Loving v. Ponderosa Systems, Inc.

• Decision Date: 07 February 1983
• Docket Number: No. 1-482A93,1-482A93
• Citation: 444 N.E.2d 896
• Parties: Edwin N. LOVING and Joan C. Loving, Appellants (Cross-Claimants, and Counterdefendants), v. PONDEROSA SYSTEMS, INC., Appellee (Cross-Defendants, and Counterclaimant).
• Court: Indiana Appellate Court

Page 896

444 N.E.2d 896

Edwin N. LOVING and Joan C. Loving, Appellants (Cross-Claimants, and Counterdefendants), v. PONDEROSA SYSTEMS, INC., Appellee (Cross-Defendants, and Counterclaimant).

No. 1-482A93.

Court of Appeals of Indiana,

First District.

Feb. 7, 1983.

Max W. Hittle, Jr., R. Matthew Neff, Krieg, DeVault, Alexander & Capehart, Indianapolis, William H. Andrews, Baker, Barnhart & Andrews, Bloomington, for appellants.

James A. Strain, Stephen W. Lee, Barnes & Thornburg, Indianapolis, for appellee.

RATLIFF, Judge.

STATEMENT OF CASE

Edwin N. Loving and Joan C. Loving appeal the trial court's setting aside of its earlier order granting partial summary judgment wherein the court determined that the First National Bank of Bloomington was entitled to apply certain fire insurance proceeds to retire the amount of the Lovings' mortgage indebtedness. We reverse.

FACTS

In 1972 the Lovings purchased a parcel of real estate located in Bloomington, Indiana, from Ponderosa Systems, Inc. The Lovings financed this transaction by means of a note and mortgage from the First National Bank of Bloomington. The Lovings then leased the property by means of a "triple net" commercial lease to Ponderosa for a period of twenty-five years. On December 10, 1979, the Ponderosa restaurant was destroyed by fire. Ponderosa ceased making rental payments as provided by the lease and began to rebuild. Bender Lumber Company filed its mechanic's lien against the real estate in the amount of $2,003.94 on December 31, 1979. Other contractors filed additional mechanics' liens totalling $50,891.48 against the real estate in January 1980, and still other liens were filed in February and March. Lovings made mortgage payments on the property through February 6, 1980. However, after that date they made no further mortgage payments stating that they were unable to make them because they were no longer receiving rental payments from Ponderosa and that the Bank agreed to their action because it expected to receive the insurance proceeds in the amount of the indebtedness. On March 14, 1980, the Bank wrote to the Lovings demanding that the insurance proceeds be applied to the mortgage indebtedness and sent a similar letter to Ponderosa on March 28, 1980. Ponderosa took the position that the insurance proceeds should be used for purposes of rebuilding. On June 6, 1980, the Bank filed its complaint against Lovings, Ponderosa, and construction lienholders on theories of foreclosure and entitlement to the insurance proceeds. The Lovings cross-complained against Ponderosa, and Ponderosa counterclaimed against the Lovings.

On July 29, 1980, the parties entered into an agreement providing for a release of the insurance proceeds of $472,417.00 to Ponderosa for rebuilding costs, except for $175,000 which the Bank retained pending resolution of the lawsuit and with the stipulation that Ponderosa pay all contractors and materialmen who had filed liens against the premises. On March 19, 1981, the trial court made the following entry of summary judgment, entering final judgment thereupon on April 16, 1981:

"ORDER GRANTING PARTIAL SUMMARY JUDGMENT

The Court, having had under advisement defendants Lovings' Motion For Summary Judgment, and having considered the pleadings, affidavits and exhibits pertaining thereto, and having heard the arguments of counsel, and being now duly advised in the premises, FINDS:

(1) That in June and July of 1972 defendants Loving, defendant Ponderosa Systems, Inc., and plaintiff First National Bank of Bloomington, entered into various agreements constituting a single transaction whereby (a) defendants Loving purchased the land and building located at 520 South Walnut Street, Bloomington, Indiana, utilized as a Ponderosa Steak House, (b) defendants (2) That the mortgage agreement between plaintiff Bank and defendants Loving required defendants Loving to "keep all buildings which are now or may hereafter be upon the premises unceasingly insured for their full insurable value against loss or damage from fire and tornado in insurance companies acceptable to the Mortgagee and (to) deliver such policies to it, with satisfactory mortgage clause attached", and further that "In case of loss, the insurance money shall be applied upon the indebtedness, in such manner as the Mortgagee may elect, even though the same is not yet due, or at Mortgagee's option may be released to the Mortgagor for the purpose of making repairs or improvements upon said property satisfactory to the Mortgagee";

Loving borrowed the purchase price from plaintiff Bank, securing the same with a first mortgage in favor of the plaintiff Bank, (c) defendants Loving leased the premises back to defendant Ponderosa, and (d) defendant Ponderosa and defendants Loving executed a conditional assignment of rents to plaintiff Bank to further secure the mortgage loan;

(3) That the lease agreement entered into by defendants Loving and defendant Ponderosa required defendant Ponderosa to "obtain and maintain fire and extended coverage insurance on the building or buildings on the leased premises, and appurtenances thereto, for the benefit of and payable to the Landlord, Tenant, and Landlord's mortgagee, if any, as their interests may appear in an amount equal to the replacement value less foundations, excavations, underground utilities, slab and slab coverings. Any and all insurance companies providing the required fire and extended coverage must be acceptable to Landlord's mortgagee" and further that "1) In the event of any damage or destruction to improvements on the leased premises during the initial fifteen (15) years of this Lease, the Tenant shall forthwith repair the damages or destroyed improvements, and complete the same as soon as reasonably possible to the condition they were in prior to such damage or destruction, except for such changes in design or materials as may then be required by law. 2) The Landlord, in such event, shall, to the extent and at the times the insurer and the Landlord's mortgagee make the proceeds of the insurance available for such purposes, reimburse the Tenant for the costs of making such repairs, restoration, rebuilding and replacements; provided, further, that said reimbursements need be made only under such conditions that the Landlord and its mortgagee are assured that at all times the leased premises shall be free of liens or claims of liens by reason of such work, and, provided, further, that the portion of the proceeds paid out at any time shall not exceed the value of the actual work and materials incorporated in the repaired, restored, rebuilt or replaced premises. To the extent, if any, that the proceeds of insurance made available for such purposes are insufficient to pay the entire costs of making such repairs, restorations, rebuilding and replacements, the Tenant shall bear such costs. All repairs and restoration must be completed within six (6) months of the availability of the insurance proceeds. The rental provided for herein shall be decreased in an amount proportionate to the actual portion of the premises rendered unusable by any damage or destruction. It being understood that in the event of total destruction, the rent shall abate completely until the premises are restored. In the event of such total destruction and rental abatement, the term of the Lease shall be extended for a period equal to the time during which the premises are unusable and the rent is abated";

(4) That the conditional assignment of rents expressly provided that "execution of this assignment, however, shall not impair, effect or modify any of the terms or conditions of said Real Estate Mortgage Note and/or said Real Estate Mortgage" and further that "Ponderosa System, Inc., ... is made a signatory hereto and by its execution of this document acknowledges its presence and subordinates its interest in said premises to the mortgagee, First National Bank of Bloomington";

(5) That defendant Ponderosa thereafter insured the premises against fire, obtaining (6) That on December 10, 1979, the premises were destroyed by fire;

a policy for same from Lexington Insurance Company on March 20, 1978, covering a period ending on March 1, 1981, the certificate therefor naming defendant Ponderosa as the insured and defendants Loving as an additional insured, said policy further including a Standard Mortgage Clause providing that "loss or damage, if any, under this policy, shall be payable to First National Bank of Bloomington, Bloomington, IN., mortgagee (or trustee) as interest may appear";

(7) That thereafter defendant Ponderosa ceased paying rent to defendants Loving, defendants Loving ceased making mortgage payments to plaintiff Bank, and defendant Ponderosa began to rebuild the premises, employing various contractors and materialmen as necessary;

(8) That on June 6, 1980, plaintiff Bank filed under the within cause number its complaint to foreclose on its mortgage;

(9) That on June 19, 1980, Lexington Insurance Company issued its draft in the amount of Four Hundred Seventy-Two Thousand, Four Hundred Seventeen Dollars and No Cents ($472,417.00) pursuant to its obligation under the above-mentioned insurance policy;

(10) That thereafter a dispute arose between plaintiff Bank, defendants Loving and defendant Ponderosa as to who was entitled to said insurance proceeds;

(11) That thereafter, on July 29, 1980, plaintiff Bank, defendants Loving and defendant Ponderosa entered into an agreement providing for release of the insurance proceeds to defendant Ponderosa for application to rebuilding costs, save for the sum of One Hundred Seventy-Five Thousand Dollars and No Cents ($175,000.00) which plaintiff Bank retained pending determination of the within cause of action, all subject to the requirement that the released insurance proceeds be used by defendant Ponderosa initially to pay all contractors and materialmen employed to rebuild the premises;

(12) That the...