                                                                               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.


      Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018                    Page 1 of 13
                                                      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.




      Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 2 of 13
[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.


      Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 3 of 13
      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.

      Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 4 of 13
[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.


       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018                               Page 5 of 13
               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).



       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018            Page 6 of 13
[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


       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 7 of 13
       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


       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 8 of 13
       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

       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018     Page 9 of 13
       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


       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 10 of 13
       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

       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 11 of 13
       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.

       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018                        Page 12 of 13
                                                  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.




       Court of Appeals of Indiana | Opinion 01A05-1709-MF-2174 | March 21, 2018   Page 13 of 13
