Peoples Trust and Sav. Bank v. Humphrey, 1-582A121

• Decision Date: 27 July 1983
• Docket Number: No. 1-582A121,1-582A121
• Citation: 451 N.E.2d 1104
• Parties: PEOPLES TRUST AND SAVINGS BANK Boonville, Indiana, Appellant (Plaintiff Below), v. Jerry W. HUMPHREY and Carolyn L. Humphrey, Appellees (Defendants Below).
• Court: Indiana Appellate Court

Page 1104

451 N.E.2d 1104

PEOPLES TRUST AND SAVINGS BANK Boonville, Indiana, Appellant (Plaintiff Below), v. Jerry W. HUMPHREY and Carolyn L. Humphrey, Appellees (Defendants Below).

No. 1-582A121.

Court of Appeals of Indiana First District.

July 27, 1983.

Charles F. Cremer, Jr., Matthew H. Hobbs, Charles F. Cremer, Jr. & Co., Indianapolis, Mark Hart Hendrickson, Boonville, for appellant.

James E. Fields, Perdue, Brenton & Fields, Evansville, for appellees.

ROBERTSON, Presiding Judge.

The plaintiff-appellant, Peoples Trust and Savings Bank (Bank) appeals a judgment which denied its complaint to foreclose a mortgage given by the defendants-appellees, Jerry W. and Carolyn L. Humphrey (Humphreys), as security for a realty installment loan. The trial court also granted Humphreys' counterclaim for misrepresentation and awarded them $1,000 in compensatory damages and $40,000 in punitive damages. Additionally, the trial court reformed the loan, thus fixing the interest rate at 8 1/2% annually and deleting a demand clause.

The multiple issues which Bank has raised do not present reversible errors. ¹

We affirm.

Humphreys approached the Bank in February, 1978, seeking a construction loan for a house. Construction costs were to be $60,000 and Humphreys were seeking a $35,000 loan. They intended to finance the balance with money from the sale of their former home. Humphreys explained to Bennett, the Bank's vice-president whom they had dealt with previously, that the Bank's president, Waldo Hendrickson, had promised them a good deal on their next loan because of their dissatisfaction with charges for a prior loan. Bennett told them that he would discuss the loan with Hendrickson. On February 28, 1978, the Bank made a verbal commitment for a $35,000 loan at an 8 1/2% annual interest repayable over 20 years . ² No documents were executed at that time.

Humphreys began construction and expended all their funds. On June 8, 1978, they signed a promissory note with the Bank for the balance of their construction funds, a total of $35,482. This was a 4 month note with an annual interest rate of 8 1/2%, an annual percentage rate of 8 3/4% based on a 20 year payoff and a finance charge of $1507.99. The note contained a "demand clause". Humphreys also executed a mortgage to secure the note.

According to Humphreys, no discussion took place when this note was executed nor were they informed that the note was payable on demand. A variable interest rate was not mentioned and no disclosure statements, other than the note itself, were given to Humphreys. Humphreys believed that they had a 20 year loan at 8 1/2% interest.

On October 11, 1978, Humphreys executed a renewal note which contained the same terms as the original note except that it was a 90 day note rather than a 4 month note. Neither interest charges nor the demand clause were discussed. Construction was completed prior to expiration of the 90 day period and on November 28, 1978, Humphreys returned to the Bank where they executed a third note which was titled a "Realty Installment Note".

The Realty Installment Note provided for repayment by 240 monthly payments of $308.00 each, which were due on the fifth of each month beginning in January, 1979. The note provided for an interest charge of 8 1/2% annually. The note also contained a variable interest rate clause, which provided that "the rate of interest per annum may be 4% more than the bank pays on any time deposit", and a demand clause. The Humphreys were also given a Truth In Lending disclosure statement to sign which reflected the note's terms except the demand clause.

At trial, Humphreys explained that when they arrived at the Bank to sign the third note, Bennett was busy and instead, they dealt with Mr. Bender. All the documents had been completed except for their signatures. They did not read the documents in their entirety, but they did scan them to verify the number and amount of monthly payments and the amount of the loan. Upon seeing the variable interest provision, Humphreys asked Bender about it and were told that the Bank had raised rates once before, but probably would not do so again and that they should not worry about it. Humphreys signed the note and disclosure statement. Thereafter, they began making their monthly payments.

In October, 1979, Humphreys received a letter from the Bank notifying them that the interest rate on their loan would be increased to 9 1/2% annually effective December 1, 1980. Jerry Humphrey called the Bank and talked with President Hendrickson. He reminded Hendrickson of the Bank's promises of a better deal. Hendrickson responded that the increase was in keeping with the Bank's policy for years and that the Bank would continue to pursue it. The conversation became heated and Hendrickson called Humphrey's attention to the demand provision in the loan, threatening to foreclose the mortgage if Humphrey made trouble. The next week, Humphreys received a copy of their Realty Installment Loan with the demand provision underlined.

Humphreys made their monthly payments and the controversy languished until February, 1980. Humphreys retained counsel, who wrote the Bank alleging that it had violated Truth In Lending disclosure regulations and state law. The letter sought to fix the interest rate at 8 1/2%. In response, the Bank demanded full payment of the loan. Humphreys' counsel requested negotiations and the Bank again demanded full payment. The Bank instructed its tellers to refuse any tendered payments except full payment. Humphreys then tendered their March 5, 1980, payment; the Bank kept their check and again wrote them saying that anything less than full payment would be unacceptable. Humphreys' counsel responded that his clients would not be threatened into making full payment. Humphreys tendered the April 5, 1980, payment and the Bank again retained the check without crediting their account. On April 11, 1980, the Bank filed its foreclosure action.

For its first issue, the Bank argues Humphreys were incorrectly granted a change of venue because their motion for a change was untimely. Ind.Rules of Procedure, Trial Rule 76(2) provides that an application for a change of venue shall not be filed later than 10 days after the issues are first closed on the merits. Because of their attempt to remove the litigation to federal court, Humphreys' motion was filed more than 10 days after their answer.

The relevant facts show that the Bank's foreclosure complaint was filed April 11, 1980. Humphreys filed their answer and a counterclaim on May 1, 1980. They also filed a petition to remove the case to federal court predicated on Truth In Lending violations asserted in their counterclaim. On May 28, 1980, the federal court remanded the case to state court because it had erroneously granted removal. On May 30, 1980, Humphreys moved for a change of venue from the county. The Bank filed objections, which were denied.

Thus, the issue is whether the 10 day time limit in T.R. 76(2) is tolled during removal of an action to federal court when the action is subsequently remanded to state court. We find that the time is tolled and therefore, also find that Humphreys' motion was timely because it was filed within 10 days after remand.

With certain exceptions not applicable to this appeal, the general rule is that removal of a case to federal court divests the state court of jurisdiction. 38 A.L.R.Fed. 824. This principle has been recognized in Indiana, Fossey v. State, (1970) 254 Ind. 173, 258 N.E.2d 616. Additionally, during the pendency of the removal petition, any proceedings by the state trial court are void until remand by the federal court. Fossey, supra. We believe that a better reasoned statement about the impact of removal, as it relates to a state court's jurisdiction during the period of removal, is expressed in the case of Doerr v. Warner, (1956) 247 Minn. 98, 76 N.W.2d 505, cert. dismd. 352 U.S. 801, 77 S.Ct. 20, 1 L .Ed.2d 37.

An order remanding an action to the Federal court does not absolutely divest the state court of its jurisdiction but merely suspends or holds that jurisdiction in abeyance either until the action is terminated in the Federal court or until the latter court remands the action to the state court; and in the event of a remand, the state court's continuous, though dormant, jurisdiction is revived and such court then proceeds to a final determination of the action in the exercise of its continuing original jurisdiction which was acquired when the action was originally commenced. It is well settled that jurisdiction once acquired by a state court is continuous though the case has been removed to the United States District Court and later remanded to the state court. The basic correctness of this rule becomes at once apparent if it is borne in mind that the order removing an action to a Federal court does not terminate the state court's jurisdiction but merely stays or interrupts proceedings in that court pending a disposal of the action by the Federal court. The effect of an order remanding is not to invest the state court with a new jurisdiction but merely to revive a jurisdiction previously acquired but held in abeyance. These principles are so thoroughly settled that a lengthy discussion of them is unnecessary. (original emphasis, footnote deleted).

76 N.W.2d at 512.

We think this is the logical approach. Otherwise when a removal petition is filed, the moving party is subjected to a game of chance with the outcome dependent on the federal court's decision on the removal petition. In contrast, tolling the time period eliminates uncertainty, preserves the status quo, and is easily applied. Therefore, the change of venue was not erroneous.

Next, the Bank argues the trial court erred by denying its motion for judgment on the pleadings. The Bank's motion was predicated on the assertion that Humphreys' counterclaim alleged a federal Truth In Lending...