Stroud v. Stone

• Decision Date: 05 April 2019
• Docket Number: Court of Appeals Case No. 18A-CC-1722
• Citation: 122 N.E.3d 825
• Parties: James R. STROUD, Heartland Homestead, LLC, and Heartland Land Trust, Appellants-Defendants, v. Thomas J. STONE, Appellee-Plaintiff.
• Court: Indiana Appellate Court

122 N.E.3d 825

James R. STROUD, Heartland Homestead, LLC, and Heartland Land Trust, Appellants-Defendants,

v.Thomas J. STONE, Appellee-Plaintiff.

Court of Appeals Case No. 18A-CC-1722

Court of Appeals of Indiana.

FILED April 5, 2019

Attorney for Appellant: Leanna Weissmann, Lawrenceburg, Indiana

Attorney for Appellee: Andrew S. Williams, Hunt Suedhoff Kalamaros, LLP, Fort Wayne, Indiana

Robb, Judge.

Case Summary and Issues

[1] James Ryan Stroud, Heartland Homestead LLC, and the Heartland Land Trust (collectively "Stroud," where appropriate) appeal the trial court's judgment in favor of Thomas Stone granting him principal and interest due on a promissory note and further awarding him $ 25,000 in earnest money due as a result of a failed contract to purchase land. Stroud raises three issues for our review, of which we find the following dispositive: 1) whether Stone's action on the promissory note was barred by the statute of limitations; and 2) whether judgment was entered against the proper parties on the claim for earnest money. Concluding the claim on the promissory note was time-barred and that accordingly, the judgment must be amended to reflect the proper party owing the earnest money, we reverse in part and remand.

Facts and Procedural History

[2] On April 29, 2003, Stone executed a deed to Heartland Homestead LLC conveying a twenty-two acre mobile home park and a non-contiguous twenty acres of unimproved agricultural farmland in Dearborn County, Indiana. At that time, Stroud and Steven Verkley were 50/50 partners in Heartland Homestead LLC. A portion of the purchase price was financed by Fifth Third Bank which took a first mortgage on the property. Stone received cash at closing and a Promissory Note for $ 100,000, signed by Stroud and Verkley in their individual capacities and as members of Heartland Homestead LLC. The Promissory Note was secured by an Open-End Mortgage, Assignment of Leases and Rents and Security Agreement and Stone was a junior lienholder.

[3] The Promissory Note required installment payments of $ 833.33 per month beginning June 1, 2003 until the amount was paid in full. The maturity date was July 1, 2013. The terms of the Promissory Note provided that, upon default and thirty days after written notice from Stone, "the entire principal balance and all accrued interest shall at once become due and payable without additional notice or demand at the option of [Stone]." Exhibit Volume I at 34. Stone received payments on the Promissory Note through May 2008 totaling $ 50,000. After that, he did not receive any more payments.

[4] The mobile home park was less profitable than anticipated and Heartland Homestead LLC became unable to pay the Fifth Third mortgage. On October 31, 2008, Fifth Third Bank filed for foreclosure.¹ With the property due to be sold at a foreclosure sale, Stroud hatched a plan. Stroud first approached Stone and asked if he would be willing to buy the entire project, but Stone declined. Stroud then arranged for a trust he would set up to buy the property from Fifth Third for $ 250,000 and obtained financing from another bank.² Despite turning down the opportunity to buy back the entire property, Stone testified he and Stroud made the following agreement with respect to the farmland:

"Look," I said, "Here's – you've paid me $ 50,000 on that note." And I said, "Why don't I just give you back that $ 50,000, even though you want to give the land for what you're trying to do." And [Stroud] was thrilled.... He said, "That'll be great. I can put that down on my $ 550,000 purchase." ... And I said, "Put it together." ... It seemed pretty straightforward. I would release my – release the mortgage and provide a check for $ 50,000 in exchange for free and clear title to the 20 acres. It was as simple as that.

Transcript, Volume 1 at 35. Stroud described the deal similarly:

... I settled on the final buyer being myself, my wife, and my brother under the Heartland Land Trust. And Mr. Stone, as his part was to purchase the 20 acres and use the full satisfaction and release of mortgage for his earnest money, meaning that he was going to give full satisfaction for the $ 50,000 that I owed and that would be then used as his earnest money. And that was our agreement.

* * *

[W]hat Tom and I agreed to was if our deal did not go through, through no fault of [Stone's] own, that I would pay him $ 25,000. That was the value of the promissory note and the release of mortgage at that point. That's what we put the value as.

Id. at 202, 205-06.

[5] On April 7, 2009, Stone signed a contract to purchase the farmland directed to Dryden Properties, Inc. and executed a release of the 2003 mortgage on both tracts of land. Also on April 7, Stone's attorney forwarded a copy of the contract to the attorney for the bank providing financing to Stroud. The letter indicates a photocopy of the signed release would be provided immediately and the original release and check for $ 50,000 would be provided at closing. "Once title is vested in [Stroud], [Stone] will receive a Deed for the real estate and a Policy of Title Insurance insuring that [Stone] holds marketable title free and clear of all liens and encumbrances." Exhibit Vol. I at 73. Due to a "convoluted situation" on Stroud's end, Tr., Vol. 1 at 40, Stone had to execute a replacement contract to purchase the farmland on May 14, directed to Merritt Alcorn, trustee of the Heartland Land Trust.³ Stone's "earnest money" for the purchase was the release of the 2003 mortgage on both properties, valued at $ 25,000. The contract to purchase stated, "This Release will only be recorded after the successful closing between Heartland Homestead, LLC and Merritt Alcorn, Trustee occurs. In the event that this contract does not close through no fault of [Stone], [t]he Earnest Money ... shall be valued at $ 25,000 and returned to [Stone] within ten days of the release of this contract[.]" Exhibit Vol. I at 76-77. The contract was due to close "on June 30, 2009 (or at such time as mutually agreeable in writing) to the parties hereto[.]" Id. at 78. The date on the release was changed to May 14 to reflect the new contract date.

[6] The mobile home park was serviced by the Saint Leon Sewer District and a sewer lien in the amount of $ 17,564.67 was recorded against the property on April 4, 2007. The Trust closed its deal with Fifth Third on May 20 at which time the existing sewer liens were paid in full and the Trust became the owner of both properties. For some reason, however, the sewer liens were not released. Stone's release of the 2003 mortgage was delivered at the May 20 closing and was recorded in Dearborn County on June 12, 2009. The Stone/Trust deal did not close on June 30 due to title searches continuing to show the sewer lien and the corresponding inability of the Trust to deliver free and clear title to Stone. Communications between Stone's attorney and Alcorn as trustee of the Trust continued for some time after June 30, but the sewer lien was never released. In fact, a title search done on January 22, 2018 continued to show the delinquent sewer fees from 2007.

[7] On March 6, 2013, an attorney contacted Stroud on Stone's behalf in a renewed attempt to complete the purchase of the farmland, stating "Mr. Stone is ready, willing and able to pay the purchase price for the subject real estate upon being provided a Warranty Deed for the real estate, free and clear of all liens and encumbrances." Exhibit Vol. I at 83. However, the deal was still unable to close due to the continued presence of the sewer liens. Stone has never received proof of unencumbered title to the farmland, a deed to the farmland, or the $ 25,000 in escrow money.

[8] Stone filed a lawsuit on February 23, 2016, asking for specific performance as to the 2009 contract for sale of the farmland and repayment of the 2003 Promissory Note. Stroud filed an answer and asserted several affirmative defenses, including the statute of limitations. Following a bench trial on March 8-9, 2018, the trial court entered judgment for Stone:

Promissory Note Judgment

Based upon these findings, Judgment shall be entered in favor of [Stone] in the amount of sums due and owing under the Promissory Note as of February 22, 2018 as to Defendants, James R. Stroud, and Steven G. Verkley individually and Heartland Homestead, LLC, and successors [in] interest as follows:

1. $ 113,246.77 in principle [sic], late fees and interest,

2. $ 15,000 for attorney's fees for enforcing rights under fixed rate promissory note,

3. $ 1,226 costs, medication [sic] fees, costs of depositions and appraisals, and

Specific Performance and Earnest Money

The Court finds that specific performance is an inappropriate remedy in this cause of action based upon the fact that [the contract to purchase] shows that the parties contemplated a remedy for the closing not occurring "through no fault of the buyer." The earnest money in this circumstance was valued at $ 25,000. The Court, therefore, finds the judgment for this amount is appropriate instead of a specific performance remedy....

Appendix of Appellants, Volume Two at 18. Stroud now appeals.

Discussion and Decision⁴

I. Standard of Review

[9] "On appeal of claims tried by the court without a jury ... the court on appeal shall not set aside the findings or judgment unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." Ind. Trial Rule 52(A). We define the clearly erroneous standard based upon whether the party is appealing a negative judgment or an adverse judgment. Fowler v. Perry , 830 N.E.2d 97, 102 (Ind. Ct. App. 2005). Because the trial court entered an order against Stroud, who was defending on the issues under review, he is appealing from an adverse judgment. See Garling v. Ind. Dep't of Nat. Res. , 766 N.E.2d 409, 411 (Ind. Ct. App. 2002), trans. denied . When the trial court enters findings in favor of the party bearing the burden of...