Sees v. Bank One, Indiana, N.A.

• Decision Date: 20 December 2005
• Docket Number: No. 35S02-0406-CV-277.,35S02-0406-CV-277.
• Citation: 839 N.E.2d 154
• Parties: John Thomas SEES, Appellant (Petitioner below), v. BANK ONE, INDIANA, N.A., Appellee (Respondent below).
• Court: Indiana Supreme Court

Page 154

839 N.E.2d 154

John Thomas SEES, Appellant (Petitioner below), v. BANK ONE, INDIANA, N.A., Appellee (Respondent below).

No. 35S02-0406-CV-277.

Supreme Court of Indiana.

December 20, 2005.

John Thomas Sees, Attorney at Law, Huntington, pro se.

Martin E. Seifert, Lori W. Jansen, Haller & Colvin, P.C., Fort Wayne, for Appellee.

RUCKER, Justice.

The question presented is whether a statute that prohibits a debtor from "bring[ing] an action upon a credit agreement" unless it is in writing applies also to a debtor's assertion of an affirmative defense. We conclude it does not.

Facts and Procedural History

In August 1995, Bank One loaned Sees Equipment $500,000. John Thomas Sees ("Sees") and his brother Robert Sees, as officers of Sees Equipment, executed a note in favor of Bank One in that amount. Sees also executed an "Unlimited Continuing Guaranty" that assured full payment of all debts Sees Equipment owed. Sees Equipment was later sold, and the buyers assumed the Bank One debt. The buyers then defaulted. Bank One filed a complaint against all parties involved, including Sees as guarantor.

Thereafter, designating the guaranty agreement, Bank One filed a motion for summary judgment claiming no genuine issues of material fact existed as to Sees' liability as guarantor. In opposition, Sees argued that he was fraudulently induced to sign the agreement. According to Sees, he signed the document only after receiving an oral assurance from a loan officer that the purpose of the guaranty was to provide leverage to guarantee Sees' cooperation in the event of corporate default. Sees also filed a cross motion for summary judgment contending that the assurance amounted to an oral modification of the guaranty agreement. The trial court denied Sees' motion and entered summary judgment in Bank One's favor. On review the Court of Appeals affirmed, holding that the "signed writing" requirement of Indiana Code section 26-2-9-4 barred Sees from asserting an oral modification of a credit agreement or fraud in the inducement as an affirmative defense. See Sees v. Bank One, Indiana, N.A., 804 N.E.2d 227, 229-30 (Ind.Ct.App.2004). Having previously granted transfer we now affirm in part and reverse in part the judgment of the trial court.¹

Discussion

I.

Indiana Code section 26-2-9-4 provides:

A debtor may bring an action upon a credit agreement only if the agreement:

(1) is in writing;

(2) sets forth all material terms and conditions of the credit agreement, including the loan amount, rate of interest, duration, and security; and

(3) is signed by the creditor and the debtor.

(Emphasis added). Sees does not dispute that he is a "debtor" and that the guaranty agreement is a "credit agreement" within the meaning of the statute. Sees contends, however, that he is not attempting to "bring an action" on the guaranty agreement but is instead seeking to interpose an affirmative defense to Bank One's claim. Pointing to the "in writing" provision, Bank One contends the statute prohibits Sees from asserting a defense or a claim based on the alleged oral representation of one of its agents. In support of its position Bank One cites Ohio Valley Plastics, Inc. v. National City Bank, 687 N.E.2d 260 (Ind.Ct.App.1997), trans. denied, and Wabash Grain, Inc., v. Bank One, Crawfordsville, N.A., 713 N.E.2d 323 (Ind.Ct.App.1999).

In Ohio Valley, a loan applicant applied to the Bank for a $300,000 line of credit to finance the purchase of a business. The Bank's loan officer consistently assured the applicant that the loan had been approved. In reliance on that representation the applicant wrote a check on the line of credit for approximately $90,000. Written with full knowledge of the loan officer and in his presence, the check bounced. In fact the line of credit had never been approved, and further, the officer had never submitted the loan application to the Bank's loan committee. Ohio Valley, 687 N.E.2d at 262. Citing lost business opportunities and damage to business reputation along with other damages, the loan applicant sued the Bank alleging fraud and promissory estoppel. The trial court granted summary judgment in the Bank's favor on the basis of the then existing statute, which, similar to the present statute, referred to "an action upon an agreement." The loan applicant appealed arguing that the statute did not apply because his lawsuit was based on theories of fraud and promissory estoppel and thus was not an "action upon an agreement." Id. at 263. Rejecting this argument and referring to the statute as a Statute of Frauds, the Court of Appeals observed:

The substance of an action, rather than its form, controls whether a particular statute has application in a particular lawsuit.... Regardless of whether the present cause of action is labeled as a breach of contract, misrepresentation, fraud, deceit, [or] promissory estoppel, its substance is that of an action upon an agreement by a bank to loan money. Therefore, the Statute of Frauds applies.

...

[A] claim of estoppel or fraud will not operate to remove a case from a Statute of Frauds where the promise relied upon is the very promise that the Statute declares unenforceable if not in writing.

Id. at 263-64 (citations omitted).

In Wabash Grain, the Bank sued a debtor and a guarantor, alleging default on a $260,000 loan. In response, the debtor and the guarantor filed a counterclaim based on theories of promissory estoppel, fraud, and breach of an alleged oral agreement that the bank would lend the debtor the money on a seven-year repayment schedule. Wabash Grain, 713 N.E.2d at 324. Affirming the grant of summary judgment in favor of the Bank, our Court of Appeals cited the above quote from Ohio Valley and continued, "Consequently [the statute] applies to defensive claims of promissory estoppel or waiver." Id. at 326.

Neither of the foregoing cases resolves the precise issue before us: whether the statute prohibits a debtor's assertion of affirmative defenses. Both cases involved debtor-initiated claims against a creditor. And although the court in Wabash Grain declared that the statute applies to "defensive claims," the defenses in that case were raised in the context of a debtor's counterclaim. Such a claim provides the vehicle through which a cause of action is prosecuted. See Braden v. Braden, 575 N.E.2d 293, 295 (Ind.Ct.App.1991) (noting that a counterclaim must state facts sufficient to constitute a cause of action in favor of the defendant). The statute clearly prohibits a debtor's attempt to "bring an action" against a creditor "upon a credit agreement." We must resolve whether the statute also prohibits a debtor from asserting an affirmative defense as a freestanding claim to an action brought by a creditor.

The first step in interpreting a statute is to determine whether the legislature has spoken clearly and unambiguously on the point in question. Rheem Mfg. Co. v. Phelps Heating & Air Conditioning, Inc., 746 N.E.2d 941, 947 (Ind.2001). When a statute is clear and unambiguous, we need not apply any rules of construction other than to require that words and phrases be taken in their plain, ordinary, and usual sense. Poehlman v. Feferman, 717 N.E.2d 578, 581 (Ind.1999). Clear and unambiguous statutes leave no room for judicial construction. Id. However, when a statute is susceptible to more than one interpretation, it is deemed ambiguous and thus open to judicial construction. Amoco Production Co. v. Laird, 622 N.E.2d 912, 915 (Ind.1993). And when faced with an ambiguous statute other well-established rules of statutory construction are applicable. One such rule is that our primary goal of statutory construction is to determine, give effect to, and implement the intent of the legislature. Neal v. DeKalb Co. Div. of Family & Children, 796 N.E.2d 280, 284 (Ind.2003).

Although not specifically referring to tenets of statutory construction, the Court of Appeals concluded that at least one purpose of the "in writing" requirement of Indiana Code section 26-2-9-4 is to avoid a contest over the credibility of the evidence in an oral promise or agreement. According to the Court of Appeals, "[t]hat of course, is precisely what the statute seeks to avoid." Sees, 804 N.E.2d at 230 (citing Wabash Grain, 713 N.E.2d at 326). In essence the Court construed the statute not only as requiring a written agreement, but also as applicable to defensive claims as well. Sees, 804 N.E.2d at 230. We have a different view of this statute than that of our colleagues.

Beginning in the mid-1980's, in response to the increasing litigation brought by borrowers against creditors, much of which alleged oral promises on the part of creditors, a number of jurisdictions began enacting legislation to bring credit agreements within the Statute of Frauds. See John L. Culhane, Jr., Lender Liability Limitation Amendments to State Statutes of Frauds, 45 Bus. Law. 1779, 1779 (1990) (noting that "One of the principal legal developments of the last past decade has been the dramatic increase in the number of lawsuits brought against banks and other lending institutions by their borrowers and the concomitant emergence of an area of law devoted to lender liability."). The purpose of these statutes was to protect lenders from debtors' fraudulent claims. Todd C. Pearson, Limiting Lender Liability: The Trend Toward Written Credit Agreement Statutes, 76 Minn. L.Rev. 295, 298-300 (1991). As the Louisiana Supreme Court observed:

These statutes were enacted primarily to limit the most frequent lender liability claims—those which involve assertions of breach of oral agreements to lend, to refinance or to forebear from enforcing contractual remedies—by requiring a writing as a prerequisite for a debtor to sue a lender and thus precluding debtors from bringing claims based on oral agreements. The goal was to prevent bank customers from bringing baseless lender liability claims against banks alleging breaches of...