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Forgery Defense Must Be Raised Immediately

Weinreb v. TR Developers, 943 N.E.2d 856 (Ind. Ct. Ap. 2011) dealt with a guarantor’s claim that he did not sign the guaranty upon which the judgment entered against him was based.  The Court’s opinion involves technicalities surrounding a couple rules of procedure, but there is a broader message for defendants in Indiana foreclosure cases:  denials of document execution should be raised right away.

Case history.  In September, 2008, the lender filed its complaint, including copies of the subject guaranty.  The guarantor filed an answer to the complaint and asserted a general denial to all of the allegations.  The lender subsequently filed a motion for summary judgment that resulted in the entry of judgment in May of 2009.  In June, 2009, after the period for filing an appeal had run, the guarantor filed a Rule 60(B) motion and submitted for the first time evidence suggesting that the guaranty had been forged.  The trial court denied the motion, and the guarantor filed a second Rule 60(B) motion on the same grounds, plus an allegation of negligence on the part of the guarantor’s original attorney.  The trial court denied the second motion as well, and the guarantor appealed.

Operative rule of procedure.  Indiana Trial Rule 9.2(B) provides that, when a complaint is founded on a written instrument (such as a guaranty) and such instrument is filed with the complaint, “execution . . . shall be deemed to be established and the instrument, if otherwise admissible, shall be deemed admitted into evidence in the action without proving its execution unless execution be denied under oath in the [answer] or by an affidavit filed therewith.”  In Weinreb, the Court noted that an attorney’s signature on a general denial does not constitute an oath by which the defendant denies execution of an instrument.  Because the guarantor failed to deny, under oath, that he executed the guaranty, “execution . . . was deemed established by operation of Trial Rule 9.2(B).” 

Summary judgment.  The Court hinted that the defect in the pleadings could have been cured during the summary judgment stage.  Nevertheless, in Weinreb, “the trial court properly presumed execution of [the guaranty] at summary judgment because [the guarantor] failed to introduce in a timely manner any evidence that would support a contrary finding.”  Ultimately:

[the guarantor] failed to respond to [the lender’s] motion for summary judgment within the time limits prescribed by Trial Rule 56(C).  Despite notice and two distinct opportunities to challenge [the lender’s] documentation, [the guarantor] failed to raise his forgery defense at any stage of the proceedings before final judgment was entered against him.

Explanation.  The Weinreb opinion discussed at length the principles and standards applicable to Trial Rule 60(B) motions.  In the final analysis, the Court concluded that “newly discovered” evidence did not exist.  Rather, the guarantor’s failure to use due diligence was the compelling factor.  The Court held:

With this equivocal evidence before it, distilling essentially to a swearing contest that should have been raised long before, the trial court was well within its discretion to reject [the guarantor’s] equitable demands that the trial court set aside the judgment entered against him under Trial Rule 60(B)(8).  [The guarantor’s] second Trial Rule 60(B) motion did not present any grounds that would entitle him to relief from judgment that were unknown or unknowable at the time he filed his first such motion.

Take away.  Borrowers and guarantors, and their counsel, should raise in their initial response to the lender’s complaint the defense of forgery, assuming there is evidence supporting such a defense.  Even if the guaranty was forged in Weinreb, the guarantor (or his lawyer) was too late in asserting the defense.  On the other hand, for lenders and their counsel, the Weinreb is a reminder to attach to the complaint any and all loan documents that form the basis of the action.