First Nat. Bank of Olathe v. Clark

• Decision Date: 01 December 1979
• Docket Number: No. 49909,49909
• Citation: 226 Kan. 619,602 P.2d 1299
• Parties: FIRST NATIONAL BANK OF OLATHE, Kansas, Appellee, v. Donald C. CLARK et al., Appellants.
• Court: Kansas Supreme Court

Page 1299

602 P.2d 1299

226 Kan. 619

FIRST NATIONAL BANK OF OLATHE, Kansas, Appellee, v. Donald C. CLARK et al., Appellants.

No. 49909.

Supreme Court of Kansas.

Dec. 1, 1979.

Syllabus by the Court

1. The constitutional right to a jury trial guaranteed by Section 5 of the Bill of Rights of the Constitution of the State of Kansas refers to that right as it existed at common law. Karnes Enterprises, Inc. v. Quan, 221 Kan. 596, 561 P.2d 825 (1977).

2. A party is not entitled to a jury trial as a matter of right in a suit in equity, both at common law and under the Kansas constitutional provision.

3. In determining whether an action is one in equity, the test is whether the essential nature of the action is grounded on equitable rights and is one in which equitable relief is sought.

4. A determination of a party litigant's right to jury trial, guaranteed by the Kansas Constitution, does not require that a jury trial be given on legal issues which arise in a proceeding essentially equitable in nature.

5. The language in a contract is ambiguous when the words used to express the meaning and intention of the parties are insufficient in a sense the contract may be understood to reach two or more possible meanings.

6. Where a court determines a contract is ambiguous, facts and circumstances existing prior to and contemporaneously with its execution are competent to clarify the intent and purpose of the contract. This evidence may not be used to vary or nullify the clear and positive provisions of the contract.

7. A court may, in construing an ambiguous or indefinite contract, take into consideration the conduct of the parties as evidence of their interpretation of the document, provided that interpretation is not inconsistent with the language of the contract.

8. The rule of 78's (K.S.A. 16a-2-510) is statutorily authorized to compute the amount of unearned finance charge on a precomputed interest-bearing contract, pursuant to K.S.A.1978 Supp. 16-205(B )(2)(I ).

9. In a civil action for the foreclosure of a mortgage, the record is examined and it is Held : The trial court did not err (1) in denying appellants' request for a jury trial; and (2) in holding the bank had correctly computed the amount due and owing on the note.

Richard L. Reid, Kansas City, argued the cause and was on brief, for appellants.

T. Bradley Manson, Olathe, argued the cause, and Bruce F. Landeck of Lowe, Terry & Roberts, Olathe and Chris W. Henry, Law Offices of Robert D. Loughbom, Kansas City, were with him on brief, for appellee.

HERD, Justice:

This is a mortgage foreclosure action brought by First National Bank of Olathe against Donald C. and Terry J. Clark of Bonner Springs. The trial court granted judgment to the bank and the Clarks appeal. We affirm.

Appellants, Donald C. and Terry J. Clark, own and operate Double D Meats, a packing plant, which is located on a five-acre tract with the family home in Bonner Springs. On May 16, 1973, appellants borrowed $52,000.00 from appellee First National Bank of Olathe. They executed a promissory note and security agreement giving the bank a security interest in the packing plant and the home as well as "all the furniture, fixtures, machinery, tools and other equipment now owned or hereafter acquired by debtor." The security agreement was duly filed of record in Wyandotte County and the loan proceeds disbursed.

The note provides for 120 monthly payments of $628.33 each. The total pay out is $75,400.00 on the $52,000.00 loan. The Clarks made 31 payments according to the tenor of the note then ran into financial problems because of Mr. Clark's health and the closing of an access road to the packing plant. Appellants made their last payment January 9, 1976, and after a few months' delinquency, the bank made demand on the Clarks. The bank received no response and thereafter, filed suit to foreclose the mortgage.

After the suit was filed, the Clarks answered admitting they borrowed the $52,000.00 and gave the mortgage to secure the debt but denied the debt was delinquent. They filed a counterclaim, alleging the suit was prematurely filed because by their computations the note was not yet due. They further alleged malicious abuse of process, requested damages in excess of $10,000.00, and demanded a jury trial. The trial court denied the demand for a jury and tried the case, rendering judgment for the bank in the amount prayed for. The Clarks appeal.

Appellants claim they are entitled to a trial by jury on the questions of fact surrounding the execution of the note. They allege although a mortgage foreclosure action is equitable in nature it is an equitable proceeding only where the court orders a certain piece of property sold to satisfy the debt. Appellants contend the actual determination of that indebtedness is an action in contract, which is considered a legal proceeding. Appellants argue they signed a note to borrow money at an interest rate of 4.5% And that additional writing, placed there at a later time, materially altered the note from the one they signed. They conclude they are entitled to a jury determination of the fact question of terms added to a contract after its execution.

Appellants also claim they are entitled to a jury trial to resolve the following questions: (a) whether there was an agreement to renew their working capital loan, which was subsequently breached by the bank; (b) whether there was an agreement for a moratorium of payments during the access road construction and whether that agreement was breached by the bank; (c) whether the bank's actions with respect to these agreements constitute an abuse of process and intentional interference with the Clarks' business.

Appellants maintain the three issues, raised in their counterclaim, are "strictly legal in nature," because they demand money damages and are triable to a jury at common law. They contend the three issues are compulsory counterclaims pursuant to K.S.A. 60-213(A ), and must be pled in response to a claim, or a party is later barred from bringing an independent action on the counterclaim. Stock v. Nordhus, 216 Kan. 779, 533 P.2d 1324 (1975).

Appellants contend they are entitled to a jury trial although the legal issues contained in the counterclaim are incidental to equitable issues. In support of this position, they rely upon the cases of Dairy Queen v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962), and Beacon Theatres v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959). Before proceeding with the specific points raised by appellant we must first consider the right to trial by jury.

The Seventh Amendment of the U.S. Constitution provides: "In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, . . ." This amendment was implemented by Fed.R.Civ.P. 38(a), which states:

"The right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States shall be preserved to the parties inviolate."

Beacon Theatres v. Westover marked a sharp departure from the rule that a court sitting in equity could retain jurisdiction and decide the entire case even though a legal remedy became available to decide the issue. Beacon Theatres held where both legal and equitable issues are present in a single case,

"only under the most imperative circumstances, circumstances which in view of the flexible procedures of the Federal Rules we cannot now anticipate, can the right to a jury trial of legal issues be lost through prior determination of equitable claims." Beacon Theatres v. Westover, 359 U.S. at 510-11, 79 S.Ct. at 957.

The case requires when a legal issue is raised in an action begun as an equitable proceeding, a jury trial must ensue on that issue. Dairy Queen v. Wood followed Beacon Theatres, and held although legal issues are incidental to equitable issues, the right to trial by jury is preserved on those legal claims. See also 9 Wright and Miller, Federal Practice and Procedure: Civil § 2302, pp. 17-22 (1971).

The Kansas constitution provision states, "The right of trial by jury shall be inviolate." Kan.Const. Bill of Rights, § 5. K.S.A. 60-238(A ) provides:

"The right of trial by jury as declared by section 5 of the bill of rights in the Kansas constitution, and as given by a statute of the state shall be preserved to the parties inviolate."

The Seventh Amendment has not yet been made applicable to the states through the Fourteenth Amendment. Colgrove v. Battin, 413 U.S. 149, 169, n. 4, 37 L.Ed.2d 522, 93 S.Ct. 2448 (1973); Walker v. Sauvinet, 92 U.S. 90, 23 L.Ed. 678 (1876). Each state is, therefore, left to apply its own constitutional provision regarding the right to trial by jury. This distinction has not received strong clarification in Kansas cases and we note some inconsistent statements in this regard. In Hindman v. Shepard, 205 Kan. 207, 468 P.2d 103 (1970), Cert. denied 401 U.S. 928, 91 S.Ct. 923, 28 L.Ed.2d 209 (1971), we indicated the federal and state right to trial by jury might be viewed identically, but stated:

"A civil litigant's constitutional right to a trial by jury (Constitution of Kansas, Bill of Rights, § 5, and U.S. Constitution, Amendment 7) is predicated on whether the action at common law was one of law or in equity." (205 Kan. pp. 215-16, 468 P.2d p. 111)

See also In re Rome, 218 Kan. 198, 542 P.2d 676 (1975); Hornback v. Missouri-Kansas-Texas Rld. Co., 193 Kan. 395, 395 P.2d 379 (1964) (dissenting opinion); Windholz v. Willis, 1 Kan.App.2d 683, 573 P.2d 1100 (1977). Notwithstanding these cases, Kansas has never clearly adopted the line of federal cases construing the right to a jury trial under the U.S. Constitution.

We hold a determination of a party litigant's right to jury trial, guaranteed by the Kansas Constitution, is not required on legal issues arising in a proceeding essentially equitable in nature, and decline to...