COA: ‘Veteran attorney’ guarantor still on hook for loan despite multiple modifications to agreement

IL file photo

A “veteran attorney” who signed as the guarantor of a $600,000 loan is obligated to cover the debt after the borrower defaulted and the Court of Appeals of Indiana found modifications to the loan agreement did not alter his financial responsibility.

Thomas Shoaff signed as a guarantor when a borrower, unidentified in court documents, secured a $600,000 loan from IAB Financial Bank in 2014. Over five years, the borrower’s obligation was modified multiple times. Despite Shoaff waiving notice, he was contacted about the many alterations as a courtesy.

The note matured on March 15, 2019. When the borrower failed to pay and was in default, First Merchants Bank — which had merged with IAB in July 2017 — filed a complaint in May 2019. The Allen Superior Court granted the bank’s motion for summary judgment and entered damages for $859,927.49.

Andrea Baumer had also signed as a guarantor but, along with Innovative Insurance Partners LLC, was dropped from the original lawsuit.

Shoaff successfully filed a motion to correct error, arguing the trial court failed to give him the opportunity to respond to the bank’s claim for damages.

The trial court entered a new damages order, finding there was a balance due and owing to First Merchants from Shoaff for $589,735.37 plus accruing interest at the “rate of $117.4005 per day through the date of entry of this Amended Judgment.” Also, the court found Shoaff owed the bank $125,166.41 for attorney fees and out-of-pocket expenses related to the default.

In Thomas M. Shoaff v. First Merchants Bank, 22A-PL-514, the Court of Appeals affirmed summary judgment in favor of First Merchants. However, the appellate court found the trial court erred in the award of interest, late fees and attorney fees.

Shoaff argued that because the original agreement that he guaranteed was “materially” altered, he is no longer responsible for damages resulting from the default.

The Court of Appeals was not convinced, finding Shoaff’s liability remained intact for “both reasons of immateriality and simple interpretation of contract.”

Namely, Shoaff is a “veteran attorney” and cannot be released from the terms of a contract because he failed to read it. Also, Shoaff was notified as the underlying debt was modified repeatedly over the course of many years, and he did not raise any objections.

“We do not think that any of the modifications to the terms of the debt and its repayment imposed fundamentally different risks on Shoaff,” Judge Peter Foley wrote for the panel. “He may end up paying more than he would have otherwise, or more than he expected to pay when he signed the Agreement.

“But those are changes in degree, not in kind,” Foley continued. “Shoaff contemplated interest, late fees, and future debts in the Agreement. He assumed those risks.”

On cross-appeal, First Merchants contended the trial court abused its discretion when it calculated the damages to which the bank was entitled.

Agreeing with that argument, the Court of Appeals found the trial court did not take into account all the variables “necessary to correctly calculate the loss suffered by First Merchants.” The interest rate for the loan fluctuated multiple times and the calculation of late fees did not consider the complexities created by the amount of unpaid debt and previous defaults, the court found.

In addition, the appellate court held the trial court’s “unexplained decision” to award attorney fees up until a certain date renders the award “unreasonable.”

The Court of Appeals thus reserved and remanded the trial court’s damages award.

The panel noted for the interest and late fees, the trial court may have to hold additional hearings to determine which factors must properly be accounted for and how to correctly calculate the damages. Also, the appellate court ruled the trial court “should assess a reasonable amount of attorney’s fees for all services rendered in pursuit of the debt owed by Shoaff up until the date of the order granting such fees.”