Indiana Law Review


Survey of Recent Developments in Property Law

Walter W. Krbeger*

I. Brokers: Commission on Exercise of Option to Purchase

In a case of first impression, the Indiana Court of Appeals, in

Estate of Saemann v. Tucker Realty^^ held that a real estate broker

was not entitled to a commission on a sale of land which results from

the exercise of an option to purchase agreement negotiated during the

period of the listing agreement, but exercised after the time for per-

formance under the listing agreement had expired. In Saemann, Tucker

Realty had entered into an exclusive listing agreement to sell Saemann's

202.5 acre farm in Kosciusko County, Indiana, known as **City Edge
Farm." The period of the exclusive listing agreement was from April

30, 1977 to October 30, 1977, and Tucker Realty was to receive a 6%
commission if it found a ready, willing, and able purchaser for the

farm.^

On June 21, 1977, Tucker Realty presented to Saemann a written
offer from a group of individuals interested in purchasing the west

acreage of City Edge Farm, a total of 120 acres, for $2500 an acre,

conditioned upon the grant of a five year option to purchase the

remaining 82.5 acres for $2500 an acre. Saemann accepted the offer.

The acceptance contained a provision for a broker's commission which

read: ** [seller agrees] to pay to Tucker Realty licensed broker, the sum
of eighteen thousand Dollars ($18,000.00) commission for his services

rendered in this transaction."^

In February 1982, purchasers exercised their option to purchase the

remaining portion of the farm for $206,250 and Tucker Realty demanded

a six percent commission ($12,375.00) on the sale. Saemann denied
owing a commission and Tucker Realty filed suit."^

The trial court granted Tucker Realty's motion for summary judg-
ment. In so doing, the trial court, based upon a review of decisions

from other jurisdictions contained in an American Law Reports an-
notation, concluded that, in general, even though the broker is not

* Associate Professor of Law, Indiana University School of Law—Indianapolis.
A.B., Bellarmine College, 1959; J.D., University of Louisville, 1962; L.L.M., George

Washington University, 1969.

1. 529 N.E.2d 126 (Ind. Ct. App. 1988).

2. Id. at 127.

3. Id.

4. Id. at 127-28.

485



486 INDIANA LAW REVIEW [Vol. 23:485

entitled to a commission for procuring an option to purchase, once the

option is exercised and the sale completed, the broker's right to a

commission accrues.^ The trial court further determined that the language

in the written acceptance, which provided for the payment of an eighteen

thousand dollar commission to Tucker Realty for services rendered in

connection with "this transaction" related solely to the immediate pur-

chase of the land and not to the five year option. Thus, the trial court

found that the purchase agreement was silent as to the rights of the

broker to a commission upon the exercise of the option to purchase
and that the general rule stated above should apply.^ Saemann appealed.^

The court of appeals first observed that, under Indiana caselaw,

in order to recover a commission under a written listing agreement, the

broker must prove:

(1) That an actual sale or transfer of the realty occurred;

(2) That the broker procured a purchaser, who was ready, willing
an able to purchase the realty on terms specified in the

contract and the seller refuses to complete the transaction;

or

(3) That a third party entered into a valid executory contract

with the vendor for the purchase of the realty through the

broker's procurement of such third party.

^

The court agreed with Saemann' s contention that Tucker Realty met
none of these requirements within the terms of the listing agreement.

The broker's right to a commission is to be determined from the terms

of the contract of employment. In this case, the broker was employed

to locate a ready, willing and able buyer during the six month term
of the listing agreement. Obtaining a five year option to purchase was

outside the terms of the listing agreement.^

The court rejected Tucker Realty's argument that, by accepting the

option to purchase agreement, Seamann ratified their performance and
waived the original terms of the listing agreement. Indiana law, however,

requires that a listing agreement be in writing before a broker may

5. Id. at 128. The trial court relied heavily upon the general rule set forth in

Annotation, Broker's Right to Commission from Principal upon Procuring Third Party

Taking an Option, 32 A.L.R. 3d 321 (1970).

6. Id.

1 . The personal representative of Saemann's estate was substituted as a party,

following the death of F.I. Seamann. Id.

8. Id. at 129, citing Wilson v. Upchurch, 425 N.E.2d 236, 238 (Ind. Ct. App.

1981).

9. 529 N.E.2d at 129.



1990] INDIANA PROPERTY LAW 487

recover any commission on the sale of land.^^ As the court noted, this

statute was enacted *'for the specific purpose of preventing disputes

over terms of the commission contracts. "^^ Furthermore, written agree-

ments are required to define the essential terms of the relationship

between the broker and the seller, which have been found to include:

*'[A]n extension of time for performance; ... a description of the

performance required of the broker; . . . the length of time to be

allowed the broker to perform; . . . and the amount of commission or

fee to be paid to the broker for his performance.'"^ The court then

concluded **that commissions to be paid upon either the grant or

execution of an option to purchase is another such essential element

where a broker has failed to provide for an extension of time for

performance."'^ While the exercise of the option to purchase did result

in a sale, there was no extension of time for performance and the

option was exercised more than four years after the time period in the

listing agreement had expired. Thus, the time limitation in the agreement

controls regardless of the construction given to the words "this trans-

action" in the acceptance of the offer to purchase.''^ The failure to

provide a contractual provision specifically describing the rights of the

parties in the event of a grant of an option to purchase or for a written

extension of time was fatal to Tucker Realty's case.*^ As the court
remarked, its holding "will lead to more definitive listing agreements
which accurately and completely describe the intentions of the parties."'^

II. Joint Tenancy: Multiple-party Bank Accounts

Indiana's multiple-party accounts statute'"' provides that sums re-

maining on deposit at the death of a party to a joint accounts'® belong

10. "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 shall be in writing,

signed by the owner of such real estate or his legally appointed and duly qualified

representative. . . ." Ind. Code § 32-2-2-1 (1988).
11. Saemann, 529 N.E.2d at 130 (citing Gerardot v. Emenhiser, 173 Ind. App.

353, 363 N.E.2d 1072 (1977)).

12. Id. (citations omitted).

13. Id.

14. Id. at 129-30.

15. Id.

16. Id. at 130-31.

17. iND. Code §§ 32-4-1.5-1 to -15 (1988).
18. The statute defines a joint account as "an account payable on request to one

or more of two (2) or more parties whether or not mention is made of any right of
survivorship. . . ." Id. § 32-4-1.5-1(4). A "party" is defined as "a person who, by the
terms of the account, has a present right, subject to request, to payment from a multiple-

party account. . . ." Id. § 32-4-1.5-1(7).



488 INDIANA LAW REVIEW [Vol. 23:485

to the surviving party or parties as against the estate of the deceased

party. '^ Normally, a joint account is opened in the names of all the

parties to the account. In Rubsam v. Estate of Pressler,^^ an account
was opened in the name of only one person, but that person and another
both signed the signature card without indicating whether or not a right

of survivorship was intended. Upon the death of the party in whose
name the account was opened, the question became whether the surviving
signatory to the account was entitled to the funds on deposit.

In Rubsam, Maedean Rubsam, the surviving signatory on the bank
account, and Viva Pressler, in whose name the account was opened,
had been close friends for many years. ^^ In February 1983, Rubsam
and the deceased went to the Hancock Bank & Trust. Rubsam went
into the bank alone and instructed the officer responsible for opening

and closing accounts to close the decedent's saving account and to open

a new checking account.^^ Rubsam took the signature card to the car
where it was signed by the deceased. The new account was opened in
the name of the deceased only, but both the deceased and Rubsam
were named as signatories to the account, and both were permitted to
make deposits and unlimited withdrawals from the account. Decedent
made all deposits to the account over the next five years. There were
two boxes on the signature card, one indicating a joint account with

right of survivorship, and the other indicating no right of survivorship

was intended. Neither box was marked.^^

At Pressler's death, the bank informed Rubsam that the funds in
the checking account would be turned over to the executor of Pressler's

estate.^"* Rubsam filed a claim against the estate for the funds in the
account. The executor disallowed the claim, and Rubsam brought this
action. The trial court found for the estate and Rubsam appealed."

On appeal, the court began by observing that Indiana's multiple-
party accounts statute defines an account as **joint" whether or not a

right of survivorship is expressed,^^ and that a **party" is defined as

19. Id. § 32-4-1.5-4.

20. 537 N.E.2d 520 (Ind. Ct. App. 1989).

21. /rf. at 521. In addition to the account in question, Pressler had purchased

four certificates of deposit with right of survivorship with Rubsam and had opened a
saving account with Rubsam jointly with right of survivorship. Rubsam was also the
income beneficiary of a trust funded by the residuary of Pressler's estate. Id.

22. Id. The court observed that even if Rubsam had no authority to open the
account, the decedent by making deposits into the account for five years had ratified

the act of opening the account. Id. at 522 n.l

23. Id. at 521-22.

24. Id. at 522. Four certificates of deposit and a bank account owned jointly by

Pressler with Rubsam were immediately transferred to Rubsam by the bank. Id.
25. Id.

26. iND. Code § 32-4-1.5-1(4) (1988).



1990] INDIANA PROPERTY LAW 489

one with a present right to request payment from the multiple-party

account.^^ Upon the death of a party, the statute provides that sums
remaining on deposit in a multiple-party account belong to the surviving

party or parties as against the estate of the decedent. . . ."^^

Rubsam claimed that she was a * 'party" to the account and entitled
to the funds remaining on deposit at Pressler's death. The estate, on

the other hand, argued that Rubsam was merely an **agent" of the
deceased.^^ In finding that Rubsam was a party to the account, the
court noted the lack of any evidence suggesting that Rubsam was an
agent, other than for the limited purpose of closing the savings account

and opening the checking account. No one at the bank spoke to the
deceased at the time the account was opened and nothing on the signature

card suggested that Rubsam was an agent. ^^

Next the estate attempted to rebut the presumption that the account

was intended to be a survivorship account by pointing out that the

account was opened in the name of the decedent only and not jointly
with Rubsam. The court concluded, however, that the name on the
account had no legal significance: ''Rubsam could have named the
account 'Mickey Mouse;* such a name would not make Disney's char-
acter the owner of the account." The "ownership" of the account is

evidenced by the 'present right to withdraw' the funds or other con-

tractual agreements.^* In the present case, the court found that Rubsam
had proved she had a present right to withdraw funds from the account

and therefore was entitled to the sums remaining in the account at the

decedent's death. ^^

The estate also argued that, in order to file a claim against the

estate, Rubsam must be the owner of a debt or demand of a pecuniary
nature which could have been enforced against the decedent during her

Ufetime and which could have been reduced to a simple money judg-
ment." In rejecting this contention, the court observed that, as a

signatory to the account agreement, Rubsam had obligated herself jointly
and severally with the decedent to pay any amounts chargeable to the

account for which there were not sufficient funds in the account, and

27. Id. § 32-4-1.5-1(7) (One who is merely authorized to make a request for
payment as agent of the other is not a "party" to the account).

28. Id. § 32-4-1.5-4.

29. 537 N.E.2d at 522. The statute expressly excludes from the definition of a

party "a person who is merely authorized to make a request (for payment from a multiple-
party account) as the agent of another." Ind. Code § 32-4-1.5-1(7) (1988).

30. 537 N.E.2d 522-24.

31. Id. at 524.

32. Id. at 523.

33. Id. at 524.



490 INDIANA LAW REVIEW [Vol. 23:485

that this was sufficient consideration to make her a party to the account
agreement with the bank and with the decedent. Rubsam and the
decedent each impliedly obligated themself, on behalf of their estate,
to pay any sums left in the account at their death, should they be the

first to die, to the survivor and not to make any claim to such funds.
Even though this latter obligation of the deceased could not be breached
until after her death, it was an outgrowth of a contractual obligation

entered into by the deceased during her lifetime. While Rubsam had
no demand of a pecuniary nature prior to the decedent*s death, the
court concluded that it was a claim properly made against the estate,
particularly since the breach could only occur after death. ^^

Finally, the estate argued that Rubsam was suing the wrong party
since the funds were still being held by the bank, or, alternatively, that

the bank was an indispensable party. ^^ The court rejected both theories.
While it was true that the bank was still in possession of the funds,
the court noted that a bank official had indicated he would turn the
funds over to the executor upon his request, and the executor had
included the funds in the inventory of estate assets. While Rubsam
could have brought the action against the bank for breach of contract
or joined the bank as a party, the bank was not an indispensable party,
and Rubsam could elect to sue the decedent's estate for breach of the
bank account agreement. The court noted that the multiple Hability
portion of Indiana Trial Rule 19(A)(2)(b) only applies to those already

parties and not to those sought to be joined. ^^ In a concurring opinion.

Judge Staton expressed concern that the bank might be subject to
multiple Hability as trustee of the trust established in the residuary

clause of Pressler's will.^"^ The case was reversed and remanded with
instructions to enter judgment in favor of Rubsam.^^

III. Landlord and Tenant

A. Breach of Rental Agreement by Tenant: Landlord's Remedies

In Nylen v. Park Doral Apartments,^^ three Indiana University
students entered into a lease at Park Doral Apartments in Bloomington,

Indiana, for a term beginning August 26, 1986, and ending August 19,
1987. At the end of the fall semester, one of the students moved out

34. Id. at 524-25.

35. Id. at 525.

36. Id.

37. Id. at 526 (Staton, J., concurring).

38. Id. at 525.

39. 535 N.E.2d 178 (Ind. Ct. App. 1989)



1990] INDIANA PROPERTY LAW 491

and refused to pay any further rent. When the remaining two students
paid only two-thirds of the rent for the month of February 1987, Park
Doral brought an action for ejectment and for damages. While the

ejectment action was pending, the students paid an additional $280 for

the rent due in March. The trial court ordered the two students to pay

the full rent or vacate the premises. The students vacated the apartment

on March 13, 1987. A final hearing was held in September, 1987, and
the trial court awarded Park Doral the balance of the rent due under

the lease, $140 per month for February and March and $420 per month
for April through July. A $420 security deposit was used to pay the
last month's rent. The court also awarded late fees, attorney fees and

consequential damages for a total of $2,577.24 plus costs. "^^

On appeal, the appellants argued that the award of future rents
was contrary to law because the eviction terminated the lease and all

obligations under it, including the obligation to pay rent. A second,
closely related argument, was that the court had permitted the landlord

to pursue inconsistent remedies of eviction and recovery of post-eject-

ment rents. In answering these arguments, the court observed that the

rental agreement contained a "saving clause" which provided: "Eviction

of tenant for a breach of lease agreement shall not release tenant from

Uability for rent payment for the balance of the term of the lease.'"*'

Where the lease contains such a clause the court concluded that eviction
does not affect liability for future rents. "^^ The court examined a number

of earUer Indiana cases and concluded that "[c]ontrary to appellants'

contention there is case law in Indiana recognizing and enforcing saving

clauses.'"*^ Thus, the saving clause obligated the tenants to pay the rent

to the end of the term notwithstanding an order of eviction. With

regard to the second issue, the court found that the remedy of eviction

for non-payment of rent was not inconsistent with an action for future

rents under the saving clause."^

Appellants next claimed that the judgment of the trial court was

inconsistent with the landlord's duty under Indiana law to mitigate

40. Id. at 180.

41. Id. at 181.

42. Id. The court noted that without a saving or indemnity clause the exercise
of a power of termination ends the landlord-tenant relationship and the duty to pay

rent. Id. See also R. Schoshinski, American Law of Landlord and Tenant § 6.1
(1980) [hereinafter Schoshinski].

43. Nylen, 535 N.E.2d at 181.

44. Id. at 182-83. The court concluded that where the lease provides that the

landlord may re-enter for the non-payment of rent or other breach, the suit for ejectment
is merely a means of enforcing the lease and "did not preclude recovery of future rents

under the saving clause." Id. at 183.



492 INDIANA LAW REVIEW [Vol. 23:485

damages/^ By the eviction, the landlord lost the two-thirds of the rent

being paid by the remaining two students and, since he was unable to

relet the apartment for the remainder of the term, the damages were

exacerbated. The court, however, rejected this argument because, if

accepted, it would mean the landlord would be forced to tolerate a
breach in order to mitigate its damages.'*^ The court found that the

landlord attempted to relet the apartment by placing an advertisement

in the Indiana Daily Student newspaper and subsequently even reduced

the rent in an effort to find a tenant.*^ In a related argument, appellants

claimed that enforcement of the saving clause worked a forfeiture which

is not permitted under Skendzel v. Marshall. ^^ In Skendzel, the Indiana

Supreme Court prohibited a forfeiture of a purchaser's equity under a

land contract.'*^ The court in Nylen, however, refused to extend Skendzel

to cases not involving a purchase equity. ^°

The appellants also challenged the trial court's award of late fees.

The lease contained a provision authorizing the landlord to charge a
late fee of $2 per day per person if the rent was not paid on the first

day of each month. The court found that the fee was liquidated damages

and not a penalty. The management testified that failure to pay rent
on time resulted in extra work and loss of interest income. Since the

duty to pay rent continued to the end of the term the late payments

could be extended beyond the time of ejectment.^*

Finally, the appellants argued that the rental agreement was un-

conscionable. While admitting that there may have been a disparity in
bargaining power between the parties, the court found that the disparity

had not led the appellants to sign the lease unwillingly or unaware of

its terms. For, as the court stated, *'[c]ontracts are not unenforceable

simply because one party enjoys an advantage over the other."" The

45. Id. Indiana requires the landlord to mitigate damages where the tenant has

breached the lease. See State v. Boyle, 168 Ind. App. 643, 344 N.E.2d 302 (1976); Hirsch

V. Merchants Nat'l Bank, 166 Ind. App. 497, 336 N.E.2d 833 (1975).
46. Nylen, 535 N.E.2d at 183.

47. Id. While it is clear that the landlord made an effort to relet the apartment
once it had evicted the two students, was it reasonable to evict students in the middle

of a school term in a university town and expect to be able to relet the apartment? If

the landlord would be required to relet the apartment for two-thirds the amount of rent

stated in the rental agreement in order to mitigate damages, why should it be permitted
to evict the tenants already paying this amount and allow the apartment to remain vacant

for the remainder of the term?

48. 261 Ind. 226, 301 N.E.2d 641 (1973), cert, denied, 415 U.S. 921 (1974).

49. Id.

50. Nylen, 535 N.E.2d at 183.

51. Id. at 184.

52. Id. at 185 (quoting Hovin v. Bremen, 495 N.E.2d 753, 758 (Ind. Ct. App.

1986)).



1990] INDIANA PROPERTY LAW 493

students had neither objected to the lease or sought modification." The

appellants had reHed heavily upon Weaver v. American Oil Co.,^"^ but

as the court noted, Weaver indicates that to be unconscionable, the

contract must be one **such as no sensible man not under delusion,
duress or in distress would make, and such as no honest and fair man
would accept. "^^

On appeal. Park Doral claimed that it was entitled to appellate
attorney fees based upon Paragraph 3 of the Rental Agreement:

If the tenant(s) defaults in the performance of any of the

covenants of this lease agreement and by reason thereof the

Landlord employs the services of an attorney to enforce per-

formance of the covenants by the tenant . . . then, in any of

said events the tenant does agree to pay a reasonable attorney's

fee and all expenses and costs incurred by the landlord pertaining

thereto. . . .^^

The court acknowledged that in the past, landlords had been denied

appellate attorney fees under the theory that the award of attorney fees

at the trial level was deemed to have been merged into the judgment

and the contractual authorization no longer existed. Recently, however,

Indiana courts have excepted appellate attorney fees from the general

rule of merger. Thus, the doctrine no longer precludes the award of

appellate attorney fees.^^ The court did not appear concerned over the

**chilling effect" the award of appellate attorney fees would have on

future appeals by individual tenants: **This court is not persuaded that

disparity in bargaining power necessitates a departure from precedent

allowing the recovery of reasonable attorney fees incurred in defending

an appeal." ^^ The judgment of the trial courts was affirmed but the

case was remanded for a hearing on reasonable appellate attorney fees.^^

53. Id. at 184-85. When one examines the case closely, it becomes obvious that
well over half the amount recovered by the landlord came from "standard" provisions

in the rental agreement. The tenants agreed to remain liable for the rent for the remainder

of the term even if evicted, the tenants agreed to pay a $2 per day per person late fee

until any rent due and owing was paid, and they agreed to pay the landlord's attorney

fees if the landlord should be forced to bring suit to enforce the rental agreement

(including appellate attorney fees should they appeal a lower court decision in favor of

the landlord). The court points out that the tenants did not "sign the lease unwillingly

and unaware of its terms." Id. at 184. But did these young students really believe that

in a university town with a limited supply of decent housing the lease was negotiable?

54. 257 Ind. 458, 276 N.E.2d 144 (1971).

55. 257 Ind. at 462, 276 N.E.2d at 146.

56. 535 N.E.2d at 185.

57. Id.

58. Id.

59. Id.



494 INDIANA LAW REVIEW [Vol. 23:485

B. Covenant Against Assignment: Landlord's Right of Refusal in

Commercial Leases

A leasehold interest is freely transferable by the tenant unless there
is a covenant in the lease prohibiting an assignment or sublease either

absolutely or without the consent of the landlord. ^^ However, covenants

prohibiting the tenant from transferring his leasehold estate without the

consent of the landlord are standard ''boilerplate'' in many leases.^'
Where a covenant in the lease requires the consent of the landlord to
an assignment or sublease by the tenant, the courts have traditionally

held the landlord can withhold his consent arbitrarily or capriciously,

unless there is language in the covenant providing that such consent

shall not be unreasonably withheld. ^^ Recently, however, courts have

begun to move away from the arbitrary and capricious right of refusal
rule, and have held that the withholding of consent by the landlord

should be governed by the principles of good faith and commercial

reasonableness.^^

In First Federal Savings Bank v. Key Markets, Inc.,^ a trust pur-
chased a one acre tract in Sheffield Commons Shopping Center from
the developer, Joseph McLaughlin, to construct a supermarket to be

operated by Burger's Supermarkets, Inc.. McLaughlin retained title to

the adjoining real estate, but agreed to lease additional space to Burger's

for access and parking. A parking lot lease and a common area easement
agreement were subsequently entered into by Burger's and McLaughlin.^^

The parking lot lease contained a "consent clause," requiring the tenant

to obtain the consent of the landlord to an assignment of the lease, ^^

and a "cancellation clause," permitting the landlord to cancel the lease

under certain conditions.^'' Burger's constructed the supermarket and

parking lot and McLaughlin constructed the remainder of the shopping

center. In January 1985, following a series of assignments, consented

to by McLaughlin, Key Markets, Inc. succeeded to Burger's interest in

60. ScHOSHiNSKi, supra note 42, § 8:10 (1980); J. Cribbet, Principles of the

Law of Property 219 (2d ed. 1975) [hereinafter Cribbet].
61. R. Cunningham, W. Stoebuck & D. Whitman, The Law of Property 386

(1984) [hereinafter Cunningham].

62. Id. at 387-88; Cribbet, supra note 54, at 223.

63. See Annotation, Withholding Consent—Assignment of Leases, 21 A.L.R. 4th
188 (1983).

64. 532 N.E.2d 18 (Ind. Ct. App. 1988).

65. Id. at 19.

66. Section 10.01(a) of the parking lot lease provides: "Except for an assignment

to a "Corporate Affiliate" of Tenant, Tenant shall not assign this lease or sublet all

or a portion of the Demised Premises without the consent of Landlord." Id. at 20.

67. See infra notes 77-81 and accompanying text for a discussion of the cancellation

clause.



1990] INDIANA PROPERTY LAW 495

the supermarket lease, the parking lot lease, and the common area
easement agreement. In October 1985, First Federal Saving Bank of

Indiana succeeded to McLaughlin's interest through a mortgage fore-

closure.^^

In the fall of 1987, Key Markets entered into negotiations with

Babincsak Enterprises, Inc. for the purchase of its supermarket business

in Sheffield Commons. Key Markets sent a letter to First Federal
requesting its consent to the assignment of its parking lot lease and

common area easement agreement to Certified Grocer's, Inc., who would
then sublet to Babincsak. Negotiations between Key Markets and First

Federal failed to reach agreement regarding the assignment and on

December 11, 1987, First Federal notified Key Markets that it was

cancelling the parking lot lease by reason of the proposed assignment. ^^

Because of First Federal's refusal to consent to the assignment of

the parking lot lease, the closing of the sale to Babincsak was never

completed. On December 12, 1987, Key Markets filed a complaint against
First Federal seeking declaratory and injunctive relief and damages for

cancellation of the lease. After a hearing on the refusal to consent to

the assignment and the cancellation issues, the trial court concluded

that First Federal had a legal duty not to unreasonably withhold consent

to the assignment and that it had no right to cancel the lease. The

court permanently enjoined First Federal from enforcement of its can-

cellation of the lease on the sole motivation of a requested assignment

in connection with the sale of the supermarket business. ^°

On appeal. First Federal argued that, absent limiting language pro-
viding that such consent shall not be unreasonably withheld, it could

refuse consent for any reason.^' As authority for its position. First

Federal initially claimed that F. W. WooIworth Co. v. Plaza North,
Inc.y^^ which appears to hold that the landlord can arbitrarily and

capriciously withhold consent to an assignment, was dispositive of the

issue. In Woolworth, however, the lease contained specific language

requiring reasonable consent to a subletting while in the same paragraph

failing to include similar language in the portion prohibiting assignments.

This, the First Federal Savings court concluded, showed an express

agreement by the parties to allow unreasonable withholding of consent

to an assignment. ^^ Both the trial court and Key Markets relied heavily

68. 432 N.E.2d at 19-20.

69. Id. at 20.

70. Id.

7L Id.
72. 493 N.E.2cI 1304 (Ind. Ct. App.), trans, denied (1986).

73. First Federal Savings, 532 N.E.2d at 21.



496 INDIANA LAW REVIEW [Vol. 23:485

on Sandor Development Co. v. Reitmeyer.'^^ In Sandor, the court held

that the landlord had a duty to mitigate damages when the tenant
abandons the premises and rejected the position that the landlord's

right to refuse assignments under a **use" clause was unconditional.

The court, however, also rejected Sandor as determinative of the issue

since no mitigation question was present.''^ Instead, the court observed

that there is a continuing erosion of the arbitrary and capricious right

of refusal rule based on the recognition that a lease is a contract, and,

as such, should be governed by the general principles of good faith

and commercial reasonableness. The court cited decisions from other

jurisdictions adopting a "commercial reasonableness" test, and con-

cluded that the requirement of reasonableness on the part of the lessor

is **no more than a means of ensuring good faith, and is in keeping
with the overall preference in Indiana for free alienation of land.'*^^

The court's adoption of a commercial reasonableness test would

have been a hollow victory for Key Markets had the court accepted
First Federal's interpretation of the cancellation clause. First Federal

argued that Article X, Section 10.01(b) of the parking lot lease gave

it the right to cancel the lease upon the attempted assignment. This
subsection provides:

Except for an assignment to a ** Corporate Affiliate" of Tenant

or an assignment in connection with the sale of the business

of Tenant, Landlord shall have the option to cancel this Lease

by giving notice thereof to Tenant within thirty days after Tenant

notifies Landlord of the proposed assignment. If Landlord can-

cels this Lease in accordance with this Section, both parties

shall be relieved of liability under this Lease.^^

It might appear at first that there is no problem since the proposed
assignment is in connection with Key Markets' sale of its business.
However, subsection 10.01(c), which contains a glossary of terms relevant

to Section 10.01, defines the term **sale of the entire business of Tenant,"

as **the sale of all of the stock of the Tenant and all of the stock of

more than 75% of Tenant's Corporate Affiliates to a single person
. . .

."^^ Key Markets' assignment does not fall within the definition
of this term. First Federal argued that although the word **entire" was
omitted from subsection (b), this was the only subsection to which the

term could apply. Therefore, a patent ambiguity existed, and the court

74. 498 N.E.2d 1020 (Ind. Ct. App.), trans, denied (1986).
75. 532 N.E.2d at 22.

76. Id, at 22-23.

77. Id. at 23 (emphasis added).

78. Id.



1990] INDIANA PROPERTY LAW 497

should insert the word **entire*' in the cancellation clause.^^ The court

rejected this position for several reasons. First, it found that the su-

permarket lease, the common area easement agreement, and the parking
lot lease were all part of an interrelated whole. First Federal's inter-

pretation would render the documents internally inconsistent, since it

would allow the Landlord to render the supermarket lease commercially

worthless in all but two situations should an assignment be attempted.

Likewise, it would render the assignment clause meaningless. Burger's

owner testified that *'he would not have proceeded to build the su-

permarket unless parking was assured. ''^° Finally, the court noted that

the thirty page parking lot lease contained many unused subsections
and appeared to be based on a form. Thus, there was a serious question

as to whether the word ''entire" was unintentionally left out of sub-

section (b) or whether the term was mistakenly retained as a definition

of a stricken subsection. Based upon extrinsic evidence, the court con-

cluded that the cancellation clause did not apply to a request for an

assignment. It could, however, be used should the lessee assign after

a reasonable refusal of consent by the landlord.^'

This case is important because it is the first Indiana decision to

reject the common law rule that the landlord can arbitrarily and ca-
priciously refuse to allow an assignment of commercial leases unless

the covenant against assignments contains the phrase ''which consent

will not be unreasonably withheld." However, it should be noted that

the court limits its holding to assignments of "commercial leases."

Whether reasonable grounds for the refusal to consent to an assignment

will be required in residential leases remains unanswered.

C. Landlord's Liability for Criminal Acts of Third Parties

In Center Management Corp. v. Bowman,^^ Kim Bowman, a tenant
in an apartment owned by Center City Housing, sued to recover for
the loss of four items of jewelry stolen from her apartment. On February
20, 1986, Bowman discovered the loss of a $50 bill from her apartment
and reported the loss to Center Management Corporation, the managing
company of the apartment building, and to the South Bend police. On
February 27, 1986, Bowman discovered the loss of four items of jewelry
from the apartment. A subsequent police investigation concluded that
entry to the apartment had been gained by the use of a key. Following

79. Id. at 23-24.

80. Id. at 25.

81. Id.

82. 526 N.E.2d 228 (Ind. Ct. App. 1988).



498 INDIANA LAW REVIEW [Vol. 23:485

a trial, the court held Center City and Center Management jointly and
severally liable for the loss.^^

On appeal, the court noted that, while the parties and the amicus
did not refer the court to any Indiana decisions **Many courts have

abrogated or softened the common-law rule that a landlord is not under
a duty to protect a tenant from loss or injury due to criminal conduct

by a third party. "^"^ After examining decisions from other jurisdictions

holding that the landlord is under a duty to protect the tenant from

the reasonably foreseeable criminal acts of third persons, the court

adopted the three considerations expressed in Morgan v. Dalton Man-
agement Co. as a practical method of determining when such a duty
would exist. ^^ Under Morgan, whether such a duty exists depends upon:

(1) the foreseeability of the injury; (2) the magnitude of the burden of

guarding against the injury; and (3) the consequences of placing that

burden upon the landlord. ^^

In the present case, the court found that the second burglary was

reasonably foreseeable. The landlord was made aware of the first bur-
glary and the probable method of entry. The court also rejected the
defendants argument that the magnitude of the burden of guarding

against another such occurrence was prohibitive. The defendants had,
by allowing twelve of their employees and an unknown number of
employees of a carpet cleaning company access to master keys, * 'ef-
fectively thwarted any attempt to determine who perpetrated the first
burglary and to reduce the risk of further burglaries. "^^ The court found
that the evidence supported the conclusion that the breach of the duty

to protect the tenant against loss or injury due to the criminal conduct

of third parties was the proximate cause of the injury to the tenant.

The tenant had always locked her door and had not given her key to
anyone, similar burglaries had occurred in the apartment complex, part
of the missing jewelry was discovered in a pawn shop frequented by
one of the defendant's employees, and there were no signs of forced
entry. The judgment was affirmed.^^

D. Landlord's Liability for Personal Injuries Caused by Defective
Condition of Leased Premises

Traditionally, the landlord has not been held liable for personal

injuries resulting from defective conditions on the leased premises. ^^

83. Id, at 229.

84. Id. at 229-30.

85. 117 111. App. 3d 815, , 454 N.E.2d 57. 60 (1983).
86. 526 N.E.2d at 230.

87. Id,

88. Id. at 230-31.

89. ScHOSHiNSKi, supra note 42, § 4:1 at 186-87; Browder, The Taming of a



1990] INDIANA PROPERTY LAW 499

This tort immunity is based in part upon the theory that once the

landlord has given up possession and control of the premises to the

tenant, he is without authority to reenter to make repairs and should
not be held responsible for defective conditions which he has no power

to correct. ^^ While the tort immunity of the landlord was the general

rule, there soon developed a series of exceptions.^* Indiana decisions

have held the landlord liable for personal injuries caused by: (1) latent

defects known to the landlord but unknown to the tenant, which the
landlord fails to disclose to the tenant ;^^ (2) defects in premises leased

for admission of the pubUc;^^ (3) breach of a covenant to repair;^^ (4)

negligent repairs;^^ (5) defects in areas used in common by the tenants,
and over which the landlord retains controP^; and (6) an unexcused or

unjustified violation of a duty prescribed by an applicable statute or

ordinance.^^

Recently, with the recognition of an implied warranty of habitability

in residential leases, the general tort immunity of the landlord for

injuries arising out of defective conditions of the leased premises has

been seriously questioned. ^^ If the landlord can be held liable for failure

Duty—The Tort Liability of Landlords, 81 Mich. L. Rev. 99, 101-02 (1982) [hereafter
Browder].

90. Great Atl. & Pac. Tea Co. v. Wilson, 408 N.E.2d 144 (Ind. Ct. App. 1980);
Zimmerman v. Moore, 441 N.E.2d 690, 694 (Ind. Ct. App. 1982).

91. For a detailed discussion of these exceptions to the landlord's common law
tort immunity, see Love, Landlord's Liability for Defective Premises: Caveat Lessee,

Negligence, or Strict Liability?, 1075 Wise. L. Rev. 19, 50-78 (1975); and Schoshinski,

supra note 42, §§ 4:2 - 4:9.

92. See, e.g., Eggers v. Wright, 143 Ind. App. 275, 240 N.E.2d 79 (1968); Guenther

v. Jackson, 79 Ind. App. 127, 137 N.E. 528 (1922).

93. Chrysler Corp. v. M. Present Co., 491 F.2d 320 (7th Cir. ^1974) (where
property leased for a "public purpose" lessor is under duty to use reasonable care to

inspect and repair premises before transferring possession); Walker v. Ellis, 126 Ind.

App. 353, 129 N.E.2d 65 (1955) (landlord liable where he leases premises for a public

purpose which he knows are unfit and dangerous).

94. Hunter v. Cook, 149 Ind. App. 657, 274 N.E. 550 (1971); Robertson Music

House V. Wm. H. Armstrong Co., 90 Ind. App. 413, 63 N.E. 839 (1928).
95. See, e.g.. Hunter v. Cook, 149 Ind. App. 657, 274 N.E.2d 550 (1971);

Robertson Music House v. Wm. H. Armstrong Co., 90 Ind. App. 413, 63 N.E. 839
(1928).

96. See, e.g., Flott v. Gates, 528 N.E.2d 847 (Ind. Ct. App. 1988); Slusher v.

State, 437 N.E.2d 97, transfer denied (Ind. Ct. App. 1982); Coleman v. DeMoss, 144

Ind. App. 408, 246 N.E.2d 483 (1969). One could argue that the landlord's liability for
injuries caused by defective conditions in common areas is really not an exception to
the rule since the landlord still retains possession and control over these areas.

97. Zimmerman v. Moore, 441 N.E.2d 690, 696 (Ind. Ct. App. 1982); Rimco
Realty & Investment Corp. v. La Vigne, 114 Ind. App. 211, 50 N.E.2d 953 (1943).

98. Browder, supra note 89, at 116-41; Schoshinski, supra note 38, § 4:9 at 203-



500 INDIANA LAW REVIEW [Vol. 23:485

to repair when there is an express covenant to repair, then why should
the landlord not be held liable where a duty to repair is created in a

residential lease by an implied warranty of habitability?^^ Several in-

teresting cases decided during this survey period touch upon the liability

of the landlord for injuries resulting from the condition of the leased

premises.

7. Covenant to Repair.—In Childress v. Bowser, ^^ Richard and
Donna Childress and their four children rented a house from Carl
Bowser on an oral month-to-month lease. At the inception of the lease,

Bowser instructed Richard that he was not to do anything to the house.

In May or June 1985, Richard requested that Bowser repair leaking
faucets and the rear door of the house. Although Bowser promised

that he would take care of the problems, the back door was not fixed

and Donna suffered injuries to her arm as she was leaving the house
through the rear door. Donna sued Bowser for her injuries and the
trial court granted a summary judgment in favor of the landlord. *°^

In reversing the judgment, the court of appeals noted that normally

the landlord is not liable for personal injuries to the tenant caused by

defective conditions on the premises, but that there is an exception to
this rule where the landlord ** expressly agrees to repair and is negligent

in doing so.'*'°^ The court concluded that the landlord's remark **Don't

06, For a collection of recent decisions addressing the landlord's liability for personal

injuries resulting from breach of an impUed warranty of habitability see ScHOSfflNSKi,

supra note 42, at § 4:9 (1989 Supp.).

99. Despite the apparent logic of this argument a number of jurisdictions have

refused to change the traditional tort immunity of the landlord because of the recognition

of an implied warranty of habitability in residential leases. A few states have imposed
strict tort liability on the landlord for breach of the implied warranty of habitability by

analogy to the Restatement (Second) of Torts § 402A (1965), and others have imposed
tort liability on the landlord under a negligence theory for failure to repair. See generally

Browder, supra note 89, at 116-41.

100. 526 N.E.2d 1209 (Ind. Ct. App. 1988). After the survey period, the Indiana

Supreme Court granted transfer and affirmed the decision of the court of appeals.

Childress v. Bowser, 546 N.E.2d 1221 (Ind. 1989). In an opinion by Chief Justice Shepard,

the court held that a binding covenant to repair could reasonably be inferred from the

landlord's admonition to the tenant to do nothing to the leased premises and by his

later promises to make a specific repair.
101. Id. at 1210.

102. Id. at 1210. The wording used by the court is identical to that used in

Zimmerman v. Moore, 441 N.E.2d 690 (Ind. App. 1982), cited in the opinion. However,
another case cited by the court in support of the exception to the rule, Hunter v Cook,

149 Ind. App. 657, 274 N.E.2d 550 (1971), states the exception differently: "a tenant

cannot recover for personal injuries . . . caused by defective condition of the leased

premises unless the landlord either agrees to repair, or in doing so is negligent." (emphasis

added). This language suggests the landlord not only will be liable where he covenants

to repair and does so in a negligent manner, but also where he (1) agrees to repair and



1990] INDIANA PROPERTY LAW 501

change nothing, don't nail a lot of nails in, don't do nothing to the

house," created a promise on the part of the landlord to make repairs
on the premises. ^°^ There was also further evidence of a promise to

repair when the landlord, upon being told that the back door was
inoperative, replied that one of his employees would "take care of

i^
»M04

The court rejected the landlord's argument that because the tenant

had taken possession of the premises before the promise to repair was

made, there was no consideration to support the covenant to repair.

In the case of a month-to-month tenancy, the court concluded that the

tenancy recommences at the expiration of each month and thus the
decision to continue the tenancy constitutes consideration for the promise

to repair. *°^ The granting of the landlord's motion for summary judgment
was reversed and the case remanded to the trial court. '°^

The plaintiff sued on a theory of negligence and the question of
an implied warranty of habitability was not raised. Nevertheless, the

court's remark that **[i]t is well established in this state that a landlord

is not liable for personal injuries to a tenant for defective premises

unless he expressly agrees to repair, "^°^ would appear to reject liability

for such injuries under a theory of implied warranty of habitability.

2. Violation of Statute or Ordinance.—In Hodge v. Nor-Cen, Inc.,^^^
tenants, occupant, and guests in front upstairs apartment sued the

landlord (Nor-Cen, Inc.) for personal injuries resulting from lack of

workable windows and a second means of egress from two-story apart-
ment building. There was only one stairway exit from the front upstairs

apartment leading to the ground level. Martha Short rented both the
front downstairs apartment (where she had been living with her grand-

child. Misty Cornette) and the front upstairs apartment, where she

subsequently moved so that her daughter, Teresa Cornette, and Teresa's
three children, Daniel Hodge, Tiffany Cornette and Shaya Cornette,

fails to do so, or (2) voluntarily makes repairs and does so in a negligent manner. See

Robertson Music House v. Wm H. Armstrong Co., 90 Ind. App. 413, 415-16, 163 N.E.
839 (1928); Stover v. Fechtman, 140 Ind. App. 62, 64-65, 222 N.E.2d 281, 283 (1966).

Despite the use of the phrase "and is negligent in so doing," the court of appeals
reversed the trial court's granting of the landlord's motion for a summary judgment
even though no repairs had been made by the landlord. This indicates that the "negligence
in so doing" includes failure to repair as well as making the repairs in a negligent

manner.

103. 526 N.E.2d at 1211.

104. Id.

105. Id. at 1211-12.

106. Id. at 1212.

107. M at 1210 (emphasis added).
108. 527 N.E.2d 1157 (Ind. Ct. App. 1988).



502 INDIANA LAW REVIEW [Vol. 23:485

could live in the downstairs apartment. Teresa and her three children

were living in the front upstairs apartment with Nor-Cen's consent

pending their move into the downstairs apartment. In addition, another
occupant, Marilyn Gallion, was apparently subletting a room from Short
in the upstairs apartment without Nor-Cen's knowledge. On the night
of May 24, 1982, Teresa returned to the apartment with a friend,
Marshall King. Short left for work just as Teresa and King arrived.

Teresa admits she may have failed to lock the storm door and a sturdy
wooden door with an inside deadbolt lock at the ground level entrance

to the upstairs apartment. In the early morning hours, an unknown
individual entered the building, spread an accelerant in the upstairs

hallway, on the stairway, and in the lower foyer and started a fire

trapping the persons in the front upstairs apartment. ^'^^

After discovering the fire, the persons in the apartment began

searching for a means of escape. They found that some of the windows

would not open properly and they were forced to break them to provide

a means of escape. Gallion and Teresa jumped out a window they
broke in the master bedroom. King broke a living room window and
was able to save Tiffany and Daniel. Shaya and Misty died in the

fire.^^° The plaintiffs (Martha Short, Teresa Cornette, Marshall King

and Marilyn Gallion) brought an action against Nor-Cen for personal

injuries based on negligence, strict liability and breach of warranty of

habitability.'^* The plaintiffs appealed a summary judgment granted
Nor-Cen by the trial court. ^'^

Two issues were raised on appeal. The first issue was whether the
trial court was in error in concluding that Nor-Cen's violation of a

city ordinance could not support appellants' negligence claim. The court

began its discussion of this issue by observing that ordinarily a landlord

is not liable for injuries caused by the defective condition of the leased

premises once possession and control of the premises has been surren-

dered.'^^ However, the court noted four exceptions to this general rule:

(1) where the landlord covenants to repair or is negligent in making

repairs; (2) where the injury is caused by a latent defect known to the
landlord and unknown to the tenant which the landlord fails to disclose;

(3) where the injuries occur in a common area over which the landlord
retains control; and (4) where there is an unexcused or unjustified

violation of a duty prescribed by statute or ordinance if the statute is

109. Id. at 1158-59.

110. Id. at 1159.

111. Id. The basis of Short's claim is not clear since the facts indicate she was

at work at the time of the fire. Id.

112. Id.

113. Id. at 1159.



1990] INDIANA PROPERTY LAW 503

intended to protect the class of persons in which plaintiff is included

and against the risk of the type of harm which has occurred as result

of its violation. ^^'^ While there was no indication from the facts that

the first three exception applied, the court observed that, in this case,

there was a violation of a Marion City Ordinance which provides:

"Every dwelling unit shall have a minimum of two safe, unobstructed
means of egress leading to safe and open space at ground level. "''^

The trial court, based upon a reading of other provisions of the

ordinance, concluded that the ordinance was promulgated only to assure

adequate light and ventilation.^'^ While conceding that not all of the

sections of the ordinance are safety measures, the court of appeals

concluded that "Section 4.9 clearly anticipates the increased risk of

injury to a dwelling's occupants if they have but one route of egress

in case of fire or other disasters necessitating rescue or escape."''^ The

court also rejected Nor-Cen's argument that the acts of the arsonist,

and not the failure to provide a second means of egress, was the

proximate cause of the injury:

Here, the landlord's act of faiUng to provide a second means

of egress is an act which generates an unreasonable amount of

risk when there is a disaster necessitating escape or rescue. Fire,
whether by accident or design, is not an intervening event which

breaks the causal connection between the act of failing to provide

a second means of egress and the injury occasioned by the

inability to escape; it is merely an event in the chain of cau-

sation.''^

Judge Buchanan, in a dissenting opinion, did not agree with the

majority on the causation issue. In his view, the criminal act of arson

was not a reasonably foreseeable consequence of Nor-Cen's violation

of the ordinance. Nor-Cen had no knowledge of criminal activities in

the neighborhood, and had provided locks for the front door, which

apparently had been left open by the Tenants allowing access to the

building. "9

The second issue raised on appeal was whether the trial court had
erred in determining that personal injuries were not recoverable under

114. Id. at 1160.

115. Id. (quoting Marion, Indiana, Ordinance 11-1960 § 4.9).

116. 527 N.E.2d at 1160. In a footnote the court of appeals noted that the violation

of an administrative regulation has been held to be only evidence of negligence and

could not survive a motion for summary judgment if the element of duty rested solely
on the existence of such an administrative regulation. Id. at n.3.

117. Id. at 1161.

118. Id.

119. Id. 2ii 1162-63 (Buchanan, J., dissenting).



504 INDIANA LAW REVIEW [Vol. 23:485

a breach of an implied warranty of habitability theory. The court

observed that while Indiana has recognized an implied warranty of

habitability in residential leases, it has not considered whether the

warranty provides a basis for relief on claims of personal injury. ^^^ The

court decided "because appellants fail to present a compelling argument

for the extension of the warranty of habitability to personal injury

claims, we leave the issue to another time."*^^ The judgment on the
negligence claim was reversed and remanded for further proceedings. '^^

E. Legislation: Security Deposits

The 1989, Indiana General Assembly enacted legislation regulating

security deposits in residential leases.*" The statute provides that within

forty-five days after termination of the rental agreement and delivery

of possession, all of the security deposit held by the landlord must be

returned to the tenant except for any amount applied to the payment

of accrued rent, damages which the landlord has suffered or will suffer

as a result of the tenant's noncompliance with the law or the rental

agreement, and unpaid utility or sewer charges which the tenant is

obligated to pay under the rental agreement. '^'^ Any amount applied by
the landlord for damages or other obligations of the tenant against the

security deposit must be itemized, * including the estimated cost of

repair for each damaged item and the amounts and lease on which the
landlord intends to assess the tenant. "'^^ The itemized list of damages,

together with a check or money order for the difference between the
damages claimed and the security deposit held by the landlord, shall

120. Id. at 1161.

121. Id. at 1162.

122. Id.

123. Pub. L. No. 277-1989, 1989 Ind. Acts 1954 (codified at Ind. Code Ann. §
32-7-5 (Burns Supp. 1989)). The statute applies to all rental agreements for dwelling

units located in Indiana entered into on or after July 1, 1989. 1989 Ind. Acts 1959,

Pub. L. No. 277, § 2. The statute defines a security deposit as:

[A] deposit paid by a tenant to the landlord or the landlord's agent to be held

for the term of the rental agreement, or any part of the term, and includes:

(1) A required prepayment of rent other than the first full rental payment
period of the lease agreement;

(2) A sum required to be paid as rent in any rental period in excess of the
average rent for the term; and

(3) Any other amount of money or property returnable to the tenant on
condition of return of the rental unit by the tenant in condition as required

by the rental agreement.

Ind. Code Ann. § 32-7-5-9(a) (Burns Supp. 1989).
124. Id. § 32-7-5-12(a).

125. Id. § 32-7-5-14.



1990] INDIANA PROPERTY LAW 505

be mailed by the landlord to the tenant within forty-five (45) days after

termination of occupancy. ^^^ Failure to comply with the written notice

of damages requirement within forty-five days after termination of

occupancy constitutes an agreement by the landlord that no damages

are due and the landlord must return the full security deposit to the

tenant. ^^^ In addition, where the landlord **fails to provide a written

statement within forty-five (45) days of termination of the tenancy or

the return of the appropriate security deposit'* the tenant may recover
the part of the security deposit held by the landlord plus reasonable

attorney's fees and court costs. '^^

Other provisions of the statute place limits on the purposes for

which the security deposit may be used by the landlord, '^^ and prohibit
any waiver of the tenant's rights under this statute by contract. ^^°

Furthermore, the statute requires the landlord, or any person authorized

by the landlord to enter into a rental agreement, to disclose to the

tenant in writing, at or before the commencement of the rental agree-
ment, the following names and addresses: "(1) a person residing in

Indiana authorized to manage the dwelling unit; (2) a person residing

126. Id. However, subsection 12(a)(3) indicates that the landlord is not liable "under

this subsection (section 12)" until supplied by the tenant with a mailing address to which

the notice and refund may be dehvered. Id. § 32-7-5- 12(a)(3). Since the duty of the
landlord to provide an itemized written notice of damages and to return that portion

of the security deposit due the tenant is contained in section 12 as well as sections 14-

16, it would appear that the requirement that the tenant provide a mailing address to

the landlord would apply equally to all the provisions.

127. Ind. Code Ann. § 32-7-5-15 (Burns Supp. 1989).
128. Id. § 32-7-5-16. A similar provision is contained in § 32-7-5-12(b) which states

that where "the landlord fails to comply with subsection [12](a), the tenant may recover
all of the security deposit due the tenant and reasonable attorney's fees." Id.

129. Id. § 32-7-5-13. The security deposit may be used only for the following
purposes:

(1) To reimburse the landlord for actual damages to the rental unit or ancillary
facility not the result of ordinary wear and tear expected in the normal

course of habitation of a dwelhng.

(2) To pay the landlord for all rent in arrearage under the rental agreement
and rent due for premature termination of the rental agreement, by the

tenant.

(3) To pay for the last payment period of a residential rental agreement where
there is a written agreement between the landlord and the tenant that

stipulates the security deposit will serve as the last payment of rent due.

(4) To reimburse the landlord for utility or sewer charges paid by the landlord
that:

(A) are the obhgation of the tenant under the rental agreement; and

(B) are unpaid by the tenant.

Id.

130. Id. § 32-7-5-17.



506 INDIANA LAW REVIEW [Vol. 23:485

in Indiana reasonably accessible to the tenant who is authorized to act
as agent for the owner for the purpose of service of process and for

the purpose of receiving and receipting for notices and demands."*^'

If the information is not furnished to the tenant at or before the

commencement of the rental agreement, the tenant may recover any
expenses reasonably incurred in discovering such names and addresses J^^

Finally, the statute attempts to define the liability of the original

landlord and the new owner for the return of the tenant's security
deposit where the landlord in good faith conveys the property including

the dwelling unit to a bona fide purchaser. The statute provides that
the landlord shall remain liable to the tenant for the security deposit

to which the tenant is entitled for one (1) year after giving written

notice to the tenant of the conveyance unless:

(1) the purchaser acknowledges that the purchaser has assumed

the liability of the seller by giving notice to the tenant; and

(2) upon conveyance the seller transfers the security deposit to
the purchaser.'"

The literal wording of the statute suggests that the liability of the
original landlord for the return of the security deposit terminates at

the end of one year following notice to the tenant of the sale. Where
the landlord has not transferred the security deposit to the purchaser

there does not appear to be any justification for the release of the

landlord from his personal covenant to return the security deposit to
the tenant. Perhaps the drafters assumed that the new owner would
become liable for the return of the security deposit. Subsection 12(d)
makes the owner of the dwelHng unit at the time of the termination
of the rental agreement bound by the provisions of section H.'^"* How-
ever, the language of subsection 12(a) raises a serious question regarding

the new owner's liability for the return of the security deposit. It requires
a return of '*all of the security deposit held by the landlord. ''^^^ It

does not appear from this wording that the purchaser would be liable
for the return of the tenant's security deposit where the landlord/seller

had failed to transfer the security deposit to him.

IV. Recording Act: Chain of Title

Each year, the number of documents filed in the public records
continues to grow, making the examination of titles to land extremely

131. Id. § 32-7-5-18(a). The person authorized to manage the dwelling unit may
also be authorized to act as agent.

132. Id. § 32-7-5-18(d).

133. Id. § 32-7-5-19(a).

134. Id. § 32-7-5-12(d).

135. Id. § 32-7-5-12(a) (emphasis added).



1990] INDIANA PROPERTY LAW 507

time consuming and costly. To reduce the burden on the abstractor
and the cost to the purchaser, courts have developed a concept referred

to as the "chain of title" which permits the search under the name of
each grantor in the grantor-grantee index to be limited to the period

of time which appears relevant to the title being searched. '^^ This avoids

a general search of the records. Occasionally, however, courts have

required a more expansive search of the records before the purchaser

will be protected by the recording act.

In Szakaly v. Smith, ^^^ Andrew and Nancy Szakaly Jr. brought suit
to determine whether they had an easement over the land of Ron and
Linda Smith. The facts indicate that Sherrill and Isabelle Arvin, owned
a 195 acre tract of land in Brown County, Indiana. In 1956 the Arvins
conveyed 190 acres to the Ransburgs, the Szakalys' predecessors in title.

The deed granted an easement of way over the remaining 5 acres still
owned by the Arvins, but the deed was not recorded until nine years
later in August 1965. The Szakalys derive their title to the dominant

estate from two deeds executed and delivered in 1982 and 1983, both

recorded in 1983. '^s

In March 1957, the Arvins conveyed the remaining 5 acres to Arressia
Allender, trustee, who the same day reconveyed the land to Isabelle
Arvin. Neither of these deeds mentioned the easement. Title to the

servient estate was deeded to Ron Smith in December 1979 and recorded
on December 11, 1979, fourteen years and four months after the Arvin-

Ransburg deed conveying the easement was recorded. '^^

The Bartholomew Circuit Court determined that no easement existed

because "the deed describing an easement in favor of plaintiffs' pre-

decessors in title was outside the defendants' chain of title. "'"^^ The

Szakalys appealed.

The Smiths argue that in a state such as Indiana, where a grantor-

grantee index system is used, a deed conveying an easement over land

retained by the grantor, which is not recorded until after the recording

of a deed out of the servient estate by the grantor, is outside the chain

of title. Abstractors searching under a grantor-grantee system start their

search in the grantor index with the person to whom the land was
conveyed by the United States and continue to search under that person's

136. See Cunningham, supra note 61, § 11.11 at 796-802 for a more detailed

discussion of the chain of title concept.

137. 525 N.E.2d 343 (Ind. Ct. App. 1988). After the survey period, the Indiana

Supreme Court granted transfer. Szakaly v. Smith, 544 N.E.2d 490 (Ind. 1989). For a

brief discussion of the supreme court opinion, see infra note 148.

138. 525 N.E.2d at 344.

139. Id.

140. Id.



508 INDIANA LAW REVIEW [Vol. 23:485

name in the grantor index until a conveyance out from him is recorded.
Any interests recorded during this period is within the chain of title.
When the deed out is recorded, the abstractor stops the search under
the name of the former owner and continues his search in the grantor
index under the name of the new owner from the date he purchased
the land to the date of the recording of a deed out from him. Only

if the Arvin-Ransburg deed had been recorded promptly, before the

Arvin-Allender deed, would the conveyance have been within the chain

of title.'''' As an aside, it should be noted that since AUender reconveyed

to Isabelle Arvin the same day, a title searcher would have found the

Arvin-Ransburg deed if it was recorded prior to a conveyance out by

Isabelle Arvin. ''^^ The Smiths argued that once out always out and that
they had no constructive notice of the deed even though it was recorded

fourteen years before they acquired title. ''^^

The court disagreed with the Smiths' chain of title argument, ob-

serving that by Indiana statute: [e]very conveyance . . . shall take priority

according to the time of the filing thereofy and such conveyance . . .

shall be fraudulent and void as against any subsequent purchaser . . .

in good faith and for a valuable consideration, having his deed . . .

first recorded.**'^

141. Id. dit 344-45.

142. Another interesting point, not addressed by the court, is raised by the fact

that nowhere in the opinion is it stated when Isabella Arvin subsequently conveyed the

title to the servient estate to a predecessor in the Smiths' chain of title. All that is

indicated is that the Smiths acquired title to the servient estate in 1979 "after mesne

conveyances." Id. at 344. Had Isabella Arvin conveyed the property prior to August
1965, when the Ransburg deed was recorded, the purchaser, assuming he or she paid

value and was without actual notice of the easement, would have been a bona fide

purchaser in good faith. Under the shelter principle, once title has passed to a bona

fide purchaser in good faith, the bona fide purchaser can pass title to a subsequent

grantee (other than the original grantor of the interest) even though the grantee has

actual or constructive notice of an adverse interest purged by the operation of the

recording act. See Cunningham, supra note 61, § 11.10 at 794; 4 American Law of
Property § 17.11, at 567-68 (Casner ed. 1952). Thus even though the easement was

recorded prior to the conveyance to the Smiths, and even though its subsequent recordation

would have been constructive notice to the Smiths, the conveyance to the bona fide

purchaser would have cleared the title by operation of the recording act. Cunningham,

supra note 61, § 11.10 at 794. Since this issue was not addressed by the court it must

be assumed that Isabella Arvin was still the owner of the servient estate in August 1965

when the Ransburgs deed was recorded and thus all of the Smiths' predecessors in title

would have been charged with constructive notice of the easement. The conveyance from

the Arvins to Allender in 1957 would not pass title to the servient estate free of the

easement even if Allender was a bona fide purchaser in good faith. The shelter rule,

would not apply because the conveyance back was to one of the original grantors, Isabella

Arvin, who had conveyed the easement to the Ransburgs.
143. 525 N.E.2d at 345.

144. Id. (emphasis supplied by the court) (quoting Ind. Code § 32-1-2-16 (1988)).



1990] INDIANA PROPERTY LAW 509

The court then cited Hazlett v. Sinclairy^*^ for the position that a

purchaser **is chargeable with knowledge of all information supplied

by deeds either of his immediate or remote grantors" and concluded:

Indiana is one of the jurisdictions which recognize an ex-

ception to the rule that the record of a conveyance out of the

line of title does not give constructive notice of its contents to

innocent purchasers for value without notice.

. . . The holding in Hazlett has the effect of charging grantees
of servient tenements with knowledge of all the information

supplied by the recorded conveyances of the common grantor. '"^^

In the context of the opinion, this quotation implies that the sub-

sequent purchaser is on constructive notice of all deeds from a common
grantor even if recorded after the conveyance out. This, however, may
be a misreading of the scope of the Hazlett decision. In Hazlett, the

easement was recorded during the time the grantor owned the land
whose title was being searched. It involved a totally different issue:

Whether the grant of an easement over tract A in a deed conveying
tract B by a common grantor is notice to a subsequent purchaser of
tract A? There is a split of authority as to whether a purchaser of
tract A must examine the conveyances out of other tracts of land owned
by a common grantor to ascertain whether or not the grantor may have
given an interest in tract A in the conveyance of tract B.*"*^ Hazlett
was merely indicating that in Indiana the purchaser of tract A is on
notice of any interest in tract A transferred by a recorded conveyance
from a common grantor. This does not, however, suggest that a sub-
sequent purchaser of tract A would have to search under the name of
a remote grantor of tract A after the deed out of tract A is recorded
to see if a deed of tract B was subsequently recorded which granted
an interest in tract A. Nevertheless, while the court may have misread
Hazlett y there is substantial authority in states with a notice-race statute,

such as Indiana, ''*® holding that a subsequent purchaser takes subject

to an interest in a deed recorded after the recording of a conveyance

out by his grantor but before the recording by the subsequent pur-

145. 76 Ind. 488 (1881).

146. 525 N.E.2d at 346.

147. The decisions are about equally divided. See 4 American Law of Property
§ 17.24, at 602 (Casner ed. 1952).

148. Ind. Code § 32-1-2-16 (1988) is a notice-race statute in that it requires not
only that the subsequent purchaser be acting in good faith (without notice of the claim)

and have paid valuable consideration, but further that his deed be first recorded.



510 INDIANA LAW REVIEW [Vol. 23:485

chaser. •'^^ The argument is that the grantee must "record first" to win

in a notice-race jurisdiction and the Arvin-Ransburg deed was recorded

first. ^^° The practical problem with this line of authority from an

abstractor's point of view is that it requires a title search under the

name of each grantor to continue down to the present in order to
protect the purchaser against a prior interest recorded outside the chain

of title. The time and cost involved in such a lengthy search of the

records creates a heavy burden on purchasers when the loss could have
been easily avoided by the prompt recording of all deeds. '^^

149. See Cunningham, supra note 61, § 11.11, at 800, which suggests that the

decisions are about equally divided with more than half requiring a more detailed search.

For an analysis of the cases under both notice and notice-race type statutes, see Philbrick,

Limits of Record Search and Therefor of Notice, 93 U. Pa. L. Rev 125, 307-440 (1944)
[article in 3 parts] [hereinafter Philbrick].

150. 4 American Law of Property § 17.22, at 597-98 (Casner ed. 1952) (suggesting
that even though the subsequent purchaser may be without notice he fails to meet the
requirement of recording first under a notice-race statute). According to Professor Phil-

brick a purchaser who purchases after a claim is recorded (even after a deed out from
the grantor) can never satisfy the requirement of recording first in a notice-race jurisdiction.

Philbrick, supra note 149, at 391. Professors Dukeminier and Krier seem to question

whether recording outside the chain of title is "recording" within the meaning of a

recording statute. J. Dukeminier & J. Krier, Property 734 (2d ed. 1988). In Sabo v.
Horvath, 559 P.2d 1038 (Alaska 1976), a deed was recorded before a patent from the

United States was issued to the grantor. In holding that the subsequent grantee was

without notice of the prior recording and recorded first under Alaska's notice-race statute,

the court remarked:

Because we want to promote simplicity and certainty in title transactions, we

choose to follow the majority rule and hold that the [first] deed, recorded

outside the chain of title, does not give constructive notice to the [second

grantee] and is not duly recorded under the Alaskan Recording Act. Since [the

second grantee's] interest is the first duly recorded interest . . . [second grantee]

must prevail.

559 P.2d at 1044.

Thus, even under a notice-race statute a court can conclude that a recording outside the

chain of title is not a recording within the meaning of the statute.

151. After the survey period, the Indiana supreme court granted transfer. Szakaly

V. Smith, 544 N.E.2d 490 (Ind. 1989). In a thoughtful opinion by Justice Dickson, the

court observed that since the servient estate had been reconveyed to Isabell Arvin and

she was still the owner in 1965, when the deed to the dominant estate was recorded,

subsequent purchasers taking from her were charged with notice of the easement, as the

deed containing the easement would have been discovered in searching the grantor index

under the name of Isabell Arvin. Thus, there was no need for the court of appeals to
resort to the hypothesis that under Hazlett v. Sinclar, 76 Ind. 288 (1881) the Smiths

were charged with constructive notice of all recorded deeds of their remote grantors.

See discussion notes 142-47 supra and accompanying text. In fact, the supreme court

rejected this interpretation of the Hazlett opinion: "... Hazlett does not establish that

a grantor is charged with constructive knowledge of conveyances from a remote grantor

that are outside of his chair of title. In light of Rogers and Residence of Green Springs



1990] INDIANA PROPERTY LAW 511

V. Vendor and Purchaser: Implied Warranty of Habitability
Extended to Non-builder Developer of Land

Traditionally, the purchaser of property was subject to the doctrine of

caveat emptor^^^ In 1972, Indiana recognized that a purchaser of a

new home from a builder/vendor was entitled to rely upon an implied
warranty of habitabilityJ" By 1980 a substantial majority of jurisdictions
had come to recognize an implied warranty of habitability in the sale
of a new home by a builder/vendor. '^"^

In a number of jurisdictions, the warranty extends only to the first
purchaser of the new home from the builder/vendor, '^^ but in several
jurisdictions, including Indiana, the builder/vendor's warranty has been

extended to second or subsequent purchasers. '^^ Similarly, the scope of

the warranty of quality by the builder/vendor has been extended in

many states beyond defects in the structure to defects in the land.^"
In states which have rejected the requirement of privity of estate for

an action based on breach of the implied warranty of habitability, and

which hold the scope of the warranty extends to defects in the land

as well as the structure, the next logical step would be to extend the

implied warranty to a developer, who knowing of a defect in the land
making it unsuitable for homebuilding, sells the land to the builder-

vendee.'^^ Just such a situation arose in Jordan v. TalagaJ^^

Valley Subdivision, we view the language in Hazlett as limited by the chain of title
requirement." 544 N.E.2d at 492. The supreme court opinion eliminates the concerns
expressed by this reviewer with regard to the court of appeals opinion and clarifies several

areas of the law pertaining to title searches.

152. Haskell, The Case For an Implied Warranty of Quality in Sales of Real

Property, 53 Geo. L.J. 633 (1965).

153. Theis v. Heuer, 264 Ind. 1, 280 N.E.2d 300 (1972).

154. Shedd, The Implied Warranty of Habitability: New Implications, New Ap-
plications, 8 Real Est. L.J. 291, 302 (1980). A table of states and major court decisions
at the end of the article indicates that by 1980 thirty-six (36) states and the District of

Columbia had recognized an implied warranty of habitability in the sale of new homes
by a builder/vendor, and of the remaining jurisdictions most had simply not addressed

the issue. Only three states had directly or indirectly rejected an implied warranty of

habitability in the sale of a new home. Id. at 303-06.
155. See, e.g., Oliver v. City Builders, Inc., 303 So. 2d 466 (Miss. 1974); Brown

v. Fowler, 279 N.W.2d 907 (S.D. 1979).
156. See Barnes v. Mac Brown & Co., 264 Ind. 227, 342 N.E.2d 619. See also

Kriegler v. Eichler Homes, Inc., 269 Cal. App, 2d 224, 74 Cal. Rptr. 749 (1969);
Redarowicz v. Ohlendorf, 92 111. 2d 171, 441 N.E.2d 324 (1982).

157. See, e.g., Hessen v. Walmsley Constr. Co. 422 So. 2d 943 (Fla. Dist. Ct.

App. 1982); Lehmann v. Arnold, 137 111. App. 3d 412, 484 N.E.2d 473 (appeal denied)
(1985); Banville v. Huckins, 407 A.2d 294 (Me. 1979); ABC Builders Inc. v. Phillips,
632 P.2d 925 (Wyo. 1981).

158. A few decisions have held the developer Uable to the subsequent purchaser



512 INDIANA LAW REVIEW [Vol. 23:485

In Jordan, the homeowners, Thomas and Rebecca Talaga, brought
suit against Daniel Jordan and Allie Baker, the developers of Sandridge

Estates, a subdivision in Schererville, Indiana, for property damage

caused by water and drainage problems under alternative theories of

negligence and breach of implied warranty of habitability. The jury

returned a general verdict in favor of the Talagas.'^^

The developers platted, subdivided, and improved Sandridge Estates

for the purpose of facilitating the building of homes. They rough graded

the lots, put in sanitary sewers, storm sewers and streets.*^' Although

a natural watercourse ran along the border of the lot eventually pur-

chased by the Talagas, the developers and an engineer employed by

them concluded that enlarging an existing swale on the edge of the

Talagas' lot would adequately handle the drainage problem and direct

the flow of water into the street's storm sewers. A ten foot drainage
easement, the only easement in the subdivision, was provided for in

the plat to accommodate the swale. ^^^ In June 1975, the lot in question

was sold by the developers to Bruce Piper of Piper Enterprises, Inc.,

who built a tri-level home on the lot and sold it to the Talagas for
$42,000. Piper was aware of the drainage easement but did not know
that the watercourse periodically swelled into a stream and did not

experience any water problems during construction of the house. In

February, 1976, the Talagas experienced water problems described by

Piper as **Bad." Despite repeated efforts to correct the situation, the

flooding problem continued. ^^^ A civil engineer testified that the water
flowed from a pond on land owned by Britton over the Talagas' lot
and a reasonable prudent developer would not have allowed a house

to be built on such a lot.^^

On appeal, the developers raised nine issues, seven of which were
addressed by the court.*" The first issue raised was whether the Talagas

from the builder-vendor for defects in the land. See, e.g., Avner v. Longridge Estates,

272 Cal. App. 2d 607, 77 Cal. Rptr. 633 (1969); Hinson v. Jefferson, 287 N.C. 422,

215 S.E.2d 102(1975); Rusch v. Lincoln-Devore Testing Laboratory, Inc., 698 P.2d 832

(Colo. Ct. App. 1984).

159. 532 N.E.2d 1174 (Ind. Ct. App. 1989).

160. Id. at 1177.

161. Id. at 1178.

162. Id. The evidence was conflicting as to whether or not the swale was ever

enlarged. Id.

163. Id. at 1178-79. The extent of the flooding problem and efforts to correct it

are set forth in considerable detail throughout the opinion.

164. Id. at 1179.

165. Two issues pertaining to negligence were rendered moot when the court
determined economic damages could not be recovered under a negligence theory. Id. at

1177. Several of the issues addressed by the court are not discussed in this review.



1990] INDIANA PROPERTY LAW 513

could recover economic damages under a negligence theory. After ob-

serving that the theory of negligence was designed to protect interests

related to safety or freedom from harm, the court concluded that where

there has been no accident and no physical damage, economic interests

are not entitled to be protected against mere negligence: **to recover

in negligence there must be a showing of harm above and beyond

disappointed expectations.'*'^ Having said this, however, the court then

determined that recovery could be allowed under an implied warranty

of habitability theory. '^^

The court next addressed the question of '*[w]hether a professional

developer, who improves land for the express purpose of residential
Homebuilding with knowledge but without disclosure of a latent defect

in the real estate that renders the land unsuitable for the purpose of

residential homebuilding, breaches an implied warranty of habitabil-

j|-y
»»168

The court observed that this was a question of first impression in

Indiana, but noted that the neighboring state of Illinois had developed

a line of cases addressing this issue. From an examination of these
decisions, the court determined that although Illinois has held a builder/

vendor liable for defects in the land as well as in the construction of

the building, '^^ it has refused to extend the implied warranty of hab-

itability beyond the builder of a new home to one who sells the land
to the builder. '^° The Illinois court reasoned that the subsequent pur-

chaser of a home does not rely upon the expertise of the seller of the

166. Id. at 1181 (quoting Redarowicz v. Ohlendorf, 92 111. 2d 171, 411 N.E.2d

324 (1982)).

167. Id. at 1182.

168. Id. at 1182 (emphasis added).

169. Id. at 1183. In Briarcliffe West Townhouse Owners Ass 'n v. Wiseman Constr.

Co., 118 111, App. 3d 163, 454 N.E.2d 363 (1983), the court held that defects in common
land could affect the habitability of townhouses. The court concluded that there is no

real distinction between defects in the building and defects in the land because in either

case the purchaser must rely upon the expertise of the builder-vendor.

170. 532 N.E.2d 1174 at 1183-84. In Lehmann v. Arnold, 137 111. App. 3d 412,
484 N.E.2d 473 (appeal denied) (1985), under a similar factual situation, the Illinois

court refused to extend the implied warranty of habitability to the developer who sold
the unimproved land subject to periodic flooding to the builder/vendor. The court relied

in part on an earlier Illinois appellate decision, Kramp v. Showcase Builders, 97 111.
App. 3d 17, 422 N.E.2d 958 (1981), which dismissed a suit against the non-builder

developer of the subdivision (soil conditions were inadequate for installation and operation

of their septic systems). While a subsequent Illinois supreme court decision, Redarowicz

V. Ohlendorf, 92 111. 2d 171, 441 N.E.2d 324 (1982), extended the warranty to allow

subsequent purchasers of the home to recover against the builder/vendor for latent
defects, the Lehmann court did not believe the Redarowicz decision,doing away with the
privity of estate requirement, extended the class of defendants beyond the builder/vendor.



514 INDIANA LAW REVIEW [Vol. 23:485

land, but instead relies upon the skill of the builder to insure that the
home built on the property will be habitable. '^^ While impressed with
the rationale of the Illinois decisions, the Indiana Court of Appeals

concluded that the application of the doctrine of caveat emptor would

work **a manifest injustice" in this case.^'^^ The developers had done

more than sell raw land. They had improved the land for development

of a subdivision. They were aware of the water problem and were in

the best position to leave the lot undeveloped.'^^ To apply the doctrine
of caveat emptor would vest ^^unscrupulous developers . . . with impunity

to develop marginal and unsuitable land." '^"^ Thus the court of appeals

affirmed the verdict upon the theory that a developer who improves
land for the express purpose of residential homebuilding with knowledge

of a latent defect in the real estate which renders it unsuitable for the

purpose of residential homebuilding breaches an implied warranty of

habitability.'^^

The developers next argued that the buyers had failed to give them
timely notice and a reasonable opportunity to cure the defect. The court

agreed that, before a purchaser can recover for breach of an implied

warranty of habitability, he must at least inform the vendor of the

problem and give him an opportunity to correct it, but the court

determined that in this case the Talagas had informed Jordan imme-

diately after the problem revealed itself. '^^ Likewise, the Talagas appealed

to the town of Schererville regarding the problem at a time when Baker
was an official of the town. '^^

The developers also claimed that the award of $74,000 damages

was excessive. Since the Talagas had paid only $42,500 for the house,

the jury's award was based on the market value at the time of trial

and not the purchase price. The court observed that:

[T]he measure of damages appropriate for recovery under an

implied warranty of habitability should be analogous to the

measure of damages recoverable under an implied warranty of

merchantability, that is the difference between the value as

warranted less the value at the time of acceptance plus incidental

and consequential damages. ^''^

171. 532 N.E.2d at 1184 (quoting Lehmann, 484 N.E.2d at 477).

172. 532 N.E.2d at 1184.

173. Id. at 1185.

174. Id. at 1186.

175. Id. at 1186.

176. In Wagner Constr. Co. v Noonan, 403 N.E.2d 1144 (Ind. Ct. App. 1980),

the Indiana court of appeals held that the purchaser must inform the vendor of the

problem and give him a reasonable opportunity to correct it. Id. at 1150.

177. Jordan, 532 N.E.2d at 1186-87.

178. Id. at 1187.



1990] INDIANA PROPERTY LAW 515

While the instruction to the jury set forth an inappropriate tort theory

of damages,'"'^ the error had not been preserved because the developers

failed to object to the instruction. ^^° The court also concluded that an

award of prejudgment interest was appropriate because the deprivation

of one's home is similar to the deprivation of the use of money. ^^^

This case should not be read too broadly. It does not suggest that

a seller of unimproved land warrants that it is fit for any intended use

by the purchaser absent misrepresentation or fraud. The case appears

to limit the implied warranty to situations where a developer has im-

proved the land for residential homebuilding and is aware of a latent

defect which renders the land unsuitable for such purpose. '^^

179. The instruction to the jury with regard to damages stated:

Where real property is destroyed or the enjoyment of the use of said property

significantly impaired, the measure of damages is the difference in the fair

market value of the real estate before and after the destruction or damage.

The measure of damages for nonpermanent injury to real estate equals the cost

of restoration. Id. at 1187.

180. Id. at 1188.

181. Id. at 1187 (citing Fort Wayne Nat'l Bank v. Scher, 419 N.E.2d 1308 (Ind.
Ct. App. 1981)).

182. 532 N.E.2d at 1184-85. The court noted that in Witty v. Schramm, 62 111.

App. 3d 185, 379 N.E.2d 333 (1978), the developers of the unimproved lot were not

charged with knowledge of the defective condition (excessive subsurface water). The court

concluded that: "Apparently, special knowledge of the defect would have imposed a

duty upon the developer to repair or correct." 532 N.E.2d at 1185. Likewise, the court

found a similar lack of knowledge in Cook v. Salishan Properties, Inc., 279 Or. 333,
569 P.2d 1033 (1977), where the court refused to impose an implied warranty of habitabihty

upon the lessor/developers of unimproved seaside lots. Finally, the court suggested that

knowledge of the conditions of the land was a factor in imposing an implied warranty

of habitability upon the seller of unimproved land in Rusch v. Lincoln-Devore Testing

Laboratory, Inc., 698 P.2d 832 (Colo. App. 1984) (unimproved lot on the site of a

manmade fill).