Epperly v. Johnson

• Decision Date: 30 August 2000
• Docket Number: No. 49A05-9908-CV-351.,49A05-9908-CV-351.
• Citation: 734 N.E.2d 1066
• Parties: Harrison EPPERLY, Appellant-Defendant, v. Fred C. JOHNSON, Appellee-Plaintiff.
• Court: Indiana Appellate Court

734 N.E.2d 1066

Harrison EPPERLY, Appellant-Defendant, v. Fred C. JOHNSON, Appellee-Plaintiff.

No. 49A05-9908-CV-351.

Court of Appeals of Indiana.

August 30, 2000.

Karl L. Mulvaney, Nana Quay-Smith, Candace L. Sage, Bingham Summers Welsh & Spilman, Indianapolis, Indiana, Attorneys for Appellant.

Robert G. Barker, J. Chris Reininga, Barker & Reininga, Indianapolis, Indiana, Attorneys for Appellee.

OPINION

MATTINGLY, Judge

Harrison Epperly appeals a jury verdict and judgment against him in favor of Fred Johnson in an action for fraud, constructive fraud, and breach of contract. Johnson was awarded actual damages in the amount of $1,000,000 and punitive damages in the amount of $2,000,000. Epperly raises seven issues, which we consolidate and restate as:

1. Whether a valid oral agreement to subsequently enter into a business partnership is formed when the parties agree to create an entity to purchase real estate;

2. Whether a party to an oral contract to form a partnership to purchase real estate has failed to perform when the agreement provides that a loan is to be evidenced by a promissory note, but the note is not presented prior to closing;

3. Whether there is injury sufficient to support a fraud action when the only asserted injury is the loss of an interest in real estate to which the injured party also asserted a contractual right;

4. Whether the trial court erred when it declined to instruct the jury that a duty in a constructive fraud action exists only when the parties have a fiduciary relationship, but instead instructed the jury only that the plaintiff must prove "a duty existed between the parties by virtue of the relationship of the parties";

5. Whether a relationship is sufficient to give rise to a duty in a constructive fraud action where both parties are shareholders in a closely held corporation not involved in the transaction in which constructive fraud is alleged and where the parties had previously been involved in similar real estate transactions; and

6. Whether the award of punitive damages was proper.

We affirm in part and reverse in part.

FACTS

In 1990, Johnson learned that a golf course in Florida ("Pine Ridge") was for sale. He had no money to invest so he contacted Epperly about the purchase. The two entered into an oral agreement whereby a partnership would be formed to purchase Pine Ridge. Epperly would loan Johnson $150,000 as Johnson's 25% share of the down payment. Epperly did not loan Johnson the money and Epperly and his partners purchased Pine Ridge without Johnson.

Johnson brought an action alleging Epperly had breached the contract and had actually and constructively defrauded Johnson. The jury awarded Johnson $1,000,000 in actual damages, representing a 25% share of the 1998 value of Pine Ridge, and $2,000,000 in punitive damages.

DISCUSSION AND DECISION

Standard of Review

On appeal, a general verdict will be sustained on any theory consistent with the evidence. Tipmont Rural Elec. Membership Corp. v. Fischer, 697 N.E.2d 83, 86 (Ind.Ct.App.1998), aff'd, 716 N.E.2d 357 (Ind.1999). We will not reweigh the evidence nor judge the credibility of the witnesses, but will consider only the evidence most favorable to the judgment along with all reasonable inferences to be drawn therefrom. Id. Only where there is a total failure of evidence or where the jury verdict is contrary to the uncontradicted evidence will it be reversed. Id.

1. The Oral Contract¹

Epperly argues there could not have been a binding contract because Johnson's claim of an ownership interest in the entity that owned Pine Ridge was essentially a claim that he was entitled to be a limited partner in that entity and that such interest cannot be created without a writing. Even if there had been a contract, Epperly argues, Johnson did not perform his part of the agreement because he never tendered the promissory note representing the loan from Epperly that would permit Johnson to acquire such an interest.

The contract upon which Johnson relies arose out of a meeting between Epperly, Johnson, and Johnson's attorney Stephen Backer.² At the meeting, the trial court found in its denial of Epperly's motion to correct error that the parties reached an oral agreement to purchase Pine Ridge and discussed Johnson's participation in the purchase.

Johnson notes the general rule that an oral agreement can be a binding contract and relies on Wolvos v. Meyer, 668 N.E.2d 671, 674 (Ind.1996), for the proposition that parties may make an enforceable contract which obligates them to execute a subsequent final written agreement. The agreement at issue in Wolvos gave Meyer an option to purchase some real estate Wolvos owned. Meyer later notified Wolvos that he intended to exercise the option, but after Wolvos determined the cost of the environmental remediation called for in the option agreement, she asserted the option agreement was in fact an unenforceable "agreement to agree." Id. at 673. Our supreme court recognized the general rule that a mere agreement to agree at some future time is not enforceable, id. at 674, but noted that parties may make an enforceable contract that binds them to prepare and execute a final subsequent agreement. Id.

Whether such an agreement is an enforceable contract or a mere agreement to agree turns on 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? Id. at 675. If the latter is true, there is no enforceable contract until the subsequent document is executed. Id. Second, did the agreement lack such essential terms as to render it unenforceable? Id. "All that is required is reasonable certainty in the terms and conditions of the promises made, including by whom and to whom." Id. at 676 (quoting Johnson v. Sprague, 614 N.E.2d 585, 588 (Ind.Ct.App.1993)).

The letter upon which Johnson relies as the memorialization of the oral agreement sets forth Backer's "understanding of the agreement that is to be entered into between [Epperly and Johnson] concerning the formation of the entities which will [purchase and operate Pine Ridge]." (R. at 2510.) The letter indicated Epperly and Johnson would each hold a one-third share in the golf course. Each party's initial capital contribution would be $200,000, with Epperly agreeing to loan Johnson's share to him and with Epperly entitled, while the loan was outstanding, to any dividends or distributions payable to Johnson from partnerships or corporations in which the two had an interest. The oral agreement was subsequently modified to reduce each party's share to one-fourth and to reduce each party's contribution to $150,000. While an interest in the Pine Ridge partnership could not be conveyed by an oral agreement, we cannot say there was a "total failure of evidence" permitting the jury to find the Epperly-Johnson oral agreement amounted to a binding contract to subsequently execute a partnership agreement.

2. Johnson's Performance

Even if there were a contract, Epperly argues, Johnson's breach of contract claim fails because Johnson did not perform his part.³ Specifically, he argues that if Johnson were to use a loan from Epperly as his investment, Johnson failed to perform because the promissory note was not presented to Epperly. Backer testified at trial that he did not prepare such papers for Johnson, but that such a note would have been prepared prior to the closing of the Pine Ridge purchase. The oral agreement as memorialized in the Backer letter indicates how the interest rate and the due date would be determined, but it does not indicate when the note was to be executed or tendered. Rather, it provides only that "[t]he loan will be evidenced by a promissory note." (R. at 2511.)

Epperly provides no explanation or legal authority in support of his apparent premise that Johnson was obliged to present the note at a date prior to the closing. Where, as here, the parties to a contract fix no time for the performance of an obligation created by the contract, they are presumed to have in mind a reasonable time. Fraternal Order of Police Lodge No. 52 v. Civil City of Elkhart, 551 N.E.2d 469, 472 (Ind.Ct.App.1990). What constitutes a reasonable time depends on the subject matter of the contract, the circumstances attending performance of the contract, and the situation of the parties to the contract. Id. The oral contract before us was an agreement to form, at an unspecified date, an entity that would purchase and manage real estate. We decline to hold that a party to such a contract has, by his failure to present at some point prior to closing a promissory note, necessarily failed to perform his contractual obligation. We thus cannot say the jury verdict was improper to the extent it was premised on the existence of a valid oral contract between Epperly and Johnson.

3. Actual Fraud

In August 1998, some three years after his original complaint for breach of contract and constructive fraud was filed, Johnson filed a Second Amended Complaint in which he added a third count alleging actual fraud. This count was premised on the allegation that Epperly lied to Johnson when he told Johnson that one of the partners involved in the Twisted Oaks⁴ golf course was concerned about Johnson's involvement in Pine Ridge.

Johnson alleged that after he and Epperly entered into and subsequently modified the oral agreement to buy Pine Ridge, Epperly called Johnson and asked him, as a "personal favor," (R. at 2599), to step out of the Pine Ridge deal for a maximum of six months because one of Epperly's Twisted Oaks partners had expressed concern about Johnson's participation in Pine Ridge. Epperly told Johnson that he would see to it that Johnson became a partner after the closing. Johnson did as Epperly had requested, and when the Pine Ridge purchase closed, Johnson's name was not on any of the documents. Some two months later, Johnson testified...