Court Opinion

ID: 3189426
Source: CourtListenerOpinion
Date Created: 2016-03-29 15:03:15.234984+00
Date Added: 2024-06-11T14:35:42.308428
License: Public Domain

FILED
                                                                                 Mar 29 2016, 6:36 am

                                                                                     CLERK
                                                                                 Indiana Supreme Court
                                                                                    Court of Appeals
                                                                                      and Tax Court

      ATTORNEY FOR APPELLANT                                    ATTORNEY FOR APPELLEE
      C. Thomas Hectus                                          C. Gregory Fifer
      Louisville, Kentucky                                      Applegate Fifer Pulliam LLC
                                                                Jeffersonville, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      3155 Development Way, LLC                                 March 29, 2016
      Appellant-Defendant,                                      Court of Appeals Case No.
                                                                10A01-1508-PL-1235
              v.                                                Appeal from the Clark Circuit
                                                                Court
      APM Rental Properties, LLC,                               The Honorable Daniel F Donahue,
      Appellee-Plaintiff                                        Judge
                                                                Trial Court Cause No.
                                                                10C02-1405-PL-55

      Bradford, Judge.

                                           Case Summary
[1]   Al Miller is the president and majority shareholder of Concrete Formwork

      Fabrication and Engineering Company (“CFFE”) and the sole member of

      Plaintiff-Appellee APM Rental Properties, LLC (“APM”). APM and

      Appellant-Defendant 3155 Development Way, LLC (“Development”) executed

      an agreement for the purchase of a parcel of land (“Tract 3”). Prior to the

      Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016                           Page 1 of 13
      closing date, APM became aware that Tract 3 was landlocked, i.e. it lacked

      access from a public roadway. The only road providing access to Tract 3 was

      owned by the neighboring landowners. APM brought suit against

      Development and the neighboring landowners to establish an easement

      allowing permanent use of the access road. APM and Development were

      unable to reach an agreement with the neighboring landowners establishing an

      easement prior to the closing date for the Tract 3 purchase agreement.

[2]   After the closing date had passed with no easement having been obtained, APM

      amended its complaint to seek rescission of the purchase agreement and to

      allege fraud. APM filed a motion for partial summary judgment seeking

      judgment on the claim for rescission of contract, which the trial court granted.

      Development appeals the trial court’s award of partial summary judgment

      arguing that the trial court erred in rescinding the purchase agreement.

      Development also argues (1) APM breached the contract prior to the closing

      date, (2) APM was not a real party to the contract, (3) APM had a duty to

      exercise due diligence in conducting a land survey, and (4) the trial court erred

      in scheduling a hearing to determine the issues of fraud and damages. Because

      APM relied on Development’s misrepresentation regarding access to Tract 3,

      we affirm the trial court’s rescission of the contract.

                             Facts and Procedural History
[3]   On January 28, 2011, Development became the owner of a parcel of land

      located at 3155 Development Way, Sellersburg, Indiana (“Tract 3”) on which

      Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 2 of 13
      there is an approximately 23,000-square-foot commercial building. At this

      time, Development had either actual or constructive notice that Tract 3 lacked

      access from a public road. Development listed Tract 3 for sale and represented

      that it had “easy access to I-65 and Highway 31 in Sellersburg, Indiana.”

      Appellant’s App. p. 197. CFFE had been leasing the building located on Tract

      3 since August 2010.

[4]   On September 30, 2011, APM and Development executed an agreement for the

      sale of Tract 3 (“the Contract”). The Contract provided that APM would

      purchase Tract 3 for $730,000 plus interest, with payment to be made via thirty-

      six monthly installments of $7,500 and a balloon payment of $566,589.22 due

      on September 1, 2014. Upon payment of the entire purchase price,

      Development would convey APM a “Warranty Deed [and] the title to [Tract 3]

      free and clear of all liens and encumbrances.” Appellant’s App. p. 105.

      Development did not inform APM of the lack of public road access onto the

      property.

[5]   In preparation for making the September 2014 balloon payment and closing on

      the Contract, APM sought mortgage financing from MainSource Bank.

      MainSource agreed to finance the mortgage on the condition that APM obtain

      assurance that Tract 3 could be accessed from a public street. After retaining a

      professional surveyor, APM learned that the paved access roadway which

      provided access to Tract 3 was not a public road and was actually an access

      improvement on portions of neighboring Tracts 1 and 2, owned by Thomas

      Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 3 of 13
      Hall and Roxy’s Rentals LLC, respectively.1 APM contacted Hall and Roxy’s

      Rentals to request their cooperation in executing a permanent easement

      granting the owner of Tract 3 the right of ingress and egress using the access

      roadway. To this point, APM had not been prohibited from using the access

      roadway. Roxy’s Rentals responded in a March 19, 2014 letter in which it

      demanded that APM cease using the access road located on Tract 1. Roxy’s

      Rentals threatened to erect concrete barricades in order to prohibit use of the

      road by APM, which prompted APM to file its initial complaint on May 2,

      2014, seeking the establishment of an easement.

[6]   After learning of the lack of public road access, APM “advised [Development]

      of the existence of the access issue, and that [APM] would subsequently be

      making the monthly Contract payments into escrow with the closing agent

      retained by MainSource commencing with the payment due March 1, 2014,

      and continuing thereafter, until an instrument granting assured access to Tract 3

      was placed of record….” Appellant’s App. p. 180. In its July 21, 2014 answer,

      Development counterclaimed against APM seeking specific performance and

      breach of contract for failure to make payments under the Contract. By

      September 1, 2014, the date on which the balloon payment was due, neither

      APM nor Development was able to reach an agreement with Hall or Roxy

      Rental’s establishing a permanent right to use the access road. APM filed an

      1
          Thomas Hall and Roxy’s Rentals were defendants in the underlying case but are not party to this appeal.

      Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016                          Page 4 of 13
      amended complaint on September 9, 2014 which alleged fraud and sought

      rescission of the Contract and damages.

[7]   On October 28, 2014, APM filed a motion for partial summary judgment

      regarding rescission of the Contract. On December 23, 2014, Development

      filed a belated memorandum in response to APM’s motion for summary

      judgment. On January 5, 2015, APM filed a motion to strike Development’s

      belated response. On March 30, 2015, the trial court held a hearing on all

      pending motions. On April 13, 2015, the trial court issued an order granting

      APM’s motion for partial summary judgment and motion to strike

      Development’s belated response. In granting partial summary judgment, the

      trial court reasoned that Development did not have marketable title to Tract 3

      due to its lack of a public access road, and that APM could not be compelled to

      accept such a deficient title. Development appeals the trial court’s order

      partially granting summary judgment.

                                 Discussion and Decision
[8]           When reviewing the grant or denial of a motion for summary
              judgment we stand in the shoes of the trial court. Summary
              judgment is appropriate only when there is no genuine issue of
              material fact and the moving party is entitled to judgment as a
              matter of law. Where, as here, the dispute is one of law rather
              than fact, our standard of review is de novo. Further, the trial
              court in this case entered findings of fact and conclusions of law,
              neither of which are required nor prohibited in the summary
              judgment context. Although specific findings aid our review of a
              summary judgment ruling, they are not binding on this Court.
              Finally, we are not limited to reviewing the trial court’s reasons
      Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 5 of 13
               for granting or denying summary judgment but rather we may
               affirm a grant of summary judgment upon any theory supported
               by the evidence.

       Alva Elec., Inc. v. Evansville-Vanderburgh Sch. Corp., 7 N.E.3d 263, 267 (Ind. 2014)

       (citations and quotations omitted).

             I.      Whether the Trial Court Erred in Rescinding the
                                        Contract
[9]    “It is the law in this state that contracts induced by fraud or mistake are

       voidable only and may be avoided by the maker.” Norwood v. Erie R. Co., 114
Ind. App. 526, 529, 53 N.E.2d 189, 190 (1944) (citations omitted); see also Mid-

       States Gen. & Mech. Contracting Corp. v. Town of Goodland, 811 N.E.2d 425, 435

       (Ind. Ct. App. 2004) (a contract may be avoided for unilateral mistake when the

       mistake was induced by the misrepresentation of the opposite party) and Strong

       v. Jackson, 777 N.E.2d 1141, 1150 (Ind. Ct. App. 2002) (a contract is voidable

       where there has been a mistake on the part of one party accompanied by fraud

       or inequitable conduct by the other party) on reh’g, 781 N.E.2d 770 (Ind. Ct.

       App. 2003).

[10]   Development described Tract 3 as having “easy access to I-65 and Highway

       31.” Appellant’s App. p. 197. Given that the sole path leading to Tract 3 was a

       private road, and that the neighboring landowners threatened to put up concrete

       barriers to block the path, we now know that access was not so easy. Whether

       Development knew that Tract 3 lacked public road access, i.e. whether it made

       the misrepresentation knowingly, is immaterial for this analysis. Knowingly or

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 6 of 13
       not, Development attempted to induce purchasers into buying Tract 3 with false

       claims regarding its accessibility. Because Development could not rectify the

       misrepresentation by the closing date, i.e. obtain an easement, APM is entitled

       to rescind the contract due to its reliance on Development’s misrepresentation.2

                                          II. Breach of Contract
[11]   Development argues that even if it breached the Contract by failing to obtain an

       easement by the September 1, 2014 closing date, APM breached the contract

       earlier by failing to make monthly payments beginning in February of 2014 and

       continuing thereafter for seven months until the closing date. Development

       contends that APM’s prior breach discharged Development’s obligation to

       perform under the Contract, i.e. deliver title. APM argues that it did not breach

       because it made the monthly payments into an escrow account and

       Development did not object to the escrow payments.

[12]   Upon learning that Tract 3 was landlocked, APM informed Development of the

       issue and that it would begin making its monthly payments under the Contract

       to escrow until Development could assure access. This court has previously

       held that when an obligee to a contract reasonably believes that the obligor will

       not perform, the obligee may demand assurance of performance and suspend

       2
         We note that the trial court rescinded the Contract based on the doctrine of marketability of title. However,
       “we are not limited to reviewing the trial court’s reasons for granting or denying summary judgment but
       rather we may affirm a grant of summary judgment upon any theory supported by the evidence.” Alva Elec.,
7 N.E.3d at 267. Because we find that the Contract could be properly rescinded under the more well-
       developed principles of contract law, we need not address the novel issue of whether a lack of public access to
       real estate affects the marketability of its title.

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016                          Page 7 of 13
       his own performance until such assurances are given. Hawa v. Moore, 947
N.E.2d 421, 426 (Ind. Ct. App. 2011) (citing Restatement (Second) of Contracts

       §§ 250, 251); see generally Ind. Code §§ 26-1-2-609, 26-1-2-610.

[13]   APM demanded assurances that Development would be able to secure an

       easement to use the access road prior to the September closing date. “A party

       demanding assurances must do so in accordance with the duty of good faith

       and fair dealing in the enforcement of the contract. Whether a particular

       demand for assurance conforms to that duty will depend on the circumstances.”

       Id. (quotations omitted). APM’s decision to make its monthly payment to an

       escrow, as opposed to ceasing payments altogether, clearly reflects a good faith

       request for assurances. Had Development obtained an easement prior to the

       closing date, it would have received all of the monthly payments. Accordingly,

       we find that APM’s demand for assurances was reasonable and its decision to

       make payments to escrow pending establishment of an easement did not

       constitute a breach of the Contract.

                  III. Whether APM was a Party to the Contract
[14]   Development argues that APM was not a real party to the Contract because

       Miller signed the Contract on behalf of A&M Rental Properties. Following

       execution of the Contract, Miller attempted to register A&M Rental Properties

       with the Indiana Secretary of State only to learn that the name was unavailable.

       Miller instead registered the name APM Rental Properties. Development

       claims that because of this error, APM does not have standing to sue under the

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 8 of 13
       contract. APM argues that because Development failed to raise the issue of

       whether APM was a real party in interest in its pleadings, the issue is waived on

       appeal. We agree with APM.

[15]   Indiana Trial Rule 9(A) provides that

               It is not necessary to aver the capacity of a party to sue or be
               sued, the authority of a party to sue or be sued in a representative
               capacity, or the legal existence of an organization that is made a
               party. The burden of proving lack of such capacity, authority, or
               legal existence shall be upon the person asserting lack of it, and
               shall be pleaded as an affirmative defense.

       Development did not raise this issue of APM’s authority to bring suit in its

       pleadings. Accordingly, Development has waived this argument for our

       consideration. See Warner v. Young Am. Volunteer Fire Dep’t, 164 Ind. App. 140,

       148, 326 N.E.2d 831, 836 (1975) (“The right of a party to maintain a suit as a

       plaintiff or substitute plaintiff must be raised by a proper pleading or motion

       questioning such authority at the first opportunity, or the objection is waived.”).

                   IV. APM’s Duty to Exercise Due Diligence in
                            Checking for Defects in Title
[16]   Development asserts that there was a purchase agreement regarding Tract 3

       between Al Miller and Development executed in 2010, prior to the Contract at

       issue, which was referenced in the lease agreement. Development contends

       that this purchase agreement provided that Miller could conduct land surveys

       and was required to report any defects, such as lack of public access, prior to

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 9 of 13
       May 1, 2011, otherwise issues regarding such defects would be waived. An

       unsigned version of the 2010 lease agreement was tendered as evidence in

       support of APM’s summary judgment motion and it does reference a purchase

       agreement. However, no purchase agreement, aside from the Contract at issue,

       was entered into evidence or is in the record on appeal. We are not permitted

       to consider evidence which is not contained within the record on appeal. Banks

       v. Banks, 980 N.E.2d 423, 426 (Ind. Ct. App. 2012). Accordingly, we will not

       consider Development’s arguments regarding any obligations that Miller or

       APM may have had under a prior purchase agreement which is not available

       for our review.

             V.       Additional Proceedings Necessary to Determine
                                   Damages and Fraud
[17]   In addition to rescinding the Contract, the trial court also ordered that a hearing

       was necessary to determine (1) what damages, if any, APM suffered as a result

       of the contract rescission and (2) if Development’s “failure to disclose the

       limitation on legal access to Tract 3 constitutes fraud…sufficient to entitle

       [APM] to an award of special damages. “ Order p. 7. In regards to the fraud

       claim, APM presented evidence that Development advertised Tract 3 as having

       “Easy access to I-65 and [Highway] 31.” Appellant’s App. p. 197.

       Development argues that it is entitled to a jury trial on the issue of fraud and

       that the trial court erred in setting a hearing “on the issue of [APM’s]

       entitlement to an award of damages, and the amount thereof, if any.” Order p.

       8.

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 10 of 13
[18]           In Indiana, the right to trial by jury in civil cases is of
               constitutional dimension but, like other constitutional
               guarantees, is not absolute. Art. 1, § 20 of the Indiana
               Constitution entitles a party to a jury trial as a matter of right
               only where such a right existed prior to June 19, 1852. Ind. Rules
               of Procedure, Trial Rule 38(A). The distinction is essentially one
               of law and equity. We look to the nature of the claims stated in
               the complaint and pleadings as a whole. When the claim or cause
               of action or any essential part thereof is such as to necessarily
               invoke the equitable jurisdiction of the court, the entire action is
               drawn into and tried as a matter of equity and no right to trial by
               jury exists.

       Howell v. State Farm Fire & Cas. Co., 530 N.E.2d 318, 319 (Ind. Ct. App. 1988).

[19]   APM’s amended complaint sought rescission of the Contract and resulting

       damages. In Stevens v. Olsen, 713 N.E.2d 889, 891 (Ind. Ct. App. 1999), we

       found that “an action for rescission of a contract was of exclusive equitable

       jurisdiction. Thus, rescission is an equitable remedy and must be tried by the

       court.” The facts of Olsen are similar to this case.

               The remedy sought by Olsen in this action, rescission of the
               contract, does not contemplate compensatory or punitive
               damages. If a party seeks to rescind a contract, she “may not
               recover general damages, but is only entitled to be returned to the
               status quo, which usually necessitates a return of money or other
               things received or paid under the contract[.]” Hart v. Steel
               Products, Inc., 666 N.E.2d 1270, 1275 (Ind. Ct. App. 1996), trans.
               denied (internal quotations omitted). Thus, Olsen’s remedy is not
               money damages, but the return of the consideration that she paid
               to Stevens under their contract. Olsen is not entitled to have a
               trial by jury in this equitable action and the trial court erred by
               allowing a jury to decide this case.

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 11 of 13
       Id. Accordingly, we find that the rescission claim has “invoke[d] the equitable

       jurisdiction of the court,” and so “the entire action is drawn into and tried as a

       matter of equity and no right to trial by jury exists.” Howell, 530 N.E.2d at 319.

[20]   Additionally, the trial court did not err in setting a hearing to determine what

       “monies [APM has] paid toward the purchase price and real estate taxes under

       the Contract” and what special damages, if any, it is entitled to as a result of

       fraudulent conduct. As is mentioned above, rescission entitles APM to be

       returned to the status quo, “which usually necessitates a return of money or

       other things received or paid under the contract,” as well as “special damages,

       for any reasonable expenditures incurred as a proximate result of [] fraudulent

       conduct.” See Hart, 666 N.E.2d at 1275. Finally, we note that, contrary to

       Development’s implications, the trial court has not yet made any rulings on the

       issue of fraud.

                                                Conclusion
[21]   We conclude that because APM was induced into the Contract by

       Development’s misrepresentation, the trial court did not err in rescinding the

       contract. Additionally, we find that (1) APM did not breach the Contract by

       making payments to an escrow pending resolution of the access issue, (2)

       Development waived any argument regarding whether APM was a real party to

       the Contract, (3) there is no evidence suggesting that APM had a contractual

       duty to investigate potential defects with Tract 3, and (4) the trial court did not

       err in scheduling a hearing to determine the following issues: amount of money,

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 12 of 13
       if any, APM is entitled to recover as a result of the Contract rescission, fraud,

       and special damages.

[22]   The judgment of the trial court is affirmed.

       Baker, J., and Pyle, J., concur.

       Court of Appeals of Indiana | Opinion 10A01-1508-PL-1235 |March 29, 2016   Page 13 of 13