SEDONA DEVELOPMENT v. Merrillville Road

• Decision Date: 23 January 2004
• Docket Number: No. 45A03-0306-CV-211.,45A03-0306-CV-211.
• Citation: 801 N.E.2d 1274
• Parties: SEDONA DEVELOPMENT GROUP, INC. and Richard C. Wolf, Appellants-Defendants, v. MERRILLVILLE ROAD limited partnership and In Home Investors, Inc., Appellees-Plaintiffs.
• Court: Indiana Appellate Court

801 N.E.2d 1274

SEDONA DEVELOPMENT GROUP, INC. and Richard C. Wolf, Appellants-Defendants, v. MERRILLVILLE ROAD limited partnership and In Home Investors, Inc., Appellees-Plaintiffs.

No. 45A03-0306-CV-211.

Court of Appeals of Indiana.

January 23, 2004.

Edward P. Grimmer, Crown Point, IN, Attorney for Appellants.

Steven W. Handlon, Handlon & Handlon, Portage, IN, Attorney for Appellees.

OPINION

BAKER, Judge.

Appellants-defendants Sedona Development Group, Inc. ("Sedona") and Richard C. Wolf ("Wolf") appeal the trial court's judgment in favor of appellee-plaintiffs Merrillville Road Limited Partnership ("MRLP") and IN Home Investors, Inc. ("IN Home"). Specifically, Sedona and Wolf contend that the trial court erred in not finding that the partnership was dissolved on July 15, 1999, and in finding that they had failed to sustain their burden of proving the affirmative defense of accord and satisfaction. On cross-appeal, MRLP and IN Home assert that the trial court abused its discretion in allowing Sedona and Wolf to raise the affirmative defense of release for the first time on the day of the trial. Finding no error, we affirm.

FACTS

On April 29, 1993, Mesa Limited Partnership ("Partnership") was formed through a Limited Partnership Agreement ("the Agreement") by MRLP, as the sole limited partner, IN Home, as the sole non-managing general partner, and Sedona, as the sole managing general partner. The purpose of the partnership was to acquire, then develop and sell single-family residential lots in Merrillville. The land was to be developed in five phases as a subdivision with 392 lots.

As required by the Agreement, MRLP contributed $1.8 million to the Partnership. In return, MRLP was given first priority over Partnership distributions and was promised a series of preferential payments as each home site was sold, until distributions to it totaled $3.858 million ("the Minimum Return"). These preferential payments were required to total at least $1.8 million by December 31, 1996. The failure to do so placed the Partnership in default. The Agreement further stated that it was to be "governed by and interpreted in accordance with the laws of the State of Illinois." Appellee's App. p. 58.

Wolf owned at least 70% of Sedona. Before entering into the Agreement, Wolf executed a Guaranty by which he personally guaranteed the obligations of Sedona under the Agreement, for the benefit of MRLP and IN Home. The Guaranty provided that if the Partnership had not distributed at least $1.8 million to MRLP on or before April 30, 1997, four months after the Preferential Payments were due under the Agreement, then all amounts payable to MRLP and IN Home would be paid by Wolf. The Guaranty also provided that it was to be governed by and interpreted in accordance with the laws of the State of Illinois.

The Partnership failed to distribute $1.8 million to MRLP by December 31, 1996. By a letter dated January 7, 1997, MRLP declared a default and issued a notice of default pursuant to Paragraph 16 of the Agreement. Neither The Partnership nor Sedona nor Wolf thereafter distributed funds to MRLP. Nevertheless, the Partnership continued business.

On several occasions in 1998 and 1999, Wolf and H. Bruce McClaren, President of MRLP, discussed the deteriorating financial circumstances of the Partnership and the failure of Sedona and Wolf to make the required distributions to MRLP. During one of these discussions in 1998, McClaren told Wolf that MRLP would be satisfied only if Wolf paid MRLP its original investment of $1.8 million. In response, Wolf proposed that he would syndicate the remaining land owned by the Partnership ("the Remainder") and use the syndication proceeds to satisfy McClaren's demand. Wolf later reported that he was unable to do so. Later, on February 4, 1999, McClaren demanded that the Remainder be transferred to MRLP. Wolf made further proposals by letter on February 10, 1999. On April 6, 1999, Wolf again wrote McClaren. This letter assumed a transfer of the Remainder to MRLP, as demanded by McClaren, and set forth a basis for requiring MRLP to assume existing Partnership debt of $395,350. Specifically, Wolf stated:

In exchange for a full release of the Guaranty and the withdrawal of the PC Partner from Mesa, we will be willing to sell the remaining lots in Phase 2, pay down the Citizens loan, complete the necessary development commitment, pay the related development expenses and close the Mesa venture.

Plaintiffs' Ex. 18. The letter concluded by saying, "Once you have had an opportunity to review the enclosed and our proposal, please feel free to contact me with any questions or comments." Plaintiff's Ex. 18. McClaren did not respond to this letter. On July 15, 1999, the Partnership deeded to MRLP the Remainder, consisting of approximately eighty acres that would have become Phases 3, 4, and 5 of the project.

MRLP and IN Home brought suit against Sedona and Wolf in Lake County, and, after a change of judge motion, the trial was venued in the Lake County Superior Court on March 12, 2001. MRLP and IN Home moved for summary judgment on July 29, 2002. After a hearing, the trial court granted partial summary judgment on December 10, 2002, finding that Sedona and Wolf were indebted to MRLP in the amount of $1.8 million as a matter of law by the Agreement and the Guaranty. However, the trial court found that there were issues of fact and law concerning the value of the Remainder, whether estoppel or waiver barred MRLP and IN Home's claims, and whether an accord and satisfaction had occurred. Thus, a bench trial on these issues was held on January 7 and 8, 2003. The trial court entered judgment for MRLP and IN Home on May 6, 2003, finding that the value of the Remainder was $1,095,000 as of July 5, 1999, and that Sedona and Wolf failed to prove the facts necessary to sustain the defenses of estoppel, waiver, accord and satisfaction, or release. The trial court noted that the defense of release was not pleaded or raised in pre-trial contentions, but, rather than strike the defense, the court found that a release was neither intended nor given. Sedona and Wolf now appeal.

DISCUSSION AND DECISION

I. Affirmative Defenses

Wolf and Sedona argue that the trial court erred in finding that they did not prevail based on their affirmative defenses. Specifically, they contend that the trial court must be reversed because they established the elements of accord and satisfaction.

A. Accord and Satisfaction

Inasmuch as Sedona and Wolf bore the burden of establishing all facts necessary to show that an accord and satisfaction occurred, they are appealing from a negative judgment by the trial court. On appeal from a negative judgment, we will affirm the trial court's decision unless it is contrary to law. Autobanc Corp. v. Hodges Towing Serv., 793 N.E.2d 248, 249 (Ind. Ct.App.2003). In determining whether the judgment is contrary to law, we will neither reweigh the evidence nor judge the credibility of witnesses. Id. We will consider the evidence in a light most favorable to the party prevailing at the trial court, and we will reverse the judgment only if the evidence leads to but one conclusion and the trial court reached the opposite conclusion. Id. We will affirm if there is substantial evidence of probative value to support the judgment on any legal theory. Id.

Under Illinois law¹, an accord and satisfaction is a contractual arrangement under which a creditor agrees to accept partial payment from a debtor in full satisfaction of an unliquidated claim. Kreutz v. Jacobs, 39 Ill.App.3d 515, 349 N.E.2d 93 (1973). In order to prove an accord and satisfaction, the following elements must be shown:

1. there must be a bona fide or honest dispute. Gord Indus. Plastics., Inc. v. Aubrey Mfg., Inc. [103 Ill.App.3d 380, 59 Ill.Dec. 160], 431 N.E.2d 445, 448 (1982);

2. the sum in dispute must be unliquidated. Id.;

3. there must be consideration. W.E. Erickson Constr., Inc. v. Congress-Kenilworth Corp. [132 Ill.App.3d 260, 87 Ill.Dec. 536], 477 N.E.2d 513, 520 (1985);

4. there must be a meeting of the minds with the intent to compromise. Id.; and

5. there must be execution or performance of the agreement. Id.

Furthermore, there is no bona fide dispute where it is clear what amount is owed and the dispute centers on whether the debt is owed at all. Gord, 59 Ill.Dec. 160, 431 N.E.2d at 448.

The evidence shows that there was no bona fide dispute. The trial court found in its Partial Summary Judgment that the Agreement provided for payment by the Partnership to MRLP of the Minimum Return of $3.858 million. The amount owed by Wolf and Sedona to MRLP and IN Home under the Agreement was not in dispute at the trial, and, therefore, Wolf and Sedona failed to establish this element of accord and satisfaction.

Moreover, there was no meeting of the minds with the intent to compromise. Wolf testified that he intended the transfer of the Remainder to merely offset his obligations under the Guaranty rather than to satisfy the debt entirely.

Q And continuing throughout Page 72, do you see that you said, "However"— I'm looking at Line 5—"that a value needed to be determined for the residual acreage."

A Yes.

....

Q Okay. And my question, Line 7: "And why did you think it was necessary to determine a value ... ?"

And you responded, "Because there was a guarantee hanging out there." Right?

A Yes.

Q And I then said at Line 12, "And I realize this seems a little simplistic, I want the record to be clear, why is it important that a value be associated with the real estate?" And at Line 15, you answered, "As an offset to the obligation owed." Correct?

A Correct.

Q Okay. And we continue through Lines 16 and 25, and I'd like you to look particularly at Line 20, in which I ask you, "... [Y]ou expected that conveyance to offset your personal guarantee, to the extent of the value of the land?"

And you answered, "That's correct." True?

A Correct.

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