Johnson v. Wysocki
2013 Ind. LEXIS 476
| Ind. | 2013Background
- In 2006 the Johnsons (as trustees) sold a single-family home to the Wysockis, completing Indiana’s mandatory Seller’s Residential Real Estate Sales Disclosure Form before sale. The buyers waived additional inspection after a limited inspection report.
- After closing the Wysockis discovered multiple defects (pool electrical code violations, roof/porch water leakage, a deflected front porch beam, and deteriorating screened-porch supports) and incurred substantial repair costs.
- The Wysockis sued the Johnsons for fraudulent misrepresentation based on the Disclosure Form and obtained a damages award at bench trial; the trial court found the defects existed prior to sale and assessed damages but denied statutory treble/fee relief.
- The Court of Appeals reversed, holding the Wysockis failed to prove the sellers had actual knowledge of defects; the Supreme Court granted transfer.
- The Indiana Supreme Court held that Indiana’s residential disclosure statutes abrogated the old caveat emptor rule for transactions covered by the statutes and that sellers may be liable for fraudulent misrepresentations on the Disclosure Form if they had actual knowledge the representation was false when completing it.
- The Supreme Court reversed and remanded because the trial court had applied an incorrect standard—finding defects “should have been obvious” rather than requiring actual knowledge—and directed the trial court to reassess factual findings under the correct legal standard.
Issues
| Issue | Wysocki (Plaintiff) Argument | Johnson (Defendant) Argument | Held |
|---|---|---|---|
| Whether Indiana’s Disclosure Statutes displace caveat emptor for covered residential sales | Statutes create liability for sellers who make false disclosures on the statutory form; buyer reliance is presumed for listed items | Statutes only supplement common law and the Warning Provision prevents use of form statements as basis for fraud where buyer had inspection | Statutes abrogate common-law caveat emptor for transactions within their scope; sellers liable for fraudulent misrepresentations on the form if they had actual knowledge false when completed |
| Whether the Warning Provision (I.C. §32-21-5-9) bars fraud claims when buyer obtained inspection | Disclosure Form still creates actionable representations even if not a warranty; Warning Provision only bars warranty claims | If buyer obtained independent inspection and closed, the Warning Provision prevents reliance on form for fraud | Warning Provision does not eliminate fraud liability; it merely prevents converting disclosures into contractual warranties |
| Required mens rea to hold seller liable under Disclosure Statutes | Seller liable if they knew their disclosure was false when completing the form; actual knowledge can be inferred circumstantially | Seller contends buyer must show actual knowledge and lack of inspection-based reliance; or seller lacked actual knowledge | Court requires actual knowledge at time of completion; actual knowledge may be proven circumstantially but "should have known" is insufficient |
| Application to this case — sufficiency of trial court findings | Trial court’s findings support liability but used lower "should have been obvious" standard | Johnsons argue record supports actual knowledge and judgment should be affirmed | Court reverses and remands for new findings because trial court applied wrong legal standard; declines to make factual credibility determinations on appeal |
Key Cases Cited
- Reed v. Reid, 980 N.E.2d 277 (Ind. 2012) (elements of fraudulent misrepresentation)
- Rice v. Strunk, 670 N.E.2d 1280 (Ind. 1996) (fraud elements and reliance discussion)
- Cagney v. Cuson, 77 Ind. 494 (Ind. 1881) (traditional caveat emptor rule in property sales)
- Dickerson v. Strand, 904 N.E.2d 711 (Ind. Ct. App. 2009) (Court of Appeals split on effect of disclosure statutes; dissent urged abrogation of caveat emptor)
- Hizer v. Holt, 937 N.E.2d 1 (Ind. Ct. App. 2010) (adopted view that disclosure statutes permit fraud liability for sellers with actual knowledge)
- Fimbel v. DeClark, 695 N.E.2d 125 (Ind. Ct. App. 1998) (when specific inquiry is made seller must fully disclose all problems)
- Thompson v. Best, 478 N.E.2d 79 (Ind. Ct. App. 1985) (seller must disclose whole truth; cannot partially disclose to create false impression)