Plough v. Farmers State Bank of Henry County

• Decision Date: 22 June 1982
• Docket Number: No. 1-181A21,1-181A21
• Parties: Norman PLOUGH, Defendant-Appellant, v. FARMERS STATE BANK OF HENRY COUNTY, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 471

437 N.E.2d 471

Norman PLOUGH, Defendant-Appellant, v. FARMERS STATE BANK OF HENRY COUNTY, Plaintiff-Appellee.

No. 1-181A21.

Court of Appeals of Indiana First District.

June 22, 1982.

James R. White, P. C., New Castle, for defendant-appellant.

Mark C. Stamper, Wisehart & Stamper, Middletown, for plaintiff-appellee.

NEAL, Judge.

Defendant-appellant Norman Plough appeals the Henry Superior Court's denial of his motion to set aside a default judgment under Ind.Rules of Procedure, Trial Rule 60(B).

We affirm.

STATEMENT OF THE FACTS

Norman Plough (Plough) was the president and principal owner of a car dealership known as Plough Chrysler Products, Inc. Plough sold new cars which were financed by the First National Bank of New Castle (First National) and used cars which were financed by the plaintiff-appellee, Farmers State Bank of Henry County (Farmers).

Farmers financed Plough Chrysler Products' used cars on an individual basis, taking a separate promissory note for the book value of each car. The notes were personally guaranteed by Plough and his wife, Bonita. Farmers took a security interest in these cars under a separate security agreement. Farmers filed a financing statement for the used cars in June 1976. However, First National had filed a financing statement covering new and used cars in April 1976. At issue in this case are nineteen of the promissory notes for the used cars, dating from May 18, 1977 through July 22, 1977, and totalling $39,155.38. In addition to the used car notes, Farmers held a $36,000 mortgage dated March 14, 1977, and covering the business property of Plough Chrysler Products. Farmers also loaned Plough $36,000 represented by five promissory notes dating from May 6, 1977 to May 23, 1977.

In August 1977 Plough closed the business. Plough cooperated with the repossession of the used cars, and a sale was held in September 1977 which yielded $33,325. Farmers and First National agreed to divide this sum equally, reducing Plough's debt to Farmers for the used cars to $21,742.25. Farmers agreed in writing to release the five promissory notes and the mortgage; in exchange Plough executed a quit claim deed to the business property on November 9, 1977.

Nearly one year later on August 11, 1978, Farmers filed its complaint for a deficiency judgment in the Henry Superior Court. The complaint alleged that Plough and his wife, Bonita, owed a total of $23,584.90 in principal and interest on the nineteen used car notes. When service was attempted on August 23, 1978, the Ploughs had left to set up permanent residence in Florida, and their house was vacant. Service was obtained by publication in a Henry County newspaper. The parties do not dispute that service was properly obtained and that the Ploughs had no actual notice of the suit. On November 9, 1978, the trial court entered a default judgment against the Ploughs for $29,481.12 including accrued interest and attorney fees. Farmers then filed suit on this judgment in Florida in April 1979. On August 15, 1979, the Ploughs filed their T.R. 60(B) motion to set aside the default judgment with accompanying affidavits attesting their lack of notice of the Indiana action.

The Ploughs raised four defenses to Farmers' complaint: (1) The guaranty agreement signed by Bonita, which was the sole basis of her liability on the notes, was not attached to the original complaint, and therefore the complaint was insufficient as to Bonita; (2) the promissory notes at issue, which had been used to finance used cars, were covered by a release agreement; (3) the used cars covered by the security agreement with Farmers were not sold in a commercially reasonable manner; and (4) Farmers misapplied the proceeds of the sale of the used cars by giving fifty percent to First National and applying only the remainder to Plough's debt.

The trial court conducted two hearings on the Ploughs' motion to set aside. In the first hearing the Ploughs' attorney was prepared to present his clients' affidavits on the issue of notice, argue the legal issues of the case, and discuss the defenses his clients had raised. The attorney for Farmers came prepared for a full evidentiary hearing on the merits of the motion and the merits of the Ploughs' proposed defenses. The Ploughs' attorney objected that T.R. 60 did not contemplate a full hearing on the merits of a defendant's defenses. After considerable argument and discussion of the issue, the trial court granted a continuance so that it could hear evidence on both sides relating to Plough's defenses.

At the second hearing the Ploughs appeared to testify and were represented by a different attorney. Farmers called several witnesses to rebut the Ploughs' testimony regarding their defenses. The Ploughs' motion was granted as to Bonita Plough, but denied as to Norman Plough who brings this appeal.

ISSUES

Plough raises the following issues in his brief:

I. Whether the trial court abused its discretion by holding a full evidentiary hearing on the merits of Plough's defenses; and

II. Whether the decision of the trial court was contrary to law.

DISCUSSION AND DECISION

Issue I was not raised in the motion to correct errors and has not been preserved for review. Ind.Rules of Procedure, Appellate Rule 8.3(A)(7). Hockelberg v. Farm Bureau Insurance Company, (1980) Ind.App., 407 N.E.2d 1160; Indiana Motorcycle Association v. Hudson, (1980) Ind.App., 399 N.E.2d 775. We also note that despite their objections the Ploughs' attorneys agreed to and actively participated throughout the second hearing. Much of Farmers' evidence was received without objection, and the Ploughs did not ask that their objection be deemed to continue throughout the hearing. We will confine our discussion to Issue II.

Trial Rule 60(B) provides in pertinent part:

"On motion and upon such terms as are just the court may relieve a party or his legal representative from an entry of default, final order, or final judgment, including a judgment by default, for the following reasons:

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(4) entry of default or judgment by default was entered against such party who was served only by publication and who was without actual knowledge of the action and judgment, order or proceedings[.]" (Emphasis added.)

Paragraph (D) further provides:

"In passing upon a motion allowed by subdivision (B) of this rule the court shall hear any pertinent evidence, allow new parties to be served with summons, allow discovery, grant relief as provided under Rule 59 or otherwise as permitted by subdivision (B) of this rule."

The requirement that movants under T.R. 60(B)(4) present a prima facie meritorious defense is not found in the rule but is firmly established by case law. See Nash v. Cars, (1883) 92 Ind. 216; Hoag v. Jeffers, (1928) 201 Ind. 249, 159 N.E. 753; Cantwell v. Cantwell, (1957) 237 Ind. 168, 143 N.E.2d 275 cert. denied 356 U.S. 225, 78 S.Ct. 700, 2 L.Ed.2d 712, appeal dismissed 356 U.S. 954, 78 S.Ct. 913, 2 L.Ed.2d 847; Sanders v. Kerwin, (1980) Ind.App., 413 N.E.2d 668; Fitzgerald v. Brown, (1976) 168 Ind.App. 586, 344 N.E.2d 309; Kreczmer v. Allied Construction Company, (1972) 152 Ind.App. 665, 284 N.E.2d 869; Strickland v. O'Rear, (1961) 134 Ind.App. 247, 176 N.E.2d 902. In Cantwell, supra, 237 Ind. at 176-178, 143 N.E.2d 275 the court said:

" 'In general, the party seeking the aid of equity to enjoin a judgment at law against him must not only show some ground for interference, within the doctrine of the text, but must also show that he has a good and sufficient defense to the cause of action, so that on a re-examination and retrial the result would be different.' [Pomeroy's Equity Jurisprudence (5th Ed.) Sec. 1364, p. 985.]

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The rule requiring a meritorious defense to be shown before a judgment will be set aside, in a proceeding such as the one before us, is a reasonable condition interposed by courts of equity. This is not unreasonable to a defendant, for under the authorities the only showing such defendant need make to invoke the aid of equity in this respect is to indicate he has a prima facie meritorius [sic] defense to the judgment he seeks to set aside. This condition preliminary to equity's taking juridiction is premised upon the ground that equity will not interfere with a judgment recovered at law, unless such judgment is unjust or unconscionable. There is a maxim that courts of equity will not do or require the doing of a vain or useless thing, yet there is nothing more useless or vain than the setting aside of a judgment although no defense to it exists.... Equity is also desirous of preventing circuity of action, and this purpose is served by equity's refusal to upset a judgment when the defendant petitioner had set forth nothing to indicate that if the cause were tried again on the merits a different result would be reached." (Citations and footnotes omitted. Emphasis added.)

In proceedings under T.R. 60(B), the moving party bears the burden of proof. Sanders, supra; In re the Marriage of Jones (1979) Ind.App., 389 N.E.2d 338; Fitzgerald, supra. It is also true that default judgments are not favored, and any doubt of their propriety is resolved in favor of the defaulted party. Henderson v. American Optical Company, (1981) Ind.App., 418 N.E.2d 549. The decision to grant relief under T.R. 60(B) is left to the equitable discretion of the trial court. Jones, supra; Strickland, supra. This court does not reweigh the evidence. Nash, supra. As our Supreme Court said in Hoag, supra, 201 Ind. at 253, 159 N.E.2d 753:

"It is not the duty nor privilege of this court to weigh the evidence in such cases as the one at bar, any more than it will weigh evidence in other appeal cases....

It is the function of the trial court to decide the question whether or not the default judgment in the particular case must be set aside, which action requires it to determine the sufficiency of the evidence which bears upon the question of the mistake,...