ATTORNEYS FOR APPELLANTS: ATTORNEY FOR APPELLEE:
John G. Forbes L. R. Wheatley
Bruce A. Kotzan Danville, Indiana
Julie Z. Schmitt
Indianapolis, Indiana ATTORNEY FOR AMICUS CURIAE
FEDERAL HOME LOAN BANK OF
Maggie L. Smith INDIANAPOLIS:
Sommer & Barnard, PC
Indianapolis, Indiana Jonathan R. West
ATTORNEYS FOR AMICUS CURIAE
INDIANA BANKERS ASSOCIATION,
Theodore J. Nowacki
Brian H. Babb
Bose McKinney & Evans LLP
SUPREME COURT OF INDIANA
STEPHEN A. SONGER and COUNTRY ) CONCRETE, INC., ) )Appellants (Defendants), ) No. 23S01-0207-CV-360
July 2, 2002
Appellant Stephen A. Songer is chairman of the board and chief executive officer of CentreBank of Veedersburg (CentreBank). He and his wife Jahn own about one-third of CentreBanks stock. Songer and Jahn also serve as directors and sole shareholders of Country Concrete, Inc. (CCI).
In late 1996, CentreBank made a loan of just over a million dollars,
its largest outstanding loan at the time, to Battleground Hybrids, Inc. (BHI).
In 1997, BHIs sister company, Prairie Production, Inc. (PPI), sought additional financing.
BHIs ability to repay CentreBanks initial loan depended on PPIs financial health.
In April 1997, representatives of CentreBank, Civitas Bank, and PPI met to discuss
the possibility of Songer investing in PPI. Songer agreed to provide financial
assistance to PPI though proceeds provided by Civitas. For the purpose of
investing in PPI, Songer personally executed two promissory notes in which he promised
to pay Civitas approximately $500,000 plus interest. Songer also granted Civitas a
lien on his shares of CentreBank, executed an irrevocable stock power and delivered
the stock certificates to Civitas. Furthermore, Songer granted Civitas a mortgage on
real property owned by CCI and assigned rental income from it.
Civitas deposited the loans proceeds, in the form of two cashiers checks, into
PPIs checking account. The cashiers checks were made payable to Songer but
were never endorsed by him. Songer made only one payment on the
promissory notes and subsequently defaulted.
Civitas filed suit against Songer and CCI. The complaint listed two counts,
one styled Complaint on Note and the other Replevin.
In count one,
Civitas sought to collect the principal on the notes, accrued interest, costs and
attorneys fees. In count two, it sought an order authorizing [Civitas] to
liquidate the collateral granted to it by Stephen A. Songer, a determination of
lien priority in said collateral if required, an extinguishment of rights of all
parties claiming an interest in the collateral and for all other relief just
and proper under the premises. (R. at 13.)
In their answer, Songer and CCI asserted six affirmative defenses: (1)
lack of consideration, (2) conversion, (3) forgery, (4) estoppel, (5) fraud, and (6)
lack of holder-in-due-course status. They requested a jury trial on the entire
subject matter of Civitas complaint. The trial court denied the request.
After a bench trial, the court awarded judgment to Civitas on the promissory
notes plus interest and attorneys fees. It also ordered foreclosure of the
mortgages and liens Songer had given Civitas as security.
Songer and his company appealed, arguing that their right to a jury trial
was violated, that a notice of foreclosure action was not given, that the
right of redemption was violated, that Civitas improperly distributed the money from the
promissory notes, and that the evidence did not support the trial courts conclusions
of law. The Court of Appeals found that CCI was entitled to
a three-month redemption period before execution of foreclosure, but found for Civitas on
all other issues.
Songer v. Civitas Bank, No. 23A01-0004-CV-132, slip op. at
15 (Ind. Ct. App. Jan. 11, 2001). We grant transfer.
That said, it has long been agreed that Article I, section 20 serves
to preserve the right to a jury trial only as it existed at
See City of Crown Point v. Newcomer, 204 Ind. 589,
595, 185 N.E. 440, 443 (1933) (citing Wright v. Fultz, 138 Ind. 594,
38 N.E. 175 (1894); Allen v. Anderson, 57 Ind. 388 (1877)). Drawing
as we do from English common law roots and Englands symbiotic system of
law courts and equity courts, it is a well-settled tenet that a party
is not entitled to a jury trial on equitable claims. Dean v.
State ex rel. Bd. of Med. Registration & Examination, 233 Ind. 25, 16
N.E.2d 503 (1954); W.A. Flint Co. v. John V. Farwell Co., 192 Ind.
439, 134 N.E. 664 (1922). This principle is embodied in Ind. Trial
(A) Causes triable by court and by jury. Issues of law and issues of fact in causes that prior to the eighteenth day of June, 1852, were of exclusive equitable jurisdiction shall be tried by the court; issues of fact in all other causes shall be triable as the same are now triable. In case of the joinder of causes of action or defenses which, prior to said date, were of exclusive equitable jurisdiction with causes of action or defenses which, prior to said date, were designated as actions at law and triable by jury the former shall be triable by the court, and the latter by a jury, unless waived; the trial of both may be at the same time or at different times, as the court may direct.
Rule 38(A) and its statutory predecessors generally set out three principles. First,
suits for which jurisdiction was exclusively equitable prior to June 18, 1852, are
to be tried by the court. Second, issues of fact in all
other suits are to be tried as the same are now triable.
T.R. 38(A). Finally, when both equitable and legal causes of action or
defenses are joined in a single case, the equitable causes of action or
defenses are to be tried by the court while the legal causes of
action or defenses are to be tried by a jury.
One of the earliest decisions on joinder of legal and equitable causes of action was Carmichael v. Adams, 91 Ind. 526 (1883), involving a mortgage foreclosure. The Court ruled that the defendant was not entitled to a jury trial on the amount of the note due. Id. at 528. In reasoning remarkably applicable to the case at hand, the Court stated:
There could, in such a case as this a suit upon a note and mortgage be no decree without an ascertainment of the amount due on the note, and, therefore, the whole matter was necessarily for the decision of the court. In order to determine whether the plaintiff was entitled to the relief sought, it was absolutely necessary to ascertain that there was a debt secured by the mortgage, for, if there was no debt, there was nothing upon which the power of the court could be exercised. It was not possible to make a step of progress in the decree without settling the question of the defendants indebtedness.
Id. at 527. See also Evans v. Nealis, 87 Ind. 262, 263,
266-67 (1882) (in action to encumber specific property with judgment lien, a jury
trial was proper only if verdict was advisory).
Hendricks v. Frank, 86 Ind. 278 (1882), a debtor conveyed his only
unencumbered property to avoid payment to his creditors, and the creditors filed suit
to rescind the conveyance. Id. at 279-80. The case was tried
before a jury, to which a creditor objected. Id. at 282.
This Court concluded that a jury trial was improper, endorsing the opinion of
Supreme Court Commissioner John Morris,
who wrote, Upon the general subject of fraud
courts of equity have concurrent jurisdiction with courts of law; but in a
cause or suit to rescind a contract for fraud, [courts of equity] had,
in June, 1852, exclusive jurisdiction. Id. at 283.
Hendricks, we decided Brown v. Russell, 105 Ind. 46, 4 N.E.
428 (1886). There, Russell sought (1) to foreclose a chattel mortgage which
secured certain promissory notes and (2) to collect the debt evidenced by the
promissory notes. 105 Ind. at 47, 4 N.E. at 429. The
trial was before the bench, and Brown appealed. The Court held that
there was no error in the [trial] courts refusal of a jury trial.
105 Ind. at 55, 4 N.E. at 433 (citations omitted).
In Towns v. Smith, 115 Ind. 480, 16 N.E. 811 (1888), this Court considered another case instructive to the issue now before us. The suit involved an action on a promissory note and an action to set aside an allegedly fraudulent conveyance made for the purpose of avoiding the debt. 115 Ind. at 481, 16 N.E. at 812. The Court held:
One feature of the case, it is true, was an action on a promissory note, and the relief demanded was merely of a pecuniary character. To that extent the proceeding resembles an ordinary action at law. In order to obtain final and more effectual relief, however, the suit combined a proceeding in the nature of a creditors bill to set aside and cancel a fraudulent conveyance, which belongs exclusively to the procedure and jurisdiction of chancery.
115 Ind. at 481, 16 N.E. at 812.
Towns came Albrecht v. C.C. Foster Lumber Co., 126 Ind. 318, 26
N.E. 157 (1890), in which Foster Lumber sought to enforce a lien against
Albrechts property. In response, Albrecht asserted that Foster Lumbers notice of foreclosure
was deficient and requested a jury trial. 126 Ind. at 319-20, 26
N.E. at 157. The trial court denied the request, and Albrecht appealed.
This Court affirmed, holding that only a court of equity can foreclose
mechanics liens and liens on real property. 126 Ind. at 320, 26
N.E. at 157 (citations omitted).
If the case history stopped here, our decision today would be relatively simple.
We would hold that Songer and CCI had no right to a
jury trial. Unfortunately, subsequent decisions and changes in the pleading system have
muddied the waters significantly.
Six years after
Albrecht, this Court considered a similar issue. In Field
v. Brown, 146 Ind. 293, 45 N.E. 464 (1896), Field filed a three-count
complaint. The first sought recovery for money, the second sought an accounting,
and the third alleged fraud in settlement agreements. 146 Ind. at 294,
45 N.E. at 464. Field requested a jury trial but was denied.
The Court concluded that while the last two counts stated equitable claims,
the first count was triable at law by a jury. 146 Ind.
at 294, 45 N.E. at 464. Relying on a statute that is
now Trial Rule 38(A), the Court held that the two equitable claims did
not necessarily draw the third cause of action into equity. 146 Ind.
at 295-96, 45 N.E. at 464-65; see also Abernathy v. Allen, 132 Ind.
84, 31 N.E. 534 (1892) (in suit to set aside two conveyances and
order partition, defendants were entitled to jury trial on issue of partition).
Field Court reaffirmed that where equity takes jurisdiction of the essential
features of a cause, it will determine the whole controversy, though there may
be incidental questions of a legal nature.
146 Ind. at 295, 45
N.E. at 464 (emphasis added). The Court cautioned, however, that none of
[our past holdings] can be construed as holding that numerous causes of action,
stated in various paragraphs of complaint, may not be severed, and those of
an equitable nature tried by the court, and those of a legal character
tried by a jury. 146 Ind. at 295, 45 N.E. at 465.
From this correct statement of law, Songer and CCI try to prove too
much. They argue that the Courts statement that where equity takes jurisdiction
of the essential features of a cause, it will determine the whole controversy
is limited to one-count complaints. (
See Appellants Resp. to Amici at 4.)
We disagree. As the U.S. Supreme Court said in Ex parte
Milligan, 71 U.S. 2, 112 (1866), the terms cause and suit are interchangeable.
The same is not necessarily true for cause and cause of action.
A cause, as noted, is a lawsuit. As illustration, lawsuits are
assigned cause numbers to track their progress through trial and appeal.
On the other hand, a cause of action is a legal theory
of a lawsuit.
See Blacks Law Dictionary 213, 214 (7th ed. 1999).
Several causes of action can potentially be encompassed within a single cause.
Thus, a single cause might consist of a contract cause of action
and a tort cause of action.
Fields holding is that where the essential features of a suit
sound in equity, the entire controversy is drawn into equity, including incidental questions
of a legal nature.
The inverse must also be true. Where equity does not take jurisdiction
of the essential features of a cause, a multi-count complaint may be severed,
and different issues may be tried before either a jury or the court
at the same proceeding. This is consistent with the language and spirit
of Rule 38(A).
The subsequent case of
Sweigart v. State, 213 Ind. 157, 12 N.E.2d 134
(1938), supports this conclusion. In Sweigart, the State brought suit against Sweigart,
Clerk of the Lake Circuit Court, seeking penalties for unlawful issuance of marriage
licenses and a temporary and final injunction. 213 Ind. at 159, 12
N.E.2d at 136. The trial court issued the injunction, and a jury
trial was held on the penalties. 213 Ind. at 160, 12 N.E.2d
at 136. Sweigart appealed and alleged that he was entitled to a
jury trial on the injunction as well. The Court held:
The equitable relief prayed for in the complaint was separate and apart from the legal relief sought and was properly an issue for the court to try. . . . The fact that the plaintiff joins legal and equitable causes of action in a complaint does not deprive a defendant of the right to a trial by jury on the purely legal issues.
213 Ind. 162-63, 12 N.E.2d at 137 (emphasis added).
Sweigart and Field can therefore be read together and harmonized with past decisions.
Where the essential features of a suit sound in equity, such that
the equitable relief asked for is not separate and apart from the legal
relief sought, the entire action is drawn into equity. And in the
prior decisions from Carmichael to Albrecht, the Court adjudged the controversies as having
essentially equitable features.
An overview of recent appellate decisions reveals continuing disagreement and a multitude of
tests used for determining a litigants right to jury trial. We accepted
transfer to restate the basic principles.
Much of this modern inconsistency can be traced to misuse of
Yeargin, 152 Ind. App. 497, 284 N.E.2d 834 (1972), overruled on other grounds,
Erdman v. White, 411 N.E.2d 653, 656 (Ind. Ct. App. 1980). While
much of the prior case law involved interpretation of the statutory guarantee, Hiatt
was the first case to consider Trial Rule 38(A) as it was adopted
in 1970. 152 Ind. App. at 512, 284 N.E.2d at 842.
The case involved a breach of contract claim which sought specific performance of
the agreement. 152 Ind. App. at 526, 284 N.E.2d at 850.
Appellants request for a jury trial had been denied.
The Court of Appeals examined several prior decisions, much as we have done
today. It cited both
Towns, 115 Ind. at 480, 16 N.E. at
811, and Hendricks, 86 Ind. at 278, for the proposition that if any
essential part of a cause [i.e., suit] is exclusively of equitable cognizance, the
whole is drawn into equity. Hiatt, 152 Ind. App. at 517, 284
N.E.2d at 845.
After a thoughtful analysis, the court held that [t]o determine if an action
with mixed issues of fact sounds in equity or law, the court must
turn to the complaint and pleadings as a whole. 152 Ind. App.
at 518, 284 N.E.2d at 846 (citing
Monnett v. Turpie, 132 Ind. 482,
32 N.E. 328 (1892)). The court concluded by saying that the right
to trial by jury is determined by reference to the essential character and
nature of the claim for relief sought. 152 Ind. App. at 525,
284 N.E.2d at 850.
Unfortunately, later decisions misconstrued
Hiatts holding, prying it loose from the rule of
Towns, Hendricks, and Field. For instance, in Jones v. Marengo State Bank,
the court cited Hiatt for the proposition that if an essential part of
a cause of action is equitable the rest of the case is drawn
into equity. 526 N.E.2d at 713 (emphasis added). Like the appellants in
this case, the court failed to recognize the distinction between a cause and
a cause of action. Some subsequent decisions have done likewise. See,
e.g., Baker v. R & R Const., Inc., 662 N.E.2d 661, 665 (Ind.
Ct. App. 1996); Levinson v. Citizens Natl Bank of Evansville, 644 N.E.2d 1264,
1267 (Ind. Ct. App. 1994); Weisman v. Hopf-Himsel, Inc., 535 N.E.2d at 1229.
As we said above, the two are not interchangeable.
If the essential features of a suit as a whole are equitable and
the individual causes of action are not distinct or severable, the entitlement to
a jury trial is extinguished. The opposite is also true. If
a single cause of action in a multi-count complaint is plainly equitable and
the other causes of action assert purely legal claims that are sufficiently distinct
and severable, Trial Rule 38(A) requires a jury trial on the legal claims.
A review of Rule 38(A) and more than 120 years of decisions reveals
that Songer is correct in arguing that the simple inclusion of an equitable
claim, standing alone, does not warrant drawing an entire case into equity.
Such an approach violates Rule 38(A), and we disapprove cases holding otherwise.
Something more than the mere presence of an equitable claim is necessary.
The appropriate question is whether the essential features of the suit are equitable. To determine if equity takes jurisdiction of the essential features of a suit, we evaluate the nature of the underlying substantive claim and look beyond both the label a party affixes to the action and the subsidiary issues that may arise within such claims. Courts must look to the substance and central character of the complaint, the rights and interests involved, and the relief demanded. In the appropriate case, the issues arising out of discovery may also be important. See footnote
The crux of Songers argument is that Civitas desire to foreclose the lien
was only incidental to its primary goal of recover[ing] a monetary judgment against
Appellants for the collection of certain promissory notes. (Appellants Trans. Pet. at
7.) While we agree that Civitas core objective was to regain the
funds it lent, this was not through a money judgment. The purpose
of count one was to establish the amount Civitas was entitled to collect
out of the collateral it possessed, including interest and attorneys fees.
Carmichael, 91 Ind. at 527 (In order to determine whether the plaintiff was
entitled to the relief sought, it was absolutely necessary to ascertain that there
was a debt secured by the mortgage.).
In the instant case, Civitas lent Songer $500,000 secured by CentreBank stock and
real property owned by CCI. It was not a judgment lien Civitas
sought, but rather court authorization to liquidate the collateral it held. It
would be nonsensical for Civitas to ask for a $500,000 money judgment and
then be forced to seek attachment of its judgment lien to unencumbered property
when it already possessed properly attached collateral.
Instead, the essence of the claim was for a judicial pronouncement that Civitas
possessory lien was perfected and that the collateral could be liquidated. At
its heart, this was a suit to foreclose a lien on property.
As we observed above, the vast weight of authority holds that foreclosure actions
are essentially equitable.
See, e.g., Skendzel v. Marshall, 261 Ind. 226, 240,
301 N.E.2d 641, 650 (1973) (foreclosure denotes an equitable proceeding for the enforcement
of a lien against property in satisfaction of a debt) (quoting 55 Am.
Jur. 2d Mortgages § 549 (1971)).
And being essentially equitable, the whole
of the claim is drawn into equity, including related legal claims and counterclaims.
Appellants additionally argue that denying them a jury trial was unjust because Civitas
could have liquidated the collateral without a judicial pronouncement. (Appellants Trans. Pet.
The provisions of former Article 9 govern this transaction and provide secured parties
with options in enforcing their security interests. First, Ind. Code Ann. §
26-1-9-501 (West 1995) states that a secured party may reduce his claim to
judgment, foreclosure, or otherwise enforce the security interest by any available judicial procedure.
Alternatively, Ind. Code Ann. § 26-1-9-504 (West 1995) allows [a] secured party
after default [to] sell, lease, or otherwise dispose of any or all of
the collateral in its then condition or following any commercially reasonable preparation or
Before acting without judicial intervention, though, a secured party must assure that the
security interest has attached and is enforceable against the debtor. Ind. Code
Ann. § 26-1-9-203 (West 1995). Attachment generally occurs when (1) a debtor
signs a security agreement describing the collateral, (2) value is given, and (3)
the debtor retains rights in the collateral.
Id. Given the highly
contested nature of this case, including Songers claim that value was not given
for the security interest, (see Appellants Br. at 22), Civitas did well to
seek a judicial pronouncement before enforcing their security agreement.
Civitas decision to seek court approval through foreclosure rather than run the risks
associated with liquidation did not alter the nature of the lawsuit. As
the Court of Appeals stated, [O]nce [Civitas] sought to reduce this claim to
judgment, the cause of action depended on the equity jurisdiction of the trial
Songer, slip op. at 8-9.
DICKSON, SULLIVAN, BOEHM, and RUCKER, J.J., concur.
Where a court of equity has obtained jurisdiction over some portion or feature
of a controversy, it may, and will in general, proceed to decide the
whole issues, and to award complete relief, although the rights of the parties
are strictly legal, and the final remedy granted is of the kind which
might be conferred by a court of law.
1 Pomeroy, Equity Jurisprudence, § 231, at 410 (5
th ed. 1941) (footnote omitted),
quoted in Kruse, Kruse & Miklosko, Inc. v. Beedy, 170 Ind. App. 373,
417, 353 N.E.2d 514, 541 (1976)).
[A]scertainment of the theory of a complaint or other pleading to determine if
the right to a jury trial exists is hampered. Particularly where little
or no discovery has been availed of by the parties, the effect of
modern pleading may often be to obscure the theory of a pleading when
a jury trial is demanded. At least for the purpose of demanding
a jury trial, a pleader should bear in mind the traditional distinction between
law and equity. We say this recognizing that the pleadings no longer
necessarily serve the function of formulating issues, having in large part been replaced
by discovery procedure.
152 Ind. App. at 516-17, 284 N.E.2d at 845.