Johnson v. Wysocki, 45S04–1211–CT–634.

• Citation: 990 N.E.2d 456
• Decision Date: 25 June 2013
• Docket Number: No. 45S04–1211–CT–634.,45S04–1211–CT–634.
• Parties: Barbara A. JOHNSON and William T. Johnson, both individually and as trustees of the Barbara A. Johnson Living Trust Dated 12–17–1996, Appellants (Defendants below), v. Joseph WYSOCKI and M. Carmen Wysocki, Appellees (Plaintiffs below).
• Court: Supreme Court of Indiana

990 N.E.2d 456

Barbara A. JOHNSON and William T. Johnson, both individually and as trustees of the Barbara A. Johnson Living Trust Dated 12–17–1996, Appellants (Defendants below),

v.Joseph WYSOCKI and M. Carmen Wysocki, Appellees (Plaintiffs below).

No. 45S04–1211–CT–634.

Supreme Court of Indiana.

June 25, 2013.

Katherine A. Brown–Henry, Indianapolis, IN, Attorney for Appellants.

Shaun T. Olsen, Merrillville, IN, Attorney for Appellees.

On Petition to Transfer from the Indiana Court of Appeals, No. 45A04–1111–CT–00610

DAVID, Justice.

The owners of a home sold it after completing Indiana's statutory disclosure forms, attesting to the home's condition. Shortly after moving in, the buyers discovered a number of defects that required considerable expense to remedy. The buyers sued the former owners, alleging fraudulent misrepresentation. The question is whether Indiana's Disclosure Statutes create such a claim or if the common law still prevails and the principle of caveat emptor effectively ends the buyers' case. Today we hold that the General Assembly's adoption of the Disclosure Statutes abrogated our common law jurisprudence for those transactions falling within their scope.

Facts and Procedural History

In 1973, William and Barbara Johnson purchased a single-family home in Lake County, Indiana. In 1996, the Johnsons established the Barbara A. Johnson Living Trust and deeded the property to the Trust. They lived in the home continually, with William Johnson doing most renovation work that arose.

In 2006, the Trust sold the property to Joseph and M. Carmen Wysocki for $235,000. Prior to finalizing the purchase agreement, Barbara Johnson—in her position as trustee—executed a Seller's Residential Real Estate Sales Disclosure Form in which she averred that there were no violations of applicable building codes, that all work had been done with a building permit when required, that there were no foundational or structural problems, and that there were no issues with moisture, water, or roof leakage. The Wysockis acknowledged and signed the Disclosure Form on July 11, 2006. The next day they signed a purchase agreement for the property, electing in that agreement to obtain their own independent inspection before closing.

The Wysockis' independent inspection noted no roof leaks, major deficiencies, electrical issues, or structural defects. However, it was limited to “readily accessible areas of the building” and “visual observations of apparent conditions existing only at the time of the inspections.” (App. at 84.) “Latent and concealed defects and deficiencies” were excluded. (App. at 84.) The Wysockis then waived any further independent inspections and agreed to accept the property in the “as is” condition as reported in the inspection. Closing occurred on July 28, 2006.

Shortly after taking possession, the Wysockis began noticing issues with the property. At the first substantial rain, they discovered water leaking into the garage and cascading down the wall of their front porch. That fall, when they closed the swimming pool for the season, they discovered electrical issues with the pool system. An electrical inspector for the City of Crown Point found numerous electrical code violations in the wiring to the pool, and the repair necessitated going under the property's screened-in rear patio. While under the patio, the Wysockis discovered that the patio's structural supports appeared to be resting on bare earth.

The Wysockis then hired a consulting engineer to examine the property. He noted a broken or deflected beam in the front porch that needed to be replaced and that the roof intersection of the porch and garage did not come together properly, with a number of defects that would cause water leakage from that point. Additionally, he noted defects in the attic above the garage—including an improperly cut ceiling joist and water damage directly below the improper roof intersection. Below the screened-in patio, the engineer found that many of the deck posts were resting on the ground and beginning to decay; others did not reach the ground at all and were instead resting on shims of concrete blocks and other materials. The Wysockis spent $1200 to repair the electrical service to the pool, $3494.74 to repair the roof intersection, and had estimates of $2786.86 to repair the broken front beam and $6324.54 to repair the patio supports.

The Wysockis filed suit against the Johnsons individually and as trustees of the Trust. Count I of their complaint alleged fraud arising from the Johnsons' failure to disclose the defects discovered by the Wysockis after closing. Count II alleged a breach of contract or, alternatively, conversion arising out of the Johnsons' removal of pump systems connected to the pool and several landscaping ponds. They sought compensatory damages and pursuant to the Indiana Crime Victims Relief Statute, treble damages, attorney fees, costs, and interest.

The trial court granted summary judgment in favor of the Johnsons with respect to Count II of the Wysockis' complaint. A bench trial was held on Count I, with the trial court finding the Johnsons liable for the defective electrical service to the pool, the roofing above the front porch, the front porch beam, and the screened-in patio supports. It awarded damages in the amount of $13,805.95, but denied their request for relief under the Indiana Crime Victims Relief Statute. The Wysockis filed a motion to correct errors seeking an additional $13,500 in attorney and expert fees. The trial court denied their motion and both parties appealed.

The Court of Appeals, in an unpublished memorandum decision, affirmed in part and reversed in part. Johnson v. Wysocki, 2012 WL 3067898 (Ind.Ct.App. July 30, 2012). It found that the Wysockis failed to show that the Johnsons had actual knowledge of the defects and so reversed the trial court's judgment in favor of the Wysockis. Id. at *5. It therefore also affirmed the trial court's denial of relief under the Indiana Crime Victims Relief Statute. Id.

We granted transfer, 978 N.E.2d 416 (Ind.2012) (table), thereby vacating the Court of Appeals decision. Ind. Appellate Rule 58(A).

Standard of Review

When a case proceeds to trial and the court enters findings of fact in support of its judgment, we will not set aside those findings of fact or that judgment unless they are clearly erroneous. Woodruff v. Ind. Family and Social Serv. Admin., 964 N.E.2d 784, 790 (Ind.2012); seeInd. Trial Rule 52(A). Findings of fact are only clearly erroneous if there is no factual support for them in the record whatsoever, either directly or by inference. Woodruff, 964 N.E.2d at 790;Yanoff v. Muncy, 688 N.E.2d 1259, 1262 (Ind.1997). A judgment is only clearly erroneous “if it applies the wrong legal standard to properly found facts.” Id. (quoting Nichols v. Minnick, 885 N.E.2d 1, 3 (Ind.2008)). In either case, we must be left “with the firm conviction that a mistake has been made.” Yanoff, 688 N.E.2d at 1262.

I. Caveat Emptor and Indiana's Disclosure Statutes

To succeed in an ordinary claim for fraudulent misrepresentation, the Wysockis would be required to prove by a preponderance of the evidence that a “(i) material misrepresentation of past or existing facts by the party to be charged (ii) which was false (iii) which was made with knowledge or reckless ignorance of the falseness (iv) was relied upon by the complaining party and (v) proximately caused the complaining party injury.” Reed v. Reid, 980 N.E.2d 277, 292 (Ind.2012) (quoting Rice v. Strunk, 670 N.E.2d 1280, 1289 (Ind.1996)). Their particular claim, however, arises from the sale of real property—a body of law drawing upon a number of different sources.

With respect to the sale of property, the rule of law in this state has long been that “the purchaser has no right to rely upon the representations of the vendor as to the quality of the property, where he has a reasonable opportunity of examining the property and judging for himself as to its qualities.” Cagney v. Cuson, 77 Ind. 494, 497 (1881). This is true even “[a]s to fraudulent representations operating as an inducement to the sale or exchange of property.” Id. The rule loses its force, however, when the defect is not one that would be revealed by the reasonable inspection. See Shepard v. Goben, 142 Ind. 318, 319, 39 N.E. 506 (1895) (favorably citing jury instruction providing “that the vendor could not defeat a recovery by showing an inspection of the land, if it appeared that an inspection would not disclose the deceit in the alleged false representations”).

Were this harsh rule—reflecting as it does our court's application of the “buyer beware” doctrine of caveat emptor—the only one to apply, the Wysockis might have no claim whatsoever. They not only had the opportunity to have the property inspected, but they actually did so. And the record indicates that the inspector went into the attic and onto the roof, making it unlikely that those defects could not have been seen. But at the same time, some effort was required to remove flooring and lattice work in order to access the underside of the screened-in patio, casting doubt on whether those defects were visible to an ordinary inspection.

All the same, the sale here is also directly addressed by the provisions of Indiana's residential real estate sales disclosure statutes. Ind.Code chapter 32–21–5.¹ Section 7 of this chapter requires the Indiana Real Estate Commission to adopt a disclosure form for sellers like the Johnsons. Ind.Code § 32–21–5–7 (2008). The disclosure must contain

the known condition of the following:

(A) The foundation.

(B) The mechanical systems.

(C) The roof.

(D) The structure.

(E) The water and sewer systems.

(F) Additions that may require improvements to the sewage disposal system.

(G) Other areas that the Indiana real estate commission determines are appropriate.

Ind.Code § 32–21–5–7(1). This form must be completed, signed, and...