         [Cite as Lehigh Gas-Ohio L.L.C. v. Cincy Oil Queen City, L.L.C., 2014-Ohio-2799.]
                 IN THE COURT OF APPEALS
             FIRST APPELLATE DISTRICT OF OHIO
                  HAMILTON COUNTY, OHIO



LEHIGH GAS-OHIO, LLC,                             :         APPEAL NO. C-130127
                                                            TRIAL NO. A-1104166
        Plaintiff-Appellant,                      :

  vs.                                             :

CINCY OIL QUEEN CITY, LLC,                        :

  and                                             :

CINCY OIL HOPPLE ST., LLC,                        :

    Defendants-Appellees.                         :

___________________________                       :
                                                            TRIAL NO. A-1106892
LEHIGH GAS-OHIO, LLC,                             :

         Plaintiff-Appellant,                     :
                                                                  O P I N I O N.
  vs.                                             :

SOLOMON BELAY,                                    :

         Defendant-Appellee.                      :


Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed from is: Affirmed in Part, Reversed in Part, and Cause
                           Remanded

Date of Judgment Entry on Appeal: June 27, 2014

Dinsmore & Shohl, LLP, and H. Toby Schisler, for Plaintiff-Appellant,

Gary F. Franke Co., L.P.A., Gary F. Franke, Benjamin, Yocum & Heather, LLC, and
Bradford C. Weber, for Defendants-Appellees.



Please note: this case has been removed from the accelerated calendar.
                     OHIO FIRST DISTRICT COURT OF APPEALS




C UNNINGHAM , Presiding Judge.

       {¶1}   Plaintiff-appellant Lehigh Gas-Ohio, LLC (“Lehigh”), appeals from the

judgment of the Hamilton County Court of Common Pleas, following a bench trial, in

these consolidated civil actions involving defendant-appellee Solomon Belay and

Belay’s companies, defendants-appellees Cincy Oil Queen City, LLC, and Cincy Oil

Hopple St., LLC, which we collectively refer to as “Cincy Oil.”

       {¶2}   Lehigh and Belay had entered into an agreement, memorialized in a

letter of intent, involving the sale of the “business opportunity” at two convenience

stores, both with gas stations, and AM/PM and Subway franchises, liquor permits,

and tobacco licenses held by Lehigh. The business opportunity involved a long-term

lease of the store properties and the agreement anticipated the change in ownership

of the franchises, liquor permits, and tobacco licenses to Belay or his corporate

entities. Belay formed Cincy Oil to operate the stores and a holding company, Belay

Holdings, LLC, to manage Cincy Oil. He also paid a substantial amount of upfront

“key money,” including his obligation on two promissory notes, as a part of the

agreement.

       {¶3}   Cincy Oil took over the stores before Belay or his corporate entities had

obtained approval from the AM/PM and Subway franchisors to become franchisees

for each location and before any change in ownership of the liquor permits and

tobacco licenses.   But Cincy Oil was able to operate the stores under Lehigh’s

franchise rights, tobacco licenses, and liquor permits. Cincy Oil defaulted under the

leases when it failed to comply with the terms for the use of the liquor permits. The

trial court evicted Cincy Oil after it had occupied and operated the stores for only 11

months.




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                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶4}   Lehigh, having retained the ownership of the franchises, liquor

permits, and tobacco licenses, took over the operations of the stores and exerted only

a minimal effort to secure a new lessee.       Belay then defaulted on one of the

promissory notes and Lehigh sued for its breach.

       {¶5}   Subsequently, the trial court held a bench trial on Lehigh’s claim for

damages related to the breach of the lease and the default under the promissory note,

and Cincy Oil’s and Belay’s counterclaims related to the failed transaction. The trial

court, treating Cincy Oil and Belay as unified defendants, determined that the

plaintiff and the defendants had each materially breached the agreement and

awarded damages for those breaches. After setting off those damages, the court

entered judgment for the defendants collectively in the amount of $248,622.26.

       {¶6}   Lehigh argues that the trial court erred when it determined that it had

breached the agreement and that the defendants could recover damages for that

breach, and when it calculated the amount of the defendants’ damages, which

included a partial refund of the “key money,” a full refund of the cost of inventory, a

return of a security deposit for fuel, and compensation for security upgrades. Lehigh

further contends that the trial court erred when it failed to award Lehigh the full

amount of breach of contract damages it sought, which included amounts for unpaid

sales and real estate taxes, the loss of rent, and the outstanding balance on a

promissory note used to finance the transaction.

       {¶7}   We conclude that the trial court erred as a matter of law when it

determined that Lehigh had materially breached the agreement and when it awarded

damages to the defendants, including the partial forgiveness of the note, under a

theory that Lehigh had materially breached the agreement. The trial court, however,

did not issue factual findings with respect to whether the defendants were entitled to



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                     OHIO FIRST DISTRICT COURT OF APPEALS



a return of some of these amounts, regardless of their own material breach, under

the terms of the contract or under a quasi-contract theory. We remand those issues

to the trial court for its review and determination.

       {¶8}   We also hold that the trial court did not err by denying loss of rent

damages and by awarding only $125,019 for the unpaid taxes. Accordingly, we affirm

the trial court’s judgment in part, reverse in part, and remand the cause for

proceedings consistent with law and with this opinion.

                               I. Background Facts

       {¶9}   Lehigh owned two convenience stores in Cincinnati with gas stations.

One store was located on Queen City Avenue and the other on Hopple Street. Lehigh

leased the land where the stores were located from its parent corporation. Lehigh

owned liquor permits, tobacco licenses, and AM/PM and Subway franchises in

connection with the stores, and operated the stores on its own.

                                A. The Agreement

       {¶10} In the spring of 2010, after a representative of Lehigh had contacted

Belay about a business transaction involving these stores, Lehigh and Belay signed a

nonbinding letter of intent for the purchase of the “business opportunity” at each

store. This letter of intent anticipated Lehigh’s transfer of the ownership of the

liquor permits, the tobacco licenses, and the franchises to Belay, and the sublease of

the store properties.    Belay chose the Queen City Avenue and Hopple Street

properties because he wanted to operate a business where he owned an AM/PM and

a Subway franchise, a liquor permit, and a cigarette license. The parties understood

that Belay had to be approved by the franchisors for the franchises to transfer.




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                       OHIO FIRST DISTRICT COURT OF APPEALS



       {¶11} As proposed in this letter of intent, Lehigh would receive a substantial

sum upfront denoted as “key money” and, in addition, monthly rent. Belay then

formed Cincy Oil and Belay Holdings, and made a “key money” deposit of $100,000.

       {¶12}   Several months later, in August 2010, before Belay had been

approved as a franchisee by Subway or AM/PM, Belay, acting on behalf of Belay

Holdings, and Lehigh signed several documents concerning the convenience stores,

including subleases (“the leases”) and liquor management agreements (“LMAs”).

The leases were triple net leases, and obligated Cincy Oil, consistent with the letter of

intent, to pay monthly basic rent of $7,119 at the Queen City Avenue location and

$4,271 at the Hopple Street location. Each lease was for a five-year term, with an

option of renewability. The LMAs were for a term expiring when the liquor permits

transferred, but subject to earlier termination as specified, including after the

passing of one year.

       {¶13} The leases and LMAs did not include any terms concerning the

transfer of the franchises or mention the “key money.” But at the same time that the

leases and LMAs were executed, Belay and Lehigh’s representative, Don Meade, who

negotiated with Belay the terms of the “business opportunity,” signed a handwritten

agreement captioned “Lease Agreement between Lehigh Gas-Ohio, LLC (Landlord)

and Cincy Oil Queen City, LLC and Cincy Oil Hopple St., LLC, (Tenant).” This

document provided that “Landlord and Tenant agree and understand the following:

(1) Security deposit $20,000 is the total security for fuel and lease; (2) McLane

Distribution Agreement will not be executed; (3) Survivorship: Agreed that Landlord

and Tenant will review survivorship pending approval of LG-Ohio, AM/PM, and

Subway.” The parties then provided that “[o]nce the above items are addressed, an

addendum will be executed and added to final agreement.”



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                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶14} According to the defendants, the handwritten document resulted from

Belay’s conversations with Meade concerning Belay’s reluctance to have Cincy Oil

take over the stores before he had been approved as a franchisee. Belay contended

that he had signed the documents after Meade had orally assured him that AM/PM

and Subway would later approve him as a franchisee.

       {¶15} After signing the leases, Belay made a series of payments to Lehigh,

including two evinced by cashier’s checks in the amounts of $150,000 and

$49,210.01. The last check contained a notation indicating that it was in satisfaction

of the balance owed for the inventory at both stores, which was valued at $99,210.91.

Belay also paid a gas deposit of $40,000.        Belay then executed two $50,000

promissory notes to Lehigh, which he was to repay in monthly installments.

                                  B. The Default

       {¶16} Upon execution of the leases and the LMAs, Cincy Oil took over the

operation of the stores. But problems soon arose in the relationship.

       {¶17} The LMAs required Cincy Oil to operate the businesses under Lehigh’s

liquor permits until Cincy Oil had effectuated the transfer of the liquor permits from

the state of Ohio’s Division of Liquor Control. Because the owner of the permit was

required to pay a tax to the state based on the alcohol sales, until the permit

transferred, Section 11 of the LMAs required Cincy Oil to provide Lehigh with a

monthly accounting of all alcohol sales and to remit to Lehigh amounts equal to the

sales tax associated with the alcohol sales. This requirement ensured that Lehigh

could pay the correct tax amount and remain in good standing with the state. The

leases for both locations explicitly stated that Cincy Oil’s failure to comply with the

LMAs constituted a breach under the lease.




                                          6
                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶18} Cincy Oil did not comply with the terms of Section 11 by providing

Lehigh with the specified records and by remitting to Lehigh the required payments.

At some point Belay tried to pay the sales tax on alcohol directly to the state

authority, but the state rejected his payment because Belay had not filed the

necessary paperwork to effectuate the liquor permit transfer.

       {¶19} Cincy Oil, however, remained current on the monthly rental payments

set forth in the lease. And Lehigh advanced to the state the monthly sales tax on

alcohol, which it estimated from the reports that it had received as the franchisee of

AM/PM. In January 2011, Lehigh began to withhold gas commissions owed to Belay

to offset the tax payments that had accrued since the onset of the lease.

       {¶20} In February 2011, Lehigh served Cincy Oil with a written notice

advising it of its default and giving Cincy Oil notice to vacate the Queen City Avenue

and Hopple Street stores. By that time, the parties had learned that Belay had failed

the written exam necessary to become a Subway franchisee. AM/PM, however, had

orally approved him as a franchisee. Lehigh notified AM/PM of Cincy Oil’s default,

and it is undisputed that AM/PM rescinded their approval at that time because of the

default.   Belay asked Lehigh to return his “key money” based on the failure of

consideration because he did not receive ownership of the franchises, the liquor

permits, or the tobacco licenses. Lehigh refused.

       {¶21} Eventually, Lehigh served Cincy Oil a written notice pursuant to R.C.

1923.04 advising it of its default and instructing it to immediately vacate the Queen

City Avenue and Hopple Street stores.

                    C. The Eviction and Damages Claims

       {¶22} On May 27, 2011, Lehigh filed a complaint for eviction and damages,

including a claim for attorney fees, against Cincy Oil based on the breach of Section



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                       OHIO FIRST DISTRICT COURT OF APPEALS



11 of the LMAs, which resulted in the breach of the leases. Cincy Oil answered,

raising several defenses, including the failure to mitigate damages.          Cincy Oil

asserted counterclaims under several theories of liability, which included breach of

contract, unjust enrichment, tortious interference with contractual and business

relations, and fraud. Cincy Oil alleged that Lehigh had breached the agreements as

follows: (1) “by failing to transfer” the permits and licenses for the sale of liquor and

tobacco products, (2) by “procuring a revocation of” AM/PM’s and Subway’s

approval and transfer of the franchises, (3) by “failing to work with [Cincy Oil] in a

timely manner with respect to matters related to the operation of the business,” and

(4) by “retaining ATM [commissions], gas revenue commissions, and McLane

rebates.”

          {¶23} With respect to the unjust-enrichment claim, Cincy Oil alleged that

Lehigh had received the benefit of money and improvements and that it would be

unjust under the circumstances to allow Lehigh to retain those benefits.

          {¶24} Cincy Oil based the tortious-interference claim on Lehigh’s alleged

interference with the transfer of the franchises. With respect to the fraud claim,

Cincy Oil alleged that Lehigh’s representative, Don Meade, had repeatedly assured

Belay that AM/PM and Subway would approve Belay as a franchisee and that he

would ultimately own and operate the franchises at the Queen City and Hopple

stores.

          {¶25} Cincy Oil sought various forms of relief, including monetary damages,

rescission of the agreements and a return to the status quo, and injunctive relief,

which pertained to the liquor permits and tobacco licenses.          Lehigh denied the

allegations in the counterclaims and raised several defenses, including that the

claims were precluded or limited by the parol evidence rule or the statute of frauds.



                                           8
                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶26} The court held a trial on Lehigh’s eviction claims in July 2011. After

finding that Cincy Oil was in default, and remained in default, of the obligations

under Section 11 of the LMAs for the Queen City Avenue and Hopple Street stores,

the court entered judgment for Lehigh on its forcible entry and detainer claims, and

issued writs of possession for both stores.

       {¶27} Cincy Oil then vacated the stores, leaving behind the inventory and

gas, as well as two safes that Belay had installed to improve security.       Lehigh

immediately took over the operations of the stores. Other than listing the stores as

available on a company website, Lehigh did nothing to secure a new tenant.

       {¶28} Subsequently, Belay defaulted on one of the promissory notes used to

finance the “key money.” This event led Lehigh to sue on the note in a separate

action that was later consolidated with the action for eviction and damages. Lehigh

claimed that Belay owed $31,799.85 in principal and interest as a result of the

default. In his answer, Belay admitted that a note had been executed, but stated that

the note was “part of a broader business deal that did not go through as

contemplated and bargained for.”       Belay asserted counterclaims similar to the

counterclaims asserted by Cincy Oil in the other action.

                              D. The Damages Trial

       {¶29} In November 2012, the court held a trial on Lehigh’s damages claims

and the defendants’ counterclaims. Robert Brecker, the Vice President of Retail

Operations at Lehigh, was the only witness for Lehigh. Relying on a summary

created by Lehigh’s accountant, Brecker testified that Cincy Oil owed $182,950 for

expenses that Lehigh had incurred as a result of Cincy Oil’s breach of the leases and

the LMAs. This amount included the alcohol sales tax incurred since August 2011

and other operating expenses that Cincy Oil had failed to pay beginning in January of



                                              9
                       OHIO FIRST DISTRICT COURT OF APPEALS



2011. These operating expenses included real estate taxes and a “tax” on Subway and

AM/PM sales, which Brecker alternatively described as a franchise royalty fee and a

commission.

       {¶30} Brecker also testified that Belay had defaulted on the promissory note

and owed a balance of $31,799.85, which Lehigh sought as damages.           Finally,

Brecker testified that Cincy Oil had failed to pay the basic rent payments since the

eviction and that the stores had not been relet, but that Lehigh had earnestly taken

over the operation of the stores. The court admitted into evidence Lehigh’s profit

and loss statements for the Queen City Avenue and Hopple Street locations from

January 2010 through September 2012, the last month for which Lehigh sought to

recover unpaid rent.

       {¶31} Brecker acknowledged that, beginning in January 2011, Lehigh had

withheld gas commissions owed to Cincy Oil in the amount of $67,631.53, and that

Belay had paid a substantial amount of “key money” that Lehigh had never refunded.

Brecker contended that the “key money” was not refundable because Lehigh

intended that the “key money” bought only the opportunity to operate the business,

which would include the transfer of the franchises and the liquor permit only if the

purchaser qualified. But Brecker did not identify any written document containing a

specific term that entitled Lehigh to keep the “key money” if the ownership of the

franchises, liquor permits, and tobacco licenses did not transfer.

       {¶32}   Brecker conceded that he was not aware that anyone on behalf of

Lehigh had actually told Belay that he might not receive ownership of the franchises

as a part of the deal. Further, he testified that when Lehigh had purchased the

subject locations, the transfer of the Subway and AM/PM franchises to Lehigh had




                                          10
                     OHIO FIRST DISTRICT COURT OF APPEALS



been material conditions of the purchase because of the value that the franchises

added to the locations.

       {¶33} Belay, the only witness to testify for the defendants, testified that he

had specifically chosen the Queen City Avenue and Hopple Street locations because

he had wanted to operate a store as owner of AM/PM and Subway franchises and as

the holder of a liquor permit and tobacco license. He further contended that these

items were valuable and that the “key money” reflected the value of the business

opportunity with him as the owner of those assets. Belay testified that before he

signed the leases, Meade had orally assured him that the franchises would transfer.

This testimony was not refuted.

       {¶34} Belay, however, like Brecker, could not point to any express

contractual provision governing the “key money” in the event that he did not obtain

ownership of the franchises, liquor permits, and tobacco licenses.

       {¶35} Belay conceded that he had not complied with Section 11 of the LMAs

and that he owed Lehigh for some alcohol sales tax, but he claimed that he owed no

more than $120,000 based upon his knowledge of the monthly sales during the

period in question. He also claimed that Lehigh had had the authority to debit any

funds owed by Cincy Oil, including the sales tax funds, directly out of Cincy Oil’s

bank accounts, and that Lehigh had in fact done that with respect to some of the

expenses that it claimed as damages.

       {¶36} Belay testified that Lehigh had not transferred the liquor permits and

the tobacco licenses and that it had prevented the transfer of the AM/PM franchise,

in breach of the agreements. He further explained that Cincy Oil had vacated the

stores as ordered by the court, but Cincy Oil was not compensated for the inventory

and security upgrades left at the stores nor given a refund of the fuel deposits.



                                           11
                        OHIO FIRST DISTRICT COURT OF APPEALS



        {¶37} As “breach of contract, rescission, and/or unjust enrichment

damages,” the defendants sought a return of the “key money,” including the

forgiveness of the promissory note, and compensation for the inventory, the security

upgrades, and the fuel deposits.

                              E. The Trial Court’s Decision

        {¶38} The court determined that Lehigh and the defendants had materially

breached the agreements. In its factual findings,1 the trial court identified Lehigh’s

material breach as its conduct in “tak[ing] steps to prevent [Belay] from getting the

franchises.” The trial court did not specifically identify the defendants’ material

breach in its factual findings, but we conclude that the material breach related to

Cincy Oil’s failure to comply with Section 11 of the LMAs, which resulted in a default

under the leases and the eviction of Cincy Oil from the stores.

        {¶39} As breach of contract damages, the court refunded to the defendants

the cost of the inventory, the amount of the fuel deposits, the cost of the security

upgrades that Cincy Oil had installed at the stores, and 50 percent of the “key

money.”      These sums were to be offset by the amount of sales tax that Cincy Oil

owed Lehigh and the amount of the unpaid commissions on gas sales that Lehigh

had begun withholding in January 2011. The court further ordered that Lehigh pay

interest on at least a part of this award from the date that it reoccupied the premises.

        {¶40} The court awarded Lehigh the amount of $125,019 for unpaid sales

tax, rejected the claim for unpaid rent based on the failure to mitigate, and allowed

Lehigh to keep 50 percent of the “key money.” The court stated that had Lehigh not




1 The parties did not request findings of fact and conclusions of law, but the trial court sent the
parties a letter, which it later journalized, that set forth its factual findings. Both parties rely on
these findings, thus we treat the trial court’s letter as a statement of the court’s factual findings.


                                                  12
                     OHIO FIRST DISTRICT COURT OF APPEALS



hindered Belay, “it almost certainly would be allowed to keep much more of this

[key] money.”

       {¶41} The court specifically rejected the defendants’ fraudulent inducement

claim and dismissed the remaining claims and counterclaims of the parties. In total,

after offsets, the court awarded Cincy Oil the amount of $236,823.44.

       {¶42} Lehigh now appeals, challenging portions of the trial court’s decision

in three assignments of error. The first assignment of error relates to the defendants’

counterclaims. Lehigh essentially argues that the trial court erred when it construed

the terms of the agreement to find that it had breached and that the defendants could

recover damages for that breach, and when it calculated the amount of the

defendants’ damages. Lehigh, however, does not dispute that Cincy Oil is entitled to

a credit for the unpaid gas commissions. The second and third assignments of error

relate to Lehigh’s claims. Lehigh argues that the trial court erred when it failed to

award any damages for unpaid rent, to award damages for the full amount of the

unpaid sales and real estate taxes, and to award damages for the unpaid balance of

the promissory note, plus interest.

                             II. Standard of Review

       {¶43} The various issues raised by Lehigh’s assignments of error involve the

application of different standards of review. This court reviews issues of law de novo.

Issues of law include the interpretation of a contract, Ignazio v. Clear Channel

Broadcasting, Inc., 113 Ohio St.3d 276, 2007-Ohio-1947, 865 N.E.2d 18, ¶ 19, and a

determination of the sufficiency of the evidence to support a judgment. Eastley v.

Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517, ¶ 11, quoting State v.

Thompkins, 78 Ohio St.3d 380, 678 N.E.2d 541 (1997), paragraph two of the

syllabus.



                                          13
                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶44} When addressing a challenge to the manifest weight of the evidence,

this court must review the entire record, weigh the evidence and all reasonable

inferences, consider the credibility of witnesses, and determine whether, in resolving

conflicts in the evidence, the finder of fact clearly lost its way and created such a

manifest miscarriage of justice that the judgment must be reversed and a new trial

ordered. See id. at ¶ 20. In weighing the evidence, we must presume that the

findings of the trier of fact are correct, and if the evidence is susceptible of more than

one construction, as a reviewing court, we must give it that interpretation that is

consistent with the verdict or finding and judgment. See id. at ¶ 21, quoting Seasons

Coal Co., Inc. v. Cleveland, 10 Ohio St.3d 77, 80, 461 N.E.2d 1273 (1984).

     III. Material Breach and Duty of Good Faith and Fair Dealing

       {¶45} Lehigh’s first assignment of error relates to the defendants’ breach of

contract counterclaim. Lehigh argues that the trial court erred by determining that it

had breached its contractual obligations to the defendants. We review Lehigh’s

argument in the context of the trial court’s determination that both parties had

materially breached the agreements.

       {¶46} The trial court found that Lehigh had prevented Belay from receiving

the Subway and AM/PM franchises. Because the “transfer of the franchises was

material” to the agreements, the parties expected that Lehigh would transfer

ownership of the franchises to Belay upon approval, and that Cincy Oil would

operate the franchises on the leased premises.

       {¶47} Although the agreements did not contain an express term concerning

Lehigh’s obligation to not interfere with an approval and transfer of the franchises,

Lehigh was subject to the implied duty of good faith and fair dealing in its

performance of the agreements. See, e.g., Littlejohn v. Parrish, 163 Ohio App.3d



                                           14
                     OHIO FIRST DISTRICT COURT OF APPEALS



456, 2005-Ohio-4850, 839 N.E.2d 49, ¶ 27 (1st Dist.); Wells Fargo Bank, N.A. v.

Daniels, 1st Dist. Hamilton Nos. C-110209 and C-110215, 2011-Ohio-6555, ¶ 14.

       {¶48} This duty “requires * * * honesty * * * [and] reasonableness” in the

performance and enforcement of a contract and “ ‘emphasizes faithfulness to an

agreed common purpose and consistency with the justified expectations of the other

party.’ ” Littlejohn at ¶ 26-27, citing Restatement of the Law 2d, Contracts, Section

205, comment a (1981); see Stephan Business Ents. v. Lamar Outdoor Advertising

Co. of Cincinnati, 1st Dist. Hamilton No. C-070373, 2008-Ohio-954, ¶ 19. The duty

does not, however, impinge upon a party’s right to enforce a contract, nor does it

require a party to put the other party’s interest above its own. Ed Schory & Sons,

Inc. v. Francis, 75 Ohio St.3d 433, 443-444, 662 N.E.2d 1074 (1996).

       {¶49} We disagree with the trial court’s determination that Lehigh had

breached its duty with respect to the anticipated approval and transfer of the Subway

or AM/PM franchises. First, there was no evidence that Lehigh had interfered with

respect to the Subway franchises. It was undisputed that Belay had failed to qualify

as a Subway franchisee because he had not obtained a sufficient score on the

Wonderlic exam, a cognitive ability test.

       {¶50} Second, the evidence with respect to the AM/PM franchises

demonstrated only that AM/PM did not follow through with the approval of Belay as

a franchisee because Cincy Oil was in default under the leases for the convenience

stores and had failed to cure the default after notice from Lehigh. Although Lehigh

had communicated to AM/PM the fact of Cincy Oil’s default, we can only conclude

that this communication was justified under these circumstances and not a breach of

the contractual duty of good faith and fair dealing.




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                     OHIO FIRST DISTRICT COURT OF APPEALS



       {¶51} We arrive at this conclusion because it was undisputed that Lehigh had

contacted AM/PM only after Lehigh had notified Cincy Oil of the default based on its

repeated failure to comply with Section 11 of the LMAs. As demonstrated in the

record, Cincy Oil failed to comply with Section 11 from the beginning of the lease

term and failed to comply with the provision after Lehigh had provided an

opportunity to cure.     Because of Cincy Oil’s default, Lehigh intended to and

ultimately did evict Cincy Oil from the premises where the franchises were in

operation. Moreover, Brecker testified that Cincy Oil’s default with Lehigh would

have been a default under the franchise agreement with AM/PM, causing the

franchise to revert back to Lehigh and subjecting Lehigh to a monetary penalty.

Thus, the trial court erred by determining that Lehigh’s communication to AM/PM

was a material breach of the agreements.

       {¶52} We discern from the trial court’s decision, however, that after finding

that Lehigh had materially breached the agreements, it declined to consider the

defendants’ claim for restitution under alternative theories. Thus, in the absence of

factual findings by the trial court, this court is unable to determine whether the

defendants would be entitled to a return of any of the “key money” and deposits, or

compensation for the inventory or security upgrades, under the terms of the

agreements or under a quasi-contract theory. Therefore, we remand the cause for

the trial court to make these factual and legal determinations.

       {¶53} Lehigh also contends that the evidence was insufficient to support the

amount of the breach-of-contract damages awarded to the defendants. For example,

Lehigh notes that the evidence with respect to the payment for the inventory

demonstrates that the trial court overstated the defendants’ recovery by $50,000.

We do not reach this issue because we are reversing the part of the trial court’s



                                           16
                     OHIO FIRST DISTRICT COURT OF APPEALS



judgment that awarded damages to the defendants based on the court’s erroneous

determination that Lehigh had materially breached the agreements.

                 IV. Lehigh’s Breach-of-Contract Damages

       {¶54} At trial, Lehigh had requested a total award of damages against the

defendants in the amount of $419,960.67, which included an amount of sales tax and

real estate taxes that Cincy Oil was contractually obligated to pay but allegedly failed

to pay; unpaid rent, as mitigated by net profits received; interest on those amounts;

and the amount remaining on the promissory note. The trial court awarded Lehigh

the sales tax owed by Cincy Oil in the amount of $125,019 and rejected the claim for

unpaid rent based on the defendants’ defense of failure to mitigate. The trial court

did not expressly award any amount for the promissory-note claim, but it did allow

Lehigh to keep 50 percent of the “key money.”

                       A. Sales and Real Estate Taxes

       {¶55}   Lehigh argues that the trial court failed to fully compensate it for the

sales and real estate taxes.    Lehigh claims that the evidence on this issue was

undisputed, citing to Brecker’s testimony and Lehigh’s exhibit P.

       {¶56} In response, Cincy Oil does not dispute that it was obligated to pay the

sales and real estate taxes as the lessee. It argues, however, that Lehigh did not

present competent evidence demonstrating that Cincy Oil owed more than the

$125,019 that the trial court awarded, and that competent credible evidence supports

the trial court’s decision. We agree with Cincy Oil.

       {¶57} At trial, Brecker identified Lehigh’s exhibit P, which summarized

certain expenses, including sales and real estate taxes, that Cincy Oil was

contractually obligated to pay but that Lehigh had allegedly paid on behalf of Cincy

Oil. Lehigh’s chief financial officer had created the summary based, in part, on sales



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reports that Brecker had received from AM/PM and Subway and had forwarded to

the CFO. He claimed that the real estate tax figures were based on tax bills. None of

the underlying documents supporting the exhibit, however, were offered or entered

into evidence. Moreover, the summary included some estimated figures. Brecker

testified, relying on this summary, that Cincy Oil was delinquent in the amount of

$182,950.

       {¶58} The trial court admitted exhibit P into evidence over the objection of

the defendants. The trial court stated that the absence of the underlying documents

did not prevent the admission of the exhibit, but instead went to the weight to be

given to the exhibit as evidence. In this respect, the trial court erred.

       {¶59} Evid.R. 1006 allows “[t]he contents of voluminous writings,

recordings, or photographs which cannot conveniently be examined in court” to be

“presented in the form of a chart, summary or calculation.” For a summary to be

admissible, the documents on which it was based must be admitted or offered into

evidence or their absence explained. Eysoldt v. Proscan Imaging, 194 Ohio App.3d

630, 2011-Ohio-2359, 957 N.E.2d 780, ¶ 34 (1st Dist.).

       {¶60} In this case, the documents on which the summary was based were not

admitted or offered into evidence, and Lehigh did not explain their absence.

Therefore, the summary was not admissible under Evid.R. 1006 to demonstrate

Lehigh’s damages.

       {¶61} And Brecker’s testimony standing alone on the issue of these damages

was not persuasive.        He admitted on cross-examination that he did not

independently know how much Cincy Oil owed and that some of the figures were

estimated. Further, Brecker’s testimony concerning the amount of the delinquency




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was confusing because he repeatedly interchanged the terms “franchise royalty fee”

and “commission” with “tax.”

       {¶62} Conversely, Belay testified that based on his personal knowledge of the

sales at the stores, the sales tax figures that Lehigh presented were too high. He also

testified that Lehigh was not crediting him for expenses that it had debited from

Cincy Oil’s bank accounts. The defendants ultimately conceded that Cincy Oil owed

$125,019 in unpaid and unreimbursed sale tax payments.

       {¶63} Based on the state of the record, we find no error in the trial court’s

limitation of the award to $125,019. See Eastley, 132 Ohio St.3d 328, 2012-Ohio-

2179, 972 N.E.2d 517.

                           B. Loss-of-Rent Damages

       {¶64} Lehigh argues that the trial court erred when it failed to award any

damages for future rent due under the leases. Under the terms of the leases, after an

eviction, Cincy Oil was potentially liable for rent coming due under the agreements,

less the “net proceeds” of any reletting. Although Lehigh initially sought the full

amount of unpaid rent, plus interest, Lehigh eventually settled on an amount that

equaled the difference between the “net income” it received while operating the

convenience stores, as demonstrated by the profit and loss statements, and the

amount that Lehigh would have received from Cincy Oil’s rental stream through

September 2012, plus interest at 15 percent.

       {¶65} The defendants argued that Lehigh had no loss-of-rent damages where

it had taken over the operation of the stores after the evictions, or that if it had any

damages, it was precluded from recovering those damages because it failed to

mitigate by reasonable efforts where it did no more than list the property as available




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on the Lehigh website. The trial court found in favor of the defendants on this issue

and denied loss-of-rent damages.

       {¶66} We agree with the trial court that Lehigh was not entitled to loss of

rent damages under these circumstances.       “Damages are not awarded for a mere

breach of contract; the amount of damages awarded must correspond to injuries

resulting from the breach.” Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio

App.3d 137, 144, 684 N.E.2d 1261 (9th Dist.1996).       In this case, Lehigh took the

place of a replacement lessee by resuming operations of the stores.           As the

“replacement lessee,” Lehigh assumed the fixed expense of rent but was entitled to

all the net profits from those operations. Because Lehigh chose to step in and to

operate the stores, we are satisfied that Lehigh has been fully compensated for the

expected future income from rentals.          We conclude that Lehigh would be

overcompensated for the loss of rent if allowed to recover the additional sums it

sought.

       {¶67} Moreover, although the lease anticipated a setoff for the “net proceeds”

of any reletting, it does not contain language indicating the parties’ intent to allow

Lehigh to resume operations but have Cincy Oil remain liable for the difference

between the rental stream and the “net profits.”

       {¶68} Therefore, we agree with the trial court’s denial of loss-of-rent

damages.

                        C. Promissory-Note Damages

       {¶69} Lehigh argues that the trial court erred by not awarding it damages of

$31,799.85, plus interest, associated with Belay’s default under the promissory note.

It is undisputed that Belay defaulted under the promissory note. But, to address




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Lehigh’s argument, we must first explain the origin of this debt and the trial court’s

treatment of the debt in its decision.

       {¶70} Belay incurred this debt as a part of the “key money” he provided in

exchange for the business opportunity at the two locations. The defendants argued

that Lehigh was not entitled to recover on the outstanding promissory note, or keep

Belay’s payments on the extinguished note, due to Lehigh’s breach of the

agreements. The trial court apparently accepted the defendants’ argument in part

when it awarded the defendants 50 percent of the “key money” as breach-of-contract

damages. However, the record demonstrates that the trial court erroneously failed to

give Lehigh credit for the amount of the outstanding note when calculating the

amount of the defendants’ breach-of-contract damages.          Thus, the trial court

intended to cancel at least a portion of this debt as a part of the defendants’ breach-

of-contract damage award.

       {¶71} We have already held that the trial court erred when it found that

Lehigh had materially breached the agreements by interfering with Belay’s final

approval by AM/PM for ownership of the franchises and, accordingly, have reversed

the trial court’s award of breach-of-contract damages based on that determination.

Although we make no determination with respect to this issue, on remand, the trial

court must decide the proper allocation of this debt when it readdresses Belay’s claim

for the return of the “key money” under the alternate theories presented.

                                   V. Conclusion

       {¶72} We sustain the first and third assignments of error for the reason that

the trial court erred by determining that Lehigh had materially breached the

agreement. We overrule the second assignment of error, which involved Lehigh’s




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challenge to the limited award of damages for sales and real estate taxes and Lehigh’s

challenge to the trial court’s denial of loss-of-rent damages.

       {¶73} Accordingly, we affirm the trial court’s judgment in part, reverse it in

part, and we remand the cause to the trial court for further proceedings consistent

with the law and with this opinion.

                    Judgment affirmed in part, reversed in part, and cause remanded.

FISCHER, J., concurs.
DEWINE, J., concurs in part and dissents in part.

DEWINE, J., concurring in part and dissenting in part.

       {¶74} I dissent from the majority’s treatment of Lehigh’s claim for damages

for lost rent under the leases. The majority holds that because Lehigh chose to

occupy the premises and operate the businesses, it forfeited its claim for lost rental

damages under the lease agreements. I disagree.

       {¶75} Where a lessee defaults on a lease agreement, the lessor is entitled to

lost rents subject to the lessor’s duty to mitigate damages. See Frenchtown Square

Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 2003-Ohio-3648, 791 N.E.2d 417.

Here, Lehigh chose to mitigate its damages by operating the businesses itself.

Failure to mitigate is an affirmative defense that must be proven by the lessee. Id. at

¶ 21. There is nothing in the record to suggest that the manner in which Lehigh

chose to mitigate its damages was unreasonable.

       {¶76} We are required to calculate Lehigh’s damages under basic principles

of contract law. Id. at ¶ 19. That means we must put the nonbreaching party (here,

Lehigh) in the position that it would be in but for the other party’s breach. Textron

Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 144, 684 N.E.2d 1261

(9th Dist.1996).   The only way to do so is to award Lehigh the lost rents it would




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have received over the life of the leases but for Belay’s breach less the profits that it

has earned and will earn from its own operation of the stores over the life of the

leases.     By holding otherwise, the majority ignores fundamental principles of

contract law and deprives Lehigh of the benefit of its bargain.

          {¶77} Furthermore, the majority creates perverse incentives for a lessor in

Lehigh’s position. Consider a lessor who has sought to find a replacement tenant but

is unable to do so. That lessor would be better off not letting the property at all

rather than occupying the property itself and obtaining some return. Thus, by not

allowing the lessor to mitigate through its own use of the property, the majority

approach actually makes the breaching party worse off.

          {¶78} As is often the case, adherence to basic principles of contract law leads

to the most economically rational result. I’d give Lehigh the benefit of its bargain.

          {¶79} My colleagues see it otherwise, so I dissent from the portion of the

majority’s opinion that relates to Lehigh’s claims for lost rents.


Please note:

          The court has recorded its own entry on the date of the release of this opinion.




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