Merrillville 2548, Inc. v. BMO Harris Bank N.A.
2015 Ind. App. LEXIS 456
| Ind. Ct. App. | 2015Background
- MCSS Merrillville, LLC (Borrower) took a lease for a Golden Corral location and granted a leasehold mortgage to Amcore Bank (later assigned to BMO Harris) securing a promissory note.
- GC 2548 operated the restaurant from 2007 onward (holding franchise rights, paying rent to landlord, making improvements) but was never party to the Lease and paid nothing on the Note.
- BMO Harris sued in 2013 for breach, foreclosure, and receiver appointment; default judgment was entered against Borrower and most guarantors in 2014.
- The trial court concluded Article 9.1 of the Indiana UCC governed (allowing immediate repossession) and ordered GC 2548 to vacate within 30 days; GC 2548 appealed.
- The appellate court considered waiver, equitable-assignment, whether Article 9.1 applies to leasehold mortgages, and whether BMO Harris could obtain immediate possession.
Issues
| Issue | Plaintiff's Argument (BMO Harris) | Defendant's Argument (GC 2548) | Held |
|---|---|---|---|
| Did GC 2548 waive its equitable-assignment claim? | GC 2548 failed to raise equitable-assignment below; issue waived. | GC 2548 filed a counter/third-party claim and presented evidence at hearing; preserved. | Preserved — waiver rule inapplicable here. |
| Was there an equitable assignment of the Lease to GC 2548? | No — no assignment, no payments on the Note, not in privity; equitable assignment not shown. | Yes — GC 2548 operated premises, paid rent to landlord, improved property and assumed lease benefits. | No equitable assignment; trial court’s negative judgment affirmed. |
| Does Indiana UCC Article 9.1 govern a leasehold mortgage (allowing repossession)? | Article 9.1 covers the transaction; security interest in leasehold is governed by UCC. | Leasehold mortgage is an interest in real property; Article 9.1 does not apply. | Article 9.1 does not apply; leasehold mortgages are real-property interests governed by real-estate foreclosure law. |
| Is BMO Harris entitled to immediate possession (pre-sheriff sale)? | Yes, under Article 9.1 the lender may take possession. | No; under Indiana lien theory mortgagee has no right to possession before sheriff’s sale. | No immediate possession; mortgagee must obtain possession via sheriff’s sale under real-estate foreclosure statutes. |
Key Cases Cited
- Indianapolis Mfg. & Carpenters Union v. Cleveland, C., C. & I. Ry. Co., 45 Ind. 281 (1873) (equitable-assignment principles applied where tenant effectively transferred lease benefits without formal assignment)
- Collins v. McKinney, 871 N.E.2d 363 (Ind. Ct. App. 2007) (jury-sufficient facts can support finding of equitable assignment where transferee assumes lease obligations and control)
- Harold McComb & Son, Inc. v. JPMorgan Chase Bank, N.A., 892 N.E.2d 1255 (Ind. Ct. App. 2008) (standing and privity principles for third-party defenses in foreclosure contexts)
- In re Bristol Associates, Inc., 505 F.2d 1056 (3d Cir. 1974) (national authority treating leasehold mortgages as real-property interests not governed by Article 9)
- Oldham v. Noble, 66 N.E.2d 614 (Ind. Ct. App. 1946) (statement of Indiana’s lien-theory rule: mortgagee has lien but no right to possession absent foreclosure)