Muncie Indus. Revolving Loan Fund Bd. v. Indiana Const. Corp., 27A02-9101-CV-19

• Decision Date: 30 December 1991
• Docket Number: No. 27A02-9101-CV-19,27A02-9101-CV-19
• Parties: MUNCIE INDUSTRIAL REVOLVING LOAN FUND BOARD, Appellant-Plaintiff, v. INDIANA CONSTRUCTION CORPORATION, Appellee-Defendant.
• Court: Indiana Appellate Court

Page 769

583 N.E.2d 769

MUNCIE INDUSTRIAL REVOLVING LOAN FUND BOARD, Appellant-Plaintiff, v. INDIANA CONSTRUCTION CORPORATION, Appellee-Defendant.

No. 27A02-9101-CV-19.

Court of Appeals of Indiana,

Second District.

Dec. 30, 1991.

Rehearing Denied Jan. 29, 1992.

Ronald K. Smith, Muncie, for appellant-plaintiff.

H. John Okeson, Michael L. James, Baker & Daniels, Fort Wayne, for appellee-defendant.

SULLIVAN, Judge.

Muncie Industrial Revolving Loan Fund Board (Board) appeals the trial court's grant of summary judgment in favor of Indiana Construction Corporation (ICC).

We affirm.

Muncie presents several issues for our review, which we restate:

I. Whether a government agency is estopped from pursuing collection of a perfected, unreleased security interest in accounts receivable from a third party, if the agency's representative indicated by letter to the third party that the agency would not seek collection of its interest in the accounts receivable?

II. Whether the representative had authority to speak for the Board when he informed ICC that the City no longer wished to pursue its security interest in the funds owed by ICC to Creative Components, Inc.;

III. Whether the Board waived its claim against ICC by failing to pursue its claim in a timely fashion?

In April, 1986, the Board loaned funds to Creative Components, Inc. (Creative) from the Muncie Industrial Revolving Loan Fund (Loan Fund). The loan was to be repaid in nine months. The Loan Fund is a governmental fund source created by city ordinance and established for the purpose of making loans to local businesses in order to promote local industrial development. As collateral for its loan, Creative gave the Board a security interest in certain contract rights then held by Creative, including a March 26, 1985 purchase order issued to Creative by ICC.

The Loan Fund is administered by the Board. The Board's composition is defined by ordinance. Generally, an individual becomes a member in one of two ways: 1) he or she is chosen expressly to serve on the Board; or 2) membership on the Board is automatically conferred by virtue of holding certain designated positions or offices within the city government. One of the members of the Board was Patrick Murray (Murray), who served as Administrator of the Loan Fund, and who worked in that capacity with respect to the Creative loan. Murray was a member of the Board by virtue of his appointment as Director of Community Development.

In a January 8, 1987 letter, written on City of Muncie letterhead, Murray informed ICC Vice-President Harry Okeson (Okeson) that Creative was delinquent on its loan repayment obligations to the Loan Fund and advised that the Board would exercise its right to Creative's ICC accounts receivable. Murray signed in his capacity as Administrator of the Muncie Revolving Loan Fund.

In a March 23, 1987 letter, written on her own private letterhead, attorney Barbara Hines, in her capacity as Assistant City attorney, formally requested that ICC pay to the City of Muncie any monies due and owing Creative. The next contact with ICC regarding the Creative account was the following April 29, 1987 letter from Murray, written on City of Muncie letterhead "Dear Mr. Okeson,

Today, the Mayor of the City of Muncie and myself, met with representatives of Creative Components, Inc. This meeting was to reach an agreement on the disposition of an existing arrangement between the City and Creative Components.

The Mayor has stated that:

The City has no desire to continue to intervene in the private matters between Creative Components and their customers and therefore has no intention of pursuing any effort to incumber funds now due and payable to Creative Components.

Your cooperation in this matter has been greatly appreciated.

Sincerely,

/S/ Patrick Murray

Patrick Murray, Director

Community Development"

Record at 111.

ICC subsequently paid to Creative $100,000.00 on May 8, 1987 and $5,000.00 on November 25, 1987.

In a January 13, 1988 letter, the Board informed ICC that the April 29 letter did not accurately state the City's position with regard to the loan. The January 13 letter also stated that the Board would "make whatever efforts are necessary to secure collection of Creative Components' [sic] obligations, including collection of the accounts receivable." Record at 179. ICC refused to pay, citing the April 29 letter from Murray as the basis for its refusal.

The Board subsequently filed suit against Creative and ICC in an effort to recover Creative's unpaid loan obligation to the Fund. A default judgment was entered against Creative, which had not entered an appearance or filed an answer. ICC answered, alleging that the Board was estopped from demanding payment because of the April 29 letter from Murray. ICC then filed a Motion for Summary Judgment, which the court granted. The Board appeals the grant of summary judgment in ICC's favor.

The court of appeals stands in the shoes of the trial judge when reviewing grants of summary judgment. Boucher v. Exide Corp. (1986) 2d Dist. Ind.App., 498 N.E.2d 402, trans. denied. We must determine whether there exist any genuine issues of material fact and whether the trial court correctly applied the law, resolving any doubts in favor of the non-moving party. Lavery v. Southlake Center for Mental Health (1991) 3d Dist. Ind.App., 566 N.E.2d 1055.

I. Estoppel

The court below granted summary judgment on the ground that the Board was estopped to assert its security interest after Murray disavowed it. Courts unanimously state, and the Board correctly notes, that estoppel is not applicable as against a government entity in the same way as against a private party. There is, however, a seeming lack of unanimity regarding the parameters of estoppel when it is applied to a government entity. The general rule is that the government cannot be estopped by the actions of public officials. Samplawski v. City of Portage (1987) 3d Dist. Ind.App., 512 N.E.2d 456, 459. If estoppel were widely available against the government in such situations, dishonest, incompetent, or negligent public officials and workers could damage the interests of the public. Indeed, the government itself might even be precluded from functioning. Id. However, this general rule has been subject to exceptions.

The elements of promissory estoppel are clear: the party asserting estoppel must prove: 1) that there was a promise 2) which the promisor should reasonably expect would induce action or forbearance of a definitive and substantial character, 3) and which does in fact induce such action or forbearance, and 4) injustice can only be avoided by the enforcement of the promise. Woodall v. Citizens Banking Company (1987) 4th Dist. Ind.App., 507 N.E.2d 999, 1000. In addition, the party asserting estoppel must prove that such reliance was to its detriment. Hearing and Speech Clinic of Evansville, Inc. v. Indiana Department of Welfare, Medicaid Division (1984) 4th Dist. Ind.App., 466 N.E.2d 462. Most importantly, especially in claims of estoppel against the government, the seeking party must show that estoppel is not inconsistent with the public interest. Cablevision of Chicago v. Colby Cable Corp. (1981) 4th Dist. Ind.App., 417 N.E.2d 348. The public interest must be weighed and balanced as against the equities of the circumstances. Id.

In the instant case, with the Mayor's approval, Murray informed ICC via the April 29 letter. This letter constituted a promise on the City's part that it would not assert its interest in the Creative purchase order. The letter resulted from a meeting between the Mayor and representatives of Creative and although the letter was sent without the Board's authority, this fact was not known to ICC. It may reasonably be assumed that it was sent for the purpose of inducing, or at least permitting, ICC to pay its obligation to Creative without fear of liability to the Board, and the City should reasonably have expected that ICC would act upon the representation contained in the letter. In apparent reliance upon the veracity of the representation made in the letter, ICC did indeed pay its purchase order obligation to Creative and not to the Board. The aforementioned facts establish all four elements necessary for promissory estoppel. Moreover, it is beyond dispute that ICC's reliance and resultant payment was to its own detriment, inasmuch as it will be obligated to pay additional funds to the Board, unless the Board is estopped from asserting its interest.

Our research reveals that the public interest analysis cannot readily be reduced to a list of rules or elements. Rather, the analysis proceeds in a case-by-case fashion, with but a few considerations serving as broad boundaries. Estoppel may be permitted against a governmental entity when its application will not result in the unauthorized or unlawful use of public funds. See, e.g., Cablevision, supra, 417 N.E.2d 348. Estoppel has been permitted when the limitations upon government authority are not clear or when the government takes inconsistent positions at different stages of the same proceedings. Estoppel has not been permitted when public officials and private parties act contrary to well-defined statutory procedures. See, e.g., Cablevision, supra, 417 N.E.2d 348. It therefore seems rarely, if ever, is it in the public interest to estop the government from collecting statutorily-mandated funds, or from refusing to spend public funds contrary to statute or ordinance.

Although the instant dispute involves...