                                                                               FILED
                                                                           Apr 05 2019, 9:52 am

                                                                               CLERK
                                                                           Indiana Supreme Court
                                                                              Court of Appeals
                                                                                and Tax Court




ATTORNEY FOR APPELLANT                                     ATTORNEY FOR APPELLEE
Leanna Weissmann                                           Andrew S. Williams
Lawrenceburg, Indiana                                      Hunt Suedhoff Kalamaros, LLP
                                                           Fort Wayne, Indiana



                                            IN THE
    COURT OF APPEALS OF INDIANA

James R. Stroud,                                           April 5, 2019
Heartland Homestead, LLC, and                              Court of Appeals Case No.
Heartland Land Trust,                                      18A-CC-1722
Appellants-Defendants,                                     Appeal from the Dearborn
                                                           Superior Court
        v.                                                 The Honorable James D.
                                                           Humphrey, Special Judge
Thomas J. Stone,                                           Trial Court Cause No.
Appellee-Plaintiff.                                        15D02-1602-CC-53




Robb, Judge.




Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                                  Page 1 of 16
                                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



      Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019        Page 2 of 16
      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




      1
        At least in part due to these difficulties, Verkley no longer wished to be a member of Heartland Homestead
      LLC. In 2006, Stroud and Verkley transferred their entire interests in Heartland Homestead LLC to
      Christopher Grigsby, and Grigsby relieved Verkley of his obligation to Fifth Third. Stroud remained
      obligated on the Fifth Third mortgage and both Stroud and Verkley remained obligated on the Stone
      promissory note. Stroud continued to manage the mobile home property. Just prior to the 2009 deal,
      Grigsby transferred the entire interest back to Stroud so Heartland Homestead LLC could sell the property to
      the Heartland Land Trust.

      Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                               Page 3 of 16
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.




2
  Stroud also owed Fifth Third for a second property he owned in New Trenton, Indiana. Fifth Third agreed
to drop the amount owed on that property as well, for a combined total purchase price of $550,000.

Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                            Page 4 of 16
               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




      3
        It appears that Stroud first intended Dryden Properties, Inc. (comprised of Stroud and a business partner in
      California) to purchase the land from Heartland Homestead, LLC but that deal did not go through. Stroud
      then set up Heartland Land Trust (the “Trust”) to accomplish the same goal. Stroud is the trustee of the
      Trust and one of three equal beneficiaries along with his brother Anthony and his wife Victoria.

      Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                                 Page 5 of 16
      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

      Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019        Page 6 of 16
      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
      Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019          Page 7 of 16
               amount is appropriate instead of a specific performance
               remedy. . . .


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



                                   Discussion and Decision                               4




                                        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

      proof, the findings will be clearly erroneous only if they are not supported by

      substantial evidence of probative value. Id. “We will affirm a judgment where

      we find substantial supporting evidence, unless we are left with a definite and




      4
        The section headings in Stroud’s brief as well as certain phrases in the text are in colored type and there are
      purported internal hyperlinks (and at least one external hyperlink) also in colored type. We remind counsel
      that Indiana Appellate Rule 43(C) requires a brief to be “produced in a neat and legible manner using black
      type.” Moreover, at least in the version of the brief used by this court, the hyperlinks do not work.

      Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                                    Page 8 of 16
       firm conviction that a mistake has been made.” McCauley v. Harris, 928 N.E.2d

       309, 313 (Ind. Ct. App. 2010), trans. denied.


                                II. Promissory Note Judgment
[10]   Stroud first contends the trial court erred in granting judgment on the

       Promissory Note because the statute of limitations for Stone to recover on the

       note passed before he filed his complaint. Stroud raised the statute of

       limitations as an affirmative defense in the trial court, alleging the cause of

       action on the note accrued in June 2008 when the note fell into default. Stone

       countered that the statute of limitations runs from the note’s maturity date of

       July 1, 2013. The trial court agreed with Stone. See App. of Appellants, Vol.

       Two at 15 (“Due to the fact that [Stone] took no action to accelerate the due

       date of the promissory note, the maturity date of July 1, 2013 remains the

       maturity date under the note and [Stone’s] Complaint was filed within the

       applicable statute of limitations for enforcement of [Stone’s] right under that

       promissory note.”).


[11]   Indiana Code section 34-11-2-9 requires an action on a promissory note

       executed after August 31, 1982 to be commenced within six years after the

       cause of action accrues.5 If Stroud is correct, and the cause of action accrued




       5
         Stone argues the Promissory Note incorporated the terms of the mortgage, and the mortgage provided that
       it was to be governed by the laws of Ohio. See Exhibits Vol. I at 43. However, Stone never raised the issue of
       applying Ohio law during the trial court proceedings, and issues raised for the first time on appeal are
       waived. See Pearman v. Stewart Title Guar. Co., 108 N.E.3d 342, 350 (Ind. Ct. App. 2018), trans. denied. In any
       event, contractual choice of law provisions govern only the substantive law of claims arising out of the
       contract; the law of the forum state governs procedure such as the appropriate statute of limitations. Smither

       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                                 Page 9 of 16
       when Heartland Homestead LLC missed its first payment in June 2008, the

       statute of limitations would have run in June 2014. Stone did not file his

       complaint on the promissory note until February 2016. If Stone is correct,

       however, the cause of action accrued on July 1, 2013, and his complaint was

       timely.


[12]   In Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153 (Ind. Ct. App. 2010), the

       court considered whether a creditor’s action against a debtor was time-barred.

       The debtor obtained a credit card from the creditor and by February 2000, had

       a balance of over $1,700 on the card. He made a partial payment on February

       9, 2000, and never made another payment. The credit card agreement stated

       that the debtor would be in default if he failed to pay any amount due and that

       in the event of default, the creditor “may, without further demand or notice,”

       declare the balance immediately due. Id. at 1155. Nonetheless, the creditor

       continued sending monthly billing statements for several months. In December

       2000, the creditor sent its final bill showing an outstanding balance of

       $2,152.67, and requesting a minimum payment of $670.00 that was never paid.

       In December 2001, Asset Acceptance, LLC purchased the debtor’s account

       from the original creditor. On May 30, 2006, Asset filed suit against the debtor,

       seeking the amount shown on the final bill plus interest. Eventually, the trial

       court entered summary judgment in favor of Asset and the debtor appealed.




       v. Asset Acceptance, LLC, 919 N.E.2d 1153, 1157-58 (Ind. Ct. App. 2010). Further, Ohio’s statute of
       limitations applicable to a promissory note is also six years. Ohio Rev. Code § 1303.16(A).

       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                               Page 10 of 16
[13]   In deciding the statute of limitations issue, the court considered whether the six-

       year statute of limitations in Indiana Code section 34-11-2-9 applicable to

       promissory notes, bills of exchange, or other written contracts for the payment

       of money or the six-year statute of limitations in Indiana Code section 34-11-2-7

       applicable to actions on accounts and contracts not in writing applied to this

       case. Although both impose six-year limitations periods, the label applied to

       the debt “affects the commencement of the running of the statute of

       limitations.” Id. at 1158.


[14]   The court first described the difference between a closed-end contract and an

       open-end contract: in closed-end contracts, the principal amount of the debt is

       fixed and there is a defined schedule of repayment specifying the amount of

       each payment and when the payment is due until the debt is fully repaid on a

       date certain. Id. at 1159. In open-end contracts, the amount of debt is

       unknown at the outset and can fluctuate over time; therefore, the monthly

       payment, the amount of interest, and the date for payment in full will also

       fluctuate. Id. The court then noted that in general, the statute of limitations for

       a closed-end account such as an installment loan or promissory note with an

       optional acceleration clause does not begin to run immediately upon the

       debtor’s default but only when the creditor exercises the optional acceleration

       clause by an affirmative act; in an open-end account,6 the statute of limitations




       6
        Presumably, the same would be true of a closed-end account with a mandatory acceleration clause. See
       Cowan v. Murphy, 165 Ind. App. 566, 572, 333 N.E.2d 802, 805-06 (1975) (holding that an acceleration clause
       providing that if any payment is more than forty-five days in default, the note in its entirety “shall become

       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                               Page 11 of 16
       commences on the date the account is due. Id. at 1160. Regardless, “a party is

       not at liberty to stave off operation of the statute [of limitations] inordinately by

       failing to make demand.” Id. at 1161 (quoting Curry v. U.S. Small Bus. Admin.,

       679 F. Supp. 966, 969-70 (N.D.Cal. 1987)).


[15]   Turning back to the facts of the case before it, the Smither court noted that the

       credit card account at issue “would appear to closely resemble the common law

       definition of an ‘open account.’” Id. at 1159. Accordingly, where the debtor

       made his last payment on February 9, 2000, and then failed to make the next

       minimum payment due by March 11, 2000, the statute of limitations began to

       run, at the latest, on March 11, 2000. The creditor had six years from that date

       in which to file suit seeking collection of any part of the debt. The creditor’s

       lawsuit filed on May 30, 2006 was therefore time-barred. Id. at 1162.


[16]   Although Smither was decided in the context of an open-end credit card

       account, this court applied the reasoning of Smither to a closed-end account in

       Collins Asset Group, LLC v. Alialy, 115 N.E.3d 1275 (Ind. Ct. App. 2018). The

       debtor entered into a promissory note with GMAC Mortgage LLC, promising

       to pay GMAC $60,000 plus interest in monthly payments of $631.93 beginning

       on September 1, 2007 and continuing through August 1, 2032. The debtor also

       entered into a mortgage as security for the loan which was a junior lien on the

       debtor’s property. On July 28, 2008, the debtor’s property was foreclosed on by




       immediately due and payable” operates automatically and without regard to the action or inaction of the
       creditor).

       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                             Page 12 of 16
       a priority lienholder and the debtor made no further payments on the GMAC

       note after that date. The GMAC note was transferred to Collins Asset Group

       (“CAG”) on December 31, 2014, and the debtor was informed on June 17,

       2016, that he should make payments to CAG beginning on September 1, 2016.

       The debtor did not make a payment and CAG sent notice that it was

       accelerating the note. When the debtor did not make payment in full, CAG

       filed a complaint on April 26, 2017. The debtor claimed the complaint was

       untimely and trial court dismissed the complaint.


[17]   The court noted the general rule that when an installment contract contains an

       optional acceleration clause, the statute of limitations does not begin to run

       immediately upon the debtor’s default but only when the creditor exercises the

       option to accelerate the debt.


               Nevertheless, the Smither court cautioned that, “Waiting until
               after the statute of limitations has passed following default before
               making demand for full and immediate payment of a debt is per
               se an unreasonable amount of time to invoke an optional
               acceleration clause and cannot be given effect.”


       Id. at 1279 (quoting Smither, 919 N.E.2d at 1161-62). CAG waited to exercise

       the option to accelerate the note until October 24, 2016 – more than six years

       after the default. The court concluded, “[a]s CAG’s attempt to exercise the

       acceleration clause did not prevent the six-year statute of limitation from taking

       effect and expiring,” the trial court properly dismissed the complaint. Id.




       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019         Page 13 of 16
[18]   Here, the Promissory Note was originally signed on April 29, 2003. Stroud

       made his last payment in May 2008. Stone filed his complaint seeking

       repayment of the 2003 Promissory Note on February 23, 2016. The default

       therefore occurred in May 2008, but Stone did not demand payment for nearly

       eight years after the default. Pursuant to Smither and Alialy, Stone’s complaint

       is time-barred because he waited until after the six-year statute of limitations

       had run before making a demand for payment of the debt. That is a per se

       unreasonable amount of time to wait before invoking an optional acceleration

       clause. See Smither, 919 N.E.2d at 1161-62.7 Therefore, the trial court erred in

       entering judgment for Stone on the promissory note and ordering Stroud to pay

       over $100,000 as satisfaction of the indebtedness.8


                                 III. 2009 Contract Judgment
[19]   As for the amount due under the 2009 contract, Stroud’s argument centered on

       the trial court issuing a “duplicate remedy” with the promissory note judgment

       and the judgment under the 2009 contract. Brief of Appellants at 7. Because

       we have determined the promissory note judgment was entered in error, we

       need not address Stroud’s argument regarding the alleged double recovery.




       7
        Even if we consider the date of the renegotiated promissory note in April and May of 2009 to be relevant,
       Stone still waited more than six years past that date to file his complaint.
       8
        Stroud makes a secondary argument about the 2003 Promissory Note, but we need not reach that issue
       because of our resolution of the statute of limitations question.

       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019                              Page 14 of 16
       Moreover, “Heartland Land Trust acknowledges it owes Stone the return of the

       $25,000 earnest money[.]” Id. at 8.


[20]   The trial court’s judgment, including both the judgment on the 2003 Promissory

       Note and the 2009 contract, states:


               The Court finds that Judgment in favor of [Stone], for the
               amounts stated herein, are entered against James R. Stroud;
               Steven G. Verkley; Heartland Homestead, LLC, Heartland Land
               Trust; and any successors in interest.


       App. of Appellants, Vol. Two at 19. Stroud argues this judgment against

       Stroud, Verkley, and Heartland Homestead LLC is in error because the 2009

       contract was entered into with the Trust alone. Because we have found

       judgment was entered on the promissory note in error, we agree that the

       remaining judgment should be against only the Trust, and we remand for the

       trial court to issue a corrected judgment.



                                                 Conclusion
[21]   Stone did not file his complaint until more than six years had passed from the

       date of default on the Promissory Note and therefore, the complaint for

       repayment of sums owing under the note should have been dismissed as time-

       barred. The judgment as to the Promissory Note is therefore reversed. As the

       only valid judgment in Stone’s favor was on the 2009 contract for the return of

       the earnest money and that contract was entered into between Stone and the



       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019     Page 15 of 16
       Trust, we remand for the trial court to amend its judgment to reflect it is entered

       against the Trust alone.


[22]   Reversed in part and remanded.


       Riley, J., and Kirsch, J., concur.




       Court of Appeals of Indiana | Opinion 18A-CC-1722 | April 5, 2019        Page 16 of 16
