[Cite as Chase Home Fin., L.L.C. v. Literski, 2014-Ohio-615.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
CHASE HOME FINANCE, LLC, : APPEAL NOS. C-130404
C-130433
Plaintiff-Appellee/Cross- : TRIAL NO. A-1007475
Appellant,
: O P I N I O N.
vs.
:
DIANE M. LITERSKI,
:
and
:
COLIN JOSEPH ANTHONY
LITERSKI, :
Defendants-Appellants/Cross- :
Appellees,
:
and
:
THE HUNTINGTON NATIONAL
BANK, :
and :
CAPITAL ONE BANK, :
Defendants. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Reversed and Cause Remanded; Cross-Appeal
Dismissed
Date of Judgment Entry on Appeal: February 21, 2014
OHIO FIRST DISTRICT COURT OF APPEALS
Bricker & Eckler LLP, Nelson M. Reid and Daniel C. Gibson, for Plaintiff-
Appellee/Cross-Appellant,
Sams, Fischer, Packard & Schuessler, LLC, and Dwight A. Packard, II, for
Defendants-Appellants/Cross-Appellees.
Please note: this case has been removed from the accelerated calendar.
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OHIO FIRST DISTRICT COURT OF APPEALS
SYLVIA S. HENDON, Presiding Judge.
{¶1} This appeal concerns the parol evidence rule and its application to the
facts and circumstances surrounding the execution of a promissory note.
{¶2} We hold that the trial court erred in granting plaintiff-appellee/cross-
appellant Chase Home Finance, LLC’s, (“Chase”) Civ.R. 12(C) motion for judgment
on the pleadings with respect to counterclaims for fraud in the inducement, negligent
misrepresentation, breach of contract, and promissory estoppel filed by defendants-
appellants/cross-appellees Diane and Colin Literski (“the Literskis”). The trial court
erred in converting the counterclaims for fraud in the inducement and negligent
misrepresentation into affirmative defenses. And, because application of the parol
evidence rule was barred by the fraudulent inducement exception at this stage of the
proceedings, the court erred in dismissing the Literskis’ counterclaims on this basis.
Factual Background
{¶3} Chase filed a foreclosure action against the Literskis asserting that they
had defaulted on a promissory note issued by the bank.
{¶4} On January 26, 2005, Diane Literski executed a promissory note with
Chase in the amount of $286,225. Colin Literski was out of the country at the time
that the promissory note was executed and did not personally sign the note. But he
and Chase representative Peter Boomer had engaged in various negotiations
concerning the terms of the promissory note prior to its execution. According to the
Literskis’ answer and counterclaim, Colin and Boomer had agreed that Chase would
waive all settlement charges and closing costs associated with the refinancing of their
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OHIO FIRST DISTRICT COURT OF APPEALS
loan and execution of the note. Chase had also agreed to reduce the principal
balance of the Literskis’ original loan by $4,225.
{¶5} At the time that she signed the note, Diane Literski was assured by
Chase that the note contained the terms previously agreed upon by Colin and Chase.
The note was secured by the execution of a mortgage on the Literskis’ property
located at 5911 Turpin Hills Drive in Cincinnati. Both Diane and Colin signed and
executed the mortgage. The Literskis made regular payments on the note, but in
time discovered that, contrary to Chase’s assertions, the note had not contained the
terms alleged to have been previously agreed upon by Chase and Colin Literski.
Specifically, the settlement charges had not been waived, and the loan balance had
been increased by $4,225, rather than reduced.
{¶6} According to the Literskis, Chase never remedied these discrepancies,
despite repeated assurances that the bank would resolve the issues. For several
years, the Literskis had made all monthly payments at the amount requested by
Chase. This amount was higher than the amount provided for in the promissory note
and included escrow payments. But in April of 2010, the Literskis determined that
they had overpaid the loan escrow, and they began to make adjusted monthly
payments of $1,625.15, the amount specifically provided for in the promissory note.
In July of 2010, Chase refused to accept the payment tendered by the Literskis, and it
filed for foreclosure on the note and mortgage.
{¶7} The Literskis counterclaimed against Chase, asserting, as relevant to
this appeal, claims of fraud in the inducement, negligent misrepresentation, breach
of contract, and promissory estoppel. Chase filed both a Civ.R. 12(C) motion for
judgment on the pleadings with respect to the Literskis’ counterclaims and a motion
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OHIO FIRST DISTRICT COURT OF APPEALS
for summary judgment on the bank’s own foreclosure action. A magistrate granted
the motion for judgment on the pleadings and dismissed the Literskis’
counterclaims. The counterclaims for fraud in the inducement and negligent
misrepresentation were dismissed after the magistrate determined that these claims
were actually affirmative defenses, and that they did not entitle the Literskis to
damages. And the magistrate found that the counterclaims for breach of contract
and promissory estoppel were barred by the parol evidence rule.
{¶8} In the same entry, the magistrate denied Chase’s motion for summary
judgment after determining that there existed genuine issues of material fact
concerning the amount due and owing on the promissory note and whether a default
had occurred. After ruling on the two motions, the magistrate then dismissed
Chase’s foreclosure action without prejudice for failure to prosecute within the
mandatory time limits, citing the Supreme Court of Ohio’s Rules of Superintendence.
Both parties filed objections to the magistrate’s decision. Because neither party had
filed a transcript of the proceedings before the magistrate, the trial court presumed
the regularity of those proceedings and overruled all objections.
{¶9} Both parties have appealed. In their appeal, the Literskis argue that
the trial court erred in dismissing their counterclaims for fraud in the inducement,
negligent misrepresentation, breach of contract and promissory estoppel. In its
cross-appeal, Chase argues that the trial court erred in denying its motion for
summary judgment.
Conversion of Counterclaims
{¶10} In their sole assignment of error, the Literskis challenge the trial
court’s dismissal of their counterclaims under Civ.R. 12(C). We review de novo a
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OHIO FIRST DISTRICT COURT OF APPEALS
trial court’s ruling on a Civ.R. 12(C) motion for judgment on the pleadings. Mallory
v. Cincinnati, 1st Dist. Hamilton No. C-110563, 2012-Ohio-2861, ¶ 9.
{¶11} The Literskis first contend that the trial court erred in converting their
counterclaims for fraud in the inducement and negligent misrepresentation into
affirmative defenses. With respect to the Literskis’ counterclaim for fraud in the
inducement, the magistrate stated in his entry that “[t]he court finds this
counterclaim is an affirmative defense to the foreclosure action and to the Literskis’
alleged default on the Note, but does not entitle them to damages. Therefore,
Plaintiff’s Motion for Judgment on the Pleadings is well-taken.” The court used the
same language when dismissing the counterclaim for negligent misrepresentation.
{¶12} The Literskis had pled fraud in the inducement and negligent
misrepresentation as both counterclaims and as affirmative defenses to Chase’s
foreclosure claim. When pleading them as counterclaims, the Literskis alleged that
they had suffered pecuniary damage in an amount exceeding $25,000. A trial court,
when ruling on a Civ.R. 12(C) motion for judgment on the pleadings, must accept all
material allegations in the nonmoving party’s complaint as true, and must construe
all reasonable inferences in that party’s favor. Corporex Dev. & Constr. Mgt. Inc. v.
Shook, Inc., 106 Ohio St.3d 412, 2005-Ohio-5409, 835 N.E.2d 701, ¶ 2. The trial
court was required to accept the Literskis’ allegation that they had suffered pecuniary
damage as true at this stage of the proceedings. Consequently, it erred in dismissing
the counterclaims for fraud in the inducement and negligent misrepresentation on
the grounds that the Literskis could not prove damages.
{¶13} The rules of civil procedure provide no authority for the trial court to
convert properly pled counterclaims into affirmative defenses. Civ.R. 8(C) provides
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OHIO FIRST DISTRICT COURT OF APPEALS
that “[w]hen a party has mistakenly designated a defense as a counterclaim or a
counterclaim as a defense, the court, if justice so requires, shall treat the pleading as
if there had been a proper designation.” But this rule has no application to the case
at bar. The Literskis had not improperly designated their counterclaims for fraud in
the inducement and negligent misrepresentation. In fact, they pled each of these
claims as both counterclaims and as affirmative defenses. Because the Literskis
properly pled counterclaims for fraud in the inducement and negligent
misrepresentation, the trial court had no authority to designate those counterclaims
as affirmative defenses.
{¶14} Chase argues that even if the trial court erred in designating the
counterclaims as affirmative defenses and in dismissing them because the Literskis
could not prove damages, the court’s dismissal should still be upheld because the
counterclaims were barred by the parol evidence rule. We consider Chase’s
argument together with the Literskis’ next contention, which is that the trial court
erred in dismissing their counterclaims for breach of contract and promissory
estoppel on the grounds that they were barred by the parol evidence rule.
Parol Evidence Rule
{¶15} The purpose of the parol evidence rule is to protect the integrity of
final, written agreements. Citicasters Co. v. Bricker & Eckler, LLP, 149 Ohio App.3d
705, 2002-Ohio-5814, 778 N.E.2d 663, ¶ 7 (1st Dist.). It provides that “absent fraud,
mistake or other invalidating cause, the parties’ final written integration of their
agreement may not be varied, contradicted or supplemented by evidence of prior or
contemporaneous oral agreements, or prior written agreements.” Galmish v.
Cicchini, 90 Ohio St.3d 22, 27, 734 N.E.2d 782 (2000), quoting 11 Williston on
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OHIO FIRST DISTRICT COURT OF APPEALS
Contracts (4 Ed.1999) 569-570, Section 33:4. There are various exceptions to the
application of the parol evidence rule, but, absent an exception, the rules bars the use
of prior or contemporaneous agreements to alter the terms of a validly executed
written agreement.
{¶16} Chase contends that the Literskis cannot prove their counterclaims
without relying on parol evidence, specifically the agreements reached by Colin
Literski and Peter Boomer prior to Diane Literski’s execution of the promissory note.
The Literskis argue that because the promissory note was not a final integrated
agreement, parol evidence is permitted to define the actual terms of the parties’
agreement. We are not persuaded. It is clear that the promissory note was intended
to be the final embodiment of the parties’ agreement. The terms of the note are clear
and unambiguous. See First Natl. Bank of Cincinnati v. May, 1st Dist. Hamilton No.
C-840417, 1985 Ohio App. LEXIS 6500, * 4 (Apr. 24, 1985). Because the promissory
note was a final, integrated agreement, its terms cannot be altered by parol evidence
absent an exception to this rule of law. And we agree with Chase that the Literskis’
counterclaims are dependent upon this parol evidence.
{¶17} The Literskis advance several exceptions to the parol evidence rule
that they assert prevents its application. They first contend that the collateral
agreement rule applies in this case. The collateral agreement rule allows the
introduction of parol evidence to prove the existence of a collateral agreement that
was made prior to or contemporaneous with a written agreement. Patrick v. Ressler,
10th Dist. Franklin No. 04AP-149, 2005-Ohio-4971, ¶ 28. But, the law is clear that
“any such collateral agreement must not contradict the terms of the written
agreement, and the agreement must be one that would naturally be omitted from the
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OHIO FIRST DISTRICT COURT OF APPEALS
written instrument.” Id., quoting Pingue v. Durante, 10th Dist. Franklin No.
95APG09-1241, 1996 Ohio App. LEXIS 1857, * 8-9 (May 9, 1996). Here, the
purported collateral agreement between Literski and Boomer contains loan terms
promised by Boomer that directly contradict the terms of the parties’ final written
agreement. The collateral agreement covers the same subject matter as the
promissory note; it does not contain information that supplements the promissory
note, but that would naturally be omitted from it. We cannot find that the collateral
agreement rule provides for the admission of parol evidence in this case.
{¶18} The Literskis next rely on the fraudulent inducement exception to the
parol evidence rule. Under this exception, parol evidence is admissible to prove that
a party was fraudulently induced into signing a written agreement. Galmish, 90
Ohio St.3d at 28, 734 N.E.2d 782. However, the admission of parol evidence is not
triggered by a fraudulent inducement claim alleging that “the inducement to sign the
writing was a promise, the terms of which are directly contradicted by the signed
writing.” Id. at 29, quoting Marion Prod. Credit Assn. v. Cochran, 40 Ohio St.3d
265, 533 N.E.2d 325 (1988), paragraph three of the syllabus. Rather, the evidence of
fraud must demonstrate that the party was fraudulently induced into entering an
agreement by promises that the promising party had no intention of fulfilling. Id. at
29-30.
{¶19} This case presents somewhat of a unique factual scenario. Here, the
Literskis attempt to invoke the fraudulent inducement exception through their
contention that Chase had made promises to Colin regarding loan terms that the
bank had no intention of fulfilling, for the sole purpose of inducing the Literskis to
sign the promissory note. The law is clear that the parol evidence rule cannot be
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OHIO FIRST DISTRICT COURT OF APPEALS
circumvented by allegations of fraud, when the alleged fraudulent promises are
directly contradicted by the signed writing. This rule of law is based on the
longstanding purpose behind the parol evidence rule, namely that a party cannot
claim they were misled into signing a document when the aggrieved party could have
discovered the truth by simply reading the document. See Ed Schory & Sons, Inc. v.
Francis, 75 Ohio St.3d 433, 441, 662 N.E.2d 1074 (1996). In this case, the terms of
the promissory note clearly contradict the fraudulent promises and
misrepresentations made by Chase. But despite the contradicting terms, the
Literskis argue that Diane could not have discovered the truth by merely reading the
document because Chase had negotiated the terms that were to be included in the
note solely with Colin. That is why, the Literskis argue, Diane asked Chase if the note
contained the terms previously agreed upon by her husband and Boomer, and why
she relied upon Chase’s assurances that the note conformed to the prior agreements.
{¶20} Because, in our review of a motion for judgment on the pleadings we
must construe all reasonable inferences in favor of the nonmoving party, we find that
the Literskis have sufficiently alleged facts to support the application of the
fraudulent inducement exception to the parol evidence rule. Had Diane been privy
to the prior negotiations that had taken place between her husband and Peter
Boomer, this court may have reached a different conclusion. At this stage of the
proceedings, the Literskis’ counterclaims were not barred by the parol evidence rule.
We hold that the trial court erred in granting Chase’s motion for judgment on the
pleadings with respect to the four counterclaims at issue in this appeal.
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OHIO FIRST DISTRICT COURT OF APPEALS
Chase’s Cross-Appeal
{¶21} Chase has filed a cross-appeal challenging the trial court’s denial of its
motion for summary judgment. But because the order Chase has appealed from is
not final, we dismiss the cross-appeal.
{¶22} In addition to denying Chase’s motion for summary judgment, the trial
court dismissed Chase’s foreclosure action without prejudice under Civ.R. 41(B)(1)
for failure to prosecute within the mandatory time limits, citing the Supreme Court
of Ohio’s Rules of Superintendence. Although we question the propriety of this
action, that issue is not properly before this court for review. An involuntary
dismissal without prejudice under Civ.R. 41(B)(1) is not a final order. Maxwell v.
Forest Fair Mall, Ltd., 1st Dist. Hamilton No. C-060412, 2007-Ohio-3087, ¶ 7.
Because the dismissal was without prejudice, the case has not been resolved on its
merits and Chase remains free to refile the action. See Hall v. Cleveland State Univ.,
129 Ohio App.3d 767, 769, 719 N.E.2d 54 (8th Dist.1998).
{¶23} The trial court dismissed Chase’s foreclosure action in the same entry
that it granted Chase’s motion for judgment on the pleadings, which unquestionably
was a final order. The court also included Civ.R. 54(B) language in its entry
indicating that there was no just cause for delay. But the inclusion of Civ.R. 54(B)
language does not transform a nonfinal order into an appealable order. Phillips v.
Conrad, 1st Dist. Hamilton No. C-020302, 2002-Ohio-7080, ¶ 14. Rather, the Civ.R.
54(B) language rendered the court’s granting of the motion for judgment on the
pleadings immediately appealable, despite the fact that fewer than all claims had
been adjudicated. Id. Consequently, we dismiss Chase’s cross-appeal.
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OHIO FIRST DISTRICT COURT OF APPEALS
Conclusion
{¶24} Because the Literskis sufficiently pled damages with respect to their
counterclaims for fraud in the inducement and negligent misrepresentation, and
because the counterclaims for fraud in the inducement, negligent misrepresentation,
breach of contract, and promissory estoppel are not barred by the parol evidence rule
at this stage of the proceedings, the trial court erred in granting Chase’s motion for
judgment on the pleadings with respect to those counterclaims. We reverse the trial
court’s granting of that motion and remand the action for further proceedings
consistent with this opinion.
Judgment accordingly.
DINKELACKER and FISCHER, JJ., concur.
Please note:
The court has recorded its own entry on the date of the release of this opinion.
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