detailing the elements of fraudSummary of this case from Farmers State Bank v. Followay
Decided April 25, 1984.
Appellate procedure — Authority of appellate court to reverse judgment based on sufficiency of the evidence.
APPEAL from the Court of Appeals for Montgomery County.
Plaintiff, Stanley J. Cohen, purchased the property known as Venetian Court, as trustee for third-party defendants-appellants, Paul Tipps, Henry R. Focke, Jr. and Clyde W. Vinegar, from defendant-appellee, Lamko, Inc. ("Lamko"), through its agent and controlling stockholder, Leo C. Konstam. Venetian Court is a multi-family apartment building located in Cincinnati, Ohio. Tipps, Focke and Vinegar jointly and severally guaranteed payment of the note entered into between Cohen and Lamko for the purchase of the building.
This action was commenced by the trustee seeking a judgment declaring his rights under the note and real estate mortgage executed by him in favor of Lamko for $38,473.48. The complaint alleged that the consideration for the granting of the mortgage and the note it secured was "wanting in sufficiency," and asked that the balance due on the mortgage be determined to be only $5,000, not the $37,267.30 outstanding balance on the mortgage which Lamko alleged in its counterclaim and third-party complaint.
It was stipulated at the trial level that no monetary recovery was being sought against the plaintiff in this action as he was simply a trustee for the appellants. Tipps, Focke and Vinegar filed a counterclaim against Lamko alleging fraud which induced their entry into the purchase of the property. Tipps, Focke and Vinegar alleged that Konstam had misrepresented the occupancy of the building and its actual physical condition. While the appellants did inspect the building before purchase they were only shown two apartments. They also did not see the boiler, which had problems they later discovered, because Konstam did not have a key to the room.
Tipps and Focke had made an earlier attempt to purchase Venetian Court for "rehab" under a federally funded program in 1971. The building did not qualify and the purchase agreement was voided because of the inability to receive federal funding. Appellants testified that they had dealt with Konstam before in matters involving property other than Venetian Court and it was their usual practice to accept his representations as accurate based upon these past business experiences.
After the signing of the note and mortgage and the transfer of possession of the property from Lamko to the trustee it became rapidly apparent to Cohen and the appellants that Venetian Court was not in the same condition as it had been represented. The building was not at full occupancy and it was later discovered the city of Cincinnati had issued a letter concerning numerous building code violations at Venetian Court which required repair or the premises would be condemned. When such repairs were unable to be timely made the city did in fact condemn the building.
The trial court found that Lamko, through Konstam, had misrepresented the property inducing appellants to enter into a note and mortgage in favor of Lamko, while assuming Lamko's prior mortgage on the property, for the purchase of the apartment building which totalled $95,000, when in reality the property was reasonably worth only $49,000. The trial court found the appellants were damaged in the sum of $46,000. The court further found that the trustee had defaulted on the note and rendered judgment in favor of Lamko in the sum of $37,276.30 [ sic]. The court ordered the judgments to be set off one against the other, rendering a final judgment in favor of Tipps, Focke and Vinegar in the amount of $16,964.02.
On appeal, the appellate court reversed the judgment of the trial court finding that the appellants did not justifiably rely on any misrepresentations made by Konstam and were not, therefore, entitled to judgment based on the manifest weight of the evidence adduced.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Messrs. Cohen, Gregg, Slonaker Laurito, Mr. Douglas B. Gregg and Mr. Michael P. Maloney, for appellants.
Lanny R. Holbrook Associates, Mr. Lanny R. Holbrook, Mr. Charles G. Coulson, Jr., and Mr. William G. Deas, for appellee.
The issues raised by appellee Lamko, Inc. on appeal all deal with the sufficiency of the evidence adduced at the trial level to support the judgment of the court. The authority of an appellate court to reverse the judgment of a trial court based solely on a question of the sufficiency of the evidence has been ruled on most recently by this court in Seasons Coal Co. v. Cleveland (1984), 10 Ohio St.3d 77.
This court in Seasons was presented with a situation quite similar to the one in the case sub judice. The trial court entered judgment for Seasons Coal Co. against the city of Cleveland on a contract into which the city contended it entered only after Seasons had induced the city to do so by fraud. The court of appeals reversed the trial court finding the evidence to support the city's claim of fraud. However, this court was compelled to reverse the judgment of the court of appeals. This court properly explained that, "[w]hile * * * in some instances an appellate court is duty-bound to exercise the limited prerogative of reversing a judgment as being against the manifest weight of the evidence in a proper case, it is also important that in doing so a court of appeals be guided by a presumption that the findings of the trier-of-fact were indeed correct." Seasons Coal Co., supra, at 79-80.
The court of appeals by reversing the trial court in this case did not afford the judgment of the trial court the presumption it deserved. There was evidence presented at the trial level as to all the elements of fraud:
"(a) a representation or, where there is a duty to disclose, concealment of a fact,
"(b) which is material to the transaction at hand,
"(c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred,
"(d) with the intent of misleading another into relying upon it,
"(e) justifiable reliance upon the representation or concealment, and
"(f) a resulting injury proximately caused by the reliance." Friedland v. Lipman (1980), 68 Ohio App.2d 255 [22 O.O.3d 422], paragraph one of the syllabus.
The appellate court found the element of justifiable reliance to be lacking. This court made it quite clear in C.E. Morris Co. v. Foley Construction Co. (1978), 54 Ohio St.2d 279 [8 O.O.3d 261], that appellate courts are not to substitute their judgment for that of a trial court stating that: "Judgments supported by some competent, credible evidence going to all the essential elements of the case will not be reversed by a reviewing court as being against the manifest weight of the evidence." See, also, Frankenmuth Mut. Ins. Co. v. Selz (1983), 6 Ohio St.3d 169, 172.
It is therefore the judgment of this court that the court of appeals acted improperly in reversing the trial court where there was competent, credible evidence going to all the essential elements of fraud. We, therefore, reverse the judgment of the court of appeals.
CELEBREZZE, C.J., W. BROWN, SWEENEY, GREY and C. BROWN, JJ., concur.
HOLMES and J.P. CELEBREZZE, JJ., dissent.
GREY, J., of the Fourth Appellate District, sitting for LOCHER, J.
I must dissent from the majority opinion in that the record is void of any competent, credible evidence which established justifiable reliance on the part of the appellants.
It is firmly established that an appellate court has the duty to weigh the evidence in certain situations. Seasons Coal Co. v. Cleveland (1984), 10 Ohio St.3d 77; In re Sekulich (1981), 65 Ohio St.2d 13, 16 [19 O.O.3d 192]; Bridgeport Bank Co. v. Shadyside Coal Co. (1930), 121 Ohio St. 544. This duty arises when there is a lack of credible evidence in the record to support the trial court's ruling.
The property involved in this matter was government subsidized housing units, needing a considerable amount of repair and rehabilitation. The record clearly established that appellants were involved in approximately twenty to thirty federally subsidized rehabilitation projects in Dayton, Cincinnati and Indianapolis. Appellants Tipps and Focke, through the corporate entity Federal Property Management Corporation, developed at least $30,000,000 in federally subsidized housing projects. These projects constituted ninety-nine percent of their business in Cincinnati, and made them the largest developer of that type of housing under the federal programs. In addition, at one point during his testimony Tipps asserted that they had rehabilitated over $100,000,000 worth of real estate. Thus, appellants were certainly experienced when it came to the inspection and purchase of this type of real estate.
Appellants also testified that it was their usual practice to accept Leo Konstam's representations as accurate based upon past business dealings between the parties. Such practice defies common sense and good business judgment as appellants had previously purchased a building from Konstam which was condemned by the city of Cincinnati shortly thereafter.
Furthermore, in 1971, appellants, through this corporation, attempted to purchase the real estate in question. Their plan was to restore the building with the assistance of subsidies provided by the federal government. The plan was not approved, however, as the Department of Housing and Urban Development found that it was not economically feasible to rehabilitate the premises. This decision was apparently due to the poor condition of the building.
Finally, appellants base much of their claim for fraud upon the fact that they inspected two apartments within the building and found them to be in relatively good condition. However, just two months after their purchase of the premises, appellants were notified of numerous building code violations. The record further established that some of the violations were readily discoverable from an examination of the outside of the premises. The question must be asked: did the appellants carefully inspect the interior apartments without inspecting the building's exterior? Can they, in turn, successfully assert that they justifiably relied on the alleged misrepresentations concerning the building's condition? I think not.
It is my position that the appellants, by way of their own expertise and failure to reasonably inspect the premises, are precluded from asserting fraud against Lamko, Inc., based on the statements made by its agent, Leo Konstam. There is simply no competent, credible evidence which supports a finding of justifiable reliance which is required to establish an action for fraud.
Accordingly, I would affirm the judgment of the court of appeals.
J.P. CELEBREZZE, J., concurs in the foregoing dissenting opinion.