Tincher v. Greencastle Federal Sav. Bank, 32A05-9102-CV-45

• Decision Date: 28 October 1991
• Docket Number: No. 32A05-9102-CV-45,32A05-9102-CV-45
• Citation: 580 N.E.2d 268
• Parties: Charles N. TINCHER, Appellant-Plaintiff, v. GREENCASTLE FEDERAL SAVINGS BANK, formerly known as Greencastle Federal Saving & Loan, John R. Simmons, and United Farm Bureau Mutual Insurance Co., d/b/a Farm Bureau Insurance, Appellees-Defendants.
• Court: Indiana Appellate Court

Page 268

580 N.E.2d 268

Charles N. TINCHER, Appellant-Plaintiff, v. GREENCASTLE FEDERAL SAVINGS BANK, formerly known as Greencastle Federal Saving & Loan, John R Simmons, and United Farm Bureau Mutual Insurance Co., d/b/a Farm Bureau Insurance Appellees-Defendants.

No. 32A05-9102-CV-45.

Court of Appeals of Indiana Fifth District.

Oct. 28, 1991.

Andrew P. Sheff, Bennett & Sheff, Indianapolis, for appellant-plaintiff.

Thomas G. Brenton, Brenton & Brenton, Danville, for appellees-defendants.

SHARPNACK, Judge.

In 1971, Charles Tincher mortgaged his home to Greencastle Federal Savings Bank (hereinafter "Bank"). In 1986, his home was destroyed by fire. At that time, Tincher learned that the homeowner's policy initially issued in 1971 had been cancelled some months prior to the fire. He brought this action against Bank to recover damages by reason of the lack of insurance in two counts: the first for breach of contract, the second for negligence. From a summary judgment on both counts for Bank, Tincher appeals. We reverse.

Tincher raises two issues for review which we restate as:

Whether there is an issue of material fact as to whether Bank had a contractual duty to maintain insurance for Tincher under either the written mortgage agreement or a separate oral agreement.

Whether an issue of material fact exists as to whether Bank assumed a duty to maintain insurance and breached that duty giving rise to a cause of action in tort.

The following is a statement of the facts in the light most favorable to Tincher, the nonmovant. On March 5, 1971, Tincher purchased real estate in Stilesville, Indiana. He financed a portion of the purchase price with Bank. At the closing, Tincher and Bank executed a mortgage agreement under which Tincher agreed to "insure and keep insured all improvements now on said real estate." (Record, 349). Pursuant to Bank's instructions, Tincher purchased a homeowner's insurance policy and furnished proof of insurance with Farm Bureau Insurance. At the closing, Tincher and Bank discussed paying insurance premiums and taxes through an escrow account. They agreed that Tincher would pay the first year's premiums and after that Bank would maintain the insurance by making payments through the escrow account. Bank calculated Tincher's monthly mortgage payments to include a portion for payment of taxes and insurance.

After the first premium payment, Bank maintained the insurance on the property from the escrowed funds. Tincher never received a bill for insurance premiums from Bank or Farm Bureau, although he sometimes received "notice of coverage" papers from somebody. The Bank last paid a premium on January 25, 1986.

On May 30, 1986, Bank received a check from Farm Bureau for $297.10. On the face of the check, made payable to Bank, was the notation "Refund A/C Tincher, Charles...." (Record, 276). Bank did not receive a transmittal letter with the check. Bank deposited the money in Tincher's escrow account without a search of its own records to attempt to determine why it had received the check, nor any inquiry to Farm Bureau or Tincher regarding the check. On March 4, 1987, a fire destroyed the house. Tincher called Bank to report the fire and was told that he had coverage and to call Farm Bureau. Farm Bureau informed Tincher that his policy had been cancelled. Tincher had not received notice of the cancellation.

When we review a trial court's entry of summary judgment, we are bound by the same standard as the trial court: we must consider all of the pleadings, affidavits, depositions, admissions, answers to interrogatories, and, where applicable, testimony in the light most favorable to the nonmoving party in order to determine whether a genuine issue of material fact remains for resolution by the trier of fact. Ayres v. Indiana Heights Volunteer Fire Dept., Inc. (1986), Ind., 493 N.E.2d 1229, 1234. A genuine issue of material fact exists where facts concerning an issue that would dispose of the litigation are in dispute or where the undisputed facts are capable of supporting conflicting inferences on such an issue. If we have any doubts concerning the existence of a genuine issue of material fact, we must resolve those doubts in favor of the nonmoving party, and we must reverse the entry of summary judgment. Woodward Insurance, Inc. v. White (1982), Ind., 437 N.E.2d 59, 62. However, if no genuine issue of material fact exists, and if the moving party is entitled to judgment as a matter of law, we must affirm the entry of summary judgment. Id. The moving party bears the burden of showing the absence of a factual issue and that he is entitled to judgment as a matter of law. Norman v. Turkey Run Community School Corp. (1980), 274 Ind. 310, 312, 411 N.E.2d 614, 615.

Tincher first argues that Bank elected to maintain insurance as per the mortgage agreement, and thus assumed the contractual duty to do so. However, the clear language of the mortgage agreement does not support Tincher's claim. It is a general principle of contract law that, where the terms of a contract are not ambiguous, the construction of the contract is a matter of law. Piskorowski v. Shell Oil Co. (1980), Ind.App., 403 N.E.2d 838, 844. A contract is ambiguous where reasonable persons would find its terms susceptible to more than one interpretation. Id.

The agreement, in pertinent part, reads:

The Mortgagor will insure and keep insured all improvements now on said real estate or which may hereafter be placed thereon, in such amounts and against such hazards and in such companies as shall be satisfactory to the Mortgagee, said policy to be endorsed for the benefit of the Mortgagee as its interest may-appear.

If the Mortgagor shall fail to pay taxes, liens or assessments when due, or to purchase and deliver insurance, to keep the property in good repair or to perform any covenants herein, the Mortgagee, at its election may pay such taxes, liens, assessments, purchase such insurance ... and perform such covenants. All sums of money so advanced by the Mortgagee, together with interest at the rate of 8% per annum from date, shall be and hereby are made a part of the mortgage debt hereby secured....

(Record, 349). The above terms are not susceptible to the interpretation that the clause that enables the Bank to perform covenants that Tincher fails to perform creates a duty for the Bank to perform such covenants. The provision simply allows Bank, if it chooses to do so, to protect its security interest in the event of Tincher's breach, and to be reimbursed for its expenditures.

Tincher relies upon several cases from sister jurisdictions to support his contention that Bank assumed the contractual duty to maintain insurance. Agee v. First National Bank of Maywood (1979), 68 Ill.App.3d 794, 25 Ill.Dec. 425, 386 N.E.2d 899 is inapplicable to this issue because the basis for recovery in that case was grounded in tort. Id., 25 Ill.Dec. at 427, 386 N.E.2d at 901. In First Federal Savings and Loan Association of Bowling Green v. Savage (1968), Ky.App., 435 S.W.2d 67, also cited by Tincher, the court held that mortgagee bank had exercised its option to "effect insurance" under a mortgage agreement placing the primary duty to effect insurance on mortgagor where mortgagee collected extra monthly payments to cover insurance renewal premiums. Id. at 69. However, it is unclear whether the basis for recovery in that case was for breach of contract or negligence. There, the mortgagor claimed that the mortgagee had "negligently misrepresented to [mortgagor] that his policy was in full force," and that "[mortgagee] agreed to keep the policy in force and carelessly neglected to do so." 435 S.W.2d at 68.

Tincher also relies heavily upon Pacheco v. Heussler (1977), 56 A.D.2d 85, 390 N.Y.S.2d 761. In Pacheco the parties had a mortgage agreement under which the mortgagor had the duty to insure and also had the duty to reimburse mortgagee for any payments made by mortgagee upon mortgagor's default. Id. at 765. The agreement also provided for the maintenance of an escrow account into which mortgagee paid funds sufficient to cover the insurance premiums and taxes. Id. Mortgagee made one payment to cover mortgagor's default and, later, after the policy had been cancelled, mortgagee continued to collect funds to pay the premiums. Id. The court upheld the jury's finding that mortgagee breached the mortgage agreement by failing to exercise its option to pay premiums upon mortgagor's default. 56 A.D.2d at 90, 390 N.Y.S.2d at 765-766. The court also concluded that mortgagor reasonably might have relied upon the collection of escrow payments as a representation by mortgagee that the insurance remained in force. 56 A.D.2d at 90, 390 N.Y.S.2d at 766.

We decline to follow Savage and Pacheco to the extent that those cases may be read to hold that a mortgagee assumes the duty to insure or maintain insurance when it acts pursuant to similar clauses, and that failure to do so may render mortgagee liable for breach of contract.

However, there remains a question as to whether Tincher and Bank had a separate oral agreement upon which Tincher may base his action for breach of contract. The trial court found that the parol evidence rule prevents consideration of the agreement. The parol evidence rule excludes any extrinsic proof of prior or contemporaneous oral agreements offered to vary or contradict a written agreement. Creech v. LaPorte Production Credit Association (1981), Ind.App., 419 N.E.2d 1008, 1010. The rule is based upon the principle that where the parties have put their legal obligations in writing, it is conclusively presumed that the entire agreement of the parties has been expressed in that writing. That rule stands upon a rational foundation of experience and policy to provide for certainty and stability of written obligations. Id.

However, cases from other jurisdictions hold that the parol evidence rule is inapplicable where, pursuant to a...