COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 68360 I, I & I PROPERTIES : : Plaintiff-appellee : : JOURNAL ENTRY -vs- : AND : OPINION RICHARD YOUNG, ET AL. : : Defendant-appellant : : DATE OF ANNOUNCEMENT : OF DECISION : OCTOBER 26, 1995 CHARACTER OF PROCEEDING : Civil appeal from Court of Common Pleas : Case No. CV-267456 JUDGMENT : AFFIRMED IN PART AND REVERSED IN PART. DATE OF JOURNALIZATION : APPEARANCES: For plaintiff-appellee: For defendant-appellant: BLAKE DICKSON, ESQ. MARLENE N. LALLY, ESQ. HAROLD POLLOCK, ESQ. 2351 North Park Boulevard 1707 Terminal Tower Cleveland Heights, OH 44106 Cleveland, OH 44113 - 2 - PATTON, C.J. Defendants-appellants, Richard Young and ABC Tavern Corp. ("appellants") appeal the trial court's verdict in favor of plaintiff-appellee, I, I & I Properties in the amount of $4,622 and the trial court's ruling dismissing its counterclaim. On August 5, 1991, Stanley Properties (lessor), a non-party and ABC Tavern Corporation entered into a lease for commercial space located at 16617 Pearl Road, Strongsville, Ohio ("premises"). Young was president and sole shareholder of ABC Tavern. Young executed the lease on behalf of ABC Tavern and also personally guaranteed the lease. Young intended, at the time the lease was executed, that he would operate a tavern and restaurant on the premises. At the time the lease was executed, ABC Tavern did not have a liquor license, therefore it placed the following provision in the lease agreement: Article 50 Lessee [ABC Tavern] will promptly apply for transfer of State of Ohio liquor permit to these Premises. This Lease is contingent upon approval of such transfer on or before November 1, 1991, at the option of Lessee and Lessor, otherwise this Lease is void and all rents and security deposits shall become the property of Lessor as the agreed liquidated damages from Lessee. ABC Tavern took possession of the premises when the lease was signed. ABC Tavern was unable to obtain a liquor license by the November 1, 1991 deadline and chose to retain possession of the - 3 - premises. ABC Tavern proceeded to make renovations to the premises even though the lease was void pursuant to Article 50. In January 1993, appellee purchased the property. ABC Tavern made rental payments to appellee while it continued to attempt to secure a liquor license. On December 13, 1993, appellee's property manager Robert Nieto, sent a letter to Young stating that in accordance with Article 50 of the lease agreement, the lease is void. In December 1993, the city of Strongsville refused the application for the liquor license for the premises due to inadequate parking. Robert Nieto testified that ABC Tavern stopped paying rent in December 1993. On December 15, 1993. appellee served Young and ABC Tavern with a notice to vacate the premises. In January, 1994, appellee filed a forcible entry and detainer action against Young and ABC Tavern in Berea Municipal Court. Appellee's forcible entry and detainer action also included a second cause of action for $5,000 in back rent. Young and ABC Tavern filed an answer and counterclaim alleging appellee had fraudulently induced them to enter into the lease knowing that the premises could not be lawfully used to operate a bar. The case was transferred to Cuyahoga County Court of Common Pleas on March 15, 1994. Testimony at trial is contradictory with respect to whether ABC Tavern's interest in the lease was taken over by Codispoti Inc. with Young continuing as a personal guarantor on the lease. - 4 - Richard Young stated in direct examination that in September 1993, Codispoti Inc. took over the premises and he had to be the guarantor of the lease even though ABC Tavern was no longer a tenant. However, Young then stated in cross-examination that from August 1991 through February 1994 a new lease was never executed. The record does not contain a signed writing that ABC Tavern assigned the lease to Codispoti with Young continuing as a personal guarantor. Moreover, the record contains a letter from Robert Nieto to the Ohio Department of Liquor Control, dated December 8, 1993, which indicated that Codispoti does not have any tenancy rights to the premises. The letter also stated: "[w]e [appellee, ABC Tavern and Young] verbally agreed to assign Mr. Codispoti the existing lease only if he was successful in obtaining permission from the state and the city in opening up a tavern." Therefore, the only lease properly executed in this case is the lease dated August 5, 1991 between ABC Tavern and appellee with Young as guarantor. Appellants' first assignment of error states: I. WHERE DEFENDANT RICHARD YOUNG WAS MERELY A GUARANTOR TO A LEASE AGREEMENT, AND NOT A LESSEE, THE TRIAL COURT COMMITTED PREJUDICIAL ERROR IN HOLDING YOUNG LIABLE FOR BACK RENTALS ON AN ADMITTEDLY VOID LEASE. Appellants assert that the trial court erred in holding Young liable for back rentals on an admittedly void lease where Young was a guarantor. Specifically, appellants claim that when a lease term - 5 - has been voided by its own operation there is nothing left to be guaranteed, therefore Young cannot be held liable as the guarantor. We find our recent case, Brown Derby, Inc. v. NTK (June 8, 1995), Cuyahoga App. No. 68402, unreported to be dispositive of the case at hand. In Brown Derby, we held that a contractual status as guarantor ceases when the contract is not renewed, regardless of the parties' subsequent course of conduct. The court in Brown Derby stated that the intention to secure one as a guarantor must be absolutely apparent. As a result, the law does not conclude that a guaranty is continuing unless the surrounding circumstances necessitates that presumption. Absent a new agreement as a guarantor, the law implies no such obligation to her. Id at 3. In the present case, it is undisputed that as of November 1, 1991, the lease agreement was void. We acknowledge that ABC Tavern continued to pay rent. While this relationship may have been indistinguishable from that relationship defined under the lease agreement, the facts do not show the parties intended that Young continue as a guarantor. Therefore, pursuant to Brown Derby, supra the trial court could not impose a guaranty relationship. Accordingly, Appellants' first assignment of error is sustained. Appellants' second assignment of error states: II. THE TRIAL COURT COMMITTED PREJUDICIAL ERROR IN DISMISSING DEFENDANT'S COUNTERCLAIM. Appellants assert that the trial court committed error in dismissing their counterclaim. Specifically, appellants claim that - 6 - it was error for the trial court to dismiss their counterclaim for breach of contract at the beginning of the trial and then at the close of the evidence correct this ruling. We find that trial court did not dismiss appellants' counterclaim for breach of contract at the beginning of the trial. The following colloquy took place before the trial began: MRS. LALLY; Impossibility of performance, Your Honor. There is no way this contract - - there is no way that the landlord's part of the bargain could have ever been fulfilled to the benefit of this tenant or the rents that he paid. He paid rents for a tavern-restaurant. THE COURT: Just so we understand, and so it is clear, the counterclaim is based on fraud, but are there three parts of the counterclaim? MR. DICKSON: Fraud to sign a lease, fraud to make improvements, and fraud to induce them to continue to make leasehold payments. THE COURT: To make this clear I am going to dismiss Count One and Count Two of the fraud counterclaim. * * * THE COURT: I am going to accept evidence though on that [the impossibility of performance claim], so evidence would be the same on the fraud claim, it will be the same evidence that she's going to give in defense of the contract, so in an effort to be fair and bend over backwards to let everybody put their case on, I am going to do that, but I am going to rule out - - you have made no allegation about fraud in the inducement against these defendants, and I am going to rule that out. The second ground was fraud. * * * - 7 - THE COURT: Fraud in the inducement is out and accepting the rents, and inducing them to continue is still up for grabs, so proceed. [TR. 19-21] The following took place at the close of the evidence: MR. DICKSON: Objection, Your Honor. This case is not about a breach of contract. THE COURT: Well, I am aware of it. That is not what you prayed for, so go ahead. [TR. 110] * * * THE COURT: First I would correct the record in that I said that Mrs. Lally had not pled breach of contract. I think she has pled that, so I am taking that into account. You did plead that. [TR. 117] We find the above transcript to show that the trial court did entertain the breach of contract claim. Furthermore, after a thorough review of the record we find that appellants did not present sufficient evidence to maintain their proposition that appellee improperly took rental money from ABC Tavern when it knew that the premises could never qualify for a liquor license. Accordingly, appellants' second assignment of error is overruled. Judgment affirmed in part and reversed in part. - 8 - This cause is affirmed in part and reversed in part and remanded to the lower court for further proceedings consistent with this opinion. It is, therefore, considered that said appellants recover of said appellee 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. JAMES D. SWEENEY, J. PATRICIA BLACKMON, J., CONCUR CHIEF JUSTICE JOHN T. PATTON N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announce- ment of decision (see Rule 26). Ten (10) days from the date hereof, this document will be stamped to indicate journalization, .