The Court of Appeals of Indiana has reversed for a general contractor after it found the Marion Superior Court erroneously awarded a mortgage servicer judgment in a breach-of-contract dispute.
Neal Bruder is a general contractor who does business in Indianapolis and “flips” homes. He entered into a nonexclusive one-year consulting agreement with Seneca Mortgage Financial Services in February 2019.
In the spring of 2019, Bruder became interested in purchasing property on Primrose Avenue in Indianapolis and contacted David Rusk, president of SMFS. Bruder told Rusk that although he did not need to borrow money for the purchase of the Primrose property, he was interested in discovering what kind of loan SMFS might obtain for him for around $100,000.
Rusk located a prospective lender willing to loan Bruder $142,000. The prospective lender required as a condition of the loan that Bruder pay for and pull permits on the Primrose property before the loan was finalized.
Bruder replied that he only required $100,000 to $104,000. He further told Rusk that he refused to pay for and pull permits, believing that doing so would be a fraudulent act that could jeopardize his relationship with the city as a general contractor in good standing.
Around the same time, SMFS was advised to change its name to reflect that it did “not sell stocks, and bonds, and securities, and things of that nature.” SMFS dropped “financial services from [its] name as [it] was exclusively a commercial loan broker.”
Thereafter, the company did business as Seneca. According to records from the Indiana Secretary of State’s Office, SMFS voluntarily dissolved, with an inactive date of June 3, 2019.
Meanwhile, Rusk texted Bruder indicating the proposed lender remained steadfast in its requirement that Bruder pay for and pull the permits on the Primrose property prior to closing on the loan. Bruder again refused and instead financed the purchase through a loan to himself.
That loan was provided by Black Dog Property Management, LLC a company co-owned by Bruder and two other business partners, with Bruder owning 46.3%. The loan he made to himself did not contain the permit requirements and had a different interest rate, so it was not similar to the loan Seneca identified.
Later, after Bruder closed on the financing for the Primrose property, Seneca attempted to collect a 2% commission it claimed was owed under the consulting agreement. Bruder did not pay Seneca the commission, and even though the consulting agreement contained a binding arbitration clause, Seneca filed a complaint with the trial court alleging breach of contract.
Bruder argued the consulting agreement was with SMFS, not Seneca, so he did not owe the commission to the latter. He further argued that it was his right under the contract to decline financing offered by Seneca, and that because no transaction was consummated, he did not owe a commission.
Seneca countered that Bruder had violated the non-circumvention clause of the contract and nonetheless owed Seneca its commission per the terms of that clause.
A bench trial was held, and the court found that Seneca was a successor to SMFS; Bruder breached the contract by failing to pay the 2% commission, totaling $2,840; Bruder must pay the commission plus pre- and post-judgment interest; and Bruder must pay Seneca’s attorney fees of $11,340.
On appeal, the COA affirmed Seneca was the successor to SMFS but concluded the trial court incorrectly determined Bruder could only obtain financing through Seneca during the term of the consulting agreement. Further, the COA opined the trial court erred when it determined Bruder owed Seneca a commission and attorney fees.
Thus, the COA remanded with instructions to enter judgment for Bruder.
“The evidence does not support the court’s conclusion that Bruder circumvented the consulting agreement, and we find that conclusion to be clearly erroneous,” Senior Judge John Baker wrote for the COA. “Seneca acknowledged at trial that had the parties simply walked away from the Primrose property deal, Seneca would not be entitled to a commission.
“The court’s rationale for finding that Bruder circumvented the agreement was based on its mistaken interpretation that the agreement was non-exclusive only as to Seneca, and thus Bruder was in breach by obtaining financing from another source during the term of the agreement,” Baker continued. “Further, the financing arrangement identified by Seneca required Bruder to commit a fraudulent and illegal act … prior to closing on the financing.”
The case is Neal Bruder v. Seneca Mortage Services, LLC, 21A-PL-1085.