Judgment Granted To Lender Despite Absence Of Signature On Promissory Note

Has your lending institution failed to maintain an original or copy of an executed promissory note?  Similar to the case discussed in my February 7, 2009 post No Signatures, No Promissory Notes, No Problem, the Indiana Court of Appeals in Baldwin v. Tippecanoe Land & Cattle, 2009 Ind. App. LEXIS 1491 (Ind. Ct. App. 2009) (.pdf) upheld a summary judgment for the plaintiff lender even though the lender could not produce the signed promissory note. 

Procedural history.  Lender filed a claim to foreclose its second mortgage and attached to the complaint a promissory note that was not signed.  (The mortgage did, however, appear to contain the borrower’s signature, and the unsigned note referred specifically to the accompanying mortgage.)  In his response to the lender’s claim, the borrower entered a “general denial” pursuant to Indiana Trial Rule 8(B).  The lender later filed a motion for summary judgment that the trial court granted.

The borrower’s contentions.  The borrower argued that the mortgage was unenforceable because the note was not signed by him. 

The lender’s contentions.  The lender’s theory to get around the absence of the signature rested upon Ind. T. R. 9.2(B), which states:

When a pleading is founded on a written instrument and the instrument or a copy thereof is included in or filed with the pleading, execution of such instrument . . . shall be deemed to be established . .  . unless execution be denied under oath in the responsive pleading or by an affidavit filed therewith.

The lender’s point was that the execution of the note was deemed to be established pursuant to this trial rule. 

Rule 8(B) versus 9.2(B).  The Court of Appeals analyzed the technical requirements of Trial Rules 8(B) and 9.2(B), as well as Rule 11(A) dealing with signatures on court filings.  Those rules, collectively, “mean that the attorney’s signature on a general denial [per Rule 8(B)] rejects the assertions in the claim, but does not constitute an oath by which the pleader denies the execution of an instrument attached to a claim [per 9.2(B)].” 

Must deny under oath.  Because the borrower failed to deny, under oath, the execution of the subject note, the Court affirmed the summary judgment granted in favor of the lender:

As [lender] attached the Note and Second Mortgage to  its cross-claim, execution of both would be deemed to be established, by operation of Trial Rule 9.2(B), unless [borrower] denied under oath that they were executed.  [Borrower], himself an attorney, filed a general denial.  He signed it as “respectfully submitted.”  He omitted to include a statement that his general denial was truthful and made under penalty for perjury.  Thus, [borrower] failed to deny under oath the execution of the Note.  We therefore conclude that execution of the Note was deemed to be established . . ..

As was the case with the Bonilla opinion, which was the subject of my February 7, 2009 post, Indiana law seemingly allowed the lender in Baldwin to dodge a bullet in order to obtain a pre-trial judgment in its favor.

Indiana Only Requires The Guarantor To Sign A Guaranty

Secured lenders pursuing guaranty enforcement actions sometimes face resistance from guarantors despite clear and well-written guaranties.  Guarantors may go to great lengths to avoid a judgment.  The recent Indiana Court of Appeals case of Grabill Cabinet Company, Inc. v. Sullivan, 919 N.E.2d 1162 (Ind. Ct. App. 2010) (.pdf ) appears to be one of those cases, but the ultimate decision favors creditors.

What happened.  Plaintiff Supplier sued defendant Individual, who was once a manager and member of LLC.  In 2006, LLC submitted a credit application to Supplier, and Individual signed a guaranty of the LLC debt owed to Supplier.  Individual signed in her personal capacity.  Individual subsequently assigned her interests in LLC and resigned from the company.  A couple years later, LLC ordered product from Supplier for which LLC failed to pay.  This resulted in a lawsuit in which Supplier named Individual as a defendant based upon her guaranty. 

General guaranty law.  The Court’s opinion has a nice summary that defines a guaranty and a continuing guaranty, as well as an outline of the general rules applicable to the liability of a guarantor.  If you or your counsel need to learn more about the basics of guaranties, click on the .pdf of the decision I’ve provided above.

The defense.  Individual’s primary defense was that Supplier needed to sign the guaranty in order for it to be valid and enforceable.  She also argued that the guaranty should have been automatically terminated upon her disassociation with LLC.  The trial court bought the argument.  The Court of Appeals didn’t. 

The Statue of Frauds.  The Court found no Indiana case law supporting the proposition that, for a guaranty to be valid, it must be signed by the primary debtor and/or the creditor.  The Court focused upon Indiana’s Statute of Frauds, Ind. Code § 32-21-1-1(b), which states in pertinent part:

  A person may not bring any of the following actions unless the
  promise, contract, or agreement on which the action is based, or
  a memorandum or note describing the promise, contract, or
  agreement on which the action is based, is in writing and signed
  by the party against whom the action is brought or by the party’s
  authorized agent:

   (2)  An action charging any person, upon any special promise, to answer for the debt, default, or miscarriage of another.

The holding.  The Court concluded:  “although the Statute of Frauds requires a guaranty to be in writing, only the ‘party against whom the action is brought’ need sign it, and that requirement has been met here.”  The Court also found the language in the guaranty to be consistent with the outcome.  The Court was, indeed, emphatic that, for a guaranty to be valid and enforceable, a guaranty need not be signed by anyone other than the guarantor. 

Of interest.  Supplier initiated its collection action on August 10, 2008.  The date of the Court of Appeals decision reversing the trial court was January 14, 2010, almost one-and-a-half years after the filing of the case.  The case still needed additional trial court proceedings to adjudicate Supplier’s damages.  My point – bear in mind that Indiana collection cases, including mortgage foreclosure actions, are like any other lawsuit, which can be full of unexpected delays and expense.