Indiana Court of Appeals Denies Guarantor’s “Material Alteration” Defense

Lesson. While it still is advisable for lenders to have guarantors sign off on any loan modifications, such paperwork may not always be required. Indiana courts will look closely at both the nature of the alterations and any waiver/consent language in the guaranty when deciding whether to absolve guarantors of liability.

Case cite. Shoaff v. First Merchs. Bank, 2022 Ind. App. LEXIS 395 (Ind. Ct. App. 2022)

Legal issue. Whether a guarantor was released from liability based on alleged “material alterations” of the original obligation.

Vital facts. Borrower defaulted on a $600k loan, and Lender sued Guarantor for the debt. The Shoaff opinion quotes verbatim important provisions of the guaranty upon which the Court relied, so please review for more facts. Over a five-year period, Borrower’s underlying obligation was modified “multiple times,” which included:

(1) a series of new notes being issued for the debt; (2) a new loan number being provided; (3) [a co-guarantor] signing a new guaranty; (4) the alteration of the payment of the debt from a revolving line of credit to a term note; (5) a change in the manner in which the debt was to be repaid (altered to required monthly payments); and (6) multiple changes in the form and amount of the interest rate.

Lender notified Guarantor “as a courtesy” about many, but not all, of these modifications.

Procedural history. The trial court granted summary judgment in favor of Lender. Borrower appealed.

Key rules. Shoaff provides an impressive summary of Indiana guaranty law, including how the rules operate within the summary judgment context. As it relates to Guarantor’s key defense, Indiana common law provides that “when parties cause a material alteration of an underlying obligation without the consent of the guarantor, the guarantor is discharged from further liability whether the change is to [the guarantor’s] injury or benefit.” A “material alteration” is:

a change which [1] alters the legal identity of the principal's contract, [2] substantially increases the risk of loss to the guarantor, or [3] places the guarantor in a different position. The change must be binding.

“[T]he legal identity of the principal's contract … is best understood to mean whether the obligation itself—rather than the instrument which records it—has meaningfully changed.” On this point, the Court cited to a legal encyclopedia, American Jurisprudence 2d, for authority:

even without an express term in a guaranty allowing it, a modification of the underlying obligation generally does not revoke a continuing guaranty; the guarantor is only discharged if the modification, other than an extension of time, creates a substituted contract or imposes risks on the secondary obligor fundamentally different from those imposed pursuant to the original one.

Holding. The Indiana Court of Appeals affirmed the summary judgment for Lender.

Policy/rationale. Guarantor contended that Borrower’s underlying obligation had been “materially altered” such that Guarantor was released from the debt. The Court disagreed. A distinctive aspect of Shoaff is the Court's reliance on language in the guaranty that Guarantor “prospectively consented” to the alterations and waived notice of them:

The only changes were to the structure of the loan, the dates associated with its repayment, and the manner in which it was to be repaid. Those changes do not fit any of the three categories of materiality, and clearly fall within the language of the [guaranty], demonstrating that [Guarantor] contemplated their possibility and prospectively consented to them.

Moreover, the Court did not view the loan modifications as imposing “fundamentally different risks” on Guarantor, even though Guarantor may end up paying more than he expected to pay when he signed the guaranty. Such changes, the Court reasoned, were “in degree, not in kind.” Guarantor “assumed” such risks of paying interest, late fees and future debts by virtue of the language in the guaranty. In a nod to a strict reading of the operative contract language, the Court concluded:

the underlying obligation—guaranteed by [Guarantor]—was not materially altered. Regardless, any alterations were contemplated by the parties to the Agreement, and prospectively consented to by [Guarantor].

Related posts.

I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Indiana Court Holds That Contract For Purchase Of Loan Was Not Breached

Lesson. When dealing with the purchase or sale of a loan, be mindful that the borrower could pay off the loan before closing, so consider including language in the agreement to account for that contingency.

Case cite. Singleton St. Pierre Realty Invs. LLC v. Estate of Singleton 2022 Ind. App. Unpub. LEXIS 1390 (Ind. Ct. App. Dec. 6 2022)

Legal issue. Whether a seller breached a loan sale agreement.

Vital facts. Buyer and Seller (and estate) entered into an agreement for the purchase and sale of a $1MM loan that was in default. The parties contemporaneously contracted for the purchase of a funeral home, which the underlying borrower operated. The borrower (as tenant) was $366k behind in its lease payments. If the deals closed, Buyer would become both a lender and a landlord with rights to recover the $1.0MM loan and the $366k lease arrearage. The probate court approved the agreements. About a week before closing, the borrower paid off the loan, so the closing on that agreement never occurred. The closing on the purchase of the property did occur, however. Buyer later collected the $366k.

Procedural history. Seller claimed Buyer was obligated to remit the lease arrearage to Seller. The trial court agreed and granted a summary judgment awarding damages to Seller for the arrearage. Buyer appealed.

Key rules. The Singleton opinion, which turned on the Court’s reading of the two agreements, spelled out Indiana’s general rules of contract interpretation (citations omitted):

The unambiguous language of a contract is conclusive upon the parties to the contract and upon the courts. Courts may not construe clear and unambiguous provisions, nor may courts add provisions not agreed upon by the parties. Unambiguous contracts must be specifically enforced as written without any additions or deletions by the court. In interpreting a written contract, the court should attempt to determine the intent of the parties at the time the contract was made as discovered by the language used to express their rights and duties. If the language of the instrument is unambiguous, the intent of the parties is determined from the four corners of that instrument. If, however, a contract is ambiguous or uncertain, its meaning is to be determined by extrinsic evidence and its construction is a matter for the fact finder. The contract is to be read as a whole when trying to ascertain the intent of the parties. The court will make all attempts to construe the language in a contract so as not to render any words, phrases, or terms ineffective or meaningless.

Holding. The Indiana Court of Appeals affirmed the trial court.

Policy/rationale. One of Buyer’s theories to retain the $366k was based on its interpretation of the loan purchase agreement. Buyer contended that Seller breached the contract despite the fact that “no amounts were owed” under the loan at the time of the scheduled closing. Nonetheless, Buyer claimed that, because the loan had a balance of over $1,000,000 when the related (but separate) property sale agreement was executed, "[$1MM was] the amount … that the parties understood and intended that [Buyer] had to recover before it would be obligated to remit the Arrearage to the [Seller]."

Seller countered that Buyer did not identify which contract term in the loan purchase agreement was allegedly breached. No language in the agreement “prevented [Seller] from accepting the amount due under the [loan] before the closing date and [nothing gave Buyer] any right to the [loan] proceeds before the closing date.” Had Buyer "wanted to prevent an early payoff … or require [the loan have] some minimum balance at the time of closing, [Buyer] could have demanded that the [agreement] include language to that effect." Or, the agreement "could have included language reducing the purchase price … to account for any payments made … prior to the closing date[,] but it did not.” Moreover, Buyer did not tender the purchase price to Seller and did not proceed with the closing as the agreement stipulated, “thus relieving [Seller] of performing its obligations under the [loan purchase] agreement.”
Part of my practice includes the purchase and sale of secured loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Criminal Fraud Arising Out of Civil Title/Foreclosure Disputes

Quick post today to start the New Year. My routine case law search uncovered a criminal case related to some procedural technicalities that admittedly have no relevance to my blog:    United States v. Yoder, No. 3:17-CR-30 JD, 2022 U.S. Dist. LEXIS 204060 (N.D. Ind. Nov. 9, 2022).

What I found interesting was that the two characters implicated in the criminal matters were involved in a pair of residential title/foreclosure disputes we handled back in 2016. The factual background in Yoder essentially mirrors what we thought occurred in our cases:

As set out in the presentence report, in 2014 and 2015, Mr. Yoder and his codefendant Kyle Holt, were engaged in a scheme to defraud homeowners who were facing foreclosures on their homes. They would approach such distressed homeowners and convince them to transfer title of the property in exchange for false promises of being able to avoid further foreclosure obligations. In particular, they falsely represented to the homeowners that they would handle their mortgage arrearages and the foreclosure process. Some believed these lies and transferred their interest in the property through quit claim deeds to entities controlled by the defendants. Mr. Yoder and Mr. Holt would then record the quit claims deeds at the local recorder's office. In reality, though, the quit claim deeds did not extinguish the outstanding mortgage debts. Regardless, Mr. Yoder would use the fraudulent interest in the property to secure to himself or others ownership of the property.

In some instances, to further the fraud, Mr. Yoder would cause to be mailed a bogus document entitled "International Promissory Note" to the financial institution holding the outstanding mortgage debt, purporting to extinguish the debt. Mr. Yoder knew this was fiction and did this to cloud the title of the property. Simultaneously, Mr. Yoder would cause to be filed a fraudulent “Satisfaction of Mortgage” with the county recorder's office in an attempt to discharge the mortgage.

We were engaged by a residential mortgage loan servicer to protect the interests of the senior lender/mortgagee in the prior matters. We were able to convince the court that the paperwork purportedly affecting title and our client’s mortgage was bogus, and the court granted summary judgment in our client’s favor.

Apparently our cases were not isolated events, and someone must have reported Yoder and Holt to the authorities. The criminal actions appear to be ongoing, and you can search Pacer under the case number above to learn more.


I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Debtors Who Fail To Disclose A Potential Claim During The Bankruptcy Process Are Precluded From Pursuing Such Claims Later

Lesson. A BK debtor’s civil claims for damages remain exclusively with the BK trustee.

Case cite. Capalla v. Best, 198 N.E.3d 26 (Ind. Ct. App. 2022).

Legal issue. Whether a state court lawsuit for damages should be dismissed because the underlying claims were not disclosed by the plaintiffs in prior bankruptcy action.

Vital facts. Best Vineyards filed a lawsuit against the Capallas in an Indiana state court in July 2019. That action alleged breach of contract, theft, and deception. The Capallas filed for bankruptcy in October 2019, and the trial court stayed Best Vineyards' case. In 2021, following months of bankruptcy-related proceedings, the Capallas initiated their own Indiana state court lawsuit against Best Vineyards for abuse of process, malicious prosecution, defamation per se, fraud, deception, and intentional infliction of emotional distress. Notably, “the Capallas failed to timely disclose their interest in [these] civil claims in their bankruptcy proceedings.”

Procedural history. Best Vineyards filed a Trial Rule 12(C) motion for judgment on the pleadings that the trial court granted. The Capallas appealed to the Indiana Court of Appeals.

Key rules. Indiana law is settled that “a debtor who fails to disclose a potential cause of action in a bankruptcy proceeding is precluded from pursuing such undisclosed claims in subsequent litigation.”

The Court noted that when a debtor files bankruptcy, unliquidated lawsuits become part of the bankruptcy estate:

When a debtor files a petition in bankruptcy, the debtor is divested of all of his or her assets, including any potential causes of action, and the assets are transferred to the bankruptcy estate. As stated in 11 U.S.C. § 541(a), the bankruptcy estate consists of "all legal or equitable interests of the debtor in property as of the commencement of the case." Once a cause of action becomes property of the bankruptcy estate, the debtor may not pursue the claim until it is abandoned from the estate. A property interest can be abandoned from the bankruptcy estate only if it has been listed in the debtor's schedule, has been disclosed to all the creditors, and is ordered abandoned by the bankruptcy court.

Further, the absence of standing “effectively prevents a plaintiff from pursuing an action and restrains the court from exercising its general jurisdiction over any issue in the case.”

Holding. The Court of Appeals affirmed the trial court's dismissal and concluded that the Capallas' claims were barred because the Capallas lacked standing to bring them.

Policy/rationale. Since the Capallas failed to list in their bankruptcy schedule their causes of action against Best Vineyards, they lacked standing to pursue the claims later in state court. This is because the suit must be brought by the bankruptcy trustee. In other words, the Capallas’ claims belonged to their bankruptcy estate and could only be brought by the trustee in that case. The Capallas also failed to disclose their interests in the civil suit, so the trustee “cannot be said to have abandoned them.”

Part of my practice involves the collection of commercial debts. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Collecting From Related Companies - The Two Prongs Of Indiana’s Alter Ego Doctrine

Lesson. The alter ego doctrine requires a causal connection between the misuse of the corporate form and an injustice.

Case cite. Perez v. Reitz, 2022 U.S. Dist. LEXIS 177250 (N.D. Ind. 2022)

Legal issue. Whether two companies acted as alter egos such that the corporate veil could be pierced to hold both liable for damages.

Vital facts. Perez stems from a wrongful death action following a fatal truck accident. “Driver” of a tractor-trailer struck the decedent’s vehicle. Defendant “Transfer Co” owned the tractor-trailer and employed Driver. Two brothers started the company in 2010 to haul certain construction materials. Transfer Co owned trucks/trailers and employed 12 drivers. “Farm Co,” also named as a defendant, was created in 1991 and specialized in the transportation of certain farm products. Farm Co had about 47 trucks and 62 employees. The two brothers that owned Transfer Co also owned Farm Co.

Procedural history. The Plaintiff estate, after settling with Transfer Co, sought to hold Farm Co liable for the accident. Farm Co filed a motion for summary judgment.

Key rules. Generally, in Indiana, the “alter ego doctrine” provides that one corporation can be liable for another corporation’s actions “when the one so organizes or controls the other's affairs as to use it as a mere instrumentality or adjunct, often with the goal of shielding itself from liability.” The fact-intensive, two-pronged analysis must establish that the two corporations “are acting as the same entity” and that the “misuse of the corporate form would constitute a fraud or promote injustice.” However, Indiana is “reluctant to disregard the corporate form.”

Prong one looks to many factors, including the “intermingling of business transactions, functions, property, employees, funds, records, and corporate names in dealing with the public.” Further, courts look to whether “(1) similar corporate names were used; (2) the corporations shared common principal corporate officers, directors, and employees; (3) the business purposes of the corporations were similar; and (4) the corporations were located in the same offices and used the same telephone numbers and business cards.”

Prong two (fraud/injustice) must result from the misuse of the corporate form. “Only when the corporations ‘disregard the separateness of [their] corporate identity and when that act of disregard causes the injustice or inequity or constitutes the fraud that the corporate veil may be pierced.’”

Holding. The U.S. District Court for the Northern District of Indiana granted the motion for summary judgment and dismissed Farm Co from the case.

Policy/rationale. The Court reasoned that, while there was evidence Transfer Co and Farm Co may have acted as alter egos (prong one), the misuse of the corporate form did not cause an inequity or injustice (prong two). There was no nexus between acts of the alter egos and the alleged injustice, which was that Plaintiff could not fully collect on the judgment. In fact, the Plaintiff offered no evidence of inequity or injustice at all, “much less a causative link back to the alleged acts of a merged identity.” The Court reasoned:

Nothing on this record indicates that [Transfer Co] has proven defunct, insolvent, or incapable of financing a settlement or judgment to make the estate whole. Nothing on this record indicates that [Farms Co] erected or used [Transfer Co] as a shield (or vice versa) to evade liability or that the estate would be inequitably foreclosed from recovery.

Please review the opinion for more details applicable to the fact-sensitive analysis of the Court. Perez is an example of the challenges facing litigants who are trying to pierce the corporate veil, particularly where, as here, the alter ego nature of the business relationship may not have been designed to harm, or otherwise avoid liability to, the Plaintiff.

Note: It appears Plaintiff has appealed the District Court’s decision to the Seventh Circuit. I will revise this post as may be warranted in the future.

Related posts.

Part of my practice involves the representation of parties in post-judgment collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Lender Permitted To Praecipe For Sheriff’s Sale 12 Years Post-Judgment

Lesson. Sheriff’s sales can occur even after an Indiana judgment lien expires.

Case cite. U.S. Bank Tr. Bank Tr. Nat'l Ass'n v. Dugger, 193 N.E.3d 1015 (Ind. Ct. App. 2022).

Legal issue. Whether a mortgage lender’s right to a sheriff’s sale ceased to exist ten years after the entry of judgment.

Vital facts. Original lender obtained a foreclosure decree against Joshua Dugger (“Joshua”) in 2009. Three subsequent sheriff’s sales were cancelled. In 2010, Joshua filed a Chapter 7 bankruptcy and received a discharge in January 2011. Joshua transferred the mortgaged property to Steven Dugger (“Steven”) in 2016. Later, the Baldridges (“Owners”) purchased the real estate from Steven. Apparently nothing of any significance occurred in the foreclosure case until 2021, at which point the current lender (“Lender”) acquired the original lender’s interest in the mortgage, appeared in the action, and asked the court for permission to praecipe for a sheriff’s sale. Notably, Lender’s initiative in 2021 occurred over ten years after the entry of judgment in 2009.

Procedural history. The trial court denied Lender’s motion for leave to file a praecipe for a sheriff’s sale.

Key rules.

Indiana Code 34-55-9-2 states that final judgments for money create a lien that exists for ten years. Importantly, however, “although the judgment lien expires after ten years, [the] judgment still exists for at least another ten years.”

I.C. 34-55-1-2(a) essentially provides that execution on a judgment over ten years old can occur but only “on leave of court” (i.e., a judge’s permission). The court’s ruling on such a motion is discretionary. The Court in Dugger explained:

[A] creditor holding a judgment that is more than ten years old may, only with leave of court, execute the judgment against the debtor's real estate during the remainder of the life of the judgment. See, e.g., Ind. Code § 34-55-1-3(1) (1998) (one of three kinds of execution of judgments is execution against property of judgment debtor).

Here is a reminder of the dual nature of most mortgage foreclosure judgments:

    “A mortgage is an interest in real property that secures a creditor’s right to repayment.” As such, a party’s action to foreclose a mortgage is, by definition, an in rem (i.e. against the property) proceeding.

    Creditors also may pursue a debtor’s in personam (i.e. personal) liability for under a promissory note or credit agreement. This includes the enforcement of a judgment against the debtor’s personal property assets.

    A debtor may protect herself from this personal liability only by obtaining a Chapter 7 bankruptcy discharge. A mortgage lien, which is a right against real estate, survives and remains enforceable, however.

Holding. The Indiana Court of Appeals reversed the trial court, paving the way for a sheriff’s sale.

Policy/rationale. Owners first contended that Lender’s judgment ceased to exist because Lender did not “renew” the lien before the ten-year deadline. The Court reasoned that, while a judgment may be renewed, there is no legal requirement to do so. Lender’s course of action in Dugger was thus appropriate.

Owners’ second allegation was deception on the part of Lender when it requested the court to convert the 2009 judgment into an in rem judgment. However, the judgment had both in personam and in rem elements. When Joshua received his Ch. 7 BK discharge, the law eliminated only his personal liability under the loan. Lender’s right to collect against the mortgaged real estate still was enforceable. As such, Lender’s request to amend the judgment - which in my opinion probably was unnecessary - nevertheless did not constitute deception.

Related posts.

I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.