Court Opinion

ID: 4124357
Source: CourtListenerOpinion
Date Created: 2017-02-08 16:07:14.930222+00
Date Added: 2024-06-11T09:36:36.298306
License: Public Domain

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),
                                                                       FILED
this Memorandum Decision shall not be                              Feb 08 2017, 9:00 am

regarded as precedent or cited before any                              CLERK
                                                                   Indiana Supreme Court
court except for the purpose of establishing                          Court of Appeals
                                                                        and Tax Court
the defense of res judicata, collateral
estoppel, or the law of the case.

ATTORNEY FOR APPELLANT                                   ATTORNEYS FOR APPELLEE
John J. Schwarz,II                                       Thomas B. Trent
Hudson, Indiana                                          Andrew L. Palmison
                                                         Fort Wayne, Indiana

                                           IN THE
    COURT OF APPEALS OF INDIANA

Lori Enfield, Richard Enfield,                           February 8, 2017
Marvin Enfield, Thomas E.                                Court of Appeals Case No.
Wilson as Guardian for Sharon                            76A05-1603-MF-579
Enfield, and Steuben County                              Appeal from the Steuben Superior
Treasurer,                                               Court
Appellants-Defendants,                                   The Honorable William C. Fee,
                                                         Judge
        v.                                               Trial Court Cause No.
                                                         76D01-1503-MF-118
The Farmers & Merchants State
Bank,
Appellee-Plaintiff

Altice, Judge.

                                         Case Summary

Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017     Page 1 of 13
[1]   The Farmers & Merchants State Bank (the Bank) filed a mortgage foreclosure

      complaint against Marvin Enfield (Marvin) and others. The Bank and Marvin

      filed cross-motions for summary judgment. After a hearing, the trial court

      granted summary judgment in favor of the Bank. Marvin appeals, presenting

      two issues for our review, which we consolidate and restate as: Did the trial

      court err in granting the Bank’s motion for summary judgment?

[2]   We affirm.

                                             Facts & Procedural History

[3]   For decades, Marvin has owned approximately 260 acres in Steuben County

      (the Enfield Farm).1 At some point prior to these proceedings, Marvin had a

      judgment rendered against him for approximately $100,000. To pay off this

      and other debt, Marvin intended to sell forty acres of the Enfield farm. Richard

      Enfield,2 Marvin’s son, agreed to purchase what Marvin believed to be a forty-

      acre tract of the Enfield Farm for $236,500.00.3 On July 11, 2013, Marvin and

      Richard executed a warranty deed conveying property from Marvin to Richard,

      but reserving a life estate interest in the real estate for Marvin. Marvin

      1
          The Enfield Farm is comprised of ten separate tracts of land.
      2
          For clarity, references to Richard are inclusive of his wife, Lori.
      3
       According to Marvin, this amount was about the market price at the time for forty acres of low quality farm
      ground in Steuben County.

      Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017          Page 2 of 13
      maintains that unbeknownst to him, the deed he executed conveyed the entire

      Enfield Farm to Richard.4

[4]   The following day, July 12, 2013, Richard executed and delivered to the Bank a

      Promissory Note, by which he promised to pay to the Bank the sum of

      $236,500.00, together with interest (Note 1). The specified purpose of Note 1

      was to purchase farmland. Contemporaneously therewith, Richard and Marvin

      executed a mortgage, which included a “MAXIMUM OBLIGATION LIMIT”

      providing that “[t]he total principal amount secured by this [mortgage] at any

      one time shall not exceed $ 236,500.” Appellant’s Second Corrected Appendix at

      62. The mortgage expressly indicated that it secured Note 1 and “future notes

      and other debt instruments to be executed from time to time.” Id. In a separate

      provision, the mortgage secured additional loans from the Bank to any of the

      individuals who signed the mortgage “under any promissory note, contract,

      guaranty, or other evidence of debt existing now or executed after this

      [mortgage].” Id. The entire 260-acre Enfield Farm was provided as collateral

      for the mortgage. Marvin maintains that he was not apprised of this fact and

      4
        Marvin asserts that he is legally blind and therefore was unable to read the document Richard presented to
      him. Marvin maintains that he intended to convey only forty acres to Richard and that he relied upon
      Richard to apprise him of the content of the document Richard asked him to sign. Upon learning that the
      warranty deed conveyed the entire Enfield Farm to Richard and that the entire farm served as collateral for
      the mortgage, Marvin filed a tort action in the Steuben Superior Court against Richard and the Bank. In that
      tort action, Marvin alleged undue influence, fraud, theft and conversion, trespass, intentional infliction of
      emotional distress, negligent misrepresentation, breach of fiduciary duty, and breach of contract with regard
      to the execution of the warranty deed and subsequent mortgage. The tort action was consolidated into the
      foreclosure action for purposes of discovery and pretrial proceedings. By stipulation of the parties, the Bank
      was later dismissed from the tort action.

      Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017            Page 3 of 13
      asserts that at all times he was under the impression that only forty acres of the

      Enfield Farm was to be encumbered by the mortgage.

[5]   Later that same day, Richard executed a second Promissory Note (Note 2) in

      the amount of $67,480.88 and specified that the loan served to purchase farm

      equipment. Note 2 indicated that it was secured by the same mortgage as Note

      1. Marvin claims that he did not know that Richard borrowed additional

      money under Note 2 and that he was never made aware that such debt was also

      secured by the mortgage.

[6]   By December 2013, Richard was failing to make the monthly payments as

      required by the terms of Notes 1 and 2, thereby resulting in default. The Bank

      repossessed the farm equipment purchased with funds provided under Note 2.

      On March 19, 2015, the Bank filed a Complaint for Foreclosure. Thereafter,

      the Bank filed a motion for summary judgment on September 30, 2015, with

      regard to foreclosure of the mortgage based upon Note 1 only.5 Marvin filed his

      response and a cross-motion for summary judgment on November 9, 2015.

      The trial court held a hearing on the competing summary judgment motions on

      January 5, 2016.

[7]   On February 25, 2016, the trial court issued its order granting the Bank’s

      motion for summary judgment and denying Marvin’s cross-motion for

      5
        The Bank acknowledges that the indebtedness secured by the mortgage is limited to a principal amount of
      $236,500 (i.e., the Maximum Obligation Limit), plus interest, fees, and other charges.

      Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017        Page 4 of 13
      summary judgment. The trial court thereafter entered an in rem and in personam

      judgment against Marvin and Richard. Marvin requested a stay of the

      judgment, which the trial court denied. Marvin appealed to this court.6 Upon

      Marvin’s motion, this court granted a stay of the judgment. Additional facts

      will be provided as necessary.

                                              Discussion & Decision

[8]   Marvin argues that the trial court erred in granting summary judgment to the

      Bank. An appellate court reviewing summary judgment analyzes the issues in

      the same way as would a trial court. Pfenning v. Lineman, 947 N.E.2d 392, 396

      (Ind. 2011). A party seeking summary judgment must establish that “the

      designated evidentiary matter shows that there is no genuine issue as to any

      material fact and that the moving party is entitled to a judgment as a matter of

      law.” Ind. Trial Rule 56(C). The party moving for summary judgment bears

      the initial burden of establishing its entitlement to summary judgment.

      Pfenning, 947 N.E.2d at 396-97. “Only then does the burden fall upon the non-

      moving party to set forth specific facts demonstrating a genuine issue for trial.”

      Id. at 397. The reviewing court must construe the evidence in favor of the non-

      movant, and resolve all doubts against the moving party. Id. The party

      appealing the grant of summary judgment has the burden of persuading this

      6
          No other named defendants participate in this appeal.

      Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 5 of 13
       court that the ruling was erroneous. See Perkins v. Stesiak, 968 N.E.2d 319, 321

       (Ind. Ct. App. 2012), trans. denied.

[9]    The fact that the parties make cross-motions for summary judgment does not

       alter our standard of review. Huntington v. Riggs, 862 N.E.2d 1263, 1266 (Ind.

       Ct. App. 2007), trans. denied. Instead, we must consider each motion separately

       to determine whether the moving party is entitled to judgment as a matter of

       law. Id.

                                             Material Alteration

[10]   We begin by observing that “[o]ne who, with the knowledge of the creditor,

       furnishes collateral to secure the loan of another stands in the relation of surety

       to the debtor.” Owen Cnty. State Bank v. Guard, 217 Ind. 75, 84, 26 N.E.2d 395,

       398-399 (1940). We have also concluded that a person who mortgages his land

       to secure another’s debt is a surety. See SPCP Grp., LLC v. Dolson, Inc., 934
N.E.2d 771, 776 (Ind. Ct. App. 2010). Under Indiana law, a surety is treated

       the same as a guarantor, Farmers Loan & Trust Co. v. Letsinger, 652 N.E.2d 63, 66

       (Ind. 1995), and is given special status as a “favorite of the law” who “must be

       dealt with in the utmost good faith.” First Fed. Bank of Midwest v. Greenwalt, 42
N.E.3d 89, 94 (Ind. Ct. App. 2015).

[11]   Here, Marvin pledged his partial interest (i.e., life estate) in the Enfield Farm as

       collateral for the mortgage that served as security for Richard’s loans. Like the

       parties, we will assume that Marvin is in the position of a surety.

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 6 of 13
[12]   With regard to a surety’s obligation, the Indiana Supreme Court has found that

       a surety is discharged and the surety’s collateral is released “by any action of the

       creditor which would release a surety, such as the extension of the time of

       payment of the debt, the acceptance of a renewal note, or the release of other

       security.” Guard, 217 Ind. at 84, 26 N.E.2d at 399 (citations omitted).

       Additionally, a surety may be discharged due to a material alteration of the

       underlying obligation. Keesling v. T.E.K. Partners, LLC, 861 N.E.2d 1246, 1251

       (Ind. Ct. App. 2007). We have previously held that

               [g]uarantors and sureties are exonerated if the creditor by any
               act, done without their consent, alters the obligation of the
               principal in any respect or impairs or suspends the remedy for its
               enforcement. Moreover, when the principal and obligee cause a
               material alteration of the underlying obligation without the
               consent of the guarantor, the guarantor is discharged from further
               liability. A material alteration which will effect a discharge of the
               guarantor must be a change which alters the legal identity of the
               principal’s contract, substantially increases the risk of loss to the
               guarantor, or places the guarantor in a different position. The
               change must be binding.

       Id. (citation and internal quotation marks omitted). This court has also stated

       that “[a]lteration of the contract giving rise to discharge of a surety entails either

       a change in the physical document itself or a change in the contract between the

       creditor and the principal debtor which creates a different duty of performance

       on the part of the principal debtor than that which the surety guaranteed.”

       Greenwalt, 42 N.E.3d at 95 (quoting White v. Household Fin. Corp., 158 Ind.App.

       394, 400, 302 N.E.2d 828, 832 n. 3 (1973)).

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 7 of 13
[13]   Marvin does not contest his signature on the mortgage, nor does he dispute that

       Richard defaulted. Marvin’s argument is that because of the Bank’s material

       alteration to the mortgage, he, as surety, was discharged. Marvin identifies the

       material alteration as the Bank’s extension of additional credit through the

       issuance of Note 2 to Richard. Specifically, Marvin asserts that Note 2

       increased the principal secured by the mortgage by almost thirty percent, which

       nearly doubled his default liability. Marvin also asserts that the obligation

       under Note 1 and the additional obligation under Note 2 exceeded the

       maximum obligation limit under the mortgage.7 Thus, Marvin contends that

       the issuance of Note 2 was a material alteration that discharged him as surety.

       Finally, Marvin maintains that Note 2 was executed without his knowledge or

       consent.

[14]   In support of his argument, Marvin directs us to this court’s decision in

       Greenwalt. Marvin claims that Greenwalt holds that when a third-party mortgage

       contains a debt limit, and the underlying borrower’s obligation is increased to

       exceed that limit, the surety is released. We disagree with Marvin’s reading of

       Greenwalt.

[15]   In Greenwalt, a bank extended a loan to a corporate borrower in the form of an

       interest-only revolving line of credit. The loan was secured by a guaranty from

       7
         Contrary to Marvin’s argument, the Bank’s extension of additional credit to Richard through Note 2 did not
       alter Martin’s liability under the mortgage. Regardless of the extension of credit through Note 2, pursuant to
       the express terms of the mortgage, Marvin’s maximum obligation remained $236,500.

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017           Page 8 of 13
       the owner and a mortgage on two parcels of real estate that was signed by the

       owner and his wife. The debt secured by the mortgage was limited to the

       revolving line of credit and any renewals or replacements. The mortgage also

       provided that “[t]he lien of this Mortgage shall not exceed at any one time

       $300,00.00.” 42 N.E.3d at 91 (quoting Appellant’s Appendix at 17). Shortly after

       the mortgage was executed, the owner and his wife divorced. As part of the

       divorce settlement, each was awarded one of the mortgaged properties.

[16]   Over the course of the next eleven years, the bank renewed the note in the

       principal amount of $300,000. During that time, the bank also extended the

       corporate borrower additional credit as well as an additional “over line” credit,

       all which purported to be secured by the original mortgage. These subsequent

       extensions of credit to the corporate borrower were made without wife’s

       knowledge or consent. Eventually, the additional loans were consolidated into

       a single term note, which, taken with the unpaid principal under the original

       note, brought the total outstanding debt secured by the mortgage to

       $456,117.95.

[17]   In 2009, the original interest-only revolving line of credit was converted into a

       closed line of credit that required the corporate borrower to make payments of

       principal together with accrued interest. In 2011, the owner filed bankruptcy.

       During the bankruptcy proceedings, all collateral, with the exception of the real

       estate parcel that was awarded to wife, was liquidated and all proceeds were

       applied to amounts due and owing under the single term note rather than the

       original obligation. The bank then filed a complaint to foreclose its interest in

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 9 of 13
       wife’s parcel of real estate pursuant to the mortgage. Wife denied that her

       parcel was subject to the mortgage. In response to the foreclosure action, wife

       moved for summary judgment, arguing that her parcel had been discharged

       from the lien under the mortgage because of the bank’s unapproved alteration

       of the original note and mortgage. The trial court granted partial summary

       judgment in favor of wife, concluding that the Bank breached the terms of the

       mortgage by applying proceeds and payments first to obligations in excess of

       $300,000, which were unapproved obligations.

[18]   On appeal, the bank argued that there was no material alteration of the

       underlying indebtedness that would have released wife’s parcel as collateral

       under the mortgage. Wife focused on the additional extensions of credit in

       excess of the original amount as being in violation of the mortgage terms and

       thereby serving to discharge her as surety. The court, however, explicitly stated

       that its decision would be based on whether there was a “material alteration” of

       the agreement between the bank and corporate borrower. Id. The court

       explained:

               the fact that the lien of the Mortgage by its terms could not
               exceed $300,000 does not impact whether the changes to [the
               corporate borrower’s] loan terms constituted material alterations;
               indeed, the relevant inquiry is whether there were material
               alterations made in the principal debtor’s underlying obligation
               such that it was no longer the contract which the surety agreed to
               guaranty.

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 10 of 13
       Greenwalt, 42 N.E.3d at 96 (emphasis supplied). This court then held that the

       bank’s conversion of the original note from an interest-only line of credit to a

       term note with installment payments of principal and interest constituted a

       material alteration of the agreement between the bank and the corporate

       borrower in that it created a different duty of performance on the part of the

       corporate borrower. In other words, this alteration was such that the court

       deemed the contract was no longer the obligation to which the wife, as surety,

       agreed. The court expressly did not hold that additional extensions of credit

       over the maximum loan amount was a material alteration. Thus, in short,

       Greenwalt does not stand for the proposition asserted by Marvin. See also

       Keesling v. T.E.K. Partners, LLC, 861 N.E.2d 1246, 1251 (Ind. Ct. App. 2007)

       (holding that issuance of a second note that included additional funds,

       capitalized interest due on the first note, and extended the time for payment

       constituted a material alteration thereby discharging the guarantors from

       liability under the mortgage).

[19]   Other than his argument that he was discharged as surety because the issuance

       of Note 2 exceeded the maximum indebtedness clause in the mortgage, Marvin

       makes no other argument with regard to a material alteration of the underlying

       agreement. Indeed, there is no dispute that there has been no renewal,

       modification, or extension of Note 1 since its execution. Marvin’s obligations

       as surety remain the same as when the mortgage was executed. Marvin has

       failed to establish that there was a material alteration of the mortgage

       agreement that would have discharged him as surety.

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 11 of 13
[20]   On a final note, the mortgage clearly indicated it could serve as security for

       additional obligations beyond Note 1. For instance, the title of the mortgage

       states that it was a real estate mortgage “With Future Advance Clause”.

       Appellant’s Second Corrected Appendix at 61. Further, the mortgage defined the

       secured debt as all promissory notes plus future notes and other debt

       instruments to be executed from time to time. It also expressly secured the

       repayment and performance of any and all additional obligations of any of the

       mortgagors to the Bank, whether such obligations already existed or arise in the

       future. Thus, by signing the mortgage, Marvin and the others consented to the

       mortgage securing additional loans such as Note 2.

                                                      Fraud

[21]   Marvin also argues that he presented a prima facie case of fraud thereby

       creating a question of fact so as to preclude summary judgment in favor of the

       Bank. As noted by the parties,

               [a] surety who has been misled by the principal as to the
               character and extent of an obligation signed and assumed at the
               request of the latter cannot make the fraud of the principal
               available as a defense, unless he can also show that the payee or
               obligee participated in, or had knowledge of, the fraud or
               deception.

       113 Ind. 521, 16 N.E.196, 196 (1888).

[22]   Marvin’s fraud claim is based upon his belief that he conveyed to Richard only

       forty acres of the Enfield Farm. Marvin asserts that Richard fraudulently

       Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 12 of 13
obtained a deed to the entire Enfield Farm and then pressured him into

executing the mortgage with the entire Enfield Farm put up as collateral. With

regard to the Bank, Marvin points to the fact that his initials do not appear on

the second page of the mortgage where the collateral is identified by reference

to Exhibit A, which provides the legal description for each tract of land that

comprises the Enfield Farm. We note, however, that Exhibit A appears to bear

Marvin’s initials. Without more, Marvin cannot succeed on his claim that the

Bank participated in or had knowledge of the fraud or deception that Marvin

asserts against Richard. The trial court properly granted summary judgment in

favor of the Bank.

Judgment affirmed.

Bradford, J. and Pyle, J., concur.

Court of Appeals of Indiana | Memorandum Decision 76A05-1603-MF-579 | February 8, 2017   Page 13 of 13