Keybank Nat. Ass'n v. NBD Bank
| Citation | 699 N.E.2d 322 |
| Decision Date | 18 September 1998 |
| Docket Number | No. 55A01-9802-CV-53,55A01-9802-CV-53 |
| Parties | KEYBANK NATIONAL ASSOCIATION, Appellant-Plaintiff, v. NBD BANK, f/k/a The Indiana National Bank, Associated Property Services, Inc., and Frazier Farms, Ltd., Appellees-Defendants. |
| Court | Court of Appeals of Indiana |
Appellant-Plaintiff Keybank National Association ("Keybank") appeals the judgment, after a trial before the bench, that a mortgage held by Appellee-Defendant NBD Bank ("NBD") had priority over a mortgage held by Keybank. We reverse.
Keybank raises four issues which we restate and consolidate into two as follows:
I. Whether the trial court's determination that Keybank's mortgage was a nullity was clearly erroneous.
II. Whether Keybank qualified as a bona fide purchaser in good faith without notice such that its mortgage had priority over the NBD mortgage which had been recorded outside the chain of title.
The operative facts are not disputed. The parcel of real estate which is the subject of this dispute is known as the "Toole Real Estate" and is identified by the following legal description (pertinent part only): "Sections 13 and 14, Township 12 North, Range 1 West. " (R. 373) (emphasis added). In 1985, John V. and Geneva P. Loudermilk ("Loudermilk") obtained the property by a deed which was properly recorded in the Recorder's office. (R. 373).
Later in 1985, Loudermilk executed a promissory note in the principal amount of $2,100,000.00. (R. 373). The note was secured by a mortgage on the Toole Real Estate given to NBD. (R. 373). However, the NBD mortgage contained the following erroneous legal description: "Sections 13 and 14, Township 12 North, Range 1 East." (R. 373) (emphasis added). The legal description described an existing parcel of real estate which Loudermilk did not own. (R. 373). The mortgage was indexed in the Recorder's office consistent with the legal description contained in the mortgage and, thus, out of the chain of title of the Toole Real Estate. (R. 373).
In 1990, Loudermilk conveyed the Toole real estate, together with an additional parcel of real estate to Frazier Farms, LTD ("Frazier"). (R. 373). The deed representing this conveyance contained the correct legal description and was recorded in 1990. (R. 373).
In 1992, Frazier quitclaimed a parcel of real estate which included a portion of the Toole real estate to Loudermilk's son, Tracy Loudermilk ("Tracy"). (R. 374, 940). The address of this property was 3345 Pitkin Road and the correct legal description was "Sections 13 and 14 Township 12 North, Range 1 West." (R. 393, 940). The quitclaim deed representing this conveyance contained the following erroneous legal description: "Sections 13 and 14 Range 12 North, Range 1 West." (R. 374, 380) (emphasis added). This quitclaim deed was recorded in 1992. (R. 374, 940). The deed was recorded in the Toole Real Estate chain of title despite the error in the legal description because there are no properties identified by two range designations and, thus, it was obvious from the face of the deed that the Range 12 North should have read Township 12 North. (R. 933, 940).
In 1994, Tracy executed a promissory note in favor of Keybank in the amount of $92,050.00. (R. 374). Tracy executed a mortgage in favor of Keybank to secure the note. (R. 374). The Keybank mortgage contained the same error in the legal description as the quitclaim deed. (R. 374). The Keybank mortgage was recorded in 1994. (R. 374). Again, the mortgage was recorded within the Toole Real Estate chain of title despite the defect in the legal description. (R. 883).
Later in 1994, Tracy filed for relief under Chapter 7 of the United States Bankruptcy Code. (R. 374). In 1995, Keybank initiated the present foreclosure action seeking to execute upon its mortgage. (R. 15-25). Neither NBD or Keybank discovered the errors in their respective mortgages. (R. 374-75). Instead, the trial court discovered the errors during the course of these proceedings. (R. 374-75).
After a bench trial, the trial court determined that Tracy's quitclaim deed and Keybank's mortgage were a nullity due to the error in the legal description. (R. 377-78). Accordingly, the trial court determined that NBD's mortgage had priority over Keybank's mortgage. (R. 379). This appeal followed.
On appeal of claims tried by the court, the appellate court will not set aside the judgment unless it is clearly erroneous. Ind. Trial Rule 52(A). In reviewing the judgment, we must first determine whether the evidence supports the findings and second, whether the findings support the judgment. Breeden v. Breeden, 678 N.E.2d 423 425 (Ind.Ct.App.1997). The judgment is clearly erroneous only when the judgment is unsupported by the findings of fact and conclusions entered on the findings. Id. Findings of fact are clearly erroneous only when the record lacks any evidence to support them. Id. In reviewing the findings and judgment entered by the trial court, we consider only the evidence favorable to the judgment and all reasonable inferences flowing therefrom, and we will not reweigh the evidence or assess witness credibility. Id. When the trial court enters findings on its own motion (as in the present case), specific findings control only as to issues they cover while a general judgment standard applies to any issue upon which the court has not found. Matter of Estate of Burmeister, 621 N.E.2d 647, 649 (Ind.Ct.App.1993). The reviewing court will affirm if the judgment can be sustained on any legal theory supported by the evidence most favorable to the judgment, together with all reasonable inferences to be drawn therefrom. Klebes v. Forest Lake Corp., 607 N.E.2d 978, 982 (Ind.Ct.App.1993), trans. denied. Where trial court findings on one legal theory are adequate, findings on another legal theory amount to mere surplusage and cannot constitute the basis for reversal even if erroneous. Williams v. Rogier, 611 N.E.2d 189, 196 (Ind.Ct.App.1993), trans. denied; Donavan v. Ivy Knoll Apartments Partnership, 537 N.E.2d 47, 52 (Ind.Ct.App.1989).
In order for a mortgage to be effective, it must contain a description of the land intended to be covered sufficient to identify it. In re Dunn, 109 B.R. 865, 873 (Bkrtcy.N.D.Ind.1988) (). The test for determining the sufficiency of a legal description is whether the tract intended to be mortgaged can be located with certainty by referring to the description. Matter of Estate of Lawrence, 565 N.E.2d 357, 359 (Ind.Ct.App.1991). In Lawrence, the legal description contained an error such that the area described encompassed more property than the landowner owned. Id. We held that the description was sufficient to establish the lien over the landowner's property because the tract intended to have been mortgaged fell within the description. Id. In Hannon v. Hilliard, 101 Ind. 310 (1884), a mortgage which erroneously read "the west part of the north east half of the northwest quarter ..." where only the word "north" should not have been inserted before "east half of the northwest quarter" was sufficient to describe the property in question because no ambiguity existed regarding what parcel of property the parties had intended, nor did the description describe property other than that intended. Id. at 311-12, 315.
The same result obtains in the present case with respect to the Keybank mortgage because the error in the legal description was obvious on its face and had not caused ambiguity regarding the property intended to have been described. The error was obvious because it is axiomatic that a legal description cannot have two "Range" designations. Furthermore, it was obvious that the Township designation had been omitted and, therefore, the extra Range designation had been accidentally substituted for the Township designation. Therefore, the Keybank mortgage was valid because the precise tract intended, the 3345 Pitkin Road property, could be located despite the typographical error in the legal description. Moreover, the mortgage had been properly recorded within the chain of title despite the error. Accordingly, the trial court's determination that the error in the Keybank mortgage rendered it a nullity was clearly erroneous.
As stated in 25 I.L.E. Sales of Realty § 101:
The doctrine of equity by which protection is afforded to a bona fide purchaser against prior equities of which he has no notice is based on the theory that, in reliance on the legal title, he has parted with a consideration of value or divested himself of some legal right or been induced to change his condition so that a deprivation of the legal title would work him injustice.
In order to qualify as a bona fide purchaser, one has to purchase in good faith, for a valuable consideration, and without notice of the outstanding rights of others. Id.; John v. Hatfield, 84 Ind. 75, 81-82 (1882). The theory behind the bona fide purchaser defense is that every reasonable effort should be made to protect a purchaser of legal title for a valuable consideration without notice of a legal defect. Lamb v. Lamb, 569 N.E.2d 992, 994 (Ind.Ct.App.1991).
The purpose of the recording statute, IND.CODE § 32-1-2-16, is to provide protection to subsequent purchasers, lessees, and mortgagees. Szakaly v. Smith, 544 N.E.2d 490, 491 (Ind.1989). Instruments will have priority according to the time of the filing thereof. Id. A record outside the chain of title does not provide notice to bona fide purchasers for value. Id. The recording of an instrument in its proper book is fundamental to the...
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