ATTORNEY FOR APPELLANTS: ATTORNEY FOR APPELLEES:
EDWARD P. GRIMMER STEVEN W. HANDLON
COURT OF APPEALS OF INDIANA
Crown Point, Indiana Handlon & Handlon
SEDONA DEVELOPMENT GROUP, INC. )
and RICHARD C. WOLF, )
vs. ) No. 45A03-0306-CV-211
MERRILLVILLE ROAD limited partnership )
And IN HOME INVESTORS, INC., )
APPEAL FROM THE LAKE SUPERIOR COURT
The Honorable Jeffery J. Dywan, Judge
Cause No. 45D11-0103-CP-208
January 23, 2004
OPINION- FOR PUBLICATION
Appellants-defendants Sedona Development Group, Inc. (Sedona) and Richard C. Wolf (Wolf) appeal the
trial courts judgment in favor of appellee-plaintiffs Merrillville Road Limited Partnership (MRLP) and
IN Home Investors, Inc. (IN Home). Specifically, Sedona and Wolf contend that
the trial court erred in not finding that the partnership was dissolved on
July 15, 1999, and in finding that they had failed to sustain their
burden of proving the affirmative defense of accord and satisfaction. On cross-appeal,
MRLP and IN Home assert that the trial court abused its discretion in
allowing Sedona and Wolf to raise the affirmative defense of release for the
first time on the day of the trial. Finding no error, we
On April 29, 1993, Mesa Limited Partnership (Partnership) was formed through a Limited
Partnership Agreement (the Agreement) by MRLP, as the sole limited partner, IN Home,
as the sole non-managing general partner, and Sedona, as the sole managing general
partner. The purpose of the partnership was to acquire, then develop and
sell single-family residential lots in Merrillville. The land was to be developed
in five phases as a subdivision with 392 lots.
As required by the Agreement, MRLP contributed $1.8 million to the Partnership.
In return, MRLP was given first priority over Partnership distributions and was promised
a series of preferential payments as each home site was sold, until distributions
to it totaled $3.858 million (the Minimum Return). These preferential payments were
required to total at least $1.8 million by December 31, 1996. The
failure to do so placed the Partnership in default. The Agreement further
stated that it was to be governed by and interpreted in accordance with
the laws of the State of Illinois. Appellees App. p. 58.
Wolf owned at least 70% of Sedona. Before entering into the Agreement,
Wolf executed a Guaranty by which he personally guaranteed the obligations of Sedona
under the Agreement, for the benefit of MRLP and IN Home. The
Guaranty provided that if the Partnership had not distributed at least $1.8 million
to MRLP on or before April 30, 1997, four months after the Preferential
Payments were due under the Agreement, then all amounts payable to MRLP and
IN Home would be paid by Wolf. The Guaranty also provided that
it was to be governed by and interpreted in accordance with the laws
of the State of Illinois.
The Partnership failed to distribute $1.8 million to MRLP by December 31, 1996.
By a letter dated January 7, 1997, MRLP declared a default and
issued a notice of default pursuant to Paragraph 16 of the Agreement.
Neither The Partnership nor Sedona nor Wolf thereafter distributed funds to MRLP.
Nevertheless, the Partnership continued business.
On several occasions in 1998 and 1999, Wolf and H. Bruce McClaren, President
of MRLP, discussed the deteriorating financial circumstances of the Partnership and the failure
of Sedona and Wolf to make the required distributions to MRLP. During
one of these discussions in 1998, McClaren told Wolf that MRLP would be
satisfied only if Wolf paid MRLP its original investment of $1.8 million.
In response, Wolf proposed that he would syndicate the remaining land owned by
the Partnership (the Remainder) and use the syndication proceeds to satisfy McClarens demand.
Wolf later reported that he was unable to do so. Later,
on February 4, 1999, McClaren demanded that the Remainder be transferred to MRLP.
Wolf made further proposals by letter on February 10, 1999. On
April 6, 1999, Wolf again wrote McClaren. This letter assumed a transfer
of the Remainder to MRLP, as demanded by McClaren, and set forth a
basis for requiring MRLP to assume existing Partnership debt of $395,350. Specifically,
In exchange for a full release of the Guaranty and the withdrawal of
the PC Partner from Mesa, we will be willing to sell the remaining
lots in Phase 2, pay down the Citizens loan, complete the necessary development
commitment, pay the related development expenses and close the Mesa venture.
Plaintiffs Ex. 18. The letter concluded by saying, Once you have had
an opportunity to review the enclosed and our proposal, please feel free to
contact me with any questions or comments. Plaintiffs Ex. 18. McClaren
did not respond to this letter. On July 15, 1999, the Partnership
deeded to MRLP the Remainder, consisting of approximately eighty acres that would have
become Phases 3, 4, and 5 of the project.
MRLP and IN Home brought suit against Sedona and Wolf in Lake County,
and, after a change of judge motion, the trial was venued in the
Lake County Superior Court on March 12, 2001. MRLP and IN Home
moved for summary judgment on July 29, 2002. After a hearing, the
trial court granted partial summary judgment on December 10, 2002, finding that Sedona
and Wolf were indebted to MRLP in the amount of $1.8 million as
a matter of law by the Agreement and the Guaranty. However, the
trial court found that there were issues of fact and law concerning the
value of the Remainder, whether estoppel or waiver barred MRLP and IN Homes
claims, and whether an accord and satisfaction had occurred. Thus, a bench
trial on these issues was held on January 7 and 8, 2003.
The trial court entered judgment for MRLP and IN Home on May 6,
2003, finding that the value of the Remainder was $1,095,000 as of July
5, 1999, and that Sedona and Wolf failed to prove the facts necessary
to sustain the defenses of estoppel, waiver, accord and satisfaction, or release.
The trial court noted that the defense of release was not pleaded or
raised in pre-trial contentions, but, rather than strike the defense, the court found
that a release was neither intended nor given. Sedona and Wolf now
DISCUSSION AND DECISION
I. Affirmative Defenses
Wolf and Sedona argue that the trial court erred in finding that they
did not prevail based on their affirmative defenses. Specifically, they contend that
the trial court must be reversed because they established the elements of accord
A. Accord and Satisfaction
Inasmuch as Sedona and Wolf bore the burden of establishing all facts necessary
to show that an accord and satisfaction occurred, they are appealing from a
negative judgment by the trial court. On appeal from a negative judgment,
we will affirm the trial courts decision unless it is contrary to law.
Autobanc Corp. v. Hodges Towing Serv., 793 N.E.2d 248, 249 (Ind. Ct.
App. 2003). In determining whether the judgment is contrary to law, we
will neither reweigh the evidence nor judge the credibility of witnesses. Id.
We will consider the evidence in a light most favorable to the
party prevailing at the trial court, and we will reverse the judgment only
if the evidence leads to but one conclusion and the trial court reached
the opposite conclusion. Id. We will affirm if there is substantial
evidence of probative value to support the judgment on any legal theory.
Under Illinois law
See footnote , an accord and satisfaction is a contractual arrangement under which
a creditor agrees to accept partial payment from a debtor in full satisfaction
of an unliquidated claim.
Kreutz v. Jacobs, 349 N.E.2d 93 (Ill. App.
Ct. 1973). In order to prove an accord and satisfaction, the following
elements must be shown:
there must be a bona fide or honest dispute. Gord Indus. Plastics.,
Inc. v. Aubre Mfg., Inc., 431 N.E.2d 445, 448 (Ill. App. Ct. 1982);
the sum in dispute must be unliquidated. Id.;
there must be consideration. W.E. Erickson Constr., Inc. v. Congress-Kenilworth Corp., 477
N.E.2d 513, 520 (Ill. App. Ct. 1985);
there must be a meeting of the minds with the intent to compromise.
there must be execution or performance of the agreement. Id.
Furthermore, there is no bona fide dispute where it is clear what amount
is owed and the dispute centers on whether the debt is owed at
all. Gord, 431 N.E.2d at 448.
The evidence shows that there was no bona fide dispute. The trial
court found in its Partial Summary Judgment that the Agreement provided for payment
by the Partnership to MRLP of the Minimum Return of $3.858 million.
The amount owed by Wolf and Sedona to MRLP and IN Home under
the Agreement was not in dispute at the trial, and, therefore, Wolf and
Sedona failed to establish this element of accord and satisfaction.
Moreover, there was no meeting of the minds with the intent to compromise.
Wolf testified that he intended the transfer of the Remainder to merely
offset his obligations under the Guaranty rather than to satisfy the debt entirely.
Q And continuing throughout Page 72, do you see that you said, However
Im looking at Line 5 that a value needed to be determined
for the residual acreage.
. . . .
Q Okay. And my question, Line 7: And why did you think
it was necessary to determine a value . . . ?
And you responded, Because there was a guarantee hanging out there. Right?
Q And I then said at Line 12, And I realize this seems a
little simplistic, I want the record to be clear, why is it important
that a value be associated with the real estate?
And at Line 15, you answered, As an offset to the obligation owed.
Q Okay. And we continue through Lines 16 and 25, and Id like
you to look particularly at Line 20, in which I ask you, .
. . [Y]ou expected that conveyance to offset your personal guarantee, to the
extent of the value of the land?
And you answered, Thats correct. True?
Tr. p. 105-06.
B. Equitable Estoppel
Additionally, there is no evidence that MRLP and IN Home ever considered the
transfer of the Remainder to be an accord and satisfaction of Wolfs Guaranty.
The only evidence that this was even discussed comes from a single
sentence in Wolfs April 6, 1999 letter, in which he proposes that the
transfer of the Remainder act as a release of his Guaranty. The
letter specifically requested McClaren to contact Wolf, but McClaren never responded to the
proposal. Thus, there was no meeting of the minds with regard to
an accord and satisfaction of Wolfs Guaranty. In light of the above, we
cannot say that the trial court erred in finding that Wolf and Sedona
failed to prove an accord and satisfaction.
Notwithstanding the fact that the issue stated on appeal only raises the question
of whether an accord and satisfaction occurred, Wolf and Sedona advance an argument
in their appellate brief that the trial court improperly found that they did
not establish the elements of equitable estoppel. Inasmuch as Wolf and Sedona
bore the burden of persuasion on this affirmative defense, we also review this
argument under the negative judgment standard of review.
To establish equitable estoppel under Illinois law
See footnote , the party claiming estoppel must demonstrate
the other person misrepresented or concealed material facts;
the other person knew at the time he or she made the representations
that they were untrue;
the party claiming estoppel did not know that the representations were
untrue when they were made and acted upon;
the other party intended or reasonably expected that the other party
claiming estoppel would act upon the representations;
the party claiming estoppel reasonably relied upon the representations
in good faith to his or her detriment; and
the party claiming estoppel would be prejudiced by his or her reliance
on the representations if the other person is permitted to deny the proof
Geddes v. Mill Creek Country Club, Inc., 751 N.E.2d 1150, 1157 (Ill. 2001).
II. Termination of the Partnership
Wolf and Sedona do not argue that MRLP or IN Home made any
untrue representations. Instead, they contend that by MRLP and IN Homes silence,
they consented to the full satisfaction of the obligation. The thrust of
Wolf and Sedonas argument is that the Agreement gave MRLP a duty to
speak. However, Wolf and Sedona do not cite to any provision of
the Agreement that requires such a duty. Neither do they direct us
to any Illinois law that would bestow such a duty upon MRLP and
IN Home. Moreover, the only apparent citation that could lead us to
this duty to speak is to a deposition that is not even included
in the record. Wolf and Sedona have failed to establish that any
misrepresentations were made to them.
Furthermore, there is no evidence that Wolf and Sedona reasonably relied upon any
representation or that they were prejudiced by reliance on their part. Over
the course of two years, the partners discussed numerous potential resolutions to the
circumstances facing the Partnership, and Wolfs proposal for his own personal release was
but one of many concepts presented. It was not reasonable for Wolf
to rely upon McClarens lack of response to Wolfs self-serving proposal for his
own personal release when McClaren never expressed assent to the proposal. Moreover,
even if Wolf and Sedona had reasonably relied upon a representation, they were
not prejudiced. MRLP agreed to take title to the Remainder and to
assume $395,350 of the Citizens Financial Development loan. Had Wolf not transferred
the Remainder to MRLP, he would have owed MRLP $3.858 million and Citizens
Financial the unpaid balance of the development loan under his personal Guaranty to
it, while still being unable to develop or sell the Remainder because of
a lack of available funds. Under these circumstances, the evidence shows that
Wolf and Sedona benefited from the transfer rather than being prejudiced. In
light of the above, we cannot say that the trial court erred in
finding that Wolf and Sedona failed to establish the elements of equitable estoppel.
Wolf and Sedona then argue for the first time on appeal that the
trial court erred as to when the Partnership terminated. Specifically, they contend
that the dissolution of the Partnership occurred on July 15, 1999, and that
this operated to bar MRLP and IN Home from bringing an action based
upon the Agreement. However, a party may not present an argument or
issue to an appellate court unless the party raised that argument or issue
to the trial court. GKC Indiana Theatres, Inc. v. Elk Retail
Investors, LLC., 764 N.E.2d 647, 651 (Ind. Ct. App. 2002). The only
issues before the trial court were the value of the Remainder, whether estoppel
or waiver barred MRLP and IN Homes claims, and whether an accord and
satisfaction occurred. Wolf and Sedona did not argue that the Agreement itself
barred the suit, and, thus, this claim of error is waived.
Finally, MRLP and IN Home argue in their cross-appeal that the trial court
erred by allowing Wolf and Sedona to raise the affirmative defense of release.
Specifically, they contend that it was improper to allow Wolf and Sedona
to raise that defense on the day of trial. Inasmuch as the
trial court ruled against Wolf and Sedona, we need not expend judicial resources
in discussion of the merits of a defense that did not prevail at
In light of the disposition of the above issues, we find that the
trial court did not err in determining that Wolf and Sedona did not
establish the defenses of accord and satisfaction or equitable estoppel. We further
find that Wolf and Sedona waived their argument regarding the Agreement barring suit,
and that MRLP and IN Home have no cause to complain of the
defense of release being introduced the day of the trial.
The judgment of the trial court is affirmed.
NAJAM, J., and MAY, J., concur.
As indicated above, the Agreement calls for the application of Illinois law.
We note, however, that Illinois law regarding accord and satisfaction is substantially
similar to Indiana law, which requires that: (1) there is a good faith
Gearhart v. Baker, 393 N.E.2d 258, 260 (Ind. Ct. App. 1979); (2)
the sum in dispute is not liquidated, id.; (3) there is consideration, Blankenship
v. McKay, 534 N.E.2d 243 (Ind. Ct. App. 1989); (4) there is a
meeting of the minds or evidence that the parties intended to agree to
an accord and satisfaction, Fifth Third Bank of Southeastern Indiana v. Bentonville Farm
Supply, Inc., 629 N.E.2d 1246, 1249 (Ind. Ct. App. 1994); and (5) there
is a performance of the contract, Mominee v. King, 629 N.E.2d 1280, 1282
(Ind. Ct. App. 1994).
We note that Illinois law here is substantially similar to Indiana law.
Under Indiana law, [t]he elements of equitable estoppel are: (1) a representation
or concealment of a material fact, (2) made by a person with knowledge
of the fact and with the intention that the other party act upon
it, (3) to a party ignorant of the fact, (4) which induces the
other party to rely or act upon it to his detriment.
v. Crowe, 778 N.E.2d 835, 840 (Ind. Ct. App. 2002). Additionally, the
party to whom the representation was made must have relied on or acted
on it to his prejudice. Ebersol v. Mishler, 774 N.E.2d 373, 378 (Ind.
Ct. App. 2002).