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
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[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.
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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.
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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.
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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.
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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.
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[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)).
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[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.
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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
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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.
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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.
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[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
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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.
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