Yanoff v. Muncy

Decision Date18 December 1997
Docket NumberNo. 10S05-9712-CV-673,10S05-9712-CV-673
Citation688 N.E.2d 1259
Parties35 UCC Rep.Serv.2d 1278 Max YANOFF, Appellant, v. Glenn W. MUNCY, Paula J. Muncy, Citizens Fidelity Bank & Trust Company, Indiana k/n/a PNC Bank, Indiana, Inc., INB Banking Company k/n/a NBD, N.A., State of Indiana, Department of Revenue, Treasurer of Clark County, Indiana, City of Jeffersonville, Indiana and the Trust of William T. Cavanaugh, Appellees.
CourtIndiana Supreme Court

BOEHM, Justice.

Max Yanoff conveyed real estate to Glenn Muncy and took back a promissory note secured by a recorded purchase money mortgage. Available records leave us in doubt precisely how much was paid on the note, but undisputed evidence establishes a minimum unpaid balance. We hold that the minimum is an enforceable obligation entitled to priority over other creditors of Muncy. Specifically, the issues are:

I. Was the trial court clearly erroneous in finding that Yanoff failed to establish the existence of Muncy's debt to him?

II. Was the trial court clearly erroneous in finding that Yanoff did not establish a minimum amount owed on that debt even if the precise value was uncertain?

We answer both questions in the affirmative.

Factual and Procedural Background

In 1989, Max Yanoff, a resident of Kentucky, conveyed a parcel of land in Jeffersonville, Indiana to Glenn Muncy. Muncy paid $10,000 down and executed a purchase money mortgage to Yanoff securing the balance of $90,000. Muncy agreed to pay all property taxes and also attorney fees in the event of default. In 1994, the Trust of William Cavanaugh ("Trust") obtained a judgment lien against several pieces of Muncy's property, including the parcel conveyed by Yanoff. The Trust then filed to foreclose its lien, and the trial court held a hearing to determine the relative priority of Yanoff's and the Trust's liens.

Before the hearing, a Kentucky judge had determined that Yanoff was partially incompetent to handle his financial and personal affairs. That court appointed his nephew, Irving Steinberg, as a guardian and limited conservator. Before trial, Muncy and Yanoff (via Steinberg) entered into an agreed judgment approved by the trial court in which Muncy admitted that he owed Yanoff $45,000 on the promissory note, $2,500 in attorney fees, and $3,600.28 in property taxes. The Trust was not a party to the agreement. At trial Muncy testified that he was indebted to Yanoff on the mortgage, but was uncertain of the amount. He produced an amortization schedule showing the scheduled monthly payments of principal and interest. He testified to the interest rate (10% per annum), and time period (10 years). He also testified to cash payments totaling $15,000 and $15,900 in property repairs. Muncy had no receipt for either amount, but both, according to Muncy, were understood by him and Yanoff to reduce his obligation to Yanoff. According to the amortization schedule provided by Muncy, his debt to Yanoff would be $46,893.81 as of June 1995, based on monthly payments alone.

The trial court recognized that Yanoff's mortgage was superior to the Trust's lien. However, Yanoff was held incompetent to testify and Steinberg was unable to establish exactly how much Muncy owed to Yanoff. 1 Steinberg had been unable to find all of Yanoff's financial records, including any promissory note. He was able to testify that since he had been appointed guardian for Yanoff in June 1995, Muncy had not made any of the monthly payments called for by the amortization schedule.

The trial court made special findings sua sponte pursuant to Indiana Trial Rule 52(D). Among those findings were: "Max Yanoff was unable to establish the balance owed on his mortgage"; and "Max Yanoff never produced a note or other written evidence of debt...." The trial court awarded Yanoff $2,500 in attorney fees and $3,600.28 for property taxes that Yanoff (via Steinberg) had paid to avoid a tax sale, but denied recovery of any principal or interest. Yanoff appealed and, with one judge dissenting, the Court of Appeals affirmed, reasoning that Yanoff was required to establish the amount owed to him, and that his failure to do so precluded his recovery. Yanoff v. Muncy, 676 N.E.2d 765 (Ind.Ct.App.1997). Yanoff seeks transfer, asserting that he should be able to recover the $45,000 Muncy admitted was owed him.

Standard of Review

Sua sponte findings control only as to the issues they cover and a general judgment will control as to the issues upon which there are no findings. Mullin v. Mullin, 634 N.E.2d 1340, 1341 (Ind.Ct.App.1994). "A general judgment entered with findings will be affirmed if it can be sustained on any legal theory supported by the evidence." Id. (citation omitted). When a court has made special findings of fact, an appellate court reviews sufficiency of the evidence using a two-step process. "First, it must determine whether the evidence supports the trial court's findings of fact; second, it must determine whether those findings of fact support the trial court's conclusions of law." Estate of Reasor v. Putnam County, 635 N.E.2d 153, 158 (Ind.1994) (citation omitted). Findings will only be set aside if they are clearly erroneous. Id. "Findings are clearly erroneous only when the record contains no facts to support them either directly or by inference." Id. (citation omitted). A judgment is clearly erroneous if it applies the wrong legal standard to properly found facts. State v. Van Cleave, 674 N.E.2d 1293, 1296 (Ind.1996), reh'g granted in part, 681 N.E.2d 181 (Ind.1997). . In order to determine that a finding or conclusion is clearly erroneous, an appellate court's review of the evidence must leave it with the firm conviction that a mistake has been made. Id. at 1295. This case meets that standard.

I. The Existence of the Debt was Established

We agree with Yanoff that he produced evidence of a promissory note or other written evidence of a debt sufficient to support his claim. In pertinent part, Indiana Code § 26-1-3.1-309 provides:

(a) A person not in possession of an instrument is entitled to enforce the instrument if:

(1) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred;

(2) the loss of possession was not the result of a transfer by the person or a lawful seizure; and

(3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

(b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person's right to enforce the instrument.

"Prove" is defined by Indiana Code § 26-1-3.1-103(10) to mean "meet the burden of establishing the fact...." The "terms" that are sufficient to establish Muncy's debt are an obligation to pay, the number and timing of payments, and the amount of each payment. This statute is designed to prevent the obligor from exposure to multiple collections of the same negotiable instrument. It is proper to require, as the statute permits, appropriate security to protect against that risk.

Yanoff asserts he meets the requirements of subsection (a) because Steinberg testified without contradiction that he was unable to find all of Yanoff's records. The Trust responds, correctly as far as we can determine, that there is no such testimony, even if Yanoff asserts the fact in his brief. However, there is no dispute, as the trial court found, that no note was offered into evidence by Yanoff or anyone else, and no dispute that an actual debt secured by the mortgage existed in some amount. There is also no evidence supporting the conclusion that Yanoff had sold the note to an unknown third party. In view of the fact that many payments were delinquent by the time of trial and Muncy had received no collection effort, that scenario seems highly improbable. This fact, combined with Yanoff's adjudicated incompetence, makes the inference of either a lost or nonexistent note virtually inescapable. Whether the note existed, and was lost, or never existed, in either case Muncy's undisputed admission of debt secured by the mortgagee is sufficient to establish that fact.

The main dispute arises...

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