Irish v. Woods

• Decision Date: 24 April 2007
• Docket Number: No. 49A02-0605-CV-439.,49A02-0605-CV-439.
• Citation: 864 N.E.2d 1117
• Parties: John T. IRISH, Appellant-Plaintiff, v. F. Lawrence WOODS, Appellee-Defendant.
• Court: Indiana Appellate Court

864 N.E.2d 1117

John T. IRISH, Appellant-Plaintiff, v. F. Lawrence WOODS, Appellee-Defendant.

No. 49A02-0605-CV-439.

Court of Appeals of Indiana.

April 24, 2007.

Alan S. Brown, Nelson D. Alexander, Locke Reynolds LLP, Indianapolis, IN, Attorneys for Appellant.

Linda L. Pence, R.C. Richmond, III, Sommer Barnard PC, Indianapolis, IN, Attorneys for Appellee.

OPINION

NAJAM, Judge.

STATEMENT OF THE CASE

John T. Irish appeals the trial court's judgment dismissing Count I of his original complaint and Count I of his amended complaint for failure to state a claim upon which relief can be granted under Trial Rule 12(B)(6). Irish raises two issues for our review, which we consolidate and restate as whether the trial court erred when it held as a matter of law that Woods does not have common liability as a cosurety with Irish but is a subsurety under the documents Irish attached to his complaints.

We affirm.

FACTS AND PROCEDURAL HISTORY

In 2000, Irish and F. Lawrence Woods formed Seaton Yacht & Ship, L.L.C. ("the L.L.C."). On September 11, 2001, Woods executed a $400,000 promissory note ("Note I") on behalf of the L.L.C., payable to Old National Bank ("Old National"). Irish and Woods each executed individual guaranties of Note I. Irish's guaranty was unlimited and Woods's guaranty was limited to $125,000. Note I was due in full on May 11, 2002.

On January 25, 2002, on behalf of the L.L.C., Woods renewed and modified Note I by executing a $500,000 promissory note ("Note II"), payable to Old National. Note II included the indebtedness owed under Note I and was also due in full on May 11, 2002. Again, Irish and Woods each executed individual guaranties of Note II. Irish's guaranty was unlimited while Woods's guaranty was capped at $160,000.

On May 11, 2002, on behalf of the L.L.C., Woods renewed and modified Note II by executing yet another promissory note ("Note III") payable to Old National in the principal amount of $492,170.58. In his individual capacity, Irish signed Note III as a "Borrower" along with the L.L.C., although Irish did not personally receive any direct benefit from that Note. Appellant's App. at 39. Note III was due in full on November 30, 2002.

Also on May 11, Woods executed a separate guaranty of Note III. Woods and Old National later agreed to amend that guaranty on August 29. Woods's guaranty of Note III was limited to $160,000, like his guaranty of Note II, but unlike either of his previous guaranties, this last guaranty was a promise to pay "the indebtedness . . . of John T. Irish; and [the L.L.C.]." Id. at 40 (emphasis added). In contrast, Woods had partially guarantied only the indebtedness of the L.L.C. under Note I and Note II. Irish did not sign a separate guaranty of Note III.

The L.L.C. failed to make any payments on Note III, and on January 23, 2003, almost two full months after Note III became due, Irish "purchased"¹ Note III from Old National for $492,170.58, the amount then due on the Note. Id. at 47. Two years later, Irish filed suit against Woods to recover on Woods's guaranty of Note III. Irish attached each note and the corresponding guaranty as an exhibit to both his original complaint and amended complaint. Woods then filed two Trial Rule 12(B)(6) Motions to Dismiss Count I, the first on the original complaint's allegation that Irish and Woods were cosureties, and the second on the amended complaint's allegation that Irish, as "purchaser" and holder of Note III, could pursue collection from Woods on his guaranty. In his motions, Woods maintained that the exhibits to Irish's complaint demonstrated that Irish had failed to state a claim upon which relief could be granted. The trial court dismissed Count I of Irish's original and amended complaints and certified both orders as final judgments.² This appeal ensued.

DISCUSSION AND DECISION

Standard of Review

Irish appeals from the trial court's orders granting Woods's motions to dismiss Count I of the original and amended complaints under Indiana Trial Rule 12(B)(6). A Trial Rule 12(B)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests the legal sufficiency of a claim rather than the facts supporting the claim. Gorski v. DRR, Inc., 801 N.E.2d 642, 644-45 (Ind.Ct.App. 2003). As such, we review de novo a trial court's ruling on a Trial Rule 12(B)(6) motion. Paniaguas v. Endor, Inc., 847 N.E.2d 967, 969 (Ind.Ct.App.2006), trans. denied. Dismissal for failure to state a claim is proper if it is apparent that the facts alleged in the complaint are incapable of supporting relief under any set of circumstances. Gorski, 801 N.E.2d at 644-45.

When reviewing a motion to dismiss for failure to state a claim upon which relief can be granted, this court accepts as true the facts alleged in the complaint. In re Train Collision (Dillon v. Chicago Southshore & South Bend RR. Co.), 670 N.E.2d 902, 905 (Ind.Ct.App.1996), trans. denied, cert. denied, 522 U.S. 914, 118 S.Ct. 299, 139 L.Ed.2d 230 (1997). But a court need not accept as true allegations that are contradicted by other allegations or exhibits attached to or incorporated in the pleading. Rainey v. Nat'l Check Bureau, Inc., 849 N.E.2d 776, 778 (Ind.Ct. App.2006). Further, "[i]t is a well-settled rule that when a written instrument contradicts allegations in the complaint to which it is attached, the exhibit trumps the allegations." N. Ind. Gun & Outdoor Shows v. City of S. Bend, 163 F.3d 449, 454 (7th Cir.1998).³ Indeed, "a plaintiff may plead himself out of court by attaching documents to the complaint that indicate that he or she is not entitled to judgment." Id. at 455 (quoting In re Wade, 969 F.2d 241, 249 (7th Cir.1992)). Nor need a court accept as true conclusory, non-factual assertions or legal conclusions. Richards & O'Neil v. Conk, 774 N.E.2d 540, 547 (Ind. Ct.App.2002).

Irish's Status Under Note III

Before we can address the relationship between Irish and Woods, we must first determine Irish's status under Note III, which designates Irish as a "borrower." Note III begins with the following: "PROMISE TO PAY. John T Irish; and [the L.L.C.] (`Borrower') jointly and severally promise to pay [Old National] . . . the principal amount of [$492,170.58] . . . ." Appellant's App. at 38 (emphases added). A borrower is a principal obligor. See I.C. § 26-1-9.1-102 cmt. 2.a. ex. 3. The language of Note III differs from the language of Note I and Note II, neither of which designates Irish as a borrower. Thus, Irish is a principal obligor in his relationship to Old National under Note III.

But Irish alleges in both complaints that he is also an accommodation party. Where a party places his signature on a note solely for the benefit of another party, and without receiving any direct benefit himself, he is an accommodation party. Whether Irish received any direct benefit as a comaker is a question of fact that would affect our reading of Note III. See First Fed. Sav. Bank v. Key Mkts., Inc., 559 N.E.2d 600, 604 (Ind.1990). Under Trial Rule 12(B)(6), we assume that Irish's allegation is true. Thus, while Irish is a principal obligor vis-à-vis Old National, as an accommodation party he is also a secondary obligor.

An accommodation party is considered a surety. Yin v. Soc'y Nat'l Bank Ind., 665 N.E.2d 58, 64 (Ind.Ct.App.1996), trans. denied. Generally, a "surety," when that term refers to a person, is "a person who is liable for the payment of a debt or performance of a duty of another person." Bailey v. Holliday, 806 N.E.2d 6, 10 n. 1 (Ind.Ct.App.2004) (emphasis removed).⁴ As such, although "[a]n accommodation party may sign the instrument as a maker, drawer, acceptor, or endorser and . . . is obliged to pay the instrument in the capacity in which the accommodation party signs," I.C. § 26-1-3.1-419(b), that liability is only relevant in the event of a default by the accommodated party, see I.C. § 26-1-3.1-419(e). In such event, the accommodation party's suretyship status allows him to seek reimbursement from the accommodated party. Id. As a party with recourse against another party, the accommodation party's suretyship status is equivalent to that of a secondary obligor. See U.C.C. § 3-103(a)(17) (2003).

Here, Irish occupies two legal positions. He is a principal obligor vis-à-vis Old National, but he is a secondary obligor vis-à-vis the L.L.C. Specifically, Note III defines Irish, a comaker on that Note, as a borrower. And the Note states that, as a borrower, Irish is jointly and severally liable with the L.L.C. That is, Irish's liability on Note III is one and the same as the L.L.C.'s liability and, as such, his liability is co-extensive with that of the L.L.C. Thus, from Old National's perspective, the plain terms of Note III make Irish a principal, first-tier obligor. But from the perspective of the L.L.C., Irish is an accommodation party. As an accommodation party, Irish is a "secondary obligor" and has recourse against the L.L.C. See I.C. § 26-1-3.1-419(e). In sum, Irish is a principal obligor to Old National and a secondary obligor to the L.L.C.

The Relationship Between Irish and Woods

Having concluded that, as an accommodation party, Irish is a secondary obligor, we note that Woods, as a guarantor, is also a secondary obligor. Hence, we look to the structure and the circumstances of their transaction to determine the relationship between them. Here, Irish contends that the circumstances were that he and Woods were both members of the L.L.C. and engaged in the same enterprise and, therefore, that they stand on equal footing as secondary obligors on Note III. Irish also contends that "there are no . . . documents supporting any type of agreement — express or implied — . . . indicating Irish was to bear the full cost of performance." Appellant's Brief at 15. But in this transaction, where Irish and the L.L.C. signed Note III and Woods signed a separate guaranty of that Note, the question is whether under the contract documents Woods is...