Art Country Squire, LLC v. Inland Mortg. Corp.

• Decision Date: 10 April 2001
• Docket Number: No. 49A05-0004-CV-146.,49A05-0004-CV-146.
• Citation: 745 N.E.2d 885
• Parties: ART COUNTRY SQUIRE, L.L.C., Appellant-Defendant, American Realty and Trust, Inc., Defendant and Cross-Claim Defendant Below, Atlantic Limited Partnership XII, Atlantic XIII, L.L.C., David M. Clapper, Defendants, Cross-Claimants, and Third-Party Plaintiffs Below, v. INLAND MORTGAGE CORPORATION, Appellee-Plaintiff.
• Court: Indiana Appellate Court

745 N.E.2d 885

ART COUNTRY SQUIRE, L.L.C., Appellant-Defendant, American Realty and Trust, Inc., Defendant and Cross-Claim Defendant Below, Atlantic Limited Partnership XII, Atlantic XIII, L.L.C., David M. Clapper, Defendants, Cross-Claimants, and Third-Party Plaintiffs Below, v. INLAND MORTGAGE CORPORATION, Appellee-Plaintiff.

No. 49A05-0004-CV-146.

Court of Appeals of Indiana.

April 10, 2001.

Jay Jaffe, Baker & Daniels, Robert F. Dolack, Huffer & Weathers, P.C., Indianapolis, IN, J. Robert Arnett, II, Sopuch Nouhan Higgins & Arnett, L.L.P., Dallas, TX, Attorneys for Appellants.

Theodore J. Nowacki, Michael A. Trentadue, M. Miles Sukovic, Bose McKinney & Evans LLP, Indianapolis, IN, Attorneys for Appellee.

OPINION

RATLIFF, Senior Judge

STATEMENT OF THE CASE

Defendants-Appellants Art Country Squire, L.L.C. ("Art Country Squire"), American Realty and Trust ("American Realty"), Atlantic Limited Partnership XII ("Atlantic Limited"), Atlantic XIII, L.L.C. ("Atlantic"), and David M. Clapper ("Clapper") (collectively, "the Defendants") appeal the trial court's grant of summary judgment in favor of Inland Mortgage Corporation ("Inland").

We reverse and remand.

ISSUES

The Defendants raise numerous issues for our review, which we consolidate and restate as Issues I and II below. Art Country Squire and American Realty raise two additional issues, one of which we address and restate as Issue III below¹:

I. Whether the trial court erred in finding as a matter of law that the Installment Note at issue provided for the imposition of a late payment charge on the final balloon payment at the maturity of the loan.

II. Whether the trial court erred in finding as a matter of law that the default interest rate was not an unenforceable penalty.

III. Whether the trial court erred in finding that there was no genuine issue of material fact on the question of whether Inland retained limited partnership interests in satisfaction of the obligations owed to Inland.

FACTS AND PROCEDURAL HISTORY

Atlantic Limited borrowed $2,070,000.00 from Inland. The loan is evidenced by an Installment Note (the "Note") in the principal amount and secured by a "First Mortgage and Security Agreement" on an apartment project located in Marion County, Indiana (the "Property"). The Note calls for monthly payments of interest and a balloon payment of the entire remaining balance on the designated maturity date. In connection with this loan, Clapper executed and delivered to Inland a "Loan Guaranty Agreement," guarantying the payment of the note.

Atlantic assumed the obligations of Atlantic Limited under the Note and related loan documents, and Clapper executed and delivered a "Reaffirmation of Guaranty." A subsequent modification increased the principal amount to $2,238,028.14 and extended the maturity date.

American Realty and certain affiliates entered into an agreement with Clapper and certain entities owned or controlled by Clapper, including Atlantic and Atlantic Limited. Essentially, Clapper and his entities agreed to convey the Property to Art Country Squire. This conveyance occurred at a time when Inland considered the Loan to be in default for various reasons, including waste to the Property. Clapper, Atlantic, Art Country Squire, American Realty, and Inland subsequently executed an "Assumption, Modification, and Extension of Agreement" (the "Extension Agreement"), whereby Inland agreed to again extend the maturity date and forbear from enforcing its rights with regard to the defaults in exchange for promises and covenants contained in the Extension Agreement. Art Country Squire assumed the obligations under the Loan Documents, American Realty executed and delivered a loan guaranty to Inland, and Clapper reaffirmed his prior guaranty.

Art Country Squire and American Realty requested, and were denied, an additional extension of the Loan. Art Country Squire subsequently defaulted on the loan.

Inland filed a complaint seeking, inter alia, a judgment on the Note and foreclosure of the mortgage and security interests on personal property and real estate that constitutes the Property. Inland also requested, and was granted, the appointment of a receiver during the pendency of the action.

Inland subsequently filed a motion for summary judgment and supporting memorandum in which it asserted that there was no genuine issue of material fact and/or that it was entitled to judgment as a matter of law on its claims that it was entitled to (1) a five percent late payment charge on both untimely monthly payments and the unpaid balloon payment, and (2) a default interest rate on both untimely monthly payments and on the unpaid balloon payment. The trial court granted summary judgment, and this appeal ensued.

DISCUSSION AND DECISION

I. APPLICATION OF LATE PAYMENT CHARGE

The Defendants contend that the trial court erred in determining as a matter of law that the Note and related documents mandated that a five percent late payment charge be applied to both the late monthly payments and the unpaid balloon payment. The Defendants, except for Art Country Squire and American Realty, argue that the Note and related documents unambiguously mandate that the five percent late payment charge is to be applied only against untimely monthly payments.²

The determination of whether a contract is ambiguous is a question of law for the court; thus, it is a question for which summary judgment is particularly appropriate. Hagerman Construction, Inc. v. Copeland, 697 N.E.2d 948, 962 (Ind. Ct.App.1998), amended on rehearing, trans. denied. In interpreting an unambiguous contract, we give effect to the intentions of the parties as expressed in the four corners of the document. Kaghann's Korner, Inc. v. Brown & Sons Fuel Co., Inc., 706 N.E.2d 556, 565 (Ind. Ct.App.1999), clarified on rehearing, 711 N.E.2d 1286 (Ind.Ct.App.1999). Clear, plain, unambiguous terms are conclusive of that intent. Id. We will neither construe clear and unambiguous provisions nor add provisions not agreed upon by the parties. Id. The meaning of a contract is to be determined from an examination of all of its provisions, not from a consideration of individual words, phrases, or even paragraphs read alone. Eck & Associates, Inc. v. Alusuisse Flexible Packaging, Inc., 700 N.E.2d 1163, 1167 (Ind.Ct.App.1998), trans. denied. In the absence of anything to indicate a contrary intention, we will consider writings executed at the same time and relating to the same transaction. Salcedo v. Toepp, 696 N.E.2d 426, 435 (Ind.Ct.App.1998). We review questions of law under a de novo standard and owe no deference to a trial court's legal conclusions. Wayne Metal Products Co., Inc. v. Indiana Department of Environmental Management, 721 N.E.2d 316, 317 (Ind.Ct. App.1999), trans. denied.

The Note provides:

All monthly payments shall be due and payable on the first day of the month. If any payment due hereunder is not made on or before the 10th day after the date such payment is due, a late payment charge equal to 5% of the delinquent payment shall be due and payable and the interest rate hereunder shall increase to the Default Rate on the entire outstanding principal sum and all accrued and unpaid interest thereon effective the date such payment was due until such default in payment is cured, which cure will include, but not be limited to, payment of such increased interest and the late payment charge.

(R. 26).

The opening sentence of the paragraph, typically called the "topic sentence," indicates that the paragraph will address the topic of monthly payments. Neither the topic sentence nor any other sentence in the paragraph makes reference to the balloon payment. The second sentence, which imposes the late payment charge, must be read to apply only to the topic of the paragraph, i.e., monthly payments. This conclusion is buttressed by the final portions of the second sentence, which provides that the default interest rate will be imposed only "until such default in payment is cured," contemplating that, thereafter, the interest rate would revert to the contract rate of interest. This portion of the sentence would make no sense if applied to the balloon payment because there would be no accrual of interest, and thus no reversion to the contract rate, after payment of the balloon amount is made.

Inland claims that this paragraph in the Note must be interpreted in light of Paragraph 43 of the Mortgage, a claim to which we agree. This paragraph, entitled "Late Payment, Mortgagee's Rights," provides:

If Mortgagor is late in the making of any payment due under the Note secured hereby, Mortgagee shall have the right to increase the interest rate under the Note to the greater of the (i) Wall Street Journal Prime Rate plus eight percent (8%) per annum, or (ii) eighteen percent (18%) per annum until the default in payment is cured, charge a late payment equal to five percent (5%) of the delinquent payment and accelerate the principal balance and all accrued and unpaid interest due under the Note, all as provided in the Note.

(R. 55).

This paragraph gives Inland, in the event of a late payment, the right to (1) charge default interest, (2) impose a five percent late payment charge, and (3) accelerate the principal and all accrued and unpaid interest. Acceleration has no application to the final balloon payment because all principal and interest would already be due. Accordingly, this paragraph, like the aforementioned paragraph in the Note, applies only to untimely monthly payments.

Inland also claims that the term "any payment" in the second sentence of the Note, and presumably the term as used in Paragraph 43 of the Mortgage, must be interpreted to refer to the balloon payment because "[i]t is clear from an examination of the entire Note that when the parties thereto meant only the monthly payments they said `monthly payment,' when they meant `balloon payment' they used the term `balloon payment,' and...