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ATTORNEYS FOR APPELLANT Mark R. Galliher Craig D. Doyle Joann B. Friedmeyer James L. Shoemaker Indianapolis, Indiana

ATTORNEYS FOR APPELLEE PAULA PHILLIPS John Burt G. Martin Cole Jeremy J. Grogg Jeffrey Clark Fort Wayne, Indiana

In the

Indiana Supreme Court
_________________________________ No. 02S03-0508-CV-355 THE MONEY STORE INVESTMENT CORPORATION d/b/a FIRST UNION SMALL BUSINESS CAPITAL, Appellant (Plaintiff below), v. NEAL A. SUMMERS, HAPPY HIKER, INC., MANGY MOOSE ENTERPRISES, INC., NATIONAL CITY BANK OF INDIANA f/k/a FORT WAYNE NATIONAL BANK, PAULA PHILLIPS, ET AL., Appellees (Defendants below). _________________________________ Appeal from the Allen Circuit Court, No. 02C01-0109-CP-1341 The Honorable Thomas J. Felts, Judge _________________________________ On Petition to Transfer from the Indiana Court of Appeals, No. 02A03-0404-CV-170 _________________________________ June 27, 2006 Shepard, Chief Justice.

Junior creditors usually wish they were higher up the priority ladder. Here, the junior creditor took an assignment of the first mortgage holder's "dragnet" mortgages, seeking to "tack on" her judgment lien and "leapfrog" the second mortgage holder. Understandably, this

constitutes a matter of first impression. Our conclusion: this was a nice try, but the original

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parties to the dragnet mortgages did not intend to secure a subsequent debt owed by the mortgagor to a third party.

Facts and Procedural History

From 1992 to 1996, Neal Summers granted eleven mortgages on three parcels of his real estate to Fort Wayne National Bank as security for a series of loans. Three of these mortgages contained dragnet clauses.

In February 1998, Paula Phillips sued Summers and the company in which he was the sole shareholder, Mangy Moose Enterprises, Inc. Her complaint raised a dispute over the ownership of the trademark/trade name "Paula's Seafood." The parties entered into a written settlement agreement on September 21, 1999, and the suit was subsequently dismissed without prejudice.

On September 15, 2000, Summers and Mangy Moose borrowed $508,275 from the Money Store Investment Corporation d/b/a First Union Small Business Capital and granted a mortgage on the same three parcels used to secure the Fort Wayne National mortgages (to which National City succeeded), plus an additional six lots. On the same day, Mangy Moose, by Summers as president and secretary, borrowed $471,000 from Money Store, and granted a mortgage on the same real estate.

Prior to these loans, on August 30, National City sent to Money Store's title company three pay-off statements that included the daily interest. National City assured the title company that eight mortgages and two assignments of rents and leases would be released upon the proper payoff of the three loans. On September 15, National City received three payments, but one payment came up $375 short of the amount reflected on the pay-off statements. (Appellant's

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App. at 271-274.) National City did not release any of the mortgages and was still owed some $4700 on Mangy Moose's overdrawn checking account. 1

Phillips filed a motion to enforce the settlement agreement on August 10, 2001. Just over a month later, Money Store filed a complaint for foreclosure and appointment of a receiver. On February 5, 2002, the trial court in the Phillips' action found that Summers and Mangy Moose had failed to comply with an earlier order and granted Phillips a $205,700 judgment.

Phillips then purchased National City's nine mortgages and two assignments of rents and leases, and National City assigned all of its interest to Phillips. In March 2002, Phillips filed a complaint to foreclose these mortgages, and also moved to intervene in the Money Store foreclosure action. Both Phillips and Money Store moved for summary judgment.

The trial court entered its judgment and decree foreclosing both Phillips' and Money Store's mortgages. (Appellant's App. at 48m-o, r.) It held that "dragnet" clauses contained in three of the mortgages assigned to Phillips secured "all debts or obligations owed to Paula Phillips by Summers," which included Phillips' judgment lien against Summers, Mangy Moose's overdrawn checking account, collection fees, attorneys fees, and interest. (Appellant's App. at 48h-i.) It granted Phillips priority over Money Store on the three Summers' lots used as collateral in the mortgages assigned to Phillips.

The Court of Appeals affirmed, holding that "the mortgage dragnet clauses support[] the trial court's conclusion that the monetary judgment resulting from Summers' failure to comply with his written settlement agreement was, after Phillips acquired the mortgage through assignment by National City, `secured by' the dragnet mortgages." The Money Store Inv. Corp. v. Summers, 822 N.E.2d 223, 229 (Ind. Ct. App. 2005) vacated. We granted transfer. 2
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As of August 31, 2000, Mangy Moose's business checking account with National City was overdrawn by that amount. (Appellant's App. at 287.)

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Phillips argues that since Money Store failed to raise at the summary judgment stage any issue relating to whether the mortgages assigned to Phillips secured her judgment lien, Money Store waived this argument. Money Store did raise this issue in its brief on summary judgment, when it argued, "[t]he assignment of mortgages by National City Bank of Indiana to Phillips did not vest Phillips with an interest in real estate that is prior to the interest held by The Money Store." (Appellant's App. at 223.) In any event, the rule that parties waive issues on appeal not presented at

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I. Equitable Estoppel

Money Store argues on appeal that National City would have been equitably estopped from asserting the priority of its mortgages "after inducing Money Store to make new loans of over $900,000 . . . in the belief that its new loans would be secured by a first mortgage." (Appellant's Br. at 17-18.) Since an assignee of a mortgage takes no greater rights than the assignor, Strafford v. Lane, 124 Ind. 592, 24 N.E. 683 (1890), Money Store argues that Phillips' claim is subject to Money Store's equitable estoppel claim.

"The party claiming equitable estoppel must show its `(1) lack of knowledge and of the means of knowledge as to the facts in question, (2) reliance upon the conduct of the party estopped, and (3) action based thereon of such a character as to change his position prejudicially.'" City of Crown Point v. Lake County, 510 N.E.2d 684, 687 (Ind. 1987) (quoting Damler v. Blaine, 114 Ind. App. 534, 542-43, 51 N.E.2d 885, 889 (1943)).

Money Store fails to satisfy the first requirement: that it lacked the means of knowledge as to the facts in question. Money Store says it could not know that National City would assign its mortgage seventeen months after the loan. But the "fact in question" here is whether Money Store had the means of knowing whether or not the mortgages had been released, and it unquestionably did. When the debt and interest that a mortgage secures has been fully paid, the owner shall release, discharge, and satisfy of record the mortgage. IND. CODE ANN.

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