Mezher v. Schrand, 2018-Ohio-3787.

Background of Mezher v. Schrand.

This case involves the alleged sale of a high-end residential property in Mt. Adams, Ohio owned by defendants-appellees Karri and Jeff Schrand (“Seller[s]”). Plaintiffs-appellants Joseph and Mike Mezher (“Buyer[s]”) argued that the Sellers agreed by a series of email exchanges (electronically signed) to sell their home to the Buyers and that the Sellers breached that agreement. The Sellers argued that no agreement existed because of the requirements of the Statute of Frauds.

The email exchange between the Buyers and the Sellers in Mezher started with both parties going back and forth on price. These introductory emails contained a general description of the property (address) and clearly identified the parties. The last three emails in the exchange were as follows:

Buyer (Sept 29, 2017): “However, will split it [price difference] again with you because I want to be flexible. I am good at $982,500 for a purchase price. Based on inception [sic] and customary closing, we can get a simple contract drafted Monday and have it signed by us Tuesday with the earnest money cashier check to you upon acceptance of contract by Tuesday. Please let me know, Mike[.]”

Seller (Sept 30, 2017): “We accept.”

Buyer (Sept 30, 2017):  “Great, I agree too.”

When the parties met on October 5, 2017, an argument ensued, and the Sellers refused to sign a written form contract the Buyers brought with them. The Buyers then filed a complaint against Sellers, requesting specific performance of the real estate contract allegedly established by e-mail exchange. The trial court granted summary judgment in favor of the Sellers, finding that the September 29-30 email exchange between the parties did not satisfy the Statute of Frauds, because the emails did not describe the subject property with particularity. The Buyers then appealed to the Hamilton County Court of Appeals.

What is the Statute of Frauds?

In Ohio (and most other jurisdictions), the “Statute of Frauds” (originating from a 1619 Act of Parliament) basically establishes that certain contracts must be memorialized in a signed writing to be enforceable. Specifically, Ohio’s Statute of Frauds (ORC §1335.05) provides, in pertinent part that: “no action shall be brought …upon a contract or sale of lands… or interest in or concerning them,… unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith...”. There are limited, “equitable” exceptions to the rule, such as “part performance”, “unjust enrichment” and “promissory estoppel” that courts have imposed in order to avoid unfair legal remedies. See “An Oral Contract to Buy Real Estate is not Worth the Paper it is not Written on” — Ohio Real Estate Blog, April 30, 2010.

Does an email or other electronic form of writing satisfy the Statute of Frauds?

Yes. While not contemplated in 1619, the “electronic age of contract formation” has been with us in Ohio since the turn of the century. Pursuant to ORC §1306.06 (C)-(D), if a law requires a record and/or signature to be in writing, an electronic record and/or signature satisfies the law. To erase any doubt with respect to contracts, ORC §1306.06 (B) provides: “A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.”

What writing is sufficient to satisfy the Statute of Frauds?

More perplexing than whether or not a writing exists, is the question of what writing is sufficient to satisfy the Statute of Frauds. The general law in Ohio is that in order for a real estate contract to comply with the Statute of Frauds, it is necessary that the signed contract or memorandum: (1) identify the subject matter; (2) establish that a contract has been made (both parties to the contract must assent to its terms and have a “meeting of the minds” as to those terms); and (3) state the essential terms with reasonable certainty.

What are the essential terms of a real estate contract?

In Ohio, courts have identified the essential terms of a real estate contract as: “the identity of the parties to be bound; the subject matter of the contract; consideration; a quantity term and a price term”. What is not essential? According to recent Ohio court decisions, a written contract for the sale of land need not include the character of the deed to the executed, specify who should pay taxes on the sale or state whether a mortgage must be given to secure the purchase money in order for the contract to still comply with the Statute of Frauds. Additionally, the contract does not violate the Statute of Frauds because the writing does not state a specific date of performance (i.e. closing date) or because of the failure to designate the nature of the interest being conveyed.

Analysis of Mezher v. Schrand.

The court of appeals in Mezher reversed the trial court’s decision, easily concluding that the emails at issue did in fact describe the subject property with particularity. While a list of personal property (appliances, window treatments…) was not specified, the address of the real estate was embedded within the subject line of each email in the exchange and all the other essential terms could be found in the body of the emails. According to the appellate court in Mezher, a list of ancillary personal property is clearly a non-essential term in a contract for the sale of real property.

The appellate court, however, also remanded the case back to the trial court on the issue of whether or not a “meeting of the minds” occurred within the emails vs simply a price negotiation to be followed up by a more complete written contract. Recall that the Mezher email exchange contemplated that the parties would sign a formal document shortly after the email exchange.

As explained by the court of appeals in Mezher, “Given the circumstances surrounding the parties’ email exchange and later discussions, including that other terms of the sale had yet to be agreed upon, an issue of fact exists as to whether the parties had a present intention to be bound at the time of the email exchange, or whether the parties did not intend to be bound until execution of the more formal contract.”

The Mezher court did cite precedent establishing that an agreement can be specifically enforced even where the parties contemplated execution of a later, formal written document, so long as the parties (at the time of the “informal contract”) have manifested an intent to be bound and their intentions are sufficiently definite. The determination of intent, however would be a matter for the trier of fact, not the court of appeals.

What is the moral of this story?

First, “say what you mean, precisely, or a judge will tell you what you meant.” The general rule in Ohio is that when the parties have clearly agreed to the “critical terms” of a real estate transaction, the court may determine on its own the meaning of any ambiguous or uncertain terms. While courts will typically factor in to their decisions, what they believe the parties’ mutual understanding to be, more often than not, a court’s determination does not match up with a party's actual understanding and someone goes home from court unhappy.

Second, there is no hard and fast rule or finite list as to what is and what is not an “essential” term of a real estate contract. While we know that price, identification of the parties and property description are essential terms, and that the closing date and description of personal property are non- essential terms, there are limitless provisions that could be deemed essential by a court of law, the absence of which could render the contract unenforceable. In other words, don’t worry about the number of pages in your contracts, worry about what is reflected within the pages.

Third, the enforceability of a real estate contract containing essential terms depends… on whether the parties have manifested an intention to be bound by such terms and whether these intentions are sufficiently definite to be specifically enforced. Unless absolutely clear in the “contract”, however, the intent of the parties will be based on a fact finder’s (judge or jury’s) evaluation of not only the language itself, but the circumstances surrounding the language. The fact finder certainly will not have a better idea of the parties’ intentions than the parties themselves, but will have the power to nonetheless, make the call. In other words, if you don’t want your preliminary negotiation or letter of intent to be construed as a final contract, spell that out, clearly and definitively. It is no guarantee, but a clear statement that the document “is not intended to be binding” will always be evidence of non-intent to create a binding contract.

Finally, get with the times. These days, contracts can be created in cyberspace, as easily as they can be on a written document entitled “contract.” If you don’t want your emails to be binding contracts, don’t sign them, or better yet, don’t write them in the first place.

Caveat Emptor (“Let the Buyer Beware”) Is Still Alive and Well in Ohio

By: Stephen D. Richman, Senior Counsel, Kohrman, Jackson & Krantz

The doctrine of caveat emptor (“let the buyer beware”) is still alive and well in Ohio, generally precluding recovery in an action by a purchaser against a seller pertaining to a property’s defective condition if:

1) the condition complained of is open to observation or discoverable upon reasonable inspection;

2) the purchaser had the unimpeded opportunity to examine the premises; and

3) there is no fraud on the part of the vendor. Layman v. Binns (1988), 35 Ohio St.3d 176.

While Ohio’s Seller Disclosure Act (R.C. 5302.30; the “Disclosure Act”) still requires sellers of most types of residential property to disclose known defects, the Disclosure Act does not directly modify the doctrine of caveat emptor by creating a new statutory fraud claim or by eliminating existing common law claims. In fact, Section 5302.30 (L) of the Disclosure Act makes it clear that R.C. 5302.30 is not intended to affect any (common law) remedies available prior to its enactment. Nevertheless, if the seller fails to disclose a material fact on the disclosure form with the intention of misleading the buyer and the buyer relies on the form, the seller [has committed fraud and] is liable for any resulting injury. Pedone v. Demarchi, 8th Dist. [Cuyahoga] No. 88667, 2007-Ohio-6809. However, “[w]hen a plaintiff claiming fraud in the sale of property has had the opportunity to inspect the property, he is charged with knowledge of the conditions that a reasonable inspection would have disclosed.”

The Ninth District Court of Appeals in Petroskey v. Martin, 2018-Ohio-445 (Lorain County) and the Eighth District Court of Appeals in Hendry v. Lupica, 2018-Ohio-291(Cuyahoga County) recently reaffirmed the viability of caveat emptor in Ohio. Since the disgruntled buyer in Petrosky v. Martin (Mr./Mrs. Petroskey) and the disgruntled buyer in Hendry v. Lupica (Mr. Angus Hendry) both claimed fraud on the part of the seller, the following summary should prove helpful before evaluating these cases:

In the context of real estate transactions, there are basically two types of fraud: fraudulent misrepresentation and fraudulent concealment (with “fraudulent nondisclosure” sometimes being referred to as either a third type of fraud, or, a type of fraudulent concealment).  The elements of fraudulent misrepresentation are: (a) a false representation concerning a fact material to the transaction; (b) knowledge of the falsity of the statement or utter disregard for its truth; (c) intent to induce reliance on the misrepresentation; (d) reliance under circumstances manifesting a right to rely and (e) injury resulting from the reliance.  Sanfillipo v. Rarden, 24 Ohio App. 3d 164.

The basic elements of fraudulent concealment are: (a) actual concealment; (b) of a material fact; (c) knowledge of the facts concealed; (d) intent to mislead another into relying upon such conduct; (e) actual reliance; and (f) injury resulting to such person because of such reliance.  

Even without an affirmative misrepresentation or “actual” concealment, an action for fraud, commonly referred to as “fraudulent nondisclosure” is also maintainable in Ohio for failure to fully disclose material facts where there exists a duty to speak.  In such regard, the Supreme Court of Ohio has held that a “vendor has a duty to disclose material facts which are latent, not readily observable or discoverable through a purchaser’s reasonable inspection.”  Binns, 35 Ohio St.3d at 178. 

The facts of Hendry v. Lupica are as follows:

In 2015, Mr. Hendry purchased a home in Olmsted Falls, Ohio from the Lupicas (sometimes referred to herein as the “Sellers”). Prior to closing, the Sellers produced a residential property disclosure form that disclosed dampness and previous water damage in the basement. Mr. Hendry also had the home inspected by a professional inspector. The inspector found several issues with the basement, including foundation wall cracks, holes and signs of water infiltration. The inspector’s report also noted that the condition of the foundation was poor and advised Mr. Hendry to seek additional information about these issues prior to purchasing the property. Mr. Hendry did not follow that advice, and instead, negotiated a price reduction with the Sellers. Not to long after the purchase, Mr. Hendry experience water infiltration in the basement when it rained. He hired a waterproofing company to fix these issues, and then filed suit against the Sellers in September 2015, alleging fraud and mutual mistake, and requesting compensatory and punitive damages, or rescission of the contract.

Mr. Hendry contended that the caveat emptor doctrine did not apply because the Sellers fraudulently misrepresented and/or failed to disclose the extent of water intrusion problems in their basement. The Sellers only disclosed some dampness and some water damage that occurred prior to their ownership of the home.  Mr. Hendry further argued fraudulent concealment because the Sellers did not divulge that they had recently painted a wall in the basement. The trial court held for the Sellers and Mr. Hendry appealed.

The Eighth District Court of Appeals upheld the trial court’s ruling for the Sellers, easily coming to the conclusion that there was no fraud or misrepresentation.   The appellate court reasoned that the evidence clearly established that Mr. Hendry had actual knowledge of water infiltration in the basement through his professional home inspection. The inspection reported large cracks and holes in the foundation, and other problems and advised further investigation. Rather than investigate further, Mr. Hendry “bought the defects” by negotiating for a price reduction. There was no misrepresentation because the statements made by the Sellers were all true (there was dampness and prior water issues).  Further, there was no fraudulent non-disclosure because there was no duty for Sellers to disclose everything they knew about its property; only latent, not readily observable or discoverable defects.  According to the court, an open and obvious small defect was notice to the buyer that a larger problem may exist. Finally, the painting of one wall was not deemed concealment by the court because it did not conceal the extent of the problem; the cracks, holes and stains were still evident, and the inspection report backed this up.

Petroskey v. Martin is also a recent, “water infiltration in the basement case”, that includes a “scary” inspection report and a buyer that sought to “buy the defect” vs. learn more about the problem. The facts of this case are as follows:

In August, 2013, David Petroskey (sometimes referred to herein as “Buyer”), and Dee Martin (sometimes referred to herein as “Seller”), entered into a purchase agreement for a home in Lorain, Ohio.

In September, 2013, Buyer had the home inspected. The inspection report noted various water issues and concerns about the premises including: 1) evidence of water leakage and moisture in the crawl spaces; 2) the property’s grading was a “[f]lat [i]mproper soil slope towards [the] foundation;” 3) evidence of past water leakage around the skylights and evidence of past or present water staining on the ceilings in all bedrooms, the family room, and the master bathroom; 4) a “mold like substance” in the attic; and 5) loose and damaged trim wood and damaged wood fascia “from past or present leaks.” As was the case in Hendry v. Lupica, the inspector in Petroskey v. Martin also recommended further investigations and inquiries, including securing “[a] qualified roofing contractor to evaluate and estimate repairs.”

The seller in Petroskey v. Martin also completed an Ohio Residential Property Disclosure Form. However, where the Martin Disclosure Form asked, “Do you know of any previous or current leaks or other material problems with the roof or rain gutters? …. (but no longer than the past 5 years),” Mrs. Martin checked the “No” box. In her deposition, Mrs. Martin testified that, at the time she completed the Disclosure Form, she “thought it was about seven years” since they had the roof replaced.

In October, 2013, Mr. Petroskey and Mrs. Martin amended their purchase agreement. The amendment removed the general home inspection contingency and reduced the sale price. After the amendment, Mr. Petroskey (per his testimony) went through the Home “[m]aybe half a dozen” times before finalizing the purchase.”

Shortly after his purchase, Buyer suffered ice damming on the roof, leaking skylights and a leaking roof. In addition, Mr. Petroskey testified that “the front yard did not drain properly and water entered the crawlspace and collected on the floor.” Mr. Petroskey then sued the Seller alleging misrepresentations in the form of Seller’s Disclosure Form declarations that there were no roof leaks at the property. Whereas the Seller in Hendry v. Lupica failed to disclose the extent of the defects (a distinction without a difference according to the Hendry court), the Seller in Petroskey v. Martin denied there were any problems at all.

Accordingly, the trial court and the appellate court in Petroskey v. Martin aptly agreed with the Buyer’s characterization of the “no” answer on the Disclosure Form as a misrepresentation. The courts noted, however, that only a claim for fraudulent misrepresentation was actionable, and the evidence failed to show that the misrepresentation was made with knowledge of its falsity, or with reckless disregard as to whether these statements were true or false (recall that Mrs. Martin testified that she thought the roof repairs were completed over seven years ago vs. within five years as called for on the Disclosure Form).

Like the seller in Hendry v. Lupica, the seller in Petroskey v. Martin argued that there was no fraudulent-non-disclosure because the seller had no duty to disclose material facts which are not latent, and readily observable or discoverable through a purchaser’s reasonable inspection. Clearly, there was no question of past water leakage and water staining in the Lupica home, as well as in the Martin home. Both homes showed signs of the same, and the inspection reports for both properties clearly identified water leakage and staining.

The buyer in both cases argued that the respective defects in their homes were latent. The buyer in Petroskey v. Martin, however did not argue latency regarding the extent of the defect (as the buyer in Hendry v. Lupica unsuccessfully had), but rather, latency regarding the cause of the defect. Mr. Petroskey testified that he had to pay approximately $50,000 for a new roof and argued that the inspection report did not specifically mention ice damming and roof issues as the cause of the water intrusion and leakage.

Citing precedent from the Ohio Supreme Court as well as from other cases heard by the Ninth District, the court in Petroskey v. Martin was not persuaded that these “lack of causation facts” made any difference. As summarized by the Ninth District Court of Appeals in Petroskey: “The Ohio Supreme Court has found that, when determining whether a defect was ‘open to observation,’ the issue is not the ‘cause of the defect’ or the ‘remedial effectiveness of [a repair],’ …similarly, this Court has stated that the cause of the defect, the underlying problem, does not have to be open and obvious. If the defects are open and obvious …, the buyer is on notice to make further inquiry as to the underlying condition.”

Applying the law to the facts, the court of appeals in Petroskey concluded that, “Although the home inspector did not identify the cause of the ‘leaks’ as ‘ice damming,’ he did notify the Petroskeys of evidence of ‘past water leakage,’ ‘past or present water staining,’ and damage ‘from past or present leaks’ in various locations throughout the Home. Thus, the defect was not latent and the Petroskeys were on notice to make further inquiry as to the underlying problem.”

What is the moral of this story?  1) Never waive your rights to inspections; 2) don’t rely on the Disclosure Form, which more often than not turns out to be a “non-disclosure form;” 3) if any defect is uncovered in an inspection report, assume it is a big deal and investigate it further with an expert (per the court in Hendry, an open and obvious small defect was deemed notice to the buyer that a larger problem may exist); and 4) if you decide to “buy the defect”, make sure you know the price to repair it.

In other words, in the words of singer/songwriter/philosopher Kenny Rogers: “You got to know when to hold them, know when to fold them, know when to walk away and know when to run.”

Ohio Supreme Court Confirms Reversion Language No Longer Necessary to Create Fee Simple Determinable Estate

(Plain language within the four corners of the deed is key-pursuant to Koprivec v. Rails-to-Trails of Wayne County, Slip Opinion No. 2018-Ohio-465)

By: Stephen D. Richman, Esq. - Senior Counsel-Kohrman, Jackson & Krantz

-A Watch Your Language Series Article-

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will typically uphold commercial document provisions unless they are contrary to public policy or statutory law, or the subject of a mutual mistake. Courts traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial transactions, since both parties will usually have attorneys to review their documents. More and more, parties to residential real estate contracts are being held to the same standard governing commercial transactions. Because courts often defer to the specific language of commercial (and other) real estate documents, unintended results are often the norm for parties who do not seek professional advice, and for professionals who do not closely review their documents. Even the failure to follow a seemingly trivial grammar rule (the use of i.e. vs. e.g.) can result in unintended consequences. In a 1995 Connecticut case, despite the tenant’s verbalized intent to the contrary, the court held that the use of “i.e.” [meaning, that is] vs. “e.g.” [meaning, for example] preceding a short list of repair items in a lease served to limit landlord’s structural responsibility to only those items listed in the lease vs. merely providing examples of the same.

 Because of this judicial deference to “plain language” within real estate and other documents, and the fact that courts, as a general rule will not look outside the four corners of a document (to consider extrinsic evidence of intent) if the language is unambiguous, you must “watch your language, and say what you mean, precisely, or a judge will decide what you meant.”

The Ohio Supreme Court in Koprivec v. Rails-to-Trails of Wayne County recently espoused this basic tenet of Ohio law with regard to deeds, specifically, deeds creating “fee simple determinable”, or conditional estates in land.

A Deeds/Estates in Land/Fee Simple Determinable Primer

Like a certificate of title for an automobile, the deed is the document that actually transfers the title of real property from one to another. Unlike a certificate of title for an automobile, however, the deed contains a specific legal description of the property; and may also contain warranties of title; reservations (e.g., right to reserve an easement over the property); and restrictive covenants (e.g., “this property may only be used for residential purposes”).

Also unique to deeds vs. certificates of title (and bills of sale to transfer other personal property) is the nature of the underlying property and the varied rights transferable thereto. While both cars and land can be leased for a specific period of time, a transfer of a “life estate” in land, for example, can transfer real property for a person’s lifetime.  (Note: a “fee simple” estate in land, on the other hand gives the grantee the right to own and possess real property forever).

Ownership of real estate can be further, uniquely limited, if a “defeasible” or “conditional” estate is transferred by deed. A defeasible fee or estate in real property is a fee simple interest that can be taken away from the grantee/holder upon the occurrence or non-occurrence of a specified event. For example, when grantor transfers to grantee a parcel of land “for so long as that land is used for summer camp purposes.”

The two main types of defeasible fees are “fee simple determinable” and “fee simple subject to a condition subsequent.” The difference between the two is that a fee simple determinable interest terminates automatically upon the occurrence or non-occurrence of the event (our example above), while the fee simple subject to a condition subsequent estate is not terminated automatically, but can be terminated at the will of a future interest holder upon the occurrence or non-occurrence of the specified event (the magic words for this type of defeasible fee would be “grantor transfers x to grantee, but if …., then grantor retains a right of re-entry”).

After a grantor transfers a fee simple determinable estate, said grantor is deemed to retain a “possibility of reverter,” as the property would revert to the grantor, automatically upon the occurrence or non-occurrence of the condition stated in the deed.

Are there recognized, “magic words” to create a fee simple determinable estate? Dating back to English common law, many courts recognized the establishment of a fee simple determinable estate by use of the words “so long as”, “as long as”, “until”, “during” and “on condition that.”

In Ohio, however, the Supreme Court in In re Petition of Copps Chapel Methodist Episcopal Church, 120 Ohio St. 309, 166 N.E. 218 (1929) held that a deed could not create a fee simple determinable estate without “reverter language” (specific words stating the property would revert back to the grantor, if the applicable condition in the deed is satisfied).

In fact, the trial court, and the court of appeals in Koprive relied on the Copps Chapel case to deny the plaintiffs’ claim of ownership.  The main issue for the court in Koprivec would be: 1) whether or not Copps Chapel was still good law in Ohio; and 2) if not, what new “magic words” in Ohio would be required to create a fee simple determinable.

Background/Facts of Koprivec v. Rails to Trails of Wayne Cty.

As well summarized by the court in Koprivec, “[t]his case involves a dispute about ownership of an abandoned rail corridor. It pits a nonprofit organization, Rails-to-Trails of Wayne County (“Rails to-Trails”), which seeks to develop the corridor into a bike trail, against three landowners, who claim ownership of the sections of the corridor adjacent to their properties. We have before us issues of deed construction and adverse possession.” [AUTHOR NOTE: This article only addresses the deed construction issues].

The specific facts of the case are as follows:

In 2009, Rails-to-Trails purchased an old railroad corridor with the intention of converting the land into a public, multi-purpose trail. In 2011, however, three owners of adjacent properties (the “landowners”) filed suit to establish their ownership of the sections of the corridor next to their respective properties. The landowners claimed title (ownership) based upon: 1) an 1882 deed, that they claim served to revert the corridor land to them when the corridor stopped being used as a railroad; and 2) all three claimed adverse possession of those sections of the corridor.

The granting clause (“[t]he words that transfer an interest in a deed,”) of the 1882 deed granted the property to the railroad company “and to its assigns forever.” The habendum clause (“the part of a… deed … that defines the extent of the interest being granted and any conditions affecting the grant”) provided that the grant was “forever for the purpose of constructing and using thereon a Rail Road.”

The plaintiffs in Koprivec construed the deed as creating a fee simple determinable.  They argued that when the land stopped being used as a railroad (which was the only purpose of the transfer), the part of the property adjacent to the properties they already owned reverted back to them as the successors-in-interest of the original grantors. Rails-to-Trails sought to establish that it was the valid property owner, based upon a valid, 2009 deed.

The trial court entered summary judgment in favor of Rails-to-Trails on all the landowners’ claims. It easily determined that under Copps Chapel, the 1882 deed did not create a determinable fee because it did not contain the “magic words”; that is, it did not explicitly state that the property would revert to the grantors when it ceased being used for railroad purposes. The Ohio Ninth District Court of Appeals affirmed the trial court’s judgment on the deed issue, holding that the 1882 deed created a fee simple absolute estate because the deed did not contain the magic reversionary language.

Analysis of Koprivec v. Rails to Trails of Wayne Cty.

It would have been easy for the Ohio Supreme Court to have affirmed the Ninth District’s decision on the basis of the Copps Chapel case. No magic reversion language, no fee simple determinable. That is why the Supreme Court of Ohio deemed the appellate court’s holding, “understandable.”

Instead, recognizing lower court decisions “have taken bites out of the Copps Chapel holding” and that the Ohio Supreme Court’s later decision in Hinman v. Barnes acknowledged/applied ‘the modern and prevalent rule for determining estates conveyed by a deed,” the Supreme Court in Koprivec admitted that “there is no longer reason to rely on Copps Chapel, and to do so would be inappropriate.”

The Ohio Supreme Court still affirmed the Ninth Appellate District’s decision (on the issue of deed construction), but not on the basis of Copps Chapel. According to the Ohio Supreme Court in Koprivec, case law of the past seven decades dictates the need to utilize the “‘modern and prevalent rule for determining the estate conveyed by a deed,’ which rule is, ‘that if the intention of the parties is apparent from an examination of the deed ‘from its four corners,’ it will be given effect regardless of technical rules of construction.’” Citing Hinman v. Barnes, 146 Ohio St. 497, 66 N.E.2d 911 (1946). In other words, according to the court in Koprivec,” it is the plain language of the deed that matters.”

The court in Koprivec reconciled the Copps Chanel and Koprivec cases by reasoning that the words of reversion in the Copps Chapel deed were simply the plain language words of the deed that established a fee simple determinable estate.

The court in Koprivec, however, recognized that the prime example of creating a fee simple determinable estate is when a grantor conveys a property to another “for so long as it is used for X;” the magic words being conditional language, not reversion language.  The court reasoned that when a grantor uses those [conditional] words, “she means exactly that—that she intends for the property to be held by the grantee for so long as it is used for X; [and] when the property stops being used for X, it reverts to the grantor.”  Recognizing this tenet was far from new law, the Koprivec court (citing prior law review articles) admitted that “the phrase so long or as long as ha[d] been recognized as sufficient to create a determinable interest ‘since before the days of [the 16th-century legal commentator Edmund] Plowden.’ “

Applying the “modern law” to the facts of the case, the court in Koprivec found no use of the words “so long as”, or similar conditional phrases. Nor was there any reversion language. Instead, classic fee simple absolute language was utilized; namely, “to grantee and to its assigns forever.”   True, the deed also contained the language: “forever for the purpose of constructing and using thereon a Railroad.” However, focusing more on the purpose than the forever language of this clause, this kind of language, according to the court, “simply describes the reason for the conveyance,” and “does not condition the railroad company’s right to hold the estate on its use as a railroad.” Citing classic, “black letter treatise law”, the court in Koprivec concluded that, “Unless a conditional estate is created by the express language of a deed or will, the grantor or testator will be conclusively presumed to have intended a fee simple [estate].”

What is the moral of this story? Watch your language, and say what you mean precisely, or a judge will tell you what you meant. While reversionary language is no longer necessary to establish a fee simple determinable estate in Ohio, “it couldn’t hoit.” Why not use all the magic words-the requisite conditional language (so long as, as long as…) and the reversion language? That way, there is nothing left open to interpretation. Make the plain language, plain as day, and you won’t need your day…in court.

To Be or Not to Be (an Enforceable Real Estate Agreement), That Is the Question

While title to real estate cannot transfer without a deed and a closing, the closing merely carries out the provisions of the real estate agreement. Accordingly, it is the agreement in a real estate transaction that is of paramount importance as it creates the interest of the buyer to be conveyed by deed (note, however the “Doctrine of Merger” discussed in our March 31, 2014 post: Don’t Let Your Contract Disappear (Merge) Into Your Deed) and determines the rights and obligations of the parties, some of which may remain in play well past the closing.

What many buyers and sellers lose sight of (including the buyer in the recent Stark County Court of Appeals case- Sabatine BK Dev., L.L.C. v. Fitzpatrick Ents., Inc., 2017-Ohio-805), however is that the physical existence of a real estate contract does not guarantee its legal existence or enforceability.

I. REQUIRED ELEMENTS FOR ENFORCEABILITY: Even before the minutiae within the agreement form is analyzed and such issues as representation and warranty provisions are debated, covenants on how the property is to be operated between signing and closing are discussed and title and survey provisions are negotiated, you must ensure that your real estate contract will be enforceable. A real estate contract, like any contract is generally defined as a binding agreement or promise to do something. Basically, to be a valid, enforceable legal contract, five elements must be present:

A. Meeting of the Minds /Agreement.   Agreement generally occurs when one party to a contract makes an offer or promises to do something and the other party accepts.  For example, suppose a person offers to buy a property you have advertised by virtue of sending you a contract containing the terms upon which they would be willing to buy.  There is no contract until the offer is accepted and signed by both the buyer and the seller.  If the seller should choose to change any of the terms of the offer, a counteroffer has been created, which must then be accepted by the buyer to constitute an agreement.

B. Consideration.     Consideration is anything of value promised to another when making a contract.  It is a detriment incurred by the promisee and/or a benefit to the promisor. The money the buyer gives as a deposit and the terms for payment in the purchase agreement are valuable consideration on the part of the buyer; and the property, as well as the promise to deliver possession of the property upon receipt of the purchase price constitutes valuable consideration on the part of the seller.  Payment, however, does not need to be in the form of money; it may be a trade of other real property or personal property, or a promise to perform an obligation.

C. Capacity.   Capacity means that one is legally able to enter into a contractual agreement.  As a general rule of law, minors, intoxicated persons and mentally incompetent persons cannot legally enter into valid contracts.  If they do make themselves parties to contracts, the agreements are typically voidable.

D. Legality.  For a contract to be enforceable, it must be for a legal purpose.

E. Definiteness. The terms of the contract, especially basic terms such as price, legal description, and closing date must be reasonably certain. A court must be able to look at the agreement and determine the parties' obligations from within the “four corners of the document.”

F. Writing.  All contracts dealing with the purchase or sale of real property must be in writing for a contract to be enforceable.   (Note: contracts for the purchase or sale of personal property must be in writing if for more than $500).

II. SABATINE BK DEV., L.L.C. V. FITZPATRICK ENTS., INC., 2017-OHIO-805

The buyer in Sabatine found out, “the hard way” that all of the above elements must be present in order to constitute an enforceable contract, not just a majority, three out of five.

The facts of the case are as follows:

Plaintiff-appellee Fitzpatrick Enterprises, Inc. (“Fitzpatrick”) owned a number of parcels of land on Dressler Road, in Canton, Ohio, comprising a shopping center commonly known as “Thursday’s Plaza.” In January of 2015, defendant-appellant Sabatine BK Development, LLC (“Sabatine”) made an offer to buy one of those parcels (an out lot), formerly leased to Macaroni Grill.

In order to sell the Macaroni Grill site to Sabatine, the parties understood that Fitzpatrick would have to split off that property from other parcels at Thursday’s Plaza. In Sabatine’s proposed purchase offer, “Property” was defined as follows: “…certain real property and buildings with an address of 4721 Dressler Rd. NW, Canton, OH 44718; situated in Stark County, tax map/parcel number 1620800, consisting of approximately 2.2 acres of land, which shall be subject to a mutually agreeable replat of the property, as depicted on Exhibit A (formerly the Macaroni Grill) attached hereto and made a part hereof, …together with all rights and appurtenances pertaining to such real property…; and all improvements and structures situated thereon (collectively, the ‘Property’).”  Sabatine signed its proposed purchase offer, although “Exhibit A” was not attached to the agreement.  Fitzpatrick, however refused to accept Sabatine’s proposed purchase offer without an “Exhibit A”.

After making significant changes to Sabatine’s proposed purchase offer (including adding a provision for non-exclusive parking at Thursday’s Plaza), and attaching a site plan as “Exhibit A”, Fitzpatrick signed what became its counteroffer (by virtue of the changes to the offer) and sent it to Sabatine’s agent on January 15, 2015.

Approximately four months later, and two days before the end of the purchase agreement’s extended due diligence period, Sabatine submitted a counteroffer to Fitzpatrick’s January counteroffer. Sabatine’s May counteroffer called for exclusive parking (which would reduce the number of parking spaces available to all of the Thursday’s Plaza tenants), access for ingress/egress to the remainder of Thursday’s Plaza, and a split-off of the property from two separate parcels. Fitzpatrick rejected Sabatine’s May counteroffer, which had been offered and summarily rejected a month earlier. In a letter dated May 18, 2015, counsel for Fitzpatrick notified Sabatine that seller’s January 15, 2015 counteroffer was being terminated and withdrawn.

On May 28, 2015, Fitzpatrick filed a complaint for declaratory judgment, requesting the trial court officially declare the agreement between the parties a non- enforceable contract, and accordingly, void so that Fitzpatrick could sell the property to someone else, without worry of any interference from Sabatine. Sabatine filed an answer and counterclaim for breach of contract, promissory estoppel, and breach of fiduciary duty. The trial court granted judgment in favor of Fitzpatrick, holding that there was never an enforceable agreement as there was no meeting of the minds. The trial court also found that Sabatine failed to prove all of the elements of its claim for “promissory estoppel.”

In Ohio (and most other jurisdictions), promissory estoppel is the exception to the general rule of contract enforceability; namely, a “quasi-contractual concept where a court in equity seeks to prevent injustice by effectively creating a contract where none existed.” Stickler v. Keycorp, 8th Dist. No. 80727, 2003-Ohio-283, at ¶ 18.  To establish a claim of promissory estoppel under Ohio law, the plaintiff must prove the following elements: (1) a clear and unambiguous promise; (2) reliance upon the promise by the promisee; (3) reliance by the promisee that is both reasonable and foreseeable; and (4) injury to the promisee as a result of the reliance. Rigby v. Fallsway Equip. Co., Inc., 2002-Ohio-6120. While the Sabatine decision does not elaborate on Sabatine’s failed promissory estoppel claim, presumably, factors (1) and (3), above were not met due to the fact of there being multiple counter offers, without clarity on the subject of exactly what property would be transferred, and what parking and access rights would attach.

The Stark County Court of Appeals in Sabatine, did, however clearly explain why it agreed with the trial court’s decision (declaring the subject purchase agreement, unenforceable). According to the court of appeals, “Like the trial court, we find there was never a meeting of the minds as the parties never agreed on an essential element of the transaction, to wit: the real estate to be transferred.” The court reasoned that while Fitzpatrick finally added an Exhibit A, making the contract definite, it also added new, material terms, effectively creating a counteroffer proposal to the buyer, which was rejected, by virtue of Sabatine’s submittal of a counteroffer (in May) to Fitzpatrick’s January counteroffer. As aptly summarized by the court of appeals, “An acceptance which changes the terms of the contract does not create a binding contract because it constitutes a counteroffer.”

Even assuming, arguendo, that Sabatine established the essential elements of the contract, the court of appeals, nonetheless, found the parties did not have an enforceable agreement because embedded within Exhibit A was an unsatisfied condition precedent (an event that must occur before an obligation in the contract will become effective) calling for a mutually agreeable re-plat, which could never be satisfied since the parties disagreed upon how the property would be split, parking and access rights…

Based upon the foregoing, the court of appeals in Sabatine held that “the trial court did not err in concluding there was never an enforceable agreement between the parties.”

What is the moral of this story?

It is not enough to “say it in writing,” and have a signed document as evidence thereof. Real estate contracts must also be definite, especially with regard to material terms such as what property is being transferred. All too often, buyers and sellers rush to sign an agreement and leave the exhibits until later. This is not illegal or immoral; however, if there is no later agreement on the subject matter of an exhibit, particularly the “description of the property exhibit,” you could be the proud owner of a contract, without the rights that go along with it.

Remember also, that signing an offer, but sending it back with signed or initialed modifications (another common practice) is a counter offer, not an acceptance of the original offer.

In other words, odds are that an unenforceable real estate contract will not generate a purchase or a sale, only scratch paper and a lot of legal fees.