Franklin v. White

• Citation: 493 N.E.2d 161
• Decision Date: 22 May 1986
• Docket Number: No. 53S04-8605-CV-469,53S04-8605-CV-469
• Parties: Doyle R. FRANKLIN, Appellant, v. Thomas L. WHITE and Susan White, Appellees.
• Court: Supreme Court of Indiana

Page 161

493 N.E.2d 161

Doyle R. FRANKLIN, Appellant, v. Thomas L. WHITE and Susan White, Appellees.

No. 53S04-8605-CV-469.

Supreme Court of Indiana.

May 22, 1986.

Gary J. Clendening and James L. Whitlatch, Bunger, Harrell & Robertson, Bloomington, for appellant.

Lewellyn H. Pratt, Bloomington, for appellees.

William M. Evans and Steven K. Huffer, Bose McKinney & Evans, Indianapolis, for amicus curiae.

PIVARNIK, Justice.

This cause comes to us on a petition to transfer from the Fourth District Court of Appeals. Petition is brought by Doyle R. Franklin, Defendant and Appellant, who appealed from a judgment of the Monroe Superior Court awarding Plaintiffs-Appellees, Thomas L. and Susan White, $11,433.25, with interest, and ordered reconveyance of certain real estate to Petitioner Franklin.

The facts indicate little, if any, conflict. Franklin was developing a subdivision near Ellettsville, Indiana. The Whites intended to purchase a parcel of this real estate on which to build a home. Franklin told the Whites the property was suitable for a septic system. The parties then entered into a written contract for the sale and purchase of the parcel. Subsequently, Whites' application to the Monroe County Commission for a building permit was denied because the property was not certified as suitable for a septic tank system by the County Health Department. The Whites hired an engineering consulting firm which conducted percolation tests on the real estate by drilling three holes, filling them with water, and determining how long it took the water to percolate into the soil from each hole. The real estate failed these tests because of a lack of proper percolation. The firm accompanied the test results with a letter which stated:

"It should be noted, however, that the location of the test holes was not necessarily the best location on the property for a perk test, and that a test at a better location might pass."

The contract signed by the parties was silent as to the suitability of a septic tank system. The contract also provided an integration clause at Paragraph 14, stating:

"It is mutually understood and agreed that all previous communications and negotiations between the parties hereto, either verbal or written, which are not herein contained, are hereby withdrawn and annulled or merged in this agreement. The parties have read and understood the whole of this agreement and now agree and state that no representation, promise or agreement not expressed in this contract has been made to induce either party to enter into it and there have been no representations of the reasonable value of the property herein described which have been made to or by either party in this agreement and that each party is relying upon his own judgment of such value after a personal inspection of the premises. The covenants and agreements therein contained and set forth shall extend to and be binding upon the parties hereto and their respective heirs, executors, administrators, and assigns."

The trial court admitted oral representation to the Whites regarding the suitability of the property for a septic tank system and granted the Whites' prayer for recision of the contract on the basis of mutual mistake as to its suitability for a septic system.

Franklin appealed claiming the admission of his oral representation to the Whites as to its suitability for a septic system violated the parol evidence rule. He also argued the integration clause made this contract a whole contract complete unto itself and rendered extrinsic parol evidence inadmissible by agreement of the parties. Finally, he claimed there was insufficient evidence to show the real estate was not suitable for a septic system and therefore inadequate grounds were shown for recision based on mutual mistake of the parties.

The Court of Appeals, in Franklin v. White (1985), Ind.App., 479 N.E.2d 92, affirmed the judgment of the trial court but did so on additional grounds than those used by the trial court. The Court of Appeals did find that there was a mutual mistake as to a material fact and that recision of the contract was the proper remedy because the parties could be returned to the status quo. The Court of Appeals further found, however, that integration clauses in written contracts prohibit the introduction of otherwise admissible evidence and therefore are void as against public policy. We disagree with the latter holding of the Court of Appeals for two reasons. First, it was not necessary to reach the drastic conclusion of finding all integration clauses void to resolve this case and, second, such a pronouncement is an unreasonable limitation upon parties' right to contract. We accordingly grant transfer and vacate the opinion of the Court of Appeals but nevertheless affirm the judgment of the trial court.

The trial court found the Whites would not have purchased this real estate if they had known they could not build a house on it. The court further found Franklin did not know it was not suitable for the installation of the septic system at the time he sold the property to the Whites. There was thus a mutual mistake as to a material fact. It certainly was a material fact considering the facts and circumstances of this case. The parcel involved was one in a residential subdivision developed by Franklin and was therefore being sold for the purpose of residential use. Clearly, the purpose for which the Whites were purchasing this tract was to build a home.

The trial court properly determined the parol evidence rule did not exclude Franklin's oral representation to the Whites that the lot they were purchasing was suitable for residential use. Absent fraud by the seller, a purchaser may seek recision of the contract where he has relied upon misrepresentations as to a material fact by the seller. Gardener v. Mann (1905), 36 Ind.App. 694, 698, 76 N.E. 417, 418. The parol evidence rule has no application to exclude evidence of mistake. Brames v. Crates (1980), Ind.App., 399 N.E.2d 437; Myers v. Maris (1975), 164 Ind.App. 34, 326 N.E.2d 577; see also Estate of Harvey Huffer (1955), 125 Ind.App. 478, 126 N.E.2d 784. Also the parol evidence rule did not exclude Franklin's oral representation because this evidence was admissible to show Franklin's misrepresentation of material fact, whether intentional or not. In Clarke Auto Co., Inc. v. Reynolds (1949), 119 Ind.App. 586, 592, 88 N.E.2d 775, 778, the Appellate Court stated:

"Where there is a charge that the written contract was procured by fraud, then such conversations as to extrinsic warranties and representations may be heard for the purpose of determining whether there was such fraud as invalidates the contract of sale or constitutes a cause of action for damages.... The fact that the officer or agent of appellant who made the representations did not know of their falsity, does not bar appellee's recovery."

Such constructive or unintentional fraud may have been an alternative ground for the trial court's holding. White's proffered parol evidence was therefore admissible on the issues of mistake and constructive fraud since parol evidence is always admissible to prove any basis for recision of a contract.

The trial court's finding of mutual mistake, as clearly and correctly addressed by the Court of Appeals, was supported by sufficient evidence. The evidence at trial indicated the parcel was not certified by the county health department as suitable for a septic system, no building permit could be issued without such certification, and the parcel failed the percolation tests run by the engineering firm. Further, the evidence indicated both parties at the time of contracting thought the subject matter of the contract was a parcel suitable for residential use. The qualifying language used by the engineering report was merely speculative that holes drilled elsewhere might pass the test. There was therefore sufficient evidence to...