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Date: 05-29-2020
Case Style:
BOARD OF EDUCATION
TORONTO CITY SCHOOLS et al. v. AMERICAN ENERGY UTICA, LLC, et al.
Case Number: 18 JE 0025
Judge: Carol Ann Robb
Court: IN THE COURT OF APPEALS OF OHIO
SEVENTH APPELLATE DISTRICT
JEFFERSON COUNTY
Plaintiff's Attorney:
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Defendant's Attorney:
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In 2015, a group of landowners sued Ascent Resources Utica LLC (fka
American Energy Utica LLC) and American Energy Partners LP (collectively “Appellant”)
and Great River Energy LLC (“GRE”) asserting various claims including breach of
contract. GRE was retained by Appellant as its land services agent and was named as
the lessee in the 2013 oil and gas leases. When the leases were executed, the
landowners were all represented by the same law firm who negotiated on their behalf as
a group (which included other lessors who are not part of this suit).
{¶5} The complaint alleged the order of payment incorporated into each lease
provided 120 days from receipt of the signed lease documents for GRE to tender the
signing bonus for all acreage encompassed in the lease (even if there was no title or there
was an existing lease) or to timely identify a title defect (and surrender the lease if the
defect was not timely cured by the landowner within 90 days). The complaint said the
landowners were not provided with notice of a title defect within 120 days, they gave
notice of non-payment (which provided the lessee 30 days to tender payment), and they
did not receive payment. The plaintiffs allegedly fell into three groups: (1) group one
never received a notice of a title defect; (2) group two received untimely notice of a title
defect and then allegedly cured the defect within the 90-day period; and (3) group three
received untimely notice of a title defect.
{¶6} Appellant was said to be liable because GRE procured the leases as
Appellant’s agent at the direction and for the benefit of Appellant under an agreement
whereby GRE would tender the signing bonus and legal fees payable under each lease
after receiving the money from Appellant and GRE would subsequently assign the lease
to Appellant. Both the bonus and the legal fees were calculated based on the acreage
listed in each lease. (The lease terms are set forth in part two under the first assignment
of error.)
{¶7} Appellant filed a motion to dismiss asserting it was not obligated under the
lease because it was a disclosed principal and the lease named only the agent as the
lessee meaning the landowners chose to contract with the agent alone. On December
12, 2016, the trial court denied Appellant’s motion to dismiss.
{¶8} In the meantime, the landowners filed a motion for summary judgment (on
August 29, 2016). They urged Appellant was bound by the lease with GRE under agency
law and the duty to tender the full signing bonus became absolute if the title work was not
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Case No. 18 JE 0025
completed within 120 days. Affidavits from the landowners attested they did not receive
notice of a title defect within the 120-day period and they were not paid for all acreage
listed in the lease.
{¶9} Appellant’s response in opposition to summary judgment reiterated the
agency argument, claiming it was not bound by GRE’s lease. Appellant also asserted the
signing bonus was not automatic upon expiration of the title deadline because: the lease
allowed the lessee to reduce the consideration paid based on the true net interest owned
by the lessor; the lease conditioned payment upon title being confirmed satisfactorily to
GRE in its sole discretion; a lack of ownership is more than a title defect; a lease is
unenforceable without consideration, which was not excused by a clause stating there is
no warranty of title; the lease did not take effect until payment of the bonus; the title review
process in the order of payment was akin to an option contract which was never accepted
by payment of the full signing bonus; and after the 120-day period expired without
payment or notice of a title defect, the lease lapsed and the landowners were free to lease
to another.
{¶10} Appellant filed a list of affirmative defenses, pointing out that it had not yet
filed an answer due to its pending motion to dismiss. After the motion to dismiss was
overruled, Appellant’s answer (filed in January 2017) explained Appellant would tender
the bonus payment to GRE for payment of the signing bonus to a landowner to the extent
the landowner had good title to the oil and gas interests listed in the order of payment.
The answer reviewed issues with certain interests attempted to be leased, such as lack
of ownership and pre-existing leases. It said the tendered payments corresponded to the
unencumbered acreage owned and pointed to “corrective” documents signed by some
landowners.
{¶11} On March 23, 2017, the trial court granted the landowners’ motion for
summary judgment as to Appellant’s contractual obligations. On the issue of agency, the
court applied law stating the principal itself becomes a party to a contract made on its
behalf by its authorized agent. The court pointed to the Master Land Services Contract
with GRE’s parent company (Orange Energy Consultants LLP), which stated the services
to be provided to Appellant included: “negotiating for the acquisition of mineral rights,
negotiating agreements that provide for the exploration and for production of minerals,
conducting lease availability checks, title research, mineral take-offs, acquisition due
diligence, lease and/or pipeline right-of-way negotiations, title curative and representation
– 5 –
Case No. 18 JE 0025
at State and/or Federal Lease sales.” The court referred to correspondence showing
Appellant instructed Orange Energy to take the leases under the GRE name in order to
portray local connections, and the court cited an advertisement approved by Appellant
which instructed landowners interested in leasing with American Energy Partners to
contact GRE with whom it was acting in partnership. The court concluded Appellant was
bound under agency principles.
{¶12} On the issue of contract interpretation and Appellant’s duties under the
lease, the court found the order of payment clearly and unambiguously: required payment
or notice of a title defect within 120 days; provided an opportunity to cure a defect within
90 days of the notice; allowed surrender only if there was timely notice of a title defect
plus an inability to cure within the cure period; and required full payment within 30 days
of the lessor’s notice of non-payment or to surrender by the due date. The court
concluded the obligation to pay the full signing bonus became absolute once GRE failed
to provide written notice of a title defect within 120 days and the obligation to pay was not
dependent on a landowner’s title.
{¶13} The court left the matter of breach and damages for subsequent summary
judgment proceedings or trial. Notwithstanding the trial court’s decision in favor of the
landowners, Appellant filed a motion for summary judgment as to one landowner, arguing
he did not own the minerals and suffered no injury. In response, the landowners pointed
out that the trial court already rejected this argument in the March 23, 2017 decision,
which found a landowner was entitled to full payment under the terms of the lease if the
title review period expired without notice of a title defect. On June 2, 2017, the court
denied Appellant’s motion for summary judgment.
{¶14} Based on a disclosure at the motion hearing, Appellant filed a motion for
recusal on June 7, 2017. The court recused itself in September 2017. A visiting judge
was assigned in February 2018.
{¶15} In the interim, the landowners filed a motion for summary judgment on
issues remaining after the March 23, 2017 summary judgment, such as the timing of the
notice of a title defect, the full signing bonus relevant to each landowner, and how much
each was paid if any. The landowners pointed to admissions by GRE that notice of a title
defect was not given within the 120-day title review period and provided information on
the signing bonus received by each landowner versus the amount listed in each order of
payment.
– 6 –
Case No. 18 JE 0025
{¶16} Appellant’s August 2017 response reiterated prior arguments on agency,
contract duties, and the effect of a landowner’s inability to lease the minerals. Appellant
also alleged discovery documents suggested later dates for GRE’s receipt of the
executed leases (the trigger of the 120-day title review period), citing the Craig Affidavit
(Appellant’s attorney). As to three landowners, Appellant alternatively argued the
acceptance of payment for less than the entire acreage was an accord and satisfaction.
It was also alleged that one landowner relinquished the right to payment by
acknowledging title was defective and asking for a release, citing the Beckmen Affidavit
(of GRE). On July 20, 2018, Appellant supplemented its response and filed another
Beckmen Affidavit, which said the landowners’ law firm provided some incorrect legal
descriptions and claimed the 120-day period should not start until the description was
corrected.
{¶17} In March 2018 (after the new judge was assigned), Appellant asked the
court to reconsider the prior judge’s March 23, 2017 summary judgment on contract
interpretation. Appellant argued the landowners were misinterpreting the title review
language and were not automatically entitled to the signing bonus.
{¶18} Upon noticing the landowners’ assertion that Appellant waived the defense
of accord and satisfaction since it was not raised in the answer, Appellant (on August 17,
2018) sought leave to amend the answer to add this defense. On November 18, 2018,
the trial court denied this request finding undue delay.
{¶19} On November 20, 2018, the court granted summary judgment in favor of
the landowners on the contract claims. First, the court agreed to reconsider the March
23, 2017 decision defining Appellant’s legal duties, which was issued by the prior trial
judge before recusal. However, the court agreed with that decision finding: Appellant
was bound under agency law; the landowners were not provided with notice of a title
defect before the expiration of their respective 120-day title review periods; the
landowners provided notice of default after that period expired; they were not paid the full
signing bonus as required by the lease; and the obligation to pay the full signing bonus
became absolute after the 120-day title review period expired without notice of a title
defect.
{¶20} The court found Appellant’s evidence in opposition to summary judgment
did not raise a genuine issue of material fact on its claims of waiver, estoppel, or accord
and satisfaction (which was not properly raised). The court found admissions established
– 7 –
Case No. 18 JE 0025
that the landowners were not provided with timely notice of a title defect, and the court
struck the Craig Affidavit for lack of personal knowledge and hearsay. The court
concluded Appellant and GRE were jointly and severally liable for the full signing bonus
listed in each order of payment (which included the full amount of legal fees set forth in
each order of payment).1
{¶21} The court described its judgment as a final appealable order and found
there was “no just reason for delay” under Civ.R. 54(B).2 Appellant filed a timely notice
of appeal. Appellant sets forth three assignments of error, each generally corresponding
to a different judgment: (1) the March 23, 2017 summary judgment (upheld in the
November 20, 2018 judgment) ruling on (a) agency and (b) contract formation and
interpretation; (2) the November 16, 2018 judgment denying leave to amend the answer
to add accord and satisfaction; and (3) the November 20, 2018 confirmation of summary
judgment and damage award. We address the two unrelated sections of the first
assignment of error separately.
Agency
{¶22} The first part of the first assignment of error challenges the decision finding
Appellant a party to the lease under agency law, alleging:
“The trial court erred as a matter of law * * * by ruling that Ascent was bound by
GRE’s Lease Documents where Ascent was a disclosed principal of GRE and Group
Members nevertheless elected to contract with GRE in its name alone.”
{¶23} Appellant urges: the face of the contract unambiguously shows the
landowners leased with GRE, not with Appellant; the contract contained an integration
clause (stating the lease with the exhibit and the order of payment constituted the entire
agreement and no representations were made or relied upon by either party as an
inducement to or modification of the lease); and parol evidence cannot change the party
named in the contract where the principal was disclosed prior to contracting.
1 According to the bond filings, the judgment totaled $12,713,382 plus interest. Although the Village of
Richmond was included in the judgment, a settlement was reached before the trial court entered its order
(and the prior settlement was thereafter filed in the record).
2 Under Civ.R. 41(A)(2), the trial court granted the landowners’ request to voluntarily dismiss claims against
Appellant which were unaddressed by the summary judgment motion. Other landowners who did not
participate in the summary judgment motion (and were not included in the judgment) dismissed their claims.
The court separately granted summary judgment for two defendants added in the second amended
complaint (for acceptance of the leases as collateral).
– 8 –
Case No. 18 JE 0025
{¶24} The landowners claim the relevant inquiry is not whether Appellant is named
in the lease as a contracting party but is (1) whether an agency relationship existed
between Appellant and GRE and (2) whether GRE’s procurement of the leases was
authorized under the agency relationship. Appellant does not dispute that parol evidence
can be used to answer these two questions and says the questions on agency are not
disputed, thereby admitting there was an agency relationship and Appellant authorized
the procurement of the leases in GRE’s name.
{¶25} The parol evidence rule generally prohibits the contradiction or
supplementation of final written integrated agreements by evidence of prior or
contemporaneous oral agreements or prior written agreements. See Galmish v. Cicchini,
90 Ohio St.3d 22, 27, 734 N.E.2d 782 (2000) (but parol evidence can be used to show
fraud, mistake, or other invalidating cause). Notably, Appellant emphasizes its status as
a disclosed principal in seeking to apply a rule where only the agent’s name is in the
contract. Where the principal’s name is not in the contract, the very claim by the principal
that it was a disclosed principal would be established by parol evidence.
{¶26} The landowners emphasize the general principle: “the acts of an agent
within the scope of what he is employed to do and with reference to a matter over which
his authority extends are binding on his principal.” Saunders v. Allstate Ins. Co., 168 Ohio
St. 55, 58-59, 151 N.E.2d 1 (1958) (dealing with an agent soliciting insurance applications
for an insurer). “[O]ne of the most important features of the agency relationship is that
the principal itself becomes a party to contracts that are made on its behalf by the agent.”
(Emphasis original.) Cincinnati Golf Mgt. Inc. v. Testa, 132 Ohio St.3d 299, 2012-Ohio2846, 971 N.E.2d 929, ¶ 23, citing, e.g., Restatement of the Law 3d, Agency, Section
6.01 (2006).
{¶27} The landowners contend the use of parol evidence is contemplated by these
agency rules. They urge that just as parol evidence can be used in an undisclosed
principal case to establish a contract made in the agent’s name was actually made on a
principal’s behalf, it can be used where the principal was disclosed. See, e.g., Bowden
v. Meade, 1 Ohio Law Abs. 596 (9th Dist.1923) (agency may be established by parol
testimony in undisclosed principal case). A cited United States Supreme Court case
involved whether an undisclosed principal could sue on the contract made in the agent’s
name, but the Court made broad various statements:
– 9 –
Case No. 18 JE 0025
It is not necessary to the validity of a contract, under the statute of frauds,
that the writing disclose the principal. In the brief memoranda of these
contracts usually made by brokers and factors, it is seldom done. If a party
is informed that the person with whom he is dealing is merely the agent for
another, and prefers to deal with the agent personally on his own credit, he
will not be allowed afterwards to charge the principal; but when he deals
with the agent, without any disclosure of the fact of his agency, he may elect
to treat the after-discovered principal as the person with whom he
contracted.
The contract of the agent is the contract of the principal, and he may sue or
be sued thereon, though not named therein; and notwithstanding the rule of
law that an agreement reduced to writing may not be contradicted or varied
by parol, it is well settled that the principal may show that the agent who
made the contract in his own name was acting for him. This proof does not
contradict the writing; it only explains the transaction. But the agent, who
binds himself, will not be allowed to contradict the writing by proving that he
was contracting only as agent, while the same evidence will be admitted to
charge the principal.
(Emphasis added.) Ford v. Williams, 62 U.S. 287, 289, 16 L.Ed. 36 (1858).
{¶28} This use of parol evidence does not deny the contract binds those named
on its face but shows the contract also binds another under the principle that the act of
the agent is the act of the principal. Id. It has been observed that whether the principal
is disclosed or undisclosed, the court is answering the same question of whether the
contract was made for and on behalf of the principal; the same rule allowing parol
evidence applies in either case. Moore v. Consol. Products Co., 10 F.2d 319, 321 (8th
Cir.1925) (the same parol evidence which shows the plaintiff’s knowledge of the agency
can show the principal essentially adopted the agent's name for the purpose of a given
contract).3
3 The landowners cite Collins for the premise that parol evidence can be used by a plaintiff to show the
principal was the true contracting party in a contract with only the agent’s name; however, the Court was
merely reciting an argument, and the case dealt with the agent’s liability on a note. Collins v. Buckeye State
Ins. Co., 17 Ohio St. 215, 222 (1867).
– 10 –
Case No. 18 JE 0025
{¶29} In addition to stating, “one of the most important features of the agency
relationship is that the principal itself becomes a party to contracts that are made on its
behalf by the agent,” the Ohio Supreme Court also explained, “binding the principal to
agent-made contracts typically requires that the agent make the contracts on the
principal's behalf with actual authority to do so.” (Emphasis original.) Cincinnati Golf, 132
Ohio St.3d 299 at ¶ 23-24. Appellant’s argument presumes the contract was not “made
on the principal’s behalf by the agent” if the principal’s name was not in the contract and
the agent was named in the contract as a contracting party. It has been said: “An agent
who acts for a disclosed principal and who acts within the scope of his authority and in
the name of the principal is ordinarily not liable on the contracts he makes.” (Emphasis
added.) See James G. Smith & Assocs. Inc. v. Everett, 1 Ohio App.3d 118, 120 (3d
Dist.1981). However, that case reviewed the law on the agent’s liability, without
discussing the principal’s liability. And, the Supreme Court used the phrase “on the
principal’s behalf” rather than limiting the holding to contracts made “in the name of the
principal.”
{¶30} Appellant seeks to bar suit against the disclosed principal under the
premise: “where a party contracts with an agent, knowing at the time of the making of the
contract that he is dealing with the agent of another party but notwithstanding that fact
contracts with the agent alone, he cannot thereafter maintain an action on said contract
against such agent’s principal.” Depositors S. & L. Co. v. Gross, 6 Ohio Law Abs. 606
(8th Dist.1928) (contractor could not sue building owner known at the time of contracting
since he contracted only with the agent). The Gross case cited Post & Co. wherein a
panel in the Cincinnati Superior Court ruled: if the name of the principal does not appear
in an unambiguous instrument which asserts a positive liability on the part of the person
contracting, then parol evidence to bind the principal is not admissible. Post & Co. v.
Kinney, 7 Ohio Dec. 439 (1878) (but also noting the principal was unaware of the contract
and the agent’s authority to enter the contract was doubtful).
{¶31} The rule in Gross was applied by the Sixth District in Perrysburg Twp. v.
Rossford where the plaintiff entered a contract with the Rossford Arena Amphitheater
Authority (an agency of the city formed as a non-profit corporation to own and operate a
project). The Sixth District held that even if the RAAA and its president were agents of
the city of Rossford, the plaintiff could not maintain an action on a contract against the
city since the sole contracting party was RAAA (with its president signing as its agent)
– 11 –
Case No. 18 JE 0025
because if the agent does not enter into the contract as agent, but as the sole contracting
party, the disclosed principal is not bound. Perrysburg Twp. v. Rossford, 149 Ohio App.3d
645, 2002-Ohio-5498, 778 N.E.2d 619, ¶ 54-55 (6th Dist.) (aff’d on other grounds, as this
issue was not accepted for appeal, 103 Ohio St.3d 79, 2004-Ohio-4362, 814 N.E.2d 44),
citing Brown v. North American Energy Programs Inc., 8th Dist. Cuyahoga No. 46749
(Nov. 17, 1983). The landowners say the Sixth District case is distinguishable because
the property was not to be assigned to the alleged principal as were the leases here and
Perrysburg did not allege the agent entered the contract on the city’s behalf and at the
city’s direction as was the case here.
{¶32} In the cited Brown case: the plaintiff contracted with a corporation to study
some oil wells; the corporation was a general partner in a limited partnership which owned
the wells; the contract stated the study was for the corporation who would provide the
information to the partnership; the plaintiff sued the partnership to recover his fee under
the contract; and the trial court dismissed the claim against the partnership. The Eighth
District affirmed, noting the plaintiff entered into the contract with the corporation (not the
partnership) and there was no indication on the face of the contract that the corporation
was acting as agent for the limited partnership. Brown, 8th Dist. Cuyahoga No. 46749,
citing Gross, 6 Ohio Law Abs. 606. The landowners point out that Brown is
distinguishable as the contract expressly said the study was for the corporation and noted
the partnership would be provided information, thereby distinguishing the agent as the
contracting party. Additionally, the Brown court reviewed a statute providing that a partner
is an agent of the partnership who can bind the partnership by acts such as “execution in
the partnership name of any instrument.” (Emphasis added.) See R.C. 1775.08(A).
{¶33} The landowners point to a federal case applying Ohio law to find parol
evidence can be used to determine if the agent could bind the principal to a contract
naming only the agent as the contracting party. Versatile Helicopters Inc. v. City of
Columbus, 548 Fed.Appx. 337 (6th Cir.2013). In that case, a purchase agreement was
made between the plaintiff and the city’s agent (a broker who was to sell the city’s
helicopter for a commission and take title before transferring it to the buyer). The city
made arguments similar to those presented by Appellant: the city was not liable to the
plaintiff for breach of contract, as a matter of law, because it was not a party to the
agreement; the inquiry can go no further than the four corners of the contract; and a
disclosed principal will not be liable when the agent does not enter into the contract as an
– 12 –
Case No. 18 JE 0025
agent and the third party elects to contract with the agent alone. The federal appellate
court for the Sixth Circuit found “the question of whether [the agent] could bind the City to
the contract with [the plaintiff] under agency principles was an entirely separate question
that may be determined from evidence outside the contract.” Id. at 340.
{¶34} Although the Sixth Circuit mentioned that the purchase agreement did not
contain an integration clause and the contract here contained an integration clause, the
court relied on a case which rejected the principal’s argument that an integration clause
barred parol evidence on whether an agent bound a disclosed principal to a contract. Id.,
citing MJR Internatl. Inc. v. American Arbitration Assn., S.D.Ohio No. 06–cv–0937 (2009),
fn. 6. The cited case rejected an argument that the court could only consider the terms
of the contract (which contained an integration clause and did not name the principal) to
decide whether the principal could be bound under agency principles. MJR, S.D.Ohio
No. 06–cv–0937, aff'd, 398 Fed.Appx. 115 (6th Cir.2010). This is supported by the
observation: “The parol evidence rule applies, in the first instance, only to integrated
writings, and an express stipulation to that effect adds nothing to the legal effect of the
instrument.” Galmish v. Cicchini, 90 Ohio St.3d 22, 2000-Ohio-7, 734 N.E.2d 782 (2000)
(allowing parol evidence of fraud in the inducement regardless of the integration clause).
{¶35} The Sixth Circuit in Versatile Helicopters relied on the Ohio Supreme
Court’s holding in Cincinnati Golf and the following Restatement comment:
If an agent makes a contract in the name of a principal or a description in
the contract is sufficient to identify the principal, the principal is a disclosed
principal and is a party to the contract. * * * Additionally, a principal may be
disclosed even though the contract does not name or identify the principal;
it is sufficient that the third party has notice of the principal's identity. * * *
Unless the contract explicitly excludes the principal as a party, parol
evidence is admissible to identify a principal and to subject the principal to
liability on a contract made by an agent. The parol-evidence rule does not
bar proof that an agent made a contract on behalf of a principal.
Restatement of the Law 3d, Agency, Section 6.01, Comment c (2006). The Ohio
Supreme Court cited Section 6.01 when stating the principal is a party to the contract
when an agent makes a contract on behalf of a disclosed principal. Cincinnati Golf, 132
Ohio St.3d 299 at ¶ 23.
– 13 –
Case No. 18 JE 0025
{¶36} We agree with the position in the above-quoted comment. The fact that the
principal's name is not in the instrument and there is no appearance of agency upon the
writing does not mean a disclosed principal cannot be liable. Restatement of the Law 1st,
Agency, Section 149 (1933) (unless the specific terms exclude the principal as a party).
Accord Rosenberg v. Heritage Renovations LLC, 685 N.W.2d 320 (Minn.2004) (the
disclosed principal is subject to liability for an authorized written contract even though it
purports to be the contract of the agent, unless the principal is excluded as a party by the
contract). “A principal has the right to do business in his own name or in the name of his
agent, and parol evidence identifying him as the real party in interest violates to no greater
extent the rule against varying contracts by extrinsic evidence than does subjecting to
liability an unknown and unnamed principal by the same means.” Love v. Brown Dev.
Co. of Michigan, 131 So. 144, 146 (Fla.1930). See also 10 Williston on Contracts, Section
29:19 (4th Ed.) (a writing which identifies A as a party sufficiently designates B where
parol evidence shows B is A’s principal).
{¶37} The evidence demonstrated the agent’s authorization to enter the contract
in the agent’s name but on the principal’s behalf and at the principal’s direction. As a
disclosed principal can be liable where the agent is the only party named in the contract
due to parol evidence showing the authorized agent entered the contract at the direction
of and on behalf of the principal, Appellant’s agency argument that it was not a contracting
party is overruled.4
Contract Terms: Title Review Period & Consideration
{¶38} In the second section of the first assignment of error, Appellant addresses
contract interpretation and formation, alleging:
4 Therefore, we need not address the landowners’ alternative theory that Appellant is liable as a third-party
beneficiary. The precedential cases deal with recovery by a third-party beneficiary (who has no greater
right than the signatory when seeking judicial interpretation of a contract) and hold: intent to benefit a third
party must be expressed in the language of the agreement; extrinsic evidence cannot be considered absent
an ambiguity (or circumstances invest the contract with special meaning); and an incidental beneficiary
cannot recover. See Huff v. FirstEnergy Corp., 130 Ohio St.3d 196, 2011-Ohio-5083, 957 N.E.2d 3, ¶ 12;
Gerig v. Kahn, 95 Ohio St.3d 478, 2002-Ohio-2581, 769 N.E.2d 381, ¶ 18; Hill v. Sonitrol of Southwestern
Ohio Inc., 36 Ohio St.3d 36, 41, 521 N.E.2d 780 (1988). See also Three-C Body Shops Inc. v. Nationwide
Mut. Fire Ins. Co., 2017-Ohio-1462, 81 N.E.3d 499, ¶ 18-23 (10th Dist.) (third-party beneficiary’s right to
performance does not equate to liability for breach), citing Restatement of the Law 2d, Contracts, Section
302 at 439-440 (1981). In any event, this theory of liability was not raised in the motion below or addressed
by the trial court.
– 14 –
Case No. 18 JE 0025
“The trial court erred as a matter of law by ruling * * * that the Lease Documents
were valid and enforceable contracts regardless of whether Group Members owned the
oil and gas interests they purported to lease.”
{¶39} The lease with its five-year primary term recites in the “Payments to Lessor”
clause that the lessee paid a bonus for execution of the lease and no further delay rental
payments would be due during the primary term of the “Paid-up Lease.” The “Entire
Contract” clause of the lease states: “The entire agreement between the Lessor and
Lessee is embodied herein, and in Exhibit A attached hereto and incorporated herein and
in the associated order of payment. No oral warranties, representations, or promises
have been made or relied upon by either party as an inducement to or modification of this
Lease.” (Lease at 4). The “Surrender” clause allows the lessee to surrender and cancel
at any time all or part of the leasehold by recording a surrender which shall cause all
rights and obligations to terminate. (Lease at 4).
{¶40} The “Title” clause provides: “If Lessee receives evidence that Lessor does
not have title to all or part of the rights herein leased, Lessee may immediately withhold
payment that would be otherwise due and payable hereunder to Lessor until the adverse
claim is fully resolved. Lessor represents and warrants that there is no existing oil and
gas lease which is presently in effect covering the Leasehold.” (Lease at 3). A “Title and
Interests” clause warrants: “The Lessor hereby warrants generally and agrees to defend
title to the Leasehold and covenants that Lessee shall have quiet enjoyment hereunder
and shall have benefit of the doctrine of after acquired title.” (Lease at 3).
{¶41} Attached to the lease is Exhibit A, which states it controls if there is a conflict
with the form lease. (Lease at 6). The “No Warranty of Title” clause says the “Lease is
made without warranty of title.” (Lease at 8). The exhibit states in bold, “Lessor hereby
warrants that Lessor is not currently receiving any bonus, rental, production royalty as the
result of any prior oil and gas lease covering any or all of the subject premises, and that
there are no commercially producing wells currently existing on the subject premises [or
upon lands in the same drilling unit].” (Lease at 6). Emphasizing the lease did not take
effect until the receipt of the bonus, Appellant focuses on the “Lessor’s Representation
Regarding Title to Leased Premises” clause in the exhibit which states:
Upon this lease taking effect (thus upon Lessor’s receipt of the bonus
payment), Lessee’s obligations under this Lease shall not be diminished or
– 15 –
Case No. 18 JE 0025
affected by any title encumbrance on the Leased Premises, including but
not limited to any mortgage or mineral lease of record that existed as of the
date this Lease became effective.
(Lease at 8). Finally, the exhibit’s “Release of Lease” clause requires the
lessee to provide a release upon the lessor’s written request and after
termination, expiration, or surrender. (Lease at 9).
{¶42} Each lease and order of payment lists the parcel numbers in the leasehold,
the acreage of each parcel, and the total acreage. The order of payment (incorporated
by the integration clause) specifies the amount payable to the landowner as a signing
bonus per acre and the total signing bonus, along with the amount payable to the law firm
for legal fees per acre and the total legal fees under the particular lease. The disputed
language of the order of payment states:
[GRE] will tender payment of the initial consideration to the Lessor identified
in the Paid Up Lease (“the Lease”), and the separate amount identified
below as fees for Lessor’s legal counsel, as indicated herein by checks
within 120 days of its receipt of the original of this Order of Payment and the
executed Lease. Payment is conditioned upon title to the property interests
leased being confirmed satisfactorily to GRE, in its sole discretion. A prior
unsubordinated mortgage shall constitute a title defect and is a basis to
render title unacceptable. Upon notification by GRE of the title defect(s),
Lessor shall have a period of ninety (90) days to cure any title defect (“cure
period”). Should Lessor cure the title defect(s) within the 90 day cure
period, Lessor shall be paid as set forth herein by GRE. * * * No default for
non-payment may be claimed by Lessor during said 120-day period.
If Lessor owns more or less than the net interest defined herein, GRE may,
without immediate notice to Lessor, increase or reduce the consideration
payable hereunder proportionate to the actual interest owned by Lessor.
GRE may surrender the Lease associated with the Order of Payment only
upon the existence of a title defect and Lessor’s inability to cure such defect
within the cure period. If the Lease is surrendered due to the presence of
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Case No. 18 JE 0025
a title defect(s) and Lessor is unable to cure such title defect(s) within the
cure period, the Lessor may retain any consideration paid at the time of
signing the Lease but is not entitled to any additional amount. If the Lease
has not been surrendered or payment made by the specified due date, then
Lessor shall notify Lessee in writing and Lessee shall have 30 days from
receipt of such written notice to make payment. * * *
(Lease, Order of Payment).
{¶43} The landowners emphasize the lease clause stating the landowners will not
provide a warranty of title. Nevertheless, payment was conditioned on the confirmation
of a landowner’s title to the leasehold, they warranted the leasehold was not encumbered
by an active lease, and they agreed to “exclusively” lease “all the oil and natural gas * * *
underlying the land herein” which was then described with the anticipated acreage listed.
As Appellant points out, a clause disclaiming a warranty of title means the landowner will
not compensate the lessee if there is a failure of title. See People's Sav. Bank Co. v.
Parisette, 68 Ohio St. 450, 458, 67 N.E. 896 (1903) (covenant of warranty promises to
make monetary compensation for a loss and eviction on the failure of the title which the
deed purports to convey).
{¶44} The “No Warranty of Title” clause does not convert the lease into a quitclaim
and involves a distinct covenant that is different from a disclaimer of the right to convey.
See R.C. 5302.06 (listing the four covenants). See also Chesapeake Exploration LLC v.
Valence Operating Co., S.D. Texas No. H-07-2565 (Sept. 10, 2008) (the warranty of title
is an agreement to pay damages and is a covenant separate from the grant; the mere
exclusion of this warranty in the oil and gas lease does not result in a quitclaim); Barron
ex rel. Maness v. Purnell Morrow Co., Tex. App. 14th Dist. No. 05-98-01828-CV (June
11, 2001) (eliminating the warranty of title in a mineral lease will not negate the distinct
covenant of ownership; the lessee was entitled to recover the bonus paid to lessor). The
mere disclaimer of the warranty of title within the lease did not entitle a lessor without title
to compel a signing bonus. We also note the November 20, 2018 judgment (which
reconsidered the March 23, 2017 judgment) did not rely on the no warranty of title clause
(and the March 23, 2017 judgment mentioned the clause but did not base the ruling on
it).
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{¶45} Appellant raises issues with consideration as to landowners who owned no
interest in the minerals listed in their lease (because the minerals were owned by another
or subject to an existing lease5). The landowners claim the consideration was their
detriment of removing the minerals from the market by executing the lease or the benefit
to Appellant from recording a memorandum of lease (which allowed Appellant to use the
leases as collateral). Appellant points out a landowner cannot remove an interest from
the market if he did not own it; also, a memorandum of lease was recorded because Ohio
is a race to record state, and this procedure eliminates concerns that the minerals will be
encumbered pending the title review. (The lease provided for the recording of a
memorandum of lease, and the memorandum said it was not an amendment of the lease
but was to provide third parties with notice.)
{¶46} In an attempt to avoid even reaching the language on the title review
process, Appellant argues the contract was invalid and never formed. Consideration and
contractual capacity are essential contractual elements. Kostelnik v. Helper, 96 Ohio
St.3d 1, 2002-Ohio-2985, 770 N.E.2d 58, ¶ 16. Consideration is the bargained for legal
benefit and/or detriment. Id. There can be no contract without consideration.
Prendergast v. Snoeberger, 154 Ohio App.3d 162, 2003-Ohio-4742, 796 N.E.2d 588, ¶
29-33 (7th Dist.) (as the document expressed no consideration to support the alleged
contract, the contract was invalid). Yet, there is a difference between failure of
consideration and want of consideration. See, e.g., Civ.R. 8(C) (defendant must
affirmatively set forth in the answer the defense of failure of consideration or want of
consideration but only as the latter applies to a negotiable instrument). Want of
consideration is the total lack of valid consideration in the contract. John P. Timmerman
Co. v. Hare, 3d Dist. Allen No. 1-03-14, 2003-Ohio-4622, ¶ 10. Failure of consideration
is the refusal or failure to provide the consideration intended to pass under the contract.
Id. “Failure of consideration exists when a promise has been made to support a contract,
5 An “oil and gas lease has been construed as transferring to the lessee a fee simple determinable in the
mineral estate with a reversionary interest.” Chesapeake Exploration LLC v. Buell, 144 Ohio St.3d 490,
2015-Ohio-4551, 45 N.E.3d 185, ¶ 61. “During the lease, the lessor effectively relinquishes his or her
ownership interest in the oil and gas underlying the property in favor of the lessee's exclusive right to those
resources.” Id. at ¶ 62. The lease “ultimately, grants title in the oil and gas underlying the property to the
lessee during the term of the lease. This effect on ownership, possession, and custody is an inherent
attribute of an oil and gas lease.” Id. at ¶ 64.
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Case No. 18 JE 0025
but that promise has not been performed.” Action Sanitation Inc. v. Keg & Quarter Inc.,
8th Dist. Cuyahoga No. 49463 (Oct. 3, 1985).
{¶47} In general, where title fails, the purchaser can recover the consideration
paid. See generally Oviatt v. Brown, 14 Ohio 285, 294 (1846). This is based on a failure
of consideration (rather than a want of consideration) where the face of the agreement
recites the consideration. “It is well settled that property being sold as an entire thing, if
title to a material portion fails, this is such a failure of consideration as entitles the
purchaser to an election. He may rescind the sale, or he may complete it, upon
abatement of price or other terms satisfactory to both parties.” (Emphasis added.) Hayes
v. Skidmore, 27 Ohio St. 331, 334 (1875). And here, the lease specifically provides the
lessee can increase or reduce the consideration payable proportionate to the actual
interest owned.
{¶48} Where the landowner signs an agreement to exclusively lease minerals but
only owns or has the right to lease a portion of the minerals listed in the lease, there would
be a failure of consideration as to that acreage. Yet, this does not mean the entire
contract was a nullity. Likewise, if a landowner signs an agreement to exclusively lease
all oil and gas under the leasehold therein described, but the anticipated title search
subsequently shows that the landowner does not own any of the minerals listed in the
leasehold (because someone else owns them or has a pre-existing lease over them),
then the lease was initially supported by consideration on its face but the recited
consideration thereafter failed.
{¶49} This failure of consideration can represent a reason for non-performance,
but it would not be an invalidation of all parts of the contract so as to prohibit a court from
applying the title review language in the order of payment. The Supreme Court of
Pennsylvania stated: "if the consideration money has not been paid, the purchaser,
unless it plainly appear that he has agreed to run the risk of the title, may defend himself
in an action for the purchase money by showing that the title was defective, either in whole
or in part, whether there was a covenant of general warranty, or of right to convey, or
quiet enjoyment, by the vendor, or not; and whether the vendor has executed a deed of
conveyance for the premises or not." (Emphasis added.) Roland v. Miller, 3 Watts &
Serg. 390 (1842). And here, the order of payment contains contractual provisions that
apply before the lease goes into effect so that whether the lease takes effect or not, these
pre-lease provisions have some effect.
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Case No. 18 JE 0025
{¶50} It has been observed that a transaction affecting property which a person
does not own is an impossibility or a nullity. Chase Home Financial LLC v. Banker, 182
Ohio App.3d 546, 2009-Ohio-2650, 913 N.E.2d 1016, ¶ 17-18 (when a mortgagor did not
hold legal or equitable title to the subject property, the subsequent mortgage was a nullity
and of no legal consequence), citing, e.g., Pennock v. Coe, 64 U.S. 117, 128, 16 L.Ed.
436 (1859). If a party “undertakes, by deed or mortgage, to grant property, real or
personal, in presenti, which does not belong to him or has no existence, the deed or
mortgage, as the case may be, is inoperative and void, and this either in a court of law or
equity.” Pennock, 64 U.S. at 128. Nevertheless, the United States Supreme Court
explained that a contract can be made with intent to affect an interest in property not yet
owned. Id. at 129-130 (a contract to mortgage after-acquired property is valid even if the
property did not yet exist).
{¶51} The contractual title review process with notice of a title defect and the
subsequent cure period evinces the intent to lease property even if the record shows a
defect in title because the landowner may subsequently cure the defect (and has 90 days
to do so after receiving notice of a title defect). As discussed further infra, a person may
have equitable title even if they do not have legal title, and the title review of the record
title was the intended means to flesh this out and provide an opportunity to preserve the
lease.
{¶52} Appellant also seeks to avoid application of the title review clauses by
asking this court to distinguish between a title failure and a title defect, claims a
landowner’s lack of mineral ownership (due to severance or an existing lease) is a title
failure, not a title defect. The order of payment includes a prior unsubordinated mortgage
as an example of a title defect. The exhibit to the lease describes a mortgage and a prior
recorded mineral lease as examples of a “title encumbrance” and states the lessee’s
obligation shall not be diminished by any title encumbrance once the signing bonus is
paid. The order of payment used the term “title defect” instead of “title encumbrance.”
The landowners cite a case suggesting the phrase “title defect” includes the situation
where the landowner does not own all of the minerals described in the lease. See
Jimenez v. Chicago Title Ins. Co., 310 Ga.App. 9, 14, 712 S.E.2d 531 (2011) (where a
portion of the property within those described boundaries in the deed was owned by
someone other than the grantor, this amounts to a defect in title). Appellant cites no
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support for the allegation that a title defect would not include a title failure or that a title
failure cannot be cured.
{¶53} In fact, landowner’s lack of record ownership of minerals (including due to
an existing lease) may be cured. For instance, a landowner could: obtain a release of
the old lease for undisputed lack of production; seek a quitclaim from a person (such as
from a relative who agrees you have title to the minerals or from a person who admits
Marketable Title Act extinguishment of their mineral interest); serve a Dormant Mineral
Act notice and hope the mineral holder does not respond; record a deed that was
executed but never recorded; or have a deed executed under a prior contract (such as in
our Shrock case where the plaintiff had equitable title from a land purchase but not legal
title). See Shrock v. Mullet, 7th Dist. Jefferson No. 18 JE 0018, 2019-Ohio-2707.
Therefore, an analysis and application of the title review clauses and the contractual
opportunity to cure title defects is warranted.
{¶54} Where the contractual language at issue is unambiguous, the plain
language is applied without consideration of extrinsic evidence. Shifrin v. Forest City Ent.
Inc., 64 Ohio St.3d 635, 638, 597 N.E.2d 499 (1992). Words and phrases are given their
common and ordinary meanings absent specific contractual definitions, unless manifest
absurdity would result or an alternative meaning is clearly demonstrated in the contract.
Id. “In the construction of a contract courts should give effect, if possible, to every
provision therein contained, and if one construction of a doubtful condition written in a
contract would make that condition meaningless, and it is possible to give it another
construction that would give it meaning and purpose, then the latter construction must
obtain.” Farmers' Natl. Bank v. Delaware Ins. Co., 83 Ohio St. 309, 337, 94 N.E. 834
(1911).
{¶55} When possible, a court's construction of a contract should attempt to
harmonize all the provisions of the document rather than to produce conflict in them.
Summitcrest Inc. v. Eric Petroleum Corp., 2016-Ohio-888, 60 N.E.3d 807, ¶ 35 (7th Dist.).
The determination of whether a contract is unambiguous is a legal question. Bond v.
Halcon Energy Props. Inc., 7th Dist. Mahoning No. 15 MA 0178, 2017-Ohio-7754, ¶ 23.
See also Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio Inc., 15 Ohio
St.3d 321, 322, 474 N.E.2d 271 (1984) (an unambiguous contract has plain language that
is applied as a matter of law with no issue of fact to be determined). The parties do not
claim there is an ambiguity here.
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{¶56} We note the order of payment has distinct language as compared with other
cases with a clause providing payment was conditioned on title being confirmed
satisfactorily to Ascent and a clause providing payment may be reduced proportionate to
the actual interest owned. Compare, e.g., Reynolds v. Ascent Resources-Marcellus LLC,
N.D. W.Va. Civ. No. 1:16CV777 (May 11, 2017). In that case, the order of payment said
if the lease was not surrendered or payment made within the set title review period, then
the lessor may make a demand, in which case Ascent had an additional 30 days to pay
the signing bonus or surrender the lease. Id. Even under that language, the court found
an issue remained as to whether title should have been confirmed satisfactorily by Ascent.
Id.
{¶57} Here, the order of payment said the lessee can surrender “only upon the
existence of a title defect and Lessor’s inability to cure such defect within the cure period”
and said if the lease was not surrendered or payment made within the set time period,
then the lessor may make a demand, in which case the lessee had 30 days to make
payment. Pointing to these clauses, the landowners cite two cases which they say are
examples of courts enforcing a title review period so as to require payment even for
defective titles. The cited Sixth Circuit case has distinct facts where a clause in a
purchase agreement granted a right to arbitrate if the buyer found title defects and the
seller disputed the buyer’s estimate of the value of the defective properties plus a right to
terminate the sale if the value was reduced by 30% at arbitration. See Broad St. Energy
Co. v. Endeavor Ohio LLC, 806 F.3d 402 (6th Cir.2015) (finding the buyer liable for
damages). There was no unilateral right for the buyer to declare a title defect in that
contract. Id. at 407. In the other case, a district court found where the buyer missed the
deadline to give notice of a title defect for certain leases in a lease portfolio (which would
have prompted a mutual resolution procedure), the contract unambiguously required full
payment by the buyer without reduction for defective leases in the sale. Anadarko E & P
Co. LP v. Northwood Energy Corp., 970 F.Supp.2d 764, 772 (S.D.Ohio 2013) (pointing
out the buyer “bargained for the opportunity to avail itself of the title defect notice
procedure, but did not exercise it”). Both cases involved a purchase sale agreement for
an existing lease portfolio rather than the creation of a lease for all oil and gas. Also
dissimilarly, the agreement here conditioned payment on title being to GRE’s satisfaction
and provided the right to decrease payment based upon acreage owned.
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{¶58} The landowners insist the payment of the full signing bonus for all acres
described in the lease was not dependent on the ownership of or ability to lease the
minerals if the clause regarding the title review period was not timely followed. They
consider the 120-day title review period to be a due diligence clause which
unambiguously meant that if 120 days passed without the lessee providing notice of a
title defect, then the lessee must still tender the signing bonus (including the legal fees)
for all acreage in each lease even if the lease could not be maintained on the acreage or
parts of the acreage listed.
{¶59} Appellant counters by arguing the title review deadline could only mean: if
the lessee did not provide notice of a title defect or pay the bonus within 120 days, the
lessor would be free from further obligation and could cancel the lease if payment was
not made within 30 days after notice of default. Appellant construes the clause requiring
payment within 30 days after the lessor’s notice of default as a savings clause to protect
the lessee by giving the lessee 30 more days to pay before the landowner could demand
a release (and seek a lease with another company).
{¶60} We disagree with the trial court in that the lease did not entitle the
landowners to automatic payment of the full signing bonus for breach of the title review
clause. We do not, however, find the title review clause imposed no obligation on
Appellant. “The meaning of the contract must come from the aggregate of each and every
part, and each and every part of the contract must be given meaning if possible.” Bank
of New York Mellon v. Rhiel, 155 Ohio St.3d 558, 2018-Ohio-5087, 122 N.E.3d 1219, ¶
22.
{¶61} The signing bonus covered the delayed rentals for the primary term over
the acreage listed in the leasehold, and the lease says the lessee can withhold a payment
that would otherwise be due and payable to the lessor if the lessee receives evidence the
lessor does not have title to all or any part of the rights. The lease allowed the lessor to
retain any bonus paid if a title encumbrance is discovered after the bonus was paid. The
exhibit to the lease, which was incorporated into the lease and which takes priority over
the lease if there is a conflict, states the lease takes effect “upon Lessor’s receipt of the
bonus payment.” Although the order of payment provides a preliminary step by setting
forth the title review process, it also specifically warns that “[p]ayment is conditioned upon
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title to the property interests leased being confirmed satisfactorily to GRE, in its sole
discretion.”6 It does not say the lessee waives its right to decrease the signing bonus
after 120 days pass without notice of a title defect.
{¶62} The lease’s order of payment explicitly advises: “If Lessor owns more or
less than the net interest defined herein, GRE may, without immediate notice to Lessor,
increase or reduce the consideration payable hereunder proportionate to the actual
interest owned by Lessor.” Plus, in setting forth the anticipated acres and the amount per
acre, the order of payment shows the bonus is based upon a listed amount of acres.
Therefore, if the lease can only validly cover X amount of acres, then the signing bonus
would only cover X amount of acres. The contractual language in its entirety anticipates
that the failure of consideration can excuse performance; the language does not express
a right to future and full payment after a failure in consideration and/or provide punishment
for the failure to meet a deadline. Accordingly, we conclude that automatic entitlement to
the full signing bonus was not the contractual remedy for untimely notice of a title defect.
(Untimeliness is discussed in the third assignment of error in discussing the affidavits
submitted in opposition to summary judgment.)
{¶63} Although we reverse the entry of summary judgment which found the
obligation to pay the entire bonus became absolute upon untimely notice, the landowners
are not prohibited from showing actual damages for breach of the title review clause. In
other words, a faulty title review process may be a breach, but the remedy is not
necessarily a full signing bonus to each landowner regardless of their ability to show
damages. This incorporates an argument from Appellant’s third assignment of error at
part C on whether an injury resulted from the breach. Damages are not awarded for mere
breach of contract but for injury sustained as a result of that breach. Damages should
only place the injured party in as good a position as he would have occupied absent the
6 We note the exercise of sole discretion would still be subject to the standard of good faith. See Hupp v. Beck Energy
Corp., 2014-Ohio-4255, 20 N.E.3d 732, ¶ 103 (7th Dist.) (good faith standard imposed on lease language “in the
judgment of the lessee” even though the lessee is the “sole judge”), aff'd, State ex rel. Claugus Family Farm, L.P. v.
Seventh Dist. Court of Appeals, 145 Ohio St.3d 180, 2016-Ohio-178, 47 N.E.3d 836. “To the extent that the ‘sole
discretion’ language may suggest otherwise, Ohio law imposes an implied duty on parties to a contract to act in good
faith in its performance.” Bruzzese v. Chesapeake Exploration LLC, 998 F.Supp.2d 663, 672 (S.D.Ohio 2014). Thus,
if the lessee declined the lease based on a determination made in bad faith as to marketable title, the landowner would
have a cause of action for breach of the lease. Id.
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Case No. 18 JE 0025
breach. See F. Ents. Inc. v. Kentucky Fried Chicken Corp., 47 Ohio St.2d 154, 159, 351
N.E.2d 121 (1976).
{¶64} The trial court awarded damages to landowners without any showing that
they were able to lease the mineral interests they purported to lease or that they were
damaged by the breach such as by showing there was no title defect or they did or could
have cured. In the case of partial ownership or partial ability to cure, the recoverable
signing bonus must be proportional to the actual ownership or ability to cure. We cannot
presume a lack of ownership or inability to cure. Due to the legal decision that Appellant
was liable for the full signing bonus for every lease with an untimely notice of a title defect
(regardless of the ability to lease the minerals), the case never reached the evidentiary
stage where certain issues were ripe (such as ownership, title defect, complete or partial
cure, ability to cure, or extent of actual damages).7 We therefore must remand for further
proceedings.
{¶65} For these reasons, we sustain Appellant’s argument on lease interpretation
in part, affirm the decision finding breach of the title review clause, reverse the decision
finding automatic entitlement to damages in the amount of the full signing bonus, and
remand for further proceedings where a showing of damages would be required by each
landowner.
Motion to Amend: Accord & Satisfaction
{¶66} Appellant’s second assignment of error contends:
“The trial court abused its discretion in its November 16, 2018 order denying
Ascent’s motion to Amend Affirmative Defenses to add the defense of accord and
satisfaction.”
{¶67} An accord is a contract between a debtor and a creditor to settle the
creditor’s claim in exchange for a sum of money other than that which is allegedly due,
while satisfaction is the performance of that contract. Allen v. R.G. Indus. Supply, 66
7 For instance, the landowners sought summary judgment on whether the lease required the full signing
bonus for untimely notice of a title defect (and then whether the notice was untimely and the amount of
each bonus). (Their motion did not rely on the alleged cure by group two but relied on the preliminary
allegation that landowners were automatically entitled to the full signing bonus.) Appellant’s motion to
dismiss based on the face of the complaint was confined to whether it was a party to the contract under
agency law (only mentioning GRE did not breach when addressing a tortious interference claim which is
no longer at issue). Appellant’s motion for summary judgment on ownership only applied to one landowner
(Meyer) and was filed after the trial court had already ruled that ownership was irrelevant (at a time when
the topic was essentially moot); it was essentially a reconsideration motion. And, we are herein ruling that
mere lack of title ownership may not preclude recovery (due to possible lost opportunity to cure).
– 25 –
Case No. 18 JE 0025
Ohio St.3d 229, 231, 611 N.E.2d 794 (1993). The defense of accord and satisfaction
requires proof on three elements: (1) the plaintiff accepted the defendant's offer to resolve
the plaintiff's claim; (2) the defendant satisfied its undertaking to the plaintiff; and (3) the
offer and acceptance were supported by consideration. Id. at 231-232 (the first two
elements “merge when the creditor manifests acceptance of the offer by negotiating a
check sent by the debtor with the offer”). However, acceptance of a partial payment alone
does not raise a genuine issue as to accord and satisfaction. The debtor must send the
check “with the offer.” Id. There must be a bona fide dispute over a claim, and the debtor
must tender the check upon the express condition that it shall be in full satisfaction of the
disputed claim. Id. at 231.
{¶68} Accord and satisfaction is an affirmative defense that must be raised in the
answer Civ.R. 8(C). An affirmative defense is waived if it is not timely raised. Turner v.
Central Local School Dist., 85 Ohio St.3d 95, 97 706 N.E.2d 1261 (1999). Pursuant to
Civ.R. 15(A), when a party requests leave to amend a pleading, the trial court “shall freely
give leave when justice so requires.” The trial court has discretion in determining whether
to grant leave to amend the answer. Turner, 85 Ohio St.3d at 99. “While the rule allows
for liberal amendment, motions to amend pleadings pursuant to Civ.R. 15(A) should be
refused if there is a showing of bad faith, undue delay, or undue prejudice to the opposing
party.” Id.
{¶69} As for the timeline in this case, the complaint was filed in June of 2015 and
amended in January of 2016. Appellant filed a motion to dismiss before filing an answer,
and the landowners filed a motion for summary judgment before Appellant’s dismissal
motion was ruled upon. Noting its answer was not yet due, Appellant filed a list of
affirmative defenses on October 24, 2016 (when its response to the initial summary
judgment motion was filed). After its dismissal motion was overruled, Appellant filed an
answer on January 24, 2017. Accord and satisfaction was not set forth in the list of
affirmative defenses or in the answer.
{¶70} Appellant’s August 1, 2017 response to the second stage of summary
judgment referred to accord and satisfaction when discussing three landowners who
accepted payment for less than all acreage. Appellant’s July 20, 2018 supplement
reiterated this defense as to one landowner and mentioned the defense as to another
landowner (also saying his lease was released). Although the landowners’ August 10,
2017 reply in support of summary judgment pointed out the defense was waived due to
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Case No. 18 JE 0025
the failure to properly raise it, it was not until August 17, 2018 (a year later) that Appellant
sought leave to amend the answer to add the affirmative defense of accord and
satisfaction. The landowners objected, and the trial court denied Appellant’s request.
Appellant argues this was an abuse of discretion.
{¶71} As the trial court observed, any suggestion that discovery had to be
completed before they could ascertain the applicability of the defense was not credible.
In fact, GRE asserted the defense in its answer long before Appellant filed an answer.
Also, Appellant’s July 2018 supplement did not refer to new information under the label
of accord and satisfaction compared to what was in its August 1, 2017 response to
summary judgment. If the defense was added, the landowners may have sought
additional leave to file submissions regarding the elements of the defense, further
delaying the proceedings. In Turner, the Court found the trial court abused its discretion
by granting leave to amend where the defendant asked to amend the answer to add
immunity after: the trial date was set, a summary judgment motion had been ruled upon
(appealed), and the litigation had been pending for nearly three years. Turner, 85 Ohio
St.3d 95.
{¶72} Here, the court denied a motion for leave to amend after the litigation had
been pending for over three years. By the time Appellant sought leave to amend, the
court had already denied Appellant’s motion to dismiss and granted partial summary
judgment for the landowners with the next stage of the landowner’s request for summary
judgment pending for over a year. The landowners complained about Appellant’s waiver
of the accord and satisfaction defense in their August 10, 2017 reply in support of
summary judgment, and still Appellant waited over a year to seek to amend the answer.
When Appellant finally sought leave to amend the affirmative defenses, it had been more
than 1.5 years after the answer was filed and more than 2.5 years after the list of
affirmative defenses was filed. Contrary to Appellant’s contention, the trial court
reasonably found this was undue delay under the circumstances of this case.
{¶73} Appellant states there was no evidence of bad faith or misrepresentation in
failing to seek leave earlier and then claims there was no prejudice to the landowners. In
arguing a lack of prejudice, Appellant uses the fact that GRE raised accord and
satisfaction in its answer as an indication that the landowners were prepared for the
affirmative defense. However, GRE did not then file any motions or respond to the
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summary judgment motions so as to develop its contentions regarding the doctrine which
was not raised in Appellant’s answer.
{¶74} Assuming there was no prejudice, Appellant says delay is an insufficient
reason to deny a motion for leave to amend, relying on a case which opined that prejudice
is the most critical factor and delay alone should not bar an amendment. See Triangle
Properties Inc. v. Homewood Corp., 2013-Ohio-3926, 3 N.E.3d 241, ¶ 29 (10th Dist.). We
note this appellate case said “delay alone” (should not bar amendment) but did not say
“undue delay alone” (should not bar amendment). In any event, the Supreme Court’s
precedent states a motion to amend a pleading “should be refused if there is a showing
of bad faith, undue delay, or undue prejudice to the opposing party.” (Emphasis added.)
Turner, 85 Ohio St.3d at 99. See also State ex rel. Smith v. Adult Parole Auth., 61 Ohio
St.3d 602, 603-604, 575 N.E.2d 840 (1991) (if there is no reason apparent to justify the
delay for an untimely motion to amend, a trial court does not abuse its discretion in
refusing to allow amendment); Clay v. Shriver Allison Courtley Co., 2018-Ohio-3371, 118
N.E.3d 1027, ¶ 116 (7th Dist.) (the failure to timely file a motion to amend based on
evidence in the movant’s possession constitutes undue delay, and the court has
discretion to deny amendment). In accordance, undue delay is a sufficient reason to deny
leave.
{¶75} Considering the totality of the circumstances on undue delay, we cannot
find the trial court abused its discretion in denying the motion for leave to amend the
affirmative defenses to add accord and satisfaction. As we are remanding on a prior
point, however, the trial court could use its discretion to allow amendment in the future.
To the extent the issue is not moot, the second assignment of error is overruled.
Non-movant’s Summary Judgment Evidence
{¶76} In the third assignment of error, Appellant sets forth various contentions
related to the evidence it set forth in opposition to the landowners’ summary judgment
motion. Appellant argues it demonstrated a genuine issue of material fact on whether
certain landowners may be barred by affirmative defenses such as waiver or estoppel
(and accord and satisfaction). We find the issue of whether Appellant presented evidence
demonstrating a trial issue on its affirmative defenses is moot. Appellant did not seek
summary judgment on these affirmative defenses but raised them in opposition to
summary judgment. Above, we reversed the summary judgment on contract
interpretation and remanded for further proceedings on whether breach of the title review
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clause caused injury. Whether the non-movant met the reciprocal burden by showing a
genuine issue remained for trial is irrelevant where the summary judgment is reversed
and the case is remanded. (Even if the non-movant did not set forth sufficient evidence
on the defenses, the elimination of summary judgment on a preliminary matter would
leave the raised affirmative defenses open on remand.)
{¶77} Appellant also complains the court failed to consider affidavits suggesting
the due date for the notice of a title defect on some leases should be later than originally
believed. One affidavit explained the law firm representing the landowners was
responsible for supplying the legal descriptions on the leases but some legal descriptions
were insufficient and had to be corrected. The affidavit of Appellant’s attorney
incorporated records provided by the landowners in discovery showing there were
corrections after some leases were received by GRE.
{¶78} Notably, Appellant’s evidence suggested some legal descriptions were
resolved by GRE’s addition of an exhibit without requiring the re-signing of the lease; even
where the lease was re-signed due to the location of the signature, Appellant does not
argue novation or say the date on the lease was altered. We also note the order of
payment states the title review period begins on “the receipt of the original of this Order
of Payment and the executed Lease.” Furthermore, an insufficient legal description (for
purposes of recording) or a lack of recording does not affect the enforcement of a contract
between the parties. See Kenney v. Chesapeake, 2015-Ohio-1278, 31 N.E.3d 136, ¶ 73
(7th Dist.) (a lease which must be recorded by statute is valid between the parties even if
unrecorded), citing R.C. 5301.09; Bank One, N.A. v. Dillon, 9th Dist. Lorain No.
04CA008571, 2005-Ohio-1950, ¶ 9 (“failure or success of recording an instrument has no
effect on its validity as between the parties to that instrument”); Young v. Hodapp, 12th
Dist. Butler No. CA85-08-094 (Dec. 29, 1986) (inability to record due to insufficient legal
description is not fatal to contract formation between the parties).
{¶79} Regardless, as urged by the landowners, the contention on a later start date
for the title review period was viewed as an improper attempt to vary matters that were
already deemed admitted. A matter deemed admitted is conclusively established as
stated by Civ.R. 36(B). Cleveland Tr. Co. v. Willis, 20 Ohio St.3d 66, 67, 485 N.E.2d 1052
(1985). See also JPMorgan Chase & Co. v. Indus. Power Generation, Ltd., 11th Dist.
Trumbull No. 2007-T-0026, 2007-Ohio-6008, ¶ 37 (a party cannot challenge matters it
conclusively admitted by submitting a contradictory affidavit). The answer to a request
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for an admission “shall specifically deny the matter or set forth in detail the reasons why
the answering party cannot truthfully admit or deny the matter.” (Emphasis added.)
Civ.R. 36(B).
{¶80} Moreover, “An answering party may not give lack of information or
knowledge as a reason for failure to admit or deny unless the party states that the party
has made reasonable inquiry and that the information known or readily obtainable by the
party is insufficient to enable the party to admit or deny.” Civ.R. 36(B). “If the court
determines that an answer does not comply with the requirements of this rule, it may order
either that the matter is admitted or that an amended answer be served.” Civ.R. 36(C).
See also Equitable Life Assur. Soc. of U.S. v. Kuss Corp., 17 Ohio App.3d 136, 139, 477
N.E.2d 1193 (3d Dist.1984) (implied written admission where the party fails to provide the
reason why it cannot admit or deny or claims a lack of information without stating the
reasonable inquiry).
{¶81} In discovery responses, GRE (Appellant’s agent) admitted the landowners
did not receive timely notice of a title defect, and Appellant responded that it had no
independent knowledge of this information and could not admit or deny the request for
admission. No detailed reasons were set forth on why it could not answer the request,
and there was no indication that a reasonable inquiry was made or that the information
was not readily obtainable from its agent. Although a court may allow amendment or
withdrawal of the deemed admission under Civ.R. 36(B), Appellant’s brief does not rely
on this provision or address the contention regarding the admissions. As Appellant did
not satisfy the rule’s requirement on specificity and reasonable inquiry, the court did not
err in deeming admitted that the landowners did not receive timely notice of a title defect.
Outcome: For the foregoing reasons, the trial court’s judgment is reversed on the issue
of contract interpretation as Appellant is not automatically liable for the full signing bonus
merely because notice of a title defect was not timely provided to the landowner, and the
case is remanded for further proceedings under the principles set forth herein.
Plaintiff's Experts:
Defendant's Experts:
Comments: