Indiana Law Review


Reconstructing Property Law in Indiana:
Altering Familiar Landscapes

Lloyd T. Wilson, Jr.*

One ofthe many functions served by law is to provide a framework for the
orderly transaction of business; in fact, no meaningful business would be
possible without a legal system to provide for the realization of legitimate

expectations and for the enforcement of relied-upon promises.' One
indispensable component ofa party's decision to enter into a transaction or ofhis
"pricing" ofhis good or service, in the form ofthe consideration he will demand
ofthe other party, is the degree to which the law can be expected to promote or

to hinder the realization of the desired goal of the deal.^ Whenever the legal
framework is altered, either by judicial decision in the case ofthe common law
or by legislative enactment in the case of statutory law, the dynamics of the

relationships between or among parties to a transaction are also altered. Customs
and practices that were formerly appropriate can become unsuitable and require
change, and previous bargaining decisions may have to be rethought if changes
to the law alter the allocation of risks and rewards. Significant changes to the

law produce a corresponding increase in the degree ofuncertainty about the legal

framework underlying business transactions. Such changes can take the form of

a new allocation ofsubstantive rights among parties or new statutory terms with
uncertain definitions.

In 1999 the Indiana Legislature enacted statutes and the Indiana appellate

* Instructor ofLaw, Indiana University School ofLaw—-Indianapolis; Adjunct Professor
ofBusiness Law, Kelley School ofBusiness, Indiana University—Bloomington; Adjunct Professor

of English, Franklin College. B.A., Wabash College; M.A., Duke University; J.D., Indiana
University School of Law—Bloomington. The author wishes to acknowledge the valuable
contributions made to this article by eight alumni of his real estate transfer, fmance and

development class: Jason A. Eickmann, Mary Margaret Gianini, Rebecca A. Kasper, David A.

Keen, Thomas M. Mills, Michael S. Prakel, Kenneth J. Roney, and Joseph G. Striewe. The

voluntary research assistance of these students enabled this article to be completed in a timely

manner. The author also wishes to acknowledge two students who wrote senior papers relating to
topics addressed in this article: Denise M. Gosnell and Stephen P. Russell.

1

.

See RoscoE Pound, The Spirit of the Common Law 209 (Beacon Press, 1 963).
2. See, e.g. , Marshall E. Tracht, Renegotiation andSecured Credit: Explaining the Equity

ofRedemption, 52 Vand. L. Rev. 599, 620-26 (1999). Although not individually reviewed in this

Article, the Indiana Court of Appeals decided a case of first impression in 1999 closely related to

the equity of redemption. In Cunningham v. Georgetown Homes, Inc., 708 N.E.2d 623 (Ind. Ct.

App. 1999), the court "addressed the respective rights ofthe parties to a cooperative living situation

. . . [and] what pibcess a cooperative association must follow to dispossess a member of her unit."

Id. at 626. Adopting a "hybrid approach" that reflected the hybrid nature ofa cooperative housing

arrangement—partly like a base and partly like fee ownership—^the court held that ejectment is the
proper remedy for removing a cooperative member who has violated the occupancy agreement, but

"other proceedings" are required to protect the member's equity in her unit. Id. at 627. The court

did not order the cooperative to follow statutory foreclosure procedures but instead authorized the

trial court to direct a judicial sale of the departing member's unit. See id.



1406 INDIANA LAW REVIEW [Vol. 33: 1405

courts issued opinions that significantly changed or defined the law applicable
to real estate transactions in this state, including laws that had been in existence
for several or even many decades. The affected areas of law include: 1)
mechanic's liens procedures; 2) duties of real estate licensees to sellers and
buyers; 3) liability of"operators" for environmental contamination clean-up costs

resulting from leaking underground storage tanks; and 4) tort and contract claims
assented by tenants against landlords. Parties to real estate transactions will find
that the legal "lay ofthe land" to which they had been accustomed, and on which
they had based business decisions, has been altered or defined in possibly
unexpected ways. In some areas, the alteration will lend certainty to business
relationships, and the parties involved should be comfortable in the new legal
landscape. In other areas, the alteration is less successful at establishing certainty

or defines the law in ways one party finds undesirable, and the terrain will be less
reassuring. In both areas, changes in established transactional procedures and

expectations will be required.

I. Mechanic's Lien Statute

Like all states, Indiana has a mechanic's lien statute.-* The purpose of the
statute is to facilitate payment to contractors, subcontractors, mechanics, lessors
of construction equipment, material suppliers, laborers, and "all other persons

performing labor or furnishing materials or machinery'"* for the improvement of
real estate by providing to such persons a lien upon the real estate that is

improved by their efforts.^ Although the mechanic's lien statute has occasionally

been amended, the provisions in place prior to the 1999 amendments strongly
resembled the version enacted in 1909.

However, House Enrolled Act No. 1367,^ effective on July 1, 1999, altered
the long-familiar landscape. The amendments should reinforce the legal
framework supporting mechanic's lien use and should reduce the level of

uncertainty that in the past adversely affected the risk analysis ofparties involved

in the improvement ofreal estate. This conclusion is supported by the fact that,

at least with regard to mechanic's liens asserted against real estate used for

commercial purposes, the amendments are intended to eliminate uncertainties in
the priority of claims asserted against the value of the improved real estate by
construction lenders and mechanic's lien holders. One can infer from the speed
and ease with which the Act moved through the legislature that the amendments
were supported by representatives of both the lending and construction

3. See IND. Code §§ 32-8-3-1 to -3-15 (1998 & Supp. 1999).
4. iND. CODE § 32-8-3-1 (Supp. 1999).

5. See generally Abbey Villas Dev. Corp. v. Site Contractors, Inc., 7 1 6 N.E.2d 91 , 98 (Ind.

Ct. App. 1999) ("The purpose is to promote justice and honesty, and to prevent the inequity of an

owner enjoying the fruits of the labor and material furnished by others, without recompense.")

(citations omitted), trans, denied, 2000 Ind. LEXIS 355 (Ind. Apr. 19, 2000).

6. Act of April 23, 1999, Pub. L. No. 53-1999, 1999 Ind. Acts 292 (codified as amended

at Ind. Code § 32-8-3-1 (Supp. 1999)).



2000] PROPERTY LAW 1407

communities/ Such support would be reasonable as the amendments represent

an effort to allocate, in a manner acceptable to both groups, the risks of each in
relying on a promise of payment for money lent or for labor, materials or
equipment supplied to improve real estate used for commercial purposes.

A. The 1999 Amendments: Balancing the Interests of
Construction Lenders and Mechanics

The substantive changes made to mechanic's lien rights and procedures by
the 1999 amendments are implemented by creating three classifications of real
estate that are defmed by the use to which the real estate is put. The scope ofthe
first classification encompasses "[a] Class 2 structure (as defined in IC 22-12-1-

5) or an improvement on the same real estate auxiliary to a Class 2 structure (as
defmed in IC 22-12-1-5)."* A Class 2 structure is "[a] building or structure that
is intended to contain or contains only one (1) dwelling unit or two (2) dwelling

units unless any part of the building or structure is regularly used as a Class 1

structure."^ In general terms, this classification can be called residential real

estate.

The second classification includes:

Property that is: (A) owned, operated, managed, or controlled by a public

utility (as defined in IC 8-1-2-1), municipally owned utility (as defined
in IC 8-1-2-1), joint agency (as defined in IC 8-1-2.2-2), rural electric

membership corporation formed under IC 8-1-13-4, or not-for-profit
utility (as defined in IC 8-1-2-125) regulated under IC 8; and (B)

intended to be used and useful for the production, transmission, delivery,

or furnishing of heat, light, water, or power to the public.'^

Such real estate can be referred to as utility real estate. All real property that is

neither residential nor utility property can be referred to as commercial real

estate. Real estate used for residential and utility purposes is excluded from the

operation ofmost ofthe 1999 amendments, the brunt ofwhich falls on real estate

used for commercial purposes.'*

7. HB 1 367 was authored on January 1 2, 1 999, and was given its first reading on that date.
By April 8, 1999, the bill had been given second and third readings, had been voted on in the house,

had been referred to the senate where it was given three readings and was amended and voted on.

The bill was then returned to the house, where another vote was taken and then signed by the

speaker. The entire process took only 86 days and the vote totals were 303 yeas and three nays.

8. IND. CODE § 32-8.3.1(c)(l).

9. Id. § ^-12-l-5(aXl) (1998). Outbuildings for such structures are also included within

the definition ofa Class 2 structure. See id § -5(a)(2). A Class 1 structure is defined in section 22-
12-1-4. Id. § 22-12-1-4 (Supp. 1999). The Class 1 and Class 2 designations originate in that part

of the Indiana Code dealing with fire safety and building and equipment laws. See Fire, Safety,

Building, and Equipment Laws: General Administration, iND. CODE § 22-12 (1998).

10. Id § 32-8-3-l(cX2) (Supp. 1999).

1 1

.

For purposes of this Article, real property is characterized as residential, utility, or



1408 INDIANA LAW REVIEW [Vol. 33:1405

Two major substantive rights conferred by the mechanic's lien statute are
determined by the new property characterizations. One is that a no-lien provision
or stipulation "can only be included" in a construction contract relating to the

improvement of residential and utility properties.'^ The necessary corollary of
this phrase is that no-lien provisions are not authorized beyond these property
classifications and may no longer be included in contracts for the improvement
of commercial real estate.'^

Prior to the effective date of the Act, lenders, as a condition of making a
construction loan, often required owners to require the general contractor on the
project to execute a no-lien contract, by which the general contractor agreed not
to file any liens against the owner's property. This agreement, if properly

documented and timely recorded in the office of the recorder in the county in
which the real estate is located, was then binding on all subcontractors and their
employees and on equipment and material suppliers working on the project
through subcontracts with the general contractor.

A no-lien contract has considerable value to a construction lender because
it avoids priority battles between the mortgage lien ofthe lender and the potential

statutory liens ofmechanics. '* Under pre-amendment law such battles frequently
arose as a result of the "relation back" rule of the mechanic's lien statute.'^

Pursuant to this rule, the effective date of a mechanic's lien was the date on

commercial. These labels are used for convenience, however, and the reader should not overlook

the precise definitions, including cross-references, provided in the Act. For example, a structure

that otherwise would be a "Class 2 structure" can lose that designation if any part of it is "regularly

used as a Class 1 structure." Id. § 22-12-1-5 (1998). Thus, it is necessary to consult the definition

of a "Class 1 structure." Additionally, the list of utilities in section 32-8-3- 1(C)(2) of the Indiana

Code includes only utilities regulated under Title 8 and "intended to be used and useful" for the

"production, transmission, delivery, or furnishing of heat, light, water, or power to the public." Id.

§ 32-8-3-l(c)(2) (Supp. 1999).

1 2. The writing and recording requirements for an enforceable no-lien contract on residential

or utility improvement projects have not been changed by the 1999 amendments.

13. The act does not specifically state whether a no-lien provision in a contract for

improvement ofcommercial property is void or merely voidable. Other amendments to the statute,

declare actions contrary to the statute to be void. See IND. Code §§ 32-8-3-15, -17,-18. It is

reasonable to infer that the legislature's declaration that a no-lien provision "may only be included"

in a construction contract relating to residential or utility property would likewise render the

inclusion of such a provision in a construction contract relating to commercial property void.

14. For convenience, the term "mechanic" is used in this article to represent all persons

within the scope of section 1 of the mechanic's lien statute.

15. Section 5 of the pre-amendment mechanic's lien statute provided that all valid

mechanic's liens "shall relate to the time when the mechanic or other person began to perform the

labor or furnish the material or machinery." iND. CODE § 32-8-3-5 ( 1 998), amended by § 32-8-3-5

(Supp. 1999). The 1999 amendments retain this language but then add the rule that confers on

lenders priority over "all liens under this chapter recorded after the date the mortgage was recorded"

ifthe mechanic's work is performed on real estate used for commercial purposes. Id. § 32-8-3-5(c)

(Supp. 1999).



2000] PROPERTY LAW 1409

which the mechanicyzr^/ provided labor, materials, or equipment to the project

even though the notice of intention to hold the Hen did not have to be recorded

until sixty days after the date such labor, materials, or equipment was last
provided to the project. In other words, a lender contemplating making a
construction loan was faced with the prospect that an as-yet unrecorded
mechanic's lien could later be perfected and be senior to the lender's mortgage

even though that lien was undiscoverable on the public records at the time the
construction loan was made.'^

No-lien contracts eliminate that risk by precluding the filing of any

mechanic's liens, thereby leaving priority of the lender's security position

unchallengeable by mechanics. The loss, created by the 1999 amendments, of a
lender's ability to require construction on commercial real estate to proceed

pursuant to a no-lien contract adversely affects that lender's risk in the loan

transaction. Were it not for a corresponding change included in the amendments
affecting the competing rights ofmechanics, the prohibition ofno-lien contracts

would likely have resulted in construction lenders either seeking other ways to
secure their position or increasing the cost of construction credit or both.

That corresponding and counterbalancing change made by the 1999
amendments is the elimination of the "relation back" rule for mechanic's liens
filed with regard to commercial projects and the substitution of a rule that

establishes priority of liens based on date of recordation.^^ For construction

contracts executed after June 30, 1999, relating to the improvement of

commercial real estate, the statute now provides, "The mortgage of a lender has
priority over all liens under this chapter recorded after the date the mortgage was
recorded to the extent of the ftinds actually owed to the lender for the specific
project to which the lien rights relate."'* In terms of evaluating business risks

and making business decisions, this change lends certainty to the legal framework
relied upon by lenders.

The elimination ofthe relation back principle in commercial projects has the
direct positive effect of enabling construction lenders to rely on the recording

process in making credit and collateral decisions. It also has the additional
positive effect of closing one of the gaps in the recording system that impaired

its integrity. Ifno mechanic's liens appear in the records ofthe county recorder,

the lender can now be assured that its construction mortgage on commercial

16. See, e.g.. Greyhound Financial Corp. v. R.L.C, Inc., 637 N.E.2d 1325, 1328 (Ind. Ct.

App. 1994) ("We conclude that a properly recorded and perfected mechanic's lien takes priority

over a mortgage which is executed before labor or materials are first furnished for the property but

reworded after labor or materials are first furnished.").

17. The olimination of the "relation back" principle does not apply to a lien that relates to

a construction contract for the development, construction, alteration, or repair of residential or

utility property. See iND. CODE § 32-8-3-5(c). Thus, the act does not alter the risk of priority

battles with mechanics faced by construction lenders on non-commercial projects prior to the

amendment. On construction projects relating to residential and utility real estate, the construction

lender retains its right to require that construction proceed only by way of no-lien contract.

18. Id. The amendments also contain a new definition offender." See id. § 32-8-3-5(a).



1410 INDIANA LAW REVIEW [Vol. 33:1405

property will not become subordinate to a later-recorded mechanic's lien that
relates back to a date prior to the date of the mortgage. If one or more
mechanic ' s liens appear ofrecord, the lender can either require their payment and
release as a condition ofmaking the loan or can negotiate their subordination to
the mortgage.

At the same time, mechanics can no longer be prohibited by no-lien
provisions from recording their liens and thus will be able to improve their status
from that of unsecured creditor, which would be their lot under a no-lien
contract, to that of secured creditor. Even if the mechanic's security position is
junior to a previously recorded construction lender's mortgage, the mechanic

may be able to obtain priority over other competing non-mechanic's lien
creditors who are either unsecured or who perfect their security interests after the
date the notice of intention to hold mechanic's lien is filed.

'^

Preserving the right to record a mechanic's lien is also important in the event

the owner files a petition in bankruptcy. Under a no-lien contract, the mechanic
would fall into the class of general unsecured creditors of the debtor's estate.
But with the mechanic's lien rights preserved by the elimination of no-lien

contracts, mechanics can perfect their liens and achieve secured creditor status

even after the bankruptcy petition is filed.^° Such elevation in creditor status may
result in payment from the debtor's estate greater than would have been achieved

as an unsecured creditor.

Finally, in what may be seen as additional benefit for mechanics to
compensate for the abolition ofthe relation back rule for contracts involving the

improvement ofcommercial real estate, the amendments extend the time within
which a notice of intention to hold mechanic's lien can be filed. Under pre-
amendment law, the notice of intention to hold a mechanic's lien had to be filed
within sixty days after the date labor was last performed or material or equipment

was last provided.^* That deadline is now extended to ninety days.^^ This
change improves the ability ofa mechanic to achieve secured creditor status but

does not alter the method for determining priority between mechanics and
mortgagees based on date of recordation.

1 9. The 1 999 amendments continue the prior rule that multiple, competing mechanic's liens

share in the value of the improved real estate on a pro-rata basis and as to such liens "there shall

be no priority." Id. § 32-8-3-5(b).

20. Post-petition perfection of a mechanic's lien is not stayed by § 362(a) nor is it subject

to invalidation by the trustee under § 544 or § 545 ofthe Bankruptcy Code as § 362(b) and § 546(b)

combine to permit post-petition perfection of a mechanic's lien. See 1 1 U.S.C. §§ 362, 544, 545,

546 (1994 & Supp. IV 1998). See, e.g.. In re Petroleum Piping, 21 1 B.R. 290, 301 (Bankr. N.D.
Ind. 1997) ("Pursuant to § 362(b)(3), § 546(b) provides an exception to the general rule that the

petition stays actions to perfect an interest and allows the post-petition perfection ofa lien in limited

circumstances.") (citations omitted).

21. See Ind. Code § 32-8-3-3(a) (1998), amended by § 32-8-3-3 (Supp. 1999).

22. See id. The time within which a notice ofintention to hold mechanic's lien must be filed

on residential and utility projects remains unchanged at sixty days. See id. at § 32-8-3-3(b) (Supp.

1999).



2000] PROPERTY LAW 1411

B. Implementing the New Balance

The amendments make five other notable changes to the mechanic's lien
statute, each of which is necessary to insure implementation of the newly

achieved balance of the interests of construction and mechanics lenders and to

preclude attempts to undo that balance. Three of these changes operate to

prohibit agreements other than no-lien provisions that would prohibit a mechanic

from filing a lien. First, section 16(b) declares that a provision in a contract for

the improvement of commercial real estate which requires a person who
furnishes labor, materials, or machinery to waive a right to a lien against the real

estate or to a claim against a payment bond before that person is paid is void.^^

Second, section 16(c) declares void any provision in a construction contract by

which one or more persons agree not to file a notice of intention to hold
mechanic's lien.^'* Third, section 18 prohibits "ifpaid/when paid" provisions in

construction contracts.^^

These provisions are intended to prohibit the waiver ofmechanic's lien rights

by direct contract, as opposed to indirect waiver as is accomplished through
agency principles in a no-lien contract. If such provisions were not prohibited,

an owner, or his lender, could accomplish through individual contracts with

subcontractors a result that he can no longer accomplish through a contract with

a general contractor that bound all subcontractors.

Section 16(b) should not, however, affect the ability ofa construction lender

to require partial lien waivers from mechanics in connection with progress

payments on a construction project. This section prohibits direct lien waivers

"before the person is paid for the labor or materials fumished."^^ Partial lien

waivers routinely required by construction lenders relate only to completed work
for which payment is tendered. When he is paid, a mechanic no longer has a
right to assert a lien against the owner's real estate; therefore, requiring a partial

waiver at that time will not upset the balance achieved by the amendments. Nor
does a partial waiver given through a specified date impair the mechanic's ability

to record a lien in the future if he is not paid for subsequent work. If the

consideration for the partial lien waiver is paid by a check, the waiver can be
conditioned on payment of the funds by the owner's bank.

The other two notable changes are provisions that insure the balance struck
by the legislative process in Indiana is not replaced by contractual agreement to

submit disputes to another jurisdiction that may have implemented a different
balance of the parties' interests. Section 17 now voids any "choice of law"
provision in a contract for the improvement of real estate in Indiana that would
make the contract "subject to the laws ofanother state."^^ It also makes void any

23. See id. § 32-8-3-16(b).

24. See id. § 32-8-3-16(c).

25. Id § 32-8-3-18(a).

26. Id § 32-8-3-16(b).

27. Id § 32-8-3-17.



1412 INDIANA LAW REVIEW [Vol. 33:1405

"forum selection" provision that would require "any litigation, arbitration, or
other dispute resolution process on the contract [to] occur in another state."^*

A question that could arise with regard to section 17 is whether a
construction contract that includes a forum selection clause requiring arbitration
proceedings to be conducted outside Indiana renders the entire agreement to
arbitrate void or only voids only the selection of an out-of-state site. The better
position is that the agreement to arbitrate should remain enforceable and that
only the attempt to require arbitration to occur out of state is void. This result is

consistent with the language of the statute, which states that a " provision in a
contract," and not the contract itself, is void if it requires "litigation, arbitration

or other dispute resolution" to occur in another state.^^ Enforcement of the
agreement to arbitrate at an in-state site, using Indiana's mechanic's lien statute

as amended, would also be consistent with the general favor afforded to
arbitration and mediation agreements.^^

The provisions of sections 16, 17, and 18 should be read together as means
for closing loopholes that could be used to unsettle the balance of interests

achieved by the 1999 amendments. Section 16 and 18 preserve the balance
achieved by the abolition of the no-lien contract^' and of tiiie relation back rule
for contracts for the improvement ofcommercial real estate.^^ Section 1 7 ensures

that the underlying legal framework cannot be displaced by a clause that would
require the substitution of a different framework that would define rights and

adjust interests in a way that is different from the procedure resulting from the
Indiana legislative process.^^

C. Summary ofthe Effect ofthe 1999 Amendments

Whether construction lenders or mechanics fare better under the 1999
amendments remains to be seen, but the balancing of competing interests they
achieve provides a workable and predictable framework for realizing legitimate

business expectations and for analyzing risks that benefits all concerned.

Construction lenders are relieved of the uncertainty about the priority of their

mortgages because they can rely on the date ofrecordation in the public records

without fear that a subsequently recorded mechanic's lien will "relate back" to

a prior date and assume a senior position.^'* Mechanic's lien holders preserve the

right to file their liens, which right can no longer be displaced by a no-lien or

28. Id.

29. Id.

30. See Northwestern Mut. Life Ins. Co. v. Stinnett, 698 N.E.2d 339, 343 (Ind. Ct. App.

1 998) ("It is well known that Indiana recognizes a strong policy favoring enforcement ofarbitration

agreements.") (citing Chesterfield Management, Inc. v. Cook, 655 N.E.2d 98, 102 (Ind. Ct. App.

1995)).

31. See Ind. Code § 32-8-3-16.

32. See id § 32-8-3-8.

33. 5eg/V/. §32-8-3-17.

34. See supra text accompanying notes 17-18.



2000] PROPERTY LAW 1413

direct contract provision.^^ This right can be important in priority battles

between mechanics and third party creditors, including a trustee in bankruptcy

or debtor in possession. As an added benefit, the reliability of the recording
system for real property is enhanced as a gap in the system has been filled, at

least for projects to improve commercial real estate.^^ Unfortunately, the

continued viability ofthe "relation back" rule for non-commercial real estate w^ill

continue to insert uncertainty into residential and utility property improvement
projects. Accordingly, lenders for such projects will have to continue to use

traditional means, such as the no-lien contract, to protect the priority of their

mortgages.

D. Appellate Opinions Issued During 1999 Affecting Mechanic 's Liens

Because the 1999 amendments to the mechanic's lien statute affect only
contracts executed after July 1, 1999, construction contracts executed prior to

that date will continue to be governed by the prior law. Additionally, the rules

relating to mechanic's liens asserted against real estate used for residential and

utility purposes were largely unchanged by the 1 999 amendments. Thus, existing
case law will continue to control in those areas. Finally, even with regard to

commercial real estate, cases decided underthe pre-amendment law will continue

to be useful in cases for many issues, such as content and validity requirements
of the notice of intention to hold a lien and revival and tacking of liens. For all

ofthese reasons, appellate opinions issued in 1999 relating to mechanic's liens

merit examination. Three mechanic's lien related opinions issued by the Indiana

Court of Appeals in 1999 are Mullis v. Brennan^^ Abbey Villas Development
Corp. V. Site Contractors, Inc.^^ and Dinsmore v. Lake Electric Co.}^

In Mullis,^^ the Brennans, as homeowners, entered into a written contract

with a contractor, Richard Mullis, for the construction of an addition to their

house. Even though Mullis apparently had previously created a corporation
known as Mullis Building Corporation, he signed the contract as "Contractor" in
his individual capacity.'*' He also directed the Brennans to make progress
payments to him as an individual, and he deposited such payments into his
personal account and not into a separate account maintained by the corporation.'*^

Problems with the quality of construction of the addition arose almost

immediately. After several months of observing poor workmanship, the

Brennans demanded that Mullis correct the problems, and they reftised to pay any

35. See IND. CoDE § 32-8-3-16 to -18.

36. See id.

37. 716'N.E.2d 58 (Ind. Ct. App. 1999).

38. 716N.E.2d 91 (Ind. Ct. App. 1999), trans, denied, 2000 Ind. LEXIS 355 (Ind. Apr. 19,

2000).

39. 719 N.E.2d 1282 (Ind. Ct. App. 1999).

40. MM//w,716N.E.2dat58.

41. Mat 63.
42. Seeid.zi6\.



1414 INDIANA LAW REVIEW [Vol. 33:1405

further draws until the corrections were completed/^ Mullis refused to perform

any further work until he was paid. He ceased work and never completed the
addition.

After Mullis walked off the project, a mechanic's lien was filed against the
Brennans' real estate in the name ofhis corporation.*^ Mullis subsequently filed
a complaint for breach of the construction contract and to foreclose on the
mechanic's lien. The Brennans filed various counterclaims relating to Mullis'
defective work. Following a two-day bench trial, the court entered judgment
against Mullis on his complaint and in favor of the Brennans on their

counterclaims."*^ The court ofappeals affirmed the decision ofthe trial court and
held that Mullis' lien was invalid."*^

Mullis contributes to the body of common law relating to mechanic's liens
as it continues the practice of requiring strict compliance with the requirements

of the mechanic's lien statute for purposes of determining the validity of the

lien,"*^ which stands in sharp contrast to the more forgiving, substantial
compliance standard applied to enforcement of the lien."** Although one could

conclude from the facts of the case that Mullis did not fully understand the

difference between actions taken as an individual and actions taken as a

representative of his corporation,'*^ strict compliance with the statute was
nevertheless required.^° The court observed that the mechanic's lien statute
dictates that the sworn statement of intention to hold the lien "must specifically

set forth: ... (2) the name and address ofthe claimant. . . ."^^ The court further
observed that "[bjecause the mechanic's lien statute is in derogation of the

common law, the provision of the statute 'relating to the creation, existence or
persons entitled to the lien have historically been strictly construed.

'"^^

Accordingly, the appellate court concluded that "the designation of the wrong
claimant must render the lien invalid."^^

43. See id.

44. See id. at 62.

45. See id.

46. See id. at 63.

47. See, e.g.. Abbey Villas Dev. Corp. v. Site Contractors, Inc., 716 N.E.2d 91, 98 (Ind. Ct.

App. 1999), trans, denied, 2000 Ind. LEXIS 355 (Ind. Apr. 19, 2000); Riddle v. Newton Crane

Serv., Inc., 661 N.E.2d 6, 9 (Ind. Ct. App. 1996) (holding that Indiana's mechanic lien provisions

should be narrowly construed) (citation omitted).

48. See, e.g.. Abbey Villas, 716 N.E.2d at 98 ("[Once claimants prove they are within

Indiana's mechanic lien statute,] the remedial provisions of the legislation should be liberally

construed." (citing Beneficial Finance Co. v. Wegmiller Bender Lumber Co., 402 N.E.2d 41, 45

(Ind. Ct. App. 1980))).

49. 5egA/«//«,716N.E.2dat63n.2.

50. See id. at 63.

51. Id (citing Ind. Code § 32-8-3-3(a) ( 1 998)).

52. Id. (quoting Garage Doors oflndianapolis, Inc. V.Morton, 682 N.E.2d 1296, 1302(lnd.

Ct. App. 1997)).

53. Id. The Mullis case also discusses an implied duty of a contractor to perform his work



2000] PROPERTY LAW 1415

In Dinsmore,^^ the court of appeals, in determining the timeliness of a lien

filing, considered the types of property that may be the subject of a valid
mechanic's lien.^^ In this case, a contractor, Lake, provided electrical services

to Northern Indiana Resources (NIR) to place an unused asphalt facility into

operating order so thatNIR could conduct its business ofscreening, bagging, and
drying various products. NIR did not own the real estate from which its business
was going to be operated, but occupied the real estate pursuant to a lease with the

owner, Dinsmore Farms.^^

Lake provided electrical services to NIR from November 8, 1993 through
March 16, 1994, for which Lake received only partial payment. Subsequently,
Lake provided services in April 1995 when it built a control system, repaired a
burner control, and fixed the "outside bagger system."^^ Finally, Lake provided

repair services on the "outside bagger" from May 20 through May 22, 1995, after
which no further work was performed. Lake filed its notice of intention to hold
mechanic's lien on July 21, 1995, and included all work performed from
November 8, 1993, through May 22, 1995.^* The trial court, following a bench
trial, entered ajudgment in favor ofLake on its claim to foreclose the mechanic's
lien.^^

The court ofappeals reversed thejudgment ofthe trial court.^ Although the
appellate court did not expressly refer to "strict construction" ofthe requirements

for the creation of a valid mechanic's lien statute, it did focus its analysis on

whether the "bagger" qualified under section 1 of the statute as property that

could be subjected to a mechanic's lien.^* The appellate court noted that for
Lake's lien to be valid, the bagger must come within the definition of "fixture"
or of "other structures" contained in that section.^^

Based upon the portability ofthe bagger, its ability to be removed from the
real estate without damage to any buildings or land, and NIR's intent to remove
the bagger at the end of the lease term, the appellate court concluded that the

bagger was either an item ofpersonal property or a trade fixture, neither ofwhich
can be the subject ofa mechanic's lien.^^ Having determined that the bagger was

"skillfully, carefully, diligently, and in a workmanlike manner," which duty is implied in "every

contract for work or services," Id. at 64 (citations omitted), and discusses evaluating contractor

liability under Indiana's Home Improvement Contracts Act, according to a "strict standard." Id.

at 64-65 (citing IND. CODE § 24-5-1 1-1 to -14 (1998)).

54. See Dinsmore v. Lake Elec. Co., 719 N.E.2d 1282 (Ind. Ct. App. 1999).

55. See id. at 1286.

56. See id. at 1284-85.

57. Id at 1285.

58. See id.

59. See id

60. See id. at 1289.

61. /flf. at 1286-88.

62. Id at 1 286 (quoting iND. CODE § 32-8-3- 1 ( 1 998)).
63. See id. at 1288. The appellate court also concluded that the bagger did not qualify as

an "other structure." Relying principally on four cases from the 1890's and upon the "words



1416 INDIANA LAW REVIEW [Vol. 33:1405

not property capable of being subjected to a mechanic's lien, the court held that

the lien filed by Lake on July 21, 1995, failed in its entirety because no
qualifying work had performed within the previous sixty days.^

Abbey Villas^^ examined two issues: 1) attempts by contractors to extend or
revive mechanic's lien rights by providing additional work on a project after the
work called for by the original contract had been completed, and 2) the effect of
an overstatement of the amount owed on the validity of a mechanic's lien. In
Abbey Villas, an engineer and an excavating contractor filed complaints to
foreclose on mechanic's liens that each had filed against real estate owned by a
developer of a residential subdivision. The trial court concluded that both liens
were valid, and the developer appealed.^ The court of appeals upheld the
validity of the contractor's lien but disallowed the engineer's lien.^^

The developer and the engineer had entered into a contract pursuant to which
the engineer was to provide specified services for a flat fee of $15,000. The
engineer subsequently provided additional services that it considered to be

outside the original contract and billed the developer separately for them.^

When the developer informed the engineer that he would not be paid for the
additional services, the engineer ceased work on the project in January 1997. In
March 1997, the developer's attorney contacted the engineer to inquire about the
status ofthe project and to obtain additional services from him.^^ In response to

this call, the engineer "dug out the plans" and began an investigation.^^ When it
became clear that the developer still did not intend to pay any fees above the
original contract amount, the engineer ended his review ofthe project and billed

the developer for four hours of work.^^

The engineer filed his mechanic's lien on May 9, 1997, and claimed as due
all fees incurred for additional services performed on the project prior to January

of that year. The trial court determined that the engineer's lien had been timely
filed based on the billing for services rendered in March.^^ On appeal two ofthe
three judges on the panel voted to reverse the judgment in favor ofthe engineer

associated with 'other structures' in I.C. 32-8-3-1," the appellate court concluded that an important

feature of an "other structure" is that it "is attached to or is a part of the land." Id, at 1287-88.

Because the bagger was portable, it failed to meet this requirement. See id.

64. See id. Given its decision that the mechanic's lien was not timely filed, the appellate

court did not address arguments raised by Dinsmore concerning whether work performed on the

bagger was incidental and thus could not revive Lake's lien rights or whether Dinsmore, as owner

of the real estate, consented to woric performed at the request ofNIR as lessee. See id.

65. Abbey Villas Dev. Corp. v. Site Contractors, Inc., 716 N.E.2d 91 (Ind. Ct. App. 1999),

trans, denied, 2000 Ind. LEXIS 355 (Ind. Apr. 19, 2000).

66. See id. at 95, 97.

67. See id 2X99, \Q\.

68. See id. at 94.

69. See id

70. Id

71. See id

72. See id at 95.



2000] PROPERTY LAW 1417

and to remanded the case to the trial court with instructions to enter new findings
and to modify its judgment to reflect the majority's opinion that the engineer's

mechanic's lien was not timely filed.^^
The court of appeals began its analysis of both the engineer's and the

excavating contractor's claims by invoking a 1913 Indiana Supreme Court case
for a statement of the purpose of the mechanic's lien statute.

The mechanics' lien laws of America, in general, reveal the underlying
motive ofjustice and equity in dedicating, primarily, buildings and the

land on which they are erected to the payment ofthe labor and materials
incorporated, and which have given to them an increased value. The
purpose is to promotejustice and honesty, and to prevent the inequity of

an owner enjoying the fruits of the labor and material furnished by
others, without recompensed*

The court also stated that the "core function ofmechanic's lien statutes is to
provide a method for contractors, subcontractors, laborers, and materialmen who
have increased the value ofa property owner's land but who have not been paid
to obtain remuneration."^^ Finally, the court restated the different levels of

scrutiny applied in determining the validity of a lien versus giving effect to the

remedial purposes of a lien that has been determined to be valid.^^ Noting that

mechanic's liens are in derogation of the common law, the court stated that the
statute's provisions "must be strictly construed" and that "[l]ien claimants have

the burden to prove that their claim is within the scope of the statute."^^

However, once a mechanic's lien has been determined to be valid, the "remedial

provisions ofthe legislation should be liberally construed in order to accomplish

the purposes of the statute."^*

With these policies and rules as a foundation, the court analyzed the work the
engineer had performed for the developer. The engineer quit work on the
developer's project in January 1997 because of the fee dispute.^^ The engineer
filed his mechanic's lien on May 9, 1997. Thus the only way his lien could be
valid as having been filed within sixty days ofthe date of last work performed is
if the engineer's work in investigating the project file upon request of the
developer's attorney could be considered to be a part of the parties' original

contract and not merely incidental to it or done pursuant to a new agreement.^^
The court noted that "[a] mechanic's lien may appropriately be based upon work

73. See id. at 99.

74. Id. at 98 (quoting Moore-Mansfield Constr. Co., Inc. v. Indianapolis N.C. & T. Ry . Co.,
lOlN.E. 296,302(Ind. 1913)).

75. Id. (citations omitted).

76. See id.

11. Id. (citations omitted).

78. Id. (citing Haimbaugh Landscaping, Inc. v. Jegen, 653 N.E.2d 95, 99 (Ind. Ct. App.

1995)).

79. See id.

80. See id.



1418 INDIANA LAW REVIEW [Vol. 33:1405

which was actually called for under the contract or continuing employment
relationship performed with the intention of completing the job,"^^ but "[t]he

right to such a lien cannot be revived through the performance of some act
incidental to the work which is not done with the intention of completing the
job."*^ The court concluded that the engineer had previously fulfilled his
obligations under the original contract and that the file examination done in
March was not performed in connection with completing the original contract
and was merely incidental to it.^^ Accordingly, the court found, as a matter of
law, that the engineer's mechanic's lien had been filed outside the statutory sixty-

day period.*^

The contractor's mechanic's lien claim raised different issues, specifically:

1) whether the contractor's failure to perform as agreed precluded him from
asserting a lien,*^ and 2) whether an overstatement of the amount owed
invalidated that lien.*^ The contract between the developer and the contractor
required the contractor to complete work on the project by specified dates. The
contractor failed to meet these deadlines, and the developer paid the contractor
only $70,000 out ofthe $200,000 worth of invoices that had been submitted for

payment. The developer subsequently ordered the contractor off the job, by
which time the contractor had completed seventy percent of its work.*^ The
contractor filed a mechanic's lien against the developer's real estate in the

amount of $ 1 66,5 1 0.09. It was later discovered that this lien was overstated by
more than $38,000.*^

The first issue the trial court had to consider with regard to the contractor's
claim was whether the contractor's failure to complete work in a timely manner
constituted a breach ofthe construction contract that would bar recovery on his
lien.*^ The trial court found that the developer was the first party to breach the
contract by failing to pay the contractor's invoices, and therefore the developer

was liable for the reasonable value of the services rendered by the contractor.^
The court then examined the effect ofthe contractor's overstatement ofthe

amount owed on the validity of the lien.^' The developer argued that the
overstatement rendered the lien void. His argument was based on a construction
of the mechanic's lien statute which maintains that a failure to complete the

notice of intention accurately is fatal to the lien right, a construction that was

81. Id. (citing Miller Monuments, Inc. v. Asbestos Insulating & Roofing Co., 185 N.E.2d
533, 535 (Ind. App. 1962)).

82. Id. (citing Gooch v. Hiatt, 337 N.E.2d 585, 588 (Ind. App. 1975)).

83. See id. at 99.

84. See id.

85. See id. at 101-02.

86. 5ee/</. at 100-01.

87. See id at 102.

88. See id.

89. See id at 97.

90. See id.

91. Seeid.dX\0\.



2000] PROPERTY LAW 1419

applied to the element ofthe identity of the lien holder in Mullis.^^ Instead, the

court used a more lenient standard that permitted an inquiry into the cause ofthe
overstatement.^^ The court held that an overstatement of the amount of a
mechanic's lien that is done intentionally or through culpable negligence will

invalidate the whole lien but an overstatement that results from mistake will not

render the lien void in the absence of fraud or prejudice to the land owner.^'*

Because the facts indicated that the contractor's overstatement was the result of
inadvertent clerical error and had been reported to the developer, the court held

that such overstatement did not affect the validity of the lien.^^

Mullis, Abbey Villas, and Dinsmore demonstrate some of the many
mechanic's lien issues that are not affected by the 1999 amendments to the
mechanic's lien statute. Opinions deciding such issues continue to be viable.

II. Real Estate Agency Relationships Statute

In another significant act, the Indiana Legislature amended that part ofTitle
25 governing real estate agency relationships.^ In so doing the legislature altered

at least thirty years of custom and practice in the real estate sales industry^^ by
redefining the relationships among parties to a sale or lease of real estate by
eliminating subagency. In so doing, the legislature also dramatically altered the

duties owed by real estate licensees to sellers and buyers^* by actually reversing
the duties owed in many instances. Unfortunately, the restructured agency
relationships only partially render a licensee's duties more certain. Plentiful
opportunities for claims against licensees remain under the amended statute, and
in some instances new opportunities may be created by overbroad or imprecisely
defined terms added by the amendments themselves.

A. Pre-Amendment Practice

Prior to the 1999 amendments, a seller of real estate typically retained

a real estate licensee to act as his agent to find a suitable buyer. The licensee and
the seller would memorialize their relationship in a listing agreement, which
would include a definition of the circumstances under which the licensee's

commission would be earned.^ This licensee, referred to as the "listing agent,"

92. See Mullis v. Brennan, 716 N.E.2d 58, 63 (Ind. Ct. App. 1999).

93. See Abbey Villas, 716 N.E.2d at 101

.

94. See id.

95. See id.

96. See iND. CODE § 25-34.1-10-0.5 to -34.1-10-17 (1998).

97. The concept ofthe unilateral offer ofsubagency has been traced to the early 1 970s. See

Sandra Nelson, Note, The Illinois Real Estate "DesignatedAgencyAmendment": A Minefieldfor

Brokers, 27 J. MARSHALL L. REV. 953, 961-62 (1994).
98. The amended sections dealing with real estate licensees include lessors and lessees as

well as sellers and buyers. For convenience only the terms seller and buyer will be used, but they

should be understood to include lessors and lessees as well.

99. See Ind. Code § 32-2-2-1 (1998). This statute operates as a statute of frauds for real



1420 INDIANA LAW REVIEW [Vol. 33:1405

would then place information about the real estate with a multiple listing service,
thereby bringing the real estate to the attention of all other member licensees in
the hope that one of them might locate a buyer.

At the other end of a typical transaction, a potential buyer would contact a
licensee and state that he was interested in locating and purchasing a parcel of
real estate. If this licensee was not the listing agent for any real estate meeting
the buyer's needs, he would consult the multiple listing service for properties
listed by other licensees. If a suitable parcel was located and purchased, the
licensee would participate in the closing as the "selling agent."

Such a procedure, although efficient in bringing about sales of real estate,
raised important legal questions concerning the licensees' rights and obligations

to each other and to the seller and buyer. One such problem related to the
payment of commissions to the selling agent. Listing agreements between the
seller and the listing agent provided for the payment of a commission, usually
stated as a percentage of the selling price, upon the occurrence of certain stated
events. Thus, the listing agent's right to collect the commission was protected
by contract. The selling agent, however, enjoyed no such privity ofcontract with
the seller and had no direct basis to enforce payment of a commission. It was
also extremely unlikely that the selling agent had any contractual agreement with

the buyer to pay a commission akin to a "finder's fee" as buyers considered the
commission to be the seller's obligation and likely to be already factored into the

purchase price. However, in the absence of the potential for earning a

commission, there was no incentive for a licensee to find buyers for any
properties other than the ones on which he was the listing agent.

This conundrum was solved by the concept ofsubagency. As a condition of
placing a property with a multiple listing service, where its chances of sale are
greatly increased, every licensee agreed to make every other licensee his
subagent. This mandatory offer of subagency was unilateral and was presumed
to be accepted by the second licensee upon showing the real estate to a potential

buyer. Through this procedure, the seller's contractual obligation to pay a
commission to the listing agent passed through to the selling agent.

Subagency also carried with it, however, serious issues concerning the

fiduciary duties owed by the licensees to the parties under the common law of
agency, and there was widespread misunderstanding of those duties by buyers.

When a potential buyer approached a licensee, that buyer sought assistance in
buying a parcel of real estate. The buyer relied on the licensee to search the
multiple listing service for appropriate properties, to accompany him to inspect

available properties, and if an appropriate property was located to assist him in
completing offers to purchase and counteroffers. A close working relationship
often developed, and most buyers viewed the licensee as his agent, as acting with

his best interests at heart, and as owing duties to him.'^ Unfortunately, the

estate sales commissions by providing that no agreement for the payment ofmoney for the finding

of a purchaser of real estate is valid unless that agreement is set forth in a writing. See id.

100. According to a Federal Trade Commission survey conducted in 1983, 72% of all

residential real estate buyers thought that they were represented by the selling agent. Even when



2000] PROPERTY LAW 1 42

1

buyers' view was wrong. According to the principle of subagency, the selling
agent was a subagent of the listing agent and both owed fiduciary duties to the
seller. The buyer was represented by no one.

The common law ofagency imposes a number ofduties on an agent in favor
of his principal. *°' Perhaps chief among these is the duty of loyalty, which
encompasses both a duty to avoid conflicts of interest and a duty to maintain

confidentiality for any information acquired from the principal during the term

of the agency. Under the principle of subagency both the listing agent and the

selling agent owed these duties to the seller. Neither of them owed any of the
common law duties to the buyer. Thus, for example, under subagency it would
be improper for the selling agent to negotiate for terms of sale advantageous to

the buyer at the expense ofthe seller, even though the buyer may be "relying" on
the selling agent's expertise. Similarly, although it would be improper for a
selling agent to divulge to the buyer information obtained from the seller, there

would be no agency law violation if the selling agent told the listing agent
information obtained from the buyer.

This situation called out for a remedy for at least two reasons. First,

consumer groups objected to the lack of representation for buyers and to the

misunderstanding under which most buyers approached real estate transactions.

Second, licensees desired a clarification oftheir relationships and duties, with the

goal that such clarification would result in a limitation ofpotential legal liability

that could arise from misunderstood agency relationships. It is these twin goals

that the 1999 amendments attempt to achieve.

B. The 1999 Amendments to the Real Estate Agency Relationships Statute

Perhaps the feature of Senate Enrolled Act No. 358'^^ (which became
effective on July 1 , 1 999) that one first notices is the number ofamended or new

only one licensee was involved in the transaction, 3 1% ofbuyers thought that licensee represented

them and not the seller. Additionally, 82% of sellers thought the selling agent represented the

buyer. See Roy T. Black, Proposed Alternatives to Traditional Real Property Agency:

Restructuring the Brokerage Relationship, 22 REAL ESTATE L.J. 201, 201-02 (1994) (citation

omitted).

101. These duties include: the duty to obey instructions, the duty to act with care and skill,

the duty to notify the principal ofmaterial information relevant to the principal's goal, and the duty

to account for anything of value received by the agent on the principal's behalf during the term of

the agency. See, e.g.. Prudential Ins. Co. ofAm. v. Crouch, 606 F. Supp. 464, 471 (S.D. Ind. 1985)

("[EJvery agent owes a fiduciary duty to his principal to act with good faith and loyalty in

furtherance of th^ principles interests."), afTd, 796 F.2d 477 (7th Cir. 1986) (mem.); Potts v.

Review Bd. ofInd. Employment Sec. Div., 475 N.E.2d 708, 7 1 1 (Ind. Ct. App. 1 985) ("[A]n agent

is subject to a duty to act solely for the benefit ofthe principal. An agent may not place himself in
a position wherein his own interests are potentially antagonistic to those of his principal.")

(citations omitted).

102. Act ofMay 3, 1999, Pub. L. 130-1999, 1999 Ind. Act 696 (codified as amended at Ind.
Code § 25-34.1-10-1 (Supp. 1999)).



1422 INDIANA LAW REVIEW [Vol. 33:1405

sections ofthe Act devoted to defining terms. New definitions are provided for
"agency relationship," ^°^ "broker,"'^ "client,"'^^ "customer,"'^ "in-house agency

relationship,"^"' "licensee,"'"' "limited agent,"'"" "managing broker,"''"
"principal broker,"'" and "subagent.""^ Such extensive redefinition v^as

required because the amendments alter the familiar landscape of real estate
agency law by eliminating the former organizing principle of subagency and by
substituting newly defined relationships and duties between licensees and sellers
and buyers.

This feat is accomplished by amendments to sections 17 and 9.5 ofthe Act.
Section 17 states that "[a] licensee may not make an offer of subagency through
a multiple listing service or other information source, or agree to appoint,

cooperate with, compensate, or otherwise associate with a subagent in a real

estate transaction.""^ In place of subagency, section 9.5 provides that "[a]

licensee has an agency relationship with, and is representing, the individual with

whom the licensee is working . . . .""'* Thus, agency relationships are now
defined by working relationship, and the statutory goal ofhaving the law of real

estate agency relationship match the legitimate expectations of the parties,
especially buyers, should be accomplished.

At the same time the amendments preserve the ability of the licensee
assisting the buyer to receive compensation in the absence of subagency by

providing that "[t]he elimination of subagency by this section is not intended to

limit the rights of a licensee to cooperate with, compensate, or otherwise

associate with another licensee who is not acting on behalf of a client.""^ As
part of the listing agreement, the licensee working with the seller will obtain

permission to compensate the buyer's licensee. That licensee can thus be paid

without the creation of any ofthe duties that accompanied subagency.

Evaluating the success ofthe 1999 amendments in achieving the second goal

103. IND. Code § 25-34.1-10-0.5 (Supp. 1999).

104. /^. §25-34.1-10-1.

105. M §25-34.1-10-5.
106. /^. §25-34.1-10-6.

107. M§ 25-34.1-10-6.5.
108. Id. §25-34.1-10.6.8. "A 'licensee' means an individual orentity issued a salesperson's

or broker's real estate license by the Indiana real estate commission." Id.

109. /^. §25-34.1-10-7.

110. Id §25-34.1-10-7.5.

111. Id §25-34.1-10-7.8.

112. Id §25-34.1-10-9.

113. Id. §25-34.1-10-17. The only instance in which "subagency" remains possible is where

one broker is engaged to act for another broker in performing brokerage services for a single client.

See id. § 25-34.1-10-9. Under these limited circumstances, there is no concern about a buyer

misconstruing the loyalties of the subagent.

1 1 4. Id. § 25-34. 1 - 1 0-9.5. This presumption can be altered by agreement and does not apply

where the licensee "is merely assisting the individual as a customer." Id.

115. Id §25-34.1-10-17.



2000] PROPERTY LAW 1423

of redefining agency duties with the goal of limiting opportunities for licensee

liability is more problematic. The effectiveness ofthe restructured relationships

in eliminating the agency duty problems that formerly accompanied subagency

is best examined in the context ofthree common transactional patterns: 1 ) sales
involving licensees affiliated with different brokerage houses; 2) sales involving

two licensees affiliated with a single brokerage house; and 3) sales involving

only one licensee within a single brokerage house.

1. Duties Owedby a Licensee in Multiple Brokerage House Transactions.—
Having based the roles of principal and agent on the basis of working

relationship, the amendments then define the nature and scope ofthe duties owed
by a licensee to a client. These duties can be characterized as acts that a licensee

must do, acts that he must not do, and acts that he is permitted to do.

The duties and obligations that must be observed by a licensee who
represents a seller are set forth in section 10(a), which duties are: "(U To fulfill
the terms of the agency relationship made with the seller or landlord; (2) To
disclose the nature ofthe agency relationship with the seller . . . and redefine and

redisclose if the relationship changes; [and] (3) To promote the interests of the
seller. . . .""^ It is in the last category where the specific duties are identified.

"Promoting the interests of the seller" includes : 1) seeking a price and sales

contract terms satisfactory to the seller;"^ 2) presenting all offers to purchase to

the seller immediately upon receipt;**^ 3) disclosing to the seller "adverse
material facts or risks actually known by the licensee concerning the real estate
transaction"; * ^^ 4) advising the seller "to obtain expert advice concerning material

matters that are beyond the licensee's expertise"; '^° 5) timely accounting for all

money and property received from the seller;*^* 6) exercising reasonable care and
skill;

^^^ and 7) complying with "the requirements of this chapter and all

applicable federal, state, and local laws, rules, and regulations, including fair

housing and civil rights statutes, rules, and regulations."*^^

The actions a licensee must not take are identified in section 10(b). A
licensee representing a seller is prohibited from disclosing to a potential buyer:

1) that the seller will accept less than the asking price or make other contract
concessions;*^"* 2) the seller's motivation to sell the real estate; '^^ and 3) any

"material or confidential" information about the seller.
*^^

116. Id. § 25-34. l-10.10(a).

117. Id § 25-34.1-10-10(a)(3)(A).

1 18. See id § 25-34. 1-1 0-1 0(a)(3)(B).

119. M§25-34.1-10-10(a)(3)(C).

120. Id § 25-34.1-10-10(a)(3)(D).

121. See id § 25-34. 1-1 0-1 0(a)(3)(E).

122. See id § 25-34. 1-10- 10(a)(3)(F).

123. M§25-34.1-10-10(a)(3)(G).

124. See id § 25-34. 1-10- 10(b)(1).

125. See id § 25-34. 1-1 0-1 0(B)(2).

126. Id. § 25-34. l-10-10(bX3). Material or confidential information can be revealed by a

licensee if disclosure is required by law or where failure to disclose would constitute fraud or



1424 INDIANA LAW REVIEW [Vol. 33: 1405

Section 10(c) fiirther defines the duties ofa licensee representing a seller by
stating that he owes "no duties or obligations" to a prospective buyer except to
treat the buyer honestly and not to knowingly give false information, ^^^ and to
disclose to a prospective buyer "adverse material facts or risks actually know by
the licensee concerning the physical condition ofthe property and facts required

by statue or regulation to be disclosed and that could not be discovered by a

reasonable and timely inspection ofthe property by the buyer "^^^ This latter
duty is limited by the undiscoverability requirement and by subsequent language

that exempts the seller's licensee from any duty to conduct an inspection for the

buyer or to verify the accuracy of any written or oral statements made by the
seller. '^^ The amendments also provide that "[a] cause of action does not arise
against a licensee for disclosing information in compliance with this section."

'^°

Finally, the acts that the seller's licensee is permitted to do are identified in
section 1 0(e). A seller's licensee may "show alternative properties not owned by
the seller ... to a prospective buyer . . . and may list competing properties for
sale . . . without breaching any duty or obligations to the seller "^^' He may
also provide to a buyer "services in the ordinary course of a real estate

transaction and any similar services that do not violate the terms of the agency

relationship
"^^^

Substantially identical provisions concerning the acts that a licensee working

with a buyer is required to take, is prohibited from taking and is permitted to take

are contained in section 11.^^^ The only differences between the duties identified
in the two sections are those necessary to track the differences between activities

ofa seller and a buyer. For example, section 10(d) speaks to a licensee's duty to

verify statements made by the seller,'^"* while section 1 1(d) speaks to a licensee's
duty to make disclosures about the buyer's financial ability to perform the terms
of an offer.

*^^

Ifthe goal ofthe amendments was to identify a licensee's duties to his client
and thereby limit the licensee's exposure to claims arising from

misunderstandings about relationships, specifying the substantive nature ofthose

duties is only part ofthe chore. The scope ofthose duties must also be identified

by specifying the events that trigger the creation ofa licensee's agency duties and

their termination. The amendments achieve this goal in section 14 of the
amended statute.

The 1999 amendments contain no formal requirements, including the

dishonest dealing. See id. § 10(b)(3).

127. Id. §25-34.1-10-10(c).

128. Id §25-34.1-10-10(d).

129. See id

130. Id

131. Id §25-34.1-10-10(e)(l).

132. /c/. §25-34.1-10-10(6)2).

133. See id §25-34.1-10-11.

134. See id § 25-34. 1-1 0-1 0(d).

135. See id § 25-34.1-10-1 1(d).



2000] PROPERTY LAW 1425

necessity of a writing,"^ for the creation of an agency relationship. Instead,

section 14 provides that "[t]he duties and obligations set forth in this chapter

begin at the time the licensee enters into an agency relationship with a party to

a real estate transaction . . . ."'" An agency relationship is created when a
licensee works with a client,'^* and it is with the beginning of the working

relationship that the licensee's agency duties begin.

Section 14 provides that the licensee's agency duties continue "until the

agency terminates." '^^ Ifthe agency goal is not fulfilled, "the agency relationship

ends at the earlier of: (1) a date of expiration agreed upon by the parties; or (2)
a termination ofthe relationship by the parties.'"*^ Unless otherwise agreed, "a

licensee representing a seller, landlord, buyer, or tenant owes no further duties
or obligations after termination, expiration, or completion of the agency

relationship
"'"*'

Despite this sweeping denial ofthe existence ofcontinuing

duties following termination ofthe agency relationship, the Act follows common
law rules in providing that certain duties do survive termination of the agency

relationship. These are the duties to "account[ ] for all money and property
received during the agency relationship"'"*^ and to "keep[ ] confidential all

information received during the course ofthe agency relationship that was made
confidential by request or instructions from the client,"''*^ except where such

disclosure is required by law, is made with the consent of the client or became
public from a source other than the licensee.

''*'*

2. Licensee Duties in In-House Agency Relationships.—Sales of real estate
involving licensees from separate brokerage houses are common, but also
significant are sales involving two licensees both employed by the same
brokerage house. Under the former subagency rules, once a licensee executed

a listing agreement with a seller, that licensee, the company for which he worked

1 36. But see Indiana Code section 32-2-2- 1 ( 1 998) concerning the requirement of a writing

as a prerequisite for enforcing an agreement to pay a commission for locating a buyer of real estate.

As a practical matter, this writing requirement will in almost all cases result in the memorialization

of the start of the agency between a seller the licensee working with him.

137. Id. §25-34.1-10-14(a).

138. 5egi^. §25-34.1-10-9.5.

139. /c/.§ 25-34.1-10-14 (a).

140. Id. § 25-34.1-10- 14(b). This sub-section implies, but does not state, that an agency

relationship is also terminated by the accomplishment of the goal of the agency relationship. By

the use of the words "by the parties" in subsection (b)(2), instead of by "either of the parties," the

Act appears not to acknowledge the rule that either party to an agency relationship has the

power—^but maybe not the legal right—to terminate the agency at any time. Pursuant to the terms
ofthe listing agreement containing an exclusive right to sell clause, a seller may be able to terminate

the agreement but still will be obligated to pay a commission if the property is subsequently sold

to a buyer who became aware of it through the services ofany realtor during the term ofthe agency.

141. /c/.§ 25-34. l-10-14(c).

142. Id §25-34.1-10-14(c)(l).

143. /(/. §25-34.1-10-14(c)(2).

144. See id § 25-34. l-10-14(c)(2)(A)-(C).



1426 INDIANA LAW REVIEW [Vol. 33: 1405

and all other licensees working for that company became agents of the seller.
Such a result created no special difficulties for the firm or its licensees since
agency duties owed by all licensees ran exclusively to the seller, but such
automatic and all-inclusive imputation ofagency cannot work under a statute that
imposes duties based on working relationships with sellers and buyers. In
markets dominated by a few brokerage houses with dozens or scores oflicensees,
it is unavoidable that a licensee will end up working with a buyer who is
interested in purchasing real estate owned by a seller who is working with a
licensee in the same firm.

The Act addresses this problem by defining such a situation as an "in-house
agency relationship"''*^ and by providing that:

An individual licensee affiliated with a principal broker represents only
the client with which the licensee is working in an in-house agency
relationship. A client represented by an individual licensee affiliated
with a principal broker is represented only by that licensee to the

exclusion of all other licensees. A principal or managing broker does
not represent any party in such transactions unless the principal or

managing broker has an agency relationship to personally represent a
client.

'^^

This rule restricting licensee representation to a specific client is necessary

because, unlike sales involving multiple brokerage houses, sales involving in-

house agency relationships must preclude the imputation of an agency

relationship and agency duties from one licensee to the company any thence to
other licensees in it. This goal is achieved among licensees by declaring that
agency relationships exist between a licensee and a client "to the exclusion" of

all other licensees in the firm. It is achieved for the principal or managing broker
ofthe firm by conferring a type ofneutrality under which that broker represents

no one other than his specific client. Firewalls are thus established between
licensees, and agency duties stop at those walls.

The firewalls established by the amendments also serve to preclude the
imputation of knowledge among the brokers and licensees. Section 12.5(e)
provides that "[i]n all in-house agency relationships, a principal broker,

managing broker, and an individual licensee possess only actual knowledge and

information."'"*^ Without this provision, in-house agency relationships would
raise insurmountable issues relating to the competing duties to maintain

confidentiality and duties to disclose information imputed to a licensee.

To insure that the theoretical separation oflicensees is maintained in practice
and that one licensee does not defeat the statutory scheme by imparting actual

145. An "in-house agency relationship" is defined as "an agency relationship involving two

(2) or more clients who are represented by different licensees within the same real estate firm." Id.

§25-34.1-10-6.5.

146. Id. § 25-34. l-10-12.5(a). The terms "principal broker" and "managing broker" are

defined at sections 25-34. 1-10-7.8 and -7.5, respectively. f
147. M§25-34.1-10-12(e).



2000] PROPERTY LAW 1427

knowledge to another licensee within the firm, section 12.5(d) provides that "[a]
principal broker, managing broker, and any affiliated licensee shall take
reasonable and necessary care to protect any material or confidential information

disclosed by a client to the client's in-house agent."'"*^ The amendments further
provide that "[a] licensee representing a client in an in-house agency relationship

owes the client duties and obligations set forth in this chapter and shall not
disclose material or confidential information obtained from the client to other

licensees
"''*^

In recognition ofthe neutrality bestowed on brokers, a licensee

is permitted to disclose material or confidential information obtained from a
client "for the purpose of seeking advice or assistance for the client's benefit.

"^^°

Maintaining the integrity of the firewalls can prove to be difficult as there are

numerous ways in which information can pass across it.
With the elimination ofimputed agency and ofimputed knowledge and with

the construction of firewalls within a brokerage firm to maintain the separation,

the determination oflicensee duties based upon working relationship is preserved

even in in-house agency relationships. Still more is required when there is only
one licensee involved in the transaction, and he is working with both the buyer

and the seller.

3. Agency Duties in LimitedAgency Transactions.—^Presumptions against
imputation of agency relationships and knowledge and the construction of

firewalls may be effective in in-house agency relationships where two licensees
are involved, but they are inapplicable in a transaction involving only one

licensee working with and for both the seller and buyer. A licensee involved in
such a transaction is defined as a limited agent. A limited agent is a licensee
"who, with the written and informed consent of all parties to a real estate

transaction, is engaged by both the seller and the buyer."^^'

The written and informed consent requirement is presumed to be met if, at

the time of entering into an agency relationship with the licensee, each party

signs a document that contains the information prescribed by section 12(a).*^^

With regard to agency duties owed by the licensee to the seller and buyer in a
limited agency transaction, the most important disclosure is the one that informs

the parties that "in serving as a limited agent, the licensee represents parties

whose interests are different or even adverse."'*^
The prohibitions placed against disclosure of information by a licensee in a

limited agency relationship are severe and include essentially all of the

prohibitions of sections 10 and 1 1 plus add the additional prohibition that the

licensee shall not disclose any other term "that would create a contractual

148. Id §^25-34.1-10-12.5(d).

149. /flf. §25-34.1-10-12.5(0).

150. Id

151. Id § 24-4.6-2.1-1.5 (Supp. 1999). This definition is also used in sections 25-34.1-10-

12(a) and -12.5(b). See id § 25-34.1-10-12.

152. See id § 25-34. 1-10- 12(a)(l)-(6).

153. Id § 25-34. l-10-12(a)(2).



1428 INDIANA LAW REVIEW [Vol. 33:1405

advantage for one ( 1 ) party over another party
."^^'^ The safe harbors available for

a licensee in a limited agency relationship are narrow. Unless he has obtained
the informed and written consent of his client, a licensee is only permitted to
"disclose and provide to both the seller and buyerproperty information, including

listed and sold properties available through a multiple listing service or other
information source."*^^ In the absence of this safe harbor, providing such
information could be seen as giving an advantage to a buyer, for example, by
providing him with sales information including the sale prices for comparable
properties, which the buyer could then use to negotiate a purchase price lower
than that sought by the seller. Finally, section 12(c) insulates the licensee from
causes of action for "disclosing or failing to disclose information in compliance

with this section "^^^ Given the limited actions a licensee in a limited agency
relationship can take for either seller or buyer, the usefulness of such

representation to the parties is highly questionable. Nevertheless, the

amendments affecting such representation address concerns about buyer
misunderstanding of agency relationships by requiring informed and written
consent and address licensee concerns about liability by clearly defming the

licensee's relationships and duties.

C. Broker and Licensee Liability Issues Remaining
After the 1999 Amendments

No matter how well designed the agency relationship statute may be, liability
can obviously result if the broker fails to implement the new procedures and
firewalls or if a licensee fails to conduct himself in the required manner.

Memoranda left in open view and overheard telephone conversations are but two
examples of ways in which the firewalls can be breached. Even assuming an
embrace of the statutory requirements by a licensee, undefined, inadequately

defined, and overinclusive terms in the amendments themselves may provide a
basis for litigation concerning a licensee's actions. At least eight terms or
clauses appear suitable for use by creative litigants.

One issue created by the definitions supplied in the statute centers on the
difference between a "client" and a "customer." A client is defined as a person
who has entered into an agency relationship with a licensee. '^^ The definition of
an agency relationship, however, is wonderfully circular as that term means a
relationship in which a licensee represents a client.*^' The circularity continues
as a customer is defined as a person who is provided services in the ordinary
course of business by a licensee but who is not a client. *^^

To make matters even more difficult, the amendments provide no definition

154. Id. § 25-34. l-10-12(a)(3XE).

155. /£/.§ 25-34. l-10-12(b).

156. /^. §25-34.1-10-12(c).

157. 5geiV/. §25-34.1-10-5.

158. See id. §25-34.1-10-9.5.

159. S'ee/c/. §25-34.1-10-6.



2000] PROPERTY LAW 1429

at all for "services in the ordinary course ofbusiness." A list of illustrative acts,
including "preparing offers to purchase or lease and communicating the offers
to the seller or landlord, arranging for lenders, attorneys, inspectors, insurance

agents, [and] surveyors"^^ was deleted by the 1 999 amendments. How are courts
to construe this deletion? Does it indicate that these are not the types ofactivities
the legislature intended to be within the scope of the term "ordinary course of

business"? Ifthose are not the intended acts, what did the legislature intend them
to be?

Differentiating between a client and a customer is important because the

licensee's duties are determined by the relationship. A licensee owes the
statutory duties to a client but not to a customer. With such an important issue
at stake, the legislature should have provided better guidance.

A second and related issue tied to the definition of client is "with whom the
licensee is working."**^ How is a licensee, or a court, to know when the
"working" relationship, and the agency duties, begin? The statute merely
provides that, in the absence of a written agreement to the contrary or mere
assistance to a "customer," an agency relationship arises automatically when
there is a "working" relationship. A written document is required by the Indiana
Code for a promise to pay a real estate commission to be enforceable;*^^
therefore, the working relationship between the seller and a licensee can be

traced to the execution of the listing agreement. There is, however, no similar
requirement for licensees whowork with buyers, and no document memorializing
the representation is currently in wide-spread practice. Even if use of a buyer
representation form becomes widespread, some buyers may be reluctant to sign
it upon first meeting a licensee. How then will a licensee know when a
qualifying working relationship has begun and corresponding duties have arisen?

Section 14(a) provides no assistance as it states only that "[t]he duties and

obligations set forth in this chapter begin at the time the licensee enters into an

agency relationship,"'^^ but provides no definition for "entering."'^ The answer
forthcoming from licensees representing buyers is likely to be that there is no

precise way to determine the time when contacts with a prospective buyer
blossom into a "working relationship" and that the best they can do is operate on

faith. Anecdotal stories can already be heard describing instances in which a
licensee considered a working relationship to exist but the buyer actually closed

on the sale of a property with another licensee, perhaps a friend, who had not
previously been involved in showing that property. If one of the goals of the

1999 amendments was to define clearly the agency relationships, more clarity is
needed in defining their commencement.

Third, the statute requires a licensee representing a seller to disclose to the

160. Id. § 34.1-10-10(e)(z) (1998), amended by § 25-34. 1-1 0-1 0(e) (Supp. 1999).

161. Id 25-34.1-10-9.5 (Supp. 1999).

162. 5ee/i/. §32-2-2-1(1998).

163. Id § 25-34-l-10-14(a) (Supp. 1999).

164. Section 14 does a better job defining the events that will serve to tenninate an agency

relationship. See id. § 25-34. 1-1 0-1 4(b); text of supra note 140.



1430 INDIANA LAW REVIEW [Vol. 33: 1405

seller "adverse material facts or risks" actually known to the licensee concerning
the "real estate transaction."'^^ Differences of opinion can develop between a
seller and a licensee with regard to adversity and materiality, neither ofwhich are
further defined. Additionally, what is the difference between a fact and a risk
requiring disclosure? This question is made more difficult for licensees as the
facts or risks that must be disclosed relate to the "real estate transaction" as
opposed to the condition of the real estate itself.

Fourth, the statute requires the seller's licensee to advise the seller to obtain

expert advice concerning matters that are "beyond the licensee's expertise."^^

Many matters relating to construction methods and building code compliance, for
example, may be beyond the expertise of a licensee. Other matters may even be
outside his knowledge and thus will go unrecognized. How is a licensee to know
that he should recommend that a seller obtain expert advice about matters beyond
the licensee's ken? A prophylactic warning by the licensee, "There may be
matters relating to this property and to this transaction that are beyond my
expertise, so retain an expert" is unhelpful and absurd. The absence of any
reasonableness qualifier on the extent ofthe licensee's expertise, however, makes
it difficult for a licensee to know when to give the required advice.

Fifth is the requirement that all licensees, whether representing sellers or

buyers, must "comply[] with the requirements ofthis chapter and all applicable
federal, state, and local laws, rules, and regulations, includingfair housing and
civil rights statutes, rules, and regulations. ^"^^^ Such a blanket importation ofan
unknown number of laws, rules, and regulations from federal, state, and local
authorities requires licensees to possess an impossible amount of legal
knowledge. Additionally, ifa licensee takes an actions that violates an applicable

law, did the legislature intend to make that same act also a violation ofTitle 25?
Sixth, the rules governing maintenance ofconfidentiality in sections 10 and

1 1 refer to "material" or "confidential" information.'^^ Does this mean that a
disclosure of material information will provide a cause of action against the

licensee even if that information was not confidential? The statute gives no
guidance in evaluating "materiality." The amendments provide that material or
confidential information can be disclosed by a licensee if failure to disclose

would result in "dishonest dealing."'^^ How is a court to determine the scope of
this term?'^° Undefined terms will require determination on a case-by-case basis,

which hardly provides the certainty licensees sought in defining the scope oftheir

liability.

Seventh, in a limited agency transaction, the licensee is prohibited from

165. Id. § 25-34.1-10-10(a)(3)(C).

166. Id. §§ 25-34.1-10-10(aX3)(D), -11(a)(3)(G).

167. Id § 25-34. l-10-10(a)(3)(G) (emphasis added).

168. Id §§ 25-34.1-10-lO(b)(3), -10-1 1(b)(3).

169. Id §§ 25-34.1-10-10(b)(3), -10-ll(b)(3).

170. "Honesty" is also required in dealings between the seller's licensee and the buyer in

section 10(b)(3) and between the buyer's licensee and the seller in section 11(c). Id. §§25-34.1-10-

10(b)(3), -lO-1 1(c).



2000] PROPERTY LAW 1 43

1

disclosing any term that would "create a contractual advantage" for one party

over the other. '^' It can be argued with some force that practically any
information provided to one party can confer some advantage on the other party.
Lack of guidance on this issue should make licensees in such transactions even
more cautious about disclosing any information to either buyer or seller than they
must already be by virtue of their representation of parties whose interests are
already "different or even adverse."

Eighth, the amendments seek to contain the theories on which clients might
assert claims against licensees by providing that the statute's provisions displace
common law agency principles. '^^ Specifically, the statute states that "[t]he
duties and obligations of a licensee set forth in this chapter supersede any

fiduciary duties of a licensee to a party based on common law principles of
agency to the extent that those common law fiduciary duties are inconsistent with
the duties and obligations set forth in this chapter."'^^ The statute leaves open
room for a court to impose liability on common law principles ofagency that are
not inconsistent with the statute but instead support, supplement, or explain it.

Exactly which common law principles might remain applicable will not be
known until the courts tell us which are consistent and which are not. Also, the
statute attempts to exclude only theories based on common law agency
principles.

^^"^ There is no attempt to exclude common law tort principles. Even
in the days of subagency, licensees representing sellers had been held liable to

buyers under negligence principles. ^^^ Sections 10(a)(3)(G) and 11(a)(3)(F)

specifically provide for licensee liability for failing to "exercise reasonable care

and skill," which is a tort-based standard.
^^^

D. Conclusions About Real Estate Agency Relationships Statute Amendments

The 1999 amendments are an improvement over the interim agency

disclosure requirements enacted in 1994. Disclosure of available agency

relationships did little to cure buyer confusion about the absence ofagency duties

owed to him and equally little to clarify the nature and scope of duties expected
of licensees. The 1999 amendments provide for buyer representation based on
working relationship and abolish the principle of subagency. The amendments
are less successful at clearly defining a licensee's duties. Although they are an

improvement over pre-amendment rules, the statute leaves a number of issues
open for future litigation. Resolution ofsuch open issues will have to come from

§ judicial decisions arising from individual cases or from further legislative
refinement of the statute.

171. Id. § 25-34.M0-12(a)(3)(E).

172. 5eerV/. §25-34.1-10-15.

173. Id.

174. See id

175. See Tri-Professional Realty, Inc. v. Hillenberg, 669 N.E,2d 1064 (Ind. Ct. App. 1996).

176. iND. CODE §§ 25-34.1-10-10(a)(3)(G), -10-1 1(a)(3)(F).



1432 INDIANA LAW REVIEW [Vol. 33: 1405

III. Environmental Law Intersects with Property Law:
The Shell Oil Co, v. Meyer Decision and Subsequent

Legislative Response

Environmental laws have an undeniable impact on real estate. Laws that
impose financial responsibility for hazardous waste clean-up costs on a joint,
several and strict liability basis, for example, can render a parcel of property

undesirable for a buyer, unsellable for a seller, and worthless as collateral for a

lender. Finding an appropriate balance of the interest of protecting the
environment and the health of individuals with the interest of promoting the

productive use of land and the economy has been an on-going task for
legislatures and courts over the past several decades. ^^^ The Indiana Supreme
Court spoke on the relationship of environmental law to property law in the
context of Indiana's Underground Storage Tank Act^^* in the case of Shell Oil
Co. V. Meyer.^^^

The supreme court described the Meyer case as dealing with "the liability of
refiners under Indiana's Underground Storage Tank Act ... for costs of
corrective actions for leaks in tanks at retail gasoline stations owned by
independent retailers."'*** The court further identified the "principal issue" as
being "under what circumstances [is] a major oil company ... an 'operator' of
underground storage tanks located at an independent station that bears its

brand."'** The case received notoriety as briefs were filed by at least twenty four
amicus curiae, including the Attorney General ofIndiana, attorneys general from

twelve other states, the Acting Attorney General of Guam, the Indiana
Department ofEnvironmental Management, the City ofIndianapolis, the Indiana

Association of Cities and Towns, and several public interest groups and trade

associations.'*^ When issued, the supreme court's opinion made the Indiana
Supreme Court the highest state court in the nation to speak on the issue.

A. Facts ofthe Case

Plaintiffs in the case were six families who owned or lived in houses in West
Point, Indiana. The town ofWest Point does not have a municipal water system,
and each of the families relied on groundwater from wells for their drinking

177. Indiana's "brownfields" statute can be seen as one example of the balancing of these

sometimes apparently completing policy interests. See id. § 6-1.1-42-1 to -42-3 (1998 & Supp.
1999). "Brownfield" is defined as an industrial or a commercial parcel of real estate that is

abandoned or may not be operated at its appropriate use on which redevelopment is prohibitive

because of hazardous substances contaminating the land. See IND. Code § 13-1 1-2-19.3 (1998).

178. Id §§ 13-23-1 to 13-23-15 (1998 & Supp. 1999).
179. 705 N.E.2d 962 (Ind. 1998).

180. Mat 965-66.
181. /c/. at 966.

182. The full list ofamicus curiae can be found at Meyer, 705 N.E.2d at 965. Some ofthese

same parties participated as amicus curiae in the companion case ofShell Oil Co. v. Lovold Co. , 705

N.E.2d981(Ind. 1998).



2000] PROPERTY LAW 1433

water supply. *^^ In early 1989, plaintiff Kimberly Meyer noticed that her tap
water had a petroleum smell. She notified the Tippecanoe County Health
Department, which in turn contacted the Indiana Department of Environmental

Management.'^"* In June 1 989, laboratory tests ofthe Meyers' water detected the

presence of several contaminants, including benzene, which is a component of
gasoline and a known carcinogen. It was later determined that the source ofthe
groundwater contamination was a nearby retail gasoline station. '^^ The history
of the operation of that station proved critical to the supreme court's decision.

The record reveals that Fred Smith purchased the station in 1946, at which
time he changed it from a Standard branded station to a Shell branded station.

At the time of the purchase. Smith's principal occupation was as a
"commissioned driver" for Shell, which meant that he delivered gasoline from

Shell's bulk plant in Lafayette to farmers in the area and to his station in West
Point. *^^ Shell owned the gasoline that Smith delivered and retained title until
paid by the purchaser.

In 1 963 , Murphy Enterprises ("Murphy") purchased the bulk plant from Shell
and became a Shell "jobber."'*^ At that time. Smith became a commissioned
driver for Murphy. Murphy purchased gasoline from Shell, stored it at
Murphy's bulk plant, and from there Smith delivered the gasoline to purchasers.

The effect ofMurphy's purchase and operation ofthe bulk plant was to insert an
independent distributor into the chain ofdistribution ofgasoline from the refiner

to the retail outlet.'*^ In 1971, Murphy changed its gasoline supplier from Shell
to Unocal, a relationship that lasted until 1980 when Murphy sold the bulk plant.

Although Smith owned the station at West Point, he never managed it.
Instead, he leased the station to a series of short-term lessees who operated
gasoline stations and automotive service businesses.'*^ Smith died in 1979, and

his widow sold the station in 1981 . The property was not used for gasoline sales
after 1981, and the underground storage tanks were removed by the new owner
in 1989.'^

B. Procedural History

The Meyers and the other neighbors (the "Landowners") filed a complaint
against Shell Oil Co. ("Shell") and Unocal Oil Co. ("Unocal") in the Tippecanoe

Superior Court on May 4, 1993.''' The Landowners asserted five common law

183

184

185

186

187

188

189

190

191

See Meyer, 705 N.E.2d at 966.

See id

See^id.

Id

Id

See id.

See id at 966-67.

See id.

The Landowners also named Smith's widow and the purchaser of the station as

defendants but dismissed them before trial. See id. at 967-68.



1434 INDIANA LAW REVIEW [Vol. 33: 1405

claims and a claim under the USTA for damages arising from groundwater
contamination caused by the leaking underground storage tanks at the station.
The common law claims were tried to a jury, but the remaining claim based on
the USTA was reserved for a bench decision. ^^^

The jury returned a verdict in favor of Shell and Unocal on all of the
common law claims, and judgment was entered on them in October 1994. The
parties subsequently filed cross-motions for summary judgment on the USTA
claim, both of which were denied. The parties then stipulated that they had no
further evidence to present and submitted the claim for a decision on the record
that had been developed in the jury trial. ^^^ The trial judge issued a
Memorandum Opinion and Order on May 16, 1995, finding Shell and Unocal to
be "operators" under the USTA and therefore liable for the costs associated with
correcting the groundwater contamination and for the Landowners' other

damages. *^^ Following a bench trial to determine the cost of correcting the

contamination, the trial court issued a Judgment on September 9, 1995, awarding

the Landowners $2,743,660.21 for corrective costs, $1,459,721.25 for attorney
fees and $179,350.70 for litigation expenses.^'^

Shell and Unocal appealed. The court of appeals affirmed the trial court's
finding of liability under the USTA and the award of costs for the corrective
action, with the exception of medical monitoring costs. ^^ The appellate court
also reversed and remanded with instructions to allocate attorney's fees and costs
between the unsuccessful common law claims and the successful USTA claim
and with instructions for computing interest ofthose fees.'^^ Shell and Unocal

then sought transfer to the Indiana Supreme Court, and the Landowners filed a
cross-appeal seeking a new trial on their common law claims on the basis of an
erroneous jury instruction.

C. Issues Relating to the USTA

The supreme court identified seven issues for decision, ''* but the most
important ones for property law purposes relate to the standing of the

Landowners to file suit against Shell and Unocal under the USTA, the definition
of "operator" under the USTA adopted by the court, and the nature of damages
that may be awarded to a person who successfully asserts a claim under the
USTA. The court's decision on each of these issues gives dimension to the
balance between environmental protection and property use.

1. Standing.—The USTA "generally provides for the regulation of
underground storage tanks ('UST's') and the prevention and remediation of

192. See id. at 968.

193. See id.

194. See id.

195. See id.

196. See id.

197. See id.

198. See id.



2000] PROPERTY LAW 1435

pollution from tanks. It contains specific provisions designed to correct

contamination from leaking underground storage tanks (LUST's)."^^ Section

8(b) of the USTA provides that "[a] person who ... (2) undertakes corrective
action resulting from a release from an underground storage tank ... is entitled

to receive a contribution from a person who owned or operated the underground
storage tank at the time the release occurred. . . ."^°^ Shell and Unocal argued

that a "contribution" could only appropriately be sought from one having legal

liability, and because the Landowners had no such liability they had no standing

to bring suit under the USTA.^^'

The court rejected that argument by pointing to the plain language of the
USTA, which authorizes private actions by "persons."^^^ The court concluded
that a 1991 amendment to the USTA that repealed the requirement of state-
initiated actions "significantly expanded the group ofindividuals who are entitled
to invoke a right to 'a contribution' under the [USTA]."^^^ The court also
supported its conclusion by comparing the USTA with language used in
previously existing state environmental laws and the Comprehensive

Environmental Response, Compensation and Liability Act ("CERCLA").^°^

Under CERCLA, only "responsible parties" can recover contributions in
corrective action suits,^°^ and Indiana's environmental laws also contain

definitions for "responsible parties"^^ that the legislature could have used ifhad

intended to limit the scope of parties who could recover under the USTA in a
manner similar to the limitation in CERCLA.^^^ Use of the term "persons"
instead of"responsible parties" indicated to the court that the legislature intended

the USTA to confer standing on persons such as the Landowners.^^* Provided
that the other requirements of the USTA can be met, the Indiana Supreme
Court's decision recognizes the greatest possible degree ofstanding, and thereby

greatest availability of private actions to promote environmental interests.

2. Identity of ''Operators" Under the USTA.—^An issue not so easily
resolved is the identity of "operators" under the USTA. Section 8(b) of the
USTA imposes liability for corrective action resulting from a release from an
underground storage tank on a person who "owned or operated" the UST at the
time of the leak.^^^ There was no evidence in the record that either Shell or
Unocal ever owned the West Point station, so they would only be liable to the

199. Mat 967.
200. IND. Code § 13-23-13-8(b) (1998).

201. See Meyer, 705 N.E.2d at 970.

202. Id. V

203. Id.

204. Id at 971 (citing CERCLA, 42 U.S.C. §§ 9601-9675 (1994 & Supp. Ill 1997)).
205. 42 U.S.C. § 9613(f)(1) (1994).

206. Meyer, 705 N.E.2d at 971

.

207. See id.

208. See id

209. iND. Code § 13-23-13-8 (1998).



1436 INDIANA LAW REVIEW [Vol. 33:1405

plaintiffs, if at all, if they were operators of that station.^^^

The term "operator" has a two-pronged definition as "[ojperator for purposes
of IC 13-23 . . . means a person: (1) in control; or (2) having responsibility for;
the daily operation of an underground storage tank."^" The trial court and the
court of appeals based Shell's and Unocal's liability on the "responsibility for"
prong, and the trial court concluded that "[t]he phrase 'having responsibility for'

means those parties that retained authority to control the UST's and that should
be responsible as a matter of public policy."^'^ The court stated that it granted
transfer to determine the scope ofthe definition of"operator" under the USTA.^^^

The Landowners argued that Shell and Unocal had "responsibility for the
daily control" of the USTs at the West Point station because they retained the
ability to control the station through jobber contracts with the bulk plant owner
and through threats of debranding.^'"^ The Landowners further argued that Shell
and Unocal should be held to be operators because they designed and profited
from a distribution system with locally placed USTs and because they were in the
best position to clean up contamination by virtue of their "greater access to
technology and vastly greater financial resources."^^^ Shell and Unocal

countered by arguing that "control" should mean actual control, not practical
leverage over the station owner or manager or the ability "to cajole, influence or
demand results from station's managers."^ '^

To resolve these competing views, the court began by looking for "clues" in
the language of the USTA.^^^ It found two. First, it noted that the term

"operator" included the phrase "daily operation of the underground storage

tank."^'* To the court, "'daily' implied at least some continuous level ofactivity
as opposed to installation, repair or removal ofa storage tank or performance of

some other irregular or infrequent action with respect to it."^^^ Given the
technology of the time, the only qualifying "daily" activities were filling the

UST, dispensing gasoline from it and measuring its contents.^^^ The second
"clue" deduced by the court was that the "control" or "responsibility" must relate
"to the 'operation' ofthe underground storage tank itselfand not to other aspects

of the station's operation or management."^^^

210. See Meyer, 705 N=E.2d at 971

.

211. IND. Code § 13-1 l-2-148(d) (Supp. 1999).

212. Meyer, 705 N.E.2d at 971 (citation omitted).

213. See id. at 972. The court also said that transfer enabled it to resolve a conflict in the

court of appeals between this case and Shell Oil Co. v. Lovold Co., 687 N.E.2d 383 (Ind. Ct. App.

1997), rev'd, 705 N.E.2d 981 (1998).

2 1 4. See Meyer, 705 N.E.2d at 97 1

.

215. Id

216. Mat 973.
217. Mat 972.
218. Id

219. Id

220. Id 2X912-13.

221. Mat 973.



2000] PROPERTY LAW 1437

To determine whether actual control is necessary to satisfy the "in control of
prong of the USTA definition of "operator" or whether ability to control is
sufficient, the court analyzed: 1) the federal legislative history ofCERCLA and
the Resource Recovery and Conservation Act (RCRA)^^^ and administrative

definitions under those acts; 2) the lender liability provisions under federaP^^ and

state ^^'^statutes; 3) the federal leaded fuel ban statute;^^^ 4) IDEM's interpretation
of the USTA as evidenced by prior enforcement actions;^^^ and 5) public
policy.^^^ Although some of these factors proved inconclusive, the court found
it significant that the "operator" defmition in the USTA is identical to the
definition in RCRA, which unlike CERCLA does not impose liability on parties
who supply the contaminant.^^* Shell and Unocal thus cannot be liable under the
USTA merely because they supplied the gasoline from their refinery.^^^ The
court also found it significant that the legislature had statutory models available

to it where liability was imposed on refiners for the actions of their branded
stations even if those stations were independent.^^^ The legislature's failure to
provide for refiner liability underthe USTA despite the existence ofthese models
led the court to conclude that actual control is required.^^* Specifically, the court

said:

[A]s we read the current Indiana UST Act, the legislature has not seen
fit to constitute every refiner with a brand an operator ofthe independent

station flying its flag. Neither the language ofthe statute nor its limited

legislative history suggests that the Oil Companies who supplied the
gasoline to the distribution system, without more, are operators underthe

Act. And practical leverage over the station owner does not suffice
whether through threat by a refiner of debranding, a threat by a bank to

call a loan, or any other action by a person that may be able to influence
or even dictate how the station's operations are conducted, but has no
actual or contractual relationship to the daily operation of the tank.^^^

Having decided that actual control over the daily operations of a UST is
necessary for a party to be an "operator," under the USTA, the court proceeded
to determine if Shell or Unocal exercised such control over the West Point
station.^" The court reasoned that the identity of persons who had

222. 42 U.S.C. §§ 6901 to 6992k (1994 & Supp. Ill 1997).
223. See id § 6991b(h)(9) (Supp. Ill 1997).

224. See IND. CODE § 13-1 l-2-148(c) (Supp. 1999).

225. See 42 U.S.C. § 7545(n) (1994).

226. See Meyer, 705 N.E.2d at 976-77.

227. Id. at' 977.

228. 5eeiV/. at 974-75.

229. See id, at 974.

230. See id. at 976.

231. See id ?X 911.

232. Id

233. See id.



1438 INDIANA LAW REVIEW [Vol. 33:1405

"responsibility for the daily operation" of the tanks, and therefore had liability

as an "operator," turned on: "( 1 ) what constituted the daily operation ofthe tanks,

(2) who did these things, (3) in what capacity that person was acting and (4) who
is responsible for that person's actions in that capacity.

"^^"^

As previously noted, the "daily operations" of a UST at the time ofthe leak
at the West Point station consisted of filling the tank, measuring the level of
gasoline in it, and dispensing gasoline from it. The person who performed daily
operations at the West Point station was Smith.^^^ Smith conducted these
activities as an independent contractor and not an employee of Shell or Unocal.
If liability were to be found for Shell or Unocal, it would depend on the court's
resolution of the fourth question.

Answering that question required the court to review established principles

ofderivative or vicarious liability.^^^ Although noting that "[a]s a general matter,

under the common law a principal is not liable for damages resulting from an
independent contractor's wrongful acts or omissions,"^" the court added that

"[ujnder accepted tort doctrines, however, an independent contractor may create
liability for a principal under some circumstances."^^** The court held that these
common law rules are applicable in the context ofoperating a UST "to the same
extent that common law liability exists for the contractor's actions."^^^ Included
among those circumstances recognized by Indiana law is one in which a contract
requires the performance of intrinsically dangerous work or constitutes a
nuisance.^'*^

The court found that "[fjilling a tank that is known to have the potential to
leak and, if it does, to contaminate others' water supplies has elements that are

strongly reminiscent of the doctrines imposing liability on a principal for
intrinsically dangerous work required by his contract with the independent
contractor.

^"^^ Accordingly, the court determined that Shell had the "requisite

contact with the 'daily operations ofthe underground storage tank' at West Point
to support liability under the [USTA]."^^^

Shell's liability, however, was not unlimited. The USTA imposes liability
on persons who are owners and operators "at the time the release occurred."^*^
This limitation meant that Shell was derivatively liable for Smith's
"responsibility for the daily operation" of the UST at West Point only for the
period from 1946 to 1963 when Smith worked as an independent contractor for

234. Id.

235. Id. at 967.

236. See id at 977-78.

237. Id at 978.

238. Id

239. Id

240. See id.

241. Id

242. Id At 979.

243. IND. Code § 13-23-13-8(b) (1998).



2000] PROPERTY LAW 1439

Shell.^** After 1963, Smith worked for Murphy, so Smith's actions could no

longer bind Shell after that year. Because Smith never worked as a
commissioned driver for Unocal, there was no time period that he could bind that
company.^*^

Accordingly, the supreme court reversed that part ofthe trial court's decision

that imposed any liability on Unocal and that imposed liability on Shell for the

period 1963 to 1971 .^"^^ The court also "summarily affirm[ed] the decision ofthe
court of appeals with respect to the following issues: future corrective action

costs, medical monitoring costs, attorney fees, and the trademark jury

instruction."^^^

D. The Legislature 's Response

The supreme court's decision in Meyer was not welcome news in the
petroleum industry, and work on a legislative response began swiftly. That
response was House Enrolled Act 1 578, which became effective on July 1 , 1 999,
barely six months after the Meyer decision. The Act amended the USTA
defmition of "operator" by excluding a person who is not an owner or lessee of
a facility where a UST is located, who does not participate in the management
ofthe facility and "is engaged only in: (i) filling; (ii) gauging; or (iii) filling and

gauging; the product level in the course of delivering fuel to an underground

storage tank."^"**

By this amendment, the legislature struck out two of the three activities
identified by the supreme court as supporting the "daily operation" of a UST.
Only the act of dispensing gasoline, which would be done only by an owner or
lessee of a gasoline station and not by a refmer or a jobber distributing that

gasoline to an independently owned station, remains unexcepted. As a result, the
immunity from private actions under the USTA recognized in the Shell Oil Co.
case for refiners dealing with independent stations now extends tojobbers in the
next level of distribution.

E. Continued Viability ofthe Shell Oil Co. v. Meyer Decision

Does the supreme court's decision have any continuing value after the 1999
legislative amendments to the USTA? Even though the court's holding on the
"principal issue" it identified in the case has been superceded by legislative
action, the opinion remains an important statement ofseveral principles that were

included in the court's opinion and were not affected by the legislatures response.

First, the USTA recognizes a private right of action of individuals to seek
contributions toward the costs ofremediating contamination and to seek related

damages. Second, the Act contemplates payment of costs by owners and

244. Meyer, 705 N.E.2d at 980-8 1

.

245. ^ee/V/. at 979-80.

246. See id. 705 N.E.2d at 981

.

247. Id.

248. IND. Code § 13-1 1-2- 148(e)(2)(C) (Supp. 1999).



1440 INDIANA LAW REVIEW [Vol. 33:1405

operators before or after cleanup. Third, more than one person can be an
operator of the same UST for liability purposes, so absence of actual ability to
control the daily operation of a UST does not exclude the presence of having
responsibility for such operation. Fourth, it is not necessary that a person

perform every act constituting daily operation to be liable; performance of one

included act can be sufficient. Fifth, liability under the USTA is strict and is
retroactive to the time the release occurred.

In addition to the substantive rules announced in the Meyer decision, the
court's approach to the issues presented by the case is also instructive. At least
twice in the opinion, the court displays sympathy toward arguments made by the
Landowners that would expand liability of oil refiners. In its discussion of
IDEM's stated administrative policy ofenforcing the USTA against refiners, the
court states that "[mjuch as we might agree with the policy considerations
underlying IDEM's current position"^'*^ it had to reject the agency's argument as
contrary to its actions in practice. Also, the court noted that "[tjthe Landowners
and amici offer compelling public policy arguments in favor ofimposing liability

on those who both profited from the sale ofthe contaminant and were in the best
practical position to assure its containment."^***

At the same time, the court displays an appropriate respect for the separation
of powers of the legislative and judicial branches. The court interpreted the
USTA to discover the legislature's intent and resisted any attempts made to
persuade it to make policy not supported by that intent. In the words ofthe court,
"[W]e are not fi-ee to adopt on our own a policy the legislature has rejected."^^'

Although the liability ofjobbers in distributing petroleum to independent

retail stations is settled by the 1999 amendments to the USTA, the substantive
principles applicable to persons who qualify as an operator and the judicial
approach identified above will likely find a place in the analysis of other issues

that will arise in the future under the USTA and other environmental laws.

IV. Landlord-Tenant Relations: Identifying the Roles of
Tort Law and Contract Law

The fourth area of property law that received notable attention in 1 999 is
landlord-tenant relations in the context of residential leases. Cases in this area

often involve claims by tenants against landlords for damages resulting from

personal injuries incurred at the leased premises. Tenants and their advocates

urge the expansion of common law causes of action to broaden the scope of
landlords' liability, and landlords and their advocates argue for holding fast to

established common law principles to restrict the scope oftheir liability. One of
the ways that tenants have sought to expand landlord liability is to seek
recognition of implied warranty claims in addition to established tort claims.

Three appellate court opinions that were issued during the survey period.

249. Meyer, 705 N.E.2d at 976-77.

250. Id. at 977.

251. Id.



2000] PROPERTY LAW 1441

including a supreme court opinion authored by Chief Justice Shepard, make
significant contributions toward clarifying the roles oftort principles and contract

principles in defming the rights and duties of tenants and landlords in Indiana.

These cases are: Vertucci v. HNP Management Co.^^^ Lake County Trust Co. v.
Wine,^^^ both from the court of appeals, and Johnson v. Scandia Associates,

Inc}^^ issued by a divided supreme court.

A. Contractual Limitation ofLandlord Liabilityfor
Personal Injury Claims by Tenants

Vertucci involved a tort claim asserted by a tenant against her landlord for
injuries she sustained when she was sexually assaulted by a non-resident at the
swimming pool of the apartment complex where she resided.^^^ The evidence
revealed that, prior to commencing occupancy, the plaintiffs father inquired
about security at the apartments because his minor children, including the

plaintiff, would be left alone during the day while he and his wife worked. An
employee ofthe landlord told the father that identification cards were issued to

tenants and that tenants were to carry the cards, especially when using common
areas, because the cards would be checked to determine that users of common
areas were tenants of the apartments. According to the father, no one ever

checked the identification cards.^^^

The landlord filed a motion for summaryjudgmenton the tenant' s complaint.
The landlord argued that it had no duty under the common law to protect tenants
from an unforeseeable criminal attack by a third party, that it never assumed such

a duty, and that the lease contract contained a disclaimer of liability for the

tenant's injuries. The tenant contended that the landlord had assumed a duty to
protect its tenants by issuing the identification cards and that the disclaimer

language in the lease did not apply to the sexual assault ofthe plaintiff. The trial
court agreed with the landlord and granted its motion for summaryjudgment.^^^

The court ofappeals reversed and remanded.^^* The court began its analysis
by determining the effect ofthe exculpatory clause in the Vertucci's lease. That

clause provided:

Tenant agrees that Landlord . . . shall not be liable for any damage or
injury to Tenant ... for injury to person or property arising from theft,

vandalism, fire, or casualty occuring in the premises or building.

LANDLORD IS NOT RESPONSIBLE FOR, AND DOES NOT
GUARANTEE, THE SAFETY OF TENANT, TENANT'S GUESTS,
FAMILY, EMPLOYEES, AGENTS, OR INVITEES. TENANT

252. 701 N.E.2d 604 (Ind. Ct. App. 1998).

253. 704 N.E.2d 1035 (Ind. Ct. App. 1998).

254. 717 N.E.2d 24 (Ind. 1999).

255. See Vertucci, 701 N.E.2d at 605.

256. See id

257. See id. at 606.

258. See id. at 608.



1442 INDIANA LAW REVIEW [Vol. 33: 1405

AGREES TO LOOK SOLELY TO THE PUBLIC POLICE
AUTHORITIES FOR SECURITY AND PROTECTION. ANY
SECURITY THAT MAY BE PROVIDED IS SOLELY FOR THE
PROTECTION OF LANDLORD'S PROPERTY. . . }'^

The court approached the lease like any other form of contract. Applying the
contract interpretation principle that terms in a contract are to be strictly

construed against the drafter ofthe document, the court concluded that a sexual

assault did not fit within the definition of a "casualty" and, therefore, the

exculpatory clause did not preclude the landlord from assuming a duty to protect

the plaintiff.^^

Finding no contractual bar to liability, the court then determined whether the
landlord owed a duty to the plaintiffto protect her from sexual assault by a non-
resident. The starting point for the court was the traditional common law rule
that "a landlord does not have a duty to protect a tenant from loss or injury due

to the criminal actions of a third party."^^' The court noted an exception to the
general rule, however, by which a duty to protect tenants can be imposed on a
landlord: " [A] duty may be imposed upon one, who, by affirmative conduct or
agreement assumes to act, even gratuitously, for another."^" As a result, "liability
to protect a tenant from criminal activity may be imposed on a landlord who
voluntarily undertakes to provide security measures, but does so negligently."^^^

To determine whether the issuance of identification cards constituted a
voluntary undertaking to provide security measures, the court focused on two
previous cases, Nails v. Blank,^^ and Bradtmiller v. Hughes Properties, Inc?^^

In Nails, a tenant claimed that her landlord was liable for injuries resulting from
an assault by a third party who had gained access to the floor of the building
where the plaintiffs apartment was located. The appellate court reversed the
trial court's grant of summary judgment in favor of the landlord. The court
concluded that by providing self-closing and self-locking doors both at the point

ofentry into plaintiffs building and at the point ofentry onto her particular floor

"the trier of fact could reasonably infer that [the landlord] had undertaken to

provide security to [the tenant] against criminal attack by a third party."^^

In Bradtmiller, the landlord was found not liable for injuries sustained by a

tenant when he was assaulted by a third party as part ofan altercation relating to
the tenant's reserved parking space.^^^ The tenant had reported the unauthorized

259. Id, at 606 (citation omitted).

260. Id. (citing Center Management Corp. v. Bowman, 526 N.E.2d 228, 236 (Ind. Ct. App.

1988)).

261. Mat 607.
262. Id. (citation omitted).

263. Id. (citation omitted).

264. 571 N.E.2d 1321 (Ind. Ct. App. 1991).

265. 693 N.E.2d 85 (Ind. Ct. App. 1998).

266. Vertucci, 1\1 N.E.2d at 607 (quoting Nails, 571 N.E.2d at 1323).

267. Bradtmiller, 693 N..E.2d at 87.



2000] PROPERTY LAW 1443

use of his space to the landlord on several occasions, and one of the landlord's

employees said she would "see what she could do." The appellate court affirmed
the trial court's entry ofsummaryjudgment in favor ofthe landlord, holding that
"notwithstanding notice to the landlord of violations of the parking policy,

criminal activity was not a reasonably foreseeable risk of failing to enforce the
parking policy and therefore, there was no duty on the part of the landlord to
protect the tenant from the injury he sustained."^^*

The court in Vertucci found that case to be more like Nails, where the self-
closing and self-locking doors were installed for a safety purpose, than

Bradtmiller, where the assigned parking space policy was created for a
convenience purpose.^^' Accordingly, the court concluded that the trier of fact

could infer from the issuance of identification cards that the landlord "had

undertaken to provide security to the Vertuccis against criminal activity by non-

residents by keeping non-residents from the premises."^^^

The Vertucci case contains two important principles for determining rights
of tenants and responsibilities of landlords in tort claims for personal injuries

caused by criminal acts of third parties. First, a safety versus convenience test

is applied to determine whether a landlord has assumed a duty to protect its
tenants. The precise nature and extent of acts that will support imposition on
landlords of an assumed duty to protect tenants is left for friture cases to

decide.^^' When, for example, does an apartment feature cease to be an amenity
and become a security item? Second, traditional contract interpretation
principles, including construing ambiguities in a lease against the landlord-

drafter, are applied to residential leases as in any other contract. As will be
shown below, although application of traditional contract principles in the
context of exculpatory clauses in tort cases may benefit tenants, an analytical
approach that treats residential leases in the same manner as all other contracts

largely benefits landlords.

B. Contract and Tort Analysis ofTenants ' Challenges to
Eviction Proceedings

In Lake County Trust Co., a mobile home park landlord sued to evict tenants
for failure to pay rent. Each of the tenants had executed written leases with the
landlord, which contracts provided that all tenancies were month-to-month.

When the landlord raised lot rents seven percent ($1 5.00 per month) many ofthe
tenants protested. After being served with notices to quit, some tenants were

268. Id.

269. See hrtucci, 1\1 N.E.2d at 608.

270. Id.

27 1

.

Even if a duty to protect is assumed by a landlord, the tenant must still prove breach of

that duty, causation and damages. Also, the court does not discuss, except in footnote 1, whether

a duty can be imposed on a landlord by way of the three-part analysis that includes foreseeability

of harm arising from criminal actions as illustrated in Webb v. Jarvis, 575 N.E.2d 992, 995 (Ind.

1991).



1444 INDIANA LAW REVIEW [Vol. 33: 1405

permitted to cure their default by paying the increased rent plus late fees.^^^
Other tenants refused to pay, and the landlord commenced eviction proceedings.
The tenants filed counterclaims against the landlord alleging that the landlord's
actions constituted: 1) a breach of a contractual duty of good faith and fair
dealing; 2) an abuse of process; 3) a violation of civil rights under 42 U.S.C. §
1983; and 4) a breach of "equity." The trial court also certified the case as a
class action. The landlord filed a motion for summary judgment on all of the
tenants' counterclaims and a motion to decertify the class, both ofwhich the trial
court denied.^'^

The appellate court disposed ofthe tenants' abuse ofprocess, civil rights and
equity claims with little difficulty. The court held that the landlord was not liable
for abuse ofprocess because eviction for failure to pay rent "is a proper purpose

contemplated by Ind. Code § 1 6-41-27-30,"^^* and that "there is no liability where
the defendant has done nothing more than carry out the process to its authorized
conclusion, even though with bad intentions."^^^ The court also held that the
tenants failed to allege any "state action" as required by § 1983 and that "'an
ejectment in retaliation for the exercise of First Amendment rights is, without
more, 'purely private' action."^^^ Finally, the court held that the tenants could

not proceed on their "equity" claim because they had not specified any particular

theory they wished to pursue, and the stated counterclaims were "without

merit."^^^ The court also concluded that the tenants' "equity" claim was barred
because the tenants themselves had unclean hands as they intentionally refused

to comply with the terms of the lease.^^*
The substantive claim that generated the most discussion and that will be

most influential in adjusting rights and obligations oftenants and landlords in the

future is the contract analysis of the tenants' good faith and fair dealing claim.
The tenants' argument was based on section thirteen of the lease, which stated
that "the posted rules and regulations . . . attached to this lease are part of this

lease at the time of execution."^^^ The preamble to the lease contained a policy
statement that the mobile home park "is conceived as a community ofneighbors
living in harmony . . . not by rigid rules and regulations. . . . When these
standards are fair, reasonable and logical . . . when they are applied with on an
impartial basis . . . each resident can be assured a maximum offreedom, privacy,
safety and comfort "^*^ The tenants contended that this preamble statement
imposed on the landlord a duty of good faith and fair dealing which was

272. See Lake County Trust Co. v. Wine, 704 N..E.2d 1035, 1038 (Ind. Ct. App. 1998).

273. See id. at 1038.

274. Id. at 1040.

275. Id. at 1040-41 (quoting Reichhart v. City ofNew Haven, 674 N.E.2d 27, 30 (Ind. Ct.

App. 1996).

276. Wat 1041.
277. /</atl042.

278. Id

279. Id. at 1039 (citation omitted).

280. Id. (citations omitted).



2000] PROPERTY LAW 1445

expressly incorporated into the lease by section thirteen.

The appellate court disagreed and reversed the trial court's denial of the
landlord's motion to dismiss the tenants' contract claim along with their other

three claims.^*^ The court's approach to the issue may be as significant to the on-
going battles between tenants and landlords as the decision itself. The court
began its analysis with a statement that reverberates in the supreme court's

opinion in Johnson v. Scandia Associates, Inc. and in cases beyond the survey

period:^*^ "Rules of construction for contracts apply to leases."^" While this

statement might be considered a truism by landlords, it foreshadows the refusal

ofthe supreme court to impose an implied warranty of habitability on landlords

as part of every residential lease.

The court in its contract analysis noted that the duty of good faith and fair
dealing "is applied in contract law only under limited circumstances such as

those involving insurance contracts."^*"* The court acknowledged, however, that
even outside insurance contracts a duty ofgood faith and fair dealing "may apply
to a contract where the terms of the contract are ambiguous or where the terms

281. 5eeiW. atl040.

282. See Zawistoski v. Gene B. Glick Co., Inc., 727 N.E.2d 790 (Ind. Ct. App. 2000). In

Zawistoskiy a tenant sued her landlord for personal injuries she received when she tripped on a

raised portion ofa sidewalk at the apartment complex. The landlord had advertised the apartment

complex as designed for individuals over age 62 and accessible for individuals with limited

mobility. The tenant asserted claims sounding in negligence, breach of contract and breach of

express warranty. The landlord moved for summaryjudgment on the breach ofcontract and breach

of warranty claims, which motion was granted. See id. at 792. On appeal the tenant asserted that
a warranty was created by paragraph 10(a)(2) ofthe lease contract, which contained the landlord's

agreement to "maintain the common areas and facilities in a safe condition." Id. The court rejected

the tenant's arguments and held that: 1) the statements in paragraph 10(a)(2) were merely a

restatement of the landlord's common law duty to its lessees; 2) a finding of a warranty as argued

by the tenant would conflict with other language in the lease by which the landlord expressed its

intent not to be an insurer of its lessees' safety; and 3) a finding of a warranty would render

meaningless other provisions of the lease. See id. at 794. The court also rejected the tenant's

argument that a "higher standard" ofconduct should be imposed on the landlord because the lease

was directed at "elderly renters" and her argument that the lease represented a "contract of

adhesion" entered into by parties with "vastly different bargaining power." Id. "While it may be

true that the parties were in somewhat unequal bargaining position, this is true in many contractual

relationships. Further, in this case, Zawistoski certainly had the option of leasing an apartment

elsewhere if she did not like the terms of the lease with Glick. Moreover, we reject Zawistoski'

s

attempt to portray people over the age of sixty-two as feeble, infirm, and requiring assistance with

entering into a basic contract." Id. Using as its guide the principles that "[a] lease is to be

construed in the same manner as any other contract," id. at 792, and that "the intention ofthe parties

to a contract is to be determined from the four comers ofthe document," id, the court failed to find

any express warranty by the landlord and refused "to read into the contract terms to which the

parties did not agree." Id.

283. Lake County Trust Co., 704 N.E.2d at 1039.

284. Id



1446 INDIANA LAW REVIEW [Vol. 33:1405

expressly apply such a duty""^ and that a contract may incorporate another
unsigned writing, like the preamble, "when the contract expressly incorporates
the terms of the writing."^*^ The court concluded that although the language of
the lease incorporated the terms of the rules and regulations, each document
"retain[ed] [its] original meaning," which means that the reference to "fairness"
in the preamble was restricted to that document and did not become a term ofthe
lease contract.^*^

As an alternative to the attempt to incorporate an express duty ofgood faith
and fair dealing into the lease by way ofthe preamble, the tenants also urged the
court to imply the existence of such a duty into leases "in general." The court
stated that "contract law does not require such an duty"^^* and quoted a 1990

Indiana Supreme Court case for the proposition that

[i]t is not the province ofcourts to require a party acting pursuant to such

a contract to be "reasonable," "fair," or show "good faith" cooperation.
Such an assessment would go beyond the bounds ofjudicial duty and
responsibility. It would be impossible for parties to rely on the written
expression of their duties and responsibilities.^*^

The court also rejected any notion that tenants are entitled to special
considerations outside of traditional contract law principles or that landlords

have undue influence in the execution of leases because they are sophisticated
while tenants are unsophisticated. The court wrote, "Under Indiana Law, a
person is presumed to understand and assent to the terms of contracts they
sign."^^ The court closed its analysis ofthe tenants' disparate bargaining power
argument by stating:

Aside from the fact that Williamsburg is a 'corporate landlord,' the

[tenants] cannot point to any undue influence or unequal bargaining

power exercised by Williamsburg in the execution of their respective
leases; furthermore, as a matter oflaw, we are unwilling to extend a duty
of good faith and fair dealing to corporate landlords. Like all tenants,

the residents were free to execute a lease with a different landlord ifthe

terms of the lease were unacceptable. By asking this court to apply a
duty ofgood faith to an unambiguous lease, the [tenants are] effectively

requesting this court to rewrite the terms of an agreement where the

intent of the parties is clear. Such an exercise of our discretion is

without the boundaries of our authority and in clear contravention of

285. Id.

286. Id.

287. Id 1040.

288. Id

289. Id. (quoting First Federal Sav. Bank of Ind. v. Key Markets, Inc., 559 N.E.2d 600, 604

(Ind. 1990)).

290. Id



2000] PROPERTY LAW 1447

contract law as outlined by our supreme court.^^'

This contract law '^as outlined by our supreme court" in the context of

landlord-tenant disputes was largely reaffirmed approximately nine months later
in the Johnson case.

C The Circumscribed Role ofContract Law in Claimsfor Breach
of Warranties ofHabitability in Residential Leases

Johnson v. ScandiaAssociates, Inc}^^ involves a tenant's attempt to recover

damages from her landlord for personal injuries she received from an electrical
shock that occurred as she simultaneously touched two appliances in the kitchen

of her apartment. The tenant's complaint asserted claims based on negligence
and on an implied warranty of habitability that she contended was incorporated
into the lease contract The landlord filed motions to have both claims dismissed
for failure to state a claim. The trial court dismissed the warranty claim but
refused to dismiss the negligence claim.^^^ Following a defense verdict on the

negligence claim, the tenant appealed the dismissal of her breach of warranty

claim. The supreme court, in a split decision,^^"* affirmed the trial court's ruling
dismissing the tenant's breach of warranty claim.^^^ The court recognized "for
the first time that such a warranty may be implied in some leases"^^ but
concluded that Johnson had not alleged facts to support the imposition of an

implied warranty of habitability into her particular lease.^^^

The supreme court's analysis consists of two parts: determining the
conditions under which a warranty ofhabitability will be implied in a residential

lease, and the nature ofthe damages that can be awarded to a tenant who proves
a breach of such a warranty. Johnson did not allege that the landlord had made
any express warranties about the apartment; instead, she based her complaint on

a warranty of habitability that she contended was implied into her written
lease.^'* The tenant further acknowledged that Indiana law does not recognize
warranty claims as a basis for a personal injury action, but she argued that

291. Id,

292. 717 N.E.2d 24 (Ind. 1999).

293. See id. 2A, 26.

294. ChiefJustice Shepard wrote the opinion ofthe court and wasjoined by Justices Sullivan

and Selby. Justice Boehm concurred in the result but issued an opinion agreeing with dissenting

Justice Dickson that the law "implies a warranty ofhabitability." Id. at 32 (Boehm, J., concurring

in part and dissenting in part). Justice Dickson filed a dissenting opinion. Id. (Dickson, J.,

dissenting). ^

295. See id.

296. Mat 26.
297. See id. at 32. The court of appeals had affirmed the trial court's decision in part and

reversed in part. Its decision, now vacated, is reported at 641 N.E.2d 51. The supreme court's

summary ofthe court of appeal's decision is found at footnote 1. See Johnson, 717 N..E.2d at 26

n.l.

298. See id. at 26.



1448 INDIANA LAW REVIEW [Vol. 33:1405

recovery for such injuries was proper as "a logical extension of the law."^^
To discern the proper analytical approach to be applied to the tenant's claim,

the supreme court reviewed the historical development of the warranty of
habitability in Indiana common law, a development that the court described as
part of a general expansion of "residential tenants' bundle of rights."^^ In the
context ofthe warranty ofhabitability in the sale ofresidential housing, the court
noted that implicit in its prior holdings was "the notion that the warranty was
implied-in-fact in the original parties' sales contract."^^' Those prior holdings
included Theis v. HeueP^^ and Barnes v. Mac Brown & Co., Inc.,^^^ in which the
warranty of habitability was first recognized in the sale of a newly constructed
house to the original purchaser and was then extended to benefit subsequent
purchasers, at least with regard to latent defects.

The supreme court then reviewed a 1980 case. GreatAtlantic & Pacific Tea
Co. V. Wilson^^ which held that the implied warranty of habitability does not
attach merely on transfer ofpossession. In that case, a tenant was held not liable
to her landlord for injuries caused by a dangerous condition that existed in the
premises when the tenant tendered possession back to the landlord.^^^ The
supreme court identified a unifying principle in these three cases by stating, "In
the very least, [these cases] implied that law of contract was the source of the
warranty of habitability."^^

A fourth relevant precedentwas the court ofappeals' decision in Breezewood
Management Co. v. Maltbie,^^^ where, based on the facts ofthat case, an implied
warranty of habitability was found to exist, and to have been breached, in the
context of a residential lease.^^^ The supreme court found it significant that the
damages awarded to the tenant in Breezewoodfor breach ofthe implied warranty
were "damages based on the law of contract" and did not include any personal
injury damages.^^ Breezewood v/sls further evidence for the supreme court that
"[pjlainly, a warranty of habitability, whether in the sale or lease of residential

dwellings, has developed in the common law of Indiana, and its roots are in the
law of contract."^

*^

Having deduced the roots of the warranty, the court then defined its
substance, the manner by which it becomes implied into a lease, and the remedies

available if a breach is established. The court identified the substance of the

299. Id

300. Id. at 27.

301. Id

302. 280 N.E.2d 300 (Ind. 1972).

303. 342 N.E.2d 619 (Ind. 1976).

304. 408 N.E.2d 144 (Ind. Ct. App. 1980).

305. See Johnson, 7 1 7 N.E.2d at 28 (citing Great Atl & Pac. Tea Co. , 408 N.E.2d at 1 44).
306. Id. (citations omitted).

307. 411 N.E.2d 670 (Ind. Ct. App. 1 980).

308. See id at 671, 675.

309. Johnson, 111 N.E.2d at 28.

310. Id



2000] PROPERTY LAW 1449

warranty as a landlord's "affirmative declaration of the apartment's fitness for

habitation, that is, as a dwelling place."^" The court expanded on this statement
by adding, "Habitability is not the same as no risk ofharm. . . .An apartment can

thus provide adequate shelter and amenities, as promised, and still be a place

which presents some risk."^^^
The distribution of these risks between tenant and landlord influenced the

court's decision concerning the availability of a breach of warranty claim for a

tenant. Under tort principles, risks are distributed on the basis of socially
dictated duties not to expose others to unreasonable risk ofharm. Tort "liability

is involuntary, and it is balanced between the parties according to each's

comparative fault."^'^ By contrast, risks are distributed under contract law on the
basis of agreement and consent. Liability under contract principles is strict;

parties promise either to perform their obligations under the contract or to

compensate the other party for damages resulting from the breach.^'"* As a result,
"[c]ontracts are private, voluntary allocations by which two or more parties
distribute specific entitlements and obligations."^'^ According to the supreme

court, a warranty of habitability, therefore, requires a voluntary and affirmative

promise by the landlord in exchange for some return promise from the tenant.
The scope of the promises determines the scope of the warranty. A different
approach would require, according to the court, a promise that a tenant would be
free from injury and would result in strict liability for landlords.

Freely bargained-for express warranties of habitability voluntarily assumed
by a landlord are likely to be rare, so the more common situation addressed by
the court in Johnson is under what conditions will an implied warranty be
imposed upon a landlord. Because the court characterized the "[ijmposition of

an unbargained-for obligation on a contract . . . [as] derogat[ing] the common
law,"^'^ it concluded that "the law must state with fair specificity the warranty

being imposed and the class oftransactions covered by it."^'^

One possible source ofthe terms ofsuch an imposed warranty is building or
housing code provisions, which can contain prescribed standards for housing

conditions. The court refused to impose such codes automatically into all
residential leases absent "explicit statutory or regulatory language imposing on

landlords the obligation to warrant a codified standard or habitability in property

rented as a residence."^'*

Absence ofa warranty automatically imposed by law into all leases does not,

however, exclude the possibility that a warranty ofhabitability can be implied in-

fact into individual leases. Such warranty implied in-fact can arise "from the

311. Id.

312. Id. at 29.

313. Id

314. See id. at 29 & n.7,
315. See id. at 29.

316. Id at 30.

317. Id

318. Id



1450 INDIANA LAW REVIEW [Vol. 33:1405

course ofdealing between the parties and may be evidenced by the acts done in
the course of performance or by ordinary practices in the trade."^^^ The court
identified course of dealing as the "best way of viewing Breezewood''^^^ The
court in Breezewoodhdid held that "a landlord could be held liable to his tenant

on a breach ofimplied warranty, at least where there was a housing code and city
inspectors had cited the landlord with multiple violations."^^* For the supreme
court the source ofthe implied in-fact warranty mBreezerwood'WdiS the landlord's

actions and not the existence ofthe building code itself Speaking ofthe tenant

in Breezewood, the supreme court stated that, "[a]t most, the tenant's expectation
that conditions [in her apartment] would be made to comply with the housing
code arose from the landlord's post-inspection promise to repair."^^^ Because the
tenant in Johnson did not identify any local law as the warranty she sought to
have implied into her contract and did not identify any facts to support
implication of the warranty into the lease as a result of the landlord's conduct,

the supreme court affirmed dismissal of her breach of warranty claim.^^^

The supreme court found the roots of a warranty of habitability claim in
contract law, and so it also found there limitations on the remedies available for

breach of that warranty. The court stated, "Consequential damages may be
awarded on a breach ofcontract claim when the non-breaching party's loss flows
naturally and probably from the breach and was contemplated by the parties
when the contract was made."^^"* This rule "generally limits consequential
damages to reasonably foreseeable economic losses."^^^ Accordingly, a plaintiff
can recover for personal injuries on a contract claim "only when the particular
injury was within the parties' contemplation during contract formation."^^^ Such
a showing may be made by reference to an express contract term in the lease or
by reference to evidence permitting it to be implied into the lease.^^^ In either
event, the warranty must be "derive[d] from the agreement between the tenant

and the landlord."^^* Johnson could not meet this requirement, so the supreme

court concluded that her claim was also subject to dismissal on that basis.^^^

319. /^. at 30-31.

320. Mat 31.
321. IdaX 28 (citation omitted).

322. Mat 31.
323. See id 3X32.

324. Mat 31.
325. M (citing Strong v. Commercial Carpet Co,, 322 N.E.2d 387, 391-92 (Ind. Ct. App.

1975)).

326. M (citing Strong, 322 N.E.2d at 391-92).
327. See id.

328. Id at 32.

329. See id.



2000] PROPERTY LAW 1 45

1

D. The Status ofBreach of Warranty Claims After

Johnson v. Scandia Associates, Inc.

TheJohnson decision was welcome news for landlords and a disappointment
for tenants. The supreme court adhered to traditional common law contract
principles and treated residential leases in the same manner as any other type of
contract. The court also viewed residential leases against a "freedom ofcontract"
model in which landlord and tenant have equal bargaining power and a ready
supply of alternative housing sources for tenants if mutually acceptable lease

terms cannot be achieved. Finally, the court views such leases against an

economic model in which a residential lease represents a negotiated package of
benefits and obligations resulting in a balance ofthe landlord's interests and the

tenant's interests. Such models were also at work in Lake County Trust Co. v.
Wine, and their validation by the supreme court will certainly result in their use

in subsequent cases, as can be seen in Zawistosky v. Gene B. Glick Co., Inc.
With such models as the foundation for the supreme court's opinion, it is not

surprising that the court refused to hold that an implied warranty of habitability

is implied by law into every residential lease. One can certainly question the
constraint the court felt to follow traditional common law principles and not to
"impose" an unbargained-for warranty term into a residential lease. The court
acknowledged its role in establishing a warranty of habitability in the sale of

residences, both to original and to remote buyers.^^° The court would also have
been aware of existing law in which insurance contracts are subjected to a
different type of analysis than other types of contracts^^' and of warranties

implied by law into sales contracts under the Uniform Commercial Code.^^^
One can also question the validity of the analytical models chosen by the

court to judge residential leases. Do the majority of tenants of residential
apartments bargain for the inclusion or exclusion ofterms, including habitability,

in a lease? Do they have an equal understanding of lease terms and a supply of
alternatives in the marketplace if lease negotiations break dovm?

The Johnson opinion is not totally one-sided, however, as the court does
"recognize for the first time" that a warranty of habitability "can be implied" in

residential leases."^ Even though express inclusion in a residential lease is not
a likely occurrence, the court leaves open at least two ways in which a warranty
of habitability can be implied. The first is actions taken by the lessor. Such
actions can take a variety offorms, and landlords will continue to face claims by
tenants asserting that some action by the landlord supports the existence of a
warranty.

The second is housing or building codes. Even though the court refused to
define a warranty of habitability by the building code applicable to Johnson's

330. See Johnson, 1\1 N.E.2d at 27-28.

331. See Lake County Trust Co. v. Wine, 704 N.E.2d 1035, 1039 (Ind. Ct. App. 1998).

332. See iND. CODE § 26-1-2-314, -315 (1998); Zawistoski v. Gene B. Glick Co., Inc., 727

N.E.2d 790, 794 (Ind. Ct. App. 2000).

333. Johnson, 1\1 N.E.2d at 26.



1452 INDIANA LAW REVIEW [Vol. 33:1405

apartment, the use ofsuch codes for that purpose was not completely forestalled.
The court wrote that habitability is "not necessarily" prescribed by a housing or
building code, but it also wrote that "[h]abitability is an objective factual

determination which may be codified."^^'* The court also stated that ''absent
explicitstatutory or regulatory language'''' it could not "impos[e] on landlords the
obligation to warrant a codified standard of habitability in property rented as a

residence "^^^ The necessary corollary ofthis statement is that legislative and
administrative bodies are free to create such explicit language that will impose
an implied warranty of habitability into residential leases ifthat result is desired

by the electorate. Such warranties are already statutorily imposed on a state-wide
basis for the new construction"^ and remodeling^^^ of single family residences.

The court appears to sanction local ordinances and regulations to define the
standard for warranty of habitability for that locale as it speaks of "[a]

community's adoption of a building or housing code.""* The court does not
appear troubled by the prospect of a patchwork of local codes and resulting

warranties as it acknowledges that such codes "vary enormously in their

prescriptions.""' Thus, the next battleground concerning the warranty of

habitability may well be in the city- and county council chambers around the
state. If such explicit codes imposing a codified standard of habitability are

enacted, the role ofthe courts will shift from common law contracts analysis to
interpreting the codes to carry out the intent ofthe legislative body in mandating
a standard of habitability in residential leases.

Conclusion

Property law has been described as an area that "usually develops in an

evolutionary fashion" and where the rate of change is "measured in terms of

decades and centuries rather than in months and years."^*° That characterization

is not appropriate for property law in Indiana in the past year. In this one single

year, at least four major developments occurred: 1) the law of mechanic's liens

was changed to abolish the relation back principle and no-lien contracts with
regard to the improvement of commercial real estate; 2) the principle of

subagency was abolished, and the duties real estate licensees owe to their clients
is now based on working relationship; 3) the supreme court and the legislature

334. Id. at 30.

335. Id. (emphasis added).

336. See IND. CODE § 32-15-7 (1998).

337. See id §24-5-11.5.

338. Id

339. Id

340. Grant S. Nelson & Dale A. Whitman, Real Estate Transfer, Finance &
Development 455 (West Group 5th ed. 1998).



2000] PROPERTY LAW 1453

defined the term "operator" for purposes of the Underground Storage Tank

statute; and 4) the court of appeals and the supreme court spoke on the roles of

tort and contract principles in disputes between landlords and tenants. The law
ofthe 2000 survey period and beyond will likely involve cases growing out ofthe

altered legal landscape resulting from these developments.