3155 Development Way, LLC v. APM Rental Properties, LLC ( 2016 )

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
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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
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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
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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.
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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
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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
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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.
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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
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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
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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.
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[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.
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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,
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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.
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