Crider v. State Exchange Bank of Culver
| Decision Date | 28 January 1986 |
| Docket Number | No. 2-284-A-54,2-284-A-54 |
| Citation | 487 N.E.2d 1345 |
| Parties | William O. CRIDER, Eagle Developments, Inc., and Eagle Manufacturing Industries, Inc., Appellants (Defendants Below), v. The STATE EXCHANGE BANK OF CULVER, Indiana, Appellee (Plaintiff Below). |
| Court | Indiana Appellate Court |
Robert E. Poynter, Jill A.H. Andersen, Bennett, Boehning, Poynter & Clary, Lafayette, for appellants.
John K. McBride, Jeffrey J. Newell, Ball, Eggleston, Bumbleburg & McBride, Lafayette, for appellee.
William O. Crider, Eagle Developments, Inc., and Eagle Manufacturing Industries, Inc. (collectively "Crider"), appeal the trial court's denial of their motion for leave to file three supplemental counterclaims.
Crider presents two issues on appeal, restated as follows:
(1) Whether the trial court erred in refusing to allow Crider's supplemental counterclaims of failure of consideration, breach of contract and fraud.
(2) Whether a pattern of fraud perpetrated upon bank customers, and newly discovered by Crider, constitutes a new theory of recovery which would negate the validity of the instruments upon which the foreclosure decree was based and which could not, with reasonable diligence, have been discovered and produced at trial.
We affirm in part and reverse in part.
William O. Crider owned a hobby kit manufacturing business and was the sole shareholder of Eagle Developments, Inc. and Eagle Manufacturing Industries, Inc. On September 1, 1977, Crider executed a Crider became in default and on April 25, 1980, the Bank filed suit to collect $81,276.04 on the first note, $15,600 on the second note, and to foreclose the mortgage. Crider filed an answer with a set-off and a two-count counterclaim for trespass and forcible entry. 2 Crider also demanded a jury trial. At the pre-trial conference the court determined that the issues raised by the complaint, answer and set-off would be tried to the bench, with a jury trial on Crider's counterclaim to follow later.
note to Appellee, The State Exchange Bank of Culver (Bank) for $85,159.03 along with security agreements with respect to accounts receivable, inventory, machinery and equipment. On November 5, 1977, Crider executed mortgages in the amount of $150,000 on three parcels of real estate as additional security for the note and for possible future indebtedness. 1 Subsequently, on June 29, 1979, Crider executed another promissory note to the Bank for $15,600
On March 2, 1981, after a bench trial in which the dispute focused upon whether the Bank, by acceptance of previous delinquent payments, was estopped, and whether the fees and insurance premiums were excessive, the court entered findings in favor of the Bank. However, entry of judgment was withheld pending the resolution of Crider's original two-count counterclaim. 3 Crider filed a bankruptcy petition on January 14, 1982, which stayed proceedings. On June 2, 1983, the bankruptcy court granted the Bank's request to lift the automatic stay. On June 29, 1983, at a hearing to select a date for the jury trial on Crider's counterclaims, Crider moved for leave to file supplemental counterclaims based upon failure of consideration, breach of contract and fraud.
Several months after the court denied Crider's motion, the parties entered into an agreement which provided for dismissal of Crider's original counterclaims with prejudice but expressly preserved his right to appeal denial of leave to file the supplemental counterclaims. The agreement also allowed the entry of judgment upon the court's order of March 2, 1981, in the amount of $141,343 including interest. In addition, the judgment provided for foreclosure and sale of the collateral named in the three security agreements and for foreclosure and sale of the three parcels of real estate mortgaged by Crider to the Bank.
On the eve of the sheriff's sale, Crider again filed a bankruptcy petition and was granted an automatic stay, but an order for relief of stay was immediately obtained by agreement of the parties, allowing a sheriff's sale as to the real estate only. After this sale, the Bank was left with a deficiency in excess of $68,000.
On December 14, 1983, Crider filed an affidavit alleging newly-discovered evidence and a motion to correct errors.
Crider asserts that the trial court's refusal to permit the filing of his three supplemental counterclaims, based respectively upon the theories of failure of consideration, breach of contract and fraud, constituted an abuse of discretion. All three counterclaims are based upon the same underlying facts; namely, that the Bank promised to make available to Crider a line of credit of no less than $150,000; that Crider executed promissory notes, mortgages on real estate and security agreements on personal property in reliance upon this promise; and that the Bank failed to advance the amount promised, but advanced only approximately $85,000, thereby causing damages to Crider.
He argues that his failure of consideration counterclaim and his breach of contract counterclaim are both compulsory counterclaims and that the court was required to permit their filing pursuant to Trial Rule 13(A) and (F). He asserts that his fraud counterclaim was "after-acquired" and should have been accepted pursuant to Trial Rule 13(E).
It is well-established that failure of consideration is strictly a defense. Ind. Rules of Procedure, Trial Rule 8(C) provides in pertinent part:
(Emphasis supplied).
Failure of consideration is also set forth as a defense in I.C. 26-1-3-306:
"Rights of one not holder in due course.--Unless he has the rights of a holder in due course any person takes the instrument subject to
(a) all valid claims to it on the part of any person; and
(b) all defenses of any party which would be available in an action on a simple contract; and
(c) the defenses of want or failure of consideration, nonperformance of any condition precedent, nondelivery, or delivery for a special purpose...." (emphasis supplied)
and in I.C. 26-1-3-408:
"Consideration.--Want or failure of consideration is a defense as against any person not having the rights of a holder in due course (section 26-1-3-305), except that no consideration is necessary for an instrument or obligation thereon given in payment of or as security for an antecedent obligation of any kind...."
(Burns Code Ed.1974). See also Kelley, Glover & Vale v. Heitman (1942) 220 Ind. 625, 44 N.E.2d 981.
To properly preserve an affirmative defense, the party with the burden of proving it must either have set it forth in a responsive pleading or have litigated it by consent of the parties. Otherwise, the issue is waived on appeal. Lafary v. Lafary (1985) 4th Dist.Ind.App., 476 N.E.2d 155, 159; Kwikie Minit Markets, Inc. v. Hutner (1973) 155 Ind.App. 307, 292 N.E.2d 832.
In the instant case, Crider had the burden of pleading and proving the affirmative defense of failure of consideration at the time of the original action. He did not meet this burden and he may not successfully argue reversal upon this issue.
It is true that a pleading may be amended to add a belated affirmative defense. Indiana Dept. of Public Welfare v. Clark (1985) 1st Dist.Ind.App., 478 N.E.2d 699. However, the leave to do so rests within the sound discretion of the trial court. Id. at 703.
In the case before us, no attempt was made to inject the failure of consideration theory until after the merits of the Bank's complaint had been resolved against Crider. The attempted supplemental counterclaim came too late. There was no error in rejecting it.
In his breach of contract counterclaim, Crider sets forth the same basic underlying facts, i.e., failure to advance the full line of credit. In addition, however, he asserts that the existence of the security interest against his property dried up alternative credit sources and that he lost substantial...
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