KRUSE v. NATIONAL BANK OF INDIANAPOLIS

OPINION

VAIDIK, Judge.

Case Summary

Richard D. Kruse, guarantor of indebtedness arising from a loan from National Bank of Indianapolis ("NBI" or "Lender" or "the Bank") to SignTec, LLC ("SignTec" or "Borrower" or "the Company"), appeals, arguing that genuine issues of material fact should have precluded the trial court's entry of summary judgment in favor of NBI. We find that because Kruse signed an "absolute, unconditional and continuing" Guaranty providing for "unlimited" liability and the waiver of various defenses — including claims that the Bank extended the loan's maturity date without Kruse's consent and failed to notify Kruse of Borrower's noncompliance with the loan's financial reporting requirements — Kruse's unsubstantiated allegations as to the Bank's alteration of and Borrower's failure to comply with the underlying loan agreement will not discharge his liability. Moreover, we find that NBI's conduct did not breach any existing fiduciary duty or implied duty of good faith. Given these conclusions, we affirm the trial court's entry of summary judgment in favor of NBI and remand to the trial court with instructions to determine the amount of appellate attorneys' fees to be added to NBI's judgment.

Facts and Procedural History1

On March 28, 2001, NBI notified SignTec, an Indiana limited liability company, that it had approved the Company's loan request. This notification came in the form of a Commitment Letter and Loan Agreement ("the Loan Agreement"), in which NBI agreed to make loans available to SignTec in an amount not to exceed the lesser of (a) $500,000 or (b) that amount equal to the sum of eighty percent (80%) of SignTec's accounts receivable that are less than ninety (90) days old ("the Borrowing Base"). Appellant's App. p. 21. The Loan Agreement further provided: "Within thirty (30) days after the end of each month, [SignTec] shall provide to the Bank a certificate evidencing the Borrowing Base in a form satisfactory to the Bank (the "Borrowing Base Certificate")," in addition to various other financial reporting requirements. Appellant's App. p. 21, 23. If at any time the principal amount outstanding exceeded the Borrowing Base, the terms of the Loan Agreement required SignTec to immediately repay NBI the amount in excess of the Borrowing Base. The loan was to expire on March 28, 2002, at which time the entire unpaid principal balance plus all accrued interest was to become due, and the loan was to be evidenced by a promissory note in the principal amount of $500,000. NBI secured the loan with a first security interest in SignTec's accounts receivable and other assets. Three Guarantors, including Kruse, signed the Loan Agreement on March 29, 2001.

Each of the Guarantors, including Kruse — "a member of SignTec [and holder of] a minority interest in [SignTec]," Appellant's App. p. 142 — also signed separate Guaranty forms dated March 29, 2001. The Guaranty states:

Appellant's App. p. 35. The Guaranty also states, "This is an absolute, unconditional and continuing guaranty of payment of the Indebtedness and shall continue to be in force and be binding upon the Undersigned ... until this guaranty is revoked by written notice...." 2 Id. Further, the Guaranty provides that the liability of the Undersigned shall be limited to a principal amount of "$ UNLIMITED (if unlimited ... the Undersigned shall be liable for all Indebtedness, without limitation as to amount), plus all accrued interest thereon and all attorneys' fees, collection costs and enforcement expenses referable thereto." Id. at 35. Finally, the Guaranty states:

Id. at 113.

On March 28, 2002 — the original date of maturity — NBI approved an amendment to the Loan Agreement extending the maturity date to June 1, 2002. The Guarantors and Sean B. Kearns, on behalf of NBI, signed this First Amendment to Commitment Letter and Loan Agreement. On June 1, 2002, NBI issued a Second Amendment and Commitment Letter, which was signed by Kearns but not by the Guarantors. In this Second Amendment, NBI extended the loan's maturity date to May 1, 2003.

SignTec filed for Chapter 11 Bankruptcy in December 2002. On January 27, 2003, NBI sent the Guarantors, including Kruse, a letter notifying them that SignTec was in default under the Note and Loan Agreement by virtue of, among other things, failure to provide NBI with the required financial statements and insolvency. The letter demanded payment in full of SignTec's indebtedness to NBI in the amount of $499,165.35 as of the date of the letter, plus interest thereafter at the per diem rate of $58.52.

On April 24, 2003, NBI filed a Complaint on Guaranties, naming all three Guarantors as defendants. NBI then filed a motion for summary judgment, designated evidentiary materials, and a supporting memorandum.

On June 23, 2003, Kruse filed his Answer to the initial complaint, alleging that NBI's claims are barred on various grounds best summarized by Kruse's "Eighth Defense":

Id. at 67. Thereafter, Kruse filed his Response to NBI's motion for summary judgment, a designation of evidentiary materials and material issues of fact, and a supporting memorandum that cites heavily to an attached affidavit of Richard D. Kruse.

NBI subsequently filed a Motion to Amend Complaint by Interlineation and Addendum of Exhibit to include the reverse side of the Guaranty, which — due to a clerical error — had not been attached to NBI's complaint; a Notice of Filing Supplemental Affidavit and Designation, which included the supplemental affidavit of NBI Assistant Vice President Sarah G. Hanover, who authenticated Exhibit "H" to the amended complaint as the reverse side of each of the Guaranty forms signed by the Guarantors; a Motion to Strike Affidavit of Richard D. Kruse in Opposition to Summary Judgment; and a Reply Memorandum in Support of Motion for Summary Judgment.

In response, Kruse filed a Supplemental Affidavit of Richard D. Kruse; a memorandum in response to NBI's motion to strike his original affidavit; a surreply to NBI's reply to Kruse's response to NBI's motion for summary judgment; and an amended designation of evidence and material facts in response to NBI's motion for summary judgment.

NBI countered with a reply to Kruse's response to NBI's motion to strike Kruse's original affidavit, and a reply to Kruse's amended designation of evidence and material facts in response to NBI's motion for summary judgment.

On December 2, 2003, the trial court entered an order granting NBI's motion to strike Kruse's original affidavit; the order made no mention of Kruse's supplemental affidavit. On the same date, the trial court also entered summary judgment in favor of NBI in the amount of $496,447.90, plus costs.

Kruse now appeals.

Discussion and Decision

Kruse appeals the trial court's entry of summary judgment in favor of NBI.3 In reviewing a decision upon a summary judgment motion, we apply the same standard as the trial court: summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C); see Fort Wayne Lodge, LLC v. EBH Corp., 805 N.E.2d 876, 882 (Ind.Ct.App.2004). The moving party bears the burden of showing prima facie that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law; once this burden has been met, the non-moving party must respond by setting forth specific facts demonstrating a genuine need for trial and cannot rest upon the allegations or denials in the pleadings. See Fort Wayne Lodge, LLC, 805 N.E.2d at 882.

On appeal, the trial court's grant of a motion for summary judgment is clothed with a presumption of validity, and the party that lost in the trial court has the burden of persuading the appellate tribunal that the grant of summary judgment was erroneous. Zollman v. Geneva Leasing Assocs., Inc., 780 N.E.2d 387, 391 (Ind.Ct.App.2002). We do not reweigh the evidence, but we liberally construe all designated evidentiary material in the light most favorable to the nonmoving party to determine whether there is a genuine issue of material fact for trial. Id. A grant of summary judgment may be affirmed upon any theory supported by the designated materials. Id.

Kruse raises seven issues on appeal, which we consolidate and restate as follows:

We consider each issue in turn. We then consider NBI's claim of entitlement to appellate attorneys' fees.

1. Material Issues of Fact Concerning the Debt Kruse Guaranteed4

Kruse argues first: "A review of the documents that NBI designated in the trial court reveals ambiguities about what debt Kruse allegedly guaranteed and whether Kruse is liable under the guaranty that NBI has placed in the record." Appellant's Br. p. 13. In particular, Kruse attempts to make much of the fact that the Guaranty he signed on March 29, 2001, does not refer to the Loan Agreement; instead, the Guaranty refers to a "Note for $500,000.00 DTD 3/29/01; Maturing 3/28/02," but no Note with this date has been placed into evidence.5 Appellant's App. p. 35. Hence, Kruse argues, there are ambiguities as to what debt he guaranteed. We find that there is no genuine issue of material fact as to what debt Kruse guaranteed.

We initially observe that the interpretation of a guaranty is governed by the same rules applicable to other contracts. Noble Roman's, Inc., v. Ward, 760 N.E.2d 1132, 1137-38 (Ind.Ct.App.2002). In construing a guaranty, this Court must give effect to the intentions of the parties, which are to be ascertained from the language of the contract in light of the surrounding circumstances. Id. at 1138. Generally, the nature and extent of a guarantor's liability depends upon the terms of his contract, and a guarantor cannot be made liable beyond the terms of the guaranty. Id. However, the terms of a guaranty should neither be so narrowly interpreted as to frustrate the obvious intent of the parties, nor so loosely interpreted as to relieve the guarantor of a liability fairly within their terms. Id. Moreover, writings executed at the same time and relating to the same transaction or subject matter will be construed together in determining the intent underlying the contracts. Id. Put another way, the guaranty and any other written agreements it incorporates must be construed together in order to determine the parties' intentions. Id.

It is clear from the face of the Loan Agreement and the Guaranty — both of which are signed by Kruse — that Kruse agreed to act as a Guarantor of SignTec's Indebtedness to NBI as evidenced by a promissory note in the principal amount of $500,000. Indeed, even aside from the reference to a note for $500,000 in the separate Guaranty, Kruse is one of the three Guarantors named within the body of the Loan Agreement itself. Appellant's App. p. 22. Furthermore, in his original affidavit, Kruse admits, "On or about March 29, 2001, contemporaneously with the execution of the Accounts Receivable Note, I executed a guaranty in which I guaranteed payment of the debt, liability or obligation of SignTec to NBI evidenced by and arising out of `Note for $500,000....'"6 Id. at 96. Thus, we reject Kruse's claim that there is a genuine issue of material fact as to what debt he guaranteed.

2. NBI's Alleged Duty to Notify Kruse of SignTec's Alleged Misconduct

Kruse next asserts that there is a genuine issue of material fact as to whether NBI failed to fully notify Kruse of SignTec's misconduct under the Loan Agreement. To support this proposition, Kruse quotes from Indiana Telco Federal Credit Union v. Young:"It is [] well established that a creditor's failure to notify a surety of a debtor's misconduct discharges the surety." Indiana Telco, 156 Ind.App. 483, 297 N.E.2d 434, 435 (1973). Kruse also cites Yin v. Society National Bank Indiana, in which a different panel of this Court reversed a summary judgment in favor of the creditor after determining that there were genuine issues of material fact as to, among other things: whether the creditor had discovered facts unknown to the guarantors that would have given the guarantors the option of terminating their obligation to the creditor; whether the creditor had reason to believe that the guarantors did not know of these deviations; and whether the creditor had a reasonable opportunity to communicate these deviations to the guarantors. Yin, 665 N.E.2d 58, 65 (Ind.Ct.App.1996), reh'g denied, trans. denied. Interestingly, the Yin court also disagreed with the Indiana Telco proposition cited above. See id. at 64-65 ("[W]e agree with [the creditor] that a creditor's mere failure to notify the surety of a debtor's misconduct does not automatically discharge the surety.").

NBI maintains that it was under no duty to notify Kruse of SignTec's alleged misconduct: "It is well established in Indiana that a guarantor is not entitled to notice of his principal's default when his undertaking to answer for his principal's debts and obligations is absolute." Bowyer v. Clark Equip. Co., 171 Ind.App. 431, 357 N.E.2d 290, 293 (1976). "However, when the guaranty is collateral and the liabilities guaranteed have not been created and are uncertain in amount, the creditor is required to give notice of the principal's default."7 Id. And yet, "There is no question that a guarantor may expressly waive his right to notice of his principal's default." Id. at 294.

NBI contends that it had no duty to notify Kruse of SignTec's alleged misconduct because (1) Kruse was an absolute, rather than a collateral, guarantor, and (2) Kruse expressly waived any right he may have had to notice of SignTec's default. In support of the first contention, NBI quotes from the Guaranty, signed by Kruse, which states,

Appellant's App. p. 35 (emphasis supplied). In support of the second contention, NBI quotes language contained in Paragraph 6 of the reverse side (Exhibit "H") of the Guaranty signed by Kruse:

Id. at 113 (emphasis supplied).

Thus, the caselaw and the terms of the Loan Agreement and Guaranty signed by Kruse support both of NBI's contentions: Kruse was not entitled to notice of SignTec's default or alleged "misconduct" both because he was an absolute guarantor and because he expressly waived his right to such notice. Moreover, Kruse admits in his original affidavit8 and his supplemental affidavit9 that NBI did notify him that SignTec was not in full compliance with the requirements of the Loan Agreement. Thus, we find that Kruse has not shown that there is a genuine issue of material fact as to whether NBI breached an existing duty to notify Kruse of SignTec's alleged misconduct.

3. NBI's Alleged Breach of Fiduciary and Good Faith Duties

Kruse asserts next that material issues of fact exist as to whether NBI breached a fiduciary duty and an implied duty of good faith owed to Kruse. The parties' fiduciary duty, according to Kruse, gave rise to the duty of good faith. See Kreighbaum v. First Nat'l Bank & Trust, 776 N.E.2d 413, 419-20 (Ind.Ct.App.2002) ("Whether [a fiduciary relationship] exists is essentially a question of fact."). As further support for the contention that NBI owed Kruse a duty of good faith, Kruse cites again to Indiana Telco:"It has long been the law in Indiana that a surety is a favorite of the law and that he must be dealt with in the utmost good faith." 297 N.E.2d at 435.

NBI disputes the existence of either a fiduciary or a good faith duty. In support of its position that NBI did not owe — let alone breach — a fiduciary duty, NBI quotes the following:

Wilson v. Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1046-47 (Ind.Ct.App.2003) (internal citations omitted). As to the alleged duty of good faith, NBI writes, "Indiana does not recognize the existence of a covenant of good faith and fair dealing in all contracts." Appellee's Br. p. 28 (citing Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind.2002)). Recognizing the apparent absence of relevant caselaw in Indiana, NBI cites to caselaw from other jurisdictions, including New York and California, in support of the proposition that parties to a contract may expressly agree to behavior that would otherwise have been forbidden by an implied duty of good faith. See, e.g., Horn v. New York Times, 100 N.Y.2d 85, 760 N.Y.S.2d 378, 790 N.E.2d 753, 756 (2003) ("No obligation [of good faith and fair dealing] can be implied, however, which would be inconsistent with other terms of the contractual relationship."); Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2 Cal.4th 342, 6 Cal.Rptr.2d 467, 826 P.2d 710, 727 (1992) ("It is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract."). Finally, NBI asserts that this recognition of a right to contract away an implied duty of good faith is entirely consistent with Indiana's recognition and respect for "freedom of contract." See Zollman, 780 N.E.2d at 391-92 ("Indiana courts have a lengthy tradition of recognizing and respecting the freedom to contract.").

While there does not appear to be any Indiana caselaw discussing the implied duties that arise between creditor and guarantor, caselaw discussing the general concept of a "fiduciary duty" does not support the finding that NBI owed one to Kruse. For instance:

Paulson v. Centier Bank, 704 N.E.2d 482, 490 (Ind.Ct.App.1998) (internal citations omitted), reh'g denied, trans. denied. Here, it is clear from Kruse's supplemental affidavit that he was not in a position of "weakness" or unequal bargaining power; rather, Kruse professes to have a significant amount of business experience.10 Moreover, even if such a relationship did exist, Kruse has not shown that NBI wrongfully abused Kruse's confidence "so as to obtain an unconscionable advantage." See id.

We also find that the behavior Kruse considers indicative of a breach of good faith — standing "idly by while SignTec's secured collateral dissipated and, at the same time fail[ing] to inform Kruse of the full extent of SignTec's failure to perform under its obligations and the full extent of the obligations that SignTec was accruing to NBI for which NBI would hold Kruse liable," Appellant's Br. p. 22 — was all behavior authorized by the Loan Agreement. Even if we accept that NBI owed Kruse an implied duty of good faith that was not contracted away, Kruse has failed to demonstrate that NBI has behaved in a manner that can be fairly characterized as bad faith:

Casa D'Angelo, Inc. v. A & R Realty Co., 553 N.E.2d 515, 519 (Ind.Ct.App.1990) (quoting Stath v. Williams, 174 Ind.App. 369, 367 N.E.2d 1120, 1124 (1977)), trans. denied. Given evidence of considerably more egregious conduct, we would not be unsympathetic to a "bad faith" argument; however, the facts of this case simply do not warrant the finding that NBI engaged in "a conscious doing of a wrong because of dishonest purpose or moral obliquity." See id. Thus, we find there is no genuine issue of material fact as to whether NBI breached an existing fiduciary duty or duty of good faith to Kruse.

4. Estoppel & Kruse's Lack of Consent to Extensions

Kruse also asserts that equitable estoppel should bar NBI's recovery from Kruse because, by obtaining Kruse's consent to extend the loan's maturity date, NBI induced Kruse to believe that any further extensions would also require his consent. An equitable estoppel requires a false representation or concealment of material facts; it must have been made with knowledge, actual or constructive, of the facts; the party to whom it was made must have been without knowledge or the means of knowledge of the real facts; it must have been made with the intention that it should be acted on; and the party to whom it was made must have relied on or acted on it to his prejudice. Ebersol v. Mishler, 775 N.E.2d 373, 378-79 (Ind.Ct.App.2002), trans. denied. Equitable estoppel may arise from silence, or acquiescence, as well as from positive conduct. Id. However, silence will not form the basis of an estoppel unless the silent party has a duty to speak. See Sheraton Corp. of Am. v. Kingsford Packing Co., Inc., 162 Ind.App. 470, 319 N.E.2d 852, 856 (1974) ("It is settled law in this State that the representation of fact necessary to such an estoppel may be accomplished by the conduct of a party, using the word conduct in its broadest meaning as including his spoken words, his positive acts, and his silence when there is a duty to speak.") (internal citations omitted) (emphasis supplied).

Although Kruse appears to concede that it was not necessary for NBI to obtain his consent before extending the maturity date, see Appellant's Br. p. 26, he nonetheless maintains that since NBI obtained his consent for the first amendment, he was thus induced to believe that NBI would obtain his consent for future amendments and extensions. As Kruse admits, however, the Guaranty he signed stated that he guaranteed to NBI the payment and performance of the debt evidenced by the following: "Note for $500,000.00 DTD 3/29/01; Maturing 3/28/02 and any extensions ... thereof (hereinafter referred to as the `Indebtedness')." Given this language, it is clear that NBI was under no obligation to obtain Kruse's consent for future extensions.11 Thus NBI's silence — or failure to obtain Kruse's consent — could not be the basis of estoppel, since NBI had no duty to Kruse in this regard.

5. Material Alteration of Terms of Underlying Debt, Effect on Kruse's Liability

Kruse also asserts that there are genuine issues of material fact as to whether NBI materially altered SignTec's obligations by allowing SignTec to borrow amounts in excess of the Borrowing Base. "[W]hen the principal and obligee cause a material alteration of the underlying obligation without the consent of the guarantor, the guarantor is discharged from further liability." Yin, 665 N.E.2d at 64. "A material alteration which will affect a discharge must be a change which alters the legal identity of the principal's contract, substantially increases the risk of loss to the guarantor, or places the guarantor in a different position." Id.

NBI contends, however, that Kruse prospectively consented to alterations of SignTec's obligation:

Appellee's Br. p. 21-22 (citing Appellant's App. p. 35, 116; Appellee's Add. p. 1-2). Moreover, NBI asserts that Kruse waived this issue by failing to present it to the trial court; waiver notwithstanding, NBI contends that Kruse failed to designate evidence to establish a genuine issue of material fact.

We are inclined to agree with NBI that Kruse prospectively agreed to unlimited liability and, in any event, failed to designate evidence sufficient to raise a genuine issue of material fact on the issue of material alteration.12 Kruse simply does not present any documentation to substantiate this assertion; indeed, Kruse offers nothing more than repeated bald assertions that NBI loaned money in excess of the Borrowing Base. In his brief, for instance, Kruse writes,

Appellant's Br. p. 25. The "evidence in the record" to which Kruse refers is, presumably, his own affidavits, in which he asserts that NBI personnel told him that SignTec had not complied with the Loan Agreement requirements.13 Given Kruse's failure to designate evidence establishing a genuine issue of material fact as to whether there was a material alteration of SignTec's underlying obligation, we find that Kruse's liability is unaffected and remains, as ever, unlimited.

6. NBI's Alleged Failure to Mitigate Damages, Effect on Kruse's Liability

Finally, Kruse argues that NBI, as the non-breaching party to the Loan Agreement, had a duty to mitigate its damages. NBI concedes that Indiana adheres to this common law rule but asserts that Indiana also recognizes that "if the contract in question is an absolute guaranty, it `casts no duty upon the creditor or holder of the obligation to attempt collection from the principal debtor before looking to the guarantor.'" Appellee's Br. p. 33 (quoting McEntire v. Ind. Nat'l Bank, 471 N.E.2d 1216, 1223 (Ind.Ct.App.1984), reh'g denied, trans. denied). Kruse, again, failed to designate any evidence to factually support his assertion that NBI did not attempt to mitigate its damages. Moreover, Paragraph 6 of the Guaranty states: "The liability of the Undersigned shall not be affected or impaired by any of the following acts or things ...:(iii) ... any delay or lack of diligence in the enforcement of Indebtedness...." Appellant's App. p. 116. Hence, we find that Kruse has not raised a genuine issue of material fact as to NBI's failure to mitigate damages.

NBI's Entitlement to Appellate Attorneys' Fees

Finally, we address NBI's request for appellate attorneys' fees. The relevant portion of the Guaranty provides, "The liability of the Undersigned shall be limited to a principal amount of $ UNLIMITED ..., plus accrued interest thereon and all attorneys' fees, collection costs and enforcement expenses referable thereto." Id. at 35. To quote another panel of this Court, "We agree that appellate attorneys' fees may be appropriately awarded if a contractual provision calls for them and the party requesting the fees prevails." Yin, 665 N.E.2d at 65. Given the above-quoted language of the Guaranty and the holding of this case, we remand to the trial court for the limited purpose of conducting a hearing to determine a reasonable appellate attorneys' fee. See id.

Conclusion

We affirm the trial court's entry of summary judgment in favor of NBI, finding that Kruse has failed to show that there are any genuine issues of material fact affecting his guarantor liability. Given this finding, we need not reach the question of whether the trial court erred in striking Kruse's original affidavit.

Additionally, we remand this case to the trial court with instructions to determine the amount of appellate attorneys' fees to be added to NBI's judgment.

Affirmed.

SULLIVAN, J., and MAY, J., concur.