Indiana Law Review


XIV. Property

N. Kent Smith*
Mark R. Wenzel**

Numerous cases involving the law of property were decided dur-
ing the current survey year, and an unusually large number of these
made important advances or changes in the law. Many involved in-
teresting factual settings. These cases will be discussed under the

following headings: (A) bailments, (B) easements and restrictive

covenants, (C) joint ownership, (D) landlord and tenant relations, (E)

land ownership in general, (F) lateral and subjacent support, (G)

water law, and (H) real estate transactions. Topics not covered

under these headings are: adverse possession,^ conditional land sale

contracts,^ and mineral rights.^ It is not possible to deal with every

*Law Clerk to the Honorable Gene E, Brooks, United States District Court for
the Southern District of Indiana, and member of the Indiana Bar; J.D., Indiana Univer-
sity School of Law — Indianapolis, 1981.

Associate with the law firm of Thornburg, McGill, Deahl, Harman, Carey &
Murray — South Bend, Indiana, and member of the Indiana Bar; J.D., Indiana University
of Law — Indianapolis, 1981.

Two adverse possession cases were decided during the the current survey
period. Both Connors v. Augustine, 407 N.E.2d 1186 (Ind. Ct. App. 1980) and Ford v.

Eckert, 406 N.E.2d 1209 (Ind. Ct. App. 1980) involved disputed boundary lines. In each

of these cases a successor in interest was claiming to have acquired title to a strip of

land abutting a misplaced fence which separated his or her property from a neighbor.

In holding for the parties claiming title by adverse possession, both courts found that

the general elements of adverse possession were satisfied. Both courts permitted the

adverse possessor to tack his possession to that of a former owner to make up the
statutory period. In addition, both courts held that in boundary disputes involving

fences, the requirement that one pay taxes on property held adversely was inap-
plicable because the purpose of that requirement was to give notice of the adverse
possession, and the erection of the fence satisfied that requirement. The one distinc-
tion between the cases is that the Connors court applied a ten year statutory period

under the present statute, while the Ford court applied the period from an older

statute.

^A number of cases involving conditional land sale contracts and the doctrine of
Skendzel v. Marshall, 261 Ind. 226, 301 N.E.2d 641 (1973) were decided during the

survey period. For a discussion of these cases, see Townsend, Secured Transactions

and Creditors' Rights, 1981 Survey of Recent Developments in Indiana Law, 15 Ind.
L. Rev. 367, 371 (1981).

Two interesting mineral rights cases were decided during the survey period,
both challenging the constitutionality of statutory enactments. State v. Andrus, 501 F.

Supp. 452 (S.D. Ind. 1980), reversed sub nom. Hodel v. State, 49 U.S.L.W. 4667 (June

15, 1981) dealt with a challenge to the Federal Surface Mining Act, and Short v. Tex-

aco, Inc., 406 N.E.2d 625 (Ind. 1980), prob. jurisdiction noted, 49 U.S.L.W. 3710 (March

23, 1981) dealt with a challenge to the Indiana Mineral Lapse Act. For a further discus-
sion of these cases see Neff, Constitutional Law, 1981 Survey of Recent Developments
in Indiana Law, 15 Ind. L. Rev. 125, 152 (1981).

319



320 INDIANA LAWREVIEW [Vol. 15:319

property case decided, thus, some are treated only very briefly if at
all/

A. Bailments

Two cases during the survey period dealt with the issue of a
bailee's liability for loss to property occuring during a bailment.^ In

both cases the court essentially made the bailees insurers of the
bailed goods: in one case because of a written contract imposing

liability for loss on the bailee and in the other case because of an

oral agreement to the same effect.
In Nimet Industries, Inc. v. Joy Manufacturing Co.,^ the plaintiff

delivered pistons to the defendant bailee to undergo an anodizing

treatment process. The pistons were destroyed in a fire at the de-
fendant's plant and the plaintiff brought an action to recover their

value. The trial court held for the plaintiff and the defendant ap-
pealed.^ The court first stated the general rule that "[o]rdinarily, a
bailee is not liable for the loss of property in his possession absent a

finding that he was at fault or otherwise failed to exercise reason-
able care."* The court went on, however, to say that the parties to a
bailment agreement could, by contract, enlarge the bailee's legal

responsibility for the bailed property.^ The case turned on the risk
of loss provision in the parties' contract, and the court interpreted

the contract to make the bailee responsible for the loss of the plain-
tiff's pistons while in the defendant's control, regardless of the cause

of such loss.^*^

*There were no significant statutory developments during the survey period.

^Nimet Indus., Inc. v. Joy Mfg. Co., 419 N.E.2d 779 (Ind. Ct. App. 1981); Spencer

V. Glover, 412 N.E.2d 870 (Ind. Ct. App. 1980).
«419 N.E.2d 779 (Ind. Ct. App. 1981).

7d at 780.
Yd at 781. The fire in this case resulted from arson perpetrated to cover up a

burglary; thus, there was no negligence on the part of the bailee. Id.

Ud. However, the converse — that the bailee may, by contract, narrow the scope
of his liability — is not necessarily true. Generally, a court will permit a bailee to
escape liability imposed by law if he establishes that the bailor saw and accepted this

term in the bailment contract. However, even if this is shown, a court may refuse to
enforce the agreement on the ground of public policy. See R. Boyer, Survey of the

Law of Property 690 (3rd ed. 1981); cf. General Grain, Inc. v. International Harvester
Co., 142 Ind. App. 12, 232 N.E.2d 616 (1968) (stating similar rule in connection with pro-

fessional bailees). Contra, Restatement of Contracts § 402 (1932).
*"The relevant portion of the contract read.

Vendor [bailee] shall be responsible for loss of or damage to any and all pat-

terns, molds, tools, dies or templates delivered by Purchaser to Vendor and

for loss or damage to any machinery upon which work is to be performed by

Vendor while in its possession or control, however such loss or damage may
incur [sic].

419 N.E.2d at 781 (emphasis in original). The defendant argued that the pistons did not

fall under any of the provisions in the risk of loss provision and therefore were not



1982] PROPERTY 321

In Spencer v. Glover,^^ the plaintiff purchased a truck from the

defendant, and under the sales agreement the defendant agreed to

install a winch on the truck after delivery. The defendant later took
possession of the truck and drove it to Flat Rock, Michigan to have

the winch installed. During the night the truck was stolen.^^
Although there was some dispute about the exact language

used, it is clear that at the time the defendant took possession of

the truck he had made an oral promise to the plaintiff that the truck
would be returned in as good a condition as when it was taken.
When the truck was not returned, the plaintiff brought an action in
two counts: one in negligence against the defendant, as a bailee, and
another in absolute liability under the oral contract of bailment.^^

The trial court entered judgment for the plaintiff for the value of
the truck without special findings of fact or conclusions of law.^"

The court of appeals affirmed the trial court's judgment on the
merits of the second count — absolute liability — and therefore did not
address the negligence issue. The court, as in Nimet, held that the
general rule of the liability of bailees could be altered by contract.^^

The court rejected the defendant's contention that this case was
distinguishable from two previous Indiana cases with similar facts

because in Spencer there was only an oral bailment contract.^^ The
court held that the validity of a bailment contract was governed by
the general rules of contract law, under which an agreement such as
this was enforceable even though not in writing.^^

Although neither the Nimet or Spencer courts dealt specifically
with this factor, two other Indiana cases seem to have required that
the bailee's assumption of extraordinary liability be clear and un-

equivocal to be binding.^^ To the extent that Nimet and Spencer in-

covered. The court, however, found that the pistons fell under the clear meaning of the

term "machinery." This having been established, the risk of loss provision clearly

made the bailee liable for any losses which occured.
"412 N.E.2d 870 (Ind. Ct. App. 1980).

'^The defendant parked the truck in front of a respectable motel. He was not sure
if he had locked the truck, but he had retained the keys.

''Id. at 871-72.

''Id. at 872.

'Ud. at 872-73. The court's statement of the general rule of liability for injury or

destruction of goods was somewhat different than that in Nimet. The Spencer court

said that the fact that the goods were received by the bailee in good condition and

returned to the bailor in damaged condition gives rise to an inference of fault or
neglect on the part of the bailee. Id. at 873 (quoting Hainey v. Zink, 394 N.E.2d 238,

241 (Ind. Ct. App. 1979)).

''See Light v. Lend Lease Transp. Co., 129 Ind. App. 234, 156 N.E.2d 94 (1959);
Morrow, Inc. v. Paugh, 120 Ind. App. 458, 91 N.E.2d 858 (1950).

^'412 N.E.2d at 873-74.

'^See Light v. Lend Lease Transp. Co., 129 Ind. App. 234, 248-51, 156 N.E.2d 94,
102-03 (1959); Morrow, Inc. v. Paugh, 120 Ind. App. 458, 464-65, 91 N.E.2d 858, 860-61

(1950).



322 INDIANA LAWREVIEW [Vol. 15:319

volved clear and unequivocal agreements by the bailees to accept
liability beyond that imposed by law^* they are consistent with prior

cases. Spencer does, however, make an important advance in that it
is now clear that an oral agreement by a bailee to assume extraor-
dinary liability may be enforced.

B. Easements and Restrictive Covenants

The most significant case involving the enforceability of restric-
tions and covenants decided during the current survey period was
Kuchler v. Mark II Homeowners Association Inc.^^ In Kuchler, home-
owners residing in the Mark II Subdivision sought declaratory relief
against the Mark II Homeowners Association contesting the power
of the association as established under a Declaration of Convenants

and Restrictions.^^

The Mark II Subdivision consisted of three separate sections
under development by the Fortress Development Co. Although a
preliminary plat of the entire tract had been presented to the zoning

board for initial approval. Fortress recorded three separate final

plats covering each of the three sections under development. Specifi-

cally, final plats for each of the three sections of the development

were recorded on June 6, 1973, April 26, 1974, and May 2, 1975 re-
spectively. In addition to these filings, Fortress also recorded a

document entitled ''Declaration of Covenants and Restrictions." This
document, recorded on April 25, 1974, established various restric-

tions on the property owned by the developer and provided for the
creation of a mandatory homeowners association for the purpose of
maintaining a two-acre plot of common ground located in Section III
of the subdivision.^^ The Mark II Homeowners Association was sub-
sequently established on April 19, 1978. Of the three separate final

plats recorded on the development, only the plat recorded for Sec-
tion II specifically incorporated by reference the Declaration of Co-
venants.

The trial court in Kuchler determined on the above facts that
Section II was the only section of the three composing the Mark II
Subdivision which was burdened by the Declaration of Covenants.^^
Both parties appealed this determination.^"* The homeowners that liv-
ed in Section II of the subdivision contested the trial court's deter-

mination that their land was burdened and the association contested

'^See 412 N.E.2d at 873-74; 419 N.E.2d at 781.

^"412 N.E.2d 298 (Ind. Ct. App. 1980).

"M at 299.
^^The association, a not-for-profit corporation, was to comprise all lot owners and

was to maintain the common ground by levying mandatory assessments upon the lot
owners, collectible through liens on the various lots.

2^12 N.E.2d at 299.

^'Id.



1982] PROPERTY 323

the determination that Section III was not so burdened.^®
The primary argument advanced by the homeowners on appeal

was that the Mark II Subdivision was, in fact, an integrated whole.
Therefore, because eleven of the lots contained in Section I of the

development had been sold prior to the recording of the Declaration

of Convenants, the homeowners contended that the developer could
not thereafter place further restrictions on the remainder of the

subdivision.^^ The court of appeals, however, rejected this contention
stating that although a single plat had been submitted to the zoning

board for its approval, it was the final plat which was of controlling
importance for purposes of recording and deeding the property."

Thus, since three separate plats had been recorded, there were, in

effect, three separate subdivisions created. The court of appeals af-
firmed the trial court's determination that further restrictions could

be placed on Sections II and III even though several lots of Section I

had been previously sold.^®

With respect to the association's contention that Section III of

the subdivision should likewise be burdened by the Declaration of

Covenants, the court of appeals stated that " '[t]here are two
methods of creating restrictions upon the use of property. One is by
express covenants contained in the deed, and the other is by a

recorded plat of the subdivision and a purchaser buys lots in the

subdivision with reference to the plat.' "^^ Although none of the

deeds involved in Kuchler contained the Declaration of Covenants,

the court observed that the plat of Section II did incorporate the

Declaration by reference.^" The plat to Section III contained no such
reference and the court, on that basis, found no error in the trial

court's conclusion that only Section II of the subdivision was burdened
by the Declaration of Covenants and Restrictions.^^

The Indiana Court of Appeals decided two interesting easement
cases during this survey period.^^ The first of these cases dealt with

""Id.

''Id.

"M at 300 (citing Ind. Code § 17-3-43-1 (1976)).
28412 N.E.2d at 300. Because Section I was not part of the appeal, the court

declined to comment on the issue of whether the developer could place further restric-
tions on that Section following the sale of the eleven lots. Id. at n.l.

2«M at 300 (quoting Wischmeyer v. French, 231 Ind. 282, 288, 107 N.E.2d 661, 664

(1952)).

^0412 N.E.2d at 300.

^Vd. The court acknowledged the principle that when a general scheme is evi-
dent, the omission of the restrictions from some of the deeds will not inhibit the plac-

ing of a burden on the entire tract. Id. However, the court stated that because each of

the three sections of the subdivision was separate and independent, the recordation of

the Declaration of Covenants could not prevail over a complete omission of the restric-

tions from the deeds of an entire section of the subdivision. Id.

'^Two less significant cases decided during this survey period which involved

easements were Brademas v. Carriage House of Mishawaka II, 413 N.E.2d 991 (Ind. Ct.



324 INDIANA LAWREVIEW [Vol. 15:319

the quality and nature of the property right which passes upon the
grant of an easement. The second case examined the similarity be-
tween easements and irrevocable licenses with respect to the rights
of purchasers who take the property for value and without notice.

In Board of Commissioners v. Joeckely^^ the defendant, the Board
of Commissioners of Vanderburgh County, acquired two separate
easements from the plaintiff, Mrs. Joeckel, to accomodate the con-

struction of a bridge project. The easements were granted pursuant
to negotiations, and the plaintiff was paid a total of $2,260. No men-
tion was made, either during the negotiations or in the easement
itself, concerning the ownership of timber located upon one of the
easements. The subcontractor engaged by the defendant to clear the
easement had submitted its bid with the qualification that it would

receive the timber located on the easements. The subcontractor cut
the timber and sold it for a total of $4,252.91. Mrs. Joeckel subse-
quently brought an inverse condemnation suit for the value of the

timber. Although conceding that the defendant could properly clear

the timber from the property in furtherance of its use and enjoy-

ment of the easement, the plaintiff contended that the grant of the
easement, standing alone, did not give the defendant an ownership

interest in the timber. The trial court sustained this contention and
the Board of Commissioners appealed.^*

The court of appeals, following a discussion of the general law of
easements, stated that the acquisition of property by eminent do-
main must be for public use,^^ and that the acquisition of property
for use as a roadway gives the public merely a right of passage.^®
Thus, the owner of the property over which a highway is con-
structed remains the owner in fee of the soil, minerals, and trees
located upon the easement so long as that ownership is not inconsis-
tent with the public use.^^ The court observed that the cutting and
marketing of the plaintiffs trees "could hardly be classified as a

public purpose"^^ and concluded "that the trees may be removed by
the holder of the easement if such removal is reasonably necessary
to effect the enjoyment of the easement, but the property interest

App. 1980) (discussing the procedure and statutes applicable to the vacation of streets

necessity against a conditional buyer of a portion of the property was barred by In-

diana Trial Rule 13(A)) and Citizens of Heron Bay v. Gore, 409 N.E.2d 1228 (Ind. Ct.
App. 1980) (discussing the procedure and statutes applicable to the ;vacation of streets

or alleys outside corporate limits of cities and towns).

'M07 N.E.2d 274 (Ind. Ct. App. 1980), transfer denied, Nov. 3, 1980.

^'Id. at 277.

^^Id. at 278.

^"M at 277-78.

'Ud. at 278.

^Id.



1982] PROPERTY 325

in the trees does not pass."^^ The court of appeals affirmed the
award of damages in favor of Mrs. Joeckel/"

In Industrial Disposal Corp. v. City of East Chicago,^^ the plain-

tiff, Industrial, filed an inverse condemnation action against the city

when it discovered a water main buried beneath a parcel of property
which it had purchased from the New York Central Railroad Com-
pany. The evidence indicated that the construction of the water
main had been authorized by an instrument executed and delivered

to the city by the railroad on the payment of $6,450 consideration.'*^
The instrument was never recorded and the plaintiff had no actual
notice of the City's use when it purchased the property from the
railroad."^

The issue in Industrial Disposal Corp. became whether the in-
strument created an easement in favor of the city or a license given

for an indefinite period."* After much discussion on the differences
between licenses and easements,*^ the court held that Industrial may
have acquired the realty free of the city's interest in it regardless of

whether the instrument was a license or an easement."^ The real
question seems to have been whether or not Industrial took the land
with either actual or constructive notice of the city's rights in it."^

The court of appeals remanded the case for further determination.48

C. Joint Ownership

One major case concerning joint ownership was decided during
the survey period.'*® Wienke v. Lynch^^ involved a conveyance of

''Id. at 280.

"407 N.E.2d 1203 (Ind. Ct. App. 1980).

"M at 1204.

"M at 1204-05.
«M at 1205.
"M at 1206.

*»Wienke v. Lynch, 407 N.E.2d 280 (Ind. Ct. App. 1980). Two less significant cases
involving joint ownership were also decided during the survey period. In Cooper v.

LaPorte Bank & Trust, 415 N.E.2d 778 (Ind. Ct. App. 1981), the court found that an
authorization card, along with evidence that the card was intended only to enable the

plaintiff to pay bills on behalf of the owner of the account, created a power of attorney

in the plaintiff and did not make her a joint owner. Thus, the joint bank account

statute was not applicable and the plaintiff was not entitled to any of the funds upon

the death of the owner. Id. at 779. In Curtis v. Hannah, 414 N.E.2d 962 (Ind. Ct. App.

1981), the court examined the question of whether each of three cotenants were bound

by an agreement that not all of them had signed. Id. at 964-65. The court reasoned that

because it was possible for cotenants to agree to be bound even if all did not sign the

agreement, it was a question of the parties' intent. Id.
'"407 N.E.2d 280 (Ind. Ct. App. 1980).



326 INDIANA LAWREVIEW [Vol. 15:319

entireties property by one spouse without the other's consent. The
court gave effect to the conveyance on the equitable grounds of

laches and acquiescence."

In this case, Elsie Wienke conveyed by warranty deed property
owned by the entireties with her husband, Walter, to Colonial Dis-
count Corporation. Although the conveyance was made over
Walter's objection, he did appear with his wife for the closing.

Walter did not sign the deed, however, and remained outside while

Elsie signed. Colonial recorded its deed, made improvements on the
land with Walter's knowledge, and subsequently conveyed the prop-

erty by warranty deed to the Lynches who recorded their deed.
About three years after Elsie's conveyance, Walter initiated

dissolution proceedings against her. Although Walter was informed
by his attorney that he had a legal interest in the property Elsie

had conveyed, the property agreement between Elsie and Walter
was silent with respect to the entireties property. About two years
later Walter brought suit to quiet title to the property. The trial
court held for the Lynches, and Walter appealed.^^

The court of appeals held that "[hjusband and wife have no
separable interest in entireties property, therefore, a conveyance by

one tenant is ineffective to pass legal title."^^ However,

[a] finding that the conveyance is ineffective . . . does not

lead to the conclusion that the underlying legal interest is

immune from equitable defenses of laches and acquiescence.
The doctrines of laches and acquiescence are directed at the

actions, not the legal interests, of the party against whom
they are raised.^''

The court found that the defenses of laches and acquiescence
were applicable and could bar Walter's assertion of legal title. The
court found support for this holding in two early Indiana cases.^*

The court rejected arguments by the defendant that the trial
court had erred in computing the period of delay ,^® that the Lynches
were not prejudiced by Walter's delay in asserting his title," and

"M at 283-84.
'^Id. at 282.

^^Id. at 283. The court suggested in a footnote that the unilateral conveyance of
entireties property was "inoperable" rather than "void." Thus, a conveyance by one
spouse was inoperable and passed no title; however, if the other spouse later joined

the conveyance or deeded his or her interest to the other, the deed would become
operable as of the date of the unilateral conveyance. Id, at n.3.

"M at 283-84.
^Ud. at 284 (discussing Hutter v. Weiss, 132 Ind. App. 244, 177 N.E.2d 339 (1961)

and Harwood v. Masquelette, 95 Ind. App. 338, 181 N.E. 380 (1932)).
5M07 N.E.2d at 284-85.

"M at 285.



1982] PROPERTY 327

that the Lynches' use of the equitable defenses of laches and ac-

quiescence was barred because they had constructive notice of
Walter's interest.^® Walter argued that the period of delay relevant

for determining laches was the ten months between the time Colonial
bought the property from Elsie and later sold it to the Lynches,

because that was the only period in which anyone could have been
misled by his inaction. The court rejected this argument on the
grounds that laches does not involve reliance. The period of time
began when Walter learned of his legal claim — when he arrived for
the sale of the entireties property by his wife in 1972 — and ended
when he asserted his claim in 1977, some five years later.^^

The court also found that the Lynches had been prejudiced by
Walter's delay. Prejudice was established by the payment of taxes
and by the bearing of the burdens and risks of property ownership

by both Colonial and the Lynches and by the improvements made by
Colonial.^" The court also rejected Walter's claim that the provisions
of the Occupying Claimants Act^^ prevented any prejudice, because

"the statute is not the exclusive remedy for persons paying taxes
and making improvements under color of title."^^ Hence, the Lynches
could and did elect to pursue their equitable remedies.

Finally, the court recognized that the absence of Walter's name
on the deed which purported to convey ownership of the entireties

property constituted constructive notice that there was a defect in
the title.^^ The court said, however, that there was no evidence that
the Lynches had anything more than mere constructive knowledge
and that that alone did not necessarily bar use of the defenses of
laches and acquiescence.®^ The court said, "One who fails to search
the records acts at his own peril, jeapordizing his interest against
prior interest holders of record, but it does not follow that such

failure to search the records is tantamount to inequitable conduct."*^

The court suggested in dicta that even actual knowledge by the
Lynches might not have defeated a laches defense.®^ The court also
suggested that regardless of whether the divorce proceeding was

^Id. at 285-86.

'^Id. at 284.

""M at 285.

"Ind. Code §§ 34-1-49-1 to -12 (1976). This statute deals with the rights of both

the true owner and the one claiming under color of title to be the owner of a single

piece of property.

"2407 N.E.2d at 285.

"^M at 286.

"^/rf. Walter had argued that "the Lynches' failure to review the deed records,

and act in accordance therewith, [was] such reckless conduct as to render the aid of

equity unavailable to them." Id. at 285.

"Yd at 286-87.



328 INDIANA LA W REVIEW [Vol. 15:319

res judicata with respect to Walter's interest in the property, laches

would still be a bar/'^

D. Landlord and Tenant Relations

1. The Implied Warranty of Habitability. — Recently, the courts
have begun to depart from the doctrine of caveat lessee to imply a
warranty of habitability into the lease of residential property.^* The
implied warranty of habitability imposes two distinct obligations
upon the landlord.^^ First, in renting an apartment for residential
use, the landlord impliedly warrants that the leasehold is free from

any latent defects rendering the premises uninhabitable/" Second,
the landlord impliedly promises that the leasehold will remain in a
reasonably habitable state during the entire term of the lease. This

'Ud. at 287.

"^Javins v. First Nat'l Realty Corp., 428 F.2d 1071 (D.C. Cir.), cert, denied, 400

U.S. 925 (1970); Pines v. Perssion, 14 Wis. 2d 590, 111 N.W.2d 409 (1961).

"'Javins v. First Nat'l Realty Corp., 428 F.2d 1071 (D.C. Cir.), cert, denied, 400

U.S. 925 (1970); Old Town Dev. Co. v. Langford, 349 N.E.2d 744 (Ind. Ct. App. 1976),
vacated, 369 N.E.2d 404 (Ind. 1977); Boston Hous. Auth. v. Hemingway, 363 Mass. 184,

293 N.E.2d 831 (1973).

The courts have employed two distinct rationales as support for the imposition of

an implied warranty of habitability in the lease of residential property. See, e.g.,

Krieger & Shurn, Landlord— Tenant Law: Indiana at the Crossroads, 10 Ind. L. Rev.
591, 595 (1977). The first of these rationales stems primarily from the realization that

the modern tenant, unlike his feudal counterpart, is rarely interested in the land upon

which his apartment is situated. Rather, the modern tenant is a purchaser of an entire

package of goods and services including heat, light and ventilation. M at 600. With
this realization, the courts gradually turned to the law of contracts in defining the rela-

tionship between the modern landlord and tenant. In particular, the courts began look-

ing toward the UCC and applying its various warranty provisions by analogy to the
lease of residential property. Id.

The second rationale employed as support for the extension of the implied war-

ranty of habitability to residential leases is grounded in essentially the same public

policy considerations which prompted the enactment of many of the housing codes in
effect throughout the country — that all Americans should have decent living accom-
modations. Pines V. Perssion, 14 Wis. 2d 590, 111 N.W.2d 409 (1961); Krieger & Shurn,
supra, at 601.

Although either the contract rationale or the public policy rationale will logically

support the implied warranty of habitability in residential leases, the precise rationale

adopted in a given case may become important with respect to such issues as the stan-
dard for determining when a landlord has breached the implied warranty and the
waivability of the implied warranty by the tenant. See, e.g., Javins v. First Nat'l Real-

ty Corp., 428 F.2d 1071 (D.C. Cir.), cert denied 400 U.S. 925 (1970); Boston Hous. Auth.

V. Hemingway, 363 Mass. 184, 293 N.E.2d 831 (1973); Krieger & Shurn, supra, at
602-05.

'"Old Town Dev. Co. v. Langford, 349 N.E.2d 744 (Ind. Ct. App. 1976), vacated,
369 N.E.2d 404 (Ind. 1977); Boston Hous. Auth. v. Hemingway, 363 Mass. 184, 293

N.E.2d 831 (1973).



1982] PROPERTY 329

latter obligation necessarily carries with it an implied duty to

repair.^^

In Breezewood Management Co. v. Malthie,''^ Dan Maltbie and
John Burke, students at Indiana University, entered into a written

lease with the Breezewood Management Company for the rental of
an apartment in Bloomington, Indiana. The lease was to run for a
term of one year and provided for a total rental of $235 per month.

Upon entering into possession of the premises, Burke and
Maltbie immediately discovered several defects including leaks in

the plumbing, falling plaster, exposed electrical wiring, absence of

heat and hot water, and cockroach infestation.^^ The dwelling had
previously been cited for more than fifty violations of the Bloom-
ington minimum housing code which was in effect at the time the
lease was signed. Robert Lewis, owner and president of Breeze-
wood, testified that he had accompanied the code enforcement of-

ficial during the inspection, and that the official notified him of

several violations at that time.^^ Nonetheless, many of the violations
remained uncorrected at the time of trial.^^

Following several complaints by Burke and Maltbie as to the
condition of the premises, and with approximately three months re-
maining in the term of the lease, Maltbie notified Breezewood of his
intention to vacate the apartment and of his refusal to pay further

rent. Breezewood agreed to let Burke remain in possession of the
premises for a reduced rental but filed suit against both tenants for

the balance due under the lease.^^ Burke and Maltbie each filed
counterclaims for damages and abatement of rent contending that
there existed an implied warranty of habitability in the lease agree-

'^Old Town Dev. Co. v. Langford, 349 N.E.2d 744 (Ind. Ct. App. 1976), vacated,
369 N.E.2d 404 (Ind. 1977); Boston Hous. Auth. v. Hemingway. 363 Mass. 184, 293
N.E.2d 831 (1973).

'Mil N.E.2d 670 (Ind. Ct. App. 1980), transfer denied, March 4, 1981.
'^Since the court's holding was premised upon apparently clear violations of the

Bloomington housing code, the court was not called upon to determine which of the

specific defects would be considered latent defects nor whether the first breach of the

implied warranty of habitability would extend to patent defects existing at the time

the lease is executed. However, the Breezewood court did seem to indicate in dicta
that, at least in the absence of a housing code or ordinance, the implied warranty, if it

existed at all, would not extend to patent defects. Id. at 674.

'"Since the landlord clearly had notice of the defects existing at the time the lease

was executed, the issue of whether the landlord must possess actual or constructive

knowledge of the defective condition and be given a reasonable time to repair before a

breach of the warranty will be found was not properly before the Breezewood court.
For an analysis of this issue see Krieger & Shurn, supra note 69, at 609.

'Mil N.E.2d at 671.

'Hd.



330 INDIANA LAW REVIEW [Vol. 15:319

ment which Breezewood had breached. The trial court rendered
judgment in favor of the tenants, and Breezewood appealed."

In addressing Breezewood's contention that the trial court's

judgment was contrary to Indiana law, the court of appeals stated
that, in light of several Indiana decisions, it was clear that "the
seeds of the modern trend abolishing caveat lessee and treating a
lease as a contractual relationship have been sown in Indiana."^®
After noting that the Bloomington Housing Code became part of the
lease agreement between Breezewood and its tenants,^^ the court
concluded that because the premises violated many of the provisions
of the Code, Breezewood had breached an implied warranty of habit-
ability.'"

Concerning the waivability of the implied warranty of habitability

in the context of residential leases, the Breezewood court
distinguished between leases which fall subject to a local housing

code and leases which do not. The court quoted several provisions
contained in the Breezewood lease which arguably constituted a
waiver of the implied warranty on the part of the tenants, Burke

and Maltbie.^^ However, the court refused to give effect to these
provisions and was, thus, apparently of the opinion that in those

cases governed by a local housing code the parties may not, by the
terms of the lease agreement alone, waive the implied warranty of
habitability.®^ With respect to leases existing outside the scope of a
local housing ordinance, however, the court stated that "[a]s long as

the premises are not in a substantially different condition than they

appear, this court favors upholding the reasonable expectations of

the parties."®^

The final issue addressed on appeal by the Breezewood court
concerned the amount of damages recoverable by a tenant for the
landlord's breach of the implied warranty of habitability.®^ Breeze-

wood argued that, although the tenant's obligation to pay rent was
suspended, no damages were recoverable by the tenant upon the

"M at 672.
''Id. at 675.

''Id.

'"Id. at 676.

''Id. at 671.

*^This conclusion is buttressed by the Breezewood court's reliance upon Boston

Hous. Auth. V. Hemingway, 363 Mass. 184, 293 N.E.2d 831 (1973), in which, according

to the Breezewood court, the Massachusetts Supreme Judicial Court held "that no pro-

vision of a lease agreement could effectively waive the implied warranty of habitability

because the warranty doctrine was incorporated into the state sanitary code which

governed all residential leases in the Commonwealth." 411 N.E.2d at 674.

'Mil N.E.2d at 675 n.2.

''Id at 675.



1982] PROPERTY 331

landlord's breach of the implied warranty. The court, however, re-
jected this contention and affirmed the measure of damages adopted
by the trial court which represented the difference between the
agreed rental and the fair rental value of the premises as they ex-

isted in the defective condition.^^ This measure of damages has
generally been referred to as the rent abatement measure of
damages.*^

To be contrasted with the measure of damages employed in
Breezewood is the measure of damages apparently approved by the
Indiana Court of Appeals for the Second District in Welborn v.
Society for Propogation of Faith, ^'^ also decided during this survey

period. In Welborn the Indiana Court of Appeals assumed without
deciding that Indiana recognized the implied warranty of habitability

in the lease of residential property.^* Although noting the split in

authority as to the appropriate measure of damages for the breach
of the implied warranty,®^ the Welborn court adopted the standard
measure of contract damages represented by the difference between
the value of the leasehold as warranted and the value of the

leasehold as it actually existed.^" The Welborn court, although
assuming that the tenants had met their burden of proof on the
issue of breach of the implied warranty,^^ denied relief to the

tenants on the basis that they had failed to offer any evidence of the

fair rental value of the leasehold as impliedly warranted or as prom-

ised.^^ Thus, the court concluded that "without evidence of the issue

of the value of the injury, any award by the trial court other than
nominal damages would be based on speculation, guess, or surmise
and therefore erroneous."^^ It remains an open question as to how
the apparent conflict over the measure of damages to be used for
the breach of the implied warranty of habitability in residential

leases between Welborn and Breezewood will be resolved.
2. Covenant of Quiet Enjoyment. — When a tenant seeks a

release from a lease agreement and a suspension of his obligation to

pay rent on the basis of the landlord's breach of the covenant of
quiet enjoyment, the courts generally require the tenant to show

''Id.

^See, e.g., Krieger & Shurn, supra note 69, at 615. See also Note, The Great
Green Hope: The Implied Warranty of Habitability in Practice, 28 Stan. L. Rev. 729,
760 (1976).

«^411 N.E.2d 1267 (Ind. Ct. App. 1980).
''Id. at 1270.

''Id. at 1270 n.5, 1271.

'"Id. at 1271.

''Id.

''Id.

''Id. at 1270.



332 INDIANA LAWREVIEW [Vol. 15:319

that he was actually or constructively evicted from the leased
premises.^^

In Nate v. Galloway,^^ the Galloways, as tenants, entered into a
written lease with the Oxford Development Corporation for the rental

of an apartment. Shortly after the Galloways took possession of the

apartment, the apartment was purchased by George Nate who im-
mediately informed the Galloways that their lease with the Oxford

Corporation was void. In addition, Nate informed the Galloways that
a new lease would be required in which the rent would be increased
substantially. Upon the tenants' refusal to execute the second
lease, Nate informed the Galloways that he would accept no further
rental payments and brought an action for the immediate possession
of the leased premises.®^ During the pendency of this action, Nate, in

an apparent attempt to harass the tenants into vacating the

premises, removed several fixtures from the apartment including
the stove, the wall tile in the tub area of the bathroom, and the

shower attachment.^^ The landlord failed to replace the stove for ap-
proximately forty days and failed completely to make the necessary
repairs to the bathroom of the apartment. Finally, following a
tender and refusal of the monthly rent, the Galloways filed an

answer and a counterclaim to the landlord's action for possession of
the premises and claimed damages for intentional infliction of men-
tal distress and breach of the lease's covenant of quiet enjoyment.^®

The trial court awarded both compensatory and punitive damages to
the tenants on their claim of breach of covenant.

On appeal, Nate challenged the trial court's finding of a breach
of the covenant of quiet enjoyment on the basis that no eviction,
either actual or constructive, was shown by the tenants. The tenants
did not vacate or surrender the premises at any time. In addressing
the issue, the court of appeals distinguished those cases^^ in which

'"Talbott V. English, 156 Ind. 299, 59 N.E. 857 (1901); Avery v. Dougherty, 102

Ind. 443, 2 N.E. 123 (1885).

^^408 N.E.2d 1317 (Ind. Ct. App. 1980).

'^The action brought by Nate was based upon an asserted breach of the lease

agreement. Subsequently it was discovered that the asserted breach was nonpayment

of rent.

'^The reason given by the landlord for the removal of these items was so that cer-

tain repairs could be performed.

'*The trial court denied recovery of the Galloways' claim of intentional infliction

of mental distress and no appeal was taken on the issue. 408 N.E.2d at 1320 n.l.

^^Bowers v. Sells, 125 Ind. App. 324, 123 N.E.2d 194 (1954); Avery v. Dougherty,

102 Ind. 443, 2 N.E. 123 (1885). The landlord had offered Bowers as supporting the

proposition that an eviction must be shown to support a finding of a breach of the

covenant of quiet enjoyment. 408 N.E.2d at 1321. In Bowers, quite unlike Galloway, a

tenant had been wrongfully evicted from the premises and was seeking damages for

the wrongful termination of the lease agreement.



1982] PROPERTY 333

the courts required an eviction as a prerequisite to the finding of a

breach of the covenant of quiet enjoyment by noting that in those

cases the tenant was requesting an alteration or termination of the
rental payments under the lease agreement. ^"^^ The Galloways,
however, were not seeking a termination of the lease agreement,

but were merely seeking damages for the landlord's breach of cove-
nant. Thus, states the court, "logic dictates that an eviction is not a

prerequisite for a recovery of damages based on the landlord's
breach."^"^ The court summarized the rule as follows:

[T]he cases show that when a wrongful eviction has occurred,
the tenant may clearly sue for damages based on an improper
termination of the lease and his lost interest therein. In

situations where no eviction has occurred, it appears that
the tenant may still recover damages based on the landlord's
interference with the quiet enjoyment of the premises. ^°^

The court affirmed the trial court's award of both compensatory
and punitive damages in favor of the Galloways by concluding that
the tenants' injuries were clearly established by the removal of the
stove and the bathroom fixtures, and that the landlord's conduct in
removing these items was interlaced with the elements of tort.^°^

Although the trial court in Galloway suggested that the

landlord's actions might conceivably support the finding of a con-

structive eviction, the tenants did not pursue the issue on appeal.^"*

The issue of constructive eviction was, however, subsequently
presented to the same court of appeals in Sigsbee v. Swathwood}^^

In Sigsbee, the Swathwoods entered a five year lease of one of
two adjacent buildings owned by the Sigsbees. The Swathwoods
entered into possession of the premises and began operating a small

grocery store on August 1, 1976. Following several disputes with
the Sigsbees, the Swathwoods abandoned the leased premises in
February of 1979, and brought an a<;tion to cancel the lease and to
recover damages allegedly resulting from the landlord's wrongful
competition and interference with their business. The evidence
presented at the trial level revealed three primary points of con-

flict between the parties during the course of the lease. First, from

i''<'408 N.E.2d at 1321.

'"^/d at 1322. The Galloway court offered Kostas v. Kimbrough, 137 Ind. App. 89,
205 N.E.2d 170 (1965), as illustrative of the development of the law in this area. Id.

'"MOS N.E.2d at 1323. In upholding the award of punitive damages, the Galloway
court quoted extensively from Hibschman Pontiac v. Batchelor, 226 Ind. 310, 362
N.E.2d 845 (1977).

"'M08 N.E.2d at 1321 n.2.
"'«419 N.E.2d 789 (Ind. Ct. App. 1981).



334 INDIANA LA WREVIEW [Vol. 15:319

the very inception of the lease, the Swathwoods were troubled by
periodic leaks in the roof of the leased building. Although the

Sigsbees attempted several times to repair the leaks, the roof con-

tinued to leak until the Swathwoods abandoned the premises. Se-
cond, although under the provisions of the lease the Sigsbees were
entitled to inspect the building during the term of the lease, conflict

arose between the parties concerning the frequency and
methodology of the inspections. The inspection problem, however,
was apparently resolved in February of 1978, when Mr. Sigsbee
agreed to inspect the building at the same time each week and only
when Mr. Swathwood was present. According to Mr. Swathwood,
this agreement was satisfactory. Finally, in May of 1978, following
an automobile accident in the common parking area, the Sigsbees
erected a parking barrier between the two buildings. The barrier
concededly did not prevent access to the Swathwoods' store from

the adjacent highways. However, at trial the Swathwoods presented
evidence that the traffic barrier was responsible for a significant
reduction in the Swathwoods' clientele. On the basis of these three
disputes concerning the leasehold, the trial court concluded that the

Swathwoods were constructively evicted and were therefore entitled
to abandon the premises. ^°^

On appeal, the Sigsbees argued that there was insufficient
evidence to support the trial court's finding of a constructive evic-

tion. In addressing the issue, the court of appeals defined a construc-

tive eviction "as a breach by the lessor 'so direct and positive, and

so substantial and permanent in character as to operate as a
material and effectual exclusion of the tenant from the beneficial en-

joyment of some part of the leased premises.' "^°^ The court of ap-
peals further noted that in every case of a constructive eviction the

tenant must vacate the premises "within a reasonable time after the
lessor has committed the act or omission" considered to be the con-

structive eviction.^"® Having assumed without deciding that the
Sigsbees' failure to successfully repair the leaking roof, the frequency

and methodology of inspecting the premises, and the erection of the

parking barrier justified the Swathwoods' abandonment,^"^ the court

of apeals turned to the question of whether the abandonment by the
tenants occurred within a reasonable time following each of these

acts."° Concerning this question, the court stated that generally

whether an abandonment occurs within a reasonable time con-

'"^The trial court also awarded the tenants $4,000 in damages for the landlord's

breach of convenants contained in the lease agreement.

''Ud. at 793. (quoting Talbott v. English, 156 Ind. 299, 59 N.E. 857 (1901)).

'•'M19 N.E.2d at 794.

"'M at 794, 795 n.5.
"o/d at 794-95.



1982] PROPERTY 335

stitutes a question of fact to be determined in light of the surround-

ing circumstances.^" The record indicates that the Swathwoods had
abandoned the premises eight months following the erection of the
parking barrier, one year following the resolution of the inspection

dispute, and two and one-half years following the failure of the
Sigsbees to repair the roof. On these facts and the failure of the
Swathwoods to present any circumstances tending to explain or
justify the delay in their abandonment, the court of appeals concluded

as a matter of law that the Swathwoods did not elect to abandon the
premises within a reasonable time."^

Although the court of appeals determined that the Swathwoods
had waived their right to abandon the premises by not abandoning

within a reasonable time, the court concluded that the record did

support the trial court's finding of the landlord's breach of certain

covenants contained the the lease agreement."^ The court of appeals
remanded the case for determination of the damages resulting from
these breaches."*

3. Termination and Landlord's Duty to Mitigate Damages. — In
Grueninger Travel Service, Inc. v. Lake County Trust Co.,^^^ the
landlord. Lake County Trust, brought an action to recover damages
for breach of the lease agreement when the tenant, Grueninger
Travel, abandoned the leased premises. The trial court entered judg-
ment in favor of the landlord, and the tenants appealed alleging
three points of error: (1) that the tenant's liability on the lease ceased

when the landlord accepted a surrender of the premises, (2) that the
landlord failed to mitigate damages, and (3) that the tenant's liability

should have in no event extended beyond the time that a successor
tenant assumed possession of the premises.

The facts established at trial of the cause indicated that, despite
discontent with the travel agency's location, James Reiffert, owner
of the agency, entered into a three year lease with Lake County
Trust in December of 1977. Mr. Reiffert, however, continued his
search for a more suitable business location, and on September 14,

"7d at 794.
"7d at 795. In its opinion, the Sigsbee court cited three cases in which the ten-

ant's delay in abandonment was held to be excused. Id at 794 (citing American Nat'l

Bank & Trust Co. v. Sound City, U.S.A., Inc., 67 111. App.3d 599, 385 N.E.2d 144 (1979)
(delay of three months excused for reliance upon lessor's promise to repair); Haten-

bauer v. Braumbaugh, 220 111. App. 326 (1920) (delay of four months excused for

lessee's physical disability); General Indus. & Mfg. Co. v. American Garment Co., 76
Ind. App. 629, 128 N.E. 454 (1920) (delay of four months excused where lessor's breach

was of an uncertain and continuing nature)).
"^419 N.E.2d at 796.

"7d
"'413 N.E.2d 1034 (Ind. Ct. App. 1980).



336 INDIANA LAWREVIEW [Vol. 15:319

1978, despite admonitions by the landlord, Grueninger Travel Ser-

vice vacated the leased premises. The keys to the vacated premises
were returned to the landlord on September 29, 1978.

On appeal, Grueninger asserted that its delivery and the
landlord's acceptance of the keys constituted surrender and accep-

tance of the leased premises. The court acknowledged that in In-
diana, '*a surrender may be either express or created by operation
of law.""^ However, since Grueninger had offered no evidence of an
express surrender, ^^^ the court was left only to consider whether the
trial court's finding that there had been no surrender was contrary
to law.^^^

A surrender of a tenancy by operation of law will arise only if
the parties engage in conduct so inconsistent with the landlord-

tenant relationship as to imply that they both agreed to consider the

surrender as effectual.^^^ It follows that in order to constitute a sur-

render by operation of law, there must be more than a mere uni-
lateral act by the tenant. In addition, "there must be some decisive,
unequivocal act by the landlord which manifests the lessor's accep-

tance of the surrender."^^" With that statement of the law, the court
of appeals concluded that the mere delivery of the keys by Gruen-
inger, without other evidence tending to establish that Lake County
Trust had accepted the keys as a surrender, was insufficient to
release Grueninger from further liability under the lease.^^^

The second error alleged by Grueninger on appeal was that the
landlord had failed to properly mitigate damages because the
premises were not re-leased until January of 1979, although an ac-
ceptable tenant was available on October 1, 1978.^^^ Thus, according
to the tenant, the trial court's award of rent and charges subsequent
to October 1, 1978 was erroneous.^^^ In addressing this contention,

""M at 1038 (citing Miller Jewelry Co. v. Dickson, 111 Ind. App. 676, 42 N.E.2d
398 (1942); Donahoe v. Rich, 2 Ind. App. 540, 28 N.E. 1001 (1891)).

"M13 N.E.2d at 1034. The court noted that "[aln express surrender is an agree-

ment by the parties . . . which is usually required to be in writing and . . . supported

by consideration." Id.

"*Since Grueninger had the burden of proving the surrender, the trial court's

judgment in favor of Lake County Trust constituted a negative judgment. As such, the
finding could only be attacked on appeal as contrary to law. See, e.g.. Brown v. Owen
Litho Serv., Inc., 384 N.E.2d 1132 (Ind. Ct. App. 1979); State v. Boyle, 168 Ind. App.

643, 344 N.E.2d 302 (1976).

"M13 N.E.2d at 1038.

""M at 1039.
^"M The court noted that this conclusion was especially compelling given that

Lake County Trust had repeatedly admonished Grueninger of its intent to hold Gruen-

inger liable under the terms of the lease. Id.

"Ud.

'''Id.



19821 PROPERTY 337

the court of appeals stated that whether a landlord has exercised

the requisite diligence in reletting the premises is a question of

fact/" In affirming the trial court's finding that the landlord had ex-

ercised due diligence in reletting the premises, the court of appeals
relied heavily on the fact that the tenants failed to give the landlord

any notice prior to abandonment. This had effectively frustrated the

re-leasing of the premises since it was nearly impossible to lease
space without knowing when it would be available. ^^^ In addition, the
court noted that the landlord had engaged in extensive negotiation

with several tenants in an effort to lease the space subsequent to

Grueninger's abandonment.^^® The evidence indicated that it was ad-
visable to deal with only one prospective tenant at a time and to

allow each to reach a decision before commencing discussions with
the next.^^^ Viewing the entire course of the landlord's conduct, the

court was unable to find the trial court's determination in favor of
the landlord contrary to law.^^*

The final point raised by Grueninger on appeal was that the
trial court erred in holding Grueninger liable under the lease agree-

ment subsequent to January 16, 1979 — the date that Lake County
Trust executed a new lease of the premises with a successor
tenant.^^^ The court of appeals disposed of the issue on the language
of the lease agreement itself, noting that "[i]t is now clear a lessor
and lessee may expressly agree that a re-entry and reletting shall
not constitute a surrender."^^" Thus, so long as the landlord does not

exceed the rights given him under the lease, no surrender by opera-
tion of law will result from the landlords re-entry and reletting of
the premises. ^^^ Under a lengthy provision of the lease agreement,^^^

the court held that Grueninger had expressly authorized the

^"M The ajlocation of the burden of proving due diligence depends on the lease
agreement. If the lease includes a mandatory reletting clause, the landlord carries the

burden of proof. In the absence of such a clause, the tenant shoulders the burden of

showing that the landlord failed to exercise the requisite care. The tenant Grueninger

carried the burden of proof in this case. Id. at 1039-40.

'^Ud. at 1040.

^^^Id. The landlord was apparently attempting to retain the same mix of

businesses in the mall. This accounted for some of the delay complained of by the

tenants. Id. at 1041.

'^Ud. at 1040-41.

'^'Id. at 1041.

^"^Id. It was the policy of the landlord to allow a new tenant between 60 and 120
days following the execution of a lease to remodel the premises. During this period,

the new tenant was not asked to pay rent. The new tenant only became liable for rent
on the date it opened for business.

'^'Id. at 1042.

'^'Id.

'''Id. at 1042-43.



338 INDIANA LAWREVIEW [Vol. 15:319

landlord to relet the premises without terminating Grueninger's

liability under the original lease.^^^ The court did however indicate in
dictum that the presence of such a lease provision would not

automatically prevent the finding of a surrender by operation of

law.^^* Other circumstances, in connection with the reletting, which

conflict with the continuance of the landlord-tenant relationship,

may give rise to a surrender by operation of law and consequent ter-
mination of the tenant's liability under the lease/^^

Another factually interesting case dealing indirectly with the

termination of the landlord-tenant relationship decided during this

survey period was Speiser v. Addis.^^^ Speiser deals with the right
of a hold-over tenant to reimbursement for improvements made to
the property after the expiration of the original lease. Prior to the

expiration of the lease, the landlord proposed a new lease agree-
ment to the tenant, Speiser. Because of Speiser's untimely response
to the proposal, the landlord's offer of new lease terms lapsed.^^^
Speiser argued that despite the lapse of the offer, he became a
hold-over tenant from year to year, as that was the original term of
the lease. ^^® However, there was clear evidence in the record to in-
dicate that the landlord intended a month to month tenancy in the
event that Speiser held over on the original lease without having ac-

cepted the landlord's proposal for a new lease agreement.^^^ Even
after Speiser had been properly notified by the landlord that his

month to month tenancy had terminated, Speiser proceeded to make
improvements on the property on the theory that his tenancy was
actually year to year. The court found sufficient evidence in the
record that the landlord had properly proceeded against Speiser and

properly notified Speiser of the termination of his tenancy.^^"

Therefore, since all improvements were made after notification, the
court denied Speiser reimbursement for his expenditures for im-

provements.^^^

'''Id. at 1043.

'''Id.

^^^The court offered two examples in which a surrender and acceptance may be
found despite the presence of a lease agreement to the contrary. First, the court

stated that "if the terms of the original lease do not permit a landlord to relet for a

period longer than the unexpired term, and the landlord does so, this action indicated

the landlord was acting on its own account, inconsistent with the lease relation and
therefore, may work a surrender." Id. Secondly, the court noted that "[i]f the landlord
materially alters the leased premises without the lessee's consent, the lessor may be
deemed to have accepted a surrender." Id.

i^Mll N.E.2d 439 (Ind. Ct. App. 1980).

''Ud. at 440.

"'Id. at 441.

'"Id.

'''Id.

'"Id. at 439.



1982] PROPERTY 339

4. Scope of the Duty Owed by Landlord and Tenant to Third
Parties. — The nature and scope of the duty existing between
landlord, tenant and third persons was addressed during this survey
period by the Indiana Court of Appeals in Great Atlantic & Pacific
Tea Co. v. Wilson.^*^ In Great Atlantic, a case of first impression,

Great Atlantic entered into an agreement with PH & T Realty
Corporation under which PH & T agreed to construct a building ac-
cording to specifications supplied by Great Atlantic. Great Atlantic

agreed in turn to lease the building from PH & T upon specified
terms for the operation of its business. The agreement continued un-
til the end of 1972 when, upon notice. Great Atlantic removed its fix-
tures and vacated the leased premises. Shortly thereafter, PH & T
assumed control of the premises and commenced efforts to sell or re-
lease the building. In February of 1973, a realtor, with the consent

of PH & T but unsupervised by any officer or agent of PH & T,
undertook to show the building to a group of prospective purchasers
including Wilson. Although unable to locate the light switches, the

group proceeded through the darkened building. Wilson was injured
when he fell into the conveyor opening located in the floor of the
building which had been used by Great Atlantic to accomodate a
conveyor used for moving stock and merchandise from the basement
to the sales floor. The opening had been constructed in the building
by PH & T as part of the specifications provided by Great Atlantic.
Wilson brought suit against both Great Atlantic and PH & T Realty
to recover damages for his personal injuries.^^^ The trial court
rendered judgment against both defendants and Great Atlantic ap-
pealed, asserting that the trial court had erred in finding a duty owing
between itself and Wilson following the termination of the lease
agreement and its surrender of possession and control of the
premises. ^^'^

In resolving the question of whether any residual liability re-

mains with a lessee after it vacates and surrenders the premises to

the lessor, the court of appeals examined extensively the rules

"M08 N.E.2d 144 (Ind. Ct. App. 1980). Another case decided during this survey

period involving tangentially a landlord-tenant relationship and tort liability was Blake

V. Dunn Farms, Inc., 413 N.E.2d 560 (Ind. 1980). Blake is discussed in the text accom-

panying notes 156-71 infra.

"^The plaintiff grounded its suit against Great Atlantic on four separate

arguments. First, Wilson asserted that Great Atlantic owed a duty to him on general

principles of tort law. Second, Wilson asserted that Great Atlantic was liable for in-

juries resulting from a defect it created which was eminently dangerous. Third, Wilson

argued that there existed an implied warranty of fitness between Great Atlantic and

PH&T Realty. Fourth, Wilson asserted that Great Atlantic was liable because the
property was used by the public.

'"PH&T Realty did not appeal the judgment but filed a brief in support of the
trial court's judgment.



340 INDIANA LAWREVIEW [Vol. 15:319

governing the residual liability of vendors and lessors.^*^ On the
basis of this examination, the court concluded that "liability for in-

jury ordinarily depends upon the power to prevent injury and,
therefore, rests upon the person who has control and possession
through ownership, lease, or otherwise."^*® The court noted that
Great Atlantic had no affirmative right or duty to alter or improve

the leasehold and that Great Atlantic had surrendered the premises

in as good a condition as it had received it according to the lease

agreement.^*^ The court of appeals, therefore, reversed the trial
court and ordered judgment in favor of Great Atlantic/^®

5. The Lease Agreement in General. — A factually interesting
landlord-tenant case was presented to the Indiana Court of Appeals
during this survey period in Marcovich Land Corp. v. J.J. Newberry
Co.^*^ In Marcovich, a commercial lessee, J.J. Newberry Co., sought
damages for lost profits arising from the landlord's failure to rebuild
the leased building following its complete destruction by fire pur-

suant to a clause contained in the lease. The trial court determined
that the written lease existing between the parties was valid and
enforceable and required the landlord to reconstruct the building.

The trial court awarded the tenant $117,000 as damages for lost pro-
fits resulting from the landlord's refusal to reconstruct the leased

property. ^^°

The court of appeals rejected both the landlord's defense of un-
conscionability and the defense of commercial impracticality. The
landlord argued that the lease became unconscionable upon the hap-
pening of events subsequent to the execution of the lease. The court
held, however, that the concept of unconscionability applied only to

circumstances which existed at the time the contract was entered
into.^^^ The evidence was clear that both sides had equal bargaining
power and entered into the contract willingly; therefore, the court
rejected the unconscionability argument as misplaced. ^^^

The landlord also argued that rebuilding the leased building was
commercially impractical, as under current economic conditions,

"Yrf. at 147-48. Although noting the appropriateness of the analogy given that

the determinative event in either case is the transfer of control and possession of the

property, the court assumed without deciding that the residual liability of a lessee
would not exceed that of a vendor or lessor and would likely be less, given the limited

interest that the lessee has in the property. Id. at 150.

'''Id. at 148.

'"Id. at 150.

^*M13 N.E.2d 935 (Ind. Ct. App. 1980).

'''Id. at 937.

'''Id. at 941 (quoting Dan Purvis Drugs, Inc. v. Aetna Life Ins. Co., 412 N.E.2d 129
(Ind. Ct. App. 1980)).

'^'413 N.E.2d at 941-42.



1982] PROPERTY 341

rebuilding would be a bad business risk at great expense. The court
held that a bad risk alone was not enough to justify the landlord's
failure to rebuild. *^^ The Marcovich court recognized the general rule
that only complete or absolute impossibility is a sufficient basis for

an affirmative defense. ^^'^ The court of appeals held further that,
even assuming arguendo that an affirmative defense would extend
beyond complete or absolute impossibility, the landlord had failed in
its burden of proof on the issue. ^^^

E. Land Ownership in General

In Blake v. Dunn Farms, Inc.,^^^ the plaintiff, Blake, was injured
when the car in which he was a passenger collided with a horse on a
public highway which ran through land owned by the defendant,
Dunn Farms. Blake brought an action against both Dunn Farms and
Arnold Love, the owner of the animal, alleging that Dunn Farms and
Love were negligent in allowing the fences on the property to deter-
iorate and in permitting a horse to roam freely upon a state
highway.

The facts which developed at trial indicated that the property in
question, located on both sides of the highway on which the accident

occurred, was originally leased by Dunn Farms to Robert McConnell.
McConnell, in addition to other farming activities, pastured horses

on the east side of the property and sublet the property located on

the west side of the highway to Love.^^^ Love likewise maintained
horses on this portion of the property. Although prior to the acci-

dent the McConnells had vacated the leased premises. Love appar-
ently continued to pasture horses on the west side of the highway.

Upon surrender of the property by the McConnells, the stock-
holders and officers of Dunn Farms made several trips to the farm
in order to clean up the buildings and to make arrangments to
locate a new tenant. The evidence indicated that the president and
the secretary of the corporation had, in fact, visited the property on

the date the accident involving the plaintiff occurred. The evidence
further revealed that in the various trips to the farm, one or more
of the owners had seen horses in the pasture. It was unclear,
however, whether the horses observed on those occasions were own-

ed by the McConnells or owned by Love.

'"/d at 944 (quoting Restatement (Second) of Contracts § 281, Comment d at 50
(Tent. Draft No. 9, 1974)).

>"413 N.E.2d at 944.
>w/d

>»*413 N.E.2d 560 (Ind. 1980).

"Tjove claimed at trial that he paid rent and rendered services in exchange for

the right to pasture his horses.



342 INDIANA LAWREVIEW [Vol. 15:319

The court of appeals reversed the trial court's entry of summary
judgment in favor of Dunn Farms^^^ and remanded the case for further
determination.^^^ The Indiana Supreme Court granted transfer and
vacated the opinions issued by the court of appeals/^"

Although the case may arguably have been decided on the basis
of the law of landlord and tenant,^^^ the supreme court chose instead
to analyze the situation in terms of the responsibility between land-
owner and owner-keeper of an animal to provide for the confinement
and restraint of the animal/^^ Following a review of case authority^^^

and the notation of an Indiana statute/^^ the supreme court stated:

[I]t is the duty of the owner and the keeper of the animal to
keep him confined .... If the landowner is neither the
owner nor keeper, he has no duty to confine or restrain the
animal. If an animal is allowed by its keeper to escape from

its confinement and harm results, that damage results from
the negligent confinement, not from the condition of the

land.^^^

The court, in addition, stated that the responsibility for selecting an
appropriate method of confinement for the animal resided with the
owner-keeper of the animal rather than with the landowner who
neither owned nor kept the animal.^^^

The Indiana Supreme Court in reviewing the evidence deter-
mined that Dunn Farms was neither the owner nor the keeper of

**®The trial court's grant of summary judgment was based upon the contention of
Dunn Farms that a landowner is not responsible for injuries caused by an animal roam-
ing at large in which the landowner has neither ownership nor custodial control.

'^'Blake v. Dunn Farms, Inc., 396 N.E.2d 415 (Ind. Ct. App. 1979), aff'd on rehear-
ing, 399 N.E.2d 431 (Ind. Ct. App. 1980).

^'"'413 N.E.2d at 562.

^^The court of appeals in reversing the trial court judgment in favor of Dunn
Farms relied on Siegel v. 1536-46 St. John's Place Corp., 184 Misc. 1053, 57 N.Y.S.2d
473 (1945) in which liability was based in part upon the landlord-tenant relationship ex-
isting between the injured party and the corporate owner of the property. Blake v.
Dunn Farms, Inc., 396 N.E.2d 415, 417 (Ind. Ct. App. 1979).

^'=^413 N.E.2d at 563. The Indiana Supreme Court stated that the cases in which
the issue was broached were in fact based upon such an analysis. Id. (citing Thompson
v. Lee, 402 N.E.2d 1309 (Ind. Ct. App. 1980)).

"^413 N.E.2d at 563. The court reviewed extensively the case of Corey v. Smith,
233 Ind. 452, 120 N.E.2d 410 (1954) in which the Indiana Supreme Court concluded that
the owner-keeper of an animal was responsible for injuries caused by the animal when
it roamed into the path of a vehicle on a public road. 233 Ind. at 456 120 N.E.2d at 412.

''*413 N.E.2d at 563. The statute quoted by the court states that "[a] person
responsible for a domestic animal who recklessly permits the animal to run at large
commits a class B misdemeanor." Ind. Code § 15-2.1-21-8 (Supp. 1981).

'••^413 N.E.2d at 563 (citation omitted).



1982] PROPERTY 343

the horse involved in the collision with the plaintiff. In addition, the

court was of the opinion that there was no material relationship be-
tween Dunn Farms and Love, the owner-keeper of the animal. ^^^ The
fact that the officers of Dunn Farms had on occasion observed
horses in the pasture was held to create no duty in the officers to
prevent or guard against their escape.^^^ On this basis, the supreme
court affirmed the trial court's reasoning that Dunn Farms, as
merely the owner of the property in question, owed no duty to the
plaintiff with respect to the method by which the horses were con-
fined.^^^

Justice DeBruler, in dissent, argued that Dunn Farms should be
held to be the keeper of the animal which collided with the automo-

bile in which the plaintiff was a passenger.^^" This conclusion was
based primarily upon Dunn Farms' complete control over the pre-
mises in question and its exclusive authority to repair the deterior-

ated fences or to remove the animals from the property.^171

F. Lateral and Subjacent Support

During this survey period the Indiana courts were given the
first opportunity in several years to pass upon a lateral support

case. The general common law rule of lateral support is that a land-
owner has an absolute right to have his land, as it exists in its
natural state, supported by the land of his adjoining neighbors."^

Thus, the rule is clear that should an adjoining landowner excavate

on his land and thereby deprive his neighbor of lateral support, he

'"Yd at 562.

''"Id. at 563.

^'^Id. at 564. The Indiana Supreme Court in reaching this conclusion distinguished
several lines of authority. The court first distinguished such cases as Pitcairn v.

Whiteside, 109 Ind. App. 693, 34 N.E.2d 943 (1941). In Pitcairn, the court held that it

was the duty of a landowner to exercise reasonable care to prevent injury from a
defective or dangerous condition existing on the land to persons using an adjacent

highway. The Dunn Farms court emphasized that in Pitcairn, it was the property
owner himself which had created the dangerous condition. In contrast, Dunn Farms
had no connection to the agency which created the dangerous condition. 413 N.E,2d at

564.

Secondly, the Indiana Supreme Court rejected the court of appeals conclusion
that persons using a public highway stand in a position with respect to the owners of

adjacent land similar to that of a business invitee with respect to a landowner. In this

regard, the supreme court stated that "[a] particular landowner does not invite all per-

sons using the highway for their own purposes to make that use or traverse that part
of the highway adjacent to his own property." Id.

"M13 N.E.2d at 565 (DeBruler, J., dissenting).
"Yd For further discussion of the Dunn Farms case, see Harrigan, Torts, 1981

Survey of Recent Development in Indiana Law, 15 Ind. L. Rev, 425, 433 (1981).
'"See, e.g., 2 G. Thompson, Commentaries on the Modern Law of Real Property

§ 415 (repl. ed. 1961).



344 INDIANA LAWREVIEW [Vol. 15:319

is liable for the resulting damage to his neighbor's land regardless
of whether he was negligent. ^^^ The rule, however, is different when
the injury alleged to have resulted from the removal of lateral sup-

port is damage to buildings or structures existing upon the land.
There is no absolute right to lateral support of buildings or struc-

tures.^^* Thus, liability for injury to buildings must be predicated
upon the negligence of the adjoining landowner in accomplishing the

activity which resulted in the loss of lateral support. ^^^ In determin-

ing whether an excavator has acted negligently, the courts have

regularly applied the general negligence standard of ordinary or due

care under the circumstances.^^® The Indiana courts have, in addi-
tion, stated that in order for the landowner performing the excava-

tion to relieve himself of the necessity of taking extraordinary

measures to protect his neighbor's buildings, the improver must
give notice of the intended excavation to the adjoining landowner.^"

In Spall V. Janota,^^^ the plaintiff landowner, Janota, sought

damages for injury to his home which allegedly resulted from
excavation performed on the adjoining land of the defendant, Audie

Spall.^^^ The record of proceedings revealed that Janota's home was
located atop an incline which sloped in the direction of the adjacent

lot of Audie Spall. The activity complained of consisted of an excava-
tion into the hillside on the Spall property approximately forty feet

in width and twelve feet in depth. The excavation was made to ac-
comodate a mobile home placed upon the Spall property by the occu-
pants. The trial court rendered a decision in favor of the plaintiff
and the defendant appealed.

Because damages were sought for injury to Janota's home, the
court of appeals noted, in accordance with the general rule, that it

was necessary for Janota to show that the excavation on the Spall
property was negligently performed.^*" The court was, therefore,

"'See, e.g., Schmoe v. Cotton, 167 Ind. 364, 79 N.E. 184 (1906); Wolf v. Forcum,
130 Ind. App. 10, 161 N.E.2d 175 (1959).

"^See, e.g., Bohrer v. Dienhart Harness Co., 19 Ind. App. 489, 49 N.E. 296 (1898);

Block V. Haseltine, 3 Ind. App. 491, 29 N.E. 937 (1892).

'''See Block v. Haseltine, 3 Ind. App. 491, 29 N.E. 937 (1892).

""See, e.g., Bohrer v. Dienhart Harness Co., 19 Ind. App. 489, 49 N.E. 296 (1898);

Block V. Haseltine, 3 Ind. App. 491, 29 N.E. 937 (1892).

"'See Bohrer v. Dienhart Harness Co., 19 Ind. App. 489, 49 N.E. 296 (1898).

"M06 N.E.2d 378 (Ind. Ct. App. 1980).
"'Although Audie Spall held the record title to the property upon which the ex-

cavation was performed, she had purchased the property and given it to her son and
daughter-in-law, the Whitsons. The Whitsons occupied the property and authorized the
excavation which is the basis of Janota's suit. Janota filed a separate claim against the

Whitsons which remained pending at the conclusion of the trial of the claim against

Audie Spall.
•«''406 N.E.2d 378, 382.



1982] PROPERTY 345

called upon to determine' what type of activity constitutes negli-

gence in lateral support cases. The court began its analysis of the
evidence by stating:

"In determining whether a party has been guilty of careless-

ness in excavating on his own land, reference may be had to
what is usually done by other builders in similar cases."
Thus, the standard of care required is that common to all
negligence actions, that is, the duty to use reasonable or or-

dinary care under the circumstances."^^^

Although conceding that it was impossible to formulate a com-
prehensive definition of "due care" in cases of the Spall variety, the

court of appeals quoted extensively from the authorities on the issue

to establish workable criteria for application to the facts before it.^^^

Based upon these criteria the court concluded that, other than the

failure to give notice to Janota of the intended excavation, there

was no evidence presented in the case which would support a find-
ing that the excavation on the Spall property had been negligently

performed.^^^

There are in general two views concerning the requirement that
an improver give notice to the adjoining landowners prior to com-

mencing the intended excavation. One line of authority views the
failure to give notice as negligence per se.^^* However, the court in
Spall adopted the alternative and apparently prevailing rule to the

effect that the failure to give notice merely constitutes evidence of

negligence to be considered by the trier of fact.^^^ With respect to
the failure of the defendants in Spall to give notice prior to com-

mencing the excavation, the court of appeals was of the opinion that
the question of foreseeability must necessarily be considered. ^^^ The
trial record disclosed that the excavation upon the Spall property

'''Id. at 382 (quoting Block v. Haseltine, 3 Ind. App. 491, 497, 29 N.E. 937, 939

(1892)).

**^The Spall court, in particular, adopted the guidelines set out in Powell's treatise

on real property. 406 N.E.2d at 382-83 (quoting 5 R. Powell, The Law of Real Property
1 701, at 299-302 (1980)).

^'^406 N.E.2d at 383.

'*Vd at 381 (citing Note, The Changing Doctrine of Lateral Support, 14 Temp.

L.Q. 243, 254-57 (1940)).

>«'406 N.E.2d at 282 (citing 1 Am. Jur. 2d Adjoining Landowners § 51 (1962); 2

C.J.S. Adjoining Landowners § 20 (1972)).
'*®406 N.E.2d at 381-82. The court of appeals grounded this conclusion in the

observation that most of lateral support cases which have dealt with notice as a

critical element were cases in which the excavation was performed immediately adja-

cent to the foundation of the adjoining building. Id. at 382. When excavation is so per-
formed, the danger to the adjoining structure is obvious.



346 INDIANA LA W REVIEW [Vol. 15:319

was located, at the very least, thirty-seven feet from the plaintiff's
adjoining property /^^ The court, therefore, concluded:

[I]n view of the facts of this case, the distance separating the

cut in the hillside from Janota's house, and the lack of fore-

seeability of such consequences, we do not believe that lack
of notice, standing alone, is sufficient to support a finding of

negligence which was the proximate cause of the injury, and
thus impose liability on the basis of negligence.^188

The court of appeals was unable to determine the precise basis
for the trial court's decision;^®® they nevertheless reversed the deci-

sion in favor of the plaintiff as either contrary to law if predicated

upon a theory of absolute liability or as unsupported by the evi-
dence if based upon a theory of negligence. ^^°

G. Water Law

Several cases involving various issues of water law were decid-
ed during the survey period. ^^^ In Argyelan v. Haviland,^^^ the plain-
tiff, Haviland, brought suit against Argyelan alleging that the de-
fendant had accumulated and discharged large quantities of water

onto his land. The trial court awarded damages and injunctive relief
to the plaintiff, and the defendant appealed, claiming that the trial

court's decision was not supported by the Indiana law governing the
disposal of surface water.

''Ud. at 380.

'''Id. at 383.

'''Id.

''°Id. Although unnecessary to its decision, the court of appeals felt it appropriate

to comment upon the issue of damages in lateral support cases. Id. at 384. The court
stated in this regard that the appropriate measure of damages for injury to an adjoin-

ing landowner's building resulting from negligent excavation was the lesser of the

diminution in value of the damaged structure or the cost of restoring the structure to
its original condition. Id. (citing 2 C.J.S. Adjoining Landowners § 36 (1972); 1 Am. Jur.
2d Adjoining Landowners §§ 74-75 (1962)). Because Janota had failed to present any

evidence as to the value of his home in its damaged condition or as to the costs of its

repair, the court of appeals concluded that there was no evidence in the case upon

which the trial court could have based its award of damages. The award was,

therefore, held improper. 406 N.E.2d at 384.

'®Two cases decided during the survey period which had a less direct impact on

water law were Grover v. Frantz, 408 N.E.2d 567 (Ind. Ct. App. 1980) (dealing exten-

sively with various substantive interpretations and procedural requirements surround-

ing the assessment of costs and damages associated with the reconstruction of legal

drains pursuant to the Indiana Drainage Code) and State v. Taylor, 419 N.E.2d 819

(Ind. Ct. App. 1981) (dealing with the tort immunity of the Indiana Department of

Natural Resources under the Indiana Tort Claims Act and the exclusiveness of remedy

feature of the Indiana Administrative Adjudication Act).

'^^418 N.E.2d 569 (Ind. Ct. App. 1981).



1982] PROPERTY 347

The facts developed at trial indicated that the Havilands and the
Argyelans were owners of adjoining tracts of land located in the City
of Indianapolis. In improving his parcel, the defendant raised the

level of the soil by approximately two feet and constructed a retain-
ing wall parallel to the property line separating his property from

that of the plaintiff. The retaining wall was constructed such that
the top of the wall was approximately four inches higher than the
general level of the defendant's property. ^^^ The defendant subse-
quently constructed a one-story building on his lot approximately

twenty feet from the retaining wall. Two of the three downspouts
which provided drainage from the roof of the defendant's building

directed water toward the plaintiff's property. ^^^ The evidence ad-
duced at trial further indicated that, during a moderate to heavy

rain, water would fill the four-inch space on the defendant's side of

the retaining wall and flow over the wall *'like a waterfall"^^^ onto

the plaintiff's property.

The court of appeals determined that, with respect to surface
water, ^^^ Indiana recognizes what has commonly been referred to as
the "common enemy rule."^^^ Under this rule, a proprietor of land
may take any action necessary to protect himself against the flow of
surface water regardless of the effect upon the lands of adjoining

property owners.^^^ Through the years, however, the courts have re-
cognized that the rule is subject to certain limitations, including the

rule that an owner of land may not deliberately collect surface
water and discharge it onto his neighbor's property. ^^^ It was appar-
ently upon this latter rule that the trial court rendered judgment in
favor of the plaintiffs.^""

In addressing the propriety of the trial court's application of the

exception to the common enemy rule, the court of appeals noted

'^^The top of the wall was at some points as much as two and one half feet above
the level of the plaintiffs property.

'^''The third downspout was connected to a plastic pipe which directed the water

flow to a point eastward of the defendant's building.
'''418 N.E.2d at 572 (quoting the trial record).

'^®The common enemy rule has application only with respect to "surface water"
which the Indiana Court of Appeals in Capes v. Barger, 123 Ind, App. 212, 214-15, 109

N.E.2d 725, 726 (1953) defined as follows: "Water from falling rains or melting snows

which is diffused over the surface of the ground or which temporarily flows upon or

over the surface as the natural elevations and depressions of the land may guide it but
which has no definite banks or channel, is surface water."

^'^418 N.E.2d at 571.

'^Ud. (citing Cloverleaf Farms, Inc. v. Surratt, 169 Ind. App. 554, 349 N.E.2d 731

(Ind. Ct. App. 1976); Gene B. Glick Co. v. Marion Constr. Corp., 165 Ind. App. 72, 331
N.E.2d 26 (1975)).

^''418 N.E.2d at 571.

^''Id. at 575.



348 INDIANA LAWREVIEW [Vol. 15:319

that the discharge of water onto the land of an adjoining owner was
not per se improper.^"^ Rather, in order to come within the excep-
tion, a defendant must collect surface water and discharge it onto

another's property in a concentrated flow}^^ In addition, the court

interpreted prior cases in which the exception to the common enemy
rule was applied as cases in which the defendant engaged in *'[a]n af-
firmative, tortious act at the physical point of discharge"^"^ such as

the direct channeling of water, by means of ditches or otherwise, on-
to the land of the plaintiff. The trial record contained no evidence
that the defendants had cut slots or channels in the top of the re-

taining wall and the court of appeals, on that basis, determined that

the effect of the retaining wall was, in fact, to protect the property

of the plaintiff by dispensing the water evenly across the property

line.^"^ Thus, the court of appeals concluded its opinion by stating:

Because there is no evidence in the record that the

Argyelans engaged in the positive, tortious wrong of collect-
ing surface water and discharging it in a concentrated flow

upon the land of their neighbors, the Havilands, the "com-

mon enemy rule" prevails and the decision of the trial court
must be reversed.^"^

One case decided during the survey period. State v. Mason,^^^
demonstrates the strictness with which the Indiana Department of
Natural Resources will construe permits for construction on the

various state lakes and waterways. The case also exemplifies the
severity of the consequences which deviation from such a construc-

tion permit may yield. In Mason, the state department of natural
resources sought both a prohibitory injunction to prevent Mason

'''Id. at 572 (citing Gene B. Glick Co. v. Marion Constr. Corp., 165 Ind. App. 72,
331 N.E.2d 26 (1975)).

^"=^418 N.E.2d at 572.

'°Ud.

""Id. The court of appeals distinguished Conner v. Woodfill, 126 Ind. 85, 25 N.E.
876 (1890), a factually similar case, on the basis of the difference in the distance of the

building from the property line of the plaintiffs land. In this regard the Argyelan

court stated: "In Conner the downspouts, like small ditches, directed water on
plaintiffs land in concentrated streams. In this case, the water run-off is as it would be
if no building had been constructed on Argyelan's property: the surface water flows

evenly onto the adjacent property." 418 N.E.2d at 573.

^"Yd at 575 (emphasis in original). Judge Sullivan, in dissent, criticized the major-

ity's assumption that the retaining wall "totally negated the collection and discharge of

water by the downspouts." Id. at 576. (Sullivan, J., dissenting), on the grounds that the

testimony clearly indicated that the water came over the wall "like a waterfall." Id.

Judge Sullivan would, therefore, have affirmed the trial court's decision as amply sup-

ported by the evidence. Id.
=^''«416 N.E.2d 1312 (Ind. Ct. App. 1981).



1982] PROPERTY 349

from further altering the shoreline of Lake Wawasee and a man-
datory injunction requiring Mason to restore the shoreline and lake-
bed to its original condition. The trial court, finding that Mason had
not "radically" deviated from the scope of the construction permit

issued by the department, denied all injunctive relief and the

department appealed.

In January, 1977, Mason was granted a permit to construct a
seawall on his property adjacent to the shoreline of Lake Wawasee.
The pertinent provisions of the permit authorized Mason to " '[c]on-
struct a concrete seawall in conformance with [the] attached

sketch' "^°^ and limited the permit " 'to the description and specifica-

tions set forth [in the permit including the attached sketch].' "^°^ By
its terms, the permit would become invalid in the event Mason
departed from the authorized specifications. Pursuant to the permit,

Mason began excavation in the early fall of 1977. The excavation
was accomplished through the use of a dragline which enhanced the
value of Mason's lake-side property by effectively creating a boat

channel providing access to and from Mason's property. Mason ad-
mitted the dredging but maintained that such activity was authorized
by the permit. As part of its evidence that Mason had exceeded the
scope of the construction permit, the department offered expert

testimony that the use of a dragline was an improper engineering
technique for constructing the foundation for a seawall.^"^

In finding that the trial court had abused its discretion in deny-

ing the injunctive relief requested by the department, the court of

appeals observed that the permit issued by the department could

not reasonably be construed as authorizing the dredging of such a

boat channel fifteen to twenty feet away from the shoreline.^^'' The
court reversed the trial court and remanded the case with direction
to grant both the prohibitory injunction and the mandatory injunc-

tion requiring Mason to restore the lakebed to its original condi-
tion.^^^ Given the relative burdens upon the parties and the quality
and nature of the injury involved in Mason, the result appears

somewhat harsh.^^^

"^^Ud. at 1313. (quoting the permit issued by the Indiana Department of Natural

Resources).

^°*M (quoting the permit issued by the Indiana Department of Natural Resources).

^This testimony indicated that the proper method for constructing the foundation

of a seawall was through the use of a backhoe rather than a dragline.

''Hd. at 1315.

^''Id. at 1316.

^'^Although unnecessary to its determination, the trial court as part of the ex-

planatory memorandum filed with its judgment, stated:
It is also noted that the issuance of injunctions is governed by the kinds of

considerations reflected in Schwartz v. Holycross; whether the issuance of in-



350 INDIANA LAW REVIEW [Vol. 15:319

Mid-America Marketing, Inc. v. Falender Development Corp.^^^
was another case involving issues of water law which came to the
court of appeals on the refusal of the trial court to grant injunctive

relief. In Mid-America, the plaintiff Mid-America sought a prelimi-

nary injunction to enjoin the defendant from entering upon the

plaintiff's property and from performing certain drainage work on
the property. The trial court denied the injunction and Mid-America
appealed.

The trial record disclosed that Mid-America and Falender owned
adjacent tracts of land. The Falender tract was located within the
corporate limits of the Town of Zionsville while the Mid-America
tract was not within the corporate limits. Although both parties con-
templated developing their respective tracts, only Falender Develop-

ment had commenced improvements. As part of the improvement of
its tract, Falender removed the portion of the "Saylor drain" which
ran through the property owned by Mid-America.^^^ Falender then
adopted a drainage plan which would have resulted in water from

the Falender tract flowing through a proposed culvert under the

county road and onto the property owned by Mid-America. The
drainage plan further required Falender to perform certain drainage

work on the Mid-America property so that the water passing
through the proposed culvert would be properly channeled to meet
the existing path of surface water over Mid-America's property. The
work proposed on Mid-America's property would have been located
within seventy-five feet of the Saylor drain. Because part of the

Saylor drain was located within the corporate limits of the Town of
Zionsville, the county drainage board transferred jurisdiction of the

entire drain to the town. The Town of Zionsville approved the plans
of the Falender development and notified Mid-America that Fal-

ender would be entering its property to perform the proposed drain-

age work. Upon the notification from the Town of Zionsville, Mid-
America sought the injunction which the trial court denied.

A substantial portion of Mid-America's appeal was grounded in
its contention that the Town of Zionsville lacked jurisdiction over

junctions is in fact a "matter of grace and not of right," it is apparent on the

present record that a refusal to grant injunctive relief will not cause ap-

preciable harm to Plaintiff, while granting such relief would be unnecessarily

burdensome and disruptive of defendants' lawful activity, resulting in serious

hardship and injustice to them.

Id. at 1315 (quoting trial court's explanatory memorandum). The court of appeals,

however, stated that it was unnecessary for the department to show irreparable harm

or that the hardships were balanced in its favor since the acts sought to be enjoined

were unlawful. Id. at 1316 n.3.
^"406 N.E.2d 372 (Ind. Ct. App. 1980).

^'*The parties agreed that the Saylor drain was a legal drain. Id. at 375 n.2.



1982] PROPERTY 351

that portion of the Saylor drain which was located on its property

outside the corporate limits of Zionsville. The court of appeals con-
cluded that by the terms of the Indiana Drainage Code, the county

drainage board was originally vested with jurisdiction over the
Saylor drain.^^^ The court construed the drainage jurisdiction trans-
fer provision, section 19-4-1-3.5 of the Indiana Code, as applying only

in situations in which a drain is located within a given city or

town.^^^ The court acknowledged the desirability of vesting authority
over the entire drain in a single entity but concluded that in Mid-

America that entity must be the county drainage board rather than
the Town of Zionsville.^" The trial court therefore "erred in conclud-
ing that the attempted transfer of jurisdiction was valid as it
related to that portion of Saylor drain which is located outside

Zionsville."'^^

In approving the proposed drainage work on the Mid-America
tract, the Town of Zionsville afforded Mid-America no opportunity
to file its objections or to participate in the determination in accord-

ance with the statutory procedures established by the Indiana

Drainage Code.^^^ The court of appeals concluded that "[t]he fact that
the [proposed drainage work] will be accomplished within the area

over which the drainage board has a right of entry does not

eliminate the need to follow prescribed statutory procedures."^^° The
trial court's refusal to enjoin Falender from discharging water on

the Mid-America tract was reversed.^^^

H. Real Estate Transactions

1. Warranties. — "Y-wo cases decided during the survey period il-
lustrate the limitations which Indiana courts are imposing on the ex-
tension of the warranty of habitability. In Vetor v. Shockey,^^^ the
Indiana Court of Appeals refused to extend the warranty of

^'^406 N.E.2d at 375.

'''Id.

'''Id.

'''Id. at 376. See Ind. Code §§ 19-4-3-1 to -7 (1976) (reconstruction of drains); Id. §§
19-4-4-1 to -8 (1976) (periodic maintenance of drains); Id. §§ 19-4-2-1 to -15 (1976) (con-

struction of new drains).
'2°406 N.E.2d at 376. See generally Ind. Code § 19-4-6-1 (1976). A parallel result

was reached in Grover v. Frantz, 408 N.E.2d 567 (Ind. Ct. App. 1980). In Grover the

court of appeals concluded that the fact that all reconstruction work on a drain was

completed within the statutory right-of-way did not preclude liability on the part of

persons performing the reconstruction for negligent destruction of structures upon the

right-of-way. Id. at 570-71.

'"Id. at 378.

'==^14 N.E.2d 575 (Ind. Ct. App. 1980).



352 INDIANA LA W REVIEW [Vol. 15:319

habitability to purchasers of used homes from non-builder-vendors,
and in Pennycuff v. Fetter,^^^ the court found that the warranty was
totally inapplicable to a sale of commercial property. A third case,
Orto V. Jackson, ^'^'^ created an exception to the general rule that

before a home owner can successfully raise a claim for breach of the
implied warranty of habitability he must give the builder notice of
the defect.

In Vetor, the plaintiffs purchased a used home from the defen-
dant, Vetor, who had occupied the dwelling for four years, but was
not the builder. Vetor gave the plaintiffs a warranty deed and

made specific representations as to the condition of the septic tank.
These representations were that the system was in "satisfactory
working condition except for certain times of the year when there
would be a lot of water on the ground, the septic system might be a

little slow."^^^ The plaintiffs had trouble with the septic system and
brought an action in small claims court for the cost of repair. The
trial court found that there was an implied warranty that the septic
tank was in working order and held for the plaintiffs. The defendant
appealed.

The court of appeals traced the development of the warranty of
habitability, beginning with the common law theory of caveat
emptor .^^^ The court noted, however, that this theory has lost favor
in Indiana as well as in other jurisdictions in the context of the pur-

chase of a new home from a builder-vendor, and mentioned that the
Indiana Supreme Court had even extended the warranty of habit-
ability to subsequent purchasers. The court, however, could find no
Indiana authority for extending this warranty to the purchaser of a

used home from a non builder-vendor. The court noted that all
jurisdictions which had directly confronted the question had re-

jected such an expansion, apparently on the grounds that "in the

sale of used housing, the vendor usually has no greater expertise in

determining the quality of a house than the purchaser."^"

Although the court recognized that there may be certain situa-
tions in which it would be necessary to extend the implied warranty

of habitability, the court refused to extend the warranty in this

case.^^* Thus, while it refused to make an extension in this case the
court left the door open for possible further expansion of the war-

ranty of habitability in other areas. In addition, the court suggested

that "[a]s for defects known to the vendor of an older home at the

22^409 N.E.2d 1179 (Ind. Ct. App. 1980).
^=^''413 N.E.2d 273 (Ind. Ct. App. 1980).
22^414 N.E.2d 575, 576.

'''Id.

''Ud. at 577 (emphasis in original).

'''Id.



1982] PROPERTY 353

time of sale, the tort theories of misrepresentation or fraudulent

concealment are alternatives open to the unknowing buyer."^^^ The
court refused to consider these theories in this case, however,

because of "the meager record presented for review due to the
nature of the [small claims] proceedings below, the limited scope of

the trial court's judgment, and the lack of an appellees' brief."^^°

In Orto V. Jackson,^^^ the Jacksons contracted to have a home
built by the plaintiffs' construction company. The agreement provided,
among other things, that the plaintiffs would "diligently prosecute
construction to a conclusion, unless prevented by acts of the Buyer .

. . [or] acts of God,"^^^ that they guaranteed all materials and

workmanship for one year, and that they agreed to complete work
within ninety days after beginning construction.^^^ Work was begun
in early August 1976, and in November, in reliance upon the terms
of the agreement and an oral promise made by one of the partners,
the Jacksons sold their home. The construction was not in fact com-
pleted until late April of 1977, and the Jacksons were forced to rent

a home for six months.^^^
When the Jacksons did finally move in, they experienced a

number of difficulties including plumbing leaks, an improperly func-
tioning sewage system, and a buckling basement wall. Subsequent
problems arose with faulty trusses used to support the floor and

this in turn resulted in some of the walls separating from the ceil-
ing. In addition, there was leakage in the roof and basement, and
the gutters fell off the house.^^^

The Jacksons contacted the plaintiffs and attempted to resolve
many of these problems. The builders successfully remedied the pro-
blem of the buckling wall and repaired some of the plumbing leaks
and improperly cut doors. However, other defects, of which the
plaintiffs had notice, were never corrected. Finally, the defendants
repaired some of the defects without giving the plaintiffs any notice
at all.

The defendants refused to pay the agreed contract price, and

'=^M The court of appeals in Pennycuff v. Fetter, 409 N.E.2d 1179 (Ind. Ct. App.
1980), refused to find an implied warranty of habitability in the sale of a clubhouse and
swimming pool by a non-builder vendor. However, the court did recognize a possible
cause of action in fraud or misrepresentation. In this case the buyer was assured by
the seller that the swimming pool was in good condition. It was subsequently
discovered that several of the pipes fiad burst.

230414 N.E.2d at 578.

2^M13 N.E.2d 273 (Ind. Ct. App. 1980).
'''Id. at 274.

^^^"This provision was handwritten into the contract at the request of Mr. Jackson
[the defendant]." Id.

'''Id.

""'Id. at 275.



354 INDIANA LA W REVIEW [Vol. 15:319

the plaintiffs brought suit to foreclose on their mechanic's lien. The
Jacksons counterclaimed for damages. Although the trial court

ordered a foreclosure, the court also awarded damages to the defen-
dants. The plaintiffs appealed.

One of the plaintiffs' central arguments was that notice of the
alleged defects was a prerequisite for finding them liable for breach
of the implied warranty of habitability. The court agreed that this
was the general rule in Indiana and noted that under Wagner Con-
struction Co. V. Noonan^^^ there was an additional general require-
ment that the homeowner allow the builder "reasonable time to
repair."^^^ The court suggested that "[u]nder a strict reading of
Wagner, the Jacksons should not be awarded damages for the
[defects for which they failed to give notice prior to repair] since

they did not give the builders notice of the defects and reasonable

time to repair them."^^^ However, the court held that the general
rule did not apply in this case. It said that the policy underlying the

notice requirement was to allow the builders the opportunity to
repair the defects, to reduce the damages, to help them avoid
similar defects in the future, and to promote settlement.^^^ Yet, the

evidence in this case demonstrated that after the builders had filed

suit they had no intention of making further repairs. Nor had they
attempted to discover why the septic system had not worked, so as
to avoid similar problems in the future. Attempts at settlement
prior to filing of the action had proven unsuccessful. Thus, the court

held that the Jacksons were not required to give notice of these
defects because it would have served no purpose.^''"

Several other allegations of error were also addressed by the
court, but were of lesser significance to the outcome of this case.^"
Finally, the appellate court upheld the trial court's award of com-
pensatory damages to the defendants.^*^ It found that the proper
measure of recovery was the "reasonable cost of altering the defec-
tive parts of the house so as to make them conform to the plans and
specifications" plus injuries for delay, economic loss occassioned by

the breach of contract and implied warranty of habitability, loss of

the full use and enjoyment of the property, and the probable cost of

future repairs. ^''^ Although it suggested that the trial court might

^^«403 N.E.2d 1144 (Ind. Ct. App. 1980).
'^^413 N.E.2d at 276. •

'''Id.

'''Id.

'*'Id.

^"These allegations included a question of negligence on the part of both parties

and a question of accord and satisfaction. Id. at 275-77.

''Ud. at 278-79.

''Ud. at 278.



1982] PROPERTY 355

have specified more particularly the allocation of the award, the

court found that the evidence established that the Jacksons had ex-

pended time, energy, and money in resolving the problems with

their home, had lost the use and enjoyment of part of the property,

and had suffered aggravation and inconvenience because of the

plaintiffs' breach.^^^ The court concluded that those damages were

foreseeable^*^ and that it was within the discretion of the trial court

to award them.^*^
2. Mortgages. — In First Federal Savings and Loan Association

V. Arena,^^^ the Indiana Court of Appeals applied a general rule of

surety law — that a surety is relieved of secondary liability if the
principal debtor and creditor materially alter the original con-

tract—in the context of a transfer of mortgaged property.

In First Federal, the defendants, the Arenas, had executed a

note, mortgage and supplemental agreement with First Federal for

a $32,000 loan. About a year later, the bank advanced the Arenas an

additional $5,100 and in consideration the Arenas agreed to an in-

crease in the interest rate payable and executed a separate note,

mortgage and agreement supplemental. The Arenas subsequently
conveyed the real estate by warranty deed subject to the two First
Federal mortgages to a third party, Mr. Richardson. On the same
day as the transfer, Mr. Richardson negotiated a modification and

extension agreement with First Federal under which he assumed
both of the prior mortgages, had the period of repayment increased
to twenty years, and agreed to an increase in the interest rate pay-
able.^*® Mr. Richardson later defaulted on the mortgages and notes

and First Federal sought to recover against the Arenas under the
terms of the modification and extension agreement which First Fed-
eral had made with Mr. Richardson.^"^ The trial court granted a sum-
mary judgment for the Arenas and the plaintiff appealed.^^"

The bank based its case on the terms of the Arenas' supple-
mental agreement that provided that the Arenas were to remain
liable on the mortgage upon the transfer of the property to a suc-
cessor in interest.^^^ Furthermore, First Federal had the right to

deal with the successor in interest in the same manner as with the
mortgagor.^^^ However, the court released the Arenas from liability

^''See id.

="'«413 N.E.2d at 278.

'"'406 N.E.2d 1279 (Ind. Ct. App. 1980).

^''Id. at 1281-82.

^*Hd. at 1282. Richardson and several other lienholders were also made parties. Id.
''"Id. at 1281.

'''Id. at 1283.

''Ud.



356 INDIANA LA WREVIEW [Vol. 15:319

in this case because Mr. Richardson and First Federal had made
material changes in the terms of the mortgage without the Arenas'
knowledge or consent.^^^

In reaching this result, the court drew an analogy between the
Arenas' relationship to Mr. Richardson and that of a surety and
principal debtor. The law of surety will strictly construe any agree-
ment by the surety to future modifications. Therefore, if a material
modification is made in a mortgage agreement which exceeds the
modifications consented to in the original mortgagor's agreement,
the mortgagor is not liable. Based on this reasoning, the court up-
held summary judgment for the Arenas.

In Pearson v. First National Bank,^^' the Indiana Court of Ap-
peals adopted the majority view with respect to interpreting a loss
payable clause of a fire insurance policy in favor of a mortgagee,^^^
and in the process the court created a precedent which permits
banks to take unfair advantage of mortgagors.

In this case Pearson purchased a restaurant subject to two
mortgages in favor of First National and the Small Business Ad-
ministration. In the purchase agreement Pearson also agreed to in-
sure the premises with a fire, extended coverage, and vandalism
policy payable in favor of the bank and the Small Business Ad-
ministration "as their interests [might] appear."^^^ About six months
later the restaurant was severely damaged by a fire. An insurance
adjuster took bids on the repair work and hired a firm to begin
reconstruction. Shortly after beginning work, however, an agent of

the construction firm asked Pearson how and when the firm would be
paid. Pearson responded by saying he was not sure but assumed
that the insurance money would be held in escrow by First National,
and he suggested that the agent speak to someone from the bank.
When the agent approached the people at First National he was told
that no payments would be made until all the reconstruction work
was completed. He returned to the bank with Pearson later that
afternoon. There they were told that First National had decided to

retain the insurance proceeds to pay off the loan rather than rebuild

the restaurant. The bank added, however, that it was willing to con-

sider giving Pearson a new loan at a higher interest rate if he
desired to rebuild. Pearson had all work stopped and brought suit

against First National for breach of contract and tortious miscon-

^'Yd at 1284. The court initially found that the questions of whether First Federal

could increase the interest rate to Mr. Richardson without discharging the Arenas and

the interpretation of the terms of First Federal's agreement with the Arenas were

ones of law and therefore appropriate for summary judgment. Id.
'^"408 N.E.2d 166 (Ind. Ct. App. 1980).

'''Id. at 169-71.

'''Id. at 168.



1982] PROPERTY 357

duct. First National moved for and was granted a judgment on the
evidence on the grounds that Pearson failed to prove any breach of

contract or tortious damages. Pearson appealed.

The court of appeals began its discussion by asserting that
"[g]enerally speaking, a mortgage agreement is a contract, and as

such, the mortgagor and mortgagee are free to enter into an agree-

ment concerning the disposition or application of insurance proceeds
in the event of a loss."^^^ The court also stated that the well-
established rule is that when a mortgagor is required to insure
mortgaged property

\inder a policy containing a clause making any loss payable
to the mortgagee . . . '*as his interest may appear," the mort-
gagee is entitled to the proceeds of the policy to the extent

of his mortgage debt, holding the surplus, if any, after extin-

quishment of his debt for the benefit of the mortgagor.^^®

The court noted that "[i]t has been held specifically that a mort-
gagee named in a loss payable clause will prevail over a mortgagor
who desires to use the money to repair."^^^

The court said that it was not clear whether the mortgagee
could apply the insurance proceeds to mortgage debts not yet due,

but hinted that it accepted the view that the mortgagee had to hold

the proceeds until they were due and could not accelerate and
recover the whole mortgage debt at once.^^° The court also rejected
the sole contrary view that it could find on this issue. In Schoolcraft

V. Ross,^^^ the California Court of Appeals imposed a good faith re-

quirement in exercising an option to apply the proceeds against the

debt rather than to rebuild.^^^ In Schoolcraft, the court found for the

mortgagor when it determined that the mortgagee had not acted in
good faith when it chose to apply the proceeds against the debt.^^^
The Indiana Court of Appeals' only comment about Schoolcraft was
that it questioned what the California court meant when it said that
the collateral was not impaired, when in fact the house was
destroyed.^^*

'"Ud. at 169.

'''Id.

'''Id. at 170.

''°Id.

=="81 Cal. App. 3d 75, 146 Cal. Rptr. 57 (1978).

''Hd. at 80-83, 146 Cal. Rptr. at 60-61.

''Ud. at 80-81, 146 Cal. Rptr. at 60.

^^"408 N.E.2d at 170. The California court probably meant that had this money

been used in good faith to repair the fire damaged home, the home would have been
worth roughly what it had been before and thus the security would not have been im-

paired.



358 INDIANA LA W REVIEW [Vol. 15:319

The court concluded by asserting that the terms " 'payable to
the bank and the S.B.A. as their interests may appear' " were
words of art with a particular meaning at law and were "entitled to
an interpretation consistent with that meaning."^^^ It also suggested

that the plaintiffs evidence was insufficient even if the court were
to adopt an implied element of good faith. It noted that there was no
evidence that the plaintiff was current with his mortgage payments
at the time of the fire, nor was there evidence that the bank ever
gave the plaintiff permission to use the proceeds for reconstruction

or that the bank even knew reconstruction had begun.^^^ Finally,
there was no evidence as to the amount of the mortgage balance at
the time of the fire, the amount of proceeds actually paid to the
bank and credited to the plaintiff, or how and when the mortgages
were retired.^^^ The court of appeals affirmed the judgment on the
evidence.^^^

While the rule adopted by the court of appeals in this case —
essentially caveat emptor — may be in line with the view of a majori-
ty of jurisdictions, it is subject to criticism and may result in giving
mortgagees a great deal of leverage creating a very real possibility
for abuse. An initial problem involves the court's unquestioning
reliance upon the principle of caveat emptor. Pearson may in fact
have been a sophisticated business person who knowingly bargained
for this term and therefore should be bound; however, there are
numerous consumer mortgage loan situations involving such clauses
where the mortgagor will not know what he is giving up and in fact
may have little bargaining power at all. Yet, the court makes no
distinction. While it may be fair to hold a sophisticated party to the
meaning of a term of art, there is less justification for doing so
when the mortgagor does not even know it is a term of art.^^^

The most striking problem with this approach, however, can be
exhibited by carrying the scenario of this or other similar cases

through. Under the court's analysis the mortgagee bank can set up
an escrow account and deposit the insurance proceeds in it. Then as
the mortgage payments come due the mortgagee can withdraw
funds to cover the payments. In the process, however, the mort-

gagee has left the mortgagor holding a fire damaged building with
no funds with which to repair it. The "opportunity" to refinance at a

'''Id.

^''Id. at 170-71.

''Ud. at 171.

'''Id.

''^^The Indiana case, Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d 144
(1971), is a leading decision on the issues of the parties' abilities to understand the

terms of their contract, equality of bargaining power, and unconscionable contracts.

Those factors may be relevant in this case as well.



1982] PROPERTY 359

higher rate of interest undoubtedly provides mortgagees wjth a

means of economic coercion.
The California court's good faith requirement has merit. If,

without jeapordizing the mortgagee's interest, the insurance pro-

ceeds can be used to fully repair the collateral, the mortgagee

receives the protection he sought by requiring insurance and the

mortgagor has a building in which to live or do business. This ap-
proach seems best suited to reestablish the status quo that existed

before the fire and gives neither party an unfair advantage.

3. Land Transfer Agreements. — A number of cases involving
issues relating to land transfer agreements arose during the survey

period. The areas of law involved included option contracts and pre-
emptive right provisions,^^" the statute of frauds and part perform-

ance,^^^ and the liabilities and rights of parties assisting in land

transfer agreements.^^^

a. Option contracts and pre-emptive right provisions. — Two re-
cent cases involved new or interesting questions involving option
contracts and pre-emptive rights. In Theobald v. Chumley,^''^ the

plaintiff, Theobald, in November 1972, entered into a real estate con-
tract with the defendant, Mrs. Buskirk,^^* which gave him a ninety-

day option to receive six acres of property and cash from Mrs.

Buskirk in return for 20.96 acres of his property. Buskirk was to pay
$300 per acre for the 14.96 acres in excess of what she conveyed to
Theobald, and Theobald was to obtain a proper legal survey descrip-
tion of the land to be conveyed.

In January 1973, Theobald had the survey made and notified
Mary Ellen Chumley, who held a power of attorney in behalf of Mrs.
Buskirk, that he was exercising the option; he also notified Mrs.
Chumley's attorney .^^^ It was later discovered that the survey and
warranty deed which Theobald had prepared were incorrect and

called for two to three more acres than provided for in the option
contract. For this reason the deed to Theobald's property was re-
tained by Theobald's attorney and was never delivered. In the

meantime, however, Mrs. Buskirk took possession of the 20.96 acres

and began to farm it. The problem with the deed was never cor-

""See notes 273-302 infra and accompanying text.
'"See Summerlot v. Summerlot, 408 N.E.2d 820 (Ind. Ct. App. 1980), discussed in

Falender, Decedents' Estates and Trusts, 1981 Survey of Recent Developments in In-

diana Law, 15 Ind. L. Rev. 175, 195 (1981).
"'See notes 303-31 infra and accompanying text.
"'408 N.E.2d 603 (Ind. Ct. App. 1980).
"*At the time of the creation of the contract Mrs. Buskirk was one of two co-

owners of the property. She subsequently purchased the other interest.

"^/d at 604. By agreement the option was exercisable either in person or in
writing.



360 INDIANA LAW REVIEW [Vol. 15:319

rected, and in August of 1974, Theobald brought suit to recover for
crops that were harvested by Buskirk during that year. Buskirk in
turn cross-claimed for specific performance of the option contract.

The court of appeals said that the sole issue on appeal was
whether the option agreement was effectively exercised, and it re-
jected an argument by Theobald that the option lapsed after ninety
days because his exercise did not fully conform to the option agreed
upon.^^^ The court said that there were essentially two steps
necessary to exercise an option to purchase: (1) the optionee
(Theobald) had to make a decision to purchase under the option and
(2) that decision had to be communicated to the optionor (Buskirk)
within the life of the option."^

The court noted that in the typical case, where the optionee was
the party attempting to enforce the option, the courts had imposed a
strict requirement that the optionee exercise the option specifically
as to its terms because he was the sole party capable of consum-
mating the option and forming the contract.-'^ In this case, however,
it was the optionor and the not the optionee who was attempting to
enforce the agreement. The court held that when, within the option
period, Theobald communicated his decision to exercise the option to
Mrs. Chumley and her attorney, the two steps necessary were
satisfied and a contract was formed.^^^ The court found that the legal
survey that Theobald was required to obtain was not a condition to
formation of the contract but "necessary merely to properly convey
the exchange of lands,"^^° and the court treated the survey and deed
including additional acreage as merely an offer which Mrs. Buskirk
could accept or reject.^^^ The court concluded by admitting that
there were no Indiana cases on point but discussed authority from
other jurisdictions which supported its decision. The court determin-
ed that this was the fairest and most equitable result.'^^

Stoneburner v. Fletcher^^^ involved a pre-emptive right created
by a conditional sales contract used in connection with a sale of real
estate by the defendant, Stoneburner, to the plaintiff, Fletcher. The
contract provided, among other things, that the buyer (Fletcher)
would have the privilege of accelerating and paying off the contract
at any time after four years from the making of the contract. The
buyer would also have an opportunity to purchase a lot located adja-

'''Id. at 604-05.

''Ud. at 605.

'''Id.

'''Id. at 605-06.

'''Id. at 605.

"'Id. at 605-06.

"'Id.

"m8 N.E.2d 545 (Ind. Ct. App. 1980).



1982] PROPERTY 361

cent to the property he bought "in event same should be for sale at
any time in the future."^*^

Fletcher exercised his option to pay off the full amount in ac-
cordance with the contract and received a warranty deed from

Stoneburner. A few months later Stoneburner began negotiations
with the Kopeckys to sell a strip of the lot which was subject to
Fletcher's pre-emptive right. Stoneburner sold the strip to the

Kopeckys on July 31, 1975.^*^ Fletcher brought an action for equit-

able relief and damages for breach of the clause creating the pre-
emptive right and was awarded a judgment of $4,000. Stoneburner
appealed.

One of the primary questions on appeal was whether the pre-
emptive right survived the termination of the contract when Flet-
cher prepaid the purchase price. Stoneburner argued that the clause

creating the pre-emptive right was an indivisible and interdepen-
dent covenant of the contract. Hence, when Fletcher prepaid the
purchase price both the contract and the pre-emptive right termi-

nated.^^^ The defendant also argued that the description of the prop-
erty in question was insufficient and that, along with the lack of a
separate recital of consideration and execution established that the

pre-emptive clause was interdependent and indivisible.^*^ The court
rejected both of these arguments.

The court in a footnote mentioned that the defendant was appar-
ently making an argument based on the doctrine of merger by
deed.^®* The court suggested that this doctrine generally provides
that unless there is fraud or mistake, once the buyer accepts the

deed, the contract for sale is "merged" into the deed, and the seller
can no longer be held to terms which are in the contract but are not

included in the deed.^*® The court noted, however, that collateral or

^*^M at 546. The parties labeled this latter provision as either an "option" or an
"option of first refusal"; however, the court said this provision was more accurately
described as a pre-emptive right. Id. at 547 n.4.

^'Ud. at 546-47.

^^^Id. at 547-48. The defendant argued that the case of Spindler v. Valparaiso
Lodge of Benevolent and Protective Order of Elks, No. 500, 223 Ind. 276, 59 N.E.2d
895 (1945), should control the decision here. In Spindler, the Indiana Supreme Court
held that where a tenant gave up one lease in favor of another lease, he could not en-
force a preferential right to purchase the property which was the subject of the first
lease. The court of appeals in Stoneburner, however, held that Spindler was not ap-
plicable because the pre-emptive right in Spindler pertained to the property that was
leased , whereas the pre-emptive right in Stoneburner pertained to adjacent property.

408 N.E.2d at 548.

2«M08 N.E.2d at 549.

2««M at 548 n.6.

^^Yd at 548-49. Thus, the defendant's argument under the facts of this case would

be that when Fletcher received his deed for the tract covered by the first provision of
the contract, the terms of the contract were "merged" into the deed. The deed most



362 INDIANA LAWREVIEW [Vol. 15:319

independent rights created by the contract of sale are not extin-

guished if excluded from the deed and constitute an exception to the

doctrine.^^° The court maintained that in this case Fletcher's pre-
emptive right was not "part of the main purpose of the contract
which was the sale and purchase of Parcel C [the parcel dealt with
in the first provision of the contract]."^^^ In addition the court noted

that "the use of the open-ended words 'at any time in the future'

could be reasonably interpreted as an expression of the parties' in-

tent, at the time of contracting, that the pre-emptive right would

survive the conveyance of the principal property ."^^^ The court also
held that the pre-emptive clause was not interdependent and indivis-
ible from the contract.^^^ "A contract is not entire and indivisible
simply because it is embraced in one instrument and executed by
the same parties."^^" There are two general tests of severability: (1)
divisibility of consideration and (2) whether the contract can be com-

pleted in part only.^^^ The court said, "While the instant contract
would not appear to meet the divisibility of consideration test, it
could be completed in part only."^®®

The court concluded by saying that the description of the prop-
erty covered by the pre-emptive rights was "not so insufficient as to
render the contract entire and indivisible."^^^ It upheld the trial

court's ruling that the pre-emptive right survived the tender and

delivery of the deed, and it found that the pre-emptive right was
still in force.^^^

One question the court never resolved in this case was how long
the pre-emptive right would in fact have continued. It clearly re-

jected the view that the right terminated with the transfer of the

deed for the parcel covered by the initial provision of the contract

(Parcel C).^^^ The trial court found that the pre-emptive right con-
tinued for a reasonable time not to expire before the normal pay-out

period of the real estate contract.^"'' The court of appeals ultimately
held that although it felt the probable rule was that the pre-emptive

probably would not refer to the pre-emptive right in the second tract and hence

Stoneburner would argue that the right was extinguished.

''"Id. at 549.

'''Id.

'''Id.

''Ud. at 549-50.

''*Id. at 549.

'''Id.

"'Id. at 550.

"Ud.

"'Id.

"'Id.

'''Id. at 547.



1982] PROPERTY 363

rights continued for the life of the vendor,^°^ and therefore the trial

court's determination was erroneous because under either of these
tests Stoneburner was liable.^"^

h. Liabilities and rights of parties participating in land

transfer agreements. — K number of parties beyond the buyer and
seller are often involved in the sale of real estate, and these parties

also have rights and liabilities. Two cases decided during this
survey period dealt with two of these additional participants: (1)
abstract companies^''^ and (2) brokers.^"^

i. Abstract companies. — In Tipton County Abstract Co. v.
Heritage Federal Savings and Loan Association,^^^ the court of ap-
peals held that if an abstract company fails to include a prior mort-
gage against a piece of property in its title opinion, and the party

employing the company relies to his detriment on that opinion, the
abstracter is liable regardless of whether his employer had construc-

tive or even actual knowledge of the prior mortgage.^"^

In this case the plaintiff, Heritage, took a mortgage loan applica-

tion which revealed a $25,000 secured loan in favor of another bank

from the Bourffs. Heritage sent the abstract of the property to the

defendant, Tipton County Abstract Company (TCAC), to be con-
tinued from May 1971 to March 1973. TCAC did not find the $25,000
secured loan or any other liens and certified the title. Thereafter,

Heritage gave the Bourffs a $70,000 mortgage on the property. In

December 1974 the Bourffs declared bankruptcy, and the prior mort-
gage holder sought to foreclose and joined Heritage as a party

defendant. The decree in that case listed the prior mortgage holder
as the first mortgagee and Heritage as second. Heritage brought
suit against TCAC and recovered $73,999.44 for damages it suffered
because of TCAC's failure to include the prior mortgage. TCAC ap-
pealed.^"^

The court of appeals based its decision on three fundamental fac-
tors—duty, causation, and reliance.^"® It began by saying that TCAC
would clearly "be liable for damages caused by their breach of con-
tract by supplying erroneous information in the abstract continua-
tion."^°^ The court then quoted an earlier case to show that the
reason for this rule was that the abstracter owed his employer a duty

'''Id. at 548.

'''Id.

'°'See notes 305-16 infra and accompanying text.

'"^See notes 317-31 infra and accompanying text.
^"^416 N.E.2d 850 (Ind. Ct. App. 1981).

'''Id. at 854.

"Ud. at 852.

"'See id. at 852-54.

"'Id. at 852.



364 INDIANA LAWREVIEW [Vol. 15:319

of ordinary care and diligence.^^" However, implicit in the court's
reasoning is the idea that this duty of care is applicable whether the

abstracter's negligence is the erroneous inclusion of improper infor-

mation or the absence of some relevant facts.^"
The court went on to discuss the factors of causation and

reliance. It said, 'The abstracter, however, could not be liable for

damages caused by factors other than his breach. . . . Such damages
include those caused by the plaintiffs reliance on the abstracter's

breach."^^^ The court referred to an American Jurisprudence 2d an-
notation for the proposition that a party could rely on the truth and

accuracy of an abstracter's report, "unless perhaps the terms of the

certificate made it plainly apparent that there was a mistake,"^^^ and
then the court maintained that under Indiana law it was not clear
"that even actual knowledge of an abstracter's breach negates

recovery if the plaintiff relied on the abstracter's error."^^^

The court ultimately went on to resolve this question and held
that

Heritage's knowledge, actual or constructive, of the prior

mortgage is irrelevant if they in fact relied on TCAC's re-
presentation that it did not exist. Thus, the gist of TCAC's
issue must be whether there is sufficient evidence to sup-
port the trial court's finding that Heritage relied on TCAC's
error in granting Bourffs the mortgage.^^^

The court reviewed the record and found there was sufficient
evidence to support the trial court's finding and affirmed the lower

court's decision.^^^

ii Brokers. — The two common issues that arise with regard to
real estate brokers are conformance with the statutory require-

ments that a broker must plead and prove he is duly licensed^^^ and
that a broker's contracts must be in writing^^^ before he can recover

''°See id. at 852-53 (quoting Mayhew v. Deister, 144 Ind. App. Ill, 118-19, 244
N.E.2d 448, 452 (1969)).

'''See 416 N.E.2d at 853.

^'Ud. (citation omitted).

'''Id. (referring to 1 Am. Jur. 2d Abstracts of Title § 19 (1962)).

'"Id.

"^Id. at 854 (footnote omitted).

'"Id. at 854, 855.

^'iND. Code § 25-34.1-6-2(b) (Supp. 1981). The survey cases dealing with this re-

quirement arose while a prior version of the statute. Ind. Code § 25-34-1-9 (1976)

(repealed 1979), was in effect.

'''Ind. Code § 32-2-2-1 (1976). This so-called "broker's Statute of Frauds" provides:

No contract for the payment of any sum of money or thing of value, as
and for a commission or reward for the finding or procuring by one (1) person

of a purchaser for the real estate of another, shall be valid unless the same



1982] PROPERTY 365

a commission. Three cases decided during the survey period —
one from the first district dealing with the latter issue^^^ and two

from the third district dealing with the former issue^^" — indicate
that there is a difference in the strength or effect of these require-

ments. The writing requirement is strictly applied while proof of
licensing is not.

In William S. Deckelbaum Co. v. Equitable Life Assurance
Society,^^^ the first district dealt with the writing requirement and

held that in the absence of a written contract for payment of a com-
mission, a broker could not prevail in an action for tortious interfer-

ence with a contractual relationship.^^^

In September, 1977, Equitable Life Assurance Society, the

owner of the J.C. Penney Building in downtown Indianapolis, indi-
cated to Deckelbaum, an industrial and commercial real estate com-

pany, its desire to sell the Penney Building. After Deckelbaum in-

formed Equitable that it had initiated negotiations with Blue Cross,

Deckelbaum was given the authority to sell the building for

$3,000,000. For its services, Deckelbaum was to receive six percent
of the sales price; however, no written contract was ever entered

into for payment of the commission.
On April 20, 1978, Blue Cross submitted an offer to purchase

through its alleged realtor, F.C. Tucker, and on May 12, 1978, Equit-
able accepted that offer. Equitable paid Tucker a $150,000 commis-

sion. Deckelbaum brought suit against Equitable, Blue Cross, and
Tucker for compensatory and punitive damages for conspiring to
defraud it. Deckelbaum later dismissed without prejudice its claim
against Tucker, and the trial court sustained a Trial Rule 12 motion

when Deckelbaum failed to plead over within the time allowed.
Deckelbaum appealed. Deckelbaum argued that its claim was for
tortious interference with a pre-contractual business relationship

which did not require the existence of a valid contract and not for

the recovery of his commission which would require a written con-

tract.^^^ The court never addressed Deckelbaum's allegation of inter-

shall be in writing, signed by the owner of such real estate or his legally ap-
pointed and duly qualified representative: Provided, That any general
reference to such real estate sufficient to identify the same shall be deemed
to be a sufficient description thereof.

Id.

''William S. Deckelbaum Co. v. Equitable Life Assurance Soc'y, 419 N.E.2d 228
(Ind. Ct. App. 1981).

'==°Sutton v. Roth, Wehrly, Heiny, Inc., 418 N.E.2d 229 (Ind. Ct. App. 1981); Marotta
V. Iroquois Realty Co., 412 N.E.2d 797 (Ind. Ct. App. 1980).

'=='419 N.E.2d 228 (Ind. Ct. App. 1981).

'''Id. at 232.

'''Id. at 230.



366 INDIANA LAWREVIEW [Vol. 15:319

ference with a pre-contractual relationship.^^^ Because under Indiana

law the tort of interference with a contractual relationship is depen-

dent upon the existence of a valid contract and because no enforce-

able agreement existed here, the court ultimately held that the trial

court's dismissal had to be upheld.^^^ In reaching this decision, the

court discussed the Indiana law on brokers' commissions.^^^ It said

that although some jurisdictions allow recovery of brokers' commis-
sions under either oral or written contracts, "Indiana . . . has

precluded recovery of [brokers'] commissions when the agreement is
not in writing."^^^

Although the first district may not have gone so far as to make
a writing a jurisdictional issue without which it had to hold for the

parties opposing the broker, it made it quite clear that a broker will
have an extremely difficult time recovering a commission without a

written agreement.

On the other hand, the third district applied a much more len-
ient standard in connection with the requirement that a realtor

prove he is duly licensed before he can recover a commission. In

Sutton V. Roth, Wehrly, Heiny, Inc.,^^^ the court held that proof of

licensing could be inferred from other facts presented into evidence,

for example a listing agreement,^^^ and in Marotta v. Iroquois Realty

Co.,^^^ the court held that direct proof of due licensing was unneces-
sary if the parties stipulated to that fact.^^^

^^*See id. at 230-32. The court may have determined that the parties intended to
create a contract when they made their oral agreement and that Deckelbaum's for-
mulation of the case as one dealing with a pre-contractual relationship was therefore

only a ploy to avoid the rules that related to tortious interference with a contractual

relationship; however, it never gave any reason for ignoring Deckelbaum's actual argu-

ment.

'''Id. at 232.

'''See id. at 230-32.

''Ud. at 230.

''HIS N.E.2d 229 (Ind. Ct. App. 1981).

"'Id. at 232.

^^°412 N.E.2d 797 (Ind. Ct. App. 1980).

"'Id. at 799-800.