Indiana Law Review


2000 Survey of Indiana Contract Law

Jana K. Strain*
Jennifer A. Struck'

Introduction

Questions about contracts arise on a regular basis. This Article surveys key

developments in cases involving contracts during the survey period. This Article

does not attempt to catalog the majority of those cases, nor does it intend to

suggest that other cases during the survey period do not provide significant
analysis or application ofthe law. The cases are divided into topic areas, roughly
related to the type of contract involved: agency, insurance, settlement,

arbitration, employment, and oral agreements.

I. Agency—Capacity to Contract
A seemingly well-settled area of law—an agent's ability to bind the

principal—was the subject of two opinions from the Indiana Supreme Court
during the survey period. These cases provided the court the opportunity to

revisit established areas of law and remind us that even well-established rules

cannot be blindly applied, but instead must be evaluated against the nuances of

the facts.

In the first case, Oil Supply Co. v. Hires Parts Service, Inc.,
1

a man named
Dolin owed money to both Oil Supply and Hires. In an effort to get paid, Oil
Supply agreed to let Dolin arrange sales ofautomotive supplies and, in essence,

work off his debt. Without mentioning his employment relationship with Oil
Supply, Dolin offered Hires 720 cases ofantifreeze in payment ofhis debt. Hires
accepted Dolin's offer, Dolin submitted the order to Oil Supply, and Oil Supply

shipped 720 cases to Hires. When accepting the shipment, Hires 5 employee
signed a document that showed that the shipment came from Oil Supply.
Needless to say, Oil Supply expected to be paid and was unwilling to allow its
supplies to be used to pay off Dolin's debt to Hires. Oil Supply sued Hires. The
trial court awarded Oil Supply the amount ofthe antifreeze, but allowed Hires to
set off Dolin' s debt against the judgment. The court of appeals affirmed and
transfer was granted.2

The supreme court began its analysis with the premise that "[a]n agent is one
who acts on behalfofsome person, with that person's consent and subject to that

* Associate, McMains Foster Jinks Morse & Reddington. J.D., 1 997, Indiana University
School ofLaw—Indianapolis; M.S., 1990, Butler University; B.A., 1 986, Indiana State University.
The author focuses her practice in health care law and civil litigation. The author wishes to thank

Lucy R. Dollens for her invaluable assistance in gathering the case law reviewed in this Article.
* * Associate, McMains Foster Jinks Morse & Reddington, J.D., 1 999, Indiana University

School of Law—Indianapolis; BSN, 1984, Purdue University. The author focuses her practice in
the area ofcorporations and health care law. The author wishes to acknowledge Catherine Michael,

Esq. for her greatly appreciated assistance with this Article.

1

.

726 N.E.2d 246 (Ind. 2000).

2. See id. at 248.



616 INDIANA LAW REVIEW [Vol. 34:615

person's control."
3 When a party to a transaction does not know that the party

with whom it is dealing is acting for a principal, the relationship is called an
undisclosed agency, and the party for whom the agent acts is the undisclosed
principal.

4 The court affirmed the lower courts' determinations that Oil Supply
was an undisclosed principal. However, it disagreed with the analysis applied by
the lower courts that allowed Hires to offset Dolin's debt. The supreme court
explained that the lower courts applied a well-recognized rule of law, but drew
the wrong conclusion from it. The supreme court agreed with the lower courts
that:

One who contracts with the agent ofan undisclosed principal, supposing
that the agent is the real party in interest, and not being chargeable with

notice of the existence of the principal, is entitled, if sued by the
principal on the contract, to set up any defenses and equities which he
could have set up against the agent had the latter been in reality the

principal suing on his own behalf.5

It disagreed, however, that Hires was not chargeable with notice ofthe existence
ofthe principal because the shipping documents made no mention of Dolin, but
clearly declared that the goods were shipped by Oil Supply. Since Hires had the
last opportunity to question the transaction before the loss was suffered, with
notice of Oil Supply's involvement, it was not entitled to assert the defense it
would have had against Dolin. The court also approved the added benefit of its
resolution of this issue: preventing a bad agent from shifting debt.

6

Justice Boehm, concurring in a separate opinion in which Justice Dickson
joined, agreed that the analysis was accurate, but thought a simpler analysis
applied. The concurring opinion would have found a fraud perpetrated on both
parties and allowed the parties to rescind the contract based on fraud and

possibly mutual mistake of fact.
7

In the second significant opinion on capacity to bind a principal, the supreme

court considered the authority of the president of a corporation to bind the

corporate entity. In Menard, Inc. v. Dage-MTI, Inc.
,

8 Menard offered to purchase
part of a parcel of land from Dage, but Dage's board of directors rejected the

offer because of certain terms in the offer. Subsequently, the board authorized

the president "to offer for sale" the entire parcel. However, the board told the

president that he was not authorized to negotiate the terms ofthe sale or to accept
an offer without board approval. Finally, the board told the president that any

offer with the objectionable terms would be rejected.
9

3. Id. (citing Dep't of Treasury v. Ice Serv., Inc., 41 N.E.2d 201 (Ind. 1942)).

4. See id. at 248-49 (citing RESTATEMENT (SECOND) OF AGENCY § 4(3) (1958)).

5. Id. at 249 (quoting Oil Supply Co. v. Hires Parts Serv., Inc., 670 N.E.2d 86, 89 (Ind. Ct.

App. 1996), rev 'd, 726 N.E.2d at 246).

6. See id. at 248, 250.

7. See id. at 251 (Boehm, J., concurring).

8. 726 N.E.2d 1206 (Ind. 2000).

9. See id. at 1209.



200 1 ] CONTRACT LAW 6 1

7

Shortly thereafter, Menard tendered a second offer with the same
objectionable provisions. However, this proposal was for the purchase of the
entire parcel and was $250,000 more than the minimum purchase price set by the
board. During a week of discussions, the president negotiated the terms with
Menard and then signed the Menard agreement, representing that "[t]he persons
signing this Agreement on behalf of the Seller are duly authorized to do so and

their signatures bind the Seller in accordance with the terms of this

Agreement."
10 No one at Dage informed Menard that the president's authority

was limited to solicitation ofoffers. Upon learning ofthe signed agreement, the
Board attempted to extricate itself from the transaction, but did not give Menard
notice of its intent to avoid the agreement until nearly four months later. 11

The supreme court, applying the standards for review offindings offact and
conclusions of law pursuant to Indiana Trial Rule 52(A),

12
concluded that the

evidence supported the trial court's findings of fact, but it held that thejudgment

was clearly erroneous because it relied on an incorrect legal standard. The court
concluded that the trial court and the court of appeals erroneously relied upon

principles of"actual authority" and "apparent authority" when they should have
employed principles of "inherent authority."

13

Actual authority is created "by written or spoken words or other conduct of

the principal which, reasonably interpreted, causes the agent to believe that the

principal desires him so to act on the principal's account."
14

In contrast, apparent

authority arises from the principal's "indirect or direct manifestations to a third

party" that give the third party a reasonable belief that the agent was authorized
by the principal to take the action.

15 The acts or representations by the agent are
not relevant to a determination of apparent authority. The court explained that
Indiana has taken an expansive reading of apparent authority and included

"inherent agency power" within that concept. Inherent authority differs from

apparent authority, however, and "'originates from the customary authority of a

person in the particular type of agency relationship so that no representations

beyond the fact of the existence of the agency need be shown.'"
16 The court,

quoting a Seventh Circuit opinion applying a concept articulated by Judge

Learned Hand, explained:

[T]he scope of an agency must be measured "not alone by the words in

which it is created, but by the whole setting in which those words are

10. Id. at 1210.

1 1

.

See id.

12. When the court reviews findings of fact and conclusions of law entered pursuant to

Indiana Trial Rule 52(A), "[t]he findings or judgment are not to be set aside unless clearly

erroneous, and due regard is to be given to the trial court's ability to assess the credibility of

witnesses." Id. (citing Ind. Trial Rule 52(a)).

13. Id.

14. Id. (quoting Scott v. Randle, 697 N.E.2d 60, 66 (Ind. Ct. App. 1998)).

15. Id.

16. A* at 121 1 (quoting Cange v. Stotler & Co., 826 F.2d 581, 591 (7th Cir. 1987)).



618 INDIANA LAW REVIEW [Vol. 34:615

used, including the customary powers of such agents" and thus the

contract was enforceable because "the customary implication would
seem to have been that [the agent's] authority was without limitation of
the kind here imposed." The principal benefits from the existence of
inherent authority because "the very purpose ofdelegated authority is to

avoid constant recourse by third persons to the principal, which would
be a corollary of denying the agent any latitude beyond his exact
instructions."

17

The court relied heavily upon the distinction between an act done by an agent
empowered for a specific task and an act done by the corporation through its
executive or administrative officers, "which may be termed its inherent
agencies."

18
It is this distinction that controls because the president is the agent

through whom a corporation generally acts. The determination of the scope of
inherent authority requires more than merely showing an act by such an agent.
Rather, the court found that a president acts with inherent authority when three
things are shown: (1) the president acts within the usual and ordinary scope of

his authority as president; (2) the third party reasonably believes the president

was authorized to act; and (3) the third party has no notice that the president's
authority has been limited by the principal.

19

In analyzing the first prong, the court noted a distinction between the

Restatement approach and Indiana law as set forth in Koval v. Simon Telelect,
Inc.,

20
which had defined the "usual and ordinary scope" of a president's

authority based upon whether the action was in the '"usual and ordinary scope
of the business in which [the agent] was employed.'"

21
In contrast, the

Restatement (Second) ofAgency looks to the agent's office or station within the
corporation to gauge the scope of the agent's authority.

22 The court found the
Restatement approach to be more appropriate. This clearly is qualified to the
corporate facts at issue here, however, and there arguably may be circumstances
in which the Koval analysis is more appropriate.

On the second prong ofthe analysis, the court reasoned that Menard's actual
knowledge that the Board had previously rejected an offer and that the president

previously had lacked the power to act for the corporation on this matter did not
defeat the president's inherent authority to act where he was the sole negotiator.
Rather, the court looked to "the agent's indirect or direct manifestations to

determine whether Menard could have 'reasonably believed' that [the president]
was authorized."23 The court explained that this test is in "contradistinction to
the test for apparent authority, which looks to the principal's indirect or direct

17. /c/. at 1211-12 (quoting Cange, 826 F.2d at 591) (internal citations omitted).

18. Id at 1212.

19. See id at 1212-13.

20. 693 N.E.2d 1299 (Ind. 1998).

21. Menard, 726 N.E.2d at 1213 (quoting Koval, 693 N.E.2d at 1304).

22. See id. (citing Restatement (Second) of Agency § 161 (1958)).

23. Id at 1214.



2001] CONTRACT LAW 619

manifestations" to determine the reasonableness of the third party's belief.
24

The third prong requires consideration of whether the third party has notice
that the agent was not authorized to act for the principal and is a "narrow inquiry
focusing on the specific transaction."

25 The court noted that Menard had notice
previously that the president needed the board's approval for sale ofthe land, and

"this knowledge would have vitiated the apparent authority of a lower-tiered

employee or a prototypical general or special agent"
26
because such agents have

only apparent authority, not the inherent authority of the president. When the
agent has inherent authority derived from his status, the third party is not

"required to scrutinize too carefully at a knowledge or awareness that the

officer's authority has possibly been limited."
27

Applying this three-prong

analysis, the court held that Dage was bound by its inherent agent's actions.28

This test ofthe inherent agent's actions, while seemingly reasonable on the

facts of this case, should serve as a caution to corporations and their attorneys.

In applying the standards of this case, when an officer of a corporation acts, his
action may bind the corporation even when he acted without authority and when
the third party had notice that the officer's actions required ratification by the

principal. Under this analysis, an officer can create authority for himselfsimply

by representing he has authority. A court's inquiry into the transaction will be
very fact-sensitive, and the reviewing court will accord those findings of fact

great deference if entered pursuant to Trial Rule 52(A).

In Menard, the trial court had before it evidence of the other actions of the

president, his role on the board, his negotiations with Menard, and the president's

written acknowledgment that he was authorized to act. Against this evidence, the
trial court also had evidence that the Board had previously rejected Menard's

offer and that the president had told Menard that the Board's rejection was due
to the terms.

29

The outcome in this case is consistent with the court's policy of allocating
losses to the party most at fault so that the principal who put the agent in a
position of trust should bear the loss, but this three-prong test certainly creates

some uncertainty in Indiana law. 30 As this test is framed, facts could arise under
which the third party could have actual knowledge that the agent was not
authorized to act based upon direct experience with the corporation, but the court

could find the agent's actions to the contrary lead the third party to reasonably

believe that the agent was authorized to act.

24. Mat 1214 n.8.
25. Mat 1213 n.6.
26. Mat 1215.
27. Mat 1216 n.10.
28. See id at 1216.

29. See id at 1209-10.

30. See id. at 1217 (Shepard, C.J., dissenting) ("I think today's decision will leave most

corporate lawyers wondering what the law actually is.").



620 INDIANA LAW REVIEW [Vol. 34:61

5

II. Insurance Contracts

During the survey period, Indiana courts considered a number of issues
within the insurance context, including an issue of first impression—notice of
cancellation of an endorsement.

A. Notice Requirements

In Westfield Cos. v. Rovan, Inc.,
31
Robinson, the son of Rovan's president,

was involved in an automobile accident while driving a vehicle leased from
Rovan. Over a period of several years, Robinson leased vehicles through Rovan
and insured them through Westfield. As each new vehicle was leased, Westfield
was informed and asked to substitute the vehicle on the policy. At some point
during the period ofthe policy arrangement, the vehicle was substituted, but the
"Lessor Endorsement" was dropped from the policy. Days before the accident
at issue in this case, Robinson entered a new lease agreement and Westfield was
informed of the change. The issue on appeal was the coverage provided by the
lessor endorsement included in the policy at the request ofRovan for the benefit
ofRobinson. Rovan argued that the endorsement would have covered Robinson
had it not been deleted by Westfield and that Westfield was not entitled to
judgment because it failed to provide notice of the cancellation of the policy
under the policy's terms.

32

In order to resolve the dispute, the court interpreted the policy. It noted that

in considering the interpretation of an insurance contract, ambiguities are

construed in favor of the insured because the insurance company "drafts the
policy and foists its terms upon the customer. The insurance companies write the
policies; we buy their forms or we do not buy insurance."33 After reviewing the
language in the policy, the court concluded that the endorsement covered "any
4

leased auto'" and that, had Westfield not deleted the endorsement, it would have

covered the vehicle as a replacement for the vehicle described in the policy

schedule.
34

The court then considered the question ofthe cancellation. Westfield argued
that it was not required to provide notice because it did not cancel the policy, but
merely modified it at Rovan's request. Further, Westfield argued that it satisfied
the notice requirement by sending the agency an Amended Common Policy
Declaration, which stated that the endorsement was deleted and changed the
policy. The court ofappeals disagreed with Westfield's argument. First, it found
that the deletion of the endorsement effectively canceled coverage available to

Robinson because "cancellation occurs whenever a policy provision is amended
or deleted so as to discontinue coverage previously available."

35
Next, the court

31. 722N.E.2d 851 (Ind. Ct. App. 2000).

32. See id. at 854-55.

33. Id at 856 (citing Meridian Mut. Ins. Co. v. Auto-Owners Ins. Co., 698 N.E.2d 770, 773

(Ind. Ct. App. 1998)).

34. Id at 857.

35. Id at 858 (citing Plumlee v. Monroe Guar. Ins. Co., 655 N.E.2d 350, 355 (Ind. Ct. App.



200 1 ] CONTRACT LAW 62

1

found that Rovan's request to substitute the vehicle did not necessitate deleting

the endorsement because the endorsement was not vehicle specific. Accordingly
the deletion was unilateral and, in fact, canceled coverage. Finally, it concluded
that the cancellation required notice. The Amended Common Policy Declaration
was not sufficient to provide the required notice.36

The question of what kind and how much notice is sufficient to effectively
cancel an insurance policy was a question of first impression. The court
determined that Westfield was contractually required to provide notice of any
cancellation of coverage.

37
Although the court noted that, in the absence of a

specific statutory or contractual description of the notice required, any form of

notice of cancellation is sufficient, "such notice must positively and
unequivocally inform the insured ofthe insurer's intention that the policy cease

to be binding."
38 The court agreed with the Supreme Court ofAppeals of West

Virginia, which held:

A notice ofcancellation of insurance must be clear, definite and certain.
While it is not necessary that the notice be in any particular form, it must

contain such a clear expression of intent to cancel the policy that the

intent to cancel would be apparent to the ordinary person. All
ambiguities in the notice will be resolved in favor of the insured.

39

The relevant portion ofthe notice sent by Westfield showed only that it had
"DELETEDFORMCA2001 07/97."40 The court found this language "decidedly
cryptic and completely uninformative. All it expresses is that one out of some
forty-two forms contained in the Policy had been deleted. It does not suggest the

importance or practical consequences of this deletion by positively and

unequivocally" notifying Rovan that the lessor endorsement no longer applied.
41

Because the policy was over one hundred pages long, with roughly forty-two
separately numbered forms, and a person would be required to review the entire

document to determine which form had been deleted, the court rejected
Westfield's argument that a reasonable person could determine that cancellation

had occurred.
42

Under other circumstances, insureds also have notice obligations. In Gallant
Insurance Co. v. Allstate Insurance Co.,

43
Gallant claimed it was not liable under

the insurance policy because it received no notice ofa lawsuit against its insured.

Two days after an automobile accident, Gallant's insured informed Gallant ofthe

1995)).

36. See id at 857-59.

37. See id at 858.

38. Id

39. Id (quoting Connecticut v. Motorist Mut. Ins. Co., 439 S.E.2d 418, 421-22 (W. Va.

1993)).

40. /</. at859.

41. Id

42. See id.

43. 723 N.E.2d 452 (Ind. Ct. App. 2000).



622 INDIANA LAW REVIEW [Vol. 34:615

accident. Allstate's insured filed suit, and Gallant provided counsel to its

insured. The parties reached a settlement, and Gallant paid Allstate's insured in
exchange for a release. Allstate paid its insured on a property damage claim,
then filed suit on its subrogation claim against Gallant's insured in a different

county. Gallant's insured was served at her residence, but Allstate did not send
a copy ofthe complaint to Gallant or to counsel who had represented the insured.
The insured neither answered nor sent the complaint to her counsel or Gallant.
While the parties were negotiating the property damage claim, Allstate sought
defaultjudgment against Gallant's insured and mailed a copy ofthe subrogation
claim to Gallant. Once default was entered, Allstate moved for proceedings
supplemental and listed Gallant as a garnishee defendant.

44
The policy required

that

[i]f claim is made or suit is brought against the insured, he shall
immediately forward to the company every demand, notice, summons or
other process received by him ....

The company will not be obligated to pay . . . unless the company
received actual notice of a lawsuit before a judgment had been entered

in said suit.
45

The trial court found that Gallant had notice of the claim. Actual notice,
however, means "notice sufficient to permit the insurer to locate the suit and
defend it."

46 "Knowledge of a pending claim or that a lawsuit might be filed is
not equivalent to the actual notice that a suit has been filed [as] required under

the policy."
47

Further, the court held that Gallant's participation in settlement

negotiations regarding the property damage issues did not constitute a waiver of
notice.

48

The court also noted that Allstate was not an "innocent victim" because it
knew of Gallant's duty to defend the insured yet failed to notify either the
insured's counsel or Gallant of the subrogation lawsuit. Quoting Smith v.

Johnston?
9
the court noted that "[t]he administration of justice requires that

parties and their known lawyers be given notice of a lawsuit prior to seeking a
default judgment."

50
Finding that the insured was not entitled to coverage

because she failed to provide the required notice and that Allstate's rights were

derivative of the insured's, the court reversed the garnishment order and found

Gallant not liable to indemnify its insured.
51

While not at issue on this appeal, the result of this determination is to hold

the insured responsible for her failure to notify her insurance company of a

44. See id. at 454.

45. Id. at 455.

46. Id.

47. Id. at 456.

48. See id.

49. 711 N.E.2d 1259 (Ind. 1999).

50. Gallant, 723 N.E.2d at 456.

51. See id. at 456-57.



200 1 ] CONTRACT LAW 623

lawsuit when she had already notified them, and they had defended her, in related
matters. It is possible that, on the facts in this case, the insured reasonably

believed that her counsel and Gallant also received copies of the materials and

that further notice by her was unnecessary. In Smith v. Johnston, the court set
aside a default despite the defendant doctor's failure to answer because plaintiffs

counsel, aware that the doctor was represented by an attorney in a related matter,
failed to serve the attorney with at least a courtesy copy ofthe complaint.52 Ifthe

insured in this case stood to suffer personally from the failure to indemnify, one
wonders if an argument similar to the one made in Smith might be available to
the insured to protect her from her own negligence.

Similarly, in Askren Hub States Pest Control Services, Inc. v. Zurich
Insurance Co.,

53
an insured exterminator sought coverage under its commercial

general liability (CGL) policy after the insurer denied coverage. In this case, the
exterminator negligently advised a customer that there was no evidence of
termite damage, but after the buyer purchased the home, termites were
discovered. The exterminator conducted another inspection and discovered the
error, but did not advise its insurance carrier. The court found the facts
demonstrated "property damage" that resulted from an "occurrence" as defined
in the policy. It disagreed with the exterminator's claim that it had provided

reasonable notice to the CGL insurer.54

Several forms made up the CGL policy, and more than one notice provision
was attached to the separate forms. The pest control form required prompt notice
of an occurrence that might result in a claim, with such notice explaining how,

when, and where the occurrence took place. It separately required prompt
written notice ofa claim or action against the insured and required that copies of

all legal papers connected with any claim be forwarded to the insurer.
55

The court noted that notice provisions are "material, and ofthe essence ofthe
contract"

56
and that "the duty to notify an insurance company is a condition

precedent to the insurer's liability."
57

Further, the failure to comply with notice
provisions resulting in unreasonable delay "triggers a presumption of prejudice

to the insurer's ability to prepare an adequate defense."
58 The court then

concluded that the exterminator's failure to give notice ofthe occurrence for six

months was unreasonable, but determined that failure to give reasonable notice
would not bar recovery unless the insurer suffered prejudice because ofthe delay.
Because of the presumption of prejudice to the insurer, the insured has the

burden of setting forth evidence that shows prejudice did not actually occur.

Once such evidence is set forth, the question of prejudice goes to a trier of fact

52. See Smith, 71 1 N.E.2d at 1261-63.

53. 721 N.E.2d 270 (Ind. Ct. App. 1999).

54. See id. at 278-79.

55. See id

56. Id. at 277 (quoting London Guarantee & Accident Co. v. Siwy, 66 N.E. 481 , 482 (Ind.
App. 1903)).

57. Id. (citing Shelter Mut. Ins. Co. v. Barron, 615 N.E.2d 503, 507 (Ind. Ct. App. 1993)).

58. Id. at 278 (citing Miller v. Dilts, 463 N.E.2d 257, 265 (Ind. 1984)).



624 INDIANA LAW REVIEW [Vol. 34:6 1

5

and both parties may submit evidence.59

The court ultimately found the insurer was prejudiced because language in
the policy only covered certain types ofdamage which arose after the date ofthe
occurrence. The exterminator, without notifying the insurer, made repairs that
prevented the insurer from later determining which damage was pre-existing and
which occurred after, and as a result of, the exterminator's actions. Accordingly,
the insurer was not obligated to cover the occurrence.

60

In Paint Shuttle, Inc. v. Continental Casualty Co.,
61

the court addressed the

difference between "claims made" and "occurrence" insurance policies, noting
that this distinction has not previously been addressed in Indiana but that other

jurisdictions have found it important. Here, the appellate court considered

whether a law firm's notice to its professional liability insurance company of a
malpractice suit was effective under the provisions ofthe firm's "claims made"
legal liability insurance policy.

62

Continental Casualty Company (Continental) issued a professional liability
policy (malpractice policy) to the law firm of Bosch & Banasiak (firm) for the
term ofNovember 29, 1993 through November 29, 1994. During this period,
Jacqueline and Peter Miller retained the firm to assist them in the licensing of
their business, Paint Shuttle. On March 23, 1994, Paint Shuttle filed suit against
the firm for negligence in the rendering of, or in the failure to render,

professional legal services relating to such licensing. Although the firm alleges

that it orally notified the insurance broker ofthe suit within the policy period, the

firm did not provide written notice of such suit until almost two years after the

policy had lapsed. On October 7, 1 996, the firm filed a declaratory action against
Continental and Paint Shuttle for reliefunderthe malpractice policy. Continental

filed an answer, counterclaim and third party complaint for declaratory relief

under the malpractice policy. Thereafter, Continental filed a motion for summary
judgment on the complaint, third party complaint, and counterclaim, which the
trial court granted. This appeal followed the trial court's granting of

Continental's motion to correct error.
63

The court began its opinion by analyzing whether the notice provision ofthe
malpractice policy was clear and unambiguous. The pertinent part of the
provision required the insured to provide written notice ofthe wrongful act, the

injury or damage which had or could result from the wrongful act and the
"circumstances by which [the insured] first became aware of such wrongful
act."

64
If such notice was provided, the policy stated that any subsequent claim

made against the insured arising out of such wrongful act would be deemed to
have been made during the policy term or extended reporting period. In
determining that the provision was unambiguous, the court stated that the firm's

59. See id at 278-79.

60. See id at 280.

61. 733 N.E.2d 513 (Ind. Ct. App. 2000).

62. See id at 520-22.

63. See id at 517-18.

64. Id at 519.



200 1
]

CONTRACT LAW 625

duty to provide written notice to Continental of a claim during the policy period

was a condition precedent to Continental's providing coverage underthe policy.65

As in Askren Hub, the court of appeals held that the notice requirement is
"material, and of the essence ofthe contract."

66
Furthermore, the duty to notify

an insurance company of potential liability is a condition precedent to the
company's liability to its insured. When the facts are not in dispute, what
constitutes proper notice is a question of law.

67 The court then stated that

[n]otice is a term ofart within the insurance context and sufficient notice

by an insured to an insurer involves more than just promptly notifying
an insurance company of a claim. Specifically, we believe that notice
also encompasses an insurer's right to promptly investigate a claim or to

control the defense of a lawsuit with which it might be subjected to

liability as an insurer of an insurance policy.
68

In addition to promoting the insurer's right to a timely investigation, the court

held that the notice provision and the "cooperation provision" have the same
purpose and effect.

69 The cooperation clause requires that the insured assist the
insurance company with its preparation for settlement or trial. Similarly, notice
provisions require the insured to assist the insurance company by enabling it to
make a timely and adequate investigation during its preparation for trial or
settlement. "Therefore, when an insured impedes or prohibits an insurer from
investigating or defending a claim, the insured can be found to be in

noncompliance with the notice provision of an insurance policy."
70

"[F]or notice to be proper under an insurance policy it must be: (1) timely

as proscribed by the language ofthe insurance policy; and (2) 'true' in the sense

that the insured allows the insurer to exercise its rights of investigation and

defense of a claim under the policy."
71

In Paint Shuttle, the court found that

although the firm provided verbal notice in a timely fashion, the policy required

written notice. Thus, the verbal notice was insufficient and deprived Continental
of its right to investigate.

72

Conventional liability insurance policies are "occurrence" policies, which

link coverage to the date of the tort, not the suit.
73

"Claims made" policies link
coverage to the date of the claim rather than the tort.

74
Thus, "[t]he notice

provision of a 'claims made' policy is not simply the part of the insured's duty

65. See id. at 519-20.

66. Id. at 520.

67. See id.

68. Id. at 520-21.

69. Id. at 521 (citing Ind. Ins. Co. v. Williams, 448 N.E.2d 1233, 1237 (Ind. Ct. App. 1983)).

70. Id.

71. Id.

72. See id.

73. See id. at 522.

74. See id.



626 INDIANA LAW REVIEW [Vol. 34:61

5

to cooperate, it defines the limits ofthe insurer's obligation."
75

In Paint Shuttle,

the firm held a "claims made" policy. Accordingly, in order for coverage to be
in place, the wrongful act must have occurred during the policy period, a claim

must have been made and written notice of the claim have been provided to
Continental in order for coverage to be in place.

76 The court determined that
because "consideration is an essential element of every contract," that also

requires a "bargained for exchange," extending the notice period in a "claims

made" policy would create an "unbargained for expansion of coverage."77

The message of Rovan and Gallant appears to be that whether you are an
insurance company or an insured, you must assure that notice is timely and clear.
In order to cancel any portion of a policy, the insurance company must provide
clear and definite language, readily accessible to a reasonable person. Simple

reference to the canceled or deleted portions may not be sufficient ifthere is any
ambiguity in the eyes of a reasonable person as to what effect a deletion or

cancellation might have. In the context of duty to defend, at least as described

in the language ofthe policy, the insured must provide clear and definite notice
for any claim, even claims related to actions that the insurance company has
already defended. Askren Hub puts into perspective the risks ofthe insured who
fails to give notice as required, by raising a rebuttable presumption ofprejudice

to protect the insurer from responsibility for the insured's actions taken between

his/her awareness of an occurrence and his notice to his insurer. Also, in Paint

Shuttle, when the insured fails to give timely notice to the insurer of potential
liabilities, the insurer is deprived of the valuable opportunity to investigate

claims and prepare its defense.

B. Limitations Periods

In United Technologies Automotive Systems, Inc. v. AffiliatedFMInsurance
Co. ,

78
a manufacturing company brought an action against a property insurer

seeking coverage ofdamages resulting from environmental contamination. The
insurance policy required that a suit or action on the policy be commenced
"within twelve (12) months next after the happening ofthe loss, unless a longer

period oftime is provided by applicable statute."
79 The manufacturer argued that

the contractual limitations period did not bar its claim for coverage because

Indiana's general statute of limitations for contract actions based upon written

contracts entered before September 1 , 1 982, is twenty (20) years after the action

accrues. In this case, the policy provided coverage for losses within the policy

period ofDecember 1, 1971 to December 1, 1974. Accordingly, even ifa twenty
year statute of limitations was followed, the claim would have been untimely

because it was not filed until May 21, 1998, more than twenty years after the

75. Id.

76. See id. at 522-23.

77. Id. at 523.

78. 725 N.E.2d 871 (Ind. Ct. App. 2000).

79. Id. at 873-74.



200 1 ] CONTRACT LAW 627

latest possible cutoff. If a twelve-month limitation from the date the injury

occurred was used, the injury would have had to occur no earlier than May 2 1

,

1997. In either case, the limitation period in the contract had long expired before

suit was filed.
80

Although not essential to the holding, the court noted that Indiana does not

toll a contractual period of limitations until discovery, but rather holds that the

period of limitations begins to run when the loss occurs, regardless of whether
the insured knew about it. Giving the manufacturer the benefit ofthe doubt, the
court noted that it had to have "discovered" the loss no later than 1995 when it
settled claims brought against it under the Comprehensive Environmental

Response, Compensation and Liability Act (CERCLA).81

In light of the substantial work that undoubtedly was undertaken as part of
the CERCLA defense, it is unclear why the manufacturer would wait three more
years to seek insurance indemnification. The inspections and cleanup took place
over several years, from at least 1989 to 1995, before litigation was
commenced.82 Further, the facts recited in the case demonstrate that the real
property where the contamination occurred was transferred as part of corporate
change and acquisition, but the facts do not explain what, if any, subsequent

coverage was available, when the contamination occurred, or why no claim was
filed earlier. In light of the probably substantial costs related to the cleanup of

the contamination, it is not unreasonable that litigants would seek recovery from
whatever party failed to timely file this claim. Although the court was able to
resolve this case by finding the claim was untimely under any version of the
limitations period, a decision that explained which limitations period applied

would have provided guidance to other similarly situated insureds, as well as
guiding this manufacturer in determining whether any of its officers, attorneys,

or fiduciaries failed in their duties by proceeding at such late date against this

insurer.

In Summers v. Auto-Owners Insurance Co.,83 an insured sued his property
insurer seeking coverage for a theft loss. After a theft on July 3, 1996, the

insured promptly notified the insurer, who sent a theft questionnaire and
inventory forms to the insured. A month passed, and the insurer sent a follow-up
letter as well as duplicate forms. On September 4, 1996, the insured returned the
forms. Two months later, the insurer sent a letter requesting examination ofthe
insured under oath and rejecting the forms as submitted. The insured obtained
counsel. The examination under oath occurred, and the insured's attorney
challenged a requirement that the insured authorize a release oftax records. On
September 3, 1997, the insured's attorney sent correspondence to the insurer

regarding discrepancies in the examination. Two weeks later, the insurer notified
the insured that his opportunity to comply with terms and conditions ofthe policy

expired on the one-year anniversary of the loss and, as a result, he was barred

80. See id. at 874-75.

81. See id.

82. See id. at 873.

83. 719 N.E.2d 412 (Ind. Ct. App. 1999).



628 INDIANA LAW REVIEW [Vol. 34:615

from further pursuit of the matter.
84

Summary judgment was granted in favor of the insurer based upon the
contractual limitations period, and the insured appealed. The court noted that,
while not favored, contractual limitations shortening the time to commence suit
are valid so long as a reasonable time is afforded. The purpose ofthe provision
is to avoid unreasonable delay in enforcing the claim; that is, it protects insurers

from those who do not voice a claim until beyond the one-year period. Such
limitations provisions may be waived, expressly or impliedly, and waiver may
result ifthe insurer's acts create a reasonable beliefon the part ofthe insured that
strict compliance with the policy provision will not be required. If the insurer

fosters such a belief, it may not later raise the limitation as a defense.85

On the facts, the court concluded that the insurer did not expressly waive the
limitation. Moreover, the court concluded that the insured failed to comply with
the requirements of the policy during the one-year period. The policy required
the insured to be in full compliance in order to bring suit. Finally, the court

concluded that the insurer was not waiving any of the requirements, but rather
was trying to enforce them during the year. On this third conclusion, the court
explained that the law does not require the insurer to inform the insured of his

responsibilities under the contract or to assert its intention to rely upon a

limitation provision as a defense. Ifthe insurer proceeds to negotiate settlement,

however, the law will imply a waiver ofthe contractual limitation. In this case,

the insurer did not reach the point of settlement negotiations. The court
concluded that the insured failed to demonstrate that the summaryjudgment was
erroneous and affirmed the trial court's judgment.

86

C Terms Defining Coverage
The Indiana Supreme Court, finding language in an insurance policy to be

ambiguous on its face, construed a builder's risk policy in favor of the insured
in Bosecker v. Westfield Insurance Co.

%1 The Boseckers sold an apartment
building, but reacquired it a year later when the purchaser was unable to make
payments under the conditional sales contract. They immediately contacted
Westfield, their regular insurance company, about coverage and, after some
disclosures and discussion with Westfield, the property was added as an
endorsement to an existing builder's risk policy. Approximately ten hours after

the property was added to the policy, at 2:00 in the morning, the building was
destroyed in a fire. Westfield denied coverage based upon a clause defining

"Property Not Covered," apparently on the assumption that "improvements,
alterations, repairs, or additions were being made."

88 On summary judgment,
Westfield argued that the property was not "Covered Property" because the

84. See id. at 414.

85. See id. at 414-15.

86. See id. zH 416-17.

87. 724 N.E.2d 241 (Ind. 2000).

88. Id. at 243.



200 1 ] CONTRACT LAW 629

Boseckers had not begun repairs.
89

The two provisions at issue, "Covered Property" and "Property Not
Covered," suggest on the policy's face that the same property can be both
covered and not covered if it is under repair. Westfield argued that "Property

Not Covered" is defined to be buildings other than new construction. Under this
definition, only the improvements and additions are covered, not the pre-existing

building. In contrast, the "Covered Property" provision includes "buildings or

structures including foundations while in the course ofconstruction, installation,

reconstruction, or repair."
90

Considering this seeming inconsistency, the court

found the contract ambiguous and determined that it must be construed to afford
coverage.

91 To require either two separate policies to cover the time between
obtaining the building and beginning construction or requiring construction

concurrent with obtaining the property in order to trigger coverage would be
"unnecessarily cumbersome and artificial."92 Explaining the reasoning behind
construing ambiguities against the insurer, the court quoted a 1905 opinion,

Glens Falls Insurance Co. v. Michael,
93
addressing the unequal bargaining power

ofthe parties:

Insurance policies are prepared in advance by insurance and legal

experts, having in view primarily the safeguarding ofthe interests ofthe

insurer against every possible contingency. The insurer not only fully
knows the contents ofthe writing, but also adequately comprehends its
legal effect. The insured has no voice in fixing or framing the terms of
the [policy], but must accept it as prepared and tendered, usually without

any knowledge of its contents, and often without ability to comprehend
the legal significance of its provisions.

94

The court concluded that if Westfield had intended to differentiate between
coverage of unoccupied buildings being held for repairs and buildings in which

repairs commence immediately, it should have set those terms out clearly.
Absent that, the risk was upon the insurer as drafter of the ambiguous terms.

95

III. SETTLEMENT AGREEMENTS

A. Confidentiality ofNegotiations

There was a great deal of judicial discussion of the enforceability of
settlement agreements during the survey period. Most significantly, the Indiana
Supreme Court addressed the admissibility of evidence of an alleged oral

89. See id. at 242-43.

90. Id at 243.

91. See id. at 244.

92. Id. at 245.

93. 74 N.E. 964, 969 (Ind. 1905).

94. Bosecker, 724 N.E.2d at 244.

95. See id. at 245.



630 INDIANA LAW REVIEW [Vol. 34:615

settlement agreement reached in a mediation held under the Indiana Alternative

Dispute Resolution Rules in Vernon v. Acton.
96

In Vernon, the parties engaged

in pre-suit mediation regarding injuries suffered in an automobile accident. After

the mediation, Acton tendered a check and a release form for settlement, but the
Vernons returned the check and the unsigned release and filed suit. Acton
counterclaimed for breach of the oral settlement agreement and attorney fees.

The trial court heard evidence proffered by Acton that the agreement had been
reached, including testimony by the mediator, but refused the Vernons' evidence

that an offer had been made, but not accepted. The Vernons appealed, claiming
the trial court erroneously admitted evidence in contravention of the parties'

confidentiality agreement, and Acton asserted that evidence of the final

resolution was admissible, but evidence ofthe events leading up to it were not.97

As a pre-suit mediation, the A.D.R. Rules generally would not apply,98 but
the agreement to mediate and the rules for the mediation expressly incorporated

the A.D.R. Rules.
99

The A.D.R. Rule then applicable was Rule 2.12, which
provided:

Mediation shall be regarded as settlement negotiations. Evidence of (1)
furnishing or offering or promising to furnish, or (2) accepting or

offering or promising to accept* a valuable consideration in

compromising or attempting to compromise a claim which was disputed
as to either validity or amount, is not admissible to prove liability for or

invalidity ofthe claim or its amount. Evidence ofconduct or statements

made in the course of mediation is likewise not admissible. This rule
does not require the exclusion of any evidence otherwise discoverable

merely because it is presented in the course of the mediation process.

This rule also does not require exclusion when the evidence is offered
for another purpose, such as proving bias or prejudice of a witness, or

negating a contention of undue delay. Mediation meetings shall be

closed to all persons other than the parties of record, their legal

representatives, and other invited persons. Mediators shall not be subject

to process requiring the disclosure of any matter discussed during the

mediation, but rather, such matter shall be considered confidential and

privileged in nature. The confidentiality requirement may not be waived
by the parties, and an objection to the obtaining oftestimony or physical

evidence from mediation may be made by any party or by the

96. 732 N.E.2d 805 (Ind. 2000).

97. See id. at 806.

98. The A.D.R. Rules apply only to "all civil and domestic relations litigation filed" in

Indiana trial courts. See Ind. Alternative DISPUTE RESOLUTION Rule 1 .4. Note, however, that

the supreme court has approved Pre-Suit Mediation Guidelines developed by the Indiana State Bar

Association which encourages parties to enter private agreements to assure the confidentiality of

pre-suit mediations similar to the protections of the A.D.R. Rules.

99. See Vernon, 732 N.E.2d at 807.



200 1 ] CONTRACT LAW 63

1

mediators.
100

This Rule was amended, effective March 1, 1997, however, to state that
"Mediation shall be regarded as settlement negotiations as governed by Ind.

Evidence Rule 408," which language had been included directly in the old rule.
10 '

Although the Rule declared that "[e]vidence ofconduct or statements made in the
course of mediation is . . . not admissible," it did not exclude "any evidence

otherwise discoverable merely because it is presented in the course of the

mediation process . . . [and] does not require exclusion when the evidence is
offered for another purpose, such as proving bias or prejudice of a witness, or

negating a contention of undue delay."
102

The court explained that, generally, settlement agreements need not be in
writing to be enforceable, but the mediation rules require the agreement to be

reduced to writing and signed.
103

After reviewing the notes to the proposed

Uniform Mediation Act under consideration by the National Conference of

Commissioners on Uniform State Laws, the court concluded that the enforcement

oforal settlement agreements is not a sufficient ground to satisfy the "offered for

another purpose" exception to confidentiality under Indiana Evidence Rule

408.
104

Moreover, in weighing the objectives ofmediation, the court concluded

that "[t]hese objectives are fostered by disfavoring oral agreements, about which
the parties are more likely to have misunderstandings and disagreements," and
mediation is more likely to remain a viable avenue for resolving disputes if a
written agreement is required.

105
Accordingly, the court reversed the entry of

judgment on the oral settlement agreement.
106

B. Property Settlement

The court ofappeals addressed the issue of third party beneficiaries to a life
insurance policy in the context ofa property settlement associated with a divorce

proceeding in Miller v. Partridge.
,0?

In this case, the father and mother divorced

when their daughter was fifteen years old. One term ofthe property settlement
agreement required the father to maintain, at all times, a life insurance policy "in

an amount equal to or greater than Fifty Thousand Dollars ($50,000)" and to

100. See id. at 808 (quoting A.D.R. RULE 2.12) (emphasis deleted).

101. Id at 809.

102. Id. (quoting A.D.R. RULE 2. 12).

1 03. See id. Jn reaching this conclusion, the court noted a court ofappeals decision, Silkey v.

Investors Diversified Service Inc., 690 N.E.2d 329 (Ind. Ct. App. 1997), in which the parties

acknowledged that an agreement was reached, but disagreed as to whether it was enforceable. The

supreme court concluded that, to the extent Silkey suggests that oral settlement agreements are not

subject to the confidentiality rules, it is disapproved. See Vernon, 732 N.E.2d at 810 n.8.

104. Vernon, 732 N.E.2d at 810.

105. Id.

106. See id. at 806.

107. 734 N.E.2d 1061 (Ind. Ct. App. 2000).



632 INDIANA LAW REVIEW [Vol. 34:61

5

name the daughter as beneficiary.
108

At the time of the property settlement and
divorce, the father had three policies in force, with a total benefit equaling

$50,000, that named the mother as beneficiary. The father later changed the
beneficiary on his policies, but instead of naming his daughter as the property
settlement required, he named his girlfriend. The policies then remained
unchanged until his death, at which time the benefits had increased in value to

$62,000. The girlfriend appealed the trial court's summary judgment and order
granting the daughter the proceeds of the father's life insurance policy, and the

daughter appealed the trial court's grant ofthe girlfriend's motion to correct error

which reduced the daughter's award from $62,500 to $50,000.
109

Initially, the court analyzed whether the daughter was a third party
beneficiary to the insurance policy. Since property settlement agreements are

binding contracts, "[pjarties are free to divide their property in any way they
choose and their agreement in that regard is interpreted as any other contract." 1 10

Accordingly, the general rules of contract interpretation governed this property

settlement agreement.

Generally, only a party to the contract or one in privity with a party

to a contract has rights under that contract. However, one not a party to
the contract may directly enforce the contract as a third party beneficiary
if: ( 1 ) the parties intend to benefit a third party; (2) the contract imposes

a duty on one of the parties in favor of the third party; and (3) the
performance of the terms of the contract renders a direct benefit to the

third party.
in

The court found that the property settlement agreement in this case showed
ample evidence that the daughter was a third party beneficiary, despite the fact
that she had not been named beneficiary ofthe insurance policies. Accordingly,
the court determined that judicially altering the beneficiary from the girlfriend

to the daughter was an appropriate remedy. n2

The girlfriend argued that whatever rights the daughter had, these rights
terminated when she reached the age of majority. She based this argument on
cases that held that trial courts are prohibited from distributing marital property

to children and are only able to create such an obligation as a form of child

support. The court identified the critical distinction between an obligation
arising from a property settlement agreement, as in this case, and a court order.

"When the court orders, as a part ofa divorce decree, that a parent is to designate
a child as beneficiary of a life insurance policy, the court is making an order of
child support by protecting the support in the event of the supporting parent's

death."
113

However, parties are able to include provisions in property settlement

108. Id. at 1063.

109. See id. at 1063-64.

1 10. Id. at 1064 (quoting Kiltz v. Kiltz, 708 N.E.2d 600, 602 (Ind. Ct. App. 1999)).

111. Id. (quoting Kiltz, 708 N.E.2d at 602) (internal citations omitted).

112. See id.

113. Id. at 1065 (citing Capehart v. Capehart, 705 N.E.2d 533 (Ind. Ct. App. 1999)).



200 1 ] CONTRACT LAW 633

agreements, such as an insurance obligation benefitting children, which achieve
what the court cannot. Accordingly, the court found no reason to treat the
obligation of the father to name the daughter as beneficiary to his insurance
pol icies differently than other marital property. Furthermore, the court found that

because the provision for the daughter was a contractual obligation and not child
support, the daughter's age was only relevant if the contract made it so. 114

The case's final issue concerned whether the daughterwas entitled to recover
the full amount of the insurance proceeds or whether her award should be
reduced to the $50,000 as indicated in the settlement agreement. The daughter
argued she was entitled to the full amount because the settlement agreement
anticipated either an increase in the value of the proceeds or, if needed, the

purchase of additional life insurance. The trial court awarded the daughter
$50,000 after finding that the specific use ofthe disjunctive conjunction, "in an

amount equal or greater than $50,000 dollars," meant that $50,000 was the
minimum. 115 The appellate court found that this strict interpretation was not an
abuse of discretion.

116

Finally, the court offered drafting advice when attempting to create a parental
obligation to buy life insurance for the benefit ofa child. As these provisions are
commonly intended to protect child support in the event the support-paying
parent dies, it is important for the parties to understand the need to clearly

identify the intent of such provisions. The court reminded drafters that courts
will not speculate about intent and will not look outside the four corners of the

document. In this case, it was clear and unambiguous that the parties intended
for the daughter's benefit to extend beyond emancipation by inclusion ofthe term

"at all times."
117

In Niccum v. Niccum,Ui the court considered the terms of a settlement
agreement dissolving a marriage. The agreement provided that the funds would
be divided equally, which it interpreted as "having the same privileges, status, or
rights; deserving or worthy: equal before the law."

1 19 The property to be divided
included a benefit plan and a savings and investment program. Disagreeing with

the trial court, the court concluded that, absent express language to the contrary,

"the settlement agreement implicitly contemplated both parties sharing all ofthe

rewards and risks associated with the investment plan."
120 The court held that the

valuation date established in the settlement agreement controlled the base amount

to which growth is added or loss subtracted and barred the spouse from
benefitting from contributions made by the other spouse after the valuation
date.

121

114. See id

115. Id. at 1065-66 (emphasis in original).

116. See id at 1066.

117. See Mat 1065.
1 1 8. 734 N.E.2d 657 (Ind. Ct. App. 2000).

119. Id at 640.

120. Id

121. See id



634 INDIANA LAW REVIEW [Vol. 34:61

5

C. Fraud in Inducing Settlement

In Indiana Insurance Co. v. Margotte,
122

the court ofappeals considered the

effect of attorney fraud in the context of settlement agreements. The Margottes
were represented by their attorney, Bradley J. Catt, in negotiations for settlement
of their claims of injuries suffered in an automobile accident. Catt gave the
Margottes a settlement agreement to sign, and they signed it without reading it

and without knowledge that it was a settlement agreement. After the Margottes
signed the agreement, Catt returned it to Indiana Insurance, and Indiana Insurance

issued a check jointly payable to Catt and the Margottes in the amount of
$400,000. Catt received the check, signed his name, forged the Margottes'

signatures, deposited it into his attorney trust account, and embezzled the funds

for his personal use. The Margottes received none of the money and
subsequently sued Indiana Insurance alleging breach of the settlement

agreement.
123

The "court of appeals initially found the settlement agreement voidable for
fraud in the execution because Catt misrepresented its contents to the Margottes

in order to induce their signature. The court acknowledged that the parties did
not dispute that the Margottes did not know the content of the document, but
noted that when a party is negligent in reading the contents of a contract, the
contract is voidable, not void.

124 When a contract is voidable for fraud, the
injured party may either seek to avoid the contract or stand on the contract and
seek damages. Because the Margottes sought the benefits of the contract, the

court concluded it was a binding contract.
125

The court next found that Indiana Insurance had performed as required under
the agreement. It had sent a check jointly payable to Catt and the Margottes to

the address specified in the agreement in the amount required, and there were

sufficient funds to cover the check. Once the check was paid, it extinguished
Indiana's debt to the Margottes. Further, Indiana law provides that acceptance

of a check by an attorney on behalf of his client amounts to payment of the

obligation. Thus, the Margottes were precluded from recovery in large part by

their decision to stand by the contract and seek damages.
126

IV. AGREEMENTS TO ARBITRATE

Indiana courts may not order parties into arbitration unless the parties have
agreed by private contract to arbitrate their disputes.

127
In Mid-America Surgery

122. 718N.E.2d 1226 (Ind. Ct. App. 1999).

123. See id. at 1227-28.

1 24. See id. (citing RESTATEMENT (SECOND) OF CONTRACTS § 1 63 cmt. c (1981)).

125. See id.

126. See id. at 1229-30.

1 27. See Int'l Creative Mgmt, Inc. v. DAR EntnTt Co., 670 N.E.2d 1 305, 1311 (Ind. Ct. App.
1996).



200 1 ] CONTRACT LAW 63 5

Center, L.L. C. v. Schooler™ the Schoolers resigned from the corporation, which
was an event of dissociation under the limited liability corporation agreement,
and which the Schoolers believed required Mid-America to purchase their
interest within ninety days. When Mid-America failed to purchase the interest,
the Schoolers filed suit and Mid-America moved to compel arbitration under the
agreement. The Schoolers resisted arbitration and argued that the arbitration
clause was unenforceable due to Mid-America's prior breach. 129

A court considering a motion to compel or stay arbitration must first
determine whether the parties have agreed to arbitrate the particular dispute and,

if it concludes they have, the court is required by statute to compel arbitration.
Here, the court noted that the parties' agreement specifically provided that any

claim, including a claim of breach of the agreement, "shall be submitted to
arbitration."

130
Further, the court noted that

the very purpose of arbitration provisions would be defeated and their
effectiveness severely limited ifa party were held to have abandoned his

arbitration rights merely because his actions might be construed to

constitute a breach of the contract prior to the time he seeks a

clarification of those rights through arbitration.
131

Despite this, arbitration may be waived by express acts or implied by the
acts, omissions or conduct of the parties. Although the facts in this case

demonstrated sortie delay from the time that the Schoolers informed Mid-

America that they would resign to the time Mid-America ultimately sought
arbitration, the court concluded the delay alone was insufficient to establish
waiver and that the trial court erred in denying Mid-America's application for

arbitration.
132

V. Statute of Frauds and Oral Agreements

Is an oral agreement to form an entity to purchase real estate a valid and

enforceable contract? As with many questions in the law, it appears the answer
is: "It depends." In Epperly v. Johnson™ two men entered into an oral
agreement to form a partnership to purchase a golf course in Florida. Johnson

learned ofthe golfcourse for sale, but lacked the money to invest. He contacted
Epperly about forming a partnership to purchase the golfcourse. The two agreed
that the partnership would be formed, with Epperly lending Johnson the money
for Johnson's share of the down payment. After reaching this agreement,
however, Epperly found other partners and purchased the property without

Johnson. Johnson sued, alleging breach ofcontract, fraud and constructive fraud,

128. 719 N.E.2d 1267 (Ind. Ct. App. 1999).

129. See id. at 1269-70.

130. Id. at 1270.

131. Id.

132. See id at 1270-71.

133. 734 N.E.2d 1066 (Ind. Ct. App. 2000).



636 INDIANA LAW REVIEW [Vol. 34:615

and a jury awarded him $1 million in compensatory damages and $2 million in
punitive damages. Epperly appealed, and the court of appeals affirmed in part
and reversed in part.

134

Epperly argued that there could be no binding contract because Johnson's
claim was essentially a claim to be made a limited partner and such an interest
cannot be created without a writing. The court determined that, while Epperly
went on to form a limited partnership to which Epperly' s argument might apply,
the contract he had breached was the oral agreement to form a partnership in the
future. In resolving the claim of breach of contract, the court of appeals applied

the rule set forth in Wolvos v. Meyer,
,

135
which recognized that, in general, an

agreement to agree is not enforceable, but parties may make an enforceable
contract that binds them to prepare and execute a final agreement.

136

In order to determine whether an oral agreement is an enforceable contract

or a mere agreement to agree, the court considers two questions. "First, did the
parties intend to be bound by the agreement or did they intend to be bound only
after executing a subsequent written document?"

137
If they intended only to be

bound after the written document was executed, no enforceable contract exists
until the subsequent document is executed. "Second, did the agreement lack such
essential terms as to render it unenforceable?"

138
The agreement must provide

"reasonable certainty in the terms and conditions ofthe promises made, including

by whom and to whom."139 In this case, Johnson had a letter from Johnson's
attorney which memorialized the attorney's understanding of the agreement

between Johnson and Epperly, including that each would hold a one-third interest

and would contribute $200,000, with Epperly loaning Johnson the money. The
oral agreement was subsequently modified to give each a one-fourth share and
reduce the contribution to $150,000. Under the court's standard of review, it
could not say there was a "total failure ofevidence permitting thejury to find the
oral agreement amounted to a binding contract to subsequently execute a

partnership agreement."
140

Epperly next argued that, even if a contract existed, Johnson failed to

perform because he never presented a promissory note. However, the court

found that the agreement as memorialized in the letter, stated an interest rate and

due date for the promissory note, but it did not state when the note would be
executed and tendered. Accordingly, because the parties left open the time for

the performance, they are presumed to have intended a reasonable time, which

is determined by the circumstances. The court declined to hold that, absent a
date in the agreement, the failure to present the promissory note necessarily

134. See id. at 1069-70.

135. 668 N.E.2d 671 (Ind. 1996).

136. See Epperly, 734 N.E.2d at 1070-71.

137. Id. at 1071.

138. Id.

139. Id.

140. Id.



200 1 ] CONTRACT LAW 63 7

constituted a failure to perform.
141

Wallem v. CLS Industries, Inc."1 dealt with another prong of the Statute of
Frauds which provides that

[n]o action shall be brought . . . upon any agreement that is not to be
performed within one (1) year from the making thereof Unless the
promise, contract or agreement upon which such action shall be brought,
or some memorandum or note thereof, shall be in writing, and signed by
the party to be charged therewith.

143

In Wallem, the parties entered into an oral employment agreement by which
Wallem was paid weekly. As a result ofa conflict, Wallem agreed to resign from
CLS and was offered a resignation bonus. The agreement, entered into
September 1, 1994, provided that Wallem would receive weekly payments for
one year, starting October 21,1 994. Wallem claimed that CLS breached the oral
agreement because it did not make bonus payments under the oral agreement.
Further, he claimed that CLS had breached a settlement agreement. 144

CLS argued that the Statute of Frauds controlled the settlement agreement
because the agreement could not be completed in one year. Wallem, relying
upon Silkey v. Investors DiversifiedServices"

5
argued that the Statute ofFrauds

did not preclude recovery because the agreement could be performed within one

year. In Silkey, the agreement required payment on or before a specific date.
Although the date itself was beyond the one year period, on the face of the
agreement it was capable of being performed within one year.

146
In contrast, if

CLS performed the agreement as specified in its own terms, it would make
weekly payments and could not fully perform before the one-year term ended.
The court first concluded that there was no agreement reached on the bonus and
affirmed summaryjudgment on the breach ofcontract claim. The express terms
in the CLS agreement made it clear that it was not intended or capable upon its
own terms of performance within one year. When, as in this case, the contract
is not capable offull performance within one year, the agreement is subject to the

Statute of Frauds and is unenforceable.
147

In another Statute of Frauds case, the court of appeals considered a dispute

over property. In Perkins v. Owens"1 three parties purchased land from
Stottlemyer. Two adjoining properties, conveyed to Owens and Leedy, did not
include a thirty-foot strip of land ("disputed property") which Stottlemyer

retained to provide access to other land. However, the third purchaser, Perkins,

received a contract and deed which included the disputed property. Nearly

141. See id. at 1072.

142. 725 N.E.2d 880 (Ind. Ct App. 2000).

143. Ind. Code § 32-2-1-1 (1998).

144. See Wallem, 725 N.E.2d at 882.

145. 690 N.E.2d 329 (Ind. Ct. App. 1997).

146. See Wallem, 725 N.E.2d at 887.

147. See id.

148. 721 N.E.2d 289 (Ind. Ct. App. 1999).



638 INDIANA LAW REVIEW [Vol. 34:615

twenty years later, Owens and Leedy sued, claiming ownership of the disputed
property by adverse possession. Later, they amended the complaint to allege that
Perkins' deed was void and that Owens and Leedy received title by an oral
agreement with Stottlemyer. The trial court found that the oral agreements for
the sale of land were taken out ofthe Statute ofFrauds by Owens's and Leedy's
partial performance.

149

Under the Statute of Frauds, oral contracts for the sale of real property are
voidable, not void, and may be excepted from the Statute of Frauds by partial
performance. However, partial payment by itself does not amount to partial
performance. Circumstances generally sufficient to invoke the doctrine ofpartial

performance include some combination ofseveral factors: payment ofall or part
ofthe purchase price, possession, and lasting and valuable improvements on the
land. The court noted that Indiana holds fast to the rationale behind the Statute
of Frauds and "strictly adhere[s] to requiring proof of a combination of [the
factors]."

150
Moreover, courts require that proofbe "clear and definite."

151
Here,

the court found the evidence was not sufficient to prove partial performance. 152

The facts showed that Owens and Leedy each made some improvements in
the land, but did not show that the improvements were of a permanent nature.
Rather, they were mostly landscaping and temporary structures, such as a utility

barn. The court held that improvements bear little weight unless they are ofthe
kind that would not have been made without the oral contract. The court
explained that improvements must be referable to the contract such that the
improvements would have been improvident in the absence of the contract.
Further, the evidence suggested that both Owens and Leedy treated the property
in nearly the same manner before the conveyance as after. Having concluded that
Owens and Leedy had not shown the oral contracts to be enforceable, the court
found that they had no personal stake in the outcome and could not show that
they had been or might be injured. Thus, the court held that Owens and Leedy
lacked standing to challenge Perkins

5

deed, and, accordingly, the trial court

lacked jurisdiction to hear their claim.
153

VI. Exclusive Listing Agreements

In Rogier v. American Testing & Engineering Corp., 154 the appellate court
interpreted an exclusive listing agreement to determine whether it in fact was an
exclusive right-to-sell or an exclusive agent agreement. Rogier was a marketing
consultant who specialized in mergers and acquisitions of architectural,
engineering and environmental firms. American Testing and Engineering

Corporation ("ATEC"), an environmental engineering firm, entered into an

149. See id at 291.

1 50. Id. at 292 (quoting Summerlot v. Summerlot, 408 N.E.2d 820, 829 (Ind. Ct. App. 1 980)).

151. Id.

152. See id.

153. See id at 293-94.

1 54. 734 N.E.2d 606 (Ind. Ct. App. 2000).



200 1 ] CONTRACT LAW 639

exclusive listing agreement ("Agreement") with Rogier whereby ATEC
appointed Rogier as its exclusive agent to search for a buyer for ATEC's
business. The Agreement expressly appointed Rogier as ATEC's exclusive agent
and required that all prospective buyers were to send copies of "all

correspondence and purchase offers" to both parties.
155

Rogier provided ATEC
with a template search agreement, which Rogier would execute with potential
buyers. Pursuant to the template agreement, the buyer would pay Rogier's
commission on the date of closing.

156

After entering into the agreement with Rogier, ATEC waited nearly six years
before taking steps to sell its business. At that time Rogier entered into a search
agreement with Baker, a large engineering firm that provided for a different

payment schedule than the template provided to ATEC. Specifically, instead of
Baker paying Rogier's commission at the closing, the search agreement required

Bakerto pay Rogier incremental commissions prior to the sale, immediately upon
the completion of Rogier's sales presentation, and upon closing. The initial fee
payment was nonrefundable even if the closing never occurred. 157

Over three years passed before Rogier and ATEC communicated again.
However, the record showed that Rogier continued to work under the Agreement,
although ATEC was unaware he was doing so. On or about January 21, 1994,
Rogier provided ATEC with written notification that Baker was interested in
purchasing their firm. Rogier requested that ATEC sign a purchase offer letter,
which would authorize Rogier to present ATEC as an acquisition candidate to
Baker. After three requests, ATEC finally forwarded such a purchase offer letter
on May 5, 1994. The letter stated that ATEC "acknowledged that Baker would
be paying Rogier's commission and . . . that this term be included in Baker's

purchase offer."
158

In June and July 1994, Rogier communicated with ATEC to attempt to
receive ATEC's financial statements and other related corporate documents
requested by Baker. Due to ATEC's refusal to provide the necessary financial
statements, Rogier was unable to make the sales presentation to Baker. In July
1994, Baker notified Rogier that it was no longer interested in acquiring
ATEC. 159

In mid- 1994, ATEC began making contacts with another buyer without
informing Rogier. In 1996, ATEC sold its own business without informing
Rogier and without the use of another broker. Rogier learned of the sale and

filed suit, alleging breach of the parties' Agreement by refusing to provide the

necessary financial information to Baker (which resulted in Rogier's loss of a

multi-million dollar sales presentation fee) and by failing to disclose the sale of

its business to another buyer.
160

155. Id. at 611.

156. See id.

157. See id. at 612.

158. Id

159. See id.

160. See id. at 613.



640 INDIANA LAW REVIEW [Vol. 34:615

ATEC moved for summary judgment alleging Rogier had no damages and
that the Agreement had terminated, was abandoned, or had been waived by
Rogier as a matter of law. The trial court entered summaryjudgment in favor of
ATEC, and Rogier appealed. The appellate court affirmed in part, reversed in
part and remanded.

161

1. Foreseeable Damages.—The first issue analyzed by the court was
whether the damages sustained by Rogier as a result of the loss ofcommissions
pursuant to the Baker search agreement were foreseeable by ATEC. The test for
measuring damages in a breach of contract suit is "foreseeability at the time of
entry into the contract, not facts existing or known to the parties at the time ofthe
breach."

162 Damages not contemplated by the parties at the time the contract is
entered into are not recoverable.

163

The court found "that ATEC breached its duty to provide Rogier with the
financial documents necessary to make a sales presentation to Baker." 164

Furthermore, in the purchase offer letter, ATEC authorized Rogier to present
ATEC as an acquisition candidate to Baker, and reaffirmed that it would provide
Rogier with the materials including the financial statements so that the buyer

could make a realistic offer. Despite these factors, the court concluded that any
damages arising because of that breach were unforeseeable due to the fact that
ATEC had no reason to know that Rogier entered into a customized search
agreement that entitled Rogier to a commission irrespective of whether a sale
took place. As such, the damages alleged by Rogier resulted from the lost
opportunity to make a sales presentation and were not foreseeable by ATEC and
therefore unrecoverable.

165

2. Exclusive Right.—The next issue analyzed by this court was ATEC's
argument that the exclusive listing agreement was merely an exclusive agency
agreement, not an exclusive right to sell. An exclusive right to sell would have
entitled Rogier to a commission even ifhe were not the "procuring cause" ofthe

sale of ATEC business. 166 The court concluded that this agreement was an
exclusive right to sell.

It has long been the rule in Indiana that a broker earns its commission

when it . . . procures a buyer ready, willing, and able to purchase the
property. Notwithstanding the doctrine of procuring cause, Indiana

courts will enforce specific provisions in a listing contract which allow

a broker to earn a commission under other circumstances.
167

Specifically, a broker may be granted the right to a commission regardless of
whether the sale was effected by the broker, the owner, or any other third person.

161. See id.

162. Id at 614.

163. See id

164. A* at 614.

165. See id.

166. Mat 615.
167. Id (citation omitted)



200 1 ] CONTRACT LAW 64

1

To determine whether the listing contract created an exclusive agency or an
exclusive right to sell, the court referred to a treatise:

An "exclusive agency" agreement, prohibiting the owner from selling
property through another broker during the listing period, but permitting

the owner to sell property through his own efforts, is distinguishable
from an "exclusive right to sell" agreement, prohibiting the owner from
selling personally or through another broker without incurring liability

for commission to the original broker.
168

The particular language ofthe agreement is important to distinguish between
exclusive agency and exclusive right to sell agreements. In this case, the parties

agreed that Rogier would be "the exclusive agent with an exclusive listing and
all prospective buyers shall send copies of all correspondence and purchase

offers to [ATEC] and to [Rogier]." 169 Because the court determined that this
provision was clear and unambiguous, it found that Rogier was to be involved in
all negotiations with all prospective buyers, regardless of how they were
procured. Accordingly, the court found that this exclusive listing agreement

prohibited ATEC from selling its own business and Rogier was entitled to his
commission on such sale.

170

3. Enforceability.—The third issue considered by the court was whether the
exclusive listing agreement was unenforceable as a matter oflaw. ATEC argued
that it was "(1) 'uncertain as to duration and consideration,' and (2) illusory and
lacked mutuality ofobligation because it imposed no responsibility on Rogier to
perform."

171
Generally, when a contract is silent about duration, the broker is

given a reasonable period of time to accomplish the object of the agency.

Contracts without specific endpoints or which specifically indicate they last

perpetually, are enforceable and terminable at will by either party. The
agreement in question was not terminated by either party and, accordingly, was
not unenforceable for lack of a termination date.

172

Notwithstanding, ATEC argued that Rogier did not perform within a
reasonable time. Generally, what constitutes a reasonable time for performance

is determined by the trier of fact; however, Indiana courts have held that when
the facts are not in dispute, the determination of "reasonable" is a question of

law.
173

In this case, the parties had a course of dealing that included elongated

"holding patterns," during which there was no communication, and evidence
supported the conclusion that such periods were common in deals involving
multi-million dollar businesses such as ATEC. Furthermore, ATEC did not
actively solicit buyers for its company for six years after the execution of the
agreement. Accordingly, the court refused to hold as a matter oflaw that the ten

168. Id.

169. Id. at 616.

170. See id.

171. Id.

172. See id. at 616-17.

173. See id. at617n.4.



642 INDIANA LAW REVIEW [Vol. 34:61

5

year period here was unreasonable, and the court consequently found that there
was a genuine issue of material fact regarding whether Rogier failed to perform
his obligations within a reasonable time.

174

The court found that it was improper for courts to inquire into the adequacy
ofconsideration, and when the substance ofthe contract has no determined value,
the court will not disturb the determination ofthe parties as to the sufficiency of
the bargain. Furthermore,

[w]hen the broker, in good faith and in compliance with its implied
promise to make an effort to sell the property, expends time, energy, and
money to find a purchaser or successfully completes the undertaking,
there is sufficient consideration for the promise to pay a commission,

and the agreement becomes a bilateral and binding contract.
175

The court held that the exclusive listing agreement was supported by
consideration and did not fail for uncertainty.

176

Additionally, the agreement was not unenforceable for a lack of mutuality
because both parties were bound. When one party performs, relying upon the
other party's promise, the contract is not unenforceable for lack ofmutuality. In

this contract, Rogier had obligations to find a buyer, and he had performed to

fulfill those obligations. Accordingly, the court found that this contract was not
unenforceable as a matter of law for lack of mutuality.

177

4. Lapse.—The court next turned to ATEC's argument that the contract had
lapsed. Brokers may only be compensated pursuant to written contract, and such
contracts may be revoked through lapse of time. As with the determination of
whether Rogier' s obligations were performed within a reasonable time, whether

the contract was revoked through lapse oftime is a question for the trier of fact.
Because the parties' course ofdealing could lead to more than one inference, the
court refused to hold as a matter of law that the contract was unenforceable due
to a lapse of time.

578

5. Abandonment.—Similarly, the court remanded the case on the question
of whether the contract had been abandoned. "The abandonment of a contract
is a matter of intention to be ascertained from the facts and circumstances

surrounding the transaction from which the abandonment is claimed to have

resulted."
179

Abandonment may be implied from the circumstances and the
actions of the parties. A contract will be deemed abandoned when a party's
conduct is inconsistent with the existence of a contract and the other party

acquiesces to such conduct. The mere passage oftime between when the broker
has ceased to perform and when the owner makes a sale does not conclusively

174. See id. at 617.

175. Mat 618.
176. See id.

177. See id.

178. See id.

179. Id. at 619 (quoting Baker v. Estate of Seat, 61 1 N.E.2d 149, 152 (Ind. Ct. App. 1993)).



200 1 ] CONTRACT LAW 643

establish that the contract was abandoned. What constitutes abandonment is a
question of law, but whether there has been abandonment is a question of fact.

In this case, the parties' course ofdealing included prolonged "holding patterns"

in which there was no sales activity or communication between the parties.
Thus, the court held that there was a genuine issue of fact as to whether Rogier
abandoned the contract.

180

6. Waiver.—Silence and inactivity alone cannot constitute waiver unless
there is a duty to speak or act. ATEC argued that Rogier waived his rights under
the agreement by failing to communicate with ATEC for long periods of time.
The court concluded that, like the determinations ofwhat is reasonable time and
abandonment, whether Rogier waived his contractual rights by his prolonged
periods of silence is a genuine issue of fact.

181

7. Prevention ofPerformance.—A breaching party may not be relieved of
his duty to perform under the contract. Further, the common law of contracts
excuses a party's performance where the other party prevents that performance.

Moreover, "a party may not rely on the failure ofa condition precedent to excuse
performance" when such failure is a result of that party's actions or inaction. 182

In the case ofan exclusive right to sell, there is an implied promise by the owner
not to obstruct the broker's performance. Despite the Agreement in this case

applying to "all buyers," ATEC did not notify Rogier of the potential buyer,
which made his performance virtually impossible. 183

Ultimately, the court held that whether there was a breach ofcontract was a
question of fact and, accordingly, reversed the summary judgment with respect
to ATEC's claims of unforeseeability, lapse, abandonment, and waiver
precluding judgment as a matter of law.

184

VII. Remedies

In Nielson BuickJeep Eagle Subaru v. Hall,
1 *5

the court considered the scope

of remedies available from a small claims court. The buyer of a used car soon
discovered she had a problem. The day after her purchase, she returned the car,
and the dealer replaced the starter, performed front and rear brake services, and

changed the oil and filter at no cost to the buyer. Over the next five months, she

returned the car for service several times under the twelve-month limited vehicle

service contract. Finally, the dealer refused to perform under the service

contract, and the buyer left the vehicle at the dealership. The buyer brought suit,
and the small claims court rescinded the contract, awarded the buyer monetary

damages and court costs, and awarded the dealership possession ofthe car. The

180. See id at 619-20.

181. See id. at 620.

182. Id. at 621.

183. See id.

184. See id.

185. 726 N.E.2d 358 (Ind. Ct. App. 2000)



644 INDIANA LAW REVIEW [Vol. 34:61

5

dealer appealed.
186

The small claims statute defines the court'sjurisdiction based upon the dollar
value of the recovery sought.

187
Nothing in the statute authorizes the court to

grant the equitable remedy ofrescission. Thus, the court ofappeals held that the
small claims court exceeded its jurisdiction when it granted rescission. 188

Conclusion

Contracts law in Indiana, while generally stable and predictable, has

continued to evolve over the past year. As evidenced by the cases in this survey,
there has been no dramatic swing of the pendulum, but rather a steady

progression towards defining the parameters of effectuating the parties
9

intent.

Indiana courts refuse to rewrite agreements, but instead afford the parties the

freedom to do amongst themselves what courts cannot. While the consistency
in Indiana contracts law may afford the practitioner some comfort and expertise,
the prudent drafter should be wary of complacency and should take note ofthe
subtle evolution so as to more effectively counsel and protect his clients'
interests.

186. See id. at 359-61.

187. See id. (citing IND. CODE ANN. § 33-5-2-4 (Supp. 2000)).

188. See id. at 360-61.