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Vol. 2006-10-b October, 2006

Construction Case; Fraud, Beneficiaries Defined

Construing actionable fraud in a roof replacement contract, the Court of Appeals of Franklin County, Ohio held:

"The elements of fraud are
  1. a representation or, when there is a duty to disclose, concealment of a fact,
  2. which is material to the transaction at hand,
  3. made falsely, with knowledge of its falsity, or with such utter disregard as to whether it is true or false that knowledge may be inferred,
  4. with the intent of misleading another into relying upon it,
  5. justifiable reliance on the representation or concealment, and
  6. an injury proximately caused by that reliance. Williams v. Aetna Fin. Co. (1998), 83 Ohio St.3d 464, 475.
Fraud may be committed not only by affirmative misrepresentation or concealment, but also by nondisclosure when there is a duty under the circumstances to disclose. Parahoo, supra. (See: Parahoo v. Mancini (Apr. 14, 1988), Franklin App. No. 97APE08-1071). The elements of fraudulent inducement are essentially the same as those for fraudulent misrepresentation, fraudulent concealment, and fraudulent nondisclosure.

With regard to the Gentiles' breach-of-contract claim, we note that in Ohio, only a party to a contract or an intended third-party beneficiary of a contract may bring an action on the contract.. By characterizing themselves as third-party beneficiaries, the Gentiles seemingly acknowledge that they were not actual parties to the roof-replacement contract. A review of the evidence reveals that no issue of fact exists as to whether the Gentiles were actual parties to that contract. Both Gentiles testified that the roof replacement in August 2001 was completed pursuant to a contract between Feazel and Ristas, and that they were not involved in the negotiation, execution, or payment of that contract.
Thus, the issue to be resolved is whether the Gentiles were third-party beneficiaries of the contract between Ristas and Feazel for the roof replacement. It is well settled that a third person not a party to a contract has no enforceable rights under the contract unless the contracting parties intended to create such rights.

The "intent to benefit" test, adopted by the Ohio Supreme Court in Hill v. Sonitrol of Southwestern Ohio, Inc. (1988), 36 Ohio St.3d 36, states that "there must be evidence, on the part of the promisee, that he intended to directly benefit a third party, and not simply that some incidental benefit was conferred on an unrelated party by the promisee's actions under the contract." TRINOVA Corp. v. Pilkington Bros. P.L.C. (1994), 70 Ohio St.3d 271, 277-278. Moreover, "[t]here must be evidence that the promisee assumed a duty to the third party." Id. Although the third party for whose benefit the contract is made need not be identified in the contract, the third party must have (been) contemplated by the parties at the time of contracting." Hines v. Amole (1982), 4 Ohio App.3d 263, 268.

"Man will never reach the moon regardless of all future scientific advances."

Dr. Lee DeForest,
Inventor of the triode amplifer radio valve, 1906

AUTHOR / EDITOR: J. NORMAN STARK is an Attorney-at-Law, a Registered Architect, (AIA, NCARB) Registered Landscape Architect, Interior Designer, Planner and Senior Appraiser (ASA), admitted to practice law before the Bar of Ohio, the US District Courts, Ohio and Illinois (Central Dist.), the US Court of Appeals, and the United States Supreme Court. He is a Mediator, Arbitrator and Litigator with experience in Business, Construction Law, and Public Works, and with additional experience in Real Estate, Construction Attorney (Legal Project and Crisis Management), and as an Expert Witness (Forensic Architect). His office is in Cleveland, Ohio.

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