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State statute protects taxpayers from loan dispute

March 25, 2015

Ruling that taxpayers should not be penalized for a bank’s lack of diligence, the Indiana Court of Appeals has held a financial institution cannot recoup the outstanding balance on a loan for a fire truck.

The Peoples State Bank appealed summary judgment in favor of Benton Township of Monroe County after the Monroe Circuit Court concluded a loan transaction was void.

In The Peoples State Bank v. Benton Township of Monroe County, Indiana, 53A01-1409-PL-379, the Court of Appeals affirmed. It held the bank did not ensure statutory compliance and executed the promissory note not with the township trustee but with a part-time employee of the trustee’s office.

“The Bank’s remedy for its lack of diligence is that statutory protections afforded the taxpayers be disregarded and the Bank collect in full according to the stated terms of its promissory note,” Judge L. Mark Bailey wrote for the court. “However, our Courts have not historically rewarded a lack of diligence on the part of the lender by dispensing with taxpayer protections.”

Benton Township Trustee secured a loan of $335,295 from Peoples State Bank to buy a fire truck. However, the trustee acted without a prior appropriation of funds by Benton Township or compliance with statutory procedures allowing taxpayers an opportunity to remonstrate.

Not only did the township not make any payments on the loan, but a review by the Indiana State Board of Accounts found the township board did not approve the loan for the fire truck.

In a partial settlement and dispute resolution agreement, the township surrendered the fire truck which the bank sold for $212.866. The township provided additional funds but the bank still had an outstanding balance of $102,273.90.

The bank filed a complaint against the township and, in turn, the township responded by denying the bank was entitled to any additional recovery.

The Court of Appeals distilled the dispute down to one of statutory interpretation. Indiana Code 36-8-13-6 authorizes the purchase of firefighting equipment but holds the borrowing is subject to I.C. 36-8-13-6.5 which gives taxpayers a means to object to the purchase.

“Although a township board is empowered to borrow for firefighting equipment, it must do so in compliance with statutory procedures,” Bailey wrote. “A valid contract for purchase of firefighting equipment effectively binds the taxpayers. The taxpayers are entitled to statutory protections including notice and opportunity to object.”

The court concluded the purchase did not comply with the statute and, therefore, the contract between the township and the bank was invalid.

 

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