2016 Ohio 4903
Ohio Ct. App.2016Background
- In 2004 George Skaff (doing business as George Michael Construction Co., LLC) entered a building contract with homeowner Alex Khutorsky to construct a residence in Sylvania, Ohio.
- Khutorsky obtained a $180,000 residential construction loan from Charter One Bank (now Citizens Bank) under a loan agreement that referenced the construction contract and directed disbursements to the builder or identified laborers/suppliers.
- The loan agreement included bank-controlled disbursement procedures and required the borrower’s (Khutorsky’s) and, if required, the builder’s acknowledgement of completion before the final draw; it also contained a waiver relieving the bank of liability for disbursement decisions.
- Skaff sued Khutorsky in 2013 claiming nonpayment (about $104,715) and later amended to add Citizens Bank, alleging he was an intended third-party beneficiary of the loan agreement and the bank breached by refusing the final disbursement.
- The trial court granted Citizens’ Civ.R. 12(B)(6) motion to dismiss, holding Skaff was only an incidental beneficiary with no right to enforce the bank–borrower contract; Skaff appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Skaff may enforce the bank–borrower loan agreement as an intended third-party beneficiary | Skaff: named as the “Builder” in the loan, checks were payable to him, and he completed required work so he is an intended beneficiary with enforceable rights | Citizens: Skaff is at best an incidental beneficiary; the loan was intended to benefit the borrower, not Skaff; Skaff also failed to plead satisfaction of conditions precedent | Court: Skaff is an incidental beneficiary and lacks standing to enforce the contract; dismissal affirmed |
| Whether the complaint met Civ.R. 12(B)(6)/notice-pleading standards to state a breach-of-contract claim against the bank | Skaff: factual allegations suffice under notice pleading to survive dismissal | Citizens: complaint fails to allege satisfaction of conditions precedent and no duty owed to Skaff | Court: even accepting allegations as true, Skaff cannot prove entitlement because he was not an intended beneficiary; dismissal proper |
Key Cases Cited
- O'Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242 (defining standard for dismissal under civil rule analogous to Conley)
- Conley v. Gibson, 335 U.S. 41 (pleading standard: complaint should not be dismissed unless no set of facts supports relief)
- Hill v. Sonitrol of Southwestern Ohio, Inc., 36 Ohio St.3d 36 (intended vs. incidental third-party beneficiary test)
- Huff v. FirstEnergy Corp., 130 Ohio St.3d 196 (application of third-party beneficiary/intent-to-benefit analysis)
- Perrysburg Twp. v. Rossford, 103 Ohio St.3d 79 (standard of review for Civ.R. 12(B)(6) motions)
- State ex rel. Harris v. Toledo, 74 Ohio St.3d 36 (notice pleading sufficiency)