By: Rob Harris
The Ohio Court of Appeals recently issued two golf related decisions that provide a cautionary tale to those who denigrate the importance of the written words to which they affix their names.
Caley v. Glenmoor Country Club, Inc., 2013-Ohio-4877 involved claims by two couples for return of their $30,000 initiation fees following their resignation from Glenmoor Country Club. The applications submitted by the couples when they joined the club provided that, should they resign, they would be placed on a membership repurchase list. Club bylaws provided that every fourth membership issued by the club would be a resigned membership; thus, resigned members eventually would reach the top of the list and be entitled to a refund. Until such time, however, resigned members still would be assessed their dues, but they would be allowed to continue to use the club facilities.
Unhappy with these bylaw provisions regarding repayment, the members brought suit, arguing that they were not made aware of these procedures when they applied and had been led to believe that they could obtain initiation refunds upon departure. Although the trial court ruled in their favor, the Court of Appeals reversed, holding that the members were responsible for their contractual obligations. As the Court of Appeals explained:
“While Appellees [the members] make much of the fact that they claim to have had no knowledge of the terms of repurchase following resignation, the membership application clearly states that members will be bound by the Bylaws and Rules and Regulations of the Club. Nothing prevented Appellees, both successful business men, from seeking legal counsel to review the membership contract prior to joining. Appellees were sophisticated enough to appreciate the possibility of retaining counsel. Instead, Appellees both entered into such contract willingly and used the Club regularly for many years prior to their decision to resign their memberships.”
The Ohio Court of Appeals expressed similar views about the sanctity of contract in General Electric Capital Corp. v. Tartan Fields Golf Club, Ltd., 2013-Ohio-4875. In this case, the owner of Tartan Fields sought to avoid payment obligations under its mortgage documents by arguing that it had entered into a supplemental agreement with its lender that modified the terms of the mortgage. Unfortunately for the club, the alleged supplemental agreement, referred to by the parties as the “Pre-Negotiation Agreement” contained explicit terms disavowing any substantive modification. As the Pre-Negotiation Agreement provided:
“Borrower [Tartan Fields] has requested Lender [GECC] engage in certain discussions and negotiations concerning the Loan… The primary purpose of this Agreement is to preserve all parties’ rights, claims and defenses during such negotiations and discussions so that no party waives or relinquishes any rights or incurs any obligations unless and until further written agreement… is executed and delivered by all parties.
1. Negotiations. No party will have any obligation to modify or amend the Loan or any of the Loan Documents in connection with such negotiations or otherwise… Any party may terminate the negotiations at any time in its sole discretion, upon three (3) business days’ prior written notice to the other party, without liability of any kind. Unless a written agreement … is executed and delivered by all parties, no party will have any obligation or liability by virtue of the commencement or termination of negotiations concerning the Loan. In no event will any party be deemed to have waived any right, incurred any liability or assumed any obligation by negotiating or by the passage of time associated therewith unless and until a written agreement to such effect … is executed and delivered by all parties.
2. Only Written Agreements and Amendments. The parties agree that no party will be bound by any agreement on any issue until reduced to writing and executed by, and delivered to, all parties (such a written agreement hereinafter referred to as a “Modification Agreement”). Each party acknowledges and agrees that the execution of this Agreement by the parties shall not constitute an agreement, consent, waiver, release, or modification, oral, express, implied or otherwise, of the Loans, Borrower’s obligations under the Loan Documents, or the Loan Documents, which can only be effected by execution of a Modification Agreement.
“3. Loan Documents Still in Force. Borrower acknowledges and agrees that no agreement has been reached as to the renewal, extension or modification of any of the Loan Documents. Notwithstanding any other provisions to this Agreement or any claims of the parties to the contrary, the Loan Documents and the respective rights and obligations of the parties thereto are in full force and effect, and will remain in full force and effect unless and until a Modification Agreement, which, by its terms, amends or modifies any part of the Loan Documents, is executed and delivered by the parties.”
Confronted with this language, the club owner was hard pressed to argue that the lender was precluded from instituting foreclosure proceedings when the club missed a mortgage payment during negotiations. Determining that the lender was entitled to summary judgment without the need for trial, the court held as follows:
“The plain language of the Pre-Negotiation Agreement states the terms of the Loan Agreement remained in full force and effect during the negotiation process. There is no dispute of fact that Tartan Fields did not make a monthly payment required under the terms of the Loan Agreement.The unambiguous language of the Pre-Negotiation Agreement stated GECC could enforce its rights under the terms of the Loan Agreement during the negotiations.A formal termination of the negotiations was not required to enforce the terms of the Loan Agreement. Reasonable minds can only conclude the enforcement of the terms of the Loan Agreement was not a breach of the Pre-Negotiation Agreement.”
The obvious legal takeaways from these two cases are the following:
- Contracts matter.
- Parties will be held accountable for what they sign.
- If a contract incorporates by reference another document, a party will be held accountable for obligations imposed by the incorporated document even if s/he has not read it.
- Contracts do not obligate a party to do more than what is specified; it is the “letter” of the agreement, not its “spirit”, that controls.
- If you want something, get it in writing.
- And, most importantly, handshakes are fine only so long as the parties are in a handshaking mood.