Elkhart County Farm Bureau Co-op. Ass'n, Inc. v. Hochstetler

• Decision Date: 30 March 1981
• Docket Number: No. 3-379A64,3-379A64
• Parties: ELKHART COUNTY FARM BUREAU COOPERATIVE ASSOCIATION, INC., Appellant (Plaintiff below), v. Leroy HOCHSTETLER and Ervin Hochstetler, Appellees (Defendants below).
• Court: Indiana Appellate Court

Page 280

418 N.E.2d 280

ELKHART COUNTY FARM BUREAU COOPERATIVE ASSOCIATION, INC. Appellant (Plaintiff below), v. Leroy HOCHSTETLER and Ervin Hochstetler, Appellees (Defendants below).

No. 3-379A64.

Court of Appeals of Indiana, Third District.

March 30, 1981.

Martha A. Foreman, Goshen, for appellant.

Richard K. Muntz, Petersen & Muntz, LaGrange, for appellees.

STATON, Judge.

The Elkhart County Farm Bureau Cooperative Association, Inc., appeals the entry of a negative judgment on its complaint on open account against Leroy and Ervin Hochstetler. After a bench trial, the trial court found that Farm Bureau's agents made certain representations which estopped Farm Bureau from asserting its claim against the Hochstetlers.

On appeal, Farm Bureau contends that the trial court's judgment is contrary to law in that the Hochstetlers failed to set forth estoppel as an affirmative defense in their responsive pleadings, and that the estoppel defense was not tried with the implied consent of Farm Bureau.

We reverse.

I. Prologue

The principal parties in this action are (1) Farm Bureau, a seller of chicken feed, (2) Leroy and Ervin Hochstetler, farmers in the business of raising chickens, and (3) J. J. Poultry, a wholesaler of chickens that have been raised to maturity by farmers. Paul Bollinger, the poultry field man for Farm Bureau, and Tobe Graber, the president and part-owner of J. J. Poultry, developed a promotional device to stimulate the sale of their products. Bollinger was to find independent farmers in the Elkhart County area to raise young chicks into roaster chickens on a guaranteed profit basis. Farm Bureau would provide the young chicks, feed, medication, and other attendant supplies to the farmers. The farmers would raise the chicks to the roaster stage of growth (six to seven pounds at market time). When the chickens matured, J. J. Poultry would pick up the chickens from the farms, process the chickens, and sell them to a wholesaler on the next rung of the market ladder. The terms of this promotional device were embodied in a "Roaster Production Agreement," which Bollinger presented to participating farmers on behalf of J. J. Poultry.

The Hochstetlers agreed to participate in the chicken-raising plan developed by Farm Bureau and J. J. Poultry. The financial arrangement among the parties worked as follows: The Hochstetlers would receive three cents per pound for their labor in raising the chickens to maturity. Farm Bureau would bill the Hochstetlers directly for the cost of chicks, feed, and attendant supplies. The Hochstetlers would in turn deliver the bills to J. J. Poultry. J. J. Poultry would issue a check in the name of either Leroy or Ervin Hochstetler to cover the bills sent in their names by Farm Bureau. The Hochstetlers would deduct their three cents per pound commission and deliver the balance to Farm Bureau. In actuality, the Hochstetlers endorsed most of the checks and then sent them to Farm Bureau. The Hochstetlers would occasionally cash one of the checks received from J. J. Poultry to collect their commission.

The chicken-raising plan ended in 1975 when the chicken industry suffered severe economic setbacks. J. J. Poultry became insolvent during this period and discontinued sending checks to the Hochstetlers. Farm Bureau's books showed that the Hochstetlers owed nearly $12,000 to Farm Bureau for chicks, feed, and supplies. After a period of negotiation, Farm Bureau demanded that the Hochstetlers satisfy the open accounts which were in their names. The Hochstetlers refused to pay on the accounts claiming that the debt belonged to J. J. Poultry under the "Roaster Production Agreement."

Farm Bureau commenced this action to recover the balance due on the Hochstetlers' accounts. In their responsive pleadings, the Hochstetlers asserted as a defense that they had leased their poultry houses to J. J. Poultry and that any goods delivered to the Hochstetlers by Farm Bureau were for the use and benefit of J. J. Poultry. This was the only defense the Hochstetlers asserted. The case went to trial, and the trial court determined that Farm Bureau was estopped from recovering the balance due on the accounts because its agents had made representations indicating that J. J. Poultry was financially responsible for the Hochstetlers' accounts.

II. Estoppel Defense

Farm Bureau contends that the trial court erroneously based its judgment on the affirmative defense of estoppel which was not set forth in a responsive pleading. Farm Bureau further contends that the estoppel defense was not tried with its implied consent. We agree with Farm Bureau's contentions.

Trial Rule 8(C) of the Ind.Rules of Trial Procedure provides that an affirmative defense must be set forth in a responsive pleading by the party with the burden of proving the defense. While TR. 8(C) appears to impose an absolute duty to raise an affirmative defense in a responsive pleading, Indiana courts have modified the mandatory nature of the rule by interpreting it in conjunction with TR. 15(B) of the Ind.Rules of Trial Procedure, which provides in pertinent part:

"When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings...."

Chief Judge Buchanan has explained the effect of TR. 15(B) on TR. 8(C) as follows:

"It is true Trial Rule 8(C) of the Indiana Rules of Procedure imposes the burden of pleading and proving any matter of avoidance on the defendant. However, Trial Rule 15(B) provides an escape hatch. If the issue is tried by the implied consent of the parties it is treated as if raised by the pleadings. Case law is to the same effect. Indianapolis Transit System, Inc. v. Williams (1971), 148 Ind.App. 649, 269 N.E.2d 543, held:

'Either party may timely demand strict adherence to the predetermined route (pleadings) or, if deviation is permitted, the time necessary to prepare to meet the new issue. But when the trial has ended without objection as to the course it took, the evidence then controls.'

Id. at 658, 269 N.E.2d at 550." (Footnotes omitted.).

Puckett v. McKinney (1978), Ind.App., 373 N.E.2d 909, 911; see also, Lawshe v. Glen Park Lumber Co., Inc. (1978), Ind.App., 375 N.E.2d 275, 277-78. The Court of Appeals' interpretation of TR. 8(C) in light of TR. 15(B) is congruent with the Indiana Supreme Court's directive that neither the pleadings of the parties nor the pretrial order issued by the trial court should operate to frustrate the trier of fact from finding the facts which a preponderance of the evidence permits. Ayr-Way Stores, Inc. v. Chitwood (1973), 261 Ind. 86, 93-94, 300 N.E.2d 335, 340.

While amendments to the pleadings under TR. 15(B) should be liberally granted to ensure adjudication of all issues raised at trial, the rule should not be applied indiscriminately so as to render TR. 8(C) and our practice of notice pleading meaningless. The recent observations of Judge Robertson make it apparent that TR. 15(B) should be applied with caution:

"This broad ability to amend the pleadings to conform to the evidence is, however, not without its limitations. As previously discussed, the purpose behind the rule is to allow the parties some flexibility in litigating the case, and to further justice by allowing the evidence brought forth at trial (to) determine the parties liability. The basic text of fairness would indicate that a 'party is entitled to some notice that an issue is before the court which has not been pleaded or has not been agreed to in a pre-trial order.' Aldon Builders, Inc. v. Kurland, (1972), 152 Ind.App. 570, 580, 284 N.E.2d 826, 832. The court of appeals in justifying this requirement stated that 'This is especially true where the new issue is not unequivocally clear by the evidence being submitted. This is not being technical. This is being fair. A party should be given the opportunity to meet the issues which the court is considering.' Id.; Fisel v. Yoder, (1974) 162 Ind.App. 565, 320 N.E.2d 783; Normouth Drywall v. Erectioneers, Inc., (1978), Ind.App., 381 N.E.2d 490.

"While this court is in full accord with those cases permitting a liberal interpretation of T.R. 15(B) which allow the pleadings to be amended to conform to the evidence presented at trial under an implied consent concept, we also believe that this basic precept notwithstanding, the opposing party must have the benefit of some type of notice as to what additional theories of recovery are being litigated when such a change from the pleadings is not readily apparent from the scope of the evidence presented at the trial."

Bahre v. Metropolitan School District of Washington Township, Marion County (1980), Ind.App., 400 N.E.2d 197, 200.

In the present case, the record reveals that neither the responsive pleadings nor the evidence presented was sufficient as a matter of law to put Farm Bureau on notice of the Hochstetlers' intent to assert the affirmative defense of estoppel. The evidence on which the Hochstetlers relied to establish the basis of their estoppel defense was introduced to show that Farm Bureau was aware of a principal-agent relationship between J. J. Poultry and the Hochstetlers. A review of the trial proceedings supports our position.

The opening statement of the Hochstetlers' attorney reflected their intention of relying on an agency defense throughout the trial:

"MR. MUNTZ: I think, briefly our defense is we were the agent of J. J. Poultry, Inc., which is an Indiana corporation, and my clients were engaged in more or less it amounted to the rental of their chicken houses and the supplying of labor to J. J. Poultry. In return, they were paid for the chickens produced based upon cost plus, I believe a minimum of three cents per pound, and it is our contention that the Elkhart County Farm Bureau Co-op was aware of the principal and agent relationship through its employee, Paul Bollinger, who was...