Pioneer Lumber & Supply Co. v. First-Merchants Nat. Bank of Michigan City

• Citation: 349 N.E.2d 219,169 Ind.App. 406
• Decision Date: 21 June 1976
• Docket Number: No. 3--474A65,FIRST-MERCHANTS,3--474A65
• Parties: PIONEER LUMBER AND SUPPLY COMPANY, Appellant (Defendant below), v.NATIONAL BANK OF MICHIGAN CITY, Appellee (Plaintiff below), and Arnold Bass et al., Appellees (Defendants below).
• Court: Court of Appeals of Indiana

Page 219

349 N.E.2d 219

169 Ind.App. 406

PIONEER LUMBER AND SUPPLY COMPANY, Appellant (Defendant below), v. FIRST-MERCHANTS NATIONAL BANK OF MICHIGAN CITY, Appellee (Plaintiff below) and Arnold Bass et al., Appellees (Defendants below).

No. 3--474A65.

Court of Appeals of Indiana, Third District.

June 21, 1976.

Rehearing Denied July 28, 1976.

Terry K. Hiestand, Harris & Welsh, Chesterton, for appellant.

Donald E. Transki, Alvin D. Blieden, Donald D. Martin, Michigan City, for appellees.

STATON, Presiding Judge.

Pioneer Lumber and Supply Company had performed labor and furnished materials for the construction of a new home which was being built for Arnold Bass and his wife by Richard Ramon Evans, a contractor. First-Merchants National Bank joined Pioneer as a party in its mortgage foreclosure action against the Bass property. Before the foreclosure action, Arnold Bass and his wife gave the Bank a mortgage to secure a $20,000.00 construction note executed by Richard Ramon Evans and his wife. Evans failed to pay the $20,000.00 note or his Pioneer bill.

Pioneer filed a cross-claim against Bass for the monies owed to Evans under the construction contract. It contended that the mortgage was not supported by a debt. The trial court found that the mortgage was supported by a debt and that Bass did not owe Evans any monies under the construction contract. We affirm the trial court's judgment.

On December 11, 1970, Arnold Bass, who with his wife owned an undeveloped parcel of land, contracted with Richard Ramon Evans for the construction of a $29,000.00 single-family house. Between December 11 and December 18, Mr. and Mrs. Bass and Evans met with a representative of First-Merchants National Bank to discuss the possibility of obtaining a loan to finance the construction. On December 18, 1970, the construction loan documents were executed. Mr. and Mrs. Evans executed a promissory note in the amount of $20,000.00 due June 18, 1971, in favor of the Bank. At the same time, Mr. and Mrs. Bass executed a real estate mortgage on their property in favor of the Bank as mortgagee, which provided:

'This Mortgage is given to secure the performance of the provisions hereof and the payment of the indebtedness of the Mortgagors to the Mortgagee as evidenced by a promissory note of even date herewith hereinafter referred to as Note in the principal sum of Twenty Thousand and no/00--Dollars ($20,000.00) executed by the Mortgagors and payable to the order of the Mortgagee, repayable in installments together with interest as provided for in said Note, the final installment being due and payable on June 18, 1971, all without relief from valuation or appraisement laws and with attorney's fees.'

Although the mortgage agreement referred to a promissory note executed by Bass and his wife (mortgagors), there was no such note. There was only one note, executed by Evans on the same date as the mortgage, in the described amount, to the described payee, with the described maturity date.

First-Merchants Bank paid out to Evans' Building Account, without any prior approval of Bass, the following sums on the following dates:

$50,000.00 on December 23, 1970

$5,000.00 on January 25, 1971

$7,000.00 on February 24, 1971

$3,000.00 on March 15, 1971

On August 13, 1971, the Bank provided a further loan to complete the construction. Bass executed a promissory note payable to the Bank in the amount of $2,000.00, due October 13, 1971, and executed a real estate mortgage on the property, in favor of the Bank to secure payment of this note. The Bank paid this $2,000.00 loan directly to Bass. There is no dispute over the validity of this $2,000.00 note and mortgage or over the validity of the Bank's lien on the Bass property for this amount plus interest.

Evans did not pay the $20,000.00 note when due. The Bank, on October 13, 1971, instituted an action against Evans on the $20,000.00 note and an action against Bass to foreclose both mortgages. The Bank joined Pioneer Lumber & Supply Company as a party to the foreclosure proceedings because Pioneer had filed a notice of intent to hold a mechanic's lien against the Bass property. Pioneer's mechanic's lien, however, was held invalid because Pioneer failed to give notice to Bass, pursuant to IC 1971, 32--8--3--1 (Burns Code Ed.), within fourteen days from the date of the first delivery of materials or the first labor performed.

In the course of the foreclosure proceedings, Pioneer learned of the discrepancy between the description of the note in the mortgage agreement and the note actually executed. Pioneer asserted a cross-claim against Bass, claiming a lien, to the extent that the contractor Evans owed Pioneer money, on any monies owed by Bass to Evans on the building contract. On March 19, 1973, Pioneer gave notice to Bass of its intent to claim these funds pursuant to IC 1971, 32--8--3--9 (Burns Code Ed.). Pioneer's claim against Evans is for $10,121.69. Pioneer contends that Bass owes contractor Evans more than $19,000.00, which is more than sufficient to satisfy Pioneer's claim.

Pioneer argues that a mortgage must be supported by a debt. Since there was no $20,000.00 note executed by Bass, as described in the mortgage agreement, and since there was no written agreement obligating Bass as a guarantor of Evans' $20,000.00 note, Pioneer asserts that the mortgage is invalid and that Bass does not owe the Bank any money on the $20,000.00 note. Pioneer contends that Bass owes contractor Evans on the building contract, and that contractor Evans in turn owes the Bank on his unpaid unsecured promissory note.

The trial court entered special findings of fact and conclusions of law at Pioneer's request. The court found that the parties to the construction financing agreement had understood and agreed that the Bank was to pay the proceeds of the loan to Evans 'on behalf of' Bass, who had agreed to secure Evans' loan by a first mortgage on the real estate. The trial court concluded that, after the Bank had disbursed the full $20,000.00 to Evans, Bass had paid the contractor Evans the full contract price. ¹ Thus, no money was owed by Bass to Evans, and no money was available on which Pioneer could assert its claim. The trial court entered judgment against Pioneer on its cross-claim against the Basses.

Pioneer contends that the court's findings of fact and conclusions of law are contrary to and not supported by the evidence and the law. We may not weigh the evidence or judge the credibility of the witnesses when we review the evidence to determine if the court's special findings are supported by the evidence. In re Adoption of Lockmondy, Ind.App., 343 N.E.2d 793. Even if the special findings of fact are not supported by the evidence, we must affirm if the evidence supports the court's general finding against appellant Pioneer. In re Adoption of Lockmondy, supra; Hunter v. Milhous (1973), Ind.App., 305 N.E.2d 448.

It is true that a mortgage must be...