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FOR PUBLICATION
ATTORNEY FOR APPELLANT: SEAN M. CLAPP Fishers, Indiana ATTORNEYS FOR APPELLEES: MARK R. GALLIHER CRAIG D. DOYLE JOANNE B. FRIEDMEYER JAMES L. SHOEMAKER Doyle & Friedmeyer Indianapolis, Indiana

IN THE COURT OF APPEALS OF INDIANA
BRETT GIBSON, ) ) Appellant-Plaintiff, ) ) vs. ) ) THOMAS A. NEU and ELIZABETH A. NEU, ) ) Appellees-Defendants. )

No. 49A02-0608-CV-680

APPEAL FROM THE MARION SUPERIOR COURT The Honorable David Dreyer, Judge Cause No. 49D10-0506-MF-21457

May 30, 2007

OPINION - FOR PUBLICATION

SHARPNACK, Judge

Brett Gibson appeals the trial court's grant of a motion for summary judgment filed by Thomas A. Neu and Elizabeth A. Neu (the "Neus") and the trial court's denial of Gibson's motion for summary judgment. Gibson raises two issues, which we restate as: I. Whether the trial court erred by ordering Gibson to release his mortgage on the Neus' property; and Whether the trial court erred by applying the doctrine of equitable subrogation.

II.

We affirm in part, reverse in part, and remand. The relevant facts designated by the parties follow. On September 22, 2004, Gibson sold his stock of Cellular Telephone Centers T.H., Inc. to John Nowak for $350,000.00. In exchange for the stock, Nowak executed a promissory note payable to Gibson in the amount of $350,000.00. The note required Nowak to pay monthly

installments of $7,000.00 "commencing on the 1st day of December, 2004 and continuing on the same day of each month thereafter with a final balloon payment due September 1, 2007." Appellant's Appendix at 149. The note also provided: Failure to make any payment as scheduled above shall advance the due date of all remaining payments to the date of such default. Each party to this contract agrees to waive demand for payment, protest, or notice of protest, and the benefits of any valuation or appraisement law of Indiana. . . . This note is secured by certain real estate mortgages of even date herewith. Upon default in the payment of any monthly installment provided for herein, or upon default in the performance of any of the covenants or conditions contained in the mortgage securing said indebtedness, the entire unpaid principal and interest of this note shall, at the option of the holder hereof, thereupon immediately become due and payable, without notice, and said indebtedness may be collected and said mortgage foreclosed by appropriate proceedings in law or in equity. No 2

delay on the part of the holder hereof in exercising said option shall operate as a waiver thereof, or preclude the exercise of such option at any time during the continuance of any such default. Id. at 149-150. The note was secured by mortgages on Nowak's residence at 9998 East Edgewood Ave., Indianapolis, Indiana, in Marion County and his property in Michigan. Gibson's mortgage on the Marion County property provided: Mortgagor further expressly agrees that if default be made by him in the payment of indebtedness secured hereby, . . . the whole of the indebtedness secured hereby with all interest thereon, at the option of the Mortgagee shall become forthwith due and payable, and this Mortgage may be foreclosed at any time thereafter. The omission on the part of the Mortgagee to exercise such option at any time or times shall not preclude Mortgagee from the exercise thereof upon any subsequent default or upon the subsequent happening of any of said contingencies. It shall not be necessary for the Mortgagee to give any notice of its intention to exercise said option at any time, such notice being expressly waived hereby by Mortgagor. ***** It is expressly agreed that in the event the Mortgagor sells the real estate during the term of this mortgage the Mortgagee will execute a release of the mortgage provided that Mortgagor has not defaulted in his obligations to the mortgagor and is current in his payments. Id. at 155-156. Gibson recorded the mortgage with the Marion County Recorder's Office. At that time, Nowak also had a first mortgage on the property with Irwin Mortgage Corporation ("Irwin").

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Nowak made the following payments to Gibson: (1) $7,000.00 on December 7, 2004; (2) $3,500.00 on January 6, 2005; (3) $3,500.00 on January 7, 2005; (4) $6,500.00 on February 8, 2005; and (5) $7,000.00 on March 10, 2005. Without informing Gibson, Nowak sold his residence to the Neus on March 11, 2005, for $600,000.00. As part of the transaction, Investors Titlecorp performed a title search on Nowak's property. Investors Titlecorp found Irwin's first mortgage on the property but failed to locate Gibson's mortgage. The Neus borrowed $200,000.00 from Washington Mutual Bank ("Washington Mutual") to finance the purchase and granted Washington Mutual a mortgage on the property. As part of the purchase, Nowak's first mortgage to Irwin in the amount of $506,016.34 was satisfied, and Nowak received $54,679.82 in cash. Following the sale of his residence, Nowak continued to make payments to Gibson as follows: (1) $5,000.00 on April 7, 2005; (2) $2,000.00 on April 21, 2005; (3) $3,500.00 on May 24, 2005; and (4) $3,500.00 on June 17, 2005. Gibson filed a complaint for judgment on the promissory note and for foreclosure of his mortgage against Nowak, the Neus, and Washington Mutual on June 3, 2005. Nowak filed a petition for chapter 7 bankruptcy on October 14, 2005. Gibson filed a motion for summary judgment arguing that Nowak was in default on the note, that he was entitled to foreclosure of his mortgage, and that his mortgage had priority over the Neus' mortgage with Washington Mutual. The Neus responded to Gibson's motion for summary judgment and filed their own motion for summary judgment. The Neus argued that Nowak was not in default on the note at the time he sold 4

the property to the Neus or, alternatively, that Nowak was in substantial compliance, and that Gibson would have been required to release his mortgage. The Neus also argued that they had priority over Gibson's mortgage under the doctrine of equitable subrogation. The trial court denied Gibson's motion for summary judgment and granted the Neus' motion for summary judgment as follows: ***** 16. Prior to the sale of the Real Estate to the Neus, Nowak was no more than $500 behind on his monthly payments. Additionally, Gibson stated in writing on June 20, 2005, that Nowak was current on payments through June 1, 2005; and had been current on the payments through May 2005. (See email dated May 3, 2005, Gibson to John Boyd.) Gibson was aware that Nowak intended to sell the Real Estate. The Gibson mortgage specifically provided that "[i]t is expressly agreed that in the event that Mortgagor [Nowak] sells the real estate during the term of this mortgage the Mortgagee [Gibson] will execute a release of the mortgage provided that Mortgagor has not defaulted on his obligations to the mortgagor and is current in his payments." Gibson never notified Nowak that he was in default pursuant to the Gibson Note and Mortgage until this suit was filed. On June 20, 2005, subsequent to the sale of the Real Estate to the Neus, Gibson sent an e-mail confirming that as of June 13, 2005, Nowak was current in his payments due under the Gibson note.

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18. 19.

The Court hereby CONCLUDES: 1. There is no genuine dispute as to any material fact set out in the Neus' Brief and the matters designated, which support an entry of judgment. The Neus are entitled to judgment in their favor as a matter of law and against Plaintiff Gibson. At the time of the sale of the Real Estate to the Neus, Nowak had substantially complied with the terms of the Gibson note and mortgage, being at least only $500 behind in his payments to Gibson. Notice must be provided before a slight deviation in performance can be declared a default, and Gibson never provided any such 5

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notice to Nowak at or before March 11, 2005, when the Neus purchased the real estate. Any default in Nowak's obligation to Gibson was cured when Nowak made the April 7, 2005, payment of $5,000, shortly after the sale of the Real Estate to the Neus. As Gibson had not declared a default pursuant to the terms of the Gibson note and mortgage, and any default was subsequently cured by Nowak, Gibson is obligated to release his mortgage upon the Real Estate. As the Gibson Mortgage should have been released either at the time of the closing or after the subsequent payment by Nowak, Gibson is barred from foreclosing his mortgage on the Neu real estate known as 9998 E. Edgewood, Indianapolis, Indiana. At the closing, the Neus and Washington Mutual Bank paid off the prior recorded mortgage to Irwin Mortgage Corporation, which was senior to the Gibson mortgage. Additionally, the Court finds, though other findings dispose of this litigation between Gibson and the Neus and Washington Mutual, that the Defendants would be entitled to assume the first lien position of Irwin Mortgage Corporation, in the amount of $506,016.34, under the doctrine of equitable subrogation. The Gibson mortgage was always junior to the Irwin Mortgage, and no harm would come to Gibson's lien position by the Neus (and their lender, Washington Mutual) attaining first lien status. As a matter of law, the Neus and/or their agents were not culpably negligent in failing to discover the Gibson mortgage. Gibson is hereby ordered to release his mortgage as it pertains to the Real Estate described hereafter, within thirty (30) days of the date of this entry. . . . There is no just reason for delay and this judgment is a final judgment pursuant to Indiana Trial Rule 56(C).

Appellant's Appendix at 7-12. Our standard of review for a trial court's grant of a motion for summary judgment is well settled. Summary judgment is appropriate only where 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); Mangold ex rel. Mangold v. Ind. Dep't of Natural Res., 756 N.E.2d 970, 973 6

(Ind. 2001). All facts and reasonable inferences drawn from those facts are construed in favor of the nonmovant. Id. Our review of a summary judgment motion is limited to those materials designated to the trial court. Id. We must carefully review a decision on summary judgment to ensure that a party was not improperly denied its day in court. Id. at 974. Where a trial court enters findings of fact and conclusions thereon in granting a motion for summary judgment, as the trial court did in this case, the entry of specific findings and conclusions does not alter the nature of our review. Rice v. Strunk, 670 N.E.2d 1280, 1283 (Ind. 1996). In the summary judgment context, we are not bound by the trial court's specific findings of fact and conclusions thereon. Id. They merely aid our review by providing us with a statement of reasons for the trial court's actions. Id. I. The first issue is whether the trial court erred by ordering Gibson to release his mortgage on the Neus' property. On this issue, the trial court found that, at the time of the sale, Nowak was only $500 behind in payments on the loan, that notice of default was required, that Nowak's default was cured with the next payment, and that Gibson should have released the mortgage at the time of closing or after the subsequent payment. On appeal, Gibson argues that, at the time of the sale, Nowak was in default under the note and mortgage by his failure to make full and timely payments, that Nowak was not entitled to notice under the note and mortgage, and that the doctrine of substantial performance does not apply to a note and mortgage. 7

Resolution of this issue requires that we interpret the parties' mortgage. "It is well settled that a mortgage agreement is a contract." Cobbum v. Ameritrust Nat. Bank, Michiana, 580 N.E.2d 969, 971 (Ind. Ct. App. 1991). "As such, the individual parties have a right to define their mutual rights and obligations." Id. "It is not within the province of this Court to make a new contract for the parties or to ignore or eliminate any provisions in the instrument." Id. "As is true in the interpretation of all written

agreements, the language of the mortgage and supporting instruments, unless it is ambiguous, represents the intention of the parties and is controlling." Merchants Nat. Bank & Trust Co. of Indianapolis v. H.L.C. Enterprises, Inc., 441 N.E.2d 509, 513 (Ind. Ct. App. 1982). The parties' arguments relate to the following provision of the Gibson Mortgage: It is expressly agreed that in the event the Mortgagor sells the real estate during the term of this mortgage the Mortgagee will execute a release of the mortgage provided that Mortgagor has not defaulted in his obligations to the mortgagor and is current in his payments. Appellant's Appendix at 156. Thus, the issue is whether Gibson would have been required to execute a release of the mortgage at the time Nowak sold the property, which depends upon whether Nowak had defaulted on his obligations to Gibson and was current in his payments. A. Was Nowak Current on His Payments? The promissory note required that Nowak pay $7,000.00 to Gibson on the first day of each month starting on December 1, 2004, with a final balloon payment due on September 1, 2007. Nowak sold the property to the Neus on March 11, 2005. It is 8

undisputed that, at that time, Nowak had made the following payments to Gibson: (1) $7,000.00 on December 7, 2004; (2) $3,500.00 on January 6, 2005; (3) $3,500.00 on January 7, 2005; (4) $6,500.00 on February 8, 2005; and (5) $7,000.00 on March 10, 2005. Consequently, Nowak was $500.00 behind in his payments at the time of the sale to the Neus. The trial court also found that "[a]ny default in Nowak's obligation to Gibson was cured when Nowak made the April 7, 2005, payment of $5,000, shortly after the sale of the Real Estate to the Neus." Appellant's Appendix at 10. However, the issue is whether Nowak was in default at the time he sold the property to the Neus, and he was. 1 Even the $5,000.00 payment in April did not bring Nowak current on his payments. At that point, he was $2,500.00 behind in his payments. The April 7, 2005, payment did not cure Nowak's default. Lastly, the trial court found: "Gibson stated in writing on June 20, 2005, that Nowak was current on payments through June 1, 2005; and had been current on the payments through May 2005. (See email dated May 3, 2005, Gibson to John Boyd.)." Appellant's Appendix at 9. The email sent by Gibson to John Boyd on June 20, 2005,

The Neus argue that "[t]he mortgage . . . did not require Nowak to be current in his payments on the date of sale." Appellee's Brief at 8-9. According to the Neus, the "unambiguous contract language required Gibson to release the mortgage when Nowak became current in his March payments, which Gibson accepted several weeks after closing." Id. at 9. We disagree. The clear language of the contract required Gibson to execute a release if Nowak sold the property, was not in default, and was current in his payments. Moreover, even the April payments did not bring Nowak current in his payments. On February 8, 2005, Nowak was $500 behind in his payments, on March 10, 2005, he was $500 behind, on April 7, 2005, he was $2,500 behind, on April 21, 2005, he was $500 behind, on May 24, 2005, he was $4,000 behind, and by June 17, 2005, he was $7,500 behind.

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states: "John, Please put [Nowak] down for a $3,500.00 payment on 06/13/05. Please confirm that this brings him current through June 1." Id. at 139. The text of this email does not indicate that Nowak was current; rather, it is clear that Gibson was asking whether Nowak was current. Moreover, nothing in this email indicates that Nowak was current at the time he sold the property in March 2005. This email does not provide support for the Neus' argument that Nowak was current in his payments when he sold the property to them. B. Substantial Performance. Gibson argues that the trial court improperly applied the doctrine of substantial performance in determining that Nowak was current in his payments. The trial court found: "At the time of the sale of the Real Estate to the Neus, Nowak had substantially complied with the terms of the Gibson note and mortgage, being at least only $500 behind in his payments to Gibson." Appellant's Appendix at 10. The doctrine of substantial performance "applies where performance of a nonessential condition is lacking, so that the benefits received by a party are far greater than the injury done to him by the breach of the other party." Dove v. Rose Acre Farms,

Inc., 434 N.E.2d 931 (Ind. Ct. App. 1982). In Dove, the employee was promised a $5,000 bonus if he completed certain construction work within ten weeks, worked at least five full days a week for the same ten weeks, and was not tardy or absent. Id. at 932. In the tenth week, the employee became sick due to strep throat and missed two days of

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work. Id. at 932-933. employee. Id. at 933.

As a result, the employer refused to give the bonus to the

On appeal, we determined that the doctrine of substantial performance was not applicable because the employee violated an essential condition of the bonus agreement, i.e. the agreement's tardiness and absenteeism rules. Id. at 935. We noted "[i]t is

difficult for plaintiff to extricate himself from the conditions of employment which he has voluntarily assumed, for even though the forfeiture provisions seem harsh, we can only interpret the contract which the parties have made." Id. at 934 (quoting Muir v. Leonard Refrigerator Co., 269 Mich. 406, 257 N.W. 723, 724 (1934)). The employee willingly entered into the bonus arrangement, and "he must be held to have agreed to all of the terms upon which the bonus was conditioned. If the conditions were unnecessarily harsh or eccentric, and the terms odious, he could have shown his disdain by simply declining to participate, for participation in the bonus program was not obligatory or job dependent." Id. at 935. Consequently, we held that the employee was not entitled to recover any portion of the bonus. Id. at 936. Similarly, here, timely payment of the debt was an essential condition of the promissory note, mortgage, and release provision of the mortgage. We are constrained to apply the agreement that the parties made. Cobbum, 580 N.E.2d at 971 ("It is not within the province of this Court to make a new contract for the parties or to ignore or eliminate any provisions in the instrument."). The release provision of the Mortgage required that Nowak be "current in his payments." Appellant's Appendix at 156. Nowak was not 11

current in his payments at the time he sold the property to the Neus and was not current in his payments at any time thereafter. The doctrine of substantial performance does not apply in this situation. C. Notice of Default. The trial court found that "[n]otice must be provided before a slight deviation in performance can be declared a default, and Gibson never provided any such notice to Nowak at or before March 11, 2005, when the Neus purchased the real estate." Appellant's Appendix at 10. However, the promissory note and mortgage clearly do not require that Gibson provide notice of default to Nowak. The note provided: This note is secured by certain real estate mortgages of even date herewith. Upon default in the payment of any monthly installment provided for herein . . . , the entire unpaid principal and interest of this note shall, at the option of the holder hereof, thereupon immediately become due and payable, without notice, and said indebtedness may be collected and said mortgage foreclosed by appropriate proceedings in law or in equity. No delay on the part of the holder hereof in exercising said option shall operate as a waiver thereof, or preclude the exercise of such option at any time during the continuance of any such default. Appellant's Appendix at 149-150. Similarly, the Gibson Mortgage provided: Mortgagor further expressly agrees that if default be made by him in the payment of indebtedness secured hereby, . . . the whole of the indebtedness secured hereby with all interest thereon, at the option of the Mortgagee shall become forthwith due and payable, and this Mortgage may be foreclosed at any time thereafter. The omission on the part of the Mortgagee to exercise such option at any time or times shall not preclude Mortgagee from the exercise thereof upon any subsequent default or upon the subsequent happening of any of said contingencies.

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It shall not be necessary for the Mortgagee to give any notice of its intention to exercise said option at any time, such notice being expressly waived hereby by Mortgagor. Id. at 155. Under the plain language of the note and mortgage, Gibson was not required to give Nowak notice of default. Cf. Dempsey v. Carter, 797 N.E.2d 268, 273 (Ind. Ct. App. 2003) (noting that the land contract contained a clause requiring notice of default and thirty days to cure a default), trans. denied. D. Was Gibson Required to Release the Mortgage? As noted above, the mortgage provided that "in the event [Nowak] sells the real estate during the term of this mortgage [Gibson] will execute a release of the mortgage provided that [Nowak] has not defaulted in his obligations to [Gibson] and is current in his payments." Appellant's Appendix at 156. We need not address whether Nowak had "defaulted in his obligation" because he was not current in his payments at the time he sold the property to the Neus on March 11, 2005, and was consistently behind in his payments during the following months until he stopped making payments altogether after June 17, 2005. As a result, Gibson was not required to release the Gibson Mortgage. The trial court erred by denying Gibson's motion for summary judgment requesting foreclosure of the Mortgage. See, e.g., Dempsey, 797 N.E.2d at 274 (holding that the vendor was entitled to summary judgment because the evidence demonstrating default on the land contract by the purchaser was uncontroverted). II. 13

The next issue is whether the trial court erred by applying the doctrine of equitable subrogation. The trial court found that, even if Gibson was not required to release his mortgage, the Neus and Washington Mutual had priority over Gibson's mortgage in the amount of Irwin's mortgage based upon the doctrine of equitable subrogation. In general, Indiana's recording statute, Ind. Code

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