COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 66082 ROBERT MANNING, ET AL. : : : PLAINTIFFS-APPELLANTS : JOURNAL ENTRY : v. : AND : DAVID A. HAMAMEY, ET AL. : OPINION : : DEFENDANTS-APPELLEES : DATE OF ANNOUNCEMENT OF DECISION: JULY 27, 1995 CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court, No. CV-182284. JUDGMENT: REVERSED AND REMANDED. DATE OF JOURNALIZATION: APPEARANCES: For Plaintiffs-Appellants: J. David Ingersoll, Esq. Suite 350, The Arcade 401 Euclid Avenue Cleveland, OH 44114-2402 For Defendants-Appellees: William L. Tomson, Esq. Nicholas H. Kemock, Esq. 14400 Pearl Road Strongsville, OH 44136 -2- DAVID T. MATIA, J.: Robert Manning, et al., plaintiffs-appellants, appeal the decision of the Cuyahoga County Court of Common Pleas in favor of David A. Hamamey, et al., defendants-appellees. Appellants raise three assignments of error concerning an "as is" real estate purchasing agreement. This court, finding error, reverses the decision of the trial court. I. STATEMENT OF FACTS In April or May of 1988, Robert Manning, plaintiff-appellant, purchased a parcel of real estate situated at 16935 Hummel Road in Brookpark, Ohio from James White. The property had two underground tanks used to store diesel fuel which Mr. White used in his trucking business. It was plaintiffs-appellants' intention to use said parcel for his car rental business. Plaintiff-appellant did not intend on using the fuel storage tanks and/or fuel pumps as it was diesel fuel. As such, there was no inspection as to the condition of the fuel tanks prior to purchasing the property. Robert Manning, plaintiff-appellant, obtained the necessary occupancy permits upon taking possession of the property. Approximately three days after taking possession of the property, plaintiff-appellant found an employee of Mr. White pumping fuel from the tanks into his truck. Plaintiff-appellant witnessed the pumps working and fueling the truck. The employee was then told to leave the premises as permission was not given for the use of these tanks. -3- Not long after entering the premises, Robert Manning, plaintiff-appellant, realized the property was too large for his business. Accordingly, he distributed fliers advertising and describing the property (the description included the existence of the fuel tanks). David Hamamey, defendant-appellee, received a flier and contacted his real estate agent to inquire about the property. Defendant-appellee inspected the property once with his agent. The real estate agent inspected the property a total of two times. Prior to entering into the purchasing agreement, David Hamamey, defendant-appellee, had a conversation with plaintiff- appellant in which he expressed the importance of the two underground fuel tanks. Defendant-appellee testified the plaintiff-appellant told him "the tanks were working." The purchase agreement was executed between the parties for $220,000 and had two conditions precedent: 1) the purchase was "subject to buyer financing within 30 days ***" and 2) approved by the city of Brookpark for the installation of a radio tower for business. The parties subsequently waived the first condition and the parties agreed to a new financing arrangement. Defendants-appellees paid off a promissory note totalling $158,304.81 which plaintiffs-appellants owed to Mr. White. In return, David Hamamey and his wife, Wilma, defendants-appellees, received two promissory notes from Robert Manning and his wife, Pamela, plaintiffs-appellants, totalling said $158,304.81 which were secured by a mortgage deed for the property at issue. These -4- notes were to be cancelled upon execution of the purchase of said property or to be paid in full on January 9, 1990. As for the second condition precedent, defendants-appellees received approval from the city of Brookpark for the installation of a radio tower for business. However, before defendants- appellees fulfilled the obligations of their purchase agreement and before applying for a building permit, the city of Brookpark's building inspector informed defendants-appellees they could not build the radio tower until the underground fuel tanks had been tested. These tests revealed one of the fuel tanks leaked. Upon learning of the defect in the fuel tank, defendants-appellees refused to proceed with the purchase agreement and demanded payment in full of the two promissory notes made by plaintiffs-appellants. On January 10, 1990, Robert Manning, plaintiff-appellant, filed a complaint against David Hamamey, defendant-appellee, seeking specific performance of the contract as the two condition precedents had been fulfilled and/or waived. Defendant-appellee timely answered, joined the parties wives as additional parties and counterclaimed for monies due on the promissory notes. Defendants-appellees argued Robert Manning, plaintiff-appellant, made material misrepresentations concerning the condition of the underground fuel tanks and that, in its present condition, the premises is unsuitable for the purpose for which it was to be purchased. Defendants-appellees filed a motion for summary judgment which was denied. Plaintiffs-appellants amended the complaint to join -5- Mr. James White, the party from whom Robert Manning, plaintiff- appellant, bought the property. Mr. White was subsequently dismissed from the cause of action. A trial began on May 21, 1991 with the trial court finding the representations made by Robert Manning, plaintiff-appellant, constituted a material breach of contract. The court then granted defendants-appellees' counterclaim and found both plaintiffs-appellants jointly and severally liable on the promissory notes. Upon appeal, this court dismissed the case for lack of a final appealable order. The case was ultimately reinstated on the active docket and referred to the referee for foreclosure proceedings. After a hearing, the trial court adopted the referee's recommendation, affirmed its prior judgment and ordered foreclosure of the property at issue. After plaintiffs-appellants obtained new counsel and a stay on the execution of judgment, this court granted reinstatement of the case which is now properly before this court. II. FIRST AND SECOND ASSIGNMENTS OF ERROR Since Robert and Pamela Manning's, plaintiffs-appellants', first and second assignments of error contain similar issues of law and fact, this court will consider them concurrently. I. THE TRIAL COURT ERRED IN HOLDING THAT APPELLANT'S REPRESENTATIONS CONSTITUTED A MATERIAL BREACH OF THE CONTRACT BETWEEN APPELLANT AND APPELLEE IN THAT APPELLEE'S (SIC) COMMENTS WERE NOT FALSE, WERE NOT MADE WITH KNOWLEDGE THAT ANY COMMENT WAS FALSE, WERE NOT MADE WITH THE INTENT TO MISLEAD APPELLEE, AND DID -6- NOT LEAD TO JUSTIFIABLE RELIANCE THEREUPON BY APPELLEE, AND THEREFORE DID NOT CONSTITUTE FRAUDULENT MISREPRESENTA-TION. II. THE TRIAL COURT ERRED IN HOLDING THAT APPELLANT'S REPRESENTATIONS CONSTITUTED A MATERIAL BREACH OF THE CONTRACT BETWEEN APPELLANT AND APPELLEE AND THEREFORE ERRED IN FAILING TO APPLY THE DOCTRINE OF CAVEAT EMPTOR, WHICH PRECLUDES APPELLEE FROM RELYING UPON SAID REPRESENTATIONS TO THE DETRIMENT OF APPELLANT. A. ISSUE RAISED: WHETHER THE TRIAL COURT ERRED IN FINDING APPELLANTS BREACHED THE PURCHASING AGREEMENT Richard and Pamela Manning, plaintiffs-appellants, argue the trial court erred in determining the comments made to David Hamamey, defendant-appellee, constituted a breach of contract. Specifically, appellants argue not only were appellants unaware that the fuel tank leaked, but the representations made to defendants-appellees were in fact true. As such, the evidence does not support a finding that their comments constitute fraudulent misrepresentation which would be required for the breach of the parties "as is" purchasing agreement. Plaintiffs-appellants' first and second assignments of error are well taken. B. APPLICABLE LAW: DOCTRINE OF CAVEAT EMPTOR In the case sub judice, there is no dispute the purchase agreement entered into by the parties provided David Hamamey, defendant-appellee, purchased the property "as is". In Layman v. Binns (1988), 5 Ohio St.3d 176, syllabus, the Ohio Supreme Court -7- stated: -8- The doctrine of caveat emptor precludes recovery in an action by the purchaser for a structural defect in real estate where (1) the condition complained of is open to observation and 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. (Traverse v. Long [1956], 165 Ohio St. 249, 59 O.O. 325, 135 N.E.2d 256, approved and followed.)(emphasis added). Here, both parties knew of the existence of the underground fuel tanks. In fact, defendants-appellees noted the importance of the two tanks to plaintiffs-appellants during negotiations. Furthermore, defendants-appellees had inspected the property once and had the opportunity to make further inspections. In making its determination, the trial court found Robert Manning's, plaintiff-appellant's, representations relative to two underground tanks constituted a material breach of the contract. Accordingly, since the parties entered an "as is" contract, the trial court must have determined that by a preponderance of the evidence, plaintiff-appellant's comments amounted to fraudulent misrepresentations. See Saxton, et al. v. Matejka, et al. (May 28, 1992), Cuyahoga App. No. 59985, unreported. In order to succeed on a claim of fraudulent misrepresentation, one must show: (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 -9- 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. Gaines v. Preterm-Cleveland, Inc. (1987), 33 Ohio St.3d 54, 55. See, also, Dennison v. Koba (1993), 86 Ohio App.3d 605, 610. C. THE TRIAL COURT ERRED IN DETERMINING ROBERT MANNING'S, PLAINTIFF-APPELLANT'S, REPRESENTATIONS CONSTITUTED FRAUDULENT MISREPRESENTATIONS. After a complete review of the record, we find there is no evidence in the record which could reasonably be construed in such a way establishing Robert Manning, plaintiff-appellant, knowingly misrepresented material facts to the transaction with the intent to mislead. First, there is no evidence indicating plaintiff-appellant knew the underground fuel tank was leaking. David Hamamey, defendant-appellee, testified in pertinent part: Q. Now, did you then contact Mr. Truffin (real estate agent) about this? A. Yes, I did. Q. And -- A. And Mr. Truffin set up a meeting with Mr. Manning for us to look at the property, and at the time of the meeting Mr. Manning made a statement in regards to the gas tanks that they were working at the time that he took possession of the property from Mr. White. -10- * * * Q. His words being that the tanks worked? A. Mr. Manning said that the tanks worked. Q. Okay. THE COURT: Did he say they worked or at the time he received the property from Mr. White? THE WITNESS: They worked at the time that, that he took possession of the property from Mr. White, and that was not a long period of time between him -- Robert Manning, plaintiff-appellant, testified in pertinent part: Q. Did you make use of the fuel storage tanks and pumps? A. Never. Q. Yourself? A. No. Q. Do you have any independent knowledge of their condition underground? A. No, they're buried under 18 inches of concrete. They were used for diesel. We have no diesel vehicles. There would be no reason for us to use those. Our customers by (sic) gas anyway. We wouldn't need any kind of gas facility like that. Q. To your knowledge, were the pumps and tanks in working order when you purchased the property? A. Yes they were. Approximately three days after title had transferred I happened to be there or arrived at the property and found a truck parked in the front which belonged to Mr. White with a driver who -11- had, without my knowledge or permission, entered the property, turned the electricity on and was pumping fuel out from these tanks into the truck that was parked out front. And, of course, I asked him who he was and what he was doing, et cetera. And said Mr. White sent him over to pump fuel out, but that's -- I saw him doing it so I know it was working. * * * Q. And at the time the purchase agreement was signed did you make any other representations to them about the property's condition or its use. A. No. I'm sure I related the story about Jim White's driver out there pumping the fuel, and again without my knowledge or permission, which I wasn't real happy about. Q. Did you ever make a specific representation to them that those tanks did not leak? A. No. There is no way I could have knowledge of that. Thus it appears from the uncontroverted testimony of the parties that plaintiff-appellant informed defendant-appellee that he witnessed the fuel being pumped out of the tanks. Plaintiff- appellant did not use the pumps nor did he make any inspection of the underground tanks. There is simply no evidence in the record demonstrating plaintiff-appellant knew the tanks leaked. We note the fliers sent out by Robert Manning, plaintiff-appellant, merely states the "property has twin 10,000 gallon underground fuel storage tanks with inside meters, pump is outside." -12- Second, the representations made by Richard Manning, plaintiff-appellant, were in fact true. The underground fuel tanks and pumps were working and dispensing fuel when the electricity was turned on. If the condition of the tanks themselves was as important and material to the transaction as defendants-appellees maintain, it was their duty to inspect and inquire about the condition of the tanks in a prudent, diligent manner. See Layman v. Binns, 35 Ohio St.3d 176. From the evidence in the record, defendants-appellees did not. We believe the doctrine of caveat emptor imposes certain responsibilities upon the purchaser in a real estate transaction. In this case, only upon a showing of fraudulent misrepresentation will those responsibilities be alleviated. Again, after a complete review of the record, the evidence simply does not establish the comments made by plaintiff-appellant, i.e., "the tanks worked," amount to fraudulent misrepresentation. Thus, the trial court erred in determining Robert Manning's, plaintiff- appellant's, comments constituted a material breach of the purchasing agreement. Plaintiffs-appellants' first and second assignments of error are well taken. III. THIRD ASSIGNMENT OF ERROR Robert and Pamela Manning's, plaintiffs-appellants', third assignment of error states: THE TRIAL COURT ERRED IN FAILING TO RULE THAT PLAINTIFF WAS ENTITLED TO SPECIFIC PERFORMANCE IN THAT APPELLANT PERFORMED ALL -13- OBLIGATIONS UNDER THE CONTRACT AND ALL CONDITIONS PRECEDENT REQUIRED WERE MET, THEREBY PERMITTING ENFORCEMENT OF THE CONTRACT. A. ISSUE RAISED: WHETHER PLAINTIFFS-APPELLANTS WERE ENTITLED TO SPECIFIC PERFORMANCE Robert and Pamela Manning, plaintiffs-appellants, argue the trial court erred in failing to find plaintiffs-appellants were entitled to specific performance. Due to our disposition of the first and second assignments of error, this case will be remanded to the trial court on the issue of specific performance as questions remain whether or not the conditions precedent to the purchasing agreement have been met. As these issues have yet to be adjudicated by the trial court, they are not yet ripe for review by this court. Judgment of the trial court is reversed and remanded for further proceedings consistent with this opinion. -14- This cause is reversed and remanded for further proceedings consistent with the opinion herein. It is, therefore, considered that said appellants recover of said appellees their 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. SPELLACY, P.J. and JAMES D. SWEENEY, J., CONCUR. DAVID T. MATIA 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 .