Gaddis v. Stardust Hills Owners Ass'n, Inc.

• Decision Date: 04 March 2004
• Docket Number: No. 67A01-0309-CV-347.,67A01-0309-CV-347.
• Parties: Phyllis GADDIS, Appellant-Defendant, v. STARDUST HILLS OWNERS ASSOCIATION, INC., Appellee-Plaintiff.
• Court: Indiana Appellate Court

804 N.E.2d 231

Phyllis GADDIS, Appellant-Defendant, v. STARDUST HILLS OWNERS ASSOCIATION, INC., Appellee-Plaintiff.

No. 67A01-0309-CV-347.

Court of Appeals of Indiana.

March 4, 2004.

Richard Lorenz, Hickam & Lorenz, Cloverdale, IN, Robert C. Price, Price & Runnells, Bloomington, IN, Attorneys for Appellant.

Barbara Webb Clements, Stewart & Irwin, P.C., Indianapolis, IN, Attorney for Appellee.

OPINION

BAKER, Judge.

Appellant-defendant Phyllis Gaddis appeals the small claims judgment entered against her and in favor of appellee-plaintiff Stardust Hills Owner's Association, Inc. (Association), a non-profit Indiana corporation. Specifically, Gaddis contends that the delinquent fee charged for late payment of membership dues constitutes usurious interest, and, in the alternative, that the delinquent fee is an unenforceable penalty.¹ Finding that the delinquent fee is neither usurious interest nor a penalty, we affirm.

FACTS

According to the Association's bylaws, every homeowner in the Putnam County subdivision known as Stardust Hills must be a member of the Association, and he must pay annual dues. The Association assesses $200 per year of dues for the maintenance of common areas and other community services. There is a ten-day grace period for payment, after which the amount of the unpaid annual obligation "shall bear a delinquent fee at a rate of $2.00 per day from the date of said delinquency." Appellant's App. p. 125. The rules and regulations of the Association further provide that "[t]he Association will take legal action to place a lien on each and every property for which payment is not made by the designated time," and "[a]ny Member ... who defaults in payment of an obligation due to the Association will be responsible for all attorney fees and any other reasonable costs of collection incurred by the Association in the collection of such amounts, all without relief from valuation or appraisal laws." Appellant's App. p. 125.

Gaddis owned one lot in Stardust Hills in her own name, and apparently held joint title with her husband to another lot in the neighborhood. Gaddis did not pay on time the annual dues on the lot that she owned in her name only. Twenty-one days and forty-two dollars in delinquent fees after the payment was due, Gaddis signed an agreement with the Association that she would pay her dues in installments on the first of each month. The contract also stated, "If I fail to pay the balance within 10 days, I will be subject to late charges and if I still do not pay, the matter will be filed in small claims court, and all court costs will be added to my balance." Appellant's App. p. 5. At the time she signed the contract, Gaddis also paid $100 of her annual dues. Gaddis failed to make any of the scheduled payments, and, after the first installment was due, the Association resumed charging the per diem late fee on June 12, 2002.

On August 2, 2002, the Association filed a small claim action against Phyllis for non-payment of her annual dues. The trial was held on April 4, 2003, and the trial court entered judgment against Gaddis finding, "that Plaintiff has met its burden of proof and [the court] enters judgment in its favor and against Defendant in the amount of $58.00 plus $42.00 court costs for a total judgment of $100.00. Defendant's counterclaim is denied. The Clerk of the Court is ordered to remit to Plaintiff the sum of $142.00 held in trust."² Gaddis now appeals.

DISCUSSION AND DECISION

I. Usurious Interest

Gaddis first contends that the delinquent fee at issue is usurious interest. Specifically, she contends that the Association essentially charges one percent interest per day in perpetuity for unpaid dues, which is against public policy and is in excess of the statutorily allowed interest rate for loans.

Initially, we note that "judgments in small claims actions are `subject to review as prescribed by relevant Indiana rules and statutes.'" Wehry v. Daniels, 784 N.E.2d 532, 534 (Ind.Ct.App.2003) (quoting S.C.R. 11(A)). When reviewing claims tried by the bench without a jury, we will not set aside the judgment "unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." Id. (quoting T.R. 52(A)). In determining whether a judgment is clearly erroneous, we neither reweigh the evidence nor assess the credibility of witnesses. Id. Rather, we look to the evidence that supports the judgment and the reasonable inferences to be drawn therefrom. Id.

A judgment in favor of a party having the burden of proof will be affirmed if the evidence was such that a reasonable trier of fact could conclude that the elements of the party's claim were established by a preponderance of the evidence. Id. This deferential standard of review is especially important in small claims actions where trials are "informal, with the sole objective of dispensing speedy justice between the parties according to the rules of substantive law." Id. (quoting S.C.R. 8(A)). We note that the Articles of Incorporation and Bylaws of a non-profit corporation constitute a contract between the corporation and its members and among the members themselves. Lynn v. Windridge Co-Owners Assoc., Inc., 743 N.E.2d 305, 313 (Ind.Ct.App.2001). A party who fails to make payments as required by a contract is guilty of a breach thereof. Henthorne v. Legacy Healthcare, Inc., 764 N.E.2d 751, 758 (Ind.Ct.App.2002).

Gaddis argues that the delinquent fee is against public policy "because the obligors on these debts can lose their homes for the sake of the payment of outrageous interest rates." Appellant's Br. p. 13. Contrary to Gaddis's assertion, the rules and regulations do not provide the Association with an automatic security interest in the home of each member of the Association. They merely inform the homeowners that the Association has the right to seek a lien against their home through the judicial process. Moreover, there is no indication in the record that Gaddis or any homeowner in Stardust Hills was in danger of losing his or her home over a potential $200 lien for unpaid dues. Thus, Gaddis has failed to demonstrate how the delinquent fee contravenes public policy.

We addressed the issue of a one percent per day late fee in Gershin v. Demming, 685 N.E.2d 1125 (Ind.Ct.App.1997). In that case, a landlord charged a late fee of "1% of monthly rent due, per day, including Saturday and Sunday" for unpaid rent. Id. at 1130-31. The tenants in that case argued that this punished them with an interest rate of 365 percent per year on unpaid rent, noting that such a rate far exceeds the maximum allowable rate for consumer credit transactions under the Uniform Consumer Credit Code. See Ind. Code § 24-4.5-2-201. In upholding the late fee, we noted:

the late fee is intended to compensate Landlord for the administrative expense and inconvenience associated with untimely rent, including late payment notices and additional bookkeeping, and for the loss of use of rental income. Landlords in residential leases typically have mortgage payments, real estate taxes, insurance, maintenance and other expenses required to maintain the leased property. Delinquent rent not only results in a loss of use, measured as interest, but also interrupts normal cash flow and may affect a landlord's ability to meet its operating expenses. The severity of this interruption is a function of both the amount of rent owed and the duration that rent remains past due. The greater the amount of late rent and the longer the rent remains past due, the greater the adverse impact on the landlord's business.... While here the total of $975.00 in late fees might seem high, it represents 75 days of late rent. This accumulation of late fees occurred only because the tenants repudiated the lease and committed an anticipatory breach. We cannot say under the circumstances of this case that such a fee is grossly disproportionate to Landlord's loss resulting from 75 days of delinquent rent or that the fee is an unenforceable

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