R. Kinsey Brooks, Susan K. Brooks v. Bank of Geneva , 97 N.E.3d 647 ( 2018 )

FILED
Mar 21 2018, 9:34 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Andrew L. Teel James R. Williams
Fort Wayne, Indiana Christopher L. Bills
Matthew L. Kelsey
DEFUR VORAN, LLP
Muncie, Indiana
IN THE
COURT OF APPEALS OF INDIANA
R. Kinsey Brooks, Susan K. March 21, 2018
Brooks, Court of Appeals Case No.
Appellants-Defendants, 01A05-1709-MF-2174
Appeal from the Adams Circuit
v. Court
The Honorable Chad E. Kukelhan,
Bank of Geneva, Judge
Appellee-Plaintiff. Trial Court Cause No.
01C01-1605-MF-16
Barnes, Judge.
Case Summary
[1] R. Kinsey and Susan Brooks appeal the trial court’s grant of summary judgment
in favor of Bank of Geneva (“the Bank”) and the denial of their motion for
summary judgment. We reverse and remand.
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Issue
[2] The Brookses raise three issues. We need address only one dispositive issue:
whether the Brookses were released from a mortgage obligation to the Bank
when the terms of the third-party debt the mortgage secured were altered.
Facts
[3] On August 15, 2013, dairy farmers Matthew and Ginger Summersett executed
a promissory note to borrow $398,000.00 from the Bank. Ginger is the
Brookses’ daughter, and Matthew is their son-in-law. On the same date, the
Brookses executed a mortgage in favor of the Bank for farmland they owned in
Berne, in order to partially secure the Summersetts’ debt to the Bank. The
Summersetts also secured the debt with a mortgage on four parcels of their own
property. The Brookses’ mortgage specified that they were not personally liable
for the Summersetts’ debt.
[4] Also on August 15, 2013, the Bank issued two other loans to the Summersetts:
one for $994,500.00 and one for $307,500.00. On October 31, 2013, the Bank
loaned another $50,000.00 to the Summersetts; it was secured by a mortgage on
one of the four pieces of property the Summersetts mortgaged for the
$398,000.00 loan. On October 31, 2014, the Bank loaned the Summersetts
another $48,976.22; again, it was secured by a mortgage on one of the
properties mortgaged for the $398,000.00 loan. The Brookses were not aware
of these additional loans to the Summersetts.
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[5] On October 8, 2015, the Bank agreed to change the terms of the $398,000.00
promissory note to provide for semi-annual payments rather than monthly
payments by the Summersetts. The monthly payment amount had been
$2,173.80, while the new semi-annual payment was to be $13,102.28. The first
modified payment was due on March 15, 2016. However, the Summersetts
never made that payment or any subsequent payment on the loan. The
Brookses were not notified of this modification to the promissory note.
According to the Bank, this modification was made “in order to address and
accommodate the Summersetts [sic] cash flow issues regarding their ceasing of
dairy operations . . . .” App. Vol. III p. 98.
[6] In late 2015 and early 2016, the Summersetts began selling off the real estate
they had mortgaged, as well as items of farm equipment and cattle. The total of
these sales greatly exceeded $398,000.00. However, the proceeds of the sales
were applied only to the other four loans the Bank had made to the
Summersetts, all of which were eventually deemed paid in full.
[7] On May 19, 2016, the Bank filed a complaint against the Summersetts and
Brookses for breach of note and foreclosure of mortgage with respect to the
$398,000.00 loan; the complaint was amended on June 21, 2016. It alleged a
current balance due on the note of $407,932.18. The complaint only sought
foreclosure of the Brookses’ mortgage, however.1 In fact, on June 3, 2016, the
1
The complaint also made fraud allegations against the Summersetts.
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Bank executed and duly filed with the Adams County Recorder the following
“SATISFACTION OF MORTGAGE”:
This Certifies that a mortgage, executed by Matthew K.
Summersett and Ginger A. Summersett, to Bank of Geneva,
Geneva, Adams County, an Indiana Corporation on the 15th day
of August, 2013, calling for $398,000.00, and recorded in
Instrument #2013003704, Adams County, State of Indiana, has
been paid in full and is hereby released.
Id. at 96. A Bank officer later stated that this mortgage was released “to
facilitate the sale of the mortgaged land that served as collateral to secure
multiple obligations to the Bank of Geneva and to allow the Summersetts to
satisfy loans other than” the $398,000.00 note. Id. at 98. However, the officer
also stated that the document filed with the Adams County Recorder had
“inadvertently” said that the $398,000.00 loan was paid in full. Id. at 99. The
Brookses’ answer to the complaint included a counterclaim for abuse of process
against the Bank.
[8] On October 24, 2016, the Bank filed a motion for partial summary judgment,
seeking an in rem decree of foreclosure on the property the Brookses mortgaged.
On January 11, 2017, the Brookses filed a response and cross-motion for partial
summary judgment, asserting in part that their mortgage had been released by
the actions of the Bank and the Summersetts. On September 5, 2017, the trial
court denied the Brookses’ motion for partial summary judgment and granted
the Bank’s motion, finding the Bank was then owed $462,772.89 and ordering
sale of the Brookses’ property if the judgment was not paid.
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[9] The Brookses initiated an appeal. The Bank thereafter filed with the trial court
a motion to set an appeal bond, requesting an amount no less than $500,000.00.
After a hearing in which an expert appraised the Brookses’ property at
approximately $250,000.00,2 the trial court set an appeal bond of $285,000.00
and stayed execution of the judgment. On February 1, 2018, upon the
Brookses’ motion, this court reduced the appeal bond to $25,000.
Analysis
I. Appeal Bond
[10] Before turning to the merits of the case, we will explain our decision to
substantially reduce the appeal bond in this case, for purposes of future
guidance to trial courts. Indiana Appellate Rule 18 states in part:
No appeal bond shall be necessary to prosecute an appeal from
any Final Judgment or appealable interlocutory order.
Enforcement of a Final Judgment or appealable interlocutory
order from a money judgment shall be stayed during appeal upon
the giving of a bond, an irrevocable letter of credit, or other form
of security approved by a trial court or Administrative Agency.
The trial court or Administrative Agency shall have jurisdiction
to fix and approve the bond, irrevocable letter of credit, or other
form of security, and order a stay prior to or pending an appeal.
After the trial court or Administrative Agency decides the issue
of a stay, the Court on Appeal may reconsider the issue at any
time upon a showing, by certified copies, of the trial court’s
2
We do not have a transcript of this hearing, but the parties agree that this testimony was given.
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action. The Court on Appeal may grant or deny the stay and set
or modify the bond, letter of credit, or other form of security. . . .
Additionally, Indiana Trial Rule 62(D)(2) provides the following guidelines for
determining the amount of an appeal bond:
When the judgment is for the recovery of money not otherwise
secured, the amount of the bond or letter of credit shall be fixed
at such sum as will cover the whole amount of the judgment
remaining unsatisfied, costs on the appeal, interest, and damages
for delay, unless the court after notice and hearing and for good
cause shown fixes a different amount or orders security other
than a bond or letter of credit. When the judgment determines the
disposition of the property in controversy as in real action, replevin, and
actions to foreclose liens or when such property is in the custody of
the sheriff or when the proceeds of such property or a bond or
letter of credit for its value is in the custody or control of the
court, the amount of the appeal bond or letter of credit shall be fixed at
such sum only as will secure the amount recovered for the use and
detention of the property, the costs of the action, costs on appeal, interest,
and damages for delay.
(Emphases added).
[11] “The determination of the amount of an appeal bond lies within the discretion
of the trial court, and will not be disturbed absent an abuse of discretion.”
Kocher v. Getz, 824 N.E.2d 671, 675 (Ind. 2005). A trial court abuses its
discretion in ruling on a matter when its decision is clearly against the logic and
effect of the facts and circumstances before the court, or if the court has
misinterpreted the law. Kosarko v. Padula, 979 N.E.2d 144, 146 (Ind. 2012).
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[12] We reduced the appeal bond in this case because the trial court misinterpreted
the law in setting the bond at $285,000.00. The trial court apparently reached
that amount based upon a $250,000.00 valuation of the real property, plus
appellate attorney fees the Bank had already incurred of approximately
$15,000.00, plus interest at 8% per annum on $250,000.00 and based on an
assumed delay in resolution of this case by this court lasting approximately one
year. But, Trial Rule 62(D) expressly limits an appeal bond in a foreclosure
case such as this only to an amount that “will secure the amount recovered for
the use and detention of the property, the costs of the action, costs on appeal,
interest, and damages for delay.” It also is important to emphasize that this
was purely an in rem judgment against the Brookses’ property. There was no
attempt to recover the judgment against the Brookses personally; the Brookses’
mortgage expressly stated, “the Non-Obligated Mortgagor is not personally
liable for the Secured Debts.” App. Vol. II p. 29.
[13] An appeal bond in a foreclosure case can include an amount reflecting “use” of
the property during the appeal. “Ordinarily, the proper measure of damages for
loss of use of property is the fair rental value of the property during the time that
the injury existed.” Williams v. Hittle, 629 N.E.2d 944, 951 (Ind. Ct. App.
1994), trans. denied. The Bank does not claim it presented any evidence
regarding the rental value of the Brookses’ land; the Brookses assert that the
farmland could not generate any rental income anyway during the winter and
not until the spring planting season begins in April or May at the earliest.
Additionally, as for “damages for delay,” that phrase might encompass things
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such as waste or depreciation of the property while the appeal is pending. See
Opp v. Ten Eyck, 99 Ind. 345, 347 (1884); Scott v. Marchant, 88 Ind. 349, 353
(1882). There is a lack of indication that either depreciation or waste will be a
problem for this land.
[14] The Bank does assert there is the possibility the Brookses could sell the land to a
third party during the appeal, and “the Bank could easily be out the value of the
land.” Appellee’s Verified Motion to Remand and Response to Appellant’s
Verified Motion to Modify Appeal Bond, p. 7. We do not see how that could
possibly happen. The land is mortgaged to the Bank and is embroiled in
litigation. Even if a third party did for some reason buy the land, it would still
be subject to the mortgage. See Dorothy Edwards Realtors, Inc. v. McAdams, 525
N.E.2d 1248, 1256 (Ind. Ct. App. 1988).
[15] Thus, in reducing the appeal bond here to $25,000.00, we considered that the
Bank has incurred approximately $15,000.00 in appellate attorney fees, and the
Brookses’ mortgage contains an attorney fee provision that would allow the
Bank to recover these fees from the Brookses if they lost this appeal. To this we
added $10,000.00 in potential interest at 8% per annum on $250,000.00,
confident in our ability to decide this case in much less time than the trial court
or the Bank thought we would.
II. Release of Mortgage
[16] We now turn to the merits of granting summary judgment in the Bank’s favor
and denying the Brookses’ partial summary judgment motion. We review a
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grant of summary judgment de novo. Hughley v. State, 15 N.E.3d 1000, 1003
(Ind. 2014). “Drawing all reasonable inferences in favor of . . . the non-moving
parties, summary judgment is appropriate ‘if the designated evidentiary matter
shows that there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.’” Williams v. Tharp, 914 N.E.2d
756, 761 (Ind. 2009) (quoting T.R. 56(C)). “A fact is ‘material’ if its resolution
would affect the outcome of the case, and an issue is ‘genuine’ if a trier of fact is
required to resolve the parties’ differing accounts of the truth, or if the
undisputed material facts support conflicting reasonable inferences.” Id. “The
fact that the parties filed cross-motions for summary judgment does not affect
our standard of review. In such case we consider each motion separately to
determine whether the moving party is entitled to judgment as a matter of law.”
Alexander v. Marion Cty. Sheriff, 891 N.E.2d 87, 92 (Ind. Ct. App. 2008) (citation
omitted), trans. denied.
[17] We will focus solely upon whether the trial court properly denied the Brookses’
motion for partial summary judgment on the question of whether their
mortgage was released. If it was released, there was nothing for the Bank to
foreclose on and no basis for granting it summary judgment.
[18] One who mortgages his or her land to secure the debt of another stands in the
position of surety to the debtor. First Fed. Bank of Midwest v. Greenwalt, 42
N.E.3d 89, 94 (Ind. Ct. App. 2015). It is axiomatic that a surety is a favorite of
the law and must be dealt with in the utmost good faith. Id. (quoting Kruse v.
Nat’l Bank of Indianapolis, 815 N.E.2d 137, 147 (Ind. Ct. App. 2004) (in turn
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quoting Ind. Telco Fed. Credit Union v. Young, 156 Ind. App. 483, 485, 297
N.E.2d 434, 435 (1973)). Longstanding precedent also dictates,
One who, with the knowledge of the creditor, furnishes collateral
to secure the loan of another stands in the relation of surety to the
debtor and such 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.
Owen Cty. State Bank v. Guard, 217 Ind. 75, 84-85, 26 N.E.2d 395, 398-99 (1940).
[19] If a debtor and creditor make a material alteration in the underlying obligation
without the consent of the guarantor, the guarantor is discharged from further
liability. Yin v. Society Nat’l Bank Indiana, 665 N.E.2d 58, 64 (Ind. Ct. App.
1996), trans. denied. A “material” alteration is one that changes the legal
identity of the debtor’s contract, substantially increases the risk of loss to the
guarantor, or places the guarantor in a different position. Id. It is irrelevant
whether an alteration was intended for the surety’s benefit, so long as the
alteration entails either a change in the physical document or a change in the
terms of the contract between the debtor and creditor that creates a different
duty of performance on the part of the debtor. Greenwalt, 42 N.E.3d at 95.
[20] The Bank materially altered the promissory note with the Summersetts in at
least two respects, thus releasing the Brookses’ mortgage. First, the Bank
changed the payment terms from monthly to semi-annually. The Bank
contends this was not a material alteration because it did not change the
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amount of money the Summersetts owed or anything of that nature, and the
semi-annual payment amount was roughly equal to six monthly payments.
[21] Clear precedent dictates that the Bank is incorrect. In Telco, we held that a
surety was discharged from liability where the creditor agreed to accept lower
payments from the debtor toward a promissory note, going from $75 every two
weeks to $138 per month, without the surety’s knowledge or consent. Telco,
165 Ind. App. at 486-87, 297 N.E.2d at 436. There, as here, the change in
payment terms apparently was due to the debtor’s financial hardship—or “cash
flow issues” as the Bank here described it. App. Vol. III p. 98. Even if the
change in the Summersetts’ payment terms was intended to make it more likely
that they would be able to pay the loan back, the Brookses were entitled to
know about this change. This would have alerted the Brookses to the fact that
the Summersetts were having difficulty paying back the loan on its original
terms and allowed them to protect themselves and their collateral if possible.
The change in the Summersetts’ payment terms was a material alteration to the
original contract between them and the Bank. Because the Brookses did not
consent to that change, they were discharged from liability as sureties and their
mortgage should have been released.
[22] It also is clear that the Brookses were discharged as sureties and their mortgage
should have been released when the Bank released the Summersetts’ own
mortgage. By this action, the Brookses were placed in a much more perilous
position than they were when the Summersetts’ land also secured the
$398,000.00 loan. And, the record indicates that the Summersetts’ land was
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worth far more than $398,000.00, or the value of the Brookses’ own land. The
Brookses’ property went from one of five parcels of real estate securing the
promissory note to the only parcel. The Brookses did not agree to put their
land at such peril. Our supreme court has explained:
“It is a well settled principle of equity, that a creditor, who has
the personal contract of his debtor, with a surety, and has also, or
afterwards takes property from the principal, as a pledge or
security for the debt, is to hold the property fairly and
impartially, for the benefit of the surety as well as himself; and if
he parts with it, without the knowledge or against the will of the
surety, he shall lose his claim against the surety to the amount of
the property so surrendered.”
Farmers Loan & Tr. Co. v. Letsinger, 652 N.E.2d 63, 66 (Ind. 1995) (quoting
Stewart v. Davis’ Executor, 18 Ind. 74, 75-76 (1862)).
[23] The facts are undisputed with respect to the question of release. 3 The Brookses
did not know or consent to the change in payment terms for the promissory
note or the Bank’s release of the Summersetts’ collateral for the loan. As a
matter of law, the mortgage on the Brookses’ property should have been
released upon either act.
3
The Brookses assert there is a question of fact as to whether the Summersetts actually paid the $398,000.00
debt to the Bank in full and also challenge the admissibility of an affidavit the Bank prepared in which it
claimed the debt was not in fact paid in full, despite language to the contrary in its release filing with the
Adams County Recorder. We need not address the admissibility of that affidavit or whether the debt was
paid in full. We also need not address the Brookses’ arguments that the Bank’s subsequent issuance of
additional loans to the Summersetts released the Brookses as sureties, or that the Bank acted improperly in
applying the proceeds of the sales of the Summersetts’ properties to loans other than the $398,000.00 loan.
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Conclusion
[24] The trial court should have granted partial summary judgment to the Brookses
on the release issue. We reverse and remand with instructions that the
mortgage on the Brookses’ property be released. Because the mortgage is
released, the Bank cannot foreclose on it, and its own partial summary
judgment motion should have been denied. The Brookses’ claim for abuse of
process remains pending.
[25] Reversed and remanded.
Najam, J., and Mathias, J., concur.
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