Wells Fargo Bank, N.A. v PNC Bank, N.A. (IN)

Summary: A judgment on the priority of mortgages in a foreclosure action was res judicata to later challenges of the validity of those mortgages.

Wells Fargo Bank, N.A. v PNC Bank, N.A., 971 NE2d 1216 (Ind. Ct. App. 2012).


From 1992 to 1996, Neal Summers granted eleven mortgages on three parcels of his real estate to Fort Wayne National Bank (National City) as security for a series of loans. Three of these mortgages contained dragnet clauses. In February 1998, Paula Phillips sued Summers and the company (“Mangy Moose”) in which he was the sole shareholder. Summers and Phillips later settled the suit.

In September of 2000, Summers secured new loans and mortgages from Money Store on the same parcels. Prior to disbursing the loans, Money Store’s title company requested and received three pay-off statements from National City, and was assured that eight mortgages and two assignments of rents and leases would be released upon proper payoff of the three loans. At closing, the payments were $375 short. National City did not release any mortgages as a result. Also, National City was owed nearly $5,000 on Summer’s “Mangy Moose” checking account which was overdrawn. Summers then defaulted on the Money Store mortgages and the Phillips settlement.

Phillips brought a motion to enforce the settlement in August of 2001. About a month later, The Money Store also filed for foreclosure on Summers’ property. Phillips was granted a judgment in February of 2002. Next, she bought National City’s interest in its mortgages, filed to foreclose and moved to intervene in The Money Store’s foreclosure action.

The court initially found that Phillips had priority by way of the assignment from National City, and that the dragnet clauses secured her settlement judgment of more than $200,000. The Indiana Supreme Court eventually overruled this finding, explaining that, though Phillips as 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… [b]ecause the original parties to the dragnet mortgages did not intend to secure a subsequent debt owed by the mortgagor to a third party, this was not allowed.”

The portion of the ruling that influences this case was on the claim by Money Store (Wells Fargo) that Phillips was estopped from foreclosing on the mortgages because she took them subject to all claims, equities and defenses available against the original mortgage holder.  The Money Store argued that Phillips/National City should be equitably estopped from asserting the priority of its mortgages because National City induced the Money Store to make new loans on the belief that its mortgage would have a first priority. The Indiana Supreme Court ultimately decided that the Money Store did not have an equitable estoppel challenge because it was unable to show its “(1) lack of knowledge and of the means of knowledge as to the facts in question…”  Id.   Because, “the ‘fact in question’ was whether Money Store had the means of knowing whether or not the mortgages had been released, and it unquestionably did,” the court determined Phillips was not estopped.  Id.  An important point to note is that at some time during this case National City was dismissed as a party without objection from Money Store (Wells Fargo).

Upon the Supreme Court’s ruling, Wells Fargo filed a complaint against National City (PNC) stemming from its refusal to release the mortgages attaching to the Summers real estate. Wells Fargo alleged breach of contract, promissory estoppel, unjust enrichment, duty to deal in good faith, tortious injury to property interest, slander of title, and bad faith. National City moved for summary judgment and the trial court granted the motion on the basis that the claims were barred by res judicata, specifically claim preclusion.  Wells argued on appeal that claim preclusion does not apply in instances where there is no privity of parties due to a lack of mutuality of estoppel.  Also, it argued that it was not presenting the same claims because the pleadings for the prior claims did not require proof that National City made a binding contract with Wells Fargo to release its mortgages. 


Affirmed. When claim preclusion applies, all matters that were or might have been litigated are deemed conclusively decided by the judgment in the prior action. Claim preclusion applies when the following four factors are present: (1) the former judgment was rendered by a court of competent jurisdiction; (2) the former judgment was rendered on the merits; (3) the matter now at issue was, or could have been, determined in the prior action; and (4) the controversy adjudicated in the former action was between parties to the present suit or their privies.  Wells Fargo’s arguments focus on the last two factors of this test.

Regarding Wells Fargo’s contention that privity could only be established by proving mutuality of estoppel, the court declared it was well settled law that privity is generally established by an assignment relationship.  Because none of the exceptions to privity by assignment applied in this case, the court found mutuality of estoppel was unnecessary to prove privity between National City and Phillips.

Regarding the same claim element of res judicata, the important question is whether the current claims were within the issues of the first action. The test for making this determination is whether identical evidence will support the issues involved in both actions. The court found that six specific pieces of evidence submitted in the prior action, in support of its estoppel claim, were again relied upon by Wells Fargo to prove its claims in this case, one of which was promissory estoppel.  The court therefore determined the issue was, or might have been, decided in the earlier case. 

The court also pointed to the dismissal without objection of National City from the previous case as an influential factor.  The court determined that Wells Fargo could have pursued its claim in the first case, however, National City was dismissed without objection.  Additionally, the issue in the prior case derived from current claims, and it was adjudicated in favor of Phillips, and by extension National City (PNC).  Based on these facts, the court determined, “Wells Fargo cannot…re-cast its claim as a different cause of action when both claims share the same factual predicate and, again, the matter either was or might have been, determined in the prior action.” 


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By: ATG Underwriting Department | Posted on: Tue, 12/11/2012 - 4:46pm