COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 60904 : THE HOUSE OF LaROSE CLEVELAND, : INC. : : JOURNAL ENTRY Plaintiff-Appellee : : and -vs- : : OPINION LAKESHORE POWER BOATS, INC., : ET AL. : [Appeal by Tony Olszko] : : Defendant-Appellant : : : DATE OF ANNOUNCEMENT OF DECISION: JUNE 18, 1992 CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court Case No. 179033 JUDGMENT: Affirmed in Part and Reversed in Part. DATE OF JOURNALIZATION: __________________________ APPEARANCES: For Plaintiff-Appellee: For Defendant-Appellant: LEONARD W. STAUFFENGER, ESQ. L. JAMES JULIANO, JR., ESQ. THOMAS E. SHARPE, ESQ. DENISE A. DiPASQUALE, ESQ. Stark & Knoll Co., L.P.A. 1440 Leader Building 1512 Ohio Edison Building 526 Superior Avenue East 76 South Main Street Cleveland, Ohio 44114-1401 Akron, Ohio 44308 For Defendant-Appellee, Rick Case Motors, Inc.: DANIEL J. GUNSETT, ESQ. BETSY A. BRESSE, ESQ. Baker & Hostetler 3200 National City Center Cleveland, Ohio 44114 - 1 - HARPER, J.: I. Appellant, Tony Olszko, appeals from the decision of the Cuyahoga County Court of Common Pleas which granted judgment in favor of appellees, the House of LaRose, Inc. (LaRose) and Rick Case Enterprises (Rick Case). LaRose filed a complaint against Rick Case, Lakeshore Power Boats, Inc. (Lakeshore), and Mr. Olszko, seeking possession of the property located at 23776 Lakeland Boulevard in Euclid, Ohio. LaRose also sought damages for unpaid rent, late charges, real estate taxes and repairs. Rick Case filed a cross-claim against Lakeshore and Mr. Olszko for damages. LaRose entered into a settlement agreement with Rick Case and the complaint against Rick Case was dismissed with prejudice. The action against Lakeshore and Mr. Olszko proceeded to trial and resulted in a verdict for LaRose and Rick Case. For the reasons that follow, we affirm in part and reverse in part. II. Plaintiff, LaRose, is the owner of certain real estate located at 23776 Lakeland Boulevard in Euclid, Ohio, which is the subject of a lease agreement entered into on January 15, 1983, between LaRose as lessor and defendant/cross-claimant, Rick Case, as lessee. The lease agreement provided inter alia for a rent payment of five thousand, four hundred dollars ($5,400) per month, that lessee would procure certain insurance coverage for the demised premises and improvements made thereon, that real - 2 - estate taxes would be paid by lessee. There is no provision in the lease agreement authorizing a sublease of the premises either by oral agreement or in writing. Lessee, Rick Case, entered into and took possession of the demised premises under the lease. All rents and obligations under the lease were paid up to and including the month of January, 1989. On February 10, 1988, lessee, Rick Case, and defendants, Lakeshore and Olszko, entered into a written agreement to sublease the premises to Lakeshore and Olszko until January 14, 1989. Lakeshore entered into and took possession of the premises and paid all obligations including rent pursuant to the sublease to Rick Case until January 14, 1989. There is no provision in the sublease agreement subjecting it to a written approval by the original lessor, LaRose. The sublease contained the following provisions: "The Lessor believes the foregoing terms comply with the conditions of oral consent of The House of LaRose Cleveland, Inc. to this sublease, however, Lessor and Lessee agree to modify this sublease to conform to its written consent as long as the conditions stated in the written consent are not materially different from those contained herein." LaRose sent a letter on March 4, 1988, to Daniel J. Gunsett, Esq., attorney of record for Rick Case, consenting to the sublease agreement between Rick Case and Lakeshore. The letter did not acknowledge Olszko as a party to the sublease it was purportedly consenting to. It states: - 3 - "March 4, 1988 "Daniel J. Gunsett, Esq. Baker & Hostetler 65 E. State Street Columbus, OH 43215 "Re: SUBLEASE DATED FEBRUARY 10, 1988, BETWEEN RICK CASE MOTORS, INC. ("Lessor") and LAKESHORE POWER BOATS, INC. ("Lessee") 23776 LAKELAND BOULEVARD, CLEVELAND, OHIO (the "Premises") (Emphasis added.) "Dear Mr. Gunsett: "The following is to confirm your previous conversations with our counsel, Thomas G. Knoll, regarding the referenced Sublease. "The House of LaRose Cleveland, Inc. does hereby consent to such Sublease by Rick Case Motors, Inc. upon the following conditions: "1. That Lessee's use of the Premises shall be limited to the retail sale, storage and service of boats, motors, and related marine merchandise; "2. That Lessee shall make no alterations or improvements to the Premises without the prior written consent of The House of LaRose Cleveland, Inc.; and "3. That prior to March 26, 1988, or as soon thereafter as weather will permit, the Lessee, in addition to all other maintenance and repair obligations which are the responsibility of the Lessee under the Sublease, shall repair the loading docks at the Premises, shall repair and fill with proper material all sinkholes, potholes or surface depressions presently existing on the Premises, and will clean up debris and waste located on and about the Premises. "Any failure of the Lessee to conform to the foregoing conditions shall constitute a continuing default under the Lease of the Premises dated January 13, 1983, between Lessor and The House of LaRose Cleveland, Inc. "I trust that this will be satisfactory for your purposes. - 4 - "Very truly yours, "THE HOUSE OF LAROSE CLEVELAND, INC." There is no evidence of the letter being incorporated into the sublease agreement or that either Lakeshore or Olszko was given a copy of the letter. In an addendum to the sublease agreement, Lakeshore agreed to lease an electronic sign from Rick Case for the sum of $1,500 per month for the duration of the sublease. Neither Lakeshore nor Olszko disputed the facts of Rick Case's claim against them, however, they disputed the amount of liability. LaRose's claim against Olszko was for monies owed it after Lakeshore's written agreement with Rick Case expired on January 14, 1989. Dominic Lemmo, Vice President of Administration for LaRose testified that Mr. Olszko approached him on or about January 15, 1989 to extend the lease. Mr. Lemmo further testified that he talked with his superiors concerning Mr. Olszko's offer, and later negotiated an oral agreement with Mr. Olszko for the lease of the premises by Lakeshore. He indicated to Mr. Olszko that his superiors agreed that the new lease be the same as the sublease except that it would be a month to month lease. He stated, "The rent would remain the same, the taxes would be paid, you know, he'd maintain the building, and he and Lakeshore Power Boats would remain the same liability. This document would remain the same, only going month to month, you know, with the taxes." Mr. Lemmo testified that LaRose would lease the premises to Lakeshore only with Mr. Olszko's "signature or word". The record - 5 - shows that none of the negotiations were reduced to writing, neither was there any document which established Mr. Olszko's individual liability for the lease after January 15, 1989. Mr. Lemmo testified that his negotiations with Mr. Olszko and Lakeshore were informal because LaRose wanted to get out of the arrangement upon short notice in the event there was a buyer. Mr. Lemmo testified that he discussed the negotiations with LaRose lawyers but they did not advise him to have the agreement in writing. Mr. Olszko testified that he did not discuss with Mr. Lemmo to be individually obligated to Lakeshore in the event Lakeshore was unable to perform its rental obligations. He did not guarantee the debt of Lakeshore in any negotiations with Mr. Lemmo. Mr. Olszko testified that he agreed with Mr. Lemmo that Lakeshore would stay in the premises until the building is sold, and would pay the same amount of rent as the sublease. Mr. Lemmo pointed out to him that the amount to be paid for taxes would be reduced because Rick Case overcharged them for real estate taxes. They agreed on a month to month rental with a 60-day notice to terminate. Lakeshore paid rent in the sum of $5,400 a month (the same as provided in the sublease) from January 15, 1989 until July of 1989. Taxes were also paid for the same period by Lakeshore. Lakeshore finally vacated the premises in March of 1990. III. Appellant's assignments of error are as follows: - 6 - "ASSIGNMENT OF ERROR NO. I. "THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING DEFENDANT-APPELLANT TONY P. OLSZKO, II INDIVIDUALLY LIABLE TO HOUSE OF LaROSE FOR THE RENT, TAXES, AND LATE FEES AFTER JANUARY 15, 1989 AS THERE IS NO WRITING WHICH BINDS TONY P. OLSZKO, II INDIVIDUALLY AS A TENANT AFTER THAT DATE AND THUS THE HOLDING VIOLATES THE STATUTE OF FRAUDS AS STATED IN O.R.C. SEC. 1335.04. "ASSIGNMENT OF ERROR NO. 2. "THE TRIAL COURT ERRED AS A MATTER OF LAW IN HOLDING THAT DEFENDANT-APPELLANT TONY P. OLSZKO, II IS INDIVIDUALLY LIABLE TO HOUSE OF LaROSE FOR THE RENT, TAXES, AND LATE FEES AFTER JANUARY 15, 1989 AS THE HOLDING VIOLATES OHIO LAW WHICH REQUIRES ALL SPECIAL PROMISES TO ANSWER FOR THE DEBT OF ANOTHER PERSON BE EXPRESSED IN WRITING, AND WITHOUT SUCH A WRITTEN PROMISE, ALL PERSONAL GUARANTEES OF A DEBT VIOLATE THE STATUTE OF FRAUDS AS CONTAINED IN O.R.C. SEC. 1335.05. "ASSIGNMENT OF ERROR NO. 3. "THE TRIAL COURT'S HOLDING FINDING TONY P. OLSZKO, II INDIVIDUALLY LIABLE TO HOUSE OF LaROSE FOR AMOUNTS AFTER JANUARY 15, 1989 IS CONTRARY TO THE MANIFEST WEIGHT OF THE EVIDENCE PRESENTED AT TRIAL. "ASSIGNMENT OF ERROR NO. 4. "THE TRIAL COURT ERRED AS A MATTER OF LAW IN GRANTING JUDGMENT IN FAVOR OF THE HOUSE OF LaROSE CLEVELAND, INC. AGAINST TONY P. OLSZKO, II INDIVIDUALLY BECAUSE AS A MATTER OF LAW THE HOUSE OF LaROSE FAILED TO MEET ITS BURDEN OF PROOF. "ASSIGNMENT OF ERROR NO. 5. "THE TRIAL COURT'S FINDING IN FAVOR OF RICK CASE MOTORS, INC. AGAINST LAKESHORE POWER BOATS, INC. AND TONY P. OLSZKO, II IN THE AMOUNT OF $4,416.11 [sic] BECAUSE AS A MATTER OF LAW RICK CASE MOTORS, INC. FAILED TO MEET ITS BURDEN OF PROOF AND THE TRIAL COURT'S JUDGMENT IS NOT SUPPORTED BY THE EVIDENCE." - 7 - Although appellant assigns four errors concerning appellee LaRose's action against him, it is only necessary to discuss two questions to resolve this cause, therefore, all four errors shall be treated together. First, whether the sublease agreement between sublessor, Rick Case, and sublessees, Lakeshore and Mr. Olszko, can be orally extended at the expiration of the lease by the original lessor, LaRose, and sublessee, Lakeshore. If we find such extension to be permissible, we must then ascertain whether such extension negotiated orally violates the statute of frauds pursuant to R.C. 1335.04. Second, whether Mr. Olszko can be held individually liable to LaRose for the rent, taxes and other fees for the period beginning January 15, 1989. If we find that such liability does exist, we then must ascertain whether the failure to have it in writing violates the statute of frauds pursuant to R.C. 1335.05. Turning to the first question, we answer it resoundingly in the negative. It is clear that the general distinction between an assignment of a lease and a sublease is that the former conveys the whole term, leaving no interest or reversionary interest in the assignor, while the latter grants the subtenant an interest in the lease premises less than the lessee's or reserves to the lessee a reversionary interest in the term. See Cross v. Commercial Real Estate Co. (1914), 24 Ohio Dec. 410; see also Re Huntington Assn. v. Tax Comm. (1941), 21 O.Ops. 526. A subleasing creates a new estate dependent upon, or carved out of, but clear and distinct, from the original leasehold. See 49 Am. - 8 - Jr. 2d, Landlord and Tenant 484. Subleasing does not in any manner affect the liability of the lessee to the lessor for the payment of obligations or for the performance of any of the covenants in the lease. We are not aware of any law in Ohio that permits an inference to arise from the provision in a sublease making it subject to the conditions of the lease, that it is intended thereby to incorporate into and make a part of the sublease all of the stipulations and agreements of the lease. See O. Jur. 3d, Landlord and Tenant 291. We, therefore, fail to see any legal support for the proposition that a continuous stay created a holdover or an extension of the sublease, as argued by appellee, LaRose. Lakeshore's continuous possession of the demised premises after the expiration of the term of the sublease does not automatically make LaRose a party to the sublease, and neither did the letter of consent sent to lessee, Rick Case's counsel. Since the agreement between Rick Case, Lakeshore and Mr. Olszko was not an assignment but a sublease, it cannot permissibly be extended by a subsequent oral agreement between Lakeshore and LaRose. We conclude that appellee, LaRose's attempted argument to extend the sublease after its expiration fails. This conclusion necessarily follows because there is no portion of the sublease which provides that the sublessee, Lakeshore, should assume full responsibility of the lease provisions which would have arguably made the agreement an assignment. - 9 - The law is clear in Ohio and other jurisdictions that a subtenant owes no responsibility to the original lessor because there is neither privity of contract nor privity of estate between the two. The subtenant must ordinarily address himself to his sublessor, the original lessee in asserting his rights. Coffman v. Huber (1965), 13 Ohio Misc. 126; 232 N.E.2d 676. A sublessee can maintain no action against the original lessor upon the original lease, neither can the lessor maintain action against the sublessee upon the original lease. Hooper v. Seventh Urban, Inc. (1980), 70 Ohio App. 2d 101; see also Powder v. Neiss (1908), 18 Ohio Dec. 765; Dunn v. Archer (1924), 150 Tenn. 440; Commercial Club v. Epperson (1933), 15 Tenn. App. 649; see also J.S. Potts Drug Co. v. Bendict (1909), 156 Cal. 322; Webster, et al. v. Nichols, et al. (1882), 104 Ill. 160; Eldredge v. Bell (1884), 64 Iowa 125; Poe v. Silver (1932), 134 Kan. 803. With the foregoing in mind, we hold that the parties to the sublease did not intend it to be an assignment. Therefore, the sublease pursuant to its provisions terminated on January 14, 1989. Any further extensions or a holdover based on the sublease that did not involve Rick Case, the sublessor, and Lakeshore and Olszko, the sublessees, is void. The subsequent oral agreement after January 15, 1989 constituted a new contract. Having determined that the sublease cannot be extended within the circumstances of this case, we need not consider the effect of the statute of frauds to the transaction. IV. - 10 - We must now decide whether Mr. Olszko can be held individually liable to LaRose for the payment of the obligations of the oral agreement between Lakeshore and LaRose after the expiration of the sublease on January 14, 1989. Appellant argues that the oral agreement for continuous possession of the demised premises was between LaRose and Lakeshore. He further argues that absent a written instrument by him, specifically guaranteeing to pay the debt of Lakeshore, which is an incorporated business, he cannot be held liable to LaRose for the debt of Lakeshore. We agree. R.C. 1335.05 states in pertinent part as follows: "No action shall be brought whereby to charge the defendant, upon a special promise, to answer for the debt, default, or miscarriage of another person; nor to charge an executor or administrator upon a special promise to answer damages out of his own estate; nor to charge a person upon an agreement made upon consideration of marriage, or upon a contract or sale of lands, tenements, or hereditaments, or interest in or concerning them, or upon an agreement that is not to be performed within one year from the making thereof; 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 or some other person thereunto by him or her lawfully authorized." Appellee argues that Mr. Olszko's liability is based upon his being a party to a lease by and between Lakeshore, Olszko and LaRose. Appellee's argument we assume is based on the testimony of Mr. Lemmo concerning an oral agreement between Mr. Olszko and himself. The oral agreement was to permit Lakeshore to continue possession of the demised premises pursuant to the conditions of the sublease except that it would be a month to month lease. The - 11 - following colloquy took place between appellant's counsel and Mr. Lemmo. "Q. Now, Mr. Lemmo, in your conversations with Mr. Olszko in January of 1989, you've testified that your agreement with Mr. Olszko was that everything would stay the same; is that correct? "A. The rent would remain the same, the taxes would be paid, you know, he'd maintain the building, and he and Lakeshore Power Boats would remain the same liability. This document would remain the same, only going month to month, you know, with the taxes. "Q. Did you ever reduce to writing your agreement with Lakeshore Power Boats, the agreement that was made in January of 1989? "A. No." The "document" referred to in Mr. Lemmo's testimony is the sublease between Rick Case, Lakeshore and Olszko. We concluded supra that the sublease could not form the basis for a new contract between LaRose and Lakeshore; it, therefore, follows that it cannot be used to hold Mr. Olszko liable for the debt of Lakeshore. We now must look to the subsequent oral agreement to decide Mr. Olszko's liability. It is a settled law that an interest in land must be granted in writing. The reason upon which this rule is founded is the very thing that the statute of frauds was enacted to prevent, which is that names and agreement of parties must appear in writing to avoid the contract being foisted upon anyone by perjury. In certain circumstances, part performance to avoid inequitable results can permit an oral contract to be taken out of the operation of the statute of frauds. To constitute part performance, there must apparently be possession. Crawford - 12 - v. Wick (1868), 18 Ohio St. 190. While there is evidence of possession by Lakeshore, there is no evidence that Mr. Olszko personally had possession of the property other than being a silent partner in the corporation. He did not reside on the premises or transact personal business from the premises. Appellant argues that he did not promise to pay for the debt personally nor was there a contract between him personally and LaRose. "The concept of the corporation being a separate entity *** is a legal fiction which will under certain circumstances be disregarded." Saeks v. Saeks (1985), 24 Ohio App. 3d 67, 70; see, also, State v. Standard Oil Co. (1892), 49 Ohio St. 137. "Courts, [however,] have been reluctant to disregard the corporate entity and have done so only where the corporation has been used as a cloak for fraud or illegality or where the sole owner has exercised such excessive control over the corporation that it no longer has a separate existence." E.S. Preston Assoc., Inc. v. Preston (1986), 24 Ohio St. 3d 7, 11. A corporate officer or director "is not personally liable on contracts *** for which his corporate principle is liable, unless he intentionally or inadvertently binds himself as an individual." Centennial Ins. Co. v. Tanny Int'l. (1975), 46 Ohio App. 2d 137, 142. Thus, an individual can be held responsible for the debt of a corporation under certain circumstances. Hughes v. Miner (1984), 15 Ohio App. 3d 141. However, in the within case, since there is no evidence to support that Mr. - 13 - Olszko personally promised to pay for the corporation's debt, we need not discuss the "leading object" rule of Wilson Floors Co. v. Sciota (1978), 54 Ohio St. 2d 45; see also Builder Appliance Supply, Inc. v. Hughes (1983), 13 Ohio App. 3d 207. Therefore, we hold that the statute of frauds precludes Larose from holding Mr. Olszko individually liable for the oral contract negotiated at the expiration of the sublease. Appellant's first, second, third and fourth assignments of error are sustained. V. Appellant, in his fifth assignment of error, argues that the trial court erred in granting the sum of $4,416.11 to Rick Case when it did not meet its burden of proof. We disagree. Appellant's argument is centered only on the amount owed on the sign rental. However, the trial court's calculation was not only limited to the sign rental. The trial court included in its calculation, taxes plus a gas bill which the record shows were owed by appellant and Lakeshore. Judgments supported by competent credible evidence going to all the material elements of the case must not be reversed as being against the manifest weight of the evidence. C.E. Morris Co. v. Foley Construction Co. (1978), 54 Ohio St. 2d 279. Appellant's fifth assignment of error is overruled. The trial court's judgment holding Mr. Olszko personally liable to LaRose is reversed. Its judgment in favor of Rick Case is affirmed. Judgment affirmed in part and reversed in part. - 14 - This cause is affirmed in part and reversed in part. It is, therefore, considered that said appellee, Rick Case, recover of appellant, Tony Olszko, its costs herein. It is also considered that appellant, Tony Olszko, recover of said appellee, LaRose, his costs herein. It is ordered that a special mandate be sent to said court 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. Exceptions. FRANCIS E. SWEENEY, P.J., and LEO SPELLACY, J., CONCUR. SARA J. HARPER JUDGE N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof this document will be stamped to indicate journalization, at which time it will become the judgment and order of the court and time period for review will begin to run. .