Noblesville Redevelopment Com'n v. Noblesville Associates Ltd. Partnership

• Citation: 674 N.E.2d 558
• Decision Date: 31 December 1996
• Docket Number: No. 29S02-9509-CV-1094,29S02-9509-CV-1094
• Parties: NOBLESVILLE REDEVELOPMENT COMMMISSION, Appellant (Plaintiff Below), v. NOBLESVILLE ASSOCIATES LIMITED PARTNERSHIP, an Indiana Limited Partnership, Joe Faulkner, Von Blankenbaker, Noblesville Development Company, an Indiana General Partnership, Mercantile Bank of St. Louis National Association, Stop One Holding Corp., Inc. and The Kroger Co., an Ohio Corp., Appellees (Defendants Below).
• Court: Indiana Supreme Court

Page 558

674 N.E.2d 558

NOBLESVILLE REDEVELOPMENT COMMMISSION, Appellant (Plaintiff Below), v. NOBLESVILLE ASSOCIATES LIMITED PARTNERSHIP, an Indiana

Limited Partnership, Joe Faulkner, Von Blankenbaker,

Noblesville Development Company, an Indiana General

Partnership, Mercantile Bank of St. Louis National

Association, Stop One Holding Corp., Inc. and The Kroger

Co., an Ohio Corp., Appellees (Defendants Below).

No. 29S02-9509-CV-1094.

Supreme Court of Indiana.

Dec. 31, 1996.

Jack G. Hittle, Noblesville, for Appellant.

A. Donald Wiles, II, Patricia Polis McCrory, Douglas A. Tresslar, Indianapolis, for Appellees.

SHEPARD, Chief Justice.

Private guarantors who were parties to a tax incremental financing scheme eventually defaulted, and the public body sued the guarantors and the subject real estate to "foreclose a lien." The trial court held that the guaranty was not a lien and entered judgment for the guarantors. The Court of Appeals reversed, holding that the guaranty created an equitable lien. We grant transfer and affirm the trial court.

I. Facts

The well-pleaded facts show that in December 1989 the Noblesville Redevelopment Commission and the Noblesville Redevelopment Authority, existing pursuant to chapters 36-7-14 and 36-7-14.5 of the Indiana Code, respectively, entered into a written agreement with Von Blankenbaker, Joe Faulkner and Noblesville Associates Limited Partnership, (collectively referred to as "the Guarantors" unless a distinction is warranted) to finance a redevelopment project. The project included the extension of Noblesville's Logan Street from State Road 19 to State Road 38.

Financing for the new roadway was planned to occur in three stages. First, the Authority would sell municipal bonds to raise the capital. Second, to repay the bonds, the Authority would lease the lands it acquired in the redevelopment area to the Commission. Finally, the Commission would acquire funds to make its lease payments through various means. One such means was "tax increment financing," by which the increase in tax revenue generated in the redeveloped area is designated towards paying for expenses of the project, in this case towards the lease payments.¹ To insure the Commission's ability to make the lease payments, the Guarantors guaranteed that two parcels of land in one of the redevelopment areas would generate $93,500 in increased tax revenue in 1992.² These parcels were described in "Schedule C," which was attached to the Guaranty Agreement. If the parcels did not generate incremental revenue increases at the guaranteed level, the agreement required the Guarantors to supply the difference.

The parcels did not generate any tax increment at all in 1992. The Commission made a written demand to the Guarantors for $93,500, but the Guarantors defaulted, claiming inability to make the payment. The Commission then filed a two-count complaint in the Hamilton Superior Court. Count I demanded a money judgment against the Guarantors on the grounds that they guaranteed $93,500 in tax increment revenue and failed to remit payment. Count II alleged that the written Guaranty Agreement created a lien on one of the Schedule C parcels the Guarantors owned when the agreement was signed but subsequently transferred to Noblesville Development Company. Count II named Noblesville Development Company and Mercantile Bank of St. Louis³ parties to the action "to assert whatever interest [they] may have in the real estate" (R. at 21). The complaint prayed for an order that would: (1) declare the lien to be valid against the real estate; (2) determine the priority of interests in the real estate; and (3) allow the Commission to foreclose on the lien and sell the property to satisfy the Guarantors' obligation. Per Indiana Trial Rule 9.2(A), the Guaranty Agreement at issue was attached to the complaint and became part of the pleadings.

NDC filed a motion for judgment on the pleadings. It argued that no language in the Guaranty Agreement created a lien on the land as security for the Guarantors' obligations. The Commission responded that factual issues regarding the creation of a lien by the agreement were sufficient at either law or equity to warrant denial of the motion.

At a hearing on NDC's motion, the Commission advanced the same lien argument contained in its response and also argued that the guarantee, if not creating a "lien" per se, created some other kind of "encumbrance or covenant" on the land. The Commission claimed this ethereal encumbrance entitled it to proceed to trial so it could introduce evidence as to what this other "encumbrance" might be. Although the Commission advanced this vague new argument, it did not attempt to amend its complaint to state what this alternative encumbrance might be. Nor did it address what relief might be an appropriate alternative to foreclosure and sale.

Upon the pleadings before it, the trial court found that the Guaranty Agreement did not create a lien, at law or in equity, on NDC's real estate. NDC was thus entitled to a judgment on the pleadings because the Commission could not force a sale of the land to satisfy the obligation of the Guarantors without a lien.

The Commission filed a motion to correct errors. It conceded that the guarantee did not contain language creating a lien. It argued however, that the trial court's judgment was erroneous because Count II had "sought alternate relief" in addition to foreclosure. In its Brief in Support of Motion to Correct Error, the Commission articulated what that alternative relief might be: a covenant running with the land. The trial court, however, denied the Commission's motion.

On appeal, the Commission argued that "whether or not it is labeled as a lien, the guaranty does contain what is in substance a covenant which runs with the land and that the allegations of the complaint permit relief upon this theory." Noblesville Redevelopment Com'n v. Noblesville Associates Ltd. Partnership, 646 N.E.2d 364, 367 (Ind.Ct.App.1995). The panel on appeal staked out three positions, including a declaration that reversal was warranted because "upon the well-pleaded facts, the Commission may be entitled to equitable relief." Id. at 367. The lead opinion mentioned three possible theories of equity under which the Commission might succeed: equitable servitude, equitable lien, and simply the maxim "that is deemed done that ought to be done." Id. at 371. We grant transfer.

II. Standard of Review

A trial court should grant a Trial Rule 12(C) motion for judgment on the pleadings only when it is clear from the face of the pleadings that the plaintiff cannot in any way succeed under the operative facts and allegations made therein. Culver-Union Township Ambulance Service v. Steindler, 629 N.E.2d 1231, 1235 (Ind.1994). When reviewing the grant of a 12(C) motion, the reviewing court accepts as true the well-pleaded material facts alleged in the complaint, id., and "is confined solely to the pleadings to make [its] determination." Gregory & Appel, Inc. v. Duck, 459 N.E.2d 46, 49 (Ind.Ct.App.1984). Therefore, our review of the trial court's decision is based upon the complaint, answers, and Guaranty Agreement, and not on extraneous material alleged after the pleadings closed.

III. The Guaranty Agreement Did Not Create a Lien

Well-settled Indiana law holds that a trial court determines the force and effect of a written instrument. Leviston v. Junction Railroad Co., 7 Ind. 597 (1856). When there is no conflicting evidence relating to the construction of a written instrument, a court may direct a verdict according to the legal effect of the instrument. Moss v. Witness Printing Co., 64 Ind. 125 (1878); Kizziah v. Kizziah, 651 N.E.2d 297 (Ind.Ct.App.1995). The fact finder determines the facts upon which a written agreement rests (rather than the court) only where the agreement is both ambiguous and its interpretation requires extrinsic evidence. Tate v. Secura Ins., 587 N.E.2d 665 (Ind.1992). Likewise, when a writing's terms are not ambiguous, the issue of whether or not its terms create a lien is an objective determination to be made by the trial court.

To create a lien by written contract, the language of the contract should clearly indicate the parties' intention to create a lien on the specific property at issue. Carmichael v. Arms, 51 Ind.App. 689, 100 N.E. 302 (1912). As with liens at law, where the existence of an equitable lien depends on construction of a written contract based on valuable consideration, a lien may be declared where the intent to secure an obligation with the subject property is clear on the face of the agreement. Id., 100 N.E. 302. In short, the intent to create a lien must be objectively clear. If it is not, then no lien exists at law or equity.

The requirement of objective evidence within the four corners of the writing showing the parties' clear intent to create a lien is supported by sound policy principles. Indiana favors the free alienability and development of land. First Federal Savings Bank of Indiana v. Key Markets, Inc., 532 N.E.2d 18 (Ind.Ct.App.1988). Liens burden the alienability and development of land by taking priority over subsequent mortgages. With less than full value available as collateral, lenders are less likely to loan money for the encumbered land's purchase or improvement, thus reducing economic growth and revitalization. In addition to fostering the alienability of land, Indiana's relatively brightline rule governing the creation of liens leads to greater specificity and heightened care in drafting written instruments. It also reduces transaction costs incurred in litigation to interpret ambiguous contract language.

Review of the Guaranty Agreement's language does not reveal any intent, let alone a clear intent, to create a lien on the land described in Schedule C. The Commission points to Section 2.4 of the agreement, which reads: "Covenant Running with the Real Estate. The Guaranty shall be...