News and practical information from our attorneys.
No Cheating Clause
As anyone who has read this blog before knows, we have often written about the fact that Indiana courts will enforce contracts between parties when those contracts were freely negotiated. One of the most recent decisions from the Indiana Court of Appeals affirmed this longstanding and well settled principle, but the facts of this case were just too good to pass up.
Rather than rehash all of those facts, I will leave those to the readers, but it is safe to say that not every day in legal opinions do we have to read what the legal term for “cheating” is in the context of a relationship or a court’s rather poignant statements that in this contract which included a “no cheating” clause, the woman “wasted little time in breaching the contract.”
There is no doubt that the Court likely was also swayed by the fact that the real estate at issue formerly was owned by the man’s parents. In any event, this case shows that not all the things that lawyers have to read are that boring and the lengths people will go to fight after a relationship falls apart.
After You Agree to a Judgment, That Is It.
We have talked often in this blog about Indiana courts enforcing agreements that have been negotiated between parties, and not interfering with those agreements absent the agreements being illegal or there being some fraud involved in reaching that agreement. The Indiana Court of Appeals recently reaffirmed this principle, albeit in a context that is somewhat different than what business people may be accustomed.
In situations where one party owes another party money, and a lawsuit has been filed to collect that money, it is not unusual for those parties to enter into an agreement whereby there will be an “agreed judgment” filed with the court, which the court then consents to and enters as a matter of record. Those agreed judgments often will involve a payment plan for the amounts that are owed.
In the recent case, the parties had done just that. The agreed judgment called for the defendant to pay to the plaintiff $400.55 plus an additional $450 in attorneys’ fees. Four years after the agreed judgment was entered, and presumably because the defendant had not paid what she had agreed to pay, the plaintiff filed motions with the court seeking to garnish the defendant’s wages to satisfy the agreed judgment. At that time, the defendant then appealed the entry of the agreed judgment. Through some procedural maneuverings, and even though by this time the underlying debt had already been paid, a new trial was ordered and a judgment was entered against the plaintiff after the plaintiff did not appear for the new trial.
That judgment was then appealed, and the Indiana Court of Appeals ultimately ruled that because the parties had originally entered into an “agreed judgment”, that was not appealable. Rather, the court saw the agreed judgment as an agreement, or contract, between the parties, to which the trial court consented. As such, that sort of judgment is not appealable.
In this case, the Indiana Court of Appeals was not going to let someone go back on her agreement entered into four (4) years earlier. In other words, once again Indiana courts have proven that they will enforce agreements negotiated between parties even if those agreements take the form of a judgment or otherwise.
BLISSFULLY IGNORANT? NOT GOOD ENOUGH IN A REAL ESTATE DEAL
We have often discussed in this blog how the Indiana courts will look at contracts and typically enforce the exact terms that were agreed to by the parties. The courts will also look at those contracts and hold the parties to the terms that were negotiated. However, in a recent case, the Court of Appeals went even further, most likely to get to what was in the court’s opinion the best result.
The two parties to the dispute had entered into a “property contract” whereby the seller was offering to sell certain real estate “property” to the buyer. However, the seller did not actually own the property, but in fact had rights under a lease, and another person actually owned the real estate. Therefore, the contract was not with the actual owner of the property; it was between the buyer and the person who was leasing the property from another person who actually was leasing from the owner.
After the buyer defaulted on the contract due to not paying the monthly payments, the seller filed a lawsuit to evict the buyer and to collect the amounts that had not been paid. At that point, the buyer, for the first time, conducted a title search and realized that the seller did not own the property, but rather only had been leasing it.
The buyer then filed a counterclaim against the seller because the buyer claimed to have been defrauded by the seller given that the seller did not own the property and therefore could not sell it to the buyer.
The Court of Appeals rejected that argument. The seller had in fact recorded a copy of the lease and its assignment of the lease with the appropriate county recorder. The Court of Appeals found that the buyer knew, or should have known, that it was buying an assignment of the lease and was not buying the actual real estate. The Court of Appeals noted that when a lease is recorded as required, that recording is constructive notice of its existence, and anyone seeking an interest in the real estate after that is on constructive notice of the lease’s existence and is “charged with notice of all that is shown by the record, including any terms contained in the lease that is recorded.”
The Court of Appeals went on to say that actual notice may be inferred from the fact that a person who had a duty to search the records had the means of knowledge that he did not use.
Whatever fairly puts a reasonable, prudent person on inquiry is sufficient notice to cause that person to be charged with actual notice, where the means and knowledge are at hands and he omits to make the inquiry from which he would have ascertained the existence of a deed or mortgage. Thus, the means of knowledge combined with the duty to utilize that means equates with knowledge itself. Whether knowledge of an adverse interest will be imputed in any given case is a question of fact to be determined objectively from the totality of the circumstances.
In summary, the court was not going to allow the buyer, who easily had the ability to find out the real status of what it was buying, to get out of the contract (or after the fact rationalize why it quit paying on the contract) because it chose not to do some due diligence prior to entering the contract. In this case, the court went past the actual terms of the contract and looked at some other issues raised by the transaction, including the means by which the parties could have ascertained what was really going on. In this way the court was trying to fashion a just result under the circumstances, and was not going to allow the buyer to get out of its contract by simply remaining blissfully ignorant.
Just When You Think You Know the Law . . .
Regular readers of this blog know that we have spent a fair amount of time giving examples of how courts in Indiana regularly state that there is a strong public policy to enforce contracts. In doing so, the court’s goal is to determine the intent of the parties at the time they made the contract, beginning with the plain language of the contract, reading it in context, and then determining if any part of the contract is ambiguous. If it is ambiguous, then the court will construe the terms in the contract to determine and give effect to the intent of the parties at the time of the contract. Otherwise, the court will enforce the plain language of the contract.
In a recent case that is pending in the United States District (Federal) Court for the Southern District of Indiana, the Court acknowledged this basis principle of Indiana law, but ultimately determined that despite the plain language of a settlement agreement from a previous case, the settlement agreement and release could not be enforced against a plaintiff. In other words, it would not enforce the contract despite the fact that the Court admitted the contract was not ambiguous and the intent of the parties was clear.
The case involved the second of two class actions in which the plaintiffs had alleged violation of certain constitutional rights. The plaintiffs were involved in both cases, the first of which had been settled through the terms of a settlement agreement. The court noted, and it is important for the readers to know, that a person can contract away certain constitutional rights. However, any such waiver of constitutional rights must be done “knowingly and voluntarily.” In this case, the court was not convinced that at least one of the plaintiffs had “knowingly and voluntarily” waived her constitutional rights because there was no evidence that she had read the settlement agreement from the first class action. Another of the plaintiffs had actually signed that settlement agreement, and therefore the court did dismiss her claim.
The court went so far as to say that it was “troubled” by the result and its possible implications. Indeed, such a holding could call into question other class actions where there is no evidence that all of the class members knowingly and voluntarily relinquished certain constitutional rights. Nevertheless, the court felt compelled, at least at the early stages of the litigation, to hold that the class member’s constitutional right to procedural due process trumped Indiana’s public policy of enforcing contracts, the parties’ contractual intent, and the plain language of the settlement agreement.
It is hoped that this case truly is an outlier and that Indiana courts will continue to enforce the intent of the parties as demonstrated by the plain meaning of the language used by the parties in their contracts. This is the only way to find certainty in the law and to be able to more accurately predict for clients the ultimate result in cases involving contract disputes.
How Much is this Going to Cost?
That question is one that attorneys often hear from existing and new clients who are involved in matters for which they are seeing the attorney. While some projects are capable of being estimated in terms of the cost, in litigation, where at least two parties are arguing over something that is important to each of them, because no one party has control over what the other one will do, it is often nearly impossible to estimate “How much it is going to cost.”
A perfect example of this was recently reported here. While the particulars of the case are not necessarily important for today’s purposes, the significance is that there was a legal fight that lasted approximately 38 years concerning some property in Madison County, Indiana. Imagine in 1978 trying to answer the client’s question of “How much is this going to cost?” Thirty eight years later, the real estate is going to be sold at an auction.
In another relatively recent case, two landowners fought over a strip of land 35’ X 100’, which had been valued at $890. That litigation lasted 3 years and involved 2 separate appeals. It is fair to say that each party incurred far more than $890 in fees, not to mention the value of their own time invested in the fight.
We have written extensively before about how slow litigation can proceed; the true cost of that litigation; and the toll it can take on the parties involved. These cases are yet further examples of how unpredictable, time consuming, and undoubtedly expensive litigation can be. Attorneys seek the most efficient and thereby cost effective way to resolve disputes for clients, but sometimes these types of disputes still last for decades. While these cases certainly are anomalies, they do serve as good examples of what can happen when two parties dig in and for whatever reasons are unable to resolve their differences or otherwise continue to fight.