Central Nat. Bank of Greencastle v. Shoup

• Decision Date: 17 December 1986
• Docket Number: No. 4-484A95,4-484A95
• Citation: 501 N.E.2d 1090
• Parties: CENTRAL NATIONAL BANK OF GREENCASTLE, Appellant (Plaintiff Below), v. Dale L. SHOUP, Janice J. Shoup, Robert G. Fisher and Joan B. Fisher, Appellees (Defendants Below).
• Court: Indiana Appellate Court

Page 1090

501 N.E.2d 1090

CENTRAL NATIONAL BANK OF GREENCASTLE, Appellant (Plaintiff Below), v. Dale L. SHOUP, Janice J. Shoup, Robert G. Fisher and Joan B.

Fisher, Appellees (Defendants Below).

No. 4-484A95.

Court of Appeals of Indiana,

Fourth District.

Dec. 17, 1986.

Rehearings Denied Feb. 13, 18, 1987.

James A. Strain, Stanley C. Fickle, Richard A. Cohen, Barnes & Thornburg, Indianapolis, Robert A. Hutchens, Wilson, Hutchens & Reese, Greencastle, for appellant.

James L. Crawford, Effner, Wagner & Crawford, Terre Haute, Clelland J. Hanner Gary G. Hanner, Hanner Hanner & Hanner, Rockville, Roy C. Sutherlin, Sutherlin & Zeiner, Greencastle, for appellees.

YOUNG, Judge.

Central National Bank of Greencastle appeals a jury award and judgment in favor of Dale L. and Janice J. Shoup and Robert G. and Joan B. Fisher upon their counterclaim for abuse of process, breach of fiduciary duty and fraud.

This litigation was commenced by the bank when it sought to foreclose its mortgage upon real property owned by the Shoups. The mortgage provided, in part, as follows:

The indebtedness secured by this mortgage can not be assumed without the written approval of the Mortgagee, and in the event, the mortgaged real estate is sold or conveyed the indebtedness secured by this Mortgage shall, at any time thereafter, at the option of the Mortgagee become immediately due and payable.

The bank complained that the Shoups had sold the mortgaged property to the Fishers on land contract in violation of this due-on-sale clause entitling it to accelerate its debt and foreclose its mortgage. The Shoups denied the complaint, asserted certain affirmative defenses and counterclaimed for abuse of process, breach of fiduciary duty and negligence. The Fishers, joined as defendants, answered similarly denying the bank's complaint and counterclaiming alleging estoppel, negligence and fraud. The bank's complaint was tried by court. The trial court entered judgment against the bank on its foreclosure complaint and in favor of the Shoups and the Fishers following the jury's advice. Following our order on remand, 483 N.E.2d 75, the trial court made extensive findings of fact and conclusions of law. The bank appeals. It contends that 1) the judgment in favor of the Shoups and Fishers is contrary to law, 2) the judgment against the Bank on its complaint for foreclosure is contrary to law, and 3) the use of an advisory jury was error.

We affirm the trial court's judgment as to the Shoups but reverse as to the Fishers.

Central National is a commercial bank doing business in Putnam County. The Shoups were residents of Greencastle. When Mr. Shoup retired in 1978, they decided to move to Florida and build their retirement home. Needing money to do so, they asked for a loan from the bank secured by their house in Greencastle. They planned to use the money to build their new home in Florida and pay the loan by selling their Greencastle property. The bank granted a twenty year term loan at 10% interest secured by a mortgage on the Greencastle property. The loan documents were executed on October 27, 1978. The mortgage contained the due-on-sale clause referred to above. Proceeds of the loan were paid out to build the Florida house which was completed in March of 1979. The Shoups moved to Florida in June of that year. The sale of the Greencastle house made in May of 1979 fell through. Late in 1980, the Shoups received an offer from the Fishers to purchase the Greencastle house on contract. They accepted the offer and signed the agreement prepared by a local attorney, Roy Sutherlin. The Fishers planned to pay off the contract when their former house in Michigan was sold. The Shoups planned to then pay the bank their loan balance. The contract was executed and recorded on December 18, 1980. A few days later Mr. Monnet, an officer of the bank, called Mrs. Shoup, advising her that the sale triggered the due-on-sale clause and that the debt would have to be paid or refinanced at a higher rate of interest. Negotiations regarding refinancing followed, the bank suggesting that it would refinance at a 13 1/2 interest rate with a three year rollover and later at 12% interest per year for three years. There was no response from the Shoups. Suit commenced on September 10, 1981.

The bank was not concerned about security for its loan. Its sole purpose was to increase the rate of interest on the loan to match its lending rates with the cost of obtaining its funds. The trial court found for the Shoups on the theories of abuse of process, fraud, negligence and breach of a fiduciary duty. Judgment was entered for the Shoups in the amount of $125,000 representing $75,000 in compensatory damages and $50,000 in punitive damages. The Fishers were granted judgment on the theories of fraud and abuse of process. They were awarded a total of $60,000, consisting of $10,000 in compensatory damages and $50,000 in punitive damages. Central National appeals, asserting that the trial court's decision was either clearly erroneous or contrary to law.

We may not reverse a trial court's decision and its related findings unless they are clearly erroneous. Peoples Trust & Sav. Bank v. Humphrey (1983), Ind.App., 451 N.E.2d 1104, 1112. It is also clear that in order:

[t]o sustain an action for fraud it must be proven that a material representation of a past or existing fact was made which was untrue and known to be untrue by the party making it or else recklessly made and that another party did in fact rely on the representation and was induced thereby to act to his detriment. Fleetwood v. Mirich (1980), Ind.App., 404 N.E.2d 38, 42.

Additionally, and particularly relevant to this case, when parties to a contract have a prior understanding about the contract's terms, and the party responsible for drafting the contract includes contrary terms and then allows the other party to sign it without informing him of changes, the drafter's conduct is fraudulent. McNair v. Public Sav. Ins. Co. of America (1928), 88 Ind.App. 386, 163 N.E. 290.

... Concealment becomes fraudulent only when it is the duty of the party having knowledge of the facts to discover them to the other; and this brings back the question, When does such duty rest upon either party to any transaction: All the instances in which the duty exists, and in which a concealment is therefore fraudulent, may be reduced to three distinct classes. These three classes are, in general clearly distinct and separate, although their boundaries may sometimes overlap, or a case may fall within two of them.... 2. The second class embraces those instances in which there is no existing special fiduciary relation between the parties, and the transaction is not in its essential nature fiduciary, but it appears that either one or each of the parties, in entering into the contract or other transaction expressly reposes a trust and confidence in the other; or else from the circumstances of the case, the nature of their dealings, or their position towards each other, such a trust and confidence in the particular case is necessarily implied. The nature of the transaction is not the test in this class. Each case must depend upon its own circumstances. The trust and confidence, and the consequent duty to disclose, may expressly appear by the very language of the parties, or they may be necessarily implied from their acts and other circumstances.

Id. at 1112 (emphasis in original) (quoting McNair v. Public Sav. Ins. Co. of North America (1928), 88 Ind.App. 386, 163 N.E. 290, 293).

In the present case, the Shoups discussed their need for financing with two of Central National's officers, Aker the bank President and Monnett the Senior Vice President. The Shoups related that Dale Shoup was retiring and the couple planned to build a house in Florida. In order to do so, the Shoups wanted to borrow money using their Greencastle house as security, sell the Greencastle house and pay off the entire loan with the proceeds. The Shoups wanted a short term or temporary loan to carry out these plans. The parties agreed that the money would be loaned and the Shoups would repay the loan in full upon the receipt of the proceeds from the sale of their house.

The bank prepared a note and mortgage papers for the Shoups to sign. A bank secretary who had never before been responsible for closing a loan of this type presented the loan papers to the Shoups for signature in the bank lobby. The Shoups perused the documents but did not read the documents in their entirety. The agreements provided for a 20-year fixed 10% interest rate loan which contained a due-on-sale clause and a prepayment penalty clause. Neither of these clauses were pointed out to the Shoups or discussed with them prior to the signing of the documents.

The Shoups listed their house for sale and moved to Florida on the mistaken belief that they had successfully sold the house. However, the deal fell through and the Shoups relisted the property. The Shoups received no offers on the property until over a year later when the property was sold to the Fishers on land sale contract. At that time, Central National notified the Shoups that the sale violated the due-on-sale clause and the bank would foreclose unless the Shoups agreed to renegotiate the interest rate on the loan. The Shoups continued to make their monthly payments and Central National admitted that its security was never threatened by the sale. It was against the bank's policy to allow assumptions of mortgages even though the due-on-sale clause suggested that an assumption might be possible if the bank agreed. The bank also acknowledged that it was a full service bank that provided loan advice to its customers in the hopes that the customers would follow its suggestions. The bank's policy and philosophy was that a good bank offers more than money and can offer good advice based on experience when an important investment is made. Monnett also testified...