Blough v. Smythe Cramer, Co.

[Cite as Blough v. Smythe Cramer, Co., 2012-Ohio-2373.]

STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT )

JOSEPH BLOUGH dba WILLARD C.A. No. 25913
INVESTMENT GROUP, INC., et al.

Appellants
APPEAL FROM JUDGMENT
v. ENTERED IN THE
COURT OF COMMON PLEAS
SMYTHE CRAMER, CO., et al. COUNTY OF SUMMIT, OHIO
CASE No. CV 2010-10-7151
Appellees

DECISION AND JOURNAL ENTRY

Dated: May 30, 2012

WHITMORE, Presiding Judge.

{¶1} Plaintiff-Appellants, Joseph Blough d/b/a Willard Investment Group, Inc.

(“Willard Inc.”) and Elegant Homes, Inc. (“Elegant Homes”), appeal from a judgment of the

Summit County Court of Common Pleas dismissing their claim for lack for standing. We affirm.

I

{¶2} In 2003, Joseph Blough incorporated Willard Inc. In January 2007, the Ohio

Secretary of State notified Blough that it had cancelled Willard Inc.’s articles of incorporation

for its failure to either file or pay its corporate franchise taxes. Several months later, Blough

contacted Tatiana Schneider, a real estate agent with Smythe Cramer, and inquired about

purchasing three real property lots on Mull Avenue. Blough asked Schneider to draft a purchase

agreement.
 2

{¶3} A written purchase agreement was executed between Willard Inc., as the buyer,

and Ernie Cannan,1 as the seller. At closing, titles to the properties were transferred from

Cannan to Verla Stoller, Blough’s daughter. Several years later the properties were transferred

from Stoller to Elegant Homes, a business incorporated by Blough in 2008. Thereafter, Blough

discovered that the parcels did not have existing water and sewer connections installed.

{¶4} Blough d/b/a Willard Inc. and Elegant Homes filed suit against Schneider,

Smythe Cramer, the Cannans, and their real estate agent, Exit Angheld Real Estate Group, Inc.

(“Angheld”). The complaint was filed by Blough alleging that he was acting as an individual

doing business as Willard Inc. when he entered into the purchase agreement. Willard Inc., the

cancelled corporate entity, is not a party to this suit. The complaint alleged breach of contract,

breach of fiduciary duties, fraud, and negligent misrepresentation. Several months after the

lawsuit was filed, Blough reported Willard Investment Group (“Willard Group”) as a fictitious

name.

{¶5} The defendants all filed motions to dismiss, which the trial court converted to

motions for summary judgment. The court found that the plaintiffs did not have standing to

bring the suit and granted the defendants’ motions for summary judgment. Blough d/b/a Willard

Inc. and Elegant Homes (collectively “Appellants”) now appeal and raise eight assignments of

error for our review. To facilitate the analysis, we consolidate several of the assignments of

error.

1
While Ernie Cannan was the only seller listed in the purchase agreement, this suit was brought
against Ernie and his wife, Carmen Cannan (collectively “the Cannans”).
 3

II

Assignment of Error Number One

THE TRIAL COURT ERRED IN HOLDING THAT
PLAINTIFFS/APPELLANTS LACK STANDING TO BRING THIS SUIT.

Assignment of Error Number Two

THE TRIAL COURT ERRED IN HOLDING THAT WILLARD INVESTMENT
GROUP, INC., THE CANCELED CORPORATE ENTITY WAS THE PARTY
TO THE PURCHASE AGREEMENT, THUS DEPRIVING THE PARTIES TO
THIS ACTION STANDING TO SUE.

Assignment of Error Number Three

THE TRIAL COURT ERRED IN HOLDING THAT JOSEPH BLOUGH’S
REGISTRATION2 OF THE FICTITIOUS NAME WILLARD INVESTMENT
GROUP DID NOT CONFER STANDING UPON PLAINTIFF/APPELLANT
BLOUGH TO BRING SUIT ON WILLARD INVESTMENT GROUP’S
BEHALF.

Assignment of Error Number Four

THE TRIAL COURT ERRED IN HOLDING THAT THE INCLUSION OF
“INC.” AFTER WILLARD INVESTMENT GROUP RENDERS IT AN ENTITY
DISTINCT FROM THE WILLARD INVESTMENT GROUP,
PLAINTIFF/APPELLANT JOSEPH BLOUGH’S FICTITIOUS NAME.

{¶6} In each of the foregoing assignments of error, Appellants argue that the trial court

erred in finding that Blough d/b/a Willard Inc. lacked standing to bring this suit. We disagree.

{¶7} This Court reviews an award of summary judgment de novo. Grafton v. Ohio

Edison Co., 77 Ohio St.3d 102, 105 (1996). Pursuant to Civ.R. 56(C), summary judgment is

proper if:

(1) No genuine issue as to any material fact remains 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 viewing

2
While the parties use the term “registration,” the statute uses the term “report” when referring
to fictitious names. See R.C. 1329.01(D). To avoid confusion, we follow the language of the
statute.
 4

such evidence most strongly in favor of the party against whom the motion for
summary judgment is made, that conclusion is adverse to that party.

Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977).

{¶8} Civ.R. 17(A) requires lawsuits to be brought by the “real party in interest.” “To

determine whether the requirement that the action be brought by the real party in interest is

[met], courts must look to the substantive law creating the right being sued upon to see if the

action has been instituted by the party possessing the substantive right to relief.” Shealy v.

Campbell, 20 Ohio St.3d 23, 25 (1985).

{¶9} Willard Inc.

R.C. 1701.13(A) provides that “[a] corporation may sue and be sued.” A
“corporation” is an organization that has been “formed under the laws of [Ohio].”
R.C. 1701.01(A). The failure to pay franchise taxes is grounds for termination of
a corporation’s charter pursuant to R.C. 5733.20. That statute also provides, in
pertinent part:

“[Upon cancellation of the articles of incorporation,] all the powers, privileges,
and franchises conferred upon such corporation by such articles of incorporation
or by such certificate of authority shall cease, subject to section 1701.88 of the
Revised Code.”

R.C. 5733.20; see also, R.C. 5733.21. R.C. 1701.88(A) * * * address[es] the
powers of a corporation to act after its charter has been terminated:

“(A) * * * [W]hen the articles of a corporation have been canceled, * * * the
corporation shall cease to carry on business and shall do only such acts as are
required to wind up its affairs, or to obtain reinstatement of the articles * * *.”

** *

R.C. 1701.97 further limits the exercise of a corporation’s rights and privileges
under its articles:

“No person shall exercise or attempt to exercise any rights, privileges,
immunities, powers, franchises, or authority under the articles of a domestic
corporation after such articles have been canceled * * * except such acts as are
incident to the winding up of the affairs of such corporation * * *.”
 5

Benefit Mgt. Consultants, Inc. v. Gencorp, Inc., 9th Dist. No. 17488, 1996 WL 267747, *3 (May

22, 1996).

{¶10} Willard Inc. was incorporated in February 2003. Its articles of incorporation were

cancelled by the State of Ohio on January 4, 2007. The articles have never been reinstated.

Subsequent to the cancellation of its articles, Willard Inc. entered into a purchase agreement for

three parcels of land. It is the purchase of this land that formed the basis for Appellants’

complaint.

{¶11} After its articles of incorporation were cancelled by the State, Willard Inc. was

only permitted to do such acts as necessary to wind up its affairs or to reinstate its articles. See

R.C. 1701.88. When Willard Inc. entered into a purchase agreement for the Cannans’ real estate

it was doing neither. Blough, however, held Willard Inc. out to be a valid corporation.

Therefore, he cannot now argue that the corporation lacked the capacity to enter the contract.

See Callender v. Painesville & H.R. Co., 11 Ohio St. 516, 526 (1860). See also Thomas v. Price,

133 Ohio App.3d 585, 589 (1st Dist.1999) (“If an organization has held itself out as a

corporation, its members and officers are estopped from denying its corporate status.”). The trial

court did not err in finding Willard Inc. was the party to the contract.

{¶12} Having concluded that Willard Inc. was the party to the contract, we turn to the

question of whether the corporation has the capacity to sue while its articles of incorporation are

cancelled. Willard Inc. would only have capacity to sue if the suit was related to the winding up

of its corporate affairs. See Benefit Mgt. Consultants, Inc. at *4. See also R.C. 1701.88(A); R.C.

5733.20. Because this suit is based on transactions that occurred after the articles of

incorporation were cancelled, it cannot be said that this suit is for the sole purpose of winding up
 6

its corporate affairs. Therefore, the trial court correctly concluded that Willard Inc., the

cancelled corporate entity, lacks the capacity to bring this lawsuit.

{¶13} Appellants argue that the trial court erred when it found that Willard Inc. was the

party to the contract. Specifically, Appellants argue that if the trial court had properly construed

ambiguities in favor of Appellants, as the non-drafting parties, it would not have found Willard

Inc. to be the party to the contract. We disagree.

{¶14} “If a contract is clear and unambiguous, then its interpretation is a matter of law

and there is no issue of fact to be determined.” Nationwide Mut. Fire Ins. Co. v. Guman Bros.

Farm, 73 Ohio St.3d 107, 108 (1995), quoting Inland Refuse Transfer Co. v. Browning-Ferris

Industries of Ohio, Inc., 15 Ohio St.3d 321, 322 (1984). Questions of law are reviewed de novo.

Guman Bros. Farm at 108, citing Ohio Bell Tel. Co. v. Pub. Util. Comm., 64 Ohio St.3d 145, 147

(1992).

{¶15} Willard Inc. entered into a written contract to purchase land from Ernie Cannan

on March 23, 2007. The only parties listed in the written contract were Willard Inc. (as the

buyer) and Ernie Cannan (as the seller). We conclude that there are no ambiguities as to who the

parties are to the contract, and that the trial court did not err when it found Willard Inc. was the

party to the contract.

Willard Group

{¶16} Blough reported Willard Group as a fictitious name to the Secretary of State in

December 2010. Blough argues that the reporting of this fictitious name permits him to bring a

suit in the name of Willard Inc. despite the corporation’s articles having been cancelled. We

disagree.
 7

{¶17} Assuming arguendo that Willard Group is the same as Willard Inc., Blough was

not entitled to report Willard Group as a fictitious name. A fictitious name is “a name used in

business * * * that is fictitious and that the user has not registered * * *.” R.C. 1329.01(A)(2).

A fictitious name “does not include the name of record of any domestic corporation that is

formed under Chapter 1701 * * * of the Revised Code * * *.” Id. Willard Inc. is not fictitious.

Although the articles of incorporation had been cancelled by the State, the corporation had been

properly formed under R.C. Chapter 1701. Thus, Willard Inc., by definition, cannot be a

fictitious name under R.C. 1329.01(A)(2).

{¶18} To maintain a lawsuit in the corporation’s name, Blough should have reinstated

the corporation’s articles pursuant to R.C. 5733.22. To conclude that Blough may replace the

corporation with the fictitious name does nothing but condone a circumvention of the law, which

requires him to file and pay corporate franchise taxes. Willard Group and Willard Inc. are not

the same entity.

{¶19} Because Willard Inc. and Willard Group are not the same entity, Willard Group

does not create standing for Willard Inc. Neither does Willard Group have capacity to bring this

suit in its own name. Willard Group is not a party to this lawsuit, nor was it a party to the

purchase agreement.

Joseph Blough

{¶20} Blough argues that he was a party to the contract and, therefore, has standing to

bring suit for the breach. The record, however, does not support Blough’s argument. Absent

Blough’s self-serving affidavit, there is no indication in the record that Blough was acting as an

individual when he entered into the purchase agreement. The purchase agreement was executed

in the name of Willard Inc., the cancelled corporation. Blough knew that Willard Inc.’s articles
 8

had been cancelled when he entered into the purchase agreement. Since Blough held Willard

Inc. out to be a valid corporation he cannot now argue the corporation lacked the capacity to

enter the contract and substitute himself as a party. See Callender, 11 Ohio St. at 526. See also

Thomas, 133 Ohio App.3d at 589 (“If an organization has held itself out as a corporation, its

members and officers are estopped from denying its corporate status.”).

{¶21} The only parties to the contract were Willard Inc. and Cannan, the seller. Blough

does not have standing to sue for a breach of contract because he was not a party to the contract.

Appellants’ first, second, third, and fourth assignments of error are overruled.

Assignment of Error Number Five

THE TRIAL COURT ERRED IN HOLDING THAT
DEFENDANTS/APPELLEES SMYTHE CRAMER, TATIANA SCHNEIDER,
AND EXIT ANGHELD GROUP DID NOT OWE A FIDUCIARY DUTY TO
JOSEPH BLOUGH, INDIVIDUALLY, AND/OR THAT SAID
DEFENDANTS/APPELLEES DID NOT BREACH THE FIDUCIARY DUTY.

{¶22} Appellants argue that the trial court erred when it held that Appellees did not owe

a fiduciary duty to Blough individually. We disagree.

{¶23} Because this assignment of error also stems from the trial court’s decision to grant

summary judgment, we incorporate the standard of review set forth in the previous section.

Consequently, we review this assignment of error de novo. Grafton, 77 Ohio St.3d at 105.

{¶24} Appellants argue that Appellees owed Blough a fiduciary duty individually under

R.C. 4735.67. R.C. 4735.67 requires a licensed real estate broker to disclose all material facts

related to a property to the purchaser. Blough, however, was not the purchaser of the properties

at issue; Willard Inc. was. Therefore, Blough is not the proper party to bring a cause of action

under R.C. 4735.67 for the purchase of the Mull Avenue lots.
 9

{¶25} Next, Appellants argue that Appellees owed Blough a fiduciary duty individually

because Willard Inc. was a cancelled corporation when the contract was signed. They argue that

the cancellation made Blough, and not the corporation, the party to the contract. We disagree.

Again, Blough, knowing Willard Inc.’s articles had been cancelled, signed the land purchase

contract in the name of the corporation. Blough did not include his name in the contract.3 There

is no indication in the record that Appellees were aware that Willard Inc.’s articles had been

cancelled. Because Blough held Willard Inc. out to be a valid corporation, he cannot now argue

the corporation lacked the capacity to enter the contract. See Callender, 11 Ohio St. at 526. See

also Thomas, 133 Ohio App.3d at 589.

{¶26} Appellants also argue that the trial court erred in holding that Blough was not

owed a fiduciary duty individually because Appellees Angheld and Smythe Cramer did not plead

this as an affirmative defense, and the trial court failed to construe evidence in their favor. We

disagree. Because the trial court found that Appellants lacked standing to bring the suit there

was no need to address affirmative defenses or to construe the evidence in favor of either party.

See Ohio Pyro, Inc. v. Ohio Dept. of Commerce, 115 Ohio St.3d 375, 2007-Ohio-5024, ¶27

(“Before an Ohio court can consider the merits of a legal claim, the person or entity seeking

relief must establish standing to sue.”).

{¶27} Lastly, Appellants argue that the trial court erred in holding that Appellants

lacked standing despite evidence that Appellees had breached their fiduciary duty prior to the

existence of the purchase agreement. Specifically, Appellants argue that the real estate agents

owed Blough a fiduciary duty. As discussed above, however, Blough was acting on behalf of

3
We do note that illegible writing exists on the signature line after Willard Investment Group
Inc. While this may be Blough’s name, none of the parties have made such an argument or
raised this as a possible issue.
 10

Willard Inc. and was not individually owed a fiduciary duty. The only party that was owed a

fiduciary duty was Willard Inc. Blough, individually, was not owed any fiduciary duty based on

that contract or the sale of the properties. Accordingly, Appellants’ fifth assignment of error is

overruled.

Assignment of Error Number Six

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANTS’ FRAUD
AND MISREPRESENTATIONS STEM FROM THE PURCHASE
AGREEMENT.

{¶28} In their sixth assignment of error, Appellants argue that the trial court erred when

it held that any fraud or misrepresentation Appellees allegedly made only stemmed from the

purchase agreement. Specifically, Appellants argue that Appellees made material

misrepresentations to Blough upon which he relied when entering the purchase agreement. The

trial court, however, did not conclude that the purchase agreement was the only possible source

of a claim. The trial court merely concluded that Blough was acting on behalf of Willard Inc.

and not himself individually. We agree with the trial court’s conclusion.

{¶29} Blough argues that he was acting individually when he invested $60,000 to

purchase the Mull Avenue lots. The record, however, does not support this argument. The

purchase agreement was between Willard Inc. and Cannan. The contract made no mention of

Blough individually. Because Blough was acting on behalf of Willard Inc., Blough is not the

proper party to bring a claim of fraud or misrepresentation. Therefore, Appellants’ sixth

assignment of error is overruled.

Assignment of Error Number Seven

THE TRIAL COURT ERRED IN FAILING TO HOLD THAT
PLAINTIFF/APPELLANT ELEGANT HOMES, INC., AS THE CURRENT
OWNER OF THE PROPERTY, IS A NECESSARY AND INDISPENSIABLE
PARY TO THIS ACTION.
 11

{¶30} In their seventh assignment of error, Appellants argues that Elegant Homes is a

necessary party to the lawsuit and must be joined pursuant to Civ.R. 19(A). Having determined

that Appellants do not have capacity to bring the suit, there is no lawsuit to which Elegant

Homes must be joined. Appellants’ seventh assignment of error is overruled.

Assignment of Error Number Eight

THE TRIAL COURT ERRED IN DENYING PLAINTIFF/APPELLANTS’
MOTION TO VACATE JUDGMENT[.]

{¶31} In their eighth assignment of error, Appellants argue that the trial court erred in

denying their motion to vacate judgment. Because we have concluded that Appellants lacked

standing to bring this suit, the trial court properly denied Appellants’ motions to vacate

judgment. Appellants’ eighth assignment of error is overruled.

III

{¶32} Appellants’ eight assignments of error are overruled. The judgment of the

Summit County Court of Common Pleas is affirmed.

Judgment affirmed.

There were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Court of Common

Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy

of this journal entry shall constitute the mandate, pursuant to App.R. 27.

Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the
 12

period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is

instructed to mail a notice of entry of this judgment to the parties and to make a notation of the

mailing in the docket, pursuant to App.R. 30.

Costs taxed to Appellants.

BETH WHITMORE
FOR THE COURT

CARR, J.
CONCURS IN JUDGMENT ONLY.

DICKINSON, J.
CONCJURRING IN JUDGMENT ONLY.

{¶33} The lead opinion has spent several paragraphs addressing whether the corporation

Willard Investment Group Inc. had capacity to bring this lawsuit. Willard Investment Group Inc.

was not a party to the complaint and Joseph Blough has not argued in his brief that the

corporation had capacity to file suit, so discussion of this issue is unnecessary.

{¶34} Mr. Blough’s argument is that the trial court incorrectly concluded that there was

no genuine issue of material fact regarding whether he was a party to the contract. Mr. Blough

has noted that, in his affidavit, he asserted that it was he, doing business as “Willard Investment

Group,” who signed the purchase agreement. According to Mr. Blough, his affidavit creates a

genuine issue of material fact regarding whether he had the ability to bring this action.

{¶35} Although Mr. Blough asserted in his affidavit that he negotiated the purchase

agreement under the name “Willard Investment Group” and presented evidence that he has
 13

reported the fictitious name “Willard Investment Group” to the secretary of state, he brought this

action as “Joseph Blough Dba Willard Investment Group, Inc.” He has argued that it is

immaterial that the name he reported to the secretary of state does not include “Inc.” because the

names are indistinguishable for registration purposes. In support of his argument, he has

provided this Court with a web address for the Ohio secretary of state’s guidelines regarding

name availability. According to the webpage, “[f]ictitious names are not required to be

distinguishable upon the records from any other previously registered name. However, a

fictitious name provides no protection because other registered names are not required to be

distinguishable from a fictitious name. For example, if ‘Benny’s Ice Cream’ is registered as a

fictitious name, a corporation would be permitted to register ‘Benny’s Ice Cream, Incorporated’

because the names are not required to be distinguishable.” Ohio Secretary of State, Guide to

Name Availability, http://www.sos.state.oh.us/SOS/Businesses/businessServices/

NamingConflicts.aspx (accessed May 29, 2012). Contrary to Mr. Blough’s argument, the

“Benny’s Ice Cream” example shows that “Willard Investment Group” and “Willard Investment

Group Inc.” may co-exist and, therefore, are not just two ways of stating the same name.

{¶36} Mr. Blough has also argued that, because it was the sellers who prepared the

purchase agreement, any ambiguity regarding who the buyer was should be construed in his

favor. While the purchase agreement was printed on Smythe-Cramer-labeled paper, the form

contained a number of blank spaces that had to be completed by hand. There is no evidence in

the record regarding who wrote “The Willard Investment Group Inc.” in the space for “Buyer.”

The agreement, however, was also signed by “The Willard Investment Group Inc.” followed by

what appears to say “by Joseph Blough.” Although the signature is hard to decipher, Mr. Blough

asserted in his affidavit that it was he who purchased the lots. Because the person who signed
 14

the purchase agreement specifically signed it for “The Willard Investment Group Inc.,” there is

no question that it was either the corporation Willard Investment Group Inc. or an individual

doing business as Willard Investment Group Inc. who entered into the contract.

{¶37} Upon review of the record, I agree that Mr. Blough has not demonstrated that

there is a genuine issue of material fact that it was he, doing business as Willard Investment

Group, and not the corporation previously registered as Willard Investment Group Inc. or he,

doing business as Willard Investment Group Inc., who entered into the purchase agreement.

Even assuming it was Mr. Blough, not the former corporation who signed the agreement,

because he has not reported his use of the fictitious name “Willard Investment Group Inc.” to the

Ohio secretary of state, he did not have capacity to sue to enforce the contract. R.C. 1329.10(B);

Benefit Mgmt. Consultants Inc. v. Gencorp Inc., 9th Dist. No. 17488, 1996 WL 267747, *4 (May

22, 1996). The trial court correctly granted summary judgment to the defendants.

APPEARANCES:

DAN A. MORELL, JR. and MICHAEL D. SCHMIT, Attorneys at Law, for Appellants.

TRACEY S. MCGURK, Attorney at Law, for Appellees.

DAVID WELLING, Attorney at Law, for Appellee.