                                                                           FILED
                                                                      Feb 17 2020, 11:46 am

                                                                           CLERK
                                                                       Indiana Supreme Court
                                                                          Court of Appeals
                                                                            and Tax Court

                                      IN THE

           Indiana Supreme Court
                       Supreme Court Case No. 19S-MF-530

                        Dean Blair and Paula Blair,
                       Appellants/Cross-Appellees (Defendants)

                                            –v–

                            EMC Mortgage, LLC,
                         Appellee/Cross-Appellant (Plaintiff)


              Argued: November 7, 2019 | Decided: February 17, 2020

     Appeal from the Vanderburgh Superior Court, No. 82D07-1207-MF-3333
                     The Honorable Richard G. D’Amour, Judge

            On Petition to Transfer from the Indiana Court of Appeals,
                                     No. 18A-MF-808



                            Opinion by Chief Justice Rush
                 Justices David, Massa, Slaughter, and Goff concur.




Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020             Page 1 of 10
Rush, Chief Justice.

  A closed installment contract, such as a mortgage or promissory note, is
one in which a borrower agrees to make a series of payments to a lender
on specific dates. Suits to enforce obligations under these contracts are
subject to multiple statutes of limitations.

   Here, borrowers ask us to impose an additional rule of reasonableness,
insisting that their lender waited too long to sue them for amounts owed
under a mortgage and promissory note. The lender urges us to affirm the
trial court’s order, which granted it partial relief.

   We find that imposing additional, judicially created time constraints
upon a lender’s ability to bring a claim on a closed installment contract is
neither necessary nor wise. Applicable statutes of limitations already keep
a lender from waiting indefinitely to sue for a borrower’s default. And
these statutes are triggered at multiple points in time, leaving the lender
empty-handed if it delays too long. Imposing a further rule of
reasonableness could spur lenders to sue borrowers prematurely,
depriving them of the opportunity to first negotiate repayment.

   Finding that the lender filed suit within the applicable statutes of
limitations, we affirm.


Facts and Procedural History
   On December 21, 1992, Dean and Paula Blair executed a note and
mortgage to be paid in monthly installments over fifteen years, beginning
in February 1993. The note gave the holder the option to accelerate the
debt after a default and require immediate payment on the full amount
due.

   In June 1995, the Blairs made their last payment on the note. The
original lender filed for bankruptcy; and the note and mortgage were
eventually assigned to EMC Mortgage, LLC, in July 2000. Although the
note matured on January 1, 2008, EMC didn’t sue the Blairs to recover on
the note and foreclose the mortgage until July 3, 2012.




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   After a bench trial, the trial court issued an order foreclosing the
mortgage. But it held, in part, that EMC was entitled to recover only
payments and interest that accrued after July 3, 2006—due to Indiana’s
six-year statute of limitations to bring an action on the note underlying a
mortgage.

   The Court of Appeals reversed, finding that “a party is not at liberty to
stave off operation of the statute [of limitations] inordinately by failing to
make demand.” Blair v. EMC Mortgage, LLC, 127 N.E.3d 1187, 1195, 1198
(Ind. Ct. App. 2019) (alteration in original) (quoting Smither v. Asset
Acceptance, LLC, 919 N.E.2d 1153, 1161 (Ind. Ct. App. 2010)). And because
EMC did not accelerate the note within six years of the Blairs’ initial
default, the panel held that EMC waited “an unreasonable amount of
time” and could not recover. Id. at 1197–98.

  We granted transfer, vacating the Court of Appeals opinion. Ind.
Appellate Rule 58(A). 1


Standard of Review
   We will set aside the trial court’s findings and judgment only if they are
clearly erroneous. Fraley v. Minger, 829 N.E.2d 476, 482 (Ind. 2005). But
here, we focus on the trial court’s conclusion on whether EMC’s claim was
time-barred—and determining when a cause of action accrues under a
particular statute of limitations is a question of law reviewed de novo.
Cooper Indus., LLC v. City of South Bend, 899 N.E.2d 1274, 1280 (Ind. 2009);
Imbody v. Fifth Third Bank, 12 N.E.3d 943, 945 (Ind. Ct. App. 2014).




1The Court of Appeals also determined that, even though the Blairs did not file a timely
response to EMC’s summary judgment motion, “EMC was not entitled to summary judgment
because it failed to make a prima-facie showing that summary judgment was proper.” Blair,
127 N.E.3d at 1194. Although the time limits of Indiana Trial Rule 56 are strictly enforced, see
Borsuk v. Town of St. John, 820 N.E.2d 118, 123 n.5 (Ind. 2005), EMC did not raise this argument
on transfer; and given our disposition today, this issue is moot.



Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020                     Page 3 of 10
Discussion and Decision
   A promissory note is a negotiable instrument that accompanies a
mortgage. It is an installment contract that contains a maturity date—
usually fifteen or thirty years past its date of execution—when the full
balance owed becomes due. Such a note may also include a provision,
known as an acceleration clause, that gives the lender the option to
immediately demand payment on the full loan amount if the borrower
fails to pay one or more installments.

   The Blairs argue that the applicable statute of limitations requires an
acceleration option to be exercised within six years following a borrower’s
first default. And because EMC failed to do so, the Blairs contend that it
waited an unreasonable amount of time to sue for payment under the note
and thus its suit is time-barred.

   EMC counters that there are three possible points in time when the
statute of limitations could have been triggered: (1) as each installment
payment became due; (2) upon an exercise of the optional acceleration
clause, had it chosen to accelerate; or (3) upon loan maturity. And EMC
argues that its claim was timely because it was asserted within six years of
many of the Blairs’ missed installment payments and within six years of
the note’s maturity date. Yet, EMC refrains from asking for full relief,
rather urging us to affirm the trial court’s order that it is entitled to
recover only some of the amount due.

   We grant EMC’s request for two reasons.

   First, there is no need to impose a rule of reasonableness when a lender
sues to enforce installment obligations on a closed installment contract,
such as a mortgage or a promissory note. Unlike credit cards or other
open accounts, a closed installment contract contemplates payment of a
certain sum over a fixed period of time, which means a lender cannot wait
indefinitely to sue for missed installments.

   Second, under either of the applicable statutes of limitations, a cause of
action for payment upon a promissory note with an optional acceleration
clause can accrue on multiple dates—including when the note matures.



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See Ind. Code § 34-11-2-9 (2019); Ind. Code § 26-1-3.1-118(a) (2019). Thus,
EMC would be entitled to full relief under either statute.

   However, EMC not only expressly disclaimed any argument for full
relief; but it also urged us to affirm the trial court’s order that it was
entitled to partial relief. Under these particular circumstances, we affirm
the trial court’s order.


I.    There is no need to judicially create additional
      time constraints on a lender’s ability to bring an
      action upon a closed installment contract.
   The Blairs claim that, when a lender such as EMC has the option to
accelerate payments but is not required to do so, some reasonableness
limitation is necessary to ensure that “the creditor is not at liberty to stave
off operation of the limitations period inordinately by failing to make
demand.” The Blairs direct us to three cases in support of their argument:
Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153 (Ind. Ct. App. 2010);
Heritage Acceptance Corp. v. Romine, 6 N.E.3d 460 (Ind. Ct. App. 2014),
trans. denied; and Stroud v. Stone, 122 N.E.3d 825 (Ind. Ct. App. 2019).

   In Smither, the Court of Appeals determined that a creditor’s claim
against a borrower for “any portion” of the borrower’s credit card debt
was time-barred. 919 N.E.2d at 1162. The panel treated the credit card
agreement as an open account—“an account with a balance which has not
been ascertained and is kept open in anticipation of future transactions.”
Id. at 1159 (quoting 1 Am. Jur. 2d Accounts and Accounting § 4 (2005)). The
panel also observed that the statute of limitations for the entire balance
began to run either at the time of the borrower’s first default or the next
payment due date thereafter. Id. at 1160–62. And because the statute of
limitations had already run, the creditor could not have invoked the credit
card agreement’s optional acceleration clause within a reasonable amount
of time. Id. at 1161–62.

  Later, in both Romine and Stroud, the Court of Appeals applied
Smither’s rationale in the context of a closed installment contract. Romine, 6



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N.E.3d at 463–64; Stroud, 122 N.E.3d at 831–32. But, as explained below,
we find Smither distinguishable; and we disapprove Romine and Stroud.

   Smither noted that “credit card accounts are unlike promissory notes or
installment loans, such as mortgages, student loans, and car loans.” 919
N.E.2d at 1159. The court explained that with a promissory note or
mortgage, “the total amount of indebtedness and a defined schedule of
repayment, including precise dates for payment and the amount of each
payment until the debt is fully repaid, typically are included in the loan
document from the outset.” Id. On the other hand, from the outset of a
credit card agreement, the total amount of indebtedness is unknown,
making it appropriate to treat these agreements like open accounts—
instead of promissory notes—for purposes of the statute of limitations. Id.
at 1160. Thus, Smither recognized critical differences between open
accounts and closed installment contracts and how those differences
should impact the application of statutes of limitations.

    Despite Smither emphasizing these differences, both Romine and Stroud
applied Smither’s reasoning to a claim involving a closed installment
contract. Romine, 6 N.E.3d at 463–64; Stroud, 122 N.E.3d at 831–32. Romine
first applied Smither’s rule of reasonableness to find that a lender’s cause
of action on a closed installment contract for a car loan was barred due to
its long delay. 6 N.E.3d at 464. Then, Stroud specifically held that a
mortgage lender could not demand payment on a promissory note more
than six years after the borrower’s first default. 122 N.E.3d at 831. The
panel determined that the statute of limitations for the entire amount
owed on the promissory note began to run at that first default, and thus,
the lender’s claim for payment nearly eight years after the default was
unreasonable and time-barred. Id.

   Because we find that, for purposes of the statute of limitations, closed
installment contracts should be treated differently than open accounts, we
disapprove Romine and Stroud and decline to apply Smither’s rationale
here. We now examine the relevant statutes of limitations that apply to
actions upon promissory notes.




Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020    Page 6 of 10
II. Two statutes of limitations apply to a cause of
    action upon a promissory note.
   Two statutes of limitations apply when a lender sues for payment upon
a promissory note. These statutes “provide security against stale claims,
which in turn promotes judicial efficiency and advances the peace and
welfare of society.” Cooper Indus., LLC v. City of South Bend, 899 N.E.2d
1274, 1279 (Ind. 2009).

   First, Indiana Code section 34-11-2-9 is the general statute of limitations
for “action[s] upon promissory notes.” This statute states that such an
action, when pertaining to a note executed after August 31, 1982, “must be
commenced within six (6) years after the cause of action accrues.” I.C. §
34-11-2-9.

    Second, Indiana has adopted the relevant Uniform Commercial Code
(UCC) statute of limitations as Indiana Code section 26-1-3.1-118. This
statute specifically governs “an action to enforce the obligation of a party
to pay a note payable at a definite time.” I.C. § 26-1-3.1-118(a). It gives two
alternative deadlines for asserting a cause of action upon such a note:
either “within six (6) years after the due date or dates stated in the note or,
if a due date is accelerated, within six (6) years after the accelerated due
date.” Id.

   These statutes’ plain language shows that they are not mutually
exclusive when applied to an action on a promissory note. Rather, Section
34-11-2-9 addresses accrual of a cause of action in very general terms,
while Section 26-1-3.1-118(a) addresses it more specifically. And pre-
Stroud opinions from our Court of Appeals illustrate how these two
statutes may allow several accrual dates for causes of action upon a
promissory note.

   Griese-Traylor Corp. v. Lemmons, 424 N.E.2d 173, 183 (Ind. Ct. App.
1981), recognized that the statute of limitations begins to run “as each
installment becomes due.” Id. (citing Kuhn v. Kuhn, 273 Ind. 67, 402 N.E.2d
989 (1980)). Also, if the contract contains an acceleration clause, the cause
of action accrues either when a mandatory clause “brings all payments
due immediately,” or when an optional clause is exercised. Id. (cleaned


Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020      Page 7 of 10
up); see also Imbody v. Fifth Third Bank, 12 N.E.3d 943, 945 (Ind. Ct. App.
2014) (finding that a secured creditor exercised an optional acceleration
clause, “which triggered the statute of limitations” under Indiana Code
section 34-11-2-9). Finally, the note’s maturity date triggers the statute of
limitations, as acknowledged by Cowan v. Murphy, 165 Ind. App. 566, 333
N.E.2d 802 (1975). Although that case involved a note with a mandatory
acceleration clause, the panel commented that, “[h]ad the acceleration
clause been merely optional,” the lender’s acceptance of late payments on
the promissory note would have waived acceleration, so no cause of
action would have accrued “until the whole note had become due.”
Cowan, id. at 572, 333 N.E.2d at 805–06.

   Decisions from other jurisdictions have similarly concluded that a
mortgage lender can choose not to exercise an optional acceleration clause
and, instead, bring a cause of action within the statute of limitations
following a note’s maturity date.

   The Florida District Court of Appeals, applying that state’s general five-
year statute of limitations, found that “[w]hen a note contains an optional
acceleration clause, a lender only runs out of opportunities to foreclose,
under the applicable statute of limitations, after five years of the latest
default, or after five years of the date of maturity of the note.” Bank of
America v. Graybush, 253 So. 3d 1188, 1195 (Fla. Dist. Ct. App. 2018). The
court concluded that if a lender should bring a timely action under this
scenario, it would be “entitled to all sums due under the note and
mortgage—should the note and mortgage contractually provide.” Id.
Likewise, the Ohio Court of Appeals determined, regarding a promissory
note, that “[t]he date of acceleration or the natural maturity date of the
instrument is the triggering event for the statute of limitations” under
Ohio’s version of the UCC. Bank of New York Mellon v. Walker, 78 N.E.3d
930, 934 (Ohio Ct. App. 2017).

   Finding these opinions persuasive, we conclude that Indiana’s two
applicable statutes of limitations recognize three events triggering the
accrual of a cause of action for payment upon a promissory note
containing an optional acceleration clause. First, a lender can sue for a
missed payment within six years of a borrower’s default. Second, a lender



Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020     Page 8 of 10
can exercise its option to accelerate and fast-forward to the note’s maturity
date, rendering the full balance immediately due. The lender must then
bring a cause of action within six years of that acceleration date. Or, third,
a lender can opt not to accelerate and sue for the entire amount owed
within six years of the note’s date of maturity.

  We now apply this framework to determine whether EMC’s claim for
payment upon the promissory note is time-barred.


III. We affirm the trial court’s grant of partial relief to
     EMC.
   As explained above, ordinarily, lenders may recover the entire amount
owed on a promissory note by filing suit within six years of the note’s
maturity date, if they choose not to exercise the note’s optional
acceleration clause. But even though EMC sued the Blairs well within six
years of the note’s 2008 maturity date, the unique posture of this case
compels us to affirm the trial court’s award of only partial relief.

   In its appellate brief, EMC stated that, although it did “not agree with
the trial court’s conclusions regarding the impact of the Blairs’ statute of
limitations defense,” it did “not appeal the same.” At oral argument,
counsel for EMC emphasized that EMC “won at the trial court” and
acknowledged that EMC did not appeal the trial court’s rationale since it
didn’t have a reason to. Because EMC has expressly disclaimed any
argument for full relief and urged us to affirm the trial court’s order, we
decline to grant EMC relief beyond what it has sought.


Conclusion
   Important legal differences between closed installment contracts and
open accounts counsel against treating them identically for purposes of
statutes of limitations. Because we find no need to impose a rule of
reasonableness when a lender sues for payment on a closed installment
contract, we conclude that EMC could, under the two applicable statutes
of limitations, have recovered the full amount owed. But since EMC


Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020     Page 9 of 10
expressly disclaimed any argument for full relief, we affirm the trial court
and decline to grant relief beyond what EMC sought.


David, Massa, Slaughter, and Goff, JJ., concur.



ATTORNEY FOR APPELLANTS
Robert R. Faulkner
Faulkner Law Office
Evansville, Indiana

ATTORNEYS FOR APPELLEE
David J. Jurkiewicz
Bryan H. Babb
Nathan T. Danielson
Christina M. Bruno
Bose McKinney & Evans LLP
Indianapolis, Indiana




Indiana Supreme Court | Case No. 19S-MF-530 | February 17, 2020   Page 10 of 10
