When Does The Defense Of “Laches” Apply?

Lesson. Laches, based on the maxim that equity does not aid those who slumber on their rights, does not apply to claims for the recovery of money (i.e. promissory note enforcement). The doctrine of laches may come into play in actions for equitable relief (i.e. mortgage foreclosure), however. Among other things, a defendant must show a delay that was unreasonable and that caused prejudice or injury.

Case cites. Forty Acre Coop. v. Delliquadri, 225 N.E.3d 175 (Ind. Ct. App. 2023) and Foster v. First Merchs. Bank N.A., 235 N.E.3d 1251 (Ind. 2024)

Legal issue. Whether the doctrine of laches operated to bar a plaintiff’s claim.

Vital facts. The recent Forty Acre and Foster cases have materially different sets of facts, but both disputes involved the enforcement of promissory notes and how the defense of laches might affect the outcome. Both cases dealt generally with delays by the plaintiffs in asserting their rights.

Procedural history. In Forty Acre, an Indiana Court of Appeals opinion, defendant sought to set aside a default judgment based on laches. Foster, a decision by the Indiana Supreme Court, examined a trial court’s order dismissing an action by junior lienholders against a bank. The junior lienholders claimed the bank failed to conduct a commercially reasonable sale of the underlying loan collateral. The Foster dismissal in favor of the bank was grounded on laches.

Key rules.

The Foster opinion noted that the doctrine of laches “bars a plaintiff from seeking equitable relief.”

The doctrine's "principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation." Because the [junior lienholders] are seeking legal relief in the form of money damages, they argue that laches does not apply. The bank does not squarely address this argument, responding instead that the [junior lienholders] "abandoned" their claim and thus laches applies as an "equitable defense." But "abandonment" is not an explicit element of laches.

The Forty Acre opinion summarized Indiana’s doctrine of laches:

The doctrine of laches may bar a plaintiff's claim if a defendant establishes the following three elements of laches: (1) inexcusable delay in asserting a known right; (2) an implied waiver arising from knowing acquiescence in existing conditions; and (3) a change in circumstances causing prejudice to the adverse party. A mere lapse of time is not sufficient to establish laches; it is also necessary to show an unreasonable delay that causes prejudice or injury. Prejudice may be created if a party, with knowledge of the relevant facts, permits the passing of time to work a change of circumstances by the other party.

Black’s Law Dictionary helps explain the important distinction between an “equitable” claim and a “legal” claim. “Equitable relief” means “that species of relief sought in a court with equity powers as, for example, in the case of one seeking an injunction or specific performance instead of money damages.”

Holding. The Court of Appeals affirmed the trial court’s denial of defendant’s motion to set aside a default judgment in Forty Acre. In Foster, our Supreme Court reversed the trial court’s dismissal of the junior lienholder’s case. Both opinions rejected the application of laches.

Policy/rationale.

The Indiana Supreme Court in Foster articulated its rationale as follows:

The [junior lienholders] seek damages for the bank's alleged failure to conduct a commercially reasonable sale—a claim for legal, not equitable, relief. The bank has not identified a single case from our appellate courts, and we are aware of none, in which laches barred an otherwise timely legal claim for money damages. Though we recognize that other jurisdictions have held that laches can apply to some legal claims ... the U.S. Supreme Court has consistently "cautioned against invoking laches to bar legal relief." The bank has provided no reason either below or on appeal for us to disregard that caution here.

The Court in Forty Acre explained its decision as follows:

There is no indication that [Plaintiff], with knowledge of the relevant facts, permitted the passing of time to work a change of circumstances by the other party…. Moreover, we see nothing in the record that could reasonably be characterized as an implied waiver of a known right by [Plaintiff]…. Punishing [Plaintiff] for granting [Defendants] an additional two months in which to respond to [the] complaint—when they were under no obligation to do so and when there is no evidence that [Defendants] were prejudiced thereby—would be anything but equitable.

Related posts.

• Apparent Windfall Not Enough to Set Aside Federal Foreclosure Sale or Negate Deficiency Judgment
• Are Borrowers Entitled To Jury Trials On Their Counterclaims?

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My practice involves representing parties in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.