COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 72007 RICHARD SPEAR, : : Plaintiff-Appellant : Cross-Appellee : JOURNAL ENTRY : and vs. : OPINION : THE VILLAGE OF MORELAND : HILLS, ET AL., : : Defendants-Appellees : Cross-Appellants : DATE OF ANNOUNCEMENT OF DECISION : JANUARY 15, 1998 CHARACTER OF PROCEEDING: : Civil appeal from : Common Pleas Court : Case No. 293684 JUDGMENT : REVERSED AND FINAL JUDGMENT : ENTERED FOR DEFENDANT. DATE OF JOURNALIZATION : APPEARANCES: For plaintiff-appellant: Daniel G. Morris 950 Standard Building 1370 Ontario Street Cleveland, Ohio 44113 Ford L. Noble 6000 Lombardo Center, Suite 120 Seven Hills, Ohio 44131 For defendant-appellee, John G. Peto The Village of Moreland REMINGER & REMINGER Hills: The 113 St. Clair Building Cleveland, Ohio 44114 The defendant-appellee, Irene C. Keyse-Walker Cuyahoga Savings Association: ARTER & HADDEN 1100 Huntington Building 925 Euclid Avenue Cleveland, Ohio 44115-1475 -2- Robert F. Steinmetz Cuyahoga Savings Bank One Erieview Plaza Cleveland, Ohio 44114 -3- NAHRA, J.: Richard Spear appeals, and Cuyahoga Savings Association (Cuyahoga Savings) cross-appeals, from judgments and rulings made by the trial court on claims arising out of Spear's purchase of a Moreland Hills home from Cuyahoga Savings. Spear alleges that Cuyahoga Savings fraudulently misrepresented and concealed facts about latent defects with the property which, in turn, induced his purchase. Spear appeals from the $90,000 judgment in his favor. Spear contends that the trial court improperly denied his requests and motions for the equitable remedy of recission, and prejudgment interest, as well as erred in its failure to give instructions on punitive damages, attorney's fees, and cost to cure as an acceptable measure of compensatory damages. Cuyahoga Savings appeals from the trial court's failure to direct a verdict in its favor. In 1983, Cuyahoga Savings took possession and became owner of the house located at 115 Skyline Drive, Moreland Hills, Ohio, situated on a steep slope overlooking the Chagrin River, when it accepted a deed in lieu of foreclosure. On appraisal, Cuyahoga Savings determined the value of the home to be $122,000. On July 7, 1983, Jack Willkom, of Cuyahoga Savings' appraisal department, hired Richard R. Zeigman, President of Site Consultants, Inc., to inspect the property concerning a potential erosion problem. After inspection, on September 8, 1983, Zeigman, referring to his notes from his inspections, notified Willkom in a telephone discussion of the mechanics of how the slope behind the house was failing or -4- sliding that the ravine (gully) erosion problem on the south side of the house was rapidly developing and more imminently threatening to the house; and that the sheer slope behind the house, and extending several houses to the north and south of 115 Skyline Drive, was unstable. He went on to say that the due to this continued erosion, the instability of the foundation of the slope and gully would increase. Zeigman told Willkom that if the surface water runoff problem with the south side, the erosion gully , was not addressed in the relatively near future, this erosion would soon cause a serious threat to the foundation of the house. In discussing the sheer slope behind the house, Zeigman testified that he informed Willkom that it would probably be ten years before this slope eroded enough to effect the foundation of the home. However, he was adamant in his conclusion that although ten years was an estimate, the fact that the foundation of the home would be affected was imminent. Zeigman also stated that during this phone conversation with Willkom, he outlined the necessary steps to eradicate the problems. In the short term, the problem to the south side of the house, the erosion gully, was the more serious and needed immediate attention. Concerning this, Zeigman made two suggestions; first, that the trees and shrubbery at the top of the slope should be removed to alleviate the stress; and second, a conduit needed to be constructed in order to collect the surface run off and deposit it directly into the river. This would ease the pressure on the south side and essentially cure the problem with the erosion gully. -5- In the long term, Zeigman stated that he informed Willkom that in order to stabilize and armor the east bank, the sheer slope behind the home, two areas required attention. First, they needed to address the composition and stability of the bank by concentrating on soil engineering, soil dewatering, and the construction of gabions, which are mesh bags created to prevent erosion at the base of a bank. Second, in order to reduce the hillside slope, it would be necessary to build retaining walls, and to plant ground cover and vines on the slope so that the roots could help to fortify the stability of the soil. On September 15, 1983, Zeigman, at Willkom's instruction, prepared and mailed to Willkom, a written account of his oral report. This report outlined the aforementioned problems including, but not limited to, a description in paragraph three of the short term problem, the surface water runoff situation, and a description in paragraph four of the long term problem which is explained as, inter alia, massive slippage and described as [s]oil masses sliding down the slope are being washed away by the river as they reach the bottom of the river. There are indications that this slippage and erosion is likely to continue and could threaten the house itself if steps are not taken to control the problem. . On October 18, 1983, Willkom, under Zeigman's advisement, contacted 76 Construction Co. Inc., to draft a proposal as to the cost of the conduit to solve the problem on the south side of the -6- home, the gully erosion. 76 Construction, estimated that the cost of such an enterprise would be between $16,900, and $17,500. In May of 1985, Barb Clausen, of Hilltop Realty, brokered the sale of 115 Skyline Dr. from Cuyahoga Savings to Richard Spear. The asking price was $99,000, well below the $122,000 appraisal, with a contract price of $90,000. Prior to signing the contract, Spear had the property inspected. Included in Spear's inspector's report was a reference to the erosion of the rear property line. Spear's inspector recommended the use of an erosion expert regarding slippage of the rear property line into the Chagrin River Valley. Spear effected a search for an expert, finding most to be expensive, and terminated this search after receiving and reading the purchase agreement on or about June 7, 1985. Included in the purchase agreement were the Zeigman's written report, the estimate and drawings of 76 Construction, as well as the following pertinent paragraphs. Paragraph 5 provides in pertinent part: This entire transaction is further conditioned upon the receipt by the BUYER of a report resulting from a professional inspection of the premises, including a stake survey if he so elects, that is satisfactory to the BUYER. BUYER will arrange and pay for said professional inspection within five (5) business days from receipt of notification by the BUYER that SELLER has accepted this offer..... In order to aid BUYER in his inspection of the premises, SELLER has attached hereto, and made part hereof as though fully rewritten herein, Exhibits B through H, which are the inspection reports, sketches and estimates SELLER has received relating to the soil erosion problem. SELLER has obtained no inspection of the water seepage problem on the front wall of the foundation. -7- BUYER shall notify SELLER within twenty (20) business days from the date of acceptance of this offer of BUYER'S decision to either proceed with or terminate this transaction. Paragraph 22 provides: BUYER acknowledges that he is purchasing the Premises (including any personal property if any) in an as is condition. BUYER further acknowledges that he has the right to inspect the premises, Section 5 herein, and that neither SELLER or its agents have made any warranties and/or representations, express or implied, to the buyer concerning the condition of the Premises. After reading the reports by Zeigman and 76 Construction, Spear executed the purchase agreement and took possession of the home. Once in possession, Spear implemented the proposal of 76 Construction by building a conduit at the point of the erosion gully, and supplemented their proposal by adding catch basins and drain tiles to further help keep the water away from the house and from eroding the top of the slope. He also added, per instruction of Zeigman, ground cover and landfill to strengthen the foundation of the ravine. In 1989, Spear suffered his first landslide. Spear testified that this slide consisted of 5000 yards of his backyard, including seven or eight large maple and oak trees. Over the course of the next seven years all of the land northeast of the house was lost to landslides. The appellant's home now rests inches from the precipice, and sways on its foundation. I. Cuyahoga Savings assigns one error for our review on cross- appeal. -8- I. DID THE TRIAL COURT ERRONEOUSLY DENY DEFENDANT'S MOTION FOR DIRECTED VERDICT WHEN THE EVIDENCE OFFERED OF FRAUD WAS: 1) DEFENDANT SOLD THE PROPERTY AS IS, WITH A PROVISO THAT THE TRANSACTION WAS CONDITIONED UPON THE PLAINTIFF'S RECEIPT OF A REPORT FROM HIS OWN PROFESSIONAL INSPECTOR THAT WAS SATISFACTORY TO HIM; 2) THE DEFENDANT ATTACHED AN INSPECTION REPORT IT RECEIVED FROM A CONSULTANT TO THE PURCHASE AGREEMENT TO AID THE PLAINTIFF IN HIS OWN INSPECTION; 3) BOTH THE REPORT ATTACHED TO THE PURCHASE AGREEMENT AND THE PLAINTIFF'S OWN INSPECTOR'S REPORT REFERRED TO THE ONGOING LOSS OF PROPERTY INTO THE CHAGRIN VALLEY RIVER. Cuyahoga Savings maintains on cross-appeal that the trial court should have granted their motion for directed verdict for three reasons; first, they effected full disclosure; second, fraud does not exist under this fact pattern because there was no justifiable reliance by the purchaser; and, third, Spear is estopped from making a claim because of the existence of the as is clause, and the doctrine of caveat emptor. In Layman v. Binns (1988), 35 Ohio St.3d 176, 519 N.E.2d 642, the Supreme Court of Ohio stated in its syllabus: 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 or 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. Further, in addition to imposing upon a purchaser of real estate a duty of inquiry and examination, the doctrine imposes on the seller a duty to * * * disclose material facts that are not readily observable or discoverable upon reasonable inspection. Layman, 35 Ohio St.3d at 177, 519 N.E.2d at 644; see, also, Lepera v. Fuson (1992), 83 Ohio App.3d 17, 25, 613 N.E.2d 1060. Although fraud by -9- the seller vitiates the duty imposed on the purchaser by the doctrine, the purchaser still bears the burden of proving in support of his fraud claim that his reliance was justified. Lepera 83 Ohio App.3d at 26. An as is clause in a real estate contract shifts the burden of discovering, and disclosing or remedying defects from the seller to the purchaser. Brewer v. Brothers (1992), 82 Ohio App.3d 148, 151, 611 N.E.2d 492. However, an `as is' clause does not bar a claim for `positive' fraud, a fraud of commission rather than omission. As a result, an `as is' clause cannot be relied upon to bar a claim of misrepresentation or fraudulent concealment. Id. However, a claim of fraudulent non-disclosure, a fraud in the omission, will not overcome an as is clause. Id. at 152. Spear maintains, and the trial court agreed, that the actions taken by Cuyahoga Savings amounted to fraudulent misrepresentation. This misrepresentation occurred, he asserts, because Cuyahoga Savings only disclosed the short term problems and solutions in the report generated by Zeigman. He claims that Willkom purposely directed Zeigman to withhold the problem regarding the slope behind the home and its potential for landslides. It is his contention that the language of the report, as drafted and submitted with the purchase agreement, was not only incomplete, but misleading and vague in its terminology. He further maintains, that although he was put on notice as to the existence of these problems by the bank, as well as his own inspector, he was justified in relying on the documents as submitted with the purchase agreement as a -10- complete, open and honest representation of the problems, both short and long term. Spear asserts that the formality of the documents and the estimates and diagrams falsely led him to believe that these were the only remedial measures that would ever need to be taken. Spear further maintains that his reliance upon these representations induced him into purchasing a piece of property that he would never have undertaken had the bank been more forthright in their representations. The first question which must be addressed is did the actions taken by Cuyahoga Savings, either individually or together, amount to a positive fraud. The testimony indicates that Cuyahoga Savings received this property in lieu of a monetary settlement against its borrower. They had the property inspected, had a report generated to represent this inspection, and included this report in the purchase agreement. The heart of Spear's arguments attacks the language of the report drafted by Zeigman to Willkom and the representations made therein. Spear believes that the report was misleading because it discussed only the short term problems and solutions. More specifically, Spear claims that there is no terminology in this report that could be construed as referencing the potential for landslides. However, upon closer inspection, it is clear that Zeigman discussed both the surface water runoff problem as well as the slope behind the home and its potential for massive slippage. Zeigman goes on to relate that if this problem is not addressed soon, the long term potential could be devastating. These representations could not have been more clear. -11- Further, Cuyahoga Savings was very careful to include in the purchase of the property an inspection by Spear and his approval thereof. The record and testimony indicate that not only was Spear afforded many unimpeded opportunities to have the house and property inspected, he was also specifically directed to do so. The purchase agreement and his own inspector stated the necessity to evaluate the erosion problem more fully and to his satisfaction. It was Spear who determined that the report, as submitted by Willkom and drafted by Zeigman, was satisfactory. It is apparent from the language of the purchase agreement itself that Cuyahoga Savings did not intend for Spear to rely only on this report. It was submitted by Cuyahoga Savings, to Spear, in order to apprise him of the problem and aid him in its inspection and interpretation. Furthermore, in order for Spear to recover for fraud where an as is clause exists, he had to demonstrate an affirmative misrepresentation of a material fact and his justifiable reliance thereon. Even if the facts are construed in a light most favorable to Spear, the facts as presented cannot support a finding of fraud. The record indicates that Cuyahoga Savings was open, honest, and forthright in their dealings with Spear. They specifically directed his attention to the erosion problems and the necessity to look further into the potential solutions. As a result of these affirmative representations, Spear was not justified in relying on his interpretation of the Cuyahoga Savings inspection and report. -12- The burden resulting from Spears failure to act will not be placed upon Cuyahoga Savings. Cuyahoga Savings afforded Spear every opportunity to inspect the property and determine his potential liabilities. Not only did Cuyahoga Savings point out the nature of the defects, both open and observable and latent, they went beyond their duty by submitting their own report and directing him to investigate further. Further, Spear was specifically directed by an uninterested third party, that he hired, to hire an erosion expert to evaluate the condition of the slope on the property, and he failed to do so. Instead he chose to rely on his own appraisal of the problems. Since there was no justifiable reliance, there is no fraud, and the as is clause and the doctrine of caveat emptor remain in full effect. Accordingly, the trial court should have granted Cuyahoga Savings' motion for a directed verdict. -13- II. Appellant assigns four errors for our review, which state: I. THE TRIAL COURT ERRED IN FAILING TO GIVE THE REQUESTED INSTRUCTION ON PUNITIVE DAMAGES AND ATTORNEYS FEES. II. THE TRIAL COURT ERRED IN DENYING PLAINTIFF- APPELLANT'S REQUEST FOR THE EQUITABLE REMEDY OF RECISSION. III. THE TRIAL COURT ERRED IN DENYING THE MOTION FOR PREJUDGMENT INTEREST. IV. THE TRIAL COURT ERRED IN FAILING TO GIVE THE REQUESTED INSTRUCTION ON COST TO CURE AS AN ACCEPTABLE MEASURE OF COMPENSATORY DAMAGES. As a result of this court's opinion regarding Cuyahoga Savings cross-appeal, the errors assigned by appellant are rendered moot. See App.R. 12(A)(1)(c). Accordingly, we find the trial court erred in not granting Cuyahoga Savings' motion for directed verdict. Judgment for plaintiff is reversed and final judgment entered for defendant. -14- It is, therefore, ordered that said defendants- appellees/cross-appellants recover of said plaintiff- appellant/cross-appellee its 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. BLACKMON, P.J., and _________________________________ JOSEPH J. NAHRA PORTER, J., CONCUR. JUDGE N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R.22(E) unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the .