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Indiana

Collection

INDI/INA UNIVF.R.'^ITY

JAN 1 8 1983

-^ V. S ^. _ . LIBRARY

Dedications Gerald L. Bepko
1982 Survey of Recent Developments in Indiana Law

I. Administrative Law Scott A. Smith

II. Business Associations Paul J. Galanti

III. Civil Procedure and Jurisdiction William F. Harvey

IV. Commercial Law Gerald L. Bepko

V. Constitutional Law Carlyn E. Johnson

VI. Criminal Law and Procedure Stephen J. Johnson

VII. Domestic Relations James A. Buck

VIII. Evidence Henry C. Karlson

IX. Insurance John C. Trimble

X. Labor Law Edward P. Archer

XI. Products Liability Jordan H. Leibman

XII. Professional Responsibility Donald L. Jackson

XIII. Property Walter W. Krieger

XIV. Secured Transactions and Creditors' Rights R. Bruce Townsend

XV. Social Security and Public Welfare R. George Wright

XVI. Taxation John W. Boyd

XVII. Torts Susanah M. Mead

XVIII. Trusts and Decedents' Estates Debra A. Falender

XIX. Workers' Compensation Terrence Coriden

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INDIANA LAW REVIEW

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Indiana La^v Reviei^

Volume 16 1983 Number 1

<— ' - ' ' "-^ M, ■■'■'■ ■' ■'■'" ■ - ., .11 I ■■ .1 ...

1982 Survey of Recent Developments in Indiana Law

Table of Cases vi

Dedication: On the Appointment of Dean Gerald L. Bepko

I. Administrative Law Scott A. Smith 1

A. Due Process 1

B. Exhaustion of Administrative Remedies 9

C. Primary Jurisdiction 11

D. The Requirement of Findings 11

E. Scope of Judicial Review 14

F. Delegation of Legislative Power 22

G. Enforcement of Agency Orders 23

II. Business Associations Paul J. Galanti 25

A. Shareholder Derivative Actions 25

B. Creation of Limited Partnerships 29

C. Securities Act— Receiver 32

D. Indiana Takeover Offers Act 34

E. Corporate Service of Process 37

F. Buy-Sell Agreements and Irrevocable Proxies 39

G. Definitions of a Security 41

H. Statutory Developments 46

III. Civil Procedure and Jurisdiction William F. Harvey 57

A. Introduction 57

B. Jurisdiction, Process, and Venue 57

C. Pleadings and Pre-Trial Motions 63

D. Parties and Discovery 67

E. Trial and Judgments 71

F. Appeals 74

G. 1982 Indiana Trial Rule Amendm£nts 78

Volume 16 Winter 1983 Number 1

The INDIANA LAW REVIEW (ISSN 0090-4198) is the property of Indiana University and is published
quarterly by the Indiana University School of Law — Indianapolis, which assumes complete editorial responsibility
therefor. Subscription rates: one year $15.00; foreign $18.50. Back issues sre available from Fred B. Rothman &
Co., 10368 W. Centennial Rd., Littleton, Co. 80127. Please notify us one month in advance of any change of address
and include both old and new addresses with zip codes to ensure delivery of all issues. Send all correspondence to
Editorial Assistant, Indiana Law Review, Indiana University School of Law — Indianapolis, 735 West New York
Street, Indianapolis, Indiana 46202. Publication office: 735 West New York Street, Indianapolis, Indiana 46202. Sec-
ond class postage paid at Indianapolis, Indiana 46201.

POSTMASTER: Send address changes to INDIANA LAW REVIEW, 735 West New York Street.
Indianapolis, Indiana 46202.

IV. Commercial Law Gerald L. Bepko 83

A. Scope of UCC Article 2 83

B. Warranty Booklet Received After Sale 85

C. Remedy Limitations 87

D. Buyer's Remedies 93

E. Amendments to the Indiana Deceptive Consumer Sales Act 95

F. Amendments to Indiana's Uniform Consumer Credit Code 97

V. Constitutional Law Carlyn E. Johnson 101

A. Equal Protection 101

B. First Amendment— Freedom of Speech 108

C. Fifth Amendment— Self-incrimination Ill

D. Due Process 112

E. Guarantee of Remedy for Injury 117

VL Criminal Law and Procedure Stephen J. Johnson 119

A. Arrest 119

B. Initial Hearings 132

C. Omnibus Date 139

D. Indictments and Informations 145

E. Public Trial— Closure 147

F. Crimes 148

G. Search and Seizure ' . 155

H. Plea Bargaining— Guilty Pleas 159

/. Sentencing 164

VIL Domestic Relations James A. Buck 171

A. Termination of Parental Rights 171

B. Child Custody 172

C. Child Support 175

D. Dissolution 181

E. Paternity 188

VIIL Evidence Henry C. Karlson 191

A. Hearsay 191

B. Character Evidence 196

C. Evidence of Business Custom 199

D. Judicial Notice 200

E. Cross-Examination 203

IX. Insurance John C. Trimble 205

A. Arson Cases 205

B. Automobile Cases 212

C. General Liability Cases 218

D. Life Insurance Cases 221

E. Statutory Developments 222

X. Labor Law Edward P. Archer 225

A. Employment Contracts— Employment at Will 225

B. Bargaining for Non-Teacher Public Employees 228

C Arbitration Appeals 230

XL Products Liability Jordon H. Leibman 241

A. Introduction 241

B. Substantial Change 241

C. Product Misuse and Substantial Change as Intervening Causation . . . 245

D. The Seller as Guarantor of Product Quality 253

E. Open and Obvious Dangers ". 254

XII. Professional Responsibility Donald L. Jackson 265

A. Professional Responsibility 265

B. Professional Liability 275

XIII. Property Walter W. Kreiger 283

A. Adverse Possession 285

B. Bailment ^ 288

C. Easements and Restrictive Covenants 290

D. Landlord and Tenant 295

E. Mirles and Minerals 298

F. Real Estate Transactions 306

G. Slander of Title 312

XIV. Secured Transactions and Creditors' Rights R. Bruce Townsend 315

A. Secured Transactions 316

B. Creditors' Rights 325

C. Miscellaneous , 336

XV. Social Security and Public Welfare R. George Wright 339

A. Indiana Medicaid Law 339

B. Uncompensated Hill-Burton Costs as Reimbursable Medicare Costs . . 344

C. Tightening of Welfare Benefit Standards 345

D. Local Welfare Assistance 347

E. Social Security Disability Claims 348

F. Statutory Developments 352

XVI. Taxation John W. Boyd 355

A. Introduction 355

B. Sales and Use Tax Decisions 356

C. Gross Income Tax Decisions 359

D. Judicial Review of State Tax Board Assessments 367

E. Legislative Developments 370

XVII. Torts Susanah M. Mead 'ill

A. Negligence 377

B. Proximate Cause 389

C. Damages 394

D. Loss of Consortium 398

E. Seat Belt Defense 400

F. Medical Malpractice 401

G. Tortious Interference With Contract 406

H. Malicious Prosecution 407

/. Indiana Tort Claims Act 411

XVIII. Trusts and Decedents' Estates Debra A. Falender 415

A. Decedents' Estates 415

B. Trusts 422

C. Powers of Appointment 425

D. Guardianships 431

XIX. Workers' Compensation Terrence Coriden 433

A. Jurisdiction 433

B. Statute of Limitations 434

C Scope of Employer's Liability 436

D. Injuries Caused by Employment-Related Accidents 439

E. Employee's Civil Actions Against Co-Employees,

Third Parties, and Employer's Insurers 441

F. Employer's Bad Faith 443

G. Discovery Matters 443

H. Evidentiary Matters 444

TABLE OF CASES

Adams v. City of Fort Wayne, 67
Alcoa V. Review Board of the Indiana

Employment Security Division, 7
Allen V. Amben Manor Apartments

Partnership, 29
American Economy Insurance Co. v.

Liggett, 209
American Family Mutual Insurance

Co. V. Ramsey, 212
American Fletcher National Bank &

Trust Co. V. Pavilion, Inc., 336
American Underwriters, Inc. v. Curtis, 329
Anderson Federation of Teachers,

Local 519 V. Alexander, 238
Arnold v. Sendak, 101
Associates Financial Services v. Knapp, 65

Baker v. American States Insurance

Co., 442
Baker v. Compton, 20
Barrick Realty Co. v. Bogan, 306
Bayes v. Isenberg, 325
Beer Distributor of Indiana, Inc. v.

State ex rel. Alcoholic Beverage

Commission, 21
Bemis Co. v. Rubush, 254
Beneficial Finance Co. v. Wegmiller

Bender Lumber Co., 325
Blaircom v. Hires, 284 n.3
Blue V. Beach, 23
Blue Valley Turf Farms v. Realestate

Marketing & Development, Inc., 307
Board of Commissioners v. Hatton, 386
Bond V. Stanton, 343
Bossard v. McCue, 71
Bowling V. Fountain County Highway

Department, 440
Breedlove v. Breedlove, 70
Breeze v. Breeze, 76, 424
Bridges v. Kentucky Stone Co., 389
Brokus V. Brokus, 172, 181
Brown v. Smith, 341
Brown v. State, 203
Bunker v. National Gypsum Co., 434
Byrer v. State, 197

California v. Byers, 127
Campbell v. Eli Lilly & Co., 225
Canfield v. Rapp & Son, Inc., 41
Carmichael v. Silbert, 402
Carr v. Hoosier Photo Suppliers,

, Inc., 90, 288
Carrel v. EUingwood, 415
Carter v. State, 191
Cassiday v. Schweiker, 348
Cato V. David Excavating Co., 326
Chambers v. State, 158
City of Anderson v. Associated Furniture

& Appliances, Inc., 21
City of Gary v. Stream Pollution

Control Board, 23
City of Milwaukee v. Illinois, 57
Clarkson v. Department of Insurance, 14
Claus V. Smith, 339
Coachmen Industries, Inc. v. Yoder, 434,

443, 444
Coak V. Rebber, 328
Coleman v. Alabama, 137
Colonial Discount Corp. v. Bowman, 323
Conder v. HuU Lift Truck, Inc., 245
Cook V. Equitable Life Assurance Society

of the United States, 221
Cowell V. Duckworth, 271
Craven v. Niagra Machine & Tool

Works, Inc., 241
Cross V. State ex rel. Linton, 8
Crumpacker v. Crumpacker, 76
Cummins v. Schweiker, 350
Curry v. Orwig, 312, 317

Dawson v. St. Vincent's Health &

Hospital Care Center, 74
Decatur County Ag-Services, Inc.

V. Young, 394
Deckard v. State, 158
Department of Financial Institutions

V. Beneficial Finance Co., 337
DeVaney v. State, 152
Dolan V. State, 159
Dowdell V. State, 191

1983]

TABLE OF CASES

Vll

Dowell V. Fleetwood, 286
Downer v. State, 197
Downing v. Dial, 320
Drake Inifeurance Co. v. Carroll
County Sheriff's Department, 219

Economy Fire & Casualty Co.

V. Beeman, 218
Edgar v. Mite Corp., 36
Edward Rose of Indiana v. Fountain, 296
Ellis V. George Ryan Co., 290 n.27, 316
Ellsworth V. Homemakers Finance

Services, Inc., 323
Enderle v. Sharman, 292
Estate of Mathes v. Ireland, 377
Evans v. Buchanan, 107
Evans v. Stanton, 342

F & F Construction Co. v. Royal
Globe Insurance Co., 199, 214

First National Bank & Trust Co.
V. Coling, 333, 420

Fletcher Savings & Trust Co. v. American
State Bank of Lawrenceburg, 202

Fort V. White, 416

Fort Wayne National Bank v. Scher, 420

Foster v. Center Township, 345

Frederiksen v. Poloway, 41

Freson v. Combs, 200, 285 n.4

Garrity v. Lyle Stuart, Inc., 235

Geiger & Peters, Inc. v. American Fletcher

National Bank & Trust Co., 62, 326
General Bargain Center v. American

Alarm Co., 87
General Finance Corp. v. Skinner, 37, 61
Gerstein v. Pugh, 138
Gibbs v. State, 273

Gilbert v. Stone City Construction Co., 262
Globe Valve Corp. v. Thomas, 433
Goffredo v. Indiana State Department of

Public Welfare, 14
Goldberg v. Kelly, 7
Golden v. Garafalo, 43
Gordon v. Review Board of the Indiana

Employment Security Division. 6
Gower v. Gower, 185
Griese-Traylor Corp. v. Lemmons, 58, 321
Grisell v. Consohdated City of

Indianapolis, 3

Guy V. Schuldt, 416

H.W.K. V. M.A.G., 189
Hahn v. Ford Motor Co., 85
Hales & Hunter Co. v. Norfolk

& Western Railway, 69
Hartwig v. Brademas, 290
Hasty V. Hasty, 290
Hiatt V. Brown, 392
Hicks V. Fielman, 333. 420
Hill V. State, 154
Hines v. Behrens, 324
Hodel V. Indiana, 299 n.75
Holland v. Taylor, 221
Hoosier Insurance Co. v. Mangino, 206
Hoosier Plastics v. Westfield Savings

& Loan Association, 322
Howard v. City of Kokomo, 2
Huff V. White Motor Corp., 250
Hundt V. LaCrosse Grain Co., 64
Husted V. McCloud, 279

In re CTS Corp., 34

In re Contempt Findings Against

Schultz, 111
In re Deardorff, 268
In re Estate of Williams, 418
In re Frey, 334
In re G.L.A., 190
In re Harte, 335
In re Holtkamp, 335
In re Johnson, 335
In re Lintz West Side Lumber,

Inc., 318, 335
In re Little Walnut Creek Conservancy

District, 77
In re Maitlen, 334
In re Marriage of Bradley, 186
In re Marriage of Church 185
In re Marriage of Ginsberg, 174
In re Marriage of Hudak, 329
In re Marriage of Hudson, 60
In re Marriage of Bobbins, 74
In re Marriage of Taylor, 181
In re McKenna, 266
In re Miller, 335
In re Price, 268
In re Rex Printing, Inc., 335
In re Seely, 268
In re Thomas, 270
In re Walton, 267

Vlll

INDIANA LAW REVIEW

[Vol. 16:vi

In re Walz, 422

Indiana Department of Revenue v.

American Underwriters, Inc., 362
Indiana Department of Revenue v.

Glendale-Glenbrook Associates, 365
Indiana Department of Revenue v.

United States Steel Corp., 357
Indiana Department of State Revenue

V. Brown Boveri Corp., 359
Indiana Department of State Revenue

V. Estate of Hungate, 429
Indiana Department of State Revenue

V. Estate of Martindale, 429
Indiana Department of State Revenue

V. General Foods Corp., 21, 360
Indiana Hospital Licensing Council v.

Women's Pavilion of South Bend, Inc., 101
Indiana & Michigan Electric Co.

V. Pounds, 64
International Brotherhood of Electrical

Workers, Local 1400 v. Citizens Gas &

Coke Utility, 230
Isler V. Isler, 178

Jacks V. Duckworth, 113

Jackson v. State, 165

Johnson v. Moritz, 19

Johnson v. State, 112

Johnson County Memorial Hospital

V. Schweiker, 344
Josam Manufacturing Co. v. Ross,

9, 68, 443

Kissinger v. Shoemaker, 173
Kranda v. Houser-Norberg Medical

Corp., 403
Kreig v. Glassburn, 67
Kryder v. State, 23
Kuhn V. Kuhn, 180

L.W. Edison, Inc. v. Teagarden, 17

Lance v. State, 274

Lantis v. Astec Industries, 262

Lash V. State, 167

Lawson v. Kolender, 126

Lehman v. Yellow Freight

System, Inc., 104
Lewandowski v. Beverly, 308

Lincoln National Bank v. Trust Co.

V. Figel, 427
Lippeatt v. Comet Coal & Clay Co., 299
Lona V. Sosa, 438
Lovely v. Cooper Industrial Products,

440

Manns v. State, 273

Markley v. State, 148

Martin v. Shea, 383

Mathews v. Eldridge, 171

Mayberry v. Pennsylvania, 113

McBride v. Soos, 116

McCarty v. Sheets, 287

McDaniel v. Sage, 441

McGammon v. Youngstown Sheet and

Tube Co., 441
Meehan v. Meehan, 175
Mennonite Board of Missions, Inc.

V. Adams, 324
Metropolitan Development Commission

of Marion County v. Waffle House,

Inc., 10
Metropolitan Medical Center v. Harris,

345
Michiana Mack, Inc. v. Allendale Rural

Fire Protection District, 93
Michigan City Area Schools v.

Siddall, 228
Mills V. Electric Auto-Lite Co., 27
Mills V. Habluetzel, 188
Moore v. State, 273
Munger v. State, 160

Nash V. State, 163

National Mutual Insurance Co. v.

Fincher, 216
Natural Resources Commission of the

Department of Natural Resources

V. Sullivan, 5
Neese v. Richen, 25

Neswick v. Board of Commissioners, 21
Noblesville Casting, Division of TRW,

Inc. V. Prince, 444
Noel V. General Finance Corp., 337

Oakhill Cemetary of Hammond, Inc.

V. Tri-State Bank, 44
O'Brien v. State, 115

1983]

TABLE OF CASES

Och V. State, 319

Ohio Table Pad Co. v. Hogan, 227

Olinger Construction Co. v. Mosbey, 436

Otte V. Te^sman, 66

Oxendine v. Public Service Co., 283 n.2

Park 100 Development Co. v. Indiana

Department of State Revenue, 366
Parrish v. Terre Haute Savings Bank,

336
Pasley v. American Underwriters, Inc.,

332
Patterson v. State, 191
Pearson v. First National Bank, 322
Perez v. United States Steel Corp., 11-13
Perry v. NIPSCO, 387
Perry Local Educators' Association

V. Hohlt, 108
Perry Township v. Hedrick, 347
Peters v. Poor Sisters of Saint Francis

Seraph, 229

Razo v. State, 203

Reynolds Metals Co. v. Indiana

Department of State Revenue, 361
Richardson v. Citizens Gas & Coke

Utility, 301
Ricketts v. State, 163
Rife V. State, 165

Riverside Insurance Co. v. Pedigo, 208
Rosander v. Copco Steel &

Engineering Co., 398
Rowland v. Amoco Oil Co., 318
Rust V. Guinn, 396

Saint Mary of Nazareth Hospital Center

V. Department of HHS, 345
Santosky v. Kramer, 171
Satterthwaite v. Estate of

Satterthwaite, 420
School City of East Chicago v. East

Chicago Federation of Teachers,

Local 511, 233
Schuler v. Langdon, 327
Sekerez v. Gehring, 75
Seymour National Bank v. State,

117, 411
Shelby Federal Savings & Loan

Association v. Doss, 322

Sheridan v. Town of Merrillville, 1

Shettle V. Sheaver, 20

Shettle V. Smith, 16

Shoaf V. City of Lafayette, 2

Shull V. State, 271

Shumaker v. State, 166

Smith V. Bruning Enterprises, 326

Southwest Parke Education Association

V. Southwest Parke Community School

Trustee's Corp., 236
Sowers v. Sowers, 75
Sparkman v. State, 165
Sports, Inc. v. Gilbert, 379
Stanley v. Kelley, 226, 406
Stanton v. Smith, 22, 346
State Board of Tax Commissioners v.

South Shore Marina, 18, 367
State Department of Administration v.

Sightes, 234
State ex rel. Higbie v. Porter Circuit

Court, 32, 332
State ex rel. Indiana-Kentucky Electric

Corp. V. Knox Circuit Court, 72
State ex rel. Warzyniak v. Grenchik, 2
State V. Cowdell, 340
State V. Dively, 153
State V. Frye, 68
State V. Gillespie, 154
State V. Ingram, 400
State V. Kuespert, 69
State V. Lewis, 71
State V. Marion County Superior

Court, 63
State V. Meadowood Indiana University

Retirement Community, Inc., 366
State V. Totty, 63
Statzell V. Gordon, 180, 330
Suyemasa v. Myers, 59
Swafford v. State, 149
Swinney v. Swinney, 183

Talas V. Correct Piping Company,

Inc., 13
Templeton v. Sam Klain & Son, Inc., 327
Texaco, Inc. v. Short, 298 n.75
Tippecanoe Education Association v.

Board of School Trustees, 237, 274
Torres v. Meyer Paving Co., 326
Tousely-Bixler Construction Co.

V. Colgate Enterprises, Inc., 83
Town of St. John v. Home Builders

Association of Northern Indiana,

Inc., 9

INDIANA LAW REVIEW

[Vol. 16:vi

Underhill v. State, 193

linger v. Indiana & Michigan Electric
Co., 283 n.2

United Farm Bureau Mutual Insurance
Co. V. Adams, 199

United States v. Board of School Com-
missioners of Indianapolis, 106

United States Steel Workers of America
V. Weber, 105

United Steelworkers of America v.
American Manufacturing Co., 231

Universal Camera Corp. v. NLRB, 17

Walker v. State, 161

Wallace v. State, 195

Wayne Adams Buick, Inc. v. Ference,

439
White V. Davis, 73, 331
White V. United States, 425
White Truck Sales v. Shelby National

Bank, 319
Wilfong V. Indiana Gas Co., 17
Williams v. Florida, 115
Williams v. State, 151, 155
Williams v. Williams, 40, 333, 419
Wilson V. Upchurch, 307
Wong V. Tabor, 275, 407
Workman v. Douglas, 310, 317

Zack V. Smith, 336

Indiana Lai^v Revieiiv

Volume 16 1982

Anne Slaughter
Editor-in-Chief

Leslie Elizabeth Van Natta
Executive Editor

Bette J. DODD Bonnie Gallivan

Craig A. Etter Nina Kathleen Stinson

Articles Editors

Howard L. Schrott Helen Witty O'Connell

Managing Editors

Jackie M. Bennett, Jr. Julie Lynn Kilgore

James W. Hehner Richard C. Richmond

Elizabeth Ann Toben Cynthia S. Williams

Note and Development Editors

Cynthia Matson Adams Harold R. Johnston

Robert Edward Allen Keith A. Kinney

Meg W. Babcock Christopher D. Long

Glenn D. Bowman Jane E. Magnus

Jane Williams Bradshaw Joseph McGuire

James Richard Campbell Timothy W. Moser

Bert J. Dahm Novella L. Nedeff

James Detamore Anthony Nimmo

Franklin N. DeWester James A. Reed

Mark E. DeYoung Mary K. Reeder

Sheila Anne Elliott Michael C. Rubino

Ronald Fuller Beth Young
Mark R. Galliher

Associate Editors

Paul J. Galanti
W. William Hodes

Faculty Advisor

Indiana University School of Law — Indianapolis
1982-1983 ADMINISTRATIVE OFFICERS AND FACULTY

Administrative Officers

John W. Ryan, Ph.D., President of the University

Glenn W. Irwin, Jr., M.D., Vice-President

Gerald L. Bepko, LL.M., Dean

G. Kent Frandsen, J.D., Associate Dean for Student Affairs

Jeffrey W. Grove, J.D., Acting Associate Dean for Academic Affairs

Faculty

Thomas B. Allington, Professor. B.S., University of Nebraska, 196U; J.D., 1966; LL.M.,
New York University, 1971.

Edward P. Archer, Professor. B.M.E., Rensselaer Polytechnic Institute, 1958; J.D.,
Georgetown University, 1962; LL.M., 196^.

James F. Bailey, III., Associate Professor and Director of Law Library. A.B., Univer-
sity ofMighigan, 1961; J.D., 196Jt; M.A.L.S., 1970.

Gerald L. Bepko, Dean and Professor. B.S., Northern Illinois University, 1962; J.D.,
IIT I Chicago-Kent College of Law, 1965; LL.M., Yale University 1972.

Clyde Harrison Crockett, Professor. A.B., University of Texas, 1962; J.D., 1965;
LL.M., University of London (The London School of Economics and Political
Science), 1972.

Debra a. Falender, Associate Professor. A.B., Mount Holyoke College, 1979; J.D., In-
diana University, 1975.

W a'NDaD.Foster, Assistant Professor. A. B., University of Michigan, 1973; J. D., Georgetown
University, 1976.

G. Kent Frandsen, Associate Dean for Student Affairs and Associate Professor. B.S.,
Bradley University, 1950; J.D., Indiana University, 1965.

David A. Funk, Professor. A.B., College of Wooster, 1949; J.D., Case Western Reserve
University, 1951; M.A., The Ohio State University 1968; LL.M., Case Western
Reserve University, 1972; LL.M., Columbia University, 1973.

Paul J. Galanti, Professor. A.B., Bowdoin College, 1960; J.D., University of Chicago,
1963.

Helen P. Garfield, Professor (on leave first semester, 1981-82). B.S.J. , Northwestern
University, 1945; J. D., University of Colorado, 1967.

Harold Greenberg, Associate Professor. A.B., Temple University, 1959; J.D., Univer-
sity of Pennsylvania, 1962.

Jeffrey W. Grove, Acting Associate Dean for Academic Affairs and Professor. A.B.,
Juniata College, 1965; J.D., George Washington University, 1969.

William F. Harvey, Carl M. Gray Professor of Law. A.B., University of Missouri, 1954;
J.D., Georgetown University, 1959; LL.M., 1961.

W. William Hodes, Assistant Professor. A.B., Harvard College, 1966; J.D., Rutgers,
Newark, 1969.

Lawrence A. Jegen, III., Professor. A.B., Beloit College, 1956; J.D., The University of
Michigan, 1959; M.B.A., 1960; LL.M., New York University, 1963.

Henry C. Karlson, Associate Professor. A.B., University of Illinois, 1965; J.D., 1968;
LL.M., 1977.

William Andrew Kerr, Professor (on leave, 1981-82). A.B., West Virginia University,
1955; J.D., 1957; LL.M. Harvard University, 1958; B.D., Duke University, 1968.

Walter W. Krieger, Associate Professor. A.B., Bellarmine College, 1959; J.D., Univer-
sity of Louisville, 1962; LL.M., George Washington University, 1969.

David P. Leonard, Assistant Professor. B.A., University of California at San Diego,
1974; J.D., UCLA School of Law, 1977.

William E. Marsh, Associate Professor. B.S., University of Nebraska, 1965; J.D., 1968.

SUSANAH M. Mead, Assistant Professor. B.A., Smith College, 1969; J.D., Indiana Univer-
sity, 1976.

Mary H. Mitchell, Assistant Professor. A.B., Butler University, 1975; J.D., Cornell
Law School, 1978.

Rita M. Novak, Assistant Professor. B.A., Albion College, 1972; J.D., De Paul Univer-
sity, 1978; LL.M., Columbia University, 1981.

Melvin C. Poland, Professor. B.S., Kansas State University, 1940; LL.B., Washburn
University, 1949; LL.M., The University of Michigan, 1950.

Ronald W. Polston, Professor. B.S., Eastern Illinois University, 1953; LL.B., Univer-
sity of Illinois, 1958.

Bryan M. Schneider, Assistant Professor. B.A., Amherst College, 1973; J.D., Univer-
sity of South Carolina School of Law, 1976; LL.M., Yale Law School, 1980.

Marshall J. Seidman, Professor (on leave, 1981-82). B.S., University of Pennsylvania,
1947; J.D., Harvard University, 1950; LL.M., 1970.

Kenneth M. Stroud, Professor. A.B., Indiana University, 1958; J. D., 1961.

Bradley J. Toben, Assistant Professor. B.A., University of Missouri, 1974; J.D., Baylor
University School of Law, 1977; LL.M., Harvard Law School 1981.

James W. Torke, Professor. B.S., University of Wisconsin, 1963; J.D., 1968.

James Patrick White, Professor (on special assignment). A.B., University of Iowa, 1953;
J.D., 1956; LL.M., George Washington University, 1959.

Lawrence P. Wilkins, Associate Professor. B.A., The Ohio State University, 1968; J.D.,
Capital University Law School, 1973; LL.M., University of Texas School of Law,
1974.

Harold R. Woodard, Professorial Lecturer. B.S., Harvard University, 1933; J.D., 1936.

William J. Woodward, Assistant Professor. B.A., University of Pennsylvania, 1968;
J.D., Rutgers-Camden, 1975.

Emeriti

Agnes P. Barrett, Associate Professor Emeritus. B.S., Indiana University, 1942;

J.D., 1964.
Cleon H, Foust, Professor Emeritus. A.B., Wabash College, 1928; J.D., University of

Arizona, 1933.
John S. Grimes, Professor Jurisprudence Emeritus. A.B., Indiana University, 1929;

J.D., 1931.
R. Bruce Townsend, Cleon H. Foust Professor of Law Emeritus. A.B., Coe College, 1938; J.D. ,

University of Iowa, 1940.

Legal Writing Instructors

Clark Robinson, Lecturer. A.B., Earlham College, 1966; M. A., Southern Illinois Univer-
sity-Carbondale, 1968; J.D., Indiana University, 1981.

Joan Ruhtenberg, Lecturer. B.A., Mississippi University for Women, 1959; J.D. , Indiana
University, 1980.

Law Library Staff

Wendell E. Johnting, Technical Services Librarian. A.B., Taylor University, 1974;

M.L.S., Indiana University, 1975.
Laura Kimberly, Acquisitions/Serials Librarian. B.A., Flordia State University, 1977;

M.S., 1980.
Christine L. Stevens, Reference Librarian. A.B., Western Michigan University, 1970;

M.L.S., Indiana University, 1971.
Kathy J. Welker, Assistant Director. A.B., Huntington College, 1969; M.L.S. Indiana

University, 1972.

Dean Gerald L. Bepko

Dedication

I met Gerald Bepko in 1970 when he decided to return to law
teaching after his completion of an LL.M. degree at Yale Law School.
To the great good fortune of this school, he joined the faculty at the
Indiana University School of Law — Indianapolis. Instantly, Gerald
Bepko became a favorite of both students and faculty, and his teaching
has won multiple awards voted by the students themselves. Because
he and I have appeared on many prograjns together, I have had the
opportunity to observe the impressive talents he displays whenever
he steps to the lectern (though I here disclaim any warranty of appre-
ciation for the jokes that sometimes start his presentation).

In addition to being an outstanding professor, Gerald Bepko is a
fine administrator. Organizations too numerous to list here have
recognized his abilities and have enlisted his help year after year in
keeping their affairs running smoothly. One example is the Federal
Judges Association which has relied upon Gerald Bepko for a decade
now. Another example is Gerald Bepko's recent appointment to the
Indiana Conference of Commissioners on Uniform State Laws by
Governor Robert Orr.

In choosing a new dean, Indiana University had the good sense to
make Gerald Bepko the Dean of the Indianapolis Law School. In this
day and age, it takes courage to be the dean of a law school, and
it takes considerable talent to be successful in that position. Though
his tenure in that role is still quite new, I am confident that Gerald
Bepko, with his intelligence, persuasive abilities, extraordinary tact,
and generous sense of humor, will one day occupy a proud niche in
the law school's history.

Douglas J. Whaley

Professor of Law

Ohio State University

College of Law

Indiana Laiv Revieiiv

Volume 16 1983 Number 1

Survey of Recent Developments in Indiana Law

The Board of Editors of the Indiana Law Review is pleased to publish
its eighth annual Survey of Recent Developments in Indiana Law. This
survey covers the period from June 1, 1981, through May 1, 1982. It com-
bines a scholarly and practical approach in emphasizing recent
developments in Indiana case and statutory law. Selected federal case
and statutory developments are also included. No attempt has been made
to include all developments arising during the survey period or to analyze
exhaustively those developments that are included.

I. Administrative Law

Scott A. Smith*
A. Due Process

1. Right to Hearing.— As noted in the 1982 Administrative Law
Survey/ cases involving the due process rights of suspended, demoted
or dismissed police officers occupied much of the courts' time in 1981.
This trend continued unabated during this survey period. These cases
generally raised one of two separate due process issues: the right
of a suspended or demoted police officer to a due process administra-
tive hearing and, should such a right exist, the stage of the adminis-
trative proceedings at which that hearing must take place.

In Sheridan v. Town of Merrillville,^ the Merrillville police chief,
Sheridan, was removed as chief and reinstated to his former rank
of captain; his salary remained unchanged. No notice or opportunity
for hearing was given to Sheridan prior to his removal as police chief.

♦Associate with the firm of Ice Miller Donadio & Ryan. B.S., Cornell University,
1976; J.D., University of Michigan, 1979. The author wishes to acknowledge the technical
support of Ice Miller Donadio & Ryan.

^Lewis, Administrative Law, 1981 Survey of Recent Developments in Indiana Law,
15 IND. L. Rev. 1. 1-4 (1982).

H28 N.E.2d 268 (Ind. Ct. App. 1981).

2 INDIANA LAW REVIEW [Vol. 16:1

Following an unsuccessful judicial review in an attempt to obtain
reinstatement as chief, Sheridan appealed.

The first district of the Indiana Court of Appeals held that
Sheridan's removal as chief without notice and opportunity for hear-
ing did not violate Sheridan's due process rights.^ The court ruled
that Sheridan did not have a property right in his continued tenure
as police chief which would be protected by the due process clause
of the fourteenth amendment to the United States Constitution/ or
by certain Indiana statutes^ and local ordinances.^ The key to the
court's holding was that Sheridan simply was reinstated to the posi-
tion he had held prior to his appointment as chief and suffered no
demotion or cut in pay;^ therefore, Sheridan suffered no deprivation
of a property right, and the failure to accord Sheridan an opportunity
to be heard prior to his demotion was not improper.®

Conversely, in Howard v. City of Kokomo,^ the Kokomo police chief,
Howard, was removed from office and demoted to patrolman; prior
to his appointment as police chief, he had served as the assistant chief.
Again, no notice or opportunity for an administrative hearing was
accorded Howard prior to his demotion. Given these facts, and rely-
ing upon Sheridan and State ex rel. Warzyniak v. Grenchik,^^ the fourth
district court of appeals concluded that, although the board had the
power to remove Howard as chief of police, the demotion to patrolman
without an opportunity for a hearing violated Howard's due process
rights. ^^

Once it has been established that a demoted or discharged public
employee has a due process right to notice and opportunity for an
administrative hearing, at what stage of the administrative proceeding
must the hearing occur? This issue was confronted by the first and
fourth districts of the Indiana Court of Appeals during the survey
period. In Shoafv. City of Lafayette, ^"^ Shoaf, a Lafayette police officer,

Hd. at 272.

'Id. at 272 (citing U.S. Const, amend. XIV, § 1).

^428 N.E.2d at 272 (citing Ind. Code §§ 19-1-25-1 to -4 (1976) (repealed 1981) (cur-
rent version at id. §§ 36-8-9-1 to -6 (1982)).

'428 N.E.2d at 272 (citing Merrillville, Ind., Ordinance 72-15, § 4 (December 12,
1972)).

'428 N.E.2d at 272.

*The holding in Sheridan is in accord with the third district's holding in State
ex rel Warzyniak v. Grenchik, 379 N.E.2d 997 (Ind. Ct. App. 1978). The Warzyniak
court found that a city ordinance creates an expectation on the part of the policemen,
which in turn constitutes a property interest protected by the due process clause of
the fourteenth amendment. Id. at 1002. However, this right does not apply to a police
chief who has been appointed. A police chief may not, however, be demoted below his
previously-held rank without a hearing. Id. at 1002.

M29 N.E.2d 659 (Ind. Ct. App. 1981).

•°379 N.E.2d 997 (Ind. Ct. App. 1978).

'^429 N.E.2d at 661-62.

^M21 N.E.2d 1168 (Ind. Ct. App. 1981).

1983] SURVEY -ADMINISTRATIVE LAW 3

was dismissed from the Lafayette police force pursuant to Indiana
Code section 18-1-11-3.'^ The record indicated that the Lafayette Police
Civil Service Commission, after receiving a report of Shoafs miscon-
duct, elected at its next regular meeting to dismiss Shoaf and to allow
him ten days during which he could present his case before the Com-
mission to show cause why he should not have been terminated. •''
Although Shoaf had been put on formal notice of his possible dismissal
before the meeting at which he was discharged, he was not present
at that meeting and had no notice that his potential dismissal was
to be decided at that meeting. Shoaf timely requested the opportunity
to present his case and, following an administrative hearing in which
Shoaf was represented by counsel and a record was made, the deci-
sion to dismiss Shoaf was confirmed. After the reviewing court upheld
the Commission's order of dismissal, Shoaf appealed.

The fourth district ruled that Shoaf was effectively discharged
at the Commission's meeting, not at the subsequent administrative
hearing, and that Shoafs dismissal therefore violated the statutory
requirement that a police officer may only be dismissed "for . . . cause
. . . after written notice is served upon such member . . . and after
an opportunity for a hearing is given. "^^ The court refused the invita-
tion to treat the subsequent administrative hearing as a "cure" of
any due process violations that may have occurred as a consequence
of the Commission's summary dismissal of Shoaf; once the Commis-
sion made the decision to dismiss Shoaf, according to the court, it
was without statutory authority or jurisdiction to conduct any fur-
ther proceedings in Shoafs case.*^

In Grisell v. Consolidated City of Indianapolis, ^'^ the first district
approved the "cure" theory rejected by the fourth district in Shoaf.
An Indianapolis policeman, Grisell, was demoted from sergeant to
patrolman during a hearing, authorized by statute, ^^ before the Board
of Captains for the Indianapolis Police Department. Grisell was not
represented by counsel at the Board of Captains' hearing and no record
of that hearing was made. Grisell then appealed to the Indianapolis
Police Merit Board and, again pursuant to the statutory scheme, was
given a de novo hearing on the charges brought against him. Grisell
was represented by counsel at this second stage, and a full record
was made. After Grisell's demotion was sustained by the Merit Board,

''Id. at 1169 (citing Ind. Code § 18-1-11-3 (1976) (repealed 1981) (current version at
id. §§ 36-8-1-12, 36-8-3-4(b) to -4(m), 36-8-3-5 (1982)).

'M21 N.E.2d at 1169.

"^See supra note 13.

'M21 N.E.2d at 1171-72.

•'425 N.E.2d 247 (Ind. Ct. App. 1981).

'«IND. Code § 18-4-12-27 (1976) repealed by Act of Apr. 27, 1981, Pub. L. No. 316. 1981
Ind. Acts 3135, 3148 (repeal of statute does not take effect until Jan. 1, 1984).

4 INDIANA LAW REVIEW [Vol. 16:1

Grisell sought judicial review of the Merit Board action, and subse-
quently appealed the trial court's adverse ruling.

On appeal, Grisell contended that his due process rights were
violated at the Board of Captains' stage of the administrative pro-
cess, inasmuch as he had not been represented by counsel, and no
record of those proceedings had been made. The first district court
of appeals ruled that Grisell's due process rights were not violated.^®
Two elements of the case proved to be crucial. First, the court placed
considerable emphasis upon the fact that the Board of Captains' find-
ings, for which no record that could be reviewed existed, were not
used as evidence at the Merit Board stage; rather, the city "developed
its case anew" and introduced before the Merit Board the same
substantive evidence upon which it relied at the Board of Captains'
stage.^" In this manner, according to the court, even if there had been
a deficiency in the Board of Captains' hearing which could not be
reviewed, the de novo hearing before the Merit Board cured any such
deficiency:

The Merit Board's function in the disciplinary scheme in this
respect is to insure that any prejudice suffered by an officer
due to deficiencies in the earlier proceedings is cured. The
constitutional problem raised by Grisell was not manifest in
the instant action and he has suffered no prejudice by the
manner in which the disciplinary proceedings were conducted.
Due process requires only one full-blown, trial-type ad-
ministrative hearing. To require counsel and record at the
earlier non-binding proceeding would be duplicative and would
result in unwarranted additional administrative time and
expense.^^

The second element of the case which the court found to be crucial
was the fact that the Merit Board hearing satisfied all due process
requirements.^ Grisell was represented by counsel; the proceeding was
de novo; new findings of fact were entered; and a full record was
made. Thus, any procedural defects that might have pervaded the first
hearing were "cured" by the second hearing.^^

On the surface, Grisell and S/^oa/may appear to be irreconcilable.
However, a key distinction between the two cases is in the nature
of the administrative hearing held in each. In Grisell, the first district
emphasized that although Grisell had effectively been demoted at the

^M25 N.E.2d at 254.

''Id. at 253.

'Ud. at 253-54.

''Id.

''Id. at 253.

1983] SURVEY-ADMINISTRATIVE LAW 5

first Board of Captains' hearing, the Merit Board hearing, which did
comply with due process principles, was a true de novo proceeding
and the burden remained upon the city to justify Grisell's demotion.
In Shoafy on the other hand, the subsequent administrative hearing
was found not to be a true de novo proceeding in the sense that the
burden at that hearing fell upon Shoaf to prove why he should not
be dismissed.

Subsequent to GriselU however, the fourth district served notice
that it may have abandoned its position in Shoaf Sind that it may now
subscribe to the "cure" theory advocated in GriselL In Natural
Resources Commission of the Department of Natural Resources v.
Sullivan,^^ Sullivan, an employee of the Natural Resources Commis-
sion, was summarily demoted by the superintendent of Sullivan's divi-
sion without notice or opportunity for a hearing. Pursuant to statute,^^
Sullivan requested a public hearing before the Commission. An eviden-
tiary hearing was held, and Sullivan's demotion was approved by the
hearing officer. Upon judicial review, although Sullivan did not object
to the manner in which the evidentiary hearing was conducted, he
did assert that his due process rights were violated by the initial deci-
sion to demote him summarily without notice or opportunity for a
hearing. The trial court, upon review, agreed with Sullivan's position
and directed that he be restored to his original rank with back pay.

In reversing the trial court's holding and reinstating the Commis-
sion's decision, the fourth district relied heavily upon Grisell in holding
that Sullivan's due process rights were protected by the subsequent
administrative hearing:

In accord with the Court in Grisell, we also hold that where
an appeal is taken from a full administrative hearing and there
is no demonstration that prejudice occurring in an earlier pro-
ceeding affected the later hearing, due process rights are ade-
quately safeguarded. Even assuming, arguendo, Sullivan was
wrongly denied an arraignment proceeding before the
Superintendent ordered his demotion, such error was cured
by the subsequent administrative hearing.^

Thus, because Sullivan's rights were adequately safeguarded by
the subsequent hearing, the fact that he was not afforded the oppor-
tunity for a hearing at the time his demotion first took effect was
held not to be wrongful.^^ It is significant to note that the Sullivan

^"428 N.E.2d 92 (Ind. Ct. App. 1981).
'^IND. Code § 14-3-4-7 (1982).
'M28 N.E.2d at 100.

"The Sullivan decision also was concerned with the scope of judicial review. See
infra notes 98-100 and accompanying text.

6 INDIANA LAW REVIEW [Vol. 16:1

court quoted at length from Grisell in its opinon; Shoaf, on the other
hand, was never mentioned by the court.

Although Sullivan certainly seems to implicitly repudiate Shoaf,
a key distinction between the two cases must be noted. In Sullivan,
according to the controlling disciplinary statute,^^ Sullivan was
absolutely entitled to request a full due process hearing within ten
days after the summary decision to demote him. Thus, the adminis-
trative agency in Sullivan was still acting within its statutory
authority when it offered Sullivan the subsequent due process hear-
ing. However, no such statutory authority existed in Shoaf; once the
administrative agency had rendered its initial decision to discharge,
according to the fourth district, the agency had no further jurisdic-
tion to permit an administrative due process hearing. Thus, although
the continued vitality of Shoaf is unclear, it should not be considered
totally overruled by Sullivan.

2. Right to Counsel— Two rulings of the third district of the In-
diana Court of Appeals, issued approximately one month apart, raise
interesting issues regarding the rights of parties to an administrative
adjudication to be notified of their right to counsel. In Gordon v.
Review Board of the Indiana Employment Security Division,^^ an
unemployment compensation claimant's application for benefits was
denied by a referee of the Indiana Employment Security Division. The
referee's decision was affirmed by the full Review Board, and the
claimant sought judicial review. The claimant admittedly was advised
of her right to counsel prior to the referee's hearing;^" however, she
was not advised as to the availability of free legal counsel and, in
fact, was not represented by an attorney at that hearing. The claim-
ant contended that she was denied due process by the fact that she
was indigent and did not know that free legal counsel existed.

The court held that, upon the facts of the case, due process did
not require the claimant to be advised of the availability of free legal
counsel.^^ Despite the fact that she did not have counsel at the hear-
ing, according to the court, the referee was under a statutory duty
to conduct an independent examination of all witnesses to insure com-
plete presentation of the claimant's case.^^ The court held that the
referee in Gordon fulfilled that statutory duty, and that the claimant's
case was completely and adequately presented at the hearing, despite
her lack of counsel; therefore, no due process violation occurred.

^«lND. Code § 14-3-4-7 (1982).

^^426 N.E.2d 1364 (Ind. Ct. App. 1981).

^Id. at 1367. The Indiana Court of Appeals has held that an unemployment claim-
ant must be notified of his or her right to counsel before a hearing may occur. Sandlin
V. Review Bd. of the Ind. Employment Sec. Div., 406 N.E.2d 328 (Ind. Ct. App. 1980).

^^426 N.E.2d at 1367.

'Ud. at 1366-67 (citing 640 Ind. Admin. Code § 1-11-3 (1979)).

1983] SURVEY-ADMINISTRATIVE LAW 7

The Gordon court's emphasis upon the referee's actual presenta-
tion of the claimant's case^^ raises two important questions. First, does
a claimant in an administrative adjudication have a due process right
to be notified of the availability of free legal counsel when the hear-
ing officer is not under a statutory duty to insure complete presenta-
tion of the claimant's case; and second, does a hearing officer who
actually conducts a complete presentation of a claimant's case,
regardless of any statutory duty to do so, cure any due process viola-
tion that might otherwise have existed based upon lack of notice of
availability of free legal counsel?

Although any guidance on the first question will necessarily have
to wait for future cases, the Gordon court's reliance upon the referee's
actual presentation of the claimant's case suggests that the second
question may be answered in the affirmative; that is, if a claimant's
case is completely presented, then due process is satisfied. Because
whether a claimant's case has been fully, presented by a hearing officer
will necessarily depend upon the peculiar facts of each case, the con-
sequence of Gordon is that the reviewing court must apply a case-by-
case analysis in determining whether an agency's failure to notify an
administrative claimant of the availability of free legal services violates
due process.

In another unemployment compensation proceeding, Alcoa v.
Review Board of the Indiana Employment Security Division,^'^ the third
district court had occasion to consider the employer's contention that
it was denied due process by the referee's failure to inform it of its
right to counsel before the referee's hearing.^^ The court quoted from
Goldberg v. Kelly^^ and ruled that "the opportunity to be heard must
be tailored to the capabilities and circumstances of those who are to
be heard."^^ The court further found that Alcoa was situated differently
than unemployment claimants generally, and the court ultimately
decided that Alcoa's failure to be notified of its right to counsel did
not violate Alcoa's due process rights.^® Judge Garrard, however,
refused to join in this portion of the majority's opinion. ^^

Significantly, the third district's reliance upon the "capabilities
and circumstances""" of Alcoa suggests that other respondents who
are less capable may be entitled to notice of their right to counsel
under certain circumstances. It would appear that, as in Gordon, the

3^426 N.E.2d at 1367.
^"426 N.E.2d 54 (Ind. Ct. App. 1981).

^^Again, unemployment claimants are absolutely entitled to such notice. See supra
note 30.

'•'397 U.S. 254 (1970).

^M26 N.E.2d at 59 (quoting Goldberg v. Kelly. 397 U.S. 254, 268-69 (1970)).

^M26 N.E.2d at 59.

^Hd. at 60-61.

''Id. at 59.

8 INDIANA LAW REVIEW [Vol. 16:1

court has established another case-by-case test for determining
whether an administrative party is entitled to notice of its right to
counsel. Unfortunately, the Alcoa court did not set forth in its opin-
ion the capabilities and circumstances upon which the employer's right
to notification is based. It is hoped that future cases will establish
these guidelines.

The case-by-case approach taken in both Gordon and Alcoa
deserves additional comment. The most facile approach, from the
standpoint of judicial and administrative economy, would be to re-
quire a hearing officer to notify a^^ parties to any administrative ad-
judication of their right to representation by counsel or of the
availability, if appropriate, of free counsel. Both Gordon and Alcoa
force the reviewing court to examine, on a case-by-case basis, mat-
ters which are extrinsic to the merits of the agency's action and deci-
sion. It cannot be foretold at this point how much of a burden these
case-by-case analyses of side issues will impose upon reviewing courts;
the number of future cases where these analyses might become ger-
mane is uncertain.

3. Double Jeopardy.— In Cross v. State ex rel. Linton,^^ Linton, a
Michigan City police officer, was suspended unilaterally by the chief
of the Michigan City police for ten days due to Linton's alleged neglect
of duty. During his suspension, Linton was advised by the Michigan
City Police Service Commission that a hearing would be held on the
same charges which had resulted in Linton's suspension by the chief
of police. The hearing was held subsequently, at which time the Com-
mission elected to dismiss Linton permanently from the Michigan City
Police Department. On judicial review, Linton failed to allege error
in the police chiefs ten-day suspension without prior opportunity for
a hearing and, thus, waived that assertion of error. On appeal of the
trial court's affirmance, the only argument available to Linton was
that the doctrine of double jeopardy precluded the Commission from
increasing the ten-day suspension originally imposed by the police
chief.

The fourth district rejected Linton's argument and held that dou-
ble jeopardy was no bar to Linton's discharge from the police force.'*^
Relying heavily upon an Illinois case which the court found to be
directly on point,*^ the court ruled that the double jeopardy doctrine
is inapplicable to civil proceedings, including administrative
adjudications.''^

*'419 N.E.2d 991 (Ind. Ct. App. 1981).

«/rf. at 996.

*Ud. at 995 (citing Bart v. State Dep't of Law Enforcement (Div. of State Police),
52 111. App. 3d 487, 367 N.E.2d 773 (1977)).

"419 N.E.2d at 995-96. For further discussion of the nonapplicability of double
jeopardy to disciplinary hearings, see In re Kesler, 397 N.E.2d 574 (Ind. 1979).

1983] SURVEY-ADMINISTRATIVE LAW 9

4. Applicability of Trial Rules.— In Josam Manufacturing Com-
pany V. Ross,^^ the third district of the Indiana Court of Appeals held
that the discovery provisions of the Indiana Trial Rules^^ are applicable
to all adjudicatory hearings before administrative agencies/^ Further-
more, the court indicated that Trial Rule 37/^ which specifies sanc-
tions for failure to comply with discovery requests, would be applicable
to a party to an administrative hearing where the other party has
improperly resisted discovery/^

However, a majority of the third district held that where a party
to an administrative adjudication is forced to maintain a civil action
to compel the opposing party's compliance with the administrative
agency's discovery orders, the petitioning party may not obtain at-
torney fees in conjunction with the civil action, absent an order for
sanctions from the administrative agency.^"

Because the Industrial Board, the agency involved in Ross, has
no authority to enforce its own orders,^^ Ross suggests that the prop-
er way to obtain a full range of sanctions for failure to comply with
administrative discovery orders is to move the agency to order sanc-
tions, and then to seek enforcement of the agency's order from the
trial court.

B. Exhaustion of Administrative Remedies

One of the most time-honored maxims of administrative law is
that an aggrieved party must exhaust all administrative remedies
available to it before the party may seek judicial action. However,
in Town of St. John v. Home Builders Association of Northern Indiana,
Inc.,^^ the third district court of appeals reiterated the equally well-
recognized exception to this rule that where the validity of ad-
ministrative quasi-legislation is at issue, administrative remedies need
not be exhausted. In Toum of St. John^ the plaintiff filed a complaint for
declaratory judgment asserting that the town's local building ordinance
for the construction of one and two family dwellings was invalid. The
town contended that the trial court had no jurisdiction over the case
because the plaintiff had failed to exhaust its administrative remedies.

^M28 N.E.2d 74 (Ind. Ct. App. 1981).

'^Id. at 75 (citing Ind. R. Tr. P. 26-37).

*M28 N.E.2d at 77. Ind. R. Tr. P. 28(F) specifies that the discovery provisions of
the Indiana Trial Rules may be employed by any party to an administrative adjudicatory
hearing.

"428 N.E.2d at 77 (citing Ind. R. Tr. P. 37).

*M28 N.E.2d at 77.

^Id. at 77-78 & n.2. Judge Staton dissented from this portion of the court's opin-
ion. Id. at 78-80.

^'Id. at 78 n.2.

^=^428 N.E.2d 1299 (Ind. Ct. App. 1981).

10 INDIANA LAW REVIEW [Vol. 16:1

The third district, citing numerous cases in support of its position,^^
held that administrative remedies need not be exhausted where a
party attacks an ordinance's validity in its entirety. ^"^

Another interesting issue pertaining to the exhaustion require-
ment arose in Metropolitan Development Commission of Marion County
V. Waffle House, Inc.^^ In that case, Waffle House had applied for a
permit to erect a pole sign upon its premises; eventually, Waffle House
erected the sign without securing the permit. The Metropolitan
Development Commission then filed a lawsuit against Waffle House
requesting injunctive relief and the imposition of a fine. After a judg-
ment in Waffle House's favor, the Development Commission appealed.

On appeal, the Development Commission proffered the novel argu-
ment that Waffle House should have been prevented from presenting
evidence in defense of the lawsuit brought by the Development Com-
mission on the ground that Waffle House had failed to exhaust its
administrative remedies; in other words, Waffle House did not have
its permit when it erected the sign. The second district concluded
that, because in this case the administrative agency had hailed Waffle
House into court, and not vice versa, the exhaustion doctrine was
inapplicable.^^

The Waffle House court also discussed, at considerable length, the
theoretical distinctions between the exhaustion principle and the
"primary jurisdiction" doctrine.^^ The court pointed out that the ex-
haustion requirement deals with judicial self-limitation — the judiciary's
refusal to pass upon issues that are capable of resolution by an ad-
ministrative agency. The doctrine of primary jurisdiction, however,
totally divests the judiciary of its right to hear a particular matter
due to the desire and need for the administrative agency's expert
judgment on a technical question.^^

^M at 1303 (citing Indiana Toll Rd. Comm'n v. Jankovich, 244 Ind. 574, 193 N.E.2d
237 (1963), ajrpeal dismissed, 379 U.S. 487 (1964); State ex rel. City of South Bend v.
St. Joseph Superior Court, 238 Ind. 88, 148 N.E.2d 558 (1958); Indiana Envtl. Manage-
ment Bd. V. Indiana-Kentucky Elec. Corp., 393 N.E.2d 213 (Ind. Ct. App. 1979)).

^428 N.E.2d at 1303.

^^424 N.E.2d 184 (Ind. Ct. App. 1981).

''Id. at 186-87.

"/d at 187. For a detailed discussion of the primary jurisdiction issues in Waffle
House, see infra notes 59-62 and accompanying text.

'*424 N.E.2d at 187. This is directly contradictory to the definition of primary
jurisdiction as defined by Kenneth Davis, an eminent scholar in the area. K. Davis,
Administrative Law Text § 19.01 (3d ed. 1972). According to Davis, "[t]he doctrine of
primary jurisdiction does not necessarily allocate power between courts and agencies,
for it governs only the question whether court or agency will initially decide a par-
ticular issue, not the question whether court or agency will finally decide the issue."
Id. § 19.01, at 373.

1983] SURVEY-ADMINISTRATIVE LAW 11

C. Primary Jurisdiction

In Metropolitan Development Commission of Marion County v. Waf-
fle House, Inc.,^^ wherein the Metropolitan Development Commission
sought to force a business owner, Waffle House, to remove a pole
sign for which Waffle House had been given no permit to erect,^° the
Development Commission asserted that Waffle House was prevented
from presenting any defense to its complaint for injunctive relief, as
a matter of law, based upon the doctrine of primary jurisdiction. The
court noted that, unlike the usual situation, the administrative agency
was the plaintiff and the agency had gone to court willingly in an
attempt to halt what it perceived as a violation of administrative and
statutory guidelines. The doctrine of primary jurisdiction, according
to the court, loses all force and effect when the agency itself comes
to court; in net effect, the agency is waiving its "special expertise"
upon which the doctrine of primary jurisdiction is based.^' In so rul-
ing, the second district stated the following:

[W]hen the agency itself prosecutes and as plaintiff initiates
a law suit, and is present in court pursuing what it perceives
to be its interests, it would be manifestly unfair to require
a defendant in this posture to supinely accept damaging
evidence presented by the agency without the opportunity to
defend against that evidence.

In short, the clear import of Waffle House is that administrative
agencies will not be permitted to hide behind principles of adminis-
trative law which are designed to prevent unwarranted judicial inter-
ference with the administrative process — in particular, exhaustion of
administrative remedies and primary jurisdiction — where the agency
is, itself, responsible for instituting the legal action. This result ob-
viously is supported by fundamental principles of fairness.

D. The Requirement of Findings

During the 1982 survey period, the saga of Benedicto Perez, whose
travels were well-documented in two separate Articles in last year's
Survey ,^^ finally came to an end. Perez, who sustained an industrial
accident in 1970, sought benefits for total permanent disability before

^M24 N.E.2d 184 (Ind. Ct. App. 1981).

^°The facts of this case have been previously discussed at length. See supra notes
55-56 and accompanying text.

^•424 N.E.2d at 187-88.

'Ud. at 188.

^^See Leibman, Workers' Compensation, 1981 Survey of Recent Developments in In-
diana Law, 15 Ind. L. Rev. 453, 455-58 (1982); Lewis, supra note 1, at 20-22.

12 INDIANA LAW REVIEW [Vol. 16:1

the Indiana Industrial Board. After the Industrial Board ruled that
Perez was not permanently totally disabled, Perez sought judicial
review. The court of appeals ruled that the Industrial Board's findings
of fact were inadequate and remanded the cause to the Industrial
Board for more specific findings.^^ On remand, the Industrial Board
reaffirmed its earlier award, and the court of appeals then affirmed
the Industrial Board's decision based upon what the court perceived
to be an appropriate record.®^ Perez then sought transfer to the In-
diana Supreme Court.

In Perez v. United States Steel Corp.,^^ the Indiana Supreme Court
granted transfer, ruled that the Industrial Board's findings of fact
that the court of appeals had considered on the second appeal were
still inadequate, and vacated the court of appeals' opinion and re-
manded the case to the Industrial Board for further findings of fact.^^
In so doing, the supreme court commented at length upon the specifici-
ty that findings of fact at the administrative level must meet. The
court distinguished between findings of basic fact and findings of
ultimate fact — the basic facts being those upon which the ultimate fac-
tual determinations rest — and ruled that agency findings of fact must
contain both the basic and the ultimate facts supporting the administra-
tive agency's decision.^^ The essence of the supreme court's holding
is concisely summarized in a portion of the court's opinion as follows:

To elaborate, findings of basic fact must reveal the [agency's]
analysis of the evidence and its determination therefrom re-
garding the various specific issues of fact which bear on the
particular claim. The "finding of ultimate fact" is the ultimate
factual conclusion regarding the particular claim before the
[agency]; here, for example, that ultimate question is whether
Perez is permanently totally disabled. The finding of ultimate
fact may be couched in the legal terms and definitions which
govern the particular case. In contrast, the specific findings
of basic fact must reveal the [agency's] determination of the
various relevant sub-issues and factual disputes which, in their
sum, are dispositive of the particular claim or ultimate factual
question before the [agency]. The findings must be specific
enough to provide the reader with an understanding of the

'"Perez v. United States Steel Corp., 172 Ind. App. 242, 359 N.E.2d 925 (1977)
("Perez I").

'Terez v. United States Steel Corp., 416 N.E.2d 864 (Ind. Ct. App. 1981) ("Perez
11").

'%26 N.E.2d 29 (Ind. 1981) ("Perez III").

'Ud. at 33.

''Id. at 32.

1983] SURVEY-ADMINISTRATIVE LAW 13

[agency's] reasons, based on the evidence, for its finding of
ultimate fact/^

The entire Perez history provides a clear example of the distinc-
tion between basic and ultimate findings of fact. In its second attempt
at fact finding, the Industrial Board stated one of its factual findings
to be the following: "In the Board's experience, the medical findings
in the evidence in this case, from both Plaintiff's and Defendant's
physicians, show that Plaintiff is capable of pursuing many normal
kinds of occupations. He has a permanent partial impairment, but not
a permanent total disability."^"

According to the court in Perez III, while this statement served
as a finding of ultimate fact, neither this statement nor any of the
Industrial Board's other findings disclosed any basic facts upon which
that particular ultimate fact rested.^^ What were the physician's
specific findings regarding impairment? What was Perez's medical con-
dition? What types of occupations was Perez, in his condition, able
to perform? These were the basic facts upon which the ultimate fact
of "no permanent total disability" rested, and, according to the
supreme court, the absence of these basic facts from the findings of
the Industrial Board rendered the record defective and incapable of
review. ^^ Thus, agency findings of fact must include both the ultimate
factual findings and the basic facts from which those ultimate findings
stem.

After the Perez III decision, the Industrial Board, for the third
time, entered written findings of fact and conclusions of law and reaf-
firmed its original award. These findings of the Industrial Board went
back to the supreme court, and in Perez IV^ the supreme court deter-
mined that the Industrial Board's third effort did, indeed, meet the
criteria expressed in Perez III. Upon its review of the now complete
findings, the supreme court affirmed the Industrial Board's award
which denied Perez benefits for total permanent disability.^''

In a case decided the same day as Perez III, Talas v. Correct Pip-
ing Company, Inc.,''^ the supreme court served notice that the specifici-
ty of agency findings of fact which it set forth in Perez III would be
strictly enforced. Despite the fact that the supreme court had earlier
remanded Talas to the Industrial Board for more specific findings of
fact,^^ the supreme court relied upon Perez III in determining that the

^^Id. at 33 (emphasis in original).
''Id. at 30.
''Id.

''Id. at 32-33.

"Perez v. United States Steel Corp., 428 N.E.2d 212 (Ind. 1981) ("Perez IV").
"Id. at 216-17.
^^426 N.E.2d 26 (Ind. 1981).

''In Talas v. Correct Piping Co., 409 N.E.2d 1223 (Ind. Ct. App. 1980), the court
of appeals affirmed the decision of the Industrial Board which had determined that

14 INDIANA LAW REVIEW [Vol. 16:1

record was still deficient and remanded the case to the Industrial
Board for the entry of findings of basic facts supporting the Industrial
Board's ultimate factual holdings." The clear guidelines set forth in
Perez III, coupled with the lack of reluctance shown by reviewing
courts in remanding agency adjudications for more specific findings,
indicate that the Perez III standard will be strictly interpreted for
all future agency decisions in this state.

However, according to two cases decided during this survey
period, the severe specificity standards set forth for agency findings
of fact in Perez III may not apply to findings of fact entered by the
reviewing court. Under the Indiana Administrative Adjudication Act^^
and the Indiana Trial Rules, ^^ a reviewing court at the trial level is
also required to enter findings of fact in support of its decision upon
review. However, in Goffredo v. Indiana State Department of Public
Welfare,^^ the first district court of appeals held that the reviewing
court need not discuss and summarize all the evidence presented to
the agency; the reviewing court's findings were sufficient if they mere-
ly contained all necessary facts to support the court's conclusions of
law.^^ Similarly, in Clarkson v. Department of Insurance, ^^ the second
district held that a single finding of fact made by the reviewing trial
court complied with the requirement that the reviewing court enter
findings of fact, where the single finding of fact, alone, was sufficient
to support the trial court's affirmance upon review of the administra-
tive agency's decision.^^ Thus, the "basic" — "ultimate" dichotomy ap-
pears not to apply to a trial court's findings upon review, a fact which
will no doubt free the reviewing court from exhaustive and unneces-
sary examinations of all underlying evidence adduced at the adminis-
trative level.

E. Scope of Judicial Review
1. Right to Judicial Review. — \5ndeT Indiana principles of constitu-

Talas' employer was not required to pay for Talas' nursing care. Talas' petition for
transfer was granted, and the supreme court remanded the case to the Industrial Board
for specific findings of fact. Talas v. Correct Piping Co., 416 N.E.2d 845 (Ind. 1981).
The Industrial Board's second attempt at specific findings of fact was also adjudged
to be insufficient by the supreme court. Talas v. Correct Piping Co., 426 N.E.2d 26
(Ind. 1981). The conclusion of Talas' travels will be left to a subsequent survey.

"426 N.E.2d at 28-29.

^'IND. Code § 4-22-1-18 (1982).

^^IND. R. Tr. p. 52(A).

^''419 N.E.2d 1337 (Ind. Ct. App. 1981).

''Id. at 1339.

«'425 N.E.2d 203 (Ind. Ct. App. 1981). For other issues considered by the court
in Clarkson, see infra notes 85-90 and accompanying text.

'^425 N.E.2d at 206.

1983] SURVEY-ADMINISTRATIVE LAW 15

tional law, every administrative adjudication is judicially reviewable;^^
however, that does not mean that an aggrieved party's right to review
cannot be waived. In Clarkson v. Department of Insurance,^^ an in-
surance agent whose license was revoked by the Indiana Insurance
Commissioner filed his verified petition with the trial court, pursuant
to statute, ^^ for review of the Commissioner's decision. The trial court
affirmed the Commissioner's decision, and the agent appealed.

On appeal, the second district of the Indiana Court of Appeals
found that many of the issues for which the agent sought review were
deemed to be waived as a matter of law due to substantive defects
in the petition for review. The agent asserted, for instance, that the
revocation of his license deprived him of equal protection under the
law; however, the agent failed to allege any violation of equal protec-
tion in his petition, which ''results in a waiver of that issue [that] may
not be raised on appeal. "^^

Additionally, the agent had asserted in his petition that the Com-
missioner's decision was arbitrary, capricious, and an abuse of discre-
tion, but he cited no authority in support of his position. In holding
that this claim of error was waived as well, the court of appeals held
the following:

However, a bald assertion in the petition for review that the
action of the agency is arbitrary, capricious, or an abuse of
discretion does not create an issue. Rather, as earlier stated,
the petition must specifically allege in what manner the order,

''See Warren v. Indiana Tel. Co., 217 Ind. 93, 26 N.E.2d 399 (1940). The same right
to judicial review is accorded under the Indiana Administrative Adjudication Act, Ind.
Code § 4-22-1-14 (1982).

«H25 N.E.2d 203 (Ind. Ct. App. 1981).

^•'IND. Code § 4-22 1-14 (1982) provides in part:

Any party or person aggrieved by an order or determination made by
any such agency shall be entitled to a judicial review thereof in accordance
with the provisions of this act. Such review may be had by filing with the
circuit or superior court of the county in which such person resides, or in
any county in which such order or determination is to be carried out or en-
forced, a verified petition setting out such order, decision or determination
so made by said agency, and alleging specifically wherein said order, decision
or determination is:

(1) Arbitrary, capricious, an abuse of discretion or otherwise not in ac-
cordance with law; or

(2) Contrary to constitutional right, power, privilege or immunity; or

(3) In excess of statutory jurisdiction, authority or limitations, or short
of statutory right; or

(4) Without observance of procedure required by law; or

(5) Unsupported by substantial evidence.
Id. (emphasis added).

«M25 N.E.2d at 206.

16 INDIANA LAW REVIEW [Vol. 16:1

decision, or determination is arbitrary, capricious, or an abuse
of discretion, I.C. 4-22-1-14, and thereby raise an issue. ^*

The message of Clarkson is obvious: the traditional doctrine of
notice pleading in civil cases does not apply to judicial review of agency
adjudications. Like a motion to correct errors under Trial Rule 59,®^
issues which are inadequately raised by a verified petition for review
or are omitted altogether from the petition will not be reviewed by
the court.^" It is incumbent upon every party seeking review of an
administrative adjudication to allege every possible error with as much
specificity and factual and legal support as possible in the verified
petition for review; otherwise, the risk of waiver is paramount.

The right to judicial review of adverse agency actions can also
be waived by the untimely filing of a verified petition for review. In
Shettle V. Smith,^^ the first district court of appeals held that non-
compliance with the fifteen-day limit^^ for the filing of an action for
judicial review is a fatal defect and deprives the reviewing court of
all jurisdiction to hear the case.^^ The court's characterization of the
nature of the error as jurisdictional again suggests that the verified
petition for review is to be treated exactly like a motion to correct
errors for the purposes of judicial review.^'' In other words, the time
limit for filing a verified petition for review cannot, in all likelihood,
be extended.^^ The practitioner should be alert to these precise prereq-
uisites to the proper perfection of an action for judicial review.

2. The Substantial Evidence Test. — Fsist Administrative Law

''Id. at 207.

«^IND. R. Tr. p. 59.

'"Numerous decisions exist regarding the specificity required to sustain a motion
to correct errors under Trial Rule 59. See, e.g., White v. Livengood, 390 N.E.2d 696
(Ind. Ct. App. 1979); State ex rel. Sacks Bros. Loan Co. v. DeBard, 381 N.E.2d 119 (Ind.
Ct. App. 1978). Arguably, these decisions apply to both the judicial review setting and
the requirements of the verified petition for review.

'^425 N.E.2d 713 (Ind. Ct. App. 1981).

^Ud. at 715. Indiana Code section 4-22-1-14 establishes a fifteen-day period for fil-
ing of a verified petition for review with the trial court, which runs from the date
of receipt of notice of an agency final determination. Indiana Code section 4-22-1-14
applies only to administrative actions that fall within the purview of the Indiana Ad-
ministrative Adjudication Act; agencies not bound by the Administrative Adjudica-
tion Act have established different time limits for filing. See, e.g., Ind. Code §§ 22-3-4-8,
22-3-7-27 (1982) (thirty-day period for filing assignment of errors with the court of ap-
peals in Industrial Board cases); Ind. Code §§ 8-1-3-1 to -12 (1982) (thirty-day period for
filing assignment of errors with court of appeals in Public Service Commission cases).

'H25 N.E.2d at 715.

'^The sixty-day deadline for the filing of a motion to correct errors following an
adverse civil judgment. Rule 59 of the Indiana Trial Rules, is also jurisdictional and
noncompliance with it deprives the appellate court of jurisdiction to hear the appeal.
Gillian v. Brozovic, 166 Ind. App. 682, 337 N.E.2d 152 (1975).

^^See White v. Livengood, 390 N.E.2d 696 (Ind. Ct. App. 1979).

1983] SURVEY -ADMINISTRATIVE LAW 17

Surveys have uniformly contained lengthy discussions upon the dif-
ferent versions of the substantial evidence test employed by the dif-
ferent districts of the Indiana Court of Appeals. All districts recognize
that an administrative adjudication which is not supported by substan-
tial evidence is subject to reversal and remand upon judicial review.
In employing the substantial evidence test, however, may the review-
ing court examine the entire administrative record in deciding whether
an agency determination of fact is supported by substantial evidence,
or is the reviewing court's examination of the record limited only to
that evidence which supports the agency's determination? Previous
authors of this section of the Survey, although guardedly optimistic
in their hope that the different districts of the Indiana Court of Ap-
peals were on the verge of uniformity in mandating "whole record"
judicial review, have reported that the situation is far from settled.
Cases decided during this survey period leave room for optimism —
but unfortunately some confusion — on this point.

As reported in the 1981 Administrative Law Survey ,^^ the fourth
district, in Wilfong v. Indiana Gas Co.,^'^ apparently departed from its
prior holdings and ruled that judicial review of a Public Service Com-
mission decision would be based only upon evidence favorable to the
agency's position. In Natural Resources Commission of the Department
of Natural Resources v. Sullivan,^^ however, the fourth district ap-
parently reverted to its pre-Wilfong position and held that judicial
review of an agency's demotion of one of its employees should be based
upon the record as a whole. Relying upon Universal Camera Corp.
V. NLRB,^^ the Sullivan court ruled that "the trial court must examine
the whole record to determine whether 'the agency's decision lacks
a reasonably sound basis of evidentiary support.' "^"°

The third district, in three cases decided during the survey period,
sent out conflicting signals as to whether it preferred "whole record"
or "favorable evidence" review. In both Alcoa v. Review Board of the
Indiana Employment Security Division^^^ and L. W. Edison, Inc. v.
Teagarden,^^^ the third district ruled that it would consider only the
evidence, and those reasonable inferences drawn therefrom, that tend
to support the agency's decision.^"^ In both cases, the agency's factual

^Greenberg, Administrative Law, 1980 Survey of Recent Developments in Indiana
Law, 14 IND. L. Rev. 65, 66 (1981).

"399 N.E.2d 788 (Ind. Ct. App. 1980).

'M28 N.E.2d 92 (Ind. Ct. App. 1981). For other issues considered by the court
in Sullivan, see supra notes 24-28 and accompanying text.

«»340 U.S. 474 (1951).

""'428 N.E.2d at 101 (emphasis added and citation omitted).

'"'426 N.E.2d 54 (Ind. Ct. App. 1981). For other issues considered by the court
in Alcoa, see supra notes 34-40 and accompanying text.

'°M23 N.E.2d 709 (Ind. Ct. App. 1981).

""Alcoa, 426 N.E.2d at 59; Teagarden, 423 N.E.2d at 710.

18 INDIANA LAW REVIEW [Vol. 16:1

determinations were found to be supported by substantial evidence
and the administrative decisions were affirmed. However, in State
Board of Tax Commissioners v. South Shore Marina,^^^ the third
district, in reversing a trial court's contrary ruling and reinstating
a State Board of Tax Commissioners' final assessment, resorted to
"whole record" review/*^^

Because on various occasions the different districts of the court
of appeals have espoused both "whole record" and "favorable evidence"
review without apparent rhyme or reason, one has to wonder if there
is more to these apparent inconsistencies than meets the eye. On the
one hand, it is apparent that when administrative decisions are
reviewed directly by the court of appeals, the various districts are
much more inclined to resort to "favorable evidence" review; ad-
ministrative findings of fact in workers' compensation and unemploy-
ment compensation cases, in particular, are reviewed under the
"favorable evidence" standard. On the other hand, where the court
of appeals, in its true appellate capacity, passes upon a trial court's
judicial review of an agency determination, the different districts
uniformly appear to employ the "whole record" standard of review. ^°^
Although it is difficult to justify the different standards of review of
agency findings of fact based upon whether the court of appeals acts
as a first tier or second tier of review, it is clear that these distinc-
tions are being made and that the practitioner must be alert to them.

However, it is also submitted that there may be less to these ap-
parent inconsistencies than is initially apparent. From a practitioner's
standpoint, the differences between a "whole record" and "favorable
evidence" review of the agency's findings of fact jnay be nothing more
than a paper tiger. ^"^ As previously noted, every district of the court
of appeals has, at one time or another, supported both "whole record"
and "favorable evidence" review without any apparent reason for
distinguishing between the two. More significantly, it is exceedingly
difficult to conjure up a situation wherein a reviewing court exercis-
ing a "favorable evidence" standard of review would affirm an admin-
istrative agency decision that would have been remanded by a "whole

'"^22 N.E.2d 723 (Ind. Ct. App. 1981). For further discussion of this case see Boyd,
Taxation, 1982 Survey of Recent Develojmients in Indiana Law, 16 Ind. L. Rev. 355,
367-70 (1983).

'''Id. at 731.

'°®No attempt will be made to cite the large number of cases decided by the dif-
ferent districts of the court of appeals over the past few years which support this
statement. The best indicia of this statement are the preceding Administrative Law
Surveys wherein the cases and conflicts among and within the various districts of the
court of appeals have been extensively analyzed. See Lewis, supra note 1, at 11-13;
Greenberg, supra note 96; Greenberg, Administrative Law, 1979 Survey of Recent
Developments in Indiana Law, 13 Ind. L. Rev. 39, 39-42 (1980).

'"^Like his predecessors, this author uses the term "may" advisedly.

1983] SURVEY-ADMINISTRATIVE LAW 19

record" reviewing court. Such a situation could arise, for instance,
when the agency's record overwhelmingly, but not unanimously, points
to one conclusion, and the agency reaches the opposite result. Not
only is this scenario an unlikely one, but the different districts' will-
ingness to resort to a "whole record" theory on occasion suggests that
the reviewing court will examine the substantiality of whatever
evidence, pro or con, the parties put before it.

At the very least, no decision reported during the last few survey
periods has indicated that any district will refuse to consider contrary
evidence if necessary to arrive at a just result. In this fact, Indiana's
practitioners can probably take some solace.

3. Review of Agency Legal Determinations and Interpretations. —
Unlike the issue of judicial review of agency findings of fact, which
as noted above has resulted in conflicts among and often within the
different districts of the court of appeals, the appropriate standard
of judicial review to be applied to an agency's legal interpretations
is well-settled. Cases decided during the survey period support the
general principle that an agency's interpretation of the law, although
entitled to some deference, is not sacrosanct, and that a reviewing
court is free to reverse and remand agency decisions based upon the
agency's erroneous interpretation or application of the law.

For instance, in Johnson v. Moritz,^^^ the first district reviewed
an agency's interpretation of an Indiana statute requiring the com-
missioners of a municipal housing authority to file an annual report
with the municipal clerk. ^°^ Appellants, housing authority commis-
sioners, were removed from office by the mayor for failing to file the
statutorily required annual report within a reasonable time. The trial
court affirmed the mayor's action. The court of appeals noted that,
although "the interpretation of a statute by an administrative agency
is entitled to great weight," the agency's interpretation is "not bind-
ing" upon a reviewing court when that interpretation is incorrect or
is contrary to the obvious legislative will.^^" The first district held that
the mayor's interpretation of the relevant statute was erroneous and
that the commissioners were entitled to reinstatement.^"

"'M26 N.E.2d 448 (Ind. Ct. App. 1981).

'''Id. at 450 (citing Ind. Code § 18-7-11-21 (1976) (repealed 1981) (current version at
id. § 36-7-18-36 (1982)).

"»426 N.E.2d at 451.

'"/d. Three other first district cases decided during the survey period also sup-
port the position that erroneous agency interpretations of law may be reversed upon
review. Illinois-Indiana Cable Television Ass'n, Inc. v. Public Serv. Comm'n, 427 N.E.2d
1100 (Ind. Ct. App. 1981); Department of Fin. Insts. v. Beneficial Fin. Co. of Madison,
426 N.E.2d 711 (Ind. Ct. App. 1981); Southern Ry. v. Board of Comm'rs of Vander-
burgh County, 426 N.E.2d 445 (Ind. Ct. App. 1981).

20 INDIANA LAW REVIEW [Vol. 16:1

Similarly, in Shettle v. Shearer,^^^ the third district ruled that the
superintendent of the Indiana State Police had acted contrary to law
in failing to issue a handgun license."^ The superintendent's decision
was based upon his construction of the handgun licensing statute,
Indiana Code section 35-23-4. l-5(a),"^ and Indiana common law."^ One
dissenter in Shearer suggested, however, that the court's reversal of
the superintendent's decision was not a review of agency legal inter-
pretation, but that the court's action was an improper reversal of the
agency's findings of fact which were supported by substantial evidence.

Shearer raises an important point: the characterization of an issue
for judicial review as "legal" or "factual" may well be dispositive of
the issue's outcome. Obviously, whether an applicant for a handgun
permit meets the requirements for permit approval is ordinarily a
question of fact, and the resulting permit approval or denial, as a fac-
tual determination, cannot be reversed by a reviewing court if sup-
ported by substantial evidence. However, by changing the focus of
the inquiry to whether the superintendent's decision was contrary to
laWj^^^ as opposed to merely unsupported by substantial evidence, the
Shearer court accorded itself the power to review, and ultimately
reverse, the superintendent's decision. The moral of the story is
clear — if it appears that an agency's resolution of a factual issue is
supported by substantial evidence, one should attempt to convince the
court that the factual issue is, in fact, a legal issue and that de novo
review of the legal conclusion is appropriate.

The comparative ease with which reviewing courts may reverse
erroneous agency interpretations of law, however, may be threatened
by at least one case decided during the survey period dealing with
the doctrine of legislative acquiescence. As expressed in Baker v.
Compton,^^'' the doctrine of legislative acquiescence generally holds that
an administrative agency's long-standing erroneous interpretation of
a statute, which is subsequently not amended or altered by the
legislature, becomes binding upon the agency; the presumption is that
the legislature's inaction indicates its satisfaction with the agency's
construction."^

"M25 N.E.2(i 739 (Ind. Ct. App. 1981).

"The court did rule, however, that the trial court erred in ordering the superintend-
ent to issue the license. Id at 741. The court pointed out that the only relief a trial
court could grant when an administrative agency's decision is contrary to law is to
vacate that decision and remand for further agency determinations. Id. at 741.

"M25 N.E.2d at 740 (quoting Ind. Code § 35-234.1-5(a) (1982)).

"^425 N.E.2d at 741 (citing Schubert v. DeBard, 398 N.E.2d 1339 (Ind. Ct. App. 1980)).

"""Contrary to law" is, of course, one of the grounds upon which a reviewing
court may overturn an administrative decision. See Ind. Code § 4-22-1 18 (1982).

"'247 Ind. 39, 211 N.E.2d 162 (1965).

"Yd. at 42, 211 N.E.2d at 164.

1983] SURVEY -ADMINISTRATIVE LAW 21

In Indiana Department of State Revenue v. General Foods Corp.,^^^
however, the second district appeared to take the doctrine of
legislative acquiescence one step further when it suggested in a foot-
note to its opinion that the doctrine of legislative acquiescence also
applied to judicial review of agency interpretations of law, and that
the agency's prior interpretations, even though perhaps erroneous, are
binding upon the reviewing court}^^ Although the court emphasized
that it did not decide whether the doctrine was strictly applicable, *^^
the clear implication of the footnote is that the doctrine of legislative
acquiescence mandated that the State Board of Revenue's prior ap-
plication of an Indiana income tax statute^^^ was binding. Although
the General Foods decision was unanimous, the footnote in question
was disavowed by Judge Sullivan. ^^^

By contrast, in Beer Distributor of Indiana, Inc. v. State ex rel.
Alcoholic Beverage Commission,^^^ the first district clearly indicated
that the doctrine of legislative acquiescence does not force a review-
ing court to affirm an agency's erroneous interpretation of law and
that an administrative interpretation that violates applicable statutes,
no matter how long-standing, is "entitled to no weight."^^^ It is hopeful
that future cases will resolve this issue and heal the apparent split
between the first and second districts.

-4. Review of Agency Rule Making. — In a case decided during this
survey period, Neswick v. Board of Commissioners, ^^^ the fourth district
reaffirmed the established rule that the quasi-legislative actions of ad-
ministrative agencies are not judicially reviewable in the strict sense
of the word.^^' However, the court also recognized that agency quasi-
legislation which is unconstitutional or otherwise illegal can always
be collaterally attacked through the procedural vehicle of a declaratory
judgment action. ^^^ The Neswick court reversed a trial court's conclu-
sion that it was without jurisdiction to consider the merits of a con-
stitutional challenge to a local zoning ordinance. ^^^ In City of Ander-

••^427 N.E.2d 665 (Ind. Ct. App. 1981).

'''Id. at 670-71 & n.l (citing Whirlpool Corp. v. State Board of Tax Comm'rs, 167
Ind. App. 216. 338 N.E.2d 501 (1975)).

'^'427 N.E.2d at 670-71 n.l.

'"Ind. Code § 6-2-1-2 (1976) (repealed 1981) (current version at Ind. Code § 6-2.1-2-2
(1982)).

''M27 N.E.2d at 671.

•^"431 N.E.2d 836 (Ind. Ct. App. 1982).

'''Id. at 840.

'^«426 N.E.2d 50 (Ind. Ct. App. 1981).

'^Vc/. at 53. For an example of the established law, see Indiana Waste Systems
V. Board of Comm'rs of Howard County, 389 N.E.2d 52 (Ind. Ct. App. 1979).

''M26 N.E.2d at 53.

'''Id. at 53-54.

22 INDIANA LAW REVIEW [Vol. 16:1

son V. Associated Furniture & Appliances, Inc.,^^^ without passing
directly on the point, the Indiana Supreme Court also noted that agen-
cy rule making can always be attacked by the filing of a complaint
for declaratory and injunctive relief wherein the jurisdiction of the
court is based upon a constitutional claim. ^^^

F. Delegation of Legislative Power

In Stanton v. Smith,^^^ the Indiana Supreme Court was faced with
an alleged unconstitutional delegation of legislative power to an ad-
ministrative agency. Plaintiff in that case was an AFDC recipient^^^
who challenged the Indiana Department of Public Welfare's twenty-
five percent rateable reduction of standards used to formulate
minimum AFDC benefits.

Although maximum standards of AFDC assistance are determined
by statute/^" the Indiana General Assembly delegated to the Public
Welfare Department the authority to establish minimum standards
of AFDC assistance within the standards set forth in the statutes. ^^^
One of the standards established by the General Assembly was that
the Public Welfare Department could affix a rateable reduction, not
to exceed thirty-five percent, to the standards used to determine
minimum AFDC requirements. ^^^ The Public Welfare Department
established a twenty-five percent rateable reduction^^^ which caused
the plaintiffs AFDC benefits to be reduced correspondingly. The plain-
tiff thereafter brought a class action suit alleging that the Public
Welfare Department's authority to establish the rateable reduction
was improperly delegated to it by the General Assembly.

The trial court agreed with plaintiff's improper delegation argu-
ment and declared the twenty-five percent rateable reduction, and its
enabling statute, to be unconstitutional. On appeal, however, the
supreme court disagreed and held constitutional the delegation to the

'^"423 N.E.2d 293 (Ind. 1981), rev'g 398 N.E.2d 1321 (Ind. Ct. App. 1980).

'^'423 N.E.2d at 294.

'^'429 N.E.2d 224 (Ind. 1981). For further discussion of this case see Wright, Social
Security and Welfare, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L.
Rev. 339, 346-47 (1983).

'^^The statutory program for AFDC recipients (Aid to Families with Dependent
Children) is codified at 42 U.S.C. § 601 (1976) (incorporated by reference at Ind. Code
§ 12-1-2-12, -13 (1982)).

'''See Ind. Code § 12-1-7-3 (1982).

''"•See Ind. Code § 12-l-2-2(d) (1982).

•''Act of Apr. 26, 1973, Pub. L. No. 339. 1973 Ind. Acts 1887, 1933.

•''470 Ind. Admin. Code § 2-1-6 (1979). 470 Ind. Admin. Code § 10-3-6(2) (1979) indicates
that the rateable reduction percentage of 25% was enacted by the General Assembly,
not by administrative fiat; obviously, this statement is contrary to the basis for the
whole dispute in Stanton.

1983] SURVEY -ADMINISTRATIVE LAW 23

Public Welfare Department of the power to determine a rateable
reduction, up to thirty-five percent. '^^ In so holding, the supreme court
stated the following:

The Legislature cannot delegate its power to make a law; but
it can make a law to delegate a power to determine some fact
or state of things upon which the law makes, or intends to
make, its own action depend. Blue v. Beach, (1900) 155 Ind.
121, 56 N.E. 89. An administrative body can be delegated the
responsibility, methods, or details necessary to implement the
law enacted by the Legislature. This Court has held that the
Legislature may delegate authority to an administrative agen-
cy if the Legislature lays down in the same statute a
reasonable standard to guide that discretion. Kryder v. State,
(1938) 214 Ind. 419, 15 N.E.2d 386.^^^

Thus, despite the fact that the authority delegated to the Public
Welfare Department by the General Assembly resulted in an enor-
mous impact upon AFDC families across the state, so long as
legislative guidelines existed to check the Public Welfare Department's
authority, the delegation was constitutional.

G. Enforcement of Agency Orders

Under the Indiana Administrative Adjudication Act, an ad-
ministrative agency is entitled to seek equitable relief in a court of
law for enforcement of its final orders.^'*" In City of Gary v. Stream
Pollution Control Board,^^^ the fourth district had occasion to consider
one of the most oft-pleaded reasons for noncompliance with adverse
agency orders — the poverty defense. The Indiana Stream Pollution
Control Board and the City of Gary entered into an agreed order which
established certain standards for the operation of a refuse disposal
facility located in Gary. Subsequently, the Board determined that the
city was not in compliance with the agreed entry and sought
preliminary and permanent injunctions against the city seeking to man-
date the city's adherence to the refuse disposal standards. The city's
defense to the injunction proceeding was that it did not have suffi-
cient funds from revenue sharing and local property taxes to meet
the costs of complying with the Board's order, and that the city's ap-
plications to the State Tax Control Board for excessive levies^^*^ to
pay for the increased costs of operating the facility had been denied
by the Tax Control Board.

'"^429 N.E.2d at 229.

'''Id. at 228.

''"Ind. Code § 4-22-1-27 (1982).

""422 N.E.2d 312 (Ind. Ct. App. 1981), frayisfer denied, October 27. 1981.

'''Id. at 314-15 (citing Ind. Code § 6-3.5-1-12 (1982)).

24 INDIANA LAW REVIEW [Vol. 16:1

The fourth district found that the city's financial problems were
not sufficient justification for the city's admitted noncompliance with
the agreed entry of the Stream Pollution Control Board and, thus,
affirmed the trial court's issuance of a preliminary injunction. ^^^ The
court placed considerable emphasis upon the environmental nature of
the case; while financial hardship may affect the timetable for com-
pliance with the environmental decree, the legality of the agreed en-
try was in no way impaired by the city's lack of funds. ^^'^ Secondly,
the court ruled that the city's financial difficulties were foreseeable
at the time of the order and, therefore, were no excuse for non-
compliance with the terms of the agreed entry. ^^^ Finally, the court
held that the city had not exhausted all possible avenues for financ-
ing the operation of the landfill and, in particular, noted that the Solid
Waste Disposal Facilities Act provided for alternative methods of
financing the operation of the disposal site which the city had not yet
attempted. ^''^

•^'422 N.E.2d at 318.
'*'Id. at 317.

146]

7d at 318 (citing Ind. Code §§ 19-2-1-1 to -32 (1976) (repealed 1981) (current ver-
sion at id. §§ 36-9-30-1 to -35 (1982)). In particular, the city was statutorily authorized
to issue revenue bonds, establish service charges and transfer budgets. Ind. Code §§
19-2-1-3, -9, -10 (1976) (repealed 1981) (current version at id. §§ 36-9-30-3, -15, -16 (1982)).

II. Business Associations

Paul J. Galanti*

A. Shareholder Derivative Actions

Neese v. Richer,^ decided during the survey period, should be of
particular interest to attorneys who represent closely held corpora-
tions and to attorneys who represent minority shareholders of such
corporations. In Neese, the court of appeals affirmed an order of the
Montgomery Circuit Court that awarded attorney fees and expenses
to the plaintiff, Richer, in a shareholder derivative action.^ The plain-
tiff sought an accounting and damages, alleging mismanagement of
the corporate defendant, improper recordkeeping, fraud, and conver-
sion of corporate funds to the directors' personal use.^

The trial court had ordered an audit of the corporation's books
by an independent accounting firm/ Following receipt of the independ-
ent accountant's report, the trial court found that Richer had failed
to prove the defendants were guilty of fraud, mismanagement, or con-
version even though Richer had proven that the defendants were
guilty of certain "improper" acts.^ However, the court then concluded
that Richer had been justified in filing the suit because the defend-
ants had failed to keep correct and complete financial books and
records of account as required by the Indiana General Corporation
Act,^ and because the defendants' dealings with the corporation "were
sufficiently susceptible of an interpretation of wrongdoing."^ Conse-
quently, the trial court ordered the corporation to pay Richer's ex-
penses, the costs of the action, and the accountant's fee, even though
the suit did not generate a financial recovery for the corporation.^

The first issue resolved on appeal was the propriety of ordering
the corporation to pay for the independent accounting. Relying on
Atwood V. Prairie Village, Inc.,^ the Neese court held that allowing

*Professor of Law, Indiana University School of Law — Indianapolis. A.B., Bowdoin
College, 1960; J.D., University of Chicago, 1963.

'428 N.E.2d 36 (Ind. Ct. App. 1981).

Ud. at 43.

Hd, at 37.

Vd. Defendants had unsuccessfully attempted to secure a writ of mandate and
prohibition preventing the trial judge from acting in connection with the independent
accounting order. See State ex rel. Neese v. Montgomery Circuit Court, 399 N.E.2d
375 (Ind. 1980).

M28 N.E.2d at 37.

«IND. Code § 23-1-2-14 (1982).

'428 N.E.2d at 38.

'Id.

MOl N.E.2d 97 (Ind. Ct. App. 1980). The Atwood court in turn had relied on an
earlier related Indiana Supreme Court decision. State ex rel. Neese v. Montgomery
Circuit Court, 399 N.E.2d 375 (Ind. 1980).

26 INDIANA LAW REVIEW [Vol. 16:25

costs in an equitable action, such as an accounting, is within the discre-
tion of the trial court, and the court of appeals will not interfere unless
this discretion is manifestly abused. ^° In Atwood, it made no difference
that the accountant's fee was assessed against the unsuccessful plain-
tiff. Clearly, this factor should not make a difference in determining
who pays the accountant's fee; the main issue is which party equitably
should bear the expenses. The Neese court was satisfied that assess-
ing the fee against the corporation was proper in light of the trial
court's "findings that the corporation's accounting procedures were
sloppy, disorganized, and extremely difficult to follow"^^ in substan-
tiating and reconciling the accounts and records that were available.

The message of this aspect of Neese is clear, unambiguous, and
should be brought home to corporate clients who take a cavalier
attitude toward proper bookkeeping and recordkeeping. The Indiana
General Corporation Act requires corporations to keep correct and
complete books of account. ^^ Those that fail to comply with the
statutory mandate at least face the prospect of paying for an independ-
ent audit if a minority shareholder brings a colorable, although not
totally successful, action for an accounting. A much wiser course is
to avoid the Neese problem by keeping the proper books and records.

An even more significant aspect of Neese is the fact that the ap-
pellate court affirmed the award of attorney fees and expenses.
Indiana has long recognized the propriety of such an award where
a shareholder has successfully prosecuted a derivative suit that
resulted in some actual pecuniary benefit to the corporation.^^ There
are two policies for this rule: (1) shareholders who benefit from another
shareholder's efforts to recover a fund for the corporation would be
unjustly enriched if they did not contribute to the litigation expenses,
and (2) failure to reimburse the shareholder's expenses would
discourage shareholders from bringing meritorious derivative suits if
the fees and expenses would exceed any potential increase in the value
of their shares.^*

•0428 N.E.2d at 38-39.

'Ud. at 39.

•^IND. Code § 23-1-2-14 (1982).

''See Cole Real Estate Corp. v. Peoples Bank & Trust Co., 160 Ind. App. 88, 310
N.E.2d 275 (1974), discussed in Galanti, Business Associations, 197Jf Survey of Recent
Developments in Indiana Law, 8 Ind. L. Rev. 24, 35-42 (1974). See also Princeton Coal
& Mining Co. v. Gilchrist, 51 Ind. App. 216, 99 N.E. 426 (1912). See generally authorities
cited infra note 14.

•"428 N.E.2d at 39. See generally 13 W. Fletcher, Cyclopedia of the Law of
Private Corporations § 6044 (rev. perm. ed. 1980). Professor Hornstein's four articles
on counsel fees in derivative actions are considered to be the leading commentary on
the issue. See Hornstein, The Counsel Fee in Stockholder's Derivative Suits, 39 Colum.
L. Rev. 784 (1939); Hornstein, Problems of Procedure in Stockholder's Derivative Suits, 42
Colum. L. Rev. 574 (1942); Hornstein, New Aspects of Stockholder's Derivative Suits, 47

1983] SURVEY-BUSINESS ASSOCIATIONS 27

Defendants first argued that the award was inappropriate because
Richer's suit was "not successful." This argument was summarily
rejected in that the trial court specifically had found that an account-
ing was proper under the circumstances even though the defendants
were not guilty of fraud, mismanagement, or conversion of corporate
assets. Thus, Richer's suit was "successful."'^

Defendant's second argument was that Richer could not recover
his expenses because the corporation derived no pecuniary benefit
from the suit. In rejecting this contention, the Neese court placed In-
diana squarely among those jurisdictions that have extended the "com-
mon benefit" rule for awarding fees and expenses for cases such as:
where a fund was brought within the court's control; where a fund
was established from which others would benefit although without the
court's control;'^ and where the derivative action has produced a
nonpecuniary benefit for the corporation.'^

The court in Neese relied upon and quoted substantially from the
United States Supreme Court opinion in Mills v. Electric Auto-Lite
Co}^ to reach this result. In Mills, the Court affirmed an interim award
of litigation expenses and reasonable fees to plaintiffs in a derivative
action challenging a corporate merger under section 14(a) of the
Securities Exchange Act of 1934.'^ To a certain extent. Mills recognized
a second theory for awarding fees in a derivative action. The Court
stated at one point that "the stress placed by Congress on the impor-
tance of fair and informed corporate suffrage leads to the conclusion
that, in vindicating the statutory policy, petitioners have rendered a
substantial service to the corporation and its shareholders."^" This

COLUM. L. Rev. 1 (1947); Hornstein, Legal Therapeutics: The "Salvage" Factor in Counsel
Fee Awards, 69 Harv. L. Rev. 658 (1956). See also other authorities cited in W. Gary &
M. EiSENBERG, Cases and Materials on Corporations 942-43 (5th ed. unabr. 1980).

'M28 N.E.2d at 39.

'^See, e.g., Sprague v. Ticonic Nat'l Bank, 307 U.S. 161 (1939).

"428 N.E.2d at 39-40. See generally W. Cary & M. Eisenberg, supra note 14, at 939.

•«396 U.S. 375 (1970).

•'15 U.S.C. § 78n(a) (1976). There is an ironic ending to Mills. As noted, the fees
upheld by the Court were interim fees. On remand, the district court awarded damages
and prejudgment interest to the plaintiffs, but on appeal the Seventh Circuit found
that the terms of the challenged merger were fair; thus, the plaintiffs could recover
nothing and were not entitled to fees and expenses incurred subsequent to their vic-
tory in the Supreme Court. Mills v. Electric Auto-Lite Co., 552 F.2d 1239, 1249-50 (7th
Cir.), cert, denied, 434 U.S. 922 (1977). The court relied on Alyeska in denying fees and
expenses. 552 F.2d at 1238. The plaintiffs who had won the battle thus lost the war,
and those who continued the fight following the Supreme Court's decision were left
to their own devices and pocketbooks. The Seventh Circuit is not totally "heartless"
and recently awarded a fee of $27,900 to an outside attorney who had done some work
on Mills while it was before the Supreme Court. Mills v. Electra Corp., 663 F.2d 760
(7th Cir. 1981) (attorney requested $500,000).

'"396 U.S. at 396 (emphasis added).

28 INDIANA LAW REVIEW [Vol. 16:25

second theory is that fees can be awarded where the plaintiffs were
in effect "private attorney generals" helping to enforce the federal
securities laws.^^ In Alyeska Pipeline Co. v. Wilderness Society, ^^
however, the Court specifically rejected the private attorney general
theory of awarding attorney fees in suits brought under federal
statutes unless provided by specific statutory authorization. The Court
in Mills did emphasize that benefits were conferred on the other
shareholders by plaintiffs' suit; therefore, the Mills decision, which
on its face is based on the common benefit theory, survives AlyeskaP

As the court in Neese recognized, fees and expenses cannot be
awarded to a plaintiff in all instances where defendants have done
"some wrong," for to do so would invite the nuisance strike suit.^*
Such an award is only proper where the corporation receives a
substantial benefit which " 'maintain[s] the health of the corporation
and raise[s] the standards of "fiduciary relationships and of other
economic behavior" ' or which 'corrects or prevents an abuse which
would be prejudicial to the rights and interests of the corporation or
affect[s] the enjoyment or protection of an essential right to the
stockholder's interest.' "^^

A court must establish a balance between the interests of the cor-
poration and the interests of the minority shareholders. To award fees
where there have been only insignificant wrongs would be unjust to
the corporation, but to deny fees unless the corporation received some
economic or monetary benefit could effectively foreclose minority
shareholders from bringing derivative actions to correct improper
corporate conduct.^^ The Neese court was satisfied that the corpora-
tion had received a substantial nonpecuniary benefit. ^^ Albeit unlike-
ly, the failure to keep correct and complete financial books and records
could have subjected the corporation to fines. ^* Thus, the independ-
ent accounting ordered by the court improved the "health" of the cor-

^The concept of the private attorney general in part implies a cause of action
for a violation of the SEC's proxy rules. See J.I. Case Co. v. Borak. 377 U.S. 426 (1964).

^421 U.S. 240 (1975).

^^The philosophical attitude of the Court to securities' suits had changed from
1970 to 1975, and although Alyeska cited Mills with approval, as Professors Cary and
Eisenberg point out, it is open to question whether the Court would again go as far
as it did in Mills in determining what constitutes a benefit for purposes of awarding
fees under the common fund theory. W. Cary & M. Eisenberg, supra note 14, at 939.

^"428 N.E.2d at 42.

Hd. (quoting Bosch v. Meeker Coop. Light & Power Ass'n, 257 Minn. 362, 364-67,
101 N.W.2d 423, 426-27 (I960)).

^428 N.E.2d at 42.

^*A corporation that fails to do any act required by the Indiana General Corpora-
tions Act commits a Class B infraction, subjecting it to a possible fine. Ind. Code §§
23-l-10-l(a), 34-4-32-4(b) (1982).

1983] SURVEY-BUSINESS ASSOCIATIONS 29

poration by bringing it in line with the requirements of the General
Corporation Act.^^

Neese is a caveat to anyone controlling a closely held corporation
who might be taking, or be tempted to take, ''slight" advantage of
minority shareholders. No longer can a majority shareholder test the
line between the rightful exercise of control and the abuse of minority
shareholder interests with the notion that the minority shareholders
are unlikely to balk, that is, sue, because it would not be worth their
financial while. Now, such majority shareholders must keep in mind
that improper conduct, even though not fraudulent, can result in fees
and expenses being assessed to the corporation. This decision means
they will pay something for their misdeeds.

B. Creation of Limited Partnerships

Perhaps the most interesting thing about the Indiana Uniform
Limited Partnership Act (I.U.L.P.A.P is that the relevant, reported
cases interpreting the I.U.L.P.A. are decided by courts in other
jurisdictions.^^ The decision of the Illinois Appellate Court in Allen
V. Amber Manor Apartments Partnership^^ is such a case. In Allen,
the court of appeals reversed the trial court's grant of plaintiff Allen's
motion for partial summary judgment in an action to determine if
Allen was a limited partner in an Indiana limited partnership that
owned an apartment complex in Hobart, Indiana.^^

The Allen court held that summary judgment was precluded in
this case, because there were factual issues as to whether the parties
intended to form a limited partnership and, if so, when the limited
partnership was formed.^* Allen became involved in the project in late
1974, when he and other investors entered into an agreement to con-
tribute $500,000 to the capital of the partnership.^^ The term "capital"
is used advisedly because the agreement provided that the payments,

^M28 N.E.2d at 43. Although not in issue in Neese, Professors Gary and Eisenberg
briefly describe the methods for determining fees in a successful shareholder derivative
suit. W. Gary & M. Eisenberg, supra note 14, at 940-41; see also Mowrey, Attorney Fees
in Securities Class Action and Derivative Suits, 3 J. Gorp. L. 267 (1978). It is likely that
the value of the attorney's time rather than the value of the benefit produced will
be emphasized in cases involving nonpecuniary benefits because of the difficulty of
quantifying such benefits. Id. at 316-19.

^"IND. GODE §§ 23-4-2-1 to -31 (1982).

^'See, e.g.. Plaza Realty Investors v. Bailey, 484 F. Supp. 335 (S.D.N.Y. 1979), discuss-
ed in Galanti, Business Associations, 1980 Survey of Recent Developments in Indiana Law,
14 IND. L. Rev. 91, 101-08 (1981).

^^95 111. App. 3d 541, 420 N.E.2d 440 (1981).

''Id. at 552, 420 N.E.2d at 448.

''Id. at 551, 420 N.E.2d at 448.

"Id. at 543, 420 N.E.2d at 442.

30 INDL-LXA LAW REVIEW [Vol. 16:25

which included a loan of $50,000 to the general partners, were to be
evidenced by promissory notes.^ The agreement further provided that
the purported capital contributions were due and payable within thirty
days following notice of the completion of the project, which notice
had to be given between June 15, 1975, and January 31, 1976.^'

The limited partnership is a noncorporate form of business enter-
prise that permits persons who are limited partners to invest money
without the risk of unlimited liability, which risk persons who are
general partners encounter. To achieve this limited liability status,
however, the limited partner must place his contribution to capital
at risk.^ The Allen court found that the contribution made by a limited
partner is "limited to the contribution made by a limited partner at
the time of formation of the partnership for the benefit of the part-
nership's creditors. "^^ This finding does not mean that the actual pay-
ment has to be made in toto at the time of the formation of the part-
nership. Rather, it requires an absolute commitment to contribute
capital to the venture and to place that contribution at risk.^ Of course,
as a general matter, this contribution is made at the outset to finance
the venture. Because the limited partner's investment must be at risk,
it is improper for a limited partner to take collateral to secure repay-
ment of his investment or to guarantee a return to himself.^^

A limited partnership, like a general partnership, is a contractual
relationship to which contract law principles apply, subject to the
formal requirements of the I.U.L.P.A. The Allen court recognized this
truism^ and then further recognized that an agreement, in and of itself,
will not create a partnership unless the agreement reflects the par-
ties' mutual assent to the terms of the agreement.'^ Failure to agree
to or to discuss an essential term of a contract may be evidence that
the requisite mutual assent w^as lacking and that no partnership, or
at least no limited partnership, in fact had been formed.

^7c?. at 543-44, 420 N.E.2d at 442-43.

""Id. at 543-44. 420 N.E.2d at 443. This agreement also provided that the new
limited partners were to be admitted to the partnership as of January 1, 1974, and
specified the parties' participation in the profits and losses of the venture. Id.

""Id. at 547, 420 N.E.2d at 445. See Kramer v. McDonald's System, Inc.. 77 111.
2d 323. 396 N.E.2d 504 (1979).

^5 111. App. 3d at 547, 420 N.E.2d at 445 (emphasis added i.

'The I.U.L.P.A. provides that a limited partner is liable to the partnership: "(a)
For the difference between his contribution as actually made and that stated in the
certificate as having been made, and ib> for any unpaid contribution which he agreed
in the certificate to make in the future at the time and on the conditions stated in
the certificate." Ind. Code § 23-4-2-17 (1982).

'Tnd. Code § 23-4-2-16(1 » (1982).

'^5 111. App. 3d at 549, 420 N.E.2d at 446.

*'Id.

1983] SURVEY-BUSINESS ASSOCIATIONS 31

The Illinois Appellate Court concluded that there was a factual
issue as to whether a partnership, in fact, had been created."* Defend-
ants' position was that Allen's interests, if any, depended on the pro-
ject's completion by January 31, 1976. Allen's position was that his
status as a limited partner did not depend on the completion date
of the project. Thus, there was a major factual issue as to whether
the parties contemplated the formation of the limited partnership to
occur at the time the agreement was executed or when the project
was completed.''^

It is obvious that the court was not particularly sympathetic to
Allen's position because it observed that Allen's interpretation of the
agreement would give him the status of a limited partner while not
putting his investment at risk.*^ Under Allen's approach, Allen could
escape all liability if the project was not completed before January
1, 1976, which was when his obligation to contribute ended. '^^ Defend-
ants, on the other hand, argued that no limited partnership could be
formed because Allen had not made a capital contribution. These dif-
fering interpretations of the agreement meant that there were triable
issues, and thus summary judgment was inappropriate.***

The decision in Allen emphasizes that care is needed in drafting
partnership documents to ensure that the intentions of the parties
purporting to create a limited partnership are specified clearly and
that there is agreement on all the pertinent elements of the relation-
ship. The intriguing question left unanswered by the Allen court was
that if Allen had not entered into a limited partnership, what was
the relationship among the parties? Presumably, Allen would be a
general partner subject to unlimited liability as a member of "an
association of two or more persons to carry on as co-owners a business
for profit," which is the definition of a partnership under the Indiana
Uniform Partnership Act."*^ Although the opinion in Allen does not
point out the context in which the litigation arose, it is distinctly possi-
ble that the project had failed and there was potentially unlimited
liability. This would explain why Allen was attempting to obtain a
determination that he was a limited partner and why the partnership
and the individual general partners were appealing. If Allen was a

''Id. at 551. 420 N.E.2d at 448.

''Id. at 549-50, 420 N.E.2d at 447.

''Id. at 550, 420 N.E.2d at 447.

"Id. at 549, 420 N.E.2d at 447.

^*The court was also unable to determine if the $50,000 the new limited partners
advanced to the enterprise was a loan or a contribution to the capital. It observed
that it was just as reasonable to infer that the money was intended as a loan as it
was to infer that it was intended as a secured capital contribution which would con-
travene the I.U.L.P.A. 95 111. App. 3d at 550-51, 420 N.E.2d at 447 48.

^'IND. Code § 23-4-1-6(1) (1982).

32 INDIANA LAW REVIEW [Vol. 16:25

general partner, the individual general partners would have the right
of indemnification provided for by section 23-4-l-18(b) of the Indiana
Uniform Partnership Act.^°

One point in Allen that is worthy of note was the court's state-
ment that the pleadings "contain a reference that due to some failure
to comply with formal requisites of Indiana partnership law . . . [three
individuals] became general partners."^^ These individuals entered the
venture after the partnership was formed, purportedly as limited part-
ners. Presumably, when these three individuals were admitted to the
partnership, the partnership failed to comply with the I.U.L.P.A.
requirement that when an additional limited partner is admitted, ^^ an
.amended limited partnership certificate must be filed for record in
the office of the recorder of the county where the partnership's prin-
cipal place of business is located. ^^

The reason for this filing requirement is obvious. The purpose for
the certificate of partnership is to give notice to third persons of the
essential features of the limited partnership;^^ the purpose for the
amended certificate is to ensure that public information of record is
current and up to date.^^ The failure to file an amended certificate
in Allen meant that, potentially, the three individuals were subject to
unlimited liability as general partners.^^

This aspect of Allen is not significant to the actual case, but it
should remind attorneys representing limited partnerships to ensure
that all statutory requirements are satisfied to avoid the very
undesirable consequence of unlimited liability to persons believing
themselves to be limited partners.

C. Securities Act— Receiver

The authority of the Indiana Securities Commissioner to seek a
court-appointed receiver was clarified in State ex rel. Higbie v. Porter
Circuit Court.^'^ In Higbie, the judgment creditors of an attorney and

^Id, at § 23-4-l-18(b). See generally J. Crane & A. Bromberg, Partnership § 65(b)
(1968).

"95 III. App. 3d at 542 n.l, 420 N.E.2d at 442 n.l.

^^IND. Code §§ 23-4-2-8, -24(2)(c) (1982).

^Id. at § 23-4-2-25(5). It is possible, however, that the problem was with the form
of the amended certificate because the court does note that an amended limited partner-
ship certificate was filed with the Lake County Recorder on December 30, 1974. 95
111. App. 3d at 545. 420 N.E.2d at 444.

"5ee Klein v. Weiss, 284 Md. 36, 395 A.2d 126 (1978).

^/d. at 62, 395 A.2d at 141.

*0f course, if they claimed they erroneously believed themselves to be limited
partners, then they could escape unlimited liability by renouncing their interests in
the profits of the business or other compensation by way of income. Ind. Code §
23-4-2-11 (1982). However, the liability of these three individuals was not in issue in Allen.

"428 N.E.2d 782 (Ind. 1981).

1983] SURVEY-BUSINESS ASSOCIATIONS 33

an accountant had been thwarted in their efforts to satisfy a judg-
ment because of a court order appointing a receiver for the debtors.
It appears that in a prior action the Indiana Securities Commissioner
had successfully prosecuted a suit against the debtors, charging them
with violating the Indiana Securities Act.^^ As a result of this suit,
the Porter Circuit Court had appointed a receiver for the debtors,
individually and as partners, to prevent the debtors from "dissipating,
wasting, transferring or otherwise disposing of their assets absent the
consent of such conservator or receiver or as a result of an appropriate
order to this court following a hearing to that end."^^

In an original action before the supreme court, the judgment
creditors contended that the Porter Circuit Court had no jurisdiction
to appoint a receiver for the assets of the individual debtors because
there was no lien upon such assets in favor of the Indiana Securities
Commissioner who had sought the receivership.^"

The circuit court's contention, which was accepted by the Indiana
Supreme Court, was that, even though the Securities Commissioner
was not a creditor, he had authority to apply for a receiver, and that
the circuit court had proper jurisdiction, pursuant to section
23-2-1-17. 1(a) of the Indiana Securities Act. This provision authorizes
the Securities Commissioner to issue cease and desist orders against
persons violating the Indiana Securities Act and further authorizes
that he may "bring action in the name and on behalf of the State of
Indiana ... to enjoin that person from continuing or doing any act
furthering a violation of this chapter and may obtain the appointment
of a receiver or conservator."^^

The Indiana Supreme Court construed section 23-2-1-17. 1(a) as
authorizing the appointment of a receiver, once it is clear that a viola-
tion of the Securities Act has or is about to occur .^^ The required show-
ing of unlawful conduct serves the same legal function as a lien or
an interest in property when a creditor seeks a receiver for a debtor ,^^
because the violation establishes the state's interest in the violators'
property, which has a nexus to their business conduct.

To require a lien before a receiver can be appointed would not
only contradict the express statutory language of the Securities Act,
but would also severely hamper the effective enforcement of the
Securities Act. Seizing and preserving the assets of a violator would
ensure "that justice be done between the violator and the investor,
and that public confidence be maintained in the effectiveness of the

^IND. Code §§ 23-2-1-1 to -24 (1982).

^M28 N.E.2d at 783 (emphasis added).

«°/d. See McKain v. Rigsby, 250 Ind. 438, 237 N.E.2d 99 (1968).

«'IND. Code § 23-2-l-17.1(a) (1982).

'M28 N.E.2d at 783.

''Id. at 784.

34 INDIANA LAW REVIEW [Vol. 16:25

government regulation of the securities industry."^'' It would not be
at all surprising if persons engaging in improper securities transac-
tions kept poor, if any, books and records and commingled individual
assets with "business" assets. Construing section 23-2-17. 1(a) restric-
tively, by permitting individual creditors access to individual assets
before malefactors' affairs are straightened out, would clearly thwart
the interests that are to be protected by the Indiana Securities Act.

Section 23-2-1-17.1 of the Indiana Securities Act is patterned after
and similar to section 408 of the Uniform Securities Act.^^ Although
the language differs, both the Indiana Act and the Uniform Act clearly
intend to authorize the appointment of a receiver where the receiver
will facilitate enforcement of the act and will protect the interests
of the investor.^^ In fact, the importance of a receiver in enforcing
securities laws had led two commentators to posit that language such
as "in addition to any other remedies" may be sufficient to infer
statutory authority for the appointment of a receiver in securities
cases in those states that do not expressly authorize the enforcement
agency to do so.^^

Although the language of section 23-2-1-17.1 of the Indiana
Securities Act appears, on its face, to be clear, the supreme court's
decision in Higbie resolves any doubts as to the Securities Commis-
sioner's authority to seek a receiver.

D. Indiana Takeover Offers Act

The Indiana Takeover Offers Act^^ was at issue before the Indiana
Court of Appeals in In re CTS Corp.^^ Unlike most suits involving

''Id.

®^Unif. Securities Act § 408, 7A U.L.A. 663 (1958). The Indiana provision is taken
in part from section 408, which pertains to injunctive relief, and in part from section
407, which authorizes the agency enforcing the Act to conduct investigations and issue
subpoenas. Id. at 660.

^^Surprisingly, there are not many reported cases under the Uniform Securities
Act or similar legislation involving the appointment of a receiver. See Commonwealth
V. Ramco Petroleum, Inc., 3 Blue Sky L. Rep. (CCH) 1 71,525 (Mass. Sup. Ct. 1980);
Commonwealth ex rel. Pennsylvania Sec. Comm'n v. Allamanda Inv. Co., 388 A.2d 1141
(Pa. Commw. Ct. 1978). Of course, authority for the appointment of a receiver does
not automatically mean one will be appointed. See Pennsylvania Sec. Comm'n v. Con-
tinental Mfg. Co., 465 Pa. 411, 350 A.2d 831 (1976) (proper to refuse to appoint a receiver
where defendants agreed to cease questioned transactions until a final determination
if such transactions constituted a sale of securities).

"See lie H. Sowards & N. Hirsch, Business Organizations -Blue Sky Regula-
tion § 10.05[2] (1982).

'«IND. Code §§ 23-2-3.1-0.5 to -11 (1982). The Takeover Offers Act is discussed in
Galanti, Corporations, 1979 Survey of Recent Developments in Indiana Law, 13 Ind. L.
Rev. 133, 161-72 (1980).

«M28 N.E.2d 794 (Ind. Ct. App. 1981).

1983] SURVEY-BUSINESS ASSOCIATIONS 35

takeover statutes/" the litigation in CTS was not a challenge by a
tender offeror who was frustrated by a state takeover act. Instead,
CTS was an appeal by the target company, CTS, from a determina-
tion by the Indiana Securities Commissioner that the offeror. Dynamics
Corporations of America (DCA), had not engaged in any act or practice
violating the Takeover Offers Act.^' CTS contended that the Securities
Commissioner's conclusion was not supported by the evidence and was
contrary to law. In addition, CTS claimed that the Securities Com-
missioner had erred in refusing to reopen the record to receive addi-
tional evidence. ^^

The Securities Commissioner initially issued an ex parte cease and
desist order against DCA but vacated the order after the Seventh
Circuit's decision in City Investing Co. v. Simcox,''^ which had held that
ex parte orders were specifically prohibited by the Takeover Offers
Act. Then, at a contested hearing, CTS sought to establish that a
brokerage firm buying relatively large blocks of CTS stock for DCA
was engaged in a creeping tender offer, which was in violation of the
Takeover Offers Act. The Securities Commissioner rejected that con-
tention and subsequently refused to reopen the proceeding to receive
"newly discovered evidence" because it found that CTS's evidence was
cumulative and not "newly" discovered. Relying on the provisions of
the Takeover Offers Act pertaining to appeals,^'' and the provisions
of the Indiana Administrative Adjudication Act pertaining to the
admission of newly discovered evidence,^^ the CTS court refused to
reweigh the evidence and concluded that the Securities Commissioner
did not err in denying CTS's request to reopen the record.^^

On the issue of whether DCA had made a tender offer, the
Securities Commissioner clearly had followed the approach taken in
City Investing and had looked to cases under the Williams Act amend-

'"See, e.g., City Investing Co. v. Simcox, 476 F. Supp. 112 (S.D. Ind. 1979), aff'd,
633 F.2d 56 (7th Cir. 1980), discussed in Galanti, supra note 31, at 112-17; In re City
Investing Co., 411 N.E.2d 420 (Ind. Ct. App. 1980), discussed in Galanti, Business Associa-
tions, 1981 Survey of Recent Developments in Indiana Law, 15 Ind. L. Rev, 31, 39-47
(1982).

^'428 N.E.2d at 795.

''Id.

^^633 F.2d 56, 58 (7th Cir. 1980).

'"Ind. Code § 23-2-3.1-11 (1982). The court actually referred to section 23-2-3-11 in
the Indiana Business Takeover Act; however, that provision was repealed when the
Indiana Takeover Offers Act was enacted in 1979 and before DCA started acquiring
CTS shares. 428 N.E.2d at 802.

'^Ind. Code § 4-22-1-15 (1982). The evidence must be discovered after the hearing.
Also, there is a presumption that newly discovered evidence might have been discovered
in time to be used at trial. See Shaw v. Shaw, 159 Ind. App. 33, 304 N.E.2d 536 (1973);
Kelly V. Bunch, 153 Ind. App. 407, 287 N.E.2d 586 (1972).

'«428 N.E.2d at 802.

36 INDIANA LAW REVIEW [Vol. 16:25

merits to the Securities Exchange Act of 1934^^ to determine what
constituted a tender offer. The courts in the Williams Act cases have
looked at eight factors, which focus on the presence or absence of
the substantive evils that the Williams Act was intended to prevent, in
order to decide whether a tender offer has been made. The primary
evil seems to be pressuring shareholders to make uninformed, ill
considered decisions to tender their shares.^^

Although some courts^^ and commentators^" have criticized this
approach, it was accepted in City Investing. Thus, on appeal, the court
in CTS was not willing to disturb the Securities Commissioner's find-
ing that five of the eight commonly used criteria indicated there was
no tender offer and that these five factors outweighed the three factors
which tended to show there was a tender offer.^^

Although not argued by the parties, the CTS court observed that
the Securities Commissioner could have relied on sections 23-2-3-l(i)(l)
and (6), which give him the discretion to determine that certain
acquisitions did not constitute takeover offers.^^ Presumably, these pro-
visions were not argued because they were repealed in 1979 when
the current Indiana Takeover Offers Act was adopted, and there are
no comparable provisions in the current Takeover Offers Act. Also,
the offeror had not acquired CTS shares until after the previous
Takeover Offers Act was repealed.

Of course, the most interesting aspect of the Takeover Offers Act
that was not considered by the CTS court was its constitutionality.
The Takeover Offers Act had been upheld in City Investing Co. v.
Simcox,^^ but the recent decision of the United States Supreme Court
in Edgar v. Mite Corp.^^ raises considerable doubt as to the viability
of the Indiana Act as well as to similar statutes in other states. The
Court in Edgar held that the Illinois Business Takeover Act^^ was un-

"15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (1976).

^*428 N.E.2d at 799-800. See generally Note, The Developing Meaning of "Tender
Offer" Under the Securities Exchange Act of 193J,, 86 Harv. L. Rev. 1250 (1973).

'M28 N.E.2d at 800. See, e.g., Brascan Ltd. v. Edper Equities Ltd., 477 F. Supp.
773 (S.D.N.Y. 1979).

*°5ee Note, Private Solicitations Under the Williams Act, 66 Cornell L. Rev. 361
(1981).

**428 N.E.2d at 801. The court was unwilling to disturb the Securities Commis-
sioner's decision because it was supported by the evidence, see City of Mishawaka v.
Stewart, 261 Ind. 670, 310 N.E.2d 65 (1974), and because it is inappropriate for a court
to substitute its judgment for that of the Securities Commissioner who is charged with
enforcing the Takeover Offers Act. See Department of Financial Inst. v. Colonial Bank
& Trust Co., 176 Ind. App. 368, 375 N.E.2d 285 (1978).

^^428 N.E.2d at 798 n.2.

«^476 F. Supp. 112 (S.D. Ind. 1979), aff'd, 633 F.2d 56 (7th Cir. 1980).

^102 S. Ct. 2629 (1982).

'"The Illinois Business Take-Over Act, III. Rev. Stat. ch. 121 V2, f1 137.51 to .70
(Supp. 1982).

1983] SURVEY-BUSINESS ASSOCIATIONS 37

constitutional because it imposed an undue burden on interstate
commerce.^^

It is, of course, possible that state takeover statutes can be drafted
so that the statute will not impose a "substantial burden" on interstate
commerce, but it may not be worthwhile. For example, the Takeover
Offers Act currently exempts from the filing requirements®^ "an
acquisition of equity securities of a target company having seventy-
five (75) or fewer holders of record of equity securities at the time
of the takeover offer."®* If a state can regulate only tender offers for
corporations in which the majority of shareholders are residents, it
is interesting to wonder how many Indiana corporations exist with
more than seventy-five shareholders, most of whom live in this state.

E. Corporate Service of Process

A financing corporation's attempt to insulate itself from the
judicial process failed in General Finance Corp. v. Skinner,^^ a suit
to recover benefits under a credit disability insurance policy that was
purchased by the plaintiff. Skinner, when she refinanced a loan from
General Finance Corporation of Indiana (GFC of Indiana), a subsidiary
of the defendant. General Finance Corporation (GFC). In Skinner, GFC
appealed from the Vigo Superior Court's denial of GFC's motion for
relief from a default judgment. The motion had alleged insufficient
service of process. A summons and complaint against GFC had been
served by registered mail addressed to CT Corporation Systems, which
was the agent of GFC of Indiana but not GFC's resident agent.^° In
other words, the subsidiary which had made the loan was served, but
not the parent corporation which was being sued.

In Skinner, the court of appeals upheld the service on GFC, thus
joining those jurisdictions which recognize that in appropriate cir-
cumstances the separate corporate existence of parent and subsidiary
will be ignored, and service of process on one will be sufficient to
acquire jurisdiction over an out-of-state parent or subsidiary .^^ The
effectiveness of service of process on one corporation in obtaining

«n02 S. Ct. at 2643.

«1nd. Code §§ 23-2-3.1-3 to -5 (1982).

'Ud. at § 23-2-3.1-8.6(a)(3).

«M26 N.E.2d 77 (Ind. Ct. App. 1981).

'"426 N.E.2d at 79.

^'See authorities cited 426 N.E.2d at 84. See also Frazier v. Alabama Motor Club,
Inc., 349 F.2d 456 (5th Cir. 1965); Empire Steel Corp. v. Superior Court, 56 Cal. 2d
823, 366 P.2d 502 (1961); Taca Int'l Airlines S.A. v. Rolls Royce Ltd., 15 N.Y.2d 97,
256 N.Y.S.2d 129, 204 N.E.2d 329 (1965); Comprehensive Sports Planning, Inc. v. Pleasant
Valley Country Club, 73 Misc. 2d 477, 341 N.Y.S.2d 914 (1973). See generally Wellborn,
Subsidiary Corporations in New York: When is Mere Ownership Enough to Establish
Jurisdiction over the Parent, 22 Buffalo L. Rev. 681 (1973).

38 INDIANA LAW REVIEW [Vol. 16:25

jurisdiction over a parent or subsidiary depends on whether the affairs
of the affiliated corporations are so commingled as to make the two
impossible to separate; however, service of process on one will not
suffice to obtain jurisdiction over the other, if their affairs are kept
separate.^^

The mere fact that GFC of Indiana is a wholly owned subsidiary
of GFC does not support jurisdiction over the parent by service on
the subsidiary, because similar names or common ownership of stock
alone will not suffice.^^ However, as the Skinner court noted, the rela-
tionship between GFC and GFC of Indiana went further. The two cor-
porations had common officers, and the corporate counsel for both GFC
and GFC of Indiana was the same person.^'* More important to the
conclusion that the two corporations were actually one was the
evidence set forth by the court, which included: the loans initiated by
GFC of Indiana and by other GFC subsidiaries in twenty-five states
were made from a common checking account in a Chicago bank;
employees of GFC of Indiana and other subsidiaries were paid from
that account by GFC; a computer terminal transmitted transactions
to the GFC home office in Illinois which did all the subsidiary's
accounting; letterheads and telephone listings referred to General
Finance Corporation rather than General Finance Corporation of In-
diana; GFC's advertising emphasized over 400 General Finance and
General Finance Corporation offices from coast to coast where one
could deal with "friendly Bob Adams"; financing statements showed
GFC as the secured party; and forty-five lawsuits brought in Vigo
County to collect defaulted loans were filed in GFC's name.^^

The court was satisfied that although there were "two separate
corporate entities on paper, only one commonly-owned enterprise"
existed.^^ The separate existence of GFC of Indiana could be dis-
regarded because it was so organized and controlled in its affairs that

"^See Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333 (1925). See also Botwinick
V. Credit Exchange, Inc., 419 Pa. 65, 213 A.2d 349 (1965) (activities of subsidiary which
carefully maintained its separate corporate existence, not those out-of-state parent for
purposes of service of process).

''See Botwinick v. Credit Exchange, Inc., 419 Pa. 65, 72, 213 A.2d 349, 353-54 (1965).

^''426 N,E.2d at 79. Normally common officers or directors will not warrant
disregard of corporate existence. See Merriman v. Standard Grocery Co., 143 Ind. App.
654, 242 N.E.2d 128 (1968). However, it is a factor to be considered.

The Skinner court noted that GFC is wholly owned by CNA Financial Corpora-
tion, a financial conglomerate which directly or indirectly controlled sixty or more other
substantial corporations, and that CNA in turn was controlled by Loews Corporation.
426 N.E.2d at 79. The reason for this reference is unclear because the size of the overall
enterprise is completely irrelevant in determining whether a parent and subsidiary
are one and the same.

'^426 N.E.2d at 79-81.

^7d. at 82.

1983] SURVEY-BUSINESS ASSOCIATIONS 39

it was, in effect, a division of GFC.^^ Consequently, service on the
registered agent of GFC of Indiana was service on a lawfully appointed
agent of GFC within the meaning of Indiana Trial Rule 4.6(A)(1);''
therefore, the entry of a default judgment against GFC was appro-
priate. Although default judgments are not favored because they are
rendered without trial, a trial court has considerable discretion in this
area, and a default judgment will be reversed only upon a showing
of a clear abuse of discretion.'^ Certainly, a person is entitled to have
a default judgment set aside if he has not been served with process
and thus had no notice of the proceeding,^"" but GFC did have notice. ^"^
The Skinner result is obviously correct. If the parent and sub-
sidiary are held separate, service on one should not be service on the
other. If, however, a large enterprise structures its operations through
myriad subsidiaries in a "complex and interrelated manner so as to
prevent ascertainment of exactly which corporate entity"^"^ is respon-
sible, the corporation should not be surprised if the corporate fiction
is ignored and service on one "part" of the enterprise is deemed ser-
vice on another part.^"^ A business enterprise that is deliberately set
up in a complex fashion should not expect the public with whom it
deals to wend through a corporate labyrinth at their peril if they
should happen to select the wrong "path."

F. Buy-Sell Agreements and Irrevocable Proxies
Attorneys representing small, closely held corporations should note

^'See Merriman v. Standard Grocery Co., 143 Ind. App. 654, 242 N.E.2d 128 (1968);
Feucht V. Real Silk Hosiery Mills, Inc., 105 Ind. App. 405, 12 N.E.2d 1019 (1938).

'^^Ind. R. Tr. p. 4.6(A)(1). Skinner did not have to serve the Indiana Secretary of State,
as the acting agent for GFC as a foreign corporation not admitted to do business, pur-
suant to Ind. Code § 23-3-31 (1982), because an actual agent of GFC was served. Thus,
the constitutionally imposed requirement that service reasonably inform the parties
of the nature of the proceeding was satisfied, even though the return of the summons
and complaint by GFC of Indiana's registered agent did in fact, as GFC argued, notify
Skinner that an alternative method of service could have been utilized.

''See Erdman v. White, 411 N.E.2d 653 (Ind. Ct. App. 1980); Green v. Karol, 168
Ind. App. 467, 344 N.E.2d 106 (1976).

'''See Keiling v. Mclntire, 408 N.E.2d 565 (Ind. Ct. App. 1980).

""426 N.E.2d at 86. On rehearing, the court emphasized that GFC and GFC of
Indiana constituted only one entity. Since it was never disputed in Skinner that CT.
Corporation was the resident agent of GFC of Indiana, the court on rehearing also
distinguished cases questioning whether the person served was an authorized agent.
431 N.E.2d 526 (Ind. Ct. App. 1982).

'"'Merriman v. Standard Grocery Co., 143 Ind. App. 654, 657, 242 N.E.2d 128, 130
(1968).

'"^Courts are perhaps somewhat more inclined to disregard the corporate fiction
when the issue is service of process than when the issue is imposing liability on, for
example, a parent corporation for the torts or contracts of a subsidiary. See generally
H. Henn, Handbook of the Law of Corporations § 151 (2d ed. 1970).

40 INDIANA LAW REVIEW [Vol. 16:25

Williams v. Williams {Williams 11)}^^ The court of appeals in Williams
II affirmed a Boone Circuit Court order that denied plaintiff Mildred
Williams' motion for preliminary injunction in an action brought
against Howard Williams to compel him to call and to hold an annual
meeting of W & W, Inc. Howard owned fifty percent of the shares
of W & W, and Mildred's husband had owned the balance prior to
his death. ^'^^ The shares were subject to a buy-sell agreement that pro-
vided that W & W would purchase the shares of a deceased
shareholder and that gave "the surviving natural party ... a special
power of attorney to vote such shares until the transfer [of stock to
the corporation had been] completed."^"^ Thus, the buy-sell agreement
expressly stated that the surviving shareholder, rather than the per-
sonal representative of the deceased shareholder, should vote the stock
until the transfer was completed. ^°^

The corporation eventually petitioned for an order directing
Mildred, as executrix, to perform the buy-sell agreement. In that
action. In re Estate of Williams {Williams 7),^°^ Mildred prevailed
because the claim was not filed within the time specified in the In-
diana Probate Code. The court in Williams /, however, expressly
acknowledged that under the probate code the buy-sell agreement
could be enforced against the heirs or the devisees who succeeded
to the decedent's interest in the shares. ^°^ Because the refusal to en-
force the buy-sell agreement in Williams I was procedural and not
on the merits, the Williams II court held that the present action was
not barred under the doctrine of res judicata.""

Because the buy-sell agreement could still be enforced, the court
noted that Mildred would not suffer irreparable harm if a preliminary
injunction ordering a shareholders' meeting was denied. Although
Mildred owned fifty percent of the corporation's stock, the buy-sell
agreement gave Howard a proxy to vote Mildred's shares, so that,
even if Howard called a meeting of W & W shareholders, he could
vote her shares. Therefore, an order compelling Howard to call a
meeting would be a futile gesture. There was no problem with the
duration of the proxy exceeding eleven months because the proxy

'""'427 N.E.2d 727 (Ind. Ct. App. 1981). For further discussion of this case, see
Falender, Trusts and Decedents' Estates, 1982 Survey of Recent Developments in Indiana
Law, 16 Ind. L. Rev. 415, 419 (1983).

•"^427 N.E.2d at 728-29.

'''Id. at 728.

•"Yd.

'°«398 N.E.2d 1368 (Ind. Ct. App. 1980), discussed in Falender, Decedents' Estates
and Trusts, 1980 Survey of Recent Developments in Indiana Law, 14 Ind. L. Rev. 291,
298-301 (1981).

•°M27 N.E.2d at 729 (citing In re Estate of Williams, 398 N.E.2d at 1371).

""427 N.E.2d at 730-31.

1983] SURVEY-BUSINESS ASSOCIATIONS 41

was in writing and complied with the Indiana General Corporation
Act.^" Furthermore, the proxy was irrevocable as a result of the buy-
sell agreement which gave Howard an interest in the shares. ^'^

Of course, it is possible that the dispute has not yet been resolved.
Mildred contended that the buy-sell agreement was merely an option
to sell and that W & W had an obligation to purchase only if she
chose to sell; whereas, W & W and Howard claimed that the buy-sell
agreement provided that Mildred had a duty to sell. The court noted
that the proper construction of the buy-sell agreement was not in issue
before the court."^ Thus, it is possible that we may see Williams III}^^

G. Definitions of a Security

A case involving securities regulation that is worthy of note is
Canfield v. Rapp & Son, Inc.,^^^ in which the Court of Appeals for the
Seventh Circuit affirmed a judgment of the District Court for the
Southern District of Indiana. The district court held that Rapp had
failed to establish any of the material elements for recovery under
either federal or state securities law or common law fraud."® The
essential issue on appeal was whether Rapp's purchase of all shares
of Twigg Corporation from Canfield and two others was a sale of a
''security" within the meaning of the securities laws. Relying on its
earlier decision in Frederiksen v. Poloway,^^'' the appellate court held
that the purchase of the shares ancillary to the acquisition and assump-
tion of control of Twigg was not a transaction involving "securities"
and, therefore, could not give rise to a cause of action under any of
the following statutory laws:"* rule lOb-5"^ promulgated under the

"'IND. Code § 23-l-2-9(e) (1982).

•'^427 N.E.2d at 731. See State ex rel. Breger v. Rusche, 219 Ind. 559, 39 N.E.2d
433 (1942). See also Calumet Indus., Inc. v. MacClure, 464 F. Supp. 19 (N.D. 111. 1978)
(determining the irrevocability of consent agreements by comparing them with proxy
arrangements). See generally 5 W. Fletcher, Cyclopedia of the Law of Private Cor-
porations § 2062 (rev. perm. ed. 1976 & Supp. 1982).

"^427 N.E.2d at 730 n.2.

^"Williams I and Williams II appear to be examples of the all too common family
disputes involving closely held corporations, which are a bane to families but a boon
to attorneys. For an example of this problem, see Galler v. Galler, 45 111. App. 2d 452,
196 N.E.2d 5, aff'd in part, rev'd in part, 32 111. 2d 16, 203 N.E.2d 577 (1964). appeal
dismissed, 69 111. App. 2d 397, 217 N.E.2d 111 (1966), appeal on other pounds, aff'd,
95 111. App. 2d 340, 238 N.E.2d 274 (1968), modified upon denial reh'g, 21 111. App. 3d
811, 316 N.E.2d 114 (1974), aff'd, 61 111. 2d 464, 336 N.E.2d 886 (1975).

"^654 F.2d 459 (7th Cir. 1981).

'''Id. at 460.

"'637 F.2d 1147 (7th Cir.), cert, denied, 451 U.S. 1017 (1981).

"«654 F.2d at 462-63.

"«17 C.F.R. § 240.10b-5 (1982).

42 INDIANA LAW REVIEW [Vol. 16:25

Securities Exchange Act of 1934;^^° section 17(a) of the Securities Act
of 1933;^^^ or the anti-fraud provision of the Indiana Securities Law.^^^
This result was reached notwithstanding the fact that the transaction
was a ''stock sale" within the literal meaning of the term "security"
as defined in the three statutes/^^ The appellate court found that, in
essence, the transaction was a commercial purchase and sale of Twigg
that was effectuated through the purchase of shares, which served
only as an indicia of ownership/^'^

The underlying rationale for Canfield and Frederiksen is the
Seventh Circuit's interpretation of the United States Supreme Court
decision in United Housing Foundation, Inc. v. Forman.^^^ The Seventh
Circuit reads Forman as imposing an economic reality test in deciding
when a particular "instrument" is a security. This test, according to
the Canfield court, consists of three elements: (1) an investment in
a common venture; (2) premised on a reasonable expectation of pro-
fit; (3) to be derived from the entrepreneurial or managerial efforts
of others/^ The court concluded that Rapp's purchase failed to satisfy
the first element because there was no sharing or pooling of funds
with others and also failed the third element because Rapp took over
the management, control, and operation of Twigg.

Rapp attempted to distinguish Frederiksen on the ground that the
economic reality test does not apply if a transaction involves "stock"
with all the attributes of ordinary common stock. Rapp relied upon
Coffin V. Polishing Machines, Inc^^'' in which the economic reality test
was applied only after the court decided that the shares under con-
sideration were not ordinary capital stock. Although there is language
in Forman that the name given to an instrument is not wholly irrele-
vant to its status, the Canfield court rejected Coffin because of the

^^"15 U.S.C. § 78j(b) (1976).
'''Id. § 77q(a)

^^^IND. Code § 23-2-1-12 (1982).

"^The definition of the term "security" in the Securities Act of 1933, 15 U.S.C.
§ 77(b) (1976), the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(10), and the In-
diana Securities Act, Ind. Code § 23-2-l-l(k) (1982) are functionally equivalent. See
American Fletcher Mortgage Co. v. U.S. Steel Credit Corp., 635 F.2d 1247 (7th Cir.
1980), cert, denied, 451 U.S. 911 (1981).

'^'654 F.2d at 463.

•25421 U.S. 837 (1975) ("shares of stock" necessary to obtain subsidized low income
housing, which shares could not be pledged or encumbered and did not possess voting
rights, and which in effect represented a tenant's deposit not securities within the
meaning of the federal securities laws).

'2^654 F.2d at 463. This test is derived from SEC v. W.J. Howey Co., 328 U.S.
293 (1946).

^''596 F.2d 1202 (4th Cir.), cert, denied, 444 U.S. 868 (1979). The court also refused
to distinguish Frederiksen because in both Canfield and Frederiksen a business was
purchased and the assets rather than the stock were sold.

1983] SURVEY-BUSINESS ASSOCIATIONS 43

necessity of looking beyond the form of the instrument to decide
whether in reality it is a security.'^*

However, in a 1982 decision, Golden v. Garafalo, a panel of the
Court of Appeals for the Second Circuit expressly rejected the
Frederiksen interpretation of Forman and held that the sale of all the
stock of a corporation, even in connection with a transfer of business
ownership, was a sale of a security. '^^ The panel, like the court in Cof-
fin, reasoned that the economic reality test was appropriate only when
courts were considering "unusual or unique" instruments governed
by the statutory phrase "investment contract." An example of the
"unusual or unique" would be the "stock" in the cooperative housing
project involved in Forman or the unique, one on one, negotiated cer-
tificate of deposit which was held not to be a security in Marine Bank
V. Weaver.'^^^ Thus, although the Canfield-Frederiksen sale of business
doctrine has been relied upon in a growing number of cases, ^'^' the
Golden court was not willing to narrowly define the term "security"
so that, in effect, the federal securities acts are substantially repealed.

One of the problems with the Canfield-Frederiksen approach is that
it really goes beyond Forman. Although the Seventh Circuit's posi-
tion might reflect what appears to be the current hostility of the
Supreme Court to the federal securities laws,^^^ there is a tendency
to forget that the Supreme Court has recognized that the definition
of security that is contained in the federal acts, and, in effect, the
Indiana Securities Act, should be read broadly. ^^^ As the Second Cir-

''«654 F.2d at 464-65.

'^'678 F.2d 1139 (2d Cir. 1982). Judge Lumbard, dissenting in Golden, took the posi-
tion that the two-part approach of Forman was necessitated because there were alter-
native grounds for the Second Circuit's holding that the cooperative apartment "stock"
was a security. Consequently, Judge Lumbard thought that a finding that an instru-
ment possesses the common characteristics of corporate stock does not foreclose an
inquiry into the economic reality of the transaction. Id. at 1147 (Lumbard, J., dissenting).

■^°455 U.S. 551 (1982).

'''See, e.g., Reprosystem v. SCM Corp., 522 F. Supp. 1257 (S.D.N.Y. 1981); Oakhill
Cemetery of Hammond, Inc. v. Tri-State Bank, 513 F. Supp. 885 (N.D. 111. 1981); Zilker
V. Klein, 510 F. Supp. 1070 (N.D. 111. 1981); Anchor-Darling Indus., Inc. v. Suozzo, 510
F. Supp. 659 (E.D. Pa. 1981); Barsy v. Verin, 508 F. Supp. 952 (N.D. 111. 1981); Dueker
V. Turner, [1979-1980 Transfer Binder] Fed. Sec. L. Rep. (CCH) 1 97,386 (N.D. Ga. 1979);
Bula V. Mansfield, [1979 Transfer Binder] Fed. Sec. L. Rep. (CCH) 1 96,964 (D. Colo. 1977);
Tech Resources, Inc. v. Estate of Hubbard, 246 Ga. 583, 272 S.E.2d 314 (1980).

'^^See, e.g., Santa Fe Indus., Inc. v. Green, 430 U.S. 462 (1977); Piper v. Chris-Craft
Indus., Inc. 430 U.S. 1 (1977); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976);
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976); Foremost-McKesson, Inc. v. Provident
Sec. Co., 423 U.S. 232 (1976); Rondeau v. Mosinee Paper Corp., 422 U.S. 49 (1975); Blue
Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975); Kern County Land Co. v. Oc-
cidental Petroleum Corp., 411 U.S. 582 (1973); Reliance Elec. Co. v. Emerson Elec. Co.,
404 U.S. 418 (1972).

'""See SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946). There is even a tendency
to forget that the "instruments" in Howey, which were maintenance agreements

44 INDIANA LAW REVIEW [Vol. 16:25

cuit said in Golden v. Garafalo,^^* there would be little reason for the
statutory drafters "to use words such as 'stock,' 'treasury stock' or
'voting— trust certificate,' unless their intention was to include all such
instruments as commonly defined. "^^^ References to specific types of
instruments and common variations would have been inappropriate
if an economic reality test were intended to apply across the board,
because many instruments would be excluded from these categories
by a definition that looked only to economic reality. In fact, if economic
reality were Congress's intent, there would be no reason to mention
specific types of securities, and thus a general catch-all term such as
"investment contracts" would have sufficed. ^^^ However, this issue was
not discussed by the court in either Canfield or Frederiksen; in
addition, the court, in both cases, simply rejected the "literal applica-
tion" argument.^^'

Another problem with the Canfield-Frederiksen doctrine is that,
although many transactions involving corporate shares are not really
securities cases, the doctrine goes too far and insulates transactions
that are truly securities cases from scrutiny under the appropriate
statutes enacted to protect investors. For example, in Oakhill Cemetery
of Hammond, Inc. v. Tri-State Bank,^^^ where a new manager had pur-
chased a controlling block of stock but less than 100% of the outstand-
ing shares, the federal district court used the doctrine to take the
transaction outside the scope of the securities law.^^^ Oakhill is con-
sistent with Canfield-Frederiksen because the purchase was a "com-
mercial" transaction to the manager and the purchaser was going to
manage the enterprise. Therefore, the third element of the economic
reality test could not be satisfied. Of course, this approach ignores
the possibility that a purchaser of a business might regard himself

connected with the purchase of trees in a citrus grove, were found to be securities.
Id. at 295, 299-300.

'^"678 F.2d 1139 (2d Cir. 1982).

'''Id. at 1144.

'""See id.

'^'Canfield v. Rapp & Son, Inc., 654 F.2d 459, 465 (7th Cir. 1981); Frederiksen v.
Poloway, 637 F.2d 1147, 1150-52 (7th Cir.), ceH. denied, 451 U.S. 1017 (1981). See generally
Comment, Acquisition of Business through Purchase of Corporate Stock: An Argument
for Exclusion from Federal Securities Regulation, 8 Fla. St. U.L. Rev. 295 (1980).

'^513 F. Supp. 885 (N.D. 111. 1981). The Oakhill approach is not without its sup-
porters. See generally Seldin, When Stock is not a Security: The "Sale of Business" Doc-
trine Under the Federal Securities Laws, 37 Bus. Law 637 (1982); Thompson, The Shrink-
ing Definition of a Security: Why Purchasing All of a Company's Stock is Not a Federal
Security Transaction, 57 N.Y.U. L. Rev. 225 (1982).

'^513 F. Supp. at 888. Oakhill involved an alleged violation of the federal securities
laws, Indiana common law, and, for some reason, a violation of the section of the In-
diana Securities Act concerning the registration of brokers, investment advisors, and
agents. See Ind. Code § 23-2-1-11 (1982).

1983] SURVEY-BUSINESS ASSOCIATIONS 45

both as an investor hoping to realize an appreciation in the stock, as
well as an entrepreneur receiving compensation for operating the
business. ^^°

The Canfield-Frederiksen approach also presents the potential
anomalous result that "investors" may buy some of the stock of a
business and hence would be entitled to protection under the securities
laws, but if the managers buy the balance they would not be entitled
to recover under the securities laws, although the managers may be
just as defrauded as the former group. If the managers get a "free
ride," that is, the stock is a security because of the presence of the
investors, then the entire concept behind the "sale of business"
doctrine collapses. However, if it is found that the managers did not
purchase "securities," which the logical application of Canfield-
Frederiksen would mandate, a grave injustice will result because they
will be treated differently than their equally defrauded "investor" co-
purchasers. After all, not everyone who purchases a business is in
a position to protect their investment because they may not be knowl-
edgeable about the business they are acquiring.^*^

Of course, the immediate answer is that anyone who has purchased
a business as a result of fraud can always sue for fraud. But then
again, in Canfield, Rapp sued for fraud and was unsuccessful because
he had "failed to prove any of the essential elements of fraud —
misrepresentation, scienter, reliance, causation, and damages."^*^

In Canfield, the Seventh Circuit purported to interpret the
definition of a security in the Indiana Securities Act. The decision,
however, is not binding on Indiana courts. One may hope that, when
faced with the question whether a sale of a business effected through
the sale of stock is subject to the Indiana Securities Act, an Indiana
court would consider the reasoning of the majority opinion in Golden,
and not simply accept the Canfield-Frederiksen sale of business doc-
trine as the proper interpretation of the law. Fraud is fraud, and if
it can be prevented or deterred by the literal language of the Indiana
Securities Act, the literal interpretation should be honored. Courts
that adopt the sale of business doctrine appear to be judicially repeal-
ing the securities laws in the guise of interpreting them. If these
statutes are not to apply to closely held corporations, or to situations

'''See Golden v. Garafalo, 678 F.2d 1139 (2d Cir. 1982).

""The ability of a purchaser of a company to protect his investment is often given
as a reason for narrowly defining a "security." See generally Hannan & Thomas, The
Importance of Economic Reality and Risk in Defining Federal Securities, 25 Hastings
L.J. 219 (1974).

'"^654 F.2d at 466. The only evidence of "fraud" introduced by Rapp related to
future events, and a fraud action requires statements of fact relating to existing or
past events, not future events. See Royal Business Mach., Inc. v. Lorraine Corp., 633
F.2d 34 (7th Cir. 1980).

46 INDIANA LAW REVIEW [Vol. 16:25

where an entire business is purchased because the purchaser should
be able to fend for himself, then it seems more appropriate for the
legislature to decide that the statutes do not apply. ^^^

H. Statutory Developments

The first statutory development that would be of interest to those
involved with business associations law during the survey period was
the enactment of Public Law 142/'^'' which amended section
23-1-2-1 l(h)^'^^ of the Indiana General Corporation Act. This section now
permits the use of conference calls for board of directors' meetings
or for meetings of committees designated by a corporate board, by
providing that participation in a meeting by means of a conference
telephone or similar communication equipment that allows all persons
participating in the meeting to communicate with each other con-
stitutes "presence in person at the meeting."^''^ The power to hold such
telephonic meetings, however, may be restricted or prohibited in a
corporation's articles or bylaws. ^''^ Amended section 23-l-2-ll(h) is
similar to section 43 of the Model Business Corporation Act^*^ and to
the corporations acts of numerous states. ^*^

This is a worthwhile amendment to the Indiana General
Corporation Act. As pointed out in the comment on a proposed amend-
ment to section 43 of the Model Act, "[tjelecommunications equipment
has been so improved that conference calls can be speedily arranged
and amplifying facilities activated wherever there is need."^^° There
is certainly no reason to deny the benefits of modern communication
systems to boards of directors when so much of the ordinary business
of corporations is carried on by such means. Furthermore, because
the Indiana General Corporation Act specifically permits a board or
committee to take action without a meeting, if prior written consent
is given, ^^^ it is senseless not to authorize the use of modern equip-
ment to permit directors who are unable to attend a meeting in per-
son to participate.

"^In some jurisdictions, this has been done. See, e.g.. III. Rev. Stat. ch. 121 V2,
§ 137.4(0) (1979).

''"Act of Feb. 24, 1982, Pub. L. No. 142, 1982 Ind. Acts 1050.

'"■'IND. Code § 23-l-2-ll(h) (1982).

'''Id.

''*MoDEL Business Corp. Act § 43 (2d ed. Supp. 1977) [hereinafter cited as Model
Act]. Section 43 was amended in 1974 to authorize conference calls. See Changes in the
Model Business Corporation Act, 29 Bus. Law. 947, 948 (1974).

^'^See Model Act, supra note 148, If 3, at 338-41.

'^"Proposed Change in the Model Business Corporation Art Ayneyiding Section ^.y to
Permit the Holding of Meetings of Directors and Committees by Electronic Comm urn ca-
tion, 28 Bus. Law. 979, 980 (1973).

'^'IND. Code § 23-l-2-ll(i) (1982).

1983] SURVEY-BUSINESS ASSOCIATIONS 47

152

Many early cases striking down informal actions by directors
were predicated on the theory that deliberative, collegial decision-
making was the reason why the control and management of the affairs
of a corporation were vested in the board of directors. The physical
absence of the director also explains, to some extent, cases prohibiting
directors from voting by proxy. '^^ If the objective of a board meeting
is to allow the interchange of ideas through group discussion and
deliberation, then it is logical to authorize the use of modern
technology which will, in fact, facilitate such collegial decisionmaking.
Now directors who cannot physically attend meetings can "reach out"
and participate.^^"

Statutory authorization of telephonic meetings was probably
necessary. There is always the possibility that any informal action
which is not done in accordance with statutory provisions may be held
invalid. ^^^ There is some common law authority that a director is not
present at a meeting if he participates in the meeting by means of
a telephone call because meeting means "the coming together of two
or more persons face to face so as to be in each other's presence or
company. "'^*^

The General Assembly also amended Indiana insurance law to
permit telephonic meetings of directors of Indiana insurance
companies. ^^^ Interestingly, the General Assembly did not amend sec-

''•-5fr, e.g., Schuckman v. Rubenstein, 164 F.2d 952 (6th Cir. 1947), ceri. doiivd, 333
U.S. 875 (1948); Baldwin v. Canfield, 26 Minn. 43, 1 N.W. 261 (1879); Audenried v. East
Coast Milling Co., 68 N.J. Eq. 450, 59 A. 577 (1904). Of course, the general rule was
often subject to the standard exceptions of estoppel, ratification, or acquiescence. See
generally 1 G. HoRNSTEiN, Corporation Law & Practice ^ 412, at 507-08 (1959).

'''See, e.g., Dowdle v. Central Brick Co., 206 Ind. 242, 189 N.E. 145 (1934). See also
Greenberg v. Harrison, 143 Conn. 519, 124 A. 2d 216 (1956) (directors must give
deliberative control and cannot vote by proxy); Lippman v. Kehoe Stenograph Co., 11
Del. Ch. 80, 95 A. 895 (1915) (the personal judgment of the director is important and
he cannot vote by proxy).

'"^This is particularly true in situations where the presence of a director is need-
ed to satisfy quorum or voting requirements, or for a corporation with greater than
normal quorum and voting requirements where the absence of a director may preclude
speedy action, even though all directors are in agreement but the requisite consents
cannot be signed prior to the action.

Of course, the use of electronic communications also will be helpful to large cor
porations with many widespread directors because the cost of equipment or user charges
will be far less than the cost of transporting the directors to one meeting place.

'''■'See H. Henn, Handbook of the Law of Corporations § 208 (2d ed. 1970).

'''Re Associated Color Laboratories, Ltd., [1970] 12 D.L.R 3d 338, 343 (B.C. Sup.
Ct. chambers).

'"Act of Feb. 18, 1982, Pub. L. No. 161, 1982 Ind. Acts 1219 (amending Ind. Code
§ 27-l-7-10(g) (1982)). This Act also added a new provision authorizing directors of in-
surance companies to act without meetings by means of prior written consents. Id.
at 1221 (codified at Ind. Code § 27-l-7-10(h) (1982)). The language differs from the In-

48 INDIANA LAW REVIEW [Vol. 16:25

tion 23-7-1.1-10 of the Indiana Not-for-Profit Corporation Act^^® to per-
mit telephonic meetings of the directors of Indiana not-for-profit cor-
porations. It is difficult to determine if this omission was deliberate
or an oversight. Arguably, boards of not-for-profit corporations, or at
least small ones such as neighborhood civic leagues, should meet in
person to maintain the closeness of the organization. On the other
hand, there seems to be no reason to deny the right to conduct
telephonic meetings to not-for-profit corporations if the members so
desire. The Not-for-Profit Corporation Act does permit informal ac-
tion without a meeting by the use of consents, ^^^ and nothing would
preclude restricting or prohibiting telephonic meetings in the articles
or by-laws of a not-for-profit corporation.

Another significant enactment in the business area was Public Law
143,^^° which amended section 23-1-2-13 of the Indiana General Cor-
poration Act^^^ by eliminating the prohibition against the same person
performing the duties of the president and secretary of an Indiana
general corporation. As the Act now stands, if the corporation's by-
laws so provide, the same person can hold two or more offices in a
corporation, including the office of president and the office of secretary.
By eliminating the prohibition, the General Assembly brought the
General Corporation Act in line with the three major Indiana profes-
sional corporation acts which have permitted the same person to serve
as both president and a secretary of a professional corporation since
1973.^^2

The prohibition was a particular problem for professional
corporations because the acts prohibit nonprofessionals from serving
as officers, directors, or shareholders. It does not necessarily follow,
however, that permitting the same person to serve as both president
and secretary of a general corporation is desirable. Admittedly, it
appears that unless barred by statute, articles, or by-laws, the com-
mon law permitted a person to hold several corporate offices, including
president and secretary.^^^ Many statutes, however, including the

diana General Corporations Act, Ind. Code § 23-1-2-11(1) (1982), but the effect of the two
provisions will be the same.

>^«IND. Code § 23-7-1.1-10 (1982).

'''Id.

''"Act of Feb. 24, 1982, Pub. L. No. 143, 1982 Ind. Acts 1054.

•«'IND. Code § 23-l-2-13(a) (1982).

'^'General Professional Corporation Act, Ind. Code §§ 23-1-13-1 to -12 (1982); Pro-
fessional Medical Corporation Act, Ind. Code §§ 23-1-14-1 to -22 (1982); and the Profes-
sional Dental Corporation Act, Ind. Code §§ 23-1-15-1 to -22 (1982). See generally Galanti,
Corporations, 1973 Survey of Recent Developments in Indiana Law, 7 Ind. L. Rev. 77,
109-12 (1973).

'^See President & Directors of the Manhattan Co. v. Kaldenberg, 165 N.Y. 1, 58
N.E. 790 (1900) (same person may simultaneously occupy the offices of president and
de facto secretary and in such capacities may execute a document requiring authen-

1983] SURVEY -BUSINESS ASSOCIATIONS 49

Model Act/^'' prohibited this. There is no conceptual difficulty with
one person wearing the proverbial "two hats," but it probably is bet-
ter to have two different individuals sign corporate documents or in-
struments, which have to be acknowledged or verified by two officers
as an analogue to governmental checks and balances.

To some extent that rationale was undercut in 1981 when the
General Assembly amended both Indiana corporation acts to permit
"any current officer" to sign documents instead of requiring two
signatures. ^^^ By reducing the role of the secretary, the General
Assembly essentially eliminated any reason for having two individuals
serve in the two capacities.

This development raises an interesting question — why require a
corporation to have a secretary?^^^ The General Assembly simply could
eliminate the position and provide that any document, such as a resolu-
tion of the board of directors, could be certified by any officer. ^^^ If
the Indiana General Corporation Act has eliminated the need for a
secretary, the issue arises as to how persons in other states dealing
with Indiana corporations will react to documents signed by the same
person acting as both president and secretary, not to mention
documents executed by only one officer. It is not inconceivable that
Indiana attorneys may find themselves explaining Indiana law to
nonresidents. Certainly this author would proceed with caution, if he
were in another state and were presented with a corporate document
that was executed by a person as president and attested to by the
same individual as secretary. A likely concern would be whether the
arrangement, in fact, was permitted under Indiana law.

Although there may be arguments against the trend, even a
traditionalist such as this author must admit that the prolifera-

tication of the president and secretary). See also Collins v. Tracy Grill & Bar Corp.,
144 Pa. Super. 440, 19 A.2d 617 (1941). See generally 6 Z. Cavitch, Business Organiza
TiONS § 128.01 [2] (1982); 1 G. Hornstein, Corporation Law & Practice § 512 (1959); 2
Model Act, supra note 148, § 50, f 3.02.

'^"2 Model Act, supra note 148, § 50. Section 18 of the proposed Statutory Closed
Corporations Supplement to the Model Business Corporation Act does authorize an
individual holding more than one office in a statutory closed corporation to "execute,
acknowledge, or verify in more than one capacity." A Report of the Committee on Cor-
porate Laws, Proposed Statutory Close Corporation Supplement to the Model Business
Corporation Act, 37 Bus. Law. 269, 307 (1981).

'''See IND. Code §§ 23-1-2-5, -4-5. -5-2(f), -5-3(e), -5-8, -7-l.l-42(e) (1982). See generally 1981
Survey, supra note 70, at 62-63.

'''See iND. Code § 23-1-2-13 (1982).

'^^The best proof of corporate authority is the original records of the corporation
or a certificate duly authenticated by a responsible officer. The importance of the
secretary's certification and the presence of a corporate seal cannot be overestimated
because it creates a presumption that the instrument was duly authorized by the board
of directors. In re Drive-in Development Corp., 371 F.2d 215 (7th Cir.), cert, denied sub
nom., 387 U.S. 909 (1966).

50 INDIANA LAW REVIEW [Vol. 16:25

tion of one person corporations probably favors this development. Two
caveats, however, are warranted. The first is that the requirement
of section 23-1-2-13, which provides that two or more offices may be
held by the same person if the by-laws so provide, has not changed,
and, in the absence of such a provision, different individuals must serve
as the three statutorily mandated offices. The second is that, whenever
corporate procedures are simplified, persons involved with closely held
corporations may become careless in complying with the remaining
statutory requirements, and that result increases the possibility that
the corporate veil will be pierced and personal liability imposed. ^^^

In 1981, the General Assembly imposed a requirement that the
annual reports of all corporations contain "a statement of whether the
corporation is the holder of any funds or other property, tangible or
intangible, which may be presumed abandoned pursuant to the
provisions"^^^ of the Indiana Uniform Disposition of Unclaimed Prop-
erty Act.^^° In 1982, those requirements were repealed by Public Law
144, "1 Presumably, Indiana businesses are not unhappy to have a
burdensome reporting requirement eliminated, but Indiana taxpayers,
in a year when the State avoided a deficit only by holding up income
tax refunds, might question the wisdom of vitiating the mechanism
for enforcing the Unclaimed Property Act, which is a source of revenue
for the state common school fund. The amounts collected under this
Act are not insignificant. In 1980, almost two million dollars was col-
lected by the Unclaimed Property Division of the Attorney General's
Office."'

One statutory development of particular interest to attorneys
representing clients whose businesses depend on commercially valuable
but nonpublic information is Public Law 145,"^ which adopted the

'^Tublic Law 143 also simplified the process of dissolving a corporation before
it commences business by amending section 23-l-7-l(a) of the General Corporation Act
to eliminate the requirement that such dissolution be done by a majority of incorporators
and to permit such dissolution pursuant to a petition signed by any current officer
of the corporation and affirmed subject to penalties for perjury. Ind. Code § 23-l-7-l(a)
(1982). The procedures for the voluntary dissolution of a corporation that has begun
business were not changed in substance, but there were some style changes. Id.

'«^IND. Code §§ 23-1-8-1(7), -1-11-7(14), -3-4-l(a) (7), -7-l.l-36(m) (1982).

™Id. at §§ 32-9-1-1 to -45 (1982).

''■Act of Feb. 25, 1982, Pub. L. No. 144, 1982 Ind. Acts 1060 (codified at Ind. Code
§ 23-1-8-1 (1982)). Public Law 144 also amended the Uniform Disposition of Unclaimed
Property Act so businesses do not have to file reports with the Unclaimed Property
Division of the Attorney General's Office that they do not hold any property presum-
ed abandoned unless requested in writing by the Attorney General or his represen-
tative. Ind. Code § 32-9-l-15(f) (1982).

'^^1980 Op. Att'y Gen. xlvi-xlvii.

'''Act of Feb. 25, 1982, Pub. L. No. 145, 1982 Ind. Acts 1070. The Act is codified
at Ind. Code U 24-2-3-1 to -8 (1982).

1983] SURVEY-BUSINESS ASSOCIATIONS 51

Uniform Trade Secrets Act/^" The Uniform Trade Secrets Act was
approved and recommended for enactment by the National Conference
of Commissioners on Uniform State Laws in 1979, after a more than
ten-year gestation period. ^^^

A trade secrets act is a very significant development. A valid
patent provides a legal monopoly for seventeen years in exchange for
public disclosure of an invention, but if a patent is subsequently
declared invalid, there is disclosure of the invention without the pro-
tective legal monopoly. Furthermore, many processes or devices will
not qualify for patent protection because they are not an "invention,"
because the process, formula, or device will have a useful life far ex-
ceeding the seventeen-year monopoly provided by the patent statute,
or because other technical reasons exist. ^^^

Consequently, many businesses elect to protect commercially
valuable information through reliance on state trade secret law.
Although the status of trade secret law was uncertain for some time
under the federal preemption doctrine,"^ the Supreme Court definitive-
ly ruled in Kewanee Oil Co. v. Bicron Corp}'^^ that neither the patent
and the copyright clause of the Constitution^^^ nor the federal patent
act^^'' preempts state trade secret law for protection of patentable or
unpatentable devices or information.

The Prefatory Note to the Uniform Trade Secrets Act points out
that trade secret law has not developed satisfactorily notwithstanding
its commercial importance.^^^ The Commissioners point out that there
is a lack of authority in many jurisdictions and, even in those jurisdic-
tions with significant trade secret litigation, there are uncertainties
concerning the extent of trade secret protection and the appropriate
remedies for misappropriation of a trade secret.^®^ Another important

''"Uniform Trade Secrets Act §§ 1-12, 14 U.L.A. 541-51 (1980) [hereinafter cited as
Uniform Act].

''"Id. at 538-40. '

™See, e.g., 35 U.S.C. § 102(b) (1976) (provides that a person is not entitled to a
patent if the invention was in public use or on sale in the United States more than
one year prior to the date of the application for the patent).

'''See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964); Compco Corp. v.
Day-Brite Lighting, Inc., 376 U.S. 234 (1964).

''*416 U.S. 470 (1964). Kewanee was recently reaffirmed in Aronson v. Quick Point
Pencil Co., 440 U.S. 257 (1979), where the Court held that federal patent law did not
preclude a contract obligating a party to pay a continuing royalty in exchange for the
disclosure of a trade secret for which no patent was issued. Id. at 265-66. Even though
the contract was upheld in Aronson, it has been established that a provision in a pat-
ent license agreement providing for royalties beyond the expiration date of the pat-
ent is not enforceable. Brulotte v. Thys Co., 379 U.S. 29 (1964).

''«U.S. Const, art. I, § 8, cl. 8.

'^''35 U.S.C. §§ 1-376 (1976).

'^'Uniform Act, supra note 174, at 537.

''Hd.

52 INDIANA LAW REVIEW [Vol. 16:25

reason for a specific trade secret statute is that the provisions in the
First Restatement of Torts, which was the most frequently cited
authority in the development of trade secret law/^^ were deleted in
the second edition of the Restatement published in 1979.^^^

A need for uniformity in trade secret law also prompted the
Uniform Act. Even those states with a well developed body of trade
secret law do not necessarily have uniform laws. This could become
a problem as the importance of trade secret protection increases for
businesses operating in many different states.

For example, Indiana courts have long prohibited former
employees from using trade secrets of employers where there was
an understanding that the trade secrets would not be utilized after
the employment relationship ended,^*^ but the perimeters of the law
were ill-defined. Indiana, like most jurisdictions, has criminal sanctions
for the improper acquisition of trade secrets. ^^^ However, criminal
sanctions may not provide practical or adequate protection to the
owner of a trade secret.

Thus, the adoption of the Uniform Trade Secret Act in Indiana
is an important step in protecting legitimate business interests. It is
impossible to discuss fully the Indiana Uniform Trade Secrets Act in
a survey article, so only the highlights will be noted. The first obser-
vation that can be made about the Indiana Uniform Trade Secrets
Act is that it, in fact, is not uniform. However, this lack of unifor-
mity is in the form rather than in the substance of the Indiana Act.
For some reason, the General Assembly enacted section 9 (short title)^^'
and section 8 (uniformity of application and construction)^*® of the
Uniform Act as sections 1(a) and Kb) of the Indiana statute.^®^ Further-

'^^See Restatement of Torts §§ 757-59 (1939).

^*''The American Law Institute took the position that because trade regulation
law in general had developed into an independent body of law which was no longer
based primarily upon tort principles, it was no longer appropriate to include those
principles in the Restatement. Restatement (Second) of Torts introductory note (Vol.
4 1965). See generally Klitzke, The Uniform Trade Secrets Act, 64 Marq. L. Rev. 277,
282-84 (1980). See also Note, Trade Secrets, Customer Contacts and the Employer-Employee
Relationship, 37 Ind. L.J. 218, 220-28 (1962).

'^^See Westervelt v. National Paper & Supply Co., 154 Ind. 673, 57 N.E. 552 (1900).
See also Koehring Co. v. National Automatic Tool Co., 257 F. Supp. 282 (S.D. Ind. 1966),
aff'd, 385 F.2d 414 (7th Cir. 1967); Donahue v. Permacel Tape Corp., 234 Ind. 398, 127
N.E. 2d 235 (1955). See generally Note, Trade Secrets, Customer Contacts and the Employer-
Employee Relationship, 37 Ind. L.J. 218, 220-28 (1962).

'''See Ind. Code §§ 35-42-5-1. -43-4-2, -43-4-3 (1982). 12A R. Milgram. Business
Organizations: Trade Secrets App. B-1 (1981) contains a list of states with similar
criminal sanctions.

^^^Uniform Act, supra note 174, § 9.

'''Id. § 8.

'"l^D. Code § 24-2-3-l(a)-(b) (1982).

1983] SURVEY-BUSINESS ASSOCIATIONS 53

more, although section 7 of the Uniform Act displaces "conflicting tort,
restitutionary, and other law pertaining to civil liability for misap-
propriation of a trade secret" except for "(1) contractual or other civil
liability or relief that is not based upon misappropriation of a trade
secret; or (2) criminal liability for misappropriation of a trade secret,"^**
the comparable Indiana provision displaces all conflicting law pertain-
ing to the misappropriation of trade secrets, except contract law and
criminal law.^*^ Thus, both acts preserve contractually imposed duties
relating to secret information, such as covenants not to compete, but
only the Uniform Act preserves duties imposed by principles of agency
law/^^ Indiana's failure to preserve agency duties is questionable
because it is not inconceivable that a court would rule that the
legislature's decision to omit the language preserving agency principles
demonstrates a legislative intent to repeal such law. Hopefully, no
court would construe section 1(c) as repealing any principle of agency
law and would treat the omission as the elimination of surplusage
because section 7 of the Uniform Act displaces only conflicting law,
and certainly there is no law requiring an agent to act in a disloyal
fashion.

Another possible problem with the Indiana Act is that the Uniform
Act's severability provision^^^ was omitted. If the omission of the
severability clause was a deliberate legislative decision, then it is prob-
able that the General Assembly intended the Indiana Act not to be
severable. Consequently, if any provision of the Indiana Act or its
application to any person or circumstances were held invalid, the in-
validity might also affect the application of other provisions which
could be given effect despite the invalid provision. ^^^ This legislative
decision is inexplicable.

Other than these differences, the Indiana Act generally tracks the
Uniform Act, although the section numbers differ. ^^^ The Indiana Act
applies to a "trade secret," which is broadly defined as information
with actual or potential independent economic value resulting from
its secrecy where there have been reasonable efforts to maintain the

^'"Uniform Act, supra note 174, § 7.

^^•IND. Code § 24-2-3-l(c) (1982).

^^^See Uniform Act, supra note 174, § 7 commissioners' comment, at 550.

"^Uniform Act, supra note 174, § 10.

'^*The absence of a severability clause creates a presumption that the statute is
to be upheld completely or not at all. Indiana Educ. Employment Relations Bd. v. Ben-
ton Community School Corp., 266 Ind. 491, 510, 365 N.E.2d 752, 762 (1977). Of course,
the General Assembly could have been relying on the general severability clause in
the Indiana Code, Ind. Code § 1-1-1-8 (1982), but the omission does raise an issue. See
generally 2 D. Sands, Statutes & Statutory Construction §§ 44.03-.04.il (4th ed. 1972).

''^Because sections 7-9 of the Uniform Act were adopted, in part, in section 1 of
the Indiana Act, the section numbers of the two acts are off by one. Thus, section
1 of the Uniform Act is section 2 of the Indiana Act.

54 INDIANA LAW REVIEW [Vol. 16:25

secrecy.^^ It provides relief for actual or threatened misappropriation
of a trade secret. The Indiana Act defines the term "misappropria-
tion" as the "acquisition of a trade secret by a person who knows
or has reason to know that the trade secret was acquired by improper
means"^^^ or the disclosure or use of a trade secret of another without
consent/^^ One effect of this broad definition of trade secret is that
business information is now clearly treated the same as technical trade
secrets; whereas, there was some uncertainty and confusion under the
common law.^^^

The Indiana Act provides a legal remedy only where there has
been a misappropriation, but it makes no difference whether the misap-
propriation is contractual, tortious, or criminal. This is a decided
improvement over the common law, where the misappropriation of
a trade secret could be treated only as a contractual or a tortious
action.^°° The most important remedy under the Indiana Act is injunc-
tive relief.^^ The statute permits an injunction before there has been
any attempt to use or disclose a trade secret. An example would be
when a terminated employee is attempting to take trade secret
documents. This type of remedy, of course, is very desirable from the
standpoint of the employer. The Indiana Act, however, rejects the
practice of some courts that grant punitive, perpetual injunctions
against someone who has misappropriated a trade secret. Instead, the
Indiana Act provides that an injunction should be no longer than a
trade secret's life, plus any additional time necessary to negate any
"lead time" or commercial advantage obtained through the
misappropriation.^"^ Thus, the injunctive relief lasts as long as, but
no longer than, necessary to protect the trade secret.^"^

Section 24-2-3-4(a) of the new Indiana Act permits recovery of
damages in addition to, or in lieu of, injunctive relief,^"* although it
appears that no double recovery would be permitted for a misappro-
priation.^"^ Recovery for unjust enrichment is also authorized, but only

'''iND. Code § 24-2-3-2(4) (1982).

^^Improper means is defined to include "theft, bribery, misrepresentation, breach
or inducement of a breach of a duty to maintain secrecy, or espionage through elec-
tronic or other means." IND. Code § 24-2-3-2(1) (1982).

^^«lND. Code §§ 24-2-3-2(2)(i)-(ii) (1982).

^^^See generally Klitzke, supra note 184, at 287-88.

^°°The distinction between tortious or contractual misappropriation may have been
significant at common law because of different statutes of limitation. Id. at 296, n.93.

'''See Ind. Code § 24-2-3-3 (1982).

">'Id. § 24-2-3-3(a).

'°^See Uniform Act, supra note 174, § 2 commissioners' comment, at 544.

^""Ind. Code § 24-2-3-4(a) (1982). Double damages may be awarded for a willful and
malicious misappropriation. Id. § 24-2-3-4(b) (1982).

^^See Uniform Act, supra note 174, § 3 commissioners' comment; Klitzke, supra note

1983] SURVEY-BUSINESS ASSOCIATIONS 55

to the extent that unjust enrichment is not taken into account in com-
puting damages for actual loss.^°^

Section 24-2-3-3^"^ departs slightly from its counterpart in the
Uniform Act. The latter provides that, where the court has determined
it would be unreasonable to prohibit future use, an injunction may
condition future use upon the payment of a reasonable royalty for the
period of time that the use could have been prohibited.^"* Under the
Indiana Act, an injunction conditioning future use upon payment of
a reasonable royalty is limited to "exceptional circumstances," where
the court has determined that it would be unreasonable to prohibit
future use.^°^ Both Acts allow a court to award reasonable attorney
fees to a prevailing party in specified circumstances.^^"

Of course, an attempt to protect a trade secret would be futile
if meritorious litigation would result in the disclosure of the trade
secret. Consequently, the Indiana Act authorizes a court, in
appropriate circumstances, to order affirmative acts to protect a trade
secret.^" In addition, the Indiana Act authorizes a court to fashion
safeguards that preserve the confidentiality of a trade secret during
a trial, yet permit a defendant sufficient information to present a
defense and permit the trier of fact sufficient information to resolve
the dispute on the merits.^^^

One of the problems with the common law protection of trade
secrets was whether the contract or tort statute of limitations applied
to a misappropriation of a trade secret.^^^ Furthermore, there is a split
of authority on when the statute begins to run, some courts holding
that each day's use of a trade secret constituted a new and discreet
"continuing wrong," others holding that the date of the first use of
a trade secret started the running of the statute.^*^ The latter line

184, at 304 05. Of course, still to be resolved is whether the Commissioners' Comments
will be taken into account in interpreting the Uniform Act, but presumably they will.

^"^Ind. Code § 24-2-3-4(a) (1982). The practice of some courts is to award damages for
actual loss and for unjust enrichment. See, e.g., Telex Corp. v. International Business
Mach. Corp., 510 F.2d 894 (10th Cir.), cert, dismissed, 423 U.S. 802 (1975). This practice
was rejected by the Commissioners. Uniform Act, supra note 174, § 3, at 547.

'°lND. Code § 24-2-3-3 (1982).

^"^Uniform Act, supra note 174, § 2(b), at 544.

^"^Ind. Code § 24-2-3-3(c) (1982). Reasonable royalties can be required for no longer
than the period during which the use could have been prohibited when neither damages
nor unjust enrichment are provable. Id. § 24-2-3-3(b).

^'°Id. § 24-2-3-5; Uniform Act, supra note 174, § 4. Reasonable attorney fees may
be awarded where a specious claim of misappropriation has been made, or where there
has been a specious effort to terminate an injunction, or where there has been a willful
and malicious misappropriation.

^"IND. Code § 24-2-3-3(d) (1982).

^^^Id. § 24-2-3-6. See generally Uniform Act, supra note 174, § 5 commissioners'
comment, at 548-49.

^'^5ee generally Klitzke, supra note 184, at 306-07.

'''Id. at 307-08.

56 INDIANA LAW REVIEW [Vol. 16:25

of cases obviously shorten the period for which a plaintiff can recover
for a misappropriation.

The Indiana Act^^^ takes a compromise position. It specifically pro-
vides for a three-year statute of limitations and provides that a con-
tinuing misappropriation constitutes a single claim. It further provides
that the statute does not begin to run until an aggrieved person
discovers, or reasonably should have discovered, the existence of the
misappropriation. The statutory solution clarifies the date when the
statute begins to run but avoids the inequitable results that could
occur if the first-use theory is applied mechanically when there is some
time before the owner realizes there has been a misappropriation.^^^

The Uniform Act as adopted in Indiana is a definite advancement
in the protection of innovative business ideas. Both patent and trade
secret law provide a basis for protecting ideas, but unlike patent law,
which is a federal statutory law, trade secret protection was a com-
mon law doctrine with many flaws caused by a lack of uniformity and
piecemeal development.^^^ Thus, the common law development of trade
secret protection has been limited and to some degree ineffective. Now
that it is settled that state trade secret law is not preempted by
federal patent law, the states should develop an effective doctrine.
The Uniform Trade Secret Act provides such a doctrine. Furthermore,
the Indiana Act should be of help to Indiana businesses because it
is possible that possessors of trade secrets may not have known that
the law afforded a remedy for misappropriation. This problem should
no longer exist in Indiana.

"'IND. Code § 24-2-3-7 (1982). This provision is based on section 6 of the Uniform Act.
Uniform Act, supra note 174, § 6.

"*Ind. Code § 24-2-3-8 (1982) provides that the Act does not apply to the part of a
continuing misappropriation otherwise covered by the Act which began before
September 1, 1982, but it does apply to that part which occurs after August 31, 1982,
unless the appropriation was not a misappropriation under displaced Indiana common
law. This provision differs from section 11 of the Uniform Act, Uniform Act, supra
note 174, § 11, which simply states that the Act does not apply to misappropriations
occurring prior to the effective date.

Hopefully not too many trade secret misappropriations are occurring in Indiana
because apportioning the misappropriation under section 24-2-3-8 and the application
of the displaced Indiana common law presents some mindboggling prospects.

"^5ee generally Klitzke, supra note 184, at 309.

III. Civil Procedure and Jurisdiction

William F. Harvey*

A. Introduction

This Survey Article is limited to a discussion of those cases and
amendments to trial rules that proved the most significant in the
survey period reviewed. During the survey period, the Indiana courts
decided important cases concerning Indiana's long arm statute, service
of process, and Trial Rules 59 and 60. In addition, several of the trial
rules pertaining to discovery were amended to coincide with the
federal trial rules. These amendments, however, did not substantially
alter existing Indiana case law. The Indiana Supreme Court also
amended Trial Rules 6, 41, 52, 60.5, 75, and 79. The amended rules
became effective January 1, 1982 and are supported by explanatory
committee notes.

B. Jurisdiction, Process, and Venue

1. Trial Rule 4-4' ''Long Arm" Jurisdiction. — During the survey
period, the Indiana Court of Appeals decided two Trial Rule 4.4 cases
of importance. Additionally, the decision of the United States Supreme
Court in City of Milwaukee v. Illinois^ has a significant effect on In-
diana's long arm jurisdiction. In City of Milwaukee, the Court sustained
an assertion of jurisdiction^ under the Illinois long arm statute.^ The
jurisdictional assertion occurred when Illinois alleged that sewage, con-
taining disease-causing viruses and bacteria, was being transported
by water currents from the city and county of Milwaukee into parts
of Lake Michigan, and that the sewage disposal affected the shores
of Illinois. At trial, the defendants argued that there was no "tortious
act within" the State of Illinois as that phrase is used in the Illinois
long arm statute.'' The Court of Appeals for the Seventh Circuit held
that the tort was committed in the place where the injury occurred,
and that it seemed beyond dispute that injury to the plaintiff occurred
in Illinois.^ Therefore, the appellate court stated that it was fair and
reasonable to require the defendants to defend in Illinois because each
year the defendants placed millions of gallons of sewage in Lake

*Carl M. Gray Professor of Law and former Dean, Indiana University School of
Law — Indianapolis. A.B., University of Missouri, 1954; J.D., Georgetown University,
1959; LL.M., 1961. The author wishes to extend his appreciation to Bette J. Dodd and
Jane W. Bradshaw for their assistance in the preparation of this Article.

'451 U.S. 304 (1981).

Ud. at 312 n.5 (agreeing with the court of appeals that contacts with Illinois were
sufficient to give personal jurisdiction over the defendant).

'Civil Practice Act, III. Rev. Stat. ch. 110, § 17 (1982).

'State of Illinois v. City of Milwaukee, 599 F.2d 151, 155 (7th Cir. 1979).

'Id. at 156.

58 INDIANA LAW REVIEW [Vol. 16:57

Michigan.^ The Supreme Court expressly affirmed this conclusion and
held that under the circumstances it was fair and reasonable to re-
quire the defendants to defend their conduct in the federal forum in
Illinois.^

The decision in City of Milwaukee is significant for Indiana law
because Indiana's long arm statute, Trial Rule 4.4(A)(2), is similar to
the Illinois statute. Under Trial Rule 4.4(A)(2), Indiana does not re-
quire that business be done or conducted in the state for jurisdiction
to exist. ^ For that matter, International Shoe Co. v. Washington^ does
not make that requirement either, as taught by City of Milwaukee and
the reference to International Shoe in that opinion by Mr. Justice
Rehnquist.^" Instead, the question becomes whether the conduct caus-
ing personal injury or property damage by an act or omission /done
in Indiana makes it reasonable to call the defendant to account in In-
diana courts. In City of Milwaukee, there was no intent and no antici-
pated result on the part of the defendants to cause injury in Illinois.
There was no planned activity in Illinois; the Wisconsin defendants
did not make a formal entry into Illinois, and no business of any kind
was done or performed there. Nevertheless, the conduct outside of
the state that had a sustained impact in Illinois generated jurisdic-
tion in Illinois. ^^

Understanding this important determination in City of Milwaukee,
the two Indiana decisions concerning personal jurisdiction thus become
even more significant. In Griese-Traylor Corp. v. Lemmons,^^ the
defendant corporation, who had contracted with the plaintiff to pur-
chase the plaintiffs business and entire capital stock, appealed a judg-
ment awarding the plaintiff damages for breach of the contract. The
defendant challenged the court's jurisdiction, based upon its interpreta-
tion of the term "doing business" in Indiana Trial Rule 4.4(A)(1), by
asserting that the corporation did not do any business in Indiana.
Evidence indicated that the defendant was incorporated in Florida and
maintained its principal place of business there, that its resident agent
was in Florida, that the defendant transacted no business in Indiana
and was not qualified or registered to do so, and that the defendant
did not hire or retain employees or solicit business in Indiana. The

'Id.

'451 U.S. at 312 n.5.

*Ind. R. Tr. p. 4.4(A)(2). Rule 4.4(A)(2) confers jurisdiction on the court when a per-
son commits an act "causing personal injury or property damage by an act or omis-
sion done within this state." Id.

'326 U.S. 310 (1945).

'°See 451 U.S. at 312 n.5.

''Id.

'H2i N.E.2d 173 (Ind. Ct. App. 1981). See Townsend, Secured Transactions, 1982
Survey of Recent Developments in Indiana Law, 16 lNr>. L. Rev. 315, 321 (1983).

1983] SURVEY-CIVIL PROCEDURE 59

defendant's only involvement in Indiana was the execution of the sale
and purchase contract.

The issue on appeal was whether this "single transaction" would
qualify under the Trial Rule 4.4 provision "doing business." In a
lengthy opinion, the court of appeals canvassed United States Supreme
Court decisions/^ and the court in Griese-Traylor found that the single
transaction fell within Trial Rule 4.4 and that there were no due pro-
cess or statutory law violations. ^^

The court determined that the defendant corporation had availed
itself of the privilege of doing business in Indiana through one of its
corporate officers who had negotiated and facilitated the execution
of the contract for the sale and purchase of an Indiana corporation
from Indiana residents. Additionally, the contract provided that the
stock transfer, payment, and consulting services would occur in In-
diana, and that all contract provisions were governed by Indiana law.
Given these facts, the court affirmed the trial court's exercise of in
personam jurisdiction over the defendant corporation.^^

A second case involving Trial Rule 4.4, and discussed by the court
in Griese-Traylor,^^ is Suyemasa v. Myers.^'' Much like the Griese-
Traylor facts, the latter action arose from a breach of contract for
the sale of the capital stock of a foreign corporation to Indiana
residents. In Suyemasa, however, the plaintiffs were appealing a
dismissal on the grounds of lack of personal jurisdiction. The nonresi-
dent defendant seller argued that he was not "doing business" in the
state within the meaning of Trial Rule 4.4(AKl), because he had no
office in Indiana nor was he in the business of selling or transferring
stock or stock subscriptions within the state. The defendant, a Ten-
nessee resident, further asserted that the making of the contract did
not satisfy the minimum contacts requirement of International Shoe
Co. V. Washington.^^ The court of appeals held that the defendant's
acts of discussing the stock transfers with the plaintiffs and of ulti-
mately negotiating the sales contract, all done in Indiana, were suffi-
cient to satisfy any jurisdictional assertion. ^^

The Suyemasa court also discussed the burden of proof in a party's

'^World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980); Hanson v. Denckla,
357 U.S. 235 (1958); McGee v. International Life Ins. Co., 355 U.S. 220 (1957); Mullane
V. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950); International Shoe Co. v.
Washington, 326 U.S. 310 (1945).

"424 N.E.2d at 181.

''Id.

''Id. at 180.

'^420 N.E.2d 1334 (Ind. Ct. App. 1981).

'*326 U.S. 310 (1945) (allowing a court to exercise jurisdiction over a nonresident
defendant if the party has such minimum contact with the state that maintenance of
the suit complies with traditional notions of fair play).

^'420 N.E.2d at 1342.

60 INDIANA LAW REVIEW [Vol. 16:57

challenge to the jurisdiction of the trial court. Where a party raises
a jurisdictional challenge in either a Trial Rule 8(C) pleading or in
a Trial Rule 12(B)(2) Motion to Dismiss, the challenging party bears
the burden of proof on the issue, unless the lack of jurisdiction is ap-
parent on the face of the complaint.^"' The court noted that the challeng-
ing party might utilize discovery tools such as depositions, affidavits,
and interrogatories in meeting this burden of proof.

2. Child Custody Jurisdiction. — The concepts of "home state" and
"state of significant connection" as expressed in Indiana's Uniform
Child Custody Jurisdiction Law (UCCJL)^^ were interpreted in In re
Marriage of Hudson.^^ In Hudson, the court observed that, because
the father had removed the children to Spain, no state qualified as
a "home state" for determining the custody of the children. However,
the court found that the alternative statutory provision regarding
"significant connection"^^ was available for establishing jurisdiction
when a child has been recently removed from his or her home state
and the remaining spouse also has moved away.^^ Under the signifi-
cant connection test, the state having maximum access to relevant
evidence regarding the child's present and future care has jurisdiction.

The Hudson court found that the judicial inquiry in an adjudica-
tion of a child's status in custody proceedings under the UCCJL is
an exception to the minimum contacts standard applied to in rem
proceedings.^^ The Hudson court noted that in Shaffer v. Heitner the
Supreme Court "recognized the necessity of such specialized jurisdic-
tional rules in in rem status proceedings."^® Therefore, a court may
adjudicate child custody under the UCCJL without acquiring personal
jurisdiction over an absent parent, if reasonable attempts to give the
parent notice of the proceedings have been made.^^

Hudson is particularly significant because the court also construed
Indiana Trial Rule 4.4(A)(7) and noted that the particular long arm
jurisdictional provision applies only when a party maintains continuous
residency in Indiana, which did not appear in the Hudson facts.^^ Thus,
when a spouse leaves Indiana and then returns. Trial Rule 4.4(A)(7)

''Id. at 1340.

^^IND. Code §§ 31-1-11.6-1 to -24 (1982).

^M34 N.E.2d 107 (Ind. Ct. App. 1982).

'^IND. Code § 31-l-11.6-3(a)(2) (1982).

2*434 N.E.2d at 115 (citing Uniform Child Custody Jurisdiction Act § 3 Commis-
sioners' notes, 9 U.L.A. 123-25 (1979)). The Hvxison court found the Commissioners' notes
persuasive because the version adopted by Indiana is identical to the corresponding
paragraph of the Uniform Act. 434 N.E.2d at 115 n.7.

2^434 N.E.2d at 117 (distinguishing Shaffer v. Heitner, 433 U.S. 186 (1977)).

2^434 N.E.2d at 119 (citing Shaffer v. Heitner, 433 U.S. 186, 208 n.30 (1977)).

"434 N.E.2d at 117.

''Id. at 113.

1983] SURVEY-CIVIL PROCEDURE 61

is not satisfied, and jurisdiction is not available under that particular
provision.^^

3. Service of Process on a Subsidiary Corporation. — General
Finance Corp. v. Skinner^ is an important interpretation of Trial Rules
4.1 and 4.15, but the court's decision rests on the particular facts of
this case. In General Finance, the court held that service of process
on the wholly owned resident subsidiary constituted service on the
parent corporation, a nonresident.^^

The plaintiff in General Finance filed suit against the Illinois
parent corporation in an Indiana state court and effected service of
process on the Indiana subsidiary corporation by serving a registered
agent of the Indiana subsidiary. Ultimately, process was returned and
a default judgment, which included punitive damages, was entered
against the parent corporation. On appeal, the default judgment was
sustained.^^

General Finance turned on the fact that the subsidiary was to-
tally owned and controlled in all aspects by the parent corporation.
Thus, service of process was upheld, whereas normally a wholly owned
subsidiary doing business in the forum state is not a process agent
of the parent.^^

The significance of General Finance is that service of process on
the wholly owned subsidiary's agent was expressly authorized by the
subsidiary corporation but not by the parent corporation, and service
was effected on the registered agent of the Indiana subsidiary. Because
service upon a registered agent of the Indiana subsidiary was deemed
to be service upon the parent Illinois corporation, the decision in
General Finance suggests that under factual circumstances similar to
General Finance, an attorney may seek a hearing designed to
''penetrate the corporate veil" for purposes of service of process, ir-
respective of the fact that the parent corporation has not authorized
receipt of process by the registered agent.

This case also suggests that whenever a corporation or other
organization, which has sufficient minimum contacts with Indiana, ap-
points a registered agent or an organization to receive process for
it, then process served upon that duly appointed agent will sustain
jurisdiction in an Indiana trial court regardless of whether the
registered agent or organization is in Indiana. For example, X cor-
poration, an Ohio business, has been appointed by Y corporation, a

''Id.

'"426 N.E.2d 77 (Ind. Ct. App. 1981). For a full discussion of the case, see Galanti,

Business Associations, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L.
Rev. 25, 37 (1983).

'•426 N.E.2d at 86.

''Id.

'Ud. at 82-85.

62 INDIANA LAW REVIEW [Vol. 16:57

foreign corporation with subsidiaries in Indiana, to receive process.
Plaintiff serves process on X corporation from an Indiana trial court.
If service of process is duly effected on X corporation pursuant to
the Indiana rule, then process has been validly served upon Y corpor-
ation, although Y corporation did not contemplate that X corporation
would receive process from courts outside of Ohio when Y appointed
X as its registered agent. The court in General Finance sustained that
method of service of process by allowing process on the parent Illinois
corporation to be effected by serving the subsidiary in Indiana, even
though the parent corporation had not expressly authorized such ser-
vice of process.

-4. Timely Service of Process. — The court in Geiger & Peters, Inc.
V. American Fletcher National Bank^^ decided important questions con-
cerning timely service of process and Trial Rule 41(A). In Geiger &
Peters a third party complaint was filed against Geiger & Peters, Inc.
and American Fletcher National Bank (AFNB). Geiger & Peters, Inc.
subsequently cross-claimed against AFNB but did not serve process.
Thereafter, under Trial Rule 41(A), which allows an action to be
dismissed without a court order, the parties stipulated to dismiss the
initial plaintiffs suit. AFNB argued that the stipulation of dismissal
also dismissed the cross-claim against it, and, regardless of the effect
of the dismissal, AFNB argued that Geiger & Peters failed to serve
the cross-claim on AFNB within the one-year statute of limitation for
filing a mechanic's lien.^^ Thus, the issues were whether the word "ac-
tion" in Trial Rule 41(A)^^ meant the entire controversy was dismissed
and not merely a single claim or party, and whether process that was
served two years after filing the cross-claim was effective.

Noting the disagreement between other jurisdictions concerning
the term "action" in similar trial rules, the court of appeals adopted
the better view and determined that the word "action" meant a par-
ticular claim for relief.^^ Thus, the parties' stipulation of dismissal
dismissed only the plaintiff's complaint and not the cross-claim.^*

The appellate court then determined that filing the cross-claim
against AFNB had tolled the statute of limitations because filing com-
mences an action, and commencement of a cause of action tolls the

^"428 N.E.2d 1279 (Ind. Ct. App. 1981).
^^IND. Code § 32-8-7-1 (1982).

'^IND. R. Tr. p. 41(A).

^'428 N.E.2d at 1281. See also Oswalt v. Scripto, Inc., 616 F.2d 191, 194-95 (5th
Cir. 1980) (rejecting argument that term "action" as used in Trial Rule 41(a) means
the entire controversy). Contra Philip Carry Mfg. Co. v. Taylor, 286 F.2d 782 (6th Cir.),
cert, denied, 366 U.S. 948 (1961); Harvey Aluminum, Inc. v. American Cyanamid Co.,
203 F.2d 105 (2d Cir.). cert, denied, 345 U.S. 964 (1953) (holding that the term "action"
as used in Trial Rule 41(a) means the entire controversy).

^«428 N.E.2d at 1281.

1983] SURVEY-CIVIL PROCEDURE 63

statute of limitations.^^ Furthermore, finding the language unambiguous
in Trial Rule 3, which specifies that filing a complaint commences an
action, the court refused to hold that tolling the statute of limitations
was "conditioned upon diligence in service.'"*" However, the court noted
that Trial Rule 41(E) allows dismissal for failure to diligently prosecute
a claim and thus provides "adequate protection against unreasonable
delay in serving process."^^ The court added that subsequent but un-
timely service would not be sufficient to resume prosecution and,
therefore, would not preclude a 41(E) motion."^

5. Change of Venue. — In State v. Marion County Superior Court,*^
the trial court judge had set aside his order granting a change of venue
and had resumed jurisdiction of the case. Before the Indiana Supreme
Court, the respondent judge posited that because a local Marion
County Superior Court rule provided ten days for perfecting a change
of venue after a party had selected a county, and because the ten
days had expired before the parties in this case filed a proposed order
to perfect the change, the original court could resume jurisdiction and
a previously granted change of venue could be denied.

The Indiana Supreme Court, considering this issue pursuant to
Indiana Code section 34-1-13-2,'*'' held that the only consideration in
determining whether the court granting a change of venue may resume
jurisdiction is whether the applicant paid the court costs within the
stated time frame."^ The supreme court further noted that this holding
is consistent with Trial Rule 78 because the Trial Rule merely pro-
vides "a procedure for properly vesting jurisdiction in the court to
which venue has been changed before that court's receipt of the
transcript."*® The court's decision indicates that local rules which con-
flict with Indiana statutes and Trial Rules may be held invalid.

C Pleadings and Pre-Trial Motions

1. Trial Rule 8(C): Waiver of Affirmative Defense. — In State v.
Totty,^'^ an action against the State by various plaintiffs for personal
injuries sustained in an auto collision, the court of appeals held that
the State had not waived its right to raise an affirmative defense even

''Id. at 1282.

''Id.

''Id. at 1283 (distinguishing State v. McClaine, 261 Ind. 60, 300 N.E.2d 342 (1973))
(holding that defendant must file 41(E) motion before plaintiff resumes diligent
prosecution).

^^430 N.E.2d 1170 (Ind. 1982).

''Ind. Code § 34-1-13-2 (1982).

'^430 N.E.2d at 1171.

''Id. at 1172. See Ind. R. Tr. P. 78.

'^423 N.E.2d 637 (Ind. Ct. App. 1981).

64 INDIANA LAW REVIEW [Vol. 16:57

though the State failed to plead the issue in its answer. The affirm-
ative defense involved a release that had been signed by two interven-
ing plaintiffs in a prior proceeding to settle against a different defend-
ant. At trial, the State contended that the release of all parties liable
for the collision acted as a release of the State because of the general
rule regarding release of joint tort-feasors.'*®

The court of appeals held that the effect of the release was a prop-
erly triable issue and distinguished Totty from a prior appellate deci-
sion which had held that the failure to raise the release of the joint
tort-feasor in the answer or in other pleadings, or to litigate the
release at trial effected a waiver of the issue.'*^ The court noted that
in Totty the State had included the issue of the release in its pre-trial
contentions, which superseded the answer.^" Further, the issue of the
release was litigated by the parties and was made the subject of the
State's motion for judgment on the evidence.^^ Thus, the decision in
Totty indicates that an affirmative defense is not required to be raised
in the answer but may be raised for the first time at any stage of
the pre-trial proceedings, or perhaps even at trial.

2. Motion in Limine. — In an eminent domain action, the con-
demnees in Indiana & Michigan Electric Co. v. Pounds^^ filed a mo-
tion in limine to prevent discovery, after the opposing party had
moved to compel discovery. The trial court overruled the motion to
compel and granted the motion in limine. The utility company appealed
from an adverse judgment, alleging, inter alia, that the trial court a-
bused its discretion in granting the motion in limine.

On appeal, the court noted the unusual and misplaced use of the
motion in limine in this suit, and the court held that a motion in limine
may not be used to frustrate discovery because the motion's sole func-
tion is "to protect the moving party from the possible prejudicial ef-
fect of in-court statements before the jury.''^^ Because there was no
discernible basis for denying discovery, the appellate court ruled that
the grant of the motion in limine was reversible error.^

3. Trial Rule 16: Pre-Trial Orders.— Hundt v. LaCrosse Grain
Co.y^^ presented an important discussion regarding the issues that are
formulated during pre-trial procedures. In HundU the trial judge set

*^Id. at 640-41. The general rule is that a release of one joint tort-feasor is a release
of all. Cooper v. Robert HaU Clothes, Inc., 390 N.E.2d 155 (Ind. 1979).

"423 N.E.2d at 642 (citing Weenig v. Wood, 169 Ind. App. 413. 349 N.E.2d 235
(1976)).

^423 N.E.2d at 642.

^='426 N.E.2d 45 (Ind. Ct. App. 1981).
^Id. at 47 (emphasis added).

'M25 N.E.2d 687 (Ind. Ct. App. 1981).

1983] SURVEY-CIVIL PROCEDURE 65

aside a jury verdict for the plaintiff because the judge determined
that he had erred by allowing the testimony at trial to exceed the
issues defined by the pre-trial order.

Citing Indiana Supreme Court precedent, the court of appeals in
Hundt noted that " '[t]he expressed purpose of Trial Rule 16 ... is
to provide for a pre-trial conference in which to simplify the issues
raised by the pleadings and to define these issues within a pre-trial
order.' "^^ However, the appellate court in Hundt concluded that pre-
trial orders should be liberally construed to include all legal and fac-
tual theories inherent in the issues. ^^ Therefore, because the pre-trial
order did not restrict Hundt to a particular legal theory to prove his
allegations and because the evidence presented was not inapplicable
to the facts, the court of appeals held that the admission of the
testimony was not error.^®

4. Trial Rule 56: Motion for Summary Judgment. — In Associates
Financial Services v. Knajyp,^^ the Indiana Court of Appeals concluded,
as a matter of first impression, that a counterclaim which seeks
damages in excess of the original claim does not act as an automatic
bar to summary judgment on the original claim.^" Reviewing decisions
from other jurisdictions, the court in Knapp noted two situations
where summary judgment has been held appropriate, despite an ex-
cess counterclaim. A court may grant summary judgment to the plain-
tiff if the defendant offers no real defense and relies solely on the
counterclaim,^^ or if a counterclaim, although related to the plaintiffs
claim, is really a separate and distinct claim involving damages of a
completely different nature which might arise from different cir-
cumstances than the plaintiffs complaint.^^ The Knapp court indicated
that a court may stay judgment on the original claim,^^ but the court
declined to do so in this case because the defendant did not raise this
as an issue. In addition, the court in Knapp found that the defendant
had failed to challenge the court's severance of the counterclaim, thus
waiving the issue of the claim's separate nature, and found that the
defendant had failed to show a genuine issue of material fact.

^Id. at 694 (quoting North Miami Consolidated School District v. State ex rel.
Manchester Community Schools, 261 Ind. 17, 20, 300 N.E.2d 59, 62 (1973)).

"425 N.E.2d at 695.

''Id. at 696.

'M22 N.E.2d 1261 (Ind. Ct. App. 1981).

""Id. at 1265.

^'Id. (citing Graham Associates, Inc. v. Fell, 192 A.2d 129 (D.C. App. 1963)).

"'422 N.E.2d at 1265 (citing Sunbeam Corp. v. Morris Distributing Co., 55 A.D.2d
722, 389 N.Y.S.2d 173 (N.Y. App. Div. 1976)).

•"422 N.E.2d at 1265 (citing Graham Associates, Inc. v. Fell, 192 A.2d 129 (D.C.
App. 1963); Sunbeam Corp. v. Morris Distributing Co., 55 A.D.2d 722, 389 N.Y.S.2d
173 (N.Y. App. Div. 1976)).

66 INDIANA LAW REVIEW [Vol. 16:57

Therefore, the court held that summary judgment on the plaintiff's
original claim was proper.^''

In Otte V. Tessman,^^ the Indiana Supreme Court consolidated two
cases to consider the question regarding the necessity for trial courts
to comply strictly with Trial Rule 56, which requires the trial court
to set a time for hearing the motion for summary judgment. In each
case, the trial court had granted a motion for summary judgment
without setting a hearing date for considering the motion, and the
court of appeals had affirmed the trial court's ruling, because the ap-
pellant had failed to prove that he was prejudiced by the trial court's
failure to follow the procedure set out in Trial Rule 56.^^ On petition
to transfer, the Indiana Supreme Court overturned both rulings based
on the trial courts' failure to entertain the summary judgment mo-
tions consistent with Trial Rule 56(C)/^

The supreme court found that prejudice to the parties is presumed
if a trial court fails to follow the mandated procedure in Trial Rule
56, because the language in Trial Rule 56 is explicit, and, therefore,
the parties are justified in relying on those procedures.^® The supreme
court quoted Judge Staton's dissent in the court of appeals' decision:

"If the failure to obey the clear explicit dictates of the Indiana
Rules of Procedure can be simply dismissed as harmless er-
ror, then, the erosion of an orderly judicial system has begun.
If the [Rules of Procedure] can be re-written by judicial opin-
ion . . . the shroud of confusion will prevent any meaningful,
just and predictable solution to those disputes which must be
resolved in our courts."^^

The supreme court's decision in Otte indicates that the practice of the
trial courts cannot be inconsistent with the published trial rules

^"422 N.E.2d at 1265.

''426 N.E.2d 660 (Ind. 1981). This suit is a consolidation of two cases both of which
were petitioned for transfer to the supreme court. Indiana State Highway Dep't v.
Collins, 413 N.E.2d 982 (Ind. Ct. App. 1980) (originating in the Marion County Superior
Court, Judge Betty Barteau); Otte v. Tessman, 412 N.E.2d 1223 (Ind. Ct. App. 1980)
(originating in the Lake Superior Court, Judge Cordell C. Pinkerton).

"'426 N.E.2d at 661. In Indiana State Highway Dep't v. Collins, the trial court
had granted the plaintiff 's motion for summary judgment six days after the motion
was filed. 413 N.E.2d 982 (Ind. Ct. App. 1980). In Otte v. Tessman, the trial court had
granted the defendant's motion for summary judgment five months after the filing
but without setting a hearing date or a deadline for filing all evidentiary materials
in support of or in opposition to the motion. 412 N.E.2d 1223 (Ind. Ct. App. 1980).

''426 N.E.2d at 661-62. Trial Rule 56(C) provides, in part, as follows: "The motion
shall be served at least ten [10] days before the time fixed for the hearing. The adverse
party prior to the day of hearing may serve opposing affidavits." Ind. R. Tr. P. 56(C).

'«426 N.E.2d at 661-62.

''Id. at 662 (quoting Otte v. Tessman, 412 N.E.2d 1223, 1232 (Ind. Ct. App. 1980)
(Staton, J., dissenting)).

1983] SURVEY-CIVIL PROCEDURE 67

adopted by the Indiana Supreme Court, and that trial courts must
strictly comply with those rules.

D. Parties and Discovery

1. Trial Rule 17(A)(2): Real Party in Interest in Class Action
Suit. — In Adams v. City of Fort Wayne,''^ property owners appealed
the trial court's dismissal of their challenge to the rezoning and the
annexation of land by the city of Fort Wayne. The trial court had
based its decision on the fact that the property owners lacked stand-
ing to challenge the annexation in an individual capacity.

Agreeing that the plaintiffs lacked standing as individuals, the
court of appeals noted that the plaintiffs may have had standing as
a class and held that the failure to designate a suit as a class action
is not fatal to the complaint." The appellate court stated that:

"Cases often will be found where an individual seeks relief
in his or another's name upon a cause of action available only
to a class. Failure to designate the action as a class action
should not be fatal under Rule 17(A) allowing a reasonable time
for naming the proper party ."^^

Thus, although the trial court's dismissal was affirmed on other
grounds, the court of appeals found that Trial Rule 17(A) requires par-
ties be given a reasonable opportunity to amend their complaint and
bring suit on behalf of all interested parties.^^

2. Trial Rules 20 and 2U: Joinder of Parties and Intervention.—
In Krieg v. Glasshurni'^ the maternal grandparents sought to join in
a custody proceeding to obtain visitation rights. The Kriegs had titled
their petition as one for joinder under Trial Rule 20. In ruling that
joinder was inapplicable, the Krieg court said that Trial Rule 20 per-
tains only to those persons who may be parties to the action from
the outset and to those who may be brought into the suit by the
original parties.^^ However, the court looked beyond the title of the
petition to the substance of the motion. The court of appeals found
that the petition was actually a motion to intervene under Trial Rule

^"423 N.E.2d 647 (Ind. Ct. App. 1981).

''Id. at 649.

'Ud, (quoting W. Harvey, 2 Indiana Practice 334 (1970)).

"423 N.E.2d at 649.

'M19 N.E.2d 1015 (Ind. Ct. App. 1981). The Kriegs had also sought to intervene
in the adoption proceeding. The court denied intervention in tnat proceeding because
the adoption statute sets out who may be a party to an adoption and does not include
grandparents. Id. at 1019-21. See Ind. Code § 31-3-1-3 to -6 (1982). For a full discussion
of the case, see Rhine & Weinheimer, Domestic Relations, 1981 Survey of Recent
Developments in Indiana Law, 15 Ind. L. Rev. 203, 212 (1982).

"419 N.E.2d at 1017.

68 INDIANA LAW REVIEW [Vol. 16:57

24 and, because of the Kriegs' interest in their grandchildren, that
Trial Rule 24 was broad enough to encompass the grandparents'
action.^® Although denial of a motion to intervene may only be chal-
lenged on appeal from a final judgment," the appellate court found
that the trial court's denial of the Kriegs' motion had the effect of
determining the whole issue; therefore, the denial was a final judg-
ment and subject to appeal.^®

3. Discovery Rules, — a. Administrative agencies. — In Josam
Manufa/^turing Co. v. Ross,"^^ the court of appeals held that, pursuant
to Trial Rule 28(F),'° Trial Rules 26 through 37 apply to the Indiana
Industrial Board. In Josam, the Indiana Industrial Board had ordered
the Josam Manufacturing Co. (Josam) to answer interrogatories sub-
mitted by Ross as part of his workers' compensation claim. Josam had
refused, and the trial court had ordered compliance, awarding attorney
fees as a sanction.

On appeal, Josam argued that the Indiana Trial Rules did not
apply to the Industrial Board. Relying on State v. Frye,^^ the Josam
court said that Trial Rules 26 through 37 were an exception to the
general rule that '*the Indiana Trial Rules do not govern or bind the
Industrial Board of Indiana."*^ The court rejected Josam's argument
that Frye was inapplicable because Frye concerned an agency which
was bound by the Administrative Adjudication Act (AAA). Instead,
the court in Josam examined the similarity between the Industrial
Board's powers and the powers of the agency in Frye, and reviewed
the language of Trial Rule 28(F). Because Trial Rule 28(F) says "any"
adjudicatory hearing before an administrative agency and an Industrial
Board hearing is "trial-like," the court found that the discovery rules
applied to the Industrial Board, even though the Industrial Board was
not subject to the AAA.^ Therefore, the court held that the Industrial
Board had the authority to order Josam to answer the interroga-
tories.*" The appellate court also concluded that the sanctions in Trial

•Yd at 1017-18.

''Ud. Trial Rule 24 provides: "The court's determination upon a motion to intervene
may be challenged only by appeal from the final judgment . , . ." Ind. R. Tr. P. 24(C).
Appeal may be effected by either Indiana Trial Rule 54 or Appellate Rule 4(B)(6). See
Ind. R. Tr. P. 54; Ind. R. App. P. 4(B)(6).

^'419 N.E.2d at 1017.

"428 N.E.2d 74 (Ind. Ct. App. 1981).

«°lND. R. Tr. p. 28(F).

*^161 Ind. App. 247, 315 N.E.2d 399 (1974). In Frye, the court found that Trial
Rule 28(F) provided an exception to the general rule that trial rules are inapplicable
to administrative agencies. Id. at 251, 315 N.E.2d at 402. Frye involved an agency which
was subject to the Administrative Adjudication Act. Ind. Code § 4-22-1-1 to -22 (1982).

«'428 N.E.2d at 75.

""Id. at 76-77. See Ind. R. Tr. P. 28(F).

«'428 N.E.2d at 77.

1983] SURVEY-CIVIL PROCEDURE 69

Rule 37(B) would apply; however, because Josam had disobeyed the
Industrial Board's order, not the trial court order, the trial court could
not order sanctions.*^

h. Depositions. — In Hales & Hunter Co. v. Norfolk & Western
Railway,^^ the parties had taken depositions and, prior to trial, had
stipulated that the depositions may be published, may be included in
the trial record, and may be considered by the court. However, the
trial record did not indicate that the trial court had published the
depositions or had considered the depositions in arriving at its verdict.
Therefore, on appeal, the court of appeals issued a writ of certiorari
to the trial court clerk, directing that the depositions be forwarded
for appellate consideration.*^ The appellate court affirmed the trial
court's decision, basing the affirmance on the evidence contained in
the depositions.**

On review by the Indiana Supreme Court, the judgments of the
lower court and the appellate court were vacated, and the case was
remanded for further consideration by the trial court.*^ The supreme
court held it was mandatory that the trial court publish and consider
the depositions, regardless of the parties' stipulation that the deposi-
tions "may" be considered, because a trial court must consider all prop-
erly tendered evidence which is relevant and not repetitive.^ In regard
to the role of the appellate court, the supreme court noted that an
appellate court's review is limited to those matters contained in the
trial record. If depositions are not published by the trial court, then,
in its review, the appellate court would "resort to speculation and con-
jecture" that the trial court's judgment was based on the evidence
in the depositions.^^ Thus, if a deposition is to be used at trial, it must
be published as a matter of the trial court's record, and only then
is the deposition available to be reviewed on appeal.

c. Trial Rule 37: Sanctions. — On rehearing, the court of appeals
in State v. Kuesperf^ upheld a discovery sanction that shifted the
burden of proof to the State on a significant issue by requiring the
State to submit evidence on the issue. The sanction was imposed pur-
suant to Trial Rule 37(B)(3), which explicitly allows such an order.^^

The appellate court in Kuespert also reviewed this sanction and
the trial court's order that the State pay attorney fees, to determine

''Id. at 77-78.

««428 N.E.2d 1225 (Ind. 1981).

'Ud. at 1226.

''Id.

"Id. at 1227.

""Id.

''Id.

«M25 N.E.2d 229 (Ind. Ct. App. 1981).

'^See Ind. R. Tr. P. 37(B)(3).

70 INDIANA LAW REVIEW [Vol. 16:57

which discovery sanctions are appealable as a matter of right.^ The
court first noted that the sanction to shift the burden of proof was
severable from the order to pay attorney fees for the purpose of in-
terlocutory appeals. The court then stated that discovery orders are
generally interlocutory and that interlocutory orders are allowed to
be appealed only by express statutory authority.^^ However, the court
added that discovery sanctions requiring the payment of money are
interlocutory orders for money payments and, thus, are appealable as
a matter of right under Appellate Rule 4(B)(1).^ Other sanctions that
accompany a money payment sanction, like the sanction to shift the
burden of proof, are appealable only if certified by the trial court and
accepted by the appellate court, pursuant to Appellate Rule 4(B)(6). ^"

In Breedlove v. Bi^eedlove,^^ the former wife had sued to recover
child support arrearages, and the trial court had entered a default
judgment against the husband because he had failed to answer inter-
rogatories after the court had ordered him twice to answer, pursuant
to Trial Rule 37. The husband appealed the default judgment.

On appeal, the default judgment for arrearages and attorney fees
was affirmed. ^^ The appellate court noted that the discovery sanction
of dismissal or default judgment is severe; however, such a sanction
is within the trial court's discretion when a "party has in bad faith
abusively resisted or obstructed discovery or violated a court order
enforcing discovery," and the court finds that such actions prejudice
the discovering party's rights. ^'^^ The holding in this case, based on
the defendant's repeated failure to obey court orders for discovery,
continues to be good law, even though the 1982 amendments to Trial
Rule 37 have eliminated the ''bad faith" requirement and limited the
sanction of default to defendants who fail to obey court orders for
discovery. ^°^ Additionally, the court noted that Trial Rule 37(B)(4) does
not require a court to make specific findings of fact when granting
a party's motion for sanctions. ^°^

*'425 N.E.2d at 232. For a discussion of the earlier appellate case, see Harvey,
Civil Procedure and Jurisdiction, 1981 Survey of Recent Developments in hidiana Law,
15 IND. L. Rev. 69, 93-94 (1982).

^425 N.E.2d at 231. For cases where interlocutory appeals were held to be author-
ized by statute, see Anthrop v. Tippecanoe School Corp., 257 Ind. 578, 277 N.E.2d 169
(1972); Estate of Newman v. Hadfield, 174 Ind. App. 537. 369 N.E.2d 427 (1977>; Caster
V. Caster, 165 Ind. App. 520, 333 N.E.2d 124 (19751.

^425 N.E.2d at 231. See Ind. R. App. P. 4(B)(1I.

^'425 N.E.2d at 232. See Ind. R. App. P. 4(BH6).

^421 N.E.2d 739 (Ind. Ct. App. 1981).

^/d. at 740.

'"°7rf. at 742.

'"''See iND. R. Tr. P. 37(BK2)(c). Amended Trial Rule 37(B^(2Kc) eliminates the require-
ment, alluded to in Breedlove, that the sanction of default may be ordered only when
other sanctions would be inadequate.

'°-421 N.E.2d at 743.

1983] SURVEY-CIVIL PROCEDURE 71

E. Trials and Judgments

1. Trial Court's Function as the Thirteenth Juror. — In Bossard
V. McCue,^^^ a medical malpractice suit, the court of appeals held that
the trial judge was not required to disqualify himself from ruling on
post-trial motions, even though the judge had commented negatively
on the evidence after the jury had retired to deliberate. The trial judge
had found that the jury verdict for the physician was against the
weight of the evidence and had ordered a new trial.

The court of appeals, in upholding the trial court order, deter-
mined that the trial judge's comments, which were made in his
chambers, were a reaction to the evidence and were in accordance
with the judge's role as the "thirteenth juror."^"" The court empha-
sized the importance of when the biased comments were made. Because
the trial judge had not commented before the presentation of
evidence, ^''^ but only commented after the presentation of all the
evidence and after the jury had retired for deliberations, no dis-
qualification was necessary. ^"^ However, the court of appeals did cau-
tion judges to refrain from making comments while the jury is
deliberating.^"^

In State v. Lewis,^^^ a criminal proceeding, the Indiana Supreme
Court addressed the appropriate usage and standards of Trial Rules
50 and 59.^°^ In Lewis, the State argued that the trial court erred in
granting a motion for judgment on the evidence when the jury had
failed to reach a verdict and had been discharged, and that the trial
court had used an incorrect standard in applying the "thirteenth juror"
rule to the defendant's post-trial motion for judgment on the evidence
under Trial Rule 50.

In Lewis, the supreme court found that a trial court has author-
ity under Trial Rule 50 to enter final judgment on the evidence either
before or after a jury is discharged. Therefore, the court in Lewis
held that the trial court in this case could grant judgment on the

■°H25 N.E.2d 682 (Ind. Ct. App. 1981).

'"Vd. at 684. See Justice Hunter's discussion of the role of the trial judge as juror
in Bailey v. Kain, 135 Ind. App. 657, 663-64, 192 N.E.2d 486, 488-89 (1963).

""See Brokus v. Brokus, 420 N.E.2d 1242 (Ind. Ct. App. 1981) (holding that rever-
sal is required where the judge's remarks, made during opening arguments, indicated
bias against the appellant).

'"M25 N.E.2d at 684.

'°M29 N.E.2d 1110 (Ind. 1981).

'"^See Ind. R. Tr. P. 50, 59. The court began its discussion by noting the applicability
of the civil rules to criminal cases: "[rjules of civil procedure, whether statutory or
court-made, are applicable to criminal cases where no criminal procedural rule or statute
exists." 429 N.E.2d at 1113 (citing Ind. Code § 35-4.1-2-2 (1976)). For current law, see
Ind. Code § 35-35-2-2 (1982); Ind. R. Crim. P. 21.

72 INDIANA LAW REVIEW [Vol. 16:57

evidence for the defendant, even though no verdict was returned and
the motion was granted after the declaration of a mistrial and the
jury's discharge. ^^°

The supreme court also determined that the "thirteenth juror"
standard, which allows the judge to weigh the evidence, is properly
applied when evaluating a Trial Rule 59 motion for a new trial, but
that the "thirteenth juror" standard cannot be applied to a Trial Rule
50 motion for judgment on the evidence."^ The court stated that, in
both civil and criminal cases, a judgment on the evidence is proper
only where there is a total absence of evidence on some essential issue,
or where the evidence is without conflict and susceptible of only one
inference in favor of the moving party. "^

Essentially, the Lewis decision denies the trial court's ability, pur-
suant to Trial Rule 50, to enter a judgment on the evidence where
there is any conflicting evidence, because if a conflict exists, there
would not be "complete failure of proof.""^ Thus, the Lewis holding
advocates a "scintilla rule" when a Trial Rule 50 motion is considered.

2. Trial Rule 63: Unavailability of Judge. — The Indiana Supreme
Court in State ex rel. Indiana-Kentucky Electric Corp. v. Knox Circuit
CourU^^* determined that Trial Rule 63 is an exception to the "law
of the case" doctrine and allows a successor judge to grant a new
trial after the original judge has ruled on the case.*^^ In Knox Circuit
Court, the judge presiding over the trial had died after determining
the liability issue but before entering judgment on the damages issue.
In accordance with Trial Rule 63(A) a successor judge was appointed,
whereupon the defendant moved for a new trial on both the liability
and damages issues. Over the plaintiffs objection, the successor judge
ordered a new trial on both issues.

On appeal, the supreme court upheld the order for a new trial
on both the liability issue and the damages issue, noting the trial
court's power pursuant to Trial Rule 63."* In general, the rule per-
mits a successor judge to grant a new trial after a verdict is returned

""429 N.E.2d at 1114.

'''Id.

"'Id. (citing, among others, Proctor v. State, 397 N.E.2d 980 (Ind. 1979); Williams
V. State, 395 N.E.2d 239 (Ind. 1979)). The major case in Indiana which sets forth the
standard to be applied in granting a motion for judgment on the evidence is Huff v.
Travelers Indem. Co., 266 Ind. 414, 363 N.E.2d 985 (1977).

"^But see 429 N.E.2d at 117-18 (DeBruler, J., dissenting).

"*422 N.E.2d 1247 (Ind. 1981) (bifurcated trial).

"Ud. at 1248. The doctrine of the law of the case was described by Justice Holmes
as a policy expressing "the practice of courts generally to refuse to reopen what has
been decided, not a limit to their power." Messenger v. Anderson, 225 U.S. 436, 444
(1912).

"«422 N.E.2d at 1248.

1983] SURVEY-CIVIL PROCEDURE 73

or findings are entered by the trial court, if the successor judge is
satisfied that he cannot perform the duties of the trial judge because
he did not preside at the trial, or for any reason."^ Thus the Knox
Circuit Court decision imputes broad discretion to the successor judge
in utilizing Trial Rule 63 by allowing the successor judge to order
a new trial on issues previously decided.

3. Finalty of Judgment, Res Judicata. — The doctrine of res
judicata was thoroughly discussed in White v. DaviSy^^^ a dissolution
action involving mutiple claims. The court of appeals stated that "[tjhe
doctrine of res judicata acts as a bar when the same parties to an
earlier final judgment on the merits attempt to relitigate the same
issues,""^ and that "[f]or res judicata purposes the earlier judgment
is final when it disposes of the subject matter of the litigation to the
furthest extent of the court's powers and reserves no further ques-
tion for future determinaton."^^" However in a multiple claims case,
a judgment, decision, or order on fewer than all of the claims does
not result in a final judgment and, under Indiana procedural law, can-
not be appealed unless the trial court, pursuant to Trial Rule 54(B),
determines that there is no reason for delay and expressly directs
the entry of a judgment. ^^^ Claims are, by definition, separate where
each claim depends on a different legal theory and on different fac-
tual evidence. ^^^ The court in White recognized the general rule that
every question within the issues litigated which could have been
proven is presumed to be adjudicated; however, that presumption is
premised upon the existence of a final judgment. ^^^ Therefore, the court
found that where a judgment leaves issues open for modification and
the issues are not ripe for appeal, the presumption of finality will not
apply.^''

Thus, according to the decision in White, when a trial court is
presented with multiple claims and decides one of them, but does not
certify that claim for appeal under Trial Rule 54(B) and does not set-
tle other issues presented, an order on fewer than all of the claims
is not a final order or judgment, and there is nothing upon which to
base a res judicata defense.^^^ The decision in White is important for

'''See IND. R. Tr. P. 63.

"«428 N.E.2d 803 (Ind. Ct. App. 1981).

"7d. at 804-05 (citing In re Terry, 394 N.E.2d 94 (Ind. 1979), cert, denied, 444 U.S.
1077 (1980); Gasaway v. State, 249 Ind. 241, 231 N.E.2d 513 (1967)).

^'''428 N.E.2d at 805 (citing Richards v. Franklin Bank & Trust Co., 381 N.E.2d
115 (Ind. Ct. App. 1978)).

'='^428 N.E.2d at 805. See Ind. R. Tr. P. 54(B).

»^428 N.E.2d at 805.

''Ud.

'^*Id. at 806.

'^Ud.

74 INDIANA LAW REVIEW [Vol. 16:57

understanding the developing case law of collateral estoppel and in
understanding the offensive and defensive use of issue preclusion in
subsequent litigation between the same parties or between different
parties to the prior litigation.

F. Appeals

1. The Relationship between Trial Rules 59 and 60. — The Indiana
Court of Appeals explored the interrelationship between Trial Rules

59 and 60 in Dawson v. St. Vincent's Health & Hospital Care Center. ^^^
In Dawson, the trial court had entered a default judgment against
the defendants and then had denied the defendants' motion for relief
under Trial Rule 60. The defendants appealed the denial of their Trial
Rule 60 motion, but they did not file a motion to correct errors pur-
suant to Trial Rule 59.

On appeal, the fourth district court of appeals considered whether
the Trial Rule 60(B) motion seeking relief, which was filed within the
sixty-day time limit stipulated in Trial Rule 59, was equivalent to a
Trial Rule 59 motion to correct errors.^^^ Although the court in Dawson
recognized that the underlying purpose of Trial Rule 59 and Trial Rule

60 motions is to call the trial court's attention to appealable errors,
the court determined that in this case a Trial Rule 59 motion was
required prior to appeal. ^^^

In reaching this determination, the appellate court distinguished
In re Marriage of Robbins,^^^ where the third district court of appeals
had held that, because of the overlapping purposes of Trial Rules 59
and 60, if a Trial Rule 60(B) purpose is stated in a motion, then,
regardless of the motion's denomination, it is treated as a Trial Rule
59 motion if filed within the sixty-day period after judgment. The
Dawson court explained that a Trial Rule 60(B) motion may serve only
as a Trial Rule 59 motion if it meets the purposes of the Trial Rule
59 motion,^^° but the court noted that often the Trial Rule 60(B) mo-
tion calls on the equity powers of the trial court for relief because
no appealable error exists. ^^^ Thus, unlike the Robbins case where the

1^^426 N.E.2d 1328 (Ind. Ct. App. 1981).

''Ud. at 1332.

'''Id. at 1333.

^^171 Ind. App. 509, 358 N.E.2d 153 (1976).

""In Dawson, the court listed the purposes of a Trial Rule 59 motion as follows:

"D to present to the trial court an opportunity to correct errors which occur

prior to filing of the motion, 2) to develop those points which will be raised

on appeal by counsel and 3) to inform the opposing party concerning the

points which will be raised on appeal so as to provide that party an

opportunity to respond in the trial court and on appeal."

426 N.E.2d at 1333 (quoting P-M Gas & Wash Co. v. Smith, 268 Ind. 297, 301, 375 N.E.2d

592, 594 (1978)).

"^426 N.E.2d at 1332-33.

1983] SURVEY-CIVIL PROCEDURE 75

questioned Trial Rule 60(B) motion was clearly adequate to serve as
a motion to correct errors, the Trial Rule 60(B) motion in Dawson
raised no error and developed no appealable issues. '^^ Consequently,
because no motion to correct errors was filed, in either form or
substance, the appellate court in Dawson held that no error was
presented on appeal, and, therefore, that the court was without
authority to '*fish for errors. "^^^

In contrast, the court of appeals for the third district reaffirmed
Robbins in Sowers v. Sowers,^^^ without making the distinctions enun-
ciated in Dawson. Sowers involved a default judgment against the hus-
band in a dissolution action. He filed a timely Trial Rule 60(B) motion
but failed to effect service of process on the wife, who was not advised
of the motion. Thereafter, the wife filed a motion to reconsider, fol-
lowed by the praecipe and then the appeal. The court of appeals con-
cluded that, because the husband had filed a Trial Rule 60(B) motion
for relief from judgment within sixty days of the original judgment,
it should be treated as a Trial Rule 59 motion for purposes of perfect-
ing the appeal, without determining whether the Trial Rule 60(B)
motion met the purposes of a motion to correct errors. ^^^

The court in Sowers added that because the wife was a party who
was prejudiced or adversely affected by the ruling on the Trial Rule
60(B) motion, she would come within the ambit of Trial Rule 59(F),
and no jurisdictional challenge could arise because of her failure to
file an additional motion to correct errors. ^^ Further, the wife's failure
to receive notice and to be given an opportunity to present her case
constituted reversible error because a hearing is required on a Trial
Rule 60(B) motion.^3^

2. Timely Filing of Trial Rule 59 Motion. — In Sekerez v. Gehring,^^^
the plaintiff failed to serve the motion to correct errors on the oppos-
ing counsel within the sixty-day time limit specified in Trial Rules
5(A) and 59(C).^^^ Ruling on the plaintiffs motion, the trial court found
that it was untimely served upon opposing counsel, as well as insuffi-
cient on its merits. However, the appellate court distinguished the
total failure to serve from an untimely failure to serve. The court of
appeals noted that the motion was timely mailed and was received
one day late by the court. Because the nonmoving party was not pre-

'''Id.

^^"428 N.E.2d 245 (Ind. Ct. App. 1981).

'''Id. at 247.

'"Id.

"Ud. at 248. See Ind. R. Tr. P. 60(B).

"m9 N.E.2d 1004 (Ind. Ct. App. 1981).

"'See Ind. R. Tr. P. 5(A), 59(C).

76 INDIANA LAW REVIEW [Vol. 16:57

judiced by the untimely filing, the court of appeals reversed the lower
court's decision and ruled to decide the case on its merits/^"

3. Second Motion to Correct Errors. — In Breeze v. Breeze,^*^ a con-
solidation of two cases, the fundamental questions were whether a
second motion to correct errors is permitted, and if so, whether an
appeal effected from the ruling on the second motion was timely. In
each case, the trial court's entry on a motion to correct errors had
been challenged by the parties as error. Accordingly, the parties had
filed a second motion to correct errors which the trial court ruled on,
initiating the appeals procedure. On appeal, the Indiana Supreme Court
held that the filing of a second motion to correct errors was consis-
tent with Trial Rule 59.^*^ In addition, the court in Breeze clearly held
that if a second motion to correct errors is filed, the time for filing
an appeal begins running from the decision on the second motion to
correct errors. ^^

In discussing a second motion to correct errors, the court noted
that "after one motion to correct error has been filed and the trial
court has subsequently altered, amended, or supplemented its findings
and/or judgment, the parties have the discretion to appeal immediately
or to file a new motion to correct error directed to the changed find-
ings and/or judgment."^^* The court observed that this interpretation
of Trial Rule 59 provides the needed flexibility in the trial rule and
gives all parties equitable opportunity for an appeal. After Breeze,
however, it is still the law that a second motion to correct errors is
not necessary to effect an appeal.^*^

The result of the supreme court's decision in Breeze provides an
attorney with the opportunity to delay the appeals process by the
unnecessay filing of a second motion to correct errors. If this occurs,
both the trial and appellate courts may utilize Indiana Trial Rule 11(A)
to impose penalties on the attorney.^^® Consequently, it certainly is
not in the attorney's best interest to file a conspicuously unnecessary
second motion to correct errors.

^. Trial Court's Jurisdiction to Entertain Trial Rule 60 Motion
after Filing of Appeal. — In Crumpacker v. Crumpacker,^^'' the issue
raised on appeal was whether the federal district courts have jurisdic-
tion to entertain a Federal Rule 60(b) motion after an appeal has been

^'"419 N.E.2d at 1008.

"^421 N.E.2d 647 (Ind. 1981). See Falender, Trusts and Decedents' Estates, 1982 Survey
of Recent Developments in Indiana Law, 16 Ind. L. Rev. 415, 424 (1983).
^"^21 N.E.2d at 648.
''Ud. at 650.
'**Id.

'''Id. at 649. See P-M Gas & Wash Co. v. Smith, 268 Ind. 292, 375 N.E.2d 592 (1978).
'''See Ind. R. Tr. P. 11(A).
^"^516 F. Supp. 292 (N.D. Ind. 1981).

1983] SURVEY-CIVIL PROCEDURE 77

filed. The district court decided that during the pendency of an ap-
peal, a district court may entertain a Rule 60(b) motion and deny the
motion if it is without merit, or seek leave to remand from the federal
court of appeals if it appears the motion should be granted.^*®

Crumpacker conforms to the trend that a federal district court
generally will not lack jurisdiction to entertain Rule 60 motions
after an appeal has been filed. ^''^ This interpretation is inconsistent
with the procedure in Indiana state courts. In the Indiana courts, once
an appeal has been filed, relief pursuant to Indiana Trial Rule 60 must
be sought first in the appellate court where the appeal is pending,
not in the trial court.^^"

5. Appellate Jurisdiction. — The landowners in In re Little Walnut
Creek Conservancy Districf^^ appealed from the trial court order af-
firming an appraiser's report which was unfavorable to the appellants'
properties. The issue on appeal concerned a conflict between Indiana
Code section 19-3-2-65 and the Appellate Rules. The appellants filed
their appeal pursuant to the statute which allowed an appeal of the
court's order to be made to the Indiana Supreme Court within thirty
days.^^^ The court first noted that the provision of the statute that
allowed the parties to appeal to the supreme court was superseded
by Appellate Rule 4(B), which provided that appeals were to be taken
to the court of appeals.^^^ This result occurred because, when a statute
conflicts with the trial or appellate rules, "the rules will take
precedence and the conflicting phrases within the statute will be
deemed without force and effect."^^'*

In determining the timeliness of filing the appeal, the court looked
to Appellate Rule 3(B), which mandates the time for filing the record
of proceedings in both interlocutory and final appeals, to determine
if its provisions superseded the statutory time limit of thirty days.
Appellate Rule 3(B) states that if a statute, pursuant to which an ap-
pellate review is filed, fixes a shorter time, the statutory time limit
prevails. ^^^ The court of appeals observed that the statute, fixing a
thirty-day period for filing an appeal, did not conflict with the Ap-
pellate Rule 3(B).^^® Rather, the court found that the statute controlled

'''Id. at 296.

'''Id. at 295-96 (citing United States v. Ellison. 557 F.2d 128, 132 (7th Cir.), cert
denied, 434 U.S. 965 (1977)).

'""See, e.g., Donahue v. Watson, 413 N.E.2d 974 (Ind. Ct. App. 1980); Logal v. Cruse,
167 Ind. App. 160, 338 N.E.2d 305 (1975).

'^^419 N.E.2d 170 (Ind. Ct. App. 1981).

'^^IND. Code § 19-3-2-65 (1976) (now codified at Ind. Code § 13-3-3-62(f) (1982)).

^5^19 N.E.2d at 171; see Ind. R. App. P. 4(B).

'^"419 N.E.2d at 171 (construing Ind. R. App. P. 4(B)(5)(c)). See also State ex rel.
Western Parks, Inc. v. Bartholomew County Court, 270 Ind. 41, 383 N.E.2d 290 (1978).

'''See Ind. R. App. P. 3(B).

•'M19 N.E.2d at 171.

78 INDIANA LAW REVIEW [Vol. 16:57

in this case; therefore, the court held that the appeal was dismissed
because it was untimely /^^ The practitioner is advised to be alert to
statutory time limits for effecting appeals in Indiana.

G. 1982 Indiana Trial Rule Amendments

1. Trial Rule 26: General Provisions Governing Discovery.—
Effective January 1, 1982, Indiana Trial Rule 26 was amended to con-
form with the Federal Rules of Civil Procedure, Rule 26. Indiana Trial
Rule 26 was altered in sections (A), (B), (C), and (E). Federal Rule 26(f),
which allows a discovery conference, was not recommended for adop-
tion by the Rules Committee.^^® Although the Rule Committee did not
contemplate that decisional law in Indiana would be affected signifi-
cantly by the Trial Rule 26 amendments, there are several important
changes which should be noted. ^^^

In addition to relocating some sections of Trial Rule 26,^^° the 1982
amendments changed the previous requirement that trial preparation
materials could be discovered upon a showing of "good cause" to a
two-part requirement. A party seeking discovery must now show
substantial need and must show that he is unable, without undue hard-
ship, to obtain the substantial equivalent of the materials by other
means. ^^^ With these changes, the Trial Rule more specifically spells
out what is now required because these requirements were two
elements of "good cause" under prior law.^^^ A new sentence was added
to the section on trial preparation materials that protects "the men-
tal impressions, conclusions, opinions, or legal theories of an attorney
or other representative of a party" from disclosure. ^^^ Thus, any
previous Indiana decisions that did not protect an attorney's mental
impressions are modified to that extent, and Indiana decisions will
now follow recent federal cases construing this limitation.^^"

The section on discovery of experts is now renumbered as Trial
Rule 26(B)(4). Its contents were changed substantially so that several
recent Indiana decisions are affected. Amended Trial Rule 26(B)(4)(a)

'^*Ind. Code Ann., Ind. R. Tr. P. 26 Supreme Court Committee note (West Supp.
1982).

'''Id.

'^''Section 26(B)(4) is now 26(B)(2) and the section on discovery of trial preparation
material is now 26(B)(3). Ind. R. Tr. P. 26(B)(2), (3).

'«^Ind. R. Tr. p. 26(B)(3).

''^See Newton v. Yates, 170 Ind. App. 486, 497, 353 N.E.2d 485, 492 (1976).

^«'lND. R. Tr. p. 26(B)(3).

'^'See, e.g., Upjohn Co. v. United States, 449 U.S. 383 (1981); Duplan Corp. v.
Moulinage Et Retorderie DeChavanoz, 509 F.2d 730 (4th Cir.), cert, denied, 420 U.S.
997 (1975).

1983] SURVEY-CIVIL PROCEDURE 79

allows a party to seek through interrogatories not only the names
of experts and the subject matter of their testimony, but also the facts
and opinions to which the expert is expected to testify, thus modify-
ing Indiana case law which limited discovery of facts and opinions of
expert witnesses. ^^^

2. Discovery Rules. — a. Trial Rule 33: Interrogatories to par-
ties.—Trial Rule 33(C) was amended to conform with Federal Rule 33(c)
by adding a sentence at the end. Trial Rule 33(C) provided that when
a party is served interrogatories that can be answered by examining
business records, and the burden of obtaining the answer is the same
for the party requesting the information as for the party served, it
is permissible to answer by providing the requesting party access to
the records and time to examine them. This option had been abused
by answering parties who directed the requesting party to a large
mass of business records without specifying where the information
sought might be found. ^^^ The amendment now requires that the
answering party specify by category and location, the records from
which answers to interrogatories can be derived. ^^^

b. Trial Rule 34: Production of documents. — Trial Rule 34(B) was
also amended by the addition of one sentence which conforms it to
Federal Rule 34(b). The amendment requires that a party who pro-
duces documents in response to a request by the opposing party "pro-
duce them as they are kept in the usual course of business or . . .
organize and label them to correspond with the categories in the
request."^^* This amendment, similar to the amendment to Trial Rule
33(C),^^^ attempts to prevent abusive practices that make it difficult
for the requesting party to find the information sought in the re-
quested documents. ^^°

c. Trial Rule 37: Sanctions. — The amendment to Indiana Trial
Rule 37, which was quite substantial, conformed the Indiana Rule to
Federal Rule 37. The purpose of the amendment, according to the
Rules Committee, was to "reinforce Indiana decisions in the area, and
to clearly identify the enforcement power ... of the Indiana trial
court."^^^

'''See, e.g., Costanzi v. Ryan, 370 N.E.2d 1333 (Ind. Ct. App. 1978); State Highway
Commission v. Jones, 173 Ind. App. 243, 363 N.E.2d 1018 (1977).

'""Ind. Code Ann., Ind. R. Tr. P. 32(C) Supreme Court Committee note (West Supp.
1982).

'"Ind. R. Tr. P. 33(C).

•««IND. R. Tr. p. 34(B).

'^^See supra notes 166-67 and accompanying text.

'™Ind. Code Ann., Ind. R. Tr. P. 34(B) Supreme Court Committee note (West Supp.
1982).

"•Ind. Code Ann., Ind. R. Tr. P. 37 Supreme Court Committee note (West Supp.
1982).

80 INDIANA LAW REVIEW [Vol. 16:57

3. Trial Rule J^l: Provisions Governing Dismissal of Actions.—
Prior to the 1982 amendment, Indiana courts had consistently inter-
preted Trial Rule 41(B) to mean that the trial court, in determining
whether to grant an involuntary dismissal, could consider only the
evidence and inference most favorable to the nonmoving party, and
that the trial court was not permitted to weigh the evidence/^^ Under
the standard adopted by the Indiana courts, a trial judge, when trial
is to the court, could not disbelieve a prima facie case and find for
the moving party who does not have the burden of proof. However,
such a prohibition is inconsistent with the power of a jury to find
against a party who has made a prima facie case.^^^ In addition, this
standard is inconsistent with Rule 41(b) of the Federal Rules of Civil
Procedure, which permits the trial court to weigh the evidence and
determine for whom the evidence preponderates/^^

The 1982 amendment to Trial Rule 41(B) corrected these incon-
sistencies. As amended, the rule now provides that the standard to
be applied by the trial court is whether, ''upon the weight of the
evidence and the law there has been shown no right to relief."^^^ The
amendment makes clear that the trial court may weigh the evidence,
may determine the credibility of witnesses, and may decide whether
the plaintiff, or party with the burden of proof, has established a right
to relief or defense during the case-in-chief.^^^ The Rules Committee
noted that all cases holding contrary to the new Trial Rule 41(B) stan-
dard were effectively overruled by the amendment.^^^

J^. Trial Rule 75: Venue Requirements. — As amended, Trial Rule
75 now allows interlocutory appeal of an order transferring or refus-
ing to transfer a case under the venue provisions.^^^ This amendment
represents a complete change from the previous rule. It should be
noted that the new provision expressly provides that an interlocutory
appeal will not stay the trial court proceedings unless the trial or ap-

'''See, e.g., Fielitz v. Allred. 173 Ind. App. 540. 541-43, 364 N.E.2d 786, 787 (1977);
Building Systems, Inc. v. Rochester Metal Prods., Inc., 168 Ind. App. 12, 14, 340 N.E.2d
791, 793 (1976).

'''See State ex rel. Peters v. Bedwell, 267 Ind. 522, 527, 371 N.E.2d 709, 712 (1978)
(jury may find against party with burden of proof who has established a prima facie
case).

''*E.g., Emerson Electric Co. v. Farmer, 427 F.2d 1082 (5th Cir. 1970); Ellis v. Carter,
328 F.2d 573 (9th Cir. 1964).

"^Ind. R. Tr. p. 41(B). The amendment adopted the holding in Ferdinand Furniture
Co. V. Anderson, 399 N.E.2d 799 (Ind. Ct. App. 1980).

*^*Ind. Code Ann., Ind. R. Tr. P. 41 Supreme Court Committee note (West Supp.
1982).

"Ud. The committee note lists several cases which were overruled by the amend-
ment, including Fielitz v. Allred, 173 Ind. App. 540, 364 N.E.2d 786 (1977) and Building
Systems, Inc. v. Rochester Metal Prods., Inc., 168 Ind. App. 12, 340 N.E.2d 791 (1976).

"«lND. R. Tr. p. 75(E).

1983] SURVEY-CIVIL PROCEDURE 81

pellate court so orders. This provision conforms to the general rule
on interlocutory appeals. ^^^

5. Trial Rule 79: Special Judge Selection. — The 1982 amendment
modified subsections (4), (8), and (10) of Trial Rule 79. As amended,
subsection (4) provides that each party in an adversary proceeding
"shall" strike or move from the list of three prospective special judges
submitted by the presiding judge. ^*° The rule was amended in order
to make clear that the parties are obligated to strike. ^^^

Subsections (1), (6), and (7) provide for the appointment of a special
judge by the Indiana Supreme Court under certain circumstances. As
amended, subsection (8) no longer specifically designates particular
courts to which subsections (1), (6), and (7) are inapplicable, but makes
the supreme court's appointment power inapplicable to any court from
which an appeal is allowed to a circuit court or a court of coordinate
jurisdiction.^^^ The amendment has the effect of making the supreme
court's power to appoint a special judge applicable to any court where
orders or judgments may be appealed directly to the Indiana Supreme
Court or the Indiana Court of Appeals. ^®^ As pointed out in the Com-
mittee note, statutes that permit direct appeal to the court of appeals
from the Marion County Municipal Court^*^ will have, as a result of
the amendment to Trial Rule 79, the further effect of extending
supreme court appointment of special judges to municipal and other
lower courts.

Subsection (10) sets forth the time limits within which a presiding
judge must take action to nominate a list of prospective special judges,
and within which the parties must strike from that list.^*^ The amend-
ment to this subsection decreased the time within which the presiding
judge is required to nominate the list and to submit it to the parties,
after his attention has been called to the necessity for nomination,
from three days to two days. The amendment also increased the time
within which the parties must strike from two days to not less than
seven nor more than fourteen days thereafter, as the judge may allow.
These changes are in conformity with the time limits applicable to
change of venue from the county.^*®

This subsection also was amended to provide for contingencies in

'''See IND. R. App. P. 4(BK5)(c).

^•"IND. R. Tr. p. 79(4). The prior rule had read "may" strike.

^"Ind. Code Ann., Ind. R. Tr. P. 79 Supreme Court Committee note (West Supp.
1982).

'^^IND. R. Tr. P. 79(8).

•*^Ind. Code Ann., Ind. R. Tr. P. 79 Supreme Court Committee note (West Supp.
1982).

"^See, e.g., Ind. Code § 33-6-1-8 (1982).

^**Ind. R. Tr. p. 79(10).

'""See Ind. R. Tr. P. 76(9); Ind. R. Crim. P. 12.

82 INDIANA LAW REVIEW [Vol. 16:57

the event either party fails to strike within the time allowed. If the
moving party fails to strike, he is not entitled to a change of venue
from judge, and the presiding judge reassumes jurisdiction in the
case.^*^ If the nonmoving party fails to strike, the clerk strikes for
him/^* The addition of these provisions is consistent with the amend-
ment of subsection (4) and essentially states the result of failure to
strike under prior case law.^^^

'«lND. R. Tr. p. 79(10).

'""Id.

'"^See State ex rel. Goins v. Sommer, 239 Ind. 296, 299-300, 156 N.E.2d 885, 887 (1959).

IV. Commercial Law

Gerald L. Bepko*
A. Scope of UCC Article 2

This year, in Tousley-Bixler Construction Co. v. Colgate Enterprises,
Inc.y^ the court of appeals had an opportunity to decide a case that
may help clarify the differences between transactions in goods,^ which
are governed by Uniform Commercial Code (UCC) Article 2, and real
property related transactions, which are governed by the common law
of contracts. The case involved an alleged contract for the sale of
50,000 cubic feet of clay located approximately four to eight feet
beneath the surface of the seller's property. Under the alleged agree-
ment, the clay was to be removed by the buyer. Before any clay was
removed, however, a dispute arose regarding the existence of the con-
tract, and the seller filed suit. At the close of the trial, the trial judge
instructed the jury on the subject of formation of contracts under both
the common law of contracts and the Indiana version of UCC Article
2. The judge apparently intended the jury to decide first whether the
alleged agreement was a transaction in goods or an ordinary contract,
and then to apply the correct principles of law. The jury found for
the seller. The buyer appealed the decision contending that a trans-
action in goods was not involved, and, thus, the trial judge erred in
giving instructions under Indiana's version of UCC Article 2.^

An analysis of the trial judge's instruction should begin with an
examination of UCC 2-105(a), which defines the term "goods" as
"things . . . which are movable at the time of identification to the
contract"^ including "things attached to realty as described in the sec-
tion on goods to be severed from realty (section 2-107)."^ UCC 2-107
provides that "[a] contract for the sale of timber, minerals or the
like ... is a contract for the sale of goods ... if they are to be sev-
ered [from the land] by the seller."® If, however, they are to be severed

*Dean and Professor of Law, Indiana University School of Law — Indianapolis.
B.S., Northern Illinois University, 1962; J.D., IIT/Chicago-Kent College of Law, 1965;
LL.M., Yale University, 1972. The author wishes to extend his appreciation to James
Richard Campbell for his assistance in the preparation of this Article.

'429 N.E.2d 979 (Ind. Ct. App. 1982).

^U.C.C. § 2-102 provides that "this Article applies to transactions in goods." Ind.
Code § 26-1-2-102 (1982).

M29 N.E.2d at 980.

*lND. Code § 26-1-2-105(1) (1982).

'Id.

^Id. § 26-1-2-107(1). In an effort to make available the more streamlined financing
provisions of UCC Article 9, there was a movement in timber growing states to have
timber treated as goods regardless of whether the buyer or the seller removed the
timber. The permanent editorial board followed the lead of the timber growing states
and, in 1966, changed the language of UCC 2-107 to eliminate the word "timber" from
subsection 1. A.L.I., The Official Text of the Uniform Commercial Code app. II, § C,
at 882 (West 1978). Indiana has not made this change.

84 INDIANA LAW REVIEW [Vol. 16:83

by the buyer, the transaction resembles a lease of the. real property
and the transaction should be governed by the common law govern-
ing mineral leases. Using this formulation, the court concluded that
the clay under the ground was a "mineral or the like" and thus, would
constitute goods only if the seller was to remove the clay/ Because
the buyer in Tousley-Bixler was to remove the clay, the sale involved
an ordinary contract, not a transaction in goods; therefore, the jury
was not at liberty to apply the principles of UCC Article 2. Thus,
the trial judge had erred in giving instructions to the jury under UCC
Article 2.«

Although the appellate court in Tousley-Bixler concluded that the
trial judge had given incorrect instructions, the question remained
whether the error was harmless. To a great extent, the UCC is a
codification of common law.^ Those portions of the UCC that are not
codifications of common law are often applied by courts by way of
analogy, or as a recognition of the fact that the UCC contains the
most recent and authoritative exposition of commercial law.^° Professor
Grant Gilmore called this use of the UCC "statutory radiation."" Thus,
if the UCC either codifies, or is to be used in shaping, the common
law, then there would be no harm in giving UCC instructions because
there would be no difference between the UCC and the relevant com-
mon law. In Tousley-Bixler, however, the trial judge's instructions in-
corporated UCC 2-207, the "battle of the forms" section that makes
a radical departure from the common law.^^

Under UCC 2-207(1), a contract can be concluded by the exchange
of documents, even if the documents contain different or additional
terms. The common law doctrine provides that a responsive document
containing different or additional terms does not form a contract but,
instead, constitutes a counter offer.^^ This difference between the com-
mon law and UCC 2-207(1) was too stark to permit the appellate court
in Tousley-Bixler to conclude that the trial judge's error was harmless.
Thus, the case was reversed and remanded for a new trial.^^ Implicit
in the court's holding is the assumption that there is to be no statutory

'429 N.E.2d at 982.

^Id. at 983.

^See generally Danzig, A Comment on the Jurisprudence of the Uniform Commer-
cial Code, 27 Stan. L. Rev. 621, 622-23 (1975) (suggesting that states were merely stating,
rather than making, law when they adopted the UCC).

''See Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d 144 (1971); Wagner
Constr. Co. v. Noonan, 403 N.E.2d 1144 (Ind. Ct. App. 1980).

"1 G. Gilmore, Security Interests in Personal Property § 10.7, at 315 (1965).

'^5ee J. White & R. Summers, Handbook of the Law Under the Uniform Commer-
cial Code § 1-2 (2d ed. 1980).

"Restatment (Second) of Contracts § 59 (1979).

^"429 N.E.2d at 983.

1983] SURVEY-COMMERCIAL LAW 85

radiation from UCC 2-207(1) and that it should not be applied by
analogy to shape the common law in Indiana.

B. Warranty Booklet Received After Sale

Generally, a written disclaimer or a modification of a warranty
that is contained in a manufacturer's manual or booklet is not bind-
ing on a purchaser if the manual or booklet is received by the pur-
chaser after a commitment to purchase has been made.^^ This general
dogma appears to be based on the assumption that the purchaser had
not assented to the disclaimer; therefore, such disclaimers are inef-
fective, in the absence of proof that the purchaser assented to the
terms of the booklet. This past year, in Hahn v. Ford Motor Co.,^^
the court of appeals had occasion to examine the limits of this dogma
in a most interesting case.

In Hahn, the buyers of an auto brought a suit for breach of war-
ranty against the dealer, Lorey, and the manufacturer. Ford, claim-
ing various defects in a 1977 Ford purchased from Lorey. Lorey
counterclaimed for the balance due on the purchase price. At the jury
trial, the trial court admitted into evidence the Ford warranty facts
booklet, which contained modifications of the implied warranty of mer-
chantability. Although implied warranties were acknowledged in the
booklet, their duration was limited to the twelve month or twelve thou-
sand mile duration of the express warranty. The purchasers, Mr. and
Mrs. Hahn, claimed to have found this booklet in the glove box after
taking delivery of the auto. Judgment was entered on the jury's
verdict for Lorey on the counterclaim and against the Hahns on the
warranty claim. The Hahns appealed contending that the trial court
erred in admitting the booklet."

The Hahns argued that the booklet was "inadmissable on
evidentiary grounds because its relevance depended upon the existence
of another conditioning fact — that it was part of the parties' contract."^^
The appellate court, recognizing that the scope of its review was
limited to the Hahns' argument, affirmed the trial court's decision. ^^

In reaching its decision, the appellate court pointed out that if
the only basis for objection to the booklet was the question concern-
ing the existence of a conditioning fact, then the trial court's role was

'^J. White & R. Summers, supra note 12, § 12-5, at 446.

'M34 N.E.2d 943 (Ind. Ct. App. 1982).

'^Other issues on appeal included whether the trial court erred in admitting the
warranty into evidence, in granting judgment in Ford's favor regarding punitive
damages, in refusing to give one of the plaintiffs' instructions, and in failing to allow
plaintiffs, as counter defendants, to assert rejection or revocation as a defense to Lorey 's
counterclaim. Id. at 946.

•«434 N.E.2d at 948.

''Id. at 957.

86 INDIANA LAW REVIEW [Vol. 16:83

limited to determining whether there was evidence "from which the
ultimate fact finder could find the existence of the conditioning fact."^°
The conditioning fact was that the warranty disclosure "was part of
the parties' contract,"^^ presumably at the time the original sale agree-
ment was struck. The appellate court explained that there was
evidence in the trial record from which the jury could have found the
existence of the conditioning fact; that is, that the Hahns were "cogni-
zant of a 12,000 mile/12 month limitation on the duration of any im-
plied warranties."^^ Moreover, there was testimony that at the time
of sale there was a discussion of an extended warranty plan. Although
there was no specific testimony that a twelve month or twelve thou-
sand mile limitation was discussed, the appellate court found that the
trial court reasonably could have inferred that such a discussion took
place. In order for there to be a discussion of the value of the extended
warranty, there would have to have been some recognition of the
limits on the basic express and implied warranties. On the basis of
this evidence, the trial court could have concluded that Ford made
a prima facie showing that the limitation was within the Hahns'
knowledge at the time of sale. The appellate court held, therefore,
that the trial court "did not err in admitting into evidence the booklet,
which contained an identical limitation."^^

Throughout its discussion of this issue, the court of appeals was
careful to point out that it was addressing only the narrow, eviden-
tiary issue raised by the Hahns.^ The court suggested that there may
be a basis, if properly advanced, for excluding a warranty booklet such
as the one in this case. The court, in dicta, stated that limitations
contained in such a booklet are "ineffective as a matter of law" unless
the parties assent to them, presumably after receiving the booklet.^^
This part of the Hahn opinion should be carefully examined by anyone
representing a buyer who is confronted with limitations found in such
a warranty booklet.

The court in Hahn also addressed the issue of the validity of the

^°Id. at 949 (citing C. McCormick, Handbook on the Law of Evidence § 53 (E.

Cleary 2d ed. 1972)).

^'434 N.E.2d at 948.
''Id. at 949.
'Ud. at 950.
^"The court stated:

This is quite a distinct argument than one which overtly attacks the effec-
tiveness of a warranty limitation on sufficiency grounds, i.e., whether the
evidence is sufficient to sustain an inference the parties consented to the
terms of a warranty modification and limitation. We are, of course, limited
in our scope of review and address only those issues properly raised by the
parties.

Id. at 948.

'^434 N.E.2d at 948.

1983] SURVEY-COMMERCIAL LAW 87

dealer's disclaimer. At the time of sale, Mr. Hahn signed a dealer's
warranty disclaimer entitled "As Is, Manufacturers Warranty Only."^^
The language of the document was not quoted in the opinion, but the
clear meaning of the document was that Lorey made no warranties
and that the purchasers were to look exclusively to warranties made
by Ford. This is a device commonly used by dealers in an effort to
avoid product quality commitments. On appeal, the Hahns argued that
the trial court erred in admitting this document into evidence. The
court of appeals rejected the Hahns' arguments and confirmed the
efficacy of the dealer's warranty disclaimer." Implicit in the court's
decision was the assumption that the reference in the dealer's
disclaimer to the manufacturer's warranty was not sufficient to in-
corporate, by reference, the warranty booklet and its limitations.^®

C. Remedy Limitations

Remedy limitations are contract provisions that apportion risks
in transactions.^^ A remedy limitation will usually come into play after
some liability has been established, such as for breach of warranty.
The contract provision may limit the remedy: by setting a particular
remedy, such as repair or replacement of defective parts, as the exclu-
sive remedy; by imposing conditions on remedies, such as giving notice
within a certain time period; or by setting a maximum dollar amount
on the damages that may be recovered.

During the past year, there were two cases in Indiana concerning
remedy limitations. In one case, General Bargain Center v. American
Alarm Co.,^^ the remedy limitation was enforced to limit the defend-
ant's liability. In the other case, Carr v. Hoosier Photo Suppliers, Inc.,^^
the remedy limitations were narrowly construed so that they did not
operate to protect the defendant against full liability.

In General Bargain Center, the American Alarm Company
(American) installed a burglar alarm system for General Bargain
Center (General). Thereafter, a burglary was committed at General's
premises and General lost $19,000 in merchandise. General brought

''Id. at 953.

'Ud. at 954.

^*For example, arguably, the manufacturer's limitations on warranty were incor-
porated by reference, by way of the documents signed at the time of sale. This result,
however, would probably be inconsistent with the "conspicuous" requirements of U.C.C.
§ 2-316(2). IND. Code § 26-1-2-316(2) (1982).

^The U.C.C. § 2-719 deals with contractual modification or limitation of remedy.
iND. Code § 26-1-2-719 (1982).

^°430 N.E.2d 407 (Ind. Ct. App. 1982).

^'422 N.E.2d 1272 (Ind. Ct. App. 1981). For a discussion of the bailment aspects
of this case, see Krieger, Property, 1982 Survey of Recent Developments in Indiana Law,
16 Ind. L. Rev. 283, 288 (1983).

88 INDIANA LAW REVIEW [Vol. 16:83

a suit against American claiming that the loss was the result of
American's failure to comply with the terms of the agreement.
American defended on the ground that the clauses in the contract be-
tween General and American limited American's liability to $250. On
the front page of the written contract between General and American,
the following language appeared immediately over the signatures of
the parties:

The reverse of this agreement is incorporated herein. Please
read carefully. We are not an insurer. Our maximum liability
is limited to $250.00. User acknowledges receipt of copy and
that he has read and understands reverse side of agreement
particularly Paragraph #9.^^

Paragraph 9 on the reverse side of the contract document contained
similar language. In particular, Paragraph 9 stated that:

[I]f Company should be found liable for loss or damage due
from a failure of Company to perform any of the obligations
herein, including but not limited to installation, maintenance,
monitoring or service or the failure of the system or equip-
ment in any respect whatsoever. Company's liability shall be
limited to a sum equal to the total of six (6) monthly payments
or Two Hundred Fifty ($250.00) Dollars, whichever is the
lesser, as liquidated damages and not as penalty and this
liability shall be exclusive . . . .^^

The trial court relied on the language of these clauses to limit
liability to the maximum amount of $250 and entered summary judg-
ment accordingly.** General appealed, and the court of appeals affirmed
the trial court's decision, concluding that there were no issues of fact
and that there was no basis for declaring the remedy limitations to
be unenforceable.^^

Two additional matters should be noted in connection with this
case. First, the court rejected the argument made on appeal that,
because General did not understand the consequences of this remedy
limitation, the limitation was unconscionable.^^ Although this contract
agreement was not a transaction in goods, clearly the principle of un-
conscionability applies^' and, presumably, the trial court should have
followed the procedure in UCC 2-302.^® The result on this issue in

'M30 N.E.2d at 410 (quoting contract).

^Ud. at 409 (quoting contract).

'*Id.

''Id. at 412.

""Id.

"See Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d 144 (1971).

^Ind. Code § 26-1-2-302 (1982) provides that as a matter of law, the trial judge makes

1983] SURVEY -COMMERCIAL LAW 89

General Bargain Center points up the need for the party claiming
unconscionability to request a hearing in the trial court on the issue
of unconscionability, and then, at the hearing, the party should offer
evidence of the commercial setting at the time of the agreement. This
evidence should include evidence of any imbalance in bargaining power
that may exist, evidence that the contract was an "adhesion contract"
given without options as to whether to accept its terms, evidence of
the harshness of the provision in dispute, or evidence that a term was
obscure or not understood. Apparently, General did not request such
a hearing, offered no such proof, and therefore, could not raise the
issue on appeal. Moreover, if all the terms of UCC 2-302 apply, the
issue of unconscionability, although similar to an issue of fact, is
decided by the trial judge who must have some discretion in making
determinations of unconscionability.

Secondly, the possibility that the contract clause in question
operated as a liquidated damages clause did not seem fully developed
by the court of appeals. A liquidated damages clause is a term that
establishes a reasonable estimate of the actual injury that may be
suffered as a result of a breach and sets that estimate as the stipulated
recovery for breach.^^ Paragraph 9 of the contract in General Bargain
Center refers to the stipulated amount of recovery as "liquidated
damages."^ If this language were intended to operate as a liquidated
damages clause, it could be interpreted as providing a recovery of
$250 for any breach. Under this interpretation, it is possible that the
clause is overly broad and could be void because it would operate
as a penalty. For example, if American made some very minor error
in performance of the contract, which did not cause any injury to
General, this clause could be interpreted to accord General a right
to recover $250. Applied in this situation, because the $250 recovery
would bear no relation to any injury suffered by General, it would
not be a reasonable estimate and, therefore, the clause would be unen-
forceable under common law restrictions on penalties."*^ If this clause
were unenforceable because it operated as a penalty in this situation,
then serious questions could be raised concerning its enforceability
as a remedy limitation.

a determination on the question of unconscionability, based on the circumstances exist-
ing at the time the contract was made. Ind. Code § 26-1-2-302(2) (1982) provides that
"[w]hen it is claimed or appears to the court that the contract or any clause thereof
may be unconscionable the parties shall be afforded a reasonable opportunity to pre-
sent evidence as to its commercial setting, purpose and effect to aid the court in mak-
ing a determination." Id.

"^See generally E. Farnsworth, Contracts § 1218, at 895 (1982); J. Murray, Murray
ON Contracts § 234, at 473 (2d rev. ed. 1974).

*'>430 N.E.2d at 409.

*'See E. Farnsworth, supra note 39, § 1218; J. Murray, supra note 39, § 234.

90 INDIANA LAW REVIEW [Vol. 16:83

This analysis suggests the need for a drafting approach that
carefully isolates and tests the operation of a clause, first, as a
liquidated damages clause, and second, as a remedy limitation. In
General Bargain Center, the clause functioned as a remedy limitation.
To achieve that function and to avoid the problem raised in this
Survey, a safer drafting approach would have been to state that
American was responsible for any actual losses resulting from a breach
up to a maximum of $250. If there were specific breaches that the
parties wished to be covered by a liquidated damages clause, the
breaches should have been isolated and a reasonable estimate of loss
recorded in the agreement.

The other case concerning a remedy limitation, Carr v. Hoosier
Photo Suppliers, Inc.,'^^ is Indiana's first vacation film case. In that case,
Carr, a lawyer, took a trip to Europe and used nine rolls of Kodak
film to make a photographic record of the trip. Upon returning to the
United States, he took the nine rolls to Hoosier Photo, which in turn
sent them to Kodak for development. Four of these rolls were lost
and never returned to Carr. Carr brought suit against Hoosier Photo
and Kodak claiming losses associated with the expenses of the vaca-
tion. Both Hoosier Photo and Kodak claimed the benefit of the remedy
limitations found on the boxes of film and on the receipt that was
given to Carr when he gave his film to Hoosier Photo for develop-
ment. The limitation on the receipt was as follows:

READ THIS NOTICE
Although film price does not include processing by Kodak, the
return of any film or print to us for processing or any other
purpose, will constitute an agreement by you that if any such
film or print is damaged or lost by us or any subsidiary com-
pany, even though by negligence or other fault, it will be
replaced with an equivalent amount of Kodak film and pro-
cessing and, except for such replacement, the handling of such
film or prints by us for any purpose is without other warranty
or liability.''^

The statement on the box of film was as follows:

READ THIS NOTICE
This film will be replaced if defective in manufacture, label-
ing, or packaging, or if damaged or lost by us or any subsidiary
company even though by negligence or other fault. Except for
such replacement, the sale, processing, or other handling of

*M22 N.E.2d 1272 (Ind. Ct. App. 1981), rev'd. No. 2-476 A 124 (Ind. Nov. 12, 1982).
"/d at 1274.

1983] , SURVEY -COMMERCIAL LAW 91

this film for any purpose is without other warranty or
liability/'

Disregarding these limitations, the trial court awarded to the plain-
tiff a judgment for damages in the amount of $1,013.60, and all par-
ties cross-appealed/^

The court of appeals had to decide whether either of the remedy
limitations were effective to protect either defendant. In approaching
this question, the court seemed guided by the principle that remedy
limitation clauses are to be strictly construed and must be unam-
biguous in order to deprive a party of a remedy. This principle was
borrowed from Indiana cases involving indemnification clauses.'*^ The
court stated that the reasoning of the cases dealing with indemnifica-
tion clauses was applicable for both indemnification and remedy limita-
tion clauses because both clauses protect a party from the conse-
quences of negligence or breach."^

1. Hoosier Photo. — Hoosier Photo claimed the benefit of the pro-
vision on the film box. The court made short work of this argument
pointing out that Hoosier Photo was not a party to the sale of the
film and could not rely on terms of a contract to which it was not
a party."* The wording on the Hoosier Photo receipt was more
troublesome. The court assumed that this receipt recorded the terms
of the contract between Hoosier Photo and Carr, but concluded that
the clause limited Hoosier Photo's liability only in the event film was
''returned" to Hoosier Photo.'*^ Thus, in this instance, the clause did
not apply because Hoosier Photo "had never previously possessed the
film."^"

2. Kodak. — Kodak also claimed the benefit of the provision on
the film box. The court rejected this argument on the ground that
the clause on the film box did not apply to film processing.^^ The court
reasoned that processing was an entirely separate transaction for
which no payment was made at the time of purchase of the film. This
reasoning led the court to conclude that the limitation clause applied
only to defects in the film and, even more startling, that "any agree-
ment concerning liability for losses during the processing transaction

**Id.

*'Id. at 1275.

'^Id. at 1276-77 (citing Vernon Fire and Casualty Ins. Co. v. Graham, 166 Ind. App.
509. 336 N.E.2d 829 (1975); Indiana State Highway Comm n v. Thomas, 169 Ind. App.
13, 346 N.E.2d 252 (1976)).

^'422 N.E.2d at 1276 n.2.

''Id. at 1276.

*'Id.

''Id.

92 INDIANA LAW REVIEW [Vol. 16:83

would have to be made when the arrangements for processing were
made."^^ It is unclear what policy supports this restriction on the right
of the parties to allocate risks.

Finally, Kodak urged that it was protected by the language of
the receipt. The court agreed that the receipt applied to the process-
ing transaction^^ and acknowledged that the film had been "returned"
to Kodak, thus, eliminating the obstacle encountered by Hoosier Photo.
Nevertheless, the court concluded that the receipt offered no protec-
tion for Kodak in this case.^^ The receipt referred to "the return of
any film or print to its for processing or any other purpose."^^ It was
not clear to whom the pronoun "us" in the clause referred. According
to the court, this ambiguity made it unclear which party was to be
protected. Thus, the court refused the protection of the clause to
Kodak. In searching for the clear meaning of the clause, the court
did not appear to consider that the word "us" seems to have been
intended to include all parties that played a role in the course of the
film's processing, including Kodak, which was mentioned twice by
name in the receipt.

The court's desire to construe strictly these remedy limitations
is understandable. The purchaser of film and processing usually has
no choice of terms, and the enforcement of the clauses would leave
the purchaser without an effective remedy. Nevertheless, the effect
of remedy limitations may be a matter better suited for legislative
protection rather than a case-by-case judicial scrutiny of the terms.

The final issue in the Hoosier Photo case was raised by cross-
challenges of the trial court's award of $1,013.60 in damages. Both
the defendants and the plaintiff contended that the award was con-
trary to the evidence. The plaintiff argued that the cost of the trip,
$6400, was the only evidence of injury and should have been the basis
for the award. The defendants apparently argued that the cost of the
trip was neither foreseeable nor based on circumstances of which the
defendants had reason to know at the time of the contract and that
the only compensable loss that the plaintiff proved was the cost of
the film, $13.60. The court of appeals disagreed with both challenges
and affirmed the award.^^ The court noted that in Indiana the trial
court has discretion in assessing damages,^^ and the court found that
the trial judge's decision in this case was within the scope of proper

''Id.

'Ud.

''Id. at 1276-77.

''Id. at 1277 (emphasis added by court).

'^Id. The supreme court reversed the award. Hoosier Photo, No. 2-476 A 124 (Ind.
Nov. 12, 1982) (proper award was $13.60, the cost of the film).

"Id. (citing Gene B. Glick Co. v. Marion Constr. Corp., 165 Ind. App. 72, 331 N.E.2d
26 (1975); Smith v. Glesing, 145 Ind. App. 11, 248 N.E.2d 366 (1969)).

1983] SURVEY -COMMERCIAL LAW 93

discretion.^* Without discussing issues of foreseeability, the court of
appeals concluded that the trial judge could have used the total cost
of the trip as a starting point and reduced this amount to take into
account the benefit to Carr form the five rolls that were successfully
developed and the other dimensions of enjoyment associated with the
trip.

D. Buyer's Remedies

In Michiana Mack, Inc. v. Allendale Rural Fire Protection District,^^
the Indiana Court of Appeals addressed some interesting questions
concerning remedies under UCC 2-714.^" In that case, the defendant,
Michiana, sold a fire truck to the Allendale Fire Protection District.
The truck's motor regularly overheated. Allendale kept the truck, but
filed suit seeking damages for breach of warranty. The trial court
found that the truck was nonconforming and concluded that the
appropriate remedy was to order Michiana to repair the truck or to
refund the purchase price and, in either case, to pay damages including
Allendale's expenses incurred for interest and insurance on the truck.
Michiana appealed claiming that the trial court erred in fashioning
the remedy. The court of appeals agreed with Michiana and reversed
the trial court's decision pertaining to the remedy .^^

The opinion of the court of appeals includes four important points.
First, the appellate court provided a general interpretive gloss for
UCC 2-714 — the section that furnishes remedies for seller's breach
when the buyer does not reject or revoke acceptance. UCC 2-714(1)
provides that the buyer "may recover as damages for any non-
conformity of tender the loss resulting in the ordinary course of events
from the seller's breach."^^ This subsection is designed to deal with
all forms of breach whether the breach pertains to the quality of the
goods or to some other aspect of the seller's performance. This is why
the drafters used the expression "any non-conformity." Accordingly,
UCC 2-714(1) gives the courts broad discretion in fashioning a remedy
for nonconformity.

UCC 2-714(2) provides:

The measure of damages for breach of warranty is the dif-
ference at the time and place of acceptance between the value
of the goods accepted and the value they would have had if

^«422 N.E.2d at 1278.
^'428 N.E.2d 1367 (Ind. Ct. App. 1981).
«"IND. Code § 26-1-2-714 (1982).

^'428 N.E.2d at 1369. The trial court's final order and judgment was reversed
and vacated in part, and modified in part.
'==IND. Code § 26-1-2-714(1) (1982).

94 INDIANA LAW REVIEW [Vol. 16:83

they had been as warranted, unless special circumstances show
proximate damages of a different amount.^^

This subsection deals with a more specific breach related to the quality
of goods — a breach of warranty. The remedy for breach of warranty
under UCC 2-714(2) is also more specific; it is the difference in the
value of the goods as warranted and the value of the goods as
accepted.^* This difference can be measured by the cost of repair, by
the fair market value of the goods as warranted less salvage value
of the goods, or by the fair market value of the goods as warranted
less the fair market value of the goods received.^^ Despite the more
precise formula of UCC 2-714(2), special circumstances may dictate
using a different method for computing the buyer's damages.

The second significant feature of Michiana Mack pertains to the
trial court's order for Michiana to repair the truck. Specific perform-
ance or some other exercise of the court's equitable powers may
be appropriate in some cases under UCC 2-714, but the appellate court
pointed out that "before such powers are invoked, the court must
assure itself that the party's legal remedies are inadequate."^® In
Michiana Mack, there was no evidence that the monetary remedies
provided by UCC 2-714 were inadequate to put the buyer in the full
performance position; thus, the appellate court found that the trial
court's order was in error.®^

The third significant feature of Michiana Mack relates to the trial
court's order for Michiana to refund the purchase price. UCC 2-714
does not authorize the use of the purchase price as a measure of
recovery. Indeed, the predicate of UCC 2-714 is that the buyer must
pay, or has paid, the purchase price and may sue for the specified
losses.^® UCC 2-717 provides that when the purchase price has not yet
been paid, the buyer may, after proper notification, deduct from the
price still due all or any part of the damages resulting from the
breach.®^ In some cases, the measure of recovery computed by the for-
mulae of UCC 2-714 may accidentally equal the purchase price. For
example, the fair market value of the goods may be one hundred and
ten percent of the contract price, and the salvage value may be ten
percent of the contract price. The difference between the market value
and the salvage value in such a case would equal the contract price.

'Ud. § 26-1-2-714(2).
''Id.

^^428 N.E.2d at 1370 (paraphrasing these three suggestions for applying the for-
mula of UCC 2-714(2) from J. White & R. Summers, supra note 12, § 10-2, at 377-81).
^'428 N.E.2d at 1371.
'Ud.

««lND. Code § 26-1-2-714(1) (1982); see id. § 26-1-2-607(1).
''Id. S 26-1-2-717.

1983] SURVEY-COMMERCIAL LAW 95

Nevertheless, the use of the contract price, as such, is not authorized
by UCC 2-714 and the court of appeals held that the trial court had
erred.^"

Finally, the appellate court found that the trial court had erred
in awarding damages based on interest and insurance premiums paid
on the truck.^^ The general theory of recovery in the law of contracts
and under the UCC provides that the nonbreaching party should be
put in the position that she would have been in had the seller's per-
formance been in conformity with the contract.^^ This is called the
full performance position and the formulae of UCC 2-714 are aimed
at approximating this position. Ordinarily, the expenses that the buyer
incurs, such as for interest or insurance on the goods, are contributions
that the buyer has agreed to make to bring about, or to supplement,
the full performance position. In other words, if the seller had fully
performed, the buyer would have spent these amounts on insurance
and interest to produce the desired result. To award additional
damages specifically for insurance and interest would be to place the
buyer in a position better than full performance and would be in con-
travention of the UCC's basic theory of recovery. The analysis may
be different, however, if the buyer has rejected or revoked accept-
ance of the goods.'

E. Amendments to the Indiana Deceptive
Consumer Sales Act

The Indiana Deceptive Consumer Sales Act^" serves as a basis for
the Indiana Attorney General to seek relief on behalf of injured
consumers against businesses engaged in deceptive practices. Unfor-
tunately, there has been one area of uncertainty in the enforcement
pattern: whether the Deceptive Consumer Sales Act applies to decep-
tive conduct in real property transactions such as those between
landlord-tenant or to the solicitation and sale of real property. The
Indiana Attorney General wanted to clarify this issue and to make
certain that his enforcement powers extend to these transactions. At
the same time, the real estate industry was concerned that a broad
expansion of the scope of the Indiana Deceptive Consumer Sales Act
would create a rash of private law suits by consumers who thought
they had been deceived. The industry pointed out that consumers

'«428 N.E.2d at 1372.

''Id. at 1373.

''See IND. Code § 26-1-1-106(1) (1982).

''See the discussion of Coyle Chevrolet Co. v. Carrier, 397 N.E.2d 1283 (Ind. Ct.
App. 1979), in Bepko, Contracts, Commercial Law, and Consumer Law, 1980 Survey of
Recent Developments in Indiana Law, 14 Ind. L. Rev. 223, 229 (1981).

'"Ind. Code §§ 24-5-0.5-1 to -9 (1982).

96 INDIANA LAW REVIEW [Vol. 16:83

already had rights under the common law to bring actions for decep-
tive conduct in real property transactions^^ and did not need the
benefit of expanded coverage under the Deceptive Consumer Sales
Act.

In the 1982 session, at the insistence of Attorney General Linley
Pearson, the Indiana General Assembly addressed this area of uncer-
tainty and the concerns of the real estate industry by amending the
Indiana Deceptive Consumer Sales Act.^® First, there was a change
in the definition of the term "consumer transaction." Indiana Code
section 24-5-0.5-2 now defines a consumer transaction as "a sale, lease,
assignment ... or other disposition of an item of personal property,
real property, a service, or an intangible."^^ Second, to take into
account the concerns of the real estate industry, the provisions of the
Deceptive Consumer Sales Act that deal with private rights of action
were amended by the addition of the following language: "This subsec-
tion does not apply to a consumer transaction in real property ."^^

In addition to making clear that the Attorney General may pro-
ceed under the Act in real property transactions, the General
Assembly added some language to the Act regarding the enforcement
powers of the Attorney General. The subsection on Attorney General
enforcement now provides:

c. The attorney general of Indiana may bring an action to
enjoin a deceptive act. However, the attorney general may seek
to enjoin patterns of incurable deceptive acts with respect to con-
sumer transactions in real property. In addition, the court may
order that supplier to [sic] make payment of the money unlaw-
fully received from the aggrieved consumers to be held in escrow
for distribution to aggrieved consunfiersP

The intent of this added language appears to be to restrict the
type of suits in which the Attorney General may seek injunctions.
In a real property transaction, an injunction may be sought only when
there are "patterns of incurable deceptive acts."®" An incurable decep-
tive act is a deceptive act that is part of a scheme, artiface, or device
used with intent to defraud or mislead.*^ Thus, before seeking an

^^See, e.g., Herbert v. Stanford, 12 Ind. 503 (1859) (recovery of purchase money
paid is allowed when sale rescinded for fraud or misrepresentation); Yost v.' Shaffer,
3 Ind. 331 (1852) (action for rescission is proper when vendor has been guilty of fraud);
Bolds V. Woods. 9 Ind. App. 657, 36 N.E. 933 (1893) (action for damages permitted for
misrepresentation by the vendor of land).

''Act of Feb. 25, 1982, Pub. L. No. 152, 1982 Ind. Acts 1115.

"Ind. Code § 24-5-0.5-2(1) (1982). See also id. § 24-5-0.5-2(4).

''Id. § 24-5-0.5-4(a), (b).

'^Id. § 24-5-0.5-4(c) (emphasis added).

""Id.

«7d. § 24-5-0.5-2(7).

1983] SURVEY -COMMERCIAL LAW 97

injunction in real property transactions, the Attorney General must
show a pattern of intentionally deceptive conduct. Apparently, in other
transactions the Attorney General may seek an injunction without
showing a pattern of deceptive conduct or without showing an intent
to deceive. The added language also makes it clear that a court, at
the request of the Attorney General, may order a supplier to make
restitution of the money that was unlawfully received from aggrieved
consumers. The money is to be held in escrow for distribution to ag-
grieved consumers. This relief appears to be available in all trans-
actions and does not appear to be limited to real property transactions.
Finally, the Deceptive Consumer Sales Act was amended to add
a new type of deceptive act to the long list of deceptive acts already
found in the Act. It is now a deceptive act to represent that a "replace-
ment or repair ... is authorized by the consumer if the consumer
has not authorized the replacement or repair, and if the supplier knows
or should reasonably know that it is not authorized."®^ This language
gives the consumer a remedy in addition to the common law defense
to an action for the price of the unauthorized repair work. In a suit
for the price of unauthorized repairs, the consumer would have a
defense based on the lack of authorization.*^ Now, in addition, the con-
sumer will be able to claim that the unauthorized repair is a violation
of the Deceptive Consumer Sales Act.

F. Amendments to Indiana's Uniform
Consumer Credit Code

The 1982 Indiana General Assembly enacted some significant
amendments to Indiana's version of the Uniform Consumer Credit
Code (UCCC).®^ The purpose of these amendments is to remove some
commercial transactions from coverage of the UCCC and to increase
the permissible credit service charge that may be imposed in consumer
credit transactions.

Although, in general, the UCCC was drafted to protect persons
to whom credit is extended in consumer transactions,*^ some non-
consumer transactions were included in the 1968 Official Text, which
was adopted by Indiana.*^ As originally enacted, Indiana Code section

«7d. § 24-5-0.5-3(aKl4).

^'See Deck v. Jim Harris Chevrolet-Buick, 386 N.E.2d 714 (Ind. Ct. App. 1979)
(holding that the automobile dealer was limited to a $50 recovery for a $134.40 bill
because the customer had agreed to pay only $50 for the repair).

^'Act of Feb. 24, 1982, Pub. L. No. 149. 1982 Ind. Acts 1101. Ind. Code §§
24-4.5-1-101 to -6-203 (1982) contain Indiana's version of the UCCC.

''See iND. Code § 24-4.5-1-102(2) (1982).

««Act of Mar. 5, 1971, Pub. L. No. 366, 1971 Ind. Acts 1557. See U.C.C.C, 7 U.L.A.
253 (1978) for the 1968 Official Text.

98 INDIANA LAW REVIEW [Vol. 16:83

24-4.5-2-602 identified and defined a "consumer related sale" and pro-
vided certain protection for the credit buyer in such sales.^^ Prior to
the amendments, a consumer related sale was a sale not exceeding
a price of $25,000, that was to a person other than an organization,
or that was secured by an "interest in a one or two family dwelling
occupied by a person related to the debtor."^^ The protection for the
debtor included limits on the permissible credit service charge. For
example, in a consumer related sale "the parties may contract for the
payment by the buyer of ... a credit service charge not in excess
of eighteen percent."*^ Similarly, Indiana Code section 24-4.5-3-602 iden-
tified a consumer related loan and provided the same protection for
borrowers in those transactions.^" The purpose of these provisions was
to accord some protection to sole proprietors in small transactions,
even though the credit sale or loan was not for a personal, family,
or household purpose.^^ The premise was that small business debtors
needed the same protection as consumers in small transactions.

Apparently, this protection was unwise. Often, high risk business
debtors were prevented from obtaining credit because financial insti-
tutions could simply not afford to extend credit within the limits per-
mitted by the UCCC for consumer related sales or loans. Both small
businesses and financial institutions argued that these small business
purpose loans should be excluded from the restrictions of the UCCC.

The Conference of Commissioners on Uniform State Laws
responded by omitting the concepts of consumer related sales and
loans from the 1974 Official Text of the UCCC' The 1982 Indiana
General Assembly also responded to this concern.®^ It amended Indiana
Code section 24-4.5-1-202, the UCCC exclusion section, by adding
language that excludes all credit sales and loans that are for other
than personal, family, household, or agricultural purpose.^" Now, all
business or nonconsumer sales and loans, including those that fit the

''See Act of Mar. 5, 1971, Pub. L. No. 366, § 3, 1971 Ind. Acts 1557, 1607.

^IND. Code § 24-4.5-2-602(1) (Supp. 1981) (current version at id. § 24-4.5-2-602(1) (1982)).

''Id. § 24-4.5-2-602(2) (1976) (current version at id. § 24-4.5-2-602(2) (1982)). In addi-
tion, section 24-4.5-2-602(3) limits the credit service charge for consumer related sales
made pursuant to a revolving charge to the same limit that applies to consumer sales
that involve revolving charge accounts.

""Id. § 24-4.5-3-602(2), (2.5) (1976) (current version at id. § 24-4.5-3-602(2) (1982)).

''See U.C.C.C. § 2.602 comment 1, 7 U.L.A. 393 (1978); Ind. Code Ann. § 24-4.5-2-602
comment 1 (West 1980); U.C.C.C. § 3.602 comment 1, 7 U.L.A. 472 (1978); Ind. Code
Ann. § 24-5.5-3-602 comment 1 (West 1980).

^^The 1974 Official Text expressly provides for no limit on finance charges for
nonconsumer credit transactions. U.C.C.C. § 2.601 & comment 1 (1974 version), 7 U.L.A.
695-96 (1978).

''See Act of Feb. 24, 1982, Pub. L. No. 149, §§ 3, 6, 1982 Ind. Acts 1101, 1102, 1105.

^'Act of Feb. 24, 1982, Pub. L. No. 149, § 2, 1982 Ind. Acts 1101, 1102 (codified
at Ind. Code § 24-4.5-1-202(7) (1982)).

1983] SURVEY-COMMERCIAL LAW 99

definition of consumer related sales or loans, are outside the coverage
of the UCCC.

Nevertheless, the Indiana Code sections dealing with consumer
related credit sales and loans still have some application. To see how
this may be so, it must be recognized that the credit sales and loans
governed by the UCCC, generally, are those sales and loans made by
persons who regularly extend credit. For example, Indiana Code sec-
tion 24-4.5-2-104 provides that a consumer credit sale is a sale in which
credit is granted by a person regularly engaged as a seller in credit
transa(^tions of the same kind.^^ Similarly, Indiana Code section
24-4.5-3-104 provides that a consumer loan is "a loan made by a person
regularly engaged in the business of making loans."^^ Therefore, credit
sales or loans made by persons not in the business of making sales
or loans are not consumer credit sales or consumer loans, even if they
are made for personal, family, or household purposes. In these trans-
actions, the buyer or borrower would not have the benefit of the
UCCC protections that are applicable to consumer credit sales or loans.
It is in these transactions that the consumer related sale and loan
provisions come into play. These transactions, although not within the
definition of consumer credit sales or loans, may be within the defini-
tion of consumer related sales or loans. For the transactions to be con-
sidered "consumer related," the seller or lender is not required to be
regularly engaged in that activity .^^

It should be noted that because business or nonconsumer credit
sales and loans are fully excluded from the UCCC,®* the consumer
related credit sale and loan provisions will not apply to any business
loans, but only to consumer credit sales and consumer loans that are
made by persons who are not regularly engaged in the business of
extending credit. These provisions will continue the protection pro-
vided by the UCCC for persons who borrow or receive extensions of
credit in transactions that are made by casual lenders such as real
estate brokers and some retail stores. This application of the UCCC
provisions, however, has the possible vice of creating restrictions in
small family loans in which the parties would not expect, or be likely
to be aware of, the restrictions.

The other major change in the UCCC involves permissible credit
service charges. Retailers had argued that high interest rates and infla-
tion made the maximum rates permitted under the UCCC too restric-
tive. The Indiana General Assembly responded by providing increased
flexibility in service charge rates.®* Creditors will now be allowed to

'^IND. Code § 24-4.5-2-104 (1982).

""Id. § 24-4.5-3-104.

''See id. §§ 24-4.5-2-602(1), -3-602(1).

'^See supra text accompanying note 94.

««Act of Feb. 24, 1982, Pub. L. No. 150, §§ 1-7, 1982 Ind. Acts 1107.

100 INDIANA LAW REVIEW [Vol. 16:83

impose finance charges that produce an annual percentage rate of
twenty-one percent, or one and three-quarters percent monthly, on
outstanding balances/*'" This increased flexibility has also been pro-
vided for deferral charges involving consumer related sales and loans,^"^
although, as mentioned above, the concept of consumer related credit
will have a much narrower application.

^""IND. Code §§ 24-4.5-2-207(3), -3-201(1), -3-201(4) (1982).
'"'Id. §§ 24-4.5-2-604(l)(b), -3-604(l)(b).

V. Constitutional Law

Carlyn E. Johnson*
A. Equal Protection

1. Abortion Regulation. — In Indiana Hospital Licensing Council
V. Women's Pavilion of South Bend, Inc.,^ the Indiana Court of Appeals
affirmed the trial court's decision that an Indiana statute^ requiring
the licensing of ambulatory outpatient surgical centers was unconstitu-
tional as applied to first trimester abortion clinics.

The Indiana Hospital Licensing Council sought to enjoin the opera-
tion of Women's Pavilion of South Bend, a first trimester abortion
clinic, on the grounds that it was operating without a license in viola-
tion of a state statute that required the licensing of all ambulatory
outpatient surgical clinics.^ Women's Pavilion argued that the statute,
as applied, unduly burdened a woman's decision to control her own
body by having an abortion during the first trimester of pregnancy
and, therefore, was a violation of both equal protection and due
process.

In addition to this constitutional argument. Women's Pavilion con-
tended that application of the licensing statute to first trimester abor-
tion clinics was contrary to the legislative intent of the statute. In
Arnold v. Sendak,* the federal district court declared as unconstitu-
tional a portion of an Indiana statute^ that made abortion a criminal
act unless performed in a hospital or a licensed health facility. The
Indiana General Assembly subsequently amended the criminal statute
to delete the unconstitutional section.^ Women's Pavilion argued that
the deletion in the criminal statute indicated that the legislature did
not intend the licensing statute to apply to first trimester abortion
clinics. Therefore, the first issue before the court in Licensing Coun-
cil was one of legislative intent.

The State argued that deletion of the statutory provision making
abortion a criminal act unless performed in a hospital or a licensed
health facility meant only that the state may not require performance

♦Associate Professor, School of Public & Environmental Affairs, Indiana University-
Purdue University at Indianapolis. B.A., Cornell University, 1956; J.D., Indiana Univer-
sity School of Law — Indianapolis, 1963.

'420 N.E.2d 1301 (Ind. Ct. App. 1981).

^IND. Code § 16-10-1-7 (1982); see also id. § 16-10-l-6(b).

'Id. § 16-10-1-7.

M16 F. Supp. 22 (S.D. Ind.), aff'd, 429 U.S. 968 (1976).

^IND. Code § 35-l-58.5-2(a)(l) (1976) (amended 1978). A hospital or licensed health
facility is defined in Ind. Code § 16-10-4-2 (1982) (the definition referred to in Sendak was
previously codified at id. § 16-10-2-1 (1976)).

«Act of March 9, 1978, Pub. L. No. 143, 1978 Ind. Acts 1311 (codified at Ind. Code
§ 35-1-58.5-2 (1982) (amending Ind. Code § 35-l-58.5-2(a) (1976)).

101

102 INDIANA LAW REVIEW [Vol. 16:101

of an abortion in a ''hospital" or "health facility licensed under In-
diana Code section 16-10-2," the latter being a facility providing medical
care longer than 24 hours.^ Therefore, in the State's view, abortions
could be required to be performed in licensed outpatient facilities. The
court quickly disposed of the State's argument, pointing out that
ambulatory outpatient surgical centers are included within the
statutory definition of "hospital."® Therefore, the court found that the
legislature's "deletion of that portion of the statute providing for the
performance of an abortion in a hospital effectively deleted the require-
ment that an abortion be performed in an ambulatory out-patient
surgical center . . . ."^ Because the appellate court ultimately found
that the application of the licensing statute to abortion facilities was
unconstitutional, the court declined to analyze further the effect of
the partial repeal of the criminal abortion statute.^"

In holding that the Indiana licensing statute imposed an unconstitu-
tional burden on a woman's decision concerning abortion, the appellate
court examined a number of cases dealing with regulations burdening
a woman's decision to abort." The court acknowledged that since 1972
when the United States Supreme Court decided Roe v. Wade^^ and
Doe V. Bolton,^^ sl woman's right to have an abortion is considered a
"fundamental right which is subject to state regulation during the first
trimester only upon a showing of compelling state interest."^*

In examining the case before it, the court in Licensing Council
initially noted that the Courts of Appeals for the Sixth and Seventh
Circuits have held that over-regulation of personnel and facilities re-

'420 N.E.2d at 1309.

'Id. (quoting Ind. Code § 35-l-58.5-l(c) (1976)).

^420 N.E.2d at 1309.

''Id. at 1310.

"/d at 1310-15. E.g., Harris v. McRae, 448 U.S. 297 (1980) (Hyde Amendment held
not unduly burdensome because state is under no obligation to remove the pre-existing
barrier of poverty); Maher v. Roe, 432 U.S. 464 (1977) (Connecticut regulation prohibiting
funding of elective abortions but allowing state subsidy of childbirth held not unduly
burdensome because it simply encouraged alternative to abortion and did not impose
any restrictions); Connecticut v. Menillo, 423 U.S. 9 (1975) (Connecticut statute prohibit-
ing abortion to be performed by non-physician held not unduly burdensome); Doe v.
Bolton, 410 U.S. 179 (1973) (Georgia statutory provision limiting performance of abortion
to hospitals licensed by a particular private organization found unduly burdensome);
Mahoning Women's Center v. Hunter, 610 F.2d 456 (6th Cir. 1979) (city ordinance im-
posing medical and building code regulations on first trimester abortion clinics held
unduly burdensome); Friendship Medical Center, Ltd. v. Chicago Bd. of Health, 505
F.2d 1141 (7th Cir. 1974), cert, denied, 420 U.S. 997 (1975) (Chicago regulation regard-
ing personnel and facilities required for performance of abortion held unduly
burdensome).

•'410 U.S. 113 (1973).

•MIO U.S. 179 (1973).

•M20 N.E.2d at 1314.

1983] SURVEY -CONSTITUTIONAL LAW 103

quired for abortion performance impinges upon a fundamental right.
The court also examined the trend begun in 1977 with Maker v. Roe^^
of "distinguishing between impermissible direct state burdens on the
abortion decision and permissible state encouragement of an alter-
native" to abortion. ^^ The court found that: ''Although a state may
not impose unwarranted regulations directly interfering with access
to abortions, it is not obliged to utilize its legislative power to remove
pre-existing non-governmental restrictions on a woman's access to
abortions. "^^

Applying these principles, the court in Licensing Council held that
the Indiana licensing statute, as applied to first trimester abortion
clinics, directly burdened the woman's fundamental decision.^^ Women's
Pavilion testified that compliance with the licensing statute would
cause most of the first trimester abortion clinics to " 'either raise their
fees tremendously so the procedure would not be available or else
they would be forced to close,' "^ thus making abortion less available.
Therefore, the court found that "the hurdle obstructing a woman's
access to a first trimester abortion is not a preexisting one but is
a direct product of governmental interference."^^

Because the Indiana licensing statute directly burdened a fun-
damental right, the statute was unconstitutional unless justified by
a compelling state interest. The state failed to demonstrate a com-
pelling interest behind the licensing regulations. To the contrary, the
appellate court was persuaded that, given the extremely low complica-
tion and mortality rates for first trimester abortions, there was not
only a lack of compelling need, but no need for compliance with many
of the statutory licensing requirements.^^ While acknowledging
"without hesitation" the State's valid interest in promoting maternal
health, the court concluded that the Indiana statute was not narrowly
drafted to serve that interest. ^^ Because testimony of the witnesses

^M20 N.E.2d at 1311-12 (citing Mahoning Women's Center v. Hunter, 610 F.2d
456 (6th Cir. 1979); Friendship Medical Center, Ltd. v. Chicago Bd. of Health, 505 F.2d
1141 (7th Cir. 1974), cert, denied, 420 U.S. 997 (1975)).

'M32 U.S. 464 (1977).

'M20 N.E.2d at 1312.

''Id.

''Id. at 1319.

'^°Id. at 1308 (quoting the testimony given by Dr. Streeter).

^'420 N.E.2d at 1313.

"Id. at 1317-18. The statutory requirements include hallway space, on-site blood
supplies, defibrillator, cardiac monitor, and emergency electrical generator. Ind. Code
§ 16-10-l-6(b) (1982).

''420 N.E.2d at 1318-19. The issue is still a very current one. On May 24, 1982,
the United States Supreme Court agreed to hear three more cases concerning just
how far states may go in regulating abortions. See Simopoulous v. Virginia, 211 Va.
1059, 277 S.E.2d 194, review granted, 50 U.S.L.W. 3927 (U.S. May 24, 1982) (No. 81-185);

104 INDIANA LAW REVIEW [Vol. 16:101

from both sides showed no need to apply the vast majority of the
licensing requirements to first trimester abortion clinics, the court held
that the State had failed to show a compelling state interest.^''

In so holding, the court flatly rejected what was essentially an
equal protection argument by the plaintiff, who claimed that the
licensing regulations could withstand constitutional scrutiny because
they were "abortion neutral" and applied to all surgical procedures
involving a similar degree of risk. The court noted that, although the
regulation scheme appeared to be neutral, its enforcement was not.^^
In illustrating the exceedingly disproportionate impact the regulations
had on abortion, the court pointed out that eight of the state's non-
outpatient ambulatory surgical centers performed first trimester abor-
tions, and seven of them performed such abortions exclusively.^^
Moreover, the court held that " 'any proposed regulation, even if ap-
plied universally to all similar medical procedures, because of the fun-
damental right of a woman to procure an abortion during the first
trimester, would have to meet a compelling governmental interest
requirement.' "^^

Thus, although the Indiana court acknowledged that a state may
require that a first trimester abortion clinic be licensed, the licensing
requirements may only require compliance with general regulations
such as maintenance of sanitary facilities, building code standards, and
the like, unless the state can clearly show a compelling interest for
further regulations.^® Because the State failed to demonstrate a com-
pelling interest in Licensing Council, the licensing scheme, as applied
to the first trimester abortion clinics, was unconstitutional.

2. Affirmative Action. — In Lehman v. Yellow Freight System, Inc.,^
the Court of Appeals for the Seventh Circuit affirmed the district
court's decision that a white male plaintiff's civil rights were violated
when a less qualified black male, rather than the plaintiff, was hired
pursuant to an informal affirmative action plan. At trial, the evidence
showed that Lehman, the white plaintiff, and Tidwell, the black male
who was hired, were both casual or temporary employees of Yellow
Freight. Tidwell, unlike Lehman, did not possess a chauffeur's license

City of Akron v. Akron Center for Reproductive Health, Inc., 651 F.2d 1198 (6th Cir.
1981), reuiew granted, 50 U.S.L.W. 3928 (U.S. May 24, 1982) (No. 81-746); Planned Parent-
hood Ass'n of Kansas City, Mo., Inc. v. Ashcroft, 664 F.2d 687 (8th Cir. 1981), review
granted, 50 U.S.L.W. 3928 (U.S. May 24, 1982) (No. 81-1623).

"420 N.E.2d at 1319.

'Ud. at 1315.

''Id.

'"Id. (emphasis added by court) (quoting Friendship Medical Center, Ltd. v. Chicago
Bd. of Health, 505 F.2d 1141, 1153-54 (7th Cir. 1974), cert, denied, 420 U.S. 997 (1975)).

^"420 N.E.2d at 1318.

="•651 F.2d 520 (7th Cir. 1981).

1983] SURVEY -CONSTITUTIONAL LAW IO5

at the time he was hired, although he did obtain one immediately
thereafter. Additionally, while Lehman was an experienced driver,
Tidwell did not have any driving experience and required some on-
the-job training. The evidence also indicated that Yellow Freight had
a self-imposed minority increase quota for its Muncie, Indiana terminal,
but that the Muncie manager who hired Tidwell was unaware of the
quota. The manager, however, did testify that race was a factor in
Tidwell's hiring.

Lehman, relying on Regents of the University of California v.
Bakke,^^ attempted to show that Tidwell was hired pursuant to a quota
system which violated Lehman's civil rights.^^ However, both the
district and appellate courts based their decisions on United Steel
Workers of America v. Weber.^^ In Weber, the United States Supreme
Court held that a plan giving preferential treatment to black workers
until the percentage of black workers in the plant in question equalled
the percentage of black workers in the area's work force did not
violate Title VII of the Civil Rights Act of 1964.^^

Because Yellow Freight's manager did not hire Tidwell with the
Yellow Freight quota plan in mind, the court refused to determine
whether the company's quota plan was valid.^'' Rather, the Lehman
court looked directly to the manager's hiring decision and stressed
the need for the manager's hiring decision to be based on some in-
dication that the present discrimination was necessary to remedy past
discrimination, or, at the least, to minimize a statistical disparity be-
tween the racial compositions of the local labor force and the
employer's work force.^^ Additionally, the court in Lehman held that
there must be some time limit on preferential hiring decisions and
found these minimum requirements to be lacking in the manager's
decision.^^ Even though the action of Yellow Freight's manager had
the effect of making the Muncie terminal's minority representation
almost equal to the representation in the local work force, the hiring
was not done with that goal in mind. Therefore, although the court
indicated that it did not wish its decision to be understood as a set
back for affirmative action plans, it held that the preferential hiring
was a violation of Lehman's civil rights.^' A plan lacking the Weber

^"438 U.S. 265 (1978).

^'Lehman alleged that the hiring quota violated Title VII of the Civil Rights Act
of 1964, 42 U.S.C. § 2000(e) (1976) and violated 42 U.S.C. § 1981 (1976).

^^433 U.S. 193 (1979). The Weber decision was handed down after Lehman was
filed, but before the district court issued its opinion.

'Ud. at 197; see 42 U.S.C. § 2000(e) (1976).

^*651 F.2d at 524, 526 n.l3.

''Id. at 527.

''Id. at 528.

'Ud.

106 INDIANA LAW REVIEW [Vol. 16:101

requirements, the court said, would pose "serious dangers for the
rights of non-minority applicants."^®

Lehman indicates that an individual hiring decision must meet the
requirements set forth in Weber, even if a valid formal affirmative
action plan exists. This requirement could cause extensive litigation
because it will be much easier to challenge an individual's hiring deci-
sion than a formal plan; likewise, proving an individual's intent will
be much harder than proving the requirements of a plan.

3. School Desegregation.— In March, 1982, the Court of Appeals
for the Seventh Circuit handed down another decision in the fourteen-
year-old Indianapolis Public Schools desegregation case.^^ In United
States V. Board of School Commissioners of Indianapolis,'^^ the appellate
court affirmed the trial court's order that the State of Indiana pay
the entire cost of remedying the interdistrict violations of black
students' constitutional rights. The Seventh Circuit agreed with the
district court's finding that the state alone was liable for the inter-
district violations*^ and, therefore, should pay the entire cost of reme-
dying them.

The State argued that the Indiana "Transfer Statute'"'' should be
applied to interdistrict busing. The statute provides that the State
shall pay one half of the cost of transportation ordered by a court
if the school has practiced de jure segregation, if a unitary school
system cannot be implemented within the boundaries of the school
corporation, and if the court orders students transferred to another
school corporation to effect a desegregation plan acceptable within the
meaning of the fourteenth amendment.'*^ However, the court of appeals
held the transfer statute to be inapplicable to the present case because
the statute applies only to a transferor school corporation practicing
de jure segregation.'' The interdistrict constitutional violations in this

''Id.

'^See United States v. Board of School Comm'rs of Indianapolis, 677 F.2d 1185
(7th Cir. 1982). For a review of the complicated history of this case, see Note, In-
dianapolis Desegregation: Segregative Intent and the Interdistrict Remedy, 14 Ind. L. Rev.
799, 803-10 (1981).

*''677 F.2d 1185 (7th Cir. 1982).

*^Id. at 1188. The state was found liable because the Uni-Gov statute adopted
by the Indiana General Assembly in 1969 excluded the school corporations irt the Marion
County suburbs from consolidation, and because the Housing Authority of Central In-
diana, a state agency, had refused to put public housing, which would be occupied largely
by blacks, outside the Indianapolis Public School District's boundaries. Id. at 1190-91
(Posner, J., dissenting).

*'Ind. Code §§ 20-8.1-6.5-1 to -10 (1982). The statute was enacted at the suggestion
of the trial judge in the earlier stages of the Indianapolis case. 677 F.2d at 1190 (Posner,
J., dissenting).

"Ind. Code §§ 20-8.1-6.5-1 to -10 (1982).

%77 F.2d at 1187.

1983] SURVEY-CONSTITUTIONAL LAW 107

case were attributable solely to the State, rather than to the In-
dianapolis school district or to any of the suburban school districts.
Therefore, the court held that the State, as wrongdoer, must pay the
costs of the remedy/^

Additionally, the State raised the more interesting question of the
extent and the appropriateness of federal court intervention in the
processes of state government. The district court order provided not
only that the State must pay for the desegregation remedy, but re-
quired that the payment should come first from any unappropriated
state funds. Further, the district court order provided that any pay-
ment made should not reduce the amounts to which a school, whether
a party to the suit, would otherwise be entitled to under state law."*^

On appeal, the State argued that the district court order was an
improper invasion of its sovereignty and, therefore, was contrary to
the tenth amendment which explicitly reserves nondelegated powers
to the states. The court of appeals disagreed, however, stating that
a court, acting in equity, has the power to fashion a remedy for viola-
tions of the federal Constitution."^ The appellate court rejected the
State's reliance on Evans v. Buchanan,^^ which prevented a federal
court from setting a level of taxation different from that established
by the state. The Indianapolis court found Evans to be inapplicable
because the district court's order in Indianapolis had not attempted
to restructure state or local taxes."^ Rather, the federal court had
simply ordered the state to pay the "costs of remedying its wrong-
doing" which a court may do by "reallocat[ingJ appropriations for other
governmental functions, or rais[ing] taxes."^°

Because of the finding that only the State was guilty of the inter-
district violations, the court also rejected the State's argument that
the suburban Marion County schools were liable for constitutional
violations and should share the remedying costs. ^^

However, in a dissenting opinion, Judge Posner stated that the

*^Id. at 1190. In fact, the court went on to state that the "Transfer Statute" no
longer makes sense because one of the conditions which triggers implementation of
the statute is that a unitary school system cannot be implemented within the bound-
aries of the school corporation. Id. at 1186-87 (citing Ind. Code § 20-8.1-6.5-1 (1982)).
However, the court of appeals noted that a decision handed down after the adoption
of the Transfer Statute, held, in essence, that "a unitary school system can always
be established within the geographical boundaries of the school district that committed
the de jure segregation." 677 F.2d at 1187 (citing Milliken v. Bradley, 418 U.S. 717,
745-46 (1974)).

*«677 F.2d at 1189.

*Ud. at 1188 (citing Milliken v. Bradley, 433 U.S. 267, 281 (1977) {Milliken ID).

"582 F.2d 750 (3rd Cir. 1978).

*^677 F.2d at 1188.

""Id. at 1190.

^'Id. at 1188.

108 INDIANA LAW REVIEW [Vol. 16:101

court should leave the responsibility for deciding who should bear the
costs of financing the desegregation order to the State.^^ Judge Posner
postulated that the legislative representatives of the suburban Marion
County white voters procured the school exception in the Uni-Gov
statute,^^ and without that action no interdistrict busing order would
have been necessary. Nevertheless, the majority found that only the
State was guilty of interdistrict cqnstitutional violations;^^ therefore,
only the State was required to pay.

B. First Amendment— Freedom of Speech

In Perry Local Educators' Association v. Hohlt,^^ a case of first
impression within the circuit, the Court of Appeals for ihe Seventh
Circuit reversed the district court and held that an agreement be-
tween the Metropolitan School District of Perry Township and Perry
Education Association, the teachers' collective bargaining represen-
tative, was unconstitutional.^^ The agreement permitted the Perry
Education Association to use the school system's internal mail distribu-
tion plan, but prevented the use of the mail plan by the Perry Local
Educators' Association, a rival union. In a well-reasoned decision, the
circuit court found that the exclusive agreement violated the rival
union members' free speech and equal protection rights." In reaching
this conclusion, the court admittedly rejected the trend of recent state
and federal cases approving similar exclusive access agreements.^*
However, lest its decision be construed too broadly, the court carefully
qualified the scope of its holding by stressing that it was premised
on the discrimination between the members of the separate unions,
and not solely on the fact that other, outside organizations were
allowed to use the mail system.^®

The district court had granted summary judgment for the existing
union, holding that "the restrictions placed upon the use of facilities

^Ud. at 1193.

^Ud. See IND. Code § 18-4-1-1 (1976) (repealed 1982).

^"677 F.2d at 1188.

^^652 F.2d 1286 (7th Cir. 1981) (appeal pending, No. 81-896 (U.S. 1982)).

""Id. at 1301.

'Ud.

^Id. at 1289 n.7 (citing among others, Connecticut State Fed'n of Teachers v. Board
of Educ. Members, 538 F.2d 471 (2d Cir. 1976); Memphis Am. Fed'n of Teachers Local
2032 V. Board of Educ, 534 F.2d 699 (6th Cir. 1976); Federation of Del. Teachers v.
De La Warr Bd. of Educ, 335 F. Supp. 385 (D. Del. 1971); Local 858, American Fed'n
of Teachers v. School Dist. No. 1, 314 F. Supp. 1069 (D. Colo. 1970); Geiger v. Duval
County School Bd., 357 So. 2d 442 (Fla. Dist. Ct. App. 1978); Clark County Classroom
Teachers Ass'n v. Clark County School Dist., 91 Nev. 143, 532 P.2d 1032 (1975) (alter-
native holding); Maryvale Educators Ass'n v. Newman, 70 A.D.2d 758, 416 N.Y.S.2d
876 (N.Y. 1979)).

^^652 F.2d at 1301.

1983] SURVEY-CONSTITUTIONAL LAW 109

not open to the general public . . . [were] 'so inconsequential that . . .
[they] cannot be considered an infringement of the First Amendments
rights of free speech' " of the rival union members.®" Further, the
district court had applied a rational basis level of scrutiny to the equal
protection claim and had found that the exclusive access policy was
rationally related to the goal of preserving labor peace within the
school system.®^

The court of appeals initially noted that, although an exclusive
access policy by a private employer would clearly constitute an un-
fair labor practice under the National Labor Relations Act, the school
district was a governmental employer rather than a private employer.®^
Further, the appellate court noted that the Indiana Education Employ-
ment Relations Board, the state agency governing labor relations, had
ruled that a school district may, as a matter of state law, grant a
majority union the exclusive right to use school communication
facilities.®^ Nevertheless, although admitting that efficient government
operation may justify "reasonably necessary" restrictions on govern-
mental employees' first amendment rights, the court explicity held
that "the first amendment and equal protection clause apply with full
force to the goverment in its role as employer."®*

In considering the first amendment challenge, the court
distinguished what it^ considered to be the two leading cases upholding
teacher bargaining units' exclusive access,®^ contending that the courts
in those cases applied the wrong standard of review.®® Succinctly
delineating the issue, the Perry court stated:

With deference, we suggest that both [courts] erred by con-
fusing the constitutional standards applicable to a rule that
evenhandedly excludes all private communications from a par-
ticular government facility with the standards applicable to
a rule that grants access to certain speakers or certain view-
points and denies access to others. A challenge by an excluded
speaker to the former sort of rule is a claim for absolute

^°Id. at 1289 (quoting Connecticut State Fed'n of Teachers v. Board of Educ.
Members, 538 F.2d 471, 481 (2d Cir. 1976)).

«^652 F.2d at 1289.

''Id. at 1291.

'Ud. (citing Pike Indep. Professional Educators, No. U-76-16-5350 (May 20, 1977)).

^"652 F.2d at 1292. The court noted that previous cases had held the government
may not, among other things, "forbid its employees to join a union, compel them to
finance political or ideological advocacy by their collective bargaining representative,
refuse to permit teachers other than union representatives to speak at open school
board meetings . . . ." Id. (citations omitted).

''Connecticut State Fed'n of Teachers v. Board of Educ. Members, 538 F.2d 471
(2d Cir. 1976); Memphis Am. Fed'n of Teachers, Local 2032 v. Board of Educ, 534 F.2d
699 (6th Cir. 1976).

%52 F.2d at 1292-93.

no INDIANA LAW REVIEW [Vol. 16:101

access; a challenge to the latter sort is a claim for equal
access.®^

Thus, rather than applying a low level rational basis standard of
review, the Perry court held that the agreement, permitting differen-
tial access to the school communications system, required ''rigorous
scrutiny ."^^ Further, the high level of review was applicable to both
the equal protection and first amendment challenges. Illustrating a
comprehension of constitutional principles applicable to differential
access cases, the Perry court explained that, "The peculiar identity
of equal protection and first amendment analysis in differential ac-
cess cases follows logically from the explicit constitutional designa-
tion of speech as fundamental and from the fact that the first amend-
ment's proscription against censorship is itself simply a specialized
equal protection guarantee."^®

The fact that the school district's internal mail system was not
a public forum, and therefore not required to be open to any group,
did not affect the level of scrutiny. Having opened its forum to one
group, the school district could not exclude another group based upon
the content of the communications. Content neutrality, the court held,
is an "all-pervasive restriction," especially where, as here, the
communications were quite near the "very apex of any hierarchy of
protected speech."^''

Having firmly established its commitment to a rigorous standard
of review, the Perry court rejected the defendant union's attempts
to justify its exclusive access. The legal duties argument was disposed
of as being both overinclusive and underinclusive and as furthering
no discernible state interest.^^ Similarly, because the union had not
shown that permitting the rival union equal access to the mail system
would interfere with the teaching process, the court refused to accept
the defendant union's argument that the access policy preserved labor
peace.^^

'Ud. at 1293.

''Id. at 1296.

''Id.

''Id. at 1298-99.

'^Ud. at 1300. The access policy was overinclusive because the agreement did not
limit the union's use of the mail system to messages related to its legal duties to
members, and underinclusive because the school permitted other outside groups, such
as the Y.M.C.A. and scouting organizations, to use the system. Id. at 1288, 1300.

''652 F.2d at 1300 01. In November of 1981, an appeal of this case was filed with
the Supreme Court of the United States and the case has been docketed. The merits
of the case and the question of jurisdiction will be heard at the same time. 42 S.
Ct. Bull. (CCH) 656 (Jan. 11, 1982).

1983] SURVEY -CONSTITUTIONAL LAW 111.

C. Fifth Amendment— Self-incrimination

In In re Contempt Findings Against Schultzi'^ the Indiana Court
of Appeals interpreted Indiana's prior immunity statute^'^ as granting
only use, as opposed to transactional, immunity. That statute has since
been repealed, and the new one expressly limits the type of immunity
a court may grant to use immunity.^^ Nevertheless, Schultz is impor-
tant because the court found that the grant of use immunity is suffi-
cient to protect the defendant from the perils of self-incrimination.^^
Therefore, use immunity, whether express or implied, is constitutional.

The facts of this case showed that although the defendant, Schultz,
had received a fifty-five-year prison sentence for arson and man-
slaughter, he had implicated another defendant, LaBine, as the person
actually responsible for the victim's death. At LaBine's trial, Schultz
repeatedly invoked his privilege against self-incrimination in response
to the State's questions about the event, even though the State had
granted Schultz immunity. As a result, Schultz was found in contempt
of court on 27 occasions and given three month consecutive sentences
for each offense.

On appeal, Schultz argued that his grant of immunity was void
because it did not protect him from further prosecution in other
jurisdictions, or from prosecution for perjury in Indiana. The appellate
court stated that absolute immunity is not a prerequisite to compulsory
testimony .^^ All that is needed to compel a person to testify is a grant
of immunity "co-extensive with the scope of [the] privilege" against
self-incrimination.^*

The appellate court discussed the distinction between transactional
immunity, which protects a witness against any prosecution for
offenses to which his testimony relates, and use immunity, which sim-
ply prevents the state from using the compelled testimony in any
respect, but does not prevent future prosecutions.^^ Recognizing the
scope of use immunity, the court concluded that such use immunity
leaves the government in the same position as if the witness had
refused to testify. The government has the information but cannot
use "it or its fruits" against the person; therefore, the immunity is
constitutionally sufficient under the fifth amendment. *°

"428 N.E.2d 1284 (Ind. Ct. App. 1981).

'^IND. Code § 35-6-3-1 (1976) (repealed 1981) (now codified at Ind. Code §§ 35-37-3-1
to -3 (1982)).

"Ind. Code § 35-37-3-3(a) (1982).

'•^428 N.E.2d at 1288.

'Ud. at 1289.

''Id. at 1287.

'^Id. Transactional immunity, in effect, operates as a pardon for the offenses
disclosed by the testimony.

'*M28 N.E.2d at 1288-89.

112 INDIANA LAW REVIEW [Vol. 16:101

In addition to rejecting Schultz's argument that mere use immu-
nity was void, the court rejected his argument that the immunity was
void because it failed to protect him from prosecution for perjury.^^
The court held that "the privilege against self-incrimination entitles
a witness to keep silent, but does not license him to commit perjury."®^
The current statute reiterates this conclusion: '*A grant of use im-
munity does not prohibit the use of evidence the witness has given
in a prosecution for perjury."®^

The court also upheld Schultz's contempt citations,^ thus indicating
that the current statute, which expressly allows the court to find a
witness in contempt if he has been granted immunity but refuses to
testify,*^ is valid. The appellate court did, however, reverse the lower
court's finding of 27 separate contempt offenses.®^ The court held that
once the subject matter about which the defendant refuses to testify
is defined, the prosecutor may not compound the number of offenses
by asking repeated questions about the subject; thus, Schultz was
guilty of "one continuing act of contempt."*^

D. Due Process

1. Post-trial Contempt Hearing. — In Johnson v. State,^^ the Indiana
Court of Appeals held, for the first time, that due process requires
a neutral and detached magistrate to preside over a post-trial con-
tempt hearing, rather than the trial judge who issued the citation.
In Johnson, the trial court judge, at a post-trial hearing, held a criminal
defendant's pauper attorney in direct civil and criminal contempt of
court for ignoring an order in limine at trial.^^

The court of appeals acknowledged that, because of the impor-
tance of maintaining the authority and dignity of the court, direct con-
tempt has historically been dealt with summarily.^" However, the
Johnson court, relying upon the United States Supreme Court deci-
sion in Mayberry v. Pennsylvania,^^ found that, where a post-trial hear-
ing is held to determine a contempt citation, the need to protect the

''Id. at. 1289.

'Ud.

«^IND. Code § 35-37-3-3(b) (1982).

«''428 N.E.2d at 1291.

«^IND. Code § 35-37-3-3(c) (1982).

««428 N.E.2d at 1291.

'Ud. at 1290-91 (citing Yates v. United States, 355 U.S. 66 (1957); United States
V. Yukio Abe, 95 F. Supp. 991 (D. Hawaii 1964)).

««426 N.E.2d 104 (Ind. Ct. App. 1981).

'^Id. at 105-06. The judge first found the attorney to be in civil contempt but
later amended his entry to include a finding of criminal contempt as well.

""Id. at 106.

'400 U.S. 455 (1971).

1983] SURVEY-CONSTITUTIONAL LAW 113

orderly administration of justice or the dignity of the court no longer
exists.^^ Therefore, due process requires the hearing to be conducted
by a neutral magistrate.^^ The court reasoned that justice is better
served when there is neither the likelihood nor the appearance of
judicial bias against the party accused of contempt.^''

Although such reasoning can hardly be questioned, the court failed
to discuss Mayberry and, thus, neglected to note that Mayberry con-
tained arguably distinguishable facts. In Mayberry, the trial judge was
subjected to personal verbal attacks.^^ However, in Johnson, there was
no indication that the violation of the trial judge's order was a per-
sonal attack on the judge's integrity which would carry any potential
for judicial bias. Indeed, in Mayberry, the Supreme Court held "that
by reason of the Due Process Clause of the Fourteenth Amendment
a defendant in criminal contempt proceedings should be given a public
trial before a judge other than the one reviled by the contemnor."^^
Thus, in its brief opinion in Johnson, the Indiana court neglected to
explain its rationale for expanding upon the Supreme Court's deci-
sion in Mayberry.

2. Burden of Proof. — In Jacks v. Duckworth,^'^ the Court of Appeals
for the Seventh Circuit held that, because jury instructions were to
be read as a whole, the trial court's instructions did not violate the
defendant's right of due process, even if one instruction appeared to
shift the burden of proof.^® In reaching its decision, the court of ap-
peals interpreted the recent Supreme Court decision, Sandstrom v.
Montana.^^

The plaintiff. Jacks, had been convicted of the first degree murder
of his wife and had been sentenced to life in prison, despite a plea
of not guilty by reason of insanity. The Indiana Supreme Court, on
direct appeal, affirmed the conviction.^"" Jacks then filed a petition
for a writ of habeas corpus alleging that he had been denied due pro-
cess of law because a jury instruction on the element of intent had,
in effect, shifted the burden of proof from the state to the defendant.^"^

Under Indiana law, intent is a necessary element of first degree
murder;^"^ thus, the state has the burden of its proof. The jury

^M26 N.E.2d at 107.

''Id.

'^400 U.S. at 466.
^Id. (emphasis added),

^'651 F.2d 480 (7th Cir. 1981), aff'g 486 F. Supp. 1366 (N.D. Ind. 1980), cert, denied,
102 S. Ct. 1010 (1982).
'%51 F.2d at 486.
^M42 U.S. 510 (1979).

'""Jacks V. State. 394 N.E.2d 166 (Ind. 1979).
""Jacks V. Duckworth, 486 F. Supp. 1366 (N.D. Ind. 1980).
'"'Ind. Code § 35-42-1-1 (1982).

,114 INDIANA LAW REVIEW [Vol. 16:101

instruction in question told the jury that they could look to surround-
ing circumstances to determine intent, but "that every one is presumed
to intend the natural and probable consequences of his voluntary acts,
unless the circumstances are such as to indicate the absence of such
intent."^°^ Jacks argued that in Sandstrom, the United States Supreme
Court had found that a similar jury instruction containing the words
"[t]he law presumes that a person intends the ordinary consequences
of his voluntary acts," created either a burden-shifting presumption
or a conclusive presumption of the requisite intent. ^""^ On that basis,
the Court in Sandstrom held that the defendant was deprived of his
constitutional right to due process. ^'^^

In Jacks, the Seventh Circuit noted the Sandstrom decision but
distinguished it from the instant case because the jury instructions
in Jacks contained language which nullified the "mandatory injunc-
tion to presume the requisite intent from the act committed. "^"^ In
determining intent, the jurors in Jacks were told that they could look
to all the surrounding circumstances, that there might be "justifying
or excusing" facts, ^°^ and that the circumstances might be "such as
to indicate the absence of such intent. "^°^ Therefore, taken as a whole,
the jury instructions did not compel the jury to presume intent and,
thus, did not violate Jacks' right to due process. ^°^

In his dissent. Judge Swygert accused the majority of narrowly
construing Sandstrom, stating that, except for the final phrase, "unless
circumstances are such to indicate the absence of such intent," the
disputed instruction in Jacks was identical to the Sandstrom
instruction."" Swygert argued that the majority had interpreted
Sandstrom as standing for the proposition that only a jury instruc-
tion which creates an irrebuttable presumption of intent is a viola-
tion of due process."^ By allowing circumstances, in this case insan-
ity, to prove the absence of intent, the instruction in Jacks did not
create such an irrebuttable presumption. Swygert, however, inter-
preted Sandstrom to mean that a jury instruction would violate due
process if it created an irrebuttable presumption of intent or if it
shifted the burden of proof of intent to the defendant."^ The instruc-

'%51 F.2d at 491 (Appendix C, State's Instruction No. 5).

'""442 U.S. at 513, 524. Jacks directed the court's attention to the Sandstrom case
after his case had been fully briefed to the Indiana Supreme Court. 394 N.E.2d at 175.
'"^442 U.S. at 524.
'%51 F.2d at 485-86.
>°7d. at 485.
'''Id. at 491.
'''Id. at 486.

'''Id. at 491 (Swygert, J., dissenting).
"'Id.
"'Id.

1983] SURVEY-CONSTITUTIONAL LAW 115

tion in Jacks did shift the burden of proof of intent by requiring the
defendant to prove circumstances which would rebut the "presumed
intent." Therefore, in Judge Swygert's opinion, this shift in the burden
of proof was a violation of Jacks' due process rights. ^^^

3. Jury Size. — In O'Brien v. State,^^^ the Indiana Court of Appeals
found no constitutional deficiency in an Indiana statutory system which
permits a Class D felony case to be tried to a six-member jury in
a county court, or to a twelve-member jury in a circuit or superior
court. '^^ A six-member Clark County Court jury convicted O'Brien of
possessing more than 30 grams of marijuana, a Class D felony. ^'^
O'Brien's motion for a twelve-member jury had been denied by the
trial court. O'Brien appealed his conviction, contending that he had
a fundamental constitutional right to a twelve-member jury in a felony
case, regardless of the type of court which heard his case.

In 1975, the Indiana General Assembly created the county court
system, providing that the county courts would have jurisdiction over
minor civil and criminal matters which would be decided by six-
member juries. ^^^ The same year, the Indiana Supreme Court held that
the six-member jury provision was constitutional."^ In 1979, the
jurisdiction of the county courts was extended to include Class D
felonies, but the circuit and superior courts also retained jurisdiction
over these cases. "^ Thus, a person charged with a Class D felony might
face a jury with six or twelve members, depending on which forum
the prosecutor chose.

In Williams v. Florida,^^^ the United States Supreme Court,
upholding the constitutionality of six-member juries, stated that the
exact number of jury members is irrelevant, provided that the jury
is large enough to give the accused a " 'safeguard against the corrupt
or overzealous prosecutor and against the compliant, biased, or eccen-
tric judge.' "'^^ The Court in Williams was convinced that there was
no evidence of any "discernible difference between the results reached
by the two different-sized juries. "^^^ Applying Williams^ the O'Brien
court held that there was "no constitutional difference between a six-

"7(/. at 493.

""422 N.E.2d 1266 (Ind. Ct. App. 1981).

"'M at 1270. See Ind. Code § 35-1-30-1 (Supp. 1981) (repealed 1981) (now codified
at Ind. Code § 35-37-1 1 (1982)).

'"'Ind. Code § 35-1-30-1 (1982).

"^Act of May 5, 1975, Pub. L. No. 305, 1975 Ind. Acts 1667, 1697 (now codified
at Ind. Code §§ 33-10.5-1-1 to -8-6 (1982)).

"Yn re Pub. Law No. 305 and Pub. Law No. 309, 263 Ind. 506, 334 N.E.2d 659 (1975).

"'Act of April 10, 1979, Pub. L. No. 282, 1979 Ind. Acts 1469-70 (now codified at
Ind. Code § 33-10.5-3-l(a)(3) (1982)).

■^"399 U.S. 78 (1970).

'''Id. at 100 (quoting Duncan v. Louisiana, 391 U.S. 145, 156 (1968)).

'^^399 U.S. at 101.

116 INDIANA LAW REVIEW [Vol. 16:101

member jury and a twelve-member jury so long as each provides the
requisite safeguard against overzealous prosecutors and eccentric
judges."^^^

The O'Brien court declined to find that a twelve-member jury was
a fundamental right because fundamental rights are " 'those which
have their origin in the express terms of the constitution or which
are necessarily to be implied from those terms.' "^^'* Because there is
no fundamental right to a twelve-member jury, there need not be a
compelling state interest for the choice of jury size but, rather, only
a substantial relationship between the classification and the purpose
being sought by the legislation.^^^ The court in O'Brien found a substan-
tial relationship between the reduced jury size and the legislative in-
terest in promoting a fair and efficient system of justice by providing
a speedier, more efficient, and less expensive forum for handling
relatively less serious felonies/^^

>4. Extradition Procedure.— McBride v. Soos,^^'^ on remand to the
federal district court, contains an interesting discussion of the effect
of improper extradition procedures. McBride, alleging violation of his
civil rights because certain Missouri extradition statutory procedures
were not followed, sued local Indiana police officials.^^® The constitu-
tional issue was whether McBride had waived his extradition pro-
cedural rights. The district court said that there was no written
waiver, and that the evidence showed no waiver of any type because
"every reasonable presumption should be indulged against finding a
waiver of constitutional rights."^^^ However, even though there was
no waiver, the court found that the defendants had acted in good faith
at all times and, therefore, were not liable for any procedural
noncompliance.^^"

The more interesting aspect of the case, however, was the court's
finding that McBride might be entitled to damages if his procedural
extradition rights had been violated, but, absent a showing of injury,
he would be entitled only to nominal damages. ^^^ Apparently McBride
was not seeking to have his conviction set aside,^^^ but rather to per-

^^^422 N.E.2d at 1270.

'^'Id. (quoting Sidle v. Majors, 264 Ind. 209-10, 341 N.E.2d 763, 766 (1976)) (citing
San Antonio Indep. School Dist. v. Rodriquez, 411 U.S. 1 (1973)).

^'^422 N.E.2d at 1270.

'^'Id.

^2^512 F. Supp. 1207 (N.D. Ind. 1981).

>''McBride brought suit under 42 U.S.C. § 1983 (1976), alleging violation of Mo.
Rev. Stat. §§ 548.101, .141, .151, .171 (1978). 512 F. Supp. at 1209-10.

•'^512 F. Supp. at 1212 (citing Fuentes v. Shevin, 407 U.S. 67, 94 n.31 (1972)).

•^"512 F. Supp. at 1213.

'''Id. at 1213-14. See Carey v. Piphus, 435 U.S. 247 (1978).

'^^It is well settled that noncompliance with the extradition process will not
invalidate a subsequent conviction. See Ker v. Illinois, 119 U.S. 436 (1886).

1983] SURVEY-CONSTITUTIONAL LAW 117

suade the court to treat his conviction as a compensable injury.
However, the court refused to do so without a showing by McBride
that compliance with the extradition procedural protections would have
resulted in a different consequence.^

133

E. Guarantee of Remedy for Injury

In an interesting case, Seymour National Bank v. State,^^* the In-
diana Supreme Court held that the term "enforcement of a law"^^^ in
the Indiana Tort Claims Act,^^^ which grants immunity from tort
liability to a governmental entity or its employees if the loss com-
plained of results from enforcement of a law, is not ambiguous;^^' thus,
the lower court's grant of summary judgment for the State was
proper.

In November, 1981, the supreme court granted the plaintiff's
petition for rehearing and, in reaffirming its interpretation of the In-
diana Tort Claims Act,^^* the supreme court summarily rejected two
constitutional challenges to the Tort Claims Act.^^^ On rehearing, the
plaintiff contended that the immunity statute violated the Indiana Con-
stitution's guarantee of a remedy for injury suffered. The constitu-
tion provides that: "All courts shall be open; and every man, for injury
done to him in his person, property, or reputation, shall have remedy
by due course of law."^^" The supreme court rejected this argument
basing its decision on the appellate court decision in Krueger v.
Bailey,^^^ which had upheld the Tort Claims Act. The plaintiff also
challenged the Tort Claims Act on equal protection grounds, assert-
ing that there was no rational basis for a classification which im-
munizes government employees, but no other citizens, from liability
for damages resulting from the exercise of their right to enforce the
law. The court summarily rejected this contention, finding that the
equal protection argument was inapplicable because the plaintiff 's com-
plaint "was not against a citizen but against the State."^*^ Therefore,
it appears from Seymour that the immunity from tort liability granted
in the Tort Claims Act is constitutionally sound.

•^^512 F. Supp. at 1215-16.

•'M22 N.E.2d 1223 (Ind. 1981). For a full discussion of the procedural history and
the immunity question, see Mead, Torts, 1982 Survey of Recent Developments in Indiana
Law, 16 Ind. L. Rev. 377, 411 (1983).

'''See Ind. Code § 34-4-16.5-3(7) (1982).

'''Id. §§ 34-4-16.5-1 to -19 (1982).

•^M22 N.E.2d at 1226.

•'^Seymour Nat'l Bank v. State, 428 N.E.2d 203 (Ind. 1981).

'''Id. at 205.

""Id. (quoting Ind. Const, art. I, § 12).

'^'406 N.E.2d 665, 670 (Ind. Ct. App. 1980).

'*M28 N.E.2d at 205.

VI. Criminal Law and Procedure

Stephen J. Johnson*

Although it is commonly said that the law is a jealous mistress,
she has been especially demanding of criminal law practitioners in the
past ten years. In addition to the enormous amount of precedent
created by the United States Supreme Court and by Indiana appellate
courts during that period of time, the Indiana legislature has enacted
a number of major code sections that directly affect the practice of
criminal law. In 1973, the Indiana legislature passed a new code of
criminal procedure.^ In 1977, a new penal code that redefined all the
major crimes in Indiana became effective.^ In 1979, a new juvenile
code became law.^ In 1981, the majority of traffic offenses were
decriminalized and the procedures for enforcing violations of traffic
laws were "civilized."* This year, the legislature has again adopted
a new criminal procedure code, the majority of which became effec-
tive on September 1, 1982.^ Much of this new procedure code is simply
a recodification or a renumbering of existing laws, with very few gram-
matical or technical changes. However, th^re are substantial changes
in criminal procedure in many areas. This Survey Article will review
both the legislative and judicial changes that have occurred in the
past year, beginning with an analysis of the statutory changes that
have been created by the enactment of the new criminal code.^

A. Arrest

The article of the new procedure code concerning preliminary pro-
ceedings became effective on June 1, 1981.^ Generally, the chapters
in this article that concern arrest codified existing statutory and com-
mon law arrest powers of police officers. The article also codified the

♦Director of Research, Indiana Prosecuting Attorneys Council. B.S., Michigan State
University, 1970; J.D., Indiana University — Bloomington, 1973.

'Act of Apr. 23, 1973, Pub. L. No. 325, 1973 Ind. Acts 1750.

'Act of Apr. 12, 1977, Pub. L. No. 340, 1977 Ind. Acts 1533; Act of Feb. 25, 1976,
Pub. L. No. 148, 1976 Ind. Acts 718.

^Act of Apr. 11, 1979, Pub. L. No. 276, 1979 Ind. Acts 1379; Act of Mar. 10, 1978,
Pub. L. No. 136, 1978 Ind. Acts 1196.

^Act of Apr. 29, 1981, Pub. L. No. 108, 1981 Ind. Acts 1108.

^Act of Feb. 25, 1982, Pub. L. No. 204, 1982 Ind. Acts 1518; Act of May 5, 1981,
Pub. L. No. 298, 1981 Ind. Acts 2314.

®Due to page constraints, not all provisions of the new procedure code are dis-
cussed in this Survey Article. Several changes, however, did occur in the statutes
concerning venue (current version at Ind. Code §§ 35-32 2-1 to -5 (1982)), change of judge
(current version at id. §§ 35-36-5-1 to -2), change of venue (current version at id. §§
35-36-6-1 to -10), search and seizure (current version at id. §§ 35-33-5-1 to -7), and grand
juries (current version at id. §§ 35-34-2-1 to -12).

'Act of May 5, 1981, Pub. L. No. 298, § 2, 1981 Ind. Acts 2314, 2317 (codified
at Ind. Code §§ 35-33-1-1 to -11-10 (1982)).

119

120 INDIANA LAW REVIEW [Vol. 16:119

uncertain and vague common law arrest powers of citizens. Addition-
ally, the article makes it clear that an arrest warrant can only be
issued after an indictment or information has been filed. If no criminal
charge has been filed, a law enforcement officer may not obtain an
arrest warrant simply by presenting probable cause to a judge, which
would be sufficient to obtain a search warrant. The article includes
a new section on the recall of arrest warrants when charges have been
dismissed. The article also modifies existing law permitting issuance
of a summons in lieu of a warrant, and adds a new section permitting
a police officer to issue a summons and promise to appear in misde-
meanor cases in lieu of making an arrest. In addition to the arrest
chapters in this article of the new procedure code, many other statutes
relating to the law of arrest remain in effect in Indiana and should
be considered together with the new code. This portion of the Survey
Article, therefore, discusses not only what was done by the new pro-
cedure code regarding arrest, but also what was not done.

In the new article concerning arrest, the first subsection simply
states that "[a] law enforcement officer® may arrest a person when
he has a warrant commanding that the person be arrested.'*^ The war-
rant is directed to the sheriff in the county where the indictment or
information is filed, ^" but arrests made pursuant to the warrant can
be made by any Indiana law enforcement officer." The legislature re-
tained the statute that requires a police officer to inform the arrestee
that the officer is acting under the authority of a warrant and to show
the warrant. ^^

The next subsection simply codifies the common law principle that
a law enforcement officer may make an arrest whenever he has prob-
able cause to believe the person has committed or is attempting to
commit a felony.^^ The term "probable cause" is not defined by the
new code, but probable cause is commonly understood to mean facts
and circumstances that are within the arresting officer's knowledge
and of which he has reasonably trustworthy information that would

*The Indiana Code defines the term "law enforcement officer" to include: "(1)
a police officer, sheriff, constable, marshal, or prosecuting attorney; (2) a deputy of
any of those persons; or (3) an investigator for a prosecuting attorney." Ind. Code
§ 35-41-1-2 (1982).

^IND. Code § 35-33-1-1(1) (1982) (footnote added). The form of the warrant is set out
in id. § 35-33-2-2.

''Id. § 35-33-2-2(a)(8).

"Ind. Code § 35-33-2-3 (1982). See also id. §§ 10-1-1-10 (state police powers), 14-3-4-9
(powers of conservation officers), 16-6-8.5-l(b)(2) (powers of designated employees of
the Board of Pharmacy), 36-2-13-5(4) (sheriffs' powers), 36-5-7-4(5) (powers of town mar-
shals), 36-8-3-6(a) (city police powers).

''Id. § 35-1-19-2. Cf. Carlisle v. State, 162 Ind. App. 396, 319 N.E.2d 651 (1974)
(arrest warrant may be shown to arrested person when he arrives at jail).

'^Ind. Code § 35-33-1-1(2) (1982).

1983] SURVEY -CRIMINAL LAW 121

justify a belief, by a man of reasonable caution, that an offense has
been or is being committed by the person arrested.^* As distinguished
from a later subsection defining misdemeanor arrest powers, the felony
arrest statute makes no "in the presence" of the arresting officer re-
quirement, which is consistent with the common law.^^ The absence
of this requirement allows felony arrests to be made upon credible
hearsay/^ Probable cause need not be confined to facts within the
knowledge of the arresting officer alone, but also can be determined
on the basis of the collective information known to the law enforce-
ment organization as a whole. ^^ Therefore, for example, a police of-
ficer can make an arrest based only on a police radio communication.^^
Nothing in the new procedure code limits warrantless arrests by
requiring that law enforcement officers must obtain an arrest war-
rant before making an arrest unless they can demonstrate exigent
circumstances that would preclude them from doing so. Past Indiana
decisions have conflicted over this requirement,^^ but the Indiana
Supreme Court, following the lead of the United States Supreme
Court,^'' has recently held that if the arrest is made in a public place,
warrantless arrests need not be accompanied by exigent
circumstances.^^ The new procedure code does not change these prin-
ciples; however, it should be noted that each police agency has
separate statutes conferring warrantless arrest powers upon that
agency.^^

^'See Akins v. State, 429 N.E.2d 232, 237 (Ind. 1981) (quoting Pawloski v. State,
269 Ind. 350, 352-53, 380 N.E.2d 1230, 1232 (1978)); Lindley v. State, 426 N.E.2d 398,
401 (Ind. 1981) (citing Gaddis v. State, 267 Ind. 100, 104, 368 N.E.2d 244, 247 (1977));
Taylor v. State, 406 N.E.2d 247, 249 (Ind. 1980). It is not the police officer's subjective
belief in probable cause that is significant but whether the facts known to the officer
show probable cause from an objective standpoint. Grimes v. State, 412 N.E.2d 75,
77 (Ind. 1980); Hatcher v. State, 410 N.E.2d 1187, 1189 (Ind. 1980). Thus, it does not
matter that the police officer enunciates the improper legal theory for arrest, as long
as probable cause to arrest for some offense exists. Hatcher v. State, 410 N.E.2d at 1189.

'^See Works v. State, 266 Ind. 250, 362 N.E.2d 144 (1977).

'^See Holguin v. State, 256 Ind. 371, 269 N.E.2d 159 (1971).

''See Benton v. State, 401 N.E.2d 697 (Ind. 1980); Francis v. State, 161 Ind. App.
371, 316 N.E.2d 416 (1974).

'*See Benton v. State, 401 N.E.2d 697, 699 (Ind. 1980); Francis v. State, 161 Ind.
App. 371, 373, 316 N.E.2d 416, 418 (1974).

'^Compare Smith v. State, 397 N.E.2d 959 (Ind. 1979) and Britt v. State, 395 N.E.2d
859 (Ind. Ct. App. 1979) vnth Gardner v. State, 388 N.E.2d 513 (Ind. 1979).

=™United States v. Watson, 423 U.S. 411 (1976).

"Funk V. State, 427 N.E.2d 1081 (Ind. 1981). However, a warrant will be required,
absent exigent circumstances, to enter the private residence of an arrestee to make
an arrest, Payton v. New York, 445 U.S. 573 (1980), and a search warrant will be re-
quired to enter the residence of a third party in order to effect an arrest. Steagald
V. United States, 451 U.S. 204 (1981).

^E.g., Ind. Code §§ 10-1-1-10 (state police), 14-3-4-9 (conservation officer), 16-6-8.5-1
(designee of Board of Pharmacy for controlled substances offenses) 36-2-13-5 (sheriff).

122 INDIANA LAW REVIEW [Vol. 16:119

The next subsection permits a law enforcement officer to make
an arrest if there is probable cause to believe that the person has
failed to stop after a vehicular accident involving personal injury or
property damage, or that the person has committed the offense of
driving under the influence of alcohol.^^ Previously, the arrest powers
for these offenses were found in the traffic laws.^'^ Indeed, certain pro-
visions in the present traffic laws seem to duplicate new arrest pro-
visions enacted by the new procedure code.^^ The new procedure code
clearly permits a law enforcement officer to arrest a suspect for driv-
ing under the influence of alcohol or for leaving the scene of the acci-
dent, even if the offense was not committed in the officer's presence.^^
Because both offenses are misdeineanors, an arrest could not be made
unless the offenses were committed in the presence of the arresting
officer were it not for this specific section of the procedure code.^^
The arrest procedures for other traffic offenses will be discussed later
in this Survey Article.

The next subsection codifies the common law power of a police
officer to make an arrest for a misdemeanor committed in his
presence. ^^ This raises the question of when an offense is committed
"in the presence" of the arresting officer. Certainly, if an officer
observes a crime, it is committed in his presence.^^ If an offense is
detected by any of the officer's senses, such as hearing or smell, the
offense is also generally considered to be committed in the officer's

36-8-3-6 (city police), 36-5-7-4 (town marshal), (1982). See also id. §§ 7.1-2-2-9 (Alcoholic
Beverage Commission enforcement officers), 8-3-17-2 (railroad police), 8-3-18-3 (railroad
conductors), 11-3-3-7 (parole officer), 36-7-20-3 (housing authority police).

''Ind. Code § 35-33-1-1(3) (1982). There is another statute that concerns arrests for
driving under the influence of alcohol. The implied consent law provides that a law
enforcement officer must offer a person the opportunity to submit to a chemical test
before he can arrest the person for that offense. Id. § 9-4-4.5-3(a). Although the failure
to offer the chemical test might affect the determination of whether a person could
have his license suspended, it would not affect the validity of the arrest. State v. Hum-
mel, 173 Ind. App. 170, 363 N.E.2d 227 (1977), cert, denied, 436 U.S. 905 (1978).

^'See Ind. Code §§ 9-4-1-130, -134 (1976) (amended 1981) (current version at id.
§§ 9-4-1-40, -54 (1982)).

''Compare id. § 9-4-1-134 (1982) with id. § 35-33-1-1(3).

''Id. § 35-33-1-1(3).

'Ud. The traffic law, Ind. Code § 9-4-1-134 (1982), permits an arrest for leaving the
scene or driving under the influence of alcohol upon "reasonable cause," but only if
the offense is coupled with an accident. The new procedure code does not require that
there be an accident coupled with driving under the influence of alcohol to permit
an arrest, if the offense is outside the presence of the officer. Obviously, leaving the
scene of an accident will always be coupled with an accident. Id. § 35-33-1-1(3). This
author would assume that the more recent procedure code would control.

''Id. § 35-33-1-1(4). See generally Works v. State, 266 Ind. 250, 362 N.E.2d 144 (1977);
Brooks V. State, 249 Ind. 291, 231 N.E.2d 816 (1967); Doering v. State, 49 Ind. 56 (1874).

''See generally Lander v. State, 238 Ind. 680, 154 N.E.2d 507 (1958); Dailey v. State,
194 Ind. 683, 144 N.E.2d 523 (1924).

1983] SURVEY-CRIMINAL LAW 123

presence. ^° If a suspect admits that he committed a crime, the offense
may be considered to have been committed in the presence of the
arresting officer .^^ Because this statute merely carries forward the com-
mon law misdemeanor arrest powers of police, it must be construed
in light of the common law.^^

In connection with misdemeanor arrests, the new procedure code
was amended in 1982 to provide that a law enforcement officer may
issue a summons and promise to appear, in lieu of arresting a person
who, in the officer's presence, has committed a misdemeanor, other
than a traffic misdemeanor.^^ The decision whether to issue the sum-
mons is within the discretion of the arresting officer. The statute also
sets out the suggested form for the summons and promise to appear.^''
The summons and promise to appear must be filed in the appropriate
court and a copy given to the prosecuting attorney .^^

As noted above, misdemeanors arising from a traffic offense may
not be within the new code's misdemeanor summons procedure. A
separate traffic statute provides that a person arrested for a traffic
misdemeanor^^ must be taken immediately before a court in the county

''See People v. Goldberg, 280 N.Y.S.2d 646, 227 N.E.2d 575, cert, denied, 390 U.S.
909 (1967) (officer heard, through a door, defendant dial telephone and accept horse
wager); State v. Hines, 504 P.2d 946 (Ariz. Ct. App. 1973) (alcohol on driver's breath);
Corrao v. State, 154 Ind. App. 525, 290 N.E.2d 484 (1972) (odor of marijuana); Mullaney
V. State, 246 A.2d 291 (Md. 1968) (odor of marijuana); City of Tacoma v. Harris, 436
P.2d 770 (Wash. 1968) (officer heard breach of peace). See generally 2 W. Ringel,
Searches and Seizures. Arrests and Confessions § 23.6(a) (2d ed. 1981); 1 C. Thompson.
Indiana Criminal Procedure Sourcebook § 3.4, at 3-7 (1974); Annot., 5 A.L.R.4th 681
(1981); Annot., 27 A.L.R.3d 1446 (1969).

. ''See Moorehead v. State, 204 Ind. 307, 183 N.E. 801 (1933); Drake v. State, 201
Ind. 235, 165 N.E. 757 (1929).

^^This would include the common law principle that the officer must not be a
trespasser when the offense is in his presence. See People v. Wright, 242 N.E.2d 180
(111. 1968); see also W. Ringel, supra note 30; C. Thompson, supra note 30.

^^Ind. Code § 35-33-4-l(d) (1982). This statutory provision may reflect the modern
trend. See 2 W. LaFave, Search and Seizure § 5.1(h), at 256 (1978).

^^Ind. Code § 35-33-4-l(e) (1982). A separate form for a summons and promise to ap-
pear is established for traffic offenses. Id. § 9-4-7-4.

''Id. § 35-33-4-l(f) (amending id. § 35-33-4-1 (Supp. 1981)).

^^Traffic offenses that remain a felony or misdemeanor after last year's
"decriminalization" of traffic crimes are: misuse of identification plates and titles in
salvage yards, Ind. Code § 9-1-3.6-11 (1982); altering special engine numbers, id. § 9-1-3-6;
operating motor vehicle without ever having obtained a valid license, id. §§ 9-1-4-26.5,
-27; possession of fictitious operator's license, revoked or suspended driver's license,
lending a license to another, failure to surrender a license when suspended or revoked,
giving false information to obtain a license, and selling or possessing false titles, id.
§§ 9-1-4-47, -53(a); driving while license suspended or revoked, id. §§ 9-1-4-52, -53(b);
failure to surrender suspended, revoked, cancelled, or current driver's license on de-
mand, id. § 9-2-l-10(b); driving without proof of financial responsibility, id. § 9-4-1-53.5
(effective Jan. 1, 1983); leaving scene of personal injury accident, id. § 9-4-1-40; leaving

124 INDIANA LAW REVIEW [Vol. 16:119

where the offense *'is alleged to have been committed and that has
jurisdiction of the offense and is nearest or most accessible to the
place where the arrest is made."^^ This traffic statute deals less with
the arrest powers of law enforcement officers than with the power
to take the person into custody following an arrest. In the event of
at least one of six statutorily defined situations, the police officer must
take the arrestee before the nearest available judge.^* However, ex-
cept for the offenses of leaving the scene of an accident, driving under
the influence of alcohol, and driving with a suspended or revoked
license, a police officer can simply issue a summons and promise to
appear. Therefore, arrest procedures for misdemeanants under the new
procedure code and under the traffic laws are virtually identical;
although in the case of a traffic misdemeanor, a police officer would
apparently have the discretion to take someone into custody only if
a promise to appear was not signed.

The next subsection concerning arrest is one of the most confus-
ing subsections of the new code and must be construed with other
recent changes in the law, especially those changes that occurred last
year in the traffic laws. The new arrest subsection states that a per-
son may be arrested when the

person charged with an infraction or ordinance violation
refuses to either:

(A) produce a valid operator's license or nondriver iden-
tification card; or

(B) give his name and address, in order that he can be sum-
moned to appear.^^

According to this subsection, it should be emphasized that a person

scene of property accident, id. §§ 9-4-1-41, -127.1; failure to report personal injury acci-
dent to local police or sheriff, id. §§ 9-4-l-45(a), -127.1; driving while intoxicated, id.
§ 9-4-1-54; reckless driving, id. § 9-4-1-56.1, Every other traffic offense has been classified
as a Class C infraction. Id. §§ 9-1-3-11, 9-4-l-127.1(b).

'Ud. § 9-4-1-130.1 (1982).

^*The Indiana Code provides that the police officer must take the arrestee before
the nearest available judge:

(1) When the person demands an immediate appearance before a court.

(2) When the person is charged with an offense causing or contributing to
an accident resulting in injury or death to any person.

(3) When the person is charged with . . . [driving under the influence of alcohol].

(4) When the person is charged with failure to stop in the event of an acci-
dent causing death, personal injuries, or damage to property.

(5) When the person refuses to give his written promise to appear in court.

(6) When the person is charged with driving while his license is suspended
or revoked.

Ind. Code § 9-4-1-130.1 (1982). A non-resident can be released upon furnishing a security
deposit. Id. § 9-4-1-131.

''Ind. Code § 35-33-1-1(5) (1982) (amending id. § 35-33-1-1 (Supp. 1981)).

1983] SURVEY-CRIMINAL LAW 125

who has committed an infraction or has violated an ordinance cannot
be arrested for that offense alone. Rather, the basis for the arrest
is the offense of not providing identifying information so that the per-
son can be summoned into court. Although this basis for the arrest
is unclear when the subsection is read alone, the basis is clarified when
the arrest subsection is read together with the new procedure enacted
for the enforcement of infraction and ordinance violations, which pro-
vides that

[a] person who knowingly or intentionally refuses to provide
either his:

(1) name, address, and date of birth; or

(2) driver's license, if in his possession;

to a law enforcement officer who has stopped the person for
an infraction or ordinance violation commits a Class C
misdemeanor.''"

Despite minor discrepancies between these two statutes,*^ they are
essentially the same. The ordinance and infraction enforcement statute,
however, details the specific crime for which the person is being
arrested.

Interpreting the two statutes in light of each other avoids another
anomalous result. As discussed previously, a law enforcement officer
may make an arrest for a felony based upon probable cause, even if
the crime is not committed in his presence, but an officer only may
make an arrest for a misdemeanor that is committed in his presence.
The infraction and ordinance arrest provision does not require that
the offense be committed "in the presence" of a law enforcement of-
ficer, but it would be anomalous to give an officer greater arrest
powers for infractions and ordinance violations than for misdemeanors.
However, if the arrest subsection is properly interpreted, an officer
is not arresting a person for an infraction or ordinance violation.
Rather, the arrest is made for a Class C misdemeanor that is com-
mitted in the officer's presence — the failure to provide identifying in-
formation to the officer who is issuing a ticket or summons. Thus,

''Id. § 34-4-32-3 (1982); see id. § 34-4-32-2 (permitting officer to make a brief deten-
tion of person where officer has good faith belief that person committed infraction
or ordinance violation). See People v. Clyne, 189 Colo. 412, 541 P.2d 71 (1975) (defend-
ant's arrest for violation of ordinance unlawful, because municipal code provides that
custodial arrest is proper only when person does not furnish sufficient evidence of
identity or officer has reasonable grounds to believe that person will disregard prom-
ise to appear).

"•'Under the arrest statute, the person need only provide his name and address,
whereas the enforcement statute requires his date of birth. The arrest statute speaks
of a valid operator's license or a nondriver identification card, while the enforcement
statute mentions only a driver's license.

126 INDIANA LAW REVIEW [Vol. 16:119

it is only as a result of the arrest made for the misdemeanor that
was committed "in the presence" of the officer that the officer can
issue a ticket or summons for an infraction or ordinance violation that
was not committed in his presence.

It is foreseeable that these statutes might be challenged on con-
stitutional grounds. It could be argued that these statutes allow a per-
son to be arrested solely for not providing identifying information to
a law enforcement officer who has detained him. In Lawson v.
Kolender,^^ a recent decision by the Court of Appeals for the Ninth
Circuit that may be reviewed by the United States Supreme Court,
a California vagrancy statute that required a person who is stopped
by a police officer to provide reliable identification when requested
by the officer was struck down as an unconstitutional search and
seizure. Under the California loitering statute/^ a police officer could
stop a person and could request identification when the officer had
a reasonable suspicion of criminal activity, in accordance with the
standards set out in Terry v. OhioJ^^ The court in Lawson held that
statutes that require the production of identification violate the fourth
amendment because, as a result of the demand for identification, these
"statutes bootstrap the authority to arrest on less than probable cause,
and the serious intrusion on personal security outweighs the mere
possibility that identification may provide a link leading to arrest."*^

It is true that the failure to provide identifying information under
the Indiana statutes provides a basis for arrest where none existed
before that failure. However, the context of the Indiana statutes is
fundamentally different from the context of California's vagrancy
statute. Under the Indiana statutes, the detained person is not being
requested to provide identifying information as part of a criminal in-
vestigation into suspicious activity. Instead, the person has already
violated either a state statute or the law of a local unit of govern-
ment. The identifying information is not sought as either a basis to
bootstrap a Terry-type "stop" into probable cause for arrest or to pro-
vide additional information in a criminal investigation. Indeed, the iden-
tifying information is sought to insure that the detained person may

^^658 F.2d 1362 (9th Cir. 1981), prob. juris, noted, 102 S. Ct. 1629 (1982).

^'Cal. Penal Code § 647(e) (West 1970).

**392 U.S. 1, 27 (1968) ("whether a reasonably prudent man in the circumstances
would be warranted in the belief that his safety or that of others was in danger").
Whether a request for identification under these circumstances is an unconstitutional
search and seizure was specifically left open by the United States Supreme Court in
Brown v. Texas, 443 U.S. 47, 53 n.3 (1979) (holding that a person could not be required
to furnish identification if not reasonably suspected of any criminal conduct). See also
Michigan v. DeFillippo, 443 U.S. 31 (1979) (evidence uncovered in a warrantless search,
in good faith reliance on an ordinance later found to be unconstitutional, did not have
to be suppressed because police had abundant probable cause).

'^658 F.2d at 1366-67.

1983] SURVEY-CRIMINAL LAW 127

not be arrested, but may be issued a summons and promise to ap-
pear. Therefore, the new arrest statute and infraction and ordinance
enforcement statute should not be considered to permit an unconstitu-
tional search or seizure of the person/*

The Court of Appeals for the Ninth Circuit also found that the
California vagrancy statute was constitutionally defective because it
was so vague and indefinite that it encouraged arbitrary and
discriminatory enforcement by police officers. The statute granted the
police unfettered discretion because it did not provide standards for
determining whether a person is engaged in suspicious loitering and
failed to specify what forms of identification were sufficient to satisfy
the statute. Indiana's arrest and infraction and ordinance enforcement
statutes obviously do not suffer from this defect. A police officer is
empowered to detain someone and ask for identification under these
statutes only when a law has been violated. In addition, the forms
of identification that will satisfy the -statutes are clearly set out.

Because the California statute was being struck down for other
reasons, the Ninth Circuit did not directly decide whether the provi-
sion of the statute that requires a detained person to produce iden-
tification was violative of the constitutional privilege against
self-incrimination.'*^ However, the federal court noted that other courts
had struck down similar statutes on the grounds that an individual
may not be compelled to identify himself."^

A challenge to the Indiana statutes on the ground that they com-
pel a person to incriminate himself by providing identifying informa-
tion must be assessed in view of the United States Supreme Court's
decision in California v. Byers.^^ In Byers, a California **hit and run"
statute, much like the Indiana statutes,^" that requires the person in-
volved in an accident to stop and leave identifying information was
challenged on the grounds that it violated the constitutional privilege
against self-incrimination. Even though stopping a vehicle after an ac-
cident and identifying oneself as the person involved is, arguably, more
incriminating than merely giving identifying information to an officer
after one has been accused of violating an ordinance by a police of-
ficer, a majority of the United States Supreme Court in Byers found
no constitutional violation. ^^ Especially important in the interpretation

'^Cf. Gomez v. Turner, 672 F.2d 134, 144 (D.C. Cir. 1982) (request that pedestrians
give identification is not an unconstitutional "seizure").

*^U.S. Const, amend. V; Ind. Const, art. 1, § 14.

%58 F.2d at 1371; see People v. DeFillippo, 262 N.W.2d 921, 924 (Mich. Ct. App.
1977), rev'd on other grounds, 443 U.S. 31 (1979).

^M02 U.S. 424 (1971).

''Compare Ind. Code §§ 9-4-l-40(b), -42 (1982) with Cal. Vehicle Code § 20002(a)(1)
(West 1976).

''See 402 U.S. 424, 427-34.

•128 INDIANA LAW REVIEW [Vol. 16:119

of the Indiana statutes is this statement in the majority opinion of
Byers: '^Disclosure of name and address is an essentially neutral act.
Whatever the collateral consequences of disclosing name and address,
the statutory purpose is to implement the state police power to
regulate use of motor vehicles. "^^ Again, it must be emphasized that
the new Indiana statutes are not concerned with investigatory ques-
tioning after a "stop." It is also significant to note that requiring basic
identifying information, even when one is in custody and going through
the booking process, is considered to be outside the scope of Miranda
V. Arizona.^^

The final attack that might be made against this particular
statutory arrest scheme, especially since the "civilizing" of most traf-
fic offenses,^^ is that a person should not be subjected to arrest for
failing to provide an officer with identifying information that would
enable the enforcement of a civil judgment. However, clearly it is
within the police power of the state to regulate traffic on public roads. ^^
Also, even though a statutory scheme may be essentially civil in
nature, portions of it dealing with arrest may be criminal in character.^
Therefore, this statutory scheme is not an unwarranted intrusion of
law enforcement officers and criminal procedure into a civil process.

Another section on arrest codifies the common law arrest powers
of citizens.^^ The section provides that a citizen can arrest another
person if a felony has been committed in the citizen's presence or if
there is probable cause to believe that the person has committed a
felony.^* The common law in Indiana did not require,^^ nor does the
new statute require, that the felony be committed in the presence
of the arresting citizen.®" However, there is one important distinction
between the felony arrest powers of a law enforcement officer and
those of a citizen, both at common law and in the new arrest section.

^^Id. at 432.

^384 U.S. 436 (1966). For cases that support the textual proposition that no Miranda
warnings are required before asking to see a license, see United States v. Chase, 414
F.2d 780 (9th Cir. 1969); Pulliam v. State, 264 Ind. 382, 345 N.E.2d 229 (1976).

^Proceedings to enforce an infraction or ordinance violation are conducted in ac-
cordance with the Indiana Rules of Trial Procedure, Ind. Code § 34-4-32-l(c)(l) (1982),
and are proved by a preponderance of the evidence, id. § 34-4-32-l(d). A "judgment"
is entered against the defendant for proven violations. Id. § 34-4-32-4.

^^60 C.J.S. Motor Vehicles § 14 (1969); 7A Am. Jur. 2d Automobiles and Highway
Traffic §§ 14, 15 (1980).

*See State ex rel. Beaven v. Marion Juvenile Court, 243 Ind. 209, 184 N.E.2d 20
(1962).

"Ind. Code § 35-33-1-4 (1982).

^M § 35-33-l-4(a)(l) to -4(a)(2).

^^See, e.g., Kennedy v. State, 107 Ind. 144, 6 N.E. 305 (1886); Doering v. State,
49 Ind. 56 (1874); Teagarden v. Graham, 31 Ind. 422 (1869).

""See Smith v. State, 258 Ind. 594, 283 N.E.2d 365 (1972).

1983] SURVEY -CRIMINAL LAW 129

For an arrest by a law enforcement officer to be valid, the officer
need only have probable cause to believe that a felony was commit-
ted, but for an arrest by a citizen to be valid, a felony must actually
have been committed.^^

The new provisions regarding arrest also state that a private
citizen may make an arrest for a misdemeanor committed in his
presence.^^ Although the common law on this point in Indiana is sparse,
apparently the right of a citizen to arrest for a misdemeanor did exist.^^
However, in addition to the *'in the presence" requirement for misde-
meanor arrests, the statute places two additional restrictions upon a
citizen's arrest powers: the misdemeanor must involve a breach of the
peace, and the arrest must be necessary to prevent the continuance
of the breach of peace.®^ There is no crime of "breach of the peace"
in Indiana and the legislature did not attempt to further define the
term. At common law, the term "breach of the peace" could be
regarded as a synonym for crime,^^ but the legislature certainly did
not intend the definition to be this broad. Although either "rioting"®^
or "disorderly conduct"^^ clearly would constitute a breach of the peace,
the term "breach of the peace" is indefinite beyond those crimes.

As soon as practical after the citizen makes an arrest, he must
notify a law enforcement officer and deliver the arrestee to the custody
of the officer.^^ The law enforcement officer may process the arrested
person as if the officer had arrested him and is not liable for false
arrest or false imprisonment.^^ After receiving custody of the arrestee,
the decision to process the arrested person is apparently within the
discretion of the officer; the officer could simply decide to release the
arrestee.

The next chapter in this article of the code concerns the issuance
of arrest warrants.^" No arrest warrant may be issued until either an

'7d; Knotts v. State, 243 Ind. 501, 187 N.E.2d 571 (1963); Simmons v. Vandyke,
138 Ind. 380, 37 N.E. 973 (1894). Another distinction between a law enforcement of-
ficer's arrest powers and those of a private citizen is found in the amount of force
that may be used to effect an arrest. See Ind. Code § 35-41-3-3 (1982); Rose v. State,
431 N.E.2d 521 (Ind. Ct. App. 1982).

^^IND. Code § 35-33-l-4(a)(3) (1982).

''See Golibart v. Sullivan, 30 Ind. App. 428, 435, 66 N.E. 188, 191 (1903).

^-IND. Code § 35-33-l-4(a)(3) (1982).

'"See R. Perkins. Criminal Law 399 (2d ed. 1969); see also Ind. Code § 35-1-5-13 (1982).

««IND. Code § 35-45-1-2 (1982).

'Ud. § 35-45-1-3; R. Perkins, supra note 65, at 400.

««IND. Code § 35-33-l-4(b) (1982).

'^Id. § 35-33-l-4(c). This statute immunizes only the officer. If the citizen makes
an illegal arrest, he may be civilly liable for false arrest, false imprisonment, or assault
and battery. See Doering v. State, 49 Ind. 56 (1874); see also Teagarden v. Graham,
31 Ind. 422 (1869).

''See Ind. Code U 35-33-2-1 to -7 (1982).

130 INDIANA LAW REVIEW [Vol. 16:119

indictment or an information has been filed.^^ Furthermore, a law en-
forcement officer may not obtain an arrest warrant simply by present-
ing probable cause to a judicial officer, as he can to obtain a search
warrant.^^

The chapter on arrest warrants also clears up a point of confu-
sion in Indiana criminal procedure. Through inartful wording of the
prior Indiana statute,^^ it was unclear whether there must be an in-
dependent judicial determination of probable cause when a grand jury
has returned an indictment. The new code states twice that when an
indictment is returned, a court can issue an arrest warrant without
a judicial determination of probable cause.^'^ However, a judicial deter-
mination of probable cause must be made after the filing of an
information.^^ This is consistent with Indiana case law that holds that
the return of an indictment by a grand jury is conclusive evidence
of probable cause,^^ but that a judicial determination of probable cause
must be made when a prosecutor's information is filed, if an arrest
warrant is issued.^^

Section 5 of the chapter on arrest warrants^® adds a new statutory
concept to Indiana criminal procedure. The section provides that when
an indictment or information has been dismissed, the court will order
the sheriff to make a return on an outstanding arrest warrant or sum-
mons that relates to the charge, stating that the indictment or infor-
mation has been dismissed. In addition, the sheriff must give notice
of the dismissal to any law enforcement officer to whom the arrest
warrant or summons had been delivered. Although Indiana courts have
recognized that the arrest warrant ceases to exist when an indict-
ment or an information has been dismissed,^^ this new subsection in-

''Id. § 35-33-2-l(c).

'^Compare Ind. Code § 35-33-2-l(c) with §§ 35-33-5-1 to -7 (1982). This was a matter
of disagreement in the Criminal Law Study Commission. The majority believed that
a citizen should not be subjected to an arrest, even if there were probable cause for
arrest, if the body with the decision to file criminal charges, the grand jury or the
prosecuting attorney, should decide that there was insufficient evidence to proceed
to trial or that the case otherwise lacked prosecutive merit. Conversation with Richard
P. Good, member of Criminal Law Study Commission (June 25, 1982).

''See Ind. Code § 35-3.1-l-l(d) (Supp. 1981) (repealed 1982).

''Id. § 35-33-2-l(a), (c)a) (1982).

'Ud. § 35-33-2-l(b), (c)(2).

''State ex rel. French v. Hendricks Superior Court, 252 Ind. 213, 224, 247 N.E.2d
519, 526 (1969).

"Kinnaird v. State, 251 Ind. 506, 516, 242 N.E.2d 500, 506 (1968).

'«Ind. Code § 35-33-2-5 (1982).

''See Bearing v. State, 229 Ind. 131, 137, 95 N.E.2d 832, 835 (1951). However,
although three members of the Indiana Supreme Court stated in Bearing that an ar-
rest warrant expired when the criminal charge upon which it was based was dismissed,
the Indiana Court of Appeals interpreted the opinion as holding that an arrest war-

1983] SURVEY -CRIMINAL LAW 131

eludes specific directives to the sheriff regarding his duties after the
charge is dismissed.

The final statutory change in arrest law to be discussed herein
concerns the issuance of a summons by a court in a misdemeanor case.
Prior law provided that when an indictment or information was filed
in a misdemeanor case, the court could direct the issuance of a sum-
mons instead of an arrest warrant "if the court has reasonable ground
to believe that the person will appear in response to a summons."®"
Because a court will ordinarily not possess facts that would enable
it to decide whether a person would respond to a summons, the new
law permits a court simply to exercise its discretion in issuing either
a warrant or a summons.®'

A separate statutory section regarding arrest®^ gives a judge the
power to arrest or to order the arrest of a person whom he has prob-
able cause to believe has committed a crime.®^ Another section,®"^ con-
sistent with the coroner's powers established in title 36,®^ provides
that the coroner has the arrest powers of the sheriff if the sheriff
is incapacitated or has a conflict of interests, and has no chief deputy
who could perform the duties, and that the coroner is authorized to
arrest the sheriff under authority of a warrant.

Although not included in the new procedure code, other statutes
in the prior code that pertain to the arrest power were retained.
Among these are the laws concerning the authority to use force in
entering a premises to make an arrest,®^ the requirement that certain
police officers either wear a uniform or drive a marked car when mak-
ing a traffic arrest,®^ and the requirement that most police officers
in the state receive training at the Law Enforcement Academy within
one year from the date of their employment.®® Also, a law enforce-

rant expires at the end of the term of the court that issued it. See Hughes v. State,
385 N.E.2d 461, 464 (Ind. Ct. App. (1979).

Hughes led to the enactment of Act of April 4, 1977, Pub. L. No. 334, 1977 Ind.
Acts 1511, 1512, regarding the nonexpiration of felony arrest warrants and the is-
suance of "rearrest" warrants for misdemeanors, which is now found in the new pro-
cedure code at Ind. Code § 35-33-2-4 (1982).

«°lND. Code § 35-l-17-2(b) (1978) (repealed 1981).

''Id. S 35-33-4-l(a) (1982).

'Ud. § 35-33-1-2.

^Cf. id. § 35-1-21-1 (1978) (repealed 1981) (giving judges, coroners, and law enforce-
ment officials the power to arrest any person violating a state statute, without speci-
fying a probable cause requirement); Cato v. Mayes, 388 N.E.2d 530 (Ind. 1979) (holding
justice of peace is immune from liability for false arrest).

«^lND. Code § 35-33-1-3 (1982).

'^Id. SS 36-2-14-4, -5.

^Id. §§ 35-1-19-4, -6 to -7. There is a general "knock and announce" requirement
absent exigent circumstances. See Cannon v. State, 414 N.E.2d 578 (Ind. Ct. App. 1980);
Johnson v. State, 157 Ind. App. 105, 299 N.E.2d 194 (1973).

«lND. Code § 9-4-8-1 (1982); see State v. Whitney, 377 N.E.2d 652 (Ind. Ct. App. 1977).

««IND. Code § 5-2-l-9(b) (1982).

132 INDIANA LAW REVIEW [Vol. 16:119

ment officer may take a possible delinquent child into custody if the
officer has probable cause to believe the child has committed a delin-
quent act.®^ Because a delinquent act could be a felony, a misdemeanor,
or a juvenile status offense, the officer could take the child into
custody solely upon probable cause, even if the misdemeanor were
not committed in his presence.®"

Therefore, it can be seen that the chapters in the new procedure
code concerning arrest, as well as the general law of arrest, are an
amalgam of something old and something new. Moreover, the discus-
sion of arrest makes one other important point about the new criminal
procedure code in general. All of the law relating to a particular aspect
of criminal procedure will not be found in the new procedure code.
Not even all statutes relating to that subject will be found there. Ex-
isting statutes and case law precedent continue to supplement the new
procedure code.

B. Initial Hearings

One of the most significant developments of the new code is the
chapter on initial hearings.®^ Many of the series of older statutes deal-
ing with the production of an accused before a magistrate after a war-
rantless arrest, preliminary hearings, and preliminary charge pro-
cedures have been eliminated.®^ Also missing from the new code is
the phase in criminal procedure known as arraignment.®^ Historically,
arraignment was considered a two-step procedure. The defendant was
first informed of the charges against him by a reading of the indict-
ment or information and then he was required to plead to the
charges.®"* Now the defendant will be advised of the charges against
him at an initial hearing and, at the same time, an automatic plea
of not guilty will be entered for the defendant. The plea will become
a formal plea of not guilty after the passage of specified periods of
time.®^ In essence, the chapter on initial hearings in the new code®®

'Ud. S 31-6-4-4(b).

'"The term "delinquent act" is defined at Ind. Code § 31-6-4-l(a) (1982), and includes
acts that would be "offenses" if committed by an adult. An "offense" is defined as
either a felony or a misdemeanor. Id. § 35-41-1-2. Thus, the authority of a law enforce-
ment officer to take a child into custody is broader than the authority to arrest an
adult for a misdemeanor. See Ind. Code Ann. § 31-6-4-4 commentary (West 1979).

«^Act of May 5, 1981, Pub. L. No. 298, § 2, 1981 Ind. Acts 2326-28 (codified at
Ind. Code §§ 35-33-7-1 to -7 (1982)).

^^Ind. Code §§ 35-1-7-1, -8-1, 35-4-1-1 (Supp. 1981) (repealed 1982).

''See id. % 35-4.1-1-1 (1976) (repealed 1982).

''See id.; see also Andrews v. State, 196 Ind. 12, 146 N.E. 817 (1925).

^^Ind. Code § 35-33-7-5(7) (1982). This is similar to prior law, where a plea of not guilty
was entered if a defendant stood mute or refused to plead. See id. § 35-4.1-l-l(d) (1976)
(repealed 1982).

""Id. §§ 35-33-7-1 to -7 (1982). See id. §§ 35-1-7-1, 35-1-8-1, 35-4-1-1.

1983] SURVEY -CRIMINAL LAW 133

serves the same function as that of the prior law on preliminary hear-
ings, preliminary charges, and arraignments.

The initial hearing procedures are triggered by the arrest of a
person, with or without a warrant; however, the procedures will dif-
fer depending upon whether the arrest was made pursuant to a war-
rant. In addition, a person who is issued a summons to appear, in lieu
of an arrest,^^ is apparently entitled to an initial hearing because the
summons directs the person to appear before a court at a stated time
and place.^® However, the initial hearing procedures applicable to a
summons are unclear. The initial hearing chapter provides that if a
person is "arrested or summoned to appear" before a formal charge
is filed, the charge must be prepared at or before the initial hearing.^^
However, the time periods in the initial hearing chapter are geared
to arrest and detention, or to arrest and release on bail. A summons
to appear is neither of those. Therefore, it is quite possible that a
person who is summoned to appear need not have an initial appearance
before the court within the time periods that the statute otherwise
provides for initial hearings.

The chapter on initial hearings provides that a person who is ar-
rested without a warrant must be taken promptly before a judicial
officer in the county where the arrest is made or in any county that
is believed to have venue of the offense. ^°° The word ''promptly" is
not defined in the new code and its definition will no doubt vary under
the circumstances of the particular case, but existing case law may
provide guidelines for a suitable time frame. ^°^ If the suspect is re-
leased on bond immediately after arrest, he need not appear before

^'See IND. Code § 35-33-4-1 (1982).

'Ud. § 35-33-4-l(d), (e).

^Id. § 35-33-7-3(a). The statute does not state to what the person is being sum-
moned, but the intent is probably that the summons is to the initial hearing, because
that is the first step in the criminal process after arrest or detention.

'''Id. S 35-33-7-1.

'"Tor city police, the code provides that a person may not be detained longer
than 24 hours except where Sunday intervenes, in which case a person may not be
detained longer than 48 hours. Ind. Code § 36-8-3-11 (1982). The United States District
Court for the Northern District of Indiana relied on a predecessor to this statute, id.
§ 18-1-11-8 (1976) (repealed 1982), to impose a general 24- to 48-hour requirement for
the production of an arrestee before a judge after a warrantless arrest. Dommer v.
Hatcher, 427 F. Supp. 1040 (N.D. Ind. 1977), rev'd sub nom. Dommer v. Crawford, 638
F.2d 1031 (7th Cir. 1980). Despite its reversal on federal abstention grounds, Dommer
remains an excellent analysis of Indiana "initial hearing" law prior to the new pro-
cedure code. Also, although Ind. Code § 36-8-3-11 (1982) and Dommer might provide ap-
propriate guidelines for the definition of "promptly" in the new procedure code, it is
questionable whether it is binding on any police agency other than city police. See
Grooms v. Fervida, 396 N.E.2d 405 (Ind. Ct. App. 1979). The accused need only be
produced before the court during its normal hours for conducting business. See Hill
V. Otte, 258 Ind. 421, 281 N.E.2d 811 (1972).

134 INDIANA LAW REVIEW [Vol. 16:119

the judge for his initial hearing until any time up to twenty calendar
days after his arrest.^"^ Even when a person is arrested pursuant to
an arrest warrant, he must be taken promptly before the court that
issued the warrant or before a judicial officer that has jurisdiction
over the arrestee, although the initial hearing can be delayed for up
to twenty days after the arrest if the arrestee has been released in
accordance with the provisions of the arrest warrant. ^"^ Thus, there
is no difference in the timing of the initial hearing for those arrested
with a warrant and those arrested without a warrant. However, as
will be explained below, the nature of the hearing before the judicial
officer will vary according to whether the arrest was made with a
warrant.

If the person has been arrested without a warrant, the judge's
first task at the initial hearing will be to determine whether there
is probable cause to believe that the person committed a crime.^"'' This
can be accomplished either at the initial hearing or before the initial
hearing.^"^ The facts for the warrantless arrest are submitted to the
judicial officer in an ex parte affidavit.^"^ The facts also can be submit-
ted orally under oath.^"^ If the judge decides that probable cause ex-
ists, the person will be held to answer in the proper court.^"^ However,
if the judge decides that probable cause is lacking, or if the prosecuting
attorney indicates on the record that no charge will be filed against
the person, the judicial officer will order the arrestee released. ^"^
However, a person who is released later may be charged with and
arrested for the same offense. ^^°

If the person is arrested under the authority of a warrant, after
an indictment or information has been filed, an initial hearing still must
be held.^" In addition, the person must be brought before the judge
promptly after arrest or within twenty days, if he has been released."^

^"^iND. Code § 35-33-7-1 (1982).
'°'Id. § 35-33-7-4.
''*Id. § 35-33-7-2(a).

^°^Id. There is no constitutional requirement that the probable cause determina-
tion be made in an adversarial context. See Gerstein v. Pugh, 420 U.S. 103 (1975); Tinsley
V. State, 164 Ind. App. 683, 330 N.E.2d 399 (1975).

^"Ind. Code § 35-33-7-2(a) (1982). If the facts to prove probable cause are submitted
orally under oath, the proceeding will be recorded, but it will only be transcribed upon
request of a party or upon a court order. Id.

'''Id. § 35-33-7-2(b).

'''Id.

'''Id. § 35-33-7-7. This is consistent with present law. See Denson v. State, 263 Ind.
315, 330 N.E.2d 734 (1975); State ex rel. Hale v. Marion County Mun. Court, 234 Ind.
467, 127 N.E.2d 897 (1955).

"^IND. Code § 35-33-7-4 (1982).

'"Id.

1983] SURVEY-CRIMINAL LAW 135

However, the probable cause determination phase of an initial hear-
ing is not required because the inquiry would be a needless duplica-
tion of the probable cause decision. When the prosecutor files a
criminal information, a court will make a judicial determination of prob-
able cause before issuing an arrest warrant.^^^ When a grand jury
returns an indictment, it is conclusive evidence of probable cause;^^*
therefore, an arrest warrant is issued without a judge's determina-
tion of probable cause.^^^ The absence of a second probable cause deter-
mination for an arrest by warrant is completely consistent with Indiana
case law, which has held that a preliminary hearing to determine prob-
able cause is not required when an arrest warrant was issued after
the filing of an information/^^

The criminal charges must be filed at or before the initial hear-
ing, unless the prosecutor informs the court that no charges will be
filed, in which case the accused is released. ^^' When the person is ar-
rested pursuant to a warrant, either the grand jury or the prosecuting
attorney has already decided what preliminary charges will be filed.
However, when a law enforcement officer makes a warrantless arrest,
the prosecuting attorney has not decided what charges should be filed.
Thus, for warrantless arrests, the prosecutor may state that more time
is needed to evaluate the case, or that the transfer of the case to
another court is necessary, and *'the court shall recess or continue
the initial hearing for up to seventy-two (72) hours, excluding interven-
ing Saturdays, Sundays, and legal holidays."^^^ This provision antici-
pates the situation in which there is probable cause to charge a crime,
but the case may lack prosecutive merit for some reason. It should
be noted, however, that before the initial hearing can be recessed,
the court must make the required probable cause determination for
warrantless arrests.

At this point in the initial hearing for a warrantless arrest, the
procedures for felonies and misdemeanors diverge. In a misdemeanor
case, the hearing can be recessed after the probable cause decision.
However, in a felony case, the court must advise the accused of his

'"M § 35-33-2-l(b). See Gerstein v. Pugh, 420 U.S. 103 (1975); Kinnaird v. State,
251 Ind. 506, 242 N.E.2d 500 (1968). See also supra notes 73-77 and accompanying text.

'^"Gerstein v. Pugh, 420 U.S. 103, 117 n.l9 (1975); State ex rel. French v. Hendricks
Superior Court, 252 Ind. 213, 224, 247 N.E.2d 519, 526 (1969).

'''See Ind. Code § 35-33-2-l(a) (1982).

'''E.g., Poindexter v. State, 268 Ind. 167, 374 N.E.2d 509 (1978); Penn v. State,
242 Ind. 359, 177 N.E.2d 889 (1961). Also, in Dommer v. Hatcher, 427 F. Supp. 1040,
1047 (N.D. Ind. 1977), the probable cause determination at the initial appearance before
a judge was deemed unnecessary when the arrest was made pursuant to a warrant
issued after the filing of an indictment or information. See also supra note 101.

"iND. Code § 35-33-7-2 (1982).

'"Id. § 35-33-7-3(b).

136 INDIANA LAW REVIEW [Vol. 16:119

right to counsel and other rights before the recess of the hearing/
When the initial hearing is reconvened after the recess, the alleged
misdemeanant will be advised of the same rights to which an alleged
felon would be advised before the recess, except that the alleged
misdemeanant will be advised that he has ten days, rather than twenty
days, after the completion of the initial hearing in which to retain
counsel. ^^" If a person is charged with one or more misdemeanors, then
misdemeanor procedures will be followed. However, if a person is
charged with both a felony and a misdemeanor, felony procedures will
prevail. ^^^ Once the initial hearing in a felony case reconvenes after
a recess, the court probably will not need to advise the accused of
his rights again, but the statute is not clear on this procedure.

At the initial hearing, the judge will have the filed charges before
him, and can advise both accused felons and misdemeanants of the
charges against them.^^^ The court will also direct the prosecuting at-
torney to give the defendant or his attorney a copy of any formal
felony charges that are already filed or that are ready to be filed;
the prosecuting attorney must give an accused misdemeanant or his
attorney a copy of misdemeanor charges only if they request them.^^^
At this time, the court will advise the defendant that a preliminary
plea of not guilty is being entered for him and that the plea will
become a formal plea of not guilty within twenty days of the initial
hearing in a felony case,^^^ or within ten days in a misdemeanor case.^^^

"^/(i. § 35-33-7-5(c). The court in a felony case must advise the defendant:

(1) that he has a right to retain counsel and if he intends to retain counsel
he must do so within:

(A) twenty (20) days if the person is charged with a felony; . . .
after this initial hearing because there are deadlines for filing motions and
raising defenses, and if those deadlines are missed, the legal issues and
defenses that could have been raised will be waived;

(2) that he has a right to assigned counsel at no expense to him if he is
indigent;

(3) that he has a right to a speedy trial;

(4) of the amount and conditions of bail;

(5) of his privilege against self-incrimination.
Id. § 35-33-7-5.

Under prior law the purpose of a preliminary hearing was to "(1) [aid vise the ar-
restee of the charges made against him; (2) [a]dvise the arrestee of his constitutional
rights; (3) [pjrovide the arrestee with an attorney if arrestee was without funds to
hire one; (4) [d]etermine whether there is sufficient evidence that the crime charged
has been committed and that the accused committed it." Nacoff v. State, 256 Ind. 97,
102, 267 N.E.2d 165, 168 (1971) (citation omitted).

''"'Ind. Code § 35-33-7-5(1 )(B) (1982).

'^Id. § 35-33-7-5(6).

'"^Id. S 35-33-7-5.

»^Vrf. § 35-33-7-5(7)(A).

'"^Id. § 35-33-7-5(7)(B).

1983] SURVEY-CRIMINAL LAW 137

After consulting with counsel, however, if the defendant wishes to
enter a different plea,^^^ he may do so at the initial hearing.^^^

Before the completion of the initial hearing, the judge must deter-
mine whether an accused who requests assigned counsel is indigent. ^^*
If jurisdiction over an indigent defendant is transferred to another
court, the receiving court will assign counsel immediately upon ac-
quiring jurisdiction/^^ The determination of indigency can be reviewed
at any time during the proceedings/^"

Because the new code's "initial hearing" procedures are really a
modification of existing preliminary hearing and arraignment statutes,
reference may be made to decisions under prior law to answer ques-
tions that might arise under the new code. For example, when an ac-
cused appears at his initial hearing, he may often be unaccompanied
by counsel, especially after a warrantless arrest. Although one of the
purposes of the initial hearing is to advise the accused of his right
to counsel and to appoint one if he is indigent, arguably, the defend-
ant should be entitled to appointed counsel at the initial hearing. An
expansive reading of Coleman v. Alabama^^^ might lead to this conclu-
sion, but the determination of probable cause before formal charges
have been filed has been held not to be a "critical stage" of criminal

'^^The defendant could plead either guilty or guilty but mentally ill. See Ind. Code
§§ 35-35-1-1 to -4 (1982).
''Ud. § 35-33-7-5.

'^*/d. § 35-33-7-6. The Indiana Supreme Court has detailed the judicial determina-
tion of indigency as follows:

First, it appears clear that the defendant does not have to be totally
without means to be entitled to counsel. If he legitimately lacks the financial
resources to employ an attorney, without imposing substantial hardship on
himself or his family, the court must appoint counsel to defend him.

The determination as to the defendant's indigency is not to be made
on a superficial examination of income and ownership of property but must
be based on as thorough an examination of the defendant's total financial
picture as is practical. The record must show that the determination of abili-
ty to pay includes a balancing of assets against liabilities and a considera-
tion of the amount of the defendant's disposable income or other resources
reasonably available to him after the payment of his fixed or certain obliga-
tions. The fact that the defendant was able to post a bond is not determinative
of his nonindigency but is only a factor to be considered.
Moore v. State, 401 N.E.2d 676, 678-79 (Ind. 1980) (citations omitted). See also Mitchell
V. State, 417 N.E.2d 364, 368 (Ind. Ct. App. 1981); Bergdorff v. State, 405 N.E.2d 550,
553-54 (Ind. Ct. App. 1980).

^'^IND. Code § 35-33-7-6 (1982).

"°/d. This would permit a court to require a defendant to hire private counsel
if he came into money during his case. However, a court's duty to appoint counsel
arises at any stage of the proceedings when the defendant's indigency causes him to
be without counsel. Moore v. State, 401 N.E.2d 676, 679 (Ind. 1980).

^^*399 U.S. 1 (1970) (holding that counsel should be provided at a preliminary
hearing).

138 INDIANA LAW REVIEW [Vol. 16:119

proceedings to which the right to counsel attaches. ^^^ When the defend-
ant is arrested under authority of a warrant, formal charges will have
been filed and, arguably, the defendant would be entitled to counsel
at the initial hearing under this circumstance. The Indiana Supreme
Court has stated that it is incongruous to require that counsel be ap-
pointed to represent the defendant prior to the hearing that is de-
signed to inform the defendant of his right to counsel and, if need
be, to appoint counsel for him.^^^ Moreover, the United States Supreme
Court in Gerstein v. Pugh^^ distinguished Coleman and held that the
right to counsel would not attach at a first appearance or a preliminary
hearing before a magistrate when a statutory right to confront and
to cross-examine prosecution witnesses at the hearing was not pro-
vided and when the purpose of the hearing was not to determine
whether charges would be filed.^^^ In the new procedure code, there
is no right to confront and to cross-examine witnesses at the initial
hearing and the decision to charge has already been made. Therefore,
it appears that there should be no constitutional right to appointed
counsel at the initial hearing.

Another question that might arise is whether the initial hearing
can be waived or continued. It might be questioned why anyone would
want to waive a hearing that is designed to advise him of certain
rights, to determine probable cause, and possibly to appoint counsel.
The reason for waiving is that the "omnibus date," which is a trigger
date for setting other motion-filing deadlines,^^^ is set within certain
periods of time after the completion of the initial hearing or after the
appearance of counsel and cannot be continued. ^^^ Therefore, an at-
torney may seek to delay the setting of an omnibus date by waiving
or continuing the initial hearing.

Under prior law, the right to a preliminary hearing could appar-
ently be waived.^^* However, in the event that an initial hearing is
waived, common sense would dictate setting the omnibus date relative
to the date of the waiver. The purpose of the omnibus date would
be defeated if a defendant were permitted to continue indefinitely an
omnibus date by waiving an initial hearing. Whether an initial hear-
ing could be continued is another question. Common practice under

''^See Merry v. State, 166 Ind. App. 199, 335 N.E.2d 249 (1975); see 'also Fender
V. Lash, 261 Ind. 373, 304 N.E.2d 209 (1973).

'^Tulks V. State, 255 Ind. 81, 85, 262 N.E.2d 651, 653 (1970).

'^M20 U.S. 103 (1975).

'''Id. at 122-23.

''«IND. Code § 35-36-8-2 (1982). For a detailed discussion of the statutory provisions
regarding the omnibus date, see infra notes 147-82 and accompanying text.

'^iND. Code § 35-36-8-1 (1982).

'''See Grooms v. Fervida, 396 N.E.2d 405 (Ind. Ct. App. 1979); Grzesiowski v. State,
168 Ind. App. 318, 343 N.E.2d 305 (1976).

1983] SURVEY -CRIMINAL LAW 139

prior law was for defense attorneys to seek continuances of an ar-
raignment because certain motions had to be made before arraign-
ment and plea, or they would be denied summarily. ^^^ Seeking to
eliminate this practice by avoiding the necessity for it, the new pro-
cedure code ties motions to dismiss a criminal charge to the omnibus
date, instead of to the date of arraignment and plea.^^" Moreover, a
motion to continue the initial hearing normally would be made by an
attorney, and the attorney's entry of an appearance, not the initial
hearing, would trigger the setting of the omnibus date/''^

Another question is what consequences would occur if the
statutory procedures for initial hearings were not followed. A failure
to comply with these procedures should not be a jurisdictional bar
to subsequent proceedings.^''^ Delay in bringing an arrestee before a
magistrate will be a factor in determining whether evidence that was
obtained during the detention, such as a confession, will be suppressed
as the fruit of an illegal detention.^*^ The delay may also result in a
civil action for false imprisonment.^'"' However, even a "kangaroo" in-
itial hearing will be harmless error if no evidence is obtained as the
product of an illegal detention.^*^ Furthermore, if a defendant is be-
ing illegally detained, his remedy is to seek a writ of habeas corpus.^*®

C. Omnibus Date

The omnibus date is a relatively new concept in Indiana law,^^^
although the statutory authority for setting an "omnibus hearing" date
or pre-trial hearing date has existed since 1973.^** The purpose of the
omnibus date is not to provide a date for a hearing but simply to
provide a fixed date from which other deadlines in the procedure code
are measured.^^^ However, the omnibus date is not directly relevant
to the setting of a trial date because the date for the trial is deter-

'^^See IND. Code § 35-3.1-l-4(b) (Supp. 1981) (repealed 1982).

'*'See id. § 35-34-l-4(b) (1982).

'''See id. § 35-36-8-l(a).

''^See Sisk v. State, 232 Ind. 214, 110 N.E.2d 627 (1953); Tread well v. State, 152
Ind. App. 289, 283 N.E.2d 397 (1972).

''^See Richey v. State, 426 N.E,2d 389 (Ind. 1981); Pawloski v. State, 269 Ind. 350,
380 N.E.2d 1230 (1978).

'"See Harness v. Steele, 159 Ind. 286, 64 N.E. 875 (1902); Grooms v. Fervida, 396
N.E.2d 405 (Ind. Ct. App. 1979).

"^See Robinson v. State, 260 Ind. 517, 297 N.E.2d 409 (1973).

'*'See Ind. Code § 34-1-57-1 (1982); Glispie v. State, 412 N.E.2d 234 (Ind. 1980).

"^Act of May 5, 1981, Pub. L. No. 298, § 5, 1981 Ind. Acts 2314, 2382 (codified
at Ind. Code § 35-36-8-1 (1982)).

'"Act of April 23, 1973, Pub. L. No. 325, § 4, 1973 Ind. Acts 1750, 1794 (repealed
1982). This is now called a pre-trial hearing and is governed by Ind. Code § 35-36-8-3
(1982).

'"Ind. Code § 35-36-8-l(a) (1982).

140 INDIANA LAW REVIEW [Vol. 16:119

mined from the completion date of the initial hearing in both felony
and misdemeanor cases, unless the defendant in a felony case moves
for an early trial under Criminal Rule 4(B), or the parties in a misde-
meanor case agree on an earlier date.^^°

In a felony case, within ten days after the first attorney has
entered an appearance for the defendant or within twenty days after
the completion of the initial hearing, whichever occurs first, the trial
court will set an omnibus date and have his clerk notify all counsel
of record of the omnibus date/^^ The statute provides:

The omnibus date shall be no earlier than forty-five (45) days,
and no later than sixty-five (65) days after the first counsel
for the defendant has entered his appearance. If counsel has
not entered an appearance on behalf of the defendant, the om-
nibus date shall be no earlier than fifty-five (55) days, and no
later than seventy-five (75) days, after completion of the in-
itial hearing.^^^

This date remains the omnibus date for the felony case until the final
disposition of the case, and the trial date is set after the omnibus
date but within 140 days after the initial hearing,^^^ unless the defend-
ant requests an early trial under Criminal Rule 4(B).^^'' In a misde-
meanor case, the court will set the omnibus date, which will also be
the trial date, at the initial hearing, and the date will be "no earlier
than thirty (30) days (unless the defendant and the prosecuting at-
torney agree to an earlier date), and no later than sixty-five (65) days,
after the initial hearing."^^^ It should be noted that, as in other parts
of the procedure code, felony procedures will be followed if even one
felony charge is combined with misdemeanor charges.

This statutory scheme for setting the omnibus date may have the
effect of delaying the formal appearance of counsel in felony cases.
Two hypotheticals will illustrate this effect. In the first hypothetical,
defendant A is arrested and is immediately released on bond. His in-
itial hearing must be held within twenty days.^^^ At the initial hear-

^^/d. §§ 35-36-8-1, -4.
'^Hd. § 35-36-8-l(a).

'^Id. § 35-36-8-4.

'^See IND. R. Cr. P. 4(B). The code provides:

If a defendant . . . requests a trial within seventy (70) calendar days in accord-
ance with Criminal Rule 4 . . . then the court shall immediately set the case
for trial on a date that is within seventy (70) days after the date of the re-
quest, and the court shall reset the omnibus date if the omnibus date is beyond
the trial date.
iND. Code § 35-36-8-l(b) (1982).

^^^ND. Code § 35-36-8-l(c) (1982).
'""Id. §§ 35-33-7-1(2), -4.

1983] SURVEY -CRIMINAL LAW 141

ing, he is advised that the has twenty days to retain counsel if he
is able to do so/^^ If an attorney has not entered an appearance for
the defendant, the court must set the day for determining the om-
nibus date within twenty days after the initial hearing.^^^ If the defend-
ant's attorney enters his appearance on the twentieth day after the
initial hearing, the omnibus date will be between forty-five and sixty-
five days from the date the appearance was entered. ^^^ Assuming that
the maximum time periods permitted by the new procedure code have
been utilized, the omnibus date in this hypothetical will be between
eighty-five and one hundred and five days after the defendant's arrest.

In the second hypothetical, defendant B is arrested for a felony
and is immediately released on bond. His attorney enters an appear-
ance the same day. Now, the time for setting the omnibus date must
be within ten days.^^° The court, in the interest of judicial efficiency,
probably will set the initial hearing date for the same day on which
the omnibus date will be set. Because the omnibus date must be be-
tween forty-five days and sixty-five days after the formal appearance
of counsel, ^^^ the omnibus date in this hypothetical will be within fifty-
five to seventy-five days after the defendant is arrested. These
hypotheticals illustrate that a sixty-day difference in the omnibus date
is possible, if there is a delayed entry of appearance of counsel.
However, the attorney may be unwise to delay entering an appearance
solely to gain more time, especially because the trial date for a felony
is set relative to the initial hearing, and not the omnibus date.

The importance of the omnibus date is its effect on the timing
for filing motions. Under the new procedure code, the "indictment or
information may be amended in matters of substance or form" at any
time until thirty days before the omnibus date in a felony case and
until fifteen days before the omnibus date in a misdemeanor case.^^^
Motions to dismiss a criminal charge based on certain statutory
grounds for dismissal must be filed twenty days before the omnibus
date in a felony case, and ten days before the omnibus date in a misde-
meanor case.^^^ Therefore, if a prosecuting attorney waits until thirty
days before an omnibus date to amend a charge in a felony case, then

''Ud. § 35-33-7-5(l)(A).

'''Id. § 35-36-8-l(a)(2).

'^^Id. § 35-36-8-l(a). Although the trial court may set an omnibus date before the
20 days have elapsed, it may be wise for the trial court to wait until the end of the
defendant's 20-day period for retention of counsel before setting the omnibus date.

'""Id. S 35-36-8-l(a)(l).

'''Id. § 35-36-8-l(a).

'^^IND. Code § 35-34-l-5(b) (1982).

'^Hd. § 35-34-l-4(b). Motions to dismiss based on lack of subject matter jurisdiction
may be made at any time and certain specified statutory grounds may be made any
time before or during trial. Id.

142 INDIANA LAW REVIEW [Vol. 16:119

the defense counsel will have only ten days in which to file a motion
to dismiss before certain statutory grounds for dismissal will be held
to be waived. However, the code does state that "the court shall, upon
motion by the defendant, order any continuance of the proceedings
which may be necessary to accord the defendant adequate opportun-
ity to prepare his defense" when the prosecutor has made an
amendment. ^^'^

Although the omnibus date is supposed to be fixed, it is unclear
whether this language in the code would permit the trial court to con-
tinue the omnibus date, or whether this language is simply meant to
permit a continuance of the trial. Similar language, found in prior In-
diana statutes, ^^^ has been considered primarily in the context of a
continuance of a trial date. The Indiana Supreme Court has held that
it is within the discretion of the trial court to determine whether such
a continuance is necessary, and if the amendment is only minor or
technical in nature, the trial court can deny the continuance. ^^^ Follow-
ing this line of reasoning, it is likely that the omnibus date is intended
to remain fixed, but that the trial date may be continued if the amend-
ment to the criminal charge requires additional time to prepare a
defense.

Notice of a defendant's intent to offer an insanity defense^®^ or
notice of an alibi^^^ must be filed within twenty days of the omnibus
date in a felony case, and within ten days of the omnibus date in a
misdemeanor case. The time period for the prosecutor's response to
the defendant's alibi notice is relative to the date of the defendant's
notice, not to the omnibus date.^^^ As under prior law, the defendant
may plead an insanity defense at any time before trial "in the interest
of justice and upon a showing of good cause."^^° The court can schedule
a pre-trial conference on the omnibus date or on any other date before
trial.^^^ Motions for change of judge continue to be governed by
Criminal Rule 12 and are not linked to the omnibus date."^

The concept of an omnibus date is designed to introduce some
certainty and streamlining into Indiana criminal procedure, and to
avoid endless continuances of pre-trial procedures. However, a flexi-

''*Id. § 35-34-l-5(d).

'''See, e.g., Ind. Code § 35-3.1-l-5(d) (Supp. 1981) (repealed 1982).

'''E.g., Highsaw v. State, 269 Ind. 458, 460-61, 381 N.E.2d 470, 471 (1978), cert,
denied, 442 U.S. 941 (1979); see Henderson v. State, 173 Ind. App. 505, 507-08, 364 N.E.2d
175, 177 (1977); Lemont v. State, 168 Ind. App. 486, 488, 344 N.E.2d 88, 90 (1976).

'"See Ind. Code § 35-36-2-1 (1982).

"'See id. § 35-36-4-1.

'"Id. S 35-36-4-2(b).

"'Id. § 35-36-2-1.

"'Id. § 35-36-8-3(a).

"Ud. S 35-36-5-1.

1983] SURVEY-CRIMINAL LAW 143

ble omnibus date would be not only desirable, but perhaps necessary,
when a prosecuting attorney files a felony charge, dismisses it, and
then refiles the same charge or additional charges. In this situation,
there is a question whether a new initial hearing date and a new om-
nibus date will be set. This question will be critical when the time
periods of Criminal Rule 4(C) are close at hand.^^^ When the omnibus
date is not less than forty-five days after the appearance of counsel
or not less than fifty-five days from the initial hearing, then the om-
nibus date might place the trial date beyond the periods of Criminal
Rule 4(C) and might entitle the defendant to a discharge. If the defend-
ant did not object to the omnibus date being beyond the Criminal Rule
4 time limits, he would waive his right to a discharge. ^^'^ However,
if the defendant did object, the trial court would be in a quandary.

A trial court faced with this situation should follow the dictates
of Criminal Rule 4 and accelerate the omnibus date to comply with
Criminal Rule 4. Because Criminal Rule 4 is designed to implement
the constitutional right to a speedy trial and is essentially a matter
of procedure, the time periods of Criminal Rule 4 should control when
a conflict arises between the setting of an omnibus date and the speedy
trial provisions of Criminal Rule 4.^^^

Finally, the fact that the omnibus date sets the time limits for
their withdrawal from the case is of importance to defense attorneys.
An attorney for an alleged felon may withdraw at any time up to
thirty days before the omnibus date, without giving any reason for
the withdrawal. ^^® However, the trial court must permit counsel to
withdraw at any time in the event that at least one of the following
five situations occur:

(1) he has a conflict of interest in continued representation of
the defendant;^"

(2) other counsel has been retained or assigned to defend the
case, substitution of new counsel would not cause any delay

'''See IND. R. Crim. P. 4(C); see also State v. Tharp, 406 N.E.2d 1242 (Ind. Ct. App.
1980).

'''See Arch v. State, 269 Ind. 450, 381 N.E.2d 465 (1978).

"'See State ex rel. Uzelac v. Lake Criminal Court, 247 Ind. 87, 212 N.E.2d 21 (1965).

'^'IND. Code § 35-36-8-2(a) (1982).

'"/g^. § 35-36-8-2(b)(l). The most commonly occurring potential conflict of interest
facing defense attorneys appears to be the representation of co-defendants by one at-
torney. See, e.g., Cuyler v. Sullivan, 446 U.S. 335 (1980); Holloway v. Arkansas, 435
U.S. 475 (1978); Dean v. State, 433 N.E.2d 1172 (Ind. 1982); Ross v. State, 268 Ind. 608,
377 N.E.2d 634 (1978), rev'd sub nom. Ross v. Heyne, 638 F.2d 979 (7th Cir. 1980).
However, ethical conflicts that would deny an accused the effective assistance of counsel
may arise in other contexts. See, e.g., Wood v. Georgia, 450 U.S. 261 (1981); Cowell
V. State, 416 N.E.2d 839 (Ind. 1981); Brown v. State, 385 N.E.2d 1148 (Ind. 1979).

144 INDIANA LAW REVIEW [Vol. 16:119

in the proceedings, and the defendant consents to or re-
quests substitution of the new counsel;^^^

(3) the attorney-client relationship has deteriorated to a point
such that counsel cannot render effective assistance to the
defendant;^^^

(4) the defendant insists upon representing himself and he
understands that the withdrawal of counsel will not be per-
mitted to delay the proceedings;^®" or

(5) there is a manifest necessity requiring that counsel
withdraw from the case.^®^

The new code also provides that the court may not permit defense
counsel to withdraw within thirty days of the omnibus date solely for
the reason that the attorney's fee has not been paid.^®^

^'«lND. Code § 35-36-8-2{b)(2) (1982). Although the defendant has a constitutional right
to the assistance of counsel, his right to a particular attorney is not absolute and un-
qualified. He must exercise his right to select an attorney at an appropriate stage
of the proceedings, and the freedom of choice of counsel may not be manipulated to
subvert the orderly procedure of the court or to interfere with the fair administration
of justice. Therefore, a trial court, in its discretion, may refuse to replace counsel dur-
ing or immediately before trial, when that substitution would require the court to grant
a continuance. Vacendak v. State, 431 N.E.2d 100 (Ind. 1982); Duncan v. State, 412 N.E.2d
770 (Ind. 1980); Morgan v. State, 397 N.E.2d 299 (Ind. Ct. App. 1979).

"®Ind. Code § 35-36-8-2(b)(3) (1982). Certainly, situations may arise in which there has
been a total breakdown in communications between a defendant and his attorney that
would render any assistance ineffective by that attorney. However, if a trial court
determines that the conflict with the attorney would not unduly affect his representa-
tion and the defendant attempts to make a substitution immediately before trial, the
court may still deny the substitution. See Harris v. State, 427 N.E.2d 658 (Ind. 1981);
Harris v. State, 416 N.E.2d 902 (Ind. Ct. App. 1981).

^^^'IND. Code § 35-36-8-2(b)(4) (1982). The defendant has a constitutional right to repre-
sent himself as long as the choice is made knowingly and intelligently. Faretta v. Califor-
nia, 422 U.S. 806 (1975). A trial court must take considerable pains to insure that a
defendant understands the dangers of self-representation. See Phillips v. State, 433
N.E.2d 800 (Ind. Ct. App. 1982); Nation v. State, 426 N.E.2d 436 (Ind. Ct. App. 1981).
A trial court might appoint the defendant's former counsel as "standby counsel" when
the defendant elects to represent himself, see German v. State, 268 Ind. 67, 373 N.E.2d
880 (1978), although there is no constitutional right to hybrid representation. See Lock
v. State, 403 N.E.2d 1360 (Ind. 1980).

^'^Ind. Code § 35-36-8-2(b)(5) (1982). The term "manifest necessity" is not defined and
is probably designed to be vague. It should certainly include situations where the defend-
ant's attorney, or perhaps the attorney's family, is experiencing a serious illness. Cf.
White V. State, 414 N.E.2d 973 (Ind. Ct. App. 1981) (appellants denied effective assistance
of counsel when defense counsel had serious heart trouble before and throughout trial).

'^Ind. Code § 35-36-8-2(c) (1982). The new procedure code erroneously provides "prior
to the waiver date" instead of "prior to the omnibus date." There is no such term
as "waiver date" in the new procedure code and the body of this statutory section
is obviously tied to the "omnibus date."

1983] SURVEY -CRIMINAL LAW 145

D. Indictments and Informations

Most of the changes that the new procedure code has made regard-
ing indictments and informations are only minor technical or language
changes; however, there are a few changes of importance/^^

First, the new code provides that a motion to dismiss a criminal
charge must be made no later than twenty days prior to the omnibus
date in a felony case, or ten days prior to the omnibus date in a misde-
meanor case.^®'' A motion that is not made within the statutory time
period may be denied summarily if: (1) the charge is defective, that
is, the charge does not conform substantially with the statutory form
of a charge, the allegations demonstrate that the court is without
jurisdiction of the crime, or the statute defining the offense is un-
constitutional, (2) there is a misjoinder of defendants or duplicitous
allegations, (3) the grand jury proceeding was defective, (4) the facts
stated do not state the offense with sufficient certainty, or (5) the facts
stated do not constitute an offense/^^ A motion to dismiss that is based
on the defendant's alleged immunity, on double jeopardy, on a viola-
tion of the statute of limitations, on a denial of a speedy trial, on a
lack of jurisdiction, or on "any other ground that is a basis for
dismissal as a matter of law" may be made or renewed at any time
before or during trial. ^®^ The absence of subject matter jurisdiction
may be raised at any time, including after trial/*^

Under prior law, motions to dismiss that were based upon any
of the first five grounds recited above had to be made "prior to ar-
raignment and plea" or the defendant faced summary denial/^^ In prac-
tice, this led to the continuances of arraignments and pleas in order
to allow for the preparation of motions to dismiss based on those
grounds. Now, arraignment is no longer a part of Indiana criminal
procedure. Under the new code, the motion to dismiss must be filed
twenty days before the omnibus date, which is set in relation to the
formal appearance of counsel or the initial hearing.

The procedure code also adds a new ground for a motion to
dismiss: "Any other ground that is a basis for dismissal as a matter
of law."^^^ By its very terms, this provision adds nothing to the law

"^The provisions of the new procedure code dealing with indictment and informa-
tion are codified at Ind. Code §§ 35-34-1-1 to -19 (1982) (previously codified at id.
SS 35-3.1-1-1 to -18 (Supp. 1981) (repealed 1982)).

'«*lND. Code § 35-34-l-4(b) (1982).

'''Id. § 35-34-l-4(a), (b).

'''Id.

''Ud. § 35-34-l-4(b)(2).

'''See Ind. Code § 35-3.M-4(b) (Supp. 1981) (repealed 1982).

7rf. § 35-34-l-4(a)(ll) (1982).

146 INDIANA LAW REVIEW [Vol. 16:119

because only issues that are already recognized grounds for dismissal
are included. The provision is purposely vague, but several generally
recognized bases for potential dismissal of charges exist, including en-
forcement of a plea agreement, ^^° selective prosecution, ^^^ prosecutorial
"vindictiveness,"^^^ and destruction of material evidence. ^^^

Another change is that the new code allows an indictment or in-
formation to be amended "in matters of substance or form" at any
time up to thirty days before the omnibus date in a felony case, or
fifteen days before the omnibus date in a misdemeanor case, upon giv-
ing notice to the defendant. ^^'^ Prior law provided that an amendment
in a matter of substance had to be made before the arraignment. ^^^

A change of equal, if not greater, significance is the repeal of the
code section that stated that an indictment or information could never
be amended to change the theories of prosecution or to change the
identity of the crime charged, and could not be amended after arraign-
ment to cure a legal insufficiency or a failure to state a crime. ^^^ In
a recent case decided under the prior statute, the Indiana Supreme
Court criticized the prior statute and stated that, absent these provi-
sions, a party should be able to amend a charge, even as to theory
and identity, when the result will not prejudice the defendant's
rights.^^' It appears that under the new code, the trial judge apparently
will have the discretion to determine whether an amendment pre-
judices the rights of the defendant.

'^See Santobello v. New York, 404 U.S. 257 (1971); State v. Groat, 412 N.E.2d 323
(Ind. Ct. App. 1980).

'''See Yick Wo v. Hopkins, 118 U.S. 356 (1886); Smith v. State, 422 N.E.2d 1179
(Ind. 1981); Lee v. State, 397 N.E.2d 1047 (Ind. Ct. App. 1979); Annot., 95 A.L.R.3d
280 (1979); 4 A.L.R.3d 404 (1965).

''^Compare Cherry v. State, 414 N.E.2d 301 (Ind. 1981), cert, denied, 453 U.S. 946
(1982) with Bates v. State, 426 N.E.2d 404 (Ind. 1981) and Worthington v. State, 409
N.E.2d 1261 (Ind. Ct. App. 1980); compare Blackledge v. Perry, 417 U.S. 21 (1974) with
United States v. Goodwin, 102 S. Ct. 2485 (1982).

'^^The negligent or intentional destruction or withholding of material evidence by
the police or prosecutor may deny a defendant due process and be reversible error.
See Birkla v. State, 263 Ind. 37, 42, 323 N.E.2d 645, 648, cert, denied, 423 U.S. 853 (1975);
Cox V. State, 422 N.E.2d 357, 364 (Ind. Ct. App. 1981); Ortez v. State, 165 Ind. App.
678, 684, 333 N.E.2d 838, 841 (1975). "The burden of proving materiality is on the defend-
ant unless it is self-evident or unless such a showing is prevented by the destruction
of the evidence itself." Cox v. State, 422 N.E.2d at 364. However, if the defendant
claims that a sloppy police investigation led to suppression of evidence he must be
able to point to specific evidence that was lost or destroyed. See Rowan v. State, 431
N.E.2d 805, 819 (Ind. 1982). Cf. Schutz v. State, 413 N.E.2d 913, 916 (Ind. 1981) ("[tjhe
defense has ample opportunity to correct any such omission through independent in-
vestigations, depositions and cross-examination").

'»*IND. Code § 35-34-l-5(b) (1982).

'''See id. § 35-3.1-l-5(b) (Supp. 1981) (repealed 1982).

""Id. § 35-3.1-l-5(e).

^^Trotter v. State, 429 N.E.2d 637, 640-41 (Ind. 1981).

1983] SURVEY-CRIMINAL LAW 147

Under the new code, amendments of ''substance"'^* can be made
up to thirty days prior to an omnibus date in a felony case. Immaterial
defects or a defect "which does not prejudice the substantial right
of the defendant"'^^ can be amended at any time and the trial court
may permit a continuance to enable the defendant to prepare his
defense to this kind of amendment.^^" Therefore, it is difficult to see
how the defendant could be seriously prejudiced in the preparation
of his defense by the amendment of the criminal charges under the
new code.

E. Public Trial— Closure

The law concerning public and press access to criminal proceedings
has developed rapidly in the courts these past few years. ^"^ This year,
the Indiana legislature has enacted legislation, which became effec-
tive September 1, 1982, that is designed to regulate public access to
criminal proceedings.^^^

The law declares that criminal proceedings are presumptively open
to attendance by the general public.^"^ The term "criminal proceeding"
is defined to mean the court proceedings in a criminal action that oc-
cur after the arrest of an accused and before any appeal is
commenced.^""* Criminal proceedings do not include jury deliberations,
omnibus hearings, except when witnesses are sworn in and their
testimony is taken, or "any proceeding in which rights of attendance
by the general public are otherwise specifically governed by statute
or rules of procedure. "^°^ Because there is a requirement for grand
jury secrecy, the public will not have access to grand jury
proceedings.^"^ Juvenile proceedings have their own secrecy provisions
and are not generally considered criminal proceedings.^'^^ The public
will not have access to discovery depositions^"* because they are not

'^^"Matters of substance" versus "matters of form" can be confused, sometimes,
as changing the "identity of the offense" or "theory of the prosecution." See Hender-
son V. State, 403 N.E.2d 1088 (Ind. 1980); Evans v. State, 393 N.E.2d 246 (Ind. Ct. App.
1979).

"«lND. Code § 35-34-l-5(a)(9) (1982).

'''Id. § 35-34-l-5(a), (d).

'''See, e.g., Globe Newspaper Co. v. Superior Court, 102 S. Ct. 2613 (1982); Rich-
mond Newspapers, Inc. v. Virginia, 448 U.S. 555 (1980); Gannett Co. v. DePasquale, 443
U.S. 368 (1979); State ex rel. Post-Tribune Publishing Co. v. Porter Superior Court,
412 N.E.2d 748 (Ind. 1980).

^"^Act of Feb. 24, 1982, Pub. L. No. 40, § 1, 1982 Ind. Acts 432 (codified at Ind.
Code §§ 5-14-2-1 to -10 (1982)).

^''^IND. Code § 5-14-2-2 (1982).

'"Id. § 5-14-2-1.

'''See id.

""Id. §§ 35-34-2-4(1), 35-34-2-10.

'"See id. § 31-6-7-10(b).

'"See id. § 31-6-7-11.

148 INDIANA LAW REVIEW [Vol. 16:119

really court proceedings.^"^ The public also would not be entitled to
be present at the obtaining of a search or arrest warrant, even if the
warrant were based on oral testimony, because a criminal proceeding
does not arise until after the accused is arrested. However, pro-
ceedings such as a bail hearing, an initial hearing, or a suppression
hearing would probably fall within the definition of the term "criminal
proceeding."

The new statute provides that no court may order the exclusion
of the "general public"^^'' from a criminal proceeding, or any part of
a criminal proceeding, unless the court first affords the parties and
general public a "meaningful opportunity to be heard."^" Whenever
exclusion or closure is sought, the court must set a hearing date suf-
ficiently in advance so that the parties and the general public can
prepare their pleadings and evidence and can have an opportunity to
file briefs on the proposed exclusion order.^^^ Depending upon when
a motion for exclusion is filed, this statutory provision may require
a continuance of the trial date so that a hearing on the exclusion
motion can be held. Nevertheless, the statute does state that "[t]he
time for the hearing date shall not be extended, however, so that it
imposes an unreasonable delay under the circumstances of the case."^^^

F. Crimes

The next sections of this Survey Article will touch briefly on some
of the major cases decided by Indiana appellate courts during the
survey period. Additionally, new criminal statutes that are relevant
to these major cases will be discussed, including some portions of the
new procedure code which were not discussed earlier.

Several major decisions were handed down during the past survey
period which clarified the definition of certain offenses under the 1977
penal code and discussed some of the basic principles of criminal law.
In Markley v. State,^^"^ the defendant, who was charged with battery
as a Class C felony, argued that the State failed to prove that he in-
tentionally or knowingly inflicted serious bodily injury. The battery
statute provides that a person who knowingly or intentionally touches
another in a rude, insolent, or angry manner commits a battery; a
Class C felony is committed if the touching results in serious bodily

'"'See United States v. United Shoe Machinery Co., 198 F. 870 (D. Mass. 1912).

^^"The term "general public" is defined to mean "any individual or group of in-
dividuals, but does not include the parties to the criminal action." Ind. Code § 5-14-2-1
(1982).

'''Id. S 5-14-2-3.

'''Id. § 5-14-2-4.

"Ud.

^"421 N.E.2d 20 (Ind. Ct. App. 1981).

1983] SURVEY-CRIMINAL LAW 149

injury .^^^ The basic culpability statute in the penal code provides that
if a kind of culpability is required for the commission of an offense,
that same culpability is required with respect to every material ele-
ment of the prohibited conduct.^^^ To elevate the battery offense to
a Class C felony, the defendant in Markley argued that the state must
prove that serious bodily injury was intentionally and knowingly in-
flicted because ''serious bodily injury" is an element of the crime. The
court of appeals, however, concluded that it need not be shown that
the defendant intentionally or knowingly inflicted serious bodily
injury .^^^ The court stated that the terms "prohibited conduct" and
"element" in the culpability statute are not synonymous. Consequent-
ly, the court found that proof of serious bodily injury, if proven beyond
a reasonable doubt, enhances the penalty for battery, but no proof
of culpability is required with respect to this element.^^*

This decision was reinforced by the fact that the battery statute
itself did not require that the result of the battery be intended. It
was only the rude, insolent, or angry touching which had to be com-
mitted intentionally or knowingly. As many of the crimes in the penal
code provide for an enhanced penalty if the crime is committed while
armed or if serious bodily injury results from the crime, it is impor-
tant to remember the decision in Markley, which held that the ag-
gravating circumstances need not be committed knowingly, intention-
ally, or recklessly .^^^

In Swafford v. State,^^^ the Indiana Supreme Court adopted "brain
death" as an additional definition of death in homicide cases. The vic-
tim in Swafford was shot in the back of the head, with the bullet lodg-
ing near the center of the brain, close to the brain stem. Concerned
by the bullet's close proximity to the brain stem, the neurological
surgeons decided to defer any operation unless the victim's condition
deteriorated. The next night, the victim's heartbeat and respiration
stopped, his pupils became fixed and dilated, and he turned blue.
Resuscitative efforts restored the victim's heartbeat and respiration,
and the victim was placed on a mechanical ventilator.

The next day, the neurosurgeons made a preliminary diagnosis
that the victim's brain had died. The victim no longer responded to
painful external stimuli, and his spontaneous movements had ceased.
Two blood flow studies revealed no arterial flow of blood to the brain.

^>^IND. Code § 35-42-2-1(3) (Supp. 1979) (amended 1981 and currently codified at id.
§ 35-42-2-1(3) (1982)).

'''Id. § 35-41-2-2(d) (1982).

'"421 N.E.2d at 21.

'''Id.

''^See also Carty v. State, 421 N.E.2d 1151, 1155 (Ind. Ct. App. 1981).

220421 N.E.2d 596 (Ind. 1981).

150 INDIANA LAW REVIEW [Vol. 16:119

Based upon these factors, the neurosurgeons concluded that the vic-
tim had suffered irreversible cessation of all brain functions. After
consulting with family members, a neurosurgeon formally declared the
victim dead. The immediate cause of death listed on the death cer-
tificate was "brain death" caused by a gunshot wound to the head.
At the time he was formally declared dead, the victim's heartbeat
and respiration were being sustained by the mechanical ventilator.
However, there was no evidence in the record regarding the
withdrawal from the ventilator or the cessation of the victim's heart-
beat and respiration.

At trial, the medical experts, including the neurosurgeon who
declared the victim's death, defined brain death in terms of certain
clinical criteria that have been set forth by a committee at Harvard
Medical School.^^^ The neurosurgeon also testified concerning his two
confirmatory blood flow studies. The trial court then instructed the
jury that brain death could be considered death for the purposes of
the homicide statut'e.^^^

On appeal, the defendant argued that the evidence was insuffi-
cient to prove that the victim had "died" because death is legally de-
fined as the cessation of heartbeat and respiration; the defendant also
challenged the trial court's instruction on brain death. The supreme
court noted that no Indiana statute or judicial decree had ever defined
death. The defendant contended that the only acceptable definition
of death was that found in the fourth edition of Black's Law Dic-
tionary, which defines death as the stoppage of the circulation of the
blood and a cessation of vital functions such as respiration.^^ The
defendant argued that any other definition would constitute a retroac-
tive application of a new statutory construction, violating due process.
The supreme court rejected the defendant's position, stating that it

^^'The court set forth the Harvard criteria as: "(1) a total lack of responsitivity
to externally appUed stimuli (e.g., pinching) and inner need; (2) no spontaneous muscular
movements or respiration; and (3) no reflexes, as measured by a fixed, dilated pupil
and lack of ocular, pharyngeal, and muscle-tendon reflexes." 421 N.E.2d at 600. The
Harvard Committee also emphasized that a "flat" electroencephalogram reading when
conducted at 24-hour intervals would have great confirmatory value. See Ad Hoc Com-
mittee of the Harvard Medical School to Examine the Definition of Brain Death, A
Definition of Irreversible Coma, .205 J. A.M.A. 337 (1968).
^^^The instruction read to the jury was as follows:

If you find beyond a reasonable doubt that William Robinson had suffered
brain death before he was removed from the respirator, then the state has
satisfied the essential element of the crime of murder requiring proof beyond
a reasonable doubt of the death of the victim. Brain death occurs when, in
the opinion of a licensed physician, based on accepted medical standards, there
has been a total and irreversible cessation of spontaneous brain functions
and further attempts at resuscitation or continued supportive maintenance
would not be successful in restoring such functions.
421 N.E.2d at 598 n.l.

^''See Blacks Law Dictionary 488 (4th ed. 1968).

1983] SURVEY-CRIMINAL LAW 151

would have had some validity only if the definition in Black's had been
derived from common law or from the statutes of England before
1607.^" The supreme court also noted that the definition of death found
in the fifth edition of Black's Law Dictionary, which was published
prior to the events of this case, included a definition of death based
primarily on "brain death."^^^

The defendant further argued that, even if brain death is recog-
nized as death by a consensus of the medical community, the
legislature, not the court, must be the ones to adopt brain death as
a legal definition of death. Though the court encouraged the legislature
to adopt a statutory definition of death, the court declared that "we
are unable to ignore the advances made in medical science and
technology during the last two decades."^^® Accordingly, the court
stated:

Lest any confusion result, we recognize the following
definition of death for purposes of the law of homicide: An
individual who has sustained either (1) irreversible cessation
of circulatory and respiratory functions, or (2) irreversible cessa-
tion of total brain functions, is dead. A determination of death
must be made in accordance with accepted medical standards. ^'^'^

Based upon this definition of death, the court found that the
evidence was sufficient to prove that the victim had died. The court
also resolved another interesting question that arose in this case. To
be responsible for the death of a person, the defendant must inflict
injuries which contribute either mediately or immediately to death. ^^^
There was no evidence regarding the withdrawal of the ventilator in
this case; however, the court stated that the performance of the au-
topsy and the medical opinion that the gunshot wound caused brain
death were sufficient to prove that the defendant's actions were the
cause of the victim's death.^^^

The interpretations of criminal recklessness by the Indiana courts
have continued to supply interesting decisions during the survey
period.^^ In Williams v. State,^^^ the Indiana Supreme Court, by a three-

^'"421 N.E.2d at 598 (citing Ind. Code § 1-1-2-1 (1982)).

'^'Blacks Law Dictionary 170 (5th ed. 1979).

'^'421 N.E.2d at 602.

^^Ud. (citations omitted) (emphasis in original).

'''Id. (citing Bivans v. State, 254 Ind. 184, 258 N.E.2d 644 (1970); Reed v. State.
387 N.E.2d 82 (Ind. Ct. App. 1979)).

^'^421 N.E.2d at 602.

'""See Hergenrother v. State, 425 N.E.2d 225 (Ind. Ct. App. 1981) (intentional crossing
of center line held sufficient to support conviction for reckless homicide); Salrin v. State,
419 N.E.2d 1351 (Ind. Ct. App. 1981) (swerving across the center line twice and driv-
ing while intoxicated held sufficient to support conviction for reckless homicide).

^="423 N.E.2d 598 (Ind.), rev'g 415 N.E.2d 118 (Ind. Ct. App. 1981). For a discussion

152 INDIANA LAW REVIEW [Vol. 16:119

two majority, reversed the court of appeals' decision that had con-
victed the defendant truckdriver of criminal recklessness for striking
a bicyclist, based upon evidence of the truckdriver's intoxicated state.
Although the supreme court's reversal was based in part upon the
admission of a confession that the majority held the State failed to
prove was voluntary, the court held that the evidence presented to
prove criminal recklessness was insufficient.^^^ The majority opinion
said that, while evidence of intoxication could be considered in deter-
mining recklessness, intoxication alone was insufficient to prove
recklessness.^^^

In determining what evidence was sufficient to establish criminal
recklessness, the majority in Williams relied upon a prior supreme
court decision, DeVaney v. StateP^ In DeVaney, a pre-penal code case,
the defendant had been convicted of both reckless homicide and caus-
ing the death of another while driving under the influence of intox-
icating liquor. At the time of the DeVaney case, both the crimes of
reckless homicide and causing death while driving under the influence
were contained in the same statute.^^^ In dismissing the charge for
reckless homicide, the supreme court in DeVaney found that the
evidence showing that the defendant driver crossed the center line
of the road and was intoxicated was not sufficient to sustain a convic-
tion of reckless homicide; however, the court allowed the defendant's
conviction for causing the death while driving intoxicated to stand.^^^
The DeVaney court's decision rested upon its interpretation of the
statute that contained both of these crimes, noting that if the same
evidence would result in a conviction for both crimes, then it would
be superfluous for a statute to have two provisions punishing iden-
tical conduct in the same way.^^^

The dissent in Williams v. State disagreed with the majority's
reliance on DeVaney. Chief Justice Givan, joined by Justice Pivarnik,
dissented, stating that the rationale behind the decision in DeVaney
was that the defendant would have been convicted of two crimes for
one offense if the convictions for both reckless homicide and driving
under the influence had been sustained.^^* Because Williams had been
convicted only of criminal recklessness, DeVaney was inapplicable to
the facts in WilliamsP^

of the appellate court's decision, see Lidke, Criminal Law and Procedure, 1981 Survey
of Recent Developments in Indiana Law, 15 Ind. L. Rev. 159, 173-74 (1982).

"M23 N.E.2d at 600.

'''Id.

=^^259 Ind. 483, 288 N.E.2d 732 (1972).

'''See Ind. Code § 9-4-1-54 (1976) (amended 1978).

='*^49 Ind. at 494, 288 N.E.2d at 739.

«"7rf. at 493, 288 N.E.2d at 738.

^«423 N.E.2d at 600.

1983] SURVEY-CRIMINAL LAW 153

In addition to the applicability of DeVaney, the strict standard set
by the majority opinion in the supreme court's decision in Williams
is questionable. By statute, "a person engages in conduct 'recklessly'
if he engages in the conduct in plain, conscious, and unjustifiable
disregard of harm that might result and the disregard involves a
substantial deviation from acceptable standards of conduct."^'*" Driv-
ing while intoxicated may not always meet this statutory requirement,
and at lower levels of intoxication, it might be wise to require some
evidence in addition to intoxication to show criminal recklessness.
However, the blood alcohol level of the driver in Williams was .37
percent, and such a high blood alcohol level should meet the statutory
definition of recklessness.

In a recent appellate case, the defendant attempted to assert a
novel defense to a crime. In State v. Dively,^^^ the defendant was
charged with breaking and entering into her husband's tavern with
the intent to commit the felony of theft. Although the defendant and
her husband were separated at the time of the alleged offense, the
defendant claimed interspousal immunity from prosecution for the
theft. The State proved that the tavern and its contents were the
separate property of the husband and that the wife had no interest
in that property. The trial court, however, dismissed the charge on
grounds of interspousal immunity, and the State appealed.

The court of appeals rejected the common law "unity theory" that
a husband and wife could not commit crimes against the property of
the other and ruled that interspousal immunity did not bar the defend-
ant's prosecution.^^^ The court noted the statutory exceptions to the
common law unity theory included in the Married Woman's Act,^*^
which was enacted to protect the property rights of a married woman.
The court then noted case law exceptions to interspousal immunity.
The court cited two early arson cases where, in each case, one spouse
burned the property of the other spouse and was held to have com-
mitted arson.^** The court also cited a larceny case which held that
a husband cohabiting with his wife could be found guilty of larceny
of her separate property .^"^ The court in Dively stated that the 1977
penal code did not intend to change these principles. Thus, the court
refused to hold that, as a matter of law, a person could not commit
an offense against the property of his or her spouse.^^^

^^^IND. Code § 35-41-2-2(c) (1982).
^"1431 N.E.2d 540 (Ind. Ct. App. 1982).
^'Ud. at 543.

2"lND. Code §§ 31-1-9-1 to -16 (1982).

^**See Jordan v. State, 142 Ind. 422, 41 N.E, 817 (1895); Garrett v. State, 109 Ind.
527, 10 N.E. 570 (1886).

'*'See Beasley v. State. 138 Ind. 552, 38 N.E. 35 (1894).
'*M31 N.E.2d at 543. Specifically, the court stated that:
We conclude that the mere fact of conjugal status does not preclude a spouse

154 INDIANA LAW REVIEW [Vol. 16:119

In Hill V. State,^'^'^ the Indiana Supreme Court construed the rob-
bery statute. In Hill, the defendant robbed a taxicab driver named
Williamson. Williamson began chasing the defendant and was joined
in the chase by a passer-by, Bartlett. Bartlett grabbed the defendant
and wrestled him to the ground. The defendant struck Bartlett on
the head with a toy gun, inflicting a small laceration, for which Bartlett
did not seek medical attention. The defendant was convicted of rob-
bery as a Class A felony.

The supreme court reversed the Class A felony conviction and
remanded the case for sentencing on a Class C charge. ^''^ The court
cited the statute which defined a robbery as a Class A felony when
"it results in either bodily injury or serious bodily injury to any other
person."^"*^ Citing its opinion in Clay v. State,^^ the court construed
this statute to mean that robbery is a Class A felony only when bodily
injury is inflicted on the victim of the robbery or when serious bodily
injury is inflicted on any other person. Because Bartlett- clearly did
not suffer serious bodily injury, the supreme court held that Bartlett's
injury could not be the basis for a finding of guilt on a Class A
charge. ^^^

This particular section of the robbery statute was amended this
year so that the statute now reads that robbery is a Class A felony
if it "results in either bodily injury or serious bodily injury to any
person other than a defendanf"^^^ If the legislature intended to alleviate
the Hill problem by the amendment, it did not appear to succeed.
Adding the phrase "other than a defendant" does not really change
the supreme court's interpretation of the robbery statute in Hill.

In State v. Gillespie,^^^ the Indiana appellate court faced another

as a matter of law from committing an offense, including burglary, against
the separate property of his or her spouse. We do not believe that the mere
existence of the marriage relationship puts a spouse's separate property
beyond the protection of the law and subject to the depredation of the other
spouse. We recognize that circumstances may exist in particular cases which,
as a matter of fact, will prevent an entry by a spouse into the spouse's
separate property from amounting to a burglary because the act may be the
result of express or implied permission.
Id.

^"^424 N.E.2d 999 (Ind. 1981).
'''Id. at 1000.

'"'Ind. Code § 35-42-5-1 (1976) (amended 1982). "Bodily injury" is defined as "any im-
pairment of physical condition, including physical pain," and "[slerious bodily injury"
is defined as "bodily injury that creates a substantial risk of death or that causes serious
permanent disfigurement, unconsciousness, extreme pain, or permanent or protracted
loss or impairment of the function of a bodily member or organ." Id. § 35-41-1-2 (1982).
'^''416 N.E.2d 842 (Ind. 1981).
2^424 N.E.2d at 1000.

'^'IND. Code § 35-42-5-1 (1982) (emphasis added).
'^'428 N.E.2d 1338 (Ind. Ct. App. 1981).

1983] SURVEY -CRIMINAL LAW 155

question that was resolved subsequently by recent legislation. In that
case, the defendant was charged with attempted dealing of a controlled
substance, heroin. It was stipulated by the parties that the substance
delivered was crushed common aspirin, and the defendant filed a
motion to dismiss. At the hearing on the motion to dismiss, the defend-
ant presented evidence that he had decided to teach an undercover
police officer a lesson; thus, the defendant crushed some aspirin, placed
it in a foil packet, and sold it to the undercover officer for $110. The
trial court dismissed the information, relying on the decision of the
Court of Appeals for the Fifth Circuit in United States v. Oviedo,^^"^
which was decided primarily on the common law defense of impossibil-
ity. In Gillespie, the court of appeals stated that the Indiana
Legislature has expressly rejected this type of impossibility defense.^^^
Under the relevant statute as it existed at the time, the fact that
an uncontrolled substance was delivered, standing alone, would not
preclude a charge of attempted delivery. ^^^ Therefore, the court held
that the charging information was sufficient to withstand a motion
to dismiss, even with the stipulation that the substance was aspirin.^"
However, the court of appeals agreed that, if the defendant's mens
rea was such that he intended to deliver aspirin, the defendant could
not be found guilty of the attempted delivery of heroin. Because the
defendant's "intent" was not stipulated, this was properly an issue
for the trier of fact.

Subsequent to the decision in Gillespie, the Indiana legislature
enacted legislation to remedy the gap in the law that was noted by
the court in Gillespie. The new statutory provision makes it a Class
D felony to knowingly or intentionally deliver any substance that one
represents to be a controlled substance.^^*

G. Search and Seizure

Several of the more interesting search and seizure cases in the
past year involved the waiver of search and seizure rights by juveniles.
In Williams v. State,^^^ the supreme court considered the admissibil-

'^525 F.2d 881 (5th Cir. 1976). The Fifth Circuit reversed the conviction in Oviedo,
where a defendant believed he was delivering heroin but in fact delivered procaine
hydrochloride, an uncontrolled substance, because the objective acts performed by the
defendant must mark the defendant's conduct as criminal. But cf. United States v. Qui-
jada, 588 F.2d 1253 (9th Cir. 1978) (defendant can be convicted of attempted distribu-
tion of cocaine even though the substance he offered to sell was a noncontrolled
substance).

"^428 N.E.2d at 1339 (citing Ind. Code § 35-41-5-l(b) (1982)).

^"^See Ind. Code § 35-48-4-2 (Supp. 1979) (amended 1981).

^"428 N.E.2d at 1340.

'''See Act of April 13, 1981, Pub. L. No. 305, § 1, 1981 Ind. Acts 2402 (emphasis
added) (codified at Ind. Code § 35-48-4-4.5 (1982)).

^^^33 N.E.2d 769 (Ind. 1982).

156 INDIANA LAW REVIEW [Vol. 16:119

ity of certain evidence that was obtained in a search consented to
by the defendant's juvenile half-brother. Although the court found that
the juvenile's waiver was invalid and the evidence thus improperly
admitted, the court upheld the defendant's conviction of attempted
murder.^^"

In this case, after receiving information of a shooting and the vic-
tim's description of the defendant who was wounded in the exchange
of gunfire, the police located the defendant at a local hospital. Upon
arriving at the hospital, a police officer encountered the defendant's
seventeen-year-old half-brother, Billingsley, in the emergency room
area. Billingsley, who had driven the defenjfiant to the hospital, was
arrested and transported to the police station. In the presence of his
father, Billingsley was questioned by the police. Billingsley told the
police that Williams said he had shot himself with a handgun and that
Williams had asked Billingsley to place the gun under a sofa cushion
in the apartment which the two shared. With his father present, Bill-
ingsley was informed of his rights as a juvenile, and then Billingsley
executed a standard consent to search form. After receiving the con-
sent to search, the police went to the apartment and seized the hand-
gun, which contained four bullets and a spent shell casing.

The Indiana Supreme Court initially determined that Billingsley
had authority to consent to the search of the apartment.^^^ The more
difficult question for the court was whether Billingsley was afforded
an opportunity for a "meaningful consultation" with his father before
waiving his rights and giving his consent to the search. This issue
was premised on Indiana Code section 31-6-7-3(a)(2)(C) which provides
that "any rights guaranteed to the child under the Constitution of
the United States, the Constitution of Indiana, or any other law may
be waived only: ... (2) by the child's custodial parent, guardian, custod-
ian or guardian ad litem if: ... (C) meaningful consultation has occurred
between that person and the child."^^^ This section of the Indiana
Juvenile Code imposes the "meaningful consultation" requirement on
a juvenile's waiver of any constitutional or statutory right and is
designed to codify Indiana case law regarding the waiver of rights
by juveniles.^^^ However, the juvenile waiver cases, prior to the enact-
ment of the juvenile code in 1979, dealt with the waiver of rights
before giving a confession or an incriminating statement. .

Relying on cases decided before the enactment of the new juvenile
code,^^^ the court in Williams said that the State bears a heavy burden

'''Id. at 771.

^^^IND. Code § 31-6-7-3(a) (1982).

2«^lND. Code Ann. § 31-6-7-3 commentary at 303 (West 1979).
'''See, e.g., Bluitt v. State, 269 Ind. 438, 381 N.E.2d 458 (1978).

1983] SURVEY-CRIMINAL LAW 157

of proving the requirement of meaningful consultation. The court found
that, in this case, the State had failed to meet this heavy burden
because there was no evidence that the atmosphere surrounding the
questioning of Billingsley was "free of the inherently coercive nature
normally present in custodial surroundings."^^^ Also, there was no
evidence that any consultation occurred between Billingsley and his
father, or that Billingsley waived the right to a meaningful consulta-
tion.^^^

As a consequence of the court's finding that the waiver was inef-
fective, the gun and bullets that were found during the unconsented
search were improperly admitted into evidence.^®^ Despite this failure
to comply with the juvenile code, the supreme court concluded that,
because of the unequivocal identification of Williams by the victim,
the error was harmless beyond a reasonable doubt^^* under the deci-
sion of Chapman v. California.^^^

In addition to the specific holding in Williams, there are several
interesting aspects to the case. First, Williams was asserting the viola-
tion of the juvenile rights of another person to seek the exclusion of
evidence from his trial. Second, the Indiana Supreme Court relied on
cases decided before the juvenile code was enacted to construe the
meaningful consultation requirement in the statute. This reliance is
reasonable because the statute is essentially a codification of prior
case law. However, the court commented in a footnote that the
statutory provision might preempt a prior case law determination that
a lack of meaningful consultation or opportunity for such consultation
might not render a waiver of rights invalid per se."*^ By this admoni-
tion, the court suggests that much of the case law concerning juvenile
matters developed before the enactment of the juvenile code could
be eradicated by the juvenile code.^^^ If this occurred, it would be un-
fortunate because the court has developed reasonable exceptions to
the juvenile waiver requirements. For example, when a suspect tells
the police that he is over eighteen years of age and, relying on that
representation, the police do not follow juvenile waiver standards, the

^«^433 N.E.2d at 773.

^^®A juvenile is permitted by statute to waive the right to meaningful consulta-
tion with his parent if the waiver is made in the presence of the parent and is made
knowingly and voluntarily. Ind. Code § 31-6-7-3(b) (1982). As the supreme court in
Williams noted, this engrafted a new provison regarding the waiver of juvenile rights,
on the court's decision in Lewis v. State, 259 Ind. 431, 288 N.E.2d 138 (1972). 433 N.E.2d
at 772.

'«M33 N.E.2d at 773.

'''Id.

^««386 U.S. 18 (1967).

'"See 433 N.E.2d at 772 n.l.

'''See also Ind. Code Ann. § 31-6-7-3 commentary at 303 (West 1979).

158 INDIANA LAW REVIEW [Vol. 16:119

court has held that a confession is still admissible. ^^^ Whether the solidi-
fying of juvenile waiver requirements in a statute will stultify the
development of common sense exceptions remains to be seen.

Another juvenile case involving the waiver of rights is Deckard
V. State.^''^ The facts in Deckard indicated that a juvenile, Moore, was
temporarily residing at the defendant's house trailer. Moore had
previously signed a waiver of his fourth amendment rights as a con-
dition of probation after an informal delinquency determination.
Moore's mother and his probation officer were present when Moore
signed the waiver, but Moore's mother did not sign it. Utilizing
Moore's waiver, the police searched the defendant's house trailer and
discovered marijuana. The court of appeals held that the waiver was
not properly executed under the juvenile code because the mother,
though present, did not sign the waiver."^

In Chambers v. State,'^'^^ the Indiana Supreme Court made an in-
teresting distinction betweeen two earlier Indiana court of appeals'
decisions and this case, in which the court upheld the conviction for
rape, robbery, and confinement. After the defendant in this case had
raped the victim, the defendant had removed the victim's military iden-
tification card. Subsequently, the victim received several telephone
calls from the defendant. After the police had arrested the defendant,^^^
they took him to the police station. There the defendant was asked
to surrender the contents of his pockets. The police received the
defendant's wallet and began to look through it for the victim's
military identification card. The police did not find the identification
card but did find a piece of paper with the victim's name, telephone
number, and address on it. This evidence was admitted at trial.

On appeal, the defendant argued that the search was illegal and
relied on two earlier court of appeals' cases, Bradford v. State^'^'^ and
Johnson v. State,^'^^ both of which involved the search of women's hand-
bags. However, the Indiana Supreme Court unanimously held that a
man's wallet is distinguishable from a lady's handbag.^^® The court said
that Bradford and Johnson were more similar to United States v.
Chadwick,^^^ because Chadwick concerned luggage or other personal

'''See Stone v. State, 268 Ind. 672, 377 N.E.2d 1372 (1978).

"^425 N.E.2d 256 (Ind. Ct. App. 1981).

'''Id. at 257. See Ind. Code § 31-6-7-3(a)(2) (1982). The court also held that the search
exceeded the scope of the waiver. 425 N.E.2d at 257.

^^^422 N.E.2d 1198 (Ind. 1981).

^^'*The identification procedure utilized in this case makes the case worth reading
for that reason alone.

"^401 N.E.2d 77 (Ind. Ct. App. 1980).

^^«413 N.E.2d 335 (Ind. Ct. App. 1980).

''M22 N.E.2d at 1202.

^«''433 U.S. 1 (1977).

1983] SURVEY-CRIMINAL LAW 159

property " 'not immediately associated with the person of the
arrestee' "^^^ The Indiana Supreme Court was aided in this decision
by a seventh circuit case,^^^ which had made a similar distinction. In
other words, the court in Chambers concluded that a woman's hand-
bag was like luggage, requiring a warrant to search it once the lug-
gage had been reduced to the custody of the police, but the search
of a man's wallet can be conducted without a warrant because it is
really a search of a part of his person.

The defendant also contended that the search of his wallet was
not truly a search incident to arrest because he was not ordered to
empty his pockets when he was first arrested. The court held,
nonetheless, that the search of the wallet after the defendant had been
transported to the police station "does not alter the fact that the
search was incident to the arrest."^^

H. Plea Bargaining— Guilty Pleas

In last year's Survey ,^^^ there was a discussion of the leading case
of Goldsmith v. Marion County Superior Court.^^^ In Goldsmith, the
Indiana Supreme Court clearly declared that a plea agreement be-
tween a prosecuting attorney and a criminal defendant that has been
accepted by the trial court is binding.^*^ Shortly after the supreme
court's decision, the court of appeals handed down a trio of cases that
elaborated upon the Goldsmith decision.

In Dolan v. State,^^'^ the defendant was charged with uttering a
forged prescription, while he was on probation for a prior conviction
of the same type of offense. The defendant pleaded guilty, and the
trial court accepted the parties' plea agreement that provided for a
three-year sentence for the defendant's previous violation and an ad-
ditional four-year sentence for the present charge, with the two
sentences to be served consecutively. On appeal, one of the arguments
raised by the defendant was that the trial court erred in not enter-
ing on the record the reasons for increasing the two-year presump-
tive sentence on the forged prescription charge to the maximum
allowable sentence of four years. The defendant contended that the

''•422 N.E.2d at 1203 (quoting United States v. Chadwick, 433 U.S. 1, 15 (1977)).

'^'United States v. Berry, 560 F.2d 861 (7th Cir. 1977), vacated on other grounds,
571 F.2d 2 (7th Cir.), cert, denied, 439 U.S. 840 (1978).

^«^422 N.E.2d at 1203.

^**Lidke, Criminal Law and Procedure, 1981 Survey of Recent Developments in In-
diana Law, 15 Ind. L. Rev. 159, 163 (1982).

'«'419 N.E.2d 109 (Ind. 1981).

^^Id. at 114. The pertinent statutes on plea agreements under present law are
Ind. Code §§ 35-35-3-1 to -7 (1982).

'«^420 N.E.2d 1364 (Ind. Ct. App. 1981).

160 INDIANA LAW REVIEW [Vol. 16:119

statute required the trial record to include the aggravating cir-
cumstances that precipitated the imposition of the maximum
sentence. ^^®

The court of appeals noted that a trial court is required by statute
to list "the aggravating and mitigating circumstances" that influence
its choice of sentence.^*^ However, the court found that the trial court
must recite its reasons for giving an enhanced sentence above the
presumptive sentence only when the court is exercising its discretion
in sentencing.^^" In Dolan, the trial court had the discretion to either
accept or reject the plea agreement. Relying on Goldsmith, the court
in Dolan stated that once the trial court had exercised its discretion
and accepted the plea agreement, then the court was bound.^^^ Once
the trial court was bound to impose the sentence in the plea agree-
ment, the court of appeals in Dolan stated that "the only facts and
circumstances relevant to the issue of the defendant's sentence are
the terms of the agreement. "^^^ Therefore, the court of appeals held
that the trial court's failure to state the reasons for imposing the max-
imum sentence was not error, because the record established that the
sentence was imposed pursuant to a binding plea agreement.^^^

A case that concerned issues similar to those in Goldsmith was
Hunger v. State,^^^ The defendant pleaded guilty to forgery and was
sentenced to eight years of imprisonment as part of a plea agreement
accepted by the trial court. On appeal, the defendant urged that the
trial court erred in failing to consider whether the defendant was eligi-
ble for drug abuse treatment as provided for by statute.^^^ According
to the statute, if the defendant were to be treated as a drug abuser,
a trial court must put the drug abuser on probation. Because the trial
court in this case had accepted a plea agreement which required the
defendant to serve eight years, the court of appeals held that, pur-
suant to Goldsmith, the trial court had no discretion to grant the defend-
ant probation as a drug abuser .^^^ The court of appeals stressed that
this holding should not be read as an emasculation of the drug abuse
statutes, as the statutes remain relevant as long as this alternative
is considered before a plea agreement is accepted by the court.^^^ For

'««5ee IND. Code § 35-4.1-4-3 (1982).

2«M20 N.E.2d at 1369 (citing Ind. Code § 35-4.1-4-3 (1982)).

^^''420 N.E.2d at 1369.

^7d (citing Goldsmith v. Marion County Superior Court, 419 N.E.2d 109 (Ind. 1981)).

^M20 N.E.2d at 1370.

^"420 N.E.2d 1380 (Ind. Ct. App. 1981).

^'"See Ind. Code § 16-13-6.1-18 (1982).

2^420 N.E.2d at 1383.

^Ud. The court in Munger noted that the plea agreement may contain a "reserva-
tion of rights" which would allow the trial court to consider probation under the drug
abuse treatment statutes after it accepts the plea agreement. Id. at 1383 n.3.

1983] SURVEY-CRIMINAL LAW 161

example, if the trial court has reason to believe that the defendant
is eligible for drug abuse treatment at the time a plea agreement is
submitted to the court, the trial court might defer accepting the plea
agreement and its terms, until the defendant has an opportunity to
undergo drug abuse treatment. ^^^ However, after accepting a plea
agreement that provides for an executed sentence, the court is without
authority to grant probation.

The final case of the trilogy is Walker v. StateP^ The court in
Walker examined the difference between a binding and a nonbinding
plea agreement. The factual context of the Walker case was different
than that involved in Goldsmith, Dolan, or Hunger. In Walker, the
defendant was attempting to enforce a plea agreement. The pros-
ecuting attorney and the defendant submitted an agreement to the
trial court in which the defendant agreed to plead guilty to burglary
as a Class C felony. The terms of the agreement explained that the
potential range of punishment was from two to eight years of imprison-
ment, and that "[t]he Prosecutor has agreed not to argue for more
than a five (5) year term of imprisonment."^"*^ The prosecutor did recom-
mend a sentence of five years, but the trial judge rejected the pros-
ecutor's recommendation and imposed an eight-year sentence. On ap-
peal, the defendant sought specific enforcement of the plea agreement.

The court of appeals rejected the defendant's contention and held
that the plea agreement was nonbinding.^"^ Recognizing the distinc-
tion between a binding and nonbinding plea agreement, the court
stated that:

Under a "nonbinding" sentence recommendation, the defendant
extracts a promise from the prosecutor to advocate the impo-
sition of a particular sentence (or that the prosecutor will re-
main mute at the sentencing hearing), but the defendant know-
ingly, voluntarily, and intelligently submits to the agreement
with the understanding that the sentence recommendation is
"nonbinding" and that he or she is not entitled to withdraw
the guilty plea if the trial court rejects the recommended
sentence.^"^

Although this distinction is not drawn from specific statutory provi-

298 (

'^See IND. Code § 16-13-6.1-17 (1982) (allowing trial court to defer prosecution for the
substantive offense while the defendant receives drug abuse treatment).

^^^20 N.E.2d 1374 (Ind. Ct. App. 1981).

^""/d at 1376. The court noted that a prosecutor, when bound to recommend a
particular sentence, "must advocate that sentence persuasively and unequivocally." Id.
at 1375 n.2.

'°'Id. at 1379.

^'^Ud. at 1378. The distinction between binding and nonbinding plea agreements
has been recognized in most federal courts. See the cases cited at id. at 1379.

162 INDIANA LAW REVIEW [Vol. 16:119

sions, it is necessary for the rational application of the plea bargain
statutes.^'^^ Furthermore, the court in Walker noted that if the supreme
court's decision in Goldsmith was extended to nonbinding plea
agreements, the effect would be to "thwart the intent of the parties
and circumvent the plain meaning of the terms of the plea
agreement."^"''

The new procedure code has followed the decisions of Goldsmith,
Dolan, MungeVy and Walker. The plea agreement statute has been
transferred to the new cod«,^*'^ as have the statutes that require ad-
vising the defendant of his rights prior to the court's acceptance of
a guilty plea.^"® Under the previous applicable code sections, before
accepting a guilty plea, the defendant was to be advised that the judge
was not a party to any agreement between the prosecutor and the
defendant and, therefore, was not bound by the agreement.^°^ The new
code provides that the judge must determine whether a written
sentence recommendation has been executed by the prosecutor and
the defendant, and that if one exists, the judge must advise the defend-
ant that if the court accepts the recommendation, then the court is
bound by the terms. ^°^ Walker will still be relevant case law under
the new code because a judge will only be bound by a "binding" agree-
ment; however, if the agreement is nonbinding, the trial court should
probably continue to advise the defendant that the court is not bound i

by that particular agreement, even though the statute no longer re-
quires such an advisement.

As always, a number of cases decided during the survey period
involve the proper advisement of the defendant's rights prior to the
court's acceptance of a guilty plea. According to prior law^"® and the
new procedure code, a defendant must be advised of "the maximum
possible sentence and minimum sentence for the crime charged and
any possible increased sentence by reason of the fact of a prior con-
viction or convictions, and any possibility of the imposition of con-
secutive sentences."^^°

In Pearson v. State,^^^ the defendant's conviction for escaping was
reversed because the trial court, prior to accepting the defendant's
guilty plea, failed to advise him that any sentence received for escape

^°^420 N.E.2d at 1378.

'°*Id.

'''See IND. Code §§ 35-35-3-1 to -7 (1982).

"^See id. at §§ 35-35-1-1 to -4.

''Ud. at § 35-4.1-l-3(e) (1976) (repealed 1981).

">'Id. at § 35-35-l-2(a)(4) (1982).

'''Id. at § 35-4.1-l-3(d) (1976) (repealed 1981).

'''Id. at § 35-35-l-2(a)(3) (1982).

^"428 N.E.2d 808 (Ind. Ct. App. 1981).

1983] SURVEY -CRIMINAL LAW 163

must be served consecutively to the sentence the defendant was cur-
rently serving. Conversely, in Romine v. State^^^ the trial court er-
roneously told the defendant that two sentences were required to be
served consecutively. Despite this misinformation, the supreme court
affirmed the conviction, because it found that the defendant fully
understood the consequences of his plea.^^^

Proper advice as to sentencing consequences was also the issue
in Ricketts v. State.^^^ In this decision, the defendant pleaded guilty
to a Class D felony. The court of appeals reversed the conviction
because the trial court, prior to accepting the defendant's guilty plea,
had not advised the defendant of the possible minimum sentence for
a Class D felony.^^^ The trial court had advised the defendant that
the penalty was two years of imprisonment with a possible enhanced
sentence of four years. However, the court of appeals noted that the
trial court had not advised the defendant of the possibility of alter-
native misdemeanor sentencing which exists for a Class D felony .^^^
Thus, the court in Ricketts clearly establishes that the courts must
strictly comply with the terms of the guilty plea advisement statute.

In another decision, Nash v. State,^^'^ the court of appeals considered
the prosecuting attorney's threat to file habitual criminal charges in
order to obtain a guilty plea. It is not unlawful coercion to use the
threat of an habitual criminal charge to induce the defendant to plead
guilty .^^® However, as the decision in Nash illustrates, there must be
a "legitimate basis" for threatening the habitual charge. The defend-
ant in Nash was charged with numerous thefts arising out of his in-
volvement with a car theft ring. Eight separate habitual offender
counts were appended to eight theft charges. The habitual criminal
charges were based on the defendant's 1975 convictions for theft and
automobile banditry. The court of appeals first noted that the two
prior felonies were not unrelated felony convictions as required by
the habitual criminal statute,^^^ because the second felony had not been
committed after the defendant had been sentenced for the first
felony .^^" Moreover, the conviction for auto banditry was vacated six
months before the theft charges in the current case were filed. The
court also noted that it was clear from the record that the plea bargain

^'=^431 N.E.2d 780 (Ind. 1982).

'''Id. at 784.

^"429 N.E.2d 289 (Ind. Ct. App. 1981).

'''Id. at 290.

'''Id. See Ind. Code § 35-50-2-7 (1982).

'429 N.E.2d 666 (Ind. Ct. App. 1981).

^See Bordenkircher v. Hayes, 434 U.S. 357 (1978); Holmes v. State, 398 N.E.2d
1279 (Ind. 1980).

^'^IND. Code § 35-50-2-8(b) (1982); See Miller v. State, 417 N.E.2d 339 (Ind. 1981).
''"429 N.E.2d at 668.

317^
318<

164 INDIANA LAW REVIEW [Vol. 16:119

in the case was influenced by the habitual offender allegations, and
their dismissal was part of the plea bargain.

Indiana law requires that a trial judge inquire of a defendant who
is pleading guilty whether any promises, threats, or force were used
to obtain his plea.^^^ The trial judge in Nash did not make this in-
quiry, and the court of appeals found this omission especially egregious
in view of the improper allegations of habitual criminal acts that were
originally filed and dismissed.^^^ There was no indication that the pros-
ecuting attorney actually knew that the earlier auto banditry convic-
tion had been vacated and the definition of the phrase "prior unrelated
felony conviction" in the habitual criminal statute was not clarified
by the Indiana Supreme Court until 1981.^^^ Thus, the prosecutor in
Nash may not have been acting in bad faith. However, in view of Nash
and an earlier decision of the third district,^^" the prosecutor is re-
quired at least to have probable cause to believe that the defendant
can be prosecuted as an habitual criminal before employing the threat
of habitual criminal charges as a legitimate bargaining leverage to
obtain a plea agreement. Although it is possible that the prosecutor
in Nash may have had probable cause to file the habitual charges,
even though certified records of prior convictions should have indicated
reversal of the one conviction, the trial court's failure to conduct the
proper inquiry doomed the defendant's conviction.

/. Sentencing

Several of the most interesting sentencing decisions in the past
year concerned probation. Early in 1981, the court of appeals, in
Barnett v. State,^^^ held that restitution could not be ordered as part
of an executed sentence.^'' The court in Barnett stated that "[ajlthough
restitution is a mitigating factor in imposing a sentence . . . nowhere
in the sentencing statutes is a provision made for imposing restitu-
tion as part of a sentence to be executed."^'' This decision provoked

^^^IND. Code § 35-35-l-3(a) (1982).

^2^429 N.E.2d at 672.

'^'Miller v. State, 417 N,E.2d 339 (Ind. 1981). The court stated that to prove a

"prior unrelated felony conviction" the State must,

show that the defendant had been previously twice convicted and twice sen-
tenced for felonies, that the commission of the second offense was subsequent
to his having been sentenced upon the first and that the commission of the
principal offense upon which the enhanced punishment is being sought was
subsequent to his having been sentenced upon the second conviction.

Id. at 342.

^^'Munger v. State, 420 N.E.2d 1380 (Ind. Ct. App. 1981).
^"414 N.E.2d 965 (Ind. Ct. App. 1981).
'''Id. at 966.
''Ud.

1983] SURVEY -CRIMINAL LAW 165

some concern that restitution could not be made a condition of proba-
tion, despite obvious statutory authorization for it.^^® In Rife v. State,^^
the trial judge also had ordered restitution as part of an executed
sentence. Relying on Barnett, the court of appeals held this was fun-
damental error.^^ The importance of Rife, however, lies in the court's
delineation of the alternatives to imposing restitution as part of the
executed sentence which are available to the trial judge. The court
stated that the trial judge could have fined the defendant and sus-
pended a portion of this fine if restitution were made,^^^ or the trial
judge could have required restitution or reparation as a condition to
probation.^^ Thus, the court in Rife cleared up any concerns over
whether restitution can be made a condition to probation.

Ordering restitution as a condition of probation is one thing; revok-
ing probation for failing to make restitution is another. That was the
problem confronting the court of appeals in Sparkman v. State.^^^
Sparkman pleaded guilty to check deception, and it was shown that
he had passed other bad checks which totaled $501. The trial court
suspended the defendant's six-month sentence on the condition that
he make restitution of $501 in twenty days, and Sparkman agreed.
Sparkman failed to make restitution and the State filed a petition for
revocation of his probation.

Under the Indiana Code, probation can not be revoked for failure
to meet financial obligations imposed as a condition to probation, unless
the person "recklessly, knowingly, or intentionally fails to pay."^^''
Sparkman had made no attempt to contact the court or the prosecuting
attorney concerning his ability to pay. He paid nothing on the obliga-
tion, and when the State filed a petition to revoke his probation, he
left the state. Although briefly employed in Nevada, he made no ef-
fort to make restitution.^^^ Consequently, the court of appeals held that
the evidence was sufficient to find that Sparkman recklessly, know-
ingly, and intentionally failed to pay.^^^

The special nature of probation revocation proceedings was made
evident by two other decisions during the past year. In Jackson v.
State,^^'' the defendant was placed on probation after a burglary con-
viction. Subsequently, the defendant was charged with committing a

'''See IND. Code § 35-7-2-l(a)(5) (1982).

''H2A N.E.2cl 188 (Ind. Ct. App. 1981).

'''Id. at 192.

''Tor statutory support, see Ind. Code § 35-50-3-1 (1982).

''Tor statutory support, see id. § 35-7-2-l(a)(5).

"'432 N.E.2d 437 (Ind. Ct. App. 1982).

""Ind. Code § 35-7-2-2(e) (1982).

"^Sparkman had apparently not been otherwise employed since 1978.

"M32 N.E.2d at 440.

"M20 N.E.2d 1239 (Ind. Ct. App. 1981).

166 INDIANA LAW REVIEW [Vol. 16:119

crime while on probation, but a jury acquitted him of that offense.
Two months later, the defendant's probation was revoked on the basis
of the same conduct for which he was acquitted by the jury. The
defendant argued that double jeopardy barred the revocation of his
probation following an acquittal for the same conduct. The court of
appeals acknowledged that this was a case of first impression in In-
diana and decided to follow what it labeled as the majority position
in the United States which permits a revocation.^ The court also noted
that Indiana Code section 35-7-2-2(dP® requires the State to prove a
probation violation by a civil preponderance of the evidence, rather
than beyond a reasonable doubt.^^^

In Shumaker v. State,^^^ the defendant was found to have violated
the conditions of his probation by failing to remain on good behavior
and by possessing or using marijuana. Two of the items attached to
the petition for revocation were two voluntary statements made by
the defendant to his probation officer. The defendant contended on
appeal that the statements were erroneously admitted at his revoca-
tion hearing because the State failed to establish the corpus deliciti.
The court of appeals stated that, although a person is entitled to cer-
tain due process rights at a revocation hearing,^^^ the hearing is civil
in nature with the burden of proof being a preponderance of the
evidence.^*^ Although an arrest standing alone will not necessarily sup-
port revocation of probation, where evidence is sufficient to show that
an arrest was reasonable and that there is probable cause to believe
that the defendant has violated a criminal law, revocation of proba-
tion is proper .^^^ In this case, documents were submitted showing that
warrants had been issued for the defendant's arrest, and the defend-
ant's statements were used to establish probable cause for his arrest.
Therefore, the trial court could find that the defendant's arrest was
reasonable and that there was probable cause to believe the defend-
ant had violated a criminal law. Consequently, the court of appeals
held that probation could be revoked on the basis that the arrest was
reasonable, and there was no need to establish corpus delicti to ad-
mit the statements.^'^^

The "rule of lenity" (or perhaps it should be called the "single

'''Id. at 1242.

3^^lND. Code § 35-7-2-2(d) (1982).

'''M20 N.E.2d at 1242.

^"'431 N.E.2d 862 (Ind. Ct. App. 1982).

'''See Morrissey v. Brewer, 408 U.S. 471 (1972).

'"^31 N.E.2d at 863 (citing Ind. Code § 35-7-2-2(d) (1982); Monroe v. State, 419 N.E.2d
831 (Ind. Ct. App. 1981)).

^'"431 N.E.2d at 863 (citing Hoffa v. State, 267 Ind. 133, 368 N.E.2d 250 (1977)).

^"^431 N.E.2d at 863. The court of appeals also rejected defendant's argument that
the "good behavior" condition of probation was void for vagueness. Id. at 864.

1983] SURVEY-CRIMINAL LAW 167

larceny" theory) continued to cause problems in the appellate courts.
In Lash v. State,^^^ three robbers entered a pizza place, held two
employees at gunpoint, took the cash register receipts from one of
the employees, Lewis, and took personal property from both
employees, Lewis and McCollon. Because Lewis' personal property was
taken at the same time as the pizza place's receipts, the court of ap-
peals found that there was only one robbery, instead of the two rob-
beries on which the defendant had been convicted.^^^ A three-two ma-
jority of the Indiana Supreme Court reversed the court of appeals,^**
although three separate opinions were authored.

Justice Pivarnik, writing for himself and Chief Justice Givan,
focused on the fact that property had been taken from three different
'^individuals," the two employees and the pizza place. Therefore, three
convictions for robbery were appropriate.^^ Justice DeBruler concurred
in the reversal but conducted an even more fact-sensitive analysis.
He pointed out that the pizza place's cash register money was first
taken from the register by one of the robbers, while another man held
the two employees at gunpoint. Then the two employees were herded
to the rear of the store and, under threat of force, were relieved of
their personal money by the robbers. Based upon these elaborated
facts. Justice DeBruler concluded that three robberies had occurred.^^"
Thus, Justice DeBruler was not focusing completely on whose prop-
erty was taken but also was focusing on the manner in which the prop-
erty was taken. In other words, if the takings were not accomplished
at one time by one threat or act of violence, but instead the takings
involved separate property, accomplished by separate threats, perhaps
with a time interval in between, then they would be separate
robberies.

Justice Prentice wrote a dissent, in which Justice Hunter joined.
Justice Prentice believed that most of the problems in this area
stemmed from an unfortunate choice of words used in the leading case
of McKinley v. State.^^^ In McKinley, the robber took a business estab-
lishment's money from the proprietor's wife and took the personal
property of the proprietor. These were considered two robberies, but
in justifying the decision, the supreme court in McKinley referred to
the business property taken from the proprietor's wife as the "rob-

^^«433 N.E.2d 764 (Ind. 1982), rev'g 414 N.E.2d 338 (Ind. Ct. App. 1981).

^^^14 N.E.2d 338 (Ind. Ct. App. 1981), rev'd, 433 N.E.2d 764 (Ind. 1982).

^"433 N.E.2d 764 (Ind. 1982).

'"'In another recent case, Allen v. State, 428 N.E.2d 1237 (Ind. 1981), Chief Justice
Givan emphasized that the essence of a robbery is a "taking." In Allen, the supreme
court held that, where the money of a credit union was taken from two tellers, there
was only one robbery, a robbery from the credit union. Id. at 1240.

^^"433 N.E.2d at 767.

^^'400 N.E.2d 1378 (Ind. 1980).

168 INDIANA LAW REVIEW [Vol. 16:119

bery of that business." Justice Prentice emphasized that robbery is
the taking of property from a "person," while theft or burglary may
be perpetrated against a business establishment.^^^ The dissent then
discussed Williams v. State,^^^ where it was held that only one rob-
bery, not four, was committed when a robber took a bank's money
from four different tellers at the same time. Justice Prentice said that
Williams had applied a "rule of lenity" which was developed by the
federal courts in similar cases. Justice Prentice also noted that this
"rule of lenity," though not described as such, had been applied in
several Indiana decisions since Williams.^^* However, he recognized
that other decisions had distinguished Williams on the basis that prop-
erty taken from multiple victims belonged to multiple persons or
entities.^^^

The dissent felt that, under the facts of this case, the defendant
had committed only two offenses and was being unconstitutionally sub-
jected to double jeopardy .^^ However, the dissent appears to conduct
a fact-sensitive analysis similar to Justice DeBruler's concurring opin-
ion to reach this conclusion. It felt that the employee, Lewis, was put
in fear only once, at the beginning of the robbery, and this was a
"continuing state" when she was relieved of her personal property .^^^
Between these two analyses of the facts. Justice DeBruler's has more
to commend it. The concurring opinion focused on the separate threats
that were utilized to obtain the business' money and the personal prop-
erty of Lewis. This is an objective standard that can be determined
from the facts presented at trial. The dissent is inferring a mental
state of the victims from the facts of the case, a more difficult deter-
mination, unless the dissent is suggesting that, as a matter of law,

'^'433 N.E.2d at 767. However, as defined in the penal code, at Ind. Code § 35-41-1-2
(1982), "person" includes a "corporation, partnership, unincorporated association, or
governmental entity." Even Perkins seems unsure of whether robbery is a crime against
the person or against property. He discusses robbery in his chapter on larceny but
offers this apology:

Robbery violates the societal interest in the safety and security of the
, person as well as the social interest in the protection of property rights. In

fact, as a matter of abstract classification, it probably should be grouped with

offenses against the person rather than with offenses against property, but

it is more expedient to include it at this point.
R. Perkins, Criminal Law 285 (2d ed. 1969). The penal code classifies robbery in the
division of "Offenses Against Persons." Ind. Code § 35-42-5-1 (1982).

35^395 N.E.2d 239 (Ind. 1979).

'"See, e.g., Allen v. State, 428 N.E.2d 1237 (Ind. 1981); Lane v. State, 428 N.E.2d
28 (Ind. 1981); Rogers v. State. 396 N.E.2d 348 (Ind. 1979).

^^'See Duvall v. State, 415 N.E.2d 718 (Ind. 1981); Ferguson v. State, 405 N.E.2d
902 (Ind. 1980); Young v. State, 409 N.E.2d 579 (Ind. 1980); Hatcher v. State, 410 N.E.2d
1187 (Ind. 1980). See also, Richardson v. State, 429 N.E.2d 229 (Ind. 1981).

'«'433 N.E.2d at 768.

'"/rf.

1983] SURVEY -CRIMINAL LAW 169

the state of fear will be presumed to continue throughout the robbery.
The most accurate description of the Lash case and the kinds of
problems it presents was made by Justice DeBruler when he stated
that the approach of looking at the facts and deciding how many
unitary or integrated transactions occurred ^'involves an act of judg-
ment, and not surprisingly can lead at times to differing judicial opin-
ions, even on the same appellate court."^^*

"^Id. at 766.

VIL Domestic Relations

James A. Buck*
A. Termination of Parental Rights

During the 1981 survey period, the United States Supreme Court
decided a case that affects the standard of proof applied by Indiana
courts in termination of parental rights cases/ The Court held that
the standard of proof in a termination of parental rights case must
be at least that of clear and convincing evidence.^ Recent Indiana deci-
sions have held that the appropriate standard is the lower civil stand-
ard of proof, which is by a preponderance of the evidence.^

In Santosky v. Kramer,^ the Supreme Court reversed a decision
by a New York family court that had terminated the rights of the
parents concerning three of their children, based upon a New York
statute that allowed the State to terminate parental rights upon a
finding that the child was permanently neglected. The trial court had
rejected the parents' constitutional attack on the applicable New York
statute, which required only a preponderance of the evidence to sup-
port this finding.^ The Supreme Court held that the due process clause
of the fourteenth amendment requires a higher standard of proof than
the civil standard of proof, which is by a preponderance of the
evidence.^ The Court concluded that "[bjefore a state may sever com-
pletely and irrevocably the rights of parents in their natural child,
due process requires that the State support its allegations by at least
clear and convincing evidence."^

The Court applied the due process analysis that it had enunciated
in Mathews v. Eldridge^ and found that the New York statute was
unconstitutional.^ The Eldridge analysis involves balancing three
distinct factors: "the private interests affected by the proceeding; the
risk of error created by the State's chosen procedure; and the counter-

"Senior partner with the firm of Buck, Berry, Landau, Breunig & Quinn. B.S.,
Butler University, 1951; J.D., Indiana University School of Law -Indianapolis, 1958.

'See Ind. Code § 31-6-7-13(a) (1982). For a discussion regarding termination of paren-
tal rights and other adoption issues in recent Indiana cases, see Murphy, Implement-
ing the Indiana Juvenile Code, 15 Ind. L. Rev. 765, 772 (1982).

'Santosky v. Kramer, 102 S. Ct. 1388 (1982).

'See, e.g., Puntney v. Puntney, 420 N.E.2d 1283 (Ind. Ct. App. 1981). But see Ellis
V. Knox County Dep't of Pub. Welfare, 433 N.E.2d 847 (Ind. Ct. App. 1982) (holding
that the part of the statute requiring preponderance of the evidence standard in ter-
mination of parental rights is not constitutional).

n02 S. Ct. 1388 (1982).

'Id. at 1393.

'Id. at 1391.

Ud.

M24 U.S. 319, 335 (1976).

n02 S. Ct. at 1396-97.

171

172 INDIANA LAW REVIEW [Vol. 16:171

vailing governmental interest supporting use of the challenged
procedure."^" Balancing these factors, the Court concluded:

In parental rights termination proceedings, the private interest
affected is commanding; the risk of error from using a
preponderance standard is substantial; and the countervailing
governmental interest favoring that standard is comparatively
slight. Evaluation of the three Eldridge factors compels the
conclusion that use of a "fair preponderance of the evidence"
standard in such proceedings is inconsistent with due process."

B. Child Custody

1. Jurisdiction. — In Brokus v. Brokus,^^ the court of appeals held
that an Indiana court has jurisdiction to award child custody, even
though the court has no jurisdiction over the dissolution of marriage.
Brokus involved a complex set of facts that developed in both Indiana
and Ohio. An action for custody was brought in Indiana by the wife
as part of her petition for a dissolution of marriage; the father brought
a similar action in Ohio. The three children had spent time with each
parent in both states during the year immediately preceding the fil-
ings for dissolution. One month after the Indiana court granted the
final dissolution and awarded custody of the children to the mother,
the Ohio court awarded custody to the father. The father appealed
the Indiana court's order alleging that the Indiana court had no
jurisdiction over the custody and dissolution actions because the
mother did not meet the jurisdictional six-month residency require-
ment.^^

The Indiana Court of Appeals held that the Indiana court did have
jurisdiction to decide the custody issue because the six-month jurisdic-
tional residency requirement, by statute, does not apply to a petition
for child support.^^ The court of appeals rejected the father's conten-
tion that the mandates of the Uniform Child Custody Jurisdiction Act
(UCCJA),^^ as adopted in Indiana, required the trial court to defer to

'°Id. at 1394 (citing Mathews v. Eldridge, 424 U.S. 319, 335 (1976)).

"102 S. Ct. at 1396-97.

1^420 N.E.2d 1242 (Ind. Ct. App. 1981). For a discussion regarding the dissolution
issues, see infra notes 73-77 and accompanying text.

^'IND. Code § 31-l-11.5-6(a) (1982) provides, in pertinent part: "At the time of the fil-
ing of a petition ... at least one (1) of the parties shall have been a resident of the
state ... for six (6) months immediately preceding the filing of each petition."

'M20 N.E.2d at 1246 (citing Ind. Code § 31-l-11.5-6(c) (Supp. 1981)). Ind. Code
§ 31-1-1 1.5-6(c) (1982) provides: "In an action for child support . . . the above residence
provisions shall not be required. However, one (1) of such parties must reside in the
state and county at the time of the filing of the action." Id.

'^IND. Code §§ 31-1-11.6-1 to -24 (1982).

1983] SURVEY-DOMESTIC RELATIONS 173

Ohio in the custody decision/* The court noted that the UCCJA
''establishes two main places of initial jurisdiction: the 'home state'
of the child and the state with a 'significant connection' to the child
and one or both parents."^^

The Indiana lower court did not have jurisdiction under the home
state rule because the children had not lived in Indiana for six con-
secutive months immediately preceding the custody action. The court
did, however, have jurisdiction under the significant connection rule
because "during the five months the children had lived in Indiana,
they were enrolled in nursery school and attended church regularly
with their mother."^® The Indiana appellate court found that the Ohio
court lacked jurisdiction under either the "home state" or the "signifi-
cant connection" requirement because the children had been in Ohio
for less than one month/^ In addition, the court of appeals found that,
even though there was a simultaneous proceeding in another state,
the trial court's exercise of jurisdiction did not violate the UCCJA
because the Ohio proceeding was not in substantial conformity with
the UCCJA.^° The court of appeals, however, reversed the trial court's
decision to award custody to the wife, because the appellate court
found that the trial court had abused its discretion by being prejudiced
in favor of the mother.^^

2. Custody Modification. — In Kissinger v. Shoemaker, ^^ the court
of appeals held that if a custodial parent dies, the surviving parent
is not automatically awarded custody.

In Kissinger, the mother had been awarded custody of the children
in the dissolution decree. Less than a year later, and one month after
her marriage to the stepfather, the mother died in an accident. The
children's natural father filed a petition for a writ of habeas corpus,
seeking the return of his children who were being detained by the
stepfather.^^ The trial court, after hearing the evidence, denied the
petition.

*M20 N.E.2d at 1248. An action for child custody is commenced by filing a petition
for support or a petition for dissolution. The court stated that it would look at the
content of a petition, not just the headings, to determine the true nature of the re-
quest. The court found that the mother's petition was a valid child support petition.
Id. at 1246.

'Ud. at 1247 (citing Ind. Code § 31-l-11.6-3(a)(l), -3(a)(2) (Supp. 1981)).

»«420 N.E.2d at 1248.

''Id.

^Id. at 1248-49 (citing State v. Marion County Superior Court, 403 N.E.2d 806
(Ind. 1980)).

2^420 N.E.2d at 1249. "The partial manner in which the trial court conducted this
hearing, in effect, denied Robert of his right to a fair trial, and therefore the judg-
ment must be reversed." Id.

^425 N.E.2d at 208 (Ind. Ct. App. 1981).

^^The stepfather filed a petition for temporary and permanent custody of the

174 INDIANA LAW REVIEW [Vol. 16:171

On appeal, the father contended that "when a parent, who is
granted custody of the children in a dissolution decree dies, custody
of the children automatically inures to the surviving parent."^* The
court of appeals stated, however, that the "rights of parents are not
absolute and must yield to the welfare and best interest of the child."^^
The court outlined a three-step analysis to be used in determining
whether a particular custody award would be in the best interests
of the child.

First, it is presumed it will be in the best interests of the child
to be placed in the custody of the natural parent. However,
this is a rebuttable presumption. Therefore, secondly, to rebut
this presumption, it must be shown that there is, (a) unfitness,
(b) long acquiescence, or (c) voluntary relinquishment such that
the affections of the child and third party have become so in-
terwoven that to sever them would seriously mar and en-
danger the future happiness of the child. The third step is that
upon a showing of one of these above three factors, then it
will be in the best interests of the child to be placed with the
third party .^

Applying this analysis to the father's petition, the court of ap-
peals held that the trial court had not abused its discretion in finding
that the evidence presented by the stepfather rebutted the presump-
tion favoring the natural parent.^^ The appellate court found that
although there was no evidence of either voluntary relinquishment
or long acquiescence by the father, there was sufficient evidence of
the father's unfitness.^® The court, therefore, affirmed the trial court's
denial of the father's petition. The appellate court, however, did not
determine whether custody should be awarded to the stepfather,
because that question was for a custody proceeding.^^

S. Visitation.— In re Marriage of Ginsberg^ presented the court
of appeals with the question whether the trial court's order allowing
a child an extended visit with the noncustodial parent was a modifica-
tion of custody or of visitation rights. In that case, the mother, who

children, which was separated from the hearing on the father's petition for writ of
habeas corpus. 425 N.E.2d at 210.

''Id.

''Id. at 210-11 (citing Hendrickson v. Binkley, 161 Ind. App. 388, 393-94, 316 N.E.2d
376, 380 (1974), cert, denied, 423 U.S. 868 (1975)).

"425 N.E.2d at 211.

'^Id. The evidence supporting the finding that the father was unfit included
evidence that he had failed to make any support payments as ordered, that he had
neither visited nor communicated with the children, that his employment history showed
instability, and that he had previously mistreated the children.

'M25 N.E.2d at 211.

3°425 N.E.2d 656 (Ind. Ct. App. 1981).

1983] SURVEY-DOMESTIC RELATIONS 175

was the noncustodial parent, petitioned for a modification of the
custody order. The dissolution decree had granted the mother
reasonable visitation rights; however, the mother, who was living in
Italy, wanted to have the child during the summer because it was
impractical to schedule weekend or holiday visits as contemplated by
the dissolution decree.

Although the trial court found that there was not a change in cir-
cumstances that made the original terms of the decree unreasonable,^^
the trial court granted the petition and gave the mother "temporary
custody" during the summer.^^ The father appealed the trial court's
decision. He contended that the court had abused its discretion by
modifying the custody order without finding a change in circumstances
so substantial and continuing as to make the terms of the decree
unreasonable, which is required by the Dissolution Act when modify-
ing an earlier decree.^^

The court of appeals held that the trial court did not err because
the court had modified "visitation," not "custody," and because the
trial court had found that a substantial and continuing change in cir-
cumstances did exist to make the mother's visitation rights
unreasonable.^^ The court stated:

It may well be that the line between visitation and divided
custody becomes blurred in cases such as this where one
parent moves so far in distance from the custodial parent that
a traditional visitation schedule is impractical or impossible.
However, here it is reasonable to conclude Mother's "tem-
porary custody" of the child during the summer months is
visitation because of her residence in Italy for a period of three
years. We specifically limit this holding to the facts of this
case and do not pretend to predict our ruling would be the
same if the noncustodial parent lived within a reasonable
proximity of the custodial parent or was absent for a shorter
period of time.^^

C. Child Support

1. Modification of Order. — In Meehan v. Meehan,^^ the Indiana
Supreme Court clarified several issues relating to child support. In
Meehan, the supreme court addressed the following issues: (1) whether

''Id. at 657.

''Id.

^^IND. Code § 31-1-1 1.5-22(d) (1982).

^M25 N.E.2d at 658. The correct standard to apply when modifying visitation is
"best interests of the child." Ind. Code § 31-1-11.5-24 (1982). The court of appeals held
the trial court's application of the incorrect standard to be harmless error. 425 N.E.2d
at 658 n.2.

'^425 N.E.2d at 658.

^«425 N.E.2d 157 (Ind. 19811.

176 INDIANA LAW REVIEW [Vol. 16:171

the court may "incorporate" a settlement agreement, which includes
the terms for child support, into the final decree; (2) whether a decree
that incorporates a settlement agreement may be modified; and (3)
whether the standard for modifying an incorporated agreement is the
same as the standard for modifying a dissolution decree.

In Meehan, the father petitioned in 1979, to modify his child sup-
port obligation. The father presented evidence that since the 1976
dissolution decree, his ex-wife had remarried and her new husband
had assumed the cost of most of the living expenses. Additionally,
the ex-wife was now operating her own small business. The father's
income, however, had not kept pace with inflation. One of the four
children was now emancipated and no longer lived with his mother.
A second child was in college and was at home only during the sum-
mer months. Additionally, the youngest child now wanted to live with
the father. The trial court granted the father's petition to modify the
earlier order that he pay "the sum of $500.00 a month for the care
and keep" of the children.^^

The ex-wife appealed the modification alleging that the trial court
had abused its discretion by modifying the decree, which was an in-
corporated settlement agreement between the parties.^® The ex-wife
also argued that the trial court had abused its discretion by modify-
ing the decree without a showing of a change in circumstances so
substantial and continuing as to make the terms of the original decree
unreasonable, as required by statute.

In reversing the trial court's modification, the court of appeals
found that the settlement agreement had been incorporated into the
dissolution decree by "paraphrase and reference" and, therefore, could
only be modified by a showing that the terms had become "clearly
unreasonable."^® The father appealed that decision and the supreme
court granted transfer.

According to the Indiana Code, there are six provisions in a
dissolution decree that can always be modified by the court when
dependent children are involved. These provisions concern: (1) the
custody of the children;*" (2) the support of the dependent children;*^
(3) the noncustodial parent's visitation rights;*^ (4) the health care of
the children; (5) the children's religious upbringing; and (6) the
children's educational costs and requirements."^ This modification can

'Ud. at 158-59.

^«Meehan v. Meehan, 415 N.E.2d 762, 765 (Ind. Ct. App. 1981).

^Id. at 767.

*"lND. Code § 31-l-11.5-22(d) (1982).

"M § 31-1-11.5-17.

*^Id. § 31-l-11.5-24(b).

1983] SURVEY-DOMESTIC RELATIONS 177

occur whether the court's dissolution decree incorporates the parties'
agreement on these issues, pursuant to Indiana Code section
31-1-11.5-10, or whether the court enters a separate decree after a trial
on these issues.

In a four to one decision written by Justice Hunter, the supreme
court vacated the court of appeals' decision and reinstated the trial
court's modification of the child support order."^ The supreme court
first addressed the issue of the incorporation of the agreement in the
decree. Because under section 31-1-11. 5-10(b)''^ the trial court has the
discretion to accept, to modify, or to reject an agreement, the supreme
court held that to effectively incorporate the parties' settlement agree-
ment into the dissolution decree, the trial court must do so by ex-
press and unequivocal language.''^ The court stated that "[a]bsent an
effective incorporation and merger ... a settlement agreement or its
unincorporated portions is not binding on the parties."*^ This should
be a good lesson to domestic relations practitioners because it reflects
the trend of both the court of appeals and the supreme court, which
has been to take the words of the statute one by one, to analyze them,
and to concentrate on their exact meaning in order to give the
legislative intent every opportunity to survive judicial scrutiny.

The supreme court went further and found that, even if the incor-
poration were effective, the court of appeals had erred in reversing
the trial court.'^* Justice Hunter found that the standard pronounced
in section 17(a) of the Dissolution Act,*^ which allows a modification
upon a showing of changed circumstances so substantial and continu-
ing as to make the terms unreasonable, is the only standard to apply
when modifying child support orders, regardless of how the terms had
originated.^ Justice Hunter stated that it was imperative that the sec-

*M25 N.E.2d at 157-58.

*^IND. Code § 31-l-11.5-10(b) (1982) provides:

In an action for dissolution of the marriage the terms of the agreement if

approved by the court shall be incorporated and merged into the decree and

the parties ordered to perform them, or the court may make provisions for

disposition of property, child support, maintenance, and custody as provided

in this chapter.

*^425 N.E.2d at 159. Otherwise, particularly where a partial acceptance and rejec-
tion was at issue, the resolution of whether the trial court intended to incorporate
and merge a settlement agreement or particular portions thereof would depend on
conjecture. Id.

"Id. (citing Anderson v. Anderson, 399 N.E.2d 391 (Ind. Ct. App. 1979); Grace
V. Quigg, 150 Ind. App. 371, 276 N.E.2d 594 (1971)).

*«425 N.E.2d at 159.

*'lND. Code § 31-l-11.5-17(a) (1982).

^425 N.E.2d at 160. In other words, even though a child support order has been
incorporated into the terms of a settlement agreement and has been intended to be
a permanent determination by the parties, it is of no consequence to the question
whether the order should subsequently be modified. Id.

178 INDIANA LAW REVIEW [Vol. 16:171

tion 17(a) standard be followed even if it "flies in the face of our
visceral inclinations as jurists to rule that 'a contract is a contract.' "^^
Thus, the court of appeals deviated from the statutory standard when
it required that in order to modify a support agreement, which was
incorporated in the court's decree, there must be a showing that the
terms of the agreement are clearly unreasonable.^^ The supreme court
found that the court of appeals' decision rested in contract law and
not in the requirements and policy of the Dissolution Act.^ Thus, the
court of appeals incorrectly treated the modification of a child sup-
port order with the same deference due a negotiated property settle-
ment agreement.

To bolster its decision, the supreme court noted that due to the
Meehans' situation, if the trial court had refused to modify the sup-
port order, the $500 payment to the ex-wife would have become de
facto spousal maintenance.^'^ That result would be contrary to law
because there was no evidence of the ex-wife's physical or mental in-
capacity presented to support an award of maintenance.

2. Delinquency in Payment of Support. — A long line of Indiana
decisions holds that a parent may neither reduce the amount of sup-
port he is ordered to pay nor change the method by which he pays
support without receiving a modification in court.^^ Additionally, In-
diana case law holds that reduction can only apply prospectively.^^
Applying these rules in Isler v. Isler,^'' the court of appeals had little
difficulty in reversing the trial court's computation of the husband's
arrearages in support, because the computed arrearage was in-
consistent with the amount the husband owed, yet no modification
order existed. In an opinion denying the husband's petition for re-
hearing, however, the court of appeals suggested that in certain fac-
tual situations equitable considerations may create a "narrow excep-
tion" to these rules.^

Although the husband admitted owing over $5,000, the trial court
had awarded $1,200 to the wife.^® On appeal, the court reasoned that
the trial court could have arrived at the $1,200 figure only by giving

^^425 N.E.2d at 160. Justice Hunter goes on to state: "If our courts deviate even
slightly from this delicate balance struck by the legislature, parties will be inhibited
in their negotiations and the purpose of the Act will be frustrated." Id.

'H25 N.E.2d at 160-61.

'Ud. at 161 n.l.

''Id. at 163.

''See, e.g.. Whitman v. Whitman. 405 N.E.2d 608, 614 (Ind. Ct. App. 1980).

^Jahn V. Jahn, 385 N.E.2d 488 (Ind. Ct. App. 1979).

^M22 N.E.2d 416 (Ind. Ct. App. 1981).

'«Isler V. Isler, 425 N.E.2d 667, 669 (Ind. Ct. App. 1981) (denying petition for
rehearing).

^^422 N.E.2d at 418.

1983] SURVEY-DOMESTIC RELATIONS 179

the husband "credit" for the amount owed for the support of a son
who was emancipated prior to age twenty-one and for the amount
spent when the husband had the children in his home.^° Because the
father could not "claim, without a judicial modification, any reduction
of the undivided support order until all the children [were] eman-
cipated, and ... [he could not] claim credit against accrued support
for the weeks [two of the children] lived with him,"^^ the court of ap-
peals held that the trial court erred in its calculation of the accrued
support arrearage. In his petition for rehearing, the husband requested
that the appellate court reconsider its application of the general rule.^^

In its opinion denying the petition for rehearing, the court of
appeals noted that two categories exist for cases that involved non-
conforming payments. The first category includes cases in which the
parent makes expenditures for the children during short visits, for
gifts, and as payments in cash. Because theses types of expenditures
are not easily proven, the courts have refused to accept them as claims
for credit. To promote stability, the courts have required that the
payments be made in the prescribed manner.*^ The second general
category includes cases in which the support order is indivisible for
several dependent children. On his own volition, the obligated parent
often will reduce the support payment pro rata, as the children become
emancipated. However, because the amount in the original decree is
usually inadequate but all that the parent could afford to pay, courts
will generally deny a request for a reduction in payments, in order
to ease the burden on the custodial parent.®^

In recognizing a "narrow exception" to the general rule, the court
of appeals found that there may be cases that do not fit in either of
these two general categories.^^ This narrow exception is applicable
when a de facto change of custody has occurred by agreement be-
tween the parents.®* In such an instance, the court may "allow credit
against the accrued support for the reason that the obligated parent

'°Id.

''Id. at 419 (citing Ross v. Ross, 397 N.E.2d 1066 (Ind. Ct. App. 1979); Jahn v.

Jahn, 385 N.E.2d 488 (Ind. Ct. App. 1979); Haycraft v. Haycraft, 375 N.E.2d 252 (Ind.

Ct. App. 1978)).

'^25 N.E.2d at 668.
''Id. at 669.
''Id. at 669-70.
''Id.

'M25 N.E.2d at 670. A de facto custodial change could occur:
where the obligated parent, by agreement with the custodial parent, has taken
the child or children into his or her home, has assumed custody of them,
has provided them with food, clothing, shelter, medical attention, and school
supplies, and has exercised parental control over their activities and educa-
tion for an extended period of time ....

Id.

180 INDIANA LAW REVIEW [Vol. 16:171

has merely furnished support in a different manner under circum-
stances easily susceptible of proof. Such a result would be equitable,
and would not conflict with the holdings of the reported cases."^^ Thus,
although the court of appeals affirmed its prior order to remand the
case for retrial on the issue of the computation of arrearages, its opin-
ion in denying the petition for rehearing gives further instructions
for the court on retrial of this issue.

In Statzell v. Gordon,^^ the mother appealed the denial of her re-
quest to recover the son's college expenses from the father. Under
the original child support order, the father was to pay all college ex-
penses. He made the payments for approximately two years, then
stopped. The mother paid the remaining expenses from her own funds.
After the son had graduated and was emancipated, the mother sought
reimbursement from the father. The trial court found that the mother
had "volunteered" to pay the expenses, and that the dissolution decree
"vested no rights in [the mother] and did not constitute a judgment
in her favor."^^ The mother appealed.

The court of appeals characterized the basic issue in the case as
whether the mother had to file an independent complaint in a separate
lawsuit in order to recover the college expenses. The court of appeals
concluded that under Kuhn v. Kuhn,'^^ the mother's petition for
reimbursement was sufficient to establish the sum of the delinquent
payments; thus, the court of appeals reversed the trial court's judg-
ment and remanded the case.^^ The court also noted that the child's
emancipation was irrelevant because "notwithstanding the inability
of a custodial parent to enforce support orders by contempt after the
child's emancipation, college expenses advanced by the custodial parent
. . . may be recovered even after the child's emancipation."^^

As a practical matter, to recover either the support or college
expenses, or both, the custodial parent could either file an original
action or file a new action under the old dissolution of marriage cause
number, both of which seem to be procedurally acceptable. In any
event, strict proof of the expenditures by the spouse seeking
reimbursement will be required.

"425 N.E.2d at 670.

««427 N.E.2d 732 (Ind. Ct. App. 1981).

''Id. at 733.

^"402 N.E.2d 989 (Ind. 1980).

"427 N,E.2d at 734.

''^Id. The court cited Ind. Code § 31-1-1 1.5-12(d) (1982) as a "statutory exception for
educational expenses to the general rule that a parent's support duty terminates at
the time of emancipation." Id. ; see also Linton v. Linton, 166 Ind. App. 409, 336 N.E.2d
687 (1975).

1983] SURVEY-DOMESTIC RELATIONS 181

D. Dissolution

1. Attacks on Dissolution Decrees. — In Brokus v. Brokus,''^ the hus-
band appealed the granting of the wife's dissolution petition, which
also served as the basis of a custody determination.^^ At the time of
the marriage and until a few months prior to the filing of the dissolu-
tion petition, the husband had been in the Army. During their mar-
riage, the parties and their children had lived in numerous states, in-
cluding Indiana. The parties came to Indiana in June 1978 to live with
the wife's mother while the husband sought employment. The hus-
band eventually found a job in Ohio and moved, while the rest of the
family remained in Indiana. The wife filed her dissolution petition on
November 14, 1978 — one month short of the six-month residency
requirement of the Indiana Dissolution Act.^^ During this time, the
husband was attempting to gain custody of the children through
proceedings in Ohio. The Indiana trial court granted the wife's peti-
tion for dissolution, finding as fact that she had lived in Indiana since
June 1978 and that the petition was filed in November 1978.^^ The
court of appeals reversed the trial court's decision holding that the
six-month residency requirement was jurisdictional and, therefore, the
court had no authority to grant the dissolution petition."

2. Distribution and Division of Property. — In In re Marriage of
Taylor,''^ the trial court reviewed the equities of the situation and chose
the date of informal separation as the specific date to use when deter-
mining the value of the parties' marital property in a dissolution case;
however, the trial court was reversed on appeal. In Taylor, the par-
ties separated in October 1974 and informally divided their personal
assets and belongings. Each party became financially independent. Dur-
ing the separation, the wife remained in the house, which was owned
by the parties as tenants by the entireties. The wife took over the
mortgage payments, maintained the house and supported their child.

In June 1979, over four years after the parties had informally
separated, the wife filed her petition for dissolution. The trial court
awarded the marital residence to the wife and, using the valuation
of the property as of October 1974, ordered the wife to pay her hus-

'M20 N.E.2d 1242 (Ind. Ct. App. 1981). For a discussion of the custody issue, see
supra notes 12-21 and accompanying text.

''Id. at 1244.

'^IND. Code § 31-1-11.5-6 (1982).

'«420 N.E.2d at 1245.

'Ud. at 1245-46.

'«425 N.E.2d 649 (Ind. Ct. App. 1981), v(wated sub nom., Taylor v. Taylor, 436 N.E.2d
56 (Ind. 1982).

182 INDIANA LAW REVIEW [Vol. 16:171

band $2,000 for his share of the equity in the house.^^ The husband
appealed the award, claiming that the trial court had abused its discre-
tion by using the 1974 value of the house instead of the 1979 value.
Judge Shields, writing for the majority, found that there was a neces-
sity for a date certain to be used in determining the value of marital
property and reversed the trial court's decision.*" The majority rea-
soned that if the trial court were allowed to decide which date should
be used to value the property based on the "equities of the case,"
as argued by the dissent, then the statutory requirement of a "just
and reasonable" division would be ignored. Relying upon the "just and
reasonable" mandate of section 31-l-11.5-ll(a), Judge Shields used the
"date of final separation," which was the date the petition was filed,
as the most reasonable date to be used in determining the property's
value.*^

Dissenting strongly. Chief Judge Buchanan stated that he would
have affirmed the trial court's decision based on the "equities of the
case." He stated:

The repeated call for jusU proper, and reasonable property divi-
sions and the requirement that the trial court's decision in
dividing property be an informed one convince me that in
evaluating marital property, the trial court may choose any
method of evaluation based on the evidence before it that best
suits the equities of the case. Evaluation therefore becomes

^M25 N.E.2d at 650.

^°/d. Judge Shields wrote:

In a marriage of any duration the possible equitable valuation dates are
limitless. Hence, the necessity for a date certain is obvious. Meaningful settle-
ment discussions would be virtually impossible; trials would be lengthened;
fees for experts would skyrocket as they assimilate the necessary data to
have an opinion on the fair market value of the numerous items of marital
property on any number of dates, including, for example, the date of first
separation, the date of final separation, the date of filing the petition, the
date of filing the cross-petition, and the date of trial. Therefore, the statutory
mandate of a just and reasonable division requires the division of marital
property be based on values determined as of a date certain.

Id.

«^425 N.E.2d at 651 (citing Ind. Code § 31-l-11.5-ll(a), (b) (Supp. 1981)). Judge Shields

reasoned:

Thus, the date has significance in determining the property within the marital
pot. If that date puts a lid on the pot, it is logical to simultaneously deter-
mine the value of its contents. If the value of items in the marital pot in-
creases or decreases after the date of final separation due to the conduct
of the parties, the trial court may, of course, take this into account under
IC 31-1-11.5-11. Valuation of marital property on the date of final separation
will also assist the parties in marshalling the evidence and appraisals of prop-
erty in preparation for the final hearing date.

Id.

1983] SURVEY-DOMESTIC RELATIONS 183

an indispensable part of division. The power to evaluate can
reasonably be inferred from the power to divide; indeed it is
a necessary component.

... It was neither unjust nor inequitable for the court
to conclude as to that appreciation that since [the husband]
suffered no pains, he should take no gains.^

Upon granting the wife's petition for transfer, the supreme court
vacated the appellate court decision and affirmed the trial court
decision.*^ Justice Hunter, writing for the court, quoted Chief Judge
Buchanan's dissenting opinion with approval.^ The supreme court con-
cluded that the issue of which date should be used to value the prop-
erty is a question for the legislature, not the courts. Therefore, because
the legislature has not acted, the supreme court concluded that a trial
court is not limited to a specific date to value the property. Rather,
a trial court is guided only by what is "just and reasonable" under
the particular circumstances of each case. In the instant case, the court
found that the trial court's decision to determine the value of the prop-
erty as of the date the parties informally separated was proper
because, in reaching that decision, the trial court considered each
spouse's contribution to the property's maintenance, and each spouse's
conduct as well as each individual's economic circumstances.^^ The
supreme court held that, therefore, the trial court had not abused its
discretion in determining the value of the property.*^

In practice, the trial lawyer is presented with the problem of
choosing a date for valuation only "when the equities of the case" dic-
tate that such a choice be made. In the event that the parties have
been informally separated for a number of years before one party files
a petition for dissolution, the appraisal values for the marital prop-
erty that are submitted by each party could be vastly different. For
example, one of the parties might submit all appraisals based on the
date of informal separation, while the other party submits appraisals
based on the date of the statutory separation, the date the petition
was filed. In such a case, the attorneys might be wise to seek a pretrial
conference and an early judicial determination of the "date of separa-
tion for valuation purposes," in order to avoid a morass of conflicting
testimony at trial as to property value.

In another property division case, Swinney v. Swinney,^'^ the court

'H25 N.E.2d at 652 (Buchanan, C.J., dissenting).

^'Taylor v. Taylor, 436 N.E.2d 56 (Ind. 1982), vacating In re Marriage of Taylor,
425 N.E.2d 649 (Ind. Ct. App. 1981).
«M36 N.E.2d at 59.
''Id.
''Id.
«'419 N.E.2d 996 (Ind. Ct. App. 1981).

184 INDIANA LAW REVIEW [Vol. 16:171

of appeals reversed the trial court's award of substantially all the
marital property to the wife, even though the parties acquired most
of the property through gifts from the wife's father. The court of
appeals held that the ninety-seven percent to three percent distribu-
tion ratio indicated that the trial court had excluded the gifts from
the "marital pot" and thus, the distribution award was an abuse of
discretion.^*

Under the Dissolution Act, the trial court is not required to divide
the marital assets in any set proportions.*^ The legislative mandate
is to divide the property "in a just and reasonable manner."^" In past
decisions, various extreme proportions have been upheld.^^ Swinney
presented the court with the difficult issue of how to make a "just
and reasonable" disposition of marital property that was obtained
primarily by gift or inheritance from one spouse's family.

Although the court cannot systematically exclude property
received by gift or inheritance,^^ the court must consider the source
of the property in determining a "just and reasonable" division.^^ If
the trial court awards nearly all the property to the spouse who
received the gift or the inheritance, as in Swinney, the judgment could
be reversed on appeal, if the appellate court fails to find sufficient
evidence to justify the award.

Exactly what evidence would support an award of nearly all the
property to the spouse who received the gift or the inheritance
appears to be unclear because the supreme court, in a three to two
decision, denied transfer in Swinney.^^ Justice Hunter filed a dissent-
ing opinion to the denial in which he noted the many "unique cir-
cumstances" in the case that would support the trial court's decision.

Vv'^hen a case is as clearly black and white as Swinney, logic dic-
tates that the majority's opinion is incorrect. By following the
majority's reasoning, a trial court would have to give the husband
some of the gifts the wife received and give the wife some of the
gifts the husband received. As Justice Hunter advocates in his
dissent,®^ the trial court should have the discretion to determine what
would be a "just and reasonable" disposition in cases where one spouse
receives substantial property through gift or inheritance.®^

''Id. at 999.

«'lND. Code § 31-1-11.5-11 (1982).

^/d. § 31-l-11.5-ll(b).

^'See, e.g., Libunao v. Libunao, 388 N.E.2d 574 (Ind. Ct. App. 1979); In re Marriage
of Lewis, 172 Ind. App. 463, 360 N.E.2d 855 (1977); Johnson v. Johnson, 168 Ind. App.
653, 344 N.E.2d 875 (1976).

^'Wilson V. Wilson, 409 N.E.2d 1169 (Ind. Ct. App. 1980).

'^Swinney v. Swinney, 426 N.E.2d 658, 659 (Ind. 1981) (Hunter, J., dissenting).

'"426 N.E.2d 658 (Ind. 1981).

^^Id. (Hunter, J., dissenting).

""See McBride v. McBride, 427 N.E.2d 1148, 1152 (Ind. Ct. App. 1981).

1983] SURVEY-DOMESTIC RELATIONS 185

The court of appeals adopted a new rule in In re Marriage of Church
concerning the burden of proving the value of the marital property.
The husband in Church appealed the trial court's division of the marital
property, claiming that the court had abused its discretion by failing
to place a value on certain assets before distributing them to the wife.^^

In affirming the trial court's distribution, the court of appeals
acknowledged a line of case law that supported the husband's allega-
tion of error;^^ however, the court relied on another line of cases that
upholds the distribution of unvalued property by a trial court, if the
property were ''not unique and [did] not require expertise for
evaluation."^^" The court of appeals stated that "[t]he proper role of
a court in dividing property pursuant to a dissolution is to review
carefully all the evidence and then to divide the property based on
a consideration of the factors listed in IC 31-l-11.5-ll(b)."^°^ The court
reasoned, therefore, that the burden of proving the valuation of the
marital property should be on the parties, not on the court. Thus, the
court held that the trial court's distribution of nonvalued property
was not in error because "any party who fails to introduce evidence
as to the specific value of the marital property at the dissolution hear-
ing is estopped from appealing the distribution on the ground of trial
court abuse of discretion based on the absence of that evidence."^"^

Gower v. Gower^^^ presented the court with a novel situation in
which the adopted children of a couple intervened^"'' in the dissolu-
tion action and sought a share of the marital property. The children
claimed that they were entitled to part of the marital property because
the social security and Veterans Administration benefits they had
received from their deceased natural father had been "commingled
with the marital estate and used in part for the acquisition of marital
property ."^°^ Although the trial court found that in "fairness and
equity" the children were entitled to an award, the court refused to
grant one because there was no legal basis for making such an

^^424 N.E.2d 1078 (Ind. Ct. App. 1981).

^^Id. at 1081. The trial court had awarded the wife a car, a refrigerator, a dryer,
and a stove without assigning a value to them. Id. at 1080.

''Id. at 1081 (citing Rowland v. Rowland, 166 Ind. App. 572, 337 N.E.2d 555 (1975);
Hardiman v. Hardiman, 152 Ind. App. 675, 284 N.E.2d 820 (1972)).

•°<'424 N.E.2d at 1082 (citing Cross v. Cross, 159 Ind. App. 592, 308 N.E.2d 717
(1974); Jackman v. Jackman, 156 Ind. App. 27, 294 N.E.2d 620 (1973)).

^"'424 N.E.2d at 1082 (citation omitted).

''Ud. at 1081 (footnote omitted).

">H21 N.E.2d 703 (Ind. Ct. App. 1981).

'"Tor the proposition that third-parties may intervene in dissolution actions, see
State ex rel. Kleffman v. Bartholomew Circuit Court, 245 Ind. 539, 200 N.E.2d 878 (1964);
State ex rel. American Fletcher Nat'l Bank & Trust Co. v. Spencer Circuit Court, 242
Ind. 74, 175 N.E.2d 23 (1961).

'"^27 N.E.2d at 707.

186 INDIANA LAW REVIEW [Vol. 16:171

award.^"* The two children joined their mother in an appeal and alleged
that, in light of the court's own finding, the trial court had erred in
not granting the award.

The court of appeals affirmed the trial court's decision not to make
an award to the children/"^ Because the legislature has set out specific
guidelines concerning the distribution of marital property for courts
to follow in dissolution cases, the court refused "to add a provision
to this statute which the legislature clearly chose not to include."^"*
The court held that because there was neither a statutory nor a case
law basis for an award of part of the marital property to the children,
the trial court had not erred in refusing to grant such an award. In
addition, the court noted that the wife, who had custody of the
children, had received three times more property than the husband,
thus the trial court's distribution of property was not an abuse of
discretion, despite the trial court's finding concerning "fairness and
equity. "^°^

In Hasty v. Hasty,^^^ the court of appeals reversed part of the trial
court's property division order that required the husband to pay the
wife eleven and one-half percent interest on the wife's award of
$404,177 until the award was paid in full. The husband claimed that
the trial court's rate of interest was above the current legal maximum
of eight percent.^" The court stated:

Our holding is made in full realization that the current posture
of the law encourages defendants to delay satisfaction of
money judgments until the last possible moment. During the
period he retains control of the judgment amount, a defendant
may by investment earn thereon an amount far in excess of
the statutory interest rate permitted. Remedial measures in
this respect, however, lie within the sole prerogative of our
General Assembly. ^^

112

In In re Marriage of Bradley, ^^^ the court of appeals reiterated
the importance of careful drafting of dissolution property settlement

'''Id.

'"Ud. at 708. For further statutory guidelines, see generally Ind. Code §§ 31-1-11.5-1
to -24 (1982).

'"^21 N.E.2d at 707-08. See Ind. Code § 31-1-11.5-11 (1982).

109427 N.E.2d at 707-08. The court of appeals also noted that there was no evidence
that the children had been deprived by the family's use of their benefits, nor was there
evidence that the father had tried to defraud them on their benefits.

^^"427 N.E.2d 1119 (Ind. Ct. App. 1981).

"7d at 1120. The husband relied upon Ind. Code § 24-4.6-1-101 (1976). The statutory
rate of interest is currently 12%. Ind. Code § 24-4.6-1-101 (1982).

'^^427 N.E.2d at 1120.

"^433 N.E.2d 54 (Ind. Ct. App. 1982).

1983] SURVEY-DOMESTIC RELATIONS 187

agreements. In Bradley, the former wife sought to have a commis-
sioner appointed to sell the marital home that was held by the par-
ties as tenants in common. The property settlement agreement con-
tained a provision that the house, in which the husband lived, was
to be sold when the husband remarried. ^^^ The wife contended that
this provision had been met by the husband's cohabitation with another
woman, thus requiring the sale of the house. "^ The trial court denied
the wife's petition, resting its decision on the terms of the agreement.
The court of appeals affirmed the trial court's denial of the wife's
petition. The court based its decision on the policy expressed by the
legislature encouraging parties to reach agreements. ^'^ The court also
noted that the parties had bargained fairly for the terms of the prop-
erty settlement. Relying on Indiana contract cases, the court of appeals
concluded that the courts are not at liberty to make contracts for
individuals."^ Also, the court recognized the "black-letter" rule that
the intent of the parties should be determined by the language
employed in the contract, unless it is ambiguous."^ The court held that
the terms of the agreement were not ambiguous and the intent of
the parties was clear from the contract."® It should be noted that pur-
suant to section 10 of the Dissolution Act, the parties could well have
made "cohabitation" one of the "events," which would then require
a sale of the real estate.

It should be noted that in determining the marital pot, the
application of Indiana Code section 31-l-11.5-2(d),^^° which provides that
"[t]he term 'property' means all the assets of either party or both par-
ties, including a present right to withdraw pension or retirement
benefits," now fixed by the date of filing as the date of separation,
can produce unusual results. For example, suppose the parties had
been married to each other three different times. ^^^ In both divorce

114

Id. at 54-55. The pertinent clause in the agreement provides:

a. At the end of ten (10) years from the date of the dissolution of this
marriage; or

b. Upon the husband's remarriage; or

c. In the event that the wife becomes disabled and unable to work for
a continuous period of 180 days due to her disability.

Id.

'''Id. at 55.

"«433 N.E.2d at 55.

'"Id. (citing Automobile Underwriters v. Camp, 217 Ind. 328, 27 N.E.2d 370 (1940);
Workman v. Douglas, 419 N.E.2d 1340 (Ind. Ct. App. 1981)).

"M33 N.E.2d at 55 (citing Albert Johann & Sons Co. v. Echols, 143 Ind. App. 122,
238 N.E.2d 685 (1968)).

"M33 N.E.2d at 55 ("In the present case, the terms of the agreement are clearly
stated. None of the conditions decided upon have been met. Therefore, there is no
right to have the property sold.").

•2°lND. Code § 31-l-11.5-2(d) (1982).

^^'This fact situation was an actual case handled by this author.

188 INDIANA LAW REVIEW [Vol. 16:171

actions, the husband was awarded his professional practice, an
operating bar, and a tract of real estate. In the second divorce,
however, the real estate was subject to a substantial lien in the wife's
favor. The question now arises as to whether, by virtue of the third
marriage of the parties and the operation of section 2(d), there is a
merger of the wife's lien with the husband's interest in the real estate.
It seems obvious that further legislation is needed to clear up the
definition of the term "property" to address these kinds of problems.

E. Paternity

The United States Supreme Court in Mills v. Habluetzel^^^ held
that a Texas statute that established a one-year statute of limitations
on paternity suits was unconstitutional.^^^ In a paternity suit that was
brought by the mother and the welfare department when the child
was nineteen months old, the alleged father used the Texas statute
of limitations as a defense. Although recognizing Texas' interest in
preventing fraudulent or stale claims, the Court concluded that the
statute violated the equal protection clause of the fourteenth
amendment.^^"* The Court applied a two-pronged analysis to invalidate
the Texas statute. ^^^ The Court stated:

First, the period for obtaining support granted by Texas to
illegitimate children must be sufficiently long in duration to
present reasonable opportunity for those with an interest in
such children to assert claims on their behalf. Second, any time
limitation placed on that opportunity must be substantially
related to the State's interest in avoiding the litigation of stale
or fraudulent claims. ^^^

The Court held that the one-year limitation failed the applicable
test.^^^ The one-year limitation allowed insufficient opportunity to
assert claims in light of the mother's financial difficulties surrounding
the birth of a child out-of-wedlock, the mother's likely continuing
affection for the child's father, the mother's desire to avoid disapproval
of the family and the community, and the mother's emotional strain
and confusion. ^^* All these factors would likely result in delaying the

^2^02 S. Ct. 1549 (1982). For Indiana's position, see In re M.D.H., 437-N.E.2d 119
(Ind. Ct. App. 1982).

^'^02 S. Ct. at 1556. Texas Fam. Code Ann. § 13.01 (Vernon Supp. 1982) provides:
"A suit to establish the parent-child relationship between a child who is not the
legitimate child of a man and the child's natural father by proof of paternity must
be brought before the child is one year old, or the suit is barred."

^^02 S. Ct. at 1556.

'^'Id. at 1555.

'''Id.

''Ud.

'''Id.

1983] SURVEY-DOMESTIC RELATIONS 189

assertion of a paternity action. The Court also held that the one-year
limitation was not substantially related to Texas' asserted interests.
The Court stated that it could "conceive of no evidence essential to
paternity suits that invariably will be lost in only one year, nor is
it evident that the passage of twelve months will appreciably increase
the likelihood of fraudulent claims."^^®

A child born during a marriage is presumed to be legitimate.^^"
"[This] presumption is one of the strongest known to the law and may
only be rebutted by direct, clear, and convincing evidence."^^^ In
H.W.K. V. M.A.G.,^^^ H.W.K., the alleged father, unsuccessfully relied
on the presumption of legitimacy as a defense to a paternity action
brought by the child's mother. In H.W.K. , the mother was married
to another man at the time the child was conceived, but was estranged
from him and living with H.W.K. Additionally, there was testimony
that H.W.K. had admitted being the child's father. The trial court held
that H.W.K. was the father.^^^ H.W.K. appealed, arguing that the
evidence presented by the mother was insufficient to rebut the pre-
sumption.

The court of appeals affirmed the trial court's determination that
H.W.K. was the father of the child, despite Indiana case law, which
has held that statements and admissions of the parties, alone, are in-
sufficient to rebut the presumption of legitimacy.^^^ The court held
that this principle from case law was "factually limited to situations
where there is evidence the husband had access to the mother dur-
ing the period of conception."^^^ In this case, the court of appeals found
that the mother's evidence was sufficient to show that the husband
had not had access to her during the crucial period of time.^^® Because
the type of evidence presented avoided the application of the princi-
ple that the parties' statements alone are insufficient evidence, the

^^^Id. (footnote omitted). Justice O'Connor found a countervailing state interest in
keeping the mothers and children off the welfare rolls. Id. at 1556-57 (O'Connor, J.,
concurring). Justice O'Connor also found that there was nothing "special about the
first year following birth that compels the decision in this case." Id. at 1558. Justice
O'Connor did not "read the Court's decision as prejudging the constitutionality of longer
periods of limitation . . . . " /d.

^^^H.W.K V. M.A.G., 426 N.E.2d 129. 131 (Ind. Ct. App. 1981) (citing R.D.S. v. S.L.S.,
402 N.E.2d 30 (Ind. Ct. App. 1980)). See also Buchanan v. Buchanan, 256 Ind. 119, 123,
267 N.E.2d 155, 157 (1971); Hooley v. Hooley, 141 Ind. App. 101, 226 N.E.2d 344 (1967);
Whitman v. Whitman, 140 Ind. App. 289, 215 N.E.2d 689 (1966).

'^•426 N.E.2d at 131.

'^'426 N.E.2d 129 (Ind. Ct. App. 1981).

''Ud. at 131.

'''See L.F.R. v. R.A.R., 269 Ind. 97, 378 N.E.2d 855 (1978); Buchanan v. Buchanan,
256 Ind. 119, 267 N.E.2d 155 (1971).

•^^426 N.E.2d at 132.

'''Id. at 132-33.

190 INDIANA LAW REVIEW [Vol. 16:171

court held that the mother had met her burden of proof/^'

In another case, In re G.L.A.y^^^ the court of appeals reversed the
trial court's order that three children involved in a paternity action
change their surnames and take their father's surname. The mother
appealed the order of the trial court, alleging that there was in-
sufficient evidence in the record on the issue whether a change of
the children's surname was in their best interests/^^ The court of ap-
peals stated that the proper standard is whether the change is in the
best intierest of the child.^^'' In addition, the majority opinion reasoned
that because the child of an unwed mother bears the mother's name
at birth, any party wishing to change the name has the burden of
persuasion on the issue. ^^^ Thus, the court of appeals found that the
trial court "indulged in an erroneous presumption that, absent extreme
circumstances, a child should share the surname of its biological father
as long as the father is contributing to its support."^*^ Because the
father had introduced evidence relevant only to issues of establishing
paternity, custody, support and visitation, but no evidence relevant
to the issue of changing the children's names, the court of appeals
reversed the trial court's decision.

The dissenting judge found that the father's agreement to sup-
port the children and to provide medical insurance, and his "desire"
for the children to have his surname were sufficient evidence to uphold
the trial court's decision.^"

''Ud. at 132.

^^«430 N.E.2d 433 (Ind. Ct. App. 1982).
'''Id. at 433.

''^^Id. The majority gave the following examples of evidence that would be rele-
vant to the issue of the child's best interest:

[EJvidence of the surname by which the child is known by "family" and the
community; the convenience, if any, of retaining or assuming the surname
of its custodial parent; the existence of property owned by the child under
a particular surname, such as a U.S. savings bond; the identification of the
child by a particular surname with private or public entities, such as insurance
carriers and Social Security Administration; the degree of confusion to the
child engendered by a change in surname; and, if a child is of sufficient matur-
ity, the child's desire as to its surname.
Id. at 434 n.3.

^^^430 N.E.2d at 434.
'*'Id.

'*'Id. at 435 (Buchanan, C.J., dissenting). "Given such commendable expressions
of paternalism on the father's part, the trial court's action is understandable — and sup-
portable." Id.

VIII. Evidence

Henry C. Karlson*
A. Hearsay

1. Patterson Unlimited. — In Dowdell v. State,^ the fourth district
court of appeals ignored a limitation upon the substantive use of out-
of-court statements that the third district court of appeals had created
in Carter v. State.^ In the landmark opinion Patterson v. State,^ the
Indiana Supreme Court had held that an extrajudicial statement may
be used as substantive evidence if the declarant is available for
cross-examination/ Then, construing Patterson, the third district court
of appeals in Carter created foundational requirements for the substan-
tive use of extrajudicial statements permitted by Patterson. In Carter,
the court required that the declarant be confronted with the state-
ment while on the witness stand and admit or deny making the
statement.^ Neither of these foundational requirements were honored
in Dowdell.

The defendant in Dowdell was convicted of theft. The only evidence
indicating that the property in question was not the property of the

* Associate Professor of Law, Indiana University School of Law — Indianapolis. A.B.,
University of Illinois, 1965; J.D., 1968; LL.M., 1977.
'429 N.E.2d 1 (Ind. Ct. App. 1981).

M12 N.E.2d 825 (Ind. Ct. App. 1980). For further discussion of this case, see
Karlson, Evidence, 1981 Survey of Recent Developments in Indiana Law, 15 Ind. L. Rev.
227, 227-30 (1982).

^263 Ind. 55, 324 N.E.2d 482 (1975).

*Id. at 58, 324 N.E.2d at 484-85. In Patterson, the court made reference to the
revised federal rules, effective July 1, 1975. Fed. R. Evid. 801(d), in part, provides:
Statements which are not hearsay. A statement is not hearsay if—

(1) Prior statement by witness. The declarant testifies at the trial or
hearing and is subject to cross-examination concerning the statement, and
the statement is (A) inconsistent with his testimony, and was given under
oath subject to the penalty of perjury at a trial, hearing, or other proceeding,
or in a deposition, or (B) consistent with his testimony and is offered to rebut
an express or implied charge against him of recent fabrication or improper
influence or motive ....
Id. The Patterson court, however, went beyond the federal rule and held that if the
declarant is available for cross-examination, then his out-of-court statement is not hear-
say, even if the statement is not made while the declarant is subject to the penalty
of perjury and is consistent with the declarant's present testimony. 263 Ind. at 58,
324 N.E.2d at 485. Unlike the federal rule, the rule announced in Patterson permits
the general use of out-of-court statements which are consistent with the declarant's
in-court testimony. Id., 324 N.E.2d at 484-85. But see Samuels v. State, 267 Ind. 676,
679, 372 N.E.2d 1186, 1187 (1978); Stone v. State, 268 Ind. 672, 678, 377 N.E.2d 1372,
1375 (1978); Smith v. State, 400 N.E.2d 1137, 1141 (Ind. Ct. App. 1980).

^412 N.E.2d 825, 828-29. An oral statement may be used as substantive evidence,
the Carter court held, only if the declarant admits making the statement. Id. at 829-30,
831 n.4. A written statement or an oral statement that was electronically recorded
may be used as substantive evidence even though the declarant denies or fails to
remember making it. Id. at 831 n.4.

191

192 INDIANA LAW REVIEW [Vol. 16:191

defendant consisted of testimony from a police officer that a William
Coleman had identified the property as his own property, which was
missing from his home.^ Although present in the courtroom, Coleman
did not take the witness stand. Despite Coleman's failure to testify,
the court in Dowdell found that Coleman's presence in the courtroom
made him available for cross-examination. Therefore, the court held
that Coleman's out-of-court statements were "admissible hearsay under
the rule of Patterson v. Stated Assuming that a proper objection to
the police officer's testimony was made, the Dowdell court's ruling on
the admissibility of such evidence is incorrect.

An examination of cases wherein the Patterson rule has been relied
upon discloses a common factor. In each case, although the declarant
was not always confronted with the out-of-court statement prior to
its admission, the declarant did testify and, thus, could actually be
cross-examined.® Although the Indiana Supreme Court has not required
that a declarant testify before his extrajudicial statement is received
into evidence, the court has warned that such statements are not to
be used "as a mere substitute for available in-court testimony."^
Because the declarant in Dowdell was available and could have been
called as a witness, his extrajudicial statement to the police officer
was clearly used in place of available in-court testimony.

An expansion of Patterson to permit substantive use of an extra-
judicial statement made by a declarant who, while available to be
called as a witness, never in fact takes the witness stand serves no
valid purpose. Live testimony is always preferred over mere recorded
testimony. An example of this preference is the requirement that,
before testimony from a prior proceeding is admissible in court under
the former testimony exception to the hearsay rule, the declarant must
be shown to be unavailable as a witness.^" If a witness is available

«429 N.E.2d at 3.

Ud. at 3 n.4. It must be noted that the court is incorrect in referring to the
evidence as "admissible hearsay." Under the rule anounced in Patterson, the evidence
is not hearsay. Patterson v. State, 263 Ind. 55, 58, 324 N.E.2d 482, 484-85 (1975).

''See, e.g.. Rapier v. State, 435 N.E.2d 31 (Ind. 1982); Lowery v. State, 434 N.E.2d
868 (Ind. 1982); Bundy v. State, 427 N.E.2d 1077 (Ind. 1981); Riddle v. State, 402 N.E.2d
958 (Ind. 1980); Brown v. State, 390 N.E.2d 1000 (Ind. 1979); Gutierrez v. State, 386
N.E.2d 1207 (Ind. 1979); Thompkins v. State, 383 N.E.2d 347 (Ind. 1978); Buttram v.
State, 269 Ind. 598, 382 N.E.2d 166 (1978); Lamar v. State. 266 Ind. 689, 366 N.E.2d
652 (1977); Flewallen v. State, 267 Ind. 90, 368 N.E.2d 239 (1977); Carter v. State, 266
Ind. 196, 361 N.E.2d 1208, ceH. denied, 434 U.S. 866 (1977); Barrientos v. State, 173
Ind. App. 652, 365 N.E.2d 789 (1977); Lloyd v. State, 166 Ind. App. 248, 335 N.E.2d
232, trans, denied (1976). An excellent discussion of this aspect of the Patterson rule
is found in D.H. v. J.H., 418 N.E.2d 286 (Ind. Ct. App. 1981).

'Samuels v. State, 267 Ind. 676, 679, 372 N.E.2d 1186, 1187 (1978).

""See Burnett v. State, 162 Ind. App. 543, 319 N.E.2d 878 (1974); Fed. R. Evid.
804(b)(1). Professor Seidman in his work on Indiana evidence states: "Since there is

1983] SURVEY-EVIDENCE 193

to testify, he should be called to the witness stand to enable the trier
of fact to observe the declarant's demeanor while testifying to the
disputed facts. Only if the out-of-court statement offered under the
Patterson rule adds evidentiary information that is not contained in
the witness' live testimony, can it be said that the extrajudicial state-
ment is not being used in place of readily available in-court testimony.
The Dowdell court's attempt to extend Patterson by permitting the
use of extrajudicial statements made by individuals who never take
the witness stand should be rejected by the Indiana Supreme Court.

2. Statement as Cumulative Evidence. — The policy that an out-
of-court statement is not to be used in place of readily available in-
court testimony does not forbid the use of a Patterson statement which
is in addition to in-court testimony by the declarant. In Underhill v.
State,^^ the prosecution offered, and the court received, a written
report by William Cross. The report, which consisted of a narrative
of the events in question, was contained in a one-page, handwritten,
unsigned document. On appeal, the defendant alleged that the admis-
sion of the report was error because it was not signed and because
part of it was prepared by a deputy prosecutor.

In holding that the trial court did not err in receiving the writ-
ten statement as evidence, the supreme court recognized that a state-
ment, to be admissible under the rule announced in Patterson, need
not be signed. ^^ Indeed oral, as well as written, statements are ad-
missible under Patterson}^

In explaining its decision, the court also stated: "Furthermore, the
matters contained in the report merely reiterated the testimony which
Cross gave at trial."^^ If this is true, then the statement should have
been excluded. Repeating a witness' testimony gives it undue
emphasis. Because it would be improper to permit a witness to repeat
his testimony over proper objection on direct examination,^^ it should
be equally improper to permit the use of prior out-of-court statements
for that purpose. If a proper objection is made to a prior statement

a strong policy favoring the personal presence of the witness for demeanor evalua-
tion, in order for his former testimony to be received, it is necessary to demonstrate
to the trial judge the unavailability of the witness . . . ." M. Seidman, The Law of
Evidence in Indiana 116 (1977). See also Mancusi v. Stubbs, 408 U.S. 204 (1972); Barber
V. Page. 390 U.S. 719 (1968).

"428 N.E.2d 759 (Ind. 1981).

'^Id. at 765.

"Patterson v. State, 263 Ind. 55, 324 N.E.2d 482 (1975). See Bundy v. State, 427
N.E.2d 1077 (Ind. 1981); Brown v. State, 390 N.E.2d 1000 (Ind. 1979).

^'428 N.E.2d at 765-66.

'^E. Brownlee, Objections to Evidence § 2.3 (1974). "Many times the same ques-
tion will be asked of a witness after it has been asked and answered .... The general
rule is not to permit such questioning because repetition may give excessive emphasis
to selected evidence." Id.

194 INDIANA LAW REVIEW [Vol. 16:191

of a witness, the extrajudicial statement should be excluded unless
the court holds that the statement does more than merely repeat the
in-court testimony of the witness.

3. Judgment of Previous Conviction. — A new Indiana statute^^
terminates Indiana's adherence to the common law rule that excludes
evidence of a criminal conviction when it is offered in a civil proceeding
as evidence of a material fact upon which the conviction is based."
The statute permits evidence of certain types of criminal convictions
to be admissible in a civil action as evidence of "any fact essential
to sustaining the judgment," but evidence of an acquittal remains
inadmissible.^* For a conviction to be admissible, it must be entered
after a plea of guilty or after a full trial of the issues, and the convic-
tion must be for an offense "punishable by death or imprisonment in
excess of one [1] year."^^ Such a conviction may be used as evidence
of a material fact upon which the conviction is based in a civil action
against a party who was not involved in the criminal prosecution.^"
Admission of the conviction is justified by the reliability of the fact-
finding process in criminal proceedings and by the requirement of
proof beyond a reasonable doubt.^^

Enactment of this provision brings Indiana law, as it relates to
the use of a conviction in a civil action, in accord with federal law.^^
Unlike Federal Rule of Evidence 803(22),^ however, the Indiana statute

^'Act of Feb. 25, 1982, Pub. L. No. 201, 1982 Ind. Acts 1514 (codified at Ind. Code
§ 34-3-18-1 (1982)). The new statute provides:

Evidence of a final judgment, entered after a trial or upon a plea of guilty,
adjudging a person guilty of a crime punishable by death or imprisonment
in excess of one [1] year, shall be admissible in any civil action to prove any
fact essential to sustaining the judgment, and is not excluded from admis-
sion as hearsay regardless of whether the declarant is available as a witness.
The pendency of an appeal may be shown but does not affect the admissibil-
ity of evidence under this section.
Id.

'iND. Code § 34-3-18-1 (1982). See Hambey v. Hill, 148 Ind. App. 662, 269 N.E.2d 394
(1971); Beene v. Gibraltar Indus. Life Ins. Co.. 116 Ind. App. 290, 63 N.E.2d 299 (1945);
see also Wheelock v. Eyl, 393 Mich. 74, 223 N.W.2d 276 (1974); Rullo v. Rullo, 121 N.H.
299, 428 A.2d 1245 (1981). But see Karlson, Criminal Judgments as Proof of Civil Liabil-
ity, 31 Def. L.J. 173 (1982); Note, Admissibility and Weight of a Criminal Conviction in
a Subsequent Civil Action, 39 Va. L. Rev. 995 (1953).
'«lND. Code § 34-3-18-1 (1982).
''Id.

'"See id.

^'See 4 J. Weinstein & M. Berger, Weinstein'S Evidence 1 803(22)[01], at 803-73
(1981); 4 D. LouiSELL & C. Mueller, Federal Evidence § 470, at 887-88 (1980).
^See Fed. R. Evid. 803(22).

^Ted. R. Evid. 803(22), as an exception to the hearsay rule, provides:
Evidence of a final judgment, entered after a trial or upon a plea of guilty
(but not upon a plea of nolo contendere), adjudging a person guilty of a crime
punishable by death or imprisonment in excess of one year, to prove any

1983] SURVEY-EVIDENCE 195

does not permit a prior conviction to be used in a criminal proceeding
as evidence of a material fact upon which the conviction is based.^''
One possible application of the new Indiana provision, however,
should be rejected. A plea of guilty by an accused party is an admis-
sion that has traditionally been considered admissible against the
accused in a subsequent civil proceeding.^^ By definition, an admission
is proper evidence only when offered against the party making it.^®
However, Indiana's new statute would permit a convicted party to
offer his own plea of guilty, embodied in a judgement of conviction,
as evidence.^^ For example, the beneficiary of a life insurance policy
could offer as evidence his conviction for reckless homicide to show
that he is entitled to receive the proceeds of the policy, which are
prohibited when the beneficiary intentionally kills the insured.

Thus, in light of the potential misuse, a conviction based upon a
plea of guilty should be held inadmissible when tendered by the con-
victed party. Furthermore, because a guilty plea removes the necessity
for offering evidence at the criminal proceeding, the reliability of the
fact-finding process and the requirement of proof beyond a reasonable
doubt, upon which the admission of a conviction is premised, do not
exist. All that exists is a self-serving statement on the part of the
convicted party .^*

4. Statements of a Co-conspirator. — In Wallace v. State,^^ the In-
diana Supreme Court upheld the evidentiary use of statements made
by a co-conspirator after the offense that was the object of the con-
spiracy had been committed. At the defendant's trial, a witness linked
the defendant to the murder of her husband by relating several
statements made by the defendant to a co-conspirator who did not
testify. Some of these statements were made after the murder in ques-
tion had been completed. If the conspiracy ended with the murder.

fact essential to sustain the judgment, but not including, when offered by
the Government in a criminal prosecution for purposes other than impeach-
ment, judgments against persons other than the accused. The pendency of
an appeal may be shown but does not affect admissibility.
^*See supra note 16.
''See, e.g., Hambey v. Hill, 148 Ind. App. 662, 269 N.E.2d 394 (1971); Hudson v.

Otero, 80 N.M. 668, 459 P.2d 830 (1969) (dicta).

''See Jethroe v. State, 262 Ind. 505, 319 N.E.2d 133 (1974); Marsh v. Lesh, 164

Ind. App. 67, 326 N.E.2d 626 (1975); Fed. R. Evm. 801(d)(2). See (;reriera% C. McCormick,

Handbook on the Law of Evidence § 262, at 628 (2d ed. 1972) ("Admissions are the words

or acts of a party-opponent, or his predecessor or representative, offered as evidence

against him.").

"See swpra note 16.

'^Cf. Bounds V. Caudle, 560 S.W.2d 925 (Tex. 1977) (negligent homicide conviction

based on a plea of guilty not conclusive on issue of whether killing was committed

with intent when offered by convicted party).

^M26 N.E.2d 34 (Ind. 1981) (reversed and remanded on other grounds).

196 INDIANA LAW REVIEW [Vol. 16:191

as some prior cases indicate, then statements made by a co-conspirator
after that point are not admissible.^"

In determining that the statements were properly received, the
court in Wallace held that a conspiracy and its objectives do not
necessarily end upon the successful commission of the underlying
offense.^^ For purposes of the rule permitting the statements of one
conspirator made in furtherance of the conspiracy to be admissible
against all co-conspirators, the conspiracy does not end until all the
objectives of the conspiracy are achieved.^^ In Wallace, one objective
of the conspiracy was for the actual killers to be paid by the defendant
from the proceeds of the deceased's life insurance policy.^ Statements
made concerning this payment were made in furtherance of the con-
spiracy's objectives and, therefore, were admissible even though the
statements were made after the murder had taken place.^*

This aspect of the Wallace opinion is correct and in accord with
federal case law.^ In light of Wallace, however, the admissibility of
a statement under the co-conspirator exception to the hearsay rule
will, in some cases, turn upon how the objectives of the conspiracy
are described to the court. If the objectives are not described as
extending beyond the commission of the underlying offense, then
statements made after that point would be inadmissible. Artful counsel,
however, who describe the ends of the conspiracy in broader terms
may be able to greatly expand the evidentiary use of statements made
by co-conspirators.

B. Character Evidence
Two recent opinions, one from the Indiana Supreme Court and

^See Marjason v. State, 225 Ind. 652, 75 N.E.2d 904 (1947); Kahn v. State, 182
Ind. 1, 105 N.E. 385 (1914); Walls v. State, 125 Ind. 400, 25 N.E. 457 (1890); Berridge
V. State, 168 Ind. App. 22, 340 N.E.2d 816 (1976).

^^426 N.E.2d at 43 (citing Hicks v. State, 213 Ind. 277, 11 N.E.2d 171 (1937), cert,
denied, 304 U.S. 564 (1938)) (the disposition of the body in a murder conspiracy was
in furtherance of the conspiracy).

^^26 N.E.2d at 43. Indiana appears to follow the traditional view that the state-
ment by the co-conspirator must have been made in furtherance of the conspiracy's
objectives. See Patton v. State, 241 Ind. 645, 175 N.E.2d 11 (1961); Hicks v. State, 213
Ind. 277, 11 N.E.2d 171, cert denied, 304 U.S. 564 (1938). See Fed. R. Evid. 801(d)(2)(E)
for the general rule. The Model Code of Evidence does not include this requirement.
See Model Code of Evidence Rule 508 (1942).

'H2Q N.E.2d at 43.

'*Id.

"^See, e.g.. United States v. Fortes, 619 F.2d 108, 117 (1st Cir. 1980); United States
V. Schwanke, 598 F.2d 575, 581-82 (10th Cir. 1979); United States v. Hickey, 596 F.2d
1082, 1089-90 (1st Cir.), cert, denied, 444 U.S. 853 (1979); United States v. Knuckles,
581 F.2d 305. 313 (2d Cir.), cert, denied, 439 U.S. 986 (1978); cf. McDonald v. United
States, 89 F.2d 128, 133-34 (8th Cir. 1937) (defendant held liable as co-conspirator even
though he entered the conspiracy months after the substantive offense was committed).

1983] SURVEY-EVIDENCE 197

one from the Indiana Court of Appeals, illustrate two different uses
for evidence of a common scheme or plan in a criminal proceeding,
and the different foundation needed for each use. In Downer v. State,^^
the supreme court correctly held that evidence, which showed an in-
formant had been purchasing drugs from the defendant since 1975,
was admissible in the prosecution for a 1980 drug sale. The evidence
was admissible to prove the existence of a common scheme or plan
to sell narcotics.^^ Downer should be contrasted with the decision of
the court of appeals in Byrer v. State.^^

The defendant in Byrer was charged with robbery while armed
with a deadly weapon. The trial judge allowed the prosecution to of-
fer evidence showing that when the defendant was apprehended two
days after the robbery in question, he was planning another robbery.
On appeal, the court held that this evidence was not admissible to
prove a common scheme or plan on the defendant's part.^^ In order
to be admissible as evidence of a common scheme or plan, the ap-
pellate court held that "the similarities between offenses or acts of
misconduct must be so unusual and distinctive so as to be 'like a
signature.' "^°

It is a well settled rule of evidence that uncharged acts of miscon-
duct may not be used to prove a defendant is a bad person and,
therefore, probably guilty of the offense under consideration.*^
However, there are numerous other purposes for which the evidence
may be offered.''^ One purpose is to demonstrate a common scheme
or plan on the part of the accused.'*^ If the common scheme or plan
is to be used as circumstantial evidence to identify the accused as
the person who committed the crime under consideration, the
similarities between the acts of misconduct must be so distinctive as
to give rise to a reasonable belief that the defendant committed both

^M29 N.E.2d 953 (Ind. 1982).

'Ud. at 955.

^«423 N.E.2d 704 (Ind. Ct. App. 1981).

^nd. at 708-09.

''Id. at 708 (quoting Williams v. State, 417 N.E.2d 328, 332 (Ind. 1981)).

''See Biggerstaff v. State, 266 Ind. 148, 361 N.E.2d 895 (1977); Schnee v. State,
254 Ind. 661, 262 N.E.2d 186 (1970). See also Fed. R. Evid. 404. But see Fox v. State,
413 N.E.2d 665 (Ind. Ct. App. 1980) (evidence of depraved sexual conduct admissible);
Omans v. State, 412 N.E.2d 305 (Ind. Ct. App. 1980) (acts tending to indicate a de-
praved sexual instinct are admissible).

'^See, e.g., Henderson v. State, 403 N.E.2d 1088, 1090 (Ind. 1980) (identity); Quinn
V. State, 265 Ind. 545, 546-47, 356 N.E.2d 1186, 1187 (1976) (motive); Franks v. State,
262 Ind. 649, 657, 323 N.E.2d 221, 226 (1975) (intent); Bennett v. State, 416 N.E.2d 1307,
1311 (Ind. Ct. App. 1981) (res gestae); Samuels v. State, 159 Ind. App. 657, 660-61, 308
N.E.2d 879, 881-82 (1974) (knowledge).

^'Manuel v. State, 267 Ind. 436, 438, 370 N.E.2d 904 (1977); Perry v. State, 393
N.E.2d 204, 207 (Ind. Ct. App. 1979); Ingle v. State, 176 Ind. App. 695, 707, 377 N.E.2d
885, 892 (1978).

198 INDIANA LAW REVIEW [Vol. 16:191

acts. More is needed than merely demonstrating the repeated com-
mission of a crime of the same class, such as repeated murders or
assaults/*

Common scheme or plan evidence may, however, be used to show
that the crime in question was part of a larger plan or a continuing
scheme of criminal conduct/^ When it is used for this purpose, there
is no need to prove that the uncharged acts and the crime under
consideration are uniquely similar. The only foundational requirement
is that the evidence be sufficient to give rise to a reasonable belief
that the offense under consideration was not an isolated event, but
that it was part of a larger plan or part of a continuing course of
criminal conduct.**

Because the court in Downer did not require that the evidence
of prior drug sales, which was offered to prove a common scheme or
plan, be similar to the sale charged. Downer and Byrer appear to con-
flict. However, the two opinions are not in disagreement. The evidence
in Downer was used to show a continuing plan or scheme on the part
of the defendant to deal in drugs; his identity was not in issue.*^ Prior
Indiana decisions have recognized that a drug sale is often part of
a larger scheme or plan to peddle drugs.*® In Byrer, however, evidence
of the accused's arrest while planning another robbery did not show
the existence of a larger, ongoing plan or scheme to commit robbery.
Rather, the evidence was offered to prove the identity of the defend-
ant. Therefore, in order for the evidence to be admissible in Byrer,
the circumstances surrounding the two offenses would have to identify
the accused as the person who committed the robbery in question.
The court of appeals was correct in holding that, to be admissible for

"McCoRMiCK, supra note 26, § 190, at 448-49. Indiana opinions appear to combine
two exceptions within the common scheme or plan exception; one use is to show the
crime in question is part of a larger plan. See Perry v. State, 393 N.E.2d 204, 207 (Ind.
Ct. App. 1979). Another use is to show the identity of the accused by the similarity
between the two crimes. See Biggerstaff v. State, 266 Ind. 148, 152, 361 N.E.2d 895,
897 (1977). When used for this purpose it should be referred to as modus operandi.
See United States v. Oliphant, 525 F.2d 505, 507 (9th Cir. 1975), cert, denied, 424 U.S.
972 (1976); United States v. McCord, 509 F.2d 891, 895 (7th Cir.), cert, denied, 423 U.S.
833 (1975); United States v. Castro, 476 F.2d 750, 753 (9th Cir. 1973); Riddle v. State,
264 Ind. 587, 598, 348 N.E.2d 635, 641 (1976).

''See, e.g., Carbo v. United States, 314 F.2d 718 (9th Cir.), cert, denied, 377 U.S.
953 (1963).

''See United States v. Freeman, 514 F.2d 1184 (10th Cir. 1975); Perry v. State,
393 N.E.2d 204 (Ind. Ct. App. 1979).

"^429 N.E.2d at 955. Although the opinion is not at all clear, it appears the evidence
of common scheme or plan was used as circumstantial evidence that the sale in ques-
tion had taken place. Id.

''See, e.g.. Ingle v. State, 176 Ind. App. 695, 377 N.E.2d 885 (1978); Miller v. State,
167 Ind. App. 271, 338 N.E.2d 733 (1975).

1983] SURVEY-EVIDENCE 199

identification, the two acts of misconduct must be unusual and distinc-
tive in nature/^

C. Evidence of Business Custom

Business custom as proof of the mailing of important documents
is the subject of the court's decision in F & F Construction Co. v.
Royal Globe Insurance Co.^ The plaintiff brought suit against its
liability insurer alleging that the insurer had breached its contrac-
tual duty to defend the plaintiff. The trial court granted summary
judgment for the defendant because the facts, as shown by the af-
fidavits, depositions, and pleadings, were inadequate as a matter of
law to permit a finding that the plaintiff had complied with the notice
provisions of the insurance contract.^^

The facts showed that the president of F & F had placed the
papers relating to the suit on the desk of his office manager with
orders that the documents be mailed. Normal office procedure pro-
vided for the office manager to give the papers to another employee
for mailing. The office manager, and other employees, could not recall
seeing the documents or mailing them. The court also found that the
defendant. Royal Globe, never received the papers;^^ however, it is
not clear on what evidence the court based this finding of fact.

On appeal, the main issue in F & F Construction Co. was whether
the pleadings presented a factual issue, which would make the sum-
mary judgment contrary to law.^^ The appellate court, relying upon
United Farm Bureau Mutual Insurance Co. v. Adams, ^ ruled that sum-
mary judgment was appropriate because "[njormal office procedure
in preparing and dispatching outgoing mail is not sufficient to prove
mailing, instead . . . testimony from one with direct and actual
knowledge of the particular message in question is required to
establish proof of mailing."^^ This holding is both bad law and a misap-
plication of United Farm Bureau.

^'423 N.E.2d at 708. See Riddle v. State, 264 Ind. 587, 348 N.E.2d 635 (1976); Layton
V. State, 248 Ind. 52, 221 N.E.2d 881 (1966); Smith v. State, 215 Ind. 629, 21 N.E.2d
709 (1939).

^423 N.E.2d 654 (Ind. Ct. App. 1981). For a full discussion of the case, see Trimble,
Insurance, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev. 205,
214 (1983).

^'423 N.E.2d at 655.

''Id.

^''Summary judgment is appropriate only if "there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law."
Ind. R. Tr. P. 56(C).

'"145 Ind. App. 516, 251 N.E.2d 696 (1969).

='423 N.E.2d at 656 (citing United Farm Bureau Mut. Ins. Co. v. Adams, 145 Ind.
App. 516, 251 N.E.2d 696 (1969)).

200 INDIANA LAW REVIEW [Vol. 16:191

The issue before the court in United Farm Bureau was not
whether business custom was sufficient evidence of mailing to pre-
sent a question of fact, but whether, as a matter of law, business
custom established mailing in light of conflicting evidence. ^^ To hold,
as a matter of law, that business custom does not establish mailing
when other evidence is in conflict is not to hold, as a matter of law,
that business custom is insufficient to prove mailing. Reliance upon
the opinion in United Farm Bureau by the court in F & F Construction
Co. was clearly improper.

In addition to the misapplication of United Farm Bureau, the
court's holding also brings Indiana evidence law into conflict with the
Federal Rules of Evidence. Federal Rule of Evidence 406 provides that:
''[EJvidence of . . . the routine practice of an organization, whether
corroborated or not and regardless of the presence of eyewitnesses,
is relevant to prove that the conduct of the . . . organization on a
particular occasion was in conformity with the habit or routine
practice."^^ The trend in the federal courts is to permit mailing to be
proven by business routine and to not require the mail clerk to testify
about the mailing of the particular objects in question.^^ Given the
large number of documents mailed by a business organization in the
normal course of business, it is unreasonable to demand that the mail-
ing of each piece of mail be separately remembered or that a business
record be made of its mailing.^^ The standard of proof imposed by the
court in F & F Construction Co. is unrealistic and is not in accord
with modern practices.

D. Judicial Notice

In denying the defendants' appeal in Freson v. Combs,^^ the court
of appeals limited the use of judicial notice by Indiana courts. During

^145 Ind. App. at 519, 251 N.E.2d at 698 ("The main issue before this court is
whether the evidence that Appellant mailed the notice of cancellation is undisputed,
without conflict and can lead only to the conclusion that Appellants did in fact mail
the notice.").

"Fed. R. Evid. 406.

^^See United States v. Joyce, 499 F.2d 9, 15-16 (7th Cir.), cert, denied, 419 U.S.
1031 (1974); United States v. Fassoulis, 445 F.2d 13, 17 (2d Cir.), cert, denied, 404 U.S.
858 (1971); Webb v. United States, 347 F.2d 363, 364 (10th Cir. 1965); Whiteside v. United
States, 346 F.2d 500, 504 (8th Cir. 1965), cert, denied, 384 U.S. 1023 (1966). Cmtra United
States V. Wolfson, 322 F. Supp. 798, 813-14 (D. Del. 1971), aff'd on other grounds, 454
F.2d 60 (3d Cir.), cert, denied, 406 U.S. 924 (1972); Annot., 86 A.L.R. 541 (1933); Annot.,
25 A.L.R. 9 (1923).

^'United States v. Matzker, 473 F.2d 408, 411 (8th Cir. 1973).

~433 N.E.2d 55 (Ind. Ct. App. 1982). For a discussion of the case, see Krieger,
Property, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev. 283,
285 n.4 (1983).

1983] SURVEY -EVIDENCE 201

a quiet title action, the defendants requested that the court take
judicial notice of a related suit and its proceedings. The request was
made after each side had rested their case. In holding that the trial
court's refusal to grant the request was not error, the court of appeals
ruled that a trial court may not take judicial notice of its own record
in a related cause of action.^^ In addition, the appellate court found
that the trial court properly exercised its discretion by holding that
a request for judicial notice should have been made before the re-
questing party rested its case.^^ Both of these rulings are in conflict
with the use of judicial notice in federal courts^^ and are unnecessary
restraints upon the use of judicial notice.

The doctrine of judicial notice provides an alternative to the for-
mal presentation of evidence.^'^ When judicial notice is taken of a fact,
the parties need not present evidence to establish that fact, and the
trial judge informs the jury of its existence.^^ Because judicial notice
is a substitute for the usual presentation of evidence, a court is not
bound by the normal rules of evidence in determining the existence
of a fact that is to be judicially noticed.^^ Federal Rule of Evidence
201(f) permits judicial notice to be taken at any stage in the
proceeding.^^ Furthermore, on its face, Federal Rule of Evidence 201(d)
requires that judicial notice be taken if a proper request is made.^®
Indiana law similarly recognizes that judicial notice may be taken for

«'433 N.E.2d at 59.
nd. at 60.

''See Fed. R. Evid. 201.

^'S. Saltzburg & K. Redden, Federal Rules of Evidence Manual, 43-44 (3d ed.
1982).

Both at common law and in the evidentiary system envisioned by the Federal
Rules, most proof is presented by means of testimonial evidence or by the
offering of demonstrative evidence. But there has traditionally been an ex-
ception to the requirement that a party who relies upon a certain proposition
must prove it; the exception is judicial notice.
Id.

'Ted. R. Evid. 201(g).

''See 1 D. Louisell & C. Mueller, Federal Evidence, § 58, at 449-51 (1977); see
also United States v. 1078.27 Acres of Land, 446 F.2d 1030, 1034 (5th Cir. 1971), cert,
denied, sub nom. Galveston City Co. v. United States, 405 U.S. 936 (1972) (judge did
independent research into historical facts).

'Ted. R. Evid. 201(f); see Mills v. Denver Tramway Corp., 155 F.2d 808 (10th Cir.
1946). But see United States v. Jones, 580 F.2d 219 (6th Cir. 1978) (judicial notice of
an adjudicative fact may not be taken for the first time on appeal in a criminal prosecu-
tion). For a discussion on what constitutes an adjudicative fact, see Annot., 35 A.L.R.
Fed. 440 (1977).

Ted. R. Evid. 201(d). Fed. R. Evid. 201(f) read with Fed. R. Evid. 201(d) would appear
to require that judicial notice be taken on appeal, if the court is supplied with the
necessary information. However, such an interpretation has been characterized as "un-
wise" and in conflict with the policy embodied in Fed. R. Evid. 103. 1 D. Louisell &
C. Mueller, supra note 66, § 59, at 482.

202 INDIANA LAW REVIEW [Vol. 16:191

the first time on appeal.^^ Thus, because judicial notice may be taken
on appeal, there is no reason to require that a request for judicial
notice be made before the party who desires it rests in the trial court.^°

Indiana law conflicts on the question of whether a court should
be permitted to take judicial notice of its own records in a related
suit. Fletcher Savings & Trust Co. v. American State Bank of Lawrence-
burg,'^^ cited in Freson,'^^ requires that the record of proceedings from
another suit be formally introduced into evidence before the trial court
may consider it. However, other opinions permit an appellate court
to take judicial notice of its own records in a related case.^^

Making the introduction of formal proof of the proceedings in a
related suit a precondition for the same court's consideration of those
proceedings is inconsistent with one of the two theories upon which
judicial notice may be based. Modern law, illustrated by Federal Rule
of Evidence 201(b), recognizes two grounds for judicial notice.^^ Judicial
notice is appropriate if the fact is one that is generally known within
the territorial jurisdiction of the court^^ or that is capable of accurate
and ready determination by reference to sources of indisputable
accuracy .^^ Although the proceedings before the same court in a related

''See Roeschlein v. Thomas, 258 Ind. 16, 280 N.E.2d 581 (1972); In re Holovachka,
245 Ind. 483, 198 N.E.2d 381 (1964), cert, denied, 379 U.S. 974; Bromley v. City of In-
dianapolis, 119 Ind. App. 184, 85 N.E.2d 93 (1949).

^"A court in Indiana has discretion in deciding whether to take judicial notice
of a fact, "for even though the court may, it is not bound, to take judicial notice of
all matters of fact of which it may take notice." Fletcher Savings & Trust Co, v.
American State Bank of Lawrenceburg, 196 Ind. 118, 134-35, 147 N.E. 524, 530 (1925).
In this aspect, Indiana law differs from Fed. R. Evid. 201(d) which requires judicial notice
be taken if a proper request is made. In deciding whether to exercise its discretion,
a court may consider whether a timely request has been made. Lack of a timely re-
quest, however, should not be a bar to determining if there has been an abuse of discre-
tion by a court's refusal to take judicial notice. Cf. 1 D. Louisell & C. Mueller, supra
note 66, § 59, at 482-92.

"196 Ind. 118, 147 N.E. 524 (1925).

^^433 N.E.2d at 59.

''See Chandler v. State, 261 Ind. 161, 300 N.E.2d 877 (1973); State ex rel. Indiana
State Bar Ass'n v. Moritz, 244 Ind. 156, 191 N.E.2d 21 (1963); Robbins v. State, 197
Ind. 304, 149 N.E. 726 (1925).

^*Fed. R. Evid. 201(b) provides: "A judicially noticed fact must be one not subject
to reasonable dispute in that it is either (1) generally known within the territorial
jurisdiction of the trial court or (2) capable of accurate and ready determination by
resort to sources whose accuracy cannot reasonably be questioned." See C. McCormick,
supra note 26, §§ 329-30, at 760-66.

"See School City of Gary v. State ex rel. Gary Artists' League, Inc., 253 Ind. 697,
256 N.E.2d 909 (1970) (judicial notice of assessed property valuation proper); Belcher
V. Buesking, 371 N.E.2d 417 (Ind. Ct. App. 1978) (judge in bench trial involving auto
accident may draw upon his experience as a driver).

''See Lippeatt v. Comet Coal and Clay Co., 419 N.E.2d 1332 (Ind. Ct. App. 1981)
(judicial notice of public documents and statistics compiled by state geologists).

1983] SURVEY -EVIDENCE 203

suit are not a matter generally known within the territorial jurisdic-
tion of the court, the proceedings are clearly capable of ready and
accurate determination by resort to the court's own records. To re-
quire that formal proof be made of matters so easily proven from in-
disputable sources is a waste of a court's time. Federal courts
recognize this fact and take judicial notice of their own records.^^ In-
diana courts also should be permitted to do so.

E. Cross-Examination

In Razo v. State,''^ two men who were convicted of rape challenged
the propriety of the trial court's limitation on their cross-examination
of the prosecutrix. During cross-examination, the prosecutrix testified
that at the time of the rape she was in the process of enrolling in
school. Counsel for the appellants then asked if she was just getting
out of the Indiana Girls School about the time of the rape. The trial
court sustained an objection to this question, and the appellate court
found the trial court's ruling to be a proper exercise of its discretion.
The appellate court's decision was correct because the question did
not seek information that was relevant to any issue before the court
or that was inconsistent with the prosecutrix's testimony that she was
enrolling in another school.^^

In upholding the trial court's ruling, however, the court of appeals
incorrectly referred to the rule that prohibits impeachment by proof
of a collateral matter.®" The appellate court stated: "More important-
ly, however, is the fact that a collateral matter cannot be made the
basis for impeachment."®^ The court's application of the collateral issue
rule to a question asked on cross-examination was improper and not
supported by the authority cited in the opinion. Brown v. State,^^ cited
in Razo,^^ did not deal with the propriety of a question asked during
cross-examination. Rather, Brown involved the use of extrinsic

''See, e.g., Harrington v. Vandalia-Butler Board of Education, 649 F.2d 434, 441
(6th Cir. 1981); Florida Board of Trustees of Internal Improvement Trust Fund v. Charley
Toppino & Sons, Inc., 514 F.2d 700, 704 (5th Cir. 1975); Saxton v. McDonnell Douglas
Aircraft Co., 428 F. Supp. 1047. 1049 (CD. Cal. 1977); United States v. Webber, 270
F. Supp. 286, 289 (D. Del. 1967), affd, 396 F.2d 381, 386 (3d. Cir. 1968); see also 1 F.
Wharton, Wharton's Criminal Evidence § 63, at 134-36 (12th ed. 1955). But see Wilson
V. Volkswagen of America, Inc., 561 F.2d 494, 509-10 (4th Cir.), cert, denied, 434 U.S.
1020 (1977).

'M31 N.E.2d 550 (Ind. Ct. App. 1982).

''Id. at 553.

"See Bush v. State, 189 Ind. 467, 482, 128 N.E. 443, 448 (1920); 3A J. WiGMORE,
Evidence in Trials at Common Law § 1006 (Chadbourn rev. 1970).

«'431 N.E.2d at 553.

'Hn N.E.2d 333 (Ind. 1981).

«^431 N.E.2d at 554.

204 INDIANA LAW REVIEW [Vol. 16:191

evidence, in the form of a deposition, to contradict what the defend-
ant believed would be the testimony of a prosecution witness. Because
the contradiction shown by the extrinsic evidence went merely to a
collateral matter, the court in Brown correctly ruled it was
inadmissible.*'* The holding in Brown, however, does not mean that
it is improper to ask a witness about a collateral matter on
cross-examination.

The general rule, followed in Indiana®^ and in other jurisdictions,*^
permits a cross-examiner to ask questions on collateral matters, which
are designed to create inconsistencies in a witness' testimony, in an
attempt to cast doubt upon the accuracy of the testimony. This ques-
tioning is permissible even though the inconsistencies relate only to
collateral matters.*^ The cross-examiner is, however, bound by the
witness' answer and may not offer extrinsic evidence that the answer
to a question dealing with a collateral matter is in fact false.** The
object of the rule that prohibits impeachment by introducing extrin-
sic evidence on collateral issues is to prevent confusion of issues and
unfair surprise.*^ As stated by Professor Wigmore, "it follows that
the cross-examiner may at least question upon even collateral points,
subject always to the general discretion of the trial court . . . ."®° Not-
withstanding Razo, Indiana law is in accord with Professor Wigmore's
statement.^^

^Ml? N.E.2d at 339. See J. Wigmore, supra note 80, §§ 1000-03.

''See Bush v. State, 189 Ind. 467, 482, 128 N.E. 443, 448 (1920); Miller v. State,
174 Ind. 255, 261, 91 N.E. 930, 932 (1910); Dunn v. State, 162 Ind. 174, 182, 70 N.E.
521, 524 (1904).

'^See J. Wigmore, supra note 80, § 1006.

«7d § 1006(2).

'Ud. SS 1000-03.

'^d. S 1002.

""Id. § 1006(2).

^'See Gutierrez v. State, 395 N.E.2d 218, 223 (Ind. 1979) (the scope of cross-
examination on collateral matters is within the discretion of the trial court).

IX. Insurance

John C. Trimble*

Few, if any, of the cases during this survey period made signifi-
cant changes in the body of Indiana insurance law. The cases that
have been surveyed herein are the ones that, in this author's judg-
ment, state a new holding or are noteworthy because they provide
a practical example of how an insurance case should or should not
be handled/

A. Arson Cases

During the 1982 survey period, the Indiana appellate courts
decided three fire cases of significant interest. All three cases involved
arson. Two of the three cases provide general guidelines that insurance
companies may wish to observe in adjusting claims involving suspected
arson, if they wish to avoid punitive damages in subsequent litigation
over a denial of coverage. The third case deals with whether an in-

*Associate with the firm of Lewis, Bowman, St. Clair & Wagner. B.A., Hanover
College, 1977; J.D., Indiana University School of Law — Indianapolis, 1981.

There were other interesting insurance cases during the survey period that con-
firmed existing law. See, e.g., Siebert Oxidermo, Inc. v. Shields, 430 N.E.2d 401 (Ind.
Ct. App. 1982) (confirming general rule that the attorney retained by an insurance
company to defend insured has the ethical duty to represent insured's interest only);
Wallace v. Indiana Ins. Co., 428 N.E.2d 1361 (Ind. Ct. App. 1981) (confirming rule that
Indiana recognizes as valid those contract provisions that limit insured's time to sue
the company on the policy); Barmet of Indiana, Inc. v. Security Ins. Group, 425 N.E.2d
201 (Ind. Ct. App. 1981) (confirming Indiana rules pertaining to construction to be given
to ambiguous contract); Protective Ins. Co. v. Coca-Cola Bottling Co., 423 N.E.2d 656
(Ind. Ct. App. 1981) (confirming and supplementing Indiana's rules pertaining to waiver
and estoppel) (also contained an interesting discussion about a "Truckmen's Endorse-
ment" to an automobile liability policy); Town & County Mut. Ins. Co. v. Savage, 421
N.E.2d 704 (Ind. Ct. App. 1981) (confirming rule that insurance agent has duty to use
reasonable care in undertaking to supply insurance) (also established that an insured
may get prejudgment interest from the company on disputed losses where the amount
in dispute exceeds policy limits); Aetna Casualty & Sur. Co. v. Dolson, 421 N.E.2d 691
(Ind. Ct. App. 1981) (confirming rule that arbitration of an uninsured motorist claim
can be waived by either party, if the party fails to request arbitration and litigates
the matter before a court of competent jurisdiction); Borgman v. Borgman, 420 N.E.2d
1261 (Ind. Ct. App.), reh'g granted, June 24, 1981 (confirming life insurance rule that
the insured can effectively change the beneficiary without completing every ministerial
act involved if the insured did everything in his power to effect such change).

One additional case is of interest to insurance practitioners; however, it is discussed
more extensively in the workers' compensation article. See Baker v. American States
Ins. Co., 428 N.E.2d 1342 (Ind. Ct. App. 1981) (stating that the exclusive remedy provi-
sion of the Indiana Workmen's Compensation Act did not bar an employee's lawsuit
against the employer's insurance company where the insurer was sued for fraud and
bad faith in negotiating the employee's compensation claim). See also Coriden, Workers'
Compensation, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev. 433,
442 (1983).

205

206 INDIANA LAW REVIEW [Vol. 16:205

sured can recover under a fire insurance policy when the fire damage
has been caused by an act of arson committed by a fellow insured.

1. Punitive Damages for Bad Faith Denial of Insured's Fire
Claim. — Ih^ two arson cases during the survey period that involved
punitive damages were Hoosier Insurance Co. v. Mangino^ and River-
side Insurance Co. v. Pedigo.^ In both cases, the appellate court noted
that there was sufficient circumstantial evidence to support the com-
pany's denial of the insureds' fire claims on the basis of arson/
However, in each case the jury had found for the insured. The two
cases differ in that one company was assessed punitive damages, but
the other was not.

In Hoosier Insurance Co. v. Mangino,^ the insurance company was
confronted with a fire loss claim in which the circumstances surround-
ing the loss included several of the recognized indicators of arson.^
Among those indicators present were facts that suggested that the
fire was of an incendiary origin, that the insureds had a meager in-
come the year before the fire and the insured husband was
unemployed at the time of the fire, that the significant personal
property owned by the insureds had been paid for in cash, and that
there were very few contents in the house at the time of the fire.

The fire in question occurred on December 22, 1976. By January
10, 1977, the insureds had provided Hoosier's adjuster with a signed
and completed proof of loss statement wherein they sought recovery
for the damage to the house, for the loss of personal property, and
for the cost of living expenses. Hoosier responded on February 24,
1977, by denying liability and by declaring the policy of insurance void
as to the Manginos.^ Hoosier based its denial of coverage upon a clause
contained in the policy that provided:

"This entire policy shall be void if, whether before or after
a loss, the insured has wilfully concealed or misrepresented
any material fact or circumstance concerning this insurance
or the subject thereof, or the interest of the insured therein,
or in case of any fraud or false swearing by the insured
relating thereto."*

^419 N.E.2d 978 (Ind. Ct. App. 1981).
H30 N.E.2d 796 (Ind. Ct. App. 1982).

'430 N.E.2d at 806-07; 419 N.E.2d at 987-88.

^419 N.E.2d 978 (Ind. Ct. App. 1981).

Tor a general discussion regarding the type of evidence that may be admissible
to prove arson in fire cases involving wilful destruction of property, see 19 G. Couch,
Cyclopedia of Insurance Law §§ 79:561-:570 (2d ed. 1968 & Supp. 1981),

^419 N.E.2d at 980. In addition, Hoosier returned $75 dollars of unearned
premiums. Id.

^Id. at 990 (quoting Hoosier Insurance Company's Property Insurance Policy). The
policy provision relied upon by Hoosier is one that is frequently relied upon by in-

1983] SURVEY-INSURANCE 207

Following Hoosier's denial of coverage, the Manginos filed suit for
breach of contract; the Manginos sought,in addition to compensatory
damages, punitive damages for Hoosier's alleged malicious denial of
coverage. The jury awarded the Manginos both compensatory and
punitive damages. On appeal, Hoosier sought only to overturn the
punitive damages award.^ The Indiana Court of Appeals reversed the
judgment awarding punitive damages because "[i]n view of all the
evidence presented, the jury could not have reasonably concluded that
elements of fraud, misrepresentation, malice, gross negligence, or op-
pression mingled in Hoosier's denial of Manginos' claim or in any other
aspect of Hoosier's conduct."^"

The plaintiffs had put forth several evidentiary facts in support
of their contention that Hoosier's conduct was oppressive and therefore
deserving of punishment." None of this evidence was given any weight
by the court. One piece of evidence, however, does deserve mention.

Prior to the time the adjuster representing Hoosier adjusted the
claim, he required the Manginos to sign a "Non-Waiver Agreement".
The non-waiver agreement stated, in essence, that Hoosier Insurance
Company would not be deemed to have waived any of its policy con-
ditions simply by an act of investigating the claim.^^ The court accepted
Hoosier's explanation that obtaining a non-waiver agreement was a
routine matter in adjusting an insurance claim, and found that requir-
ing the non-waiver agreement did not amount to misconduct. ^^

The main legal proposition to be gleaned from the Hoosier case
is that insurance companies have a "right to disagree" with their in-
sureds about the existence of coverage, as long as they are doing so
in good faith. ^'^ The court stated that, in the context of an insurance
contract action, a company is acting in bad faith if it has no legitimate
reason for denying the insured's claim but, nevertheless, does deny

surance companies to deny fire claims in which arson is suspected. It is sometimes
referred to as the "false swearing" provision. See 14 G. Couch. Cyclopedia of In
SURANCE Law §§ 49:551:563 (2d ed. 1965 & Supp. 1981). An insurance company may also
deny coverage because of arson even if the policy does not contain a specific exclusion
for arson. Fire insurance policies are said to contain an "implied exception" that prevents
an insured from recovering for a loss he has intentionally or fraudulently caused. See
R. Keeton, Basic Text on Insurance Law § 5.3(a) (1971) cited with approval in American
Economy Ins. Co. v. Liggett, 426 N.E.2d 136, 141 (Ind. Ct. App. 1981).

M19 N.E.2d at 980.

''Id. at 991.

"M at 988-91.

'Hd. at 988-89 & n.2.

''Id. at 989.

'Yd at 982-83 (citing Vernon Fire & Casualty Ins. Co. v. Sharp, 264 Ind. 599, 609-10,
349 N.E.2d 173, 181 (1976)).

208 INDIANA LAW REVIEW [Vol. 16:205

the claim.^^ Here, although Hoosier may have lost the disagreement
with its insured, it was not penalized for disagreeing.

Lawyers representing insurance companies or aggrieved insureds
may refer to the Hoosier case for guidelines on how an insurance com-
pany should adjust a claim for suspected arson. The Hoosier case may
be particularly helpful when it is contrasted with the unsuccessful ad-
justing procedures followed in Riverside Insurance Co. v. Pedigo.^^

The facts in Riverside pertaining to the question of arson are very
similar to those in Mangino. In Riverside, there was evidence that the
fire was incendiary in origin, that the closets in the house were empty,
and that the insureds were experiencing financial difficulty at the time
of the fire. As in Mangino, the appellate court found that there was
sufficient evidence to support Riverside's arson defense had the jury
chosen to accept it.^^ However, the jury had not accepted it. The jury
had returned a verdict against Riverside on the arson defense and
had assessed a sizeable punitive damages award, which the appellate
court did not reverse.

The key to the opposite results regarding punitive damages in
Mangino and Riverside is the difference in which the two companies
adjusted the fire loss claims. In Mangino, the loss was adjusted and
the claim was denied in a period of approximately two months. The
denial of coverage was firm and was based upon a policy condition.
By contrast, in Riverside, although the insurance company began an
arson investigation almost immediately after receiving the insureds'
claim, the insureds were never notified of the company's arson suspi-
cion. Instead, Riverside repeatedly turned down the insureds' claim
because of alleged technical deficiencies with the proof of loss
statements the insureds had submitted to the company. Six months
after the fire, Riverside was still denying the claim because of technical
problems.

In upholding the punitive damages award, the court of appeals
found that Riverside had abused its "right to disagree."^* The court
emphasized that the delay caused by Riverside's misrepresentations
and concealment ''arguably prejudiced [the insureds'] ability to prove
their innocence."^® Riverside knew as soon as one month after the fire
that it would deny the claim on the basis of arson.^° The court found

1^419 N.E.2d at 983 (citing Rex Ins. Co. v. Baldwin, 163 Ind. App. 308, 313-14,
323 N.E.2d 270, 274 (1975)).

^«430 N.E.2d 796 (Ind. Ct. App. 1982).

"Id. at 806-07.

""Id. at 808 (citing Vernon Fire & Casualty Ins. Co. v. Sharp, 264 Ind. 599, 349
N.E.2d 173 (1976) and Hoosier Ins. Co. v. Mangino, 419 N.E.2d 978 (Ind. Ct. App. 1981)).

•''430 N.E.2d at 808.

''Id.

1983] SURVEY -INSURANCE 209

that the public interest would be served by allowing punitive damages
because it might deter similar dilatory conduct in the future.^^

It is apparent from a comparison of Hoosier and Riverside that
if Indiana insurance companies wish to safely exercise their "right to
disagree" in the case of a suspected arson claim, they must investigate
as quickly as possible and they must be straightforward with their
insureds. If a thorough early investigation points to arson, it would
probably be best for the company to deny coverage on that basis and
to bring the coverage question to a head without delay. Later, if the
facts point away from arson, then the claim can be settled without
the company's exposure to punitive damages. It is a company's un-
justified delay in making its position known to the insured that ex-
poses the company to punitive damages. When the delay is coupled
with misrepresentation, then punitive damages are truly a threat, and
the company's ability to prevail upon its arson defense is prejudiced
by the loss of credibility that flows from the delay and misrepresenta-
tion.

2. Validity of Claim by One Named Insured When Arson is Com-
mitted by Other Named Insured. — In Aynerican Economy Insurance Co.
V. LiggetU^^ the Indiana Court of Appeals was faced with a case of
first impression. The plaintiff and her late husband had been the
named insureds on a homeowner's policy issued by American Economy.
The insured property was damaged in a fire in which the plaintiff's
husband died. The company conceded that the plaintiff was innocent
of wrongdoing but alleged that the fire had been deliberately set by
the husband.^^ The plaintiff's claim under the policy was denied
because the company contended that her proof of loss statement
violated the false swearing provision of the policy.^''

The true underlying issue in this case, however, was not whether
the false swearing provision of the policy was applicable. The court
immediately pointed out that the provision was not applicable, because
the insurance company had stipulated that the plaintiff had neither
participated in nor had any knowledge of the arson.^^ Rather, the true
issue was whether Indiana would adopt the established general rule
"that where one of two or more insureds intentionally caused the loss
to the insured property, the remaining insureds, although entirely in-
nocent of any wrongdoing, could not recover."^^

In discussing what Indiana would do in this situation, the court

''Id. at 804.

2^26 N.E.2d 136 (Ind. Ct. App. 1981).

""Id. at 137-38.

'*Id. at 138. For an explanation of the false swearing provision, see supra note 8.

^^426 N.E.2d at 139.

''Id. at 138.

210 INDIANA LAW REVIEW [Vol. 16:205

began by pointing out that the established general rule had been
seriously eroded.^ Recent cases have taken the position that the rights
of named insureds under a fire policy are several, not joint, and that
the individual insured who is free of wrongdoing should reasonably
expect that his coverage would not be jeopardized by a fellow insured's
intentional acts, unless the policy specifically excluded coverage under
those circumstances.^^

The court noted that in spite of the erosion in the general rule,
some jurisdictions have continued to follow the rule when the insureds
were husband and wife.^^ These courts gave either one or both of two
reasons for following the rule. One reason given was that because mar-
ried couples have long been regarded by many states as one legal
entity, their rights and obligations under an insurance policy were
considered to be joint and not several.^^ The second reason given was
that the courts found it impossible to identify the interest of the in-
nocent spouse and thus preferred to deny recovery completely .^^ This
second reason applied when the husband and wife held the insured
property as tenants by the entireties.

The Indiana court in American Economy refused to apply the
established rule to situations involving married couples, rejecting both
of these reasons. The court discounted the "one legal entity" rationale
by stating that:

Western civilization is based upon the premise of individual
responsibility for wrongdoing. We do not impose vicarious
liability for torts (including fraud) on our spouses just because
of the marital relationship. More appropriately, since arson is
a crime, we do not impose vicarious liability for criminal con-
duct upon those who are totally innocent whether they are
married to the criminal or not.^^

"M at 139 (citing Hoyt v. New Hampshire Fire Ins. Co., 92 N.H. 242, 29 A.2cl
121 (1942)).

^M26 N.E.2d at 139.

^Id. See generally Kosior v. Continental Ins. Co., 299 Mass. 601, 13 N.E.2d 423
(1938); Matyuf v. Phoenix Ins. Co., 27 Pa. D.&C.2d 351 (1933); Jones v. Fidelity & Guar.
Ins. Corp., 250 S.W.2d 281 (Tex. Civ. App. 1952); Cooperative Fire Ins. Assoc, v. Domina,
137 Vt. 3, 399 A.2d 502 (1979); Rockingham Mut. Ins. Co. v. Hummel, 219" Va. 803, 250
S.E.2d 774 (1979); Klemens v. Badger Mut. Ins. Co., 8 Wis. 2d 565, 99 N.W.2d 865 (1959);
Annot., 24 A.L.R.3d 450, 452-53 (1969).

'"426 N.E.2d at 139 (citing Rockingham Mut. Ins. Co. v. Hummel, 219 Va. 803,
806, 250 S.E.2d 774, 776 (1979)).

'^426 N.E.2d at 139 (citing Cooperative Fire Ins. Assoc, v. Domina, 137 Vt. 3, 399
A.2d 502 (1979)). See also Matyuf v. Phoenix Ins. Co., 27 Pa. D.& C.2d 351 (1933). But
see Morgan v. Cincinnati Ins. Co., 411 Mich. 267, 307 N.W.2d 531 (1981); Lovell v. Rowan
Mut. Fire Ins. Co., 302 N.C. 150, 274 S.E.2d 170 (1981).

'M26 N.E.2d at 140.

1983] SURVEY -INSURANCE 211

In rejecting the impossibility reasoning, the court noted that because
entireties property is easily divisible in divorce and other similar situa-
tions, a trial court should have no difficulty in dividing marital prop-
erty in situations like the one at bar.^^ The court also pointed out that
the entireties distinction was meaningless in the present case, because,
with the husband dead, the plaintiff owned all of the property as a
survivor.^^

In rejecting the traditional reasons for denying coverage, the court
referred to what it termed as the "right reasons" for possibly deny-
ing coverage in other cases. The court suggested that one reason to
deny coverage would be to prevent a guilty person from profiting
directly or indirectly from his wrongdoing.^^ To deny recovery for this
reason, a court would have to conduct a case by case analysis of the
facts to determine whether one guilty spouse would benefit if the other
recovered. ^^

A second reason for denying coverage in similar cases is to honor
what the court referred to as the "implied exception" to coverage.
In essence, the implied exception is that insurance policies do not in-
sure against losses that are not fortuitous from the standpoint of the
person who is to benefit from the coverage^^ — usually the insured. If
the loss is caused intentionally by the person who will benefit from
it, then coverage will be denied, even if the policy is silent on the
question of losses that are not fortuitous. This implied exception is
based both upon the specific expectation the insured should have that
his policy will not cover losses that are not fortuitous and upon public
policies against fraud on insurance companies, profit from wrongdoing,
and crime in general.^*

The court found that the implied exception did not apply in the
present case because none of the policy considerations would be served
by applying it.^^ Further, the fact that the loss in American Economy
was allegedly caused by the plaintiffs husband did not make the loss
nonfortuitous as to the plaintiff.'^"

''Id.

'Ud.

'^Id. The court also noted that this reason did not apply in the present case because
the guilty party was dead.

'Ud. at 141 (citing R. Keeton, Basic Text on Insurance Law § 5.3(a) (1971)). As
a legal matter, fortuitousness is to be viewed from the standpoint of the person making
the claim. That person may be an insured or merely a beneficiary of the policy. 426
N.E.2d at 142.

'M26 N.E.2d at 141 (citing R. Keeton. Basic Text on Insurance Law § 5.3(a) (1971)).

^M26 N.E.2d at 141.

*'Id. at 142.

212 INDIANA LAW REVIEW [Vol. 16:205

The court went much further than it needed to in deciding this
case/^ The fact that the alleged wrongdoer died makes the final result
much easier to reach and probably limits the holding to the facts of
the case.*^ When the wrongdoer spouse survives, the court will have
to review the situation to determine whether any of the "right
reasons" for denying coverage exist.

Interestingly, the court provided a means by which insurance com-
panies may, in the future, avoid a controversy as occurred in American
Economy. The court suggested that the companies could make the
policy clear and unambiguous by placing the following legend across
the front of the policy in red ink:

IF YOU OR ANY PERSON INSURED BY THIS POLICY
DELIBERATELY CAUSES A LOSS TO PROPERTY
INSURED THEN THIS POLICY IS VOID AND WE WILL
NOT REIMBURSE YOU OR ANYONE ELSE FOR THAT
LOSS/^

To predict whether such a clause would be binding in the face of the
standard challenge that insurance policies are adhesion contracts would
be speculative. However, insurance companies may wish to incorporate
such a clause in their policies if they have not done so already. The
use of such a clause would certainly make a denial of coverage by
a company much clearer than a denial under existing false swearing
clauses.

B. Automobile Cases

1. Cancellation vs. Nonrenewal— Duty of Insurer to Give Notice
to Insured. — In American Family Mutual Insurance Co. v. Ramsey, ^^
the court of appeals was called upon to distinguish between the
cancellation of an insurance policy and the nonrenewal of a policy for
the purpose of determining whether notice to the insured was required
under the circumstances.

^^See id. at 145 (Staton, J., concurring).

^^The court noted that only one other reported case, Howell v. Ohio Casualty Ins.
Co., 124 N.J. Super. 414, 307 A.2d 142 (Law Div. 1973), modified, 130 N.J. Super. 350,
327 A.2d 240 (App. Div. 1974), is "on all fours" with the present case. 426 N.E.2d at
143. The court also extensively cited less similar cases involving husbands and wives
as fellow insureds. See Hosey v. Seibels Bruce Group, S.C. Ins. Co., 363 So. 2d 751
(Ala. 1978); Steigler v. Insurance Co. of N. Am., 384 A.2d 398 (Del. 1978); Auto Owners
Ins. Co. V. Edinger, 366 So. 2d 123 (Fla. Dist. Ct. App. 1979); Economy Fire & Casualty
Co. V. Warren, 71 111. App. 3d 625, 390 N.E.2d 361 (1979); Hildebrand v. Holyoke Mut.
Fire Ins. Co., 386 A.2d 329 (Me. 1978); Simon v. Security Ins. Co., 390 Mich. 72, 210
N.W.2d 322 (1973); Winter v. Aetna Casualty & Sur. Co., 96 Misc. 2d 497, 409 N.Y.S.2d
85 (1978).

'H26 N.E.2d at 141.

"425 N.E.2d 243 (Ind. Ct. App. 1981).

1983] SURVEY-INSURANCE 213

The plaintiff originally procured an automobile policy with
American Family on December 4, 1976. The policy contained the follow-
ing language with respect to renewal: " '[T]he renewal of this policy
may be refused by the named insured by refusing to pay the renewal
premium when due; in which event the policy shall terminate at the
end of the last policy period for which premium was paid.' "*^ The
policy also stated that no notice of nonrenewal would be required " 'if
the named insured fails to discharge when due any of his obligation
in connection with the payment of the renewal premium.' '"'^

The last policy period for the insured's policy ended on June 4,
1979. Sometime in May 1979, the company sent the insured a premium
notice indicating that the premium was due "on or before June 4, 1979"
in order for the insurance to continue. The notice also declared that
payment would be considered to have been made when it was received
by the company and not when it was mailed. Prior to this time, the
insured had regularly renewed the policy. This time, however, the in-
sured failed to pay his premium.

Approximately two weeks after the last policy period ended,
Ramsey was in an automobile accident. When Ramsey submitted a
claim to the company, the company denied coverage and Ramsey filed
suit for breach of contract. The issue raised was whether the com-
pany had an obligation to give notice that the policy had not continued
in effect after the June 4, 1979 date."^

The court first looked to the Indiana statutes that pertain to the
notice required to be given by an insurer to the insured, if a policy
is cancelled or not renewed.''* The court pointed out that although the
term "renewal" is defined in the statutes, the term "cancellation" is
not."^ "Renewal" is defined as

"the issuance and delivery by an insurer of a policy replac-
ing at the end of the policy period a policy previously issued
and delivered by the same insurer insuring the same insured,
or the issuance and delivery of a certificate or notice extending
the term of a policy beyond its policy period or term . . . ."^°

Relying upon the statutory definition for renewal, the court
distinguished the term "cancellation" from the term "nonrenewal" by
saying that "the term 'cancellation' refers to the termination of a policy
prior to the end of the policy period, whereas a 'non-renewal' is the

"Vd. at 243 (quoting insurance policy).

*^Id. (quoting insurance policy).

"Id. at 244.

*'Id. (citing IND. Code §§ 27-7-6-1 to -6 (1976)).

*«425 N.E.2d at 244.

^M (quoting Ind. Code § 27-7-6-3 (1976)).

214 INDIANA LAW REVIEW [Vol. 16:205

nonissuance or nondelivery of a new policy at the end of the previous
policy period."^^

The court found that the occurrence at issue was a nonrenewal
not a cancellation and, thus, the cancellation notice statute did not
apply .^^ In fact, the court pointed out that the cancellation statute
specifically states that "[t]his section shall not apply to non-renewals."^
The court then went on to review the renewal notice statute, which
provides:

"No insurer shall fail to renew a policy unless it shall mail
or deliver to the named insured, at the address shown in the
policy, at least twenty [20] days' advance notice of its inten-
tion not to renew. In the event such policy was procured by
an agent duly licensed by the state of Indiana notice of intent
not to renew shall be mailed or delivered to such agent at
least ten [10] days prior to such mailing or delivery to the
named insured unless such notice of intent is or has been
waived in writing by such agent.

This section shall not apply: (a) if the insurer has
manifested its willingness to renew nor (b) in case of nonpay-
ment of premium: Provided, That, notwithstanding the failure
of an insurer to comply with this section, the policy shall termi-
nate on the effective date of any other insurance policy with
respect to any automobile designated in both policies."^*

The court found that because the insured had failed to pay his
premium, his policy had lapsed at the time of the accident and the
company was not required to give notice to the insured that coverage
had terminated.^^

Now that the court of appeals has defined the term "cancellation"
and distinguished it from the term "nonrenewal," controversies of this
nature should not arise in the future because any existing ambiguity
has been cleared up.

2. Duty to Defend Insured— Notice of Suit to Company. — In F &
F Construction Co. v. Royal Globe Insurance Co.,^^ the insured sued
Royal Globe, its insurance company, for breach of the insurance com-
pany's duty to defend. Royal Globe contended that it had not received
notice of the lawsuit against the insured, and the court agreed.'

^^425 N.E.2d at 244.

''Id. at 244 n.2 (quoting Ind. Code § 27-7-6-5 (1976)).

^"425 N.E.2d at 244 (quoting Ind. Code § 27-7-6-6 (1976)) (emphasis added by court).

'H25 N.E.2d at 244.

5^23 N.E.2d 654 (Ind. Ct. App. 1981). For a discussion of the evidentiary aspects
of this case, see Karlson, Evidence, 1982 Survey of Recent Developments in Indiana Law,
16 Ind. L. Rev. 191, 199 (1983).

"423 N.E.2d at 656.

1983] SURVEY -INSURANCE 215

The case arose when an employee of F & F Construction was in-
volved in an automobile accident with a third party. Before any suit
was filed, an attorney representing the third party apparently con-
tacted F & F Construction. Through F & F Construction, Royal Globe
became involved in the case, at least to the extent of discussing the
claim with the third party's attorney. Thereafter, suit was filed against
F & F Construction and the proper papers were served upon F & F
Construction's company president. The president turned the papers
over to his office manager and asked that they be forwarded to the
insurance company. Following that event, the route taken by the
papers is uncertain; however, Royal Globe did not receive the papers
and a default judgment was entered against F & F Construction. In
the suit by F & F Construction against Royal Globe for failure to de-
fend, Royal Globe defended itself on the basis that F & F Construc-
tion had failed to meet a condition precedent that required F & F
Construction to " 'immediately forward to the company every demand,
notice, summons or other process received by [it].' "^*

There are two points of interest to be gleaned from this case.
First, the court described the quantum of proof necessary for an in-
sured to prove that a summons has been forwarded to the company.
The court said that "[n]ormal office procedure in preparing and
dispatching outgoing mail is not sufficient to prove mailing, instead,
proof consisting of testimony from one with direct and actual
knowledge of the particular message in question is required to
establish proof of mailing."^^

The second, and most significant point of the case is that the court
held that the notice Royal Globe had received of the third party's claim
was not sufficient actual or constructive notice of the pending
litigation.^" The court's holding on this point may imply that the court
does not recognize any continuing duty on the part of an insurance
company to monitor the progress of a claim against an insured, even
though the company has notice of the claim's existence. The result
certainly would have been different if the attorney representing the
third party had informed the insurer of the suit being filed. Almost
any notice to the company of the commencement of litigation, be it
oral or written, would probably have been enough here to implicate
the company's duty to defend.^^

**M (quoting insurance policy).

^Vd. at 656 (citing United Farm Bureau Mut. Ins. Co. v. Adams, 145 Ind. App.
516, 251 N.E.2d 696 (1969)).

''See 423 N.E.2d at 656.

^'If a company receives notice of litigation from a source other than its insured,
it may be hard pressed to rely on the breach of a contractual provision to avoid
coverage. For example, in order for a company to avoid coverage because of its in-
sured's failure to cooperate, the company must show that it was actually prejudiced

216 INDIANA LAW REVIEW [Vol. 16:205

Arguably, however, unless a claim has been turned over to an
insurance company prior to the commencement of litigation, an insurer
may not have a duty to immediately defend the insured merely
because it has learned of the existence of litigation against the in-
sured. The insured has a right not to invoke his insurance coverage,
if he so chooses. As a practical matter though, few insured persons
ignore the coverage for which they have paid.

3. Waiver and Estoppel— Waiver of Insurer's Right to Subroga-
tion.—In National Mutual Insurance Co. v. Fincher,^^ the insured was
permitted to recover under the medical expense coverage of his
automobile policy, notwithstanding the fact that he had previously
destroyed the insurer's subrogation rights by settling with the third-
party tortfeasor. The court found that the insurance company, Na-
tional, had either waived its subrogation rights or was estopped from
asserting them because the company had failed to pay the insured's
legitimate claim for over a year, had induced the insured to settle
with the third party for less than the full value of his claim, and had
arbitrarily denied a portion of the insured's claim without
justification.^^

This case arose when the insured was involved in an accident with
an uninsured motorist. At the time of the collision, the insured had
coverage for medical expenses, loss of income, and uninsured motorist
coverage.^" The insured initially brought suit against the uninsured
motorist. While that suit was pending, the insured filed a claim with
National for medical expenses and lost wages. When National failed
to pay the claim, the insured joined National as an additional defend-
ant in the lawsuit. Subsequently, the insured received an offer to set-
tle with the third party for less than the full value of his claim. When
National was informed of the settlement offer, its attorney advised
the insured to accept the settlement. In addition. National's attorney
advised the insured of the company's subrogation rights and informed
the insured that acceptance of the settlement would constitute a
waiver of the insured's medical expense claim under the policy .^^ The
insured accepted the settlement and gave the third party a covenant

in conducting a defense. Motorists Mut. Ins. Co. v. Johnson, 139 Ind. App. 622, 631,
218 N.E.2d 712, 717 (1966). In the context of the insured's failure to give notice, actual
prejudice to the company need not be shown. Muncie Banking Co. v. American Sur.
Co., 200 F.2d 115, 118-20 (7th Cir. 1952). The emphasis is on providing the company
with adequate time to protect its interests. Id, Thus, if the company has notice of
litigation from another source, it can protect its interest and should not be permitted
to deny coverage if the insured's failure to give notice is excusable.

«M28 N.E.2d 1386 (Ind. Ct. App. 1981).

""Id. at 1391.

'*Id. at 1387.

''Id. at 1388.

1983] SURVEY -INSURANCE 217

not to sue. The insured continued to pursue his action for medical
expenses and lost wages against National and ultimately received a
judgment for medical expenses.^®

On appeal, National urged the court to reverse the judgment on
the theory that the insured could not collect against the company once
the insured had recovered from a third party and had given the third
party a covenant not to sue. National argued that the insured had
compromised the company's subrogation rights and, therefore, had
breached the policy requirement that " '[i]n the event of any payment
under this insurance . . . [the insured] shall do nothing after loss to
prejudice such [subrogation] rights.' "^^

In response to National's position, the court acknowledged the
general rule that if an insured settles with a wrongdoer, he is barred
from any action on the insurance policy.^® The rationale behind this
rule is that the release of the tortfeasor destroys the insurance com-
pany's subrogation rights under the policy, because the company's
rights against the wrongdoer are identical to those of the insured.®^
In spite of the above-mentioned rule, however, the court found that
National was prevented from asserting the rule's application because
National had induced the insured to settle with the third party.^"

The court recognized three situations in which an insurer may be
held to have waived its subrogation rights or is estopped to assert
them: "[W]aiver or estoppel by the insurer in this regard may consist
of a direct suggestion of settlement, an unreasonable delay in satisfy-
ing its obligation under the policy, or an arbitrary denial of a claim."^^
In the present case, the court found that the insurer had done all
three.^^ Thus, a waiver or estoppel was an appropriate conclusion.

This case is indicative of the confusion that exists among laymen,
attorneys, and insurance companies about the nature of subrogation.
Many laymen would prefer to recover a small loss directly from a
wrongdoer because they fear a rise in their insurance rates if they
make a claim with their insurance company. However, collection
directly from the wrongdoer is less certain and frequently takes longer
to accomplish. Thus, the insured is put in a position in which he makes
claims in both directions, as in the present case. In this situation, the
insured or his attorney would be well advised to consult the insurance

«7d.

"M at 1389 n.6 (quoting insurance policy).

*7d at 1389 (citing Hockelberg v. Farm Bureau Ins. Co., 407 N.E.2d 1160 (Ind.
Ct. App. 1980)).

«M28 N.E.2d at 1389.

''Id. at 1391.

^'M at 1390 (citing numerous other jurisdictions).

"M at 1391.

218 INDIANA LAW REVIEW [Vol. 16:205

company and determine exactly what the company's position will be.
The insured may discover that it would be cheaper for him to get
his money from the company and let the company bear the expense
of pursuing the wrongdoer. Obviously, a person should not carry col-
lision, comprehensive, medical expense, or loss of income insurance
if his fear of increased premiums is going to deter him from making
a claim.

C. General Liability Cases

1. Homeowner's Insurance— Business Pursuits Exception. — In
Economy Fire & Casualty Co. v. Beeman,'^^ the insured was an electri-
cian who was called to a fast food restaurant to repair an electrical
appliance. While the insured was at the restaurant, he picked up or
moved an employee of the restaurant who was standing in front of
the appliance to be repaired. As an alleged result of the contact made
by the insured, the employee was injured. This case presented to the
Court of Appeals for the Seventh Circuit the issue whether the in-
sured's conduct was covered by the personal liability coverage of an
insured's homeowner's insurance policy issued by Economy.^''

The personal liability coverage of the policy in question contained
an exclusion that denied coverage for losses " 'arising out of business
pursuits of any Insured except activities therein which are ordinarily
incident to non-business pursuits.' "^^ The injured employee argued that
the insured's act of moving her was an act ordinarily incident to non-
business pursuits. She contended that the court should analyze the
insured's conduct by determining whether the conduct at the moment
of the injury was "necessary to the business pursuit."^^

The court rejected the employee's analysis stating that "[t]o the
contrary, numerous cases have held activities resulting in injury to
be incident to business pursuits, even though the actions in question
were not strictly necessary, and in most events, were counterproduc-
tive to carrying out the business activities."^^ The court affirmed the
trial court's finding that no coverage existed because the injury was
caused while the insured was engaged in a business pursuit.^®

Unfortunately, the court gave no standard by which to analyze
future cases. The ruling is based upon comparisons that the court made
with similar holdings in other jurisdictions.'^ The lack of analytical

^^656 F.2d 269 (7th Cir. 1981).
''Id. at 270.

'^Ud. (quoting insurance policy).
''Id. at 271.
'Ud.

''Id. at 272.

'Ud. at 271 (citing Stanley v. American Fire & Casualty Co., 361 So. 2d 1030 (Ala.
1978); Neil v. Celina Mut. Ins. Co., 522 S.W.2d 179 (Ky. Ct. App. 1975); Pitre v. Penn-

1983] SURVEY -INSURANCE 219

framework is particularly distressing in view of the court's comment
earlier in the case that "[e]xclusionary clauses for business pursuits
in homeowners' policies have spawned frequent litigation over the
precise issue disputed here — whether a particular momentary act oc-
curring within an overall business context is incident to the business
pursuit or ordinarily incident to a nonbusiness pursuit."®^ The ques-
tion presented by this case is probably not susceptible to easy analysis,
yet Economy does not give any guidelines for the trier of fact to follow
in such future cases, unless the factual setting is on all fours with
prior precedent.

2. Professional Liability Policy. — In Drake Insurance Co. v. Car-
roll County Sheriffs Department, ^^ the insurance company sought a
declaratory judgment to determine the extent of its duty to defend
under a professional liability policy held by the county sheriffs depart-
ment. In an earlier action, the administratrix and widow of a former
prisoner had filed suit against the sheriff's department, alleging
negligent supervision of the prisoner who had committed suicide while
incarcerated in the Carroll County jail.^^

At the time of the prisoner's death, the sheriff's department had
a professional liability insurance policy through Drake. The policy con-
tained specific coverage for "Personal Injury" and separate coverage
for "Bodily Injury."*^ Under both coverages, the insurance company
had the right and the duty to defend the insured. The policy stated
specifically that it did not apply " 'to bodily injury to any person oc-
curring while such person is in the custody of the insured or any
municipal, state or federal authority.' "*^ The company utilized this ex-
clusion to deny coverage and brought the present case as a declaratory
judgment action to determine whether it had a duty to defend.

The Indiana Court of Appeals found that coverage did exist. In
arriving at its ruling, the court analyzed the definitions contained in
the policy for the term "Bodily Injury" and the term "Personal In-
jury." "Bodily Injury" was restricted to injuries that occurred during
the course of an arrest.*^ "Personal Injury," on the other hand, referred

sylvania Millers Mut. Ins. Co., 236 So. 2d 920 (La. Ct. App. 1970); Berry v. Aetna Casualty
«& Sur. Co., 221 So. 2d 272 (La. Ct. App. 1969); Dieckman v. Moran, 414 S.W.2d 320
(Mo. 1967); North River Ins. Co. v. Poos, 553 S.W.2d 500 (Mo. Ct. App. 1977); Mar-
tinelli v. Security Ins. Co., 490 S.W.2d 427 (Mo. Ct. App. 1972); Wiley v. Travelers
Ins. Co., 534 P.2d 1293 (Okla. 1974); Davis v. Frederick's, Inc., 30 Utah 2d 321, 517
P.2d 1014 (1973).

%56 F.2d at 271.

«^427 N.E.2d 1153 (Ind. Ct. App. 1981).

«'/d. at 1154.

''Id.

'Ud. at 1155.

220 INDIANA LAW REVIEW [Vol. 16:205

to such intrusions as *' 'false arrest, erroneous service of civil papers,
false imprisonment, malicious prosecution, libel, slander, defamation
of character, [and] violation of property rights . . . .' "®®

The court found that the "Bodily Injury" coverage was not in-
volved because the suicide occurred a day after the decedent was
arrested.*^ The exclusion provision would also result in no coverage.®*
The court next looked to determine whether coverage could fall within
the "Personal Injury" coverage. The only possible application could
be for "violation of property rights." In order for the court to find
coverage under the property rights concept, it had to look to Indiana's
Wrongful Death Act.*®

In reviewing the Wrongful Death Act, the court pointed out that
the Act provides recovery to the decedent's estate for the pecuniary
loss caused by the death.®" The court also noted that "[t]he right to
sue emanates from the tortious act causing death, rather than from
the person of the deceased."®^ Thus, the suit by the administratrix
against the sheriffs department was in the nature of protection of
a property interest. The court found such a holding to be consistent
with other Indiana cases, which had held wrongful death cases to be
partly based on injury to property.®^ However, the court held that
coverage was owed only for the pecuniary loss occasioned by the death
and not for those losses associated with the injury to the body of the
decedent, such as medical expenses, funeral bills, etc.®^

The Drake court's legal reasoning is sound; however, the scope
of coverage defined by the court is probably broader than originally
intended by either party to the contract. The insurance company's
attempt in the policy to exclude jailhouse injuries was obviously in-
adequate, but the attempted exclusion does demonstrate the company's
intent not to cover such a loss. It is also doubtful that the sheriff's
department had actual reasonable expectations that this type of loss
would be covered, in light of the language of the exclusion provision.
The court avoided the temptation to find the policy in question to

^^Id. (quoting from insurance policy) (emphasis added by court).

'Ud. Sit 1155.

''Id.

''Id. at 1155 n.l (citing Ind. Code § 34-1-1-2 (1976)).

^"427 N.E.2d at 1155-56.

'Ud. at 1156 (citing In re Estate of Pickens, 255 Ind. 119, 127, 263 N.E.2d 151,
156 (1970)).

''427 N.E.2d at 1156 (citing Graf v. City Transit Co., 220 Ind. 249, 41 N.E.2d 941
(1942); Thompson v. Town of Fort Branch, 204 Ind. 152, 178 N.E. 440 (1931); Rush v.
Leiter, 149 Ind. App. 274, 271 N.E.2d 505 (1971); Hahn v. Moore, 127 Ind. App. 149,
133 N.E.2d 900 (1956); Merritt v. Economy Dep't Store, 125 Ind. App. 560, 128 N.E.2d
279 (1955).

'M27 N.E.2d at 1156.

1983] SURVEY -INSURANCE 221

be ambiguous;^^ however, the court would have been justified in find-
ing the policy to be confusing and misleading.

D. Life Insurance Cases

In Cook V. Equitable Life Assurance Society of the United States,^^
the plaintiffs' decedent bought a life insurance policy in 1953 that
named his wife at the time as beneficiary. By 1965, the decedent had
divorced his first wife and remarried. After the divorce, the decedent
stopped paying on the policy and it was converted from whole life
to a paid-up term policy with coverage through 1986.^^ In 1976, the
decedent made a holographic will in which he bequeathed the life in-
surance policy to his second wife and to a son by his second marriage.
After the decedent died in 1979, the second wife made a claim for
the benefits of the policy. The insurance company brought an in-
terpleader action in the estate proceedings to determine who should
receive the benefits of the policy .^^

The policy in question required that a change of beneficiary could
only be made "by written notice to the Society" before the death of
the insured.^® Because the beneficiary had not been changed as re-
quired by the policy, the court of appeals held that the proceeds of
the policy should go to the first wife who had been named as
beneficiary.^^

The general rule that a change of beneficiary can only be effected
through strict compliance with the policy requirements was established
in Indiana by the 1887 case of Holland v. Taylor}^^ The court in Cook
noted, however, that Indiana has recognized three exceptions to the
general rule.^°^ First, strict compliance may not be necessary if the
company has waived its own requirements. Second, strict compliance
may not be required if it is beyond the insured's power to comply
with the policy requirements. Finally, a change of beneficiary may be
allowed without strict compliance if the insured has done everything
within his power to accomplish the change but has been thwarted by
death before the change was complete. ^''^

The court pointed out that all parties concerned benefit from the

^'See id. at 1155.

^^428 N.E.2d 110 (Ind. Ct. App. 1981).
^'Id. at 111-12.
'Ud. at 112.
««M at 111.
^Id. at 113.

'nil Ind. 121, 12 N.E. 116 (1887).

'"'428 N.E.2d at 114 (citing Heinzman v. Whiteman, 81 Ind. App. 29, 139 N.E. 329
(1923); Modern Bhd. v. Matkovich, 56 Ind. App. 8, 104 N.E. 795 (1914)).
'"2428 N.E.2d at 114.

222 INDIANA LAW REVIEW [Vol. 16:205

rule requiring strict compliance with policy terms.^''^ Obviously, the
company benefits from having a certain beneficiary because the com-
pany is free to pay the policy proceeds without later being subjected
to claims of which it had no prior notice or knowledge. ^''^ The insured
benefits because he can rely upon having the proceeds of the insurance
paid to the person he has designated/"^ Further, the beneficiary
benefits because the payments will be more prompt if the insurance
company does not have to wait until the decedent's will has been pro-
bated before it can safely make the payments/"^

Although the result of this case is harsh, the court's reasoning
is sound. The court itself pointed out that bad law is made when courts
try to use their equitable powers to achieve a good result despite ap-
plicable settled law.^"^ The result may have been harsh under the cir-
cumstances, but it does allow for certainty and predictibility in one
area of Indiana law.

E. Statutory Developments

1. Financial Responsibility of Motor Vehicle Owners and
Operators. — During the 102d Indiana General Assembly's term, the
legislature made several changes that are of interest to insurance com-
panies and insurance practitioners. ^°® The most important addition to
the financial responsibility laws was the new requirement that proof
of financial responsibility must be shown at the time an application
for registration of a motor vehicle is made.^"^ A second important finan-
cial responsibility amendment came in the area of enforcement. As
of January 1, 1983, persons who fail to prove financial responsibility
will be committing a Class C misdemeanor.^^" A third amendment in-
creased the minimum limits of financial responsibility from
$15,000/$30,000 to $25,000/$50,000 as of June 1, 1983."^

^°^Id. The majority of jurisdictions have ruled under similar circumstances that
attempts by a will to change a life insurance beneficiary will not, without more, be
sufficient to effect a change. For a listing of these jurisdictions, see 2A J. Appleman,
Insurance Law and Practice § 1078 (1966) and Annot., 25 A.L.R.2d 999 (1952).

^'"'428 N.E.2d at 115.

'"'Id. at 114 (citing Stover v. Stover, 137 Ind. App. 578, 204 N.E.2d 374 (1965)).

'"^28 N.E.2d at 115.

'"Ud. at 116.

'''See generally Act of Feb. 25, 1982, Pub. L. No. 83, 1982 Ind. Acts 799 (codified
at Ind. Code §§ 9-1-4-3.5, -2-1-11, -4-1-53.5 (1982)).

i^^Act of Feb. 25, 1982, Pub. L. No. 83, 1982 Ind. Acts 799, 799 (codified at Ind.
Code § 9-1-4-3.5 (1982)). At the time of the writing of this Article, the manner in which
the proof is to be shown had not yet been determined.

""Act of Feb. 25, 1982, Pub. L. No. 83, 1982 Ind. Acts 799, 800 (codified at Ind.
Code § 9-4-1-53.5 (1982)).

"^Act of Feb. 24, 1982, Pub. L. No. 84, 1982 Ind. Acts 804, 804-05 (codified at Ind.
Code § 9-2-1-15 (1982)).

1983] SURVEY -INSURANCE 223

There is some skepticism among members of the insurance
industry about the usefulness of these amendments. The first
amendment may be useful in forcing more drivers to obtain insurance
initially. However, nothing in the amendment prevents them from
cancelling their insurance or letting it lapse once the registration is
obtained. Although the Insurance Commissioner could arguably require
companies to give notice to the Bureau of Motor Vehicles when an
insured cancels or a policy lapses, such a requirement would be un-
workable. The companies could not bear the expense of giving notice
and the Bureau would probably be overburdened with the problems
of enforcement.

The other two amendments may be no more effective. The second
amendment will only be useful if police agencies and prosecutors are
willing to prosecute. The third amendment to the financial respon-
sibility laws will give only a small measure of added protection to
drivers.

2. Uninsured Motorist Coverage. — The uninsured motorist
coverage provision of Indiana statutory law^^^ was completely repealed
and rewritten during the 102d Indiana General Assembly's term."^
The revision does not significantly change the old statute, ^^'^ except
that the law is now easier to read. The only major change is that
the legislature has now included an option that allows for uninsured
motorist property damage insurance."^ The new property coverage will
apply only to damage to the automobile and personal property in it.
The new coverage will not include loss of use of damaged or destroyed
property."^ Also, there will be coverage only if the at-fault operator
is identified. ^^^

"^IND. Code § 27-7-5-1 (1976).

•"Act of Feb. 24, 1982, Pub. L. No. 166, 1982 Ind. Acts 1237 (codified at Ind. Code
§§ 27-7-5-2 to -6 (1982)).

'''See Ind. Code § 27-7-5-1 (1976).
'See Act of Feb. 24, 1982, Pub. L. No. 166, 1982 Ind. Acts 1237, 1238-39 (codified

115(

at Ind. Code § 27-7-5 (1982)).

"«lND. Code § 27-7-5-3(b) (1982).
'"Id. § 27-7-5-3(c).

X. Labor Law

Edward P. Archer*

A. Employment Contracts— Employment At Will

The most significant development in employer-employee relations
in Indiana during the survey period may well have been the denial
of transfer by the Indiana Supreme Court in Campbell v. Eli Lilly

& Co:

Campbell had charged in his complaint that the company
discharged him for reporting the lethal effects of various company-
manufactured drugs to his superiors. Based upon the common law
employment at will rule, the court of appeals held that Campbell's
complaint did not state a claim upon which relief could be granted.^
The court construed prior Indiana Supreme Court precedent^ as
creating an exception to the employment at will rule only when the
plaintiff demonstrates that he was discharged in retaliation for hav-
ing exercised a statutorily conferred personal right or for having ful-
filled a statutorily imposed duty." In Campbell, the court of appeals
concluded that Campbell failed to show any statutory support for his
actions.^

Justice Hunter wrote a strong dissent to the supreme court's
denial of transfer, stating that he "would recognize an exception to
the employment at will doctrine based on public policy."* Justice
Hunter noted that Campbell's actions "which allegedly prompted his
discharge served a vital public interest defined by statute — the pro-
tection of the public from dangerous drugs."^ He noted the impact
that the retaliatory discharge would have in frustrating this statutorily
defined public policy and stated:

♦Professor of Law, Indiana University School of Law — Indianapolis. B.M.E.,
Rensselaer Polytechnic Institute, 1958; J.D., Georgetown University, 1962; LL.M., 1964.
The author wishes to extend his appreciation to Roland A. Fuller III for his assistance
in the preparation of this Survey Article.

*421 N.E.2d 1099 (Ind. 1981).

'Campbell v. Eli Lilly & Co., 413 N.E.2d 1054, 1062 (Ind. Ct. App. 1980). For a
discussion of the appellate court's decision, see Galanti, Business Associations, 1981
Survey of Recent Developments in Indiana Law, 15 Ind. L. Rev. 31, 54 (1982).

Trampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (1973). The
Indiana Supreme Court created an exception to the employment at will doctrine for
a claimant who alleged she was discharged for filing a workmen's compensation claim
against her former employer.

^In Frampton, the court determined that the plaintiff had a statutory source for
the right to assert the claim of wrongful discharge under Ind. Code § 22-3-2-15 (1976).
Frampton v. Central Indiana Gas Co., 260 Ind. 249, 252, 297 N.E.2d 425, 428 (1973).

^413 N.E.2d at 1061.

M21 N.E.2d at 1100.

Ud. See 21 U.S.C. § 301-450 (1976 & Supp. IV 1980); Ind. Code §§ 16-1-28-1 to -31-10
(1982).

225

226 INDIANA LAW REVIEW [Vol. 16:225

Our continued inflexible application of the [employment at will]
rule, however, not only neuters the internal check which the
aware employee inherently supplies, but also ultimately
deprives the government of information concerning goods or
conduct potentially injurious to the public welfare. It is these
dubious ramifications which should not be countenanced, as
well as the callous treatment which the rule permits to be
foisted on the citizen who, in good faith, acts on the principle
of civic duty or the mandates of a professional ethical code.®

In support of his proposed public policy exception to the employment
at will rule. Justice Hunter cited authority from several other
jurisdictions,® from critics of an inflexible application of the employ-
ment at will rule,^° and from federal and Indiana statutes which ex-
clude public employees from the scope of the employment at will rule."

Rather than religiously following the employment at will rule,
Justice Hunter would balance employers' interests in conducting
business efficiently with society's interest in effectuating public
policies, and thus would only deny a cause of action "[w]here a
discharged employee's claim does not rest on an employer's conduct
in contravention of a clearly mandated public policy ."^^

Justice Hunter's dissent is compelling but unfortunately remains
only a dissent. The Campbell case clearly establishes that the Indiana
Supreme Court will not consider any statutorily defined public policy
exceptions to the employment at will rule in Indiana. As Justice
Hunter stated: "No more compelling example for such need exists than
the circumstances alleged [in Campbeliy^^

The court of appeals decision in Stanley v. Kelley^^ illustrates the
ramifications which flow from the employment at will rule. In Stanley,
the court held that a contract of employment that is not for a definite
and an enforceable term is a contract at will, and either party may
terminate the employment at any time without cause.^^ Further, the

M21 N.E.2d at 1101.

'E.g. Tameny v. Atlantic Richfield Co., 27 Cal. 3d 167, 610 P.2d 1330, 164 Cal.
Rptr. 839 (1980); Sheets v. Teddy's Frosted Foods, Inc., 179 Conn. 471, 427 A.2d 385
(1980).

^"E.g. Blades, Employment At Will v. Individual Freedom: On Limiting the Abusive
Exercise of Employer Power, 67 Colum. L. Rev. 1404 (1967); Note, Protecting At Will
Employees Against Wrongful Discharge: The Duty To Terminate Only in Good Faith,
93 Harv. L. Rev. 1816 (1980).

"5 U.S.C. § 7503 (Supp. 1980); Ind. Code § 4-15-1-1 (1982).

^^421 N.E.2d at 1102.

'Ud. at 1103.

"422 N.E.2d 663 (Ind. Ct. App. 1981).

''Id. at 667.

1983] SURVEY -LABOR LAW 227

court reasoned that such a "contract of employment is unenforceable
with respect to that which remains executory. "^^

This much of the court's interpretation regarding employment at
will is sound. However, the court went on to conclude that "[s]uch
a contract, terminable at will, cannot form the basis of an action for
interference with a contractual relationship."^^ In footnote three, the
court rejected Stanley's argument that the contract is a subsisting
relationship of value until the contract is terminated.^® The court
recognized that this argument was supported by Prosser and was ac-
cepted as the majority position in other jurisdictions; however, the
court held that it did not appear to be the law in Indiana.^^

The ramifications of this decision to employer-employee relations
are obvious. If the court's interpretation is correct, there is no inter-
ference with contract protection for employment at will contracts
under Indiana tort law. This seems to be an unjustifiably harsh result,
which is contrary to the logic of the majority rule.

In Ohio Table Pad Co. v. Hogan,^^ the court of appeals held that
Hogan's acts of moving and giving up a prior job to accept new
employment did not constitute valid consideration so as to convert
a terminable at will employment contract to a contract of permanent
employment requiring "good cause" for discharge.^^ The court
reasoned,

that in moving and/or giving up her prior job, the employee
is merely placing herself in a position to accept the new
employment. There is no independent detriment to the
employee because she would have had to do the same things
in order to accept the job on any baisis, and there is no
independent benefit bestowed upon the employer.^

This case is significant in that it recognized an exception to the
employment at will rule under circumstances where additional con-
sideration supports the employment contract; however, it is also sig-
nificant that the court narrowly construed that exception.

''Id.

'Ud. For further discussion of this case and the issue regarding the interference
with a contractual relationship, see Mead, Torts, 1982 Survey of Recent Developments
in Indiana Law, 16 Ind. L. Rev. 377, 406 (1983).

^'422 N.E.2d 667 n.3.

''Id. (citing Miller v. Ortman, 235 Ind. 641, 136 N.E.2d 17 (1956)). See generally
W. Prosser, Handbook of the Law of Torts § 129, at 932 (4th ed. 1971).

^424 N.E.2d 144 (Ind. Ct. App. 1981).

^'Id. at 147.

^Ud. at 146.

228 INDIANA LAW REVIEW [Vol. 16:225

B. Bargaining For Non-Teacher Public Employees

The efforts of the courts to establish bargaining rights for public
employees that are not covered under the 1973 Certificated Educa-
tional Employee Bargaining Act (CEEBAP continued during the past
survey period.

In Michigan City Area Schools v. SiddalU^* the city had adopted
a voluntary policy for collective bargaining with its non-teaching
employees that was expressly conditioned upon all members of the
employees' organization being school employees and upon all
negotiating representatives of the employees' organization being school
employees or attorneys. The non-teaching employees sought to be
represented by an employee of the Indiana State Teachers' Associa-
tion who was neither a school employee nor an attorney. When the
school refused to recognize and to negotiate with the selected
representative, a strike ensued. The school sought to enjoin the strike,
and the employees counterclaimed to restrain the school from interfer-
ing with their choice of a bargaining representative.

The trial court permanently enjoined the employees from par-
ticipating in the strike and ordered that the school bargain with the
employees' selected representative. The only issue on appeal was the
validity of the trial court's order restraining the school from interfering
with the choice of a bargaining representative and mandating that
the school bargain collectively. The court of appeals, while sustaining
the injunction, overturned the trial court's order, holding that the
school had no legal duty to bargain collectively.^^ The court noted that
under common law there is no duty for employees and employers to
engage in collective bargaining,^® that the non-teacher employees were
not under CEEBA,^^ and that the School Powers Act^* authorized the
school to fix the salaries and the compensation of its employees.

The court of appeals considered the employee's constitutional right
to join a labor organization but concluded that there was no duty im-
posed upon the school to deal with such an organization or its
representatives.^^ The court reasoned:

If there is no legal obligation statutorily or at common law
to engage in good faith collective bargaining with a duly chosen
agent of a group or employees, there is no illegal interference
with an employee's constitutional freedom of speech or associa-

2^lND. Code §§ 20-7.5-1-1 to -14 (1982).
^"427 N.E.2d 464 (Ind. Ct. App. 1981).
^'Id. at 466.

^See County Dep't of Public Welfare v. American Fed'n of State, County and Mun.
Employees, 416 N.E.2d 153 (Ind. Ct. App. 1981).
"Ind. Code §§ 20-7.5-1-1 to -14 (1982).
""'Id. § 20-5-2-2(7).
^'427 N.E.2d at 466-67.

1983] SURVEY-LABOR LAW 229

tion where an employer does no more than refuse to recognize
and engage in collective bargaining with some employee
selected organization or its agents.^"

The appellate court adopted the holding in Peters v. Poor Sisters of
Saint Francis Seraph^^ in which that court, following Professor
Getman's analysis in his article dealing with Indiana Labor Relations
Law,^^ held that Indiana Code section 22-7-1-2,^^ which established a
worker's right to select his bargaining representative and to organize
into a local union, does not impose upon an employer a duty to
recognize the union as the collective bargaining agent nor does it im-
pose upon an employer a duty to engage in the collective bargaining
process.^^

After determining that the school had no legal duty to engage
in collective bargaining, the court addressed the impact of the school's
policy statement. The court concluded that the school may voluntarily
engage in collective bargaining and, in so doing, could impose qualifica-
tions and restrictions on its participation in collective bargaining.^^ The
court reasoned that because "the classified employees did not comply
with the policy conditions, there was no enforceable duty requiring
the school to engage in collective bargaining."^^ Further, the court
found that there was no evidence of "illegal interference" with the
employees' selection of a bargaining representative.^^

Judge Staton noted in his concurring opinion that in this case "the
school board had no statutory, common law or contractual duty to
enter negotiations"^* and stated that "the school board's Voluntary
policy for collective bargaining,' as characterized by the majority, was
nothing more than an offer to bargain with the employees if the
employees met the two conditions set by the policy."^®

''Id. at 467.

^148 Ind. App. 453, 267 N.E.2d 558 (1971).

^^Getman, Indiana Labor Relations Law: The Case for a State Labor Relations
Act, 42 Ind. L.J. 77, 87 (1966).

^^IND. Code § 22-7-1-2 (1982) provides that:

No worker or group of workers who have a legal residence in the state
of Indiana shall be denied the right to select his or their bargaining represen-
tative in this state, or be denied the right to organize into a local union or
association to exist within and pursuant to the laws of the state of Indiana:
Provided, That this act shall in no way be deemed to amend or repeal any
of the provisions of the National Labor Relations Act.
Id.

^"427 N.E.2d at 467 (citing Peters v. Poor Sisters of Saint Francis Seraph, 148
Ind. App. 453, 267 N.E.2d 558 (1971)).
^^427 N.E.2d at 468.
''Id.
'Ud.
""Id.
''Id. at 469.

230 INDIANA LAW REVIEW [Vol. 16:225

It is difficult to dispute the court's reasoning. However, Siddall
leaves open the question of whether the school policy would have been
enforceable had the employees complied with its conditions/" and the
broader question of what circumstances would result in a contractual
commitment to bargain. Other questions left unresolved by this deci-
sion include: what consideration would be required; what would be
the duration of the commitment; and what would be required to com-
ply with the contractual commitment — would the court assume the
role of compelling good faith bargaining. These questions await fur-
ther litigation.

C. Arbitration Appeals

1. Private Employer Arbitration Cases. — The only private-sector
arbitration case resolved on appeal during the survey period was Inter-
national Brotherhood of Electrical Workers, Local HOO v. Citizens Gas
& Coke Utility.''

Citizens Gas posted an opening for a trainee position as a
machinery repairman and ultimately awarded the position to the least
senior of four applicants. One of the senior applicants filed a grievance
and the grievance went to arbitration. The arbitrator found that the
company had unreasonably determined that the grievant was un-
qualified for the position and ordered that the grievant be placed in
the trainee position and made whole for his losses. The arbitrator's
decision was based upon the company's requirement of a high school
diploma which the grievant did not have. The arbitrator noted that
the company had waived the diploma requirement in the past for ap-
plicants who were otherwise qualified, but the company had failed to
do so here because it felt a high school diploma was essential to a
trainee position. The arbitrator recognized that the company had wide
discretion in establishing job requirements but held that the re-
quirements had to be reasonable. The arbitrator concluded that the
diploma requirement was unreasonable because in some school systems
a diploma had become little more than a certificate of attendance.

The court of appeals upheld the trial court's decision to vacate
the award of the arbitrator.''^ The appellate court recognized that,
under the Uniform Arbitration Act, a court may review the substance
of an award only when a party claims that the arbitrator has exceeded
his power and the " 'award cannot be corrected without affecting the

^Tor a discussion of this issue, see County Dep't of Pub. Welfare v. AFSCME,
416 N.E.2d 153 (Ind. Ct. App. 1981) and the author's comment relating to that case
in Archer, Labor Law, 1981 Survey of Recent Developments in Indiana Law, 15 Ind.
L. Rev. 269, 273-77 (1982) [hereinafter cited as 1981 Labor Law Survey].

^^428 N.E.2d 1320 (Ind. Ct. App. 1981).

''Id. at 1327.

1983] SURVEY-LABOR LAW 231

merits of the decisions upon the controversy submitted.' '"'^ The court
concluded, however, that the arbitrator's decision exceeded his author-
ity which was controlled by the parties' collective bargaining
agreement."*

In his decision, the arbitrator had acknowledged that the trainee's
position required a high school diploma and had admitted that the
grievant did not meet that requirement, which was specified in the
job description."^ Yet in resolving this dispute, the arbitrator looked
beyond the express job requirements and considered the
reasonableness of those requirements.

The collective bargaining agreement permitted grievances to be
filed challenging the reasonableness of job requirements; however, the
high school diploma requirement had not been challenged when it was
adopted, as required by the bargaining agreement. The court of ap-
peals concluded from the thirty-day time limit for filing such a
grievance set forth in the bargaining agreement, that this procedure
was the exclusive remedy for challenging the reasonableness of job
requirements and that job descriptions were to be deemed final if not
challenged promptly when adopted."^ Thus, when the arbitrator con-
sidered the reasonableness of the job requirement, he was acting
beyond his powers and the court could vacate the arbitrator's award.

Because this was a private-sector case. Section 301 of the Labor
Management Relations Act"^ and the cases construing that section are
applicable. In 1960, the Supreme Court issued the Steelworkers Trilogy
of cases"^ which provided clear instruction to the courts as to their
role in enforcement of arbitration awards."^ In United Steelworkers of
America v. American Manufacturing Co.,^ the Court stated:

The function of the court is very limited when the parties have
agreed to submit all questions of contract interpretation to the
arbitrator. It is confined to ascertaining whether the party
seeking arbitration is making a claim which on its face is

'Ud. at 1325 (quoting the Uniform Arbitration Act, Ind. Code § 34-4-2-13(a) (1982)).
^'428 N.E.2d at 1326.

''Id.

''Labor Management Relations Act § 301, 29 U.S.C. § 185 (1976).

'^United Steelworkers of Am. v. American Mfg. Co., 363 U.S. 564 (1960); United
Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960); United
Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960).

'^See United Steelworkers of Am. v. American Mfg. Co., 363 U.S. 564 (1960). In
that case the Court stated that "when the judiciary undertakes to determine the merits
of a grievance under the guise of interpreting the grievance procedure of collective
bargaining agreements, it usurps a function which under that regime is entrusted to
the arbitration tribunal." Id. at 569.

^"363 U.S. 564 (1960).

232 INDIANA LAW REVIEW [Vol. 16:225

governed by the contract. Whether the moving party is right
or wrong is a question of contract interpretation for the arbi-
trator. In these circumstances the moving party should not
be deprived of the arbitrator's judgment, when it was his judg-
ment and all that it connotes that was bargained for.'

In the Citizens Gas case, the court construed the procedure for
reviewing job requirements as stated in the collective bargaining
agreement. Although the arbitrator was not confronted with the argu-
ment that this review procedure foreclosed him from passing on the
reasonableness of the job requirements, the court construed that pro-
cedural contract language and applied it directly to the case. In so
doing, the court rejected the union's procedural argument that the
company had waived this argument by not having raised it to the
arbitrator, despite the settled law that procedural objections to
arbitrability are to be decided by the arbitrator and not by the courts.^^

The decision of the court as to the interpretation and application
of the collective bargaining agreement may be sound; however, the
case stands as a poor precedent. The court has decided questions which
should have been presented to the arbitrator. At the very least, the
court should have remanded the proceeding to the arbitrator for his
resolution of the impact of the job requirement grievance procedure
on the instant case and his resolution of whether that issue had been
waived when it was not presented in the arbitrative hearing. The par-
ties' past practice regarding these matters, the parties' bargaining
history, and the vast body of arbitration case law,^ should have been
considered in addressing these questions.

It is difficult for this author, who is a labor arbitrator (though
not the arbitrator in this case), to be in the position of advising the
courts to restrict their judicial review of arbitration awards to comply
with the Supreme Court directives in the Steelworkers Trilogy.
Nonetheless, if the courts succumb to the temptation to review the
merits of arbitrator's interpretative decisions, the process of arbitra-
tion will fail. To be viable, arbitration must afford the parties what
they sought when they agreed to arbitration — a relatively inexpen-
sive and speedy resolution of collective bargaining agreement disputes
by an experienced arbitrator of their choosing. To superimpose the
judicial system on arbitration cases, with its costly and slow moving
appellate procedures, will destroy the arbitration system. The prin-
cipal safeguard of the arbitration system is not judicial review, but
the parties' right to select their own arbitrator.

"/d. at 567-68.

''See John Wiley & Sons v. Livingston, 376 U.S. 543, 557 (1964).
^See, e.g.. United Steelworkers of Am. v. Warrior ,& Gulf Navigation Co., 363 U.S.
574 (1960).

1983] SURVEY-LABOR LAW 233

2. Public School Employer Arbitration Cases. — In the arbitration
appeals cases issued during the survey period, the court of appeals
recognized that judicial review of an arbitrator's award must be limited
in scope, but the court left numerous questions relating to those limits
unanswered. In School City of East Chicago v. East Chicago Federa-
tion of Teachers, Local 511,^ the court of appeals for the third district
considered whether the school could challenge the correctness of the
arbitrator's award after the statutorily set ninety-day period allowed
for vacating, modifying, or correcting the award.^^ In addition, the court
considered whether the reviewing court could intervene when the ar-
bitrator has awarded punitive damages. The court of appeals concluded
that the school could not directly challenge the arbitrator's award after
the ninety-day period; however, the court of appeals allowed the
school's collateral attack on the award of punitive damages and vacated
the arbitrator's award.^^

In East Chicago Federation, the arbitrator held that the school
employer had refused to make dues deductions and rdered the school
to pay punitive damages to the union. More than ninety days after
the award was mailed to the parties, the union filed a motion in trial
court to confirm and enforce the award. The school employer
answered, attacking the correctness of the arbitrator's decision. The
trial court held that the school was precluded from raising, as a
defense, the correctness of the arbitration award, because the school
had not complied with the provisions of the Indiana Uniform Arbitra-
tion Act which required a party to file a challenge to an award within
ninety days.^^

The issue, as the court of appeals perceived it, was whether the
school employer was barred from challenging the correctness of the
arbitrator's award because it failed to move for a vacation, modifica-
tion, or correction of the award within the ninety-day period.

The court, finding no case law interpreting the Certificated Educa-

"422 N.E.2d 656 (Ind. Ct. App. 1981).
''See Ind. Code §§ 34-4-2-13, -14 (1982).
^422 N.E.2d at 661-63.

"Section 12 of the Uniform Arbitration Act (UAA) adopted by Indiana provides:
Upon application of a party, but not before ninety (90) days after the mailing
of a copy of the award to the parties, the court shall confirm an award, unless
within the time limits hereinafter imposed grounds are urged for vacating
or modifying or correcting the award, in which case the court shall proceed
as provided in sections 13 and 14 [34-4-2-13, 34-4-2-14] of this act. Upon con-
firmation, the court shall enter a judgment consistent with the award and
cause such entry to be docketed as if rendered in an action in said court.

Ind. Code § 34-4-2-12 (1982).

Sections 13 and 14 of the UAA provide for vacating an award and for modifying

or correcting an award respectively; furthermore, both of those sections provide that

applications for relief "shall be made within ninety (90) days after the mailing of a

copy of the award to the applicant." Id. §§ 34-4-2-13, -14.

234 INDIANA LAW REVIEW [Vol. 16:225

tional Employees Bargaining Act (CEEBA), looked to case law based
upon the National Labor Relations Act (NLRA).^* The court found that
the legal precedent and federal policies on this issue would require
the court to conclude that the school's defenses in East Chicago Federa-
tion were not timely asserted.^^ However, the court in East Chicago
Federation stated that this precedent was not binding because the
employer in this case, the school, was not subject to the NLRA.®°
Although the court of appeals noted that the school was not sub-
ject to the NLRA, and further noted a distinction between the
employee's relationship with private employers and the school corpora-
tion, the court held that the Indiana statutes preclude the assertion
of any defense that is available for direct appeal after the ninety-day
period.^^ In reaching this conclusion, the court found that the public
policy to avoid labor strife, which supports the NLRA precedent on
this issue, was applicable to this case.^^ It is interesting to note that
the court of appeals did not consider a recent Indiana decision. State
Department of Administration v. Sightes,^^ in which the court had ruled
that a "defendant who has a valid ground for challenging the award
but who fails to raise that challenge within the 90-day time limit should

^«29 U.S.C. § 151 (1976).

5^422 N.E.2d at 659-60 (citing Chauffeurs, Teamsters, Warehousemen and Helpers
V. Jefferson Trucking Co., 628 F.2d 1023 (7th Cir. 1980)). For further discussion of
Jefferson Trucking, see 1981 Labor Law Survey, supra note 40, at 283-84. The conclu-
sion in Jefferson Trucking may be inconsistent with the ultimate holding in the Chicago
Federation case. As is developed more fully in the text of the 1981 Survey Article,
the court in Jefferson Trucking based its decision on a finding that an arbitrator's error
of law, under which the arbitrator grants a form of relief that public policy does not
permit, renders the award void and subject to attack after the UAA 90-day period.
The trial court opinion in Chauffeurs, Teamsters, Warehousemen and Helpers v. Jef-
ferson Trucking Co., 473 F. Supp. 1255 (S.D. Ind. 1979) notes that one of the defenses
belatedly raised in that case was that the relief sought was not available at law. It
is not clear whether this relief was one that public policy would not permit. If not,
the seventh circuit was not called upon in Jefferson Trucking to address the narrow
question the court dealt with in the Chicago Federation case.
''See 29 U.S.C. § 152(2) (1976).
"422 N.E.2d at 660-61.
'Hd. at 661. The court stated that:

We must, however, ag^ee with Judge Steckler in Jefferson Trucking Com-
pany that the policies favoring arbitration are firmly aligned against permitting
a party, who has voluntarily agreed to this form of dispute settlement, [ar-
bitration] . . . [could not] simply ignore an award that has been made and
then ask to be given its day in court when, in frustration, the other party
is driven to institute suit for enforcement of the award.
Id.

*'416 N.E.2d 455 (Ind. Ct. App. 1981), discussed in 1981 Labor Law Survey, supra
note 40, at 282-83. In Sightes, the arbitrator construed a statute so as to award the
teachers back pay. The defendants alleged that the arbitrator erred in his construc-
tion of the statute and noted subsequent arbitrator's decisions in support of this con-

1983] SURVEY-LABOR LAW 235

not be permitted to raise that challenge when the plaintiff applies for
confirmation of his award. "^^

The court next considered the school's collateral attack, claiming
that the arbitrator's award of punitive damages so exceeded the ar-
bitrator's authority as to be void. The court noted the general rule
that an arbitrator's award will not be vitiated because of legal errors
but then listed three choices available to a reviewing court if an ar-
bitrator does not follow the law. According to the court, the three
choices include: disregarding the error because it is within the authori-
ty of the arbitrator; considering the error because it is the basis for
a direct attack to vacate or modify the award; or voiding the award
because it is beyond the jurisdiction of the arbitrator.^^ The court
explained:

Which choice should be made depends upon the nature of the
error. Since many errors will fall into the category of not being
grounds for any modification of the award, it follows that some
public policy element must be brought to bear before an error
can be ''promoted" into the second category. What then may
constitute the third category, that [sic] at issue in the school's
claim before us?

Having surveyed the authorities we conclude that where
the arbitrator has jurisdiction of the case and of the parties
it is only where he affords a form of relief that public policy
does not permit the parties to voluntarily agree to, that he
so acts beyond his jurisdiction that the award is void and sub-
ject to collateral attack.^^

The court in East Chicago Federation chose the third category and
found that the arbitrator's award of punitive damages was beyond
his jurisdiction, thus the award was void.^^

In reaching this conclusion, the court cited the decision of the New
York Court of Appeals in Garrity v. Lyle Stuart, Inc.,^^ in which the
court held that an arbitrator had no power to award punitive damages,
even though it was agreed to by the parties, because the award of
punitive damages is a sanction reserved to the state. The Garrity court
concluded that the enforcement of an award of punitive damages would
violate strong public policy considerations because it would be both

tention. Again, however, it is not clear that the arbitrator's award in Sightes was one
that public policy would not permit.

'%U N.E.2d at 450.

«M22 N.E.2d at 662.

""Id.

'Ud. at 662-63.

"MO N.Y.2d 354, 353 N.E.2d 793, 386 N.Y.S.2d 831 (1976).

236 INDIANA LAW REVIEW [Vol. 16:225

unpredictable and uncontrollable and because it would amount to an
unlimited draft upon judicial power/* However, Garrity was a com-
mercial arbitration case, not a labor case, and the court made no
reference to the Uniform Arbitration Act.

An additional authority cited in East Chicago Federation was a
1963 law review article^" in which the author criticized a New York
decision that failed to enforce an arbitrator's award of punitive
damages against a union. The author stated that labor arbitration cases
require a different treatment than commercial arbitration cases
because labor arbitration is a necessary complement to negotiation
and a substitute for industrial strife.^^

A strong argument can be made that, especially in the absence
of contractual authority to award punitive damages, an arbitrator does
not have authority to award punitive damages. However, doubt creeps
in regarding the decision in East Chicago Federation because the court,
with little authority or explanation of its decision, permitted an ar-
bitrator's punitive damages award to be challenged after the expira-
tion of the statutory ninety-day period.

This case is significant in many respects. The court noted a distinc-
tion between employers who are subject to the NLRA and employers
who are not subject to the NLRA. The court acknowledged that for
the former employers precedent would dictate that the defenses in
this case were not timely filed.^^ As to employers not under the NLRA,
the court appears to have created some exceptions to the general rule
that errors of law do not afford a basis for attacking an arbitrator's
award.

The exceptions created in Ea^t Chicago Federation were cited with
approval in Southwest Parke Education Association v. Southwest Parke
Community School Trustee's CorpJ^ In Southwest Parke, the court of
appeals for the first district held that the Indiana Uniform Arbitra-
tion Act,^^ as a general rule, does not permit an arbitrator's award
to be vacated for an erroneous interpretation of law.^^

^^Id. at 358, 353 N.E.2d at 795-96, 386 N.Y.S.2d at 833-34.

■""Note, Judicial Review of Arbitration: The Role of Public Policy, 58 Nw. U. L.
Rev. 545 (1963).

"/d. at 551-55. The case was Publisher's Ass'n v. Newspaper & Mail Deliverers'
Union, 280 A.D. 500, 114 N.Y.S. 401 (1952). The court in Publisher's Association refused
enforcement of the arbitrator's award of punitive damages despite the parties' collec-
tive bargaining agreement in which they agreed to punitive damages. This case is
criticized in Fleming, Arbitrators and the Remedy Power, 48 Va. L. Rev. 1199, 1209
(1962).

^^422 N.E.2d at 660 (citing Chauffeurs, Teamsters, Warehousemen and Helpers
V. Jefferson Trucking Co., 628 F.2d 1023 (7th Cir. 1980)).

^M27 N.E.2d 1140 (Ind. Ct. App. 1981).

^"IND. Code §§ 34-4-2-1 to -22 (1982).

^^427 N.E.2d at 1148.

1983] SURVEY-LABOR LAW 237

In Southwest Parke, the arbitrator had held that the school board's
dismissal of the grievant teacher was invalid under the Indiana
General School Powers Act^^ because the school board had voted to
dismiss the teacher by only a majority of those present and not a
majority of the school board. The arbitrator construed the Act to re-
quire the majority vote of the school board for such action.

The court of appeals concluded that if the arbitrator committed
an error of law in his construction of the Act, it had to fall in the
first two of the three exceptions set forth in East Chicago Federation
because the trial court, in vacating the original award, found the
arbitrator's interpretation of the law, rather than the relief granted,
to be faulty.^^ The court of appeals stated that under the Uniform
Arbitration Act the general rule is that *'an arbitrator's mistake of
law or erroneous interpretation of the law does not constitute an act
in excess of the arbitrator's powers."'* However, the court noted that
there are exceptions to this general rule for an arbitrator's manifest
disregard of the law or gross errors of judgment in law.'^ The court
concluded that neither of these exceptions applied to the instant case
because the "arbitrator's findings, opinion, and award indicate[d] not
only a knowledge of the applicable law and facts, but also a con-
scientious attempt to apply the law to the facts."*" Thus, without ever
deciding if the arbitrator had erred in his interpretation of the General
School Powers Act, the court of appeals upheld the arbitrator's award
requiring reinstatement of the grievant teacher with reimbursement
for lost earnings.*^

To be compared to Southwest Parke is Tippecanoe Education
Association v. Board of School Trustees,^^ in which the holding of the
court of appeals conflicts with CEEBA. In Tippecanoe, the grievant
high school teacher, who taught physical education, had been trans-
ferred involuntarily by the school board to a similar position in the
junior high school. The reason for the transfer was to create a physical

''Indiana General School Powers Act, Ind. Code § 20-5-3-2(6) (1982) provides:
Quorum. At a meeting of the governing body, a majority of the members
shall constitute a quorum. No action may be taken unless a quorum is pre-
sent. Except where a larger vote is required by law with respect to any
matter, a majority of the members present may adopt a resolution or take
any action.
Id.

"427 N.E.2d at 1147 (construing School City of East Chicago v. East Chicago Fed'n
of Teachers, Local 511, 422 N.E.2d 656, 662 (Ind. Ct. App. 1981)).

'«427 N.E.2d at 1147. See Ind. Code § 34-4-2-13 (1982).

'M27 N.E.2d at 1147.

''Id. at 1148.

''Id.

^^429 N.E.2d 967 (Ind. Ct. App. 1981).

238 INDIANA LAW REVIEW [Vol. 16:225

education teaching position for the newly hired basketball coach at
the high school. The school board felt that it was important for the
coach to teach at the school where he was to coach. The school board
contended that this transfer was made in compliance with its collec-
tive bargaining agreement which listed the criteria and the procedure
to follow in transferring teachers, and further provided that: ''The
Board reserves the right to make involuntary transfers for the general
welfare of the corporation.''^^

The arbitrator found that the board had followed the criteria and
procedure set forth by the collective bargaining agreement in trans-
ferring the grievant, but the arbitrator construed the words ''general
welfare of the corporation" to refer to the school's best interest when
viewed from the vantage point of the entire school corporation. The
arbitrator reasoned that a basketball coach deals personally with a
limited number of students and that his teaching assignment at the
school where he coaches would help only the few players on his team.
He thus concluded that the grievant teacher's right to continue in his
teaching position at the high school was more in the "general welfare
of the school corporation" than the assignment of the new coach to
teaching duties at the school.

On appeal, the court considered whether the trial court had
correctly concluded that the arbitrator exceeded his authority in deter-
mining the rights of the grievant teacher, by interpretating what was
for the general welfare of the school. The court looked to section 6(b)
of CEEBA which provides that:

School employers shall have the responsibility and authority
to manage and direct in behalf of the public the operations
and activities of the school corporation to the full extent
authorized by law. Such responsibility and activity shall in-
clude but not be limited to the right of the school employer
to . . . (3) hire, promote, demote, transfer, assign and retain
employees.^

In addition, the court considered section 3 of CEEBA, which in defin-
ing the "duty to bargain collectively" under the Act states, in part,
that "[n]o contract may include provisions in conflict with . . . (c) school
employer rights as defined in Section 6(b)."®^

In construing these provisions, the court relied upon a" prior deci-
sion, Anderson Federation of Teachers, Local 519 v. Alexander y^^ where
the court found that under CEEBA the school was limited in the scope

''Id. at 969.

^'IND. Code § 20-7.5-l-6(b) (1982).
''Id. § 20-7.5-1-3.

^416 N.E.2d 1327 (Ind. Ct. App. 1981). For a discussion of this case, see 1981 Labor
Law Survey, supra note 40, at 269-73.

1983] SURVEY-LABOR LAW 239

of its collective bargaining. The court in Anderson Teachers stated:

The scope of collective bargaining by schools, then, is to
be restricted because school corporations have duties to the
public, to the legislature, and to their employees as individuals,
which they must not be permitted to bargain away.

. . . the legislature has plainly expressed its intent that the
responsibilities and authority of school corporations, as par-
tially described in section 6(b) of the Act, are duties entrusted
by the legislature to the sole discretion of school corporations,
and can not be restricted in a collective bargaining
agreement."*^

Applying the rationale in Anderson Teachers, the court of appeals
found that the arbitrator's consideration of the general welfare of the
school corporation created a conflict because such responsibility had
been entrusted to the sole discretion- of the school board; thus, the
court held that the arbitrator's decision had been properly vacated.®^

This reasoning supports the court's action in vacating the
arbitrator's award, and it is consistent with the general rule in
Southwest Parke that an arbitrator's erroneous interpretation of law
is not a sufficient reason to set aside the arbitrator's award.®^ In
Southwest Parke, the arbitrator construed a state statute and, while
he may have been in error, such error, in itself, would not be grounds
to deny enforcement of the award under the general rule of the
Uniform Arbitration Act. In Tippecanoe, the arbitrator did not con-
strue the statute in question. There is no indication in the opinion
of the court of appeals that the arbitrator was even made aware of
the statute. While his award may have been based upon a correct
interpretation of the parties' collective bargaining agreement, the
agreement, as the court construed it, was beyond the authority of the
parties. In effect, the court in Tippecanoe found that the agreement
was unenforceable as contrary to the public policy expressed by the
legislature in CEEBA.^''

If the court had said nothing more on this point, it would seem
that any collective bargaining agreement relating to school employer
rights under section 6(b) of CEEBA would be unenforceable. However,
the court went on to narrow its holding by stating:

It is apparent, however, [that] the arbitrator may intervene
where the Board's action conflicts with applicable law or
express, lawful Master Contract provisions, and that the Board

«'416 N.E.2d at 1331-32.
««429 N.E.2d at 973.
''See 427 N.E.2d at 1147.
'"429 N.E.2d at 971.

240 INDIANA LAW REVIEW [Vol. 16:225

is required to observe the procedures and criteria specified
... [in the agreement] in making transfers. Though the arbi-
trator may not generally substitute his judgment for that of
the Board, we believe appropriate review will lie in a proper
case for actions involving purely arbitrary, capricious or fraud-
ulent exercise of the powers granted to the Board by the
General School Powers Act.^^

This interpretation considerably softens the literal language of sec-
tions 3 and 6(b) of CEEBA as it allows arbitrator enforcement of the
parties' agreements with respect to the criteria and the procedure
for school employer exercise of CEEBA section 6(b) powers, and this
interpretation permits arbitrator review of arbitrary, capricious or
fraudulent exercises of such powers.

After Southwest Parke and Tippecanoe^ questions still remain as
to the circumstances under which the exceptions stated in East Chicago
Federation will be applied by the courts in reviewing arbitration deci-
sions. The first "choice" that the court in East Chicago Federation
lists encompasses the general rule that the court will disregard the
error by the arbitrator .^^ The second "choice" for a court is to permit
a direct attack on the award within the ninety-day statutory period.^^
In East Chicago Federation^ the court noted that this second category
involves public policy considerations and included in footnote thirteen,
authority recognizing an exception for an arbitrator's "manifest
disregard of the law."^* No one can take issue with a court having
authority to set aside an award based upon an arbitrator's "manifest
disregard of the law." But does this constitute the only circumstance
which would permit a direct attack based upon an arbitrator's error
of law?

Finally the East Chicago Federation court stated that in the third
"choice," the "only" circumstance under which it will void the award
as being beyond the arbitrator's jurisdictibn is where the arbitrator
"affords a form of relief that public policy does not permit the par-
ties to voluntarily agree to."®^ East Chicago Federation involved
punitive damages. What other forms of relief would fall within this
third category? Would an arbitrator's award based upon an incorrect
interpretation of CEEBA section 6(b) or an interpretation in conflict
with that section, such as in Tippecanoe^ fall within this third category,
or would such defenses have to be raised within the ninety-day period?
These questions also will have to await further litigation.

'7d. at 973 (citation omitted).
»M22 N.E.2d at 662.

^Id. at 662 n.l3 (citing San Martine Compania de -Navegacion v. Saguenay Ter-
minals, Ltd., 293 F.2d 796 (9th Cir. 1961)).
"'422 N.E.2d at 662.

XL Products Liability

Jordan H. Leibman*

A. Introduction

A dominant theme running through the three major appellate
court products liability cases decided during the survey period is that
of proximate, intervening, and superseding causation. In Craven v.
Niagra Machine & Tool Works, Inc.,^ the Indiana Court of Appeals,
in a petition for rehearing, reasserted the principle that a product
manufacturer has a duty to foresee and anticipate subsequent, substan-
tial changes of its product by others. However, the plaintiff has the
burden of showing that any such change was not a superseding cause
of his injuries.^ In Conder v. Hull Lift Truck, Inc.,^ the Indiana Supreme
Court acknowledged that foreseeability principles, to be applied by
the trier of fact, will determine whether intervening acts, including
product misuse, supersede the act of the manufacturer in introducing
a defective product into the stream of commerce.'* And finally, in Bemis
Co. V. Rubush,^ the Indiana Supreme Court, in a controversial rever-
sal, ruled that the issue of causation need not be reached if the instru-
mentality causing the injury presented an open and obvious danger
which would be apparent to an ordinary product user.^

B. Substantial Change

Craven v. Niagra Machine & Tool Works, Inc.'' was an appeal from
judgment on the evidence in favor of the defendant manufacturer.

♦Associate Professor of Business Law, Indiana University School of Business;
Former Vice-President and Plant General Manager of Imperial Packaging Company,
Inc. — Indianapolis; Member of the Indiana Bar. B.A., University of Chicago, 1950; M.B.A.,
University of Chicago, 1955; J.D., Indiana University School of Law — Indianapolis, 1979.

'425 N.E.2d 654 (Ind. Ct. App. 1981), rev'g on reheaHng All N.E.2d 1165 (Ind.
Ct. App. 1981). See Vargo, Products Liability, 1981 Survey of Recent Developments in
Indiana Law, 15 Ind. L. Rev. 289, 301 (1982) for a discussion of the original court of ap-
peals opinion.

M25 N.E.2d at 655-56.

'435 N.E.2d 10 (Ind. 1982), rev'g 405 N.E.2d 538 (Ind. Ct. App. 1980). See Leib-
man, Products Liability, 1980 Survey of Recent Developments in Indiana Law, 14 Ind.
L. Rev. 1, 25-27, 31, 43-45, 60-61, 64 (1981) for a discussion of the issues raised in the In-
diana Court of Appeals opinion in Conder.

M35 N.E.2d at 14.

^427 N.E.2d 1058 (Ind. 1982), rev'g 401 N.E.2d 48 (Ind. Ct. App. 1980). See Leib-
man, Products Liability, 1980 Survey of Recent Developments in Indiana Law, 14 Ind.
L. Rev. 1, 8-17, 30, 40, 58, 61-62, 64 (1981) for a discussion of the issues raised in the In-
diana Court of Appeals opinion in Bemis. See also, Phillips, Products Liability: Obvumsness
of Danger Revisited, 15 Ind. L. Rev. 797 (1982).

M27 N.E.2d at 1061.

^417 N.E.2d 1165 (Ind. Ct. App. 1981).

241

242 INDIANA LAW REVIEW [Vol. 16:241

Niagra.® Craven's claim, based on strict liability in tort,^ alleged that
Niagra failed to adequately warn of inherent dangers in its product,
a punch press, with respect to an operator "trying out" small dies
without first blocking the slide with safety blocks/'' By virtue of that
failure to adequately warn, the plaintiff contended that the manufac-
turer had introduced a defective product into the stream of commerce
and that the defect was the proximate cause of his injuries.*^

The court of appeals, in its original hearing, ruled that there was
sufficient evidence of a latent defect to create a question of fact for
the jury;^^ that is, was the punch press "in a defective condition
unreasonably dangerous,"^^ which would then create a duty to warn.
In discussing whether the alleged failure to give an adequate warn-
ing could be a cause in fact of the injury, the court noted that there
was a presumption in Craven's favor that Niagra's warnings, in the
form of a service bulletin to the original purchaser of the press, were
inadequate because Craven had failed to heed them/" "In reference
to cause in fact, there is a rebuttable presumption that adequate warn-
ings will be heeded/^ . . . Where warnings are inadequate, the
presumption is in essence a presumption of causation."^^ Niagra
presented evidence of warning adequacy to rebut the presumption.
However, Craven testified that he would have heeded a different type
of warning, that he did take precautions when he recognized a danger
with heavy dies, and that he heeded warnings in regard to other
machines." The court found that this testimony, along with testimony

'Id. at 1168.

^The strict liability claim was based on section 402A of the Restatement (Second)
of Torts which states:

Special Liability of Seller of Product for Physical Harm to User or Consumer.
(1) One who sells any product in a defective condition unreasonably dangerous
to the user or consumer or to his property is subject to liability for physical
harm thereby caused to the ultimate user or consumer, or to his property,
if (a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial
change in the condition in which it is sold. (2) The rule stated in Subsection
(1) applies although (a) the seller has exercised all possible care in the prepara-
tion and sale of his product, and (b) the user or consumer has not bought
the product from or entered into any contractual relation with the seller.
Restatement (Second) of Torts § 402A (1965).

^"417 N.E.2d at 1169-70.

''Id.

''Id. at 1170.

^'Restatement (Second) of Torts § 402A (1965). See supra note 9.

"417 N.E.2d at 1171.

''Id. (citing Conder v. Hull Lift Truck, Inc., 405 N.E.2d 538 (Ind. Ct. App. 1980)).

^«417 N.E.2d at 1171 (citing Ortho Pharmaceutical Corp. v. Chapman, 388 N.E.2d
541 (Ind. Ct. App. 1979)).

"417 N.E.2d at 1171.

1983] SURVEY-PRODUCTS LIABILITY 243

by Craven's peers as to his cautious nature, was sufficient to create
a jury question on the issue of cause in fact.^^

To establish a jury question with respect to proximate cause,
however, the court held that foreseeability principles would be the
ultimate test/^ Finding that Niagra was aware or should have been
aware of the frequent resellings and the frequent misuses of its prod-
ucts and the products' safety features, the appellate court ruled that
Niagra might reasonably foresee that the warning system it employed
would prove inadequate.^" Therefore, an issue of proximate cause ex-
isted which could go to a jury. With defect, causation, and damages
at issue, judgment on the evidence was inappropriate.^^ Consequent-
ly, the court of appeals reversed and remanded for a new trial.^^

In its petition for rehearing, Niagra argued that the court of ap-
peals had "incorrectly decided the questions regarding substantial
change and causation when [it] held that substantial change in the prod-
uct after sale is a question of foreseeable or unforeseeable interven-
ing, superseding cause."^^ Even if foreseeability of subsequent change
is required of manufacturers, Niagra argued, the question remained
whether the plaintiff or the defendant had the burden of proving or
disproving that substantial product change, after the product leaves
the manufacturer's control, was the sole proximate cause of injury.^"

The problem of substantial change is derived from section
402A(l)(b) of the Restatement (Second) of Torts, which provides that the
product "reach the user or consumer without substantial change in
the condition in which it is sold."^^ Comment p to this section ^^ ex-
plains why section 402A only addresses unreasonably dangerous
defects in substantially unchanged products. The American Law In-
stitute had insufficient case law in 1965 to fashion a rule which would
determine which changes would provide adequate grounds for finding
superseding, intervening causes.^ Comment p makes it clear, however.

''Id.

1170.

''Id.

1171.

''Id.

1172.

'H25 N.E.2d 654,

655 (Ind

'*Id.

655-56.

Ct. App. 1981).

^^Restatement (Second) of Torts § 402A(l)(b) (1965).
''^Restatement (Second) of Torts § 402A comment p (1965).
^/d Comment p provides in pertinent part:

Thus far the decisions applying the rule stated have not gone beyond prod-
ucts which are sold in the condition, or in substantially the same condition,
in which they are expected to reach the hands of the ultimate user or con-
sumer. In the absence of decisions providing a clue to the rules which are
likely to develop, the Institute has refrained from taking any position as to
the possible liability of the seller where the product is expected to, and does,

244 INDIANA LAW REVIEW [Vol. 16:241

that the "mere fact that the product is to undergo processing, or other
substantial change, will not in all cases relieve the seller of liability."^®
The comment provides a series of examples which focus on two
criteria. The first is whether the original defect or the subsequent
change was a cause in fact of the injury.^* If the subsequent change
or processing had no effect on the injury, then the liability of the
original actor certainly should carry through. The second criterion is
whether a transfer of responsibility to a subsequent processor has
taken place. It is in this criterion that foreseeability principles can
be found, and the language of comment p suggests that common law
development might permit such a result. Examples given in the com-
ment indicate that the likelihood of liability attaching to a manufac-
turer is a function of how certain the manufacturer might be of the
ultimate use of its raw material which then leads to injury. The variety
of uses the product has will determine how foreseeable that use was
to the manufacturer and how foreseeable was the concomitant risk
of harm. Clearly, the Institute left the decision of whether respon-
sibility for foreseeable harm should remain with the original actor,
or should be shifted wholly to the subsequent changer or processor,
to state courts to sort out over time.^°

On rehearing, the appellate court ruled in Craven^^ that Indiana
case law had applied foreseeability principles to subsequent, substan-
tial changes in products when Indiana adopted strict liability in tort.^^
"Substantial change has been defined in Indiana as 'any change which
increases the likelihood of a malfunction, which is the proximate cause
of the harm complained of, and which is independent of the expected
and intended use to which the product is put.' "^^ The Craven court
ruled that this definition permitted the original actor to be held strictly
liable "if it is foreseeable that the alteration would be made and the
change does not unforeseeably render the product unsafe."^^

undergo further processing or other substantial change after it leaves his
hands and before it reaches those of the ultimate user or consumer.

Id.

^^Restatement (Second) of Torts § 402A comment p (1965).
''Id.

^'^Id. Comment p provides in pertinent part:

No doubt there will be some situations, and some defects, as to which respon-
sibility will be shifted, and others in which it will not. The existing decisions
as yet throw no light upon the questions, and the Institute therefore expresses
neither approval nor disapproval of the seller's strict liability in such a case.

^^425 N.E.2d 654 (Ind. Ct. App. 1981).

^^Indiana first adopted strict liability in tort in Cornette v. Searjeant Metal Pro-
ducts, 147 Ind. App. 46, 258 N.E.2d 652 (1970).

^^25 N.E.2d at 655 (quoting 147 Ind. App. 46, 54, 258 N.E.2d 652, 657 (1970)).
^"425 N.E.2d at 655.

Id.

1983] SURVEY-PRODUCTS LIABILITY 245

Craven had alleged a cognizable defect in the failure to adequately
warn of the danger of not using safety blocks and had established
a question of cause in fact, in that but for the lack of adequate warn-
ing he would not have been injured. The court on rehearing, however,
decided that he had failed to meet his burden of making out a prima
facie case because he had failed to establish that the lack of warning
was a proximate cause of injury.^^ Craven failed to present sufficient
evidence that the subsequent changes made by third parties, after
Niagra had sold the punch press, were not superseding, intervening,
efficient causes of his injury. "By definition, plaintiff must offer
evidence that the changes did not increase the danger in not using
safety blocks or the likelihood of the ram falling which caused the
injury and that the changes could have been reasonably expected, i.e.,
foreseeable."^ Without this proof the "only reasonable inference would
be that this risk of the ram falling, creating the unreasonable danger
in not using safety blocks, developed sometime after it left the hands
of the manufacturer . . . ."^^

In summary, in affirming the trial court judgment for Niagra, the
appellate court ruled that, while a manufacturer must anticipate
substantial changes which are reasonably foreseeable, the issue of
substantial change is not a defense. Rather, proving the lack of substan-
tial change is properly part of the plaintiffs case-in-chief.

C. Product Misuse and Substantial Change
as Intervening Causation

To understand the dilemma presented to the Indiana Supreme
Court by the appellate court's decision in Conder v. Hull Lift Truck,
Inc.,^^ a review of the facts in chronological order will be useful.^^ Allis-
Chalmers Corporation manufactured a forklift truck and sold it to Hull
Lift Truck, Inc., which was in the business of leasing material han-
dling equipment to industrial and commercial companies. Hull leased
the Allis-Chalmers forklift to Globemaster for use on the Globemaster
receiving dock which was under the supervision of Leroy Graber, the
receiving foreman. Plaintiff Raymond Conder, a Globemaster employee
and a forklift truck operator, reported to Graber. Hull was responsi-
ble for all maintenance and adjustments to the leased equipment, in-
cluding the Allis-Chalmers' forklift truck.

''Id.

""Id. at 655-56.

'Ud. at 656.

'H05 N.E.2d 538 (Ind. Ct. App. 1980), affd in part, rev'd in part, 435 N.E.2d 10
(Ind. 1982).

^he facts of Conder are presented in a somewhat different sequence in 405 N.E.2d
at 541.

246 INDIANA LAW REVIEW [Vol. 16:241

At some point after Globemaster took possession of the forklift,
Graber and two forklift truck operators, other than Conder, became
aware that there was an over-acceleration problem with the machine/"
However, Graber decided to delay any maintenance on the forklift
because the receiving department was exceptionally busy. Graber not
only failed to call Hull and request maintenance for the forklift, but
he also failed to warn Conder of the forklift's problem of over-accelera-
tion/^ Conder was injured severely when the machine, failing to
decelerate for him, overturned as it passed through a puddle of water.

Conder and his wife brought suit against Allis-Chalmers, the
manufacturer, ''based upon theories of strict liability, negligence and
willful and/or wanton misconduct,"^^ and they sued Hull Lift Truck,
Inc. under both strict liability and negligence theories.'*^ This Survey
will discuss only the strict liability claims."'^ Conder's strict liability
allegation against Allis-Chalmers stated that the product possessed
both a design defect and a warning defect at the time Allis-Chalmers
sold it to Hull.''^ The design of the forklift permitted "a foreseeable
misadjustment of the governor linkage""^ and Allis-Chalmers failed to
warn of the misadjustment hazard.'*^ With respect to the leasing agent
Hull, the plaintiff "claimed the forklift truck was defective and
unreasonably dangerous in that the torsion spring on the carburetor
was either defective and/or broken when delivered to Globemaster,
and the carburetor-governor linkage was grossly out of adjustment."^*

At trial, both defendants received favorable jury verdicts."*^ In their
appeal of the verdict for Hull, Conder argued that the verdict was
contrary to law because it was against the weight of the evidence.^"
In ruling that it could not reverse "unless the evidence is without

'"405 N.E.2d at 543.

''Id.

*Ud. at 541. The issue of willful and wanton misconduct was discussed in Leib-
man, Products Liability, 1980 Survey of Recent Developments in Indiana Law, 14 Ind.
L. Rev. 1, 60-61 (1981). Because this issue was not material to the supreme court rever-
sal of Conder it will not be discussed in this article. Although Conder and his wife
both brought suit, this article only discusses Raymond Conder's claim.

"405 N.E.2d at 541-42.

"Both the Indiana Court of Appeals and the Indiana Supreme Court decided Conder
under strict liability principles.

'^405 N.E.2d at 541.

'Ud.

"Yd at 541-42. The misadjustment of the forklift truck's carburetor-governor linkage
was initially masked by the functioning of a torsion spring which, when working,
prevented the truck from over accelerating. Apparently this additional safety device
failed at some time after Hull leased the truck to Globemaster. Id. at 542.

'Ud. at 540.

''Id. at 542.

1983] SURVEY-PRODUCTS LIABILITY 247

conflict and leads to only one conclusion,"^^ the court of appeals agreed
that there was "overwhelming, uncontradicted evidence to prove the
forklift's governor-carburetor linkage was misadjusted at the time the
machine was leased to Globemaster. Therefore the forklift was clear-
ly defective and unreasonably dangerous."^^ Thus, the appellate court
concluded that Hull had leased a defective product to Globemaster
by virtue of the maladjustment, and "the maladjustment was a cause
in fact of the plaintiffs accident."^^

Despite this conclusion, the court found that the jury had been
presented with a question of fact on the issue of proximate cause.^''
The court ruled that the jury could have found that the defective prod-
uct was not the proximate cause of Conder's injuries, but rather that
the negligent acts and omissions of Globemaster's foreman were in-
tervening, efficient, superseding causes of Conder's injuries.^^ The
foreman's failure to remove the forklift from service or to warn Con-
der of the over-acceleration problem would then become the sole prox-
imate cause of injury, while Hull's leasing an unreasonably dangerous
product would become merely a remote cause of injury not subject
to liability.^^ With respect to the action against Hull, the court did
not discuss errors in the jury instructions or admissibility of evidence.

''Id.
''Id.
'Ud.
''Id.

"Id. at 543.

^®The Indiana rule governing causation is set out in Ortho Pharmaceutical Corp.
Chapman, 388 N.E.2d 541, 555 (Ind. Ct. App. 1979) as follows:
Proximate cause is commonly defined as "that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces
the result complained of and without which the result would not have oc-
curred." Johnson v. Bender, (1977) Ind. App., 369 N.E.2d 936, 939. This latter
language describes what is known as the "but for" test. A fundamental ele-
ment of proximate cause is that the injury or consequence of the wrongful
act be of a class reasonably foreseeable at the time of that act. Eld£T v. Fisher,
(1966) 247 Ind. 598, 217 N.E.2d 847; Meadowlark Farms, Inc. v. Warken, supra,
[(1978) Ind. App., 376 N.E.2d 122]. The defendant's act need not be the
sole proximate cause; many causes may influence a result. Meadowlark Farms,
Inc. V. Warken, supra, 376 N.E.2d at 129. The question is whether "the original
wrong was one of the proximate rather than remote causes." Dreibelbis v.
Bennett, (1974) 162 Ind. App. 414, 319 N.E.2d 634, 638. Thus, "the ultimate
test of legal proximate causation is the reasonable foreseeability. The asser-
tion of an intervening, superceding [sic] cause fails to alter this test." Id.
Rather, "[w]here harmful consequences are brought about by intervening in-
dependent forces the operation of which might have been reasonably fore-
seen, then the chain of causation extending from the original wrongful act
to the injury is not broken by the intervening and independent forces and
the original wrongful act is treated as a proximate cause." New York Central
R. Co. V. Cavinder, (1965) 141 Ind. App. 42, 211 N.E.2d 502, 508. Proximate

248 INDIANA LAW REVIEW [Vol. 16:241

In appealing the verdict in favor of Allis-Chalmers, Conder
assigned error to several of the trial court's instructions and also to
the trial court's refusal to give two instructions submitted by Conder.^^
The alleged erroneous instructions raised two basic issues. The first
issue was whether a manufacturer is a guarantor in regard to the
quality of its product. The second, and more significant issue, was the
extent of the manufacturer's responsibility for anticipating subsequent
acts of product misuse and product alteration by product users and
third parties.

The "subsequent act" issue raised by Conder focused on the con-
cept of foreseeability. Conder argued that one trial court instruction
was an incomplete statement of the law regarding any substantial
change made in a product after it leaves the manufacturer's hands
because the jury was told "the manufacturer of a product is not re-
quired to anticipate or foresee that its product will be substantially
changed."^^ The court of appeals acknowledged that foreseeability of
substantial change was indeed a requirement of Indiana law, but it
did not find the instruction erroneous because that requirement was
amply dealt with in another instruction.^^

The court of appeals did find error in another instruction which
told the jury that if "the plaintiff's own conduct was the sole prox-
imate cause of the plaintiff's injuries, the verdict should be for
Allis-Chalmers."^ Although the court found that this instruction might
be a correct but abstract statement of the law, it should not have
been given because there was no evidence submitted that any act of
Conder was a proximate cause of his injury. "The issues of causation
in this case were difficult enough without this potentially misleading
reference to the plaintiff's conduct."^^ On the other hand, the court
ruled that another instruction on intervening causation was proper
because there was evidence that the Globemaster foreman's failure
to have corrective service performed on the forklift and to warn
Conder could have been an intervening cause.®^

cause is generally a question for the trier of fact.
Id. at 555. The court in Conder cited Balido v. Improved Machinery, Inc., 29 Cal. App.
3d 633, 105 Cal. Rptr. 890 (1973) for the proposition that the question of intervening
cause is for the jury. 405 N.E.2d at 543.

"The alleged erroneous and refused instructions are listed in 405 N.E.2d at 540-41
and are discussed at 544-47.

^«405 N.E.2d at 544.

^'/d. Justice Hunter later pointed out in his dissent to the supreme court deci-
sion in Conder, "an improper instruction cannot necessarily be cured by the giving
of a proper instruction, for the result leaves the jury to determine which of the con-
tradictory propositions of law it should apply." 435 N.E.2d 10, 21 (Ind. 1982) (Hunter,
J., dissenting).

•"405 N.E.2d at 545.

''Id.

'Ud.

1983] SURVEY-PRODUCTS LIABILITY 249

The court of appeals appeared most disturbed, however, with an
instruction submitted by Allis-Chalmers and given by the trial court
"which told the jury Allis-Chalmers was not required to warn of
dangers associated with the misuse of its product. "^^ Nothing in this
instruction told the jury that a manufacturer had a duty to foresee
misuses in the ordinary use environment of the product and to warn
the appropriate parties about the hazards arising out of foreseeable
misuses. The court held that such a duty to foresee misuse was a re-
quirement of Indiana law.^'* The court added that misuse is a defense
only when the product is used in a manner not reasonably
foreseeable.^^ The failure to instruct the jury that a manufacturer must
foresee product misuse was held to be reversible error. Thus, the court
remanded the action against Allis-Chalmers for a new trial and af-
firmed the judgment for Hull.^^

On petition for transfer, the supreme court had to consider the
following problem. Presumably, the jury verdict for Hull, the leasing
agent, was based solely on a jury finding that Globemaster's foreman,
Leroy Graber, by his intervening acts of negligence, had produced
an efficient and superseding cause of Conder's injuries. Conder had
proven that Hull had delivered to Globemaster an unreasonably
dangerous, defective product which defect was the cause in fact of
his injuries.^^ Thus, only a finding of superseding causation could ex-
plain the verdict for Hull. If Graber's acts superseded Hull's acts, they
should also have been held to supersede any defects introduced by
Allis-Chalmers because Allis-Chalmers' introduction of the product was
prior to both the actions of Graber and Hull. The supreme court
recognized the force of this argument. "The position of Allis-Chalmers
is well taken that the same unforeseeable intervening cause of
Conder's accident that insulated Hull from liability also insulated
Allis-Chalmers."''

If Graber's negligence was a superseding cause of Conder's in-

''Id.

''Id. at 546.

®^M The court cited Perfection Paint and Color Co. v. Konduris, 147 Ind. App.
106, 258 N.E.2d 681 (1970) which incorporated Judge Sharp's definition of misuse from
his concurring opinion in Cornette v. Searjeant Metal Products, 147 Ind. App. 46, 67,
258 N.E.2d 652, 665 (1970). In Cornette, the Indiana Court of Appeals adopted strict
liability in tort for Indiana as set out in the Restatement (Second) of Torts. See id.

®®405 N.E.2d at 548. In addition to Allis-Chalmers' "misuse" instruction no. 10,
the court found error in Allis-Chalmers' instruction no. 5 which stated that the manufac-
turer is not a guarantor of his product's quality, see infra notes 89-95 and accompany-
ing text, and Allis-Chalmers' instruction no. 7 (misprinted at page 548 as no. 6) which
dealt with plaintiffs conduct as the sole proximate cause of his injuries, see supra notes
60 & 61 and accompanying text. Id.

®^405 N.E.2d at 542. See supra note 52 and accompanying text.

««435 N.E.2d 10, 15 (Ind. 1981).

250 INDIANA LAW REVIEW [Vol. 16:241

juries, this possibility raised an additional question regarding the er-
rors in instructions that the court of appeals had found. The supreme
court ruled that the jury instructions regarding AUis-Chalmers, if in
fact they were improper, were, at most, harmless error .^^ The impor-
tant substantive question remaining for the supreme court was
whether the instructions, especially the one with respect to foreseeable
misuse, were, in fact, improper.

Although the early Indiana Court of Appeals cases, Cornette v.
Searjeant Metal Products^^ and Perfection Paint & Color Co. v.
Konduris,''^ clearly state a foreseeability test with regard to a manufac-
turer's duty to anticipate product misuse, authority from diversity
cases applying Indiana law vigorously denies any such duty. The court
of appeals in Conder referred to the line of federal cases^^ which
assigned liability to a product seller only when the product was
employed for its intended use. When a product such as a motor vehicle
was involved in a collision, it clearly was not being used as intended.
Therefore, no liability could attach to the vehicle manufacturer for
enhanced injury, if the vehicle then proved to be uncrashworthy.^^

As the Indiana Court of Appeals observed in Conder, '^^ this
principle was overruled by Huff v. White Motor CorpJ^ i/tt/f required
product manufacturers to foresee the ordinary use environment their
product would encounter. Thus, a vehicle manufacturer should an-
ticipate that its products are likely to be involved in collisions;
therefore, the manufacturer is responsible for taking reasonable steps
to protect the users and passengers from injury during collisions when
it is feasible to do so. The Huff court, however, stopped short of stating
specifically that a manufacturer had a duty to foresee misuses of its

''Id. at 16.

'"147 Ind. App. 46, 258 N.E.2d 652 (1970).

Misuse, either in using the product for a purpose not reasonably foreseeable
to the manufacturer or in using the product in a manner not reasonably
foreseeable for a reasonably foreseeable purpose, and assumption of risk, con-
stitute the other defenses which the defendant may contend, and upon which
the defendant has the burden of proof.

Id. at 67, 258 N.E.2d at 665 (Sharp, J., concurring).

'^147 Ind. App. 106, 119, 258 N.E.2d 681, 689 (1970)("Judge Sharp of this court

correctly stated that the defense of misuse is available when the product is used 'for

a purpose not reasonably foreseeable to the manufacturer'. . . .")(citing Cornette v.

Searjeant Metal Products, 147 Ind. App. 46, 67, 258 N.E.2d 652, 665 (1970)(Sharp, J.,

concurring)).

'^405 N.E.2d at 545.

'^Evans v. General Motors Corp., 359 F.2d 822 (7th Cir.), cert, denied, 385 U.S.

836 (1966). See also Latimer v. General Motors Corp., 535 F.2d 1020 (7th Cir. 1976);

Schemel v. General Motors Corp., 384 F.2d 802 (7th Cir. 1967), cert, denied, 390 U.S.

945 (1968).

'"405 N.E.2d at 545.

'^565 F.2d 104 (7th Cir. 1977).

1983] SURVEY-PRODUCTS LIABILITY 251

products. In a footnote, the Huff court, attempting to distinguish the
prior cases requiring no foreseeability from its new rule, stated that
those cases dealt with misuse and analytically were not apposite.^^ The
court of appeals in Conder was unable to accept that distinction and
stated: "While Huff is a so-called 'second collision' case, the Huff ra-
tionale, i.e., the environment in which a product is used must be taken
into consideration by the manufacturer, is wholly apposite to a discus-
sion of product misuse and a manufacturer's duty to warn.""

In Conder, the supreme court majority recognized that foreseeabil-
ity principles are applicable to a product misuse defense in Indiana,
even though the court vacated the court of appeals decision for Con-
der and affirmed the jury verdict for AUis-Chalmers.'® Although the
supreme court stated that "[i]t would be an impossible task to require
a manufacturer to give warnings to a user of all the ways in which
a unit or any component of that unit might be misused,"^^ the court
proceeded to cite Perfection Paint and Cornette to the effect that
misuse is a defense when the product is used for a purpose not
reasonably foreseeable to the manufacturer or when the product is
used in an unforeseeable manner for a reasonably foreseeable
purpose.^ The supreme court concluded that "[i]t is only when a change
or modification could be reasonably foreseen by the manufacturer to
be a safety hazard and would not be apparent to the consumer or
user that there could be liability of the manufacturer."®^

''^Id. at 106 n.l. At the same time, the court overruled Schemel v. General Motor
Corp. Id. at 109 n.7.

^^405 N.E.2d at 546 (emphasis added). Parenthetically, it should be noted that the
Indiana Product Liability Act of 1978, Ind. Code §§ 33-1-1.5-1 to -8 (1982) lends indirect
support to the Indiana Court of Appeals' reading of Huff. The statute provides for
a defense to strict liability in tort "that a cause of the physical harm is a nonforeseeable
misuse of the product by the claimant or any other person." Id. § 33-l-l,5-4(b)(2) (em-
phasis added). It should also be noted that diversity cases have had an unusually per-
vasive influence on Indiana product liability law. The Indiana Supreme Court has, un-
til recently, spoken infrequently on product liability matters, while a series of impor-
tant product cases primarily involving motor vehicles have been resolved in federal
court. See supra note 73. The Evans rule, for example, was established by the Court
of Appeals for the Seventh Circuit and was unchallenged in Indiana for eleven years
until it was finally overruled in Hujf, which,- of course, was also a diversity case. See
supra notes 73-76 and accompanying text.
^«435 N.E.2d at 12.
-"Id. at 17.
''Id.

'Ud. The supreme court ruled that the jury had been instructed with respect
to misuse by referring to the trial court's instruction no. 8. Instruction no. 8 was quoted
by the court of appeals and states in pertinent part that:

A manufacturer of a fork lift truck may be liable for injuries suffered by
the user of the truck in spite of the fact that it was later changed or altered
if the manufacturer could reasonably expect or foresee that the change or altera-
tion might be made and foresees that the change or alteration might render the

252 INDIANA LAW REVIEW [Vol. 16:241

Justice Hunter, dissenting in Conder, was unimpressed with Allis-
Chalmers' argument that there was superseding causation and, hence,
harmless error. The dissent appears to suggest that the misadjust-
ment of the carburetor may have occurred subsequent to the delivery
of the forklift to Globemaster.®^ Thus, the jury may have found that
Hull had delivered a nondefective product to Globemaster rather than
finding superseding negligence by Globemaster's receiving foreman.
If that were the case, Allis-Chalmers should not be allowed to argue
that it must be insulated by the same shield of intervening causation
which insulated Hull.

The dissent's analysis presents two problems. The first, of course,
is the finding from the record by both the court of appeals and the
supreme court majority that the forklift's governor-carburetor linkage
was misadjusted when Hull delivered the machine to Globemaster.^^
Second, if in fact the carburetor was not misadjusted prior to delivery
to Globemaster, the alleged defects in the forklift as manufactured
would have to be the design and failure to warn defects which Conder
claimed against Allis-Chalmers.** Those same defects, however, would
have been present in the product when it was delivered by Hull. Under
strict liability theory, Hull, because it was a seller in the chain of prod-
uct distribution, would be equally culpable with Allis-Chalmers for
sale of an unreasonably dangerous, defective product.*^ If logic and

fork lift truck unsafe.
405 N.E.2d at 544 (emphasis added by the court of appeals).

In his dissent, Justice Hunter took issue with the majority's attempt to cure the
trial court's instruction no. 10 by coupling it with the above instruction no. 8. Instruc-
tion no. 10, submitted by Allis-Chalmers, found no duty on the part of a manufacturer
to foresee misuse. Justice Hunter said:

The majority of this court, however, finds no error in the statement that
a manufacturer is "not required to warn of potential dangers resulting from
misuse." It finds the statement acceptable on the basis that the element of
foreseeability was incorporated into other instructions. Those instructions,
however, related to "substantial changes," not "misuse." The defenses are
distinct in product liability analysis.
435 N.E.2d at 21 (Hunter, J., dissenting).

Justice Hunter is probably correct in his analysis, but the majority decision can
be reasonably supported by the principles of intervening causation and harmless error.
The important point is that the majority appears to have acknowledged that the Evans-
Schemel-Latimer rule which found "no duty to foresee misuse," has no remaining vitality
in Indiana.

^435 N.E.2d at 19. Justice Hunter noted in dissent that Hull's customers frequently
tampered with the adjustments made by the Hull mechanics. Id. Therefore, presumably,
it was possible that Hull had leased the machine in perfect adjustment and some later
third party had misadjusted the carburetor-governor linkage, perhaps because Allis-
Chalmers had failed to provide adequate warnings of misadjustment dangers on the
machine itself.

''See 435 N.E.2d at 14; 405 N.E.2d at 542.

'^See supra notes 45-47 and accompanying text.

'^See Restatement (Second) of Torts § 402A (1965) (referring to "sellers" and

1983] SURVEY-PRODUCTS LIABILITY 253

product liability theory are to be the tests where both defendants are
tried before a single jury in a single action, either both parties should
face a new trial or neither should.

The majority discussed at some length testimony given by Hull's
mechanic, Robert Slabaugh. Slabaugh stated that he had learned car-
buretor adjustment from a fellow employee and that he had no need
for warnings, instructions, or warning labels which were or might have
been provided by Allis-Chalmers.^^ This testimony apparently dealt
with whether a warning of the possibility of carburetor misadjustment
would have been heeded. Indiana law provides that there is a rebut-
table presumption that adequate warnings will be heeded.®^ The discus-
sion of Slabaugh's testimony suggests that Allis-Chalmers may have
sought to rebut that presumption. Although Slabaugh "was not the
person who last serviced the vehicle before Conder's accident,"^^
Slabaugh's statements could suggest a Hull company attitude that
manufacturer instructions and warnings were not necessary. The
testimony could suggest that Hull considered itself sufficiently expert
in forklift truck maintenance so that it need not rely on outsiders
including equipment manufacturers, to teach its personnel the simple
mechanics of carburetor adjustment. If then, a Hull employee did
misadjust the carburetor, and Hull employees were unlikely to heed
misadjustment warnings, the misadjustment could more readily be
found to be an efficient intervening cause of Conder's injuries. The
misadjustment would supersede any failure on Allis-Chalmers' part
to provide an adequate warning of carburetor misadjustment poten-
tial and, therefore, relieve the manufacturer of liability.

D. The Seller as Guarantor of Product Quality

In Conder v. Hull Lift Truck, Inc.,^^ Conder assigned error to an
instruction which "told the jury that under strict liability, a manufac-

stating that the rule applies "although the user has not bought the product from or
entered into any contractual relation with the seller"). The removal of the privity re-
quirement has generally been understood to create liability on any seller who either
places or passes on a defective product into the stream of commerce. See id. comment
f and comment 1, illustration 1. The principal rationale for holding distributors, retailers,
and other middlemen strictly liable is that these parties are better able to protect
themselves, through indemnity and insurance mechanisms, than is the injured user
or consumer.

«M35 N.E.2d at 16.

^'Conder v. Hull Lift Truck, Inc., 405 N.E. 2d at 547. ("In Indiana, there is a rebut-
table presumption that a sufficient warning would have been heeded.") (citing Nissen
Trampoline Co. v. Terre Haute First Nat'l Bank, 332 N.E.2d 820 (Ind. Ct. App. 1975),
rev'd on 'procedural grounds, 265 Ind. 457, 358 N.E.2d 974 (1976)).

««435 N.E.2d at 19 (Hunter, J., dissenting).

«M05 N.E.2d 538 (Ind. Ct. App. 1980), affd in part, rev'd in part, 435 N.E.2d 10
(Ind. 1982).

254 INDIANA LAW REVIEW [Vol. 16:241

turer is not a guarantor in regard to the quality of its product."^" The
court of appeals agreed that this instruction ran counter to the
'* 'representational liability' rationale"^^ of strict liability and should
not have been given. The court ruled "that under strict liability the
manufacturer, by law, does guarantee that his product is reasonably
safe for its intended and foreseeable use."^^

Allis-Chalmers attempted to equate its submitted instruction with
that pervasive maxim of Indiana product liability law which states
that a manufacturer is "not an insurer against all accidents"^^ in which
its product is involved. The maxim, of course, refers to the require-
ment the plaintiff prove that the product is in a defective condition,
that the product is unreasonably dangerous, and that the unreasonably
dangerous defect proximately caused legally cognizable damages.

The supreme court quoted the instruction in full and conceded that
"quality" is a general term and is subject to different meanings depend-
ing on the context in which it is used.^* But the supreme court sug-
gested the gist of the instruction did not seriously distort the idea
that under strict liability the seller represents no more than that the
product will be " 'reasonably fit and safe for the purpose for which
it was intended.' "^^ Intended use, a concept that has been in a flux
in Indiana,^^ may have been clarified in Conder with this recognition
that foreseeability of use and misuse are integral principles of Indiana
product liability law.

E. Open and Obvious Dangers

In Bemis Co. v. Ruhush,^'' the Indiana Supreme Court granted
transfer and, in a three-two decision, vacated the Indiana Court of
Appeals affirmance of a jury verdict for the plaintiff, ordering judg-
ment to be entered for the defendant, Bemis Co.^* The principal issue
addressed by both the court of appeals and the supreme court in Bemis
was the scope of Indiana's open and obvious danger rule in the con-
text of strict products liability.^^

^"405 N.E.2d at 544.

''Id.

'Ud. at 545.

«M35 N.E.2d at 17.

'^Id. (quoting from plaintiffs tendered instruction no. 2 which was given by the
trial court) (emphasis added).

^See Vargo, Products Liability in Indiana— In Search of a Standard for Strict Liabil-
ity in Tort, 10 Ind. L. Rev. 871, 878-81 (1977).

^^427 N.E.2d 1058 (Ind. 1981), rev'g 401 N.E.2d 48 (Ind. Ct. App. 1980).

'%27 N.E.2d at 1059.

^^As Justice Hunter pointed out in dissent:

That the majority directs the trial court to "enter judgment for defendants —

1983] SURVEY-PRODUCTS LIABILITY 255

1. The Open and Obvious Danger Rule. — The court of appeals and
the supreme court generally stated the open and obvious danger rule
in identical words:

In the area of products liability, based upon negligence or
based upon strict liability under § 402A of the Restatement
(Second) of Torts, to impress liability upon manufacturers, the
defect must be hidden and not normally observable, con-
stituting a latent danger in the use of the product. Although
the manufacturer who has actual or constructive knowledge
of an unobservable defect or danger is subject to liability for
failure to warn of the danger, he has no duty to warn if the
danger is open and obvious to allJ

100

It is apparent that this rule is, in reality, two separate rules, each
supported by distinct policies. The first sentence requires the plain-
tiff to prove the existence of a latent defect before he can recover.
Under this provision, patent defects, even if they cause injury, can
not subject a product seller to liability. The policy advanced by the
rule is one of risk allocation. Under the formula, product users and
consumers are assigned all risks arising from dangers which would
be open and obvious to an ordinary user, while product sellers are
assigned liability only for latent dangers in the products they sell.
The second sentence, or rule, merely suggests that warning of obvious
danger is not required by either negligence or strict liability theory.
The obviousness of the danger is the equivalent of a warning; thus,
further warning would be redundant, or even, as some commentators
suggest, counter-productive. ^°^

Bemis urged that both rules be given effect, but the Indiana Court
of Appeals disagreed. "Our reading of the Indiana cases, starting with
J. I. Case Company . . . indicates that the rule was recited in connec-
tion with the duty to warn where latent defect exist. Indiana courts
have never faced an application of the rule straight-on."^°^ The supreme

appellants" . . . unmistakably indicates its decision rests on a singular pro-
position: recovery for injuries suffered at the hands of an "open and obvious
danger" are barred as a matter of law under this jurisdiction's interpreta-
tion of Section 402A of the Restatement (Second) of Torts (1965). Erroneous
instructions or improperly admitted evidence would warrant only a new
trial ....
427 N.E.2d at 1066 (emphasis by Justice Hunter)
"'M27 N.E.2d at 1061; 401 N.E.2d at 56.

""5ee A. Weinstein, A. Twerski, H. Piehler & W. Donaher. Products Liability
AND THE Reasonably Safe Product 64-68 (1978) ("The overuse of warnings invites con-
sumer disregard and ultimate contempt for the warning process.").

'"^401 N.E.2d at 56. For a discussion of the development of the open and obvious
danger rule under Indiana law, in both Indiana and federal courts, see Note, Indiana's
Obvious Danger Rule for Products Liability, 12 Ind. L. Rev. 397 (1979). Justice Hunter,

256 INDIANA LAW REVIEW [Vol. 16:241

court, however, decided that the broad interpretation urged by Bemis,
that a manufacturer is not liable for any open or obvious danger, was
in harmony with Indiana case law and it reversed/"^

2. The Open and Obvious Danger Rule and Strict Products Liabili-
ty.—In 1970, in Cornette v. Searjeant Metal Products,^^^ the Indiana
Court of Appeals adopted strict products liability as set out in sec-
tion 402A of the Second Restatement of Torts.^"^ In 1973, the Indiana
Supreme Court followed suit in Ayr-Way Stores, Inc. v. Chitwood.^^^
Section 402A provides that a product seller is subject to a "special
liability" if he sells a product in ''defective condition unreasonably
dangerous" and that condition proximately causes physical harm to
an ultimate user or consumer/''^ The risk allocation policy of section
402A, sometimes referred to as enterprise liability, is to assign the
cost of accidents caused by defective products to the party best able
to bear the initial cost, best able to spread the cost through insurance,
and best able to take preventive action for the future.^"^ The fundamen-

in dissent, cited this authority for the proposition that the interpretation of the rule
as an absolute bar to plaintiff recovery is primarily a result of federal diversity courts
extending, in dicta, the holdings of early Indiana cases which merely emphasized the
importance of protecting users from latent dangers. 427 N.E.2d at 1066 (Hunter, J.,
dissenting).

i''H27 N.E.2d at 1061-64.
^'"'147 Ind. App. 46, 258 N.E.2d 652 (1970).
'"'Id. at 56, 258 N.E.2d at 656. See supra note 9.
»''«261 Ind. 86, 300 N.E.2d 335 (1973).
^"^Restatement (Second) of Torts § 402A (1965).

"•^The policy of initial risk bearing by the seller who then "spreads" the risk through
liability insurance is articulated in comment c to § 402A. "[P]ublic policy demands that
the burden of accidental injuries caused by products intended for consumption be placed
upon those who market them, and be treated as a cost of production against which
liability insurance can be obtained." Restatement (Second) of Torts § 402A comment
c (1965). The objective of deterrence is not expressly articulated in § 402A or in the
section's comments, yet it can be readily inferred that a policy which assigns the in-
itial burden of loss to the seller will motivate the seller to take whatever cost effec-
tive steps are available to it to avoid that burden in the future. A link between the
assignment of liability and safer products was explicitly recognized, however, by Justice
Traynor in his concurring opinion in Escola v. Coca Cola Bottling Co., 24 Cal. 2d 453,
150 P.2d 436 (1944) (Traynor, J., concurring), in which he stated:

Even if there is no negligence, however, public policy demands that respon-
sibility be fixed wherever it will most effectively reduce the hazards to life
and health inherent in defective products that reach the market. It is evi-
dent that the manufacturer can anticipate some hazards and guard against
the recurrence of others, as the public cannot.
Id. at 462, 150 P.2d at 440-41.

In Conder v. Hull Lift Truck, Inc., 405 N.E.2d 538 (Ind. Ct. App. 1980) the court
cited the Escola case and other authorities in referring to the safety incentive rationale.
"This rationale assumes it is in the public interest to fix financial responsibility for
a product injury wherever it will most effectively reduce hazards to life and health
inherent in products that reach the market.''/^, at 546 & n.2.

1983] SURVEY-PRODUCTS LIABILITY 257

tal assumption drawn from the policy is that the party will normally
be the product seller rather than the product user.

Consumer contemplation is the test for unreasonably dangerous
defectiveness under section 402A. Both the Indiana Court of Appeals
and the Indiana Supreme Court acknowledged that this test is found
in comments g and i to section 402A.^''® Both courts noted that "to
be actionable under § 402A, the injury-producing product must be . . .
dangerous to an extent beyond that which would be contemplated by
the ordinary consumer who purchases it, with the ordinary knowledge
common to the community as to its characteristics."""

But from this language, the two courts reached two separate and
distinct interpretations. The court of appeals recognized that the ob-
viousness of a product's hazards may bring some products within the
orbit of the ordinary consumer's contemplation. However, in other
cases the obviousness of danger may be insufficient to make the prod-
uct reasonably safe. Although the consumer or user confronted by
a truly patent danger may not claim that the seller failed to warn
him of the danger, nevertheless he may be able to claim that he had
contemplated that the seller would furnish a safer product. While ob-
viousness might be an important factor in determining defectiveness,
it is but one factor that must be weighed "in determining the ultimate
question of whether the product was in a defective condition
unreasonably dangerous, that is, dangerous to an extent beyond that
which is contemplated by the ordinary consumer . . . .""^

The supreme court, however, adopted the interpretation of con-
sumer contemplation urged by the defendant."^ The defendant argued
that user contemplation is to be equated with user knowledge; what
the user knows or should know about the product's dangerous pro-
pensities is what he contemplates. Because a user knows or should
know of the existence of obvious dangers, he therefore contemplates
such dangers, and under comments g and i, contemplated dangers can
not be unreasonable dangers."^ It must be conceded that the word

'"^27 N.E.2d 1058, 1061 (Ind. 1981); 401 N.E.2d 48, 56-57 (Ind. Ct. App. 1980) (citing
Restatement (Second) of Torts § 402A comments g and i (1965)).

""427 N.E.2d at 1061. The appellate court used almost identical language but refer-
red to the article sold instead of the injury-producing product. 401 N.E.2d at 57. Both
courts were referring to § 402A comment i.
"'401 N.E.2d at 57.
"H27 N.E.2d at 1061.

"'See Reply Brief of the Appellants at 11-13, Bemis Co. v. Rubush, 401 N.E.2d
48 (Ind. Ct. App. 1980) for a full development of the argument summarized in the text.
Bemis states:

It is axiomatic that if a danger associated with a product is open and ob-
vious that danger will be within the contemplation of the ordinary consumer
with the ordinary knowledge common to the community as to that product

258 INDIANA LAW REVIEW [Vol. 16:241

contemplation is perhaps ambiguous in that it may refer either to what
the user knows or it may refer to his reasonable expectations. The
latter interpretation, however, seems much more in harmony with the
risk allocation policy of strict liability than does the former. The
supreme court's interpretation that all patent dangers are to be
classified as reasonable, as a matter of law, bars recovery by any plain-
tiff unable to prove a latent danger.

3. The Latency Issue. — In order for the supreme court's inter-
pretation of the open and obvious danger rule to have effect, the prod-
uct danger must be found to be both open and obvious. In Bemis,
the supreme court had no trouble finding that the Bemis product, a
fiberglass insulation batt packing machine, presented no latent
dangers. The court stated that "[a]ppellees admit that the descent of
the shroud was an open and obvious danger which was well known
to the operators of the machines and which would be obvious to anyone
observing the machine.""''

Actually, the plaintiff never conceded that the danger posed by
the Bemis batt packer was both open and obvious. Rubush argued that
the design and function of the machine did not suggest adequately
the actual scenario of harm which later occurred."^ The instrumen-
talities of bag clamp and descending metal shroud were observable
and familiar to any experienced bagger, as were the individual
capacities of those components to grab and crush respectively.
However, the danger of the clamp grabbing an operator's hand, caus-
ing momentary panic, and thus diverting the operator's attention from
the descending shroud was not apparent before the accident.
Therefore, the plaintiff claimed, a latent defect in the product existed."^
Similarly, the operation of the machine required the operator to focus
his attention at a point away from the descending shroud, thus ampli-

and, accordingly, the danger cannot be considered to be "unreasonable" within

the meaning of the Restatement.
Reply Brief of the Appellants at 12.

Although the supreme court never defines "contemplation" it does accept the con-
cept of a consumer contemplation test for determining whether a product in defective
condition is unreasonably dangerous. 427 N.E.2d at 1061. If the court's broad inter-
pretation of the open and obvious danger rule as an absolute bar to plaintiff recovery
is to be harmonized with consumer contemplation, all obvious dangers must be held
to be within the ordinary consumer or user's contemplation as a matter of law. Thus,
under this reasoning, what the user knows or should know about the product must
be held to have been contemplated.

''%27 N.E.2d at 1060.

^^^See Plaintiffs Brief in Opposition to Petition for Transfer at 26-29, Bemis Co.
V. Rubush, 427 N.E.2d 1058 (Ind. 1981).

"^/d. "Rather, the dangers relate to the possibility of a worker being accidentally
'caught ' within the so-called zone of danger during the shroud 's descent." Id. at 27 (em-
phasis in the original).

1983] SURVEY -PRODUCTS LIABILITY 259

fying the tendency toward momentary inadvertance which is always
present in a repetitive factory task/^^ That design feature was
characterized by the plaintiff as a "hidden trap."'^^

Indiana and other jurisdictions have recognized the distinction be-
tween openness and obviousness. Under Indiana law, the propensity
of kerosene to ignite"^ and the risk of high-stacking with a lift truck
without an overhead guard^^^ have been held to be both open and ob-
vious dangers. However, the limited visibility characteristics of an in-
dustrial crane cab,^^^ and the ability of a pitching machine catapult
to strike out violently at a bystander, even though the machine was
not plugged in,^^^ were held to be latent dangers even though the in-
jury causing instrumentalities were entirely observable. Although New
York originally used the broad interpretation of the open and obvious
danger rule,^^^ the New York Court of Appeals also had distinguished
the obviousness of the condition from the obviousness of the danger
and held that a determination of the latter was a jury question. ^^^ New
York finally reached an ultimate repudiation of the open and obvious
danger rule by progressively restricting the fact situations in which
the rule would be applied. ^^^ It is possible that Indiana will follow this
same route.

Although the Indiana Supreme Court swept aside the plaintiffs
"hidden trap" theory by announcing that the latency issue had been
conceded by the plaintiffs, ^^® the court did not go so far as to rule
that any open danger would, in the future, be held patent as a mat-
ter of law. If the supreme court has an opportunity to rule on the
"football helmet" case, which received national attention during the
survey period, ^^^ it will be interesting to see how the court will classify
the manufacturer's failure to warn that the helmet might not protect
the user from neck and spine injuries resulting from a blow on the
top of the head when head and spine are in alignment. The court may

"7rf. at 27-28.

"*/d. at 28. ("/n a very real sense, the machine design created a hidden trap for
the conscientious worker") (emphasis in the original).

''^See Burton v. L.O. Smith Foundry Prods. Co., 529 F.2d 108 (7th Cir. 1976).

•'"See Posey v. Clark Equip. Co., 409 F.2d 560 (7th Cir.), cert, denied, 396 U.S. 940
(1969).

'^'See Zahora v. Harnischfeger Corp., 404 F.2d 172 (7th Cir. 1968).

'^^See Dudley Sports Co. v. Schmitt, 151 Ind. App. 217, 279 N.E.2d 266 (1972).

'^^See Campo v. Scofield, 301 N.Y. 468, 95 N.E.2d 802 (1950).

'^'See Bolm v. Triumph Corp., 33 N.Y.2d 151, 160, 305 N.E.2d 769, 774, 350 N.Y.S.2d
644, 651 (1973).

'"See Note, Indiana's Obvious Danger Rule for Products Liability, 12 Ind. L. Rev.
397, 419-22 (1979).

^^^See supra note 114 and accompanying text.

'""See Bedan v. Rawlings Sales Co., No. 1-682A142 (Ind. Ct. App., filed June 14, 1982).

260 INDIANA LAW REVIEW [Vol. 16:241

have to decide whether the risk of injury in that case was latent or
patent.

4. Cost-Benefit Analysis as a Test for Defectiveness.— Bemis was
a design and warning case. Courts holding that ordinary users expect
product sellers to design products as safe as cost and performance
constraints will permit are faced with the question of what is a
reasonable hazard. Justice Hunter, in a vigorous and learned dissent
in Bemis,^^^ argued that the question of how much safety is enough
is a rtiatter of design factor tradeoffs.^^ He applied the negligence test
of balancing " ' "the likelihood of harm, and the gravity of harm if it
happens, against the burden of the precaution" ' "^^° to strict products
liability. Justice Hunter invoked the widely quoted seven factor
analysis advanced by Dean Wade as an appropriate measure of design
defectiveness to satisfy the consumer contemplation test of section
402A.^^^ Justice Hunter's dissent recognized that strict liability does
not mean absolute liability, nor does it mean that all dangers are
unreasonable. Consumers and users want product safety, but they
want other performance characteristics as well. Consumers expect
manufacturers to weigh and balance all those performance
characteristics, giving the factors of cost and risk appropriate weight.

At trial, the plaintiff presented testimony by two expert witnesses
who defined unreasonable hazard in cost-benefit terms. Dr. Richard
L. Fox, a professor of engineering at Case Western Reserve Univer-
sity stated that: " '[A] hazard or risk in a product is unreasonable if
it could be removed and the cost of removal is not significant nor
the cost of removal does not seriously reduce the utility of the
product.' "^^^

Holding that admission of this evidence was error because it per-
mitted the jury to find a manufacturer liable for injury from a patent
danger, the supreme court stated that "[t]his would make manufac-
turers insurors [sic] of any product they put in the open market and
render them liable for injuries and damages to those using the machine
regardless of the facts and circumstances surrounding the injury. This
is not the law in Indiana."^^^ It should be emphasized that under Dr.
Fox's definition, a hazard would be reasonable and the product seller
would not incur liability, if the cost of removal were not commensurate

12M27 N.E.2d 1058 (Ind. 1981) (Hunter, J., dissenting).

'^'Id. at 1070.

'">Id. (quoting Micallef v. Miehle Co., 39 N.Y.2d 376, 386, 348 N.E.2d 571, 577-78,
384 N.Y.S.2d 115, 121 (1976) (quoting 2 Harper & James, The Law of Torts § 28.4
(1956)).

'^'427 N.E.2d at 1070 (quoting Wade, Strict Liability of Manufacturers, 19 Sw. L. J.
5 (1965)).

''H27 N.E.2d at 1063.

''Ud.

1983] SURVEY-PRODUCTS LIABILITY 261

with the risk, or if removal of the hazard would make a useful prod-
uct inutile. In addition, the plaintiff still would have to prove the
defect proximately caused his injuries. This exposure of the seller to
product liability may be greater than the supreme court considers ap-
propriate, but it is significantly less than that of an insurer.

5. The Perverse Effects of the Open and Obvious Danger Rule. —
Justice Hunter noted in his dissent that a broad interpretation of the
obvious danger rule '* 'encourages manufacturers to be outrageous in
their design, to eliminate safety devices, and to make hazards
obvious.' "^^ If one rationale for strict product liability specifically, and
for tort liability generally, is to reduce the cost of accidents in the
aggregate, then the broad patent danger rule may operate perversely.
If the class of open dangers are made entirely immune from liability,
we can expect the number of such dangers to increase and the acci-
dent rate along with it. That possibility is probably why Justice
DeBruler noted in dissent that:

[I]n the trial court's mind, and I think correctly so, "hidden
defects and concealed dangers" was subsumed within the new
standard, "defective condition unreasonably dangerous" and the
new focus was no longer upon whether the defects and dangers
of the product were hidden and concealed, but upon whether
they were reasonable.^^^

Under that analysis, an obvious danger which tends to increase the
aggregate cost of accidents would likely be found unreasonable,
whereas one which does not tend to raise accident rates and costs
would likely be reasonable.

Another perverse effect is economic. Eliminating liability for ob-
vious dangers will benefit, if anyone, the class of manufacturers and
sellers who introduce such dangers into the stream of Indiana com-
merce. This class is composed primarily of non-Indiana based product
sellers.^^^ On the other hand, removal of potential tort recovery for

•'Vd. at 1070 (quoting Auburn Mach. Works Co. v. Jones, 366 So. 2d 1167, 1170
(Fla. 1979)).

'^^427 N.E.2d at 1065 (DeBruler, J., dissenting).

'^^In a national and international economy it can be safely assumed that the bulk
of manufactured goods used and consumed in Indiana are imported from other states
and countries, while the bulk of goods manufactured in Indiana are exported. Actual-
ly, 75% of the manufactured goods with an Indiana destination have an out-of-state
origin. U.S. Bureau of Census Report No. TC77-CS, 1977 Census of Transportation
Commodity Transportation Survey- Summary 3, Table I. An upper bound of 17 V2 per-
cent for the dollar value of all goods manufactured and used in Indiana can be derived
from this report by dividing the value of all shipments having both an Indiana origination
and destination by the value of all shipments by U.S. manufacturing firms having an
Indiana destination. Id. at 12, 14 Table I.

262 INDIANA LAW REVIEW [Vol. 16:241

a substantial class of Indiana plaintiffs, those most likely to be found
in the workplace,^^^ will put pressure on compensation programs such
as the Indiana Workmen's Compensation System/^* State and federal
social service systems, including social security and medicaid also will
be affected negatively. It should be emphasized that these latter com-
pensation systems have no built-in mechanisms which tend to deter
accident causing conduct.^^^

Finally, in Gilbert v. Stone City Construction Co.,^*^ the Indiana
Court of Appeals recognized a positive duty on the part of manufac-
turers, sellers, and lessors to deploy feasible safety devices^'*^ on prod-
ucts to guard users and even bystanders.^"^ The supreme court's
broad obvious danger rule, however, would preclude liability if the
absence of a safety device made a danger apparent. The inconsisten-
cy here promises to create substantial uncertainty, unpredictability,
and litigation. If the Bemis rule is finally held to take priority over
the Gilbert rule, the result will be an increase in the frequency of
accidents that safety devices could prevent.

6. The Bemis Case and the Lantis Case. — During the survey period,
the diversity case of Lantis v. Astec Industries^^^ was reversed and
remanded for a new trial. Because Lantis was discussed in the
previous survey, ^^^ it is unnecessary to review the case except to
recapitulate that it involved the plaintiff's decedent, who was killed

''^Obvious dangers are likely to be disproportionately found in workplace products
for several reasons. First, useful work often demands substantial hazards. Industrial
processes frequently require heavy equipment with large moving components, power-
ful chemicals, and fluids under pressure. Second, workers become familiar with the
products they use because of constant exposure to them, hence the dangers "become
obvious" to such ordinary users. Third, workers are in a weaker position to reject
the use of products with obvious dangers than are consumers. A consumer can simply
refuse to buy such products, whereas the worker may be forced to choose unemploy-
ment as the only viable alternative to exposure to the risk. Thus, obviously dangerous
workplace products are less likely to be driven from the marketplace by ordinary market
forces than are patently dangerous consumer products.

^^^The Indiana Workmen's Compensation Act is codified at Ind. Code §§ 22-3-1-1
to -10-3 (1982).

^^^Both tort liability insurance and workers compensation insurance are to some
extent experience rated. The insured is motivated at least to some extent to seek
ways to reduce the cost of accidents which are under his control so as to reduce his
premiums. That incentive is absent under the social security system.

""171 Ind. App. 418, 357 N.E.2d 738 (1976).

"7d at 426, 357 N.E.2d at 744. ("Those who come in contact with a product may
reasonably expect its supplier to provide feasible safety devices in order to protect
them from the dangers created by the design.").

'''Id. at 423, 357 N.E.2d at 742-43.

"^648 F.2d 1118 (7th Cir. 1981).

"*5ee Vargo, Products Liability, 1981 Survey of Recent Developments in Indiana
Law, 15 Ind. L. Rev. 289, 298-99 (1982). See also Leibman, Strict Tort Liability for Un-
finished Products, 19 A. Bus. L.J. 407, 433-36, 437-39 (1982).

1983] SURVEY-PRODUCTS LIABILITY 263

when he stepped through an opening in a component platform of an
asphalt plant which he was helping to assemble for his employer. The
trial court had granted summary judgment for the defendant manufac-
turer on the strict liability count, finding that the component platform
had not yet entered the stream of commerce. The Court of Appeals
for the Seventh Circuit ruled that this finding was an overly restric-
tive view of Indiana's version of strict liability in tort.^^^ The court
held that components are properly to be considered products in their
own right; worker-assemblers are to be considered product users under
section 402A; and unassembled products are to be treated as finished
products if the contract of sale contemplates that they will reach the
purchaser in unfinished form.^^^ Permitting the plaintiff to proceed on
the strict liability count was crucial; otherwise, Lantis' failure to
discover or guard against the alleged defect, the opening in the deck,
would be a defense of contributory negligence for the manufacturer.^"^

If Lantis is retried under the strict liability count, contributory
negligence still will not be a defense. .However, after Bemis, the plain-
tiff may have difficulty proving that there was a latent defect in the
product, a necessary element of the claim. The thirty by thirty-six
inch hole in the platform was probably obvious and was certainly
dangerously open. By frustrating the plaintiffs attempt to make out
a prima facie case, the defendant may now accomplish at an earlier
stage in the proceedings what it cannot accomplish through the defense
of contributory negligence. If strict liability theory allows recovery
by a plaintiff despite his negligent failure to discover a dangerous con-
dition, it may be asked how the theory can be consistent with a rule
of law barring recovery by characterizing the same dangerous condi-
tion as undefective.

7. Obvious Dangers and Proximate Cause. — To make out a prima
facie case under strict liability the plaintiff must prove three
elements — defect, causation, and damages. The obvious danger rule
goes to the element of defect. The broad interpretation of the rule,
as adopted by the Indiana Supreme Court, classifies all patent dangers
as undefective. Therefore, once the danger is found to be patent,
rather than latent, it is immaterial whether the alleged dangerous con-
dition proximately caused the injury, because that condition cannot
be a product defect.

Because the plaintiff also disputed the issue of latency in Bemis
the defendant raised the issue of causation on appeal. Bemis assigned

^'^648 F.2d at 1121.

"'M at 1119, 1121-22.

'"See Restatement (Second) of Torts § 402A comment n (1965) ("Contributory
negligence of the plaintiff is not a defense when such negligence consists merely in
a failure to discover the defect in the product, or to guard against the possibility of
its existence.").

264 INDIANA LAW REVIEW [Vol. 16:241

error to an instruction which told the jury "that in order to find for
Bemis the jury had to find that the batt packer was not defective
or unreasonably dangerous, and that Gary [Rubush] was contributori-
ly negligent in causing his injury ."^^^ Bemis was seeking to establish
that Rubush's negligent conduct was the sole proximate cause of his
injury. If that were true, the issue of defect would be immaterial
because the plaintiffs case would fail for want of proving the essen-
tial element of proximate causation. However, the instruction, as given
to the jury, required a finding not only that Rubush's conduct was
the sole cause of his injury but also that the batt packer was undefec-
tive. The instruction was clearly wrong because it required the jury
to find too much. But, interestingly, in this instance the Indiana Court
of Appeals found the error to be harmless because other instructions
on this issue were correct, ^*^ while the supreme court found the Bemis
argument persuasive. ^^°

It also should be noted that although contributory negligence is
not a recognized defense to strict liability, it can be used to refute
the element of causation. This approach will only be effective, however,
if the plaintiff's, or third party's, negligence is shown to be the effi-
cient, superseding, intervening, and thus sole cause of injury. Where
such contributory negligence is only one proximate cause of injury,
the original actor's negligence, or the defective condition of his prod-
uct, will suffice to create liability. ^^^

^"427 N.E.2d at 1064 (emphasis added).

"MOl N.E.2d at 60 ("Instructions are sufficient if, considering them as a whole,
the jury has been fully and fairly instructed. . . . We feel that the instructions here
given did fairly instruct the jury and that Instruction No. 14 was not error.").

>^427 N.E.2d at 1064.

^^^See supra note 56.

XII. Professional Responsibility

Donald L. Jackson*
A. Professional Responsibility

1. Sanctions for Legal Misconduct. — The Indiana Constitution
grants the Indiana Supreme Court exclusive jurisdiction in matters
involving the admission and discipline of attorneys.^ Although the court
is vested with broad discretion in imposing sanctions for legal mis-
conduct, the sanctions imposed by the supreme court during the past
survey period reveal a degree of predictability.

Of the seven disciplinary proceedings during the survey period
that resulted in disbarment, five involved the conversion, comming-
ling, or unethical retention of clients' funds.^ Disbarment was not
ordered in only one proceeding in which an attorney was found to
have commingled or converted clients' funds.^ In these disbarment
proceedings, the supreme court repeatedly emphasized the necessity
for the presence of "trust and fiduciary responsibility" in the attorney-
client relationship." In this regard, it may be concluded that the
fraudulent conversion or commingling of funds will generally bring
about the imposition of disbarment, the supreme court's most severe
sanction.

Disbarment also was ordered in two proceedings not involving the

♦Partner with the law firm of Bingham, Summers, Welsh & Spilman — Indianapolis.
Member of the Indiana Bar and a former President of the Indianapolis Bar Associa-
tion. B.S., Indiana University, 1960; J.D., Indiana University, 1966.
^Ind. Const, art. 7, § 4, provides, in part, that:
The Supreme Court shall have no original jurisdiction except in admission
to the practice of law; discipline or disbarment of those admitted; the
unauthorized practice of law; discipline, removal and retirement of justice
and judges; supervision of the exercise of jurisdiction by the other courts
of the State; and issuance of writs necessary or appropriate in aid of its
jurisdiction.
Id.

Un re Martinez, 431 N.E.2d 490 (Ind. 1982) (disbarment ordered because respon-
dent converted proposed settlement funds); In re Davis, 429 N.E.2d 938 (Ind. 1982)
(disbarment ordered because respondent refused to return unearned portion of his fee);
In re Walton, 427 N.E.2d 654 (Ind. 1981) (disbarment ordered because respondent pur-
ported to return the retainer fee by issuing a check that was subsequently dishonored
due to insufficient funds); In re McCain, 425 N.E.2d 645 (Ind. 1981) (disbarment ordered
because respondent converted interest payments due the client under a land sale con-
tract); In re Slenker, 424 N.E.2d 1005 (Ind. 1981) (disbarment ordered because respon-
dent converted funds from an estate while serving both as attorney for the estate
and as executor).

^See In re Mendez, 427 N.E.2d 652 (Ind. 1981). For mitigating circumstances which
may have contributed to the imposition of a more lenient sanction, see infra notes
31-32 and accompanying text.

'See, e.g.. In re Martinez, 431 N.E.2d 490, 493 (Ind. 1982); In re McCain, 425 N.E.2d
645, 649 (Ind. 1981).

265

266 INDIANA LAW REVIEW [Vol. 16:265

conversion or the commingling of clients' funds. In In re Moody, ^ an
attorney was found to have engaged in abusive and bizarre conduct
directed towards the Honorable Alfred J. Pivarnik while Pivarnick
was serving as judge of the Porter County Superior Court;^ therefore,
disbarment was ordered.^

In In re McKenna,^ the attorney, McKenna, had given to a client
a business card which indicated that McKenna's office was located
in a certain office building; however, McKenna's office equipment and
files had been taken into possession by the building manager due to
McKenna's failure to pay his rent. After McKenna was retained by
the client to initiate a lawsuit, McKenna repeatedly assured the client
that the case had been filed. After discovering that the action had
not been filed by McKenna, the client filed the action pro se.

On another occasion, McKenna had been paid a retainer to file
a petition for adoption. Although McKenna filed the petition, he failed
to submit a final order for the judge's signature as requested by the
court. McKenna falsely assured his client that the order had been
tendered to the court. Eventually, another attorney prepared the order
without charge, and the petition was granted. From these facts, the
court concluded that disbarment was warranted.^

Somewhat unpredictable is the sanction which will be imposed for
mere neglect. During the past survey period, disciplinary proceedings
involving an attorney's neglect of legal matters entrusted to him
resulted in two disbarments,^" four suspensions," and one public

^428 N.E.2d 1257 (Ind. 1981).

^Indiana Supreme Court Justice Pivarnik did not participate in the Moody
disciplinary proceeding.

^428 N.E.2d at 1262. The Moody court did not discuss Judge Pivarnik's failure
to hold Moody in contempt at the time of Moody's misconduct. Obviously, a question
is raised as to why Moody's conduct was found to warrant disbarment but was not
found to warrant a contempt citation at the time it occurred.

«422 N.E.2d 287 (Ind. 1981).

'Id. at 289.

''In re Walton, 427 N.E.2d 654 (Ind. 1981), modified, 431 N.E.2d 474 (Ind. 1982)
(respondent allowed the statute of limitations to expire on clients' claims, failed to
appear at the trial of his clients' action, settled a claim without the consent or authoriza-
tion of his client, failed to file a petition in bankruptcy, and failed to adequately repre-
sent a client in a small claims proceeding); In re McKenna, 422 N.E.2d 287 (Ind. 1981)
(respondent failed to file suit and failed to tender an order to the court after being
requested to do so by the judge). It should be noted that the court's order of disbar-
ment in Walton was subsequently modified to a two-year suspension. In re Walton,
431 N.E.2d 474 (Ind. 1982).

"/n re Snyder, 428 N.E.2d 17 (Ind. 1981) (respondent failed to commence a dis-
solution proceeding after being retained to do so); In re Deardorff, 426 N.E.2d 689
(Ind. 1981) (respondent failed to take any action on behalf of his clients for over three
years, resulting in the dismissal of his clients' claims); In re Darby, 426 N.E.2d 683
(Ind. 1981) (respondent failed to appear at a hearing, failed to file a lawsuit, and failed

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 267

reprimand and admonishment.^^

In originally imposing the sanction of disbarment in In re Walton,^^
the supreme court placed primary emphasis on the effect of the
respondent's neglect stating:

Unfortunately, as in most human endeavors, neglect, pro-
crastination and non-accomplishment are present in the legal
profession. But in the legal profession, neglect produces a
particularly pernicious consequence and it is for this reason
that the Diciplinary Rules of this Court proscribe such conduct.

The present case epitomizes the harmful results of neglect.
Statutes of Limitations expired, lay parties were required to
appear without the assistance of counsel, and parties' interests
were abandoned through the unwanted settlement of claims.
The findings in this cause indicate that the Respondent had
a total disregard for the prejudicial consequences of his in-
action. His clients were the victims of this disregard.

In light of the rationale used in Walton, it is difficult to under-
stand why the court in McKenna imposed the sanction of disbarment,
especially in light of the supreme court's subsequent modification of
Walton's disbarment to a two-year suspension. Although McKenna
neglected to file a small claims complaint as requested and neglected
to prepare a final adoption order after representing that he would
do so, neither instance of neglect proved to be irremediable. A possible
explanation for the severity of the sanction imposed in McKenna may
be the simplicity of the tasks which McKenna failed to perform.^^

It appears that simple neglect, unaccompanied by aggravating cir-
cumstances, will not bring about the imposition of the most severe
sanctions. Nonetheless, where an attorney's neglect is accompanied
by deceit and misreprensentation aimed at "covering up" neglect or
incompetence, stricter sanctions will be imposed. This is illustrated
in McKenna and Walton.^^ In each of these diciplinary proceedings,
which involved serious neglect and resulted in disbarment, the court

to return the client's papers upon demand); In re Shea, 425 N.E.2d 76 (Ind. 1981) (suspen-
sion ordered due to respondent's six-year delay in filing an action on behalf of a client).

'Un re Brown, 429 N.E.2d 966 (Ind. 1982) (respondent failed to complete his obliga-
tions as the attorney for an estate in a timely manner).

'^427 N.E.2d 654 (Ind. 1981), modified, 431 N.E.2d 474 (Ind. 1982).

''Id. at 657.

•*In this regard, the court in McKenna stated that the "[r]espondent's misconduct
relates to uncomplicated, routine matters which can and should be expeditiously
accomplished by any attorney. A client should be able to anticipate prompt resolution
of legal questions of this nature." 422 N.E.2d at 289. The court also noted that McKenna
had repeatedly misrepresented to his client that the tasks had been completed.

''See In re McKenna, 422 N.E.2d 287 (Ind. 1981); In re Walton, 427 N.E.2d 654
(Ind. 1981).

268 INDIANA LAW REVIEW [Vol. 16:265

relied on the fact that misrepresentations regarding the status of the
clients* cases had been made/^ In re Deardorfp^ also exemplifies this
situation. In ordering Deardorff 's suspension, the court placed primary
emphasis on Deardorff 's deceitful conduct, which was designed to
camouflage his inability to further his clients' interest rather than his
neglect of his clients' claim. The court stated:

[Deardorff 's conduct] was not merely negligence; Respondent
engaged in a conscious, elaborate process whereby events lend-
ing credence to his misrepresentations were staged.

There is no place in the practice of law for deceiving one's
client. Deception of a client strikes at the very heart of the
oath taken by each person who assumes tlie position of
attorney.^^

In re Seely"^^ involved an attorney's obvious intoxication during a
criminal trial in which he represented the defendant. The court found
such conduct to be "undignified, discourteous and degrading to a
tribunal."^^ Recognizing its responsibility "to protect the public from
attorneys who, for whatever reason, cannot meet the obligations impos-
ed by the [legal] profession,"^ the court suspended the respondent from
the practice of law for a period of ninety days.^^

In In re PriceJ^^ an attorney was suspended for a period of not
less than one year for engaging in conduct involving misrepresentation
before a grand jury and for failing to reveal the settlement of a client's
lawsuit to welfare officials as required by law. The primary impor-
tance of the Price decision lies in the court's finding that the scienter
element of a disciplinary charge "may be analogized to what con-
stitutes 'knowlingly' in a criminal charge."^^

Two cases arising from somewhat unusual circumstances resulted
in public reprimands for the attorneys involved. In In re Lantz,^^ the
respondent was a part-time prosecuting attorney who also initiated
numerous civil actions based upon "bad checks" tendered to his clients.

"In re McKenna, 422 N.E.2d 287, 289 (Ind. 1981); In re Walton, 427 N.E.2d 654,
655 (Ind. 1981).

1^426 N.E.2d 689 (Ind. 1981).

''Id. at 692.

^"427 N.E.2d 879 (Ind. 1981).

''Id. at 879.

'Ud. at 880.

''Id.

2*429 N.E.2d 961 (Ind. 1982).

'Ud. at 964. With respect to criminal intent, Ind. Code § 35-41-2-2(b) (1982) states
that "[a] person engages in conduct 'knowingly' if, when he engages in conduct, he
is aware of a high probability that he is doing so." Ind. Code § 35-41-2-2(b) (1982).

2«420 N.E.2d 1236 (Ind. 1981).

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 269

The court held that such a practice gave the appearance of using the
pressure of a public office to collect civil debts for private clients,^^
in violation of Disciplinary Rules 9-101(B), 5-104(B), and 1-102(A)(5) and
(6) of the Code of Professional Responsibility.^® In In re Adams,^^ the
attorney was publicly admonished and reprimanded for making overt
sexual advances^** toward a female client.

During the survey period, the supreme court discussed two types
of mitigating circumstances that it will consider when imposing
disciplinary sanctions. In the only case decided during the survey
period involving the commingling of a client's funds that did not result
in disbarment,^^ the court weighed heavily the civic contributions of
the respondent.^^ In addition, youth and inexperience were discussed
twice during the survey period as possible mitigating circumstances.
Although youth and inexperience were not sufficient to avoid discipline
in either Price or Deardorff,^^ the court strongly implied in Price that
a more experienced attorney would have suffered the imposition of
a much stricter sanction. The court stated that "[w]ere it not for his
inexperience, Respondent's conduct would easily be viewed as a intoler-
able attempt at personal gain through the exploitation of an unknow-
ing client. But we will not project such improper motivations."^''

During the survey period, the supreme court offered some
guidance as to the various factors that it will take into consideration
when determining an appropriate disciplinary sanction. In Walton, the
court stated that it will examine

the nature of the violation, the specific acts of misconduct, [the
supreme court's] responsibility to preserve the integrity of the
Bar, and the risk, if any, to which [the court] will subject the

^Ud. at 1237.

^^MoDEL Code of Professional Responsibility DRs 9-101(B), 5-104(B), 1-102(A)(5) and

(6) (1979). The Model Code of Professional Responsibility is reproduced in the Indiana

Rules of Court (1982).

'M28 N.E.2d 786 (Ind. 1981).

^"The court found that Adams grabbed a female client, "kissing her and raising

her blouse." Id. at 787.

^7n re Mendez, 427 N.E.2d 652 (Ind. 1981). See supra note 3 and accompanying text.
'M27 N.E.2d at 653. In this regard, the court stated:

In our determination of an appropriate disciplinary sanction, we have con-
sidered the evidence and argument of record relating to Respondent's ex-
tensive gratis work for the Hispanic-American Multi-Center and many indigent
clients. Professional service of this nature enhances the legal profession and
brings credit to those who serve so willingly.

Id.

'Un re Price, 429 N.E.2d 961. 965-66 (Ind. 1982); In re Deardorff. 426 N.E.2d 689.

692 (Ind. 1981).

^M29 N.E.2d at 966.

270 INDIANA LAW REVIEW [Vol. 16:265

public by permitting the Respondent to continue in the pro-
fession or be reinstated at some future date.^^

The court also considered an attorney's voluntary withdrawal from
practice in determining the effective date of a disciplinary sanction.
In In re Thomas,^^ an attorney had voluntarily withdrawn from the
practice of law after a criminal conviction,^' and, approximately 18
months later, the attorney was disbarred by order of the supreme
court.^* The court allowed the effective date of discipline to run from
the time of the respondent's voluntary withdrawal for purposes of the
five-year waiting period for reinstatement.^^

2. Claims of Inadequate Counsel. — T>Mvmg the survey period,
numerous criminal defendants based appeals, at least in part, on the
denial of effective legal representation at trial. In most instances, the
appellate courts rejected the appellants' arguments and affirmed the
convictions, applying established legal principles. For example, Indiana
has long held to a presumption that legal counsel has acted effective-
ly and competently."" Moreover, a criminal conviction will not be
reversed on the basis of ineffective counsel, unless counsel's represen-
tation rendered the defendant's trial a "mockery of justice.""^ During
the past survey period, the supreme court consistently upheld the
"mockery of justice" standard as modified by the "adequate legal
representation" standard."^ In addition, the courts continued their reluc-
tance to "second guess" defense counsel's trial tactics.*^

3^427 N.E.2d at 657.
^^420 N.E.2d 1237 (Ind. 1981).

'The attorney was convicted of violating 21 U.S.C. § 843(b) (1976), which prohibits
the use of a public communication facility to distribute cocaine.
'«420 N.E.2d at 1239.

''See, e.g., Field v. State, 426 N.E.2d 671, 673 (Ind. 1981); Lindley v. State, 426
N.E.2d 398, 401 (Ind. 1981); Harrison v. State, 424 N.E.2d 1065, 1070 (Ind. Ct. App.
1981); Myers v. State, 422 N.E.2d 745, 752 (Ind. Ct. App. 1981).

''E.g., Rice v. State, 426 N.E.2d 680 (Ind. 1981); Wilkins v. State, 426 N.E.2d 61,
62 (Ind. Ct. App. 1981); Roberts v. State, 419 N.E.2d 803, 810 (Ind. Ct. App. 1981). See
also cases cited supra note 40.

''See, e.g.. Rice v. State, 426 N.E.2d 680, 682 (Ind. 1981); Lindley v. State 426 N.E.2d
398, 409 (Ind. 1981). The "adequate legal representation" standard was described in
Thomas v. State, 251 Ind. 546, 242 N.E.2d 919 (1969).

"See Lindley v. State, 426 N.E.2d 398, 401 (Ind. 1981); Roberts v. State, 419 N.E.2d
803, 810 (Ind. Ct. App. 1981). In Lindley, the supreme court stated that it "will not
speculate as to what may have been the most advantageous strategy in a particular
case. Isolated poor strategy, bad tactics, or inexperience does not necessarily amount
to ineffective counsel." 426 N.E.2d at 401. Similarly, in Roberts, the court of appeals
stated that "[d]eliberate choices of attorneys for some tactical or strategic reason does
not establish ineffective representation even though such choice may be subject to
some criticism or even if it does turn out to be detrimental to the defendant." 419
N.E.2d at 810.

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 271

Nonetheless, post-conviction relief was granted twice during the
survey period, based upon claims of ineffective representation by
counsel. In Shull v. State,*^ the defense counsel had sought to impeach
the testimony of the victim^^ by attempting to disclose a basis for
negative feelings towards the accused or a motive for revenge/^
Instead, the defense counsel "destroyed the credibility of his client
much like a successful prosecution would have tried to do."*^

In reversing the defendant's conviction, the court of appeals em-
phasized the cumulative effect of the defense counsel's errors, stating:

We initially note that each error of counsel individually
may not be sufficient to prove ineffective representation;
however, the errors collectively illustrate the denial of his right
to effective assistance of counsel. In applying the mockery of
justice adequacy standard this Court must always look to the
totality of the circumstances, [citations omitted] which would
include consideration of the cumulative effect of counsel's
errors, [citations omitted] Here, we have reviewed the entire
record and conclude Shull was denied effective assistance of
counsel based upon the totality of counsel's mistakes. While
individual isolated mistakes may not be grounds for reversal,
the totality of these circumstances requires reversal.*®

In Cowell V. Duckworth,^^ the petitioner sought a writ of habeus
corpus after he had been tried and convicted of first-degree murder
in state court and sentenced to life imprisonment. As one basis for
his petition, the prisoner alleged that he had received ineffective legal
representation at trial because his attorney had a conflict of interest.
This allegation was based on the fact that the petitioner's attorney
also represented two prosecution witnesses. The district court found
that this was a conflict of interest that violated the petitioner's sixth
amendment rights.^" The court described the nature of this conflict
as follows:

"The problem that arises when one attorney represents both
the defendant and the prosecution witness is that the attorney

''A21 N.E.2d 1 (Ind. Ct. App. 1981).

"^The defendant had been convicted of child molesting.

"^Defense counsel asked such questions as: "How many times did he hit your
mom?"; "How many times did he get drunk while he was staying at your house"; and,
"Was the beer cold when he poured the beer on your brothers?" 421 N.E.2d at 2-3.

'Ud. at 3.

''Id. at 2.

^'512 F. Supp. 371 (N.D. Ind. 1981).

^Id. at 375. In this regard, the court held that "unconstitutional multiple represen-
tation is never harmless error." Id.

272 INDIANA LAW REVIEW [Vol. 16:265

may have privileged imformation obtained from the witness
that is relevant to cross-examination, but which he refuses to
use for fear of breaching his ethical obligation to maintain the
confidences of his client. See Code of Professional Responsibili-
ty, Can 4 & DR 4-101(B)(2). 'The more difficult problem which
may arise is the danger that counsel may overcompensate and
fail to cross-examine fully for fear of misusing his confidential
information.' "^^

Thus, the court held that the writ of habeas corpus would be issued
unless the state retried Cowell within 180 days.^^

3. Prosecutorial Misconduct — It has been firmly established in
Indiana that the trial court is justified in granting a mistrial only
where prosecutorial misconduct places a criminal defendant in a posi-
tion of grave peril of conviction to which he should not have been
subjected.^

During the survey period, the "grave peril" standard was
reaffirmed by the courts in several criminal cases where the appeal
was based upon the denial of a motion for mistrial.^^ The court con-
sistently rejected, however, the argument that a mistrial is the only
appropriate remedy for prosecutorial misconduct. In White v. State,^^
the supreme court upheld the denial of a motion for mistrial because
the appellant failed to demonstrate any adverse effect resulting from
the alleged misconduct.^^ Similarly, in Riley v. State,^'^ the court found
that a prosecutor's failure to confine the content of his final argument
to the facts of the case was improper; nonetheless, the court held that
such conduct did not warrant reversal.^®

It may be generally concluded that absent a showing of harm
resulting from the prosecutor's misconduct, the trial court's refusal
to grant a mistrial for prosecutorial misconduct will not constitute
reversible error .^^ Furthermore, "overwhelming direct evidence of . . .
guilt" will be taken into consideration in determining the extent to

^'Id. (quoting Ross v. Heyne, 638 F.2d 979, 983 (7th Cir. 1980)) (quoting United
States V. Jeffers, 520 F.2d 1256, 1265 (7th Cir. 1975), cert, denied, 423 U.S. 1066 (1976)).

^^512 F. Supp. at 375.

""See, e.g., Drollinger v. State, 408 N.E.2d 1228, 1240 (Ind. 1980).

""See Riley v. State, 427 N.E.2d 1074, 1076 (Ind. 1981); Brock v. State, 423 N.E.2d
302, 305 (Ind. 1981); Smith v. State, 420 N.E.2d 1225, 1231 (Ind. 1981).

^^431 N.E.2d 488 (Ind. 1982).

""Id. at 490.

"427 N.E.2d 1074 (Ind. 1981).

''Id. at 1076.

'^See, e.g., Hines v. State, 424 N.E.2d 161, 163 (Ind. Ct. App. 1981) (holding pros-
ecutorial misconduct did not warrant granting of mistrial even though such conduct
may violate the Code of Professional Responsibility).

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 273

which prosecutorial misconduct has placed a defendant "in a position
of grave peril to which he should have not been subjected."^*'

Jf. Appellate Advocacy. — During the survey period, the appellate
courts of Indiana felt compelled to comment on the issues of compe-
tency and ethics as they relate to appellate advocacy. In Moore v.
StatCy^^ the court of appeals resorted to the extraordinary remedy of
ordering the rewriting of an appellant's brief.^^ Although the court
refused to address the merits of the case, Judge Chipman, in review-
ing the appellant's brief, authored a four-page opinion which outlined
the counsel's most significant errors. The court found that the counsel
for the appellant had committed mechanical errors and had failed to
comply with several of the Indiana Rules of Appellate Procedure. In
ordering a rebriefing, the court recognized the extraordinary nature
of that remedy .^^ Nonetheless, the court found that such a remedy
was "a more expedient method to guarantee appellant's constitutional
right to effective assistance of counsel than perhaps future post con-
viction remedies."^"

Gibhs V. State^^ involved a more blatant breach of advocacy. In
Gibbs, the court of appeals addressed the deficiencies of an appellate
brief that was submitted by a public defender. In the brief, the public
defender had reproduced a large portion of a co-defendant's brief, some
of which was entirely adverse to his client's interest. The appellate
court affirmed the defendant's conviction and referred the matter of
the public defender's misconduct to the Supreme Court Disciplinary
Commission for investigation.®^

In Manns v. State,^'^ the court commented on the wholly inadequate
brief submitted by the appellant's counsel. The court noted that
appellant's counsel referred to various facts without a supporting cita-
tion to the record and failed to cite legal authority in support of the
arguments presented. Nonetheless, the court undertook a review of
the issues raised and subsequently affirmed the defendant's
conviction.^®

The supreme court addressed another ethical aspect of appellate

"•Smith V. State, 420 N.E.2d 1225, 1231 (Ind. 1981) (quoting Drollinger v. State,
408 N.E.2d 1228, 1240 (Ind. 1980)).

«^426 N.E.2d 86 (Ind. Ct. App. 1981).

''Id. at 90.

'^Id. As to its authority to order a rebriefing, the court cited Frances v. State,
261 Ind. 461, 305 N.E.2d 883 (1974).

«''426 N.E.2d at 90.

«^426 N.E.2d 1150 (Ind. Ct. App. 1981).

''Id. at 1159.

"419 N.E.2d 1313 (Ind. Ct. App. 1981).

*Vd. at 1318. For an interesting comparison with Manns, see Moore, 426 N.E.2d
86 (Ind. Ct. App. 1981). See supra notes 61-64 and accompanying text.

274 INDIANA LAW REVIEW [Vol. 16:265

advocacy in Lance v. State.^^ In Lance, the central issue was whether
certain blood-stained clothing had been improperly seized. The state
sought to defend the seizure under the "plain view" doctrine. In its
brief, the state recited, as "fact," that a police officer "saw the defend-
ant notice blood on the pants he picked up to put on and toss them
aside nervously ."^° The supreme court found, however, that such a fact
did not appear on the pages of the transcript cited by the state, "nor
at any other location in the transcript."^^ Citing the Code of Profes-
sional Responsibility, the court admonished the state's counsel by
stating that "[p]ractitioners may properly place the facts in a light
most favorable to their client. Zealous representation, however, does
not include a license to misrepresent or embellish the facts."^^

In Tippecanoe Education Association v. Board of School Trustees
of Tippecanoe School Corp.,''^ the court chose to use a footnote to
emphasize an attorney's ethical obligation to disclose adverse authority
in an appellate brief.^^ The court stated:

Where a lawyer knows of legal authority in the controlling
jurisdiction directly adverse to the position of his client, he
should inform the tribunal of its existence unless his adver-
sary has done so; but, having made such disclosure, he may
challenge its soundness in whole or in part.'

The court acknowledged that neither party cited the case that the
court characterized as directly adverse to one of the party's position,
thus raising the question as to whether the case was "directly adverse"
as required by the Disciplinary Rules. The court's statement in
Tippecanoe illustrates the need for care when an appellate tribunal
seeks to substitute its judgment for that of the parties' counsel. The
proper course of action would be to allow purported violations of the
Code of Professional Responsibility to be determined by the Indiana
Supreme Court Disciplinary Commission, and not by the court of
appeals.

A significant development in the area of appellate advocacy is the
supreme court's recent amendment of Appellate Rule 2 of the Indiana
Rules of Appellate Procedure. The rule has been amended to provide

«M25 N.E.2d 77 (Ind. 1981).

''Id. at 81.

''Id.

'Hd. (citing Model Code of Professional Responsibility DR 7-102(A)(5) (1979)).

"429 N.E.2d 967 (Ind. Ct. App. 1982). The author's law firm represented the
appellant in Tippecanoe.

''Id. at 972 n.5.

'Ud. (citing Model Code of Professional Responsibility Canon 7, EC 7-23, DR
7-106(B)(l) (1979)).

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 275

for a pre-appeal conference.^^ Paragraph four of the amended rule
states the following:

(4) If, without just excuse or because of failure to give
reasonable attention to the matter, no appearance is made on
behalf of a party at the pre-appeal conference, or if an attorney
is grossly unprepared to participate in the conference, or
unreasonably refuses to stipulate relevant record or facts
necessary for the appeal, the Court of Appeals may order one
of the following:

(i) the payment by delinquent attorney or the party of the
reasonable expense, including attorney fees and the cost of
the transcript, to the aggrieved party;

(ii) take such other action as may be appropriate under
the circumstances.^^

The new rule thus places obvious responsibilities on the shoulders
of appellate counsel, and it grants a great deal of discretion to the
court of appeals in prescribing sanctions for the failure to meet those
responsibilities.

B. Professional Liability

1. Malicious Prosecution. — An attorney's liability for malicious
prosecution was addressed by the court of appeals in Wong v. Tabor J^
Although the Indiana courts have recently restated the elements which
are necessary to establish an action for malicious prosecution,^® Wong
represents the first discussion by an Indiana court of an action for
malicious prosecution based upon an attorney's professional conduct.

In Wong, a physician, Wong, brought a malicious prosecution action
against an attorney. Tabor, who had instituted a medical malpractice
action against Wong on behalf of a client who had been severely in-
jured during medical surgery. Tabor had filed the original action
against the hospital, where the surgery was performed, and against

''^In re the Adoption of Rules of Appellate Procedure, Order of the Supreme Court
of Indiana, June 23, 1982. The rule providing for a pre-appeal conference became effec-
tive on July 1, 1982. Id.

'Ud.

'«422 N.E.2d 1279 (Ind. Ct. App. 1981). For further discussion of this case, see
Mead, Torts, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev. 377,
407 (1983).

''See Satz v. Koplow, 397 N.E.2d 1082 (Ind. Ct. App. 1979); Yerkes v. Washington
Mfg. Co., 163 Ind. App. 692, 326 N.E.2d 629 (1975). These cases hold that a plaintiff
has the burden of establishing the following elements in an action for malicious pro-
secution: (a) the defendant instituted, or caused to be instituted, a prosecution against
the plaintiff; (b) the defendant acted maliciously in doing so; (c) the prosecution was
initiated without probable cause; and (d) the prosecution terminated in plaintiff 's favor.

276 INDIANA LAW REVIEW [Vol. 16:265

a number of doctors, including Wong. Although Wong had diagnosed
the client's problem and had referred her to the performing surgeon,
he had not taken part in the surgery that had caused the client's
injuries.*"

During the malpractice litigation, Wong had applied to the trial
court for summary judgment. Immediately prior to the hearing on the
motion, one of Tabor's associates had advised Wong's attorney "that
there would be no objection to the entry of summary judgment and
to have the record merely reflect his presence at the hearing."®^ After
the hearing, summary judgment on the medical malpractice claim was
granted in Wong's favor.

In Wong's subsequent malicious prosecution action against Tabor,
the jury awarded Wong $25,000 in damages. In his motion to correct
errors. Tabor moved for judgment on the evidence. The trial court
granted Tabor's motion, finding that the malpractice proceedings had
not been terminated in plaintiff's favor, a favorable termination being
a requisite element of an action for malicious prosecution, but had
been terminated by agreement of the parties.*^

On appeal, Wong argued that the trial court erred in setting the
verdict aside because the malpractice action had been terminated in
Wong's favor; conversely. Tabor argued that the court was correct
in its ruling.*^ The court of appeals found that the trial court erred
in determining that the malpractice action had been terminated by
agreement.*^ The court stated that Tabor's associate's decision to
forego the opportunity to contest Wong's motion for summary judg-
ment did not constitute a compromise and settlement.*^ Nonetheless,
the court affirmed the trial court's holding for Tabor, "since the
evidence is insufficient to support a finding that Tabor lacked pro-
bable cause to initiate a suit against Wong."*^

In addressing the issue of probable cause, the court initially noted
that where the facts are uncontroverted, the question of probable
cause is one of law to be decided by the court.*^ The court then pro-
ceeded to formulate a standard for determining whether there is prob-

^"Hospital records reveal that Wong's only involvement in the patient's hospital
care was prescribing a laxative. 422 N.E.2d at 1282.

«i422 N.E.2d at 1282.

''Id.

^^Tabor was found to have preserved the following alternative arguments in his
original motion to correct errors: (1) there was no evidence of lack of probable cause
to bring suit against Wong; (2) no evidence as to malice was shown; (3) certain of the
instructions were erroneously given; and (4) the damages were excessive.

«''422 N.E.2d at 1282.

''Id. at 1285.

'Hd. at 1282.

'Ud. at 1285 (citing Miller v. Willis. 189 Ind. 664, 128 N.E. 831 (1920)).

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 277

able cause for an attorney's decision to bring suit on behalf of a client.
The court began by emphasizing "that any standard of probable cause
must insure that the attorney's 'duty to his client to present his case
vigorously in a manner as favorable to the client as the rules of law
and professional ethics will permit' is preserved."*® The court
elaborated by stating:

While an attorney is under an ethical duty to avoid suit where
its only purpose is to harass or injure, if a balance must be
struck between the desire of an adversary to be free from un-
warranted accusations and the need of a client for undivided
loyalty, the client's interests must be paramount.*^

After examining the competing viewpoints of various scholars and
jurisdictions, the court adopted a two-level test for determining the
existence of probable cause for instituting a lawsuit. First, an attorney
must subjectively believe that a client's claim "merits litigation."^" In
addition, the attorney's belief must be reasonable under an objective
standard described by the court as follows:

We conclude that the objective standard which should
govern the reasonableness of an attorney's action in instituting
litigation for a client is whether the claim merits litigation
against the defendant in question on the basis of the facts
known to the attorney when suit is commenced. The question
is answered by determining that no competent and reasonable
attorney familiar with the law of the forum would consider
that the claim was worthy of litigation on the basis of the facts
known by the attorney who instituted suit.^^

Applying this new test to the facts at bar, the court found that
Wong had failed to prove a lack of probable cause.^^ Based upon the
facts available to Tabor prior to the initiation of the lawsuit and the
limited time in which he had to prepare and investigate. Tabor was
found to have had a reasonable belief that his client's claim was
meritorious.^^

''Id. at 1286 (quoting Weaver v. Superior Court, 95 Cal. App. 3d 166, 180, 156
Cal. Rptr. 745, 752 (1979)).

«M22 N.E.2d at 1286. As to an attorney's duty to avoid instituting unwarranted
actions, see Model Code of Professional Responsibility DR 7-102 (1979).

'"422 N.E.2d at 1288.

''Id.

''Id. at 1289.

'Ud. The court found that Tabor had only thirty days to file the action prior to
the expiration of the applicable statute of limitations. Taking this time constraint into
consideration, the court concluded that there was a reasonable basis for Tabor's belief
that Wong had been involved in Tabor's client's surgery and that Wong had negligently
referred Tabor's client to the performing surgeon. Id.

278 INDIANA LAW REVIEW [Vol. 16:265

The court rejected Wong's argument that Tabor should incur
liability for wrongfully continuing the action once he discovered, or
should have discovered, that Wong did not take an active part in the
hospitalization which injured Tabor's client. Although the court chose
not to discuss the conduct necessary to trigger liability for wrongful
continuation of a civil proceeding, the court discussed two consider-
ations which should be reflected in any rule of liability .^^ First, the
court noted that the harm associated with the wrongful continuation
of a proceeding differs from the damages suffered through malicious
prosecution. In the former, the two principal injuries arising from
malicious prosecution, adverse publicity and expense of counsel, "have
already occurred and are not a basis for recovering damages."^^ Second,
the court observed that the rules of trial procedure have adequate
provisions for securing the dismissal of unwarranted claims and that
the disciplinary rules vest the Supreme Court Disciplinary Commis-
sion with the power to discipline an attorney who unethically initiates
or continues litigation.

The court concluded that "the considerations upon which liability
may be predicated for wrongfully continuing an action when there
existed probable cause for its commencement are quite narrow."^^
Accordingly, the court refused to premise liability on Tabor's failure
to dismiss his client's action against Wong.^^

The ramifications of the Wong decision relate primarily to the
subjective element of the probable cause test created by the court.
While an attorney's subjective belief in the merit of a client's claim
must be reasonable under an objective test, the belief need only be
reasonable in light of the facts actually known by the attorney. The
Wong court chose not to impose the "or should have known" stand-
ard often incorporated into objective tests. In addition, the court
expressly rejected inadequate investigation as the basis for
establishing a lack of probable cause, stating that "[w]hile we do not
condone slack or shoddy preparation and investigation on an attorney's
part in bringing suit, where there is some factual basis for bringing
a claim, lack of probable cause cannot be based upon a negligent failure
to investigate thoroughly."^*

In establishing the minimal "some factual basis" test, the court
obviously weighed the potentially detrimental effect of discouraging
thorough investigation against the need to protect the accessibility
of the courts, and determined the latter to be the more important
consideration.

^''422 N.E.2d at 1289.

''Id. at 1290.

''Id.

'Ud.

'^Id. at 1289 (emphasis added).

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 279

2. Vicarious Liability for Punitive Damages.— Hunted v. McCloud^
represents one of the most important developments in the area of pro-
fessional liability to occur in recent years. In Husted, the Indiana Court
of Appeals upheld the trial court's award of punitive damages against
a law partnership. This award was made on the basis of an individual
partner's misconduct.

The law firm of Husted & Husted^"" was retained to represent
the estate of which Herman McCloud was executor. Edgar Husted
was found to have converted more than $18,000 from funds that had
been advanced to McCloud to meet estate tax liabilities. Thereafter,
Edgar entered into a plea agreement with the Montgomery County
Prosecutor under which Edgar agreed to plea guilty to three counts
of theft and one count of forgery involving three estates unrelated
to the estate for which McCloud was executor. In return, the prose-
cutor agreed not to prosecute on charges arising from Edgar's dis-
closures of misconduct in any other estates. Edgar subsequently
pleaded guilty to the four felony charges and was sentenced to prison.
As a result of these previous actions, McCloud was forced to meet
the estate tax liability with personal assets; thereafter, he filed an
action against Edgar and the partnership of Husted & Husted seek-
ing compensatory and punitive damages.

The court of appeals acknowledged the general rule that "punitive
damages are not appropriate where the defendant is or may be sub-
ject to criminal prosecution for the same act;"^*^^ however, the court
held that Edgar's plea agreement released him from criminal liability
thereby exposing him to liability for punitive damages. ^"^ In finding
that Edgar's conduct warranted an award of punitive damages, the
court relied on the established principle that "[p]unitive or exemplary
damages may be appropriate where there is a finding of fraud, malice,
gross negligence, or malicious or oppressive conduct on the defendant's
part."^°^

In upholding a punitive damage award against the partnership,
the court relied entirely on the Indiana Uniform Partnership Act which
governs partnerships.^*"^ One section of the Indiana Act states:

[W]here, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partner-
ship or with the authority of his copartners, loss or injury is

^M36 N.E.2d 341 (Ind. Ct. App. 1982).

'""The firm consisted of Edgar and Selwyn Husted.

'°'436 N.E.2d at 344 (citing Taber v. Hutson, 5 Ind. 322, 325-27 (1854); Moore v.
Waitt, 157 Ind. App. 1, 7-8, 298 N.E.2d 456, 460 (1973)).

'"^36 N.E.2d at 345 (citing Smith v. Mills, 385 N.E.2d 1205 (Ind. Ct. App. 1979)).

'"^36 N.E.2d at 344 (citing Vaughn v. Peabody Coal Co., 375 N.E.2d 1159, 1163
(Ind. Ct. App. 1978)).

'"'See Ind. Code §§ 23-4-1-1 to -43 (1982).

280 INDIANA LAW REVIEW [Vol. 16:265

caused to any person, not being a partner in the partnership,
or any penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or omitting to
act/''^

The court found that a "penalty" had been imposed against Edgar
Husted in the form of punitive damages. Consequently, **[t]he applica-
tion of the statute is clear — the partnership is liable [for punitive
damages] to the same extent as the partner. "^"^

Another section of the Indiana Act also served as a basis for
the court's decision. Section 23-4-1-14 provides that:

The partnership is bound to make good the loss: (a) Where
one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies
it; and (b) Where the partnership in the course of its business
receives money or property of a third person and the money
or property so received is misapplied by any partner while
it is in the custody of the partnership.'

107

Relying upon this code section, the court found that Edgar Husted's
conversion of estate funds had occurred "within the ordinary course
of partnership business" thereby subjecting the partnership to liability
for punitive damages.'"* The court held that this liability attached
regardless of a lack of knowledge on the part of the nonacting
partner.'"® Furthermore, the court rejected the partnership's argument
that there must be a specific finding that the public interest would
be served by awarding punitive damages against the partnership.""
The Husted court's interpretation of the Indiana Act raises a
number of questions. Clearly, the Indiana Act renders a partnership
liable for any loss, injury, or penalty where a partner acts in the
ordinary course of the business of the partnership or a partnership
acts in the course of its business. However, the court found that Edgar
Husted's act of criminally converting funds was performed within the
ordinary course of that business, without discussing the nature of
Husted & Husted's business.'" Under the Indiana Act, a more

''Ud. at § 23-4-1-13.
•''M36 N.E.2d at 347.
^"iND. Code § 23-4-1-14 (1982).

^"^36 N.E.2d at 347. In this regard, the court also found the partnership to be
liable for compensatory damages under Indiana Code section 23-4-1-14. 436 N.E.2d at 348.
•°«436 N.E.2d at 347.
'''Id.
'''Id.

1983] SURVEY-PROFESSIONAL RESPONSIBILITY 281

accurate description of Husted's conduct would be that it occurred
while he was "acting within the scope of his apparent authority. "^^^

Yet, even if the court properly found that Husted was acting
within the scope of his apparent authority or in the ordinary course
of the partnership's business, the use of either finding as a predicate
for imposing punitive damages is extremely questionable. The Indiana
Act states that the partnership is liable when, by the wrongful act
or omission of a partner, "loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred.""^ The
Husted court grasps the "any penalty" language as a basis for the
imposition of punitive damages against the partnership."* How^ever,
this language clearly does not refer to a penalty incurred by a part-
ner due to his wrongful act or omission, but to a penalty incurred
by any person, not a partner in the partnership.

Similarly, section 23-4-1-14 cannot be interpreted so as to justify
an award of punitive damages against a partnership. This section
renders the partnership liable for a party's losSy if money is received
and misapplied by a partner or partnership. Having found that Edgar
Husted converted funds while acting with apparent authority and
within the course of the partnership's business, the court relied on
section 23-4-1-14 in holding that "the partnership is liable and bound
to make good the damages," including punitive damages."^ Obviously,
section 23-4-1-14 mandates the partnership's obligation to contribute
toward the funds which were misappropriated, or, in other words, "the
loss." To find that punitive damages constitute part of "the loss"
incurred by one whose funds are converted is contrary to Indiana's
rationale for imposing punitive damages.

By establishing the proposition that an innocent, nonparticipating
defendant may be held vicariously liable for punitive damages, the
court of appeals has created a rule of law entirely inconsistent with
current Indiana law. The Husted court itself recognized that "[p]unitive
damages are not intended to compensate the claimant, but rather are
intended to punish the wrongdoer and thereby deter others from en-
gaging in similar conduct in the future.""® Punishing one who neither
participated in the misconduct nor had any knowledge of it cannot
be reconciled with Indiana's well-established rationale for awarding
punitive damages.

''^See IND. Code § 23-4-M4(a) (1982).
'"'Id.- § 23-4-1-13.

"^Holding that Edgar Husted had incurred "a penalty involving an award of punitive
damages," the court held that the partnership was liable therefore to the same extent
as the partner. 436 N.E.2d at 347.

"*M (emphasis added).

"^/d. at 344 (emphasis added) (citing Hoosier Ins. Co. v. Mancino, 419 N.E.2d 978
(Ind. Ct. App. 1981); Nate v. Galloway, 408 N.E.2d 1317 (Ind. Ct. App. 1980)).

282 INDIANA LAW REVIEW [Vol. 16:265

Additional ramifications of Husted will be far-reaching. Incorpora-
tion by lawyers has traditionally failed to affect professional liability.
However, it seems that incorporation would significantly weaken
reliance upon Indiana's partnership laws as a basis for the imposition
of punitive damages against a law firm."^ It is puzzling why the court
in Husted utilized a somewhat strained interpretation of the Indiana Act
instead of deciding this case within the bounds of established legal
malpractice and agency law. Finally, this decision conflicts with
established legal principles in another respect. Although courts have
refused to allow individuals to contractually avoid or assign liability
for punitive damages,"^ Husted appears to stand for the proposition
that one can contractually subject himself to liability for punitive
damages via a partnership agreement.

"^See Indiana Admission and Discipline Rule 27(c) which states:

Incorporation by two (2) or more lawyers associated in the practice shall
not modify any law applicable to the relationship between the person or per-
sons furnishing professional services and the person receiving such service,
including, but not limited to, privileged communications which bind all
associated, as well as the liability of each for all, arising out of the profes-
sional services offered by one (1) lawyer associated with others in the same
corporation, as existed in a partnership for the practice of law.
IND. Code. Ann. Title 34, app. Ind. R. Admiss. & Discp. 27(c) (West 1982).
'''See generally Annot., 20 A.L.R.3d 335 (1968).

XIIL Property

Walter W. Krieger*

During this survey period there were more than eighty decisions
by state and federal courts that, to some degree, touched upon In-
diana property law.^ Many of these decisions, however, do not change
or clarify existing law, nor do they present interesting applications
of the law. These cases have either been excluded or summarized
without extensive comment. The more significant cases are discussed
under the following headings: (A) Adverse Possession; (B) Bail-
ment; (C) Easements and Restrictive Covenants; (D) Landlord and
Tenant; (E) Mines and Minerals; (F) Real' Estate Trans-
actions; and (G) Slander of Title. Cases not discussed under the above
headings involved the following subjects: eminent domain,^

* Associate Professor of Law, Indiana University School of Law — Indianapolis. A.B.,
Bellarmine College, 1959; J.D., University of Louisville, 1962; LL.M., George Washington
University, 1969. The author wishes to extend his appreciation to Joseph Maguire for
his assistance in the preparation of this Article.

'There were no significant statutory developments during this survey period.

'In Oxendine v. Public Service Co., 423 N.E.2d 612 (Ind. Ct. App. 1980), the first
district court of appeals held that Public Service Company of Indiana, Inc. (PSD had
made "good faith offers" prior to filing eminent domain actions against two landowners.

The trial court granted PSI's request for easements for a transmission line across
two properties. On appeal, the landowners argued that the precondemnation offers
were not made in good faith because the amounts offered were not based on actual
characteristics, including improvements on the land. Id. at 615. The landowners fur-
ther argued that the offers were not based on good faith opinions of fair market values,
as required by Indiana Code section 32-11-1-2.1 (1982). Id.

The court of appeals rejected the landowners' first argument holding that failure
to consider factors which affect damages and value "does not render the offer invalid
as not being in good faith." 423 N.E.2d at 620 (citing Wyatt-Rauch Farms, Inc. v. Public
Service Co., 160 Ind. App. 228, 311 N.E.2d 441 (1974)). Additionally, the court noted
that PSI employed an independent appraiser who applied certain accepted techniques
to arrive at an offer and that although PSI made numerous contacts with the land-
owners, the landowners never expressed an opinion of value at the negotiation stage
or at trial. 423 N.E.2d at 620.

The court of appeals also rejected the landowners second argument holding that
the adoption in 1977 of the Uniform Land or Easement Acquisition Offer, which is
found in Indiana Code section 32-11-1-2.1 (1982), did not require a precondemnation of-
fer to be based upon fair market value. 423 N.E.2d at 621. The court came to this
conclusion though the offer form in the statute contains the following sentence: "It
is our opinion that the fair market value of the (property) (easement) we want to ac-
quire from you is $ , and, therefore, (condemnor) offers you

$ . . ." Ind. Code § 32-11-1-2.1 (1982).

Thus the court concluded that a precondemnation offer must be based only upon
the reasonable value of the property, but not necessarily the fair market value. 423
N.E.2d at 619 (citing Wampler v. Trustees of Indiana University, 241 Ind. 449, 172
N.E.2d 67 (1961)); See also Chambers v. Public Service Co., 265 Ind. 336, 355 N.E.2d
781 (1976).

In Unger v. Indiana & Michigan Electric Co., 420 N.E.2d 1250 (Ind. Ct. App. 1981),
the first district court of appeals was faced with the same "good faith offer" issue

283

284 INDIANA LAW REVIEW [Vol. 16:283

joint bank accounts,^ and the Occupying Claimant

addressed in Oxendine. This time the court of appeals reached a different conclusion.
In linger, Indiana & Michigan Electric Co. (I. & M.) sought an easement over the pro-
perty of Ruby Unger. I. & M. made Unger several offers before they tendered a uniform
offer in accordance with Indiana Code section 32-11-1-2.1 (1982). The uniform offer was
rejected and I. & M. filed an eminent domain action. At trial, the evidence showed
that the I. & M. offers were determined by reference to a standard schedule of land
values. 420 N.E.2d at 1251. The evidence further showed that an I. & M. agent based
his opinion of the fair market value of the Unger property on the value which was
accepted by other persons along the same route. Id. at 1252. There was no other
appraisal of the Unger property.

The landowners appealed the trial court's denial of objections to the condemna-
tion action. The critical issue before the court of appeals was "whether the trial court
erred in concluding I. & M. made a good faith effort to purchase." Id. at 1254. As
in Oxendine, the landowners argued that by enacting Indiana Code section 32-11-1-2.1
(1982) the legislature intended the condemnor to form an opinion of the fair market
value of the land sought and to submit an offer based on that opinion prior to filing
a condemnation action. The court in Unger agreed and held that "a condemnor must
base its offer upon a stated opinion of the fair market value of the property sought."
420 N.E.2d at 1260. However, the court noted that a precondemnation offer need only
be reasonable and a "conflict in opinion as to fair market value will be insufficient
to sustain an objection to the complaint in condemnation." Id. The court concluded
that reference to a state-wide schedule of damages without reference to the particular
real estate was not a good faith offer to purchase. Id. at 1261. Therefore, the court
in Unger held that "the trial court erred in overruling the landowners' objections that
I. & M. had not made a good faith effort to purchase" and the trial court's order was
reversed with "orders to dismiss the complaint in condemnation." Id.

'In Blaircom v. Hires, 423 N.E.2d 609 (Ind. 1981), Marie Van Blaircom and Maude
A. Hires established a joint saving account. The deposit contract with the bank in-
dicated that Maude and Marie were joint tenants with right of survivorship. Id. at
610. All the deposits were made with the funds of Maude, but the funds were physically
deposited by Marie who retained the passbook. In 1974, Alva Hires was appointed
guardian of the person and estate of his wife, Maude, and in January 1975, Alva demand-
ed possession of the passbook. Instead, Marie withdrew all the funds from the account.
Alva, as guardian, brought suit to recover the funds. The trial judge, now a judge
on the Indiana Supreme Court, entered judgment in favor of the guardian. In an
unpublished Memorandum Decision, the court of appeals reversed finding that where
the rights of the parties are clearly established in a joint bank account by unequivocal
language, the clear meaning of the language can not be varied by the admission of
parol evidence. The court of appeals held that Marie and Maude had acquired all the
rights incident to joint ownership and awarded Marie one half of the funds. In response
to a petition to transfer, the Indiana Supreme Court divided equally on whether a
petition to transfer should be granted; Justice Pivarnik, who was the trial judge below,
disqualified himself. This left the decision of the court of appeals in full force and effect.
Id. at 610.

In a dissenting opinion in which Justice Hunter concurred, Chief Justice Givan
pointed out that Indiana Code section 28-1-20-1 (repealed 1980) was designed to pro-
tect the banks and was not intended to prevent designation of joint account interests
by separate agreement between the parties. 423 N.E.2d at 611. Chief Justice Givan
noted that, in some jurisdictions, parol evidence is not admissible after the death of
one of the parties, but in the case at bar both parties were alive when the action
was commenced. Id. at 611-12 (citing 10 Am. Jur. 2d Banks § 389 (1963)). This case was
decided prior to the effective dates of Indiana Code sections 32-4-1.5-1 to -14 (1982)
which now govern joint bank accounts. Under the current law, during the lifetime of

1983] SURVEY-PROPERTY 285

Act/

A. Adverse Possession

A frequent factual situation arising in the area of adverse posses-
sion involves boundary line disputes between adjoining property

the cotenants, the account belongs to the parties in proportion to the net contribu-
tions by each to the sums on deposit. Id. § 32-4-1. 5-3(a) (1982). At the death of one
of the cotenants, the statute provides that "[s]ums remaining on deposit at the death
of a party to a joint account belong to the surviving party or parties as against the
estate of the decedent unless there is clear and convincing evidence of a different in-
tention at the time the account is created." Id. § 32-4-1.5-4(a). It would thus appear
that the dissenting opinion will be followed in cases arising after the effective date
of the statute.

'In Freson v. Combs, 433 N.E.2d 55 (Ind. Ct. App. 1982), Millard and Fanny Combs
brought an action to quiet title and for damages alleging that Ronald and Peggy Freson
had unlawfully occupied and improved the Combs' property by building a house thereon.
Id. at 57-58. The Combs also filed suit against John and Corabel Hopkins, who had
deeded the land to the Fresons, and the Harrison Building & Loan Association, apparent-
ly a mortgagee. In their answer, the defendants asserted that under the Indiana Occupy-
ing Claimant Act, Indiana Code sections 34-1-49-1 to -12 (1982), they would be required
to pay the Combs the fair market value of the land in its unimproved state if there
was a judgment for the Combs. The court then tried the case under the Occupying
Claimant Act. The jury returned a verdict in favor of the Combs and valued the land
at $2,000, which on appeal was reduced to $1,500 to conform to the evidence. 433 N.E.2d
at 58, 60-62. The Occupying Claimant Act is far more complicated than suggested by
this case, and the particular way in which it was applied by the court in Combs might
have been in error except for a post-trial motion filed by the Combs stating that it
was never their intention to eject the Fresons from their home and that they only
desired to be paid the value of their land which the Fresons occupy. Id. at 58.

The Occupying Claimant Act states that before the true owner can recover posses-
sion of his land against an occupying claimant who made improvements to the land
in good faith and under color of title, the owner must comply with certain provisions
of the Occupying Claimant Act. Ind. Code § 34-1-49-1 (1982). The court or jury trying
the case must assess: (1) the value of the lasting improvements made by the occupy-
ing claimant; (2) the damages to the land caused by waste or cultivation by the occupy-
ing claimant; (3) the value of any rents and profits which might have been received
by the occupying claimant from the land in its unimproved state (without improvements);
(4) the value of the land without the improvements made by the occupying claimant;
and (5) the taxes with interest paid by the occupying claimant and those under whose
title he claims. Id. § 34-1-49-3. The court shall then give the true owner the option
of paying the occupying claimant the value of his improvements plus the taxes paid,
with interest, less the value of rents and profits received and any damages as assessed
on the trial. Id. § 34-1-49-4. If the true owner shall fail to do so within a reasonable
time fixed by the court, the occupying claimant can take the property by paying the
true owner the value of the land without the improvements. Id. § 34-1-49-5. If this
is not done within a reasonable time fixed by the court, the true owner and occupying
claimant will be held as tenants in common. Id. § 34-1-49-6. In the case at bar, it
is not clear whether all the assessments were made by the jury, and the court did
not give the owner the first option as required by the statute. Nevertheless, the post-
trial motion corrected any error by waiving the right to pay the Fresons the value
of their improvements, and thus the Fresons had the option of paying the Combs the
value of the land. For further discussion of this case see Karlson, Evidence, 1982 Survey
of Recent Developments in Indiana Law, 16 Ind. L. Rev. 191, 200 (1983).

286 INDIANA LAW REVIEW [Vol. 16:283

owners. Through mutual mistake, a fence or other monument is treated
as the true boundary line, and as a result one of the parties has been
in possession of a strip of land belonging to the other for a period
of time sufficient to invoke the doctrine of adverse possession. Two
such cases were decided during this survey period.

In Dowell v. Fleetwood,^ the plaintiffs, Everett and Karen
Fleetwood, purchased a one-acre tract of land in 1960. They regularly
mowed the grass, cleared brush, and generally maintained their prop-
erty to an existing fence which they believed to be the true boundary
line. In 1975, the defendants, Alva and Evelyn Greathouse, purchased
a contiguous five-acre tract. A survey conducted by the county
surveyor established that the existing fence encroached 50.59 feet onto
the Greathouses' property. The plaintiffs brought suit to quiet title.
The trial court found in favor of the plaintiffs based on the theory
of adverse possession, and the defendants appealed.

The first argument presented by the defendants was based on the
fact that the plaintiffs had not paid taxes on the disputed strip of
land. The defendants argued that the plaintiffs could not prevail
because Indiana Code section 32-1-20-1 requires that the adverse
possessor pay all the taxes on the land during the period he claims
to have possessed the same adversely. This argument, as it relates
to boundary line disputes, has been repeatedly rejected by the In-
diana courts. Citing Echterling v. Kalvaitis,^ the Fleetwood court pointed
out that if there has been an open, continuous, exclusive, adverse, and
notorious possession of a contiguous strip of land for the statutory
period of time, and if the taxes have been paid according to the tax
duplicates, even though the duplicate does not include the disputed
strip, then adverse possession is established to the strip. The adverse
possessor who meets these criteria will be successful, though tech-
nically the taxes on the strip of land have not been paid by the adverse
possessor.^ The court declined the Greathouses' invitation to overrule
Echterling, noting that the Echterling decision preserves continuity
of possession and supports stability in real estate titles.^

The second argument advanced by the defendants dealt with the
sufficiency of the evidence. The defendants argued that mowing grass
and general maintenance of the disputed area was not the type of
open, continuous, exclusive possession that is necessary to acquire title
by adverse possession. The court declined to reweigh the evidence
and pointed out that mowing and maintaining property to a fence for
the full period of the ten year statute of limitation for the recovery

^420 N.E.2d 1356 (Ind. Ct. App. 1981).

«235 Ind. 141, 126 N.E.2d 573 (1955).

'420 N.E.2d at 1358.
'Id.

1983] SURVEY -PROPERTY 287

of possession of real property has previously been held sufficient in
Indiana.^

The second case, McCarty v. Sheets,^^ presented a somewhat dif-
ferent factual situation than that involved in Fleetwood. The plaintiff,
Russel McCarty, and the defendants, Carl and Anna Sheets, owned
adjoining tracts of land. In 1937, a garage was erected on the defend-
ants' land by their predecessor in title. The garage, situated on the
side boundary line approximately midway between the front and rear
lot lines, encroaches upon the McCarty property 1.4 feet at the rear
end of the building and 2 feet at the front end. The eaves of the garage
encroach an additional 1 foot. The evidence showed that from 1956
until 1973 the defendants cut the grass, maintained the area around
the garage, and paid all taxes on their property including the taxes
assessed against the garage. When McCarty brought an action to re-
quire the defendants to move their garage, the defendants
counterclaimed to quiet title. The trial court entered judgment against
the plaintiff and for the defendants on their counterclaim, quieting
title to a strip of land 4 foot 2 inches wide and 150 feet in length
along the entire east side boundary of the plaintiff's land. The court
of appeals affirmed the judgment of the trial court and the plaintiff
filed a petition to transfer. ^^ The Indiana Supreme Court vacated the
decision of the court of appeals, affirmed the denial of relief to the
plaintiff, but reversed and remanded the case as to the relief granted
the defendants. ^^

Both the supreme court and the court of appeals found relevant
the testimony of the defendant, Carl Sheets, regarding the acts of
possession upon which his claim was based. After examining this
testimony, the supreme court concluded, ^^ as had the dissent in the
court of appeals decision,^'' that at best the testimony indicated that
Sheets did some yard work on the side of the garage and behind the
garage, but that there was absolutely no evidence that he did anything
to the strip of land along the whole side of McCarty's land. The court
found that the evidence only supported awarding the defendants the
land actually occupied by their garage and a prescriptive easement
to maintain the eaves of their garage as presently located. ^^ While

'Id. at 1359 (citing Ford v. Eckert, 406 N.E.2d 1209 (Ind. Ct. App. 1980)).

"'423 N.E.2d 297 (Ind. 1981).

''Id. at 298.

'Ud. at 301.

''Id. at 300.

'"McCarty v. Sheets, 391 N.E.2d 834, 838 (Ind. Ct. App. 1981) (Hoffman, J., dissent-
ing). For a discussion of the court of appeals decision in McCarty, see Krieger, Prop-
erty, 1980 Survey of Recent Developments in Indiana Law, 14 Ind. L. Rev. 459, 466-67
(1981).

'M23 N.E.2d at 301.

288 INDIANA LAW REVIEW [Vol. 16:283

the decision in McCarty rests on a narrow point, that is the failure
to prove acts of possession along the entire boundary line, there is
language in the decision that suggests that the court will not find
maintenance activities in a residential area sufficient to support a claim
to adverse possession where there are no fixed or established bound-
ary lines such as a fence or other monument.

B. Bailment

Carr v. Hoosier Photo Supplies, Inc.,^'^ decided during this survey
period, establishes that the Uniform Commercial Code will not extend
to cases involving bailment for services. John Carr, an attorney and
amateur photographer, puchased ten rolls of Eastman Kodak Company
film to be used on a trip to Europe. Each roll of film had a "notice"
printed on the package that stated that if the film was defective or
if "damaged or lost by us or any subsidiary company even though
by negligence or other fault," the film would be replaced. "Except
for such replacement," the notice continued, "the sale, processing, or
other handling of this film for any purpose is without other warranty
or liability ."^«

Upon returning home from the European trip, Carr took nine rolls
of exposed Kodak film to Hoosier Photo for processing. The receipt
for the film which Carr received from Hoosier Photo also contained
a "notice" on the back. The notice stated that

[although film price does not include processing by Kodak,
the return of any film or print to us for processing . . . will
constitute an agreement by you that if any such film or print
is damaged or lost by us or any subsidiary company, even
though by negligence ... it will be replaced . . . and except
for such replacement, the handling by us ... is without other
warranty or liability.^^

Only five of the nine rolls of Kodak film were returned to Carr;
the others were lost by either Kodak or Hoosier Photo. Carr filed
suit against Kodak and Hoosier Photo asking for $10,000 in damages,
which would include the cost of returning to Europe to retake the

'Hd. at 300-01. Cf. Penn Cent. Transp. Co. v. Martin, 170 Ind. App. 519, 353 N.E.2d
474 (1976) (erecting permanent structures and thereafter mowing grass and erecting
improvements held sufficient to establish adverse possession); Smith v. Brown, 126
Ind. App. 545, 134 N.E.2d 823 (1956) (establishing hedge fence, trimming shrubbery,
mowing grass and planting flowers held sufficient to establish adverse possession).

"422 N.E.2d 1272 (Ind. Ct. App. 1981), rev'd. No. 1182 S 426 (Ind. Nov. 12, 1982).
For further discussion of this case see Bepko, Commercial Law, 1982 Survey of Recent
Developments in Indiana Law, 16 Ind. L. Rev. 83, 90 (1983).

'«422 N.E.2d at 1274.

''Id.

1983] SURVEY-PROPERTY 289

photos. Kodak and Hoosier Photo claimed that because of the limita-
tion of liability clauses contained on both the film packages and the
receipt, Carr's recovery should be limited to $13.60.^" The trial court
awarded Carr $1,013.60 and all parties appealed. The court of appeals
affirmed the judgment of the trial court.^^

The primary issue addressed by the court of appeals was whether
the film processing transaction should be governed by the Uniform
Commercial Code as was claimed by the defendants, Kodak and
Hoosier Photo. The defendants advanced two arguments to support
this contention. The first argument was that the limitation of liabili-
ty clause on the film box, which related to film processing, was suffi-
cient to bring the processing transaction within the ambit of the UCC.
The court of appeals summarily rejected this argument.^^

The second argument advanced by the defendants was that this
service transaction is analogous to a leasing arrangement, which type
of arrangement has been held in Indiana as covered by the UCC.^^
The court of appeals, however, found that "there is a distinction be-
tween a bailment which arises from the lease of personal property
and a bailment which arises from the service transaction."^'^ The
distinction the court drew lies in the fact that one who leases per-
sonal property has the use of that property for a specified time. The
bailee who is to perform a service upon the personal property in his
possession, however, does not have the use of the personal property.
The court of appeals thus found that to extend the scope of the, UCC
to cover service transactions would be to "distort the language of the
U.C.C."''

Hoosier Photo and Kodak advanced a separate argument on the
damages question. The argument was that neither defendant accepted
the images on the film for bailment and that it would be unfair to
hold them liable for the value of the exposed film. In rejecting this
argument, the court noted that this was not a case where unexpectedly
valuable objects are placed in a car trunk or left inside a suitcase
without the knowledge of the bailee, in which case the bailee would
not be liable for the loss.^^ In this case, both Hoosier Photo and Kodak

''Id.

'Ud. at 1275.

''Id. at 1277. See McDonald's Chevrolet, Inc. v. Johnson, 176 Ind. App. 498, 376
N.E.2d 106 (1978).

^"422 N.E.2d at 1275.

'Ud. at 1276. But see Mieske v. Bartell Drug Co., 92 Wash. 2d 40, 593 P.2d 1308
(1979). In Mieske, the Supreme Court of Washington held that the UCC applied to film
processing. Id. at 47-48, 593 P.2d at 1312. The court in Mieske found that the UCC
application to "transactions in goods" was intended by the drafters to include a broad
spectrum of sales and transactions including a bailment for services. Id.

'«422 N.E.2d at 1278.

290 INDIANA LAW REVIEW [Vol. 16:283

were aware that the film was exposed and that the images on it made
it more valuable than unexposed film.

C. Easements and Restrictive Covenants

Two easement cases decided during this survey period warrant
comment.^^ In Hartwig v. Brademas,^^ there was an express easement
for drainage of surface water that was reserved in a deed from 100
Center Company to T. Brooks Brademas in favor of Sedgwick House,
a limited partnership that had previously purchased an apartment
house on an adjoining tract of land from 100 Center Company. When
the apartment house owned by Sedgwick was built, a subterranean
spring was uncovered. Therefore, a drainage system was constructed
to carry off the spring water, the runoff from the roof, and the water
from the floor drains. The system ended north of the apartment house,
on land now owned by Brademas. When the land was sold to
Brademas, the deed created an easement in favor of Sedgwick "for
the drainage of surface waters and waters discharged from the roof
and floor drains of 'Sedgwick House' over, along and across the follow-
ing described real estate: [The description of Easement Z]."^^

^^Another case in this area is Ellis v. George Ryan Co., 424 N.E.2d 125 (Ind. Ct.
App. 1981). Suit was brought by George Ryan Co., Inc. for declaratory judgment to
determine the validity of a restrictive covenant that, if valid, would prohibit Ryan
from building a proposed six-story condominium. Id. at 126. The trial court found for
Ryan on two separate grounds: the covenant was void because it was not signed by
all of the property owners, and there had been a waiver of the enforcement of the
restrictions because of the acquiescence of the property owners in numerous viola-
tions of the covenant. Id. The court of appeals affirmed. Id. at 127.

Prior to Ellis, the court of appeals had held that, absent a showing that the con-
tract is not to be deemed complete unless signed by all the parties, the parties sign-
ing may be bound even though others have not signed. Curtis v. Hannah, 414 N.E.2d
962, 963 (Ind. Ct. App. 1981). In Ellis, the court found that the covenant was void because
it "speaks in terms of 'all parties hereto.' " 424 N.E.2d at 126. Moreover, the court
noted that the intent that the contract was not complete unless signed by all parties
can be found from the fact that the parties did not comply with the convenants. Id.
at 127.

What is troublesome about the court's conclusion that the parties had waived
the covenant because of prior violations is the fact that the violations were of a minor
nature. The violations cited by the court were: occasional use of a mobile home as
a residence, building of an additional house on one of the lots, building a doghouse
and garages, construction of various outbuildings, use of a chicken house, use of a house
as an office, and holding church meetings in a residence. Id. at 126. What property
owner who is living in an area restricted to single family dwellings would believe that
he must bring legal action against a neighbor who occasionally parked a mobile home
on his lot, held church meetings in his home, raised a few chickens, or built a garage
on his lot in order to assure that he has not "waived" a covenant which could result
in the construction of a six-story condominium?

2M24 N.E.2d 122 (Ind. Ct. App. 1981).

''Id. at 123.

1983] SURVEY-PROPERTY 291

The drainage system, however, crossed through Easement Z and
deposited the water north of Easement Z preventing the development
of the land. Brademas brought an action seeking injunctive relief and
damages. The trial court permanently enjoined Sedgwick from
trespassing on the property of Brademas and awarded Brademas
$8,800 damages for the two years he had been unable to develop the
land. Sedgwick appealed.^"

Sedgwick argued that the easement should not be limited to the
area described in Easement Z. In a rather novel argument, Sedgwick
claimed that in addition to the reserved easement, there was also an
implied easement that was created at the time the land was severed
because there was an apparent and obvious servitude in favor of the
dominant estate, Sedgwick House, which was reasonably necessary
for its use and enjoyment. The court noted that in order to find an
implied easement "the servitude must be (1) obvious, (2) permanent,
(3) in use at the time ownership in the land is severed, and (4)
reasonably necessary for the fair enjoyment of the party benefited,
not merely convenient or beneficial."^^ The court found that Sedgwick
had failed to prove two essential elements: that the servitude was
permanent, and that it was reasonably necessary.^^ As to its
permanency, the court noted that the testimony of the construction
superintendent for the apartment house indicated that allowing the
water to dissipate onto the Brademas land was only a temporary situa-
tion, which would be remedied when an open ditch could be con-
structed to the river.^^ As to whether the servitude was reasonably
necessary for the enjoyment of the estate, the court remarked that
several alternative methods were available to Sedgwick for disposing
of its water.^''

Sedgwick also argued that the reserved easement should not be
limited to the described area. This argument was summarily rejected
by the court of appeals. If an area outside the described easement
was intended, it should have been included in the area of the drainage
easement. The court in Brademas found that the inclusion of one area
as an easement is the exclusion of all others.^^ Therefore, based on
its findings, the appellate court affirmed the judgment of the trial
court.^^

One of the more factually complicated decisions reported during

''Id.

''Id. at 124 (citing Searcy v. LaGrotte, 175 Ind. App. 498, 372 N.E.2d 755 (1978)).

^M24 N.E.2d at 124.

'Ud.

''Id. at n.4.

''Id. at 124.

"Id. at 125.

292 INDIANA LAW REVIEW [Vol. 16:283

this survey period is Enderle v. Sharman.^'^ While the legal issues
raised are not themselves complicated, the factual context of this case
is difficult. William and Sallie Ijams were the common owners of a
tract of land subsequently divided into four tracts. In 1916, the Ijams
entered into an agreement with an adjoining property owner, Julia
Donham, for an easement across the Donham property. The purpose
of the Ijams-Donham agreement was to provide the Ijams with an ac-
cess to a public road, now State Highway 41. The easement express-
ly stated that the Ijams desired to subdivide the land into lots, streets,
and alleys and to sell the land for residential purposes, and for
establishment of a country club. In 1917, the Ijams conveyed a por-
tion of the land, now Tracts III and IV, to the Terre Haute Country
Club and retained title to the remaining portion of the land, now
Tracts I and II. At the time of this conveyance, there was a road
running through the Ijams' land which is now known as Country Club
Road. The deed provided that both the grantor and the grantee, their
heirs and assigns, could use the roadway, "each having a common and
not exclusive right to use same perpetually."^* The deed also incor-
porated by reference the Ijams-Donham agreement, and a copy of the
agreement was attached to the deed. While the facts only discuss
Country Club Road in relation to the Ijams' land, it would appear that
the road continues in a westerly direction across the Donham's land
to Highway 41, and that its use by the owners of Tracts I and IV
is necessary in order to use the right of way set forth in the Ijams-
Donham agreement.

The Ijams died intestate and the land retained by them. Tracts

I and II, passed to their three children, Jessee Ijams, Alice Ijams Ben-
bridge and Frank Ijams. In 1929, Jessee Ijams and Alice Ijams Ben-
bridge, together with her husband, conveyed their interests in Tract

II to Helen Ijams, the wife of Frank Ijams, but the conveyors
specifically retained an easement over Country Club Road. Frank Ijams
later died and his interest in Tract II passed to Helen Ijams, his wife.
In 1937, the Country Club conveyed Tract III to Helen so that Helen
Ijams ultimately became the owner of Tracts II and III.

The history of Tract I was different. In 1930, Jessee Ijams con-
veyed his interest in Tract I to other cotenants, Frank Ijams and Alice
Ijams Benbridge. In 1956, Frank Ijams and Alice Ijams Benbridge con-
veyed Tract I to Alice Ijams Williams and her husband, John Williams.
Alice Ijams Williams subsequently divorced her husband and
reconveyed her interest to herself under the name Alice I. Sharman.
Alice Sharman's exact relation to the Ijam family is not stated, but

^M22 N.E.2d 686 (Ind. Ct. App. 1981).
''Id. at 693.

1983] SURVEY-PROPERTY 293

the facts indicate that she was co-executor and heir of the estate of
Helen Ijams.

When Helen Ijams died, the plaintiffs, Frank and Kay Enderle
purchased Tract H from the co-executors of her estate and subsequent-
ly purchased Tract HI from the Helen Ijams' estate. Later, when Alice
I. Sharman died, Fereydoon B. Boushehry entered into an agreement
to purchase Tract I from the co-executors of her estate. Boushehry
claims an easement over Tracts II and III appurtenant to Tract I,
and the Enderles brought this action to quiet title. The action was
referred to a special master. The co-executors of the estate of Alice
Sharman and Boushehry moved for summary judgment and, after a
hearing was held, the master recommended the motion be granted.
The trial court adopted the findings of fact and conclusions of law
recommended by the master and the Enderles appealed.

The major substantive issue raised on appeal was the trial courts
finding that there was an easement over Tracts II and III appurte-
nant to Tract I. The trial court found that the conveyance to the Coun-
try Club in 1917 created an easement over Tract III.^^ It is important
to remember that the Ijams retained title to Tract I and the deed
expressly reserved the right to use the road by the grantors. The
court noted, however, that the 1917 deed did not create an easement
across Tract II since this tract was still owned by the Ijams and it
is a rule of law that an owner cannot possess an easement in his own
land.''''

The trial court found an easement over the portion of the road
which lies in Tract II on two separate grounds. First, there was an
easement by reservation contained in the 1929 deed from Jessee Ijams
and Alice Ijams Benbridge conveying Tract II to Helen Ijams.''^ In
a rather confusing argument, the Enderles claimed that the deed did
not create an easement by reservation because there can be no reser-
vation in a stranger."^ While the court answers this argument by citing
Brademas v. Hartwig,*^ which recognizes the right of a grantor to con-
vey an easement by reservation to a party who is a stranger to the
transaction, the fact is that the persons from whom defendants claim
title to Tract I were not strangers to the transaction but were the
grantees. The Enderles also argued that the reservation was not
effective because one of the cotenants did not convey his interest in
Tract I. This is further complicated by the fact that this cotenant is
the husband of the grantee. The court could not see how the reserva-

''Id. at 692.
''Id. at 693.
''Id. at 690.
'Hd. at 693.
'^75 Ind. App. 4, 369 N.E.2d 954 (1977).

294 INDIANA LAW REVIEW [Vol. 16:283

tion of an easement over Tract II by the two cotenant grantors in
any way diminished the rights of the third cotenant, who did not need
an easement because he still retained an interest in both tracts.**

In addition to an easement by reservation, the trial court found
that an implied easement across Tract II existed, based on the Ijams-
Donham agreement.*^ Citing John Hancock Mutual Life Insurance Co.
V. Patterson,*^ the court of appeals noted that where there exists, dur-
ing the unity of title, a permanent and obvious servitude that is im-
posed on one part of an estate in favor of another, and, at the time
of severence, the servitude is in use and is reasonably necessary for
the fair enjoyment of the other part of the estate, there arises by
implication of law a grant or reservation of the right to continue such
use."^

The Enderles objected to the trial court's use of the Ijams-Donham
agreement to find an intent to create an easement over Tract III in
the 1917 deed to the Country Club and to find an implied easement
across Tract II. While the court of appeals agreed with the Enderles
that the Ijams-Donham agreement only created an easement over the
Donham's land and not the Ijams' land, which was the dominant estate,
the court did not agree with the Enderles' conclusion that it was er-
roneous to rely upon the agreement in construing the other
conveyances.** It is hard to follow the Enderles' argument on this point.
Clearly Country Club Road exists because of the easement and, from
the facts, exists for no other reason. Without the Ijams-Donham agree-
ment, the use of Country Club Road would not be reasonably necessary
for the use and enjoyment of Tract I.*^

Finally, the Ijams-Donham agreement became relevant with regard
to the scope of the easement. The Enderles argued that to allow
Boushehry to subdivide Tract I would create an undue burden of the
servient estates, Tracts II and III. In answering this argument, the
court noted that the Ijams-Donham agreement provided that the Ijams
intended to subdivide the land into lots and streets for residential
purposes. Because the agreement is incorporated by reference into
many subsequent conveyances, residential development must have
been contemplated by the parties when the easement was created.^"

^M22 N.E.2d at 694.
*'Id.

n03 Ind. 582, 2 N.E. 188 (1885).
*^422 N.E.2d at 694.
''Id. at 693.

*'It does not appear that Tract I is landlocked. Otherwise, the parties would have
argued a way of necessity.
^"422 N.E.2d at 695.

1983] SURVEY-PROPERTY 295

D. Landlord and Tenant

There are three types of leasehold estates recognized at common
law: an estate for years, an estate from period to period, and an estate
at will.^^ An estate at will is created whenever the lease can be ter-
minated at the will of the lessor.^^ While it can be created by express
contract, if often occurs when a person takes possession of the land
with the consent of the owner under an oral lease or a contract for
sale which can not be enforced because of the statute of frauds.^^ One
of the most important common law characteristics of the tenancy at
will is that it can be terminated at any time by either party without
notice.^*

The second type of leasehold estate is the estate for years or
tenancy for a term of years. Any lease for a fixed term is called an
estate for years even though the length of the terms is less than a
year, such as a week or six months.^^ At the end of the term, the
estate automatically comes to an end, and, absent a provision in the
lease to the contrary, no notice of termination is required by either
landlord or the tenant.^®

The third type of leasehold estate is known as the estate from
period to period or periodic tenancy. It is also referred to as a tenan-
cy from year to year, even though the period may be from week to
week or month to month." This type of tenancy has no fixed termina-
tion date and will continue from period to period until one of the par-
ties gives notice of termination. At common law, if the tenancy period
was six months or longer, a six months notice was required, and if
the tenancy period was less than six months, the notice had to be
as long as the tenancy period itself and given at the beginning of a
new period.^ Today in most states the notice requirements are covered
by statute.^^

The case of Edward Rose of Indiana v. Fountain^^ emphasizes a

^'W. BuRBY, Handbook of the Law of Real Property 123-34 (3d ed. 1965); J.
Cribbet, Principles of the Law of Property 53-56 (2d ed. 1975).

A fourth type of estate, a tenancy at sufference, was really not an estate but
a term used to describe the situation in which a tenant remains in possession after
the termination of a leasehold estate. C. Moynihan, Introduction to the Law of Real
Property 85-86 (1962).

^Tribbet, supra note 51, at 56-57.

^^BuRBY, supra note 51, at 125-126; Moynihan, supra note 51, at 85-86.

^Cribbet, supra note 51, at 56.

''Id. at 53.

""Id.

"BuRBY, supra note 51, at 128.

^Tribbet, supra note 51, at 54.

'^See BuRBY, supra note 51, at 132; Moynihan, supra note 51, at 80.

««431 N.E.2d 543 (Ind. Ct. App. 1982).

2'96 INDIANA LAW REVIEW [Vol. 16:283

potential problem in the wording of the Indiana statutes that govern
notice of termination and also raises other interesting issues regard-
ing the termination of leasehold estates. The plaintiff, C. Wayne
Fountain, leased an apartment from the defendant, Edward Rose, for
a term of six months. Normally, no notice of termination would have
been required, but the written lease provided that "before the ex-
piration of the term of this lease, the tenant shall give the Landlord
at least thirty (30) days written notice in any one calendar month of
his intention to surrender said premises."^^ The lease further provid-
ed that if such notice was not given, the tenant would be liable for
an additional month's rent.

To understand the purpose for the notice provision, it should be
noted that the lease did not operate like a tenancy for a fixed term.
At the end of the term, the lease became a tenancy from month to
month requiring both parties to give notice of termination, and the
lease gave the lessee rights in addition to those he would have had
as a tenant at sufferance.®^ Thus, there was a valid reason why the
landlord needed notice because the tenancy would not automatically
terminate at the end of the six-month period.

Prior to the end of the term, Rose notified Fountain by letter of
his obligation under the lease to give notice of termination.*^ Fountain
ignored the letter and moved out at the end of the term without giv-
ing notice. Rose retained Fountain's $150 security deposit as liquidated
damages for breach of the notice of termination covenant in the lease.
Fountain brought suit to recover his security deposit, and the trial
court entered judgment in favor of Fountain, holding that notice was
not required by statute.*^ Rose appealed and the court of appeals
reversed.®^

The court of appeals noted that even if Indiana Code section
32-7-1-7 applied, the parties were free to provide for notice of termina-
tion in the lease agreement. Moreover, the court noted that this code
section deals solely with the landlord's obligation to give notice to
the tenant. In fact, the court pointed out that **[a]bsent from those

"'Id. at 544 n.2.

^^See BuRBY, supra note 51, at 128; Moynihan, supra note 51, at 85.

^^It is not clear if the letter was sent in time to inform Fountain of his duty while
there was still time to comply with the provision. If not, then an issue of unconscionabil-
ity could have been raised. A person signing a lease for a fixed term would assume
that the lease would come to an end automatically and would not be looking for such
a clause in the lease. A court might find such a notification provision unconscionable
unless the provision was clearly labeled and not buried in fine print, or brought to
the attention of the lessee. See Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d
144 (1971).

"431 N.E.2d at 545 (citing Ind. Code § 32-7-1-7 (1982)).

«^431 N.E.2d at 546.

1983] SURVEY-PROPERTY 297

code provisions is any reference to a tenant's obligation to give notice
of his intent to surrender leased premises."^^

Thus, the court in Fountain calls to our attention a potentially
serious problem regarding notification requirements that surprisingly
has existed for over 100 years. Clearly, the problem could arise in
two situations. Indiana Code section 32-7-1-2 changes the common law
rules regarding a tenancy at will and provides that "[a] tenancy at
will can not arise or be created without an express contract"^^ and
Indiana Code section 32-7-1-1 provides that the landlord may terminate
an estate at will "by one (1) month's notice in writing, delivered to
the tenant."^^ Because there was no notice requirement at common
law to terminate a tenancy at will,^^ and the statute seems to exclude
any notice requirement on the part of the tenant, it is difficult to see
how a court would impose such a duty on the tenant.

The problem could be more serious when dealing with periodic
tenancies. Indiana Code section 32-7-1-3 provides that *'[a]ll tenancies
from year to year, may be determined by at least three (3) months'
notice given to the tenant prior to the expiration of the year; and
in all tenancies ... of less than three (3) months' duration, a notice
equal to the interval between such periods shall be sufficient."^"
Although the statute again fails to impose any duty on the part of
the tenant to give notice, in this instance the statute is in derogation
of the common law.^^ While there are no cases that directly address
this problem, in a 1978 Indiana Attorney General's Opinion, the
Attorney General stated that the notice requirements in the statute
on termination of periodic tenancies applies equally to the tenant and
the landlord.'^

Perhaps the problem caused by the wording of the statutes gover-
ning notice of termination has not arisen because most standard leases
creating a periodic tenancy contain a provision requiring the tenant
to give notice of termination, or because in situations where there
is not a written lease, the amount of money involved is so trivial that
the landlord suffers the loss or keeps the security deposit as liquidated
damages, and neither party is willing to adjudicate the issue. It should

**/d. at 545. Landlord and tenant relations are covered in Indiana Code sections
32-7-1-1 to -18 (1982). Code sections pertaining specifically to notices to quit are covered
in Indiana Code sections 32-7-1-3 to -8 (1982).

•iND. Code § 32-7-1-2 (1982).

««M § 32-7-1-1.

•'See Cribbet, supra note 51, at 56.

™lND. Code § 32-7-1-3 (1982).

"As a general rule, where a statute is found to be in derogation of the common
law, it should be construed so as not to change the common law. See Helms v. American
Sec. Co., 216 Ind. 1, 6, 22 N.E.2d 822, 824 (1939).

'^978 Op. Att'y Gen. 61, 62.

298 INDIANA LAW REVIEW [Vol. 16:283

be noted that in the case at bar there was a provision in the lease
allowing the landlord to apply the security deposit "upon rent or other
charges in arrears or upon damages for Tenant's failure to perform
the said covenants, conditions or agreements."^^ The court in Fountain
stated that such provisions, which require the lessee to deposit with
the lessor a sum of money as security for the performance of covenants
of the lease, are valid and enforceable.^'^

E. Mines and Minerals

Two significant cases involving the interpretation of mineral deeds
were decided during the survey period.^^ The first case, Lippeatt v.

'^431 N.E.2d at 545 n.3.

'*Id. at 546.

^^There were two United States Supreme Court decisions in this area which
deserve mention, although the cases deal primarily with constitutional law issues. In
Texaco, Inc. v. Short, 102 S. Ct. 781 (1982), aff'g 406 N.E.2d 625 (Ind. 1980), the Court
upheld the constitutionality of Indiana's Dormant Mineral Act (Act), Ind. Code §§
32-5-11-1 to -8 (1982). (Note that sections -4, -5, -7, and -8 of the Act were amended
in 1982 to include minor language changes.) The Act provides that a mineral interest
that has not been used for a period of twenty years shall be extinguished and shall
revert to the surface owner, unless the owner of the interest files a statement of claim
in the Dormant Mineral Interest Record in the county recorder's office prior to the
expiration of the twenty year period of nonuse. Ind. Code §§ 32-5-11-1 to -8 (1982).
However, there is a provision in the Act that exempts from the operation of the Act
those owners with ten or more separate mineral interests in a county who have made
a good faith effort to record all the interests. Ind. Code § 32-5-11-5 (1976) (amended 1982).
The court found that Indiana had legitimate state goals, such as the encouragement
of mineral development and the collection of property taxes, that justified enactment
of the statute. 102 S. Ct. at 792. Because owners of multiple interests are more likely
to be able to engage in the actual production of mineral resources, there was justifica-
tion for giving those owners special treatment under the Act; therefore, the Act did
not violate the equal protection clause. Id. at 797. The Court also concluded that there
was no violation of the fourteenth amendment because there was no "taking" of prop-
erty without just compensation; it was the nonuse by the owner and his failure to
file a statement of claim which caused the abandonment of the interest and not state
action. Id. at 792. In resolving this case, the Court seemed to emphasize the fact that
the Act provided a two-year period of grace after the effective date to file claims,
which would otherwise have been extinguished. Id. at 788-89.

The Indiana Marketable Title Act may be of interest to abstractors and others
conducting title searches. The Act, Ind. Code §§ 32-1-5-1 to -10 (1982), provides that a
person shall have marketable record title to any interest in land if he can trace an
unbroken chain of title back to a root of title at least fifty years old. Ind. Code §
32-1-5-1 (1982). Interests in the land created prior to the root of title, with some important
exceptions, were void unless recorded within the chain of title in the Notice Index
in the county recorder's office. Ind. Code §§ 32-1-5-2 to -6 (1982). This Act does not appear
to cover mineral "interests" created prior to the root of title because the mineral estate
would exist separate and apart from the surface estate. The Dormant Mineral Act
may prove useful in clearing title to property by extinguishing old, unused mineral
claims.

1983] SURVEY-PROPERTY 299

Comet Coal & Clay Co.,''^ illustrates the classic case of a latent am-
biguity in the terms of a deed.^^ In 1919, the Vandalia Coal Company
executed a deed to plaintiff's grandfather conveying "[t]he sixth (6th)
or surface vein of coal only" underlying certain land in Sullivan County,
Indiana.^^ The grantor retained title to all other seams of coal in and
under the above described lands, together with the right to mine and
remove them. Comet Coal and Clay Company, Inc., (Comet) and the
other defendants eventually acquired title to the other veins of coal.

Later, it was determined that there were seven veins of coal
underlying the land involved in the 1919 conveyance so that the sixth
vein and the surface vein were not the same. Lippeatt filed suit claim-
ing the deed conveyed the surface vein, and Comet argued the deed
conveyed only the sixth vein; however, all parties agreed that only
one vein of the coal was conveyed in the deed.^® Both parties moved
for summary judgment, and the trial court granted summary judg-
ment in favor of Comet holding that the deed conveyed only the sixth
vein as a matter of law.®"

Lippeatt appealed arguing that the deed was ambiguous, and that
the trial court should have considered extrinsic evidence. In reaching
its decision, the trial court concluded that the words "sixth (6th) vein"
were more specific than the words "surface vein," and that if any am-
biguity existed, it must be resolved in favor of Comet because the
habendum clause only referred to the sixth vein. In affirming the judg-
ment of the trial court, the court of appeals looked to the rules of
construction applied by the trial court.®^ However, it is questionable
whether the rules of construction relied upon by the court of appeals
were correctly applied.

The court of appeals appears to have agreed with the trial court's
determination that the term "sixth vein" is more specific than the
term "surface vein" because the surface vein can be composed of coal
from the fifth, sixth, seventh, or eighth veins but there is only one

In Hodel v. Indiana, 452 U.S. 314 (1981), the State of Indiana, the Indiana Coal
Association and others challenged the constitutionality of the "prime farmland" provi-
sions of the Surface Mining and Reclamation Control Act of 1977. Id. These provisions
require the applicant for a permit to mine on prime farmland which is historically used
as cropland, to show that he has the capacity to restore the land to prime farmland
within a reasonable period of time after completion of mining operations. Id. The Court
held that the provision of the Act did not violate the commerce clause because the
production of coal for interstate commerce cannot be at the expense of agriculture,
the environment, public health or safety. Id.

^«419 N.E.2d 1332 (Ind. Ct. App. 1981).

''See, e.g., Hauck v. Second Nat'l Bank, 153 Ind. App. 245, 286 N.E.2d 852 (1972).

^«419 N.E.2d at 1333.

''Id. at 1334.

"^Id.

'Ud. at 1336.

300 INDIANA LAW REVIEW [Vol. 16:283

vein that can be the sixth vein.®^ While it is true that specific words
control general words, it is unclear why the court found the term
"sixth vein" to be more clear because, for reasons of geographical
uncertainty, it is difficult to determine if a vein is the sixth or seventh
vein of coal, but the surface vein is always the vein nearest to the
surface.^^

The court of appeals also approved the trial court's application
of the "four corners" rule of construction. The rule states that in
interpreting an instrument, parol evidence is inadmissible to expand,
vary, or explain the instrument unless there is evidence of fraud,
mistake, illegality, duress, undue influence, or ambiguity.®'' Further-
more, even if an ambiguity is shown, extrinsic evidence is not ad-
missible " 'until the four corners have been searched to ascertain
whether the instrument itself affords a reasonably clear understanding
of what the drafters intended.' "*^ Assuming that the meaning of the
disputed terms could be determined by reference to all parts of the
instrument, the trial court looked to the habendum clause in the deed,
which can be used to explain, qualify, lessen, or enlarge the estate
granted in the premises or granting clause of a deed.** The trial court
noted that while the granting clause used the terms "sixth (6th) vein"
and "surface vein," the habendum clause of the deed clarified the
granting clause by twice referring to the sixth vein of coal without
mentioning the surface vein.

The court's reliance upon the habendum clause to clarify the grant-
ing clause is questionable. As the court itself points out, that grant-
ing clause usually controls the habendum.*^ In addition, numerous cases
hold that if there is an irreconcilable conflict between the granting
clause and the habendum, which renders intention doubtful, the grant-
ing clause will control.*® Thus, the court in Lippeatt looked to the
habendum clause, without first establishing whether there was an irre-
concilable conflict between the terms of the granting clause and the
terms of the habendum.

The court also rejected Lippeatt's argument that the surface vein
should control because it is a natural monument. The court noted that

''Id. at 1335.

''Id.

""See, e.g., Hauck v. Second Nat'l Bank, 153 Ind. App. 245, 260, 28a N.E.2d 852,
861 (1972).

''419 N.E.2d at 1335 (emphasis deleted) (quoting Hauck v. Second Nat'l Bank, 153
Ind. App. 245, 263, 286 N.E.2d 852, 862 (1972)).

'M19 N.E.2d at 1334-35. For a discussion of this rule, see Prior v. Quackenbush,
29 Ind. 475 (1868).

''419 N.E.2d at 1335. See also Shoe v. Heckley, 78 Ind. App. 586, 593, 134 N.E.
214, 217 (1922).

''See Pointer v. Lucas, 131 Ind. App. 10, 169 N.E.2d 196 (1960); Long v. Horton,
126 N.E.2d 568 (1956); Richards v. Richards, 60 Ind. App. 34, 110 N.E. 103 (1915).

1983] SURVEY-PROPERTY 301

the rule that monuments control over course and distance is a rule
used for determining the location and boundaries of land and "is of
limited usefulness to determine the extent of the conveyance."*® It
could be argued that the rule of construction, that where the grant-
ing clause is indefinite, the habendum can be used to clarify the grant-
ing clause, could have been used to determine the type of estate con-
veyed and not just the extent of the conveyance.®"

As exemplified in LippeatU some of the rules of construction are
inconsistent with each other, and the decision in a given case can vary
depending upon which rules of construction are chosen.®^ For example,
the court in Lippeatt chose to ignore a basic rule of construction; that
is, the deed should be construed most strongly against the grantor.®^
While the application of the rules of construction in Lippeatt may be
less than perfect, it is not clear that the admission of extrinsic evidence
to determine the intent of the parties to a 1919 deed would have
proven any more satisfactory.

The second decision involving mineral deeds, Richardson v. Citizens
Gas & Coke Utility, ^^ presents a similar deed interpretation problem
as that encountered in Lippeatt. The plaintiffs, Claude and Elma
Richardson, brought an action against Citizens Gas & Coke Utility
and others, collectively referred to as Citizens, claiming an inverse
condemnation as a result of Citizens' improper seizure of the Richard-
sons' interest in coal and other minerals lying beneath the land of
Section 10 in Green County, Indiana, which was conveyed to Claude
Richardson by deed in 1933. Citizens argued that the Richardsons' 1933
deed conveyed title only to the coal and hard minerals lying beneath
the land, and that it did not convey any interest in oil or gas. Therefore,
Citizens claimed the rights to the oil and gas interests as well as the
rights to underground storage, by virtue of leases and assignments
of leases that were executed by the surface owners of Section 10. In
addition. Citizens claimed a way of necessity through the Richardsons'
coal strata to reach the oil and gas lying beneath the coal, and Citizens
argues that such drilling through the coal strata would not constitute
a taking of Richardsons' interest. This argument implies that coal min-
ing and gas removal and/or storage are compatible.®^

«M19 N.E.2d at 1336. See also Cribbet, supra note 51, at 169-70.

^See Cribbet, supra note 51, at 165 n.34.

^Tor a discussion of various rules of construction, see Cribbet, supra note 51, at
169-70.

''See Davenport v. Gwilliams, 133 Ind. 142, 31 N.E. 790 (1892); Shoe v. Heckley,
78 Ind. App. 586, 134 N.E. 214 (1922).

^^422 N.E.2d 704 (Ind. Ct. App. 1981).

®*It is not clear from the facts whether only native gas, only injected gas, or a
mixture of native and injected gas is involved. The facts indicate that Citizens is us-
ing the land in connection with its Linton gas storage field, and the Richardsons are

302 INDIANA LA W REVIEW [Vol. 16:283

The facts show that the mineral rights in Section 10 were severed
from the surface rights by a series of thirteen mineral deeds executed
between 1899 and 1905. Ten of the deeds conveyed coal and other
minerals, two of the deeds conveyed only coal, and one deed conveyed
"coal, clays, minerals and mineral substances."^^ The three grantees
who purchased these rights consisted of two incorporated coal com-
panies, whose articles of incorporation did not authorize the explora-
tion or development of oil or gas properties, and one individual who
dealt only in coal properties. Historical documents showed that at the
time the severance deeds were executed, oil or gas had not been
discovered in Green County.

The rights under these deeds eventually were acquired by the
United Fourth Vein Coal Company (United). United subsequently
became bankrupt, and its coal and mineral rights in Section 10 were
sold to Claude Richardson. The first deed from United conveyed only
unmined coal. It was later discovered that United did not own title
to the entire tract conveyed and as a compromise, Richardson accepted
a second deed conveying all right and title "to coal and minerals lying
in and under (Section 10)."^^ Richardson did not explore for oil and
gas until 1943 when he executed a gas and oil lease with Sun Oil Com-
pany. Natural gas was discovered by Sun Oil in 1947, but due to lack
of interest in natural gas, the well was capped and Richardson was
released from the lease.

In 1921, Ferd Bolton purchased oil and gas leases from the
grantors and/or their successors in interest of the thirteen original
severance deeds. In 1961, Citizens received assignments of these gas
and oil leases from the surface owners of Section 10. The assignment
granted Citizens not only the right to remove existing gas, but the
right to ''inject, store and remove gas, whether native or other-
wise . . . regardless of the source of such gas."^^

The Richardsons became aware of Citizens' interest in 1963 when
they discovered Citizens drilling exploratory wells on Section 10. The

claiming an inverse condemnation under Indiana Code section 32-11-4-5 (1982) (Title
32, article 11, chapter 4 of the Indiana Code is entitled, "Eminent Domain for Gas
Storage"). Thus, it is not clear whether the Richardsons' claim, apart from the claim
with regard to the taking of their coal interest, is based on Citizens' taking of native
gas to which the Richardsons claim the right to explore under the 1933 deed, or whether
the Richardsons, as the owners of the mineral rights, including oil and gas, are claim-
ing an interest in the strata for storage rights once the native gas has been removed,
or whether they are claiming both. The decision of the court of appeals resolving the
ownership of oil and gas rights against the Richardsons renders these issues moot.
422 N.E.2d at 704.

'5422 N.E.2d at 707.

^Id. at 708 (emphasis in original).

^Ud. (emphasis in original).

1983] SURVEY-PROPERTY 303

Richardsons attempted to lease their interests to Citizens, but when
negotiations failed, the Richardsons filed suit.

Three issues were presented at the trial, and the trial court ruled
on them at three separate hearings. At the first hearing, the trial
court found that Citizens owned title to the gas and oil exploration
rights and gas storage rights and thus granted a partial summary judg-
ment in Citizens' favor. At a second evidentiary hearing, the court
found that coal mining and gas storage are compatible but did not
expressly find that Citizens had an easement through the Richardsons'
coal strata to reach the gas. At a third hearing, final arguments were
held and the court ruled that no compensable taking of the
Richardsons' coal interests had occurred, thus impliedly finding an
easement through the coal strata.^* The Richardsons appealed.

In affirming the judgment of the trial court,^ the court of appeals
considered the three issues raised at the trial. In discussing the owner-
ship of gas and oil rights, the court of appeals stated that a conveyance
of "coal and other minerals" plus "coal, clays, minerals and mineral
substances" is interpreted "to include gas and oil unless a contrary
intention of an ambiguity is manifested by the language of the in-
strument as a whole."^"" The case cited as authority by the court,
Monon Coal Co. v. Riggs,^^^ does not appear to support this position.
In fact, several leading authorities have cited the case for the pro-
position that, in Indiana, when the term "minerals" is used in a mineral
deed, the term "minerals" is found to be ambiguous with regard to
whether oil and gas are conveyed, and extrinsic evidence on this issue
is freely admitted. ^"^

Despite this misleading reference, the court of appeals went on
to examine the circumstances surrounding the original conveyances
to ascertain the grantors intent because the phrase "coal and other
minerals" was ambiguous. The court of appeals also noted that Ind-
iana takes the position that oil and gas are substances ferae naturae
and, unlike hard minerals, are subject to the rule of capture. ^°^ This
characterization of oil and gas adds an element of ambiguity to the
deed because title to the oil and gas cannot be conveyed by the owner
of the land, and a conveyance of minerals raises the question of
whether the grantor intended to also convey the right to explore for

''Id. at 706-07.

''Id. at 713.

•""/d at 709 n.4 (citing Monon Coal Co. v. Riggs, 115 Ind. App. 236, 56 N.E.2d
672 (1944)).

'm5 Ind. App. 236, 56 N.E.2d 672 (1944); See Annot., 37 A.L.R.2d 1435 (1959).

^°^See R. Hemingway, The Law of Oil and Gas § 1.1, at 2 n.5 (1971); lA W. Summers,
The Law of Oil and Gas § 135, at 275-76 n.32 (1954); 1 H. Williams & C. Meyers, Oil
AND Gas Law § 219.4, at 275 n.l (1981).

"'^422 N.E.2d at 711.

304 INDIANA LAW REVIEW [Vol. 16:283

oil and gas and thereby allow the grantee to acquire title by reduc-
ing it to possession/"^ After examining the circumstances existing at
the time of the conveyance to determine the intent of the parties,
the court concluded that there was no material issue of fact in dispute
and that the trial court had properly granted a partial summary judg-
ment on the issue. ^°^

The second issue relating to the compatibility of coal mining and
gas storage was decided on the evidence and presents no problem.
However, had they not been compatible, the Richardsons' interest
could have been condemned for underground storage of gas.^°^

The third issue discussed by the court of appeals relates to the
easement through the coal field to reach the gas strata. The court
found that because the original deeds conveyed only the right to the
coal, the grantors retained the gas and oil exploration rights and, thus,
impliedly reserved an easement through the coal for drilling
purposes.^"^ In reaching this finding, the court relied upon Pyramid
Coal Corp. v. Pratt,^^^ one of the leading cases on this point. Pratt
holds that where the owner of land conveys coal beneath his land but
retains title to everything beneath the coal, the surface owner has
the right of access to the strata beneath the coal, even though the
deed does not expressly reserve such a right.^°® The Richardson court
found that the easement was 300 feet in diameter, basing this finding
on a federal law requiring a 300 foot safety barrier around each well.^^°

For some unknown reason, the court of appeals concluded that
the easement was an easement in gross and criticized the trial court
and the parties for using the phrase "way of necessity" to describe
the easement."^ While not wishing to appear petty, one could argue
that the term "easement in gross" may be even less accurate than
the term "way of necessity." In the leading case in this area. Char-
tiers Block Coal Co. v. Mellon,^^^ the term "way of necessity" was re-
jected by the majority of the court because its use in this context
would require a major modification of the common law rules regard-
ing a surface right of way."^ Nevertheless, the Mellon court did find
that the owner of the land who retained oil and gas rights had a "right

"^Id. (quoting Monon Coal Co. v. Riggs, 115 Ind. App. 236, 240, 56 N.E.2d 672,
673 (1944)).

^"^422 N.E.2d at 710.

"^See Ind. Code §§ 32-11-4-1 to -5 (1982).

•°M22 N.E.2d at 713.

^•'«229 Ind. 648, 99 N.E.2d 427 (1951).

"^Id. at 652-53. 99 N.E.2d at 429.

""422 N.E.2d at 713. See 30 U.S.C. § 877 (1976).

•"422 N.E.2d at 706 n.2.

"^52 Pa. 286, 25 A. 597 (1893).

''Ud. at 298, 25 A. at 599.

1983] SURVEY-PROPERTY 305

of access" to these minerals through a superjacent coal strata which
he had previously conveyed/^" Many subsequent decisions have used
the term "way of necessity" to describe this right of access."^ The
term "easement in gross," however, is misleading when applied to such
a right of access because it suggests that the easement is personal
and that there is no dominant estate."^ It is important to note that
the right of access through the superjacent strata by the owner of
the subjacent mineral interests is a right which exists without any
express grant or reservation. ^^^ Thus, the subjacent owner's estate is
dominant in the sense that he has the right to drill wells as may be
reasonably necessary for production even though the wells penetrate
superjacent estates. ^^^

Perhaps what led the court of appeals to use the term "easement
in gross" is the the fact that in Richardson the right to drill through
the coal strata was connected, in part, with the right to store gas
in the strata. As the court stated, "[b]y introducing evidence that the
gas storage fields were below the coal. Citizens established the need
for utilizing these easements reserved by the original grantors which
were conveyed to the subsequent surface owners and leased by
Citizens.""® Perhaps the court of appeals was not sure if an implied
easement exists to drill through a superjacent strata to inject gas into
a subjacent strata. In fact, where there has been a severence of the
surface and mineral estates, which includes oil and gas, there is
disagreement as to who has the right to use a strata for the storage
of gas.^^° Some courts have held that only the minerals are conveyed
by a mineral deed, and that the space, once the minerals have been
removed, remains with the surface estate. ^^^ Other courts have held
that the owner of the mineral estate, which includes oil and gas, should
be considered as having the right to use the strata for all purposes
relating to minerals whether native or injected, absent contrary
language in the deed.^^^ Had the court in Richardson found that the
deed to Richardson conveyed to him the oil and gas interest, an inte-
resting question would have arisen in the condemnation action as to

''Id.

"'5ee, e.g.. Pyramid Coal Corp. v. Pratt, 229 Ind. 648, 99 N.E.2d 427 (1951);

also Annot., 25 A.L.R.2d 1245 (1952).

"*"An easement (or profit) is in gross when in its creation it is not intended to
benefit the owner or possessor of land as such but is intended to exist without a domi-
nant tenement." R. Boyer, Survey of the Law of Property 561 (3d ed. 1981).

'''See Pyramid Coal Corp. v. Pratt, 229 Ind. 648, 651-52, 99 N.E.2d 427, 429 (1951).

"""See Chartiers Block Coal Co. v. Mellon, 152 Pa. 286, 296, 25 A. 597, 598 (1893).

"M22 N.E.2d at 713.

'"""See 1 H. Williams & C. Meyers, Oil and Gas Law § 222, at 332-33 (1981).

'^'E.g., Tate v. United Fuel Co., 137 W. Va. 272, 71 S.E.2d 65 (1952).

'"^E.g., Central Ky. Natural Gas Co. v. Smallwood, 252 S.W.2d 866 (Ky. 1952).

306 INDIANA LAW REVIEW [Vol. 16:283

the Richardsons' claim for compensation with regard to the injected
gas and storage rights.

F. Real Estate Transactions

1. Real Estate Broker. — There were three cases decided during
this survey period dealing with real estate brokers and listing
agreements. ^^^ The first case involves the interpretation of an exten-
sion clause in a listing agreement. In Barrick Realty Co. v. Bogan,^^^
Nick Adams, an agent for Barrick Realty Company (Barrick) was con-
tacted by Herbert Gehring regarding commercial real estate in
Valparaiso, Indiana. Gehring expressed interest in purchasing the
Lembke Hotel. Adams contacted Charles Bogan, who represented the
hotel owners. Bogan signed an exclusive listing agreement on the hotel
with Adams and Barrick for a two-day period. The asking price for
the property was $275,000 and provided for the payment of a ten per-
cent commission of the gross sale price. The Hsting agreement contained
an extension clause which provided that if the hotel were sold within
six months after the expiration of the agreement to any person with
whom negotiations had taken place during the exclusive listing period,
the commission would still be paid to the realtor.

After touring the hotel, Gehring did not accept Bogan's offer nor
did he make any counter offers. However, within six months, Gehring,
Gehring's partner, and Gehring's brother purchased the hotel for
$220,000. Adams and Barrick filed suit for their commission and appeal-
ed from a negative judgment. The court of appeals found that the
word "negotiations" suggested something more than "discussions" but
less than a sale, and that there was evidence to support the trial
court's findings that negotiations had not taken place.^^^ The appellate
court suggested that if the parties had intended a commission to be
payable upon the sale during the extension period to any buyer to
whom the property was shown and with whom "discussions" had en-
sued, the agreement should have provided for this contingency. ^^^ In
a situation where there is only one prospective buyer, as in this case,
the court suggested that the parties' agreement might provide
specifically for a commission if the property is sold to the named in-
dividual within the period of the extension agreement.^^^

The other two cases in this area illustrate a problem which arises

'^^See also Plymale v. Upright, 419 N.E.2d 756 (Ind. Ct. App. 1981) (representa-
tions by the broker regarding the sale are an opinion and do not give legal effect
to an offer to purchase).

^^"422 N.E.2d 1306 (Ind. Ct. App. 1981).

'^'Id. at 1308-09.

'''Id. at 1308.

''Ud. at 1308 n.l.

1983] SURVEY-PROPERTY 307

in brokerage agreements. This problem concerns the interpretation
of when a broker has found a buyer "ready, willing and able" to pur-
chase the property on the terms listed in the brokerage agreement.
In Wilson v. UpchurcK^^^ Upchurch, a veterinarian, was interested in
selling his veterinary hospital, its equipment and a two-bedroom apart-
ment located on 1.11 acres of land. The property was listed with
Marion and Joanne Loser. The asking price was $290,000 with a
$40,000 down payment, and the balance to be paid over twenty years
at a ten percent interest rate. The Losers found a potential buyer,
James Wilson, who made a counter offer to purchase for $280,000.
The Upchurches eventually signed a purchase agreement with Wilson,
but the sale was never completed because the parties could not agree
on the terms of two contracts that were conditions for the sale. In
a suit for specific performance the trial court found for Upchurch, and
the Losers appealed for their sales commission.

Both the trial court and court of appeals found that the agree-
ment was not meant to be binding on the parties because there were
at least two conditions precedent contained in the agreement: the
drafting of a mutually agreed upon sales contract and an employment
contract whereby Upchurch would work for Wilson at the hospital. ^^^
The court of appeals noted that

Before a broker is entitled to his commission he must prove
1) an actual sale of the real estate or 2) that he had secured
a buyer who was ready, willing and able to purchase the prop-
erty upon the terms listed by the seller and the seller refus-
ed to complete the transaction, or 3) that by and through the
procurement of the broker, a third party had entered into a
valid executory contract with the seller.^^''

Here the parties had not entered into a binding contract because the
purchase agreement was not binding on the parties, the counter offer
by Wilson was not upon the terms listed by the sellers, and there
was no contract entered into by a third party. Thus, the Losers had
not fulfilled one of the prerequisites for earning their commission.
As with Upchurch, Blue Valley Turf Farms v. Realestate Marketing
& Development, Inc.,^^^ adds a gloss to the interpretation of ready,
willing and able as it applies to listing agreements. In July 1974, Blue
Valley Turf Farms, Inc. (Blue Valley) listed certain equipment and real
estate with Realestate Marketing and Development, Inc. (Realestate).
On September 2, 1974, Blue Valley entered into an agreement of pur-

^^M25 N.E.2d 236 (Ind. Ct. App. 1981).

'""'Id. at 239.

'''Id. at 238.

'^^424 N.E.2d 1088 (Ind. Ct. App. 1981).

308 INDIANA LA W REVIEW [Vol. 16:283

chase with a buyer, John Hilger, and agreed to pay Realestate a com-
mission of $9,000. The agreement was conditional upon Hilger obtain-
ing a new mortgage loan with thirty days. On December 10, 1974, Blue
Valley notified Hilger that the agreement was terminated because
Hilger had not obtained the mortgage. Hilger brought suit against
Blue Valley for specific performance and this suit was settled.
Realestate then filed suit against Blue Valley to recover its commis-
sion. The trial court found that Hilger was ready, willing, and able
to purchase the property, and that Blue Valley had failed to perform
pursuant to the agreement. The court of appeals affirmed. ^^^

On appeal. Blue Valley argued that the contract was unenforceable
against Hilger because Hilger had only obtained an oral commitment
from a lender to loan the funds in exchange for a mortgage securing
the loan. In answering this argument, the court of appeals noted that
only parties and privies have the right to plead the statute of frauds
as a defense. ^^^ While the lender might have been able to raise this
defense in a suit instituted by Hilger, Blue Valley could not raise it
for them. The court alluded to, but did not answer, the question
whether an agreement to lend money in exchange for a mortgage in-
terest comes within the statute of frauds. However, this point was
not relevant to the case at bar, because the suit was based on the
agreement between Blue Valley and Realestate and not the contract
between Hilger and his lender.

2. Vendor and Purchaser. — In Lewandowski v. Beverly, ^^^ the
buyers of certain real property, the Lewandowskis, brought an action
for specific performance and damages against the sellers, the Beverlys,
for failure to perform a contract for sale. The facts show that the
buyers agreed to purchase for $7,900 a one-acre tract of land located
at the southeast corner of a twenty-two acre tract of land owned by
the sellers. The sellers were to furnish a stake survey and evidence
of title in the form of an owner's guarantee policy in the amount of
the purchase price. The buyers paid $500 down as earnest money. On
the date set for closing, the buyers went to the sellers' home with
a check for the balance of the purchase price, and certain problems
became evident. The sellers had failed to provide evidence of good
title because they mistakenly had believed this provision had been
stricken from the contract. Other evidence indicated that there was
a $66,000 mortgage on the twenty-two acre tract, that the sellers had
not obtained a release of the mortgage on the land to be sold, and
that there were certain unpaid taxes. What subsequent negotiations
ensued are unclear; each party claimed the other failed to cooperate.

'''Id. at 1090.

''■'Id.

'^"420 N.E.2d 1278 (Ind. Ct. App. 1981).

1983] SURVEY-PROPERTY 309

Eventually, the sellers returned the buyers' earnest money deposit and
the buyers commenced suit. The trial court found for the sellers and
the buyers appealed.

In reversing the decision of the trial court, the court of appeals
held that the buyers had remained ready, willing, and able to per-
form all obligations under the contract and that the trial court's deci-
sion was "against the logic and effect of the facts."^^^ Although the
sellers contended that any problems surrounding the release of the
mortgage and payment of the taxes would have been resolved at the
closing, the court noted that the evidence of good title was to be ob-
tained five days prior to closing.^^^ The fact that the property had in-
creased in value to between $15,500 and $16,000 was not grounds for
denying relief because the delay was the fault of the sellers.

The sellers argued that material alterations made the contract
unenforceable. This argument was based upon the agreement between
the parties to move the boundary line of the property to account for
an encroachment upon the land, which was discovered in the stake
survey. ^^^ In rejecting this argument, the court quoted from an earlier
decision that held that where modifications or alterations are required
to be in writing and oral alterations or modifications are made, the
original contract, unless it is entirely abandoned, still exists and binds
the parties.^^^ In conclusion, the court held that "[t]he contract, as
altered^ is valid and binding on both parties."^^^

If the modification of the contract was in writing, there is nothing
unusual about the court's decision in Lewandowski. One suspects,
however, that the modification was oral and thus the court's decision
is not in accord with the general rule of law that oral modifications
to a contract for the sale of real property are not enforceable.^'^" It
is true that the original contract may still be enforced, ^^^ but the deci-
sion in Lewandowski seems to suggest that the contract as modified
is binding on the parties. Had the court not enforced the contract as
modified, however, a serious problem would have been presented to
the trial court because there is no evidence that the sellers could clear
title to the four-foot strip on which the neighbors' fence encroaches.

'''Id. at 1281.

'""Id. at 1279-80.

''Ud.

'''Id. at 1282 (quoting Foltz v. Evans, 113 Ind. App. 596, 612, 49 N.E.2d 358, 365
(1943)).

^^M20 N.E.2d at 1282 (emphasis added).

'"See 4 S. Williston, A Treatise of the Law on Contracts § 593 (3d ed. 1961).
See also Ward v. Potts, 228 Ind. 228, 91 N.E.2d 643 (1950); Bradley v. Harter, 156 Ind.
499, 60 N.E. 139 (1901).

'*'See Cribbet, supra note 51, at 132. See also Imperator Realty Co. v. Tull, 228 N.Y.
447, 127 N.E. 263 (1920).

310 INDIANA LAW REVIEW [Vol. 16:283

This problem is solved in Lewandowski by enforcing the contract as
altered.

The case of Workman v. Douglas,^^^ one of the more interesting
cases decided during this survey period, is significant because the
court analyzes the doctrines of resulting trust and part performance.
Steven and Betty Douglas, a young married couple who were unable
to finance the purchase of a home, sought aid from a friend, Buford
Workman. Under an alleged oral agreement. Workman purchased a
house in his own name for $15,000. He paid $3,000 as a down pay-
ment and obtained a $12,000 mortgage for twenty-five years at eight
and one-half percent interest with monthly payments of $96.80.
Workman then allowed Steven and Betty to move into the house and
to pay him $96.80 a month. The controversy in this case involves the
classification to be given the arrangement between Workman and the
Douglases. According to Workman, the couple was merely renting the
home; according to the Douglases, they were buying the house from
Workman for $96.80 a month for a term of tweny-five years. Steven
and Betty were divorced in 1979, and by divorce decree Betty received
the property in contention. At that time, the payments were in ar-
rears approximately $1,152, and Workman filed suit for the rent,
damages, and possession. Betty counterclaimed on a resulting trust
theory, alleging that an oral contract existed to purchase the property.

The trial court found that there was an oral contract to purchase,
and that a formal contract for sale should be prepared using the In-
dianapolis Bar Association or Allen County Bar Association Land Con-
tract. The contract was to supply such terms as who was responsible
to pay taxes and to provide insurance, what amount was due monthly,
and what interest rate was applicable to the monthly installment. The
judgment also provided that if Betty paid Workman the sum of
$1,529.35 on or before May 2, 1980, and the sum of $96.80 on May
5, 1980, she would be entitled to remain in possession; otherwise.
Workman would be entitled to a judgment for such sums and would
have the right to immediate possesison. Workman appealed.

The court of appeals examined the resulting trust theory upon
which the trial court had based its decision and concluded that the
judgment could not be affirmed on this theory. ^''^ The purchase money
resulting trust, as it was known at common law, was abolished by
statute in Indiana except in three distinct situations:

Where the alienee shall have taken an absolute title in his
own name without the consent of the person with whose
money the consideration was paid; or where such alienee, in

^"^19 N.E.2d 1340 (Ind. Ct. App. 1981)
''Ud. at 1345.

1983] SURVEY-PROPERTY 311

violation of some trust, shall have purchased the land with
moneys not his own; or where it shall be made to appear that,
by agreement . . . the party to whom the conveyance was
made . . . was to hold the land or some interest therein in
trust for the party paying the purchase-money or some part
thereof.^**

The court noted that in all of these situations the purchase money
or some part thereof must be furnished by the person claiming a
resulting trust. Since all the purchase money in the instant case was
furnished by Workman, the agreement could not have created a
resulting trust/*^

The court of appeals next addressed the issue of part perfor-
mance. Although the judgment could not be sustained on the theory
of a resulting trust, possession under the oral contract and part pay-
ment of the purchase price by the Douglases appeared to be suffi-
cient acts under the doctrine of part performance to remove an oral
contract from the statute of frauds. ^"^ Thus, if the case were remanded,
the trial court might have reached the same conclusion based on the
doctrine of part performance. However, the court of appeals went on
to find that the oral agreement was not sufficiently definite to be
enforceable.^"^ There had been no agreement as to who should pay
the taxes and insurance during the twenty-five year period, whether
the $3,000 down payment was to be repaid to Workman, what the
rights of the parties were in the event of default, who would make
repairs, and finally what rate of interest would be paid. The court
concluded that these elements are essential in a time-payment con-
tract.^"'^ In essence, the anomalous proposition advanced by the
Douglases was that Workman, as a reward for helping out the young
couple, would lose the $3,000 down payment and be forced to pay the
costs of taxes, insurance, and repairs for twenty-five years. ^"^

The court of appeals criticized the trial court for attempting to
write a contract for the parties — in other words "to do for the par-
ties what they should have done in the first place."^^° Courts can only
enforce contracts made between the parties, not create new ones, and
in this case the court of appeals found that the oral agreement was

'''Id. at 1344 (citing Ind. Code § 30-1-9-8 (1982)) (emphasis in original).

'"^419 N.E.2d at 1344-45.

'*'See Bastian v. Crawford, 180 Ind. 697, 103 N.E. 792 (1914); McMahan Constr.
Co. V. Wegehoft Bros., Inc., 170 Ind. App. 558, 354 N.E.2d 278 (1976). For a general
discussion of the doctrine of part performance, see 3 American Law of Property §§
11.7.12 (A. Casner ed. 1952).

'^M19 N.E.2d at 1345.

'''Id. at 1346.

"'Id.

'""Id.

312 INDIANA LAW REVIEW [Vol. 16:283

too indefinite to be enforced. While the doctrine of part performance
can remove an oral contract from the statute of frauds, a valid oral
contract is a prerequisite.

G. Slander of Title

In Curry v. Orwig,^^^ the court examines the issue of what con-
stitutes a sufficient "interest" to justify filing lis pendens notice and
to not cause a slander of title. In 1959, Heritage Woods subdivision
was developed by Roger and Carol Curry and the Bryan Corporation.
The area was to be exclusively residential, and all residents were re-
quired to enter into a restrictive agreement with the developers that
was to insure the community's character and to enhance property
values. The restrictive agreement document, which contains a legal
description of the subdivision, was never recorded. The road. Heritage
Woods Road was mentioned in the agreement, and the Currys and
the Bryan Corporation retained legal title to the road and granted
the residents an easement for ingress and egress. The deeds grant-
ing the easements were recorded with specific legal descriptions. When
William and Jane Orwig purchased their lot in Heritage Woods in
1963, Heritage Woods Road ended in a cul-de-sac, and the Orwigs
understood this was to be the permanent end of the road. The Currys,
however, maintained that they had always made clear their intent to
use the land to the east of the subdivision, if it became available. In
1968, the Currys and the Bryan Corporation acquired the land to the
east of Heritage Woods and drew up plans for a subdivision to be
known as Heritage Woods East. The Currys envisioned extending
Heritage Woods Road into this area. They denied that there was any
plan to develop the area to the south of Heritage Woods known as
the Curry-Bryan farm. Despite these assurances, the Orwigs and other
residents became concerned that an expansion to the south might also
occur. In December 1968, the Orwigs filed a declaratory action to
determine their rights in the easement to Heritage Woods Road and
also filed a lis pendens notice, which indicated that a suit had been
filed. In the lis pendens notice, the legal description of the real estate
involved described some 299.5 acres to the east and south of the sub-
divisions owned by the Currys and the Bryan Corporation.

When the Currys attempted to sell part of the land to the south
which was included in the lis pendens notice, they failed because the
purchasers were unable to obtain financing or title insurance. The Cur-
rys then filed this suit for slander of title. The trial court entered
judgment for the Orwigs, finding that they had legal justification for
filing the notice because of the controversy surrounding the interpreta-

'5>429 N.E.2d 268 (Ind. Ct. App. 1981).

1983] SURVEY-PROPERTY 313

tion of the easement and the impact of the proposed extension on the
neighborhood/^^ The Currys appealed.

The court of appeals noted that the elements of slander of title
are: the statements made regarding title must have been false; they
must have been made maliciously; and they must have caused the
plaintiff pecuniary loss/^^

To understand the basis of the Currys' claim, it is necessary to
examine the lis pendens notice statute.^^'' Essentially, the statute pro-
vides that if a person commences a suit in a state court or a federal
district court sitting in Indiana, either by complaint or cross-complaint,
to enforce any lien upon, right to, or interest in any real estate, and
that suit is not founded on an instrument signed by the party having
title of record, and either properly recorded or a judgment recorded
in the county where the land is located, then the person may file a
lis pendens notice. If such a notice is not filed, then the bringing of
the suit will not act as constructive notice of the interest as against
bona fide purchasers or encumbrancers of the property.^^^

The Currys advanced several arguments involving the interest
necessary before lis pendens notice may be filed. The first argument
was that the interest referred to in the statute refers to an interest
affecting title and that an easement is not the type of interest in-
tended to be filed in the lis pendens notice. The easement involves
land referred to in the instruments creating the easement, in the ease-
ment deed, in the deed conveying the Orwigs' property in Heritage
Woods, and in the unrecorded agreement between the residents and
developers. The Currys argued that because the purpose of the lis
pendens statute was to give notice of unrecorded interests, the Or-
wigs' filing of notice was improper because the easement deed, the
only source of the Orwigs' rights, was already properly recorded. ^^®
If there were no interest entitled to be recorded, the Currys argued
that the statements regarding title were false, and thus the Currys
hoped to establish one of the elements of slander of title.^^^

Secondly, the Currys argued that the Orwigs' lack of an interest
in the property described in the lis pendens notice overcame any claim
of privilege. Apparently, the Orwigs were claiming that the filing of
the notice was privileged. This argument is premised on the rule that
ordinarily actionable statements are absolutely privileged when made
in the course of judicial proceedings, and that this rule should be ex-

''Ud. at 270.

'""Id. at 270 n.l.

'^IND. Code § 34-1-4-2 (1982).

^^^IND. Code § 34-1-4-8 (1982).

•^429 N.E.2d at 271-72.

''Ud.

314 INDIANA LAW REVIEW [Vol. 16:283

tended to the filing of notice in the lis pendens records. In Albertson
V. Raboff,^^^ a California case cited by both parties, Judge Traynor ex-
tended such a privilege to lis pendens notices on the theory that the
notices are simply republications of the pleadings. The Currys argued
that a suit involving title to an easement does not affect title to the
land described in the lis pendens notice and thus it is more than a
mere republication of the complaint.^^^ The Currys used similar reason-
ing to conclude that the Orwigs made the statements with malice,
another element of slander of title.

The court of appeals observed that the focal point in the case
was the question of what constitutes an "interest" in real estate as
enunciated in the lis pendens statute.^^" The court noted that there
were no cases defining the term under the statute. The court then
turned to several secondary authorities and concluded that the statute
was designed to protect in rem claims which were not recorded or
perfected. ^^^ The court then examined the Orwigs' claim and concluded
that it involved more than just personal rights. ^^^ The court also noted
that while the easement deed was recorded, it was not recorded in
the chain of title of the purchasers in the new addition. Thus, the
only way the Orwigs could put third parties on notice of their rights
was by filing the lis pendens notice.

What is unique about the interest asserted by the Orwigs is that
it is not a claim to an affirmative right in the described land, but
rather a claim to limit the use of the land with regard to the ease-
ment. As the court observed: "Given the terrain surrounding the new
addition, they might arguably proceed on the theory of an easement
by implication or necessity."^^^

Finally, throughout the Currys' argument is the suggestion that
somehow the amount of land described in the lis pendens notice, 299.5
acres more or less, showed bad faith or malice on the part of the
Orwigs. The trial court found that no precise legal description of
Heritage Woods East was even filed and the original plat contained
a description different from a subsequent plat. The court of appeals
believed there was evidence to support the trial court's finding that
the Orwigs were justified in including a description of the land to the
south of the subdivision is the lis pendens notice.'

164

^^M6 Cal. 2d 375, 295 P.2d 405 (1956).
'^M29 N.E.2d at 272.

'">Id.

'''Id. at 272-73.

'''Id. at 273.

''Ud.

'''Id. at 273-74.

XIV. Secured Transactions and
Creditors' Rights

R. Bruce Townsend*

That the economy is in hard times was demonstrated during the
last year by over forty-five decisions concerned with secured trans-
actions and creditors' rights, fifteen cases involving enforcement of
support and property division orders, and at least twelve published
local opinions in bankruptcy. Without detracting from the importance
of this body of case law, it is fair to say that only a few cases have
demonstrated outstanding legal craftsmanship. Excellent decisions in-
clude opinions clarifying the means by which unrecorded interests in
real estate may be perfected;* recognizing the commercial obligations
of indorsees to perfect security interests when provided by the terms
of the indorsement;^ giving sensible meaning to mortgage provisions
regarding the acceleration and the application of proceeds when loss
of the collateral gives rise to insurance funds;^ allowing the assess-
ment of punitive damages against lenders who short-credit paying
mortgagors by overcharging on interest^ or by refusing to release
liens;^ recognizing that owners of property interests do not fall within
the class of creditors who must file claims with the debtor's estate;^
and including in the duty to pay "reasonable" attorney fees those fees
incurred in defending an appeal.^ The Indiana Court of Appeals
deserves no commendation for opinions allowing bankers to cheat by
misrepresenting the effect of the one-side forms;® allowing creditors
to "terrorize" the family members of debtors;^ applying rigidly the
rules of proof to determine the existence of a resulting trust in an

*Professor of Law, Indiana University School of Law — Indianapolis. A.B., Coe Col-
lege, 1938; J.D., University of Iowa, 1940.

'Curry v. Orwig, 429 N.E.2d 268 (Ind. Ct. App. 1981). See infra text accompanying
note 21.

^White Truck Sales v. Shelby Nat'l Bank, 420 N.E.2d 1266 (Ind. Ct. App. 1981).
See infra text accompanying note 32.

'Hoosier Plastics v. Westfield Sav. & Loan Ass'n, 433 N.E.2d 24 (Ind. Ct. App.
1982). See infra text accompanying note 52.

'Shelby Fed. Sav. & Loan Ass'n v. Doss, 431 N.E.2d 493 (Ind. Ct. App. 1982). See
infra text accompanying note 56.

^Southwest Forest Indus, v. Firth, 435 N.E.2d 295 (Ind. Ct. App. 1982). See infra
note 58.

'Williams v. Williams, 427 N.E.2d 727 (Ind. Ct. App. 1981), reh'g granted, 432 N.E.2d
417 (Ind. Ct. App. 1982). See infra text accompanying note 153.

Templeton v. Sam Klain & Son, Inc., 425 N.E.2d 89 (Ind. 1981). See infra text
accompanying notes 96 & 187.

^American Fletcher Nat'l Bank v. Pavilion, Inc., 434 N.E.2d 896 (Ind. Ct. App. 1982).
See infra text accompanying note 178.

^Elza V. Liberty Loan Corp., 422 N.E.2d 760 (Ind. Ct. App. 1981), transfer denied,
426 N.E.2d 1302 (Ind. 1981). See infra text accompanying note 194.

315

316 INDIANA LAW REVIEW [Vol. 16:315

area where the rules of proof have always been applied generously
to allow the establishment of an equitable mortgage;^® failing to deal
adequately with the problem of "due on sale" clauses and with the
effects of acceleration under such clauses;" resurrecting pleading rules
in foreclosure matters^^ and proceedings supplemental/^ which belong
in the last century, and putting exemptions out of the reach of debt-
ors by a similar judicial technique;^* and giving mechanic's lien laws^^
and statutes barring claims against decedents' estates^® interpretations
which would shock most persons of common sense. Lawyers concerned
with bankruptcy matters and with the enforcement of divorce decrees
are advised to review the many current decisions which both clarify
and obfuscate the law in these areas of practice/^

A. Secured Transactions

1. Real Estate Transactions. — a. Formalities. — Suppose that a
contract, note, deed, or mortgage purports to bind three co-owners,
but only two sign the instrument. Is the instrument binding upon those
who signed it? The answer seems to be yes, but parol evidence is
admissible to show that those who signed did so upon the condition
that the third party also would sign. If the instrument on its face
shows that all are to sign, none presumptively are bound until all sign,
according to Ellis v. George Ryan Co.,^^ where a covenant purporting
to bind "all parties hereto" was not signed by all the parties to the

i^Workman v. Douglas, 419 N.E.2d 1340 (Ind. Ct. App. 1981). See infra text accom-
panying note 23.

"Downing v. Dial, 426 N.E.2d 416 (Ind. Ct. App. 1981). See infra text accompany-
ing note 43. Cf Colonial Discount Corp. v. Bowman, 425 N.E.2d 266 (Ind. Ct. App. 1981)
(vendor under a conditional sales contract repossessed the property after refusing to
consent to a transfer by the vendee).

^'Colonial Discount Corp. v. Bowman, 425 N.E.2d 266 (Ind. Ct. App. 1981). See in-
fra text accompanying note 64.

^^American Underwriters, Inc. v. Curtis, 427 N.E.2d 438 (Ind. 1981) (requiring
defenses of garnishee in proceedings supplemental to be affirmatively pleaded). See
infra text accompanying note 113.

"Schuler v. Langdon, 433 N.E.2d 841 (Ind. Ct. App. 1982). See infra text accompany-
ing note 102.

^'Bayes v. Isenberg, 429 N.E.2d 654 (Ind. Ct. App. 1981) (notice to both entireties
owners required). See infra text accompanying note 79; Cato v. David Excavating Co.,
435 N.E.2d 597 (Ind. Ct. App. 1982). See infra text accompanying note 87.

^Tasley v. American Underwriters, Inc., 433 N.E.2d 838 (Ind. Ct. App. 1982). See
infra text accompanying note 147.

^^Recent bankruptcy decisions are discussed in the text, see infra notes 161-77 and
accompanying text; current decisions relating to enforcement of property division and
support orders are considered in the text, see infra notes 118-41 and accompanying text.

1^24 N.E.2d 125 (Ind. Ct. App. 1981) (conduct of parties buttressed intent that
all parties were to sign).

1983] SURVEY-SECURED TRANSACTIONS 317

transaction. The covenant restricting the use of property was held
ineffective/^

b. Perfection of unrecordable or unrecorded interests in land. — It
is not uncommon for an owner to acquire an interest in land, which
arises from an unrecordable transaction. How can the owner perfect
that interest? The answer is simple and clear. The purported owner
may file an in rem action to establish his title and file lis pendens
notice.^® Thereafter, a purchaser is put on constructive notice of the
claim which will ultimately be established by a judgment. This point
was graphically made in Curry v. Orwig,^^ in which property owners
with an easement filed a declaratory judgment suit to establish the
ending point of a roadway which ran through their property and filed
lis pendens notice of their claim. When the owners of the fee were
unable to sell land through which the roadway was projected, suit
was brought against the property owners who had filed lis pendens
notice for slander of title. The court held that the easement owners,
alleging a violation of their easement rights, were privileged in filing
the suit based upon probable cause; therefore, no slander of title ac-
tion was proper .^^ The court did not decide the merits of the action
upon which the declaratory judgment was based.

c. Outright deed as a mortgage. — In need of a home, husband and
wife persuaded a friend to purchase a home. The friend made a $3,000
cash down payment on the home and secured a mortgage for $12,000.
Husband and wife moved in and made payments to the friend in the
amount of the monthly mortgage payments. Parol evidence was ad-
mitted to prove that the husband and wife were to pay the friend
the price. Under these circumstances, the court in Workman v.
Douglas^^ held that no resulting trust in favor of the husband and wife
was established and no contract to sell to the husband and wife was
proven.^" The case was decided by applying the traditional rules of

''Id. at 127. Cf. Parrish v. Terre Haute Sav. Bank, 431 N.E.2d 132 (Ind. Ct. App.
1982) (signatories to a note, also naming the principal and two sureties on a note who
did not sign, were bound in absence of parol evidence of a condition showing that
they were not to be bound unless all signed); Curtis v. Hannah, 414 N.E.2d 962 (Ind.
Ct. App. 1981) (summary judgment in favor of two vendors denied simply because
the third named vendor did not execute the contract).

'"Ind. Code § 34-1-4-2 (1982). The Indiana Rules of Trial Procedure also allow
unperfected interests in personal property to be perfected by a lis pendens suit and
filing under the Uniform Commercial Code filing system. Ind. R. Tr. P. 63.1(C).

''429 N.E.2d 268 (Ind. Ct. App. 1981). For further discussion of this case see Krieger,
Property, 1982 Survey of Recent Developments in Indiann Lavj, 16 Ind. L. Rev. 283, 312
(1983).

''429 N.E.2d at 274. The suit was not based upon a theory of malicious civil pros-
ecution since the lis pendens suit was still pending — for over twelve years.

'=^419 N.E.2d 1340 (Ind. Ct. App. 1981). For further discussion of this case see
Krieger, supra note 21, at 310.

'"419 N.E.2d at 1345-46.

318 INDIANA LAW REVIEW . [Vol. 16:315

resulting trust law which require that the cestui que trust furnish
the consideration at the time of the conveyance, and by applying the
specific performance doctrine that equity will not enforce contracts
where the terms are indefinite. The decision in Workman v. Douglas
is flawed inasmuch as parol evidence of the sort offered in this case
has long been admissible to prove that a conveyance to a grantee who
furnished the consideration was in fact a loan with an ensuing
equitable mortgage. ^^

d. Lease: option to purchase real estate. — Strict compliance with
the acceptance terms of a lease option agreement was excused in
Rowland v. Amoco Oil Co.^^ The general rule is that the terms of an
option agreement must be strictly followed if the exercise of an option
is to be effective.^^ In Rowland, the lessee-buyer's promised acceptance
was deficient by $6,000; however, prompt tender of the correct amount
was held sufficient, even though it was made apparently after expira-
tion of the time for acceptance.^® The decision in Rowland stands for
the equitable proposition that strict compliance will not be required
if the optionee made an honest mistake in tender.^^

2. Security Interests in Personal Property.— a. Perfection. — The
secured party took a security interest in the inventory and accounts
of the debtor, Lintz West Side Lumber, Inc. However, the financing
statement named as debtors "Lintz, John Richard" and "Lintz,
Mayella." In In re Lintz West Side Lumber, Inc.,^^ the Court of Appeals
for the Seventh Circuit held that because the financing statement did
not include the name of the debtor corporation, the financing state-
ment was insufficient notice of the security interest to the debtor cor-
poration's creditors, and therefore was invalid against the debtor's
trustee in bankruptcy .^^ A thoughtful argument that the Lintzs and
their corporation were considered one and the same in the local com-
munity fell on deaf ears.

A truck dealer who accepted and endorsed a check issued by the
bank for the purchase of a truck was held liable because the dealer

^^See Moore v. Linville, 170 Ind. App. 429, 352 N.E.2d 846 (1976). See generally
G. Osborne. G. Nelson & D. Whitman. Real Estate Finance Law 38-39 (1979).

^«432 N.E.2d 414 (Ind. Ct. App. 1982).

'Ud. at 416.

''Id. at 417.

'^Accord Thomas v. Heddon, 186 Ind. 48, 114 N.E. 218 (1916) (failure of lessees
to exercise their option to purchase within specified period of time did not prevent
lessees from obtaining specific performance where administrator of lessor's estate refus-
ed tender of purchase price, where ability of residuary devisee to pass good title was
in question, and where lessees brought suit for specific performance within five days
of expiration of the option).

^"655 F.2d 786 (7th Cir. 1981).

''Id. at 791.

1983] SURVEY-SECURED TRANSACTIONS 319

failed to comply with the statement on the back of the check that
required the payee to perfect a lien on the certificate of title to the
vehicle in favor of the bank. In White Truck Sales v. Shelby National
Banky^^ the court held that an enforceable contract was created be-
tween the bank and truck dealer when the dealer endorsed and
negotiated the check.^^ Thus, when the purchaser later disposed of
the collateral to a bona fide purchaser, who procured a clear certificate
of title, the truck dealer was held liable for the loan extended by the
bank. The case is most important insofar as the court intimated that
the truck dealer may not only be liable for the original loan made
to the purchaser by the bank, but also for further advances under
a refinancing agreement later made between the bank and the
purchaser.^^ However, in this case the bank only claimed damages for
less than the amount of the first loan.^^

b. Motor vehicle. — A security interest in personal property, in-
cluding motor vehicles, must be' in a writing that is signed by the
debtor, describes the collateral,^* and contains words of promise or
grant.^^ An exception arises when the secured party is in possession
of the collateral.^* Suppose a lender takes possession of the borrower's
certificate of title to his motor vehicle without a written security
agreement. Does this meet the requirement of ''possession of the
collateral?"^^ The answer seems to be ''yes'' in view of Och v. State,^^
in which a bail bondsman took possession of the debtor's certificate
of title. The bondsman was charged for issuing a bond without collect-
ing the full premium.'*^ On the supposition that the title was taken
to secure the premium and was a "thing of value," the court reversed
the conviction of the bondsman. The court noted that because the
space for liens could be filled in and submitted for perfection to the
Bureau of Motor Vehicles, a valuable interest, apparently a security
interest, was conferred on the possessor of the certificate.

3. Transfers by Lien Debtor— Effect of Required Consent of
Lienholder to Avoid Acceleration. — Several recent decisions involved
security devices providing for acceleration of installment indebtedness

^M20 N.E.2d 1266 (Ind. Ct. App. 1981).

''Id. at 1269.

''Id.

''Id. at 1268.

"iND. Code § 26-l-9-203(l)(b) (1982).

"See Shelton v. Erwin, 472 F.2d 1118 (8th Cir. 1973); Mitchell v. Shepherd Mall
State Bank, 458 F.2d 700 (10th Cir. 1972).

^«lND. Code § 26-1-9-203(1 )(a) (1982).

'^FoT a case holding that notation of a lien on the certificate of title does not meet
Code requirements, see White v. Household Fin. Corp., 158 Ind. App. 394, 302 N.E.2d
828 (1973).

^"431 N.E.2d 127 (Ind. Ct. App. 1982).

*'Id. at 128. See Ind. Code § 35-4-5-40 (1982).

320 INDIANA LAW REVIEW [Vol. 16:315

upon transfers by the debtor without the consent of the lienholder.
The established rule that the lienholder's consent does not release the
original debtor who remains liable as a surety*^ was reaffirmed in
Downing v. DiaU^ In Downing, the seller of a restaurant business who
retained a security interest on the equipment in order to secure the
selling price consented to a sale by the original debtor. Later the sec-
ond purchaser sold to a third purchaser who also assumed the indebt-
edness. Upon default, the first debtor was held liable on the theory
that the second consent was not intended as a novation."*

The court in Downing did not consider the possibility that the
original debtor was released by a binding alteration of the contract
because the secured party has insisted upon a substantial prepayment
as a condition to his consent to a second transfer. This, in effect, may
have amounted to an agreement that altered performance and
squeezed transferees into a cash-flow problem by threatening accelera-
tion, thus discharging the debtor-surety."^ This point, however, was
not discussed. Alternatively, suppose the secured party had required
the second assignee to pay an increased interest rate. Under these
circumstances, the debtor-surety surely would have been released."^
Thus, it is difficult to distinguish a situation where the secured party
asked for and obtained a prepayment of interest as was done in Down-
ing. Lienholders are well advised to obtain the permission of primary
parties when their consent to a transfer results in an alteration of
the underlying agreement. Without that permission, the position of
the original debtor as a surety more than likely becomes impaired.

A unique consequence of the so-called "due on sale" clauses
commonly included in mortgages, conditional sales contracts, and
security agreements was also considered in Downing v. DiaW In
Downing, Downing, who was obligated under a real estate mortgage
with a due on sale clause, contracted to sell the land to a purchaser.
The sales contract included a provision requiring Downing to execute
a conveyance to the purchaser when installments on the sales price
were reduced to an amount equal to the balance due on Downing's
mortgage. The purchaser was then to assume Downing's mortgage at
a favorable rate of interest. However, upon proper tender by the pur-

*^See Boswell v. Lyon, 401 N.E.2d 735 (Ind. Ct. App. 1980), discussed in Townsend,
Secured Transactions and Creditors' Rights, 1980 Survey of Recent Developments in In-
diana Law, 14 Ind. L. Rev. 494-95 (1981).

"426 N.E.2d 416 (Ind. Ct. App. 1981).

**Id. at 421.

*^See generally L. Simpson. Handbook on the Law of Suretyship 339-42 (1950).

"See First Fed. Sav. & Loan Ass'n v. Arena, 406 N.E.2d 1279 (Ind. Ct. App. 1980),
discussed in Townsend, Secured Transactions and Creditors' Rights, 1981 Survey of Re-
cent Developments in Indiana Law, 15 Ind. L. Rev. 367> 381-82 (1982).

'^426 N.E.2d 416 (Ind. Ct. App. 1981).

1983] SURVEY-SECURED TRANSACTIONS 321

chaser, Downing was unable to comply with the sales contract because
the mortgagee would not consent to the assumption of the mortgage.
Thereupon, the purchaser was forced to find new financing, which was
at a higher interest rate than the original mortgage. The trial court
held that because the purchaser paid off the contract with the new
financing, he was entitled to damages measured by the present value
of the increased finance charge payable over the same period as the
original mortgage.''® Unfortunately, the court relied upon the testimony
of an "expert" banker as to the damages without disclosing the for-
mula upon which the calculation was made. The vendor submitted no
alternative proof, and the court held that in view of its own "primitive
calculations," no gross error was made by the trial court."^

Downing assumed the answer to another interesting and impor-
tant issue. Was the mortgagee bank justified in refusing consent under
its due on sale clause? Probably the bank refused consent because
it could then increase the interest rates. This motivation raises the
serious question of the bank's good faith in exercising this strange
but common mortgage restraint on alienation. Some decisions
elsewhere have outlawed due on sale provisions when these provisions
are exercised as a device to increase interest without regard to risks.^

^. Acceleration. — The general rule that a creditor, lienholder, or
secured party cannot accelerate unilateral installment obligations upon
default without a provision permitting acceleration was recognized in
Griese—Traylor Corp. v. Lemmons.^^ If the right of acceleration is con-

"/rf. at 421.

*^Id. The original mortgage carried interest at 6.5% with installments to run for
87 months at time of default. The new financing obtained by the purchaser was at
8% with installments running for 60 months. Installments were increased from $2,100
monthly to $3,041.49 monthly. Damages of $12,006.12 were upheld. Id. This record as
reported makes absolutely no basis upon which this award could be sustained
mathematically. This reliance upon primitive mathematics strengthens this writer's
opinion that the Indiana courts are easily "hoodwinked" by the mathematics of com-
puting interest or finance charges. Much assistance is available, although not requested,
from fine mathematics departments in Indiana's state universities. See Townsend,
Secured Transactioi%s and Creditors' Rights, 1977 Survey of Recent Developments in In-
diana Law, 11 Ind. L. Rev. 252-53 (1975); Townsend, Secured Transactions and Creditors'
Rights, 1973 Survey of Recent Developments in Indiana Law, 7 Ind. L. Rev. 226-28 (1974).

""See Brown v. Avemco Inv. Corp., 603 F.2d 136 (9th Cir. 1979); Wellenkamp v.
Bank of America, 21 Cal. 3d 943, 582 P.2d 970, 148 Cal. Rptr. 379 (1978); Continental
Fed. Sav. & Loan Ass'n v. Fetter, 564 P.2d 1013 (Okla. 1977). See generally Townsend,
supra note 46, at 384 n.l08 (1982). The United States Supreme Court recently upheld
due on sale clauses executed after 1976 by federal savings and loan banks. See Fidel-
ity Federal Savings and Loan Ass'n v. Cuesta, 50 U.S.L.W. 4916 (U.S. June 28, 1982)
(No. 81-750).

'^424 N.E.2d 173 (Ind. Ct. App. 1981) (rule applied to stock purchase agreement
under which purchaser was bound by unilateral obligation to make adjusted weekly
payments for stock which had been transferred). For further discussion of this case
see Townsend, supra note 46, at 387-88.

322 INDIANA LAW REVIEW [Vol. 16:315

ditional, the conditions must be met before the acceleration is per-
mitted. This principle was applied in Hoosier Plastics v. Westfield Sav-
ings & Loan Association^^ where a mortgage provided that "insurance
proceeds shall be applied to restoration or repair of the Property
damaged, provided such restoration or repair is economically feasible
and the security ... is not thereby impaired."^^ When the mortgagee
refused to apply insurance proceeds towards the cost of restoration
of the building destroyed by fire, the mortgagor brought suit for
damages. Although the trial court dismissed the mortgagor's suit
because it found no proof that the conditions had been met, the court
of appeals reversed.^" The two foregoing decisions put in jeopardy the
holding of Pearson v. First National Bank,^^ which was a questionable
decision last year. In Pearson, the mortgagee was allowed to accelerate
and apply insurance proceeds towards the indebtedness under a similar
insurance clause that provided payment to the mortgagor and
mortgagee as their interests appear, but without an express provi-
sion in the mortgage for acceleration.

A mortgagee refusing to correctly credit principal payments by
overcharging the interest on a mortgage loan was held liable not only
for the ensuing deficiency but also for punitive damages in Shelby
Federal Savings & Loan Association v. Doss,^ Proof established abusive
efforts by the lender to claim an increased finance charge. The decision
is refreshing in that it allows a remedy to a debtor for the creditor's
refusal to credit an account upon which a balance remains owing.^^
It thus becomes clear that bookkeeping entries which are intentionally
incorrect become actionable although pecuniary loss may depend on
future enforcement procedures.^*

^^433 N.E.2d 24 (Ind. Ct. App. 1982).

''Id. at 27.

''Id. at 28-29.

^^408 N.E.2d 166 (Ind. Ct. App. 1980) (allowing acceleration by mortgagee absent
proof of bad faith in refusing to allow insurance proceeds to be applied towards
rehabilitation of the collateral).

^M31 N.E.2d 493 (Ind. Ct. App. 1982).

"M at 498-500. The court did not give a precise description of the theory of its
remedy which seems to be in the nature of an action for disparagement of title. Cf.
Harper v. Goodin, 409 N.E.2d 1129 (Ind. Ct. App. 1980) (recordation of false mechanic's
lien and refusal to release actionable).

^*In a recent decision, Southwest Forest Indus, v. Firth, 435 N.E.2d 295 (Ind. Ct.
App. 1982), a mechanic's lienholder who had been paid in full was bound by the ten
dollars a day penalty specially applicable to mechanic's liens. See Ind. Code § 32-8-6-1
(1982) (part of mechanic's lien statute imposing penalty fifteen days after "demand"
until release or expiration of lien). The terms of a general statute that imposed a penalty
for refusal to release liens, that required a written demand and that imposed a cap

1983] SURVEY-SECURED TRANSACTIONS 323

5. Foreclosure Procedures.— a. Effect of private sale by conditional
vendor and mortgagee. — Indiana statutes mandate judicial foreclosure
of real estate mortgages,^^ and under the rule of Skendzel v. Marshall,^^
the same applies to conditional sales contracts where more than a
minimal amount has been paid on the contract. Suppose, however, that
a mortgagee or conditional seller by self help regains possession and
resells the property. May the lienholder recover a deficiency? It seems
quite clear that a deficiency is barred if the property has been resold^^
without authority from the debtor. Other aspects of this problem were
dealt with by two recent decisions. A mortgagor cannot avoid liabil-
ity on the indebtedness by deeding the collateral to the mortgagee
with a provision that the transfer would release the debtor in the
face of proof that the mortgagee refused to accept the deed.^^ If the
terms of the deed are rejected, Ellsworth v. Homemakers Finance Ser-
vice, Inc.^^ holds that the mortgagee must foreclose by judicial sale,
and that the ineffective deed gives no power of private sale. In Colo-
nial Discount Corp. v. Bowman,^^ the seller had regained possession
and resold one of three lots that were sold on conditional sales con-
tracts, after over fifteen percent had been paid on the price.®^ A suit
by the purchaser to recover damages in the county court was dis-
missed by the court of appeals on the ground that the county court
lacked equitable jurisdiction.^^ The court of appeals obviously decided
the case on a technicality to avoid a substantive question of real im-
portance and, in doing so, erroneously®^ held that a suit in rescission
for recovery of money cannot be determined at law.®* The case, forc-

on recovery were held inapplicable. 435 N.E.2d at 296-97. See Ind. Code § 32-8-1-2 (1982)
(requiring demand by registered or certified mail with a cap of $500).

^«IND. Code § 32-8-16-1 (1982).

«°261 Ind. 226, 301 N.E.2d 641 (1973), cert, denied, 415 U.S. 921 (1974).

'Towers v. Ford, 415 N.E.2d 734 (Ind. Ct. App. 1981) (conditional seller who ac-
cepted repossession and resold the property denied deficiency and deemed to have
accepted a surrender).

''Homemaker Fin. Serv., Inc. v. Ellsworth, 380 N.E.2d 1285 (Ind. Ct. App. 1978).

''424 N.E.2d 166 (Ind. Ct. App. 1981). A decree on retrial awarded judgment on
the mortgage indebtedness and directed the mortgagee to sell the property and apply
it towards the indebtedness. Id. at 167. The court on second appeal ordered the prop-
erty to be sold at judicial sale. Id. at 169.

"425 N.E.2d 266 (Ind. Ct. App. 1981). The vendors in this case frustrated the ef-
forts of the purchaser to resell the property by refusing to consent under a due on
sale clause.

^^Id. One lot had been resold by the vendor for $600 in excess of the price under
the conditional sales contract. Id.

^Id. at 268. The opinion states that the purchasers sought to enforce what amounted
to an equitable lien, although this does not seem to have been asserted in the pur-
chaser's complaint.

^'See Ferrell v. Hunt, 189 Ind. 45, 124 N.E. 745 (1919).

««425 N.E.2d at 268.

324 INDIANA LAW REVIEW [Vol. 16:315

ing the plaintiff to comply with a strict theory of pleading, should
have been written 100 years ago.

b. Notice to junior lienholders of foreclosure proceedings; tax and
execution sales. — It is established practice in Indiana to give known
and perfected junior lienholders and owners notice of actions to fore-
close mortgages and liens.^® Failure to make such persons parties and
to give them proper notice makes the sale ineffective as to their
interests.^'' However, notice need not be given to junior interests in
all instances. Two of these exceptions were recognized by two recent
court of appeals' decisions. In Mennonite Board of Missions, Inc. v.
Adams'^^ the court of appeals reiterated the rule that actual notice of
a tax sale is not required to be given to mortgagees of record.^^ In
Hines v. Behrens,"^^ the court held that the purchaser at an execution
sale will take free of the interest of a junior mortgagee of record,
even though the junior mortgagee was not made a party to the fore-
closure or execution proceedings, or given formal notice of the sale.'*
The court also noted that the junior mortgagee in Hines had had ac-
tual notice of the sale, and thus should be bound.'^

«'lND. Code § 32-8-18-1 (1982).

'"See Catterlin v. Armstrong, 101 Ind. 258 (1884); Oldham v. Noble, 117 Ind. App.
68, 66 N.E.2d 614 (1946).

^427 N.E.2d 686 (Ind. Ct. App. 1981).

''Ud. at 688. The mortgagee in Mennonite argued that the notice requirements under
the tax sale statutes, Ind. Code §§ 6-1.1-24-1, -2 (1982), do not meet due process standards.
The court rejected this argument relying upon First Sav. and Loan Ass'n v. Furnish,
174 Ind. App. 265, 367 N.E.2d 596 (1977).

^^421 N.E.2d 1155 (Ind. Ct. App. 1981).

'*Id. at 1159.

"/d Hines is an incomplete decision and will cause trouble to real estate and title
lawyers for several reasons. First, the judgment debtor had executed and recorded
a mortgage to the mortgagee bank before the judgment was procured by the judg-
ment creditor. However, before the sale under the judgment, the mortgagee bank re-
leased its original mortgage and recorded this release. The mortgagee bank then took
a new note and mortgage from the judgment debtor and his wife. This new mortgage
was recorded at the same time as the release. Substantial authority supports the prop-
osition that the new note and mortgage constituted a renewal and did not release the
old mortgage. See Farmers and First Nat'l Bank v. Citizens State Bank, 211 Ind. 389,
5 N.E.2d 506 (1937). It is unclear whether the purchaser at the judgment sale should
be protected as a bona fide purchaser because the sale was entered after the first
mortgage had been released and the new mortgage contemporaneously executed. A
purchaser, practically, may not be wise to rely upon such a release and apparent renewal
as advancing a junior interest. See id. at 393-94, 5 N.E.2d at 508. A second point leav-
ing uncertainty in the case is whether the judgment creditor acquired a judgment lien
which predated the refinanced mortgage. If the judgment had not been properly
docketed and indexed, the judgment creditor did not hold a valid judgment lien. The
judgment was entered in a divorce proceeding and may not have been a lien upon
the property. Cf. Kuhn v. Kuhn, 402 N.E.2d 989 (Ind. 1980) (order for periodic payments
of child support not considered a final judgment so as to become a statutory lien upon
property of obligor). If not, an execution lien procured with the issuance of a writ

1983] SURVEY-SECURED TRANSACTIONS 325

c. Foreclosure in equity. — Recognizing that mortgage and lien
foreclosures are essentially equitable, one recent decision^® holds that
the vendee's liens cannot be foreclosed in county courts without equity
jurisdiction. Another indicates that legal issues under an independent
counterclaim to a foreclosure action may be separately tried.''

B. Creditors' Rights

1. Mechanic's Liens.— a. Notice to entireties owners. — V^Tiiien
notice of intent to claim a mechanic's lien must be given to the occu-
pying resident owner or future occupying owner of a single or double
family dwelling within thirty days from the commencement of perfor-
mance for alterations and repairs and within sixty days from com-
mencement of performance for new construction.'* A notice naming
both entireties owners that was delivered to the husband within the
statutory period, but that was not delivered to the wife within that
time, was held to be insufficent notice in Bayes v. Isenherg.''^ The case
seems to hold that, absent evidence of agency, provable personal ser-
vice on both entireties owners is required.*" The Bayes court refused
to follow a recent fourth district court of appeals' opinion. Beneficial
Finance Co. v. Wegmiller Bender Lumber Co.,^^ which held that a
recorded notice naming only one entireties owner met the record re-
quirements for notice.*^ Although Bayes and Beneficial involve different
statutes,*^ the rationale for holding notice to one entireties owner to

of execution had expired before the refinanced transaction. See Ind. Code §§ 34-1-45-2,
34-1-37-10 (1982). Thereafter, the sale was held under a new writ of execution long
after the refinanced mortgage was of record, and the execution lien under which the
sale was held would have been junior to the refinanced mortgage. The court in a foot-
note merely held that because the court found the mortgage to be junior and because
it was supported by evidence in the stipulations, which certainly did not appear in
the opinion, the purchaser at the sale took priority. The case stands only for the point
that parties junior to the judgment or execution lien upon which property is sold at
an execution sale are not entitled to notice of the sale. Otherwise the case is a disaster,
probably because the judge felt that the facts did not deserve careful restatement.

^^Colonial Discount Corp. v. Bowman, 425 N.E.2d 266 (Ind. Ct. App. 1981); see supra
note 64 and accompanying text.

"Associates Fin. Servs. Co. v. Knapp, 422 N.E.2d 1261 (Ind. Ct. App. 1981). This
case allowed counterclaim issues to be tried after a summary judgment on the
foreclosure issues. That independent issues may be separately tried by jury, see Hartlep
V. Murphy, 197 Ind. 222, 150 N.E. 312 (1926). In the Knapp case, the parties consented
to a nonjury trial on the counterclaim.

^«IND. Code § 32-8-3-1 (1982).

^M29 N.E.2d 654 (Ind. Ct. App. 1981).

«7d. at 659.

«'402 N.E.2d 41 (Ind. Ct. App. 1980).

«M02 N.E.2d at 46.

*^The statute considered in Bayes was Ind. Code § 32-8-3-1 (Supp. 1981). The statute
under consideration in Beneficial was Ind. Code § 32-8-3-3 (1976). These statutes retain
the same section numbers in the 1982 Indiana Code. .

326 INDIANA LAW REVIEW [Vol. 16:315

be sufficient would be similar in both. This is especially true in view
of the fact that the wife probably authorized or assented to the con-
struction. Thus, notice to one of several members of a joint venture
should be adequate.**

b. Recordation of notice within sixty days of completion. — Each
mechanic claiming a lien must record notice within sixty days after
completion, in accordance with the mechanic's lien statute.*^ Recorda-
tion within sixty days after corrective repairs performed at the re-
quest of the owner was held sufficient in Smith v. Bruning
Enterprises.^ However, Cato v. David Excavating Co.^'' ridiculously held
that a recorded notice "upon the buildings" located on properly de-
scribed real estate was insufficient when the lien was claimed only
for roadwork on the property. The opinion of the court of appeals
strained credibility because the court interpreted the statutory pro-
vision requiring the filing of a notice of lien to require additionally
a description of the improvement. Unless reversed by opinion or
legislation, the case will never serve as a model for legislative
interpretation.

c. No-lien contract. — A "no-lien" contract in proper form is valid
if recorded not more than five days after the execution of the
contract.*® In Torres v. Meyer Paving Co. ,*^ a no-lien contract that was
executed at the same time but separate from the original construc-
tion contract, and that was filed within five days of the original con-
tract was upheld as valid. The court of appeals construed the two in-
struments as one and found consideration for the no-lien agreement.^"
For some reason, the court omitted reference to Trial Rule 9.1(C),^^
which places upon the promisee the burden of proof for lack of con-
sideration in the written contract. Proof of the no-lien agreement was
allowed despite an integration clause in the original construction
contract.

d. Limitation upon foreclosure. — Actions to foreclose mechanic's
liens are barred unless suit is commenced within one year of recorda-
tion of the lien, or the due date of record.^^ In Geiger & Peters, Inc.

^Cf. Sondheim v. Gilbert, 117 Ind. 71, 18 N.E. 687 (1888) [note: the section discuss-
ing this theory was deleted in the unofficial reporter); O'Hara v. Architects Hartung
& Ass'n, 163 Ind. App. 661, 665, 326 N.E.2d 283, 286 (1975) (co-venturers are liable to
third parties for acts of their joint venturers within the scope of the enterprise).

^^IND. Code § 32-8-3-3 (1982).

««424 N.E.2d 1035 (Ind. Ct. App. 1981).

«^435 N.E.2d 597 (Ind. Ct. App. 1982).

««lND. Code § 32-8-3-1 (1982).

««423 N.E.2d 692 (Ind. Ct. App. 1981).

""Id. at 695.

^^IND. R. Tr. p. 9.1(C).

^^Ind. Code § 32-8-7-1 (1982).

1983] SURVEY-SECURED TRANSACTIONS 327

V. American Fletcher National Bank & Trust Co.,^^ the filing of a cross-
complaint to foreclose a lien within the one year period was held suf-
ficient, although service was made upon party owners after the time
had expired. This case recognized that suit is commenced at the time
of the filing of the complaint, not at the time of service; nonetheless,
the case was remanded for a hearing on the motion to dismiss because
of failure to prosecute diligently the cross-complaint.

e. Attorney fees. — A mechanic's lienholder is entitled to reasonable
attorney fees as part of his lien.^'' One exception exists in the case
of a subcontractor claiming against an owner who has paid the con-
sideration for the performance.^^ Templeton v. Sam Klain & Son, Inc.^
held that if, on appeal, the mechanic lienholder successfully defends
the judgment ordering foreclosure of his lien, then he is entitled to
an additional fee for the reasonable services rendered on appeal. In
Templeton, the supreme court found that the mechanic lienholder
defending the challenge to the foreclosure may petition the lower court
for an allowance to pay attorney fees for the appeal, but the lower
court should hold its determination in abeyance until the conclusion
of the appeal process.^^

The supreme court also adopted the holding of the lower court®^
decision in Templeton to the effect that a subcontractor is not required
to apply undesignated payments received from the prime contractor
to indebtedness incurred upon that project, unless the subcontractor
has actual knowledge of the source of the funds;*^ there is proof of
delivery of materials to the construction site which creates a presump-
tion of incorporation into the project;^"" and there is a lien that may
be claimed upon funds owing by the owner to the prime contractor
after written notice by the subcontractor to hold the owner person-
ally liable.^"^

2. Exemptions and Execution. — A most incredible decision, Schuler

^^428 N.E.2d 1279 (Ind. Ct. App. 1981).
^''IND. Code § 32-8-3-14 (1982).

^M25 N.E.2d 89 (Ind. 1981). Cf. O.S. v. J.M., 436 N.E.2d 871 (Ind. Ct. App. 1982)
(attorney fees incurred on appeal in defending paternity award).

'^425 N.E.2d at 95. In Templeton an additional award of $2500 was upheld because
the appellant owner failed to raise the amount as an error on appeal.

'MOO N.E.2d 1198 (Ind. Ct. App. 1980), discussed in Townsend, supra note 42, at
500, 508.

'M25 N.E.2d at 93, A recent decision also holds that absent some agreement or
assumed responsibility, a mortgagee advancing funds under a construction loan to the
debtor-mortgagor has no duty to ascertain that subcontractors are paid and without
liens. Spurlock v. Fayette Fed. Sav. & Loan Ass'n, 436 N.E.2d 811 (Ind. Ct. App. 1982).

•"''425 N.E.2d at 94.

328 INDIANA LAW REVIEW [Vol. 16:315

V. Langdon,^^^ in effect upheld a lower court eviction judgment that
allowed the landlord, without a lien or security interest, to satisfy
the judgment by executing on the personal property the tenant left
behind. In addition to the eviction, the court awarded damages to the
landlord for back rent and for holding over expenses. On appeal, the
court considered whether any of the tenant's personal property was
exempt from the landlord's judgment. The court found that the amount
of damages apportioned for back rent were damages in "contract,"^"^
and thus qualified under the Indiana General Exemption Law.^°* That
portion of the damages for holding over expenses was found to be
"in tort" and not subject to the statutory exemption.^"^ The tenant,
who defaulted, was denied the personal property exemption for the
apportioned contract damages because he did not file a schedule of
his personal property with the sheriff who was ordered to execute
the judgment.^"^ The court's decision which ignored proper procedures
for execution and sale by the sheriff, service of the writ of execution,
and basic due process,^*^^ makes Judge Roy Bean appear as a "boy
scout." This kind of decision denying the exemption for a questionable
technicality is truly incredible.^"®

3. Proceedings Supplemental. — The broad equitable power of a
court to reach concealed assets of a debtor was illustrated in Coak
V. RebheVy^^ which was a case involving the enforcement of a judg-
ment that had awarded support arrearages. In a proceedings sup-
plemental, the wife had sought certain assets to satisfy the judgment.
The wife had established in those proceedings that the husband's
transfer of his stock, one-half ownership in a corporation, to his new
wife was without a fair consideration and was thus a fraudulent con-

^"^33 N.E.2d 841 (Ind. Ct. App. 1982).

''Ud. at 844.

lO'lND. Code § 34-2-28-1 (1982). In Schuler, the lower court specified the different
amounts for back rent and holding over damages in the judgment so that the
mathematics of separating the tort and contract parts of the judgment appeared in
the record.

^"^433 N.E.2d at 844.

'"'Id.

'"'See Ind. Code § 34-1-36-1 (1982); see also 433 N.E.2d at 844-47 (Staton, J., dissent-
ing); cf. Mims V. Commercial Credit Corp., 261 Ind. 591, 307 N.E.2d 867 (1974) (which
indicates that where the debtor is not represented by counsel, the court must affir-
matively fix the debtor's exemption).

"^Judge Staton's opinion revealed that the landlord retained possession of household
goods worth over $13,000 and that bits and pieces were sold by him without account-
ing. 433 N.E.2d at 846. It seems that the tenant may have a separate action in conver-
sion against the landlord. In the seemingly disoriented opinion of the majority, it ap-
pears that the court approved execution by the sheriff on the remaining assets in the
landlord's possession for the undetermined, unpaid part of the judgment. A reference
to the law of abandonment (in this case, $13,000 worth of property) is mystifying.

'""425 N.E.2d 197 (Ind. Ct. App. 1981).

1983] SURVEY-SECURED TRANSACTIONS 329

veyance. The lower court thereupon directed that an obligor, who had
purchased the corporation, be named as garnishee to pay one half of
the contract installments of the conditional sales contract to the former
wife. The court of appeals affirmed the trial court's finding that the
monthly installment payments were subject to execution, although the
pleadings in proceedings supplemental seeking to discover the assets
did not indicate that the stock transfer was sought, and despite the
fact that the corporation's obligor was not named as a party. ^^° Strict
rules of pleading do not apply to proceedings supplemental and failure
of the judgment debtor in the instant case to bring in the corpora-
tion under Trial Rule 19(A)^" at the hearing was fatal to his defense.
Evidence established that the entire assets of the corporation had been
sold to its obligor, but neither the findings nor the evidence appeared
to show that the debtor-corporation was insolvent, a usual require-
ment for avoiding a fraudulent conveyance which does not apply when
intent to defraud is present."^

According to American Underwriters, Inc. v. Curtis,^^^ defenses
of a liability insurer must be affirmatively pleaded in an action to en-
force a judgment against the insured, particularly where the defense
was not raised at the hearing or in an answer permissively filed in
the proceedings.

Answers to interrogatories in proceedings supplemental, and prob-
ably other actions as well, must be formally offered into evidence.
Hence, the court in In re Marriage ofHudak^^^ found that the answers
to interrogatories of the garnishee defendant, which were attached
to a motion for proceedings supplemental, did not support a garnish-
ment order against the defendant's employer because the probative
value of the answers could not be considered until they were offered
into evidence."^

In other cases relating to proceedings supplemental a search of
an arrestee's wallet pursuant to a lawful arrest was permitted,"® and
a vague new standard of probable cause for inspecting premises"' of

'''Id. at 200.

»"lND. R. Tr. p. 19(A).

""C/. Uniform Fraudulent Conveyance Act §§ 4, 7, 7 A U.L.A. 205, 242 (1978); 11
U.S.C. § 548(a)(1) and (2) (1979 & Supp. 1982).

"M27 N.E.2d 438 (Ind. 1981) (adopting opinion in 392 N.E.2d 516 (1979)). For a discus-
sion of this case, see Townsend supra note 42, at 512. The effect of this decision is
to make defenses and claims of garnishees in proceedings supplemental subject to the
basic rules of civil procedure. Informal procedures generally followed in proceedings
supplemental do not apply to the unadjudicated rights of third parties.

'"428 N.E.2d 1333 (Ind. Ct. App. 1981)^

'''Id. at 1336-37.

"'Chambers v. State, 422 N.E.2d 1198 (Ind. 1981).

"'State V. Kokomo Tube Co., 426 N.E.2d 1338 (Ind. Ct. App. 1981) ("legislative
standards" may serve as basis for occupational safety warrant).

330 INDIANA LAW REVIEW [Vol. 16:315

a business establishment may aid in defining permissible perimeters
for judicial orders in proceedings supplemental, with respect to the
search of a debtor's person and his property.

4.. Enforcement of Support and Property Division Orders. — Several
recent decisions concern the status of pension rights and whether pen-
sions constitute marital property for purposes of property division.
Two decisions held that pension income that was being received by
a husband but was dependent upon continued survivorship may not
be divided, but may be considered in the division of other property
on the theory that the asset is not vested."^ An award may not eat
into contingent pension funds and will be held improper if it exceeds
present marital property."^ A third decision applied the same rules
to a pension payable in the future and dependent upon survivorship.^^"
The Supreme Court of the United States has held that military pen-
sions, under the admonitions of the language of federal statutes, can-
not be considered as marital property.^^^ A divorce court making a
property division may cancel a debt of the husband's solely owned
corporation to his wife.^^^

With respect to support, other decisions ordered payment of sup-
port or maintenance from unemployment compensation payments^^^ and
social security,^^'* which otherwise are exempt from the creditor
process.^^^

The rule of Kuhn v. Kuhn,^^^ that an installment support order
may not be enforced by way of execution and supplementary remedies
without a judicial determination of the amounts overdue and owing,
was recognized in Statzell v. Gordon}'^'' The court properly held,

"'See In re Marriage of Delgado, 429 N.E.2d 1124 (Ind. Ct. App. 1982); Sadler v.
Sadler, 428 N.E.2d 1305 (Ind. Ct. App. 1981).

"M28 N.E.2d 1305 (Ind. Ct. App. 1981) (army pension).

i2«/n re Marriage of Sharp, 427 N.E.2d 690 (Ind. Ct. App. 1981), reh'g granted, 430
N.E.2d 417 (Ind. Ct. App. 1982) (on issue of trial court relinquishing jurisdiction).

'^'McCarty v. McCarty, 453 U.S. 210 (1981) (pension found not subject to community
property by divided court). The decision was recognized by Sadler v. Sadler, 428 N.E.2d
1305 (Ind. Ct. App. 1981).

^^'White V. White, 425 N.E.2d 726 (Ind. Ct. App. 1981) (corporation not made a
party by either husband or wife).

'^In re Marriage of Church, 424 N.E.2d 1078 (Ind. Ct. App. 1981). For further discus-
sion of this case, see Buck, Domestic Relatione, 1982 Survey of Recent Developments in
Indiana Law, 16 Ind. L. Rev. 171, 185 (1983).

^'Taxton v. Paxton, 420 N.E.2d 1346 (Ind. Ct. App. 1981).

'^^Cf. 42 U.S.C.§ 659(a) (Supp. IV 1980) (United States subject to legal process in
like manner and to same extent as a private person if action brought for enforcement
of legal obligations to provide child support or make alimony payments); Ind. Code
§ 22-4-33-3 (1982) (assignment or pledge of any rights to benefits void and such rights
to benefits exempt from levy or execution until benefits actually received).

'2^02 N.E.2d 989 (Ind. 1980).

^^427 N.E.2d 732 (Ind. Ct. App. 1981). For further discussion of this case, see Buck,
supra note 123, at 180.

1983] SURVEY-SECURED TRANSACTIONS 331

however, that a separate suit for this purpose was not necessary; a
petition under the original cause number by motion to establish un-
paid and overdue support payments was proper. Seemingly, joinder
of a prayer for this relief in connection with a motion for proceedings
supplemental or contempt is proper. Once a definite judgment is
entered for arrearages in support, several recent decisions allowed
the enforcement by proceedings supplemental. ^^^ The limitation period
for enforcing overdue support payments is now ten years. ^^^ Difficulty
with successive suits to establish the amount of overdue support is
illustrated in White v. Davis,^^^ in which rules of res judicata were
twisted to give the wife the benefit of the doubt by holding that failure
of prior proceedings to fix arrearages did not constitute a negative
judgment.*^*

Decisions in this area also reiterate established rules to the ef-
fect that maintenance and support orders cannot later be modified
with respect to past or overdue payments. ^^^ In one recent case, the
court acknowledged that an exception to these rules may exist where
the obligor has assumed custody and payment of all expenses of the
child; however, the court did not apply this exception to the instant
case.^^^ Support and maintenance orders may be altered prospec-
tively.^^" If the amount payable may be reduced because of the eman-
cipation of some but not all of the children, a court order must be
obtained and it is effective prospectively .^^^ An overpayment of sup-
port, made by agreement of the parties but without court approval,
cannot be recovered or recouped.^^ While credit for support payments
made directly to children will not be allowed if not required by the
support order,^^^ it was recently held that a husband should not be
found in contempt for making support payments directly to the wife
contrary to a decree requiring payments to the clerk.^^®

Property division orders are not ordinarily modifiable, either pro-

'^^See, e.g., Coak v. Rebber, 425 N.E.2d 197 (Ind. Ct. App. 1981) (court set aside
fraudulent conveyance of stock and allowed decree against obligor of corporation to
extent of husband's one-half interest in the corporation). Cf. In re Marriage of Hudak,
428 N.E.2d 1333 (Ind. Ct. App. 1981) (garnishment order denied because garnishee liabil-
ity was not established through failure to introduce interrogatories into evidence).

»^IND. Code § 34-1-2-3 (1982).

*^''428 N.E.2d 803 (Ind. Ct. App. 1981).

'''Id. at 805-06.

'''See Isler v. Isler, 422 N.E.2d 416 (Ind. Ct. App. 1981), discussed in Buck, supra
note 123, at 178; Breedlove v. Breedlove, 421 N.E.2d 739 (Ind. Ct. App. 1981).

'^^425 N.E.2d 667 (Ind. Ct. App. 1981).

''^In re Marriage of Sharp, 427 N.E.2d 690 (Ind. Ct. App. 1981).

^^^Reffeitt v. Reffeitt, 419 N.E.2d 999 (Ind. Ct. App. 1981).

'""In re Marriage of Bradach, 422 N.E.2d 342 (Ind. Ct. App. 1981).

'^'Breedlove v. Breedlove. 421 N.E.2d 739 (Ind. Ct. App. 1981).

'^^Castro V. Castro, 436 N.E.2d 366 (Ind. Ct. App. 1982).

332 INDIANA LAW REVIEW [Vol. 16:315

spectively or retrospectively,^^* but interpretation of a nonmodifiable
property division or support order may be procured to avoid
uncertainties/*" Vagueness or uncertainty of a property division order
is a cause for remand in a direct appeal/*^

5. Receiverships. — By statute, a receiver may be appointed at the
request of the Indiana Securities Commissioner to oversee the assets
of a person who violates Indiana securities laws/*^ Where a receiver
was appointed at the request of the Commissioner, State ex rel Higbie
V. Porter Circuit Courf^^ held that judgment creditors could not en-
force their rights against the receivership debtors by execution but
the judgment creditors must work out their claims through the
receiver/**

6. Decedents ' Estates, — Ordinarily a claim against a person who
dies must be filed with the estate within five months of the first
published notice to creditors, and the estate must have been opened
within one year of death/*^ Several qualifications to this nonclaim
statute were involved in recent decisions. A special statutory rule^*^
allowing tort claims covered by liability insurance to be presented
within the non-estate time limitation was construed in Pasley v.
American Underwriters, Inc}^'^ The court of appeals in Pasley held that
a direct suit by the tort claimant against the heirs or devisees of a
decedent was not properly filed because the plaintiff failed to have
the estate opened and an administrator appointed, within the non-
estate time limitation.^** Since the statute of limitations on the tort
claim expired one day after the suit was filed, but before an opening
of the estate, the claim was barred. In Pasley, form won over

^^^In re Marriage of Bradach, 422 N.E.2d 342 (Ind. Ct. App. 1981) (order may be
reopened under Ind. R. Tr. P. 60).

""TeWalt V. TeWalt, 421 N.E.2d 415 (Ind. Ct. App. 1981) (husband, under writ
of assistance, procured court commissioner to hold disputed funds).

'''In re Marriage of Owens, 425 N.E.2d 222 (Ind. Ct. App. 1981) (spouses made
co-owners with uncertain accounting responsibilities).

i^^lND. Code § 23-2-1-17.1 (1982).

'"428 N.E.2d 782 (Ind. 1981) (court denied writ of prohibition sought by judgment
creditors who were enjoined by lower court from enforcing judgments by way of ex-
ecution). For further discussion of this case, see Galanti, Business Associations, 1982
Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev. 25, 32 (1983).

'^"428 N.E.2d at 783-84. For an interesting decision involving the power of an In-
diana insurance receiver to adjudicate rights to a deposit fund held by another state,
see Underwriters Nat'l Assurance Co. v. North Carolina Life and Accident and Health
Ins. Guar. Ass'n. 102 S. Ct. 1357 (1982).

'^^IND. Code § 29-l-14-l(a). (b), (d) (1982).

'''iND. Code § 29-l-14-l(f) (1982).

'^'433 N.E.2d 838 (Ind. Ct. App. 1982) (noting that the statute provides for suit
by the tort claimant against the "estate" which may be opened up within the tort
"limitations" period).

'*'Id. at 840.

1983] SURVEY-SECURED TRANSACTIONS 333

substance/^^ again justifying lay suspicions that administration of
decedents' estates is not in good hands. However, faith in the system
will be found in First National Bank & Trust Co. v. Coling,^^^ which
allowed a claim that had been erroneously filed. In Coling, the court
clerk had filed the claim under the same cause number as a will con-
test petition in the same action.

An owner of property that is in the possession of a decedent's
estate or his successor is not a creditor in the sense that he must
file a claim within time limits or be forever barred. ^^^ Although he
must file to recover from the representative within five months from
the first published notice to creditors,^^^ he may establish his prop-
erty rights against heirs and devisees outside the statutory time limit
for claims against the estate. This rule was recognized and applied
in Williams v. Williams,^^^ in which the decedent had agreed to sell
his one-half ownership in a corporation to the surviving shareholders.
Although the surviving shareholders failed to file their action against
the personal representative within the five month period/^'* on the
basis of equitable conversion the shareholders were able to enforce
specific performance against the heirs and devisees. ^^^

While an unpaid award of property division to a spouse will sur-
vive the death of the obligor/^^ Hicks v. Fielman^^'^ holds that if the
decree is based upon a settlement which indicates that installments
are made as alimony and conditional upon events indicating that the
payments are intended as maintenance/^* the claim dies with the

'*^Because the tort statute of limitations is not a bar statute, the case clearly fell
within Ind. R. Tr. P. 15(c) if an amendment named a representative with prior knowledge
of the suit — particularly the insurer. That the insurer is the real party in interest,
see Jenkins v. Nachand, 154 Ind. App. 672, 290 N.E.2d 763 (1972) (dead man's statute
did not bar testimony of tort claimant whose claim was covered by insurance).

^^419 N.E.2d 1326 (Ind. Ct. App. 1981) (error corrected by Trial Rule 60(B) motion)

'^^Beach v. Bell, 139 Ind. 167, 38 N.E. 819 (1894); Paidle v. Hestad, 169 Ind. App
370, 348 N.E.2d 678 (1976).

'^^IND. Code § 29-1-14-21 (1982); Estate of Williams, 398 N.E.2d 1368 (Ind. Ct. App
1980).

'^^427 N.E.2d 727 (Ind. Ct. App. 1981), reh'g granted, 432 N.E.2d 417 (Ind. Ct. App
1982). For further discussion of this case, see Falender, Trusts and Decedents' Estates.
1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev. 415, 419 (1983)

'^■"The shareholders in this case were denied a right to litigate their claim by pro
ceedings against the estate in Estate of Williams, 398 N.E.2d 1368 (Ind. Ct. App. 1980)
Dismissal was on the apparent basis that the probate court lacked jurisdiction, and
therefore did not go to the merits.

'^'427 N.E.2d at 731. See Townsend, supra note 42, at 519-20.

'""See White v. White. 167 Ind. App. 459, 338 N.E.2d 749 (1975); cf. Miller v. Clark,
23 Ind. 370 (1864) (arrears of alimony may be collected by administrator after death).

'"421 N.E.2d 716 (Ind. Ct. App. 1981).

^^^Id. at 722. Under present Indiana law, alimony or maintenance seemingly is al-
lowed to a spouse only for physical or mental incapacity or when it is included in the

334 INDIANA LAW REVIEW [Vol. 16:315

obligor. In Hicks, the payments were made dependent on the non-death
and non-remarriage of the obligee, and reducible on the retirement
of the husband-obligor. This follows the established rule that con-
tingent support obligations which are not overdue do not survive/^^
an outmoded principle which is now rejected by statute with respect
to the judicially ordered duty of parents to support children.^^"

7. Bankruptcy. — With the new Bankruptcy Code in full operation
and with the overwhelming number of bankruptcy court opinions, a
number of cases deserve the brief attention of Indiana lawyers. The
Indiana law allowing revocation of a nonpaying judgment debtor's
driver's license^^^ conflicts with the bankruptcy law to the extent that
the statute is enforceable after the debtor has been discharged in
bankruptcy.^*^ A claim for money was held nondischargeable because
the bankrupt had misrepresented the purpose for which he had ob-
tained the money and thus the creditor was induced by false pretenses
to make the loan.^^^ A decree approving a property settlement in which
the husband was to pay installments on a mobile home was held
dischargeable in In re Frey.^^^ However, attorney fees assessed to the
wife in contempt proceedings to enforce the decree were held to be
for maintenance and nondischargeable in Frey}^^ The court in In re
Maitlen,^^^ on the other hand, held nondischargeable the husband's
obligation to pay the mortgage on the home to be occupied by the
wife and child. In Maitlen, the obligation arose from a settlement
agreement approved by the court. This obligation was contained in
a paragraph immediately following a paragraph which provided for
support to a child. The agreement also included a provision terminating
the mortgage payment obligation on death or remarriage of the wife.
The Court of Appeals for the Seventh Circuit concluded that these
factors indicated the obligation was in the nature of support rather
than property division and was thus nondischargeable.^^^

parties' property settlement agreement which is approved by the court. Ind. Code §§
31-l-11.5-9(c), -10(b) (1982). The court is without power to award maintenance absent
these conditions. Whaley v. Whaley, 436 N.E.2d 816 (Ind. Ct. App. 1982) (holding il-
legal a provision that made property division payments dependent upon survivorship).

•^^McKamey v. Watkins, 257 Ind. 195, 273 N.E.2d 542 (1971).

'^''Support orders survive the death of the obligor, subject, however, to modifica-
tion. Ind. Code § 31-l-11.5-17(b) (1982).

^"IND. Code § 9-2-1-6 (1982).

^^Terkinson v. Woody, 419 N.E.2d 1306 (Ind. 1981) (declaring Ind. Code § 39-2-l-ll(c)
unconstitutional in violation of supremacy clause).

'''In re Pappas, 661 F.2d 82 (7th Cir. 1981) (applying 11 U.S.C. § 35(a)(2) (1976) which
was repealed in 1978; current version at 11 U.S.C. § 523(a)(2) (Supp. IV 1980)).

^'''13 Bankr. 12 (S.D. Ind. 1981).

'''Id. at 14.

'««658 F.2d 466 (7th Cir. 1981).

''Ud. at 467.

1983] SURVEY-SECURED TRANSACTIONS 335

Unperfected security agreements were invalidated under the
strong arm provision of the Bankruptcy Code in In re Lintz West Side
Lumber, Inc.^^^ because the debtor was incorrectly named, and in the
questionable case of In re Rex Printing, Inc.^^^ because the security
agreement of a corporation was signed by officers without indicating
the capacity in which they signed. To the extent that it operated
retrospectively, section 522 of the Bankruptcy Code that allows a debt-
or to claim as exempt certain nonpurchase money, nonpossessory
security interests in household goods was held unconstitutional by a
bold local bankruptcy judge.^^° This problem is now before the United
States Supreme Court. ^^^ Future rights to army retirement payments
were found exempt in In re Harte.^''^ In deciding this case, the court
applied a nonbankruptcy federal law.^^^ The loan value of a debtor's
life insurance policies, which are payable to the wife, children and
creditors, is also exempt under Indiana law.^^'' The court in In re
Johnson^''^ held that a Chapter 13 plan to avoid nondischargeability
of a student loan, the debtor's only debt, was not proposed in good
faith. The court in In re Miller^''^ disapproved a Chapter 13 cramdown
plan which contemplated installment payments toward a motor vehi-
cle loan for its value, but which failed to include a lien thereon, in-
terest, a cushion for depreciation, and a showing of need for the asset
as transportation for the debtor.

The plight of a tort creditor of the bankrupt when his claim is
covered by liability insurance was clarified in In re Holtkamp.^'^'^ The
court lifted the automatic stay and allowed the creditor to litigate
his action in state court in view of the fact that estate assets were
not jeopardized. However, it seems that the bankruptcy court should
retain jurisdiction to assure fair distribution among competing tort
claimants when the insurance fund is inadequate.

8. Suretyship. — The folly of signing suretyship agreements makes
its appearance in hard times when special rules of suretyship law

'««655 F.2d 786 (7th Cir. 1981).

'''U Bankr. 403 (N.D. Ind. 1981).

'^Henderson v. Beneficial Fin. Co., 10 Bankr. 19 (N.D. Ind. 1980). A retrospective
law requiring a specified debtor in reorganization to pay employees displacement
allowances was held unconstitutional as not meeting the uniformity requirement of
the constitutional provision granting Congress power to adopt bankruptcy laws. Ry.
Labor Executives Ass'n v. Gibbons, 102 S. Ct. 1169 (1982).

•'•Rodrock v. Sec. Indus. Bank, 642 F.2d 1193 (10th Cir. 1981), prob. juris, noted
sub nom. United States v. Sec. Indus. Bank, 50 U.S.L.W. 3486 (Dec 14, 1981) (No. 81-184).

''no Bankr. 11 (N.D. Ind. 1981).

'''See 10 U.S.C. § 1315 (1976).

''^In re Tennant, 15 Bankr. 502 (N.D. Ind. 1981).

''m Bankr. 78 (S.D. Ind. 1981).

"ns Bankr. 110 (S.D. Ind. 1981).

'"669 F.2d 505 (7th Cir. 1982).

336 INDIANA LAW REVIEW [Vol. 16:315

recognizing that foolishness often come into play. Three recent deci-
sions deal with these depression-oriented problems. However, the court
in American Fletcher National Bank & Trust Co. v. Pavilion, Inc.,^'^^
refused to allow sureties to escape responsibility when the creditor
lied to them with respect to the contents of the surety contract. ^^^
Parol evidence that a construction loan was not to be included in an
all-encompassing contract of continuing guaranty was excluded after
the court delivered a misguided lecture to the effect that businessmen
should read and understand what they sign.^®" The case writes into
law the lowest possible common denominator of business ethics under
the guise of the parol evidence rule.^*^

Sureties signing a note were bound although two of the sureties
named in the note did not sign in Parrish v. Terre Haute Savings
Bank.^^^ No evidence was introduced showing that their signatures
were conditional upon all parties signing. The court in Zack v. Smith^^^
held that a wife is not liable upon a loan procured by the husband
alone, although the proceeds were used in a partnership or joint
business venture. One recent decision^®" held that the husband is not
liable for the wife's medical expenses^®^ and another indicated to the
contrary,^*® but the former recognized that marital assets are second-
arily responsible — a refreshing new idea recognizing a type of common
law community ownership.

C. Miscellaneous

Many troubles have been experienced with the law governing the
assessment of reasonable attorney fees provided by agreement or
statute. The Indiana Supreme Court has made it clear that a right

^^«434 N.E.2d 896 (Ind. Ct. App. 1982).

'''Id. at 906.

'""Id. at 905-07.

^*The decision excluded an admission by the lender that the construction loan
was not included within the broad language of the guarantee. Id. at 905. For a deci-
sion to the contrary, compare Hancock County Bank v. American Fletcher Nat'l Bank
& Trust Co., 150 Ind. App. 513, 276 N.E.2d 580 (1972) (open-end pledge agreement).
The court in Pavilion overlooked the fact that the type of continuing guaranty con-
tract here involved required a two-hour law school course of study to understand its
many ramifications — one of which is the probability that the surety promise remained
revocable by the sureties until credit was extended. Hence, a parol agreement that
it would not apply to a specified later loan was not inconsistent with the writing.

'«M31 N.E.2d 132 (Ind. Ct. App. 1982).

»«^429 N.E.2d 983 (Ind. Ct. App. 1982).

'^^Memorial Hosp. v. Hahaj, 430 N.E.2d 412 (Ind. Ct. App. 1982).

'''See id. at 416.

•^Collection Bureau of Warrick County, Inc. v. Sweeny, 434 N.E.2d 143 (Ind. Ct.
App. 1982) (the court appeared equally persuaded by the parental obligation of the
husband to pay for the expenses attendant upon the birth of his child).

1983] SURVEY-SECURED TRANSACTIONS 337

to reasonable attorney fees includes those incurred in defending an
appeal;^*^ it remains to be settled whether the right to attorney fees
would include expenses in successfully prosecuting an appeal. The right
to post-judgment attorney fees and interest obligations may be ascer-
tained by motion or proceedings in the nature of proceedings sup-
plemental, and if incurred upon appeal, are to be assessed by the trial
court after the appeal is determined. ^^^ Numerous decisions remind
lawyers that claims for reasonable attorney fees should be accompanied
by competent proof.^^^

Consumer legislation received some attention in the last year. On
rehearing, the court in Noel v. General Finance Corp.^^^ determined
that a consumer loan note covering after-acquired consumer goods was
improper because the security interest was not limited to collateral
acquired within ten days of the giving of value. The United States
Supreme Court interpreting the Truth in Lending Act held that con-
sumer credit sale assignees who made final approval of the credit
transaction were "creditors" within the meaning of the law.^^^ A finance
company was allowed to sell household insurance to borrowers on a
voluntary basis, although householders were also covered by
homeowner's policies in Department of Financial Institutions v.
Beneficial Finance Co.^^^ The practice was challenged by a provision
of the Uniform Consumer Credit Code'^^ prohibiting charges for in-
surance unless it covers a substantial risk of loss in consumer trans-
actions. The court correctly noted that the insurance paid off at

'"Templeton v. Sam Klain 8z Son, Inc., 425 N.E.2d 89 (Ind. 1981) (mechanic's lien).
For further discussion, see supra note 96 and accompanying text.

'''Id, at 94-95. See also Indiana State Dep't of Revenue v. Davies, 421 N.E.2d 688
(Ind. Ct. App. 1981) (action by taxpayer to collect interest on prior money judgment
against the Department of Revenue).

'''E.g., Leibowitz v. Moore, 436 N.E.2d 899 (Ind. Ct. App. 1982) ($580 per hour
unreasonable); Henry B. Gilpin Co. v. Moxley, 434 N.E.2d 914 (Ind. Ct. App. 1982) (layman
creditor's affidavit insufficient to support summary judgment of $8500 for attorney
fees); Parrish v. Terre Haute Sav. Bank, 431 N.E.2d 132 (Ind. Ct. App. 1982) (testimony
of bank officer as to what fee attorney would charge to enforce note of bank held
insufficient to establish $5000 attorney fee). Cf. In re Marriage of McBride, 427 N.E.2d
1148 (Ind. Ct. App. 1981) (meager proof established $75 an hour for chief attorney and
$50 for associate and no proof of customary fees in locality where suit filed); In re
Marriage of Gray, 422 N.E.2d 696 (Ind. Ct. App. 1981) (judicial notice of attorney fees
in excess of expert testimony is not abuse of discretion).

^'0421 N.E.2d 25, reh'g 419 N.E.2d (Ind. Ct. App. 1981).

**'Ford Motor Credit Co. v. Cenance, 452 U.S. 155 (1981) (statement on contract
notifying debtor of assignment sufficient disclosure of assignee's creditor status). In
another decision, the Supreme Court held that assignment of unearned property damage
insurance premiums was not a separate "security interest" required to be disclosed.
Anderson Bros. Ford v. Valencia, 425 U.S. 205 (1981) (four justices justifiably dissenting).

'«^426 N.E.2d 711 (Ind. Ct. App. 1981).

^«'lND. Code § 24-4.5-4-301 (1982).

338 INDIANA LAW REVIEW [Vol. 16:315

replacement cost whereas most homeowner policies are limited to cash
value thus justifying the practice of making the insurance available.
Finally, during the survey period, creditors, either directly or in-
ferentially, were awarded by the courts some favorable rulings allow-
ing them to intimidate debtors. A bill collector, for example, may enter
a debtor's home, terrorize the debtor's wife and children by subjec-
ting the husband and father to a beating all without incurring liabil-
ity for any mental distress suffered by the debtor's family.^^''

"'Elza V. Liberty Loan Corp., 422 N.E.2d 760 (Ind. Ct. App. 1981), transfer denied,
426 N.E.2d 1302 (Ind. 1981) (Hunter, J., dissenting). The decision was based upon the
questionable Indiana rule requiring physical impact for emotional injuries of this type.

XV. Social Security and Public Welfare

R. George Wright*

This inaugural Survey Article recognizes the substantial and
increasing importance of Indiana law and of the relationship between
state and federal law in the frequently litigated area of social security
and public welfare. As is typical of the area, the relevant law has
changed rapidly on several fronts during the past survey period. If
any underlying theme emerges, it is that of an increased tension be-
tween the laudable goals of welfare-oriented policies and perceived
budgetary constraints. A generally positive result of this unfortunate
clash of priorities has been an enhanced concern for program fiscal
integrity.

A. Indiana Medicaid Law

1. Medicaid Co-Payments and Injunctive Relief.— In Claus v. Smith,^
the plaintiff Medicaid recipients sought to preliminarily enjoin the
Indiana Department of Public Welfare from requiring, in its discre-
tion, nominal payments by a recipient for certain nonmandatory
Medicaid services.^ The district court ordered the injunction based on
findings of a substantial likelihood of plaintiffs' success on the merits
and of irreparable harm to the plaintiffs were the co-payment scheme
to be effected.^

Of interest in this case was the unusually generous irreparable
harm determination. The court found that such harm was "certain to
result in this case"" but went on to elaborate that:

The plaintiffs . . . may not be able to afford the nominal
co-payment. Thus, the imposition of a co-payment requirement
may result in their failure to obtain certain non-mandatory
Medicaid services. Failure to obtain medical services can result

* Associate with the firm of Livingston, Dildine, Haynie & Yoder — Fort Wayne,
Indiana. A.B., University of Virginia, 1972; Ph.D., Indiana University, 1976; J.D., Indiana
University School of Law -Indianapolis, 1982.

^519 F. Supp. 829 (N.D. Ind. 1981).

^The Indiana statutory authority for imposing these charges is Ind. Code §
12-l-7-16(c), (d) (Supp. 1981) (amended 1982 to exempt additional nonmandatory services
from being subject to co-payment). Ind. Code § 12-1-7-14.9 (Supp. 1981) (amended 1982),
referred to in statutory subsection (c) above, was construed in Wilson v. Stanton, 424
N.E.2d 1042 (Ind. Ct. App. 1981).

'519 F. Supp. at 831. Contra Crane v. Mathews, 417 F. Supp. 532, 539-40 (N.D.
Ga. 1976). Experimental co-payment requirements have been upheld under Medi-Cal
in California Welfare Rights Org. v. Richardson, 348 F. Supp. 491 (N.D. Cal. 1972).

*519 F. Supp. at 831. The court in Crane v. Mathews found the threatened harm
too speculative. 417 F. Supp. at 540. The court in Claus may have considered Crane
irrelevant in view of the temporary nature of the co-payment program in Crane.

339

340 INDIANA LAW REVIEW [Vol. 16:339

in medical problems becoming worse or even untreatable. Im-
plementation of the co-payment scheme would result in
irreparable harm to the plaintiffs.^

Given this language and the absence of a finding that the plaintiffs
would require nonexempt, nonmandatory Medicaid services, and par-
ticularly in light of the Department's statutory discretion to waive
co-payment requirements in cases of undue hardship,^ any irreparable
harm threatened in this case would, in the court's own implicit admis-
sion, seem highly contingent and speculative rather than "certain."

Elsewhere, a court has held that ''[allegations of mere speculative
or contingent injury, with nothing to show in fact that it will occur,
are insufficient to support a prayer for injunctive relief."^ This restric-
tive approach to injunctive relief is grounded in the traditional cautious
reluctance to grant such an extraordinary remedy.* It may be argued,
though, that the court in Claus did no more than extend the kind of
interest-balancing undertaken in a due process context by the Supreme
Court in Goldberg v. Kelly^ to the context of a preliminary injunction
request.

2. Medicaid Reimbursement and Subrogation Rights.— In State v.
Cowdell,^^ the State of Indiana and the Department of Public Welfare
appealed a circuit court judgment awarding them only a one-fifth reim-
bursement of Medicaid funds expended by them from the proceeds
of a litigation settlement between the Medicaid recipient and the in-
juring party. On appeal, no abuse of discretion was found. ^^

The plaintiffs in this case relied on a state administrative regula-
tion allowing state subrogation to the claims of Medicaid recipients
"to the extent of Medicaid benefits received by the recipients . . . ."^^
On appeal, the court found this language consistent with the nature
of subrogation as an equitable doctrine, the extent of its application,
therefore, being subject to the equities of the particular case.^^ In this

^519 F. Supp. at 831 (emphasis added).

«lND. Code § 12-l-7-16(d) (1982).

'Stephens v. Bacon Park Comm'rs, 212 Ga. 426, 428, 93 S.E.2d 351, 351-52 (1956).
See also Powell v. Garmany, 208 Ga. 550, 67 S.E.2d 781 (1951).

'See, e.g., Barcelo v. Brown, 478 F. Supp. 646 (D.P.R. 1979); Orion Broadcasting,
Inc. V. Forsythe, 477 F. Supp. 198 (W.D. Ky. 1979); Rivera v. Blum, 98 Misc. 2d 1002,
420 N.Y.S.2d 304 (Sup. Ct. 1978).

'397 U.S. 254, 261 (1970) (balancing "brutal need" against possible additional public
expense in passing on the need for a pretermination hearing for welfare recipients).

^"421 N.E.2d 667 (Ind. Ct. App. 1981).

"7d at 672.

^^470 Ind. Admin. Code § 5-1-11 (1979). County departments of public welfare are
now accorded subrogation rights under Ind. Code § 12-5-6-9 (1982). The federal statute
and regulation mandating this subrogation action were discussed in another context
in 81 Op. Atty Gen. 15 (May 15, 1981).

^^421 N.E.2d at 671.

1983] SURVEY-SOCIAL SECURITY 341

instance, however, the only unaccounted-for equity was the plaintiffs'
failure to pay their pro rata share of the Medicaid recipient's attorney
fees in obtaining the tort settlement. Although the court cited an
analogous New Mexico case^'' involving an almost equally serious
disparity between the subrogation award and extent of the subrogee's
payment to the subrogor, the court failed to give guidance as to its
reasoning in finding no abuse of discretion in the trial court award.
Examples of more explicitly justified and more generous subrogation
awards, however, can be found in Indiana and elsewhere. ^^

S. Deemed Availability of Noninstitutionalized Spouse's Funds for
Medicaid Eligibility Purposes. —Brown v. Smith^^ was the result of the
Supreme Court's memorandum decision in Stanton v. Broum}'^ to vacate
the Seventh Circuit's judgment in Brown v. Stanton^^ and to remand
the case in light of the Supreme Court case of Schweiker v. Gray
P anther s.^^

In Gray Panthers, the Court had held that, for Medicaid entitle-
ment and benefit amount determinations, Congress had authorized^"
the states, under appropriate circumstances, to impute to an institu-
tionalized spouse the income or resources of a noninstitutionalized
spouse.^^ The Court stated that:

"Available" resources are different from those in hand. We
think that the requirement of availability refers to resources
left to a couple after the spouse has deducted a sum on which
to live. It does not, as respondent argues, permit the State
only to consider the resources actually paid by the spouse to
the applicant.^^

The Court cited Judge Pell's opinion, concurring in part and dissent-
ing in part in Brown v. Stanton, for the impracticality of requiring
states to first adjust upwards the institutionalized spouse's Medicaid

^"White V. Sutherland, 92 N.M. 187, 585 P.2d 331 (1978).

'^See, e.g., Home Owners' Loan Corp. v. Henson, 217 Ind. 554, 29 N.E.2d 873 (1940);
Reserve Loan Life Ins. Co. v. Dulin, 69 Ind. App. 363, 122 N.E. 3 (1919). See also Stan-
ford V. Aulick, 124 Ariz. 487, 605 P.2d 465 (1979); Colonial Penn Ins. Co. v. Ford, 172
N.J. Super. 242, 411 A.2d 736 (Law Div. 1979); Columbia County v. Randall, 49 Or.
App. 643, 620 P.2d 937 (1980). If the Department acts before final settlement, the Cowdell
subrogation problem may now be avoidable under a new provision of the Indiana Code.
iND. Code § 12-1-7-24.6 (1982).

•«662 F.2d 464 (7th Cir. 1981).

•^453 U.S. 97 (1981).

^'617 F.2d 1224 (7th Cir. 1980).

•M53 U.S. 34 (1981).

^'See 42 U.S.C. § 1396a(a)(17)(B), (D) (1976). The provision is discussed in another
context in 81 Op. Att'y Gen. 15 (May 11, 1981).

^'453 U.S. at 48.

^Hd. (emphasis in the original).

942 INDIANA LAW REVIEW [Vol. 16:339

benefits and then proceed under a state spousal support statute to
attempt to obtain reimbursement from a recalcitrant noninstitutional-
ized spouse.^^

On remand, the court in Brown v. Smith held that although Gray
Panthers had sanctioned, in the abstract, Medicaid deeming or the
imputation of spousal income, the Court had left untouched the re-
quirement of an "individualized factual determination of the noninstitu-
tionalized spouse's needs in computing the potentially available funds
subject to deeming."^'' This requirement seems administratively
manageable as long as the burden of showing unavailability of the
apparently available funds is shouldered by the claimant's spouse with
some verification of expenses required. The cost of individualized
determinations would further seem worth paying if such a procedure
obviated any necessity for a divorce or for a reduction in part-time
work effort based on the press of financial necessity.

U. Medicaid Benefit Termination and the Exhaustion Require-
ment—In Evans v. Stanton,^^ the court of appeals upheld the dismissal
of the plaintiffs complaint against the Indiana and Marion County
Departments of Public Welfare. The plaintiff's Medicaid benefits had
been terminated without a prior hearing because of the plaintiffs
failure to timely file for appeal. The plaintiff sought reinstatement,
damages for medical expenses and due process violations, attorney
fees, class action certification, and declaratory and injunctive relief.

The court of appeals, in this case, required exhaustion of ad-
ministrative remedies on the grounds that the plaintiffs constitutional
claims were pressed not alone but in conjunction with unresolved fac-
tual claims regarding his continuing eligibility and on the grounds that
"expedient administrative procedures" were available.^^ An additional
consideration was the Public Welfare Departments' relative expertise
in administering the challenged regulations.^^

Waiver of administrative exhaustion requirements has been recom-
mended under similar circumstances.^^ The appellate court referred

^^Id. at 46. Judge Pell's language has been further quoted by Chief Justice Burger,
dissenting in Herweg v. Ray, 102 S. Ct. 1059, 1069 (1982). Gray Panthers is discussed
briefly in Note, 20 J. Fam. L. 369 (1982).

'"662 F.2d at 468 (citing Schweiker v. Gray Panthers, 453 U.S. 34, 49 n.21 (1981)).
The Seventh Circuit's prior discussion of this requirement is in Brown v, Stanton,
617 F.2d 1224, 1227-28 (7th Cir. 1980).

'^419 N.E.2d 253 (Ind. Ct. App. 1981).

^^Id. at 255. Compare id. (no finding of such severe or imminent harm as would
justify waiver of exhaustion) with Claus v. Smith, 519 F. Supp. 829, 831 (N.D. Ind.
1981) (finding irreparable harm substantial enough to justify preliminary injunction).
See supra text accompanying notes 4-6.

"419 N.E.2d at 255 (discussing 470 Ind. Admin. Code § 9-7-3 (1979)).

^^See Rosenberg, Overseeing the Poor: A Legal-Administrative Analysis of the Indiana
Township Assistance System, 6 Ind. L. Rev. 385, 393-94 (1973).

1983] SURVEY-SOCIAL SECURITY 343

to several Indiana exhaustion cases^* without discussing the occa-
sionally illuminating and generally more liberal federal authority. The
holding in Evans may be instructively contrasted with that of the
Supreme Court in the well-known case of Mathews v. Eldridge,^^ as
acutely expounded by Professor Davis:

The holding [of Eldridge] is, in precise terms, that a review-
ing court may decide a question not raised before the agency
and may decide a constitutional issue when the moving party
has not exhausted administrative remedies on nonconstitutional
issues . . . even when "the only avenue for judicial review"
is a statute which requires exhaustion *'as a jurisdictional pre-
requisite,'' . . . even when the party seeking review is entitled
to apply for a reconsideration, including a hearing, and does
not do so, . . . even when the agency on reconsideration might
reach a favorable decision which would make a determination
of the constitutional question unnecessary . . . .^^

In sum, while the result in Evans seems sound, it is to be hoped that
in an appropriate case, specifically, one involving impending signifi-
cant irreparable medical harm to the plaintiff, each of the numerous
considerations recognized in Evans^^ militating against waiving exhaus-
tion, including the presence of unresolved factual issues, will be seen
to be outweighed.

5. State Participation in Medicaid and Preventive Health Care for
Children.— Bond v. Stanton^^ involved a class action civil rights suit
contending that Indiana failed to implement an appropriate preven-
tive health care program for children as required^^ of all states par-
ticipating in the Medicaid program. On appeal, the plaintiffs main-
tained, and the Seventh Circuit held, that Indiana's Early and Periodic
Screening, Diagnosis and Treatment (EPSDT) program did not
minimally specify what particular tests were required, that Indiana
had not identified those Medicaid providers willing and able to per-
form EPSDT tests, and that the state had not monitored the tests
given or required appropriate diagnosis and follow up treatment of
examinees.^^

''Most notably, to Wilson v. Board of Ind. Employment Sec. Div,, 385 N.E.2d 438
(Ind.), cert, denied, 444 U.S. 874 (1979).

'"424 U.S. 319 (1976).

''K. Davis, Administrative Law Treatise § 20.16, at 292-93 (Supp. 1982). See also
Carter v. Stanton, 405 U.S. 669 (1972) (per curiam) (Indiana welfare regulation case
brought in federal court as a section 1983 action; administrative exhaustion not required).

3^19 N.E.2d at 255 (quoting Indiana Dep't of " Welfare v. Stagner, 410 N.E.2d
1348, 1351 (Ind. Ct. App. 1980)).

'^655 F.2d 766 (7th Cir. 1981).

^"42 U.S.C. § 1396d(a)(4)(B) (1976).

^^655 F.2d at 769.

344 INDIANA LAW REVIEW [Vol. 16:339

The court reasoned that "[wjithout a thorough screening, including
for example appropriate laboratory tests and a nutritional assessment,
two diseases known to be among the leading health problems of poor
children — malnutrition and lead poisoning — may well go undetected
or unprevented."^® This analysis compares quite favorably with that
of the court in Wisconsin Welfare Rights Organization v. Newgent.^'^
In Newgent, the court correctly noted that the regulatory authority
for requiring the extensive testing approved of in Bond was of a non-
binding interpretive rule character,^* but the Newgent court departed
from the spirit of Bond in finding that evidence that only 1.5 percent
of those examined had received a sickle cell test, or that only 9.3 per-
cent had received a lead poisoning test, did not indicate, without other
evidence, a lack of aggressive EPSDT implementation in Wisconsin.^^
Thus, the court in Bond was more aggressive than the Newgent court
with respect to monitoring the administration of the EPSDT program.

B. Uncompensated Hill-Burton Costs as Reimbursable

Medicare Costs

In Johnson County Memorial Hospital v. Schweiker,^^ the plaintiffs
were fifty-one Indiana hospitals that had participated both in the
federal Medicare program and in the Hill-Burton Act grant program.
Under the latter program, grants for hospital construction or improve-
ment are tied to providing a certain measure of free hospital care
not reimbursed under Hill-Burton."^ Judge Dillin determined that the
policy aim of having the costs of treating Medicare beneficiaries borne
by the Medicare program and of having Medicare not bear the costs
of serving non-Medicare patients was served by interpreting the Hill-
Burton free care costs as an imposed legal duty of the hospitals and
a proportionately reimbursable indirect cost under the Medicare
program.'*^ "The Medicare patients benefit from the improved physical
plant which results from Hill-Burton grants as they benefit from other . . .
^necessary and proper costs' such as heating and lighting."** The cost

""Id.

''433 F. Supp. 204 (E.D. Wis. 1977) (decided, however, on plaintiffs motion for
summary judgment for declaratory and injunctive relief).

'7d at 213. See also Smith v. Miller, 665 F.2d 172, 179 n.7 {7th Cir. 1981).

'M33 F. Supp. at 214-15.

*'Compare 655 F.2d at 770 with 433 F. Supp. at 211-12, 215. See also Rosenbaum,
The Medicaid Early and Periodic Screening Diagnosis and Treatment Program: HEW's
New Regulations, 13 Clearinghouse Rev. 742, 742 (1980) (discussing the need for ag-
gressive EPSDT implementation).

"527 F. Supp. 1134 (S.D. Ind. 1981).

*H2 U.S.C. § 291 (1976 & Supp. IV 1980).

"527 F. Supp. at 1139.

**Id. (citing 42 C.F.R. § 405.451(b)(2) (1980)).

1983] SURVEY-SOCIAL SECURITY 345

of the free care obligation was found to be so similar to interest
payments on building loans that not to classify such free care cost
along with the expressly reimbursable interest on borrowed funds
would be arbitrary and capricious."^ Finally, the cost of free care was
found not to be excluded from reimbursement as charity because the
free care obligation was legally enforceable/^

Roughly one month after the decision in Johnson County Memorial
Hospital was issued, the District Court for the Northern District of
Illinois reached a contrary result in Saint Mary of Nazareth Hospital
Center v. Department of HHS.^'' The court in Saint Mary of Nazareth
Hospital Center saw the free care costs as excluded charity"** and found
the connection between Hill-Burton construction or modernization and
Medicare recipients, in particular, as too attenuated to qualify for
reimbursement/^ The court concluded that "it would be illogical" and
in the nature of double-dipping "to obligate hospitals to provide a cer-
tain amount of free health care to indigents as compensation for receiv-
ing federal funds and then reimburse the hospital, again with federal
funds, for the obligation incurred through the initial receipt of federal
monies. ^"

This latter contention was recently addressed in Metropolitan
Medical Center v. Harris. ^^ Looking to the legislative history of the
Hill-Burton Act, the District Court of Minnesota found "no evidence
of any intent to require a hospital to pay for rendering the free care,
only that the facilities be made available to all people,"^^ without
regard to the hospitalized person's financial position. By itself,
however, this policy would not dictate that the participating hospital
be technically overcompensated for such free care provision.

C. Tightening of Welfare Benefit Standards

The persistent theme of the impingement of practical budgetary
constraints on questions of statutory and regulatory interpretation
was manifested in Foster v. Center Township.^^ On cross motions for
summary judgment, the court in Foster found that while a federal

"^527 F. Supp. at 1140. Characterizing a failure to classify free care costs with
interest payments as "contrary to law" would technically seem a more suitable ground
for reversal; it is hardly arbitrary to distinguish the two.

''Id.

*^531 F. Supp. 419 (N.D. 111. 1982).

*«M at 422. Contra St. James Hosp. v. Harris, 535 F. Supp. 751 (N.D. 111. 1981).

*^531 F. Supp. at 421.

^Id. at 422.

'^524 F. Supp. 630 (D. Minn. 1981).

^Hd. at 633. See also Iredell Memorial Hosp. v. Schweiker, 535 F. Supp. 795, 799
(W.D.N.C. 1982).

^527 F. Supp. 377 (N.D. Ind.), affd mem., 673 F.2d 1334 (7th Cir. 1981).

346 INDIANA LAW REVIEW [Vol. 16:339

statute^'' prevents a state from lowering its guaranteed income level
for welfare recipients to take food stamps into account, it is permissi-
ble for a state to lower its guaranteed level for other reasons, such
as to prevent the insolvency of its welfare benefit system.^^ Because
a genuine issue of material fact remained as to Center Township's
reason for decreasing the guaranteed income level, the court held that
summary judgment was inappropriate.^®

Authority is available to support the court's determination that
congressional intent "was to guarantee that food stamps would be
available not in substitution for, but in addition to, any welfare
payments already provided by states."^^ The crucial practical problem
appears to be the evidentiary one of distinguishing a proscribed in-
direct linkage of benefit levels to food stamp availability from reduc-
tion of or failure to increase benefit levels because of perceived budget
constraints. To a certain extent, these two justifications may not even
be conceptually distinct.

In Stanton v. Smith,^^ the action of the Indiana State Welfare
Board in ratably reducing, by twenty-five percent, the financial stand-
ards measure used to determine minimum essential needs for Aid
to Families With Dependent Children (AFDC) recipients was chal-
lenged on the typically unavailing grounds of improper legislative
delegation. The legislature had specified simply that such reduction
was to be carried out and could not exceed thirty-five percent.^^ The
Welfare Board, thereupon, held hearings to select a suitable reduc-
tion percentage. The Attorney General and the Governor were privy
to the hearings and, with the Department of HEW, approved the
Welfare Board's twenty-five percent reduction figure.®" The supreme
court held that the delegation was not improper in view of the exis-
tence of legislative standards designed to guide the exercise of the
Welfare Board's discretion.®^

It is clear that one of the Welfare Board's guidelines was the
state's statutory obligation "to provide minimum standards of
assistance which would provide reasonable subsistence to the most

^"7 U.S.C. § 2017(b) (Supp. IV 1980).

''527 F. Supp. at 379.

"^Id.

"M See, e.g., Dupler v. City of Portland, 421 F. Supp. 1314 (D. Me. 1976). For
a discussion of some of the tenth amendment issues inherent in this type of statute,
see State v. Schweiker, 655 F.2d 401, 411-14 (D.C. Cir. 1981).

'«429 N.E.2d 224 (Ind. 1981). For further discussion of this case, see Smith, Ad-
ministrative Law, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev.
1, 22 (1983).

'^429 N.E.2d at 225.

""Id. at 228.

«7d.

1983] SURVEY-SOCIAL SECURITY 347

needy children. "^^ What is not indicated by the opinion is how the
selected reduction figure relates to this standard, or more generally,
how this figure relates to any policy or evidentiary basis for choosing
the twenty-five percent reduction as opposed to any other particular
figure between zero and thirty-five. While the reasoning process of
the Welfare Board was not called into question on review, it does
not seem appropriate to conclude, as the supreme court did, that ''the
action taken [by the Welfare Board] was subject to sufficient input
and control to prevent arbitrary action."^^ Arbitrariness is most
directly controllable through a required statement of reasons or
grounds for the administrative rule promulgated, rather than through
official participation.^

D. Local Welfare Assistance

The legal relationship between the township trustee and the
county board of commissioners was at issue in Perry Township v.
Hedrick.^^ In Hedrick, the court of appeals affirmed the trial court's
grant of a writ of mandamus to compel the trustee to comply with
the board of commissioners' order to pay the plaintiff's delinquent
utility bill.^ The commissioners had reversed the trustee's initial denial
of assistance to the plaintiff, Hedrick, and the court of appeals held
that from that point, "the trustee was under a clear legal duty to
comply with the order by performing the ministerial act of paying
Hedrick's delinquent electric bill."^^ The court noted that "[n]o provi-
sion in the general assistance statute is made for the trustee to ap-
peal the Commissioners' decision."^*

''Id.

'*See generally 5 U.S.C. § 553(c) (1976); 1 K. Davis, Administrative Law Treatise
§ 6:12 (1978 & Supp. 1980). Indiana statutory provisions on Welfare Board administrative
rulemaking impose no comparable "statement of purpose" requirement. See IND. Code
§§ 4-22-2-4, -5 (1982); iND. Code §§ 12-1-2-2, -3 (1982). But see Greenberg, Administrative
Law, 1980 Survey of Recent Developments in Indiana Law, 14 Ind. L. Rev. 65, 68-69
(1981). The value of a statement of reasons requirement even in the absence of statutory
mandate is extolled in Tri-State Generation and Transmission Ass'n v. Environmental
Quality Council, 590 P.2d 1324, 1330-31 (Wyo. 1979), and a statutory mandate itself
is endorsed in the 1981 Model State Admin. Procedure Act § 3-110, 14 U.L.A. 66 (Supp.
1982).

^^429 N.E.2d 313 (Ind. Ct. App. 1981).

''Id. at 318.

'Ud. at 317. See Rosenberg, Overseeing the Poor: A Legal Administrative Analysis
of the Indiana Township Assistance System, 6 Ind. L. Rev. 385, 393 (1973).

***429 N.E.2d at 317. A somewhat similar issue was determined in accord with
the Hedrick result in Smythe v. Lavine, 76 Misc. 2d 751, 351 N.Y.S.2d 568 (Sup. Ct.
1974) (county social service commissioner not empowered to seek judicial review of
immediate supervisor's aid determination). In Attorney General v. Board of Pub. Welfare,

348 INDIANA LAW REVIEW [Vol. 16:339

The lack of symmetry between the individual claimant's right to
appeaP® and that of the trustee should not be disturbing, especially
in view of the trustee's ability to make subsequent eligibility deter-
minations with respect to the claimant.^" If the Indiana statutory
characterization of the trustee as the "overseer of the poor"^^ is to
be meaningful in this context, it must imply a diminished sense of
legal adversariness on the part of the trusteeJ^ The smooth function-
ing of county government also weighs in this direction, and the burden
of administrative and judicial appellate delay on potential welfare
recipients'^ is obviously substantial.^

E. Social Security Disability Claims

The manipulability and occasional harshness of substantial
evidence review were successively manifested in two significant
disability benefit decisions handed down by the Seventh Circuit.

In Cassiday v. Schweiker,'^^ the Court of Appeals for the Seventh
Circuit reversed a denial of Social Security disability benefits by Chief
Judge Eschbach of the Northern District of Indiana.'^ The case

328 Mass. 446, 104 N.E.2d 496 (1952), mandamus was held to lie to compel a local
board of public welfare to make payments in accordance with a determination by the
state department of public welfare.

^^See Ind. Code § 12-2-1-18 (1982). Appeal of general assistance aid denials in Indiana
is discussed in Note, General Assistance Programs: Review and Remedy of Administrative
Actions in Indiana, 47 Ind. L.J. 393 (1972).

''See Ind. Code § 12-2-1-6.3 (1982).

''Id. § 12-2-1-18.

^^It might be said that the trustee owes a divided quasi-fiduciary duty to both
current claimants and to future claimants, with the latter embodying the value of the
integrity of funding. In an analogous setting, the Secretary is not afforded an appeal
of administrative decisions in favor of Social Security Supplementary Security Income
claimants beyond that provided for in 20 C.F.R. § 416.1455 (1981).

"5ee Goldberg v. Kelly, 397 U.S. 254, 261 (1970) (discussing termination, as opposed
to the initial granting, of benefits).

^^While Hedrick was the most significant state welfare system case decided on
appeal during the past survey period, several cases merit at least brief mention. In
Vanderburgh County Dep't of Pub. Welfare v. Prindle, 419 N.E.2d 239 (Ind. Ct. App.
1981), the court of appeals located the responsibility for medical and hospital care
of Indiana resident indigents injured out of state but treated in state with the county
of the indigent's residence. This result has not been changed by the repeal of the
statute involved nor by enactment, effective January 1, 1982, of the new governing
statute, Ind. Code §§ 12-5-6-1 to -11 (1982). The problem in Trustees of Indiana Univ. v.
County Dep't of Pub. Welfare, 426 N.E.2d 74 (Ind. Ct. App. 1981) of eligibility stan-
dards for hospital assistance is now resolved by section 12-5-6-2(c) of the Indiana Code
and by regulations promulgated thereunder. See 470 Ind. Admin. Code § 11-1-1 (Supp.
1982).

^^663 F.2d 745 (7th Cir. 1981).

^^Chief Judge Eschbach joined the Seventh Circuit on December 12, 1981, some
five weeks after the Seventh Circuit's decision in Cassiday.

1983] SURVEY-SOCIAL SECURITY 349

developed from a decision by Indiana Rehabilitation Services^^ to
discontinue Mrs. Cassiday's benefits on the grounds that her
symptoms^® no longer prevented her from engaging in substantial gain-
ful employment.^^

On appeal, the Seventh Circuit conceded the difficulty in
evaluating the claim in question but found the Administrative Law
Judge's (ALJ) approach to the evidence to be "highly selective"^" and
arbitrary, not in any particular instance, but in cumulative effect.*^
Neither the decision to terminate benefits nor the ALJ's determina-
tion that the claimant had willfully refused prescribed treatment was
found to be based on substantial evidence in the record.*^

Substantial evidence in the record, as a whole, has been classi-
cally described as "such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion"®^ or as "enough to justify,
if the trial were to a jury, a refusal to direct a verdict when the con-
clusion sought to be drawn from it is one of fact for the jury."®" In
this case, nine physicians®^ either treated, examined, or reviewed the
claimant or her medical records during the relevant period. The
treating physicians apparently tended to view the claimant's condi-
tion as more severely disabling than the majority of the examining
physicians or the evenly split reviewing physicians. The Seventh Cir-
cuit was willing to "direct a verdict," despite this obvious equivocality,
in view of case law according the opinion of a treating physician

"In accordance with the national pattern, Indiana Rehabilitation Services acts
under contract with the Social Security Administration. 663 F.2d at 746.

^*M (the symptoms included "pain, numbness, tingling, and weakness in her arms
and hands" and chest pain, brought on by occlusion of blood vessels and nerve root
compression).

''Id. See 42 U.S.C. § 423 (1976 & Supp. IV 1980); 20 C.F.R. §§ 404.1501 to -.1574
& app. 2 (1981).

%63 F.2d at 749.

'Ud. at 748.

''Id. at 750.

'^Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938), quoted in NLRB
V. Columbian Enameling & Stamping Co., 306 U.S. 292, 300 (1939). See also Richardson
V. Perales, 402 U.S. 389, 401 (1971); Universal Camera Corp. v. NLRB, 340 U.S. 474,
477-87 (1951).

'"NLRB V. Columbian Enameling & Stamping Co., 306 U.S. 292, 300 (1939).

'^Inefficient over-utilization of expensive physician time in the disability adjudica-
tion process is common. See Richardson v. Perales, 402 U.S. 389 (1971) (six examining
physicians and one reviewing physician relied upon); Oldham v. Schweiker, 660 F.2d
1078 (5th Cir. 1981) (eight examining physicians and one examining psychologist in-
volved); Anderson v. Schweiker, 651 F.2d 306 (5th Cir. 1981) (ten examining physicians
involved); Roy v. Secretary of HHS, 512 F. Supp. 1245 (CD. 111. 1981) (six examining
physicians); Schlabach v. Secretary of HEW, 469 F. Supp. 304 (N.D. Ind. 1978) (six
physicians involved).

350 INDIANA LAW REVIEW [Vol. 16:339

greater weight than that of a physician who has examined the claim-
ant only once.®^

Ideally, this case would have been remanded for vocational expert
testimony. What should be sought from physicians is their opinion
as to a claimant's physical or medical condition, not whether the clai-
mant falls into the legal category of "disabled," or even whether the
claimant's relationship to the relevant job market is such that she
is capable of "sedentary light work" or "light sedentary work."*^ Each
of the latter quoted expressions is legally meaningless under the ap-
plicable disability regulations.^®

The Seventh Circuit also found insufficient evidence to sustain
the ALJ's determination that the claimant's case fell under the regula-
tion barring disability status to one who willfully refuses prescribed
treatment.^® The appellate court declared its willingness to hang the
weight of a disability determination on the distinction between a physi-
cian's "prescribing" surgery — an unidiomatic usage in itself— and
"recommending" surgery. The claimant's reasons for declining treat-
ment may be frivolous or amount to sheer opportunism as long as
the latter characterization, and not the former, is applied to the physi-
cian's remedy.

In the second disability benefits case. Judge Posner of the Seventh
Circuit applied the substantial evidence standard far more deferen-
tially. In Cummins v. Schweiker,^ the court of appeals upheld the denial
of disability benefits by the District Court for the Northern District
of Indiana, relying in part on the controversial new medical-vocational
guidelines or grid regulations.^^

^'See Allen v. Weinberger, 552 F.2d 781, 786 (7th Cir. 1977). Cf. Cummins v.
Schweiker, 670 F.2d 81, 84 (7th Cir. 1982) (refusing to accord decisive weight to the
opinion of a long-time family physician).

®^663 F.2d at 747. Increased use of vocational expert testimony would also mitigate
any perceived battles between government-employed physicians and sympathetic family
physicians. Compare Cummins v. Schweiker, 670 F.2d 81, 84 (7th Cir. 1982) with Richard-
son V. Perales, 402 U.S. 389, 414 (1971) (Douglas, J., dissenting).

''See 20 C.F.R. § 404.1567 (1981).

''See id. § 404.1518 (1980).

^°670 F.2d 81 (7th Cir. 1982).

''20 C.F.R. §§ 404.1501 to -.1569 & app. 2 (1981). Under these regulations, a severely
impaired claimant prevented from doing his past work and not currently doing signifi-
cant work is categorized based on the level of work exertion he is capable of, his
age, education, and nature of work experience, and the transferability of any acquired
job skills to other job settings. The individual findings are then simply programmed
into the appropriate Appendix 2 Grid. Nonexertional limitations aside, if the precise
combination of findings in a given case is explicitly provided for in one of the grids,
the claimant is determined by the grid to be disabled or not disabled. Administrative
notice has been taken in the rules themselves of the number of unskilled jobs at various
exertional levels that exist throughout the national economy. 20 C.F.R. app. 2 § 200.00
(1981); Decker v. Harris, 647 F.2d 291, 297 (2d Cir. 1981). The regulations discuss the

1983] SURVEY-SOCIAL SECURITY 351

The claimant in Cummins was forty-nine years old, of limited
education, arthritic in his knees and right shoulder, mildly weakened
in his right side due to an automobile accident, and had suffered, out-
side the record on appeal, a recent heart attack. A potentially signifi-
cant nonexertional limitation was his blindness in one eye. By implica-
tion, the claimant would have been found disabled had he been fifty
years old, had unimpaired binocular vision, and suffered no heart
attack.

While Judge Posner recognized in Cummins that the statutory
criteria for disability are quite strict and that disability is not
synonymous with unemployment or even unemployability,^ the Cum-
mins decision left uncertain the status of other undiscussed, recent
Seventh Circuit cases of a more liberal bent. Where Judge Posner
writes of the claimant in Cummins that "[p]ossibly his prospects of
obtaining substantial gainful employment of any kind . . . have never
been more than theoretical,"^^ the Seventh Circuit has previously held
that "[t]he mere theoretical ability to. engage in substantial, gainful
activity is insufficient to defeat an applicant's claim for disability
benefits."^^

Judge Posner's opinion upholds the grid regulations®^ against a
challenge to the effect that the regulations attempt, contrary to
statute, to dispense with the need for evidence of the existence, in
substantial numbers, of suitable jobs. The difficulty inherent in cross-
examining a grid as to whether particular unspecified sorts of jobs
are genuinely suitable for the claimant has rendered the grid regula-
tions controversial,®^ despite their laudable aim of streamlining the

claimant's right to rebuttal only in the context of the various factual determinations
programmed into the grid, and not in the context of linking specific existing job types
with the claimant's capacities. 20 C.F.R. app. 2 § 200.00 (1981); Geoffroy v. Secretary
of HHS, 663 F.2d 315, 318 (1st Cir. 1981).

''See 20 C.F.R. § 404.1566(c) (1981).

'^670 F.2d at 84.

^''Smith V. Secretary of HEW, 587 F.2d 857, 861 (7th Cir. 1978) (per curiam). See
also Stark v. Weinberger, 497 F.2d 1092 (7th Cir. 1974); Schlabach v. Secretary of HEW,
469 F. Supp. 304, 316 (N.D. Ind. 1978) (focusing on the unrealism of supposing that
an employer would actually hire anyone with the impairments of the claimant).

^^670 F.2d at 83-84. See supra note 91 and accompanying text.

'^See, e.g., Chapman v. Schweiker, No. 81-1025 (10th Cir. Feb. 26, 1982) (available
June 28, 1982, on LEXIS, Genfed library. Newer file); Kirk v. Secretary of HHS, 667
F.2d 524 (6th Cir. 1981) (upholding the regulations against several statutory and con-
stitutional objections); Salinas v. Schweiker, 662 F.2d 345, 349 (5th Cir. 1981) (allowing
the use of administrative notice of jobs which claimant could perform in lieu of calling
a vocational expert to testify) (citing Frady v. Harris, 646 F.2d 143, 144-45 (4th Cir.
1981)). But see Davis v. Schweiker, 536 F. Supp. 90 (N.D. Cal. 1982); Santise v. Harris,
501 F. Supp. 274, 277 (D.N.J. 1980) (discussed in Cummins), rev'd sub nom. Santise
V. Schweiker, 676 F.2d 925, 935 (3d Cir. 1982) (favorably citing Judge Posner's opinion
in Cummins). See also Desedare v. Secretary of HEW, 534 F. Supp. 21 (W.D. Ark.

352 INDIANA LAW REVIEW [Vol. 16:339

disability adjudication process and increasing the uniformity of result.^^

F. Statutory Developments

In addition to the legislative enactments mentioned in connection
with particular cases above, the past survey period was marked by
numerous potentially significant statutory developments.

The legislature, in one enactment, defined Community Action
Agencies and community action programs aimed at poverty reduction.^*
The legislature charged such agencies to be broadly representative
in composition and emphasized utilizing private sector resources in
closing social service gaps, coordinating the variety of social service
programs available, and focusing available resources on the most needy
persons.^^

Similarly, the legislature established a department on aging and
community services and a state commission on the aging and the aged
thereunder/"^ The legislative emphasis is on service coordination and
research, as well as advocacy, in areas such as health and nutrition,
transportation, and housing and employment counseling. Also, the role
of senior volunteer programs and the value of participation by the
aged in community life is noted. ^"^

Attorneys will note the absence, in the statute, of any explicit
recognition of the need of older citizens for the provision of legal
services. ^°^ In this area, as in others, the availability and stability of

1981); Stewart v. Harris, 508 F. Supp. 345 (D.N.J. 1981). Probably the most trenchant
criticism of the regulations relied upon in Cummins is to be found in Campbell v.
Secretary of HHS, 665 F.2d 48, 53-54 (2d Cir. 1981); Decker v. Harris, 647 F.2d 291,
298-99 (2d Cir. 1981); and Fisher v. Schweiker, 514 F. Supp. 119, 121 (W.D. Mo. 1981).
In turn, Decker has been criticized in Torres v. Secretary of HHS, 677 F.2d 167, 169
(1st Cir. 1982). The most recent case on point is Broz v. Schweiker, 677 F.2d 1351,
1360 (11th Cir. 1982) (striking down the grid's conclusive determination that persons
age 49 are able to adjust to new unskilled sedentary work as improperly ignoring
the distinction between legislative and adjudicative facts).

^'See 670 F.2d at 83.

««IND. Code §§ 12-1-21-1 to -9 (1982).

""Id.

"^Id. §§ 4-27-1-1 to -4-3.

^°Ud. § 4-27-3-1. The State of California provides an interesting contrast in more
explictly recognizing the role of older citizens as a collective social resource. "Older
persons constitute a fundamental resource of the state which previously has been under-
valued and poorly utilized, and . . . ways must be found to enable older people to
apply their competence, wisdom, and experience for the benefit of all . . . ." Cal.
Welf. & Inst. Code § 9001(a) (West Supp. 1982). California thus approaches an explicit
distinction between older citizens as a productive community resource and older citizens
as social service consumers. It is arguable that the retired person seeking part-time
paid employment has less of an immediate community of interest with the chronically
impaired aged than with the active workforce.

""'In contrast, see Cal. Welf. & Inst. Code § 9002(f)(8) (West Supp. 1982).

1983] SURVEY-SOCIAL SECURITY 353

state funding is of perhaps greater concern than coordination and
efficient utilization of programs, and Indiana has declined to follow
emulable models in this respect. ^''^

In a related welfare area, an Indiana rehabilitation services agency
was established to receive gifts and bequests, to initiate and operate
programs related to the vocational rehabilitation of blind, visually im-
paired, and handicapped persons, and to operate, with federal govern-
ment approval, a disability determination division for the purpose of
adjudicating disability insurance and supplemental security income
claims under Social Security/"*

Under another act,^°^ "health facilities" was defined^"® and an
Indiana health facilities council established, with the latter being
empowered to adopt rules to protect patient health, safety, rights,
and welfare, along with the authority to conduct unannounced
inspections^"^ of health care facilities and to recommend to the State
Board of Health with respect to the issuance and revocation of licenses.
Provision is made for investigation and confidentiality of complaints,
and for imposition of appropriate sanctions for rule violations. The
most serious and unmitigated violations may result, after June 30,
1983, in the state health commissioner's ordering immediate correc-
tive action and imposing a fine of up to $10,000,^"* along with license
revocation by the health facilities council on the commissioner's
recommendation.

Also, a nursing home prescreening program was established^"^ that
generally requires prior screening and approval for placement in a
nursing home by a multidisciplinary screening team "if the person
is currently or will within two (2) years be financially eligible for
assistance under the Federal Medicaid Program ... for the payment
of any part of the cost of care provided in a health facility.""" The

'''See, e.g., N.Y. Exec. Law §§ 536-a4(b), 541 (McKinney 1972 & Supp. 1972-1981) (pro-
viding for at least partial or limited state reimbursement of approved local expend-
itures for community services to the elderly).

""IND. Code §§ 16-7-17-1 to -15 (1982).

""Id. §§ 16-10-4-1 to -29.

'""M § 16-10-4-2(a). Significant exclusions are made with respect to the scope of
"health facility." See id. § 16-10-4-2(b).

'°7d § 16-10-4-7(b). For an excellent discussion of the fourth amendment constitu-
tionality of unannounced warrantless inspections of health care facilities limited by
statute to reasonable times, see People v. Firstenberg, 92 Cal. App. 3d 570, 155 Cal.
Rptr. 80 (1979), cert, denied, 444 U.S. 1012 (1980).

'°*Ind. Code § 16-10-4-15(c)(l)(A) (1982). For a thorough discussion of several issues
involved in the imposition of substantial civil fines by administrative agencies, see
Lloyd A. Fry Roofing Co. v. Pollution Control Bd., 46 111. App. 3d 412, 361 N.E.2d
23 (1977).

•"'IND. Code §§ 12-1-22-1 to -6 (1982).

"°7d § 12-l-22-2(a). Cf. Ariz. Rev. Stat. Ann. § 11-293 (Supp. 1981) (conditioning eligi-
bility for nursing home placement on preadmission screening of the individual indigent).

354 INDIANA LAW REVIEW [Vol. 16:339

screening process involves an assessment of whether placement in
a nursing home is appropriate in light of the applicant's medical needs
and the availability and cost-effectiveness of alternatives to nursing
home care. Nonparticipation by the applicant in the preadmission
screening program bars the person's eligibility for Medicaid assistance
in connection with services provided by the nursing home for two
years after admission/"

Finally, the legislature established a State Medicaid Fraud Con-
trol Unit"^ under applicable federal statutory authority."^ Provision
is made for the referral of unresolved cases of suspected overpayments
or improper payments to Medicaid providers to the Medicaid Fraud
Control Unit, which may in turn refer the matter to the appropriate
prosecutor."*

"This provision is probably defensible against an equal protection or due process
challenge in light of the federal statutory mandate of 42 U.S.C. § 1396(a)(26)(A) (Supp.
IV 1980) and the "broad discretion" conferred on the states in adopting standards
with respect to eligibility for Medicaid assistance. See Beal v. Doe, 432 U.S. 438, 444
(1977). See also Blum v. Yaretsky, 102 S. Ct. 2777 (1982). The Medicaid "freedom of
choice" policy of section 1396(a)(23) would not seem to be literally implicated, though
conscientious, religiously based objections to the preadmission screening would raise
constitutional questions.

"'IND. Code §§ 4-6-10-1 to -2 (1982).

"^42 U.S.C. § 1396b(q) (Supp. IV 1980). For a discussion of the Federal Medicare-
Medicaid Anti-Fraud and Abuse Amendments, see H. McCormick, Medicare and
Medicaid Claims and Procedures 9-15 (Supp. 1981).

"^IND. Code §§ 12-1-7-15.8 to -15.9 (1982).

XVI. Taxation

John W. Boyd*
A. Introduction

While the 1981-82 survey period brought radical changes and
significant developments in the area of federal tax law through, most
significantly, the enactment of the Economic Recovery Tax Act of 1981
(ERTA),^ the same cannot be said with respect to case and statutory
developments in the area of Indiana tax law. Nevertheless, there are
several case and statutory developments which occurred during this
period that are worthy of comment not only for the purpose of
isolating their independent significance to particular areas of Indiana
tax law, but also for the purpose of tracing the trends in the overall
development of Indiana tax law.

Insofar as the judicial developments in the area of Indiana tax
law are concerned, this author would agree with the comment made
in last year's Survey^ with respect to the significant case of Indiana
Department of Revenue v. Kimberly-Clark Corp.^ that "common sense
is still the prevailing yardstick in Indiana for measuring state tax
liability."^ This is evidenced by the approach that the Indiana Supreme
Court and the Indiana Court of Appeals have taken in most of the
cases discussed in this Survey.^ Although that is generally the case,
the area of taxation, being a code as opposed to a common law
discipline, often turns on technical aspects. The importance of the
technician is highlighted in certain cases handed down during the
survey period.®

Insofar as the statutory area is concerned, there are likewise
specific statutory developments and general statutory trends which
are worthy of comment. Certain of these specific statutory

♦Professional member of the law firm of McHale Cook & Welch, P.C, Indianapolis,
Indiana. B.A., Northwestern University, 1973; J.D., Indiana University School of Law —
Indianapolis, 1976. The author wishes to acknowledge the efforts of the Indiana Law
Review staff and, in particular, of Craig A. Etter in preparing this Article.

Tub. L. No. 97-34, 95 Stat. 172 (1981). Discussion of the Economic Recovery Tax
Act of 1981 (ERTA) is, of course, beyond the scope of this Article. ERTA was, however,
the basis for many of the more significant legislative developments of the Survey Period.
See infra text accompanying notes 93-123.

^King, Taxation, 1981 Survey of Recent Developments in Indiana Law, 15 Ind. L.
Rev. 409 (1982).

^416 N.E.2d 1264 (Ind. 1981).

^King, supra note 2, at 409.

'See, e.g., Park 100 Dev. Co. v. Indiana Dep't of State Revenue, 429 N.E.2d 220
(Ind. 1981). This case is discussed later in this Article. See infra text accompanying
notes 69-72.

^See, e.g., Indiana Dep't of Revenue v. United States Steel Corp., 425 N.E.2d 659
(Ind. Ct. App. 1981). One highlight of this case is the importance the court placed upon
segregating accounts to track and support sales and use tax exemptions.

355

356 INDIANA LAW REVIEW [Vol. 16:355

developments will be discussed in some detail, while other statutory
developments of a specialized nature will merely be noted. The 1982
General Assembly did continue the process of recodifying the various
acts in Title 6 of the Indiana Code by enacting Public Law 59 which
is a recodification of the Indiana Motor Carrier Fuel Tax.^ Of more
general significance, however, was the Indiana Legislature's selective
acceptance of portions of ERTA in its traditional updating of the Inter-
nal Revenue Code references in Title 6.®

Also to be noted is the increased volume of administrative rulings®
issued by the Indiana Department of State Revenue (Revenue Depart-
ment) during the past survey period. The increased number of rul-
ings has been helpful to the practitioner planning transactions and
evaluating controversies, because they provide an ever-growing body
of authority from which to draw when evaluating a particular set of
circumstances. As an adjunct to noting the rulings activity of the
Revenue Department, the efforts of the Revenue Department to up-
date regulations and to issue explanatory releases or guidelines should
also be noted. While these administrative activities have been
beneficial to the practitioner by providing a published basis for deter-
mining the view of the Revenue Department as to a particular issue,
they also provide a basis for litigation.^"

B. Sales and Use Tax Decisions

The "double direct" language of the sales and use tax exemption
for transactions involving machinery, tools, and equipment used for
manufacturing" has lead to substantial litigation over what qualifies
for the exemption. The statutory language restricts the application
of the exemption to manufacturing equipment which is directly used
or consumed by the purchaser in the direct production of tangible per-
sonal property. The judicial decisions dealing with what types of
manufacturing equipment may be considered to be directly used in
direct production appear to be irreconcilable from a doctrinal

'Act of Feb. 24, 1982, Pub. L. No. 59, 1982 Ind. Acts 523 (1982). In recent years
past, the Gross Income Tax, Sales and Use Tax, Motor Fuel, and Special Fuel Tax
Acts have been recodified, and the administrative provisions of the various tax acts
have been incorporated into an "administrative code."

«Act of Feb. 25, 1982, Pub. L. No. 52, 1982 Ind. Acts 494 (1982).

^Such rulings are summarized and distributed to the public in quarterly "circulars"
in accordance with Commissioner's Directive No. 3.

^'^See, e.g., Indiana Dep't of Revenue v. United States Steel Corp., 425 N.E.2d 659
(Ind. Ct. App. 1981) (the Revenue Department's Sales and Use Tax Regulations, 45
Ind. Admin. Code §§ 2-1-1 to -16-1 (1979), were called into question).

"Ind. Code §§ 6-2.5-5-3 to -4 (1982) (previously codified at id. § 6-2-l-39(b)(6) and (10)
(1976)).

1983] SURVEY-TAXATION 357

perspective.^^ This irreconcilability may have been partially eliminated
through the common sense gloss placed on the exemption by the court
of appeals in Indiana Department of Revenue v. United States Steel
Corj)}^

At issue in that case was the application of the exemption to cer-
tain protective equipment, including safety eyeglasses, protective
gloves, hardhats, shields, and protective clothing used by production
workers at the taxpayer's steel production facilities. In upholding the
trial court determination that the equipment was not only "essential
and integral" to the production of steel but also was directly used
in direct production,^* the court of appeals rejected the "positive ef-
fect" test proffered by the Revenue Department because it was "too
vague and misleading to provide an effective and accurate guide for
taxpayers."^^

In support of its denial of the exemption for the safety equipment
in question, the Revenue Department relied primarily on Indiana
Department of State Revenue v. Harrison Steel Castings Co.^^ In
Harrison, the court of appeals denied the exemption for safety glasses
used to protect workers' eyes from flying debris and for gloves used
to protect workers' hands from rough castings, because this equip-
ment did not have a "positive effect" on and direct causal relationship
with the product.^^ Although the court in United States Steel noted
that the adoption of the Revenue Department's positive effect test
in Harrison was "inconsistent with the careful analysis of earlier
decisions,"^® the court did not overrule Harrison; rather, it stated that
the two cases are factually distinguishable because the safety equip-
ment in Harrison was for the protection of the workers and was not
necessary for the creation of the product, while the safety equipment
in United States Steel was "so highly specialized that creation of the
product is impossible without it."^^

Notwithstanding the basis of the foregoing distinction, United
States Steel cannot be seen as establishing a simple sine qua non test
for directness. The court in United States Steel continues to adhere
to the directness test set forth in Indiana Department of State Revenue

^^Compare Indiana Dep't of Revenue v. Calcar Quarries, Inc., 394 N.E.2d 939 (Ind.
Ct. App. 1979) with Indiana Dep't of State Revenue v. Cave Stone, Inc., 409 N.E.2d
690 (Ind. Ct. App. 1980), reh'g denied, 427 N.E.2d 922 (1981).

'^425 N.E.2d 659 (Ind. Ct. App. 1981).

"M at 661.

''Id. at 666.

'M02 N.E.2d 1276 (Ind. Ct. App. 1980).

'Ud. at 1278.

^«425 N.E.2d at 664.

''Id.

358 INDIANA LAW REVIEW [Vol. 16:355

V. RCA Corp.^ That test requires the manufacturing equipment to have
an "immediate link with the product being produced."^^ According to
the court in United States SteeU in order for equipment to have an
immediate link with the product being produced, it must be "essen-
tial and integral" to the production of the product.^^ This embellish-
ment on the directness test furthers the common sense theme so
familiar in recent decisions, and it removes some of the previously
existing doctrinal uncertainty as to the appropriate analysis.

United States Steel also lends some clarification to the contradic-
tion, noted in last year's Survey ,^^ between the court's 1980 opinion
in Indiana Department of State Revenue v. Cave Stone, Inc.^* and its
earlier decision in Indiana Department of Revenue v. Calcar Quarries,
Inc}^ Calcar Quarries rejected the Revenue Department's positive ef-
fect test; whereas. Cave Stone appeared to utilize the positive effect
test in denying the exemption for transportation equipment used to
haul graded stone from one step of the manufacturing process to
another. The contradiction between these cases was reviewed in last
year's Survey as follows:

[I]t is not clear whether in Cave Stone the court was really
embracing the Revenue Department's direct use test and re-
quiring that the machinery have a "positive effect" on *the
manufactured product or whether the court was simply
concluding that the taxpayer was engaged in two separate ex-
empt functions, quarrying and manufacturing. In the latter in-
stance, transportation equipment which merely moved the
stone from the quarry to the manufacturing operation was tax-
able because such equipment was not directly integral to either
exempt function.^®

In addressing this issue, the court in United States Steel explained
that Cave Stone should be interpreted as denying an exemption for
equipment which merely transports the product between two exempt
functions.^^

The United States Steel interpretation was confirmed when the
court of appeals denied the petition for rehearing of Cave Stone^^ and

'"160 Ind. App. 55, 61, 310 N.E.2d 96, 100 (1974).

^Ud., quoted in Indiana Dep't of Revenue v. United States Steel Corp., 425 N.E.2d
659, 662 (Ind. Ct. App. 1981).

'H25 N.E.2d at 664.

'^King, supra note 2, at 413-15.

'"409 N.E.2d 690 (Ind. Ct. App. 1980).

'^394 N.E.2d 939 (Ind. Ct. App. 1979).

'^King, supra note 2, at 413-14.

'^425 N.E.2d at 664.

'^Indiana Dep't of State Revenue v. Cave Stone, Inc., 427 N.E.2d 922 (Ind. Ct.
App. 1981).

1983] SURVEY-TAXATION 359

stated that "manufacturing equipment must have a transformational
effect as opposed to a translational effect for it to be exempt."^^ Thus,
neither the quarried stone nor the crushed stone was considered to
be undergoing processing, mining, or production during transportation.
In the Cave Stone rehearing opinion, the court also stated that it
disagreed with the Calcar holding to the extent that Calcar recognized
an exemption which encompassed an overlapping of enumerated
statutorily exempt functions.^"

Although the decision in United States Steel may not provide the
definitive answer to the ambiguity created by the double direct
language of the manufacturing exemption statute, it does represent
a positive step towards a more realistic interpretation by eliminating
the vacuous positive effect test and emphasizing a fact-sensitive
analytical approach. The Cave Stone rehearing opinion also represents
a step toward an understandable interpretation by requiring the
analysis to focus on the actual production process.

C. Gross Income Tax Decisions

1. Interstate Commerce Coses. — During the survey period, the
court of appeals was faced with three cases involving the applicability
of the Indiana gross income tax to corporations involved in interstate
commerce. Two of these cases, Indiana Department of State Revenue
V. Brown Boveri Corp.^^ and Indiana Department of State Revenue v.
General Foods Corp.,^^ were essentially mine run cases involving tax-
ation of interstate commerce concepts, but the third case, Reynolds
Metals Co. v. Indiana Department of State Revenue,^ involved issues
of a more novel nature.

In Brown Boveri, the interstate commerce in question involved
a contract whereby the defendant, a foreign corporation, was to install
an induction melting system in an Indianapolis foundry of a national
corporation. The system in question was prefabricated at an out-of-
state plant, broken down for shipment to Indiana and then reassembled
at the purchaser's Indiana facility. In order to fulfill its obligation
under the contract, the taxpayer was required to engage in various
activities in Indiana, including removing obsolete equipment and foun-
dations, trenching, and reassembling and reinforcing the new equip-
ment. The part of this system for air pollution control was obtained
from a third party and was to be installed by yet another party. Both
the supplier and the installer of the pollution equipment were foreign
corporations.

''Id. at 924.

^'Id. at 923.

^^429 N.E.2d 285 (Ind. Ct. App. 1981).

'H21 N.E.2d 665 (Ind. Ct. App. 1981).

^M33 N.E.2d 1 (Ind. Ct. App. 1982).

360 INDIANA LAW REVIEW [Vol. 16:355

In asserting that the receipts from the contract were taxable as
gross income, the Revenue Department argued that the performance
of substantial installation activities within Indiana removed the trans-
action from the statutory interstate commerce exemption. In support
of its argument, the Revenue Department relied on case law which
holds that if activities taking place within this state are "more than
minimal or incidental" to the overall contract, then such activities are
sufficient to justify the imposition of state taxation.^'*

Having little difficulty in rejecting those arguments, the court
barkened back to the principle that the determining factor in deciding
what activity constitutes interstate commerce that is insulated from
state taxation is whether the in-state activities "are so intrinsically
related to and inherently a part of the interstate sale that it is seen
as one continuing transaction."^^ With the facts presented in Brown
Boveri, the court had little problem in concluding that the taxpayer's
activities within this state were intrinsically related to, and inherent-
ly a part of, the sale in interstate commerce.^^ Consequently, the
receipts generated by the contract were held to be exempt from gross
income taxation.^'

Indiana Department of State Revenue v. General Foods Corp.^^ in-
volved an assessment of gross income tax on amounts received by
a national food producing and wholesaling corporation from sales to
Indiana customers. These sales were made through out-of-state sales
facilities pursuant to orders accepted at out-of-state facilities and were
shipped to Indiana customers from out-of-state distribution facilities.
The basis of the Revenue Department's assertion that such receipts
were taxable was that products of the same type were from time to
time stored in Indiana warehouse facilities. It should be noted that
the taxpayer did report and pay gross income tax on receipts from
sales to Indiana customers generated by shipments from its Indiana
warehouse facilities.^® However, the Revenue Department contended
that all of the taxpayer's products sold in Indiana which were of a
type maintained in inventory in Indiana facilities were subject to the
tax, regardless of whether the sales were generated by, and shipped
from, out-of-state facilities.

'*429 N.E.2d at 287 (citing Gross Income Tax Div. v. Surface Combustion Corp.,
232 Ind. 100, 111 N.E.2d 50 (1953); Gross Income Tax Div. v. Fort Pitt Bridge Works,
227 Ind. 538, 86 N.E.2d 685 (1949)).

'^429 N.E.2d at 288. As authority for this principle, the court cited Gross Income
Tax Div. V. Surface Combustion Corp., 232 Ind. 100, 111 N.E.2d 50 (1953) and Gross
Income Tax Div. v. Fort Pitt Bridge Works, 227 Ind. 538, 86 N.E.2d 685 (1949).

*'429 N.E.2d at 288.

^427 N.E.2d 665 (Ind. Ct. App. 1981).
''Id. at 667.

1983] SURVEY -TAXATION 361

In effect, the Revenue Department in General Foods Corp. was
attempting to assert that the presence of certain types of inventory
within Indiana subjects all Indiana-destination sales of that type of
inventory to gross income taxation, regardless of other factors which
may exist with respect to those sales. Noting that the derivation of
income must be attributable to in-state activities of the taxpayer in
question as opposed to the source of the sales receipts, the court of
appeals rejected the Revenue Department's contention and ruled that
the gross income tax was inapplicable to the sales receipts in
question/"

In Reynolds Metals Co. v. Indiana Department of State Revenue,*^
the taxpayer raised the issue of whether the statutory three-factor
apportionment formula,''^ used in determining business income derived
from Indiana sources for adjusted gross income purposes, could be
utilized for gross income tax purposes. By way of background, use of
the apportionment formula was, as the court in Reynolds noted, '*sug-
gested for possible application in the gross income context in Indiana
Department of Revenue v. P.F. Goodrich Corp.''^^ The court in Reynolds
rejected the taxpayer's argument that Goodrich required the use of
the three-factor apportionment formula **in lieu of identifying the ac-
tual income generated by business activity in this state."*^ Noting that
Goodrich involved a one-instance transaction which was incapable of
division into portions attributable to in-state and out-of-state business
activity, the court in Reynolds held that the apportionment formula
was not appropriate in this case, effectively limiting the application
of apportionment in gross income tax to receipts inherently incapable
of association with a particular taxing jurisdiction."^

Instructive to taxpayers was the court's distilled analysis of the
thrust of many of the significant cases regarding the taxation of inter-
state business activities. The court stated that:

''Id. at 670.

^'433 N.E.2d 1 (Ind. Ct. App. 1982).

^''IND. Code § 6-3-2-2(b) (1982) provides as follows:

If the business income derived from sources within the state of Indiana
of a corporation or nonresident person cannot be separated from the business
income of such person or corporation derived from sources without the state
of Indiana, then the business income derived from sources within this state
shall be determined by multiplying the business income derived from sources
both within and without the state of Indiana by a fraction, the numerator
of which is the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three (3).
Id.

"433 N.E.2d at 5 (citing Indiana Dep't of Revenue v. P.F. Goodrich Corp., 260
Ind. 41, 292 N.E.2d 247 (1973)).

**433 N.E.2d at 1,

''Id. at 8.

362 INDIANA LAW REVIEW [Vol. 16:355

[A] corporation must segregate its accounts and keep sufficient
records so that intrastate and interstate activities producing
income can be sufficiently identified and interpreted to in-
telligently assess the interstate commerce exemption without
resort to an arbitrary formula not provided in the Gross In-
come Tax statute of 1933. . . . Failure to identify and segregate
its records will result in adverse tax consequences to the
corporation/^

Reynolds also involved several more niundane issues which arise
in the interstate commerce area under the gross income tax. Discuss-
ing sales to Indiana customers that result from solicitations by the
out-of-state sales personnel of a company which has Indiana-based sales
personnel, some Indiana inventory in certain of its divisions, and cer-
tain Indiana plants, the court applied the standard "nexus" test^^ on
a transactional basis and affirmed the generally accepted principles
that the mere solicitation of orders within a state does not, in itself,
form a sufficient nexus to support taxing jurisdiction over the receipts
generated by the solicitation^^ and that legitimate "house accounts"
may be exempt."^ With respect to house accounts, however, Reynolds
makes it clear that substantial in-state activities involving installation
or assembly of a nonstandardized item may subject receipts from a
house account to gross income taxation.^" Additionally, Reynolds held
that the maintenance of a security interest in consigned goods located
in Indiana, standing alone, does not have sufficient nexus to support
taxing jurisdiction over the secured party when the goods are
ultimately sold by the consignee.^^

2. Taxpaying Entities.— Indiana Department of Revenue v.
American Underwriters, Inc.^^ presented an issue of first impression
in Indiana. In this case, the court of appeals addressed the issue of

*'Id. at 9.

"This test, emanating from General Motors Corp. v. Washington, 377 U.S. 436
(1964), requires that a transaction or category thereof sought to be subject to state
taxation must have a sufficient relationship with the taxing jurisdiction, vis-a-vis the
party sought to be taxed, in order to support the imposition of taxation.

"433 N.E.2d at 12-13 (discussing Mueller Brass Co. v. Gross Income Tax Div.,
255 Ind. 514, 538, 265 N.E.2d 704, 719 (1971); Gross Income Tax Div. v. Ow«ns-Corning
Fiberglass Corp., 253 Ind. 102, 118, 251 N.E.2d 818, 827 (1969); 45 Ind. Admin. Code
§ l-l-120(l)(b) (1979)).

*M33 N.E.2d at 14-15 (discussing Mueller Brass Co. v. Gross Income Tax Div.,
255 Ind. 514, 538, 265 N.E.2d 704, 719 (1971); Gross Income Tax Div. v. Owens-Corning
Fiberglass Corp., 253 Ind. 102, 118, 251 N.E.2d 818, 827 (1969); 45 Ind. Admin. Code
§ l-l-120(l)(b) (1979)).

^"433 N.E.2d at 12-13.

''Id. at 17.

5^429 N.E.2d 306 (Ind. Ct. App. 1981).

1983] SURVEY -TAXATION 363

whether an interinsurance exchange^ and a corporation, organized sole-
ly to act as attorney-in-fact for the exchange, constitute a single tax-
able entity for state income tax purposes where the interests of the
interinsurance exchange and the corporation are divergent and not
coextensive.

American Underwriters (A-U), an Indiana corporation, was
organized to act as attorney-in-fact for American Interinsurance
Exchange (Exchange), a reciprocal insurance business which provided
indemnity or risk-sharing among subscribing casualty insurers. The
Exchange had no separate officers or organization, was not incor-
porated, had no articles of partnership, nor any other articles of agree-
ment other than the subscribers' agreement which gave A-U the
authority to manage the insurance business of the Exchange. Other
than its attorney-in-fact, the Exchange had no agents or other persons
or entities through which business was conducted. Policies were writ-
ten by A-U in the name of the Exchange. The subscribers' agreement
entitled A-U to a management fee of fifteen percent of all monies
received by the Exchange. This fee was A-U's sole source of income.
The subscribers were entitled to any profits and assets of the Ex-
change upon dissolution, and A-U had no interest in those assets.
Through the Exchange, A-U operated in a manner similar to a mutual
insurance company. All assets of the Exchange were subject to the
liability of the insurance operation; however, none of A-U's assets were
available to those claimants. Furthermore, A-U and the Exchange
maintained completely separate books and records, and the Exchange
filed federal income tax returns separate from A-U.

The Revenue Department contended that A-U and the Exchange
were two separate taxable entities. Thus, premiums and other receipts
of the Exchange which were paid to A-U, as attorney-in-fact, were
taxable, and, consequently, the receipt of the management fee by A-U
was a second taxable event.^^ A-U, on the other hand, argued that
for gross tax purposes the whole enterprise was one taxable entity
and that a second tax levied upon the fifteen percent management
fee amounted to a double taxation which conflicted with the Indiana
interinsurance statute. A-U relied heavily on the provision of the inter-
insurance statute which limits the taxation of an attorney-in-fact, such
as A-U, to that which would be imposed on a mutual insurance
company .^^ According to A-U, the position of the Revenue Department,
if upheld, would contravene the interinsurance statute.

^^See Ind. Code § 27-6-6-1 (1982) which gives subscribers the authority to exchange
reciprocal interinsurance contracts.

^See Ind. Code § 6-2-l-l(a) (1976) (currently codified, in part, at id. § 6-2.1-1-16 (1982)).
'Ud. % 27-6-6-12 (1982).

364 INDIANA LAW REVIEW [Vol. 16:355

In reversing the trial court, the court of appeals held that A-U
and the Exchange were two separate and distinct taxable entities.^^
The court noted that it is a common occurrence under the Indiana
Gross Income Tax Act for an agent to sell goods or to otherwise pro-
duce income for a principal which creates both a taxable event for
the principal, as to the sale, and a taxable event for the agent, as
to the commission. From a practical standpoint, the court stated that:

[W]e view A-U as desiring to treat the Exchange as a separate
entity to maintain insulation from liability, and on the other
hand, as desiring to escape dual taxation by calling itself and
the Exchange one single enterprise. We agree with the Depart-
ment that for the purpose of the Indiana Gross Income Tax
the Exchange is a pool, association, cooperative association,
or other group or combination acting as a unit, and therefore
is a taxable entity.^^

In addition, the court noted that the enactment of the inter-
insurance statute pre-dated the enactment of the Indiana Gross In-
come Act of 1933 and rejected A-U's argument that the language of
interinsurance statutes was controlling.^®

Two other gross income tax decisions are significant vis-a-vis the
planning impact which results from determinations of what types of
structures are taxpaying entities for gross income tax purposes. In
Indiana Department of Revenue v. Glendale-Glenbrook Associates'^ and
Park 100 Development Co. v. Indiana Department of State Revenue, ^°
the Indiana Supreme Court vacated opinions of the court of appeals*^
and adopted a more pragmatic and less literal interpretation of the
section of the gross income tax statute which makes partnerships with
at least one corporate partner subject to the gross income tax.*

^M29 N.E.2d at 312.

''Id.

^M29 N.E.2d 217 (Ind. 1981).
«''429 N.E.2d 220 (Ind. 1981).

®'The opinions vacated are Indiana Dep't of Revenue v. Glendale-Glenbrook Assoc,
404 N.E.2d 1179 (Ind. Ct. App. 1980) and Park 100 Dev. Co. v. Indiana Dep't of State
Revenue, 388 N.E.2d 293 (Ind. Ct. App. 1979).

«'lND. Code § 6-3-7-l(b) (1976) (amended 1981). This code section was amended in 1981
to rectify the result of a strict literal application of the pre-1981 code section. Although
the supreme court's decisions in Glendale-Glenbrook and Park 100 were decided based
upon the pre-1981 code section, the result in both cases is consistent with the 1981
amendment. The text of the amended provisions reads:

In the event the tax imposed by IC 6-3-1 through IC 6-3-7 is held inap-
plicable or invalid with respect to any person, or the shareholders of any
corporation described in IC 6-3-2-3(b), or the partners of any such partner-
ship, then notwithstanding IC 6-2.1-3-23 or IC 6-2.1-3-24 such person or such

1983] SURVEY -TAXATION 365

In Indiana Department of Revenue v. Glendale-Glenbrook Associates,
the taxpayer was a partnership composed of individuals and one
corporate partner, a mutual life insurance company which was engaged
in a shopping center development, management, and leasing business.
The Revenue Department asserted that the partnership was subject
to the gross income tax under Indiana Code section 6-3-7-l(b)^^ which
provided that all partnerships, in which one or more of the partners
is a corporation, are liable for the tax. The taxpayer contended that
it was exempt on the basis of the statutory exemption for qualified
insurance companies.®* In other words, because each partner was
exempt from the tax by being either an individual or an exempted
insurance company, the partnership was not a taxable entity. In
holding Glendale-Glenbrook was subject to the tax, the court of appeals
stated that the language of Indiana Code section 6-3-7-l(b) was clear
and unambiguous on its face and did not distinguish between types
of corporations.®^ Thus, according to the court of appeals, the compo-
sition of the partnership was significant only for purposes of deter-
mining the presence of a corporate partner.

In vacating the opinion of the court of appeals and affirming a
summary judgment of the trial court, the Indiana Supreme Court
noted, in Glendale-Glenbrook, that the purpose of Indiana Code sec-
tion 6-3-7-l(b) "was to plug a tax loophole where one corporation which
was paying gross income tax might join with another corporation to
form a partnership to circumvent the tax."®® The supreme court
recognized that Glendale-Glenbrook's sole corporate partner was not
trying to evade the payment of taxes by its participation in the part-
nership and stated that the very reason insurance companies were
exempted from paying gross income tax was because they were sub-
ject to taxation under Indiana insurance law. Considering the gross
income tax statute as a whole, the supreme court found that a strict-
ly literal interpretation of Indiana Code section 6-3-7-l(b) under the
facts before it "would lead to injustice, absurdity or contradictory
provisions."®^ Consequently, the partnership was found to be exempt
from the tax.®*

corporation or such partnership shall be liable for the tax on gross income

as imposed by IC 6-2,1 for the taxable periods with respect to which the tax

under IC 6-3-1 through IC 6-3-7 is held inapplicable or invalid.
Id. § 6-3-7-1 (1982).

«^lND. Code § 6-3-7-l(b) (1982).

^''The provision of the Act exempting qualified insurance companies is codified
at Ind. Code § 6-3-2-3(d) (1982). Insurance companies are subject to tax under Ind. Code
§ 27-1-18-2 (1982).

^^404 N.E.2d at 1179.

«M29 N.E.2d at 219.

'Ud.

''Id.

366 INDIANA LAW REVIEW [Vol. 16:355

Park 100 Development Co. v. Indiana Department of State Revenue^^
involved a multi-tiered partnership structure. The taxpayer was a part-
nership consisting of an individual and two partnerships. One of those
partnerships was comprised of two partners, both of which were
general business corporations. The Revenue Department asserted that
the taxpayer was subject to the gross income tax under Indiana Code
section e-S-Y-Kb^" on the theory that this section should be applied
to any partnership which has, as a partner, a separate partnership,
one of the partners of which is a corporation. In reversing the trial
court, the court of appeals found that the gross income tax was im-
properly assessed against the taxpayer on the grounds that the literal
language of section 6-3-7-l(b) rendered the statute inapplicable to the
taxpayer.^^ Under the approach of the court of appeals' decision, a
multi-tiered partnership structure represented an intriguing planning
device for ventures in which corporate participation was involved.

The supreme court observed that such a literal application of the
statute would clearly contravene the intent of the legislature which
was to prevent a corporation subject to the gross income tax from
circumventing the tax by joining another corporation to form a
partnership. In vacating the appellate court decision, the supreme
court stated that a corporation should not be allowed to "escape the
corporate tax liability indirectly by forming a two-tiered partnership
when it [the legislature] did not allow a corporation to escape that
liability as a direct or first-tier partner."^^ Thus, one of the reasons |

for using a multi-tiered partnership structure has been eliminated.

3. Procedure. —State v. Meadowood Indiana University Retirement
Community, Inc.'^^ presented the court of appeals with the question
of whether a corporation could seek declaratory relief from the
Revenue Department's ruling which denied tax exempt status to the
corporation prior to the assessment of taxes by the Revenue Depart-
ment. In this case, Meadowood applied for tax exempt status with

«M29 N.E.2d 220 (Ind. 1981).

^"Prior to the 1981 amendment, the statute read:

Every partnership of which one or more of the partners is a corporation
shall be liable for the tax imposed by Sections 2 and 3 of the Gross Income
Tax Act of 1933 as amended (IC 1971, 6-2-1, 2 and 3) and by the Adjusted
Gross Income Tax Act of 1963 as amended (IC 1971, 6-3-1 through 6-3-7). No
partner of such partnership shall be liable for the tax imposed on the part-
ner's distributive share of the partnership income by the Gross Income Tax
Act of 1933 as amended or the Adjusted Gross Income Tax Act of 1963 as
amended.

Ind. Code § 6-3-7-l(b) (1976) (amended 1981). See supra note 62.

"429 N.E.2d at 223 (citing the holding in Park 100 Dev. Co. v. Indiana Dep't of

State Revenue, 388 N.E.2d 293 (Ind. Ct. App. 1979)).
^^429 N.E.2d at 223.
^^425 N.E.2d 791 (Ind. Ct. App. 1981).

1983] SURVEY-TAXATION 367

the Revenue Department, and the application was denied. This denial
was affirmed on administrative appeal, and Meadowood filed suit seek-
ing a declaratory judgment that it was tax exempt as a "corporation
organized and operating exclusively for charitable, educational, and
civic purposes."^^ The trial court entered judgment declaring that
Meadowood was entitled to tax exempt status.

On appeal, the Revenue Department argued that Meadowood's
exclusive statutory remedy was to pay the taxes and then to bring
an action to recover those taxes. Meadowood asserted that the anti-
injunction statute^^ was not applicable under the facts because no
assessment had been made. According to Meadowood, to disallow the
declaratory judgment would leave the taxpayer without a statutory
remedy.

The court of appeals reversed the verdict of the trial court and
instructed the trial court to sustain the Revenue Department's motion
to dismiss.^^ In rejecting Meadowood's argument, the court stated that
Meadowood was not without a remedy because a taxpayer always may
pay, voluntarily, the taxes owed prior to an assessment by the
Revenue Department. Then the taxpayer may request a refund, and
if the refund is denied, according to the court, the taxpayer may then
bring suit in a trial court. Upon this reasoning, the appellate court
held that the statutory refund procedure is an exclusive remedy
regardless of whether an assessment has been made."

D. Judicial Review of State Tax Board Assessments

In State Board of Tax Commissioners v. South Shore Marina^''^ the
court of appeals delineated the limitations placed upon a trial court's
review of State Tax Board decisions. Noting that appeals from State
Tax Board decisions are, statutorily, not subject to the requirements
of the Administrative Adjudication Act,^^ the court held that the stand-
ard of review of State Tax Board decisions should be substantially
equivalent to the standard of review under the Administrative Adjudi-
cation Act.®" The court stated that "[j]udicial review ... is limited
to whether the agency possessed jurisdiction over the subject matter

''*Id. at 722-23. Such corporations are tax exempt under Ind. Code § 6-2.1-3-20(aK8)
(1982).

''Ind. Code § 6-2-l-19(d) (1976). The anti-injunction principle is now part of the Ind-
iana Administrative Tax Code. Id. § 6-8.1-9-l(d) (1982).

'M25 N.E.2d at 793.

'Ud.

'«422 N.E.2d 723 (Ind. Ct. App. 1981). See Smith, Administrative Law, 1982 Survey
of Recent Developments in Indiana Law, 16 Ind. L. Rev. 1, 18 (1983).

'M22 N.E.2d at 727 n.2 (citing Ind. Code § 4-22-1-2 (1976)).

«''422 N.E.2d at 727.

368 INDIANA LAW REVIEW [Vol. 16:355

and whether the agency's decision was made pursuant to proper pro-
cedures, was based upon substantial evidence, was not arbitrary or
capricious, and was not in violation of any constitutional, statutory
or legal principle."^^ The importance of the South Shore Marina deci-
sion lies in the guidelines which the court set forth for review of such
cases under the above definition.

The facts of South Shore Marina are particularly relevant. South
Shore Marina was assessed property taxes on approximately fifty
boats located on its property. The Marina claimed that it rented space
to boat owners for the storage of their boats and boating equipment,
and therefore had no ownership or possessory interest in the boats.
At a hearing of the State Tax Board, the Marina was requested to
produce a list of boats which were stored on its property and a list
of the respective owners. The Marina refused to produce such lists.
The State Tax Board repeated the request at a subsequent hearing,
in a letter, and in a subpeona duces tecum. Without variation, the
Marina insisted that it was not liable for the assessment on the boats
and had no legal obligation to produce the requested information. The
State Tax Board responded by assessing the Marina for the value of
the boats in the State Tax Board's Final Assessment Determination.
The Marina appealed the assessment to the county superior court,
asserting that it did not hold, possess, or control the boats as required
by the applicable taxing statute.®^ The trial court entered judgment
for the Marina and vacated the State Tax Board's assessment on the
boats.

The court of appeals vacated the judgment of the trial court and
reinstated the State Tax Board's final assessment, holding that the
trial court erred in its standard of judicial review.*^ The court stated
that the issues which should have been addressed by the trial court
were limited to whether the State Tax Board's decision was arbitrary
or capricious, was based upon substantial evidence, and was not in
violation of any constitutional, statutory, or legal principle.

The court defined an arbitrary or capricious administrative act
as "one which is willful and unreasonable, without consideration and
in disregard of the facts or circumstances in the case."®* Recognizing
that leaving the boats unassessed would clearly violate constitutional
and legislative mandates under which the State Tax Board operates,
the court stated that:

[T]he Board could not reasonably do other than assess the

"/d. (footnotes omitted).

'^See IND. Code § 6-l.l-2-4(b) (1982).

«^422 N.E.2d at 727.

1983] SURVEY-TAXATION . 369

boats to Marina. The assessment was invited by and was the
natural consequence of Marina's actions. Marina may not now
urge error predicated upon those actions. Marina characterizes
the Board's action as arbitrary and capricious. To the contrary,
the assessment was the reasonable and considered result with
respect to the facts and circumstances confronting the Board.®^

In a footnote, the court noted that this result does not stand for the
proposition that a taxpayer must automatically supply the information
sought by the State Tax Board; rather, according to the court, it
stands for the proposition that a taxpayer's refusal must be based
on legitimate grounds.*^

In determining whether there was substantial evidence before the
State Tax Board to support its final assessment, the court adopted
the test set forth in Evansville v. Southern Indiana Gas & Electric
Co.^^ Although that case involved the review of a Public Service
Commission decision, the court in Evansville stated that a reviewing
court could only set aside agency findings of fact when a review of
the entire record "clearly indicates that the agency's decision lacks
a reasonably sound basis of evidentiary support."®^ The court in South
Shore Marina found that there was substantial evidence to support
the State Tax Board's final assessment because the evidence clearly
established that fifty boats were on Marina's property on the assess-
ment date and the evidence clearly established the value of these
boats.®^

In determining whether the State Tax Board violated any legal
principles by its assessment on the Marina, the court noted that the
legislature created the State Tax Board and specifically gave the State
Tax Board the power to promulgate rules and regulations concerning
discovery of information relevant to assessment determinations. The
court recognized that broad investigatory powers were necessary to
the proper execution of the State Tax Board's tax assessment responsi-
bility. Furthermore, to construe the property tax statute as not permit-
ting the assessment of property taxes on the apparent owner, holder,
or possessor of the property would be contrary to the constitutional
and legislative mandates placed on the State Tax Board.*" In holding
that the State Tax Board's assessment did not violate any of these
legal principles, the court stated that it has long been established that

''Id. at 730.

''Id. at 730-31 n.4.

«'167 Ind. App. 472, 339 N.E.2d 562 (1975).

•"M at 485, 339 N.E.2d at 572.

'M22 N.E.2d at 731.

^Id. at 734 (construing Ind. Const, art. 10, § 7 and Ind. Code § 6-1.1-2-1 (1976)).

370 . INDIANA LAW REVIEW [Vol. 16:355

the burden of nonliability is placed on the individual assessed.^^ The
court noted that to hold otherwise would provide the dishonest with
an incontrovertible method of avoiding liability by merely disclaim-
ing ownership, possession, or control of the property in question.

The South Shore Marina case provides the basic guidelines for
judicial review of future State Tax Board decisions and re-emphasizes
that the burden of proving nonliability is clearly on the taxpayer.
While the express requirements of the Administrative Adjudication
Act may not apply to State Tax Board decisions, the court has once
again recognized that this agency and the reviewing courts will be
subject to basic administrative law requirements which are sub-
stantially equivalent to the requirements under the Administrative
Adjudication Act.

E. Legislative Developments

As previously noted, the actions of the 1982 General Assembly
with respect to Title 6 of the Indiana Code cannot be considered extra-
ordinarily significant from a purely legal standpoint. Rather, much of
the legislative activity may be viewed as a political response to the
budgetary concerns engendered by the decrease in state revenues
which has resulted from national economic problems and from the
decrease in certain tax rates which Indiana taxpayers have enjoyed
over the past few years.^^ Furthermore, a substantial portion of the
significant legislative activity can be attributed to the legislative
response to ERTA.''

The following is a summary of the actions of the 1982 General
Assembly relating to Indiana taxation which are deemed to be signifi-
cant by the author. Of course, other legislative actions may have
significance in individualized cases.

1. Net Income Taxes.— a. General changes based on the Economic
Recovery Tax Act of 1981 (ERTA). — The income tax provisions of Ti-
tle 6 contain various references to the Internal Revenue Code.** These

'^422 N.E.2d at 735 (citing Prudential Casualty Co. v. State, 194 Ind. 542, 143 N.E.
631 (1924); Buck v. Miller, 147 Ind. 586, 47 N.E. 8 (1896); Fell v. West, 35 Ind. App.
20, 73 N.E. 719 (1905)).

^^The gross income tax phase out, begun in 1973, has seen the tax rates reduced
from 2% to 1.3% at the retail level and from 5% to .325% at the wholesale level.
Ind. Code § 6-2-1-3 (1976) (repealed 1981); id. § 6-2.1-2-3 (1982). The adjusted gross income
tax rate for individuals is now 1.9% as opposed to the former 2% rate. Id. § 6-3-2-1
(1982). The phase out of the tax on intangibles begins this calendar year with the rate
reduction from .25% to .233%. Id. § 6-5.1-2-2 (1982).

''See Act of Feb. 25, 1982, Pub. L. No. 52, 1982 Ind. Acts 494.

^See, e.g., Ind. Code § 6-3-1-11 (1982) (defining "Internal Revenue Code" for adjusted
gross income tax purposes); id. § 6-3-1-17 (incorporating by reference Internal Revenue
Code sections).

1983] SURVEY-TAXATION 371

references are to the provisions of the Internal Revenue Code in effect
on a particular date. With the adoption, by Congress, of ERTA and
the various provisions therein affecting federal tax computations which
are the starting point for state net income tax computations for the
1981 tax year and future years, the Title 6 references to the Internal
Revenue Code, in effect, became dated. In adopting Public Law 52,^^
the Indiana legislature revised and updated the Internal Revenue Code
references to include both the Internal Revenue Code and the regula-
tions thereunder, which became effective on January 1, 1982. As a
result, the amendments to the Internal Revenue Code effected by
ERTA, which affect taxable years beginning after January 1, 1982,
are effective for Indiana net income tax purposes.

In adapting ERTA to Indiana net income taxes, however, the In-
diana legislature either negated or delayed the effect of certain specific
portions of ERTA. For instance, the new accelerated cost recovery
system (ACRS),^^ which effectively replaces the federal depreciation
system^^ with respect to assets placed in service during 1981, was not
made effective for Indiana tax purposes until 1982.^® That is, ACRS
does not apply to Indiana taxpayers until tax years which began after
1981. Thus, for taxable years which began in 1981, taxpayers will be
required to use one system, ACRS, for federal tax purposes and
another system, depreciation, for state tax purposes.

Section 128 of the Internal Revenue Code provides for an exclu-
sion from gross income of interest earned from a type of investment
certificate commonly known as an "All Savers Certificate."^^ This in-
terest exclusion, applicable to individual taxpayers, has been effec-
tively negated for Indiana adjusted gross income tax purposes by the
provision in Public Law 52 which makes that exclusion unavailable
for any taxable year beginning before January 1, 1982 and creates
an add-back provision^"" for excluded interest for all taxable years
beginning before January 1, 1985.

Further, with respect to individual taxpayers, the newly imple-
mented federal "marriage penalty" deduction provisions, ^°^ effective
for tax years beginning in 1982, have not been incorporated into the
Indiana adjusted gross income tax structure.^"^ The marriage penalty
deduction, allowed for federal purposes pursuant to section 221 of the

^^Act of Feb. 25, 1982, Pub. L. No. 52, 1982 Ind. Acts 494.

««I.R.C. § 168 (Law. Co-op. Supp. 1982).

'Ud. § 167 (1976).

'«Act of Feb. 25, 1982, Pub. L. No. 52, 1982 Ind. Acts 494, 499.

'n.R.C. § 128 (Law. Co-op. Supp. 1982).

•""Ind. Code § 6-3-l-3.5(a)(10) (1982).

»°a.R.C. § 221 (Law. Co-op. Supp. 1982).

•"^IND. Code § 6-3-l-3.5(a)(9) (1982).

372 INDIANA LAW REVIEW [Vol. 16:355

Internal Revenue Code, must be added back to gross income when
determining Indiana adjusted gross income.

b. Research credit — For taxable years beginning after December
31, 1981, a new Indiana research expense credit becomes effective.^"^
The credit may be taken by any taxpayer entitled to utilize the
research expense credit provided by section 44F of the Internal
Revenue Code,^°^ who incurs "Indiana qualified research expenses."^"^
Structured as an incentive to increase research, the credit is based
upon the "incremental research amount" of the taxpayer. This amount
is defined as being the excess of the research expenditures for the
current taxable year over the average yearly research expenditures
during a base period consisting of the three preceding taxable years.^"*
To phase in the credit, transitional rules are provided for the first
two years of implementation.^"^ The credit is effective for qualified
research expenses incurred during the period from January 1, 1982
through December 31, 1985.^°'

Because of the Internal Revenue Code reference^"^ and the
statutory enactment of the Indiana qualified research credit, the
research credit will apply to two types of expenses paid or incurred
in carrying on any type of trade or business. The first type of expen-
ses is "in-house research expenses.""" This includes expenses for
research wages and supplies plus lease and other charges for research
equipment used. As to any particular individual, the wages which are
included in qualified expenditures must be paid to an individual whose
services substantially consist of direct research activities, supervision,
or support thereof. The second type of qualified expenses is "contract
research expenses.""^ These amounts consist of expenditures to a non-
employee for qualified research; however, only 65% of such expenses
qualify for the credit.

Under the statutory provisions, a taxpayer with no income appor-
tioned to Indiana pursuant to Indiana Code section 6-3-2-2 is entitled
to a credit for that year equal to the increase in the taxpayer's In-
diana qualified research expenses, over the base period Indiana qualified
research expenses, multiplied by 2% for tax years beginning in 1982

i^^Act of Feb. 25, 1982, Pub. L. No. 52, 1982 Ind. Acts 494 (codified at Ind. Code
§ 6-3-3.8-1 to -6 (1982)).

'""LR.C. § 44F (Law. Co-op. Supp. 1982).

^"^IND. Code § 6-3-3.8-2(a) (1982).

"^Id. § 6-3-3.8-2(b).

''Ud. § 6-3-3.8-2(d).

'"'Id.- §§ 6-3-3.8-2, -6.

^^Ud. § 6-3-3.8-4 (this reference is to Internal Revenue Code section 44F).

""LR.C. § 44F(b)(2) (Law. Co-op. Supp. 1982).

Ill

Id. § 44F(b)(3).

1^83] SURVEY-TAXATION 373

and 1983, and 5% for tax years beginning in 1984 and 1985.^^^ A tax-
payer with income apportioned to Indiana, for any particular year,
is entitled to a credit for that year equal to the lesser of the credit
to which the taxpayer would have been entitled had it not had any
income apportioned to Indiana, or its increase in total qualified
research expenses over its total base period qualified research ex-
penses, multiplied by the calendar year percentage amount provided
above and by its apportionment percentage for that taxable year/^^

In terms of its application, the credit is applied against the gross,
adjusted gross, and supplemental corporate net income taxes."* The
credit is taken only after all other applicable credits against the taxes
are applied."^ The credit is a nonrefundable credit,"^ and any unused
portions of the credit may be carried forward for fifteen years. "^
However, the credit may not be carried back."*

In determining which research expenses may qualify as Indiana
research expenses, the following factors are to be considered: "(1) the
place where the [research] services are performed, (2) the residence
or business location of the person or persons performing the services,
(3) the place where qualified research supplies are consumed, and (4)
other factors that the department determines are relevant for the
determination.""^

c. Supplemental corporate net income tax. — Effective as of January
1, 1982, the supplemental corporate net income tax rate is increased
from 3% to 4%.^^° For fiscal year taxpayers, the rate increase for years
ending in 1982 is prorated so that the former 3% rate applies for por-
tions of the fiscal year occurring before January 1, 1982, and the 4%
rate applies for portions of the fiscal year occurring during 1982. The
Revenue Department has provided a schedule of precomputed
supplemental net income tax rates for 1981-1982 fiscal years.^^^

d. Acceleration of tax payments. — Eiiectiwe as of April 1, 1982,
employers, partnerships, corporations, trusts or estates are required
to file returns on income tax withheld and are required to pay the
tax so withheld, within twenty days after the end of each month for

^^'IND. Code § 6-3-3.8-2(b) (1982).

'''Id. § 6-3-3.8-2(c).

"*M § 6-3-3.8-3(a).

'''Id.

'"Id. § 6-3-3.8-3(c).

"Ud. § 6-3-3.8-3(a) (incorporating the I.R.C. § 44F(g)(2)(A)(ii) (Law Co-op. Supp. 1982)
provision for a fifteen-year carryforward).

"«IND. Code § 6-3-3.8-3(c) (1982).

'"Id. § 6-3-3.8-5.

'^"Act of Feb. 25, 1982, Pub. L. No. 52, 1982 Ind. Acts 494, 499 (codified at Ind.
Code § 6-3-8-4.1 (1982)).

^''Income Tax Div. Information Bull. No. 58, 5 Ind. Reg. 789, 790 (April 1982).

374 INDIANA LAW REVIEW [Vol. 16:355

which the return is filed, if the average monthly payment for the
preceding year exceeded $1,000/^^ Further, monthly reports and
payments may be required by the Revenue Department within the
twenty day period if the Revenue Department estimates that the tax-
payer's monthly average payment for the current year will exceed
$1,000.^2^

2. Property Taxes. — a. Deduction procedures. — Effective as of
January 1, 1982, the procedure for claiming a property tax deduction
for mortgages, blindness, senior citizens, veterans, veterans' surviving
spouses, and World War I veterans has been amended; the amend-
ment provides that a taxpayer who receives such a deduction for prior
years, and who remains eligible for the deduction, is not required to
file a claim of entitlement for the deduction for the following year.^^^
Rather, if the taxpayer should become ineligible for any such deduc-
tion, the county auditor must be notified of ineligibility prior to May
10 of the year in which the ineligibility occurs. ^^^

b. Library district levy limitations. — The State Board of Tax
Commissioners may not permit a library district to increase its levy
in excess of published amounts. Such an increase is limited to the
lesser of 125% of the levied rate for the prior budget year or the
rate the district would have levied had it not applied for an increase
plus $.05.^^^ Under a new legislative provision, school corporations in-
curring shortfalls caused by erroneous tax figures may be permitted
to collect an excessive tax levy in the year following the shortfall.^^^

3. Sales and Use Taxes. — Effective as of April 1, 1982, the due
dates for the filing of sales and use tax returns and the remittance
of such taxes is accelerated.^^^ If a taxpayer's average monthly liability
for collections of sales and use taxes for the preceding year exceeded
$1,000, such returns and payments must be made not more than
twenty days after the close of each month.'^^ Additionally, the fees
applicable to retail merchants have been changed. ^^° Effective January

'''Act of Feb. 25, 1982, Pub. L. No. 49, 1982 Ind. Acts 477, 481 (codified at Ind.
Code § 6-3-4-8.1(a) (1982)).

''^IND. Code § 6-3-4-8.1(b) (1982).

''"Act of Feb. 18, 1982, Pub. L. No. 44, 1982 Ind. Acts 448, 452 (codified at Ind.
Code § 6-l.l-12-17.8(a) (1982)).

''^IND. Code § 6-l.l-12-17.8(b) (1982).

'''Act of Feb. 25, 1982, Pub. L. No. 54, 1982 Ind. Acts 506, 511 (codified at Ind.
Code § 6-3.5-l-12(e)(xiii) (1982)).

"Ind. Code § 6-3.5-l-12(f) to (g) (1982).

"«Act of Feb. 25, 1982, Pub. L. No. 49, 1982 Ind. Acts 477 (codified at Ind. Code
§ 6-2.5-6-l(a) (1982)).

"«lND. Code § 6-2.5-6-l(a) (1982).

''"Act of Feb. 18, 1982, Pub. L. No. 50, 1982 Ind. Acts 487 (codified at Ind. Code
§ 6-2.5-8-1 (1982)).

1983] SURVEY-TAXATION 375

1, 1983, a one time $25.00 fee is imposed for each place of business
of a retail merchant/^^ The new certificates issued for the $25.00 fee
are valid so long as the merchant remains in business. ^^^

J^. Inheritance Tao:. — The legislature passed three acts amending
the inheritance tax law. The former requirement that a person in
possession or control of personalty owned by an Indiana decedent or
held jointly by an Indiana decedent and the decedent's surviving
spouse notify the Revenue Department or the county assessor of the
county of the decedent's domicile regarding the transfer of such prop-
erty to the surviving spouse has been repealed effective June 1, 1982;
however, this change is effective only with respect to decedents dying
after May 31, 1982.^^

The exemptions and reductions to the inheritance tax have been
broadened. Formerly, the reduction in taxable value for the portion
of jointly held survivorship personalty attributable to the survivor's
contribution required the survivor to prove not only the "value of that
portion of the . . . property which . . . belonged" to the survivor but
also that that portion never "belonged" to the decedent.^^'^ Effective
June 1, 1982, the latter restriction has been eliminated. ^^^ Addition-
ally, the statutory language regarding exemptions for transfers to each
of the children of a decedent has been clarified to insure that the
$10,000 and $5,000 exemptions, applicable to children under and over
twenty-one respectively, are available with respect to transfers to each
child of a decedent.^^^ The "orphan's exemption" has been eliminated. ^^^
The children's exemptions as clarified and the elimination of the
orphan's exemption are effective retroactively to certain dates under
a schedule which precludes "double exemptions."^^* The parents'
exemption has also been clarified to insure that the exemption ap-
plies to transfers to each, as opposed to one, parent of a decedent. ^^^

The inter-spousal transfer exemption has been clarified in certain
respects and modified to complement the new federal estate tax
"qualified terminable interest property" concept instituted by ERTA.^''°

'^•iND. Code § 6-2.5-8-l(b) (1982).

'''Id. § 6-2.5-8-5.

'^^Act of Feb. 24, 1982, Pub. L. No. 57, 1982 Ind. Acts 517 (repealing Ind. Code
§ 6-4.1-8-4.5 (1982)).

•^"IND. Code § 6-4.1-2-5 (Supp. 1981) (amended 1982).

'^^Act of Feb. 18, 1982, Pub. L. No. 56, 1982 Ind. Acts 516 (codified at Ind. Code.
§ 6-4.1-3-9.1 (1982)).

'^«lND. Code §§ 6-4.1-3-9.1 to -9.5 (1982).

'^'Act of Feb. 18, 1982, Pub. L. No. 56, 1982 Ind. Acts 516, 517 (previously codified
at iND. Code § 6-4.1-3-8.5 (Supp. 1981)).

•^«Act of Feb. 18, 1982, Pub. L. No. 56, 1982 Ind. Acts 516, 517.

■'Yd at 516-17 (codified at § 6-4.1-3-9.7 (1982)).

'''See I.R.C. § 2056(b) (Law. Co-op. Supp. 1982).

376 INDIANA LAW REVIEW [Vol. 16:355

In 1979, the exemption applicable to inter-spousal transfers was
broadened to apply to "[e]ach property interest which a decedent
transfers to his surviving spouse . . . T^"^ however, the Revenue
Department has, on occasion, taken the position that the full inter-
spousal exemption was not available for transfers where the survivor
takes a life estate with a general power of appointment. By referenc-
ing the code section to the federal marital deduction provisions ap-
plicable to powers of appointment, the Inheritance Tax Act now makes
it clear that the full exemption applies to such transfers. ^^^

ERTA changed the previously existing treatment for marital
deductions purposes of life income interests by establishing that
"qualified terminable interest property" (QTIP) can qualify for the
marital deduction.^^^ By referencing the Indiana Code provision to the
QTIP provisions of the Internal Revenue Code, the inter-spousal
exemption applies to QTIP.^*'' That is, a decedent's personal representa-
tive or the trustee or transferee of property may make an irrevocable
election to treat QTIP as "a property interest which a decedent
transfers to his surviving spouse," thereby exempting the full value
of the QTIP from inheritance taxation on the death of the first
spouse.^"*^ As under ERTA, the price extracted for electing the full
exemption is a tax on the full value of the QTIP at the death of the
surviving spouse.^^^

"^IND. Code § 6-4.1-3-7 (Supp. 1981).

'^^Act of Feb. 18, 1982, Pub. L. No. 55, 1982 Ind. Acts 514, 515 (codified at IND.

Code § 6-4.1-3-7(b), (c) (1982)).

'"I.R.C. § 2056(b)(7) (Law. Co-op. Supp. 1982).
"*lND. Code § 6-4.1-3-7(c) (1982).
'*'Id. at S 6-4.1-3-7(d).
"7d at § 6-4.1-2-4(d).

XVII. Torts

SusANAH M. Mead*
A. Negligence

1. Affirmative Duty to Control Actions of Another. — The Indiana
Courts of Appeals had several occasions during the survey period to
address the aspect of duty in a negligence case. Of particular interest
are the cases involving affirmative duties to act. The factual cir-
cumstances in Estate of Mathes v. Ireland^ presented to the fourth
district court of appeals an unusual context in which to consider the
affirmative duty to control the actions of another. Kenneth Pierce
abducted Brenda Mathes at knifepoint and drowned her in the St. Joe
River. Brenda Mathes' husband brought a wrongful death action
against Pierce, Pierce's mother, father, grandparents, and two
psychiatric centers, one which formerly had Pierce in custody and one
which had tested and evaluated him. At the time of the incident. Pierce
lived with his mother and grandparents.

Mathes alleged that the mother and grandparents with whom
Pierce lived knew he was insanely violent and that they had a
responsibility to supervise him and control his activities. Mathes also
claimed in his complaint that the staff at the psychiatric center, which
had the killer in custody, and the staff at the psychiatric center, which
had been responsible for testing and evaluating him, violated a duty
if they knew or should have known it was dangerous to release him
without providing extended treatment.^ The trial court dismissed all
the complaints, except the one against Pierce, for failing to state a
claim upon which relief could be granted.^ The court of appeals,
complying with the rule enunciated in State v. Rankin,^ held that all
the claims except as to Pierce's father, who lived elsewhere, were
prematurely dismissed.^

Mathes argued that because Pierce resided with his mother and
grandparents, they knew Pierce to be violent and dangerous and they
therefore had a responsibility to supervise Pierce and control his
activities. The court agreed and, quoting from the Restatement (Second)

♦Assistant Professor of Law, Indiana University School of Law — Indianapolis. B.A.,
Smith College, 1969; J.D., Indiana University School of Law — Indianapolis, 1976.

^419 N.E.2d 782 (Ind. Ct. App. 1981).

Ud. at 785.

'See Ind. R. Tr. P. 12(b)(6).

*260 Ind. 228, 294 N.E.2d 604 (1973).

^419 N.E.2d at 784. The court expressed at the outset its doubts as to whether
the plaintiff would ultimately be able to prove his case and made clear that it reversed
because of the holding in State v. Rankin. In Rankin, the supreme court held that "[a]
complaint is not subject to dismissal unless it appears to a certainty that the plaintiff
would not be entitled to relief under any set of facts . . . ." 260 Ind. at 230, 294 N.E.2d
at 606 (emphasis in original).

377

378 INDIANA LAW REVIEW [Vol. 16:377

of Torts section 319, stated that "[o]ne who takes charge of a third
person whom he knows or should know to be likely to cause bodily
harm to others if not controlled is under a duty to exercise reasonable
care to control the third person to prevent him from doing such
harm."^ The court was careful to point out that although the situa-
tion in Mathes involved a mother and grandparents, the duty does
not rest upon any familial relationship but upon the assumption of
care and control of one known by the third person to be dangerous
and likely to commit bodily harm.^

The court recognized, however, that families should not be
discouraged from taking responsibility for "the treatment of less for-
tunate members of the family" and thus stressed that the injured party
must show not only an actual taking charge of the dangerous in-
dividual, but also a knowledge of the likelihood he will cause harm.^
In this regard, the custodians' reasonable reliance on medical advice
may relieve them of responsibility.^

In adopting this novel approach, the court failed to note that this
theory of liability has never been recognized in Indiana or that this
decision is a dramatic departure from the basic common law premise
of every man for himself; that is, in the absence of a special relation-
ship, there is no affirmative duty to control the conduct of others/^
However, the court was careful to state that "only under the most
unusual set of circumstances" would the result be a successful ver-
dict for the plaintiff." Although the adoption of a theory of liability
based on a duty to control another may be startling, the future ap-

«419 N.E.2d at 784 (quoting Restatement (Second) of Torts § 319 (1977)).

^419 N.E.2d at 784.

'Id.

^"At common law a parent was not responsible for his child's torts. See Moore
V. Waitt, 157 Ind. App. 1, 298 N.E.2d 456 (1973). Certain exceptions developed in the
case law, and in 1957 the Indiana legislature enacted a statute which allowed victims
to recover up to $750 from the parents of a tortious child for "any and all damage
proximately caused by the injury to or destruction of any property, real, personal or
mixed by the intentional or wilful or malicious act or acts of such minor." Ind. Code
§ 31-5-10-1 (1976) (repealed 1978) (current version at Ind. Code § 34-4-31-1 (1982)).
However, any exceptions, whether derived from case law or statute, only applied when
the child was a minor. Mathes, 419 N.E.2d at 787 (Hoffman, J., dissenting). In Mathes,
Pierce was twenty years old, and the rule enunciated by the majority is neither based
upon nor limited by the parent-child relationship.

The dissenting judge in Mathes objected to the majority's decision because it might
result in a violation of due process in that Mathes' complaint does not allege that an
adjudication of Pierce's insanity was ever made. Id. at 788. Before one can be involuntar-
ily subjected to the control and custody of another, he is entitled to a court deter-
mination of insanity. Id. {See Ind. Code §§ 16-14-9.1-1 to-18 (1982)).

"419 N.E.2d at 784.

1983] SURVEY-TORTS 379

plication of such a theory is likely to be limited to the family custody
situation.

In discussing the potential liability of the psychiatric centers, the
court found that if the centers had actually taken charge of Pierce
within the meaning of section 319 and had actual knowledge that he
was dangerous, then they had a duty to exercise reasonable care.^^
The court thus clarified an aspect of the new duty which was
ambiguous in the court's discussion of the duty of the mother and
grandparents. Although section 319 requires only a constructive
knowledge of a likelihood to do harm, in Indiana imposition of the duty
apparently requires a finding of actual knowledge of danger. ^^

The first district court of appeals had an opportunity to consider
the affirmative duty to control the actions of another to prevent in-
jury to a third person in Sports, Inc. v. Gilbert.^^ In Sports, Inc., the
defendants who are owners and operators of the Sportsdome Speed-
way employed off-duty police officers and special deputies for traffic
and crowd control. On August 9, 1975, Thomas Riggs drove his pickup
truck into the parking lot of the Sportsdome and had a minor acci-
dent with another car. When security guards arrived, they found Riggs
hiding in a nearby lot. Although he was intoxicated, Riggs was
cooperative and the guards did not arrest him. Instead, the guards
found two relatives who drove Riggs in his truck away from the
Sportsdome. Shortly after Riggs left the Sportsdome and had regained
control of the truck, he collided with the Gilberts' car, killing two of
the occupants and injuring the others. The Gilberts sued Sports, Inc.
for wrongful death of their two children and for their own personal
injuries, and, at the trial, the jury found for the plaintiffs. Defendants
appealed, claiming they owed no duty to the Gilberts to prevent the
intoxicated Riggs from driving away from the Sportsdome. The court
of appeals agreed with the defendants and reversed. ^^

The court in Sports, Inc. systematically rejected the plaintiffs'
various contentions that the defendant owed a duty of care in this
situation. Plaintiffs relied on two Indiana cases which stand for the
proposition that a duty may arise out of knowledge of a situation and
a violation of this duty would constitute negligence. ^^ The court found
these cases factually distinguishable.^^ In addition, the court found that

'Ud. at 785-86.

'Ud. at 785.

'M31 N.E.2d 534 (Ind. Ct. App. 1982).

''Id. at 534-35.

''Id. at 536 (citing Snyder v. Mouser, 149 Ind. App. 334, 346, 272 N.E.2d 627, 634
(1971); Vandalia Ry. v. Duling, 60 Ind. App. 332, 344. 109 N.E. 70, 73 (1915)).

"Vandalia Ry. v. Duling, 60 Ind. App. 332, 109 N.E. 70 (1915) dealt with a railroad's
liability for injuries to animals who wander onto railroad tracks. Snyder v. Mouser,

380 INDIANA LAW REVIEW [Vol. 16:377

the prerequisites for a successful assertion of a duty to control third
persons, based on Restatement (Second) of Torts section 319, did not
exist here, because section 319 contemplates a situation in which a
third person is in the custody of the one charged with controlling him.^*
To further buttress this finding, the court noted that the comment
section to Restatement (Second) of Torts section 319 addresses situations
in which the dangerous person is actually in a custodial setting such
as a state mental hospital/® Therefore, the court concluded that this
section was not intended to apply to the factual context ol Sports, Inc}^
The first district distinguished the recent fourth district's decision
which had relied on section 319, Estate of Mathes v. Ireland,^^ on the
basis that the relationships in Mathes were well established and con-
tinuing, whereas the relationship between Sports, Inc. and Riggs was
"brief and accidental."^^ It is worthy of note, however, that the "tak-
ing charge" of a third person as contemplated in Mathes was not
custodial in the sense that those in charge had a legal obligation to
keep the killer in custody .^^

The Sports, Inc. court also disagreed with the plaintiffs' conten-
tion that Restatement (Second) of Torts section 324A should apply. That
section reads:

One who undertakes, gratuitously or for consideration, to
render services to another which he should recognize as
necessary for the protection of a third person or his things,
is subject to liability to the third person for physical harm
resulting from his failure to exercise reasonable care to pro-
tect his undertaking, if

(a) his failure to exercise reasonable care increases the risk
of such harm, or

149 Ind. App. 334, 272 N.E.2d 627 (1971) dealt with a welfare worker's duty to warn
foster parents of a child's homicidal tendencies. The court distinguished these cases
on the basis that neither dealt with the liability for the negligence of the third party.
431 N.E.2d at 536.

^^Restatement (Second) of Torts § 319 (1965) states: "One who takes charge of a
third person whom he knows or should know to be likely to cause bodily harm to others
if not controlled is under a duty to exercise reasonable care to control the third per-
son to prevent him from doing such harm." Id.

'«431 N.E.2d at 536.

''Id.

^^419 N.E.2d 782 (Ind. Ct. App. 1981). For a discussion of this case, see supra notes
1-13.

^H31 N.E.2d at 536 n.2.

""'Mathes, 419 N.E.2d at 787-88 (Hoffman, J., dissenting). The killer in Mathes had
attained the age of majority and thus his parents were no longer legally responsible
for his actions. Further, the killer had never been adjudicated mentally ill which could
give rise to a duty to control. Id. at 787-88.

1983] SURVEY-TORTS 381

(b) he has undertaken to perform a duty owed by the other
to the third person, or

The court found that section 324A did not apply because there was
no indication that Sports, Inc.'s actions increased the risk of harm to
the plaintiffs, that the plaintiffs relied on Sports, Inc., or that Sports,
Inc. undertook a duty owed by Riggs.^^ However, it cannot be denied
that if Sports, Inc. had taken the intoxicated Riggs into custody, the
accident would have been prevented. Under this view. Sports, Inc.'s
action, or inaction, would certainly have increased the risk of harm
to the Gilberts. Thus, the proper inquiry here should be whether fail-
ing to do so was a failure to exercise reasonable care.

The court also refused to accept the plaintiffs' theory of negligent
entrustment of a chattel to an incompetent based upon Restatement
(Second) of Torts section 390.^^ The court found that the rule enun-
ciated in section 390 applies only to those who own or have a right
to control the chattel in question, and Sports, Inc. had no right to
control Riggs' truck.^'

The court in Sports, Inc. also failed to find the special kind of
relationship between the defendant and Riggs necessary for an im-
position of duty based upon the Restatement (Second) of Torts section
315. Section 315 states that there is a duty to control the conduct
of a third person to avoid harm to another only if *'(a) a special rela-
tion exists between the actor and the third person which imposes a
duty upon the actor to control the third person's conduct, or (b) a
special relation exists between the actor and the other which gives
to the other a right to protection."^®

Although the court conceded that an owner of land has a duty
to protect business invitees from the acts of third persons if the danger
to the invitee is foreseeable, it aptly pointed out that this theory did
not apply in Sports, Inc. because the plaintiffs were not patrons of
the Sportsdome.^ Furthermore, any statutory liability imposed on one

^^Restatement (Second) of Torts § 324A (1965).

2^431 N.E.2d at 537.

''Id.

'Ud. at 537. Restatement (Second) of Torts § 390 (1965) provides:

One who supplies directly or through a third person a chattel for the
use of another whom the supplier knows or has reason to know to be likely
because of his youth, inexperience, or otherwise, to use it in a manner in-
volving unreasonable risk of physical harm to himself and others whom the
supplier should expect to share in or be endangered by its use, is subject
to liability for physical harm resulting to them.
''^Restatement (Second) of Torts § 315 (1965).
2M31 N.E.2d at 537-38.

382 INDIANA LAW REVIEW [Vol. 16:377

who supplies alcoholic beverages under the Indiana Code^° was inappli-
cable because Riggs did not consume alcohol at the Sportsdome.

Finally, the court in Sports, Inc. pointed out that the common
thread woven through all the theories of liability for failure to con-
trol a third person espoused by the plaintiffs was that of "a person
in need of special supervision . . . from someone who is in a superior
position to provide it."^^ Essential to this relationship is the right to
intervene or control. The court found such a right to intervene ab-
sent in Sports, Inc.^^ Because Sports, Inc. is a private entity, it had
neither the power nor the duy to arrest Riggs.^^ Although the securi-
ty force as off-duty police had the power to arrest, that power is con-
ferred by the state and not by a private employer. Sports, Inc. did
not "rent the state's police power" when it employed the off-duty
police.^'' Therefore, the official inaction of the security guards could
not be imputed to Sports, Inc.

The court's discussion of Sports, Inc.'s right to control its securi-
ty force is fraught with difficulties and ambiguities. The court found
that even though the security guards are employees. Sports, Inc. had
no authority to require the guards to use their power to arrest because
that power is conferred by the state. Thus, the employer/employee
relationship is not the determining factor and negligent failure to ar-
rest could not be imputed to Sports, Inc.

The court also pointed out, however, that the power to arrest is
discretionary so that even if the plaintiffs could establish that the
guards' negligent failure to enforce the law caused plaintiffs' injuries,
the guards could claim governmental immunity.^^ The court concluded
its discussion with the incredible statement that "[i]f the Sports
employees are immune from liability for their failure to use powers
granted to them by the State, their private employer is likewise
immune."^^ Is the court suggesting that a private employer of a moon-
lighting governmental employee can claim govermental immunity if
his employee negligently uses powers which can be seen as having
been granted by the state? Such a suggestion raises questions and
problems which are not within the scope of this Survey. However,
it appears the court put Sports, Inc. in the enviable position of being

^"iND. Code §§ 7.1-5-7-8, 7.1-5-10-15 (1982).

^>431 N.E.2d at 538.

^Ud. at 538-39.

^Ud. at 539. The court found that a private citizen could be liable for false im-
prisonment in arresting someone for a misdemeanor. Because Riggs had, at worst, com-
mitted a misdemeanor. Sports, Inc. had no duty to make a citizen's arrest. Id.

''Id.

'Ud. (citing IND. Code § 34-4-16.5-3(7) (Supp. 1980) which is currently codified at Ind.
Code § 34-4-16.5-3(7) (1982)).

^'431 N.E.2d at 539.

1983] SURVEY-TORTS 383

able to deny the employer/employee relationship to the extent that
it might produce liability and to invoke the employer/employee rela-
tionship to the extent that it would enable Sports, Inc. to escape liabil-
ity. This is rather unusual in light of the normal effect of the doc-
trine of respondeat superior. Suffice it to say that Sports, Inc.
benefited from a classic example of being given its cake and being
allowed to eat it, too.

Following close on the heels of Sports, Inc., the first district court
of appeals found a duty to control the actions of a third person in
Martin v. Shea.^'^ Martin is perhaps the most significant and certainly
the most startling case decided during the survey period. In Martin,
the court held that a social guest injured by another guest at a swim-
ming party stated a claim against the homeowner sufficient to with-
stand a motion to dismiss.^®

The Martins attended a pool party at the home of the Sheas in
June of 1979. Although Martin did not participate, some of the guests
took part in "horse play" around the" pool, and one of the guests struck
Martin from behind. Martin fell into the pool and struck his head on
the bottom. The fall injured Martin severely, and he sued the Sheas
claiming that the host had a duty to control the conduct of those us-
ing the premises. The Sheas filed a motion to dismiss that was granted
and Martin appealed. The court of appeals reversed and remanded.^^

The Martin court noted that there was a tendency to classify this
case among the long line of premises liability cases,^" but the court
refused to yield to such a classification. Rather, the court found that
premises liability cases generally involve injuries caused by physical
defects in the land, and the injury in this case was not a result of
such a physical defect.'*^ Therefore, the court in Martin concluded that
imposing a duty only according to the plaintiff's status as business
invitee, licensee or trespasser would be inappropriate."^ Thus, it did
not matter that Martin, as a social guest, would have been a licensee
under the premises liability classification system. Unfortunately, the
court cited no authority and did not give a satisfactory reason why
such a distinction should be made between injuries resulting from
dangerous conditions on the property and injuries resulting from
dangerous activities on the property. If, as the dissent suggests, the

^^432 N.E.2d 46 (Ind. Ct. App. 1982).

^Ud. at 49. Martin v. Shea was handed down just a week after Sports, Inc. v.
Gilbert. Not surprisingly, Judge Neal, the writing judge in Sports, Inc., dissented in
Martin v. Shea. ■

^M32 N.E.2d at 47. The defendant's original motion to dismiss was denied, but
upon reconsideration the trial court granted it.

*'Id.

''Id.

384 INDIANA LAW REVIEW [Vol. 16:377

reason for finding a lesser duty owed to a licensee in a premises liabili-
ty case is that "[t]he licensee has no right to demand that the occupier
change his method of conducting activities for his safety,""^ then there
seems to be no good reason for distinguishing between types of
dangers.

Though considerable criticism has been levelled against the entire
concept of the classification system in premises liability,'*^ it has
generally been based on the rigidity and arbitrariness of the
categories.'*^ Perhaps the best approach would be to abolish the
classification system altogether as a number of jurisdictions have
done''^ rather that to carve out ill-considered exceptions as the court
did in Martin.

Having resisted any urge to classify this as a premises liability
case, the Martin court moved to the question of the nature of the
duty owed to Martin. Noting that duties may arise out of knowledge
of certain situations and that a court may create a duty to fit the
circumstances/^ the court proceeded to fashion a duty to fit the cir-
cumstances of this case. The court focused on whether a host at a
swimming party has a duty to control the conduct of one guest to
prevent injury to another guest and concluded that the answer is yes.
However, after making a point to remove this case from the area of
premises liability, the court used premises liability cases to support
its imposition of a duty in Martin.*^

*Ud. at 51 (Neal, J., dissenting) (quoting W. Prosser, Handbook of the Law of
Torts § 60 at 380 (4th ed. 1971)).

"See W. Prosser, Handbook of the Law of Torts § 62 (4th ed. 1971); F. Harper
& F. James, The Law of Torts § 27.1-27.14 (1956); C. Morris & C. Morris, Morris on
Torts 139 (2d ed. 1980); Note, Tort Liability of Owners and Possessors of Land— A Single
Standard of Reasonable Care under the Circumstances Toward Invitees and Licensees,
33 Ark. L. Rev. 194 (1979); Comment, The Common Law Tort Liability of Owners and Oc-
cupiers of Land: A Trap for the Unwary"?, 36 Md. L. Rev. 816 (1977); Comment, Torts-
Abolition of the Distinction Between Licensees and Invitees Entitles all Lawful Visitors
to a Standard of Reasonable Care, 8 Suffolk U.L. Rev. 795 (1974).

*^See, e.g., W. Prosser, ^pra note 44, § 58, 62 at 357, 398-99.

*'See id. § 62.

*^432 N.E.2d at 48 (citing Snyder v. Mouser, 149 Ind. App. 334, 272 N.E.2d 627
(1977)).

'*432 N.E.2d at 48-49. The court first cited Glen Park Democratic Club, Inc. v.
Kylsa, 139 Ind. App. 393, 213 N.E.2d 812 (1966). Glen Park involved a patron at a bar
who was injured by other patrons. The case was obviously decided on the basis of
a premise liability theory and turned upon the fact that the plaintiff was a business
invitee. The court also cited Cory v. Ray, 115 Ind. App. 50, 55 N.E.2d 117 (1944) in
which it was held that the operator of a place of public entertainment may be held
liable for injuries to his patrons if reasonable care is not taken to keep the premises
safe. The only case cited by the court that stands squarely for the proposition asserted
here is the New York case Majione v. Dimino, 39 A.D.2d 128, 332 N.Y.S.2d 683 (1972).
Although this case is factually close to Martin, it obviously has no mandatory preceden-
tial effect.

1983] SURVEY-TORTS 385

The Martin court also referred to the distinction made in some
jurisdictions between conditions of the premises and conduct of the
defendant as one between passive negligence on the one hand and
active negligence on the other."^ The former excuses liability, and the
latter does not. However, presumably the former would fall into
Indiana's well-established principles of premises liability in which the
extent of a landowner's duty is based on the status of the plaintiff.

Additionally, the court pointed to the "general principles of law
in regard to a duty to control conduct"^" found in the Restatement (Sec-
ond) of Torts section 318 which reads:

If the actor permits a third party person to use land or
chattels in his possession otherwise than as a servant, he is,
if present, under a duty to exercise reasonable care so to con-
trol the conduct of the third person as to prevent him from
intentionally harming others or from so conducting himself as
to create an unreasonable risk of bodily harm to them, if the
actor (a) knows or has reason to know that he has the ability
to control the third person, and (b) knows or should know of
the necessity and opportunity for exercising such control.^^

However, the court did not mention whether there was any indica-
tion that the defendant could have controlled the third person, that
the defendant knew of the necessity for control, or that the defendant
even knew who the third person was. The court apparently ignored
the general common law principle which finds no duty to control the
conduct of another. As the dissent aptly pointed out, normally such
a duty only exists in the presence of a special relationship between
defendant and plaintiff, or between defendant and the active
tortfeasor.^^ The relationship of host and social guest has not been
one which has given rise to this duty in the past.^^ Following in the
footsteps of Estate ofMathes v. Ireland,^ the Martin court has greatly

*M32 N.E.2d at 49.

'"Id.

^'Restatement (Second) of Torts § 318 (1965).

'M32 N.E.2d at 50 (Neal, J., dissenting) (citing Sports, Inc. v. Gilbert, 431 N.E.2d
534 (Ind. Ct. App. 1982) and Restatement (Second) of Torts § 315 (1965)). Judge Neal
in his dissent pointed out a number of the weaknesses and inconsistencies in the major-
ity's opinion, claiming that there is no reason in sense or law to distinguish this case
from the traditional premises liability case. However, some of the authorities Judge
Neal uses to support his position are no more germane to the situation in the present
case than those used by the majority. Swanson v. Shroat, 169 Ind. App. 80, 345 N.E.2d
872 (1976) and Pierce v. Walters, 152 Ind. App. 321, 283 N.E.2d 560 (1972) do not deal
with the problem of a landowner controlling the actions of another for the protection
of a licensee. However, Judge Neal's opinion is certainly more in keeping with the
traditional approach in the area.

^432 N.E.2d at 50 (Neal, J., dissenting).

^419 N.E.2d 782 (Ind. Ct. App. 1981).

386 INDIANA LAW REVIEW [Vol. 16:377

enlarged the concept of duty to control the conduct of others in
Indiana.

2. Affirmative Duty Imposed by Gratuitous Undertaking. — The court
of appeals for the fourth district dealt with another aspect of the af-
firmative duty issue in Board of Commissioners v. Hatton.^^ The fourth
district noted that Indiana has previously recognized that "a duty may
be imposed upon one who by affirmative conduct or agreement
assumes to act, even gratuitously, for another to exercise care and
skill in what he has undertaken."^^ However, in Hatton, the court
qualified this rule holding that "liability for nonfeasance in connec-
tion with a gratuitous or voluntary undertaking may arise only where
beneficiaries have relied on its performance.""

The plaintiff in Hatton was injured when her bicycle was struck
by a truck, as the truck rounded a curve that was flanked by natural
growth coming within six inches of the road and reaching a height
of approximately ten feet. Hatton filed a complaint against the county
alleging that its negligence in maintaining the growth around the curve
failed to open the view of the curve in question and was thus the
proximate cause of her injuries. The jury returned a verdict for Hat-
ton, and the county appealed contending that Hatton failed to establish
that the county had a duty to maintain the roadside. The court of
appeals agreed and reversed the lower court decision.^^

In Hatton, the plaintiff argued that the county had both a com-
mon law and a statutory duty to keep the area adjacent to the road
cleared.^^ She claimed the common law duty existed both because of
the counties' maintenance of the area and because of a broader duty
to protect the users of the highway from inherent dangers. The court
of appeals did not reach the second contention because the plaintiff
had not objected to the jury instruction which predicated the common
law duty on Hatton's ability to prove either that the county owned
the adjacent land or had assumed responsibility for its maintenance.
The plaintiff offered no evidence that the county owned the adjacent
area, and the county had offered evidence to the effect that neither
a record of ownership nor a description of the road itself could be

^^427 N.E.2d 696 (Ind. Ct. App. 1981).

^7d. at 699 (citing Clyde E. Williams & Assoc, v. Boatman, 375 N.E.2d 1138 (Ind.
Ct. App. 1978)).

"427 N.E.2d at 700.

''Id. at 703.

^7d at 703. The court agreed with the State's claim that the trial court should
have granted the State judgment on the evidence on the issue of statutory duty. Ind.
Code § 32-10-5-1 (1976), which imposes a duty to mow, requires grass to be cut to five
feet. Because Hatton's visibility would not have been improved even if the grass were
cut to five feet, violation of the statute could not have been the proximate cause of
the ijijury. 427 N.E.2d at 703.

1983] SURVEY-TORTS 387

found. Although the county policy was to mow a three-foot wide strip
along the highway twice a year, residents testified that the growth
had not been cut by anyone since 1972. This testimony, accepted by
the plaintiff as fact, indicated that the county did not assume
responsibility for maintenance of the area. The court pointed out that
such evidence might show lack of due care if a duty existed, but the
establishment of a legal duty must necessarily precede the issue of
due care.^°

Although the court resolved the common law duty issue by find-
ing no evidence that the county had assumed the responsibility to
mow, the court qualified the rule pertaining to gratuitous assumption
of responsibility. Looking to case law in other jurisdictions, the court
concluded that 'liability for non-feasance in connection with a
gratuitous or voluntary undertaking may arise only where beneficiaries
have relied on its performance."^^ The testimony by residents that no
one had mowed the roadside in at least seven years indicated that
reliance was not present.

In Perry v. NIPSCO,^^ the court of appeals for the fourth district
may have enlarged the perimeters of the affirmative duty to come
to the aid of another. NIPSCO entered into a contract with Babcock
& Wilcox Company (B. & W.) for the construction of equipment at
NIPSCO's Michigan City generating station. In April of 1972, a B. &
W. foreman ordered Perry, a B. & W. employee, to do some welding
twenty feet above ground. No scaffolding or other safety equipment
was available. Perry complained to his B. & W. foreman and to a
NIPSCO employee standing nearby. The NIPSCO man told Perry he
had no control over what Perry did for B. & W. Perry ultimately
attempted to do the job, fell, and was seriously injured. Perry sued
NIPSCO for personal injuries claiming that NIPSCO owed a duty to
exercise reasonable care relative to job safety, and the trial court
granted NIPSCO's motion for summary judgment. Perry appealed, and
the court of appeals reversed on the issue pertaining to NIPSCO's
assumption of job site safety .^^

The court of appeals began its analysis of the duty question by
stating that in this area the general rule is that liability for the acts
of another normally does not apply in the absence of a master-servant
relationship.^" The court then quoted at length from the venerable case

«"427 N.E.2d at 700.

®7d. (emphasis in original) (citing Chisolm v. Stephens, 47 111. App. 3d 999, 365
N.E.2d 80 (1977); Johnson v. Souza, 71 N.J. Super. 240, 176 A.2d 797 (App. Div. 1961);
Florence v. Goldberg, 44 N.Y.2d 189, 375 N.E.2d 763, 404 N.Y.S.2d 583 (1978)).

'HSS N.E.2d 44 (Ind. Ct. App. 1982).

'Ud. at 50.

'*Id. at 46.

388 INDIANA LA W REVIEW [Vol. 16:377

Prest-0-Lite Co. v. Skeel^^ apparently to find that B. & W. was an in-
dependent contractor rather than an employee.^^ However, the court
recognized that several exceptions have evolved to the general
nonliability of independent contractors.^^ The plaintiff in Perry claimed
that two of these exceptions applied in the instant case because
the contract required performance of intrinsically dangerous work, and
NIPSCO was charged by contract with providing safety on the job.^®

The court found that the first exception asserted by plaintiff did
not apply because "an undertaking is not intrinsically dangerous if
the 'risk of injury involved in its use can be eliminated or significant-
ly reduced by taking proper precautions.' "®® Here, the use of scaf-
folding would have greatly reduced the potential for injury.

Based on the mandate from Prest-0-Lite that contracts be read
as a whole in order to glean their "spirit and essence", the NIPSCO
court further found that the contract between NIPSCO and B. & W.
read as a whole did not reserve to NIPSCO the control of job site
safety for B. & W.'s employees.'"

Plaintiff, relying on Mullins v. Easton,''^ claimed that NIPSCO as
owner of the property was required to provide a safe place for Perry
to work. The court distinguished the Mullins case on its facts. In
Mullins, the plaintiff was injured by a defect in the property itself,
whereas here, plaintiff's injury had nothing to do with the condition
of the property. Thus NIPSCO, as owner of the property, breached
no duty to Perry.'^

Though the court rejected Perry's arguments regarding NIPSCO's
responsibility to the employee of a subcontractor and acknowledged
the general rule that there is no duty to protect or aid others even
if the actor should or does realize such action is necessary, the court
did rule that "one who assumes supervision of safety at a construc-
tion site has a duty to use due care in the enforcement of safety
regulations."'^ Here, the court found a special relationship between

''182 Ind. 593, 106 N.E. 365 (1914) (contractor's worker was injured when building
owned by Prest-0-Lite Co. collapsed; the court concluded that Prest-0-Lite was not
liable because the contractor was found to be an independent contractor).

'M33 N.E.2d at 47. The court made no specific preliminary statement that B. &
W. was an independent contractor, but it is obvious that the opinion was based on
that assumption. Perhaps the parties stipulated to that fact in their briefs.

'Yd (quoting Denneau v. Indiana & Michigan Elec. Co., 150 Ind. App. 615, 620,
277 N.E.2d 8, 12, (1971)).

'«433 N.E.2d at 47.

''Id. (quoting Hale v. Peabody Coal Co., 168 Ind. App. 336, 343, 343 N.E.2d 316,
322 (1976)).

'°433 N.E.2d at 48.

"376 N.E.2d 1178 (Ind. Ct. App. 1978).

^^433 N.E.2d at 49.

'Ud. (construing Clyde E. Williams & Assoc, v. Boatman, 375 N.E.2d 1138 (Ind.

1983] SURVEY-TORTS 389

NIPSCO and B. & W. regarding the safety of B. & W.'s employees.
By holding safety meetings and by having employees who gave the
appearance of supervising safety on the site, NIPSCO had ''assumed
the obligation to enforce safety measures."^^

In reaching its conclusion, the court quoted the Restatement (Sec-
ond) of Torts section 324A, which states in pertinent part:

One who undertakes, gratuitously ... to render services
to another which he should recognize as necessary for the pro-
tection of a third person ... is subject to liability to the third
person for physical harm resulting from his failure to exercise
reasonable care to protect his undertaking, if

(b) he has undertaken to perform a duty owed by the other
to the third person . . . J^

In light of NIPSCO's assumption of B. & W.'s obligation to monitor
safety at the job site, the court had no trouble in finding that section
324A applied.

Although the court in NIPSCO stated that the duty set out in
section 324A is nothing new in our law,^® it appears that after NIPSCO,
the limits of the affirmative duty to act in Indiana are those defined
in section 324A of the Restatement (Second) of Torts. The court quoted
Board of Commissioners v. Hatton as authority for the general pro-
position that Indiana recognizes duties imposed by assuming to act
for another,^^ but the court in NIPSCO made no reference to the Hat-
ton court's nonfeasance qualification to that rule. The fourth district
court's adoption of section 324A may mean that subsection (b), deal-
ing with the reliance factor, will supplant the nonfeasance/misfeasance
distinction found in Hatton.

B. Proximate Cause

In Bridges v. Kentucky Stone Co.,''^ the Indiana Supreme Court
dealt with that elusive concept, proximate cause. The plaintiff in
Bridges was injured and his minor son killed in an explosion of a bomb
at his residence. The bomb was made from explosives stolen from the

Ct. App. 1978) where court found that if engineering firm assumed the supervision
of safety at a construction site, a relationship would exist that would create a duty
to supervise the project in the manner of a reasonably prudent man).

'M33 N.E.2d at 49 (emphasis in original).

''Ud. at 50 (quoting Restatement (Second) of Torts § 324A (1966)).

^«433 N.E.2d at 50 (citing Nelson v. Union Wire Rope Corp., 31 111. 2d 69, 199
N.E.2d 769 (1964)).

^^33 N.E.2d at 50 (quoting Board of Comm'rs v. Hatton, 427 N.E.2d 696 (Ind. Ct.
App. 1981)). For a discussion of Hatton see supra notes 55-61 and accompanying text.

^«425 N.E.2d 125 (Ind. 1981), rev'g 408 N.E.2d 575 (Ind. Ct. App. 1980).

390 INDIANA LAW REVIEW [Vol. 16:377

defendant's plant. Bridges sued, claiming that the defendant negligent-
ly stored the dynamite so that it could be stolen and that this negligent
act was the proximate cause of his damage. The trial court granted
the defendant's motion for summary judgment holding as a matter
of law that negligent storage of the dynamite was not the proximate
cause of plaintiff's injuries.^^ The court of appeals for the fourth
district reversed the trial court decision. In reviewing the legislative
history and statutory purposes of federal laws controlling storage of
explosives, the court of appeals found that "reasonable minds could
differ as to whether the defendants reasonably should have foreseen
that negligent storage of dynamite could result in its theft and
misuse."^" The Indiana Supreme Court granted the defendant's peti-
tion for transfer, vacated the decision of the court of appeals, and
reinstated the trial court's decision to grant the defendant's motion
for summary judgment.*^

The supreme court noted the great disparity in approaches to the
proximate cause question in cases involving the storage of explosives*^
and cited as examples of the divergent points of view, Bottorjfv. South
Construction Co.^^ and Yukon Equipment, Inc. v. Firemen's Fund
Insurance.^^ In Bottorff, a fourteen-year-old child stole explosives from
a dilapidated shed and gave them to a twelve-year-old who injured
himself. The Indiana Supreme Court sustained a demurrer in Bottorff
finding that the larceny of the child, not the negligent storage, caused
the injury.^ By contrast, in Yukon Equipm£nt, when extensive damage
was done to neighboring homes because thieves broke into the de-
fendant's magazine and ignited great quantities of dynamite, the
Alaska Supreme Court found the defendant absolutely liable based
on the court's conclusion that storing explosives is an ultrahazardous
activity.*^

The supreme court in Bridges disagreed with the Alaska court's
conclusion in Yukon Equipment that storing dynamite is an ultrahazar-
dous activity that should result in a per se rule of liability.*^ Instead,
the court adopted the Restatement (Second) of Torts section 520
approach** and concluded that the question of whether storage of

''Id. at 126.

«°408 N.E.2d 575, 578 (Ind. Ct. App. 1980).

«^425 N.E.2d at 125.

'^Id. at 126.

n84 Ind. 221, 110 N.E. 977 (1916).

^''585 P.2d 1206 (Alaska 1978).

^^84 Ind. at 227-28, 110 N.E. at 978.

««585 P.2d at 1211.

«'425 N.E.2d at 126.

^^Restatement (Second) of Torts § 520 (1977) reads in pertinent part:

In determining whether an activity is abnormally dangerous, the follow-

1983] SURVEY-TORTS 391

dynamite is an ultrahazardous activity should be determined on a case-
by-case basis.*®

Unfortunately, the court in Bridges dropped its discussion of
**ultrahazardous activities" without any statement as to whether the
storage of dynamite in this case amounted to an ultrahazardous
activity. Apparently, the court concluded that it did not because the
court moved to a discussion based on a theory of negligence.®"

Although unwilling to accept that storing dynamite will always
result in liability if someone steals and misuses it, the Bridges court
expressed dissatisfaction with the approach in Bottorff also. The court
pointed out that since the Bottorff decision, there have been exten-
sive regulations enacted regarding the storage of explosives.®^ This
is indicative of a policy to encourage care. Thus, the court declined
to follow the holding in Bottorff that the theft of explosives would
always be a superseding cause which would relieve one who negligent-
ly stored them of liability.®^ Rather, the court looked to the particular

ing factors are to be considered:

(a) existence of a high degree of risk of some harm to the person, land
or chattels of others;

(b) likelihood that the harm that results from it will be great;

(d) extent to which the activity is not a matter of common usage;

(e) inappropriateness of the activity to the place where it is carried on;
and

(f) extent to which its value to the community is outweighed by its
dangerous attributes.

*®425 N.E.2d at 126. The court apparently assumed that if the activity is deemed
ultrahazardous so as to justify the imposition of strict liability, the issue of proximate
cause is no longer relevant. A logical argument can be made for the view that for
strict liability to apply, the activity must be so hazardous and likely to cause harm
that the foreseeability aspect of proximate cause as a limitation on liability is un-
necessary. However, courts regularly interject limitations on strict liability on the basis
of something in the nature of proximate cause. This is particularly true if an interven-
ing cause, such as the act of a third person, plays a part in plaintiff 's damage. Although
extensively discussed by legal scholars, the problem has never been satisfactorily
resolved. One noted torts scholar stated that, "[i]t is stuff like this that drives a torts pro-
fessor mad and which convinces his students at the threshold of their professional
training that the law is a crazy mess." Gregory, Trespass to Negligence to Absolute Liabili-
ty, 37 Va. L. Rev. 359, 379 (1951). For various approaches to the problem see J. Fleming,
The Law of Torts 311-13 (3d ed. 1965); W. Prosser, Handbook of the Law of Torts §
79 (4th ed. 1971); Harper, Liability Without Fault and Proximate Cause, 30 Mich. L.
Rev. 1001 (1932).

^"425 N.E.2d at 127. Having adopted section 520 as the proper approach to a case
involving the storage of dynamite, the court defers to the trial court for a determina-
tion on the issue of whether the storage here constituted an ultrahazardous activity.
See Restatement (Second) of Torts § 520 comment 1 (1977).

^'425 N.E.2d at 127 (citing Ind. Code § 22-1M3-1 to -28 (1976)).

'^425 N.E.2d at 127.

392 INDIANA LAW REVIEW [Vol. 16:377

facts of this case to determine that the trial court's grant of sum-
mary judgment on the issue of proximate cause was correct.

The relevant factors acting as a superseding cause precluding
liability of the defendant ifi Bridges were that the blast occurred nearly
three weeks subsequent to the theft, that the blast occurred at a loca-
tion over one hundred miles from the storage site, and that the dis-
appearance of the dynamite was reported to federal authorities pur-
suant to federal regulations.

In Bridges, the court recognized that negligence is the proximate
cause of injury if it is a natural and probable consequence that should
have been foreseen. Given the factual situation in Bridges, the court
found that reasonable minds could not differ on the question of
whether the damage to plaintiff was reasonably foreseeable.^^ However,
in light of the likelihood of injury when explosives are stolen and
misused, it is difficult to imagine how reasonable minds might not dif-
fer on the question of whether negligent storage and the resulting
theft of explosives could foreseeably result in the thief making and
exploding bombs regardless of how much later or how far away the
explosion. Perhaps the court felt a bit uncomfortable with its decision
because the court expressly limited the decision in Bridges to the
facts,®* making it difficult to assess the future impact of this case.®^

The court of appeals for the second district had occasion to ex-
plore the vagaries of proximate cause in Hiatt v. Brown.^^ In HiatU
a jet blast from a TWA airplane blew the plaintiff down as she walked
up a ramp at Indianapolis International Airport.

In 1964, the Indianapolis Airport Authority (lAA) had contracted
with defendant Brown, an architect, to design a plan for the expansion
of the airport's terminal building. The expansion plan included a TWA
arrival/departure gate near the ramp on which Hiatt was injured. The
original understanding between the parties was that all airlines would
use a nose in/nose out system of moving planes. With this system,
the planes kept their engines off, and tugs pushed the planes in and
pulled them out. In 1965, Brown learned that TWA intended to use
a taxi in/taxi out operation which would subject the unprotected ramps
to jet blasts from the arriving and departing planes. Although it was
unclear whether Brown learned of this change before or after he sub-
mitted his architectural plans for approval, the record indicated he
had time to make design changes during the construction.

'*Id.

'^Justice DeBruler in his short dissenting opinion expressed the view that what
happened here could have been foreseen and a jury question was presented. Id. at
128 (DeBruler, J., dissenting).

^422 N.E.2d 736 (Ind. Ct. App. 1981).

1983] SURVEY-TORTS 393

lAA accepted the completed terminal in 1967 with no jet blast
protection for the ramp. Though numerous incidents of property and
personal injury occurred, neither TWA nor lAA acted to warn
pedestrians on the ramp of the possible danger.

Hiatt filed suit against Brown, TWA, and lAA. TWA and lAA
settled, and Hiatt went to trial againt Brown. The trial court granted
Brown's motion for summary judgment on the ground that Brown was
relieved from liability because the conduct of lAA and TWA inter-
vened to break the causal chain between Brown's negligence and
Hiatt's injury .^^ When Hiatt appealed, the court of appeals reversed
the entry of summary judgment finding that a genuine issue of
material fact existed on the question of whether Hiatt's injuries were
proximately caused by Brown's negligence.^*

Before considering the proximate cause issue, the court addressed
the question of whether the Restatement (Second) of Torts section 385
should apply to relieve Hiatt from having to establish privity between
herself and Brown even though Hiatt was a stranger to the architect/
owner relationship.^^ The court briefly traced the downfall of the priv
ity requirement in contractor-owner relationships in numerous
jurisdictions^"" and finally pointed out that section 385 reflects this
trend. Although a fair reading of the case makes it appear as if the
court's ultimate destination was to specifically adopt section 385 as
law in Indiana, the court concluded that it did not need to adopt or
reject section 385 to resolve this case. The court found that Hiatt's
situation fell within an already well-recognized exception to the privity
requirement in Indiana which applies if "the architect's design was
done so negligently as to create a condition imminently dangerous to
third persons."^"^ Thus, even though the court in Hiatt decided not

^Ud. at 738. As an alternative reason for granting the summary judgment, the
trial court found that Brown's negligence in failing to investigate or design jet blast
protection merely created a condition which made plaintiff's injury possible and that
the conduct of TWA and lAA actually caused the injury. Id. However, the court on
appeal did not address this conclusion.
''Id. at 739.
'^Restatement (Second) of Torts § 385 (1965) provides:

One who on behalf of the possessor of land erects a structure or creates
any other condition thereon is subject to liability to others upon or outside
of the land for physical harm caused to them by the dangerous character
of the structure or condition after his work has been accepted by the
possessor, under the same rules as those determining the liability of one who
as manufacturer or independent contractor makes a chattel for the use of
others.

^^See generally Comment, Architect Tort Liability in Preparation of Plans and
Specifications, 55 Calif. L. Rev. 1361 (1967); Note, Liability of Design Professionals— The
Necessity of Fault, 58 Iowa L. Rev. 1221 (1973).

^"'422 N.E.2d at 740. One might take issue with the court's assertion that in Indiana
the privity barrier has "repeatedly collapsed" in the situation of architects who have

394 INDIANA LAW REVIEW [Vol. 16:377

to take the final step to adopt section 385 as law, nonetheless, the
court laid the groundwork for the adoption of section 385 should the
appropriate occasion arise.

After disposing of the privity issue, the court in Hiatt focused
its consideration on the proximate cause question and inquired whether
the conduct of TWA and lAA, in recognizing the danger and failing
to rectify or warn of it, was an intervening cause which would relieve
Brown of liability /°^ Although the court recognized the policy behind
the rule that the conduct of an owner who learns of a dangerously
defective condition on his land but fails to remedy it is an interven-
ing cause which excuses an architect from liability, ^"^ the court, never-
theless, noted that "reasonable foreseeability is still the fundamental
test of proximate cause" and that intervening causes will excuse liabil-
ity only if they are not foreseeable.^"'^ The question in Hiatt was
whether Brown should have foreseen that TWA and lAA would
recognize the danger and fail to remedy it. Because the appellate court
found conflicting facts and inferences to be drawn from the record
on this question, it concluded that resolution of this issue should have
been left to the trier of fact and the trial court's grant of summary
judgment was reversible error.'

105

C. Damages

1. Crops. — In Decatur County Ag-Services, Inc. v. Young, ^^^ the In-
diana Supreme Court granted transfer to settle the method for measur-
ing damages for the destruction of growing crops having no ready
market value. The plaintiff Young's soybean crop was partially
destroyed as a result of defendant's negligent spraying for grass-

designed hazardous structures in light of the fact that all the cases cited by the court
involve contractors sued for negligent construction defects and not architects sued for
negligent design defects. The cases cited are: Davis v. Henderlong Lumber Co., 221
F. Supp. 129 (N.D. Ind. 1963); Gillam v. J. C. Penney Co., 193 F. Supp. 558 (S.D. Ind.
1961); Great Atlantic & Pacific Tea Co. v. Wilson, 408 N.E.2d 144 (Ind. Ct. App. 1980);
and Holland Furnace Co. v. Nauracaj, 105 Ind. App. 574, 14 N.E.2d 339 (1938). Arguably,
however, the reason for holding architects liable for negligent design in the absence
of privity is even stronger than that for holding contractors liable. In the cases cited
by the court, the contractors were merely following designs and specifications drafted
by someone else. The architect here, however, possibly created in his design "a condi-
tion imminently dangerous to third persons." 422 N.E.2d at 740.

^"^422 N.E.2d at 740-42.

^"^/d. at 740. Such a rule is necessary to protect an architect or builder who has
turned property over to an owner and no longer has the ability to modify the struc-
ture. If such a principle did not apply, architects would remain liable to third persons
with no power to cure the defect. "^

'''Id. at 741.

^"^M at 741-42.

^°«426 N.E.2d 644 (Ind. 1981).

1983] SURVEY-TORTS 395

hoppers. After harvest, Young, as was his custom, stored what was
left of his beans and sold them after the planting period the next year
for $8.86 to $10.39 per bushel. The trial court awarded Young damages
of $10 per bushel for the difference between what his crop would have
yielded and what it did yield based on the market value at the time
he actually sold what remained of his crop. Defendant appealed claim-
ing, among other things, that the trial court erred in assessing the
value of the lost portion at the market price at the time Young sold
the crop rather than at the prevailing market price at the time of
harvest, and that the trial court erred in failing to reduce the award
by the amount Young saved by not having to harvest, cultivate, or
store the lost portion of the crop. The court of appeals for the first
district affirmed the damages awarded. ^"^ The supreme court granted
transfer on the ground that the court of appeals decided erroneously
a new question of law.^°®

Quoting a Wisconsin case and citing authorities from numerous
other jurisdictions, the supreme court found that the proper measure
of damages for the destruction or partial destruction of a growing crop
to be "the difference between the value at maturity of the probable
crop if there had been no injury and the value of the actual crop at
maturity, less the expense of cultivation, harvesting and marketing
that portion of the probable crop which was prevented from
maturing."^"^ In adopting this method of valuation, the court fell in
line with the approach used in a majority of jurisdictions. ^^°

However, the circumstances of this case illustrate the difficulties
and possible inequities created by adhering to a hard-and-fast rule in
the area of calculating damages for injuries to crops. The court in
Young aptly pointed out that the purpose of damages is to compen-
sate the injured party for loss."^ The court further stated, though,
that the plaintiff, by electing not to sell at the harvest time, speculated
that the market value would be greater at a later date, and "[s]pecula-
tion about lost profits of this nature is not permitted.""^

If the purpose of damages is to compensate the injured party for
loss suffered, the remedy failed in this case. The plaintiff in Young
actually sold part of his crop at a later time because it was his custom,

'"^401 N.E.2d 731 (Ind. Ct. App. 1980).

'''M26 N.E.2d at 645.

'"Vd at 646 (quoting Cutler Cranberry Co. v. Oakdale Electric Cooperative, 78
Wis. 2d 222, 229, 254 N.W.2d 234, 238 (1977)).

""See D. DoBBS, Handbook on the Law of Remedies § 5.2 (1973). For a discussion
of the seemingly infinite variety of methods for assessing damages to growing crops,
see Note, Markets, Time, and Damages: Some Unsolved Problems in the Field of Crops,
14 Ind. L. Rev. 647 (1981).

"^426 N.E.2d at 646.

''Hd. at 647.

396 INDIANA LAW REVIEW [Vol. 16:377

and he would have sold the entire crop at this later date had it not
been damaged by the defendant. The amount of plaintiffs actual loss
was thus easily ascertainable; the formula was the difference between
what he received when he sold and what he would have received had
he been able to sell the entire crop. The practice of selling the crop at
a later time may have appeared speculative to the court, but, for this
particular plaintiff, evidence could have been introduced to show that
selling late constituted an established business practice. Thus, damages
calculated at the time of the actual sale would have been more com-
mensurate with this plaintiff's loss.

To avoid the inequities that occurred in Young, a few courts have
adopted a case-by-case approach in determining damages."^ A flexi-
ble rule that allows plaintiff and defendant to introduce evidence on
the extent of the plaintiff's actual losses has obvious appeal if com-
pensation for the loss suffered is the ultimate goal."* However, the
supreme court, by opting in favor of the majority rule, has foreclosed
this as a possibility in Indiana.

2. Nuisance. — The first district court of appeals held in Rust v.
Guinn^^^ that damages for personal losses, such as inconvenience and
injury to health, may be recovered in an action for an abatable private
nusiance. This would be in addition to damages for the interference
with and loss of use and enjoyment of property. The Guinns had
resided on an eighty-acre farm for four years prior to the establish-
ment of two chicken farms on an adjacent property. Because of the
proximity of the chicken farms, the Guinns suffered an increased
number of flies and repugnant odors. The Guinns brought suit against
Eggacres, Inc. (Eggacres) and were awarded $9,500 in the second part
of a bifurcated proceeding. Eggacres appealed from the judgment in
the damages suit assigning as error the trial court's jury instruction
on the measure of damages for an abatable private nuisance."^

Eggacres contended that the proper measure of damages for an
abatable private nuisance is limited to the reduction in the fair ren-
tal value of plaintiff 's real estate caused by the nuisance conditions.
The trial court instructed the jury it could include not only the damage
elements agreed to by Eggacres but also damages for actual expenses
incurred by plaintiff in attempting to mitigate the effects of the
nuisance and damages for injury to health caused by the nuisance.

Although the court of appeals noted that recent Indiana cases have
held that the general measure of damages for an abatable private

"'See D. DoBBS, supra note 110.

"*See sujyra note 110 for discussion of this approach.

"^429 N.E.2d 299 (Ind. Ct. App. 1981).

'''Id. at 301.

1983] SURVEY-TORTS 397

nuisance is the loss of the use of the land, measured by the diminu-
tion in rental value, the court found no Indiana cases which excluded
other items of damage."^ Nor did the court find that the legislature
gave any guidance on the damages issue in the statutes dealing with
nuisance."^ However, intent on expanding the scope of damages
recoverable for a private abatable nuisance, the court recognized that
a plaintiff in a nuisance action often suffers damages beyond diminu-
tion in rental value."^ To support its position, the court cited authority
from other jurisdictions,^^" the Restatement (Second) of Torts section
929(1),^^^ and Dean Prosser,^^^ as well as dicta from a vintage Indiana

''Ud. at 303.

"®See Ind. Code §§ 34-1-52-1 to -3 (1976). These sections define nuisance, identify the
proper party to bring suit, and state possible remedies. These statutes are silent,
however, on what items of damages are recoverable. Id.
"«429 N.E.2d at 303.

^^°Id. at 304 (citing City of San Jose v. Superior Court of Santa Clara County,
12 Cal. 3d 447, 525 P.2d 701, 115 Cal. Rptr. 797 (1974); Miller v. Carnation Co., 39 Colo.
App. 1, 564 P.2d 127 (1977); Nair v. Thow, 156 Conn. 445, 242 A.2d 757 (1968); Nitram
Chemicals, Inc. v. Parker, 200 So. 2d 220 (Fla. Dist. Ct. App. 1967); Pollard v. Land
West, Inc., 96 Idaho 274, 526 P.2d 1110 (1974); Earl v. Clark, 219 N.W.2d 487 (Iowa
1974); Holmberg v. Bergin, 285 Minn. 250, 172 N.W.2d 739 (1969); Nevada Cement Co.
V. Lemler, 89 Nev. 447, 514 P.2d 1180 (1973); Spencer Creek Pollution Control Ass'n
V. Organic Fertilizer Co., 264 Or. 557, 505 P.2d 919 (1973); Hendrix v. City of Maryville,
58 Tenn. App. 457, 431 S.W.2d 292 (1968); Lacy Feed Co. v. Parrish, 517 S.W.2d 845
(Tex. Civ. App. 1974)).

''>429 N.E.2d at 303-04 (citing Restatement (Second) of Torts § 929(1) (1977)). The
Restatement reads:

Harm to Land from Past Invasions
(1) If one is entitled to a judgment for harm to land resulting from a past
invasion and not amounting to a total destruction of value, the damages in-
clude compensation for

(a) the difference between the value of the land before the harm and
the value after the harm, or at his election in an appropriate case, the cost
of restoration that has been or may be reasonably incurred,

(b) the loss of use of the land, and

'^H29 N.E.2d at 304 (citing W. Prosser, Handbook of The Law Of Torts § 90, at

602-03 (4th ed. 1971)). Prosser reads:

As in the case of any other tort, the plaintiff may recover his damages
in an action at law. In such an action the principal elements of damages are
the value attached to the use or enjoyment of which he has been deprived,
or — which often amounts to a measure of the same thing — the loss of the
rental or use value of the property for the duration of a temporary nuisance
. . . and in addition the value of any personal discomfort or inconvenience
which the plaintiff has suffered, or of any injury to health or other personal
injury sustained by the plaintiff, or by members of his family so far as they
affect his own enjoyment of the premises, as well as any reasonable expenses
which he has incurred on account of the nuisance.

W. Prosser, Handbook of the Law of Torts § 90, at 602-03 (4th ed. 1971).

398 INDIANA LAW REVIEW [Vol. 16:377

case^^^ to the effect that courts are not restricted to depreciation of
the property but might also consider a plaintiff's inconvenience and
discomfort.

To Eggacres* contention that damages beyond diminution in ren-
tal value constituted a double recovery, the court responded simply
by voicing its disagreement and referring to a Colorado case
distinguishing between proprietary and personal losses and recognizing
a need to recover for both/^^

Although the long-range impact of Rust v. Guinn cannot be ascer-
tained yet, this decision, which broadens the scope of damages
recoverable for abatable private nuisance, may encourage plaintiffs
to bring nuisance actions.

D. Loss of Consortium

For the first time in Indiana, the issue of whether a noninjured
spouse's cause of action for loss of consortium must be joined with
the injured spouse's action for personal injuries was decided. In
Rosander v. Copco Steel & Engineering Co.,^^^ Rosander's husband was
injured while working at Copco's plant. The injured spouse received
worker's compensation benefits from Copco and executed a release
of all claims againt Copco. Subsequently, Mrs. Rosander, who was not
a party to the release, filed a separate action against Copco for loss
of consortium. The trial court granted a summary judgment in defend-
ant Copco's favor, holding that because loss of consortium is a
derivative suit, the settlement of the injured spouse's primary suit
bars the maintenance of an independent suit by the noninjured
spouse. ^^®

Although the court of appeals disagreed with the trial court's con-
clusion, it picked up the trial court's unfortunate use of the word
"derivative" and stated that "[i]t cannot be denied that a claim for
loss of consortium is derivative in that without an injury to one spouse,
the other spouse would have no action."^^^ That an action for loss of
consortium by one spouse will not arise without negligent injury to
the other spouse illustrates that the claim is for injury to a relational
interest — the marriage relationship — not that it is a derivative

'2^29 N.E.2d at 303 (quoting Weston Paper Co. v. Pope, 155 Ind. 394, 402-03, 57
N.E. 719, 721 (1900)).

'''Id. at 304 (citing Miller v. Carnation Co., 39 Colo. App. 1, 564 P.2d 127 (1977)).
The court neglects to point out that there is considerable authority for the proposi-
tion posited by Eggacres that recovery of personal damages amounts to double recovery.
See generally D. Dobbs, supra note 110, § 5.3 and cases cited therein.

^^^429 N.E.2d 990 (Ind. Ct. App. 1982).

'^'Id. at 991.

''Ud.

1983] SURVEY-TORTS 399

action/^® Nevertheless, the court of appeals recognized that an action
for loss of consortium is an independent action that is separate and
distinct from the injured spouse's action for personal injuries and that
one spouse cannot waive the rights of the other /^^

Regardless of the independent status of an action for loss of con-
sortium, the court considered whether the interests of judicial
economy, the danger of double recovery, and the potential for incon-
sistent verdicts are sufficiently compelling reasons to justify a rule
requiring mandatory joinder of the claim for loss of consortium with
the personal injury claim/^° The court cited Troue v. Marker,^^^ in which
the Indiana Supreme Court first recognized a wife's claim for loss of
consortium, and noted that though Troue did not specifically answer
the joinder question, the case implied that separate and distinct actions
may be filed separately /^^ In addition, the court found that the Troue
court settled the double recovery problem by holding that a wife can-
not recover loss of support in an action for loss of consortium. ^^^ The
court noted that the problem of inconsistent verdicts was not rele-
vant to Rosander, because the husband had signed a release, and a
release does not settle the merits of a claim/^'^

To answer the remaining question regarding judicial economy, the
court turned to the Restatement (Second) of Torts section 693 which
requires joinder, unless joinder is not possible/^^ Situations which
would make joinder impossible include the release of the claim by
the injured spouse without knowledge of the other spouse, as hap-

'^*Derivative can generally be defined as "[cjoming from another; taken from
something preceding; secondary. That which has not its origin in itself, but owes its
existence to something foregoing." Blacks Law Dictionary 399 (rev. 5th ed. 1979).
Derivative action is traditionally an action brought by one party on behalf of someone
else as in the situation of a stockholders' derivative action in which the corporation
is the real party in interest and the stockholder only a nominal plaintiff. See 12 Words
& Phrases Derivative Action 312 (West 1954 & Supp. 1982).

'^^29 N.E.2d at 991.

'''Id.

'^^253 Ind. 284, 252 N.E.2d 800 (1969).

'^M29 N.E.2d at 991.

'''Id.

'^^Restatement (Second) of Torts § 693 (1977) states:

(1) One who by reason of his tortious conduct is liable to one spouse
for illness or other bodily harm is subject to liability to the other spouse
for the resulting loss of the society and services of the first spouse, including
impairment of capacity for sexual intercourse, and for reasonable expense
incurred by the second spouse in providing medical treatment.

(2) Unless it is not possible to do so, the action for loss of society and
services is required to be joined with the action for illness or bodily harm,
and recovery for loss of society and services is allowed only if the two ac-
tions are so joined.

400 INDIANA LAW REVIEW [Vol. 16:377

pened in the instant case; the abatement of the impaired spouse's claim
by death; or the barring of the action by a workers' compensation
act.^^* By adopting the approach in section 693, the court of appeals
has made an effort to balance the sometimes competing interests of
judicial economy and individual rights. After Rosander, in order to
protect against subsequent suits by spouses who are unaware of the
settlement of the primary suit, the negligent party, before finalizing
a settlement agreement, should notify the uninjured spouse regarding
the pending settlement.

E. Seat Belt Defense

In State v. Ingram,^^'^ the Indiana Supreme Court granted transfer
and vacated the opinion of the court of appeals. The supreme court
found that the trial court had properly admitted a loan receipt agree-
ment and that the court of appeals had incorrectly reversed on that
basis.^^® In the course of its discussion of issues not addressed by the
court of appeals, the supreme court took occasion to settle the ques-
tion of whether the "seat belt defense" has any validity in Indiana.

In Ingram, the plaintiffs were injured when their car went into
a ditch that was negligently maintained. The State had responsibility
to maintain the ditch. The plaintiffs were not wearing seat belts at
the time of the accident. On appeal, the State claimed that the trial
court erred in refusing to give the jury the following instruction:

One who is injured is bound to exercise reasonable care
and diligence to avoid loss or to minimize resulting damage.
It is incumbant [sic] upon a person who is injured to use such
means as are reasonable under the circumstances to avoid or
to minimize the damage. If you find from a consideration of
all the evidence that the using and fastening of seat belts
would have avoided or minimized the resulting damage, then
the person wronged cannot recover for any item of damage
which could have been avoided, or minimized. ^^^

The State claimed that the instruction was justified because the
evidence showed that plaintiffs' injuries would have been reduced if
they had worn seat belts, and a defendant may "show in mitigation
or reduction of damages any facts surrounding the injury complained
of which tend to reduce the amount required for just compensation
to the plaintiff."^*"

^^Id. at comment g.

"^427 N.E.2d 444 (Ind. 1981).

•'7d. at 445.

'''Id. at 447.

1983] SURVEY-TORTS 401

The supreme court noted that the Indiana Court of Appeals had
discussed this theory, commonly called the doctrine of avoidable con-
sequences, in Kavanagh v. Butorac.^^^ Although in Kavanagh, the court
of appeals found insufficient evidence to justify application of the doc-
trine, the Kavanagh court recognized that the doctrine might apply
at "some future date and in some matter where the circumstances
are clearer than in the instant case in showing that some part of the
injury would not have occurred except for the fact that plaintiff failed
to avoid the consequence of the tort by not fastening his seat belt."^^^

In spite of the State's claim that the "future date" had arrived,
the supreme court in Ingram refused to accept failure to fasten a seat
belt as the kind of avoidable consequence that a defendant may show
in mitigation of damages/^^ The court pointed out that the rule of
avoidable consequences applies only to a plaintiff's conduct after the
commission of the tort but while some damage might still be averted.^**
Because buckling or failing to buckle a seat belt must be accomplished
before the tortious act occurs, the doctrine of avoidable consequences
cannot logically include the seat belt defense/*^ In addition to finding
logical inconsistency in including failure to wear a seat belt under the
rubric avoidable consequences, the supreme court noted Indiana's tradi-
tional approach to limiting mitigation of damages to post-tort
consequences.^*^ Thus the court concluded that a defendant cannot suc-
cessfully assert plaintiff's failure to wear seat belts as a way to reduce
damages in a negligence action.^*^

To buttress its conclusion, the supreme court pointed out that the
Indiana legislature addressed the matter of seat belts for other
purposes but has never imposed the duty on riders to wear seat
belts/*® Until a time when the legislature feels called upon to impose
such a duty upon riders in automobiles, the position of the seat belt
defense is settled in Indiana.

F. Medical Malpractice
During the survey period, both the first and the fourth district

'^•140 Ind. App. 139, 221 N.E.2d 824 (1966).
'*'Id. at 149, 221 N.E.2d at 830.
^"427 N.E.2d at 447.
''*Id. at 448.

'*^Id. But see Note, Spier v. Barker, 3 Hofstra L. Rev. 883, 892-93 (1975).

^''427 N.E.2d at 448. But see Kircher, The Seat Belt Defense-State of the Law, 53
Marq. L. Rev. 172, 182-86 (1970); Comment, Self-Protective Safety Devices: An Economic
Analysis, 40 U. Chi. L. Rev. 421, 427-33 (1973).

148427 N.E.2d at 448. For a discussion of the seat belt defense see Note, The Seat
Belt Defense: A Comprehensive Guide for the Trial Lawyer and Suggested Approach for
the Courts, 56 Notre Dame Law. 272 (1980).

402 INDIANA LAW REVIEW [Vol. 16:377

court of appeals had an opportunity to interpret portions of the
Medical Malpractice Act. In Carmichael v. Silhert,^^^ the first district
court of appeals held that the Indiana Malpractice Act^^" does not
violate the equal protection or due process clauses of the United States
Constitution or the privileges and immunities clause of the Indiana
Constitution/^^ The Act provides that a medical malpractice action
must be brought within two years from the alleged act, omission, or
neglect while other tort actions for personal injuries need not be
brought until two years after the cause of action has accrued/^^

Mrs. Carmichael underwent surgery for the removal of warts and
tumors in February 1977 and again in March 1977 because of resulting
complications. In February 1980 she filed a malpractice complaint
against Dr. Silbert, claiming that she currently suffers from a nervous
disorder which is a result of Dr. Silbert's treatment. Dr. Silbert filed
a motion for preliminary determination of law, claiming that the com-
plaint was filed after the statute of limitations had run and the plain-
tiff's claim therefore should be barred. The trial court granted
Silbert's motion and Carmichael appealed on the ground that the
statute of limitations in the Medical Malpractice Act is
unconstitutional.

Carmichael argued that the statute of limitations embraced in the
Medical Malpractice Act violates the equal protection clause of the
fourteenth amendment because it treats victims of medical malprac-
tice differently from victims of other tortious acts. The statute of
limitations provides that:

No claim, whether in contract or tort may be brought against
a health care provider based upon professional services or
health care rendered or which should have been rendered
unless filed within two (2) years from the date of the alleged
act, omission or neglect except that a minor under the full age
of six years shall have until his eighth birthday in which to
file. This section applies to all persons regardless of minority
or other legal disability.^^^

The basis of Carmichael's claim was that the Medical Malpractice Act
requires the filing of a claim within two years of the act, omission,
or neglect complained of, whereas the general statute of limitations
provides that actions for personal injuries must be brought within two

'^^422 N.E.2d 1330 (Ind. Ct. App. 1981).
i^lND. Code § 16-9.5-3-1 (1976).
^"422 N.E.2d 1330 (Ind. Ct. App. 1981).
'^^IND. Code § 16-9.5-3-1 (1976).

153

Id.

1983] SURVEY-TORTS 403

years after the accrual of the action. ^^"^ Because neither a fundamen-
tal right nor a suspect classification was at issue in Carmichael, strict
judicial scrutiny was not required. ^^^ Only a fair and substantial
relationship between the classification and the legislative purpose must
be present. The court of appeals found that the legislative classifica-
tions were rationally related to maintaining the availability of suffi-
cient medical treatment in the state.^^^ Thus, the statute does not
violate equal protection.

Carmichael also argued that the two-year time period violates due
process because it may not be possible to ascertain the full extent
of injury, including the possibility of recurrence or permanency, until
after the two-year period.^" However, the court pointed out that in
this case Mrs. Carmichael was aware of her alleged injuries soon after
they occurred, and she had failed to take proper steps to bring her
claim. In view of the 1980 Indiana Supreme Court decision of Johnson
V. St. Vincent Hospital, Inc.,^^^ which upheld the Act's constitutional-
ity against multiple attacks, it is likely that the Carmichael court's
decision would have been the same no matter when the injuries were
discovered.

The court of appeals also relied on Johnson v. St Vincent Hospital,
Inc., in holding that the statute of limitations provision does not violate
article I, section 23 of the Indiana Constitution. ^^^ The burdens on
malpractice claimants and the benefits granted to health care providers
were deemed consistent with the legislative goal of maintaining health
care services. ^^" Therefore, the statute of limitations of the Medical
Malpractice Act has withstood constitutional challenge and those who
cannot or do not comply with its provisions will be barred from bring-
ing an action.

In Kranda v. Houser-Norberg Medical Corp.,^^^ the court of appeals
for the fourth district rendered a statutory interpretation of several
provisions of the Medical Malpractice Act. Kranda brought suit against
Dr. Houser and his medical corporation because Kranda suffered a
rectal fistula following Dr. Houser's excision of a Bartholin cyst. The
jury returned a verdict for Dr. Houser from which Kranda appealed.^®^

15M22 N.E.2d at 1332 (quoting Ind. Code § 16-9.5-3-1 (1976), now codified at id.
§ 16-9.5-3-1 (1982), and citing Ind. Code § 34-1-2-2 (1982)).

^^^22 N.E.2d at 1332.

'""Id. at 1333.

''Ud.

158404 N.E.2d 585 (1980). For discussion of this case, see Harrigan, Torts, 1981 Survey
of Recent Developments in Indiana Law, 15 Ind. L. Rev. 425 (1982).

'^^22 N.E.2d at 1333-34.

'''Id. at 1334.

^«'419 N.E.2d 1024 (Ind. Ct. App. 1981).

*®^Kranda claimed numerous errors in addition to those bearing on the statutory

404 INDIANA LAW REVIEW [Vol. 16:377

Plaintiff claimed that the trial court erred in allowing two members
of the medical review panel to testify regarding their decisions and
in admitting each panel member's written opinion because those opin-
ions were based upon casual conversations with other physicians.

Kranda contended that Indiana Code section 16-9.5-9-4^*^ provides
that the only information to be considered by the medical review panel
under the Act is evidence submitted in writing by the parties. The
court acknowledged that section 4 read alone might support that in-
terpretation, but if read in conjunction with section 6 a different in-
terpretation results.^^ Section 6 permits the panel to consult with
"medical authorities."^*^ Kranda argued that medical authorities include
only treatises, journals, medical texts, etc., and that the opinions were
not in conformance with the statute.^** Applying traditional rules of
statutory construction, the court of appeals rejected Kranda's argu-
ment on the basis that such a construction of the language would un-
necessarily narrow the statutory provision.^*' The Kranda court noted
that the ordinary meaning given to the word "authorities" includes
written materials as well as individuals who are qualified in the field. ^*®
Additionally, the court interpreted section 6 as referring to individuals
because the statute states that "[t]he panel may consult with medical
authorities,"^*^ and "ordinarily one consults with a person rather than
a book or written materials."^^"

Kranda also argued that admission of the consultations was im-
permissible because she had no opportunity to cross-examine the
consulted physicians. Because of her lack of knowlege of the conver-
sations, she claims she was unable to present rebuttal evidence. The
court also rejected this argument, based on section 5 of the Act which
provides that either party may convene the panel and question the
members regarding any relevant issues to be decided. ^^^ The court
reasoned that Kranda could have availed herself of this opportunity
by questioning the members as to any consultations that were made."^
The court rejected Kranda's final argument regarding the admissibility

construction of the Medical Malpractice Act. The court found all her constitutional
attacks to have been settled by Johnson v. St. Vincent Hospital, Inc. 404 N.E.2d 585
(Ind. 1980).

i^^lND. Code § 16-9.5-9-4 (1982).

i«''419 N.E.2d at 1032.

'''Id. See Ind. Code § 16-9.5-9-6 (1982).

i««419 N.E.2d at 1032.

''Ud.

'^Ud. (citing WEBSTER'S Third New International Dictionary 146 (1976)).

^'M19 N.E.2d at 1032-33 (quoting Ind. Code § 16-9.5-9-6 (1976) now codified at id.
§ 16-9.5-9-6 (1982)).

""419 N.E.2d at 1033.

'''Id.

"Hd.

1983] SURVEY-TORTS 405

of the opinions. This argument was based on the fact that the opinions
were not in the form of a collegial opinion. The court interpreted sec-
tion 9 as not prohibitive of individual opinions and pointed out that
if such a construction were adopted, individual panel members could
not dissent to the majority opinion.^^^

The 1982 Session of the Indiana General Assembly amended the
Medical Malpractice Act to include within the definition of patient,
"any and all persons having a claim of any kind, whether derivative
or otherwise, as a result of alleged malpractice on the part of a health
care provider."^^* The Act provides that "[d]erivative claims include,
but are not limited to, the claim of a parent or parents, guardian,
trustee, child, relative, attorney, or any other representative of such
patient including claims for loss of services, loss of consortium, ex-
penses, and all such similar claims."^^^

The purpose of the amendment was apparently to clarify an
ambiguity in the statute found by the court of appeals in Sue Yee Lee
V. Lafayette Home Hospital, Inc}'^^ In Sue Yee Lee, the court found "the
Indiana Medical Malpractice Act to be ambiguous and unclear in mean-
ing with regard to whether or not the action of parents for loss of
services of, and medical expenses for, a minor child is subject to the
act."^^^ Looking to historical background in order to find legislative
intent, the court in Su£ Yee Lee concluded that "all actions the underly-
ing basis for which is alleged medical malpractice are subject to the
act."^^* Thus the recent amendment has codified the court of appeals'
holding in Sue Yee Lee.

One effect of the amendment should be to clarify the question
whether an action by survivors for a death caused by medical malprac-
tice is properly brought under the Medical Malpractice Act or whether
an independent action may be brought under the Wrongful Death
Act.^^^ The expansive language defining patient as "any and all per-

''Ud. at 1034.

i^^lND. Code § 16-9.5-l-l(c) (1982).

"^/rf. The amendment suffers from the use of the word "derivative" to refer to
such actions as loss of consortium and loss of services. The implication is that any
claim brought by one who has not sustained the actual physical injury has a "derivative"
claim. However, such claims for loss of consortium or loss of services, though they
may have arisen from an alleged medical malpractice, are independent claims for damage
to the plaintiff 's relational interest with the injured party. See supra notes 125-36 and
accompanying text.

'''410 N.E.2d 1319 (Ind. Ct. App. 1980). For a discussion of this case, see Harrigan,
Torts, 1981 Survey of Recent Developments in Indiana Law, 15 Ind. L. Rev. 425, 429
(1982).

»"410 N.E.2d at 1323.

"'Id. at 1324.

'^^This problem was raised and discussed in Warrick Hosp., Inc. v. Wallace, 435
N.E.2d 263 (Ind. Ct. App. 1982). The court of appeals concluded "that the right to pros-

406 INDIANA LAW REVIEW [Vol. 16:377

sons having a claim of any kind" must include claims based on death
caused by alleged medical malpractice. Thus, it appears that if death
is caused by medical malpractice, any claims that would have been
filed on behalf of survivors separately under provisions of the
Wrongful Death Act must now be included in the medical malprac-
tice claim and, presumably, will be subject to the limitations on
recovery^®" provided for in the Medical Malpractice Act.

G. Tortious Interference With Contract

Although the Indiana Court of Appeals decided several cases dur-
ing the survey period involving interference with a contractual
relationship, Stanley v. Kelly^^^ is the most interesting case from the
point of view of legal development — or in this particular case, non-
development. In Stanley v. Kelly, the court of appeals for the fourth
district declined to find that an oral contract of employment terminable
at will was an adequate contract to sustain a claim for tortious inter-
ference with a contractual relationship.^*^

Plaintiff Stanley and defendant Kelly both worked for Financial
Sales Corporation (F.S.C.) in Indianapolis until Stanley fired Kelly.
Sometime thereafter, Kelly called the F.S.C. home office and told a
top executive that Stanley had fired him because he would not sup-
port Stanley's attempt to form his own company. When Stanley was
later fired, he brought suit against Kelly alleging both intentional inter-
ference with a contractual relationship and slander. The jury entered
a verdict for Stanley and awarded him both actual damages and
punitive damages. Kelly made a motion to correct errors which the
trial court granted on the basis that the verdict was clearly erroneous
and not supported by the evidence. ^^^ Stanley appealed.

ecute a claim for wrongful death based upon medical malpractice is governed by the
wrongful death statute with regard to the parties eligible to institute such proceeding,
the persons for whose benefit recovery may be had, and the manner of distribution
of such proceeds." Id. at 268.

'^''IND. Code § 16-9.5-2-2 (1982).

^«^422 N.E.2d 663 (Ind. Ct. App. 1981).

^^^Id. at 665. For cases which hold that interference with an employment contract
terminable at will gives rise to a cause of action, see American Surety Co. v.
Schottenbauer, 257 F.2d 6 (1958); Canuel v. Oskoian, 184 F.Supp. 70 (1960).

'*^422 N.E.2d at 665. This case has had a strange procedural history. The trial
court originally granted a new trial pursuant to Trial Rule 59(I)(7). The court of ap-
peals on the first appeal retained jurisdiction but sent the case back to the trial court
for clarification on whether the trial court intended to enter judgment for Kelly or
grant a new trial. 417 N.E.2d 1145 (Ind. Ct. App. 1981). The trial court clarified its
ruling, rendered a judgment for Kelly on the interference with contract issue, and
ordered a new trial on the slander issue. In addition to deciding in Kelly's favor on
the interference with contract issue, the court on this appeal also found that the trial

1983] SURVEY-TORTS 407

Because the court of appeals found that an action for interference
with a contractual relationship presupposes the existence of a valid
and enforceable contract,^^ and Stanley had only an oral contract of
employment which was terminable at will, the court on appeals agreed
with the trial court that the verdict in favor of Stanley was clearly
erroneous. In so finding, the court of appeals rejected Stanley's argu-
ment that a majority of jurisdictions recognize interference with
employment contracts terminable at will.

The court purported to find support in Indiana law for its conclu-
sion. The cases cited by the court, however, are either factually
distinguishable or mention only in dicta that oral contracts are not
a basis for an action in interference with a contract.^*^ Thus, Indiana
authority does not compel the court's conclusion that an oral contract
of employment, which is terminable at will, is insufficient as a basis
for a cause of action in tortious interference with contract. In difficult
economic times where unemployment is rampant, the employer-em-
ployee relationship may be the most important economic relationship
one can have. It is unfortunate that the court in Stanley was unwill-
ing to fall in line with the majority and to extend protection for oral
employment contracts.

H. Malicious Prosecution

Wong V. Tabor^^^ presented the first opportunity for an Indiana
appellate court to review a malicious prosecution suit which was
brought by a physician against an attorney for wrongful initiation of
a claim for medical malpractice. In Wong v. Tabor, attorney Tabor had
filed suit against Dr. Wong on behalf of a couple who sustained injur-
ies allegedly caused by Dr. Wong's medical malpractice. When Tabor
subsequently failed to answer interrogatories, Wong moved for sum-
mary judgment. Prior to the hearing, an attorney from Tabor's office

court did not abuse its discretion in granting Kelly a new trial on the slander issue.
422 N.E.2d at 668-69.

''"422 N.E.2d at 667. The elements of the tort of interference with a contractual
relationship were set out by the court of appeals in Hurst v. Town of Shelburn, 422
N.E.2d 322 (Ind. Ct. App. 1981). They include:

(1) existence of a valid and enforceable contract;

(2) defendant's knowledge of the existence of the contract;

(3) defendant's intentional inducement of breach of the contract;

(4) the absence of justification; and

(5) damages resulting from defendant's wrongful inducement of the breach.

Id. at 325. See also W. Prosser, Handbook of the Law of Torts § 129, at 931-33 (4th
ed. 1971).

'«^422 N.E.2d at 667 n.3. See Miller v. Ortman, 235 Ind. 641, 136 N.E.2d 17, (1956).

'««422 N.E.2d 1279 (Ind. Ct. App. 1981). For further discussion of this case, see
Jackson, Professional Responsibility, 1982 Survey of Recent Developments in Indiana Law,
16 Ind. L. Rev. 265, 275 (1983).

408 INDIANA LAW REVIEW [Vol. 16:377

informed Wong's attorney that there would be no objection to the
entry of summary judgment. The trial court entered summary judg-
ment in favor of Wong, and he subsequently filed suit against Tabor
for malicious prosecution. At the trial for malicious prosecution, the
medical records indicated that Wong's sole involvement in the original
plaintiff 's hospital care had been prescribing a laxative. Wong argued
that Tabor had been or should have been aware of this fact prior to
initiating the suit, and therefore Tabor lacked probable cause for bring-
ing the claim. The jury found in Wong's favor and awarded damages,
but the trial court granted Tabor's motion for judgment on the
evidence and set aside the verdict for Wong on the ground that the
prior dispute was terminated by agreement which served as a bar
to Wong's suit.

The four elements to be proven by the plaintiff in a malicious pros-
ecution action are "(a) the defendant instituted, or caused to be insti-
tuted, a prosecution againt the plaintiff; (b) the defendant acted
maliciously in doing so; (c) the prosecution was instituted without prob-
able cause; and (d) the prosecution terminated in the plaintiff's
favor."^®^ Although the court of appeals for the third district affirmed
the trial court's judgment, it held that electing not to oppose summary
judgment does not constitute settlement or agreement in terms of ter-
minating the prior malpractice suit.^** Rather, the appellate court
resolved the case on the probable cause element, finding that Wong
failed to prove Tabor lacked probable cause. ^^^

Initially, the court made some general observations on malicious
prosecution and its application to the problem of medical malpractice.
Noting that malicious prosecution has not been favored by the legal
system,^®" the court pointed out that physicians are increasingly
alarmed by the recent marked increase in what they often consider
groundless malpractice actions, and that physicians have counter-
attacked by suing attorneys for malicious prosecution. According to
the court, the tort of malicious prosecution was not designed to ad-
dress the problem of attorneys who file groundless suits, and courts
have been reluctant to allow plaintiffs to use it to effect such a result.^*^
The court recognized, however, that if any cause of action exists
against an attorney, malicious prosecution is essentially the only
vehicle available for seeking relief.

In addressing the elements of the case, the Wong court pointed
out that termination in favor of a prior defendant for the purpose of

''Ud. at 1283.

'''Id. at 1282.

'''Id.

'""Id. at 1283.

1983] SURVEY-TORTS 409

a malicious prosecution action may occur in a number of ways:
adjudication by a competent tribunal, withdrawal of the proceedings
by the plaintiff, or dismissal of the proceedings for failure to
prosecute/^^ However, if settlement or agreement is the basis for the
termination of the suit, no action in malicious prosecution will lie.^®^

Although entry of summary judgment in favor of a prior defend-
ant qualifies as termination in his favor, if the judgment is merely
the formal means of securing settlement benefits, then such judgment
does not constitute a termination in plaintiff's favor for purposes of
a malicious prosecution suit/^" Thus, the circumstances surrounding
the entry of summary judgment must be considered. The court of ap-
peals found no evidence of settlement or agreement in Wong v. Tabor.
Tabor's decision to forego contesting the motion was apparently a per-
sonal choice. Because voluntary abandonment by the plaintiff can con-
stitute termination in favor of the defendant, the court of appeals
found that the trial court had erred in setting aside the verdict on
this ground. The appellate court found, however, that Wong failed to
show probable cause, and on this basis, the court was able to affirm
the trial court's decision.^^^

The court pointed out that though the probable cause question
has previously been addressed from a litigant's perspective, this is
the first case to enunciate a standard of probable cause for assessing
a lawyer's decision to bring suit. Early in its discussion of the prob-
able cause issue, the court set the stage in such a way that its ultimate
conclusion in favor of the attorney defendant comes as no surprise.
Purporting to review authorities which have addressed the issue of
"articulating a standard by which an attorney's actions may be
judged," the court took advantage of the opportunity to point out socie-
ty's need to keep attorneys free from the threat of suit so they may
effectively protect the interests of their clients. ^^^ An attorney's deci-
sion to initiate an action cannot be judged merely from an evaluation
of the merits of the case.^®^ The lawyer's role is to facilitate access
to the judicial system; thus, that role carries a high degree of profes-
sional and ethical responsibility of meeting the client's needs even if
the client's case is not likely to succeed. Because of this duty to the

"^/d. at 1284 (quoting Restatement (Second) of Torts § 674 comment j (1977)).

**M22 N.E.2d at 1284 (citing W. Prosser, Handbook of the Law of Torts § 854
(4th ed. 1971)).

^^"422 N.E.2d at 1284.

'''Id. at 1290.

'^Id. at 1286-87 (quoting Restatement (Second) of Torts §§ 674, 676 (1977) and
citing Mallen, An Attorney's Liability for Malicious Prosecution, A Misunderstood Tort,
46 Ins. Couns. J. 407 (1979); Note, A Lawyer's Duty to Reject Groundless Litigation, 26
Wayne L. Rev. 1561, 1587 (1980)).

>«^422 N.E.2d at 1285.

410 INDIANA LAW REVIEW [Vol. 16:377

client, "mere negligence in asserting a claim is not sufficient to sub-
ject an attorney to liability for the bringing of the suit."^^^ The court
pointed out that if negligence alone were sufficient for liability only
"easy cases" would be taken and that would result in a chilling effect
upon the legal system.

The Wong court looked to the California Court of Appeals' deci-
sion in Tool Research & Engineering Corp. v. Henigson^^^ to define a
standard of care for attorneys in initiating a cause of action. The court
in Tool Research & Engineering Corp. articulated the most frequently
cited judicial standard of probable cause:

An attorney has probable cause to represent a client in litiga-
tion when, after a reasonable investigation and industrious
search of legal authority, he has an honest belief that his
client's claim is tenable in the forum in which it is to be tried.
The test is twofold. The attorney must entertain a subjective
belief in that the claim merits litigation and that belief must
satisfy an objective standard.^*^"

The Indiana Court of Appeals noted that this test correctly focuses
upon an attorney's right to pursue any claim he deems worthy but,
at the same time, offers protection to potential opponents by requir-
ing an objective standard of reasonableness of belief.^"^ The Wong court
proceeded to establish an objective standard to review the
reasonableness of an attorney's action in filing a client's claim stating
that the test is "whether the claim merits litigation against the defend-
ant in question on the basis of the facts known to the attorney when
suit is commenced."^"^ An attorney-defendant lacks probable cause only
if "no competent and reasonable attorney familiar with the law of the
forum would consider that the claim was worthy of litigation on the
basis of the facts known by the attorney who instituted suit."^°^ The
standard recognizes that the facts actually known may be insufficient
but seeks to avoid incorporation of what might have been discovered
by diligent investigation.^"^

The court of appeals also intended that the time available for
investigation be considered in reviewing the attorney's conduct, and
indeed made several references to it in the instant case.^"^ Tabor had
only thirty days to investigate prior to filing suit against numerous

'''Id. at 1286.

^«M6 Cal. App. 3d 675, 120 Cal. Rptr. 291 (1975).
^°'Id. at 683, 120 Cal. Rptr. at 297 (citations omitted).
'°'422 N.E.2d at 1288.

'"'Id.
'"'Id.

'"'Id. at 1288 n.9.
'''Id. at 1289.

1983] SURVEY-TORTS 411

potential defendants. The court pointed out that many times evidence
is not discovered or developed until after suit is filed; therefore, when
some factual basis exists for bringing the claim, lack of probable cause
is not a basis upon which to rest negligent failure to investigate
thoroughly.^^^

The court took great care in Wong v. Tabor to lay out the policy
bases for its conclusion. It recognized the trauma and expense suffered
by physicians who get caught in the "sue everyone in sight" net
so common in the medical malpractice cases and those who must de-
fend groundless lawsuits.^"^ On the other hand, it ably stated the
critical importance of keeping the courtroom door open. Lawyers who
fear retribution do not attempt to assert novel claims. Such a stifling
effect on the evolution of the law cannot be countenanced. Regardless,
this case will do little to dispel the not altogether meritless belief often
held by other professionals and the general public that those in the
legal profession look after their own.

7. Indiana Tort Claims Act

In Seymour National Bank v. State,^^^ the Indiana Supreme Court
granted the state's petition for transfer and vacated the decision of
the first district court of appeals because the appellate court had
"erroneously decided a new question of law; i.e., the interpretation
to be placed upon the term 'enforcement of a law' as used in the
Indiana Tort Claims Act."^"^ In Seymour, a state police car involved
in a high-speed chase of a fleeing suspected felon collided with a
passenger car. The occupants of the car were killed and their per-
sonal representative brought suit.

The trial court granted the state's motion for summary judgment
on the basis that the state was immune from suit under a provision
of the Indiana Tort Claims Act which provides that a governmental
entity is not liable for a loss resulting from "the enforcement of, or
failure to enforce, a law."^^" The court of appeals for the fourth district
reversed the trial court^" because it found the phrase "enforcement

^''Id. (citing Berlin v. Nathan, 64 111. App. 3d 940, 381 N.E.2d 1367 (1978)).

^''See Note, Physicians' Cause of Action Against Attorneys For Institution of Un-
justified Medical Malpractice Actions: The Aftermath of Drago v. Buonagurio, 44 Alb.
L. Rev. 188 (1979).

^''»422 N.E.2d 1223 (Ind. 1981). For further discussion of this case see Johnson, Con-
stitutional Law, 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev.
101, 117 (1983).

""Id. at 1223 (citing Ind. Code § 34-4-16.5-3(7) (1974), amended by § 34-4-16.5-3(7) (1976)
(now codified at id. § 34-4-16.5-3(7) (1982)).

'^"Ind. Code § 34-4-16.5-3(7) (1974), amended by Ind. Code § 34-4-16.5-3(7) (1976) (now
codified at id. § 34-4-16.5-3(7) (1982)).

^"384 N.E.2d 1177 (Ind. Ct. App. 1979).

412 INDIANA LAW REVIEW [Vol. 16:377

of, or failure to enforce, a law" ambiguous, ^^^ The appellate court
concluded that the trial court erred in finding immunity because the
statute is in derogation of the common law and a finding of immunity
produced a harsh result.^^^

The supreme court, however, found that the court of appeals had
erred in concluding that the term "enforcement of a law" is
ambiguous.^^* Using the time worn, though not necessarily time
honored,^^^ axiom of statutory construction that statutory language will
be given its "plain meaning," the supreme court held that an officer
engaged in attempting to effect an arrest is enforcing a law.^^^
Although the court found that the language of the statute is unam-
biguous, it stated that even if the language were interpreted as be-
ing ambiguous, the legislature's later amendment of the statute
clarified its intent by stating that all acts of enforcement except false
arrest and imprisonment render the state immune from suit.^^^

Justices DeBruler and Hunter each dissented with separate opin-
ions. Justice DeBruler agreed with the court of appeals that the
immunity statute is in derogation of the common law; therefore, the
statute should be strictly construed.^^* Furthermore, he concluded that
because the immunity granted by the statute conflicts with a statutory
duty that drivers of emergency vehicles operate them with due care,
immunity should not be granted which would shield negligent or
reckless conduct.^^®

Justice Hunter's dissenting opinion focused on potential abuses
of power possible if employees of governmental entities are granted
absolute immunity .^^° He suggested that the "King can do no wrong"
approach taken by the court's majority leaves citizens with no legal
recourse for losses even though a governmental employee may have
acted with reckless disregard for the consequences of his
"enforcement."^^^ In addition. Justice Hunter noted a number of
inherent ambiguities in the phrase "enforcement of law."^^^ He pointed
to the fact that the legislature has employed the term "enforcement"
to describe a variety of government controlled activities, thus giving

^''Id. at 1184.
'''Id. at 1186.
2^M22 N.E.2d at 1226.

"^See United States v. American Trucking Ass'ns, 310 U.S. 534 (1940); Jackson,
The Meaning of Statutes, 34 A.B.A. J. 535 (1948).
2'M22 N.E.2d at 1226.
'"Id.

'''Id. at 1227 (DeBruler, J., dissenting).
'''Id.

"°Id. (Hunter, J., dissenting).
'"Id. at 1228.
'"Id.

1983] SURVEY-TORTS 413

rise to a number of different connotations and interpretations of the
word.^^^ In addition, he noted that the legislature has not used the
word ''enforcement" in several contexts in which the activity contem-
plated could be viewed as "enforcement of law."^^ Such inconsistencies
in Justice Hunter's view, open a "Pandora's box of unsettling
questions."^^^

In a rare written opinion on Petition for rehearing, denominated,
in part. Modification of Prior Opinion, the majority attempted to clarify
its original opinion.^^^ Although the majority upheld its previous posi-
tion that the state is not liable for losses resulting from its employees'
enforcement of or failure to enforce the law, it did address one prob-
lem raised by the dissenters to the original opinion. The court consid-
ered whether the grant of immunity would protect government entities
and employees even where the acts complained of were wilful and
wanton or intentional. The majority, on rehearing, found that "[i]t does
not follow, however, that the statute necessarily grants immunity for
all acts of law enforcement officers committed while engaged in the
enforcement of the law."^^^ The majority admitted that sometimes "an
employee's acts, although committed while engaged in the performance
of his duty, might be so outrageous as to be incompatible with the
performance of the duty undertaken."^^^ Such acts, said the court "are
simply beyond the scope of the employment."^^^ If the difficulty in
granting the immunity in question is that it is prejudicial to the public
because losses suffered by private citizens at the hands of govern-
ment employees go unrecompensed, such a facile answer hardly
resolves the problem.

Using traditional agency concepts, the court reasoned that the
employee is immune as long as he is the representative of his
employer, the immune governmental entity. If the acts of the employee
are so outrageous as to be beyond the scope of his employment, then
he is no longer covered by the immunity blanket and is subject to
suit. This concession gives little solace to the injured plaintiff. As the
majority so aptly points out, the governmental entity now has no need

^^Ud. See, e.g., Ind. Code § 22-8-1.1-35.6 (1982) (commissioner of the Occupational
Health and Safety Board empowered to enforce a safety order, penalty assessment
or notice of failure to correct a violation); Ind. Code § 22-2-9-4 (1982) (duty of the com-
missioner of labor to enforce claims).

'^''422 N.E.2d at 1229. See, e.g., Ind. Code § 14-2-3-2 (1982) (director of Fish and
Wildlife or his representative may enter private or public property for purpose of
managing or protecting any wild animal).

22^22 N.E.2d at 1229.

22«Seymour Nat'l Bank v. State, 428 N.E.2d 203 (Ind. 1981).

^^Ud. at 204.

'''Id.

414 INDIANA LAW REVIEW [Vol. 16:377

for the immunity because there is no basis for liability .^^° Thus, the
employer, as the only likely party to have sufficient funds to pay a
judgment, can no longer be held liable. In addition, to find that
outrageous behavior puts a governmental employee outside the scope
of his employment could have far-reaching negative effects for the
plaintiff whose civil rights have been violated by the "enforcement"
and who might want to bring a section 1983 action.^^^

Justice Hunter in his dissenting and concurring opinion reasserted
his earlier position that the term "enforcement" is ambiguous.^^^
Though he agreed with the majority that the scope of immunity
encompassed in the Indiana Torts Claim Act does not include immunity
for wilful and wanton misconduct, he concluded that the majority's
affirmance of the trial court's grant of summary judgment was in-
appropriate because the decision of whether the officer's conduct was
merely negligent or was wilful and wanton and therefore outside the
scope of the immunity should have been for the trier of fact.^^^

The opinions in this case emphasize the conflicting policies
surrounding the granting of governmental immunities in situations in
which private individuals have suffered losses. State agencies must
be free to actively enforce the laws of the state unfettered by the
constant threat of suits. On the other hand, the public interest
demands that governmental employees and entities act with care so
that the rights of citizens will not be jeopardized.

^''Id.

^''See Monroe v. Pape, 365 U.S. 167 (1961).

''H28 N.E.2d at 206 (Hunter, J., dissenting).

'''Id.

XVIII. Trusts and Decedents' Estates

Debra a. Falender*

Several interesting and significant developments in the areas of
trusts, estates, and guardianships occurred during the survey period.
The most important cases and statutes will be discussed within the
following sections of this Survey: decedents' estates, trusts, powers
of appointment, and guardianships.

A. Decedents' Estates

1. Will Contests.— In Carrell v. Ellingwoody^ the court of appeals
held that will contestants were entitled to rely on the personal
representatives' misrepresentation of the date on which the will was
offered for probate. In this case, the will had in fact been offered for
probate on August 8, 1979. A complaint contesting the will was filed
on January 11, 1980, which was three days beyond the five-month time
period for filing a will contest.^ Summary judgment was rendered for
the proponents of the will, but was reversed on appeal because of
the existence of genuine issues of material fact as to whether the at-
torney for the personal representatives was guilty of a fraudulent
misrepresentation. The contestants alleged that the representation by
the personal representatives' attorney to the contestants' attorney that
the will had been offered for probate sometime in November was the
effective cause of the contestants' failure to timely file the contest
action.^

The crucial substantive issue^ addressed by the Carrell court was
"whether under any circumstances a plaintiff will be permitted to file
his complaint to contest a Will beyond the five-month period fixed
by [statute]."^ In addressing this issue, the court cited several cases
to support the statement that "it is well established in Indiana that
the running of the five month period will not foreclose a plaintiff in
a will contest from filing his action where he has been induced to
refrain from a timely filing by a fraudulent misrepresentation of the

♦Associate Professor of Law, Indiana University School of Law — Indianapolis. A.B.,
Mount Holyoke College, 1970; J.D., Indiana University School of Law — Indianapolis, 1975.

'423 N.E.2d 630 (Ind. Ct. App. 1981).

'See Ind. Code § 29-1-7-17 (1982).

^423 N.E.2d at 636.

^Other issues resolved by the Carrell court were whether the trial court treated
the proponents' motion as a motion to dismiss or as a motion for summary judgment
and, further, whether the trial court erred in not giving the parties a reasonable time
to present material pertinent to the summary judgment motion. The court of appeals
held that the trial court had treated the motion as a motion for summary judgment
and that the trial court's failure to afford a reasonable time for presentation of addi-
tional material was reversible error.

^423 N.E.2d at 634.

416 INDIANA LAW REVIEW [Vol. 16:415

defendant."^ The cases cited, however, do not so clearly establish the
proposition that fraudulent conduct will permit the extension of the
statutory contest filing period. For example, one of the cases cited
and quoted by the court, Guy v. Schuldti' involved the question
whether fraud will extend the period of a statute of limitations. Yet,
the case is inapposite to Carrell because the five-month contest period
is categorized consistently, not as a statute of limitations, but as a
jurisdictional condition precedent to the contest action.®

The other cases cited in support of the "well established" proposi-
tion have one major flaw when they are subjected to careful analysis.
All of the cited cases rely upon the case of Fort v. White,^ which has
been cited frequently as precedent for the proposition that the five-
month contest period may be extended if there is fraud. Yet, the Fort
court did not hold that the statutory time period would be extended
as a result of the fraudulent conduct of the will proponents, but held
that the burden of proof would not shift from the proponents to the
contestants, under a statute that then placed the burden of proof on
the first party to the courthouse, given that the proponents had
fraudulently discouraged the contestants from attempting to win that
race to the courthouse.^"

Although the doctrine that fraud may relieve parties from non-
compliance with the statutory contest filing period is not as well
established as the Carrell court would have it believed, the question
that must be addressed is whether such a doctrine should become well
established. Certainly, if the statutory time period for will contests
is extended for any reason, there is the possibility of delay in the
settlement of decedents' estates, and this possibility of delay con-
tradicts the strong policy of the Probate Code, which is in favor of
the speedy settlement of estates." A three-day contest filing extension,

^Id. at 635 (citing, among others, Modlin v. Higgle, 399 N.E.2d 767 (Ind. Ct. App.
1980); Squarcy v. Van Home, 163 Ind. App. 64, 321 N.E.2d 858 (1975); Brown v. Gard-
ner, 159 Ind. App. 586, 308 N.E.2d 424 (1974); Estate of Plummer v. Kaag, 141 Ind.
App. 142, 219 N.E.2d 917 (1966); Fort v. White, 54 Ind. App. 210. 101 N.E.2d 27 (1913)).

'236 Ind. 101, 138 N.E.2d 891 (1956) (dealing with the medical malpractice statute
of limitations).

"See, e.g., Modlin v. Higgle, 399 N.E.2d 767, 769 (Ind. Ct. App. 1980); Squarcy v.
Van Home. 163 Ind. App. 64, 68. 321 N.E.2d 858, 860 (1975).

'54 Ind. App. 210, 101 N.E. 27 (1913).

'°Id. at 217, 101 N.E.2d at 30. When the Fort controversy arose, the statutory
contest period was three years. The contestant filed the contest action within this
three-year time period. Id. at 215, 101 N.E.2d at 29.

''See, e.g.. In re Estate of Kingseed, 413 N.E.2d 917, 923 (Ind. Ct. App. 1980) ("[I]t
is now a well established policy of the law, and one which this Court is committed
to strictly oversee that estates shall be settled as speedily as possible.") (citing In
re McGregor's Estate, 210 Ind. 546, 2 N.E.2d 395 (1936); In re Estate of Hogg, 150
Ind. App. 650, 276 N.E.2d 898 (1971); Kuzman v. Peoples Trust & Savings Bank, 132
Ind. App. 176, 176 N.E.2d 134 (1961)).

1983] SURVEY-TRUSTS AND ESTATES All

such as in the Carrell case, would not disrupt the orderly, efficient,
and speedy settlement of an estate, but a three-month or three-year
contest filing extension could cause great uncertainty and confusion.
For example, if an estate has been distributed to the will's benefici-
aries before the fraud is discovered, it may be inequitable to allow
a late will contest, particularly if all the distributed assets could not
be traced. Even if the distributed assets could be traced, it may be
inequitable to demand the return of these assets pending the resolu-
tion of the contest action. Although fairness to the contestants in the
Carrell case seemed to demand the potential extension of the contest
filing period for three days, perhaps Carrell is one of those prover-
bial hard cases that make bad law, because nothing would preclude
the possibility of extension of the filing period for a much longer period
of time.

The Carrell court held that for fraudulent misrepresentation to
permit late filing of a contest action, the fraudulent misrepresenta-
tion must be of a kind that would entitle a plaintiff to relief; namely,
it must be a material misrepresentation of past or existing fact, that
is false, that is made with scienter, and that causes detrimental
reliance on the part of those who now must seek an extension of the
filing period. ^^ The court's discussion of the reliance element is most
interesting in light of the facts of the case. In Carrell, the contestants'
attorney did not actually know when the will had been offered for
probate, but he "understood from his clients that it was sometime
during the month of September."^^ In fact, the will had been offered
on August 8, 1979, four days after the decedent's death. The con-
testants' attorney did not check the probate court records, which
would have disclosed the date of offer. Throughout the fall of 1979,
the contestants' attorney and the personal representatives' attorney
negotiated for a settlement of their differences. On January 4, 1980,
when the contestants' attorney told the personal representatives' at-
torney that he needed a response to a settlement proposal because
time for filing a contest was "running short," the personal represen-
tatives' attorney replied that the contestants "had plenty of time to
file [their] action because the will was probated in November."^* In
spite of the inconsistent information received from his clients and his

^=^423 N.E.2d at 635.

''Id. at 632.

'*Id. The court does not quote the representation of the personal representatives'
attorney, but the court's paraphrase indicates that the personal representatives' at-
torney represented as a fact only the date of probate of the will. The date of probate,
however, is irrelevant in determining when the statutory contest filing period begins
to run. The contest time period begins when the will is offered for probate. Ind. Code
§ 29-1-7-17 (1982). Ordinarily, however, unless objections to probate are filed prior to
the offer for probate, the offer and admission are on the same day. See id. § 29-1-7-13.
In Carrell, the will was offered and admitted to probate on the same day.

418 INDIANA LAW REVIEW [Vol. 16:415

opponents, the contestants' attorney still did not check the probate
court records. Instead, he waited until January 11, 1980, when the
personal representatives' attorney had promised to "get back to him."
On January 11, the contestants' attorney first became actually aware
of the true date of the offer and admission of the will to probate, when
the personal representatives' attorney called to say that his clients
would not settle and that the contest period had expired.^^

The Carrell court cited several cases in support of the proposi-
tion that a fraudulent misrepresentation may be relied upon by
someone without actual knowledge of the true facts, even though the
true facts are a matter of public record. ^^ In none of these cases,
however, was the person relying on the misrepresentation an attorney,
as in the Carrell case, and in none of these cases was the
misrepresented fact one that the person relying should have known
was certainly a matter of public record. The Carrell court could have
decided that an attorney engaged in representing the contestants of
a will, as a matter of law, did not exercise "ordinary care and diligence
to guard against fraud"^^ when he failed to check the public records
to discover the precise date that the statute that might eventually
bar his clients' contest action began to run. Instead, the court decided
that the question of the reasonableness of the conduct of the con-
testants' attorney was a question of fact, which precluded the entry
of summary judgment.

2. Claims Against the Estate.— Two years ago, in the case of In
re Estate of Williams,^^ the court of appeals held that an action to
enforce a corporate stock buy-sell agreement against the estate of a
deceased shareholder was not a claim barred by the failure to file
against the shareholder's estate within the five-month claim filing
period set forth in Indiana Code section 29-1-14-1.^^ The court further

^^423 N.E.2d at 632.

''Id. at 635 (citing Backer v. Pyne, 130 Ind. 288, 30 N.E. 21 (1892); Fisher v. Tuller,
122 Ind. 31, 23 N.E. 523 (1890); Ledbetter v. Davis, 121 Ind. 119, 22 N.E. 744 (1889);
Dodge V. Pope, 93 Ind. 480 (1884); Campbell v. Frankem, 65 Ind. 591 (1879); Shuee v.
Gedert, 395 N.E.2d 804 (Ind. Ct. App. 1979)).

'^423 N.E.2d at 635.

'^398 N.E.2d 1368 (Ind. Ct. App. 1980), noted in Falender, Decedents' Estates and
Trusts, 1980 Survey of Recent Developments in Indiana Law, 14 Ind. L. Rev. 291, 298-301
(1981).

'^398 N.E.2d at 1370. The assertion of enforceability of the buy-sell agreement,
under which the estate of the first to die of the two shareholders was obligated to
sell his stock to the survivor, was not a claim barred by failure to file within the time
constraints of Ind. Code § 29-1-14-1 (1982). A claim is " 'a debt or demand of a pecuniary
nature which could have been enforced against the decedent in his lifetime and could
have been reduced to a simple money judgment.' " (In re Estate of Williams, 398 N.E.2d
1368, 1370 (Ind. Ct. App. 1980) (quoting Vonderahe v. Ortman, 128 Ind. App. 381, 387,
146 N.E.2d 822, 825 (1958)).

1983] SURVEY-TRUSTS AND ESTATES 419

held, however, that failure to assert the enforceability of the buy-sell
agreement within the five-month period of Indiana Code section
29-1-14-21 barred the adjudication of enforceability as a part of the
estate proceeding.^" The case left several questions unresolved, includ-
ing whether it is possible to assert the enforceability of the agree-
ment outside the estate proceeding.^^

During the 1982 survey period, in the case of Williams v.
Williams,^^ the court of appeals held that the same buy-sell agreement
that was at issue in the first Williams case was enforceable in a court
other than the probate court against the heirs or devisees who suc-
ceeded to the decedent's interest in the stock. ^^

Both Williams cases, however, leave several questions unresolved.
One question is whether the personal representative is a necessary
party to the enforcement proceeding. Another question is whether the
personal representative, if made a party, can be considered the
representative of heirs and devisees who are not, or cannot be, made
parties. The second Williams court stated that "[ejnforcement of the
agreement may be pursued in other courts against the heirs or
devisees who succeed to [the decedent's] interest in the stock."^* The
court, however, made no mention of the personal representative as
a party to the action despite the fact that in Williams^ the personal
representative, who was also the successor to the decedent's interest
in the stock, was a party, both as an individual and as a personal
representative. Because the issue of necessary and proper parties was
not expressly raised, the court's statement, which recognizes an ac-
tion against heirs or devisees, but fails to mention the personal
representative, is not controlling on the issue whether the personal

^''ags N.E.2d at 1371. Ind. Code § 29-1-14-21 (1982) provides:

When any person claims any interest in any property in the possession
of the personal representative adverse to the estate he may file, prior to
the expiration of five (5) months after the date of the first published notice
to creditors, a petition with the court having jurisdiction of the estate set-
ting out the facts concerning such interest and thereupon the court shall cause
such notice to be given to such parties as it deems proper, and the case shall
be set for trial and tried as in ordinary civil actions.
^'iSee Falender, supra note 18, at 300.

2^27 N.E.2d 727 (Ind. Ct. App. 1981), reh'g granted in part, 432 N.E.2d 417 (Ind.
Ct. App. 1982). For a discussion concerning the effects on shareholders, see Galanti,
Business Associations, 1982 Recent Developments in Indiana Law, 16 Ind. L. Rev. 25,
40 (1983).

2^427 N.E.2d at 731. The permissive language of Ind. Code § 29-1-14-21 (1982) ("may
file"), and the failure of that section to provide that an interest not asserted within
five months is "forever barred," can only mean that an interest in property of the
type described in that section may be asserted outside the estate proceeding even
if not asserted within five months in the estate proceeding.
^"427 N.E.2d at 731.

420 INDIANA LAW REVIEW [Vol. 16:415

representative should be joined in the enforcement action. Prudence,
however, would dictate the joinder of the personal representative
whenever the estate is still open.

In any event, the two Williams cases are a reminder that there
is some hope for a claimant who discovers that he has missed the
five-month claim filing period of Indiana Code section 29-1-14-1. If the
claim can be couched as an interest in property in the possession of
the personal representative, then the property interest claim can be
asserted against the decedent's successors in interest outside the pro-
bate proceeding and after the five-month claim filing period.

In Fort Wayne National Bank v. Scher,^^ the court of appeals stated
that the trial court did not abuse its discretion when it allowed the
payment of funeral expenses equal to more than one-half the value
of the decedent's estate, because the value of the decedent's estate
is only one of several factors to be considered in determining whether
the amount claimed is reasonable.^® In regard to funeral expenses, it
is interesting to note that the only Probate Code provisions that refer
to reasonableness are the provisions of Indiana Code section 29-1-14-9,
which deal with priorities. Only reasonable funeral expenses are en-
titled to priority over all claims, except costs of administration.^^
Nothing specific in the Code precludes the allowance of even
unreasonable funeral expenses, yet the Scher court assumed without
discussion that only reasonable funeral expenses may be allowed.^*

Two other claim cases are worthy of brief mention. In First
National Bank & Trust Co. v. Coling,^^ the court of appeals affirmed
the trial court's grant of the claimant's Trial Rule 60(B) motion for
relief from judgment. The appellate court determined that in light of
documented errors on the part of the court clerk and documented
diligence of counsel, the trial court did not abuse its discretion in grant-
ing the motion.^*' In Hicks v. Fielman,^^ the court held that an ex- wife
is a creditor of her deceased ex-husband's estate to the extent that
an award to her constitutes a property settlement payable in in-
stallments, but not to the extent that an award to her constitutes
maintenance, because maintenance ceases at death.

3. Dead Man's Statutes.— In Satterthwaite v. Estate of
Satterthwaite,^^ a son filed a claim against his deceased father's estate

2^419 N.E.2d 1308 (Ind. Ct. App. 1981).

^Id. at 1312. Other factors are "the necessity for the amount expended or incurred,
the reasonableness of the price charged for the articles or services, and the decedent's
rank or condition in life . . . ." Id.

^iND. Code § 29-1-14-9(2) (1982).

''See 419 N.E.2d at 1312.

2^419 N.E.2d 1326 (Ind. Ct. App. 1981).

''Id. at 1331.

^^421 N.E.2d 716 (Ind. Ct. App. 1981).

^^420 N.E.2d 287 (Ind. Ct. App. 1981).

1983] SURVEY-TRUSTS AND ESTATES 421

to enforce the father's alleged promise to devise a farm to him. Before
the trial on the claim, the father's surviving spouse, the son's mother,
quitclaimed her interest in the farm to the son. Although one section
of the dead man's statute provides that a party's grantor is incompe-
tent as a witness in a lawsuit that may result in judgment for or
against the estate, the court decided that this statute was not intended
to apply to render the son's mother an incompetent witness.^^ The
purpose of the statutory provision rendering a party's grantor incom-
petent is to prevent an incompetent witness from transferring his
claim against, or interest in, the decedent's estate to another, thereby
avoiding the bar placed on this testimony by other sections of the
dead man's statute. In Satterthwaite, the mother was not an incompe-
tent witness prior to the transfer to the son and the transfer did not
render her incompetent within the intent of the statute.^^

>4. Personal Representatives.— The 1982 legislature amended the
statute that specifies the qualifications for being a personal represen-
tative in Indiana.^^ Nonresidence is no longer a disqualifying factor.^^
Effective June 1, 1982, a nonresident may serve as a joint personal
representative with a resident by filing a bond in an amount not less
than the probable value of the decedent's personal property plus the
estimated rents and profits that may be derived from the property
during the period of administration of the estate, and not greater than
the probable value of the decedent's gross estate.^^ A nonresident may
also serve as a sole personal representative or as a joint personal
representative with another nonresident by filing the above-described
bond and by filing notice of his acceptance of the appointment as per-
sonal representative and notice of the appointment of a resident agent
to accept service of process.^^ If a personal representative becomes
a nonresident, he will not be disqualified if he files the above-described
bond.^^

5. Unsupervised Administration.— Eiieciiwe for estates of
decedents who die after May 31, 1982, a petition for unsupervised
administration may be granted without the joinder or consent of heirs

''IND. Code § 34-1-14-10 (1982). See id. §§ 34-1-14-6, -7 (rendering parties incompetent
witnesses).

^"420 N.E.2d at 290.

^^Act of Feb. 18, 1982, Pub. L. No. 173, § 1, 1982 Ind. Acts 1326 (currently codified
at Ind. Code § 29-1-10-1 (1982)).

''Id. (currently codified at Ind. Code § 29-l-10-l(b) (1982)).

'Ud. (currently codified at Ind. Code § 29-l-10-l(c) (1982)).

'^Id. (currently codified at Ind. Code § 29-l-10-l(d) (1982)). One who qualifies under
this section submits personally to the jurisdiction of the Indiana courts. Ind. Code §
29-l-10-l(f) (1982).

^^Id. (currently codified at Ind. Code § 29-l-10-l(e) (1982). One who qualifies under
this section submits personally to the jurisdiction of the Indiana courts. Ind. Code §
29-l-10-l(f) (1982).

422 INDIANA LAW REVIEW [Vol. 16:415

or devisees if the decedent authorized unsupervised administration
in his will.''" Why the statute is not effective for all estates is a good
question.

B. Trusts

1. Trusts and Adopted Children.— In In re Walz,^^ the settlor had
established an inter vivos trust containing the following clause:

"The balance of the income may be accumulated by the
trustee or in its discretion may be distributed among the
descendants of the Grantor, per stirpes. Upon the death of
Lorraine I Walz, the remainder of the trust property shall be
divided and distributed among the children of the Grantor,
namely Donald Walz and Jacqueline Keown, equally, share and
share alike or to the Grantor's descendants per stirpes, as their
absolute property forever."*^

After execution of the trust, the settlor adopted Michael, the son of
his wife, Lorraine. Following the settlor's death, the trustee sought
instructions as to whether Michael was an intended discretionary in-
come beneficiary of the trust. The court of appeals concluded that,
because "[t]he entire trust establishes a design of specific property
benefiting specific individuals,'"*^ Michael was not an intended income
beneficiary of the trust.

In Walz, the specific phrase in the trust agreement that disposed
of income read: " 'among the descendants of the Grantor, per
stirpes.' "^'^ This language could be interpreted either to include
Michael or not to include him. To discern the settlor's intent in regard
to Michael, the court examined not only the language of this ambiguous
phrase, but also the language of the entire trust. The court concluded
that the subsequent naming of Donald and Jacqueline individually,
albeit in a disposition of principal and not income, created a presump-
tion that the settlor intended to benefit Donald and Jacqueline
specifically rather than the class of children, or descendants, of the
settlor, into which class Michael might or might not fall.''^ The pre-
sumed intent was confirmed, in the court's view, by the fact that at

^"Act of Feb. 24, 1982, Pub. L. No. 172, 1982 Ind. Acts 1325 (currently codified
at Ind. Code § 29-l-7.5-2(a) (1982). Of course, all the other requirements for unsupervised
administration must be met; namely, the estate must be solvent, and the personal
representative must be qualified to administer the estate without court supervision. Id.

^'423 N.E.2d 729 (Ind. Ct. App. 1981).

^Ud. at 730-31 (quoting trust provision).

"Yd. at 737. The intent of the settlor is the "polestar for construing trust provi-
sions." Id. at 733.

''Id. at 734.

''Id. at 736.

1983] SURVEY-TRUSTS AND ESTATES 423

the time of the trust's execution the settlor had two children, Donald
and Jacqueline; he had been married to Lorraine for six years; and
Michael had lived with Lorraine and the settlor during the entire six-
year period/^

Because of the court's conclusion regarding the settlor's intent to
benefit specific individuals, the court did not reach the question
whether an adopted child is presumptively included within a class
described as "children" or "descendants." In dicta, however, the court
made the following significant comment:

[W]e find the Probate Code to strongly represent the public
policy of this state that an adopted child is to be treated as
though the natural child of the adopting parent. We certainly
give that strong public policy due consideration when constru-
ing trust terms. Or, for example, we may well refer to the
rules for interpretation of wills, LC. 29-1-6-1, under the Pro-
bate Code to aid our interpretation of trust provisions.

. . . However, we do conclude that the Probate Code does
not control the interpretation and construction of the terms
of inter vivos trusts.*^

If this dicta is followed, courts construing inter vivos trust provi-
sions may refer to the rules of construction of the Probate Code.
The specific rules of the construction that may be of benefit in con-
struing trust terms are the rules regarding gifts to "heirs" or "next
of kin,'"** and the rules regarding adopted children*^ and illegitimate

^**The intent of the settlor is to be discerned from an examination of the trust
language "in the light of the facts and circumstances surrounding the settlor at the
time the trust was executed." Id. at 734.
"Id. at 733 (emphasis added by court).
''iND. Code § 29-l-6-l(c) (1982) provides:

A devise of real or personal estate, whether directly or in trust, to the
testator's or another designated person's "heirs" or "next of kin" or "relatives,"
or "family," or to "the persons thereunto entitled under the intestate laws"
or to persons described by words of similar import, shall mean those per-
sons, including the spouse, who would take under the intestate laws if the
testator or other designated person were to die intestate at the time when
such class is to be ascertained, domiciled in this state, and owning the estate
so devised. With respect to a devise which does not take effect at the
testator's death, the time when such class is to be ascertained shall be the
time when the devise is to take effect in enjoyment.
*'Id. § 29-l-6-l(d) provides:

In construing a will making a devise to a person or persons described
by relationship to the testator or to another, any person adopted prior to
his twenty-first (21st) birthday before the death of the testator shall be
considered the child of his adopting parent or parents and not the child of

424 INDIANA LAW REVIEW [Vol. 16:415

children.^" Of these rules of construction, it would seem that only
the rules regarding adopted children and illegitimate children could
be said to be representative of a strong public policy of the state
of Indiana. Therefore, perhaps only those rules of construction will
be looked to in construing trust terms. Certainly, the enactment of
a specific trust code provision similar to the Probate Code provision
would be preferable to borrowing rules from wills statutes that were
never intended to apply to trusts. Because Indiana does not have
such a trust code provision, however, the Probate Code is clearly
a logical source for guidance in the construction of trust documents,
which often are used as will substitutes.

2. Revocation of Trusts.— In Breeze v. Breeze,^^ the settlor
established a revocable inter vivos trust, on the eve of his marriage,
naming himself as trustee and as life income beneficiary, and naming
his nieces and nephews as remainder beneficiaries. The settlor did
not specify a method for revoking the trust. After the settlor died,
the trial court, in a lawsuit instituted by the settlor's surviving spouse,
concluded that the trust had been revoked by the settlor's failure to
fulfill his duties as trustee.^^ Therefore, the assets of the trust were
assets of the settlor's estate. The court of appeals, however, reversed
the trial court. According to the appellate court, failure of the settlor-
trustee to fulfill his duties as trustee did not revoke the trust; there
must be a manifestation of intent to revoke, and such a manifestation
was lacking in the Breeze case.^^

3. Statutory Amendments.— A new chapter that was added in
1982, Indiana Code sections 30-2-10-1 through -10, specifies new and
more detailed requirements for the establishment of funeral trusts,
and is effective for trusts created after July 1, 1982.^'' Further, after

his natural or previous adopting parents: Provided, that if a natural parent
or previous adopting parent shall have married the adopting parent before
the testator's death, the adopted person shall also be considered the child
of such natural or previous adopting parent. Any person adopted after his
twenty-first (21st) birthday by the testator shall be considered the child of
the testator, but no other person shall be entitled to establish relationship
to the testator through such child.

«'/d § 29-l-6-l(e) provides:

In construing a will making a devise to a person described by relation-
ship to the testator or to another, an illegitimate person shall be considered
the child of his mother, and also of his father, if, but only if, his right to
inherit from his father is, or has been, established in the manner provided
in IC 1971, 29-1-2-7.

5^428 N.E.2d 286 (Ind. Ct. App. 1981).

^Ud. at 287.

^Id. at 288. One court has held that a trust may be revoked upon the execution
of a will with a revoking provision in it. In re Estate of Lowry, 93 111. App. 3d 1077,
418 N.E.2d 10 (1981).

^This new chapter has replaced Ind. Code §§ 30-2-9-1 to -8 (1976 & Supp. 1981),

1983] SURVEY-TRUSTS AND ESTATES 425

recent amendments, Indiana Code section 30-4-3-31 now provides that
charitable trusts, and even transfers not in trust, may be amended
to qualify for federal income tax advantages under appropriate
circumstances.^^

C. Powers of Appointment

1. Choice of Law.— In 1931, the decedent's mother, a resident of
New York, created a testamentary trust for the benefit of the decedent
for life and with the power in the decedent to appoint the corpus of
the trust by will. The decedent died in 1973, a resident of Indiana.
The decedent's will contained a general residuary clause but did not
mention the power of appointment. Under Indiana law, a will does
not operate as an exercise of a power of appointment unless the "will
specifically indicates that the testator intended to exercise said
power."^* Under New York law, however, a general residuary clause
in a will is rebuttably presumed to be an exercise of a general power
of appointment.^^ The question raised in White v. United States^^ was
whether the power of appointment had been exercised in the general
residuary clause in the will of the decedent, the donee of the power.

The federal district court in White concluded that there was
evidence, particularly that of "the tax effect and the resulting dissipa-
tion" of the donee's estate, to rebut the presumption of exercise under
New York law.^^ The White court concluded, in the alternative, that
New York law would not apply to determine whether the donee, an
Indiana domiciliary, intended to exercise the power.^°

which was amended in 1982 to apply to funeral trusts created after June 30, 1978,
and before July 1, 1982.

^^IND. Code § 30-4-3-31 (1982).

^IND. Code § 29-l-6-l(f) (1982).

"N.Y. Est. Powers & Trusts Law § 10-6.1(a)(4) (McKinney 1967). A general power
of appointment is a power exercisable in favor of the donee or his estate. New York
law also raises a rebuttable presumption that a general residuary clause is an exer-
cise of a special power of appointment. Id. A special power of appointment is a power
that is not exercisable in favor of the donee or his estate.

^«511 F. Supp. 570 (S.D. Ind. 1981) affd, 680 F.2d 1156 (7th Cir. 1982). In White,
the Internal Revenue Service argued that the power had been exercised and thus,
the value of the appointed property was included in the decedent's taxable estate.
The executor of the decedent's estate argued that the power had not been exercised.
Under the facts of the case, the takers of the property appear to be the same regardless
if the power was deemed exercised by the residuary clause, because the takers in
default of appointment were the decedent's "issue," and the residuary devisees were
the decedent's three surviving children who were the decedent's only surviving issue.

^Ud. at 576. The difference \vas not which people took the money, but that the
same people would have taken $112,216.52 less as a result of tax liability, if the power
was deemed exercised. See supra note 58.

'°511 F. Supp. at 576-79.

426 INDIANA LAW REVIEW [Vol. 16:415

In deciding that New York law would not apply, the court
acknowledged that it should look to the Indiana choice of law rule
to determine the applicable law, but the court noted that Indiana has
no choice of law rule regarding the exercise of powers of appointment.^^
Although the general choice of law rule would look to the law of the
donor's domicile (New York),^^ not the law of the donee's domicile (In-
diana), to determine whether the donee intended to exercise the power,
the White court decided that Indiana would not follow this much
criticized general rule. Instead, the federal court determined that In-
diana would apply the "better reasoned and more practical choice of
law rule" that looks to the law of the donee's domicile for resolving
matters of construction of the donee's will.^^

Certainly, the choice of law rule that looks to the law of the
donee's domicile to decide if the donee of a power of appointment prop-
erly manifested the intent to exercise that power is more likely to
promote the reasonable expectations of the donee than the rule that
prefers to look to the law of the donor's domicile when attempting
to discern the donee's intent. This is obvious after considering the
typical facts of a case like White, where the donee and the donor were
not domiciled in the same state. A testator domiciled in Indiana, as
was the donee in the White case, would not likely consider that his
will would be construed by applying the law of New York.^" An Indiana
domiciliary would likely draft his will in light of Indiana law.

The traditional choice of law rule, which applies the law of the
donor's domicile to determine if the donee intended to exercise the
power of appointment, does have some logic to support it. A power
of appointment is said to emanate from the donor; the donee is merely
a conduit for the transfer of property from the donor to the ultimate
takers. Therefore, when the donee appoints the property, the appoint-
ment is ordinarily treated as if it were written into the donor's will.^^

''Id. at 576. The court cited Sexton v. United States, 300 F.2d 490 (7th Cir.), cert,
denied, 371 U.S. 820 (1962), in support of the rule that the federal court sitting in In-
diana must apply Indiana choice of law rules. The parties were in agreement as to
the nonexistence of an Indiana choice of law rule.

^^See Restatement (Second) of Conflict of Laws § 275 (1969).

«^511 F. Supp. at 578.

^^Unless, of course, the testator owned real property in New York, in which case
the general choice of law rule would conclude that the testator's disposition of the
real property should be governed by and construed by the law to be chosen by the
situs of the real property. See Restatement (Second) of Conflict of Laws § 240 (1969).

^'The conduit description is acknowledged in two recent cases reviewed in this
Survey, Indiana Dep't of State Revenue v. Estate of Martindale, 423 N.E.2d 662 (Ind.
Ct. App. 1981), and Indiana Dep't of State Revenue v. Estate of Hungate, 426 N.E.2d
433 (Ind. Ct. App. 1981). See infra notes 77-88 and accompanying text. Furthermore,
for example, in considering whether a power or an appointment under it violates the
rule against perpetuities, the exercise is read into the will of the donor of the power.

1983] SURVEY-TRUSTS AND ESTATES 427

Thus, the traditional choice of law rule is but a simple extension of
this conventional fiction; if the power is treated as if written into the
donor's will, then it is the donor's will that is being construed to deter-
mine whether the power was exercised. This simple extension of con-
ventional fiction, however, is truly a perversion when applied to the
facts of nearly any given case. Whatever rhetoric is used to describe
the creation and exercise of a power of appointment, the plain fact
remains that the donor gave the donee the power to appoint and
whether the donee appoints is purely a matter of the donee's intent,
which must be properly manifested under the law that applies to deter-
mine the donee's intent. If that intent appears in a will, then the law
of the donee's domicile should apply when interpreting that will for
any purpose, including determining whether a power of appointment
has been exercised.^^

The entire choice of law problem would be avoided by careful and
thorough drafting. When creating the power, the donor should pro-
vide that the law of the donee's domicile is applicable in determining
whether the power had been exercised.^^ The donee should be clear
in stating his or her intention to exercise the power or not to exercise
it, thus not leaving the interpretation of a general residuary clause
in the hands of the courts.^^

2. Power or Vested Interest.— In a straightforward trust inter-
pretation case, Lincoln National Bank & Trust Co. v. Figel,^^ the court
of appeals followed the strong preference of Indiana law for the early
vesting of estates^" and, reversing the trial court, held that the follow-
ing clause in a testamentary trust was not merely a power of appoint-
ment, but gave the testator's daughter, Gloria, a vested interest in
the trust upon her attaining the age of 35:^^

^''This was the general principle followed in the White case, where the court stated:

It is more logical to conclude that the law of the domicile of the testator
at his death should apply to interpreting a will for all purposes, including
whether or not a power is exercised. This is the view followed in the Uniform
Probate Code and most recently followed by federal courts in power of ap-
pointment cases and other similar litigation.
511 F. Supp. at 574. Of course, the law chosen by the situs of the real property governs
the construction of a will that disposes of that real property. See supra note 64.

^The donor could provide that the law of his or her own domicile should be applied
in determining the donee's exercise or not, but that would be illogical and impractical
for the same reasons that the choice of law rule that chooses the donor's domicile
is illogical and impractical. The donor could, of course, be precocious and choose the
law of Timbuktu as the controlling law.

^*No good draftsman will rely on rules of construction to carry the day in promot-
ing his or her client's intent. The intent should be stated clearly and precisely, whether
the intent is that the power be exercised or not.
'H21 N.E.2d 5 (Ind. Ct. App. 1981).

'"See, e.g., Burrell v. Jean, 196 Ind. 187, 146 N.E. 754 (1925); Aldred v. Sylvester,
184 Ind. 542, 111 N.E. 914 (1916).
"427 N.E.2d at 9.

428 INDIANA LAW REVIEW [Vol. 16:415

"When my wife shall no longer be living and my daughter
shall have attained the age of thirty-five (35) years, or at any
time thereafter upon her request, the Trustee shall distribute
and pay over the entire trust estate ... to my daughter but
if my daughter shall die before attaining age thirty-five (35),
then at the death of the survivor of my wife and daughter
the Trustee shall distribute the entire trust estate to or hold
the same for such spouse, issue, spouses of issue, and widows
or widowers of deceased issue of my daughter as my daughter
shall by will appoint."^^

The dispute in Figel arose after Gloria's death. Her executor and
her children disagreed as to the proper distribution of the trust assets.
Gloria had survived the testator's wife and had lived past the age
of thirty-five.'^ Gloria's children did not convince the court, however,
that Gloria had only a power of appointment, which, upon her failure
to exercise it, passed to them as the takers in default.'^ For several
reasons, each based on the language used by the testator, the court
agreed with the executor that Gloria had a vested interest in the trust
property, which passed to her own residuary trust upon her death.'^
The most convincing reasons were that the testator clearly knew how
to establish a power of appointment, as evidenced by his creation of
a testamentary power of appointment in favor of Gloria if she died
before attaining the age of thirty-five, so that if he had also intended
the creation of an inter vivos power he would have said so more
specifically and, that the trustee was instructed to pay over and to
distribute the entire trust estate, and nothing less, which implies a
vesting of interest, rather than a power of appointment.'^

3. Inheritance Tax and Powers.— The relevant facts of two recent

''^Id. at 6. The clause, in part, further provided:

To the extent that the entire trust estate is not effectively appointed
by such power of appointment the same shall be distributed per stirpes among
the then living issue of my daughter but if any issue shall not have attained
the age of twenty-one (21) years, then the share of the trust estate which
would have been distributed to such minor issue shall be held in trust by
the Trustee for the benefit of such issue until such issue attains the age of
twenty-one (21) years.
Id. at 6-7 (quoting the trust agreement).

^^The executor argued that the assets of the trust should be included' in Gloria's
estate and distributed to her residuary trust, because she had attained the age of 35
at her mother's death and the trust estate had vested in her at that time. Gloria's
children argued that Gloria had only a power to appoint the trust estate and that,
upon her failure to exercise the power, the trust estate should be distributed to them
at age 21 as takers in default under Gloria's father's will. Id. at 7. See supra note 72.
'^*See supra note 72.
^^427 N.E.2d at 9.
''Id. at 8.

1983] SURVEY-TRUSTS AND ESTATES 429

court of appeals cases'^' were identical: the husband established a
testamentary trust that provided his wife with income for life, with
an unrestricted power to invade corpus during her life, and with an
unrestricted power to appoint by will the corpus remaining at her
death. In each case, the wife appointed the property to her estate
at her death, and the issue was whether the wife's appointment was
a transfer that is subject to the Indiana inheritance tax imposed on
"property interest transfers" made by a decedent.^^ The courts reached
opposite conclusions regarding the tax consequences.

In Indiana Department of State Revenue v. Estate of Martindaley''^
the second district court of appeals held that the appointment was
not subject to the inheritance tax. The court reasoned that the crea-
tion of a power of appointment merely renders the donee a conduit
for the transfer of property from the donor of the power to the
appointee. The interest of the donee is not a property interest owned
by the donee at her death, even if the donee has the power to invade
the corpus of the appointable estate during her lifetime.*" Further-
more, the death-time exercise of a power of appointment is not a tax-
able event, not only because the donee has no property interest to
transfer, but also because the legislature intended to exclude exer-
cise as a taxable event.*^ This legislative intent is found in the 1929
repeal of a provision that made the exercise of a power of appoint-
ment a taxable event.*^

In Indiana Department of State Revenue v. Estate of Hungate,^^ the
first district court of appeals took note of, but disagreed with, the
conclusions of the Martindale court. The Hungate court held that the
appointment was subject to the inheritance tax.*'* The court
acknowledged that ordinarily the exercise of a power of appointment
is not taxable, because the donee, as a conduit, is not transferring

''Indiana Dep't of State Revenue v. Estate of Hungate, 426 N.E.2d 433 (Ind. Ct.
App. 1981); Indiana Dep't of State Revenue v. Estate of Martindale, 423 N.E.2d 662
(Ind. Ct. App. 1981).

''Ind. Code § 6-4.1-2-l(a) (1982).

'M23 N.E.2d 662 (Ind. Ct. App. 1981).

^°Id. at 665. The court noted that the power to invade corpus was the equivalent
of an inter vivos power of appointment. Until a power of appointment is exercised
in favor of the donee, the donee has no property interest that can be transferred.
The donee is merely a conduit for the transfer from the donor to the appointee. The
court held that the inter vivos power of appointment does not enlarge the donee's
interest to anything more than a power to designate the takers of the donor's estate.
Id. The court relied on analogous cases holding that a life estate is not enlarged into
a fee by the existence of an inter vivos power to dispose of the fee.

''Id. at 666 & n.5.

''Act of Mar. 11, 1921, ch. 275, § 7, 1921 Ind. Acts 854, 859-61, repealed by Act
of Mar. 9, 1929, ch. 65, § 6, 1929 Ind. Acts 186, 209-10.

«H26 N.E.2d 433 (Ind. Ct. App. 1981), affd, 439 N.E.2d 1148 (Ind. 1982).

''Id. at 435.

430 INDIANA LAW REVIEW [Vol. 16:415

an interest owned by that donee. When the donee has an inter vivos
power to invade corpus, however, the donee is no longer a mere con-
duit but is substantially an owner of the property. The exercise of
the power of appointment, when the power is coupled with an inter
vivos power to invade and to enjoy the appointable corpus, is a
transfer of an interest owned by the deceased donee at her death and,
thus, is taxable.*^

The question in both Martindale and Hungate was ultimately
whether the legislature intended to tax the death-time exercise of a
power of appointment when it is coupled with an inter vivos power
to enjoy the corpus of the appointable estate. The legislature has not
spoken to clarify its intent as to the taxability of such an appoint-
ment, and the conclusion of each court has logical support.

Both courts agreed that the legislature has expressed its intent
to tax only property interest transfers of a decedent. Both courts
agreed that the donee of a power of appointment is not the owner
of an interest in the appointable property, but is a conduit for nam-
ing the taker of the property. Thus, the appointee takes from the
donor of the power, not from the donee. The point of departure for
the courts was on the issue of whether an unexercised right to use
the corpus of the appointable property should enlarge the donee's in-
terest into an ownership interest, rendering the appointment a transfer
of property by the donee as owner, not as a conduit.

It is difficult to decide which conclusion is more sound and more
in line with the probable legislative intent. The Hungate court's con-
clusion of taxability is supported by the fact that the donee looks like
an owner, with full power to control the property inter vivos and at
death. The Martindale court's conclusion of nontaxability, on the other
hand, is supported by the fact that the donee becomes an owner of
the appointable property only if the donee exercises the power in his
or her favor. An unexercised power to invade corpus, like an unexer-
cised power to revoke a trust, should not confer ownership status on
the holder of the power. Perhaps the conclusion of the Martindale
court, that the inter vivos right to invade corpus does not render the
donee an owner of the property, is the better one, in that it is more
consistent with the apparent legislative intent and supported by
judicial decisions in analogous cases. ^^

Another facet of the two cases is the fact that the power of
appointment was exercised in favor of the donee's estate. Perhaps this
fact, particularly when coupled with the fact that the donee has an

^See, e.g., Indiana Dep't of Revenue v. Monroe County State Bank, 390 N.E.2d
1104 (Ind. Ct. App. 1979); In re Estate of Bannon, 171 Ind. App. 610, 358 N.E.2d 215
(1976). But see Indiana Dep't of State Revenue v. Estate of Hungate, 439 N.E.2d 1148
(Ind. 1982) (ownership interest existed, therefore was taxable).

1983] SURVEY-TRUSTS AND ESTATES 431

inter vivos power to invade corpus, should render the exercise tax-
able under Indiana's inheritance tax laws. At the conclusion of the
Hungate opinion, the court mentioned the special status of the donee
as appointee in further support of its conclusion that the exercise of
power was a taxable event.

Hungate was not merely a donee, but in fact was the appointee,
because she designated her estate to be the recipient of the
trust corpus. . . . Hungate received no title through herself
as a donee, however, she received the title through the donor
. . . when she named herself the appointee. The exercise of
the power of appointment to herself, vested title in her estate,
and therefore, the trust corpus should be included in her
estate.®''

This line of reasoning is quite persuasive. When the donee appoints
to her estate, the recipients of that estate appear to have received
a transfer, from the donee, of property owned by that donee at the
moment of the donee's death. The donee, at the moment of the ap-
pointment, is no longer merely the donee but the appointee, and thus,
is the owner of the appointed property. The donee became the owner
of the property by appointing the property to her estate and, simul-
taneously, she transferred that ownership to the recipients of her
estate. In the case of appointment to the estate of the donee, fairness
would seem to dictate that the property be subject to the inheritance
tax because the property will be transferred out of that estate exactly
as all "inherited" property is transferred, either by the effect of the
deceased donee's will or by the laws of intestate succession.

Ultimately, perhaps, the difficulty in both cases was the appoint-
ment to the estate of the donee. Such an appointment should be
avoided. Presumably, by appointing the property to her estate, the
donee must have intended that the property pass to her devisees or
heirs at law. Instead of appointing the property to her estate, the
donee should have appointed the property directly to the appropriate
devisees or to her heirs at law. In fact, the appointment directly to
devisees or heirs would avoid the possibility that the donee's spouse
or creditors could successfully assert an interest in the property.
Furthermore, appointment directly to devisees or heirs might have
given the Hungate court less incentive to search for reasons to hold
the exercise of the power a taxable event.*®

D. Guardianships
New statutory provisions provide that a foreign guardian may col-

^' Hungate, 426 N.E.2d at 435. The Hungate court seemed swayed by its belief that
the donee had appointed to herself when she appointed to her estate.
^^See Hungate, 426 N.E.2d at 434-35.

432 INDIANA LAW REVIEW [Vol. 16:415

lect assets of the incompetent in Indiana by affidavit,*^ that a foreign
guardian may act in Indiana by filing authenticated copies of his
appointment,^^ and that a foreign guardian submits personally to the
jurisdiction of the Indiana courts if he collects assets or files copies
of his appointment or does any other act as guardian in Indiana that
would have given Indiana courts jurisdiction over him as an
individual.^^ Another new guardianship provision allows a parent or
guardian to delegate, for a period not to exceed sixty days, certain
powers regarding care, custody, and property of an incompetent by
a properly executed power of attorney .^^

A nonresident may now presumably serve as guardian of the per-
son or of the estate of an incompetent in Indiana. The guardianship
provisions state that one who is qualified to serve as a personal
representative under Indiana Code section 29-1-10-1 is qualified to
serve as guardian.®^ Now that section 29-1-10-1 has been amended to
remove nonresidence as a disqualification for service as a personal
representative,^* it follows that nonresidence is removed as a dis-
qualification for service as a guardian. Thus, if a client wants Aunt
Marie in Missouri to be the guardian of the estate or of the person
of his or her children at his or her death. Aunt Marie may qualify
and serve in Indiana. Undoubtedly, however, if Aunt Marie resides
in Missouri, her first act as guardian in Indiana will be to petition
to change the residence of the children to Missouri.^^ Aunt Marie will
then need to be appointed guardian of the children in Missouri.

Certainly, a lawyer should advise his client to name Aunt Marie,
the preferred guardian, as guardian in that client's will. To avoid the
additional expense of qualification, bonding, appointment, and discharge
in Indiana, the will could also state the testator's request that Aunt
Marie not be required to qualify in Indiana, but that Aunt Marie be
permitted to take the children to her place of residence and be ap-
pointed guardian there. This provision would not be binding in any
way on an Indiana court or on any other court, but it would serve
as an expression of the expectations of the testator regarding the
guardianship and it might help to avoid an additional unnecessary
guardianship in Indiana.

«'Act of Feb. 15, Pub. L. No. 175. 1982 Ind. Acts 1330 (currently codified at Ind.
Code § 29-1-18-51 (1982)).

^Id. (currently codified at Ind. Code § 29-1-18-52 (1982)).

^'Id. (currently codified at Ind. Code § 29-1-18-4.5 (1982)).

^Act of Feb. 25, Pub. L. No. 176, 1982 Ind. Acts 1331 (currently codified at Ind.
Code § 29-1-18-28.5 (1982)).

''Id. § 29-1-18-9 (1982).

'*See supra notes 35-39 and accompanying text.

'^his is permissible under Ind. Code § 29-1-18-8 (1982).

XIX. Workers' Compensation

♦Terrence Coriden
A. Jurisdiction

Indiana Code section 22-3-4-5/ which sets forth the jurisdiction of
the Industrial Board, was construed in Globe Valve Corp. v. Thomas.^
In Globe Valve, the claimant had been injured but had never received
total disability benefits. Then, two years after the injury, the claimant
filed a claim for compensation with the Industrial Board. The defend-
ant filed a motion to dismiss alleging that because, prior to filing
with the Industrial Board the claimant failed to demand workers' com-
pensation or to attempt settlement of the claim, no dispute existed
between the parties, as required by Indiana Code section 22-3-4-5.
Nevertheless, the Industrial Board found a good faith dispute existed
and awarded the claimant benefits.

Reversing the Industrial Board's decision, the Indiana Court of
Appeals held that there was no evidence to support a finding that
a good faith dispute had arisen as required by section 22-3-4-5.^ The
court remanded the case with instructions for the Industrial Board
to dismiss, stating that the Industrial Board has no jurisdiction over
cases in which a good faith dispute is lacking.'*

The court in Globe Valve did not consider the parties' actions tan-
tamount to a good faith dispute. According to Globe Valve, as a con-
dition precedent to the Industrial Board's exercise of jurisdiction, the
claimant must affirmatively make a demand upon the employer, must
be denied compensation, and must be able to prove the employer's
denial at the Industrial Board hearing. Thus, if a claimant enters a
law office with one day left in the statute of limitations period, an
attorney must make an immediate telephone call to the employer set-
ting forth the claimant's demands and must obtain a denial before filing
a Form 9 application.^

The Globe Valve decision seems to favor procedure over substance.
The court could have found that the defendant's failure to pay any
temporary total disability for two years and that the defendant's op-

♦Partner with the law firm of Lawson, Pushor, Mote & Coriden — Columbus,
Indiana; J.D., University of Toledo, 1971.

^Ind. Code § 22-3-4-5 (1982). This section provides, in part, that "[i]f the employer
and the injured employee . . . disagree in regard to the compensation payable under
this act . . . either party may then make an application, to the Industrial Board, for
the determination of the matters in dispute." Id. (emphasis added).

^424 N.E.2d 155 (Ind. Ct. App. 1981).

'Id. at 157-58.

*Id. at 158.

^A Form 9 application is an application by the injured employee to the Industrial
Board for an adjustment in the employee's claim for compensation.

433

434 INDIANA LAW REVIEW [Vol. 16:433

position to the claimant's application for benefits constituted a suf-
ficient showing of a good faith dispute.^ However, the court's inter-
pretation of section 22-3-4-5 recognizes jurisdictional requirements that
are in harmony with the well-founded public policy that " 'the law
abhors litigation, and favors the settlement of disputes by the par-
ties interested . . . .' "^

B. Statute of Limitations

1. Occupational Diseases. — In Bunker v. National Gypsum Co.,^
the court held that the three-year statute of limitations period pro-
vided under section 22-3-7-9(f),^ relating to asbestos dust exposure, was
unconstitutional/" The rationale for this holding was that, at the time
the legislature enacted the section, the legislature was unaware of
medical findings which indicated that more than thirty years could
expire before a disease caused by exposure to asbestos dust became
manifest."

It is anticipated that the Indiana Supreme Court will accept
transfer of this case and reverse the court of appeals, reinstating the
three-year statute of limitations. The basis of the supreme court's
reversal is expected to be on the grounds that the medical evidence
which the court of appeals relied upon in its opinion was not within
the Industrial Board's findings of fact.^^

2. Industrial Accidents. — In Coachmen Industries, Inc. v. Yoder,^^
the claimant suffered injuries to his neck, eye, ear, nose and arm as
a result of a truck accident on May 14, 1974. Shortly thereafter, the
employer and employee entered into a Form 12 agreement^'^ providing

'See Patton v. Silvey Co., 395 So. 2d 722 (La. 1981).

^424 N.E.2d at 157 (quoting In re Moore, 79 Ind. App. 470, 475, 138 N.E. 783,
784 (1932)).

«426 N.E.2d 422 (Ind. Ct. App. 1981).

^Ind. Code § 22-3-7-9(f) (1982). This section provides that occupational diseases which
are caused by the inhalation of asbestos dust must be filed within three years after
the last day of the last exposure to asbestos. Id.

^"426 N.E.2d at 425.

''Id. at 425-26.

^^Indiana's Administrative Adjudication Act, Ind. Code §§ 4-22-1-1 to -30 (1982), re-
quires that a court reviewing a decision of an administrative agency limit its review
to the record before it. Specifically, the Act requires that "[o]n such judicial review
such court shall not try or determine said cause de novo, but the facts shall be con-
sidered and determined exclusively upon the record filed with said court pursuant to
this Act." Id. § 4-22-1-18. Going beyond the record of the administrative hearing has
been held to constitute an infringement upon the discretion of the agency. E.g., Ind-
iana State Highway Comm'n v. Zehner, 174 Ind. App. 176, 185, 366 N.E.2d 697, 702 (1977).

13422 N.E.2d 384 (Ind. Ct. App. 1981). For discussion on other issues in this case,
see infra notes 56-58 and accompanying text.

^*A Form 12 agreement is an agreement between the injured employee and the
employer as to the amount and duration of compensation.

1983] SURVEY- WORKERS ' COMPENSA TION 435

for payment of temporary total disability. The employer paid these
benefits for a total of sixty-two weeks, until July 22, 1975, and then
refused to make any additional payments. After unsuccessfully
attempting to negotiate further benefits, the claimant's attorney, rely-
ing upon Indiana Code section 22-3-3-27,^^ filed a Form 14 application
on December 30, 1976, seeking a modification of the compensation
award due to a change in condition.

In addition to other defenses, the defendant filed an affirmative
defense based upon the untimeliness of the claimant's filing of the
Form 14 application. This affirmative defense was based upon section
23-3-3-3,^^ which bars compensation claims filed more than two years
after the accident.

Obviously, applying section 23-3-3-3 to the facts would dictate a
finding for the defendant because that statute of limitation had run.
However, the court of appeals relied upon an old line of cases and
affirmed the Industrial Board's modification of the original award. ^^
The court reasoned that the claimant's injuries, at the time of the ac-
cident, could not be medically determined to be a permanent
impairment. Because the claimant's alleged permanent partial impair-
ment must have resulted from the injuries and not directly from the
accident, section 22-3-3-27 was the applicable statute governing the
plaintiff's claim. ^® Thus, the court found that the claimant must be

'^iND. Code § 22-3-3-27 (1982). This section provides, in part, that:

The power and jurisdiction of the industrial board over each case shall
be continuing and from time to time, it may, upon its own motion or upon
the application of either party, on account of a change in conditions, make
such modification or change in the award, ending, lessening, continuing or
extending the payments previously awarded, either by agreement or upon
hearing, as it may deem just ....

The Board shall not make any such modification upon its own motion,
nor shall any application therefor be filed by either party after the expira-
tion of two (2) years from the last day for which compensation was paid under
the original award made either by agreement or upon hearing, except that ap-
plications for increased permanent partial impairment are barred unless filed
within one (1) year from the last day for which compensation was paid.
Id. (emphasis added).

'^Ind. Code § 22-3-3-3 (1982). This section provides, in part, that "[tjhe right to com-
pensation under this act shall be forever barred unless within two (2) years after the
occurrence of the accident, or if death results therefrom within two (2) years after such
death, a claim for compensation thereunder shall be filed," Id. (emphasis added).

"422 N.E.2d at 389-91 (citing Tom's Chevrolet v. Curtis, 128 Ind. App. 201, 147
N.E.2d 571 (1958); Pettiford v. United Dep't Stores, 100 Ind. App. 471, 196 N.E. 342
(1935)).

18422 N.E.2d at 389-91. In a concurring opinion. Judge Sullivan pointed out a distinc-
tion between a resultant impairment and an impairment directly caused by the accident:
The impairment is "resultant" . . . only if it does not exist in any degree
at the time of the accident, or if existent, cannot be determined to be per-
manent. If the accident is the direct cause of an impairment it is not "result-
ant," even though the impairment which exists at the time of the accident

436 INDIANA LAW REVIEW [Vol. 16:433

allowed benefits because the claimant complied with section 22-3-3-27;
that is, the claimant was making a request for a modification within
two years from the last day for which compensation was paid under
the original award/^

The end result in Coachmen Industries was equitable in light of
the fact that the employer had in its files a letter dated November
13, 1975, stating that the claimant's injuries had now reached a per-
manent, quiescent status and that the claimant had suffered fifty per-
cent permanent partial impairment to his right ear.

C. Scope of Employer's Liability

1. The Traveling Salesman. — In Olinger Construction Co. v.
Mosbey,^^ the court of appeals was again confronted with the age old
problem regarding the limits of an employer's liability for an employee
who suffers an accidental injury, after normal working hours, while
away from home due to his employment. In this case, the employee,
Mosbey, was a surveyor whose duties required him to be in
Lawrenceburg, Indiana, 150 miles away from his home and principal
place of employment. When in Lawrenceberg, Mosbey was on-call
twenty-four hours a day, in the event that a problem occurred on the
night shift and the night shift needed Mosbey's professional advice;
however, such an event rarely occurred.

One evening after work, while sitting in his motel room in
Lawrenceburg, Mosbey was visited by a stranger, Mr. Bell. Unknown
to Mosbey, Bell had been recently fired by their mutual employer,
Olinger Construction Company. Bell gained entrance to Mosbey's room
under the pretense that Bell needed help in a carpentry course he
was taking. Upon entering the room. Bell robbed Mosbey and there-
after stabbed Mosbey to death.^^

The Industrial Board awarded full benefits under the Workers'
Compensation Act to Mosbey's surviving spouse and dependent
children. In affirming the Industrial Board's decision, the court of
appeals looked to Indiana Code section 22-3-2-2 which allows benefits

either increases in degree or lessens in degree, so long as the impairment

which does exist is permanent in nature.
Id. at 394-95 (Sullivan, J., concurring).

^®It should be noted that the defendant could have argued that section 22-3-3-27
did apply, but the claimant's application was barred because the claimant was seeking
an increase in benefits and such applications are barred by section 22-3-3-27 unless
filed within one year from the last day for which compensation was paid. Ind. Code
§ 22-3-3-27 (1982).

''A27 N.E.2d 910 (Ind. Ct. App. 1981).

^The facts, as stated by the court, indicate that there was no evidence that Bell
was attempting to visit retribution upon his former employer by killing Mosbey.

1983] SURVEY-WORKERS' COMPENSATION 437

to an employee if the accident arose "out of and in the course of the
employment."^^ In applying these criteria to the facts in Mosbey, the
court found that a traveling employee is "in the course of his employ-
ment from the time he begins his travels until he returns home or
to his business, unless he embarks on a personal errand.^^ Clearly,
Mosbey had not embarked on a personal errand at the time of his
death. Furthermore, the court found that injuries arise "out of the
employment when there is a causal connection between the injuries
and the employment.^* The court stated that a causal connection ex-
ists when an accident arises out of a risk which reasonable men might
comprehend as incidental to the employment or when there is a rela-
tionship between the working condition and the resulting injury .^^

In finding that the accident in Mosbey arose "out of the employ-
ment, the majority of the court adopted the positional risk theory
which defines "out of as any situation in which the employee is re-
quired to be at a certain place and the injury occurs when he is there. ^®
However, in a well written dissent, Judge Sullivan disagreed with the
majority's conclusion that the accident arose out of Mosbey's employ-
ment because he adhered to the traditional increased risk theory."
The increased risk theory defines "out of as any situation in which
the employee is exposed to a quantitatively greater risk than the
general public either because the danger is greater or because the
employee is exposed to the danger for a longer period of time than
the general public.^* Further, Judge Sullivan stated that even under
the majority's theory Mosbey's injuries did not arise "out of the
employment because there was no causal connection between Mosbey's
residence at the motel and the criminal act of a third party .^^

It should be noted that even though the majority opinion upheld
the Industrial Board's decision under the positional risk theory, this
same case could have been upheld under the increased risk theory.
Because Mosbey was identified as an employee who was away from
home for an extended period of time, and who may be expected to
have a significant amount of cash on him, the court could have found

22IND. Code § 22-3-2-2 (1982).

'H21 N.E.2d at 913.

''Id. at 912.

''Id.

'^See A. Larson, The Law of Workmen's Compensation §§ 6.50, 11.40 (1978). Under
this theory, the degree of danger is immaterial to the determination of whether the
injury "arose out of the employment. Simply stated, the positional risk theory is nothing
more than a "but for" test.

"427 N.E.2d at 916 (Sullivan, J., dissenting).

'^See A. Larson, The Law of Workmen's Compensation §§ 6.30, 9.30 (1978).

^427 N.E.2d at 916 (Sullivan, J., dissenting).

438 INDIANA LAW REVIEW [Vol. 16:433

that Mosbey was exposed to a quantitatively greater risk as required
by the increased risk theory.

2. After Work and On The Premises.— Lona v. Sosa^^ addressed
the question of whether the fatal shooting of a bartender-employee,
at his place of employment after the bartender-employee was off duty,
constitutes a compensable injury arising out of the employee's course
of business. In this case, the normal duties of the bartender-employee
consisted of opening the bar, cleaning up the bar from the previous
night's activities, and working at the bar until about 5:00 p.m. In ad-
dition to these duties, the general manager would periodically request
the employee to work additional nighttime bartending hours.

One evening, the employee remained at the bar after the general
manager had returned to relieve him of his bartending duties, and
the employee commenced drinking with a third party. After approx-
imately two and one-half hours had elapsed, the general manager
accused the employee of stealing because the cash register receipts
were short five dollars. The general manager then pulled out a shotgun
and killed the employee. The bartender-employee's widow filed an ap-
plication for benefits with the Industrial Board, and the Industrial
Board awarded death benefits to the widow.

The court of appeals reversed the Industrial Board's decision
holding that, when it is before or after regular working hours, an
employee is only deemed to be "in the course of" his employment if
the employee is engaged on the premises in preparatory or inciden-
tal activities reasonably related to his work and if the period of time
to perform such work is reasonable.^^ The court stated that there was
no evidence to support the Industrial Board's finding that the decedent
was in the course of his employment, either as a bartender or as a
cleanup person, because the decedent had been relieved of all duties
for approximately two and one-half hours when the shooting occurred. ^^
The court further stated that, to arise out of the course of employ-
ment, the injury must take place within the time and space boundaries
of the employment and within the course of an activity related to the
employment.^^ The court noted that an activity is related to the
employment if it carries out the purposes or advances the interest
of the employer, either directly or indirectly.

Alternatively, the court could have upheld the decision of the
Industrial Board by finding that the employee's presence at the tavern
advanced a benefit to the employer, by allowing the general manager,
who was balancing the books that evening, to have an on-the-spot
conversation with the employee who was in charge of the cash

'"420 N.E.2d 890 (Ind. Ct. App. 1981).

'Ud. at 894.

''Id.

1983] SURVEY-WORKERS' COMPENSATION 439

register, in the event that some question or mistake arose concern-
ing the cash receipts.^* Furthermore, the court could have held that,
even though the employee was not on duty during the two and one-
half hour period, the employee immediately came back within the
course of his employment for the purposes of resolving the cash short-
age. However, there is no indication that such contentions or
arguments were made.

3. After Work and Off The Premises.— In Wayne Adams Buick,
Inc. V. Ference,^^ a bookkeeper was requested, by her employer,
to deposit the company mail in a mailbox across the street from her
place of employment, on her way home. After depositing the mail,
the bookkeeper was assaulted by two hoodlums on the street. As a
result of this incident, the bookkeeper sought and was awarded
workers' compensation benefits.

On appeal, the court acknowledged that whether an employee is
acting within the course of employment is a question of fact; however,
the court stated that such a finding is determined by whether the
act is within a reasonable amount of time and space before the start
and after the cessation of employment.^^ The court in Ference found
that the act of mailing the company mail was within a reasonable time
after the cessation of the bookkeeper's employment and, thus, held
that the bookkeeper was within the course of her employment at the
time of the assault.^'

It should be noted that the facts of this case indicated that the
bookkeeper normally remained inside the door of her employer's
business until her husband arrived and then she would go directly
to the waiting car in front of the employer's business. She followed
this cautious procedure each day with the exception of when she
periodically mailed the company's mail. Because the employee normally
took this precautionary measure to assure that she would not encoun-
ter such an assault, it was reasonable to hold the employer responsi-
ble for those perils that the bookkeeper encountered as a result of
the employer putting her in a hazardous situation. The employer's
liability should continue until the employee has an opportunity to go
directly from the mailbox to a place of safety.

D. Injuries Caused by Employment-Related Accidents

During the survey period, the courts again wrestled with the ques-
tion of whether the claimant's activities at his place of employment

'*The reported facts do not indicate whether this was the employer's normal
practice.

^M21 N.E.2d 733 (Ind. Ct. App. 1981).

'Vd at 736 (quoting Payne v. Wall, 76 Ind. App. 634, 636-37, 132 N.E. 707, 708
(1921)).

^^421 N.E.2d at 736.

440 INDIANA LAW REVIEW [Vol. 16:433

caused the condition for which the claimant now seeks benefits. In
Lovely v. Cooper Industrial Products,^^ the employee filed a Form 9
application^® seeking compensation for the injury to his fourth and fifth
lumbar disc interspace. The employee had worked for the defendant
operating certain types of machinery which periodically required the
claimant to do a significant amount of strenuous pulling and jerking.
While on the job, the claimant felt a pain in his back; however, at
the hearing before the Industrial Board, he was unable to point to
any specific event that caused the pain in his back. Therefore, the
Industrial Board denied benefits to the claimant.

Affirming the Industrial Board's decision, the court of appeals held
that the medical evidence tendered at the hearing failed to show that
the claimant's complaints were causally connected to his work at the
employer's place of business. *° Although the medical evidence indicated
that the claimant's complaints about his back were consistent with
the type of injury that could be caused by the job the claimant was
performing, the doctor testified that the claimant had suffered boney
arthritic problems in his back for six years, and the boney arthritic
problems could also cause the same type of pain as that of which the
claimant was complaining. In substance, the court held that there was
sufficient evidence to support the Industrial Board's conclusion that
the claimant did not meet his burden of proving that the work
activities were more likely to cause the claimant's present condition
than the other activities in his daily life.*^

It should be noted that in discussing whether the claimant's in-
jury was caused by a work-related accident, the court did clarify its
understanding of the term ''accident." The court stated that, for a
claimant to show an accident caused the injury, the claimant must
prove an unexpected incident or result occurred, and the claimant must
prove a greater connection between work and the injury than the mere
fact that the disability became manifest during the time the claimant
was employed.*^

In Bowling v. Fountain County Highway Department,^^ the court
of appeals also affirmed the Industrial Board's denial of a claimant's
Form 9 application on the grounds that even though the claimant could
point to a specific time and place when his back became painful, this
was insufficient, in itself, to support a claim for compensation.** In

^«429 N.E.2d 274 (Ind. Ct. App. 1981).

^'For a description of a Form 9 application, see supra note 5.
'"429 N.E.2d at 276.
*'Id. at 279.

*Ud. at 277 (construing Calhoun v. Hillenbrand Indus., Inc., 269 Ind. 507, 381 N.E.2d
1242 (1978)).

"428 N.E.2d 80 (Ind. Ct. App. 1981).
**Id. at 81.

1983] SURVEY-WORKERS' COMPENSATION 441

Bowling, the claimant stated that he felt the pain in his back at the
point in time when he stepped eighteen inches down from a low-boy
trailer. However, the evidence indicated that the employee had a pre-
existing, degenerative condition that had reduced itself to a point of
being painful.

In both Lovely and Bowling, the courts were dealing with the prob-
lem of a claimant with a pre-existing condition that had degenerated
and become painful while the claimant was on the job. In both cases,
medical evidence could not establish any particular activities the
claimant was performing at work as the cause of his present condi-
tion, any more than the activities of the claimant which were not
employment-related. The result in Lovely may have been different had
the medical evidence stated that, within a reasonable degree of medical
certainty, the pulling and jerking that Lovely was required to do at
his place of employment caused his present condition. However, it
seems unlikely that the Industrial Board or the courts would arrive
at a different result in Bowling because a different result would simply
mean that if an employee begins feeling pain while at work, then the
employer is liable for the condition. Such result is not in accord with
the interpretation the courts have given to the definition of an
accident.''^

E. Employee's Civil Actions Against Co-Employees,
Third Parties, and Employer's Insurers

In expanding the right of an employee to file suit against medical
providers who are employed by the company and negligently treat
the injured employee, the court in McDaniel v. Sage*^ held that a nurse
who was employed by the company was not immune from suit by her
co-employee when the nurse carried out her duties as a professional
by administering treatment to the injured employee."*^ The court's
rationale was that the nurse was an independent contractor because
the employer did not have specific control over the professional in
the performance of her duties, and because the employer could not
intervene in the nurse-patient relationship.^ Thus, the normal rationale
for immunity of suits between fellow employees did not exist.

In McGammon v. Youngstown Sheet and Tube Co.,^^ the court of
appeals held that an employee who settles his suit against a third

*^See supra note 42 and accompanying text.

*«419 N.E.2d 1322 (Ind. Ct. App. 1981).

*Ud. at 1326. Ind. Code § 22-3-2-13 (1982) abrogates a lawsuit by one employee for
an injury sustained in the course of employment.

"419 N.E.2d at 1325-26. See also Ross v. Schubert, 388 N.E.2d 623 (Ind. Ct. App.
1979).

*»426 N.E.2d 1360 (Ind. Ct. App. 1981).

442 INDIANA LAW REVIEW [Vol. 16:433

party before judgment for injuries sustained within the provision of
the Workers' Compensation Act is forever barred from further
compensation or expenses from his employer.^" This holding forces the
practitioner to take a very close look at any third party actions before
pursuing them because he may cause the employee to lose more money
by filing civil suits than the employee would have realized by pursu-
ing his workers' compensation remedies exclusively.

The court of appeals also dealt with the exclusivity of remedy for
workers injured on the job in Baker v. American States Insurance Co.^^
After being injured on the job, the plaintiff received treatment from
a doctor furnished by the employer's workers' compensation insurance
carrier. Thereafter, the employer's workers' compensation carrier told
the claimant that the doctor had rated the claimant's impairment as
24.5% and, on that basis, tendered a settlement offer to the plaintiff.
After settling his claim, the claimant discovered that the actual im-
pairment rating was 62%. The claimant then prosecuted his claim
before the Industrial Board.

After receiving the full award from the Industrial Board, the plain-
tiff then filed a civil suit against the employer's workers' compensa-
tion carrier alleging that he was entitled to compensatory damages
for attorney fees incurred in filing his Form 9 application because the
insurance company had not acted in good faith and had acted fraud-
ulently by misrepresenting the impairment rating in settling his claim.
The trial court interpreted Indiana Code section 22-3-2-6^^ as estab-
lishing that the Indiana Workers' Compensation Act provided the ex-
clusive remedy for the plaintiff 's injuries and, thus, dismissed the case
for failure to state a cause of action for which relief could be granted.
The court of appeals, however, reversed the trial court's dismissal of
the complaint. The appellate court circumvented the exclusivity of
remedy theory by finding that section 22-3-2-6 only pertains to
remedies of an employee " 'For personal injury or death by accident
arising out of and in the course of the employment,' "^^ and the claim
in Baker was one for fraud against the insurance company for the com-
pany's acts of bad faith.^*

^/rf. at 1363.

"428 N.E.2d 1342 (Ind. Ct. App. 1981).

^^Ind. Code § 22-3-2-6 (1982). This provision sets out the exclusivity of a worker's
remedies as follows:

The rights and remedies granted to an employee subject to [this actl
on account of personal injury or death by accident shall exclude all other
rights and remedies of such employee, his personal representatives,
dependents or next of kin, at common law or otherwise, on account of such
injury or death.

Id.

^M28 N.E.2d at 1346 (quoting Ind. Code § 22-3-2-2 (1982)).
^428 N.E.2d at 1346-47.

1983] SURVEY-WORKERS' COMPENSATION 443

It should be noted, however, that the appellate court affirmed the
dismissal of the plaintiff's claim in regard to attorney fees as an ele-
ment of damages. The court recognized that the employee could be
awarded attorney fees when the employer's workers' compensation
carrier acts in bad faith, but Indiana Code section 22-3-4-12 was the
exclusive remedy for such a claim.^^ Thus, because the plaintiff did
not file a claim against the employer or the employer's workers' com-
pensation carrier asking for attorney fees over and above the award,
the appellate court did not allow the plaintiff to ask for attorney fees
in the civil suit.

It could be argued that the Workers' Compensation Act was
intended to cover the type of claim asserted in Baker. The Indiana
Legislature intended the Workers' Compensation Act to be a com-
prehensive approach to workers' rights and remedies. Therefore, in
order to not interfere with the intent of the legislature, the exclusivity
of a worker's remedy should remain within the Workers' Compensa-
tion Act until such time as the legislature sees fit to grant exclusions.

F. Employer's Bad Faith

In Coachmen Industries, Inc., v. Yoder,^ the court of appeals found
there was insufficient evidence to support the Industrial Board's award
of additional attorney fees to the claimant's attorney due to the
employer's bad faith and dilatory conduct in settling the claim. The
Industrial Board had determined that the failure of the employer to
tender a settlement offer pursuant to the fifty percent permanent par-
tial impairment rating as set forth by the employer's own physician
constituted bad faith. In reversing the Industrial Board, the court
found that the employer could not be acting in bad faith because under
a settlement agreement for the claimant's total disability, the employer
had already paid the claimant all he would be entitled to for a fifty
percent permanent partial impairment.^^ Thus, the court concluded that
the evidence before the Industrial Board indicated, at most, that the
parties had merely disagreed after a good faith effort to settle the
claim.**

G. Discovery Matters
In Josam Manufacturing Co. v. Ross,^^ the court of appeals, for

^^Id. The court stated that the employee may be awarded attorney fees where
the employer or insurer acts in bad faith, but only under Ind. Code § 22-3-4-12 in a
claim with the Industrial Board. See Ind. Code § 22-3-4-12 (1982).

^422 N.E.2d 384 (Ind. Ct. App. 1981). See supra notes 13-19 and accompanying text.

"422 N.E.2d at 387, 393-94.

''Id. at 394.

^'428 N.E.2d 74 (Ind. Ct. App. 1981).

444 INDIANA LAW REVIEW [Vol. 16:433

the first time, specifically held that the Workers' Compensation Act
and the Industrial Board fall within the purview of the Administrative
Adjudication Act, and, therefore, the trial rules pertaining to
discovery^" are applicable in Industrial Board cases.^^ Thus, all the
discovery tools utilized in civil cases can now be utilized before the
Industrial Board. Also, to facilitate discovery, the Industrial Board now
has the same power to sanction recalcitrant parties.

H. Evidentiary Matters

1. Reasonable Medical Certainty. — The court of appeals, in
Noblesville Casting, Division of TRW, Inc. v. Prince, ^^ held that when
a physician is testifying about his medical opinion, he must base that
opinion on reasonable medical certainty in order to show that the
claimant's injuries were caused by the accident.®^ The failure to couch
a physician's opinion in these terms risks dismissal of the claim at
the close of the evidence for failure to prove the case.^"

2. Degree of Impairment. — Although it is necessary for a physi-
cian to testify concerning the cause and permanency of a claimant's
injuries, the court in Coachmen Industries, Inc. v. Yoder,^^ held that
the claimant, himself, may testify as to the impairment that he suf-
fers and the degree of that impairment.^^ Thus» the claimant may say
that he is twenty percent impaired. However, he may not say that
he is permanently impaired. The distinction is that the employee
understands the limitations that the injury places on his bodily func-
tions, but it is a medical determination as to how long his bodily func-
tions will remain impaired.

^^IND. R. Tr. p. 26-37.

^^428 N.E.2d at 76-77.

''424 N.E.2(i 1055 (Ind. Ct. App. 1981), rev'd, vacated, 438 N.E.2d 722 (1982 Ind.)

'Ud. at 1058. After survey period, Indiana Supreme Court changed standard to
"possible". See Noblesville Casting, Division of TRW, Inc. v. Prince, 438 N.E.2d 722
(1982 Ind.).

^''424 N.E.2d at 1058.

^^422 N.E.2d 384 (Ind. Ct. App. 1981).

''Id. at 392.

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