“we just saw it from a different point of view”: recent developments in

* Real Estate Counsel, Kite Realty Group, Indianapolis. B.A., 1994, Indiana University—

Bloomington; J.D., 2000, Harvard Law School. Many thanks to Phil Bayt, Andrea Marsh, and Bob

Solloway for helping me think through these cases and for patiently listening to my theories.

Thanks also to my husband, Blane Sherman, for everything that he does.

1. 789 N.E.2d 1025 (Ind. Ct. App. 2003).

2. 792 N.E.2d 893 (Ind. Ct. App. 2003).

3 . Humphries, 789 N.E.2d at 1028.

4 . Id. at 1029.

5 . Id. at 1032. On the marketable title issue, the court of appeals held that potential or

“WE JUST SAW IT FROM A DIFFERENT POINT OF VIEW”:

R ECENT DEVELOPMENTS IN INDIANA

REAL PROPERTY LAW

T ANYA D. MARSH

This Article takes a topical approach to the notable real property cases in this

survey period, October 1, 2002 through September 30, 2003, beginning with a

discussion of the unresolved tension in Indiana law between legal and equitable

remedies for the breach of a contract concerning real estate. The Article then

analyzes noteworthy cases in each of the following areas: (1) relationships

between private parties; (2) title and recording issues; (3) land use law; (4)

eminent domain law; (5) tax sales; and (6) developments in the common law of

property.

I. REMEDIES FOR THE BREACH OF A REAL ESTATE PURCHASE C ONTRACT

The same panel of the Indiana Court of Appeals addressed a fundamental

question twice in as many months this survey period—what remedies are

available to a seller after a purchaser’s breach of a contract for the sale of real

estate? Beyond their direct application, these cases are important because the

contradictory philosophies articulated in Humphries v. Ables and Kesler v.

Marshall highlight a broad unresolved tension in Indiana common law between

legal and equitable remedies, specifically with respect to the availability of the

remedy of specific performance for the breach of a real estate contract.

The first case addressed a dispute between Max and Betty Ables

(collectively, “Sellers”) and Marc and Kelle Humphries (collectively, “Buyers”),

who were parties to a contract for the sale of a liquor store on a site in Frankton,

Indiana, that had been previously used as a gas station (the “Property”). The on-

site underground storage tanks, unused since the early 1970s, had never been

removed. Buyers informed Sellers that they would not consummate the

transaction, and Sellers filed suit. Buyers counterclaimed, arguing that the

Sellers had made fraudulent misrepresentations regarding the environmental

condition of the Property, particularly with respect to the underground storage

tanks. The trial court found in favor of Sellers and ordered specific performance

of the contract and awarded incidental damages. Buyers appealed, claiming that

the presence of the tanks and the possible contamination of the Property rendered

the title thereto “unmarketable,” and that, therefore, they had no obligation to

fulfill the contract. In any event, Buyers asserted, Sellers had an adequate

1308 INDIANA LAW REVIEW [Vol. 37:1307

certain environmental contamination does not render title to property “unmarketable,” citing a New

Hampshire Supreme Court decision which noted that “‘[o]ne can hold perfect title to land that is

valueless; one can have marketable title to land while the land itself is unmarketable.’” Id. (quoting

McManus v. Rosewood Realty Trust, 719 A.2d 600, 601 (N.H. 1998)).

6 . Id. at 1034.

7 . Id. (citing Stoll v. Grimm, 681 N.E.2d 749, 756 (Ind. Ct. App. 1997)).

8 . Id. at 1035.

9 . Id. at 1035-36.

10. Id. at 1036.

11. Id.

12. Id. at 1036-37.

remedy at law and specific performance was not the proper remedy.

Judge Sullivan, writing for the majority, began by setting forth his judicial

philosophy about the availability of the equitable remedy. In part, the majority

noted that the decision to grant specific performance is within the discretion of

the trial court and that such judgments of the trial court are to be given deference

because specific performance is a remedy that “sounds in equity.” The court

also noted that “[i]t is a matter of course for the trial court to grant specific

performance of a valid contract for the sale of real estate.” The court

specifically rejected the Buyers’ view that, under Indiana law, “specific

performance is available [for the non-breaching seller] only when re-sale or

foreclosure of the property is made difficult or impossible due to damage or

loss.” Instead, the court found that the remedies provision of the contract

provided that all remedies, legal and equitable, were available to the non-

breaching party and that contracts, when entered into freely and voluntarily, will

be enforced by the courts. “Because the Buyers have made no claim that they

did not enter into the contract freely and voluntarily, we will not invalidate a

remedy for which the Sellers contracted.” Based on this analysis, the court

found that the decision to award the equitable remedy of specific performance

was within the trial court’s discretion.

Judge Kirsch dissented with regard to the majority’s analysis of the specific

performance issue, simply noting that:

I believe that specific performance of a real estate contract is proper only

where the remedy at law is inadequate. While specific performance may

be granted as a matter of course to the purchaser because real estate is

unique, in the typical case the seller’s remedy at law in the form of an

action for money damages will be sufficient to fully compensate the

plaintiff. I see nothing in the facts of this case to indicate that the sellers

have an inadequate remedy at law to justify the grant of specific

performance.

In the opinion and dissent, Judge Sullivan and Judge Kirsch articulate the

two major schools of thought regarding the availability of equitable remedies.

In Judge Sullivan’s view, the choice of remedies between those freely contracted

by the parties is within the discretion of the trial court. In Judge Kirsch’s view,

2004] PROPERTY LAW 1309

13. Judy Beckner Sloan, Quantum Meruit: Residual Equity in Law, 42 DEPAUL L. REV. 399,

404 (1992).

14. Id.

15. Id.

16. Id. at 406.

17. Id.

18. Ind. Family & Soc. Servs. Admin. v. Walgreen Co., 769 N.E.2d 158, 162 (Ind. 2002).

19. See, e.g., Ind. Union Traction Co. v. Seisler, 106 N.E. 911, 912 (Ind. App. 1914).

regardless of the bargain between the parties, the trial court may only award

equitable remedies, in this case specific performance, if its findings support the

conclusion that no adequate remedy at law is available. This philosophical

dispute has a long history in Anglo-American law and has quietly remained an

unresolved background issue in modern Indiana common law.

The roots of the contemporary conflict between law and equity can be traced

to the Magna Carta, which provided that appeals to justice should no longer be

the business of the king alone. Courts of common pleas began to develop what

came down to us as the common law, which they applied rigidly. Only monetary

damages were available from the courts of common pleas in a civil action. At the

same time, the crown retained its inherent authority to decide cases and grant

relief to parties in civil matters. The chancellor presided over pleas for royal

discretion, which he decided with reference to principles of fairness and morality

rather than precedent and inflexible codes. The chancellor employed a number

of remedies unavailable in the courts of common pleas, such as specific

performance and injunctive relief.

Eventually, the courts of chancery developed to perform the chancellor’s

function, and the common law courts and chancery courts operated separately to

enforce different and complementary substantive and procedural rights. During

the Tudor and Stuart revolutions of the sixteenth and seventeenth centuries, the

crown and the lay judges of the common law courts engaged in a power struggle

over the jurisdiction of the two competing systems. Ultimately, “the common

law judges won the battle.” As a result, individuals could not seek relief from

the court of chancery “without first alleging that law was inadequate.”

As a general rule, it is clear that law continues to dominate over equity in our

merged system. The Indiana Supreme Court has recently stated in no uncertain

terms that if an adequate remedy at law exists, equitable relief should not be

granted. However, for more than fifty years this default rule has not been

followed in the context of real estate disputes, particularly when the plaintiff is

a non-breaching purchaser seeking specific performance of a real estate purchase

contract.

Although Judge Sullivan’s holding is consistent with the current prevailing

philosophy, Judge Kirsch’s dissent in Humphries echoes older Indiana cases.

Such cases speak of requiring a finding that no adequate remedy at law exists

before upholding a trial court’s grant of specific performance for the breach of

a real estate purchase agreement, even when the non-breaching party was the

purchaser. But for Judge Kirsch’s apparent fidelity to it, that historically

1310 INDIANA LAW REVIEW [Vol. 37:1307

20. See, e.g., Ruder v. Ohio Valley Wholesale, Inc., 736 N.E.2d 776, 779 (Ind. Ct. App.

2000) (“Specific performance is a matter of course when it involves contracts to purchase real

estate.”).

21. New Life Cmty. Church of God v. Adomatis, 672 N.E.2d 433, 438 (Ind. Ct. App. 1996).

22. 792 N.E.2d 893 (Ind. Ct. App. 2003).

23. Id. at 895. A condition precedent to Buyer’s obligations under the contract was the that

Seller “provide, in writing, that the property can be used for any manor [sic] under M-1 zoning

regulations, prior to closing.” Id. Seller provided Buyer with a letter from the Director of the

Planning and Development Department of the City of Elkhart, which was intended to fulfill the

requirement. Id. However, evidence presented at trial demonstrated that the Property “enjoyed M-

1 zoning only by virtue of its ‘grandfathered’ status as a nonconforming use.” Id. at 896.

24. Id. at 895.

25. Id.

26. Id. at 896.

27. Id.

fleeting requirement has been supplanted in the past half century or so by the

routine acknowledgment that specific performance is the preferred remedy for

the breach of a real estate purchase agreement. Indeed, the Indiana appellate

courts have repeatedly characterized specific performance as a “matter of course”

in such cases. They have explained that “[t]his is so because each piece of real

estate is considered unique, without an exact counterpart anywhere else in the

world.”

If this historic dichotomy had surfaced in Humphries and then slipped off the

radar, it would have remained simply an interesting academic debate. Yet things

got murkier when, not quite two months after Humphries was decided, the same

panel of judges: Sullivan, Sharpnack, and Kirsch addressed another case in

which a trial court awarded specific performance as a remedy to a seller after it

concluded that a purchaser had breached a contract for the sale of real estate.

Because the opinion of the majority was written by Judge Kirsch this time, the

prevailing philosophy in Kesler v. Marshall sharply differed from Humphries.

In Kesler, J. John Marshall (“Seller”) and Kenneth J. Kesler (“Buyer”)

entered into a contract for the sale of real property in Elkhart, Indiana (the

“Property”). Because of a dispute over the zoning status of the Property, the

parties did not consummate the transaction. Six years after the date of the

contract, Seller brought an action demanding specific performance and incidental

damages. The trial court found that Buyer breached the contract and awarded

specific performance and incidental damages. Buyer appealed, both on the

underlying question of whether he breached the contract and on the trial court’s

selection of remedies.

Judge Kirsch, writing for the majority, concluded that because Seller did not

provide Buyer with certain assurances regarding the zoning of the property,

Seller failed to substantially perform his obligations under the contract. Under

Indiana law, “[a] party seeking specific performance of a real estate contract must

prove that he has substantially performed his contract obligations or offered to

do so.” Thus, the court held, “we find the trial court’s conclusion that [Seller]

2004] PROPERTY LAW 1311

28. Id.

29. Id.

30. Id. (citing Wagner v. Estate of Fox, 717 N.E.2d 195, 200 (Ind. Ct. App. 1999)).

31. Id.

32. Id. at 897.

33. Id.

34. Id.

35. Id. at 898.

36. Id. (Sullivan, J., concurring) (quoting Migatz v. Stieglitz, 77 N.E 400, 401 (Ind. 1906)).

was entitled to specific performance to be clearly erroneous.”

After the court held that the Seller was not entitled to any remedy, it

analyzed, in dicta, the trial court’s decision to grant specific performance to

Seller. The court noted, as it had in Humphries, that the decision whether to

grant specific performance is a matter within the discretion of the trial court.

However, it cited recent authority that “[s]uch judicial discretion is not arbitrary,

but is governed by and must conform to the well-settled rules of equity.” Those

“well-settled rules” include the notions that equitable remedies like specific

performance are “extraordinary” remedies and that they are “not available as a

matter of right.” Instead, equitable remedies are only available when no

adequate remedy at law, i.e., monetary damages, exists. “Where substantial

justice can be accomplished by following the law, and the parties’ actions are

clearly governed by rules of law, equity follows the law.”

In this case, the court found, the trial court’s findings did not support the

conclusion that no adequate remedy at law existed. “Under these

circumstances, the trial court abused its discretion in ordering [Buyer] to

specifically perform the contract.” The court did not address what remedy

provisions, if any, were present in the contract between Buyer and Seller.

Although Judge Sullivan agreed with the majority’s decision that Seller was

not entitled to a remedy because Seller did not substantially perform his

obligations under the contract, he concurred in result with a separate opinion in

order to reaffirm the philosophy he expressed in Humphries. His concurrence

simply cited a passage from a 1906 Indiana Supreme Court decision that reads

as follows:

“The equitable doctrine is that the enforcement of contracts must be

mutual, and, the vendee being entitled to specific performance, his

vendor must likewise be permitted in equity to compel the acceptance of

his deed and the payment of the stipulated consideration. This remedy

is available, although the vendor may have an action at law for the

purchase money.”

Despite their factual similarities, these two cases present acutely

contradictory philosophies regarding the discretion of the trial court to award the

equitable remedy of specific performance in the context of a breaching purchaser

and what findings may be necessary to support such an award. Because neither

the majority nor the concurrence in Kesler refer to Humphries and the issue is

1312 INDIANA LAW REVIEW [Vol. 37:1307

37. 767 N.E.2d 1035 (Ind. Ct. App. 2002).

merely discussed in dicta, Kesler does not overrule the earlier case. In a broader

context, however, Kesler may be used along with century-old cases having

similar holdings which have never been expressly disavowed, for the proposition

that no award of equitable remedies is sustainable on appeal unless the trial court

finds that no adequate remedy at law exists.

Although the historic unresolved tension between law and equity may seem

esoteric, Humphries and Kesler, combined with last year’s decision in

Crossmann Communities, Inc. v. Dean, indicate that the “well-settled rules”

regarding law and equity in Indiana common law appear to rest on a shaky

foundation. This should be a matter of practical concern. The Humphries

opinion placed weight upon the contractual remedies provision and the parties’

intent to make both legal and equitable remedies available to both parties.

However, the Kesler opinion failed to discuss the contractual remedies provisions

and instead seems to stand for the proposition that regardless of the parties’

bargain, the trial court has no discretion to award equitable relief unless it makes

a factual determination that no adequate remedy at law exists. The court’s

approach to the remedies provision in Humphries makes no distinction between

a provision that is specifically negotiated (i.e., “in the event of breach by the

purchaser, the seller shall be entitled to specific performance of the contract”) as

opposed to boilerplate language that makes all remedies possible. In Humphries,

the purchase agreement simply gave both parties all remedies at law or equity.

It remains to be seen whether another panel of the court of appeals will view

these boilerplate provisions so expansively. A jurist of Judge Kirsch’s outlook

would likely take a different view on how the common law of equity might

interact with a boilerplate remedies provision. That is, if the common law does

not permit equitable remedies in certain circumstances, may the parties overrule

the common law by contract? If so, does the provision need to be specifically

negotiated and clear, or does the boilerplate “all remedies at law or equity”

suffice?

Most sophisticated commercial real estate purchase agreements include

remedies provisions which: (1) limit a non-breaching seller’s damages to the

earnest money deposit, as liquidated damages; and (2) entitle a non-breaching

purchaser to enforce specific performance. Neither Humphries nor Kesler

directly challenge the enforceability of these provisions. Yet, until the historic

differences expressed by Judge Sullivan and Judge Kirsch in these two cases are

resolved by the Indiana Supreme Court, uncertainty will remain about whether

future decisions may place limits on the availability of equitable relief, despite

the parties having bargained for it. If specific performance may only be awarded

by a trial court after a factual finding on the adequacy of monetary damages, a

seller may decide to breach under certain circumstances, rolling the dice that the

purchaser will not have the means or the will to pursue monetary damages. On

a micro level, this uncertainty causes purchasers and sellers to reallocate their

risk in ways that are difficult to predict. On a macro level, it can affect the

economics of the commercial real estate market.

2004] PROPERTY LAW 1313

38. Hardin v. Hardin, 795 N.E.2d 482 (Ind. Ct. App. 2003).

39. Id. at 484.

40. Id. at 485.

41. Id.

42. Id. at 486.

43. Id. at 487.

44. Id. (quoting Brown v. Branch, 758 N.E.2d 48, 50 (Ind. 2001)).

45. Id. at 488.

A few weeks after Kesler was decided, a court of appeals panel consisting

of Judges Darden, Sullivan, and Baker addressed a case in which a trial court

awarded specific performance to the purchaser under an oral contract for the

purchase of land. Although Judge Sullivan did not write the opinion of the

court in Hardin, the philosophy expressed therein regarding the availability of

specific performance is identical to that expressed in Humphries and makes no

reference to Kesler.

At some point between 1995 and 1998, Mike and Annette Hardin, a married

couple, had conversations with Mike’s father, David, in which the parties

evidently agreed that David would sell approximately eleven acres of land to

Mike and Annette for $4000 per acre so that they could build a home. In early

1998, Mike and Annette had the land surveyed, built a bridge across a creek and

ravine to access the parcel, paid to extend utility lines to the property, contracted

with an architect for blueprints, laid the foundation of the house, and began to

construct a septic system. David assisted Mike with some of the work on the

property. At the end of 1999, Mike informed Annette that he wanted a divorce.

Annette contacted David and offered to pay for the land immediately. David

refused to accept her payment. Annette filed a lawsuit against David, seeking

damages for his breach of the oral purchase agreement in the form of either

specific performance or monetary damages. The trial court concluded that an

oral contract existed and that David had breached it. The court ordered David to

sell the eleven acres to Annette alone for $4000 per acre, and David appealed.

The court of appeals began by stating, consistent with but without citing

Humphries, that it reviews grants of specific performance under an abuse of

discretion standard. The court also reiterated that “a party seeking specific

performance . . . must prove that he has substantially performed his contractual

obligations or offered to do so.” The court did not separately analyze: (1)

whether the oral contract is enforceable; and (2) if so, what remedy is

appropriate. Instead, it noted that although contracts for the purchase of real

estate are covered by the Statute of Frauds, oral promises to convey land “‘may

be enforced under the doctrine of promissory estoppel’” and concluded that

“[t]his evidence supports the trial court’s conclusion that there was a promise to

sell by David, made with the expectation that Mike and Annette would rely on

it, which induced their reasonable reliance of a definite and substantial nature.”

The court of appeals also found that “[t]here is sufficient evidence to support the

trial court’s conclusion that here, ‘injustice can be avoided only be enforcement

1314 INDIANA LAW REVIEW [Vol. 37:1307

46. Id. (quoting Brown, 758 N.E.2d at 52).

47. 789 N.E.2d 481 (Ind. 2003).

48. Id. at 485.

49. IND. CODE § 32-31-3-12 (1998).

50. Lae, 789 N.E.2d at 482.

51. Id. at 482-83.

52. Id. at 483.

of the promise.’”

The Hardin opinion does not address whether the trial court made a factual

finding that Mike and Annette did not have an adequate remedy at law. Kesler

appears to stand for the proposition that such a factual finding is necessary for

an Indiana appellate court to conclude that a trial court did not abuse its

discretion in awarding specific performance. The failure of Hardin to discuss,

or even acknowledge, the dichotomy revisited by Humphries and Kesler further

underlines the unresolved tension in Indiana common law regarding the

availability of specific performance as a remedy for the non-breaching party to

a real estate purchase agreement.

II. RELATIONSHIPS BETWEEN PRIVATE PARTIES

A. Security Deposit Statutes

Each survey period brings at least one case dealing with whether, and upon

what terms, a residential landlord must return a security deposit to a former

tenant. This year, in Lae v. Householder, the Indiana Supreme Court ruled that

the forty-five day period in which a landlord must mail an itemized list of

damages to a former tenant in order to offset those damages against a security

deposit is tolled until the former tenant supplies the landlord with his new

address.

Lae (“Landlord”) rented an apartment to Householder (“Tenant”). Forty-

seven days after Householder vacated the apartment, his attorney mailed a letter

to Lae requesting the return of Householder’s security deposit pursuant to the

Security Deposit Statute, which requires that a landlord, within forty-five days

after termination of occupancy under a residential lease, provide tenant with a list

of damages claimed to offset a security deposit. Landlord responded by filing

a complaint against Tenant for damages to the apartment. The complaint did not

contain an itemized list of damages. Tenant counterclaimed for the return of the

security deposit, plus attorney fees. The trial court found in favor of Tenant

based on Landlord’s failure to comply with the Security Deposit Statute and

Landlord appealed. The court of appeals reversed, reasoning that Tenant’s

failure to provide Landlord with a forwarding address within forty-five days after

termination of occupancy made it impossible for Landlord to comply and

therefore relieved Landlord of his statutory obligation. Tenant appealed.

The Indiana Supreme Court granted transfer and, after analyzing the Security

Deposit Statute using the standard rules of statutory construction, found that a

2004] PROPERTY LAW 1315

53. Id. at 483-84.

54. Id. at 485.

55. 790 N.E.2d 549 (Ind. Ct. App. 2003)

56. Id. at 551-52.

57. Id. at 552.

58. Id. at 553-56.

59. Id. at 553-54.

landlord’s obligation to provide an itemized list of damages to tenant does not

begin to run until tenant provides landlord with a forwarding address. The

court concluded, “[i]f the tenant has not supplied an address within the forty-five

day period, we think tolling the landlord’s obligation until a forwarding address

is furnished is more consistent with . . . the purpose of the statute.”

B. Guaranties—Limitations and Enforceability

In Boonville Convalescent Center v. Cloverleaf Healthcare Services, Inc.,

the court of appeals examined a complicated series of assignments concerning a

commercial lease to determine whether the original guarantees were still in

effect. Boonville Convalescent Center (“Boonville”) leased a nursing home to

Cloverleaf Healthcare Services, Inc. (“CHS”) for a term of twenty years. The

lease was personally guaranteed by a number of officers of CHS and their

spouses. Approximately one month later, CHS assigned the lease to a newly

created organization, CHB, having the same officers, directors, and shareholders

as CHS. The personal guarantors of CHS reaffirmed the guarantee of the lease

agreement. Approximately five years later, CHB subleased the nursing home to

Sherwood Healthcare Corp. (“SHC”), a newly created entity owned by CHS’s

controller, and assigned its interest as lessee and sublessor to BritWill

Investments. BritWill Investments subsequently assigned its interest as lessee

and sublessor to BritWill Healthcare Company, which later changed its name to

Raintree Healthcare Corp. Approximately one year later, a number of the

personal guarantors once again reaffirmed their obligations as guarantors of the

lease, and approximately two years later, the remaining personal guarantors

reaffirmed their obligations under the lease. Approximately six years later,

Raintree notified Boonville of its intention to file bankruptcy and reject the lease.

Boonville contacted CHS and its personal guarantors and called on them to honor

their obligations under the lease, but neither CHS nor the personal guarantees

would take control of the facility. Raintree left the facility in a state of disrepair

and forty percent vacant. In an effort to mitigate damages and maintain its

license, Boonville operated the facility as Southwind Healthcare, Inc. on a

temporary basis while continuing to look for a permanent tenant or buyer.

Southwind and Raintree executed an agreement which purported to be a

temporary lease which had been entered into in order to mitigate damages and to

maintain operation and management of the facility. The Agreement contained

no language which released Raintree from its obligations under the lease.

Subsequently, Boonville sent letters to CHS and the personal guarantors

1316 INDIANA LAW REVIEW [Vol. 37:1307

60. Id. at 554.

61. Id. at 554-55.

62. Id. at 557.

63. Id. at 556 (citing Mileusnich v. Novogroder Co., 643 N.E.2d 937, 939 (Ind. Ct. App.

1995)).

64. Id. at 556-57.

65. Id. at 557.

66. Id.

67. 794 N.E.2d 555 (Ind. Ct. App. 2003).

68. Id. at 560.

69. Id. at 557.

demanding that they pay the amounts due under the lease and assist in finding a

replacement tenant. Boonville filed a claim in Raintree’s bankruptcy seeking

payment of obligations due under the lease and filed a complaint against CHS

and the personal guarantors of the lease for payments of obligations under the

lease. CHS and the personal guarantors filed a motion for summary judgment

on grounds that the agreement between Raintree and Southwind constituted an

acceptance by Boonville of Raintree’s rejection of the lease and that CHS and the

personal guarantors were thus relieved of their obligations under the lease. The

trial court granted the motion for summary judgment in favor of CHS and the

personal guarantors, and Boonville appealed.

The court of appeals reversed and remanded the case back to the trial court.

The court noted that in determining whether the surrender of a lease has been

accepted, the court must examine the acts of the parties. In the absence of a

writing supported by consideration to that effect, a surrender will only be deemed

accepted by operation of law when the parties do some act that is a decisive and

unequivocal manifestation of lessor’s acceptance of the surrender. In this case,

the evidence does not show any such manifestation of acceptance of surrender

of the lease by Boonville. Rather, Boonville continued to send demand letters

to CHS and the personal guarantors of the lease, and the agreement between

Southwind and Raintree stressed that it reserved all of its rights and claims under

the existing lease agreement against the guarantors of the lease. Southwind

only assumed operation of the facility out of necessity. Under these

circumstances, the surrender of the lease was not accepted by Boonville, and

CHS and the personal guarantors continued to be obligated under the lease.

In JSV, Inc. v. Hene Meat Co., the court of appeals clarified that one cannot

escape the essential nature of a “personal guaranty,” even one which omits the

word “personal.” JSV, Inc. (“JSV”) signed a lease to rent space from Hene

Meat Company (“Hene”). Mark Kennedy (“Kennedy”) signed the lease as an

officer of JSV and also signed a contemporaneous document labeled “Guaranty.”

The document stated that it was an unconditional guaranty of JSV’s obligations

under the lease. Nothing in the document indicated that Kennedy was

executing the guaranty in anything other than his individual capacity. JSV

defaulted on the lease, and Hene sued JSV and Kennedy. The trial court granted

summary judgment in favor of Hene on its claim that Kennedy was personally

2004] PROPERTY LAW 1317

70. Id. at 558.

71. Id. at 560.

72. Id.

73. Id.

74. 793 N.E.2d 298 (Ind. Ct. App. 2003).

75. Id. at 299-300.

76. Id. at 300.

77. Id.

liable under the guaranty, and Kennedy appealed.

The court of appeals concluded that the guaranty signed by Kennedy was

“unambiguously a personal guaranty, notwithstanding the fact that the word

‘personal’ does not appear in the document.” The court noted that there would

have been “no point” for Hene to have Kennedy execute the guaranty in his

capacity as an officer of JSV because “[s]uch an action would have been

equivalent to JSV guaranteeing JSV’s performance of the lease and to JSV being

both obligor under the lease and guarantor under the guaranty.” Such an

outcome, the court stated, would have been “paradoxical and untenable.”

Therefore, the reasonable interpretation is that the “Guaranty” was a personal

guaranty by Kennedy.

C. Derivative Actions Against Owners’ Association in Office Park

Edgeworth-Laskey Properties, L.L.C. v. New Boston Allison Ltd.

Partnership highlights a few of the problems which can arise when a developer

uses a number of related entities in a single development without treating them

as completely independent entities and underscores the importance of careful

drafting of reciprocal easement and similar agreements.

SMT Realty, Ltd. (“SMT”) acquired raw land that it intended to develop into

an office park called Allison Pointe. As part of its pre-development, SMT

executed a Declaration of Development Standards, Covenants, and Restrictions

for Allison Pointe (“Declaration”). Because SMT was the owner of the real

estate, it was the only party to the Declaration. The Declaration provided for

a “Developer,” defined as SMT and its successors and assigns, which had certain

powers. These powers included appointment powers for a Development

Advisory Board (the “Board”), which Board had the right and responsibility

under the Declaration to approve site plans before construction may commence

at Allison Pointe. The Declaration also provided for the creation of the Allison

Pointe Owners Association, Inc. (“Association”), of which all owners of real

estate in Allison Pointe were automatically members. SMT changed its name

to Allison Pointe Realty, L.P. (“APR”), and the Declaration was amended to

reflect that change. APR then sold its remaining undeveloped parcels in Allison

Pointe to Citimark I. Those parcels were then conveyed to New Boston Allison

Limited Partnership (“New Boston”). Citimark I, the sole remaining partner of

APR, then became a limited partner of New Boston. No amendment to the

Declaration was recorded which reflected the transaction to New Boston,

1318 INDIANA LAW REVIEW [Vol. 37:1307

78. Id. at 300-01.

79. Id. at 301-02.

80. Id. at 302.

81. Id.

82. Id. at 304.

83. Id. at 305.

84. Id.

85. Id. at 307.

although Citimark I executed an “Assignment” in favor of New Boston, which

purported to assign all of APR’s rights, responsibilities, and obligations as

Developer to New Boston.

New Boston sold four parcels of land to Edgeworth-Laskey Properties,

L.L.C. (“E-L”). In the fourth transaction, the purchase agreement provided that

New Boston would “cause” the Board to approve E-L’s site plans within five

business days after submittal and under a standard of less discretion than

provided in the Declaration. E-L submitted its site plans to the Board, and those

plans were rejected because E-L did not include a preliminary grading plan. E-

L filed a complaint against New Boston. Count I is styled as a derivative action

and sought a declaration that New Boston is not the Developer pursuant to the

Declaration. Count II sought a declaration that the Board is bound by the

purchase agreement between New Boston and E-L and that the plans submitted

for the fourth parcel are deemed approved. The trial court granted New Boston’s

cross-motion for summary judgment on both counts.

On Count I, the court of appeals did not address the substance of E-L’s claim

that New Boston was not properly designated as APR’s successor because it

found that E-L did not have standing to bring a derivative lawsuit. The court

noted that derivative actions must comply with Indiana Trial Rule 23.1 and

Indiana Code section 23-1-32-1, which means that shareholders or members must

satisfy four requirements to bring such an action:

(1) the complaint must be verified; (2) the plaintiff must have been a

shareholder or member at the time of the transaction of which he or she

complains; (3) the complaint must describe the efforts made by the

plaintiff to obtain the requested action from the board; and (4) the

plaintiff must fairly and adequate represent the interests of the

shareholders or members.

In light of these requirements, the court found that E-L did not have the standing

to bring the derivative lawsuit because it was not a member of the Association

at the time that the Assignment was executed and recorded.

The court noted that Count II was brought against the Board, rather than New

Boston, which E-L claims breached their purchase agreement by failing to

compel the Board to approve their site plan. The court found that E-L has no

claim against the Board because the Board was not a party to the purchase

agreement and a “trial court cannot require a non-contracting party to adhere to

2004] PROPERTY LAW 1319

86. Id.

87. Id. at 307 n.6.

88. 792 N.E.2d 885 (Ind. Ct. App. 2003), trans. granted.

89. Id. at 887-88.

90. Id. at 888.

91. Id.

the contractual terms.” The court noted that:

It is irrelevant to our analysis that New Boston, as Developer, appointed

all five members of the Advisory Board because those appointments

alone do not suggest that New Boston has the authority to require the

Advisory Board to approve or disapprove of certain submissions within

a specified period of time. Indeed, if that were the case, there would be

no need for the establishment of the Advisory Board.

III. TITLE AND RECORDING ISSUES

A. Nature of Railroad Interests in Land

The court of appeals addressed a seemingly archaic but apparently still

practical issue twice during the survey period: what is the proper way to

interpret historic railroad deeds to determine the nature of railroad interests in

land?

The first case was Louisville & Indiana Railroad v. Indiana Gas Co. The

Ohio & Indianapolis Railroad Co., the predecessor to the Louisville & Indiana

Railroad Co. (the “Railroad”) was chartered by the Indiana General Assembly in

1832, which charter was amended in 1846 and 1849. The 1832 charter gave the

Railroad the power to purchase real estate, but did not expressly provide that the

Railroad had the authority to hold the real estate in fee simple. In 1849, the

General Assembly approved an act which expressly allowed the Railroad to take

property in fee simple.

In 1846, a deed from Wales to the Railroad read, in relevant part, as follows:

I, Leonard Wales . . . for and in consideration of the advantages which

will or may result to the public in general and myself in particular, by the

construction of the . . . Rail Road, . . . do hereby . . . Release and

Relinquish, to the [Railroad], the Right of Way, and all my interest in so

much of the following described piece or parcel of Land, as the said

company are, by charter, entitled to hold, for the purpose of constructing

said road.

In 1852, Irwin executed a deed in favor of the Railroad using almost identical

language.

The question raised in Louisville & Indiana Railroad is straightforward—did

the Wales and Irwin deeds convey a fee simple in the parcels to the Railroad, or

did the Railroad take only an easement? The Indiana Gas Company argued that

1320 INDIANA LAW REVIEW [Vol. 37:1307

92. Id. at 889-91.

93. Id. at 890.

94. 680 N.E.2d 843, 854-55 (Ind. 1997).

95. Louisville & Ind. R.R., 792 N.E.2d at 891.

96. Id.

97. Id.

98. 779 N.E.2d 1185 (Ind. Ct. App. 2002).

99. Id. at 1188.

the Railroad took only an easement on two grounds: (1) the 1832 charter did not

expressly provide that the Railroad could own property in fee simple, and the

1849 act did not retroactively cure the Wales deed; and (2) the language in the

Wales and Irwin deeds was insufficient to convey a fee simple interest in the

parcels. After briefly discussing the nature of curative statutes, the court held

that

the 1849 Act was curative legislation that merely acted to clarify the

power of the Railroad to hold land in fee simple. Since the curative act

retroactively gave the Railroad the power to hold property in fee simple,

the Railroad had the authority to take and hold the property in fee

simple.

With respect to the underlying question, the court noted that the Indiana

Supreme Court adopted general rules of construction for conveyances of land to

railroads in Hefty v. All Other Members of the Certified Settlement Class,

including the following general principles: (i) references to the conveyance of a

“right-of-way” in a deed “generally leads to its construction as conveying only

an easement;” (ii) deeds prepared by railroads will be construed in favor of the

grantors; and (iii) if ambiguity exists in the deed, such ambiguity will be

generally resolved in favor of the original grantors and their successors.

The court noted that the Wales and Irwin deeds contained two seemingly

contradictory phrases: “right-of-way” and “all my interest in so much of the

following described piece or parcel of Land.” The court did not interpret these

two phrases to create an ambiguity, however, holding that “the conveyance

unambiguously reflects a desire to convey the land in fee simple and not simply

an easement. Thus, the language of the deeds here is outside the scope of Hefty’s

general rule.”

The court of appeals examined slightly different language in Poznic v. Porter

County Development Corp. Poznic obtained property in 1987 that was located

directly north of and adjacent to Wabash Avenue, which was directly north of

and adjacent to property identified as “Railroad Property.” Poznic sought to

quiet title in herself in both the Railroad Property and Wabash Avenue. Poznic

argued that: (i) a 1892 deed to the Railroad conveyed an easement rather than fee

simple, and thus when the Railroad ceased to use the property for Railroad

purposes it reverted back to the grantor; and (ii) Wabash Avenue was never

properly dedicated because it was never improved as a street, thus demonstrating

that it was never validly accepted by the City. The trial court denied Poznic’s

2004] PROPERTY LAW 1321

100. Id. at 1188-92.

101. Id. at 1193.

102. Id. at 1190-91.

103. Beaman v. Smith, 685 N.E.2d 143 (Ind. Ct. App. 1997).

104. Poznic, 779 N.E.2d at 1192-93.

105. 790 N.E.2d 1071 (Ind. Ct. App. 2003).

106. Id. at 1073.

complaint holding that the Railroad received a fee simple and that Wabash

Avenue was properly dedicated, and Poznic appealed.

100

The court of appeals affirmed the trial court on both issues, holding that the

1892 deed to Railroad conveyed a fee simple interest in the property. The

101

court considered the following factors: (i) the language “‘grant, bargain, sell,

remise, release, alien, and confirm’ forever a strip of land . . . goes above and

beyond what was and still is statutorily defined as a fee simple conveyance;” (ii)

the word “forever” is more consistent with conveyance of a fee than an easement;

(iii) consideration of $2985.43 was not a nominal amount in 1892 and the “mere

benefit of construction of the railroad was not the consideration for the deed;”

(iv) the deed conveyed “a strip of land for railroad purposes” without limiting

language rather than a mere “right” to the property; (v) there was no language in

the deed providing that it could be voided for use other than Railroad purposes

or for any other purpose; (vi) there was no language referring to a right-of-way

conveyance; and (vii) the habendum clause promised to “‘warrant and deed’ the

grantee ‘against all lawful claims whatever,’” used the word forever, and

contained no limiting language.

102

The court also held that Wabash Avenue was properly dedicated to and

accepted by the City because it satisfied the four Beaman requirements for

103

statutory dedication. These include: (i) the street was platted in the First

Addition neighborhood; (ii) the plat must have been acknowledged to an

authorized officer because it was recorded; (iii) even though there was no

evidence of municipal approval, the plat would not have been accepted for

recording if a statutorily required certificate of approval had not been attached,

so the dedication must have obtained proper municipal approval, and (iv) the plat

was recorded.

104

B. Chain of Title

In Bank of New York v. Nally, the court of appeals raised new questions

105

about the manner in which chain of title operates in Indiana, and under what

circumstances a recorded document may be deemed to impart constructive

notice. On a single day, three documents were executed: (1) a deed from Owens

to Nally (the “Deed”); (2) a mortgage for a portion of the purchase price from

Nally to Owens (the “Owens Mortgage”); and (3) a mortgage for the remainder

of the purchase price to Amtrust Financial Services (the “Amtrust Mortgage”).

106

The Owens Mortgage was recorded on December 26, 1996. However, the Deed

and the Amtrust Mortgage were not recorded until January 21, 1997. Thus, the

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107. Id.

108. Id. at 1073-74.

109. Id. at 1074.

110. Id.

111. IND. CODE § 36-2-11-12(b) (2003).

112. Bank of New York, 790 N.E.2d at 1077.

113. Id. at 1076.

114. Id. at 1077.

Owens Mortgage was recorded before the Deed. Nally later refinanced with

107

Equivantage in order to payoff Amtrust. The mortgage in favor of Equivantage

(the “Equivantage Mortgage”), which was later assigned to the Bank of New

York (the “Bank”) was recorded on June 12, 1998. Nally stopped making

payments on the Equivantage Mortgage and the Bank initiated foreclosure

proceedings. Owens filed a motion to intervene. The trial court found that

108

Owens had a valid first mortgage on the property, and the Bank appealed.

109

The central question of the Bank’s appeal was whether or not it had

constructive notice of the Owens Mortgage. Indiana Code section 36-2-11-

110

12(b) requires county recorders to maintain separate indexes for (a) deeds and (b)

mortgages. The court held that a purchaser is held to have constructive notice

111

of documents recorded in both the deed book index and the mortgage book

index.

112

The court’s analysis of this issue, however, somewhat muddies Indiana

common law regarding the nature and scope of constructive notice. First, the

court notes that the Owens Mortgage was recorded before the Deed, “[t]hus, until

the Hamilton County recorder’s office received the [Deed], Nally was not the

record title owner and there was no place to put the [Owens Mortgage] in the

grantor-grantee index.” This statement appears to assume that the recorder is

113

required to cross-reference a mortgage to the most recent deed of record. In fact,

the recorder is not required to create such cross-references as a matter of course

and, in reality, cannot cross-reference mortgages to deeds without an explicit

reference in the mortgage to the deed’s instrument number, a piece of

information which is absent from most mortgages.

The court makes the conclusory statement that because the Owens Mortgage

was recorded before the refinancing, the Bank should have been able to find it.

114

Missing from the court’s analysis is the concept that the Owens Mortgage must

be in the chain of title to the property to impart constructive notice to the Bank.

The central question unanswered by Bank of New York is whether constructive

notice vis-a-vis a particular owner of property occurs as of the effective date of

a deed transferring ownership to that person or the recording date. Bank of New

York appears to assume, without acknowledging the issue, that one has

constructive notice of all encumbrances on a person’s title after the time that such

person takes title, as opposed to the date that the deed transferring title is

recorded.

Generally, deeds are recorded soon after a conveyance takes place. But what

if a deed is recorded significantly later or not at all? Bank of New York appears

2004] PROPERTY LAW 1323

115. 699 N.E.2d 322 (Ind. Ct. App. 1998).

116. Id. at 327 (citing Stead v. Grosfield, 34 N.W. 871, 874 (Mich. 1887)).

117. 790 N.E.2d 592 (Ind. Ct. App. 2003).

118. Id. at 595.

119. Id.

120. Id.

121. Id.

122. Id. at 594.

123. Id. at 595.

124. Id.

125. 779 N.E.2d 1197 (Ind. Ct. App. 2002).

to stand for the proposition that encumbrances on title, whether recorded before

the deed or not, are still capable of imparting constructive notice. This seems to

be in conflict with the holding in Keybank National Ass’n v. NBD Bank, which

115

cautions that: “A person charged with the duty of searching the records of a

particular tract of property is not on notice of any adverse claims which do not

appear in the chain of title; because, otherwise, the recording statute would prove

a snare, instead of a protection.”

116

C. Sufficiency of Legal Description

In Farm Credit Services ACA v. Estate of Mitchell, the court of appeals

117

clarified that for a UCC financing statement to be enforceable, the affected real

estate must be identified “reasonably.” Mitchell (“Borrower”) executed a

118

promissory note with Farm Credit Services (“FCS”) and granted FCS a security

interest in the following collateral: “Collateral described as follows, including

but not limited to collateral located in JOHNSON County, Indiana: All crops

growing, grown, or to be grown on real estate and all harvested crops and all

processed crops, whether or not produced by Borrowers/Debtors.”

119

Borrower passed away. Standing crops, but no realty, were identified as an

asset of the estate. The crops were harvested and sold for cash. FCS filed a

120

notice of claim against the estate. The personal representative filed a petition to

determine whether FCS had a security interest in the crops “because the

documents failed to describe the real estate upon which the crops were grown as

specifically required by the Uniform Commercial Code.” The probate court

121

ruled that FCS had an unsecured claim for failing to describe the real estate with

enough specificity, and FCS appealed.

122

The court of appeals found that “the description ‘Johnson County,’ does not

reasonably describe the land upon which the crops were to be grown because it

does not reasonably identify the land upon which the crops were grown. No

street address or legal description was included in the description to provide

reasonable identification.” The judgment of the trial court was affirmed.

123 124

D. Dedication and Adverse Possession

In AmRhein v. Eden, the court of appeals reiterated a few principles

125

1324 INDIANA LAW REVIEW [Vol. 37:1307

126. Id. at 1200.

127. Id. at 1201.

128. Id. at 1201-02.

129. Id. at 1202.

130. Id.

131. Id. at 1202-03.

132. Id. at 1203.

133. Id. at 1203-04.

134. Id. at 1209.

relating to the status and proper vacation of public ways. The Edens and

AmRhein were neighboring landowners. AmRhein’s property was located both

to the south and the east of the Edens’ property with an L-shaped area of land

between them. In 1946, a dispute arose between the then owners of the

126

property, the Johnsons and the Carpenters, regarding the L-shaped property. The

resulting judgment from that litigation established a “right of way, alley or street”

from which the Johnsons were perpetually enjoined from obstructing or

interfering with its free use.

127

From 1950 to 1956, the Carpenters owned both the property now owned by

the Edens and the property now owned by AmRhein. In 1956, when one parcel

was conveyed to AmRhein, a fence was located three feet inside the L-shaped

parcel. AmRhein considered the fence line to be the boundary and the L-shaped

area outside the fence to be a public right of way. Eden also considered the

128

fence line to be the boundary of his property, with no knowledge of any L-shaped

right of way. Eden and AmRhein both cared for the property up to the fence line,

and AmRhein and his son used the L-shaped alley on the Edens’ side of the fence

approximately twelve times per year either walking, or on a tractor or

motorcycle.

129

Upon learning of the Edens’ intent to put a modular home on the L-shaped

alley, AmRhein informed the Edens of the right of way. The Edens proceeded

to put the home, deck, and driveway on the property encroaching on the alley.

130

The Edens filed a petition to vacate the public way and the County Board granted

the petition. AmRhein filed a complaint against the Edens seeking ejectment

131

from one-half of the right of way. The Edens filed a cross-complaint alleging

trespass, seeking a declaratory judgment entitling them to the benefits of the

injunction in the 1946 judgment, and seeking to quiet title to the Alley under the

theories of adverse possession and/or acquiescence. The trial court ruled in

132

favor of the Edens, determining that (i) AmRhein failed to establish the existence

of a public way, (ii) in any case, any such right of way was extinguished by the

common ownership of the two surrounding parcels from 1950 to 1956, (iii) the

fence had been established as the true boundary between the parcels, and (iv) the

parties have acquired title up to the fence by adverse possession.

133

The court of appeals reversed and remanded the case to the trial court with

instructions to divide the alley in half between the Edens and AmRhein and quiet

title in each of them to their respective halves. The court held that the 1946

134

2004] PROPERTY LAW 1325

135. Id. at 1207.

136. Id. at 1207-08.

137. Id. at 1209.

138. Dvorak v. City of Bloomington, 702 N.E.2d 1121 (Ind. Ct. App. 1998).

139. 796 N.E.2d 236 (Ind. 2003).

140. 644 N.E.2d 72 (Ind. 1994).

141. Dvorak, 796 N.E.2d at 237.

142. Id.

143. Id.

judgment established the alley as a public highway created by user.

135

Furthermore, the alley was not abandoned merely because the land on both sides

was under common ownership from 1950 to 1956. On the contrary, AmRhein

continued to use the alley occasionally, and public use is the sole test for

determining whether a public way has been abandoned. Since the alley

continued to be a public way until it was vacated by the County Board in 1999,

it was not susceptible to permanent rightful private possession by adverse

possession or acquiescence. Based on the presumption that abutting

136

landowners own to the center of the street, when the street or public way is

vacated, the title to the land reverts to the abutting property owner. Therefore,

when the alley was vacated, it reverted one half to the Edens and one half to

AmRhein as abutting landowners.

137

IV. LAND USE LAW

A. Constitutionality of Zoning Ordinance Defining “Family”

The zoning dispute between Peter Dvorak and the City of Bloomington was

first heard by the court of appeals in 1998. In 2003, the Indiana Supreme court

138

settled the matter in Dvorak v. City of Bloomington and clarified the manner

139

in which the methodology set forth in Collins v. Day should be applied to

140

constitutional challenges under article I, section 23 of the Indiana Constitution.

The City of Bloomington (the “City”) has a municipal zoning ordinance (the

“Ordinance”) that limits the number of unrelated adults who may occupy a

“dwelling unit” in areas of the City zoned for single family dwellings. Peter

Dvorak (“Dvorak”) was the owner of residential property in an area of

Bloomington so zoned. In 1996, the City filed a complaint against Dvorak,

141

claiming that he and his five tenants were in violation of the Ordinance. Dvorak

filed a motion for summary judgment, claiming that the Ordinance was void as

an ultra vires act, that it violated the article I, section 23 of the Indiana

Constitution, and that it violated Dvorak’s right to due process. The trial court

142

denied the motion, and the court of appeals accepted the case on an interlocutory

appeal, vacated the decision of the trial court, and remanded for further

proceedings, including a determination of the goals the ordinance was designed

to promote. When the trial court found the Ordinance to be constitutional,

143

Dvorak again appealed.

1326 INDIANA LAW REVIEW [Vol. 37:1307

144. Dvorak v. City of Bloomington, 768 N.E.2d 490 (Ind. Ct. App. 2002), trans. granted,

opinion vacated.

145. Id. at 495.

146. Id.

147. Id. at 496-97.

148. Id.

149. Id. at 497.

150. Id. at 498.

151. Dvorak v. City of Bloomington, 796 N.E.2d 236 (Ind. 2003).

152. Id. at 241.

The court of appeals considered whether the Ordinance, which limits the

number of unrelated adults who may live together in a single family residence,

is constitutional under article I, section 23 of the Indiana Constitution, commonly

known as the Privileges and Immunities Clause. The court noted that a 1994

144

opinion by the Indiana Supreme Court, Collins v. Day, sets forth the framework

for analyzing challenges to state action under article I, section 23. Under Collins

v. Day, a state actor may create a legislative classification so long as: (1) the

different statutory treatment is reasonably related to the inherent characteristics

that distinguish the unequally treated class; and (2) the preferential treatment is

uniformly applicable and equally available to all persons similarly situated.

145

Under this framework, the court of appeals defined the “issue” in Dvorak as

“whether there are inherent distinctions between households consisting of

unrelated adults versus those consisting of related adults that are reasonably

connected to imposing the burden of exclusion from some neighborhoods.”

146

The court examined a number of cases from other states dealing with similar

ordinances and found those authorities to be split. Turning back to the Collins

v. Day test, the court noted that at the trial court level, the City presented

evidence, via the testimony of the its planning director, that the goal of the

ordinance was the “protection of core neighborhoods through the reduction of .

. . external impacts such as traffic, trash generation, noise, and inappropriate

parking of vehicles.” The planning director had further testified that “the basis

147

for his conclusion that regulating unrelated adults would promote these values

was based on ‘professional literature’ and ‘planning premises’ that unrelated

adults cause greater external impacts than related adults through more

independent lifestyles.” The court, unpersuaded by this testimony, held that

148

the City failed to show that the legislative classification was “reasonable or

substantial” because it was “based on mere planning premises without any

documented support in professional literature.” It declared the Ordinance

149

unconstitutional and void because it violated article I, section 23 of the Indiana

Constitution. The City petitioned for transfer, and the Indiana Supreme Court

150

granted transfer and vacated the decision of the Indiana Court of Appeals,

essentially reinstating the Ordinance pending resolution of the appeal.

151

In 2003, a unanimous Indiana Supreme Court, in a decision written by Justice

Dickson, the author of Collins v. Day, held that the Ordinance does not violate

article I, section 23 of the Indiana Constitution, nor is it ultra vires legislation.

152

2004] PROPERTY LAW 1327

153. Id. at 238.

154. Id. at 239.

155. Id. at 239-40.

156. Id. at 240.

157. Id. at 241.

158. 793 N.E.2d 1136 (Ind. Ct. App. 2003).

159. Id. at 1139.

The court reiterated that because of the strong presumption of the

constitutionality of statutes and local ordinances, the party challenging the

constitutionality of an enactment bears the burden of proof. The court found

153

that the appeal presented two issues under the Collins v. Day rubric: “whether

Dvorak has demonstrated either (1) that the ordinance’s disparate treatment of

two classes of persons is not reasonably related to their distinguishing inherent

characteristics, or (2) that the preferential treatment accorded one of the classes

is not uniformly applicable and equally available to all persons.”

154

On the first issue, the supreme court found that the answer is

self-evident: limiting multiple-adult households in single-family

residential zones to families, and excluding non-families, is reasonably

related to the difference between families and non-families. To put it

another way, considering whether groups are or are not families is

obviously related to determining whether to exclude them from districts

zoned for family residential use.

155

On the second issue, the court noted that Dvorak argued that the Ordinance

accorded preferential treatment to some because some number of homes were

“grandfathered” into a higher limit. The court found this alleged deficiency to

be “insubstantial and does not render the ordinance contrary to section 23.”

156

Although not argued by the parties in their briefs to the Indiana Supreme

Court, the court chose to address the ultra vires issue raised to the court of

appeals. After discussing the Home Rule Act and the enabling legislation, the

court found that “the enactment of zoning ordinances that make distinctions

based on familial relations of the users of residential real estate is an integral

component of implementing [their] legislative objectives.”

157

B. Denial of Application for Preliminary Plat Approval

In two cases this survey period, the court of appeals addressed the amount of

discretion given to local plan commissions with respect to their review of

applications for preliminary plat approval. In the first case, Van Vactor Farms,

Inc. v. Marshall County Plan Commission, Van Vactor Farms (“Van Vactor”)

158

filed an application for preliminary plat approval (the “Application”) to create

a residential subdivision on certain farmland that it owned in Marshall County

(the “Parcel”). The Parcel is adjacent to two roads, both two-lane rural roadways

used frequently by farmers. The Marshall County Plan Commission

159

(“Commission”) conducted public hearings on the Application and heard

1328 INDIANA LAW REVIEW [Vol. 37:1307

160. Id.

161. Id. at 1139-42.

162. Id. at 1143.

163. Id. at 1144.

164. Id. at 1144-46.

165. Id. at 1146.

166. Id. at 1147.

167. 790 N.E.2d 541 (Ind. Ct. App. 2003), trans. granted, opinion vacated.

168. Id. at 543.

evidence that “the roadways could not safely accommodate additional traffic, that

a risk of groundwater contamination existed due to septic tank use, and that there

were risks associated with the application of wastewater sludge on the [Parcel]

for many years.” Citing these three factors, the Commission denied the

160

application. Van Vactor appealed, and the trial court upheld the decision of the

Commission. Van Vactor again appealed.

161

Van Vactor challenged the validity of the Marshall County Subdivision

Control Ordinance (the “Ordinance”) provisions cited by the Commission in its

denial of the plat, arguing that they did not set forth “concrete and specific

standards” to guide the Commission’s discretion. Nonetheless, the court of

appeals noted that other provisions of the Ordinance did contain concrete and

specific standards.

162

A plan commission’s only task when reviewing an application for

preliminary plat approval is to determine whether the proposed plat

complies with the concrete standards set forth in the subdivision control

ordinance, and the commission cannot deny an application on the basis

of factors outside the ordinance.

163

After reviewing the Findings of Fact and Conclusions of Law adopted by the

Commission, the court of appeals found that the Commission erred in referring

to a general preamble-like section as its sole basis for disapproving the plat on

the basis of the septic system and wastewater sludge when more specific

provisions should have been considered and cited in the Commission’s written

findings. However, because the Commission cited to specific and concrete

164

standards with reference to its findings concerning the roadways and traffic, the

court found that the Commission gave Van Vactor fair notice of the reasons for

its disapproval of the plat. “Accordingly, we conclude that the Commission

165

appropriately denied the preliminary subdivision plat on the basis of the rural

character of the roadways and increased traffic.”

166

In the second case, Fulton County Advisory Plan Commission v.

Groninger, the Groningers applied for preliminary plat approval for a

167

residential subdivision that would enter and exit onto County Road 300 South,

a highway. The Fulton County Advisory Plan Commission (the “Commission”)

denied the plat because it violated the Vision Clearance Standards articulated in

the Fulton County Zoning Ordinance. The Vision Clearance Standards contain

168

three criteria—two of which are concrete and measurable and a third catch-all:

2004] PROPERTY LAW 1329

169. Id.

170. Id. at 543-44.

171. Id. at 544.

172. Id. at 545.

173. Id. at 546-48.

174. Id. at 549.

175. 789 N.E.2d 96 (Ind. Ct. App. 2003).

176. Id. at 98.

“The visibility to or from the desired location is determined to be impaired by the

Zoning Administrator.” The Groningers filed an action asking that the trial

169

court mandate the Commission to grant plat approval. The trial court granted the

Groningers’ motion for summary judgment and the Commission appealed.

170

The court of appeals noted that a “mandate” is an “extraordinary” equitable

remedy that may only be used when the requesting party has a “clear and

unquestioned legal right to the relief sought and [shows] that the respondent has

an absolute duty to perform the act demanded.” The court also noted that “in

171

order to be valid, an ordinance must be definite, precise, and certain in

expression” and “standard[s] must be written with sufficient precision to give fair

warning as to what the Commission will consider in making its decision.” The

172

Groningers argued that the catch-all provision is not sufficiently definite and

gives the Commission great discretion without any basis. The court of appeals

agreed with the Groningers:

The third criterion states only that the application may be denied if the

Zoning Administrator deems the visibility to be impaired. No further

standards or instructions are provided concerning how the Zoning

Administrator is to determine if visibility is impaired or how an

applicant can avoid or correct such an impairment. Thus, a member of

the public is not given sufficient notice of what the Plan Commission

will consider when reviewing a plat application to determine if highway

visibility is impaired.

173

The mandate ordered by the trial court was upheld.

174

C. Enforceability of Fees for Permits

At issue in Area Plan Commission v. Evansville Outdoor Advertising, Inc.,

175

are four ordinances which empower the Area Plan Commission of Evansville (the

“APC”) to “establish and collect a schedule of reasonable fees associated with

processing and hearing administrative appeals, petitions for rezoning, special

uses, variances, subdivisions, reviewing permit applications, issuing permits, and

other official actions taken under IC Title 36.” Particularly at issue is the fee

176

schedule established by the APC with regard to permits for off-premises signs,

more commonly known as billboards. The previous fee for billboard permits had

been $100. Pursuant to the above-described ordinance, the APC established a fee

1330 INDIANA LAW REVIEW [Vol. 37:1307

177. Id.

178. Id. at 98-99.

179. Id. at 99-100.

180. Id. at 102.

181. Id. at 103.

182. Id. at 104 (quoting IND. CODE § 36-1-3-8(a)(5) (2003)).

183. Id.

184. Id.

of $1 per square foot with a minimum charge of $100. This resulted in an

177

approximately 600% increase in the permit fee for a new billboard. Eighteen

months after the new fee schedule became effective, Evansville and Vanderburgh

County established new ordinances which more strictly regulated the placement

of billboards. These new ordinances decreed that permit fees for billboards

should be based on the “total display area” of the billboards.

178

Evansville Outdoor Advertising (“Evansville Outdoor”) filed a declaratory

judgment action against the Area Plan Commission of Evansville (the

“Commission”), the City of Evansville, and the Board of Commissioners of

Vanderburgh County, seeking to have the four ordinances declared void. The

trial court ruled in favor of Evansville Outdoor, finding that the APC’s fee

schedule is “not reasonably related to the administrative cost of exercising

regulatory power,” being used for the purpose of discouraging billboards, and

therefore “impermissible.” The trial court also found that the Evansville and

179

Vanderburgh County ordinances which state that permit fees should be based on

“total display area” were also invalid, even though they did not establish the

amount of said fees.

180

The court of appeals reversed the trial court’s decision with respect to the

Evansville and Vanderburgh County sign ordinances, holding that:

The local legislative bodies clearly had a rational basis for requiring

billboard permit fees to be based on total display area, as one could

reasonably infer a correlation between sign size and administrative cost

incurred by the APC. Therefore, the trial court erred in declaring

Vanderburgh County, Ind., Code § 17.27.50(D) and Evansville, Ind.,

Code § 15.153.07.124(D) void.

181

The court of appeals noted that the trial court’s inquiry should have been limited

to whether the APC’s fee schedule violated Indiana Code section 36-1-3-8(a)(5),

which provides that a local legislative body does not have “‘[t]he power to

impose a license fee greater than that reasonably related to the administrative

cost of exercising a regulatory power.’” The court noted that the trial court did

182

not make a finding as to whether Evansville Outdoor had shown that the APC’s

fee schedule was “obviously and largely beyond what is needed for the regulatory

services rendered.” The case was remanded to the trial court for a

183

determination of whether the APC fee schedule violates the Home Rule Act.

184

2004] PROPERTY LAW 1331

185. 789 N.E.2d 1 (Ind. Ct. App. 2003).

186. Id. at 12.

187. Id. at 3.

188. Id.

189. Id.

190. Id. at 4.

191. Id.

192. Id.

D. Equitable Estoppel and Zoning

The court of appeals addressed a complicated set of facts in Brown County

v. Booe, and held that, at least in the zoning enforcement context, a private

185

citizen may assert the principle of equitable estoppel against a governmental

entity under limited circumstances. The Brown County zoning ordinance

186

establishes a number of zoning districts in unincorporated areas of the county,

including forest reserve (“FR”), industrial, and residential 2 (“R-2”). Pursuant

to the ordinance, any property located within 300 feet of a county road is

designated R-2. No industrial uses are permitted as special exceptions in R-2

districts, however, some industrial uses are permissible as special exceptions in

the FR districts.

187

In 1974, Booe purchased a tract of land and began operating a sawmill. He

applied for a special exception, noting that his land was in the FR district. That

petition was denied by the Board of Zoning Appeals of Brown County (“BZA”)

because of “road condition & residential area.” The next year, Booe again

188

applied for a special exception permit and provided the BZA with a hand drawn

map that depicted his sawmill as more than 400 feet from a county road. Again,

the BZA denied the special exception. Finally, in 1976, Booe’s third

189

application was approved after he admitted that he had been operating the

sawmill illegally for two years and gave the BZA evidence that his sawmill was

located 418 feet from Brown Hill Road.

190

In 1994, Booe decided to subdivide his property and submitted a plat to the

Plan Commission, which was subsequently approved. The plat included a three-

acre Tract I-1, which the plat noted was “an industrial zoned tract.” Booe’s

sawmill is located on Tract I-1. In 1998, Booe vacated the 1994 plat and

191

submitted a second plat for approval. Booe received comments from the Plan

Commission on his second plat, including a note that he should “dedicate County

Road 169.” The second plat, which included three tracts (Tracts I-1, I-1A, and

I-1B) which were noted as being zoned industrial, was also approved by the Plan

Commission.

192

In 1999, Booe sold Tract I-1A to Beckemeyer, who intended to use it for a

commercial woodworking operation. Beckemeyer engaged in due diligence

before purchasing the tract, including checking the assessors’ records, which

refer to the tract as “industrial” and obtaining a letter from the Plan Commission,

which read in part: “The special exception granted for sawmill in FR zoning, is

granted for the property not the owners as per B.C. zoning ordinance and state

1332 INDIANA LAW REVIEW [Vol. 37:1307

193. Id.

194. Id.

195. Id. at 5.

196. Id. at 5-6.

197. Id. at 7.

198. Id. at 8-9.

199. Id. at 9.

statutes. This also allows woodworking in this and any zoning district. This

property was given ‘FR’ zoning in error, the zoning is R-2.” Beckemeyer

193

understood this letter to indicate that he would be able to operate pursuant to the

special exception granted to Booe in 1976 and that woodworking would be

allowed on Tract I-1A. He purchased the tract.

194

After residential neighbors expressed concern to the Plan Commission,

Brown County filed a complaint against Booe and Beckemeyer requesting

injunctions to prevent them from operating their sawmill and woodworking

operations. Brown County alleged a number of alternative theories which all

alleged that the 1976 special exception was no longer valid and that Booe and

Beckemeyer were using their respective properties in violation of the Brown

County zoning ordinances. Booe and Beckemeyer raised a number of defenses

195

to this complaint, including equitable estoppel. Particularly, they argued that

Brown County is estopped from challenging Booe and Beckemeyer’s respective

industrial uses of their property. The trial court honored this estoppel argument.

Brown County appealed.

196

The court of appeals noted that “government entities are not subject to

equitable estoppel” except in special circumstances, namely “estoppel may be

appropriate where the party asserting estoppel has detrimentally relied on the

government entity’s affirmative assertion or on its silence where there was a duty

to speak.” Apparently in 1976 both Booe and Brown County mistakenly

197

understood Booe’s tract to be zoned FR based on its distance from Brown Hill

Road when it was actually bordering County Road 169. In 1976, due to

inadequate county maps, neither Booe nor Brown County knew that what both

thought was a private road running through Booe’s property was actually County

Road 169. Brown County discovered this fact after it approved Booe’s first

198

plat, but before it approved his second plat. Nonetheless, it did not correct

Booe’s mistaken belief that his property was zoned FR and that his special

exception was valid. (Recall that no industrial uses are permissible in a R-2

district, even by special exception.) Under these circumstances, the court

199

found that Booe’s defense of equitable estoppel was appropriate:

[G]iven Booe’s understandable confusion over the location and existence

of County Road 169, and Brown County’s affirmative acts and nearly

thirty-year silence concerning any possible zoning violation with regard

to the location and operation of the sawmill, we agree with Booe that

Brown County is estopped from challenging Booe’s industrial use of his

2004] PROPERTY LAW 1333

200. Id. at 10.

201. Id. at 11.

202. Id. at 11-12.

203. Id. at 12 (quoting IND. CODE § 36-2-4-405 (1997)).

204. Id.

205. 789 N.E.2d 13 (Ind. Ct. App. 2003), petition to trans. pending.

206. Id. at 14-15.

207. Id. at 15.

property.

200

With regard to Beckemeyer’s defense, the court noted that he attempted to

discover whether his use would be permissible on Tract I-1A and that the Plan

Commission’s actions did not discourage him from that belief. In particular, the

court referred to the Plan Commission’s confusing letter to Beckemeyer which

the court held “could be interpreted by a reasonable person to mean that

regardless of whether Tract I-1A is zoned ‘FR’ or ‘R-2,’ the special exception

applies to that piece of property.” Under these circumstances, the court held

201

that Brown County is estopped from challenging Beckemeyer’s industrial use of

his property.

Finally, the court addressed Beckemeyer’s argument that the Plan

Commission’s approval of Booe’s second plat, which designated certain tracts

as “zoned industrial,” constituted a “de facto rezoning of Tract I-1A to

‘industrial.’” The court noted that the Plan Commission does not have

202

statutory authority to rezone land, but has the limited authority to “‘render

decisions concerning and approve plats, replats, and amendments to plats of

subdivisions.’” Therefore, the Plan Commission’s approval of the second plat

203

could not constitute a de facto rezoning of the tract. Instead, under the facts and

circumstances of this case, the court concluded that Booe and Beckemeyer’s

current uses are non-conforming uses which Brown County is equitably estopped

from preventing.

204

E. Nature and Enforceability of Zoning Commitments

In a second Brown County zoning case during this survey period, Story Bed

& Breakfast, L.L.P. v. Brown County Area Plan Commission, the court of

205

appeals addressed the nature and enforceability of zoning commitments and

whether they are or should be treated similarly to standard title exceptions for

purposes of “bona fide purchaser” protections.

In 1986, a ten acre parcel of land in unincorporated Brown County (the

“Story Property”) was zoned as a Planned Unit Development “PUD.” The

owners at that time entered into a number of land use restrictions designated as

“covenants,” concerning use of audio equipment, outside lighting, and

camping. In 1992, the same owners sought approval for a second PUD for a

206

twelve-acre addition to the Story Property. A similar list of “covenants” were

adopted as part of the second PUD. Neither the first PUD, the second PUD, nor

the attendant “covenants” were recorded.

207

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208. Id.

209. Id. at 15-16.

210. Id. at 17.

211. Id. at 18.

212. Id. at 19.

213. Id. at 20.

In 1999, Story Bed & Breakfast, L.L.P. (“Story”) investigated the Story

Property with the intent of purchasing it. Story had a title search conducted,

which did not reveal the PUDs or the covenants. However, three months before

Story purchased the Story Property, an architect informed Story that the Story

Property was zoned pursuant to the 1986 PUD. The architect did not know about

the covenants and did not suggest to Story that the property was subject to any

land use restrictions. Story invested a significant sum of money in the Story

208

Property and began to use it in a number of ways which violated the 1986 and

1992 PUDs. After purchasing the property, the Plan Commission informed Story

about the PUDs and land use restrictions and filed a lawsuit to enforce them.

Story claimed that it was a bona fide purchaser for value without notice of the

PUDs and therefore the Story Property was not encumbered by the covenants.

209

The court of appeals began by noting the Indiana statutes which permit local

zoning authorities to create PUDs with written “commitments” concerning the

use of the land. “Importantly,” the court noted, “the terms of such an unrecorded

commitment may only be asserted against a subsequent purchaser of real

property if the purchaser had actual knowledge of the commitment.” The court

210

of appeals discussed in depth whether the land use restrictions attached to the

PUDs should be considered “commitments,” as they are described by the statute,

or “covenants,” as they are described by the 1986 and 1992 PUDs. It concluded

that such labels are “singularly unhelpful” and that courts should instead “focus

on whether a subsequent BFP was given sufficient notice to negate the common

law right to the unrestricted use of his or her land.”

211

The court was “troubled that a property owner’s common law right to the

unrestricted use of his or her property might be encumbered by a condition only

discoverable through a search of the minutes of a plan commission meeting.”

212

The court continued:

We find it inconsistent that Indiana law requires the terms of conditions

to be stated with sufficient clarity as to inform the property owner of the

nature of the restrictions inhibiting the use of his or her property and yet

would require property owners to search through years of plan

commission records for unrecorded land use restrictions outside the

recorded chain of title.

213

Therefore:

[W]e hold that land use restrictions, however denominated, and which

result from the PUD negotiation process, should be recorded or

otherwise memorialized in a manner reasonably calculated to provide

2004] PROPERTY LAW 1335

214. Id.

215. Id. at 21-22.

216. Lake Cent. Sch. Corp. v. Hawk Dev. Corp., 793 N.E.2d 1080, 1082 (Ind. Ct. App. 2003),

petition for reh’g pending.

217. Id.

notice to a subsequent purchaser of land. We further hold that the

location of such land use restrictions in the minutes of Plan Commission

meetings was insufficient to adequately put Story, as a subsequent BFP,

on notice of the restrictions contained therein.

214

Finally, the court addressed whether the fact that Story had been informed

about the Story Property’s PUD status by the architect prior to purchasing the

land put it on notice. The court dismissed that idea:

Having knowledge of a PUD designation is not the same thing as having

knowledge of the land use restrictions attached to it. . . . Consequently,

causing a property owner’s knowledge of a PUD designation to

constitute constructive notice of unrecorded or otherwise inadequately

memoralized land use restrictions, would require such an owner to

review years of plan commission records for information that may or

may not exist. We believe this is an unreasonable undertaking that is not

adequately ameliorated by vague expectations of accurate and timely

advice from associated government land use employees on a county-by-

county basis.

215

It is important to note that the court of appeals opinion suggests that Story made

no inquiry with the Plan Commission regarding the zoning of the property before

it purchased it. Story therefore implies that a potential purchaser will be

considered innocent even if does not make any attempt, beyond a title search, to

discover if any zoning commitments apply to the property. Because the same

reasoning presumably applies, Story may be used to argue that any commitments

entered into with respect to zoning, not just with respect to PUDs, must be

recorded or “otherwise memorialized” in order to be binding on subsequent

purchasers.

V. EMINENT DOMAIN LAW

A. Constructive Notice of Eminent Domain Action

Lake Central School Corporation (“Lake Central”) wished to acquire thirty

acres (the “Parcel”) owned by Hawk Development (“Hawk”) in order to build a

new elementary school. When Hawk refused to sell the Parcel, Lake Central

216

filed a complaint for condemnation in October 1999. In early 2000, while the

condemnation action was pending, Hawk Development sought approval for a

subdivision of the Parcel which was approved by the Lake County Plan

Commission over Lake Central’s objections. In October 2000, while the action

217

was still pending, Hawk Development obtained a loan from Bank Calumet

1336 INDIANA LAW REVIEW [Vol. 37:1307

218. Id. at 1083.

219. Id.

220. Id. at 1084-86.

221. Id.

222. Id. at 1089.

223. Town of Georgetown v. Sewell, 786 N.E.2d 1132, 1135 (Ind. Ct. App. 2003).

224. Id.

225. Id.

secured by a mortgage on the Parcel and sold several lots to Fetsch Townhomes

for development. Hawk Development did not disclose the condemnation action

to either Bank Calumet or Fetsch Townshomes and both entities obtained title

policies which did not reveal the action. After Bank Calumet, Fetsch

218

Townhomes, and Fifth Third Bank (lender to Fetsch) (collectively, the

“Interested Parties”) learned of the condemnation proceeding, they sought and

were granted permission to intervene, arguing that the current action could not

condemn their interests in the Parcel because they had no notice of the action.

219

Indiana Code section 32-24-1-4(c) provides that the filing of a condemnation

complaint constitutes notice of the proceedings to all subsequent purchasers. In

this case, the Interested Parties argued that Indiana Code section 32-24-1-4 must

be read in concert with the Lis Pendens Act (Indiana Code sections 32-30-11-1

to -10), which requires that a person seeking to place others on constructive

notice of a lawsuit concerning real property must file a lis pendens notice with

the county recorder. In other words, the Interested Parties argued that despite

220

the clear language of the eminent domain statute, the complaint was not enough

to provide constructive notice – a lis pendens notice must also be filed. The

221

Indiana Court of Appeals disagreed and held that no lis pendens notice is

required by current law. The court also noted that the eminent domain statute is

harsh, and strongly suggested that the General Assembly amend the statute in

order to require that lis pendens notices be recorded.

222

B. The Law of Partial Regulatory Takings

In the late 1960s and the early 1970s, the Property was a landfill for the

Town of Georgetown (the “Town”). In 1985, the Town sold the Property to

223

Teeter. The Town placed no zoning or other development restrictions on the

Property. Teeter applied for and received a building permit and a septic permit

from the Town and placed a mobile home on the property, where he lived for

several years. In 1996, Teeter sold the Property to the Hertels. The Hertels

224

were aware that the Property had been a landfill, but were unaware of any

restrictions on the use of the Property and intended to subdivide it for the

construction of homes. In 1996, the Hertels received a construction permit for

225

a private sewage disposal system for the Property. In 1998, Randy and Denise

Sewell (the “Sewells”) purchased a one acre parcel of the Property for the

purpose of building a home for their son Timothy Sewell (“Timothy”), and the

2004] PROPERTY LAW 1337

226. Id.

227. Id. at 1136.

228. Id.

229. Id.

230. Id. at 1137.

231. 702 N.E.2d 1026, 1028 (Ind. 1998).

232. Id. (citing Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1015 (1992)).

233. 702 N.E.2d 677, 683 (Ind. 1998) (recognizing a test that originated in Penn Central Co.

v. City of New York, 438 U.S. 104 (1978)).

234. Id.

deed transferred ownership directly from the Hertels to Timothy. There was

226

a factual dispute regarding whether the Sewells or Timothy knew that the

Property had been used for a landfill. After the purchase, the Sewells applied for

and received a permit for a private sewage disposal system from the Floyd

County Health Department and a building permit from the Town. After some

neighbors called the Town questioning the construction of a home on a former

landfill, the Town issued a stop work order. The Sewells and Timothy

227

appealed the stop work order to the Georgetown Board of Zoning Appeals

(“BZA”). At the BZA meeting, a former member of the Town Board testified

that the Town did not have the Indiana Department of Environmental

Management (IDEM) inspect the Property or impose restrictions on the Property

at the time of the sale of the Property to Teeter because “everyone on the board

at that time, and ninety nine percent of the population knew that was the Town

dump.” The BZA also heard testimony that it would be unsafe to construct a

228

septic system or residence on the Property because such construction would

breach the cover of the landfill. There was testimony that the Property could be

used for recreational purposes or grazing purposes and possibly for a slab

construction, if fill were brought in so that the cover would not be compromised.

The BZA upheld the stop work order and the Sewells filed suit for inverse

condemnation. The trial court found that the Sewells had established that a

229

regulatory taking had occurred. The Town appealed.

230

The Indiana Court of Appeals, relying on BZA of Bloomington v. Leisz,

231

stated that there are two types of regulatory takings under the Fifth Amendment

to the U.S. Constitution: (1) those that require the owner to suffer a physical

“invasion” of his or her property; and (2) those that “deny all economically

beneficial or productive use of the land.” Because the stop work order fell into

232

the latter category, and because it fell short of eliminating all economically

beneficial use, the court applied the test articulated in Ragucci v. Metropolitan

Development Commission, to determine if a partial regulatory taking had

233

occurred: “Three factors are of ‘particular significance’ to this ad hoc inquiry:

(1) ‘[t]he economic impact of the regulation on the claimant,’ (2) ‘the extent to

which the regulation has interfered with distinct investment-backed

expectations,’ and (3) ‘the character of the governmental action.’”

234

Timothy charged that because of the stop work order, his tract diminished in

1338 INDIANA LAW REVIEW [Vol. 37:1307

235. Sewell, 786 N.E.2d at 1140.

236. Id.

237. Id.

238. Id.

239. Id. (citing Leisz, 702 N.E.2d at 1030).

240. Id. at 1141.

241. Id.

242. Id.

243. Id. at 1141-42.

244. See Story Bed & Breakfast, L.L.P. v. Brown County Area Plan Comm’n, 789 N.E.2d 13

(Ind. Ct. App. 2003).

245. Sewell, 786 N.E.2d at 1142.

246. See generally Brown County v. Booe, 789 N.E.2d 1 (Ind. Ct. App. 2003).

value from $14,000 to being “virtually, if not completely, worthless.” The

235

court noted that “a landowner is not entitled to the highest and best use of his

land; and a taking only occurs when the land use regulation prevents all

reasonable use of the land.” The Town pointed out that economically viable

236

uses for the tract do exist, namely that Sewell could build a slab type structure

like a tool shed, or that he could use the property for recreational or grazing

activities. Sewell argued, in response that he could receive “no economic

237

benefit from [the property] being used as a pasture or as a park.” The court

238

stated that “We disagree with the notion that tract one has no economically viable

use. Timothy can use tract one for grazing or recreational purposes. . . . As such,

like the plaintiffs in Leisz, Timothy’s ‘property continues to have an

economically viable use, even if it is somewhat diminished.’”

239

The court next examined whether the stop work order interfered with

Timothy’s reasonable investment-backed expectations. The court explained

240

that landowners are charged with knowledge of existing ordinances and

regulations affecting their property. The court noted that landfills are “heavily

241

regulated for the protection of human health and the environment.” Because

242

there is a dispute regarding whether the Sewells knew that the Property had been

a landfill, the court implies that the landowner is charged with constructive notice

of these regulations even if he had no actual notice that his Property had been a

landfill. The court did not raise issues regarding the extent of a landowners’

243

constructive notice of unrecorded restrictions on the use of his property.

244

Based on the Penn Central test, the court found that the stop work order did

not constitute a compensable regulatory partial taking of Sewell’s property and

reversed the trial court’s decision.

245

Timothy apparently did not raise, and the court therefore did not address, the

question of whether the Town is equitably estopped from issuing the stop work

order because it never imposed any development restrictions on the Property via

zoning or recorded restrictions, or whether the Town’s failure to place any

restrictions on the Property undermined its defense on the takings issue.

246

2004] PROPERTY LAW 1339

247. 785 N.E.2d 279 (Ind. Ct. App. 2003).

248. Id. at 280.

249. Id.

250. Id.

251. Id. at 281.

252. Id. at 284 n.5.

253. 783 N.E.2d 742 (Ind. Ct. App. 2003), trans. denied.

254. Id. at 743.

255. Id.

256. Id.

VI. TAX SALES

The Indiana Court of Appeals addressed tax sales in two opinions during the

survey period, clarifying a single issue in each.

In Lake County Auditor v. Bank Calumet, Bank Calumet, as trustee of a

247

land trust, purchased an improved parcel of land at the 2000 tax sale in Lake

County. Prior to the tax sale, Bank Calumet inspected the property and found the

building to be satisfactory. A few months after the sale and before the

248

redemption period had ended, Bank Calumet again visited the property and found

that the improvements had been demolished, presumably by the City of Gary.

Bank Calumet filed a verified petition for rescission of the tax sale certificate and

for a refund, asking the circuit court to cancel the tax sale for equitable

reasons. The circuit court granted relief to Bank Calumet and ordered the Lake

249

County Auditor to refund Bank Calumet’s money. The Auditor appealed.

250

The court of appeals noted that “Indiana appellate courts have recognized

that the doctrine of caveat emptor applies to tax sales in its fullest force, that is,

a purchaser at a tax sale buys at his own risk.” Noting that Bank Calumet did

251

not allege that the Auditor misled the buyer about the status of the property and

that no statute provides Bank Calumet with the remedy of obtaining a rescission

of the sale under such circumstances, the court of appeals reversed the trial court

and held that Bank Calumet had assumed the risk that the “nature or extent of the

property he purchased [would be] altered by a third party between the time of the

tax sale and expiration of the redemption period.”

252

In Board of Commissioners v. Mundy, Mundy purchased an improved

253

parcel of real estate at the 2002 tax sale. He sent the required notice to all

persons with a substantial property interest in compliance with Indiana Code

section 6-1.1-25-4.5. A few weeks after the tax sale, Mundy received notice

254

from the City of Evansville Department of Code Enforcement stating that it had

issued an order that Mundy must raze the improvements on the real estate by July

10, 2002. Mundy filed a complaint in superior court, arguing that he was

255

entitled to a refund of his purchase price, minus a twenty-five percent penalty

under Indiana Code section 6-1.1-25-4.6(d). The trial court held that Mundy was

entitled to such a refund. The Board appealed.

256

Mundy did not contest the fact that he did not petition the court to issue a tax

deed at the end of the redemption period or send out the notices of that petition

1340 INDIANA LAW REVIEW [Vol. 37:1307

257. Id. at 744.

258. Id. (citing IND. CODE ANN. § 6-1.1-25-4.6(d) (West 2000 & Supp. 2003)).

259. Id.

260. Id.

261. Id. at 745.

262. King v. Wiley, 785 N.E.2d 1102 (Ind. Ct. App. 2003), trans. denied.

263. Id. at 1106.

264. Id.

265. Id.

266. Id. at 1107.

267. Id.

as required by Indiana Code section 6-1.1-25-4.6. Nonetheless, he argued, and

257

the court of appeals agreed, that the following provision applied to his case: “[i]f

the court refuses to enter an order directing the county auditor to execute and

deliver the tax deed because of the failure of the purchaser or purchaser’s

assignee to fulfill the requirements of this section, the court shall order the return

of the purchase price minus a penalty of twenty-five percent (25%) of the amount

of the purchase price.” The Board argued that the word “failure” implied that

258

the purchaser was required to make a bona fide effort to comply with the

requirements of the statute before it could be entitled to a refund. The court

259

disagreed, noting that “[i]t is not unreasonable to say that someone fails to meet

these requirements when he chooses not to do them.” The decision of the trial

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court was affirmed.

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VII. DEVELOPMENTS IN THE COMMON LAW OF PROPERTY

A. Adverse Possession

The Kings purchased a landlocked tract of land in 1982 and, in the original

deed, received a twenty-foot wide access easement purportedly over land retained

by the sellers. In 1996, the Kings decided to build a driveway in the easement

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and contracted with a surveyor to perform a “legal survey” under Indiana Code

section 36-2-12-10(b). Notice was given to the Wileys and to Harden, whose

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property abutted the easement parcel. The surveyor found, and indicated on the

recorded legal survey, that the easement parcel overlapped with real estate to

which the Wileys and Harden purportedly had title. The Wileys initiated an

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appeal of the legal survey along with a complaint seeking a declaration of the

boundaries of the easement parcel. The Kings filed a counterclaim to quiet title

as to their easement rights. The trial court ruled that the legal survey was void

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because the Kings were not the landowners of property adjacent to the easement

parcel and, therefore, the surveyor had no jurisdiction to perform the survey

under the statute. The trial court further determined that the Wileys and

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Harden had adversely possessed any interest that the Kings had in the easement

parcel. The Kings appealed.

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The court of appeals reversed and remanded, holding that: (1) the Kings were

2004] PROPERTY LAW 1341

268. Id. at 1108.

269. Id.

270. Id. at 1110.

271. Id.

272. Corp. for Gen. Trade v. Sears, 780 N.E.2d 405, 406-07 (Ind. Ct. App. 2002).

273. Id. at 408.

274. Id. at 407.

275. Id.

276. Id. at 409.

277. Id.

278. Id.

279. Id.

“landowners” as that term is used in section 36-2-12-10(b) and therefore had the

authority to order the legal survey; and (2) the Wileys and Harden did not

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adversely possess the easement parcel. Using the standard analysis, the court

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noted that the encroachment of the Wileys and Harden into the easement parcel

was not so open, notorious, or hostile as to give the Kings (or the underlying fee

owner) notice of their adverse possession. Finally, the court of appeals ruled

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that the Kings did not provide all adjacent landowners with the notice required

by the legal survey statute and declined to use the survey to determine the

easement boundaries as a matter of law. The case was remanded to determine the

boundaries of the easement parcel.

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B. Prescriptive Easement

The Corporation for General Trade (“CGT”) owns Lots 1, 2 and 4 in

Krumbhaar’s Subdivision in Terre Haute. Sears owns Lots 3, 5, 6, 11 and

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12. In 1977, the Sanitary District of the City of Terre Haute (the “District”)

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condemned a portion of Lots 1, 2, 3, and 4 for the purpose of constructing a

drainage ditch and dam across Lots 2, 3, and 4, which flooded a portion of the

aforementioned lots, including the private road by which Lot 4 accessed the

public road. CGT’s predecessor in interest began using the dam road in 1977

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to access Lot 4. A locked gate was installed on the road and only the District and

CGT’s predecessor had keys.

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In the late 1990s, issues arose between CGT and Sears regarding access to

and control of the dam road. Sears requested a key to the gate and was denied

by CGT. Sears then constructed a cable barrier across Lot 3 to prevent access

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between Lot 4 and the public road. CGT filed suit, claiming that it had

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obtained a prescriptive easement over the dam road. Sears counterclaimed,

arguing that he too had a prescriptive easement over the dam road. Both parties

sought injunctions to prevent the other party from blocking its access to the dam

road.

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The trial court found that both Sears and CGT had established prescriptive

easements over the dam road. CGT appealed. Sears did not appeal the trial

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280. Id.

281. Id. at 410.

282. Id. at 411.

283. Id. at 412.

284. Id.

285. Id. at 413.

286. Id.

court’s finding of a prescriptive easement in favor of CGT. The Indiana Court

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of Appeals laid out the common law test for prescriptive easements and stressed

that the test is strictly applied. It found that the evidence presented by Sears

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at trial was insufficient to establish several of the required facts, including a

twenty-year period of continuous use. Particularly, the court noted that the

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trial court inferred actual use for a period of four years based on the

circumstantial evidence presented by Sears. This, the trial court was not

permitted to do: “Such an inference does not comport with the stringent

requirements mandated for establishing a prescriptive easement.”

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The court also addressed a “Flowage Easement” granted by the District to

Sears in 1998 for the purpose of granting Sears access to his Lots 2 and 4 through

the dam road. The court found that the easement condemned by the District

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was not broad enough to give it the right to grant access rights through its

easement to “non-governmental third parties who had nothing to do with

constructing or maintaining the dam but simply sought to use the right-of-way for

access to adjacent land.” As a result, the District lacked the legal right to grant

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the Flowage Easement to Sears and the court dismissed it as “null and void.”

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