3155 Development Way, LLC v. APM Rental Properties, LLC, 52 N.E. 3d 854 (Ind. Ct. App. 2016)
The Indiana Court of Appeals (“Appellate Court”)‑held that (i)‑lack of public access hidden by a seller’s attempt to induce buyers with false claims about the property’s easy access to public roads provided justification for rescission of a sales contract and an award of damages and (ii)‑the making payments to an escrow account pending resolution of the access issue did not constitute a breach of contract.
In January 2011, 3155 Development Way, LLC (“Seller” or “Development”)‑acquired property (“Tract 3”)‑located in Sellersburg, Indiana (the “Acquisition”). At the time of the Acquisition, an approximately 23,000‑square‑foot commercial building was located on Tract 3 (the “Building”)‑and Development had either actual or constructive notice that Tract 3 lacked access from a public road. Thereafter, Seller listed Tract 3 for sale and represented that Tract 3 had “easy access” to major highways. On September 30, 2011, APM Rental Properties, LLC (“Buyer” or “APM”), a then current tenant of the Building, entered into a sales contract with Development (the “Contract”)‑pursuant to which Buyer would purchase Tract 3 free and clear of all liens and encumbrances (including the Building)‑from Seller. The purchase price for Tract 3 under the Contract was $730,000 (the “Purchase Price”)‑with payments to be made via 36 monthly installments of $7,500 each, with a balloon payment of $566,589.22 due September 1, 2014 (the “Balloon Payment”). Upon payment of the Purchase Price in full, Development would convey Tract 3 to the Buyer. In preparation for closing and making the Balloon Payment, the Buyer sought mortgage financing through a loan (the “Loan”)‑from MainSource Bank (the “Lender”). The Lender agreed to provide financing on the condition that Buyer obtain assurance that Tract 3 could be accessed from a public street. After retaining a professional surveyor, APM learned that the paved roadway which provided access to Tract 3 from the local thoroughfare was not a public road but an access improvement on portions of neighboring tracts owned by independent third parties. APM then approached the owners of the tracts upon which the access improvement was located requesting that the owners grant a permanent easement over their property to provide the right of ingress and egress using the access roadway to Tract 3 (an “Access Easement”). Following the request, one of the third parties demanded that APM cease using the access road through its tract and threatened to erect concrete barriers in order to prohibit APM’s use of the access road. Subsequently, Buyer notified Development (i)‑of the access issue and (ii)‑that it would make all future monthly contract payments to an escrow account established with the Lender. On May 2, 2014 APM then filed a complaint against Development in the Circuit Court of Clark County, Indiana (the “Trial Court”)‑seeking the establishment of an Access Easement. Seller counterclaimed seeking specific performance and alleged breach of contract for failure to make payments under the Contract.
The Trial Court:
By the time the Balloon Payment was due, as neither party had been able to come to an agreement with the third parties with respect to the granting of an Access Easement, Buyer filled an amended complaint against Development alleging fraud and seeking rescission of the Contract plus damages. The Trial Court (i)‑granted partial summary judgment rescinding the Contract to the Buyer on the basis that (a)‑Seller did not have marketable title to Tract 3 due to the lack of a public access road and (b)‑Buyer could not be compelled to accept deficient title and (ii)‑scheduled a hearing to determining the amount of money, if any, Buyer is entitled to recover as a result of the Contract rescission, fraud and special damages. Seller then appealed.
On appeal, Seller alleged that the Trial Court erred in granting Buyer rescission of the Contract. According to Seller, the Contract had initially been breached by Buyer due to its failure to make monthly payments to Seller. In light of this breach by Buyer, Seller was discharged from its obligation to perform under the Contract, including the obligation to deliver title to Tract 3 to Buyer. Since the Seller was released from its obligations under the Contract, the grant by the Trial Court of rescission was improper. Citing prior cases, the Appellate Court noted that an obligee to a contract that reasonably believes that the obligor will not perform the terms thereof may demand assurance of performance from the obligor and suspend its own performance until such assurances are given. Examining the facts at hand, the Appellate Court rejected the Seller’s argument of a Buyer breach of the Contract finding that the decision by Buyer to deposit the monthly payments of Purchase Price into escrow and condition the release thereof upon the grant of an Access Easement did not constitute a breach of the Contract, but reflected a good faith request from Buyer for assurances from Seller for performance. Since the Buyer did not breach the terms of the Contract, Seller was not released from its obligation to perform thereunder. In light of the fact that Seller did not have marketable title to Tract 3 and could not perform the terms of the Contract, rescission of the Contract was proper. The Appellate Court also rejected Seller’s argument that it did not induce Buyer to enter into the Contract through misrepresentation. Accordingly, the Appellate Court affirmed the Trial Court ruling and held that Buyer was entitled to rescind the Contract due to Seller’s misrepresentation and inducement of Buyer to enter into the Contract.