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FOR PUBLICATION
ATTORNEYS FOR APPELLANT: MARK R. GALLIHER CRAIG D. DOYLE Indianapolis, Indiana ATTORNEYS FOR APPELLEES: G. MARTIN COLE JEREMY J. GROGG Fort Wayne, Indiana

FILED
Jul 10 2009, 9:19 am
of the supreme court, court of appeals and tax court

IN THE COURT OF APPEALS OF INDIANA
THE MONEY STORE INVESTMENT CORPORATION (now, WACHOVIA COMMERCIAL MORTGAGE, INC., Its Successor in Interest), f/d/b/a FIRST UNION SMALL BUSINESS CAPITAL, Appellant-Defendant, vs. NEAL A. SUMMERS, et al., Appellee-Plaintiff. ) ) ) ) ) ) ) ) ) ) ) ) )

CLERK

No. 02A03-0807-CV-384

APPEAL FROM THE ALLEN CIRCUIT COURT The Honorable Thomas J. Felts, Judge Cause No. 02D01-0109-CP-1341

JULY 10, 2009

OPINION - FOR PUBLICATION SHARPNACK, Senior Judge

This appeal involves issues of liens and priorities between Paula Phillips ("Phillips"), a judgment creditor and assignee of a first mortgage holder ("National City"), and The Money Store Investment Corporation, d/b/a First Union Small Business Capital ("Money Store")1, the holder of a second mortgage, for the cost of repairs, insurance, and taxes with respect to the mortgaged property owned by Neal Summers, on a part of which Phillips has been operating a restaurant. This is the second appeal of the case and is brought by Money Store from a judgment of the trial court adding to the lien of Phillips as assignee of National City's mortgages amounts spent to repair the restaurant, insure it, and pay taxes on the mortgaged property during the pendency of the first appeal. Money Store raises the following restated issues for our review: I. Whether the trial court erred in granting Phillips a first priority lien on the real estate for the cost of repairs, insurance payments, and tax payments; Whether the trial court erred in concluding that Money Store was personally liable to repay Phillips for the cost of repairs, insurance payments, and tax payments; Whether the trial court erred in awarding Phillips prejudgment interest; and Whether the trial court erred in failing to order an accounting and an application of the restaurant's profits to Phillips' lien.

II.

III.

IV.

We affirm in part, reverse in part, and remand.

1

Money Store is now Wachovia Commercial Mortgage, Inc.

2

We begin our review of this appeal with reference to the decision of our Supreme Court in the first appeal. There, the Court summarized the facts and proceedings relevant to that decision as follows: From 1992 to 1996, Neal Summers granted eleven mortgages on three parcels of his real estate to Fort Wayne National Bank as security for a series of loans. Three of these mortgages contained dragnet clauses. In February 1998, Paula Phillips sued Summers and the company in which he was the sole shareholder, Mangy Moose Enterprises, Inc. Her complaint raised a dispute over the ownership of the trademark/trade name "Paula's Seafood." The parties entered into a written settlement agreement on September 21, 1999, and the suit was subsequently dismissed without prejudice. On September 15, 2000, Summers and Mangy Moose borrowed $508,275 from the Money Store Investment Corporation d/b/a First Union Small Business Capital and granted a mortgage on the same three parcels used to secure the Fort Wayne National mortgages (to which National City succeeded), plus an additional six lots. On the same day, Mangy Moose, by Summers as president and secretary, borrowed $471,000 from Money Store, and granted a mortgage on the same real estate. Prior to these loans, on August 30, National City sent to Money Store's title company three pay-off statements that included the daily interest. National City assured the title company that eight mortgages and two assignments of rents and leases would be released upon the proper payoff of the three loans. On September 15, National City received three payments, but one payment came up $375 short of the amount reflected on the pay-off statements. National City did not release any of the mortgages and was still owed some $4700 on Mangy Moose's overdrawn checking account. Phillips filed a motion to enforce the settlement agreement on August 10, 2001. Just over a month later, Money Store filed a complaint for foreclosure and appointment of a receiver. On February 5, 2002, the trial court in the Phillips' action found that Summers and Mangy Moose had failed to comply with an earlier order and granted Phillips a $205,700 judgment. Phillips then purchased National City's nine mortgages and two assignments of rents and leases, and National City assigned all of its interest to Phillips. In March 2002, Phillips filed a complaint to foreclose these mortgages, and also moved to intervene in the Money Store 3

foreclosure action. Both Phillips and Money Store moved for summary judgment. The trial court entered its judgment and decree foreclosing both Phillips' and Money Store's mortgages. It held that "dragnet" clauses contained in three of the mortgages assigned to Phillips secured "all debts or obligations owed to Paula Phillips by Summers," which included Phillips' judgment lien against Summers, Mangy Moose's overdrawn checking account, collection fees, attorneys fees, and interest. It granted Phillips priority over Money Store on the three Summers' lots used as collateral in the mortgages assigned to Phillips. The Court of Appeals affirmed, holding that "the mortgage dragnet clauses support[ ] the trial court's conclusion that the monetary judgment resulting from Summers' failure to comply with his written settlement agreement was, after Phillips acquired the mortgage through assignment by National City, 'secured by' the dragnet mortgages." The Money Store Investment Corp. v. Summers, 822 N.E.2d 223, 229 (Ind.Ct.App.2005) vacated. We granted transfer. Money Store Inv. Corp. v. Summers, 849 N.E.2d 544, 546-47 (Ind. 2006) (citations omitted).

The Court went on to conclude as follows: While it is true that Phillips stepped into the shoes of the mortgagee, this entitled her to collect debts secured in accordance with the terms of the mortgages, not her judgment lien. The debts in this case were limited to the $375 short payment on the loan payoff and the $4700 overdrawn checking account, plus interest, collection costs, and attorney's fees. We reverse the trial court's grant of priority to Phillips over Money Store on the lots in question. Id. at 548. After the decision of our Supreme Court, Phillips and Money Store stood in the following order of priority: 1) Phillips as assignee of the National City mortgages for the amounts as limited by the Supreme Court, including $5,181.25 for the debt from Summers plus interest and attorneys fees; 2) Money Store for its foreclosure judgment, 4

including $569,470.28 plus interest and attorneys fees; and 3) Phillips for her $205,700 judgment against Summers. We turn now to this appeal. The primary facts relevant to this appeal concern actions that occurred for the most part between the judgment of foreclosure by the trial court on December 4, 2003, and the affirmance of that judgment by this court on April 18, 2005. The Indiana Supreme Court granted transfer on August 11, 2005, and handed down its previously referenced opinion on June 27, 2006. The dispute between Phillips and Summers that led to her judgment against him concerned a restaurant that Phillips had operated for some years in part of the buildings on the subject property. When she began operations, the property was owned by

someone other than Summers. After Summers acquired the property, he became more and more involved in the operation of the restaurant, which eventually led to Phillips leaving and suing Summers and Mangy Moose, a corporation formed by Summers. Phillips obtained her money judgment against Summers and Mangy Moose on February 5, 2002. By that time, Summers had apparently left the country for New Zealand, and Money Store had filed to foreclose and have a receiver appointed. The receivership was never consummated, but Don Young operated the restaurant on the premises from around March 2002 until August 2003, when he abandoned the project and the restaurant was closed. (Tr. 168-70). Left empty, the one-hundred-year-old property was vandalized and burglarized. Summers was gone and Money Store did not qualify a receiver or enter the property to 5

secure its interests. Watching the property deteriorate, Phillips eventually decided to take remedial action to secure it. Before beginning repairs or paying taxes, Phillips and her lawyer had several telephone conferences with Money Store representatives regarding the deteriorating condition of the property and the need for repairs. The Money Store representatives agreed that something needed to be done and indicated that Phillips should go ahead. The Money Store people did not agree to pay for anything, or that the costs would be a part of Phillips' mortgage claim. (Tr. 195-198) Because Phillips lacked the financial ability to make the necessary repairs to the restaurant, she turned to Frank Casagrande, Thomas Sokolik, and their limited liability partnership T&F, LLP. (Tr. 20). At Phillips' request, T&F obtained a $150,000 loan to begin the process of repairing the restaurant. (Tr. 20). T&F provided an additional $60,000. (Tr. 21). Although there was no written contract, Phillips agreed to repay T&F the $210,000 spent on the restaurant repairs. (Tr. 74). Phillips, Casagrande, and Sokolik subsequently formed 412323, LLC, to operate the restaurant and a seafood market upon completion of the repairs. (Tr. 18). The work done included repairs to the leaking roof, broken windows, floors, unstable structure and foundation, termite damage, water damaged ceilings, faulty electrical and HVAC systems, unusable plumbing, and damaged drywall. (Tr. 24-30). The bulk of the repair work was done in 2004. (Tr. 70). Paula's Restaurant opened for business on November 30, 2004. (Tr. 70).

6

On January 4, 2006, T&F, along with Craftsman Building Services, the contractor responsible for much of the repair, and 412323, filed a complaint against Phillips asserting a mechanic's lien on the real estate and an unjust enrichment claim against Phillips. The trial court dismissed the complaint on March 30, 2006, for failure to state a claim pursuant to Trial Rule 12(B) (6) because Philips was not an owner of the real estate pursuant to the statutory definition and thus had no lienable interest in it. Also during the pendency of the first appeal, Phillips learned that several of the lots composing the real estate had been sold at a tax sale because neither Summers nor Money Store had paid the taxes on them. With the assistance of T&F and 412323, Phillips redeemed several of the lots as well as certain outlots. She also paid the annual property taxes on all of the parcels after she redeemed them. In addition, Phillips paid the premiums for commercial property and casualty insurance coverage on the property. In March 2005, a month following this court's affirmance of the trial court in the first appeal, Phillips filed a Petition for the Recovery of Property Tax Payments, Insurance Payments, Utility Payments, and Payments for Necessary Repairs to the Mortgaged Property. The trial court decided to defer action on the petition until the appeal was concluded. Phillips subsequently filed two petitions for post-judgment attorney fees on appeal. Five months later, the Indiana Supreme Court granted transfer in Money Store I. In June 2006, the Supreme Court issued its opinion reversing the trial court's grant of priority to Phillips over Money Store as to her judgment against Summers and Mangy Moose. See The Money Store Investment Corporation v. Summers, 849 7

N.E.2d 544 (Ind. 2006). At the August 2007 hearing on Phillips' March 2005 petitions, Phillips introduced into evidence invoices and copies of checks paid for the repairs to the building, insurance premiums, taxes, and attorney fees. Also at the hearing, Phillips testified that insurance premium payments were for business and commercial liability insurance, not for health or personal injury. Since the opening of the restaurant in November 2004, the restaurant has taken in gross revenues between $1,000,000 and $1,250,000 per year. (Tr. 94). These revenues have paid all of the restaurant's ordinary operating expenses. (Tr. 95). In addition, the restaurant has paid Phillips a salary of over $30,000 per year and had also paid $500 per month for her health insurance. (Tr. 155, 149). Casagrande and Sokolik each receive a salary of $13,000 per year. (Tr. 156). Further, the restaurant has been paying $1,500 per month on the bank loan that funded the renovations and has paid $15,000 back to T & F. (Tr. 146, 157). Phillips, Casagrande, and Sokolik have also each received a $5,000 dividend from the restaurant. (Tr. 149). In May 2008, the trial court issued a 56-page judgment, which reviewed in detail the facts of the case as well as all of the invoices, checks, and evidence admitted into evidence at the hearing. In essence, the trial court found that Phillips was entitled to recover, in addition to the amounts due with respect to the National City mortgages as held by the Supreme Court, and with the same priority, the expenditures for repairs (excluding those disallowed by the trial court), taxes, and insurance. The decision of the trial court established the following priorities as to the proceeds of foreclosure sale of the 8

property: 1) Phillips as to the balance due on the National City mortgages, including interest and attorney fees and the costs of repair, taxes, and insurance, approximately $360,657.65 plus interest and attorneys fees; 2) Money Store for its foreclosure judgment, including $569,470.28 plus interest and attorneys fees; and 3) Phillips for her $205,700 judgment against Summers. In addition, the trial court found Money Store liable to Phillips as follows:

IT IS ORDERED, ADJUDGED AND DECREED THAT, taking all of the aforementioned amounts into consideration, Paula is awarded a total recovery and judgment from the Money Store of $355,467.40 for total amounts expended on the Real Estate, including attorney fees, plus total accrued interest, all of which is secured by a first priority lien on the Real Estate. Appellant's App. at 116. Money Store appeals. Our discussion of the issues includes additional facts. Discussion and Decision At the outset we note the parties agree that the trial court's judgment in this case supplements rather than replaces the court's December 2003 judgment foreclosing both Phillips' and Money Store's mortgages. The parties' mortgages are still foreclosed, and the real estate should proceed to sheriff's sale following the accounting ordered here on remand. We now turn to the merits of the case. The trial court entered findings and conclusions sua sponte. Sua sponte findings control only the issues they cover. Olcott 9

Intern. & Co., Inc. v. Micro Data Base Systems, Inc., 793 N.E.2d 1063, 1071 (Ind. Ct. App. 2003), trans. denied. We apply the following two-tiered standard of review to sua sponte findings and conclusions: whether the evidence supports the findings and whether the findings support the judgment. Id. Findings and conclusions will be set aside only when they are clearly erroneous. Id. A judgment is clearly erroneous when a review of the record leaves us with a firm conviction that a mistake has been made. Id. We consider only the evidence favorable to the judgment and all reasonable inferences flowing therefrom, and we will neither reweigh the evidence nor judge the credibility of witnesses. Id. A general judgment standard of review controls as to the issues upon which there are no findings. Id. In such a case, the judgment will be affirmed if it can be sustained on any legal theory supported by the evidence. Id. I. A. First Priority Lien

Implied Promise to Repay

Money Store contends that the trial court erred in awarding Phillips a first priority lien on the real estate. Specifically, Money Store's first argument is that the trial court erred in awarding the lien because Phillips "did not pay one penny of the expenses she now seeks to recover." Appellant's Br. at 9-10. Money Store points out that it was Phillips' partners who paid the expenses, and Phillips is under no written contractual obligation to repay them. Where there is no express contract, the right to recover may rest upon an implied contract or an implied promise to pay. Cole v. Cole, 517 N.E.2d 1248, 1250 (Ind. Ct. 10

App. 1988). Such a contract may be inferred from the conduct, situation, or material relations of the parties and enforced by law. Id. The intention to pay and the expectation of compensation may be inferred from the conduct of the parties and where equity, justice, and fair dealing require compensation. Id. Here, our review of the transcript reveals that Phillips requested help from Casagrande and Sokolik. The two men borrowed money and paid Phillips' expenses for her, and she has already begun to repay them. This evidence supports the trial court's finding and conclusion that Phillips is the proper party to seek reimbursement for the money spent protecting and preserving her liens on the real estate and outlots because she agreed to be liable and to repay Casagrande and Sokolik. See Miller v. Curry

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