COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 68391 AIRCOA HOSPITALITY SERVICES, INC. : : Plaintiff-appellee : : JOURNAL ENTRY -vs- : AND : OPINION HOPKINS AIRPORT HOTEL PARTNERSHIP,: ET AL. : : Defendant-appellants : : DATE OF ANNOUNCEMENT : JANUARY 11, 1996 OF DECISION : CHARACTER OF PROCEEDING : Civil appeal from Court of Common Pleas : Case No. CV-218471 JUDGMENT : VACATED; FINAL JUDGMENT FOR APPELLANT DATE OF JOURNALIZATION : APPEARANCES: For plaintiff-appellee: For defendant-appellants: JOHN D. PARKER, ESQ. DANIEL W. HAMMER, ESQ. DANIEL P. MASCARO, ESQ. DONALD P. SCREEN, ESQ. Baker & Hostetler Thompson, Hine & Flory 3200 National City Center 3900 Society Center 1900 East 9th Street 127 Public Square Cleveland, OH 44114-3485 Cleveland, OH 44114-1216 - 2 - PATTON, C.J. In December 1983, plaintiff Associated Inns and Hopkins Airport Hotel, Inc. (AIRCOA) and defendant Hopkins Airport Hotel Partnership (hotel) entered into a management agreement relating to the operation of a hotel located at Cleveland's Hopkins International Airport. In exchange for four percent of the hotel's gross revenues, AIRCOA agreed to manage the hotel for a twenty- five year period. When the hotel began experiencing financial difficulties, the parties signed a letter agreement whereby AIRCOA would continue to manage the hotel for a modified fee of two percent of the hotel's gross revenues, with the remaining two percent deferred until hotel revenues met specified levels. In late 1989, the parties amended the management agreement ("first amendment") to allow the hotel to terminate the agreement upon thirty days notice to AIRCOA and payment of "all accrued and unpaid fees and other amounts due hereunder." The parties further agreed the accrued and unpaid fees due as of October 1, 1989, were $254,909. The hotel exercised its option to terminate the management agreement on September 15, 1990. AIRCOA filed this action seeking reimbursement of management expenses, deferred management fees and accrued interest on the outstanding balance. The parties filed cross-motions for partial summary judgment on the issue of accrued interest on deferred management fees, both maintaining there were no issues of material fact and they were entitled to judgment as a - 3 - matter of law. The court granted AIRCOA's motion for partial summary judgment, finding "[t]he letter agreement provided that the deferred portion of the Management Fee would bear interest at 12%." The hotel filed a motion for clarification or, in the alternative, for reconsideration of the court's summary judgment relating to the interest rate on the accrued management fees. The hotel argued the letter agreement did not specify an interest rate, but instead linked the rate to the fee charged by Richard Watson, one of the hotel's principals, for any cash advances he made to the hotel. The court denied the motion and the parties stipulated the amount of interest at $94,607.06, but made no stipulation as to liability. This appeal followed. Civ.R. 56(C) provides that summary judgment shall be rendered only if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The construction of written contracts is a matter of law. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, paragraph one of the syllabus; Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio, Inc. (1984), 15 Ohio St.3d 321. Words in a contract should be given their plain and ordinary meaning unless "manifest absurdity results or some other meaning is clearly intended from the face or overall contents of the instrument." Alexander, supra, at 245-246; King v. Nationwide Ins. Co. (1988), 35 Ohio St.3d 208, 212. If a contract is clear and unambiguous, the court need not concern itself with rules of construction or go - 4 - beyond the plain language of the agreement to determine the rights and obligations of the parties. Latina v. Woodpath Development Co. (1991), 57 Ohio St.3d 212; Seringetti Constr. Co. v. Cincinnati (1988), 51 Ohio App.3d 1, 4. The issue is whether AIRCOA is entitled to accrued interest on its deferred management fees. We determine the agreement specifies that interest is payable only under certain specified conditions, and those conditions were not met. Section 8.01 of the management agreement provides: Management Fees. As AIRCOA's compensation for its services hereunder, OWNER shall pay AIRCOA monthly a basic management fee during the term of this Agreement equal to 4% of the Gross Revenues of the Property as defined below ***. The relevant portions of the letter agreement state: (6) Effective June 1, 1988, AIRCOA will manage the Hotel under a modified fee arrangement which requires payment of a 2% management fee and subordination of the other 2% to the cash needs of the Hotel as defined below. The existing management agreement dated December 3, 1983 is hereby reaffirmed except as to those changes incorporated therein by an appropriate amendment." (7) Cash flow in excess of that required to pay operating expenses, the base 2% AIRCOA management fee, required capital expenditures, and the First Trust Deed (but before payments on the Second Trust Deed to Watson or the Third Trust Deed to AEI) shall be applied in the following order: (a) To the payment of unpaid interest accrued on Watson's Second Trust Deed Loan through June 1, 1988; (b) To proportionate payment of the accrued deferred 2% of the management fee (which shall - 5 - bear interest at the same rate as Watson's new advances) and to payment of interest on Watson's new advances; (c) To payment of interest on Watson's Second Trust Deed Loan' (d) To payment of interest on AEI's Note to be secured by Third Trust Deed. All new loans shall bear interest at the rate of 12 % per annum. Interest not paid on any loan shall accrue but shall not compound. Paragraph (7) provides that cash flow in excess of the amount needed to pay AIRCOA's base two percent management fee, required capital expenditures and the first trust deed shall be applied to satisfy, in descending order of priority, those items listed in subparagraphs (a) through (d) of paragraph (7). Payment of AIRCOA's deferred management fee, plus interest is listed in subparagraph (b) of paragraph (7). While the letter agreement contemplates the payment of interest, AIRCOA's entitlement to interest on the deferred management fees is necessarily subordinate to and contingent upon Watson's interests as set forth in paragraph (7) of the letter agreement. Absent satisfaction of Watson's interests AIRCOA is not entitled to any interest on its deferred management fees. It is uncontroverted Watson has not received any payment on the amounts owed him, nor have hotel revenues reached the level necessary to pay the entire management fee. By affidavit, Watson stated, "[f]ollowing consummation of the June 2, 1988 Letter Agreement, Hotel cash flow never rose to the level required to - 6 - obligate HAHP to pay the deferred portion of AIRCOA's management fee or interest thereon." The contingent nature of paragraph (7)(b) is not changed by the first amendment to the management agreement requiring the hotel to pay "all accrued and unpaid fees and other amounts due hereunder" upon the termination of the management agreement. While deferred interest accrued during the contract term, it did not and could not become an "amount due" under the management agreement or the first amendment until the hotel generated revenues sufficient to satisfy the senior obligations set forth in paragraph (7). Even were we to find AIRCOA's right to collect interest on the deferred management fee arose irrespective of whether Watson actually received interest on his advances, the specific terms of the letter agreement index AIRCOA's rate of interest to the rate of interest Watson received on his cash advances. Again, it is uncontrovered Watson did not collect any interest, so the effective rate was zero percent. AIRCOA urges us to find no distinction between loans and advances for purposes of determining its right to collect interest on the unpaid management fee. The circumstances indicate the parties did intend to distinguish "advances" from "loans." Besides the obvious fact the letter agreement uses the words "advances" and "loans" in separate contexts, paragraph (7)(b) of the letter agreement grants AIRCOA the right to collect interest on its deferred management fee, but only at the same interest rate - 7 - paid on Watson's new advances, which have no stated interest rate. The letter agreement then makes the separate provision that Watson's loans shall bear interest at twelve percent per annum. Not differentiating loans and advances would negate the otherwise clear distinction drawn in paragraph (7) of the letter agreement. Moreover, it is uncontroverted Watson did not collect any interest on his advances. In fact, when he learned AIRCOA had placed interest for his advances on the hotel's books for a brief period, he sent AIRCOA a letter directing it to discontinue that practice. Our analysis of this issue would be incomplete unless we placed the issue of payment of interest on the deferred management fee in proper factual context. In doing so, we are mindful a court may consider extrinsic evidence to give effect to the parties' intentions only when circumstances surrounding the agreement give the language of the contract special meaning. Shifrin v. Forest City Ent., Inc. (1992), 64 Ohio St.3d 635, syllabus. The evidence shows the hotel partners decided to terminate the management agreement because they believed the hotel's financial problems stemmed in large part from AIRCOA's mismanagement. At that point, AIRCOA had deferred $254,909 in management fees and had no present hope of realizing payment on those fees. The hotel's continued poor performance made it highly unlikely revenues would reach levels sufficient to satisfy even the senior obligations set forth in the letter agreement. As a compromise, the parties - 8 - entered into the first amendment of the letter agreement. Paragraph (1) of the first amendment to the management agreement states: 1. Amendment. The Agreement is hereby amended by adding the following Section 11.05(f): (f) Notwithstanding anything to the contrary contained herein, Owner may terminate this Agreement at any time upon 30 days prior written notice to AIRCOA on the condition that Owner shall have paid to AIRCOA all accrued and unpaid fees and other amounts due hereunder. 2. Accrued Fees. The parties hereby acknowledge and agree that the accrued and unpaid fees due pursuant to the Agreement as of October 31, 1989, were $254,909. The hotel agreed to pay "all accrued and unpaid fees and other amounts" in exchange for AIRCOA's agreement to terminate the remainder of the management agreement. The "other amounts" were expenses AIRCOA incurred under section 8.03 of the management agreement and which bore a stated amount of interest--two percent above the prime rate. These are sophisticated parties. Had they intended to amend the management agreement to provide for payment of interest on the deferred management fee, past dealings suggest they would have done so. As it stands, the agreements do not provide for payment of interest on the deferred management fee. By making a distinction between advances and loans, we must presume the parties did so for their own valid reasons. This is particularly so when the circumstances suggest the parties could easily have avoided the issue. - 9 - Accordingly, we sustain the assigned errors and vacate the summary judgment. Since there are no issues of material fact, we enter final judgment in favor of the hotel. Judgment vacated; final judgment for appellant. - 10 - This cause is vacated, final judgment entered for appellant 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. KARPINSKI, J., CONCURS See Concurring Opinion, Karpinski, J., attached. DYKE, J. DISSENTS See Dissenting Opinion, Dyke, J., attached. 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, at which time it will become the judgment and order of the court and time period for review will begin to run. COURT OF APPEALS OF OHIO EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 68391 AIRCOA HOSPITALITY SERVICES, INC. : : Plaintiff-appellee : : vs. : CONCURRING OPINION : HOPKINS AIRPORT HOTEL PARTNERSHIP, : ET AL. : : Defendants-appellants : : : DATE OF ANNOUNCEMENT OF DECISION : JANUARY 11, 1996 KARPINSKI, J., CONCURRING: I agree with the dissent that, pursuant to the letter agreement, AIRCOA's entitlement to interest was not contingent upon the payment of Watson's debts. However, I concur that this case should be reversed on the narrow issue of the rate of interest for the deferred management fee. The rate of interest on the deferred management fee was zero. The letter agreement specifically states that the interest rate on the management fee shall be the same as the interest rate on Watson's new advances. The opinion (at p. 6) correctly points out that the agreement distinguished between "loans" and "advances" and that the evidence showed that Watson did - 2 - not charge any interest on his advances. Therefore, I respectfully concur that the judgment of the trial court should be reversed and final judgment entered for appellant. COURT OF APPEALS OF OHIO EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 68391 AIRCOA HOSPITALITY SERVICES, INC. : : Plaintiff-appellee : : vs. : DISSENTING OPINION : HOPKINS AIRPORT HOTEL PARTNERSHIP, : ET AL. : : Defendants-appellants : : : DATE OF ANNOUNCEMENT OF DECISION : JANUARY 11, 1996 ANN DYKE, J., DISSENTING: I respectfully dissent from the majority's conclusion reversing the trial court's judgment in favor of AIRCOA on the issues of AIRCOA's claim to interest on deferred management fees and the rate which applies to that interest. I do not agree that AIRCOA's entitlement to interest on the deferred management fees was contingent upon the payment of Watson's debts pursuant to the Letter Agreement. The Letter Agreement sets forth only a schedule of priorities of payment, not actual accrual of the amounts. The Agreement contemplated that the interest would become an amount due, but not - 2 - payable, if the monthly revenue of the hotel was insufficient to pay the amounts given a higher priority by the Agreement. This interpretation is supported by a provision in the Letter Agreement which allows the 2% deferred management fee "and accrued interest thereon" to move to a higher priority of payment if remaining unpaid at the end of each calendar year. The provision implicitly accepts AIRCOA's entitlement to the interest on the deferred management fees, regardless of the hotel's revenues. If not paid in full at the end of the year, "AIRCOA may elect to treat the unpaid balance as an Additional Advance to AEI's Third Trust Deed Loan." This Trust Deed Loan is equal in priority to Watson's Second Trust Deed but lower in priority to the undeferred 2% management fee, any capital expenditures and the First Trust Deed. The plain language of the subsequent document, entitled First Amendment, contemplates payment of "all accrued and unpaid fees and other amounts due hereunder," upon termination of the management agreement. Once the agreement was terminated on September 15, 1990, the amount of interest on the deferred and unpaid management fees became not only an amount due, but an amount payable. Essentially, the provisions which controlled the termination of the management agreement altered the payment priorities listed in the schedule of the Letter Agreement in that AIRCOA is paid upon the termination of the agreement and Watson will be accorded a lower priority status. I would affirm the lower court's decision to grant AIRCOA's motion for summary judgment on both the issue of liability for the - 3 - deferred interest and the issue of the applicable rate of interest. The plain language of the Letter Agreement accords a 12% rate of interest on all new loans. The majority would distinguish between the words advances and loans. However, in the context of the document there is no distinction. The interest rate on the deferred management fees is referenced to any new advances made by Watson. At the end of the schedule of priorities is the paragraph which states that, "All new loans shall bear interest at the rate of 12.0% per annum." The deferred management fees are properly considered to be in the nature of a loan. There is nothing to indicate that Watson has the option to determine the rate of interest which shall apply to AIRCOA's deferred management fees simply by deciding to forego interest on his own loans to the company. The trial court's interpretation of the Management Agreement, Letter Agreement and First Amendment is supported by the plain meaning of the language used, rendering it improper to rely upon evidence outside the documents to infer the parties' intentions. The trial court properly granted summary judgment to AIRCOA. .