Indiana Bank and Trust Co. of Martinsville, Ind. v. Perry

• Citation: 467 N.E.2d 428
• Decision Date: 21 August 1984
• Docket Number: No. 1-1083A337,1-1083A337
• Parties: INDIANA BANK AND TRUST COMPANY OF MARTINSVILLE, INDIANA, Defendant-Appellant, v. James L. PERRY and Marjorie Perry, Plaintiff-Appellees.
• Court: Court of Appeals of Indiana

Page 428

467 N.E.2d 428

INDIANA BANK AND TRUST COMPANY OF MARTINSVILLE, INDIANA Defendant-Appellant, v. James L. PERRY and Marjorie Perry, Plaintiff-Appellees.

No. 1-1083A337.

Court of Appeals of Indiana First District.

Aug. 21, 1984.

Frank E. Spencer, Indianapolis, for defendant-appellant.

William T. Rosenbaum, Dillon & Cohen, Indianapolis, for plaintiff-appellees.

NEAL, Presiding Judge.

STATEMENT OF THE CASE

Defendant-appellant, Indiana Bank and Trust Company of Martinsville, Indiana (Bank), appeals a verdict rendered by a Brown County Circuit Court jury in favor of plaintiff-appellees, James L. Perry and Marjorie Perry (Perrys), in their suit for damages arising out of the purchase of a residence.

We reverse.

STATEMENT OF THE FACTS

In 1972 the Bank made a construction loan to a builder, Richard Venable, for the construction of a residence for re-sale in Foxcliff Estates near Martinsville. The loan was secured by a mortgage. Upon substantial completion, having been unable to sell the house Venable defaulted upon the loan. Upon suit and foreclosure of the mortgage the Bank purchased the property at the execution sale, and thereafter put it for sale. On April 16, 1976, the Bank's offer to purchase agreement was accepted by Perrys. That purchase agreement, and another agreement executed after closing, contained an exculpating clause which after reciting the foreclosure, stated in effect that Perrys purchased the property as is, relying entirely on their own inspection, and that the Bank would not be liable for any structural, mechanical or electrical problems associated with the property.

Evidence was presented at the trial that at the time of the sale the house, which was built on a hillside, had serious structural defects which were directly related to the type and depth of the soil. The construction of the house was such that the pillars in front of the house did not extend by footing to the bed rock, and the house had been settling forward and down, causing the walls to crack, pillars to fall, doors to slope, and windows to stick. The structure was seriously damaged by erosion and the movement of earth and trees, and was described as sliding down the hill to a river. During construction a foundation wall fell down three times. The back foundation wall was bowed, and water ran through it, ruining a carpet. There was evidence that if adequate repairs, costing $1,900.00, had been made after the Bank acquired title, the house could have been saved, but the Bank opted only to cause a swale and drain tile to be installed for $550.00 at the rear of the house to drain off the water, and as a result the house was further damaged and rendered worthless. There is also evidence that by virtue of conversations with realtors and contractors, and through their own visual inspection, bank officers knew of the defects prior to and at the time of the sale. During foreclosure the bank had petitioned the court for the appointment of a receiver to make repairs to prevent further damage to the house. However, it does not appear that the bank made any disclosure to Perrys about the house's defective condition. Nor did the Bank directly make any misrepresentations of any kind as to the quality of the house or its state of repair. The only evidence concerning misrepresentation occurred when Perrys, with their realtor, were inspecting the house prior to the purchase. They discovered the wet carpet and a pulled away pillar. Perrys' "... it was his understanding that the drain, the outside drain, was pulled away, or something because of the heavy equipment that had graded the yard, and that had been, that had been replaced, and the carpet was going to be replaced in that room where it was wet."

realtor asked the Bank's realtor the cause and was told that:

There was further evidence that portions of the inside of the house had been repainted which covered up water marks.

On February 19, 1982, Perrys brought their action alleging in Paragraph I negligent construction by the bank as a finishing contractor and vendor; Paragraph II, implied warranty of habitation; and Paragraph III, fraud. This last count proceeded on the theory that the Bank, with knowledge of the faulty condition, (1) failed to repair; (2) failed to make disclosure of known defects; and (3) misrepresented the condition of the house. The Bank filed numerous motions attacking the validity of these theories, including motions for summary judgment, a motion to dismiss, a motion for judgment on the evidence at the close of Perrys' evidence, and a renewal thereof at the close of all the evidence. These motions were overruled. The oral motions, later reduced to writing, for judgment on the evidence asserted that Count I, negligence, was barred by the two-year statute of limitations; Count II was not valid because the Bank was not a builder-vendor under Theis v. Heuer, (1972) 264 Ind. 1, 280 N.E.2d 300; and the evidence was insufficient under Count III to prove actionable fraud. As relevant here, upon the renewal of the motion for judgment on the evidence at the close of all of the evidence the trial court ruled:

"I'm going to deny his motion for summary judgment; uh, I'm going to reserve decision, and I want his written motion to dismiss one and two, uh, and I'm going to let this go to the jury on the question of fraud."

Throughout the remainder of the trial which concluded on June 23, 1983, in the record or in the instructions, there is no mention of, or statement regarding, the withdrawal of Counts I and II from the jury's consideration made by the court, the Bank or Perrys.

While the court in its preliminary instructions had instructed on the issues of negligence, warranty and fraud, its final instructions covered only the issue of fraud, and made no mention of the withdrawal of negligence or warranty. Two forms of verdict instructions were given: one directing the jury to find generally for the plaintiff without reference to any count or theory, and the other directing the jury generally to find for the defendant, which likewise made no reference to any count or theory. The jury's verdict for $50,000.00 was on the form for the plaintiff. The trial court stated in a special bill of exceptions dated January 12, 1984, that because his statement in his ruling on the motion for judgment on the evidence was ambiguous, he was certifying "that the ruling of this court sustaining the defendants' motion to dismiss Counts I and II of the Amended Complaint as to said defendant, was made that date, July 5, 1983". July 5 was the date he entered judgment on the verdict.

ISSUES

The Bank presents five issues for review. The first four issues all concern the sufficiency of the evidence to prove actionable fraud which we will discuss together as issue one. Issue five alleges a denial of a fair trial in withholding ruling on Counts I and II of the Bank's motion for judgment on the evidence until after the trial, and not informing the jury that they could not consider those issues. We will discuss that issue as issue two.

Issue I: Sufficiency of the Evidence

The question presented here is whether the conduct of the Bank amounted to actionable fraud. Perrys, in support of the verdict, first argue that the Bank had an affirmative duty to disclose defects. Tudor v. Heugel, (1961) 132 Ind.App. 579, 178 N.E.2d 442, reaffirmed the doctrine of caveat emptor as applied to real estate transactions, and stated that a seller could not be liable absent false representations or express warranties. Theis, supra, relaxed the rule and held that an implied warranty of fitness runs from a builder-vendor of a new house to a purchaser for latent defects not discoverable by reasonable inspection. Barnes v. MacBrown and Company, (1976) 264 Ind. 227, 342 N.E.2d 619, extended the doctrine to second purchasers. Vetor v. Shockley, (1980) Ind.App. 414 N.E.2d 575 held that there was no implied warranty with respect to a non-builder vendor. Ordinarily a seller is not bound to disclose any material facts unless there exists a relationship for which the law imposes a duty of disclosure. Fleetwood Corp. v. Mirick, (1980) Ind.App., 404 N.E.2d 38; 91 C.J.S. Vendor and Purchaser, Sec. 57; Baker v. Meenach, (1949) 119 Ind.App. 154, 84 N.E.2d 719. It is therefore clear that in this instance mere silence is not actionable fraud.

However, if a seller undertakes to disclose facts within his knowledge, he must disclose the whole truth without concealing material facts and without doing anything to prevent the other party from making a thorough inspection. For, if in addition to his silence, there is any behavior of the seller which points affirmatively to a suppression of the truth or to a withdrawal or distraction of the other parties' attention to the facts, the concealment becomes fraudulent. Baker, supra; 91 C.J.S. Vendor and Purchaser, Sec. 57. It was stated in Fleetwood, supra, quoting from Rochester Bridge Co. v. McNeil, (1919) 188 Ind. 432, 122 N.E. 662, 664, that:

"[w]here a party represents a material fact to be...