Rockford Homes,
inc. v. Handel, 2007 Westlaw 1544711 (Ohio App. 5/25/07)
Buyer, a home
builder, contracted to purchase 75 acres of land from Seller. Some
of the
land was wooded, and Buyer regarded this as a desirable feature, making
possible
premium priced lots. Nevertheless, the contract contained no
mention of
trees on the property. The contract contained contingencies
relating to
title, and Seller was unable to satisfy the title contingencies by the
original
time of closing or by the expiration of two subsequent extensions.
Thus,
as of June 1, 2004, the contract was not in effect.
The
parties,
however, later extended the contract again (presumably this was
effectively a
new contract), with an expiration of October 16. Seller still was
unable
to satisfy the title problem.
Sometime in
mid-October (the record apparently is vague on the point), Seller
entered into
an oral agreement with a lumber harvester to harvest trees on the
property. On November 19, Seller again contacted Buyer to ask that
the
contract be renewed (effectively another thirty day
contract. Buyer
executed the renewal on November 22, and Seller
executed it on November
25. Earnest money was paid on December 8 and the parties closed on
December 10.
A few
weeks later,
Buyer learned for the first time that the trees that Buyer had thought
valuable
to his home development purposes had been removed from the
property.
Seller testified that the trees probably were removed prior to the
renewal
agreement, but no specific date was provided.
Buyer
brought suit
for fraud, breach of contract, waste and conversion. The trial
court
granted summary judgment on all counts and Buyer
appealed.
Held:
Affirmed.
On the breach of contract claim, Buyer claimed that the
trial court
should have found that the trees were cut while the property was under
contract. According to the court, the issue was moot because even
if the
cutting of the trees did breach the purchase contract, Buyer lost any
claim for
breach of contract under the concept of merger by deed.
The
court
acknowledged that there is an exception to the merger by deed doctrine
in Ohio
when the party affected by the merger can show fraud by the other
side.
But the court held that there can be no fraud in a land contract as to
matters
that are readily observable by inspection as, of course, was the case
here. (There is some question as to whether there would be fraud
if the
trees were cut while the property was under the extension contract
anyway, since
by then the Buyer already had agreed to buy and any claim would have to
be based
on something other than fraud.) No one claimed that Seller ever
represented to Buyer that the trees were still on the
property.
On the
waste
claim, the Ohio court ruled,, that waste is not a recognized doctrine in
Ohio.
[Oh? Thats interesting. In all contexts - including
fiduciary
relationships, life estates, mortgages, leases, etc.
etc.]
As to
the
conversion claim, the court held that, even assuming that the logs were
cut
while the contract was in effect, the Seller was still in title, and
therefore
there was no conversion of Buyers property.
Comment 1: The
lawyer who sent this case to the editor clearly felt it was an improper
result. A frequent critic of his own states judicial
decisions, he
commented:Only in Ohio. The editor
disagrees. Many other states
would have reached the same outcome, but likely on different grounds.
Comment 2: The
contract never mentioned the trees. So it certainly is quite
arguable that
the Seller did not know that the Buyer valued them. If they were
cut prior
to the last extension agreement, then the editor would agree, absent
more facts,
that the Seller had no duty to disclose that they had already been
cut.
Buyer should have reinspected the premises. Do other readers
disagree?
Comment 3: But
what if they hadnt already been cut as of the time of the
extension (new
contract)? The court said that there is no doctrine of waste in
Ohio. On what grounds would be Buyer have a claim?
Well,
what about
equitable conversion? But court notes that an Ohio statute, plus
common
law conversion, would give a remedy against one who cuts trees on the
land of
another. But it says that the Seller had title to the property,
and thats
the end of the argument. Is it? Under the doctrine of
equitable
conversion, recognized in many jurisdictions, the buyer becomes
effectively the
owner of the property once the contract becomes subject to specific
performance.
Did
equitable
conversion occur here? Hard to say. But clearly summary
judgment was
inappropriate if there were alleged facts that Buyer was denied the
opportunity
to prove that would have supported such a claim.
Comment 4: But the
court found that merger by deed cut off the Buyers right to
complain. The
editor believes that, although some states might apply merger by deed to
these
facts, such application would be wrong. The doctrine ought to
apply only
when the party accepting the deed has actual knowledge that buyer is not
getting
what he contracted to get. Further, in many jurisdictions, the
concept is
limited to title defects. Otherwise, of course, a court could find
a
knowing waiver, and this is essentially the same as calling the
situation a
merger, but here there is no evidence that the buyer
knew that the trees were
gone.
In any
event,
Buyer would have a conversion claim notwithstanding merger because the
claim
arose when the trees were cut.
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