Lamancusa v. Big Little Farms Inc.
| Decision Date | 31 December 2013 |
| Docket Number | No. 2012–T–0054.,2012–T–0054. |
| Parties | Sam LAMANCUSA, Treasurer Trumbull County, Ohio, Plaintiff, v. BIG LITTLE FARMS INC., et al., Defendants–Appellees, The Estate of Gene P. Ross, et al., Defendants–Appellants. |
| Court | Ohio Court of Appeals |
OPINION TEXT STARTS HERE
Daniel G. Keating, Keating, Keating & Kuzman and John D. Falgiani, Jr., Warren, OH, for defendants-appellees.
Jay R. Carson and Robert K. McIntyre, Wegman, Hessler & Vanderburg, Cleveland, OH, for defendants-appellants.
{¶ 1} Appellants, Beverly W. Ross and the Estate of Gene P. Ross, appeal from a partial summary judgment in a foreclosure case before the Trumbull County Court of Common Pleas. Appellants seek reversal of the trial court's ruling concerning the validity of a mortgage they held on real property owned by appellee, Big Little Farms Inc. (“BLF”). Specifically, appellants submit that the mortgage is enforceable even though BLF was not in good standing as a corporate entity when the mortgage was executed.
{¶ 2} Dale E. Ross and Gene P. Ross were brothers who grew up together in Trumbull County, Ohio. During their early lives, both men developed an appreciation for the breeding and training of race horses. At some point in the 1970s, Dale formed BLF under Ohio law and purchased a tract of land in Trumbull County under the corporate name. Over the years, he developed the property by building stables and a race track for horses.
{¶ 3} In the early 1980s, Dale failed to pay tax obligations on behalf of BLF. Thus, the Ohio Secretary of State cancelled the company's articles of incorporation. For two decades, Dale took no action to reinstate the cancelled articles of incorporation but continued to transact all business under the “Big Little Farms” name.
{¶ 4} Gene moved to Michigan and married Beverly. Gene eventually formed Ross Stables, LLC, a Michigan entity that primarily engaged in the business of breeding race horses. As Gene's business began to grow, he and Dale entered into an oral agreement concerning the training of horses. Pursuant to this agreement, Gene transported horses to the Trumbull County property where Dale boarded and trained them. Gene was then liable to Dale for the services rendered.
{¶ 5} Over the years, Gene advanced funds to Dale to assist in making improvements to the Trumbull County property. In December 2003, Dale, acting in his capacity as president of BLF, signed a promissory note payable to Gene and Beverly. The note stated that, in return for a loan received from Gene and Beverly, BLF promised to pay them the amount of $103,385, plus 2% yearly interest, in monthly payments of $873.18.
{¶ 6} In conjunction with the promissory note, BLF granted Gene and Beverly a mortgage on the Trumbull County “horse farm” property, which was still titled in the name of BLF. Dale signed the mortgage solely in his capacity as president of the corporation.
{¶ 7} Within three months of Dale's execution of the note and mortgage, Gene died. Over the next three years, Dale did not make any monthly payments on behalf of BLF on the underlying debt to Beverly.
{¶ 8} In January 2007, the Trumbull County Treasurer filed a foreclosure action in relation to BLF's “horse farm” property. The treasurer's complaint asserted that BLF was delinquent in the payment of property taxes. In addition to BLF, the complaint named Gene, Beverly, Dale, and Dale's former wife as defendants.
{¶ 9} BLF settled the delinquent tax issue with the county treasurer. However, before the case could be dismissed in its entirety, Beverly filed a cross-claim against Dale and BLF. She amended her original pleading in October 2007 and asserted three counts. First, she alleged that BLF had breached the terms of the promissory note by failing to make any required payments on the loan. Second, she sought foreclosure of the mortgage. Third, she sought a determination that Dale was personally liable for the corporate debt under the note.
{¶ 10} In addition to answering Beverly's cross-claim, Dale submitted a cross-claim against her. His cross-claim included counts alleging breach of contract, detrimental reliance, misrepresentation, and unjust enrichment. Under each of these claims, Dale sought to recover boarding and training fees that Gene allegedly failed to pay before his death. According to Dale, the sum of the unpaid fees was greater than the amount BLF supposedly owed on the promissory note. Thus, Dale sought to have the unpaid fees offset against any sum owed to Beverly.
{¶ 11} The Estate of Gene P. Ross was substituted for Gene after he died. Furthermore, Dale added Ross Stables, LLC as a “defendant” to his cross-claim. Dale passed away in December 2011 while the case was pending. Dale's estate and the administrator of the estate, Meleny Dibell, were substituted as the proper defendants to Beverly's cross-claims. Upon entering the case, Dale's estate was granted leave to add a fifth claim against Beverly, under which it sought to quiet title.
{¶ 12} Within four months of Dale's death, the two sides in the litigation submitted competing motions for summary judgment under Civ.R. 56(C). Beverly and her husband's estate sought final judgment in their favor on all eight counts of the pending cross-claim. In addition to responding to Beverly's motion, BLF and Dale's estate moved for partial summary judgment on the issue of whether the promissory note and mortgage should be declared void. In support of their argument, BLF and Dale's estate contended that BLF did not have authority to execute the note and the mortgage because its articles of incorporation were never reinstated.
{¶ 13} In its subsequent entry on the competing motions, the trial court granted partial relief in favor of both sides. The court held that, as BLF was not an existing corporation when the promissory note and mortgage were executed in 2003, Dale lacked authority to bind the company under those documents. The court declared the mortgage void and entered judgment in favor of BLF and Dale's estate on its cross-claim to quiet title to the property. The court further concluded that Dale was personally liable for the loan debt under the promissory note.
{¶ 14} The court further granted summary judgment in favor of Beverly as to the claims filed by Dale's estate for breach of contract, detrimental reliance, and misrepresentation. However, as to the remaining unjust enrichment claim filed by Dale's estate, the court found that genuine issues of material fact remained to be litigated. Finally, the court's entry contained a specific finding under Civ.R. 54(B) that there was no just reason for delay.
{¶ 15} Appellants' sole assignment of error states:
The trial court erred by declaring that the mortgage that Appellee Dale Ross granted to Appellant Beverly Ross was void because, when making the grant, the grantor, Dale Ross, purported to act on behalf of Big–Little Farms, Inc., (“Big–Little Farms”), a cancelled corporation. Because Dale Ross held himself out as acting on behalf of Big–Little Farms, he and his Estate are estopped from later seeking to avoid the transaction by denying the corporation's existence.
{¶ 16} We review a trial court's decision(s) on a motion for summary judgment de novo. U.S. Bank Natl. Assn. v. Martz, 11th Dist. Portage No. 2013–P–0028, 2013-Ohio-4555, 2013 WL 5635986, ¶ 10, citing Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). Summary judgment is proper when (1) the evidence shows “that there is no genuine issue as to any material fact” to be litigated, (2) “the moving party is entitled to judgment as a matter of law,” and (3) “it appears from the evidence * * * that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made, that party being entitled to have the evidence* * * construed most strongly in the party's favor.” Civ.R. 56(C).
{¶ 17} Appellants argue that appellees were estopped from arguing that Dale lacked authority to bind BLF to the note and the mortgage because Dale held himself out as president of BLF and signed the note and the mortgage in his corporate capacity.
{¶ 18} Initially, we note that the record indicates there were no factual disputes concerning the legal status of BLF and the execution of the underlying promissory note and mortgage. First, the parties agreed that, even though BLF was in good standing as an Ohio corporation when it bought the “horse farm” property in the 1970s, its articles of incorporation were cancelled in the early 1980s. Moreover, no evidence was presented establishing that Dale made any effort to have his company reinstated as a recognized corporation under Ohio law; thus, BLF was not a valid corporate entity when the note and mortgage were executed in late 2003. Second, a review of both documents readily confirms that, in signing them, Dale affirmed he was acting in his capacity as the president of BLF, not in his individual capacity.
{¶ 19} Nonetheless, the trial court held that Dale lacked the authority to bind the corporation because the corporate articles were cancelled some 22 years before Dale executed the note and the mortgage. As such, the trial court found that reasonable minds could come to but one conclusion: that the mortgage was void as it applied to BLF.
{¶ 20} When articles of a corporation have been cancelled, as in this case, R.C. 1701.88(A) provides that “the corporation shall cease to carry on business * * *.” However, that did not occur in this case. Dale violated this statute by signing the note and the mortgage on behalf of the corporation at a time when he knew the articles had been cancelled. This should not defeat the claim of the person with whom he did business.
{¶ 21} It is well established that “persons who hold themselves out as a corporation, and act as if they are, in fact, a corporation [ ] are estopped to later deny corporate...
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