Court Opinion

ID: 4406960
Source: CourtListenerOpinion
Date Created: 2019-06-14 15:04:08.839604+00
Date Added: 2024-06-11T14:52:42.576043
License: Public Domain

FILED
MEMORANDUM DECISION                                                       Jun 14 2019, 9:18 am

                                                                                CLERK
Pursuant to Ind. Appellate Rule 65(D),                                     Indiana Supreme Court
                                                                              Court of Appeals
this Memorandum Decision shall not be                                           and Tax Court

regarded as precedent or cited before any
court except for the purpose of establishing
the defense of res judicata, collateral
estoppel, or the law of the case.

ATTORNEY FOR APPELLANT                                   ATTORNEY FOR APPELLEE
Mark E. Miller                                           Shawn M. Sullivan
Evansville, Indiana                                      Evansville, Indiana

                                           IN THE
    COURT OF APPEALS OF INDIANA

Randall Patton,                                          June 14, 2019
Appellant-Defendant,                                     Court of Appeals Case No.
                                                         18A-PL-2087
        v.                                               Appeal from the Vanderburgh
                                                         Superior Court
Leann Morris,                                            The Honorable Leslie C. Shively,
Appellee-Plaintiff.                                      Judge
                                                         Trial Court Cause No.
                                                         82D01-1804-PL-2471

Tavitas, Judge.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019                      Page 1 of 16
                                             Case Summary
[1]   In this interlocutory appeal, Randall Patton appeals the trial court’s grant of a

      complaint for declaratory judgment filed by Leann Morris. We affirm.

                                                     Issues
[2]   Patton raises four issues, which we restate as:

              I.       Whether the parties’ agreements were unenforceable
                       because there was no meeting of the minds.

              II.      Whether the parties’ agreements were unenforceable
                       because they were unconscionable.

              III.     Whether the parties’ agreements were unenforceable on
                       grounds of fraud and misrepresentation.

              IV.      Whether the parties’ agreements were unenforceable on
                       grounds of ultra vires.

                                                     Facts
[3]   Patton is the sole shareholder of Patton Heating & Air Conditioning Company,

      Inc. (“Company”), in Evansville. In 2017, the Company hired Morris as a

      service technician. Morris soon noticed serious mismanagement at the

      Company. Patton was not actively involved in the management of the

      Company and was allowing others to make business decisions. Later in 2017,

      Morris approached Patton about Patton giving Morris an ownership interest in

      the Company in exchange for Morris helping Patton manage the Company.

      Patton was interested, and Morris retained an attorney to draft documents

      regarding the transaction.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 2 of 16
[4]   Morris delivered drafts of the documents to Patton on November 3, 2017.

      Patton reviewed the documents, and they negotiated certain changes. Morris’

      attorney made revisions to the documents, and Morris delivered the revised

      documents to Patton on November 12, 2017. Patton did not have an attorney

      review the documents. Morris and Patton then signed a Stock Purchase

      Agreement, a Stockholders’ Agreement, an Additional Agreement, 1 and a

      handwritten Patton Heating Agreement 2 (collectively, “the Agreements”) on

      November 16, 2017.

[5]   The Stock Purchase Agreement noted that Patton owned 250 shares of the

      Company and provided in relevant part:

                The Shareholder desires to sell up to half of his respective shares
                of stock in the Company to Buyer and Buyer desires to acquire
                said shares from the Shareholder on the terms and conditions set
                forth herein.

                Upon acquisition of the shares of stock of the Company, Buyer,
                through her ownership and operation of the Company, will be

      1
          The Additional Agreement provided:

              Title of my position with [sic] be: Chief Executive Officer
              Compensation will be an [sic] reasonable amount by law for position obtained and to be
              assessed upon determination of business records, financial status and ability.
              Also, if there would be any tax implication for shares purchased the corporation will agree to
              cover.
      Exhibit Vol. I p. 142.
      2
       The handwritten agreement provided: “Written agreement for purchase states as is with stipulations
      understood by purchaser that both parties that land & building is not included therefore agreed upon.” Id. at
      159.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019                      Page 3 of 16
        able to expand and strengthen Company’s services and facilitate
        the provision of needed services to the community.

                                              *****

        1.2 Purchase and Sale of Phase I Shares.

        (a) Subject to the terms and conditions herein stated, the
        Shareholder hereby agrees to sell and transfer to Buyer, and
        Buyer hereby agrees to purchase from Shareholder, eighty-three
        (83) of the issued and outstanding shares of the Company (the
        “Phase I Shares”).

        (b) The aggregate purchase price for the Phase I Shares (the
        “Phase I Purchase Price”) shall be One and 00/100 Dollar
        ($1.00). The Phase I Purchase Price shall be payable pro rata to
        the Shareholder at the Phase I Closing.

        (c) The closing of this transaction for Phase I Shares shall take
        place on or before the 16th day of November, 2017 at the offices
        of the Shareholder, located at 517 Ingle St, Evansville, Indiana
        47708, or at such other time and place as the parties may
        mutually agree (“Phase I Closing”).

        (d) Upon compliance with the terms of this Agreement, at Phase
        I Closing, Shareholder shall deliver to Buyer, free and clear of all
        debts, mortgages, pledges, liens, encumbrances, security interests,
        charges, restrictions, or other matters, certificates of the Phase I
        Shares, duly endorsed over to Buyer, or accompanied by
        executed stock powers in favor of Buyer.

Exhibit Vol. I pp. 24-25. Upon the meeting of certain performance goals,

Patton agreed to transfer additional shares to Morris in Phase II and Phase III.

Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 4 of 16
[6]   The Stockholders’ Agreement provided in relevant part:

                                                     *****

              Section 20. Management of the Corporation.

              20.1 The Stockholders acknowledge and agree that the Board of
              Directors of the Corporation shall consist of three (3) members
              (each, a “Board Member”) selected by the Stockholders, subject
              to the following limitations. One (1) Board Member shall be
              appointed by, and serve at the pleasure of, Morris; one (1) Board
              Member shall be appointed by, and serve at the pleasure of
              Patton; and one (1) Board Member shall be an independent
              Board Member mutually appointed by, and serving at the
              pleasure of both Morris and Patton. In the event Morris and
              Patton are unable to agree upon and mutually appoint the
              independent Board Member then Morris shall appoint the
              independent Board Member. Until otherwise designated by
              Morris, her representative on the Board shall be T. Leann Morris.

      Id. at 16-17. Section 20.2 of the Stockholders’ Agreement designated Morris as

      the Company’s Chief Executive Officer.

[7]   Morris immediately started acting as the Company’s chief executive officer.

      Patton and Morris began having disagreements in approximately February

      2018. Patton then changed the locks on the premises and refused to allow

      Morris to manage the Company. On April 16, 2018, Morris called a special

      meeting of the Company’s shareholders, and Patton refused to attend. Morris

      exercised her right to appoint an independent Board Member. A meeting of the

      Company’s Board of Directors was then held.

      Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 5 of 16
[8]    On April 27, 2018, Morris filed a complaint for: (1) breach of contract regarding

       the Stockholders’ Agreement; (2) breach of contract regarding the Stock

       Purchase Agreement; and (3) declaratory judgment regarding Morris’ rights and

       liabilities. Morris also requested injunctive relief. Patton then filed an answer,

       affirmative defenses, and counterclaims against Morris.

[9]    In May 2018, the trial court held a hearing on Morris’ motion for preliminary

       injunction. At the conclusion of the hearing, the trial court ordered that Morris

       be allowed back on the Company’s property, that Morris have access to the

       books and records of the Company, and that the parties “fashion an interim

       business agreement.” Appellant’s App. Vol. II p. 71.

[10]   At Morris’ request, the trial court then set the matter for an evidentiary hearing

       on the bifurcated claim for declaratory judgment and Patton’s affirmative

       defenses. A bifurcated bench trial was held with respect to the declaratory

       judgment claim on July 2, 2018. On Patton’s motion, the trial court

       incorporated the evidence presented during the preliminary injunction hearing.

[11]   On August 16, 2018, the trial court issued findings of fact and conclusions of

       law regarding the declaratory judgment claim as follows:

               1. The Stock Purchase Agreement (Plaintiffs Ex. 2) and
               Stockholders’ Agreement (Plaintiffs Ex. 1) are binding and
               enforceable agreements upon Morris and Patton.

               2. Morris is a shareholder of the Company: Morris owns 83
               share[s] of stock in the Company, and Patton owns 167 shares of
               stock in the Company.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 6 of 16
                3. Morris is the duly appointed and elected Chief Executive
                officer of the Company, and otherwise authorized to act and bind
                the Company in her capacity as the Company’s CEO.

                4. The three (3) member Board of Directors of the Company is
                comprised of the following individuals: Morris, Patton, and Steve
                Settles, 830 Blue Street, Bonneterre, Missouri.

                5. Unless and until the Company would hereinafter take action,
                to the contrary Morris is entitled to access the Business Premises,
                its equipment and other Company property thereon.

                6. Morris and Patton are to convene and attend a special meeting
                of the Company’s shareholders and directors within fifteen (15)
                days after the entry of this judgment to take action, if any,
                consistent with this court’s entry of judgment herein.

       Appellant’s App. Vol. II p. 21. Patton now appeals. 3

                                                      Analysis
[12]   Patton appeals the trial court’s judgment for Morris with respect to her

       declaratory judgment claim and Patton’s affirmative defenses. Because the trial

       court entered findings of fact and conclusions of law, we review the findings

       and the judgment for clear error. Ind. Trial Rule 52(A). “This means that the

       evidence must support the findings and the findings must support the

       judgment.” Gittings v. Deal, 109 N.E.3d 963, 970 (Ind. 2018), reh’g denied. “We

       3
        Morris filed a motion to dismiss the appeal, arguing that the appeal was not a proper interlocutory appeal as
       of right under Indiana Appellate Rule 14(A). We denied Morris’ motion pursuant to Indiana Appellate Rule
       14(A)(3).

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019                    Page 7 of 16
       set aside the findings only if the record contains no supporting evidence, but we

       review the court’s legal conclusions de novo.” Id.

[13]   The trial court found that the Agreements were valid and enforceable; Patton,

       however, seeks to avoid the enforcement of the Agreements that he entered into

       with Morris. Generally, the interpretation and construction of contract

       provisions are questions of law. John M. Abbott, LLC v. Lake City Bank, 14
N.E.3d 53, 56 (Ind. Ct. App. 2014). We review the contract as a whole,

       attempting to ascertain the parties’ intent. We make every attempt to construe

       the contract’s language in a way that we do not render any words, phrases, or

       terms ineffective or meaningless. Id. Where terms of a contract are clear and

       unambiguous, we will apply the plain and ordinary meaning of the terms and

       enforce the contract according to its terms. Id. A contract will be found to be

       ambiguous only if reasonable persons would differ as to the meaning of its

       terms. Beam v. Wausau Ins. Co., 765 N.E.2d 524, 528 (Ind. 2002), reh’g denied.

[14]   Patton does not argue that the Agreements are ambiguous, and our review

       indicates that the Agreements’ terms are clear and unambiguous. Rather,

       Patton argues that the Agreements are unenforceable because: (1) there was no

       meeting of the minds; (2) the Agreements are unconscionable; (3) the

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 8 of 16
       Agreements were procured through fraud; and (4) the Agreements are ultra

       vires because they violate the Company’s articles of incorporation. 4

                                             I. Meeting of the Minds

[15]   Patton argues that the Agreements are unenforceable because there was no

       meeting of the minds. Contracts are formed when parties exchange an offer

       and acceptance. Jernas v. Gumz, 53 N.E.3d 434, 445 (Ind. Ct. App. 2016), trans.

       denied. A meeting of the minds of the contracting parties, having the same

       intent, is essential to the formation of a contract. Id. The basic requirements for

       a contract are offer, acceptance, consideration, and a meeting of the minds

       between the contracting parties on all essential elements or terms of the

       transaction. Id. There must be mutual assent or a meeting of the minds on all

       essential elements or terms in order to form a binding contract. Id.

[16]   Patton seems to argue that the parties had different intentions regarding: (1)

       when Morris was to earn her shares; (2) Morris’ control over the third director;

       and (3) Morris’ ability to compete with the Company. Patton argues that he

       “did not agree to any of these things.” Appellant’s Br. p. 20.

       4
         Patton argues that the trial court should have used the parol evidence admitted during the hearings to find
       the Agreements unenforceable. The trial court noted that it had been “quite liberal” in allowing Patton to
       present parol evidence. Appellant’s App. Vol. II p. 19. “‘[P]arol or extrinsic evidence is inadmissible to
       expand, vary, or explain the instrument unless there has been a showing of fraud, mistake, ambiguity,
       illegality, duress or undue influence.’” John M. Abbott, 14 N.E.3d at 56 (quoting Adams v. Reinaker, 808
N.E.2d 192, 196 (Ind. Ct. App. 2004)). The trial court found none of those circumstances here and did not
       err.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019                     Page 9 of 16
[17]   The trial court rejected Patton’s argument and found:

               Patton asserts that the contracts are not enforceable because there
               was not a “meeting of the minds.” For a meeting of the minds,
               the contracting parties must have the same intent essential[ly].
               Wallem v. CIS Industries Inc., 725 N.E.2d 880. The intent relevant
               is not the parties[’] subjective intent but their outward
               manifestations of it. Centennial Mortgage, Inc. v. David Blumenfeld,
               [745] N.E.2d 268 (Ind. Ct. App. 2001). A court does not
               examine the hidden intentions in the secretive heart of a person;
               rather it examines the final expression found in conduct, which
               requires an examination of all the circumstances. Ochoa v. Ford,
               641 N.E.2d 1042 (Ind. Ct. App. 1994).

               The final version of the contracts was created after negotiations
               between the parties. After negotiations, documents were then
               given to Patton several days before the contracts were executed at
               the Company’s place of business. The conduct of the party’s
               [sic], therefore, clearly indicates that there was a meeting of the
               minds.

       Appellant’s App. Vol. II p. 19.

[18]   Although Patton now claims that he did not agree to the terms of the

       Agreements, the evidence shows that: (1) Patton and Morris negotiated the

       terms of the Agreements; (2) Morris presented a draft Agreement to Patton, and

       Patton requested revisions; (3) after making revisions to the Agreements, Morris

       provided the revised Agreements to Patton; (4) Patton had the Agreements for

       several days and did not request further revisions; (5) Patton and Morris then

       met and signed the Agreements; and (6) Patton then allowed Morris to assume

       control over the management of the Company.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 10 of 16
[19]   Patton had the opportunity to read the Agreements and make further revisions.

       “Under Indiana law, a party to a contract ‘is presumed to understand and

       assent to the terms of the contracts he or she signs.’” John M. Abbott, LLC, 14
N.E.3d at 58 (quoting Sanford v. Castleton Health Care Ctr., LLC, 813 N.E.2d 411,

       418 (Ind. Ct. App. 2004), trans. dismissed). “A court cannot relieve a party from

       the terms of a contract because of his failure to read all or part of it, as he is

       bound to know the contents of the contract which he signs.” Pinnacle Computer

       Servs., Inc. v. Ameritech Pub., Inc., 642 N.E.2d 1011, 1017 (Ind. Ct. App. 1994),

       reh’g denied. Patton’s later remorse over entering into the Agreements does not

       mean that the parties lacked a “meeting of the minds.” The trial court’s finding

       on this issue is not clearly erroneous.

                                            II. Unconscionability

[20]   Patton argues that the Agreements are unenforceable because they are

       unconscionable. “‘As a general rule, a contract may be declared unenforceable

       due to unconscionability when there is a great disparity in bargaining power

       which leads the party with the lesser power to sign a contract unwillingly and

       unaware of its terms.’” McAdams v. Foxcliff Estates Cmty. Ass’n, Inc., 92 N.E.3d
1144, 1150 (Ind. Ct. App. 2018) (quoting Pinnacle Computer, 642 N.E.2d at

       1017)). “In such a case, the contract must be one that no sensible person not

       under delusion or duress or in distress would make, and one that no honest and

       fair person would accept.” Id.

[21]   The trial court rejected Patton’s argument and found:

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 11 of 16
                  Patton did not execute the Stock Purchase Agreement or
                  Stockholders’ Agreement under any delusion, duress or distress,
                  nor was there any inequality of bargaining power by and between
                  the parties.

                  There is absolutely no evidence that Morris possessed
                  “prodigious amount[s] of bargaining power” over Patton. To the
                  contrary, Patton was the sole owner of the Company and would
                  remain a controlling shareholder after completion and
                  satisfaction of all conditions set forth in respective agreements.
                  Patton has failed to carry his burden of proof that either the Stock
                  Purchase Agreement or Stockholders’ Agreement can be avoided
                  on grounds of unconscionability.

       Appellant’s App. Vol. II p. 18.

[22]   There is no evidence here of a great disparity in bargaining power between the

       parties. Relying on Martin Rispens & Son v. Hall Farms, 621 N.E.2d 1078 (Ind.

       1993), reh’g denied, 5 and Stiefler v. McCullough, 174 N.E. 823, 97 Ind. App. 123

       (1931), for the proposition that unequal bargaining power is not required,

       Patton contends that Morris took advantage of Patton’s “necessities and distress

       to obtain an unfair advantage.” Appellant’s Br. p. 18.

[23]   “A contract procured from one in a situation of distress and necessity by

       another who stands in a relation of confidence or who is in a situation of

       advantage may be avoided.” Day v. Bicknell Minerals, Inc., 480 N.E.2d 567, 571

       (Ind. Ct. App. 1985), reh’g denied. There is no indication here that Patton and

       5
           Abrogated by Hyundai Motor America, Inc. v. Goodin, 822 N.E.2d 947 (Ind. 2005).

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019         Page 12 of 16
       Morris were in a confidential relationship. The evidence showed, however, that

       Patton’s business was suffering due to poor management. Patton was aware

       that he needed assistance and accepted Morris’ offer with the hope that she

       could turn things around. Morris merely negotiated with Patton on the terms

       of the Agreements, which Patton signed. There is no evidence that Patton was

       without other options, that Morris caused Patton to be in the situation, or that

       Morris somehow deprived Patton of his free will. Accordingly, the trial court’s

       finding regarding unconscionability of the Agreements is not clearly erroneous.

       See, e.g., Day, 480 N.E.2d at 571-72 (noting that “[n]o acts here were wrongful,

       nor did they deprive the shareholders of the exercise of free will. Through no

       fault of UM, the shareholders simply were faced with two choices: they could

       take the deal it offered or face action by the banks. The shareholders were in

       economic peril because their company failed to meet its obligations, not by

       virtue of any course of conduct attributable to UM.”).

                                                    III. Fraud

[24]   Next, Patton argues that the Agreements are unenforceable because they were

       procured through fraud. The trial court rejected Patton’s argument and found:

               Patton also failed to carry his burden of demonstrating that the
               contract should be avoided on grounds of fraud or other
               misrepresentation. Morris is bound to read and understand the
               contracts he signed. See, e.g., Mayflower Transit, Inc. v. Davonport,
               714 N.E.2d 794, 799 (Ind. Ct. App. 1999). There are basically
               two types of frauds, “actual” and “constructive”. Patton’s
               assertion is essentially one of “constructive fraud” which arises
               out of conduct [that], if sanctioned by law, would secure the

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 13 of 16
               offending party an unconscionable advantage. Messmer v. KDK
               Financial Services Inc., 82 N.E.3d 774 (Ind. Ct. App. 2017).
               Essential to a constructive fraud defense or claims is the existence
               of a duty owed by the culpable party to the injured party. Heyser
               v. Noble Roman’s, 933 N.E.2d [16] (Ind. Ct. App. 2010). There is
               no evidence establishing that Morris had any pre-existing duty to
               Patton.

       Appellant’s App. Vol. II pp. 18-19. On appeal, Patton argues that the trial court

       misunderstood his argument to be a claim of constructive fraud. According to

       Patton, his claim was one of fraudulent inducement.

[25]   “Fraud in the inducement of a contract is a basis for its rescission.” A.G.

       Edwards & Sons, Inc. v. Hilligoss, 597 N.E.2d 1, 3 (Ind. Ct. App. 1991).

       “Generally, parties are obligated to know the terms of the agreement they are

       signing, and cannot avoid their obligations under the agreement due to a failure

       to read it.” Park 100 Inv’rs, Inc. v. Kartes, 650 N.E.2d 347, 349 (Ind. Ct. App.

       1995). “However, where one employs misrepresentation to induce a party’s

       obligation under a contract, one cannot bind the party to the terms of the

       agreement.” Id. Fraudulent inducement occurs when a party is induced

       through fraudulent misrepresentations to enter into a contract. Brumley v.

       Commonwealth Bus. Coll. Educ. Corp., 945 N.E.2d 770, 776 (Ind. Ct. App. 2011).

       “‘If a party’s manifestation of assent is induced by either a fraudulent or a

       material misrepresentation by the other party upon which the recipient is

       justified in relying, the contract is voidable by the recipient.’” Id. (quoting

       Restatement (Second) of Contracts § 164(1) (1981)). Fraudulent inducement

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 14 of 16
       does not prevent the formation of a contract altogether, but it does render the

       contract “voidable.” Id.

[26]   This fraudulent inducement claim also fails. Patton contends that the

       Agreements did not contain “the terms Patton insisted upon.” Appellant’s Br.

       p. 22. As we have discussed, however, Patton had the opportunity to review

       and revise the Agreements. Even assuming Morris misrepresented the terms of

       the Agreements, Patton was not justified in relying upon any alleged

       misrepresentation. Patton was not prevented in any way from making further

       clarifications or revisions. The trial court properly denied Patton’s fraud claim.

                                                IV. Ultra Vires

[27]   Finally, Patton argues that the Agreements were “ultra vires” and void because

       they violated the Company’s articles of incorporation and bylaws. An ultra

       vires act is an act beyond the scope of the powers of a corporation as defined by

       its charter or act of incorporation. Bajdek v. Bd. of Trustees of Am. Legion Pulaski

       Post No. 357 Tr. for Veterans of World War I, 132 Ind. App. 116, 133, 173 N.E.2d
61, 69 (1961).

[28]   Patton contends that the Agreements were not approved by the Company’s

       board and were, thus, void. The Company was not a party to the Stock

       Purchase Agreement. Rather, Patton signed that agreement in his position as a

       shareholder. As for the Stockholders’ Agreement, Patton signed that agreement

       in his position as president of the Company. Morris points out that the

       Company’s articles of incorporation allow contracts and other legal instruments

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 15 of 16
       to be signed for and on behalf of the Company by the Company president. See

       Exhibit Vol. I p. 244. The trial court properly rejected Patton’s argument that

       the Agreements are void as an ultra vires action.

                                                 Conclusion
[29]   The parties’ Agreements are valid and enforceable. The trial court’s entry of

       declaratory judgment in favor of Morris is not clearly erroneous. We affirm.

[30]   Affirmed.

       Baker, J., and May, J., concur.

       Court of Appeals of Indiana | Memorandum Decision 18A-PL-2087 | June 14, 2019   Page 16 of 16