Case Name: STATE of Indiana, Appellant (Defendant Below), Greenwood Shopping Center, Inc. and Greenwood Realty Corporation, (Defendants Below), Garden City Foods, Inc., (Third-Party Defendant Below), v. Willie INGRAM and John Henry Kirk, Appellees (Plaintiffs Below)
Court: Court of Appeals of Indiana
Jurisdiction: Indiana
Decision Date: 1980-01-30
Citations: 399 N.E.2d 808
Docket Number: No. 3-476A82
Parties: STATE of Indiana, Appellant (Defendant Below), Greenwood Shopping Center, Inc. and Greenwood Realty Corporation, (Defendants Below), Garden City Foods, Inc., (Third-Party Defendant Below), v. Willie INGRAM and John Henry Kirk, Appellees (Plaintiffs Below).
Judges: HOFFMAN, J., concurs and files separate opinion.
Reporter: North Eastern Reporter 2d
Volume: 399
Pages: 808–815

Head Matter:
STATE of Indiana, Appellant (Defendant Below), Greenwood Shopping Center, Inc. and Greenwood Realty Corporation, (Defendants Below), Garden City Foods, Inc., (Third-Party Defendant Below), v. Willie INGRAM and John Henry Kirk, Appellees (Plaintiffs Below).
No. 3-476A82.
Court of Appeals of Indiana, Third District.
Jan. 30, 1980.
Rehearing Denied March 27,1980.
Theodore L. Sendak, Atty. Gen., Walter F. Lockhart, Deputy Atty. Gen., Indianapolis, for appellant.
John J. Lorber, Crumpacker, May, Searer, Oberfell & Helling, South Bend, for appel-lees.

Opinion:
GARRARD, Presiding Judge.
This is a personal injury case tried by jury. The principal issue on appeal concerns the proper presentation to the jury of the matters contained in a loan receipt agreement entered into between the plaintiffs, Ingram and Kirk, and Greenwood Shopping Center and Greenwood Realty Corporation (hereafter collectively referred to as Greenwood).
Ingram and Kirk were injured when their automobile went off the drive and into a ditch as they were attempting to leave the Greenwood Shopping Center. Heavy rains had fallen during the day. At the time of the accident the ditch, driveway and a portion of the parking lot were under water so that the edge of the driveway was obscured.
Ingram and Kirk brought a negligence action against Greenwood and the state. Garden City Foods, Inc. was joined as a third party' defendant. Shortly before trial the plaintiffs entered into a covenant not to sue Garden City and executed a loan receipt agreement with Greenwood. These actions were revealed to the court. Greenwood was dismissed as a defendant, and the state amended its answer to assert that the agreement with Greenwood and the payments made thereunder constituted a full satisfaction of plaintiff's claim. Ultimately, the jury returned a verdict against the state awarding Ingram ten thousand dollars ($10,000) and Kirk three thousand dollars ($3,000).
Near the conclusion of plaintiffs' case the court inquired, outside the presence of the jury, how the parties intended to handle the matters raised by the loan receipt agreement. The state moved to examine the plaintiffs' attorney and made an offer of proof when the motion was denied. When the jury was recalled the state called Ingram and Kirk as adverse witnesses and elicited from them that the claim against Greenwood had been dropped for $3,500 and that under the agreement they would retain this amount regardless of the jury's verdict. Plaintiffs' attorney was then permitted in rebuttal and over objection to introduce the entire agreement in evidence. No instruction was requested or given concerning the effect of the loan agreement. The agreement contained eleven prefatory paragraphs and was couched in language clearly intended to maximize the seriousness of plaintiffs' injuries and the culpability of the State of Indiana. It provided that no repayment was to be made unless a verdict for more than six thousand dollars ($6,000) was rendered against the state and in any event repayment was limited to $1,500.
At the outset we point out that at the time this case was tried little guidance existed in our opinions concerning how loan receipt agreements should be handled at trial. Moreover, in view of the approach taken by the parties we can understand why the court ruled as it did. We are persuaded, however, that it was error to handle the receipt in this fashion and that there was such likelihood that the error infected the proceedings that a new trial should be granted.
At this point Indiana has clearly approved of the loan receipt as an acceptable settlement device that serves a valid purpose in placing immediate funds in the hands of an injured party or his family. American Transport Co. v. Central Indiana Ry. Co. (1970), 255 Ind. 319, 264 N.E.2d 64; NIPSCO v. Otis (1969), 145 Ind.App. 159, 250 N.E.2d 378.
It has also been readily recognized that this device involves disadvantages, which are typically felt most keenly by the non-agreeing defendants, but may also affect the plaintiff. The chief criticism levied at this type of settlement device is that it alters the traditional relationship between plaintiff and defendant and between co-defendants. Whether a non-agreeing defendant is actually prejudiced because a co-defendant and the plaintiff have settled depends largely on the nature of the agreement, whether its existence is kept secret and whether the agreeing defendant remains as a party in the litigation.
A portion of the problem was anticipated by the court in Burkett v. Crulo Trucking Co. (1976), Ind.App., 355 N.E.2d 253, 260-1, where Judge Robertson stated,
"Assuming that an agreement is admissible to show a contractual relationship with reference to the interest of a witness or party in the litigation and any financial considerations that might influence the witness or party, Pickett v. Kolb (1968), 250 Ind. 449, 237 N.E.2d 105, a non-participating co-defendant may yet have a grave decision to make. As in the case at bar, the loan receipt agreement may be drafted with admissions and accusations so damning to the non-participating co-defendant that the co-defendant is placed in a dilemma. He must choose to suffer in silence damaging conduct at trial by the co-defendant participating in the agreement, or he must choose to explain that conduct to the trier of facts by offering into evidence the agreement with its statements calculated to frame the offering party in the worst possible light."
On the other hand, the plaintiff's dilemma most typically arises over revelation of the amount paid. As the court pointed out in Degen v. Bayman (1972), 86 S.D. 598, 200 N.W.2d 134, if the settlement amount is small the non-agreeing defendant will attempt to use it to downgrade the amount of plaintiff's damages. If the amount is substantial, it will be contended that it constitutes satisfaction, or that it was the agreeing defendant who was the culpable party.
We have already determined that where the agreeing defendant appears as a wit ness, the non-agreeing defendant is entitled to establish the nature of the loan receipt arrangement as bearing upon credibility. State v. Thompson (1979), Ind.App., 385 N.E.2d 198.
We now consider the propriety of introducing the agreement where it contains hearsay assertions and conclusions calculated to prejudice the non-agreeing defendant. Because of the context in which the question arises, we must also consider the propriety of advising the jury of the loan amount as constituting either total or partial satisfaction of the plaintiff's claim.
Wecker v. Kilmer (1973), 260 Ind. 198, 294 N.E.2d 132 recognized that where a plaintiff settles with a defendant, the result may be the complete satisfaction of plaintiff's claim on either of two bases: (a) if the parties intended the instrument they executed to be a full satisfaction; or (b) if the injured party was in fact paid full compensation for his injuries. Recent cases have declared that whether satisfaction was intended is normally to be determined from the language employed by the parties and thus may be determined by the court as a matter of law. See Bellew v. Byers (1979), Ind., 396 N.E.2d 335; Cooper v. Robert Hall Clothes, Inc. (1979), Ind., 390 N.E.2d 155. This was the approach utilized by the Supreme Court in American Transport Co. v. Central Indiana Ry. Co. (1970), 255 Ind. 319, 264 N.E.2d 64 where the court had before it a loan receipt agreement and covenant not to execute entered into between the plaintiff and. one defendant while the case was on appeal following a jury verdict for $132,-000 against both defendants. Addressing the claim that $85,000 paid by the agreeing defendant constituted a pro tanto satisfaction, the Court reversed the trial court's ruling to that effect, stating that, "[t]he terms of the agreement . . . clearly indicate that [the parties] understood the law of loan agreements . . . and had every intention of coming within the purview of that law." 264 N.E.2d 67. Compare Bedwell v. DeBolt (1943), 221 Ind. 600, 50 N.E.2d 875.
The agreement before us demonstrates, the same intent to apply the law of loan receipt agreements. On the basis of American Transport Co. it was improper to submit to the jury the question of whether total satisfaction was intended.
It does appear from the terms of the agreement that the sum of two thousand dollars ($2,000) which was unrepayable to Greenwood in any event might constitute a partial satisfaction of any judgment in favor of the plaintiffs. However, because of the likelihood that the jury might be prejudiced or misled concerning the significance of such payment and the ease with which such risks might be eliminated, we hold that the proper procedure for the court to follow in such circumstances is to withhold from the jury issues of partial satisfaction in fact. The amount and circumstances of any such payment may be disclosed to the court and, if appropriate, the sum may then be credited against payment of any verdict ultimately entered.
Finally, we hold it was erroneous to admit in evidence the loan receipt agreement where it contained assertions and conclusions concerning the amount of damages sustained and the liability of the non-agreeing defendants. See Dias v. Daisy-Heddon (1979), Ind.App., 390 N.E.2d 222. There is no way to gauge the impact of such matters upon the jury. They clearly represent an extraneous and potentially prejudicial circumstance; one which is, at best, unproductive towards securing a fair trial and just result on the merits.
We therefore reverse and remand for a new trial.
HOFFMAN, J., concurs and files separate opinion.
STATON, J., dissents and files separate opinion.
. One of the strongest criticisms is contained in Lum v. Stinnett (1971), 87 Nev. 402, 488 P.2d 347 where as part of the agreement the plaintiff promised not to settle with the other defendant and promised to try to encourage the jury to return a verdict in excess of the settlement amount. See also McKay, Loan Agreement: A Settlement Device that Deserves Close Scrutiny, 10 Val.L.Rev..231 (1976); The Mary Carter Agreement — Solving the Problem of Collusive Settlements in Joint Tort Actions, 47 S.Cal.L. Rev. 1393 (1974). Most other jurisdictions considering loan receipt agreement have either distinguished the facts in Lum or disagreed with its conclusions. 65 A.L.R.3d 602, ff. Thus, Arizona has pointed out that nothing requires a defendant to conduct his defense in a particular fashion (City of Tucson v. Gallagher (1972), 108 Ariz. 140, 493 P.2d 1197, 65 A.L.R.3d 597) nor prevents defense of one's own interests by settlement (City of Glendale v. Bradshaw (1972), 16 Ariz.App. 348, 493 P.2d 515).
. The charge that the agreement alters the relationship between two or more defendants was minimized in City of Bloomington v. Holt (1977), Ind.App., 361 N.E.2d 1211, by the court's observation that co-defendants typically attempt to blame each other regardless of the existence of a settlement. See also Reese v. Chicago, B. & Q. R. R. Co. (1973), 55 Ill.2d 356, 303 N.E.2d 382. While this may be true for a defendant who can blame a co-defendant without jeopardizing his own defense, the likelihood of actual cooperation with a plaintiff may not arise until a defendant has effectively limited his own liability. Moreover, the relationship of the parties in the trial may be more subtly effected than by each defendant attempting to minimize his conduct by pointing an accusing finger at a co-defendant. For example, where a plaintiff has a cooperating defendant in a trial, the plaintiffs task may be aided by having the cooperating defendant call certain witnesses so that the plaintiff may treat their evidence on cross examination.
.We note that considerable variations may exist even within the loan receipt framework. For example, in NIPSCO v. Otis, supra, the agreeing defendant could be exposed to additional liability by a jury verdict against it alone for more than the loan amount, whereas in the present case not only was Greenwood's liability fixed, a portion of its payment was not repayable in any event.
. The issue of whether the satisfaction in fact is partial or total is thus resolved by simply applying the amount of the credit against the amount found due.