Karnes Enterprises, Inc. v. Quan, 48137

CourtUnited States State Supreme Court of Kansas
Citation221 Kan. 596,561 P.2d 825
Docket NumberNo. 48137,48137
PartiesKARNES ENTERPRISES, INC., Appellee (Plaintiff), v. Joe QUAN and Mae Quan, Appellants (Defendants), v. Dorrence KARNES, Appellee (Third-Party Defendant).
Decision Date05 March 1977

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.

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

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. The issues raised by the pleadings or as modified by the pretrial order determine the nature of the action, and where the issue is not one justiciable at common law, a jury trial is not available.

5. Where an action is primarily one for an accounting and the determination of the factual issues in the case requires a close examination and reconstruction of complicated accounts, the action should be deemed one in equity in which trial by jury is not a matter of right.

6. Where a lessor is entitled to rent based upon a percentage of the gross sales or profits of the lessee's business, the lessor is entitled to an accounting from the lessee where a dispute arises as to the correctness of the statement of sales or profits submitted by the lessee to the lessor.

7. Under the factual circumstances set forth in the record the district court did not err (1) in denying the defendants' demand for a jury trial or (2) in ruling that certain exhibits were admissible in evidence.

William Wagner, of Deines & Wagner, WaKeeney, and E. Lael Alkire, of Alkire, Clausing, Wilkinson & Wilson, Wichita, argued the cause, and were on the brief for appellants.

Allen Shelton, of Clark & Shelton, Hill City, argued the cause, and was on the brief for appellee Karnes Enterprises, Inc.

Christopher A. Randall, of Turner & Hensley, Chartered, Great Bend, argued the cause, and Raymond L. Dahlberg, Great Bend, was with him on the brief for appellee third-party defendant Dorrence Karnes.

PRAGER, Justice:

This is an action brought by the lessor of a restaurant against the lessee to cancel the lease, to recover possession of the leased premises, to recover rentals due and unpaid, for a restraining order, for an accounting, and to recover punitive damages. The plaintiff-appellee, Karnes Enterprises, Inc., is the lessor and owner of the leased premises. The president and principal stockholder of Karnes Enterprises, Inc. is the third party defendant-appellee, Dorrence Karnes. The defendants-appellants are Joe Quan and his wife, Mae Quan, the lessees and operators of the restaurant business.

Most of the essential facts in the case are not in dispute and are as follows: Karnes Enterprises is the corporate owner and operator of the Wheel Motel located in Trego county, Kansas. Located on the Wheel Motel property is a restaurant which has been operated for a number of years under the name of Wheel Restaurant. In April of 1970 Karnes Enterprises leased the restaurant business to the Quans. The lease agreement called for a monthly rental payable to the lessor in an amount equal to ten percent of the gross sales of the restaurant, less sales tax. The gross sales and the rentals to be paid to the lessor have been computed by the Quans from the cash register readings and records of the Wheel Restaurant during the period of the lease. In the summer of 1973 Dorrence Karnes discovered in the restaurant's trash container sales tickets from the restaurant business which apparently had not been run through the restaurant cash register so as to be included in the gross sales. On further investigation Dorrence Karnes discovered that the cash register readings were being 'rolled back' so as to reflect a less amount of gross income than was actually received by the Quans. Karnes concluded that the Quans as lessees had falsely reported gross sales to Karnes Enterprises and thus had failed to pay the full rentals owing to the lessor. During the following months of 1973 Karnes continued to collect additional sales tickets from the restaurant trash barrel and obtained additional readings from the restaurant cash register which in the opinion of Karnes confirmed that the Quans had not been reporting all of the gross sales to the lessor, thus denying the lessor rentals which were properly due. These circumstances brought about the filing of this action by Karnes Enterprises against the Quans.

On February 1, 1974, Karnes Enterprises, Inc. as plaintiff filed this action setting forth in its petition the relationship of the parties, the lease of the restaurant business, and the provisions of the lease which required a monthly rental to the lessor based upon ten percent of the gross sales, less sales tax. The petition alleged that the Quans as lessees had falsely and fraudulently failed to report the true income of the restaurant and thus had failed to pay rentals to the lessor in full. The petition further alleged that because of the fraudulent actions of the defendants the plaintiff had been required to hire accountants to construct the true gross income and rental figures and that plaintiff was entitled to recover judgment against the defendants for at least the sum of $29,857.65 and rentals for all subsequent months until the lease is terminated. It is further alleged that the nonpayment of rentals was intentional and fraudulent and that the plaintiff is entitled to judgment in the sum of $30,000 as punitive damages. The petition prayed for judgment canceling and terminating the lease, possession of the restaurant premises, an accounting of all amounts received by the lessees from cigarette vending machines located on the premises, and a restraining order to prevent the defendants from access to their safety deposit boxes or disposing of their certificates of deposit or savings accounts. At the time the case was filed a restraining order as requested was served upon the Quans. At that time Dorrence Karnes, acting on behalf of Karnes Enterprises, Inc., took possession of the restaurant.

On February 28, 1974, the defendants Quan filed their answer, counterclaim, and third-party petition. In their answer the Quans admitted the lease arrangement but alleged that all sums due as rentals had been paid in full and generally denied that the plaintiff was entitled to any relief. The gist of the Quans' counterclaim against Karnes Enterprises and the third-party petition against Dorrence Karnes was that there was no reasonable basis for the claim against the Quans; that Karnes Enterprises and Dorrence Karnes in filing the petition had acted wrongfully, willfully, and maliciously, and that Quans should be awarded judgment against Karnes Enterprises and Dorrence Karnes for damages in the total amount of $22,400 for loss of business earnings and denial of access to their property, and punitive damages for their embarrassment and damage to their reputations. Karnes Enterprises and Dorrence Karnes filed pleadings denying these allegations.

In April of 1974 the court denied the Quans' demand for a jury trial. In January of 1975 a motion filed by the Quans to reconsider the demand for a jury trial was again denied by the trial court. The case then proceeded to trial to the court sitting without a jury. The trial was hotly contested. Each of the parties calles as witnesses certified public accountants who attempted to reconstruct the true gross sales of the restaurant business and the rentals due. The accountings were long and complicated. Numerous sales tickets, cash register tapes, sale summary books, schedules of cash register sales, and estimates of gross sales and unpaid rentals for the years 1970 through 1973 were admitted into evidence. It would serve no useful purpose to summarize in this opinion all of the testimony and exhibits which were presented at the trial. Suffice it to say, following final submission of the case the trial court made extensive findings of fact and conclusions of law finding generally in accordance with the claims of the plaintiff Karnes Enterprises. Judgment was granted to the plaintiff on its petition in the total amount of $24,160.44 and against the defendants on their counterclaim and third-party petition. The defendants Quan then perfected their appeal to this court.

On this appeal the Quans do not question the sufficiency of the evidence to support the findings of the trial court. Only two points of claimed error are asserted. The first point involves the right of the Quans to a jury trial. The second point involves the admission into evidence of certain exhibits offered by the plaintiff which the Quans contend were inadmissible hearsay and were admitted without proper foundation. Although he prevailed in the trial court, Dorrence Karnes, as third-party defendant, filed a cross-appeal.

The Quans' first point on the appeal is that the trial court erred in denying them a jury trial when they were entitled to a trial by jury as a matter of constitutional right. Before considering specifically the facts of this case and the contentions of the parties, it would be helpful to examine the Kansas constitutional provision and the statute governing the right to trial by jury. The right to trial by jury is provided for in Section 5 of the Bill of Rights of the Kansas Constitution which declares:

' § 5. Trial by jury. The right of trial by jury shall be inviolate.'

K.S.A. 60-238(a) provides a statutory right to trial by jury.

'60-238. Jury trial of right. (a) Right preserved. 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.'

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    ...essential nature of the action is grounded on equitable rights and is one in which equitable relief is sought. Karnes Enterprises, Inc. v. Quan, 221 Kan. 596, 561 P.2d 825 (1977)." 238 Kan. at 518, 713 P.2d In City of Moran, the bank made no claim that K.S.A. 60-257 was a "statute of the st......
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    ...guiding principles to be followed in determining a civil litigant's entitlement to trial by jury in Karnes Enterprises, Inc. v. Quan, 221 Kan. 596, 600-01, 561 P.2d 825, 829-830 (1977), as follows: "(1) The right of trial by jury is a substantial and valuable right. The law favors trial by ......
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