Indiana Law Review


New Bricks for the Wall:
Developments in Property Law in Indiana

Lloyd T. Wilson, Jr.
#

The image ofconstruction ofa great structure, commencing long ago in our
legal history and growing one small brick at a time to the present, is a metaphor

that has been used to describe the incremental growth ofthe common law. 1 This
metaphor recognizes that the common law usually advances by small steps based
on the resolution ofparticular disputes between particular individuals rather than

by great leaps of categorical pronouncements.
2
Both the pace and direction of

the law's construction can, however, be accelerated by legislation and certain
judicial decisions. When a court determines that the time has come to exercise
the common law's capacity to adapt to new conditions, rather than to hold to its
predisposition to stability, another brick is added.

3 A case can be made that the
law of the property surveyed for this law review in 1999

4
exhibited an unusual

emphasis in that year on categorical, as opposed to incremental, growth. In that

survey period, the Indiana legislature redefined real estate broker duties owed to
buyers and sellers to eliminate the principle of subagency that had been in place

for decades
5

and rearranged priority positions, at least in commercial

developments, between construction lenders and mechanics and material

suppliers.
6

Finally, the Indiana Supreme Court announced that the proper
framework for analyzing tenants' claims against landlords for personal injuries

sustained in leased residential housing sounds in tort and not in contract for

breach ofwarranty.
7
In the 1999 survey period, new bricks were not only added

to the legal wall, but the architects ofthat wall also decided to turn the course of

* Instructor of Law, Indiana University School of Law—Indianapolis; Instructor of
Business Law, Kelley School ofBusiness, Indiana University—Bloomington. The author wishes

to acknowledge the valuable contributions made to this article by five alumni of his real estate

transfer, finance, and development class: Heather D. Boyle, Rodney L. Michael, Matthew J. Mize,

Katherine A. Starks, and Dori E. Wood. These students, who volunteered many hours to research
new developments in Indiana statutory and case law and to help narrow them to the cases and
statutes described in this Article, were extraordinarily dedicated to their adopted project, and their

efforts deserve recognition.

1. Karl Lewellen describes this process of growth of the law as "a course of building as

steady, as irresistible, as craftsmanlike, in some ways as beautiful, as that which through the

medieval centuries raised cathedrals." K.N. Lewellen, Bramble Bush 176 (1960).

2. See Oliver Wendell Holmes, The Common Law 1 (Dover Publications, Inc. 1 991 ).
3. See Roscoe Pound, The Spirit of the Common Law 1 82 (Beacon Press 1 963).
4. Lloyd T. Wilson, Jr., Reconstructing Property Law in Indiana: Altering Familiar

Landscapes, 33 Ind. L. Rev. 1405 (2000).

5. See id. at 141 9-3 1 . The statutes that effected this change are Indiana Code sections 25-

34.1-10-0.5 to -34-10-17. The survey period for that Article was October 1, 1998, to September

30, 1999.

6. See id. at 1 406- 1 9. The statutes that effected this change are Indiana Code sections 32-8-

3-1 to -3-1 5.

7. See id. at 1440-53. The supreme court's analysis of this issue is found in Johnson v.

Scandia Associates, Inc., 717N.E.2d 24 (Ind. 1999).



956 INDIANA LAW REVIEW [Vol. 34:955

its direction.

The state ofthe law for the survey period for this article returns to the model
of methodical and incremental growth. The legislature was not particularly
active in property matters in 2000,

8
a fact that may be explained both by the

relative fury ofactivity in 1999 and the reality ofthe short legislative session in

2000. The opinions published by the appellate courts in 2000 focus on adapting
existing rules to fit new situations rather than on creating new rules. This fact
does not mean that the appellate opinions issued in 2000 are not interesting or
important, for they are both. It means only that the analysis in those opinions is
conducted within an existing context rather than creating new contextual rules.

Six topics considered by the appellate courts are discussed in this article: (1

)

enforceability and priority ofmechanic's liens; (2) rights and responsibilities of

real estate licencees and landowners under exclusive right to sell listing

agreements; (3) duties and liabilities of landlords to tenants; (4) premises

liability; (5) mortgagee duties to mortgagors and to third parties, and mortgage

enforcement procedures; and (6) the impact ofthe statute offrauds on real estate

conveyances. The first three of these topics relate to issues considered in the
1999 survey issue.

I. Mechanic's Liens

The Indiana Court of Appeals issued four opinions in 2000 that build upon
existing mechanic's lien law principles. These cases are: Dinsmore v. Lake
Electric Co.;

9
Rose & Walker, Inc. v. Swqffdr; 10 Ford v. Culp Custom Homes,

Inc.;
11
and Mercantile National Bank ofIndiana v. First Builders ofIndiana,

Inc.
12 The amendments to the mechanic's lien statute passed by the Indiana

legislature in 1999, which became effective on July 1, 1999, have not had time

8. Two statutes enacted by the Indiana General Assembly and signed into law by the
Governor are: 1 ) Public Law 22-2000, House Enrolled Act 1 1 80, codified as Ind. CODE § 4-20.5-

21-1 and -21-2 (permitting the words ofthe Ten Commandments to be displayed on real property

owned by the State ofIndiana) and Ind. CODE § 36-1-16-1 and -16-2 (permitting the words ofthe

Ten Commandments to be displayed on real property owned by a political subdivision). (These

statutes were declared to be unconstitutional under the establishment clause ofthe First Amendment

of the United States Constitution in the case of Indiana Civil Liberties Union, Inc. v. O'Bannon,

1 10 F. Supp. 2d 842 (S.D. Ind. 2000). and 2) Public Law 49-2000, House Enrolled Act 1228,

codified as amendments to Ind. Code § 36-4-3-2.1 (providing notice procedures in annexation

proceedings in which all property owners within the area to be annexed provide written consent to

the annexation). The legislature passed Public Law 1 29-2000, Senate Enrolled Act 262 (directing

the Indiana Department ofEnvironmental Management to develop a non-rule policy document to

address the migration of a spill or release from an underground storage tank to property that is

owned by a person who does not own or operate the site where the UST is located).
9. 719 N.E.2d 1282 (Ind. Ct. App. 1999).

10. 721 N.E.2d 899 (Ind. Ct. App. 2000).

11. 73 1 N.E.2d 468 (Ind. Ct. App. 2000).

12. 732 N.E.2d 1287 (Ind. Ct. App. 2000).



2001] PROPERTY LAW 957

to present issues for litigation that could reach the appellate court level. As a
result, the cases confronted by the court of appeals in 2000 dealt with pre-
amendment rules. However, because many pre-amendment rules were not
affected by changes in the statute, the court's opinions in these four cases remain
important.

A. Scope ofProperty Against Which a Mechanic 's Lien Can Be Filed:
Dinsmore v. Lake Electric Co.

13

In Dinsmore, the court was required to decide whether a bagger machine
used by a lessee of real estate to screen, bag and dry various products was a
proper subject ofa mechanic's lien under Indiana's statute.

14
The determination

of the status of the bagger was crucial to the determination ofthe timeliness of
Lake Electric's mechanic's lien filing. Lake provided electrical services to the
lessee of the real estate, NIR, in various time periods. It first performed work
between November 8, 1993, and March 16, 1994, for which it received only
partial payment. Lake then provided additional 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 bagger between May 20
and May 22, 1995. Lake filed its notice ofintention to hold a mechanic's lien on
July 21, 1995, which included all work performed from November 8, 1993,
forward. Following a bench trial, the trial court entered a judgment in favor of
Lake on its claim to foreclose on its mechanic's lien.

15

The court ofappeals reversed thejudgment ofthe trial court, holding that the
bagger was not a type of property that was subject to a mechanic's lien. 16 The
court of appeals reviewed the types of property identified in section 1 of the

mechanic's lien statute and concluded that the only kinds of property that could

conceivably include the bagger were "fixture" and "other structure."
17
The court

ofappeals relied on three factors in deciding that the bagger was neither a fixture
nor an other structure: its portability; its ability to be removed from the real estate
without damage to any buildings or land; and NIR's intent to remove the bagger
from the real estate at the end of the lease term.

18
Based on these factors, the

court of appeals concluded that the bagger was either an item of personal
property or a trade fixture, neither ofwhich can be the subject ofthe mechanic's
lien.

19 The entire lien was thus invalid because Lake provided no other work or

13. Dinsmore, 719 N.E.2d at 1282.

14. See id. at 1 284. Dinsmore was reviewed in the 2000 volume ofthe survey edition ofthis

law review, and the reader should consult the author's article in that edition, see Wilson, supra note

3, at 1415-16.

15. See id at 1285.

16. See id at 1288-89.

17. See id at 1286.

18. See id at 1288.

19. See id.



958 INDIANA LAW REVIEW [Vol. 34:955

materials during the sixty days prior to the July 2 1 filing of its mechanic's lien.
20

Dinsmore implicitly reaffirms the long-established analytical framework used
by courts in ruling on the validity of mechanic's liens. Courts strictly construe
the lienholder's compliance with all elements ofthe statute

21
because mechanic's

liens are purely creatures of statute and are in derogation of the common law.22

Although Indiana courts utilize a liberal construction ofthe remedial provisions
ofthe mechanic's lien statute once a claimant establishes that his claim is within

the scope ofthe statute,
23

strict compliance is initially required for each element

ofthe statute, including the type ofproperty improved and the time provided for
filing the notice of intention to hold mechanic's lien.

B. Recording Requirementfor Pre-Lien Notice:

Rose & Walker, Inc. v. Swaffar24

In Rose & Walker, the court of appeals applied the strict compliance
approach to the statutory requirement ofrecording the claimant's pre-lien notice.

The Swaffars were constructing a home on their lot, and Rose & Walker
provided insulation and drywall for the construction but was never paid. Rose
& Walker mailed a Notice of Lien Rights and Personal Liability letter to the
Swaffars, and it recorded its Notice of Mechanic's Lien in the office of the

county recorder. Rose & Walker subsequently filed a lawsuit to foreclose on its
mechanic's lien. The parties thereafter filed cross-motions for summary
judgment. The trial court denied Rose & Walker's motion because it failed to
record a copy ofthe Notice ofLien Rights and Personal Liability letter it mailed

to the Swaffars.
25 Rose & Walker appealed.

Rose & Walker clearly complied with the pre-lien notice requirements of
Indiana Code section 32-8-3-3, but at issue was its compliance with the recording
requirement for that notice, contained in Indiana Code section 32-8-3-1 . This
section states that a mechanic's lien claimant shall

furnish the owner of the real estate . . . with a written notice of the

20. See id

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

App. 1999) ("As the Indiana statutes governing the filing of a notice of intention to hold a

mechanic's lien . . . [are] in derogation of the common law, their provisions must be strictly

construed."); Riddle v. Newton Crane Serv., Inc., 661 N.E.2d 6, 9 (Ind. Ct. App. 1996) ("The

Indiana statute governing filing of a notice of intention to hold mechanic's lien is in derogation of

common law, and its provisions must be strictly construed.").

22. See, e.g. , Garage Doors ofIndianapolis, Inc. v. Morton, 682 N.E.2d 1 296, 1 302 (Ind. Ct.

App. 1997).

23. See, e.g., Abbey Villas, 716 N.E.2d at 98 (stating that once claimants prove they are

within Indiana's mechanic's lien statute, "the remedial provisions of the legislation should be

liberally construed") (citing Beneficial Fin. Co. v. Wegmiller Bender Lumber Co., 402 N.E.2d 41,

45 (Ind. Ct App. 1980)).

24. 721 N.E.2d 899 (Ind. Ct. App. 2000).

25. See id at 900.



200 1 ] PROPERTY LAW 959

delivery [of materials] or [provision of] labor and the existence of lien

rights within sixty (60) days from the date of the first delivery or labor

performed and shall file a copy of the written notice in the recorder's
office of the county within sixty (60) days from the date of the first

delivery or labor performed.
26

Rose & Walker did not comply with the recording requirement but urged the
court to adopt a liberal reading of the statutory clause "shall file" that would
render the failure to record the notice letter with the recorder's office harmless

ifno third party was adversely affected. In rejecting Rose & Walker's argument,
the court of appeals identified two purposes furthered by the public filing
requirement. First, the filing puts the landowner on notice that a lien has been

placed on his property.
27

Second, the filing puts third party buyers on notice that

the Hen exists.28 Of course, that notice would also be of keen interest to other
third parties who might contemplate dealing with the real estate, including other
providers of materials or labor and creditors who might wish to secure an
extension of credit by a lien on the real estate.

The court of appeals noted that the second purpose of the public filing
requirement was left unfulfilled by Rose & Walker's failure to record its pre-lien
notice.

29
Instead of permitting a claimant to avoid the statute by demonstrating

that no actual harm had occurred to a third party, the court evaluated the validity
of Rose & Walker's mechanic's lien "in accordance with the strict rules of
construction applied to these statutes."

30
In so doing, the court of appeals also

supported the integrity ofthe public document recording system. An exception
to the recording requirement would have created a gap in the public records and

would have rendered those records less reliable for persons looking to acquire an
interest in real estate.

C. Venue and Recoverable Expenses: Ford v. Culp Custom Homes, Inc.31

In Ford, the court of appeals considered the proper venue for filing a

complaint to foreclose on a mechanic's lien and types of expenses that can
properly be included in a lien. In this case, the Fords entered into a contract with

Culp Custom Homes to build a house. Under this contract Culp was also to serve
as general contractor. In return, the Fords agreed to pay Culp the total

construction costs on a cost-plus basis and an eight percent contracting fee. Mrs.

Ford's parents provided the financing for the construction ofthe home, and they
recorded their mortgage against the real estate on August 9, 1995, in the office

ofthe Recorder of LaPorte County.

Construction began on May 30, 1995, and disputes about the construction

26. IND. Code § 32-8-3-1 (1998) (emphasis added)

27. See Rose & Walker, 721 N.E.2d at 902.
28. See id.

29. See id.

30. Id.

31. 73 1 N.E.2d 468 (Ind. Ct. App. 2000).



960 INDIANA LAW REVIEW [Vol. 34:955

began shortly thereafter. By August of 1995, the Fords had fired Culp, and Culp
terminated its work on the house. On October 1 3, 1995, Culp recorded its Notice
of Mechanic's Lien in LaPorte County. The amount of the lien included sums
due to Culp and due to another material supplier.

On October 31,1 995, Mrs. Ford's parents, as mortgagees, served Culp with
a Notice to Commence Suit within thirty days, pursuant to Indiana Code section
32-8-3-1 0. On November 25, 1995, Culp filed a complaint, including a claim to
foreclose its mechanic's lien, in the St. Joseph Circuit Court. The St. Joseph
Circuit Court later transferred the case to the LaPorte Circuit Court, which
accepted the transfer.

32 The Fords and the mortgagees filed motions to dismiss
the mechanic's lien foreclosure count of Culp's complaint. Both motions were
denied, and the Fords and the mortgagees appealed.

33

The venue issue arose because the mechanic's lien claimant, Culp, filed its
complaint to foreclose on mechanic's lien in a county other than the one in which
the real estate is located. The Fords and the mortgagees argued that Culp's
choice ofvenue rendered its mechanic's lien invalid. The court of appeals first
noted that even though Indiana Code section 32-8-3-3 (pre-lien notice filing
requirement) and Indiana Code section 32-8-3-6 (enforcement of mechanic's
lien) both specifically require the mechanic's filing to occur in the county in

which the subject real estate is located, the notice to commence suit provisions
ofIndiana Code section 32-8-3- 1 are silent as to where suit must be filed.34 To
effect harmony and consistency among statutes that are inpari materia, the court
ofappeals held that section 10 imposes the same venue requirement as sections
3 and 6. Despite Culp's failure to file its complaint to foreclose on its

mechanic's lien in the county where the real estate is located, the court ofappeals

concluded that Culp's claim was not subject to dismissal on that ground.35

Instead, the general venue rules of Trial Rule 75 required that the case be

transferred to the county where the real estate is located.

The court ofappeals concluded that the provision ofTrial Rule 75(D), which
says: "No statute or rule fixing the place oftrial shall be deemed a requirement
ofjurisdiction,"

36 means that the county where the subject real estate is located
is the preferred venue, but filing a complaint to foreclose on a mechanic's lien

in that county is not a jurisdictional requirement.
37 As a result, the trial rules

provide one exception to the generally observed rule that strict compliance with

the terms of the mechanic's lien statute is required for a trial court to have

jurisdiction over a mechanic's lien claim.

The second issue considered by the court ofappeals in Fordv/as the proper
economic components ofa mechanic's lien claim. Culp's claim contained three

components: 1 ) $22,301 .49 that Culp owed to one material supplier for lumber

32. See id at 471.

33. See id

34. See id at 472-73.

35. See id at 473-74.

36. Ind. Trial Rule 75(D).

37. See Ford, 73 1 N.E.2d at 473.



200 1 ] PROPERTY LAW 96

1

used on the project; 2) $15,510.99 owed to a second material supplier for
concrete products; and 3) Culp's eight percent contracting fee. The Fords and
the mortgagees challenged these components on the grounds that a mechanic's
lien claimant cannot assert a lien for labor or materials provided by third parties

and cannot assert a lien for profit, which is the way they characterized Culp's
contracting fee.

The Fords and the mortgagees further argued that Culp should not be
permitted to include in its claim sums owed to the two material suppliers because
both ofthose material suppliers had failed to send pre-lien notices and failed to

timely record their liens. The Fords and the mortgagees argued that to permit the
sums owed to these two material suppliers to be included in Culp's lien claim
would be to open a backdoor that would enable mechanics to avoid the
requirements of the mechanic's lien statute.

The Fords and the mortgagees' argument failed because ofCulp's status as
general contractor on the construction project. Culp was liable to the material
suppliers for the cost ofmaterials it ordered because, as general contractor, Culp
was responsible for furnishing the labor and materials for the project. Thus, the
court of appeals concluded that even though the materials originated from other

sources, Culp was asserting a lien on its own behalf and not on the behalf ofthe
suppliers to whom it was obligated.38 The court of appeals noted that the
remedial purpose ofthe mechanic's lien statute, including the prevention of"the

inequity of a property owner enjoying the benefits of the labor and materials
furnished by others without recompense,"

39
would be frustrated if a general

contractor were prohibited from asserting a lien that includes labor or materials

supplied by others when that general contractor is liable both to the owner and
to the subcontractors hired to complete the project.

40

The final disputed component of Culp's lien claim was its contracting fee.
The Fords and the mortgagees characterized this fee as profit, which had not
previously been considered an item for which a lien can be asserted under

Indiana Code section 32-8-3-1 . The court ofappeals acknowledged that section
1 of the mechanic's lien statute does not specifically mention profit as an item
that can be included in a mechanic's lien claim

41
but noted that a cost-plus

contracting fee has been recognized as lienable, so long as the contractor's work
included more than supervision.42

The court of appeals expanded the existing rule, and stated that profit is
indeed an item properly recoverable by way of a mechanic's lien under section
l.

43 The court concluded that "any claim for labor or materials reasonably

38. See id. at 474.

39. Mat 472.
40. See id. at 475.

41. See id.

42. See id. (citing Premier Invs. v. Suites of Am., Inc., 644 N.E.2d 124, 127 (Ind, 1994)).

43. See id. The exact words ofthe court are: "We decline to require that any person or entity

asserting a mechanic's lien must exclude from that lien any monies that constitute profit to the

claimant." Id. Stated positively instead of with multiple negatives, the court's holding is that a



962 INDIANA LAW REVIEW [Vol. 34:955

includes some degree of profit," and that "[ojperating expenses, such as
obtaining the supplies and delivering the product, are inseparably connected to
the 'cost' ofthe materials, and constitute labor and materials within the meaning
of the mechanic's lien statutes."

44

Ford may be an accurate recognition of the fact that materials and services
are provided by businesses and individuals on a for-profit basis, but a blanket
assertion that profit is a lienable item under the mechanic's lien statute should be

qualified by a requirement that the profit component must have been agreed to
by the land owner or agent purchasing material or labor on his behalf. The prices
charged by a material supplier or laborer, and upon which each may assert a
mechanic's lien, will necessarily already include a profit component that the
owner agrees to by virtue of his purchase of the supplies or labor. Similarly, a
contractor working on a cost-plus basis will have obtained the owner's agreement

to the plus-profit component before work begins.
What would not be proper is for a contractor to assert a lien for profit in the

sense of lost opportunity profits incurred as a result of the contractor's

termination prior to the completion of the project. In Ford, Gulp's contracting

fee profit must be restricted under the mechanic's lien statute to the percentage

of profit previously agreed to and to the amount ofmaterials and labor supplied
to the project before it was discharged. Whatever extra profit Culp might have
earned had the project continued to completion would not relate to materials and
labor provided for the improvement of the real estate, as required by section 1.

Whether such lost opportunity profit is recoverable under breach of contract
theory will depend on contract principles, but such profit should not be lienable

under the mechanic's lien statute.

D. Personal Liability Statute: Mercantile National Bank of Indiana v.
First Builders of Indiana, Inc.

45

In the final mechanic's lien case to be surveyed, Mercantile National Bank,

the court of appeals had to determine the responsibilities of the owner of real

estate to a material supplier who brought an action to foreclose a mechanic's lien
and to hold the owner personally liable for the cost of materials that were

provided to the project but for which the supplier had not been paid when the
cost of completing the project far exceeded the contract price.

In the spring of 1994, the Thompsons entered into a contract with First
Builders of Indiana, Inc. (FBOI) for the construction of a house. FBOI opened
an account with Schilling Brothers Lumber and Hardware (Schilling) for the
purchase ofbuilding materials. The Thompsons were aware ofthe existence of
this account and at various times selected items to be charged to it. By July
1994, the Thompsons noticed a number of construction deficiencies,

person or entity asserting a mechanic's Hen may include in that lien monies that constitute profit

to the claimant.

44. Id.

45. 732 N.E.2d 1287 (Ind. Ct. App. 2000).



200 1 ] PROPERTY LAW 963

unauthorized structural changes and variations from the agreed design. FBOI
assured the Thompsons that the problems would be remedied. In September and
December 1994, the Thompsons paid FBOI the first two construction draws
pursuant to their contract. Part ofthose draws was paid to Schilling for materials
supplied. The Thompsons continued to notice deficiencies in the construction
and, on December 22, asked FBOI to address them. When FBOI did not respond
to the Thompsons' complaints, they refused to pay the third draw and FBOI
ceased work on the house.

FBOI sued the Thompsons for failure to pay the third draw. Schilling
intervened and asserted a claim against the Thompsons and FBOI to foreclose on
its mechanic's lien and to obtain ajudgment against both defendants for the value
of the materials it had provided to the project. The Thompsons moved for
summary judgment on Schilling's mechanic's lien claim, and, for reasons not
stated in the appellate opinion, that motion was granted.46

After the Thompsons filed their motion for summary judgment on the
mechanic's lien claim, but before the trial court ruled on the motion, Schilling
sent to the Thompsons a notice of intent to hold the owner personally liable,
under Indiana Code section 32-8-3-9, for the balance of the cost of materials it
had provided. The trial court entered judgment in favor of Schilling on this
claim.

47
The Thompsons' first basis for challenging the decision ofthe trial court

was that no cause ofaction existed between Schilling and them. This argument
was based on the absence of any explicit reference to the personal liability
provisions ofthe mechanic's lien statute in Schilling's complaint. The court of
appeals rejected this argument by concluding that the presence ofthis issue could

be inferred from the pleadings.
48

Further, the court concluded that the issue had,

in fact, been tried with the implied consent ofthe parties, and thus the pleadings

were deemed amended to conform to the evidence.49

The Thompsons next argued that even if Schilling did assert a claim under
the personal liability statute, it could not recover from them because a
subcontractor's right to recover under the statute is limited to the amount of
money that the owner owes the contractor. The Thompsons argued that they did
not owe any money to FBOI because the cost to repair the defective work done
by FBOI far exceeded the amount they owed to FBOI under the contract. The
court of appeals rejected this argument as inconsistent with the purpose of the
personal liability statute.

50

Central to the court of appeals' analysis is the decision of McCorry v. G.
Cowser Construction, Inc. 51 The court of appeals quoted McCorry for the rule
that "the amount 'due' means the amount unpaid on the original contract, "which
amount would have been available for payment of subcontractors had the

46. See id. at 1289.

47. See id.

48. See id. at 1290.

49. See id. at 1290-91.

50. See id. at 1291.

51. 636 N.E.2d 1273 (Ind. Ct. App. 1994).



964 INDIANA LAW REVIEW [Vol. 34:955

contractor not defaulted.'"
52

Accordingly, a bona fide indebtedness exists from
the property owner to subcontractors after the contractor's default even if the
owner is compelled to pay more to have the construction completed properly than
he would have owed if the contractor had completed the contract.53 Any other
result, the court said, would mean that no subcontractor would ever be able to
recover under the personal liability statute after a contractor default, and the
purpose ofthe statute would be defeated.

54
That purpose, as stated by the court

of appeals, is "to protect a subcontractor 'from the consequences of the
contractor's absconding or going broke or otherwise defaulting' by providing to
the subcontractor a means ofshifting from himselfto the owner the burden ofthe
general contractor's financial difficulties."

55

The difference between this case and McCorry relates to the existence of
money unpaid to the contractor at the time of default. In McCorry, the home
owner had paid to the general contractor at the time oftermination only $ 1 08,300
out of a contract price of $170,000. The Thompsons, by contrast, apparently
contended that they had already paid out the full contract price by the time they
terminated their relationship with FBOI. Even ifthat were the case, the court of
appeals determined that several of the items that were included in the

Thompsons' calculation ofexpenditures had either been purchased by them and
had been credited against the contract price, were outside the scope of the

original contract, or were for upgrades from the original contract.
56 As a result,

the court held that the Thompsons had in fact paid to FBOI $70,000 less than the
contract price and thus were liable to Schilling for the nearly $43,000 it claimed

under the personal liability statute.
57

Mercantile National Bank demonstrates that an unwary owner can incur
liability for expenses in excess of the original construction contract price by

using the unpaid portion of the original contract to pay for extra-contractual

materials or labor to correct defective work by the original contractor and by his
own direct participation in the materials purchasing process. The answer to these
problems, ofcourse, lies in traditional owner-protection devices such as no-lien

contracts, lien waivers by material suppliers and laborers upon progress

payments, and checks paid jointly to the general contractor and subcontractors.

Although the availability of these remedies is restricted in commercial

construction projects by the 1999 revision ofthe mechanic's lien statute,
58
they

are still available to protect individual homeowners like the Thompsons. If a
homeowner fails to use available tools to protect his interests, or does not know

52. Mercantile Nat 7 Bank, 732 N.E.2d at 1 292 (quoting McCorry, 636 N.E.2d at 1 279).

53. See id.

54. See id.

55. See id. at 1291 (quoting McCorry, 636 N.E.2d at 1278).

56. See id. at 1292.

57. See id.

58. See Acts of April 23, 1999, Pub. L. No. 53-1999, 1999 Ind. Acts 292 (codified as

amended at IND. CODE §§32-8-3-1 to-3-15(Supp. 1 999)); see also Wilson, supra note 4, at 1406-

19.



200 1 ] PROPERTY LAW 965

about them, he may be compelled by the personal liability statute to pay twice.

II. Rights and Responsibilities of Real Estate Licensees

The property section of the 2000 edition of this law review contains an
extensive discussion ofthe fundamental changes made to the law governing the
relationship between real estate licensees and buyers and sellers of real estate.

59

In revisions made to Indiana Code sections 25-34.1-10-0.5 to -34.1-10-17, the
legislature eliminated the long-standing principle of subagency and substituted

a set of duties existing between a real estate licensee and a buyer or seller based

on a customer relationship.
60

Similar to the significant changes made to the
mechanic's lien statute in 1999, cases dealing with the changes made to the real
estate agency statute have not yet had an opportunity to make their way through
the appellate process. Nevertheless, two cases addressing rights and
responsibilities of real estate licensees and landowners under exclusive listing

agreements were addressed by the court of appeals during the survey period of
this article.

A. Exclusive Right to Sell Listing Agreement: Samar, Inc. v. Hofferth
61

In Samar Inc. , Hofferth brought a breach ofcontract claim against Samar for
failure to pay a real estate commission to Hofferth pursuant to an exclusive right

to sell listing agreement the parties had executed. The trial court entered a
judgment in favor of Hofferth,

62
and Samar appealed.

On April 1, 1997, Samar entered into a listing agreement with Hofferth, a
real estate broker. The agreement contained an "exclusive right to sell" clause
and was effective from April 1 to October 1, 1997. In addition, the agreement
contained an extension clause that provided:

In the event of any transfer of an interest in said real estate within 1 80

days after the expiration of this Listing Contract and its extensions, to

any person, firm or corporation who has been introduced, interested, or
shown the property during the exclusive period of [the] listing by the
Owner or by the Broker . . . Owner agrees to pay Broker a Commission
as provided by this Listing Contract. . . .

63

The exclusivity provision in favor of Hofferth would cease to apply only if
during the extension term Samar relisted the real estate with another broker under
an exclusive right to sell listing contract.

In August 1997, Hofferth showed Samar's property to Lalwani, L.L.C. In

September, Lalwani made an offer to purchase the property, and Samar accepted
that offer. Subsequently, a dispute arose between Samar and Lalwani, and the

59. See Wilson, supra note 4, at 1 4 1 9-3 1

.

60. Act of May 3, 1999, Pub. L. 130-1999, 1999 Ind. Act 696.

61. 726 N.E.2d 1286 (Ind. Ct. App. 2000).

62. See id. at 1288.

63. Id



966 INDIANA LAW REVIEW [Vol. 34:955

sale was canceled. When the listing agreement expired on October 1, 1997,
Hofferth refused to relist the property because of problems that had developed

with Samar, including Samar's request that Hofferth agree to a reduced

commission. Sometime later in October, Samar again negotiated with Lalwani
and asked Hofferth if he would "put the deal together" for a commission
significantly less than provided in the original listing agreement. Hofferth

declined and reminded Samar of the extension clause contained in that
agreement. Samar responded that he could defeat Hofferth's rights under the
original contract by relisting the property with another broker.

Thereafter, on October 23, 1 997, Samar entered into an exclusive right to sell
listing contract with another broker. However, Samar excluded one party from
this agreement, Lalwani. Under the new agreement, ifthe property were sold to
Lalwani the new broker would not earn a commission. On October 30, Samar
and Lalwani entered into an agreement for the sale ofthe real estate at the same
price as in Lalwani's previous offer. The new broker did nothing to facilitate the
sale, was paid only $ 1 500 for his time and was not paid a commission. Hofferth
sued Samar to recover the ten percent commission payable under the exclusive
listing agreement he had with Samar, and the trial court entered judgment in his

favor. Samar appealed, contending that the trial court erred when it concluded
that he had not relisted the property with another broker under an exclusive right

to sell contract.

The court of appeals identified the "pivotal issue" in determining whether
Hofferth was entitled to a commission as whether the contract that Samar entered
into with the second broker was an exclusive right to sell listing contract.

64
In

addressing this issue, the court of appeals stated that real estate brokerage

contracts are subject to the same rules ofconstruction as are applied to all other
types ofcontracts.

65 One such rule requires a court to interpret the language used
in a contract so as not to render any words meaningless; another rule requires a

court to further the paramount goal of carrying out the intent of the parties.
66

The court correctly identified the purpose of including an extension clause
in a real estate listing contract as providing protection for a broker who "has
expended time and effort in discovering a purchaser, but the sale of the listed

property to that purchaser does not occur until after the expiration ofthe term of

the listing contract."
67

There would be no protection if a buyer is found during

the term of the listing agreement, but the seller *"avoid[s] the commission

through the simple device ofwaiting until the brokerage contract had expired.'"
68

Samar clearly intended to avoid paying a commission to Hofferth. He not
only attempted to avoid paying a commission to Hofferth by waiting to sell after

the end of the term of the listing agreement but he also entered into a new
agreement with a second broker, which excluded Lalwani, a buyer procured by

64. See id at 1289.

65. See id at 1290.

66. See id.

67. Id

68. Id (quoting Ackerman v. Dobbs, 580 N.Y.S.2d 793, 795 (App. Div. 1992)).



200 1 ] PROPERTY LAW 967

Hofferth. This behavior was transparent, and the court of appeals refused to
permit Samar to avoid its contractual obligations to Hofferth.

69

It is important to note that the court did not invalidate clauses that exclude

certain potential parties from exclusive right to sell listing agreements. There is

no question that such exclusions can be included when the exclusive right to sell
agreement is originally executed.

70
They are not permissible, however, "where

the party [sought to be excluded by the seller] is subject to an extension clause

and the buyer sought to be exempted is one to whom the extension clause
applies."

71
There is also no dispute that an owner ofreal estate can avoid paying

a commission to a broker if the parties have executed a non-exclusive listing

agreement and ifa buyer is located solely by the efforts ofthe owner. Apart from

these two situations, however, the law will protect the broker's legitimate
expectation of a commission as agreed in the listing contract and will reject an

owner's attempts to obtain the benefits ofa broker's services without paying for

them.

B. Exclusive Right-to-Sell Agreements: Rogier v. American Testing

& Engineering Corp.72

In Rogier, the court ofappeals was presented with wide-ranging set of issues
relating to an exclusive right-to-sell agreement. These issues included:

determining whether a listing agreement was an exclusive right-to-sell contract
or an exclusive agency contract; whether the agreement had terminated by the
passage of time; whether the agreement was void for lack of consideration;
whetherthe agreementwas void for lack ofmutuality; whether the agreement had
been revoked by the passage often years after the date ofexecution; whether the

broker had abandoned the agreement by not contacting the seller for two years;

whether the broker had waived his rights under the agreement as a result of

failing to communicate with the seller; whetherthe agreement was unenforceable
because the broker had failed to disclose the exclusive right-to-sell feature ofthe

agreement to the seller; and whether the seller had repudiated the agreement and

thereby precluded the broker from performing his duties. At the heart of all of

these issues is the same fundamental problem that lay at the heart ofthe Samar
case—under what circumstances does a broker earn a commission under an
agency agreement.

The facts of this case are lengthy, but an understanding of the actions and
chronology is important for understanding the court's opinion. Rogier was a
marketing consultant who was experienced in sales, mergers, and acquisitions of
commercial businesses, including environmental firms. American Testing &
Engineering Corp. (ATEC) was an environmental engineering firm. By 1984
ATEC's president had decided to sell the business, and on April 24, 1 984, ATEC

69. See id.

70. See id.

71. Id.

72. 734 N.E.2d 606 (Ind. Ct. App. 2000).



968 INDIANA LAW REVIEW [Vol. 34:955

and Rogier entered into a listing agreement whereby Rogier would seek suitable
buyers. That agreement contained a clause that read: "6. EXCLUSIVE
AGENT. [ATEC] appoints [Rogier] as the exclusive agent with an exclusive
listing and all prospective buyers shall send copies of all correspondence and
purchase offers to [ATEC] and [Rogier]."73 If Rogier's services resulted in a
"merger, acquisition, joint-venture, sub-contract, association, teaming or

employment contract,"
74

the buyer, not ATEC, would pay Rogier. ATEC was
obligated, however, to provide Rogier with its financial and business records so
that Rogier could make presentations to prospective buyers. These records were
referred to as "presentation materials."

From 1984 to 1990, Rogier "routinely" contacted ATEC with opportunities
to sell the company, but ATEC's president did not begin to take "active steps"
to sell until 1990. This six-year period of inactivity by the seller proved to be
significant for the court of appeals is recognizing the continuing validity of the

listing agreement following periods of apparent inactivity by Rogier.

In June 1990, Rogier entered into a search agreement with Baker, a large

engineering firm that was looking to acquire businesses like ATEC. The search
agreement provided that Rogier would be paid a commission of five percent of
ATEC's gross income for the year prior to sale if Baker purchased ATEC. It
further provided that Baker would pay Rogier two percent of that gross income
immediately upon Rogier's sales presentation even in no purchase occurred.

From mid- 1 990 to the end of 1 993, Rogier did not communicate with ATEC.
Despite that lack of communication the trial record reflected that Rogier

continued to work under listing agreement but that ATEC was unaware of his
work. On or about January 21,1 994, Rogier notified ATEC in writing that Baker
was interested in acquiring ATEC. Rogier asked ATEC to sign a "purchase offer
letter" authorizing him to present ATEC to Baker as a possible acquisition
candidate. ATEC eventually responded to Rogier's request and agreed to
provide the presentation documents so that Rogier could Baker could make a
"realistic offer."

On May 26, 1994, Baker reaffirmed its interest in making an offer to buy
ATEC and asked Rogier to obtain certain additional financial information. In
June and July, Rogier communicated with both ATEC and Baker to finalize a
deal, but he was unable to make a sales presentation because ATEC refused to
provide the requested financial and operations data. On July 29, 1994, Baker
advised Rogier that it was no longer interested in acquiring ATEC. Rogier's last
communication with ATEC was on July 29, 1 994, although he continued to work
under the listing agreement after that date.

In mid- 1994, without informing Rogier, ATEC initiated contacts with
another interested buyer, ATC. ATEC provided financial and operations data to
ATC. In 1996 ATEC sold its business to ATC for "a large eight-figure sum"
without involving Rogier or any other broker. In other words, ATEC sold its
business "By Owner" when it was arguably subject to a listing agreement with

73. Id. at 61 1 (brackets in original).

74. Id.



200 1 ] PROPERTY LAW 969

Rogier.

When Rogier learned of the sale through a business journal, he filed suit
against ATEC alleging that ATEC breached the listing agreement by: 1 ) refusing
to provide the presentation materials so that Rogier could makes a sales
presentation to Baker and 2) filing to disclose the existence of the sale. As a
result ofATECs alleged breach, Rogier argued that he was damaged by the lost
opportunity to make a sales presentation to Baker and by the loss of a
commission on the sale to ATC. The trial court entered summary judgment in
favor of ATEC, concluding that Rogier had sustained no damages as a result of
ATEC's conduct and that the listing agreement was unenforceable, had
terminated, or was abandoned or waived by Rogier as a matter of law.

75
Rogier

appealed. The court ofappeals affirmed the trial court's ruling with regard to the
"lost opportunity" damages relating to his inability to make a presentation to
Baker but reversed the trial court's decision with regard to Rogier's claim that
he was entitled to receive a commission on the sale to ATC by virtue of an
exclusive right-to-sell clause in the listing agreement.

76

Because ofthe large number of issues raised by the parties in this case, the
court ofappeals' decision contains a thorough review of rules relating to broker
listing agreements. This article will not attempt to review all of those issues.

Instead it will focus on the fundamental issues of determining the nature of the

agreement between Rogier and ATEC and the impact that determination has on
Rogier's claim that a commission had been earned and was payable by ATEC.

ATEC argued that under the listing agreement it retained the discretion to
sell its own business, and that the agreement conferred on Rogier an exclusive
listing but not an exclusive right to sell. Under this view, Rogier's commission
would be earned only if he were the "procuring cause" of the sale of ATEC's
business. Rogier argued that the listing agreement conferred on him an exclusive
right to sell ATEC's business, which meantthat his commission was earned even
in he were not the procuring cause. The court of appeals agreed with Rogier.

77

The court of appeals began its analysis of the listing agreement by stating
that "[i]t has long been the rule in Indiana that a broker earns its commission

when it causes a sale or procures a buyer ready, willing, and able to purchase."78

The court added that "in the absence of a special contract to the contrary,"
79
a

broker must be the procuring cause to be entitled to receive a commission. But,
"[n]ot withstanding the doctrine of procuring cause, Indiana courts will enforce

specific provisions in a listing contract which allow a broker to earn a

commission under other circumstances."
80

With regard to such circumstances,

the court ofappeals observed that "a listing contract may grant a broker the right
to a commission even if the broker did nothing to contribute to the sale of the

75. See id. at 613.

76. Mat 621-22.
77. See id. at 615.

78. Id

79. Id.

80. Id.



970 INDIANA LAW REVIEW [Vol. 34:955

property and regardless of whether the sale was effected by the broker or the
owner or by any other person."

81
Rogier's claim for payment of a commission

on ATEC's "by owner" sale to ATC depended, therefore, on whether the listing
agreement the parties signed was an exclusive agency agreement or an exclusive
right-to-sell agreement. Because he was not the procuring cause of the sale to
ATC, ATEC would be liable to Rogier only under the latter.82

In deciding on the nature of the listing agreement, the court of appeals

"lookfed] to the particular language ofthe contract."
83 The court applied "well-

settled principles of contract interpretation" to that language "as with any other
contract."

84
Finding no ambiguity in the contract language, the court ofappeals

sought to apply the contract as the parties had agreed, especially the language in

paragraph six. That paragraph provided first that Rogier was "the exclusive
agent with and exclusive listing." This language supports the existence of an

exclusive agency agreement but does not grant an exclusive right to sell. For that

right to have been conferred on Rogier, it would have to be found in the
remaining language in paragraph six, which provided that "all prospective buyers

shall send copies of all correspondence and purchase offers to [ATEC] and to
[Rogier]."

The court ofappeals concluded that the "plain and ordinary meaning" ofthis
clause was that "Rogier shall be informed ofand shall participate in negotiations
with all prospective buyers, without exception and regardless ofhow they were
procured."

85
Because ATEC had agreed to involve Rogier in negotiations with

all prospective buyers, the court ofappeals concluded that it had relinquished its

right to exclude him form negotiations with any buyer, which had the effect of
conferring on Rogier an exclusive right to sell and of depriving ATEC of the
ability to sell its business on its own. Once exclusive sale rights were found in
Rogier, he no longer needed to be the procuring cause of a sale to earn a

• . Of.

commission.

The Rogier opinion confirms the validity of exclusive right-to-sell listing
agreements and reaffirms the rule that for a commission to be deemed earned
under such an agreement, the broker need not have been the procuring cause of

the sale. Accordingly, the law gives a specialized meaning to the word "earn."
Taken together, Rogier and Samar provide reassurance to brokers that once a

81. Id.

82. The court ofappeals concluded that Rogier could not recover damages from ATEC from
his inability to make a sales presentation to Baker, and thereby earn an immediate two percent

commission, because such damages were not foreseeable at the time Rogier and ATEC entered into
their listing agreement. The terms ofthe Rogier—Baker agreement differed significantly from the
terms of the Rogier—ATEC agreement, and ATEC would have had no way at the time of
contracting with Rogier that its actions would have resulted in a loss to him under a contract to be

executed in the future with an unknown party. See id at 613-14.

83. Id. at 616.

84. Id.

85. Id. (emphasis in original).

86. See id.



200 1
]

PROPERTY LAW 97

1

commission has been earned, as defined in the listing agreement, sellers are not
likely to escape the obligation to pay.

The remainder ofthe Rogier opinion considered whether the exclusive right-
to-sell agreement was "otherwise valid" in light of challenges raised by ATEC
based on uncertainty of duration, lack of mutuality of obligation, lapse due to
passage of time, and waiver. While the opinion contains a good review of the
rules pertaining to each of these issues, the waiver arguments are interesting

because they raise questions about the nature of disclosure that a broker must
make to a seller concerning the exclusive right to sell clause and about the nature
ofthe understanding by the seller ofthe impact ofthat right on the seller's ability
to sell his property on his own.

ATEC argued that Rogier waived any exclusive right to sell because he never
"discussed" the exclusivity of their relationship with ATEC. The court of
appeals rejected this argument by stating that "[i]rrespective of what Rogier
'discussed' with ATEC, the clear and unambiguous language oftheir exclusive
listing agreement conferred upon him an exclusive and unequivocal right to sell
ATEC's business."87 This conclusion exemplifies often taken by the law in
transactions involving commercial parties. In such transactions, the parties are

presumed to be able to protect themselves and are not thought to need any extra

assistance from the law. This presumption does not apply to transactions

involving individuals, and the law often requires that certain contract terms be

brought to the special attention of individuals, such as requiring the term to be

printed in conspicuous type or by requiring the term to be typed on a separate
paper that must then be signed by the individual.

88
It could reasonable be

presumed that ATEC, a business worth "eight figures," was guided by
sophisticated managers. Can the same assumption always be made whenever a
business is a party to a listing agreement? Are individuals who form a closely
held corporation as their first business venture or to operate a "mom and pop"
company automatically vested on commencing business with sophistication?
Under the right facts in a future case a reasonable argument could be made that
a broker should be required to make some degree ofdisclosure and discussion of
the nature and effect ofan exclusive right-to-sell agreement to the seller for that

agreement to be enforceable.

III. Landlord-Tenant Relations

The field of landlord-tenant relations law was dominated in 1999 by the
Indiana Supreme Court's decision in Johnson v. Scandia Associates, Inc.*

9
in

which the court held that a warranty of habitability to support a personal injury

action could not be implied as a matter of law into all residential real estate

87. Id. at 620.

88. See, e.g., Ind. Code §§ 32-15-7-9 and 24-5-1 1 .5-13 (2000) (stating the requirements for

waiver of implied warranties in new home construction and improvement of exiting homes).

89. 717N.E.2d24(Ind. 1999).



972 INDIANA LAW REVIEW [Vol. 34:955

leases.
90

Johnson, which was reviewed and analyzed in the 2000 survey issue of
this law review,

91
considered the proper roles oftort law principles and contract

law warranty principles in residential leases. The supreme court refused to imply
a warranty of habitability into all residential leases because it considered such a
warranty to be a creature of contract and contract terms must be based on
agreement of the parties. Although the court acknowledged that a warranty of
habitability could arise by express agreement, or could be implied in fact by
course ofdealing or ordinary practices in the trade, it refused to otherwise imply
a warranty.

92
The court concluded that to do so would violate the contract law

principle that "[c]ontracts are private, voluntary allocations by which two or
more parties distribute specific entitlements and obligations" and would impose
an involuntary risk distribution more appropriate under tort law.93

One appellate opinion issued during this survey period, Zawistoski v. Gene
B. Glick Co., Inc.,

94
continues the debate over the place of implied warranties in

residential leases. Two other cases, City ofIndianapolis Housing Authority v.
Pippin

95
and Schoknecht v. Hasemeier,

96
address two additional landlord-tenant

issues: premises liability in tort for landlords for personal injuries sustained by
tenants at the hands of third-party non-residents and landlord compliance with

Indiana's Security Deposits statute.
97

A. Breach of Warranty Claims: Zawistoski v. Gene B. Glick Co., Inc.
98

Zawistoski implements and reinforces the analysis, originating in the supreme

court's opinion in Johnson v. ScandiaAssociates, Inc.,
99
ofthe inapplicability of

breach of warranty theory to claims filed against landlords by lessees of

residential real estate for personal injuries sustained on the leased property.
100

The facts of the Zawistoski case are relatively simple. In 1991, Zawistoski and
Glick entered into a lease agreement for an apartment in a complex in
Bloomington, Indiana. Glick had advertised the apartment complex as designed
for individuals sixty-two years ofage and older and as accessible for individuals

with disabilities or limited mobility. After residing in the complex for six years,

Zawistoski tripped on a raised portion of a sidewalk in a common area and
sustained a fractured neck.

Zawistoski sued Glick and asserted claims based on negligence and breach

90. See id, at 32.

91

.

See Wilson, supra note 4, at 1 447-52.

92. See Johnson, 7 1 7 N.E.2d at 3 1

.

93. A* at 29,

94. 727 N.E.2d 790 (Ind. Ct. App. 2000).

95. 726 N.E.2d 341 (Ind. Ct. App. 2000).

96. 735 N.E.2d 299 (Ind. Ct. App. 2000).

97. See IND. CODE §32-7-5-14 (2000).

98. Zawistoski, 121 N.E.2d at 790.

99. 717 N.E.2d 24 (Ind. 1999).

1 00. See Zawistoski, 727 N.E.2d at 79 1

.



2001] PROPERTY LAW 973

of contract. She later amended her complaint to add a breach ofwarranty count.
Glick moved for summary judgment on the breach of warranty and breach of
contract claims. The trial court granted Glide's motion, concluding that the lease
agreement did not create an express warranty that Glick would ensure that the
common areas were in a safe condition. 101 After Glick prevailed on the
negligence claim at trial, Zawistoski appealed the grant of Glick's motion for

summary judgment on the breach of warranty and breach of contract claims. 102

Zawistoski' s breach of warranty claim was based on her theory that a
provision ofthe lease agreement created an express warranty. Alternatively, she

argued that an express warranty was created by the content of Glick's
promotional advertisements. The lease provision in which Zawistoski saw an
express warranty was paragraph 10(a), which stated: "The Landlord agrees to

.

. . maintain the common areas and facilities in a safe condition."103 The court of
appeals concluded that this lease provision simply restated the existing common
law that a "landlord has a duty of reasonable care that the common ways and
areas are maintained in a reasonably fit and safe condition."

104 The court of
appeals contrasted this duty with the duty imposed by a warranty, which is "a
promise relating to a past or existing fact that incorporates a 'commitment by the
promisor that he will be responsible if the facts are not as manifested.'"

105 The
court ofappeals found the existence ofa warranty commitment that defects will
never exist to be inconsistent with other provisions of the lease, such as

provisions that imposed on tenants a duty to report the existence of defects and

that imposed on Glick the obligation to make necessary repairs. 106 Such
provisions have meaning only if paragraph 10(a) is read as a restatement of the
common law rule.

The court of appeals also rejected Zawistoski's argument that Glick's
advertisements referring to the apartment complex as accessible for the elderly
created an express warranty by stating that there was no evidence that she did not
receive the benefit ofthe advertised amenity or that she gave any consideration
for it.

107
Zawistoski had, after all, been content with the amenities of the

apartment complex as, by the time ofher accident, she had renewed her lease to

reside there for a total of six years.

Zawistoski is perhaps as noteworthy for the line ofreasoning it uses, and the

line of reasoning it rejects, as for its result. The tenant in Johnson urged the
supreme court to imply a warranty of habitability into leases for residential
property. The supreme court refused to imply such a warranty and relied on an
analysis that viewed a lease in the same manner as any other contract and viewed
obligations voluntarily assumed by agreement ofthe parties as the heart ofa lease

101. See id. at 792.

102. See id

103. Mat 793.
104. Id

105. Id. (quoting Johnson v. Scandia Assocs., Inc., 717 N.E.2d 24, 28 (Ind. 1999)).

106. See id.

107. See id. at 794.



974 INDIANA LAW REVIEW [Vol. 34:95 5

contract.
108

The supreme court acknowledged that warranties could arise with
regard to residential leases but said they would have to be expressly stated or be
implied from the landlord's conduct.

109

Zawistoski tried to argue that a lease provision created an express warranty.

The court of appeals, in its analysis of that claim, signaled an emphasis on the
presence of an express bargained-for agreement between the parties. This
emphasis, which is consistent with the supreme court's analysis in Johnson,
means that express warranties in residential leases will have to be clearly stated
to be enforceable and that such warranties will not be found to exist by inference
from ambiguous or non-specific lease terms.

B. Determining the Scope ofa Landlord 's Duty ofCare:
City of Indianapolis Housing Authority v. Pippin

110

In Pippin, the court of appeals was called upon to determine the scope of a
landlord's duty to use reasonable care to protect a tenant from harm in the
common areas of residential apartment complexes. In deciding the case, the
court of appeals rejected a narrow view of a landlord's duty that would impose
liability only where the events that actually occurred were themselves foreseeable

and instead utilized a broader view of duty that permits liability to be imposed
when a category ofevents, which includes the events that actually occurred, was
foreseeable.

111

The City of Indianapolis Housing Authority (Housing Authority) operated
a residential apartment complex and the Pippin family occupied one of the

apartments in the complex. One day, fourteen-year-old Angela Pippin was
playing basketball with friends at a portable basketball goal set up in the area of
the apartment complex that was paved for vehicular traffic. On that same day,
a twelve-year-old boy used a screwdriver to start an abandoned car that had been

left in the apartment complex parking lot. The boy lost control of the car and
struck several children, including Angela who died from her injuries. Angela's
parents filed a wrongful death suit against the Housing Authority. They alleged
that the Housing Authority was negligent in failing to provide a safe area for
resident children to play and in failing to address a persistent problem of stolen

vehicles being abandoned on the property.

The Housing Authority filed a motion for summaryjudgment contending that
as a matter oflaw the Pippins could not establish that it owed any duty to Angela
and that its actions were not the proximate cause of her death. The trial court

denied the Housing Authority's motion, and the case was tried to ajury.
1 12

At the

close of the Pippins' case, the Authority moved for judgment on the evidence,

108. See Johnson, 717 N.E.2dat29.

109. See id at 30-31.

1 10. 726 N.E.2d 341 (Ind. Ct. App. 2000).

111. See id at 346.

112. See id at 344.



200 1 ] PROPERTY LAW 975

which was denied.
113 The jury found in favor of the Pippins and awarded

$163,000 in damages.
114 The Housing Authority appealed.

The court ofappeals began its analysis by reaffirming basic principles oftort
law. It restated the fundamental position of duty in tort analysis by noting that

"[a]bsent a duty owed to a plaintiff by the defendant, there can be no actionable
negligence," and that "[w]hen found to exist, the duty is to exercise reasonable

care under the circumstances."
n5

This duty "never changes," but "the standard

of conduct required to meet that duty varies based on the circumstances."
116

Determining of the existence of a duty in a particular case requires a court to

"balance three factors: 1 ) the relationship between the parties; 2) the reasonable

foreseeability of harm to the person injured; and 3) public policy concerns."
117

The first factor was easily established because the Pippins had lived in the
apartment complex for approximately four years prior to the events that resulted
in Angela's death. As a result of the landlord-tenant relationship, the Housing
Authority had "a duty of reasonable care to see that the common areas or areas
under [its] control [were] reasonably fit."

118
This factor, the court concluded,

weighed in favor of finding a duty on the part ofthe landlord to protect Angela
from harm when she used the basketball goal. 119

With regard to the foreseeability ofharm, the Housing Authority argued that
it was not foreseeable that a twelve-year-old boy would use a screwdriver to start
a stolen car and then lose control of that car and cause injury. The court of
appeals said that the Housing Authority's view ofboth the identity ofthe plaintiff

and the nature ofthe harm was too "cramped."
120 A more appropriate view ofthe

foreseeability factor "requires a general analysis ofthe broad type ofplaintiffand

harm involved, without regard to the facts ofthe actual occurrence."121 Here, that
broad analysis would be whether it was foreseeable that a child (not necessarily
Angela) playing basketball at a goal erected and maintained by the Housing

Authority in a paved area designed for vehicular traffic (not necessarily stolen

vehicles) might be struck and injured by a vehicle (not necessarily driven

erratically by a twelve-year-old boy). The conclusion, the court said, did not
stretch the imagination and weighed in favor of the existence of a duty for the

Housing Authority in this case.
122

The court ofappeals also found that public policy considerations supported
imposing a duty on the Housing Authority in this case because such a duty would

be consistent with existing notions ofa landlord's duty to use reasonable care to

113. See id.

114. See id.

115. Id. at 345.

116. Id.

117. Id.

118. Id.

119. See id.

120. Id. at 346.

121. Id.

122. See id.



976 INDIANA LAW REVIEW [Vol. 34:955

see that common areas under its control are reasonably fit. 123 Specifically, the
court concluded that "[s]uch a duty would require all multi-family housing
complexes to consider the safety ofthe areas in which resident children play."

124

For the court, all three factors used to determine the existence ofa duty weighed
in favor of finding a duty owed to Angela by the Housing Authority.

The court also found that the issue ofproximate cause was appropriately left
to thejury.

125
Foreseeability in the context ofestablishing proximate cause does

not require that a similar act have occurred in the past to put the Housing
Authority on notice that injury might occur in the future. Other circumstances
in existence prior to a particular injury can be sufficient to support foreseeability.

Here, such support came from the fact that the Housing Authority had control
over the paved area where the basketball goal was located, that management of
the apartment complex knew prior to Angela's death that the goal was in a paved
area, and that the goal had been present in the paved area for several months.

Unless only one conclusion can be drawn from such circumstances, the presence

of proximate cause is a matter for the finder of fact and cannot be resolved on a
motion for summary judgment. 126

C. Content and Purpose ofthe Security Deposits Statute 's
Notice Provisions: Schoknecht v. Hasemeier

127

In Schoknecht, compliance with landlord notice provisions of Indiana's

Security Deposits statute
128 was at issue. This statute sets forth specific

circumstances under which a landlord can retain money deposited by a tenant as
a security deposit. A landlord may not deduct any sum from a security deposit
that is not identified in section 13 ofthe statute.

129
Further, a landlord must mail

to a tenant within forty-five days after the termination ofthe tenant's occupancy

an itemized list of damages that the landlord claims may be deducted from the
security deposit, "including the estimated cost for each damaged item and the
amounts and lease on which the landlord intends to assess the tenant."

130
If the

landlord complies with the statutory notice provision, he may "retain the tenant's
security deposit and apply it towards 'the amount of damages that the landlord
has or will reasonably suffer by reason ofthe tenant's non-compliance with the

law or rental agreement.'"
131

If the landlord fails to comply with the notice
provisions, the absence of notice "constitutes agreement by the landlord that no

123. See id

124. Id.

125. See id at 346-47.

1 26. See id. The court ofappeals used the same forseeability analysis to reject the Authority's

appeal of the denial of its motion for judgment on the evidence. See id. at 347-48.

127. 735 N.E.2d 299 (Ind. Ct. App. 2000).

128. Ind. CODE §32-7-5-14 (1989).

129. Ind. Code § 32-7-5-13 (1989).

1 30. Schoknecht, 735 N.E.2d at 302.

131. Id. (quoting Ind. Code § 32-7-5- 12(a)(2) (1995)).



200 1 ] PROPERTY LAW 977

damages are due, and the landlord must remit to the tenant immediately the full
security deposit."

132
The purpose of the statute is to restrict a landlord's set-off

claims against a tenant's security deposit to only those items approved by the

legislature and to provide for a timely return ofthe tenant's deposit ifnone ofthe

approved uses is present.

Schoknecht, the landlord, and Hasemeier, the tenant, entered into a lease

agreement for residential property, which included a $750 security deposit.
Landlord claimed that tenant subsequently defaulted by committing waste on the
property and by failing to make lease payments when they became due. Landlord
became entitled to possession ofthe leased property on May 1, 1997, by virtue
of a judgment entered on a complaint for damages that the landlord had filed
against tenant. On June 12, tenant requested the return of her security deposit.
Landlord replied on June 13 by letter in which landlord claimed damages in
excess ofthe amount oftenant's security deposit. Landlord's letter contained an
itemized list of damages and the estimated cost of repair.

Following procedural maneuverings not relevant to the issue raised on

appeal, tenant filed a motion for summaryjudgment against landlord's damages
claim. Tenant argued that landlord's June 13 letter failed to comply with the
notice requirements of the Security Deposits statute because it contained

damages that landlord was not legally entitled to deduct from tenant's security
deposit. The trial court granted tenant's motion, and landlord appealed. 133

Landlord liability for failure to comply with the notice requirements of the
statute arises: where "1) that landlord erroneously calculates the tenant's
damages, 2) the tenant resorts to legal action to collect all or part of his deposit,

and 3) the tenant was entitled to a return to a refund of all or part ofthe tenant's
deposit."

134
Hasemeier argued that Schoknecht failed to comply with the statute

because the notice letter contained items that the landlord was not entitled to
deduct and he failed to substantiate the estimated costs of repair. Accordingly,

the court of appeals was required to decide what content of a notice letter is
sufficient to satisfy the statutory requirements.

135

In determining that Schoknecht's June 13 letter did not violate the security

deposits statute, the court ofappeals noted that the statute applies only to claims

made against security deposits and that Indiana Code section 32-7-5- 12(c) does
not preclude a landlord from asserting other claims against a tenant.

136 The court
concluded that landlord had a right, under the terms of the lease agreement, to

seek recovery for items that could not be recovered under the statute and that the

landlord did not violate that statute by including the contractually permitted

items with the statutorily permitted items in one letter.
137

In other words, the

notice letter content requirements of Indiana Code section 32-7-5-14 do not

132. Id. (quoting Ind. Code § 32-7-5-15 (1989)).

133. See id.

134. Id. (citing Rueth v. Quinn, 659 N.E.2d 684, 689 (Ind. Ct. App. 1996)).

135. See id. at 302-03.

136. See id. at 303.

137. See id.



978 INDIANA LAW REVIEW [Vol. 34:955

require that a letter be sent for purpose of statutory compliance only, to the
exclusion of other matters pertaining to the landlord-tenant relationship.

Consistent with this reasoning, the court ofappeals concluded that inclusion
of items of alleged damage outside the scope of the statute could not constitute
an erroneous calculation of damages to meet the test developed in Reuth. 138

Further, the court stated that there was no requirement for the landlord to
separate the damages within the scope of the statute from those outside its
scope,

139
Finally, the court rejected tenant's claim that landlord's letter did not

comply with the statute because it failed to substantiate the alleged damages.
The court concluded that the statute does not require a landlord to substantiate
his damages; it only requires him to itemize the damages and estimate the cost
of repair.

140
Substantiation of those items is a matter left for trial.

Schoknecht makes it clear that the notice requirements of the security
deposits statute are intended merely to make a tenant aware that the landlord is
asserting a claim against tenant's security deposit. That notice must be specific
enough to set forth an itemized list ofdamages and an estimated cost ofrepair for
each, but the substantive rights ofthe parties under the lease, the factual support

or lack of factual support for claims asserted, and the substantiation of damage
amounts are left for further proceedings.

IV. Premises Liability of Landowners to the Public

Miles v. Christensen
141

is closely related to Pippin, in that both cases

involved premises liability for owners of real estate and the establishment of

limits of that liability based upon foreseeability analyses. However, Pippin

occurred in the context of an on-going landlord-tenant relationship with the

plaintiffs injury occurring on the defendant's land, whereas Miles considered a

landowner's liability to the public at large for injuries that occurred off the

landowner's land on an adjoining roadway. The court of appeals in Miles
refused to approve a foreseeability test based solely on the status ofthe land as

urban or rural but instead made the intensity ofthe use ofroads abutting the real
estate just one factor in a broader test of foreseeability of harm to users of that
road.

142

The court identified one issue on appeal: "whether owners of rural land
abutting a public road owe a duty to care for or remove decaying or dead trees
located on their land so as to protect people traveling on the public highway."

143

The Mileses owned land abutting a state highway approximately one mile east
ofthe City ofPeru. On March 13, 1995, twenty-one-year-old Jason Christensen
rode his motorcycle on that highway and a dead elm tree, which was located on

138. See id.

139. See id.

140. See id.

141. 724 N.E.2d 643 (Ind. Ct. App. 2000).

142. See id. at 646.

143. Mat 644.



200 1 ] PROPERTY LAW 979

the Mileses' land fell and struck him. Jason died as a result of the injuries he

sustained. Apparently "the tree had been dead for years and was visible from the
perimeter of the property."

144

Jason's parents filed a wrongful death action against the Mileses, alleging

that the Mileses were "negligent in failing to maintain their real estate in a

reasonably safe condition and in failing to inspect their land and correct the

danger caused by dead or dying trees."
145 The Mileses filed a motion for

summary judgment contending that they owed no duty to Jason and therefore
could not be liable for his death. The trial court denied the Mileses' motion, and
they appealed.

146

The starting point for the court of appeals in analyzing what duty, if any, a
landowner has with regard to trees and other natural conditions of his land, was
the Indiana Supreme Court's opinion in Valinet v. Eskew.

147
Valinet noted the

"general rule of nonliability [of landowners] for natural conditions on land"
148

and explained the modifications made to that rule over time. The general rule
was said to have arisen at a time when land was largely unsettled and, absent
actual knowledge of a dangerous natural condition, "the burden imposed on a
landowner to inspect it for safety was held to exceed the societal benefit of
preventing possible harm to passersby."

149
Later, a rule evolved that imposed a

duty to inspect on landowners in more heavily populated areas, in an attempt to
prevent unreasonable risk of harm to persons using the roadway. The rationale
for this rule was that "the risk ofharm to highway users is greater and the burden
of inspection on landowners is lighter in such populated areas."

150 As a result,
the Valinet court approved "differing duties placed on owners of land with

respect to differing demographics."
151

For the Mileses, the distinction between "differing demographics" became
rigidly compartmentalized into two classifications, urban versus rural. The
Mileses found support for their argument in section 363 of the Restatement

(Second) of Torts,
152

which distinguishes between "urban" and other kinds of

land and "imposes liability for harm only when the land is urban in nature." 153

The majority opinion in Miles154 rejected an analysis of landowner liability
based on an urban versus rural distinction on two grounds. First, the court of
appeals found no language in Valinet indicating that a determination of a

144. Mat 645.
145. Id.

146. See id

147. 574 N.E.2d 283 (Ind. 1991).

1 48. Miles, 724 N.E.2d at 645 (quoting Valinet, 574 N.E.2d at 285).

149. Id (quoting Valinet, 574 N.E.2d at 285).

1 50. Id. (quoting Valinet, 574 N.E.2d at 285).

151. Id. (quoting Valinet, 574 N.E.2d at 285).

1 52. Restatement of Torts (Second) § 363 (1 965).

1 53. Miles, 724 N.E.2d at 646.

1 54. Judge Mattingly wrote the opinion for the court and was joined by Judge Bailey. Judge

Baker concurred in the result and wrote a separate, brief opinion.



980 INDIANA LAW REVIEW [Vol. 34:955

landowner's duty depends solely on this distinction. In fact, the court determined
that "Valinet calls for a more sophisticated analysis of the duty question,
requiring a consideration of factors such as traffic patterns and land use in the
relevant area."

155 The court found that the urban-rural distinction merely
provides a starting point for analysis.

156

Second, the court of appeals examined the public policy considerations
implicated in the scope of duty question.

157 The court noted the extended
network of developed roadways in Indiana and the pervasiveness of motor
vehicle travel, two factors that combine to expose "a significant portion of the
public ... to danger insofar as natural conditions of property may menace
travelways and threaten the passage of motor vehicles."

158 As such, the court
concluded, "sound public policy dictates that 'in light ofour increasingly mobile

society, highways must be kept free from obstructions and hazards."'159

Implementing this policy required recognizing a rule that a "landowner may,
under certain circumstances, owe a duty of reasonable care as to those who,
while outside of the land, suffer harm from the land's natural conditions."

160

Against this backdrop, the court of appeals engaged in a foreseeablilty

analysis that focused on the location of the property adjacent to a road suitable
for public travel and the expectation of regular public "visitation" on the road.

These factors create "a duty [of landowners] to care for or remove natural
conditions such as a decaying or dead tree located on their land so as to protect

those who might be traveling on the road."161 The court concluded that whether
the Mileses breached that duty was a question for the jury to decide.

There are two notable features about Miles. The first is its demonstration of
the need to look behind the labels sometimes developed by courts, or drafters of
resources like the Restatement, in creating "tests" that are often embodied in
legal rules. Such tests, like the urban-rural test discussed in Miles, are useful as

shorthand expressions of more complicated thought processes, but there is a
danger that, over time, the tests can take on a life oftheir own and can supplant
the analysis that they describe. Miles is a useful reminder to guard against such

"shortcut" thinking.

Second, Miles demonstrates the common law at its best as the case shows the
ability ofthe common law to adapt to changed conditions while still remaining
faithfiil to the case law reasoning process. The urban-rural distinction originated
at a time when traffic on roadways was less prevalent than today, both in terms
ofthe sheer number ofdeveloped roadways and various types ofmotor vehicles
and drivers on them. Even though the analysis of foreseeability in cases from a

less mobile era may not seem particularly appropriate for modern society, the

1 55. Miles, 724 N.E.2d at 646.

1 56. See id.

157. See id

158. Id.

159. Id. (quoting Fritz v. Parkinson, 397 N.W.2d 714, 715 (Iowa 1986)).

160. Id.

161. Id. at 647.



200 1 ] PROPERTY LAW 98

1

rule offoreseeability has remained unchanged. The only thing that has changed
is the circumstances that fit the rule. A quote from Justice Benjamin Cardozo's
classic opinion in McPherson v. Buick Motor Co}61 is readily applicable to the
Miles decision. Justice Cardozo wrote:

Precedents drawn from the days of travel by stage coach do not fit the
conditions of travel today. The principle that the danger must be
[foreseeable] does not change, but the things subject to the principle do

change. They are whatever the needs of life in a developing civilization
require them to be.

163

As recognized by scholars like Pound, such adaptability and adherence to that
precedent is the "chiefcause of success" ofthe common law, and the process is
evident in Miles.

XM

V. Issues Affecting Mortgagees

The duties and liabilities ofmortgagees in three different situations were the
subject of appellate court opinions during the survey period. The first case
considered the extent of a mortgagee's duty to protect a material supplier's

interest in being paid for work performed in constructing a house when the
mortgagee controlled the disbursement of funds at a loan closing. The second
case dealt with the brder in which a foreclosing mortgagee must pursue its
collection remedies against the mortgagor. The third case addressed the effect
of a mortgagor's redemption rights on a bona fide purchaser who bought the
mortgaged property at a public foreclosure sale after the debtor had redeemed.

A. Scope ofa Mortgagee 's Duty to Protect Interests ofThird Parties:
Town & Country Homecenter ofCrawfordsville, Indiana, Inc. v. Woods165

Town & CountryHomecenter is an interesting case for several reasons. First,
it struggles with the existing law concerning the presence or absence ofa duty on
the part of a mortgage lender to protect third party material suppliers who have
an interest in the mortgaged real estate because they have not been paid when
that lender conducts the loan closing. Second, it contains a majority opinion, a

concurring opinion that decries the result the author feels compelled to follow by
virtue ofIndiana Supreme Court precedent, and a dissenting opinion that decries
the result and finds a way to interpret existing precedent to allow a decision
contrary to the one reached by the majority. Each of the three opinions has
differing views about the creation of duties between the parties.

In Town & Country Homecenter, Lynn Fellows executed a contract with
Ronald Woods for Woods to build a house for Fellows. 166 Fellows paid $10,000

162. 111N.E. 1050 (N.Y. 1916).

163. Mat 1053.
1 64. POUND, supra note 3, at 1 82.

165. 725 N.E.2d 1006 (Ind. Ct. App. 2000).

166. See id. at 1008.



982 INDIANA LAW REVIEW [Vol. 34:955

to Woods and applied for a mortgage with National City Bank (NCB) for the
balance of the construction cost, which was to be paid at closing. Woods
purchased building materials from Town & Country Homecenter of
Crawfordsville, Indiana, Inc. (Town & Country). Fellows subsequently received
a pre-lien notice letter from Town & Country which stated that Town & Country
could file a lien against Fellows' property if it did not receive payment for the
materials it supplied. Fellows brought the pre-lien notice letter to the attention

of the NCB representative handling the mortgage. The representative told
Fellows that similar situations arose "all the time" and that Town & Country's
letter would be addressed at closing. Those statements by NCB's representative
form the heart ofthe legal issues considered by the appellate court.

The closing on Fellows' house occurred about three weeks after the date of
Town & Country's pre-lien notice letter. During that time, no one from Town
& Country communicated with anyone at NCB. At the closing, NCB's
representative asked Woods about the existence ofany liens against the property.
Woods acknowledged the existence of a mortgage against the property and
confirmed that he had not completed payment of money owed to Town &
Country for materials it had supplied to the project. Woods stated, however, that
he would pay Town & Country from the check he would receive from the
closing.

The NCB representative then required Woods to sign a vendor's affidavit
stating that "there were no liens on the property and that there were 'no unpaid

claims for labor done upon or materials furnished for the real estate in respect of

which liens have been or may be filed,'" 167 even though the representative knew
both statements to be untrue. NCB then issued one check to the existing
mortgagee to extinguish its lien and one check in the amount of $59,229.17
payable solely to Woods. No other provision was made for sums owed to Town
& Country.

Approximately two months later, Town & Country filed a mechanic's lien
against Fellows' property and alleged that it was owed $32,866. 12 for materials
supplied to construct Fellows' house. Just short ofa year later, Town & Country
filed a complaint to foreclose on its mechanic's lien. The lien was later released
because Town & Country did not provide the statutorily-required pre-lien notice
letter to Fellows within the time required by statute. A trial was conducted on
Town & Country's non-mechanic's lien claims, including a claim that it was a
third-party beneficiary of the mortgage agreement between Fellows and NCB.
The trial court considered evidence submitted by stipulation and in the form of
deposition testimony and enteredjudgment againstTown& Country and in favor
ofNCB. 168 Thereafter, Town & Country appealed. 169

Town& Country's third-party beneficiary claim was based on its contention
that NCB had a fiduciary duty to exercise reasonable care to see that Town &
Country was paid and that NCB breached that duty when it disbursed loan

167. Id. at 1003 (quoting Record at 141-42).

168. See id

169. See id.



200 1 ] PROPERTY LAW 983

proceeds to Woods with the knowledge that Woods had not paid Town &
Country. The court ofappeals' analysis ofthis argument began with a recitation
of the generally accepted elements of a third-party beneficiary claim. These
elements are:

( 1 ) A clear intent by the actual parties to the contract to benefit the third
party;

(2) A duty imposed on one ofthe contracting parties in favor ofthe third
party; and

(3) Performance of the contract terms is necessary to render the third

party a direct benefit intended by the parties to the contract.
170

The court, in a majority opinion written by Judge Baker, concluded that the
statement ofNCB's representative to Fellows that Town & Country's pre-lien
notice letter would be addressed at closing, was not a promise to Town &
Country that it would be paid.

171
At most, the court considered this statement to

be a promise to Fellows to protect his interest, an interest which was in fact
protected when NCB's representative secured Fellows' consent to distribute
funds to Woods even though Town & Country had not been paid. 172 The court
of appeals similarly rejected both the existence of any clear intent to benefit

Town & Country and Town & Country's creditor beneficiary theory. 173
Finally, the court of appeals also rejected Town & Country's argument that

existing Indiana case law creates a duty for NCB to protect Town & Country's
interests. The case relied upon by Town & Country, Prudential Insurance Co.
of America v. Executive Estates, Inc.,

174
concerned only the liability of the

mortgagee to the mortgagor and not to third parties. Accordingly, the Town &
Country court held:

[W]e cannot find that a mortgage lender has a duty to oversee the
repayment of all contractors and suppliers. Indeed, our supreme court

held in Executive Estates that, generally, a lender has no obligation to

protect even the interests of its borrower unless bound to do so by an

agreement.
175

Thus, the trial court did not err when it determined that NCB owed no duty to
Town & Country. 176

170. Id.

171. See id.

172. See id. Fellows also suffered no harm by NCB's actions because Town & Country's
mechanic's lien was declared invalid because it was not timely filed. See id. at 1010.

173. See id.

1 74. 369 N.E.2d 1117 (Ind. App. 1 977).

1 75. Town & Country Homecenter, 725 N.E.2d at 1010.
1 76. See id. The court ofappeals also used the absence ofany relationship between NCB and

Town & Country to reject the latter's constructive fraud claim against NCB. See id. The court
identified the first element of constructive fraud as including "a duty existing by virtue of the

relationship between the parties." Id. at 101 1. Finally, the court rejected Town & Country's



984 INDIANA LAW REVIEW [Vol. 34:955

In a separate opinion concurring in the result, Judge Sullivan analyzed the
"inconguity" ofthe state ofthe law that would relieve NCB from liability for its
conduct that led to "clearly foreseeable harm to a known and totally innocent
party."

177
Judge Sullivan also included dicta in footnotes to his opinion that will

undoubtedly resurface in a future case with the right fact pattern.
178

Judge Sullivan used strong language to express his contempt for the conduct
ofNCB's representative, calling such conduct reprehensible, indefensible, and
"a total disregard for the interests of persons known to have an interest in the
proceeds ofthe real estate closing."

179
Judge Sullivan, however, saw his power

to address the injustice done to Town & Country limited by the Indiana Supreme
Court's decision in the analogous case of McAdams v. Dorothy Edwards
Realtors, Inc.

m
In that case,

our Supreme Court held that a real estate agent, responsible for
disbursing trust account funds following a real estate closing, was not
liable to the purchaser for negligent disbursement resulting in failure to

extinguish a lien because the real estate broker was the agent ofthe seller
and therefore owed no duty to the purchaser. 181

Despite the holding of McAdams, Judge Sullivan found in that case "the
seeds for reviewing and revising the law as to the matter of liability in real estate

closing situations."
182

Rather than viewing the realtor in charge ofthe closing in

McAdams as simply serving as the agent ofthe seller, and thus owing no duty to
the buyer, Judge Sullivan quoted approvingly a characterization of the closing

process contained in a prior survey volume ofthis law review which viewed the
agent as "'the moving force in the real estate closing.'"

183
If removed from the

restrictions of strict agency law principles, the actions of a person who
undertakes to conduct a closing involving parties with differing interests could,

for Judge Sullivan, be evaluated by standard tort principles.
184

Thus, liability

would bejudged on the existence ofa duty that is created by foreseeability ofthe
harm. For purposes of this case, "NCB's breach of its duty to Fellows may be
said to give rise to tort liability for the negligent disbursement of funds with

regard to the persons who would be foreseeably injured by such negligence."185

Twice in his concurring opinion Judge Sullivan calls for the issue to be

criminal deception claim against NCB on the ground that Indiana Code section 35-43-5-3(a)
requires misapplication ofentrusted property, which did not exist in this case because the mortgage

proceeds were NCB's own funds and were not funds entrusted by another. See id.

1 77. Ai. at 1012 (Sullivan, J., concurring).

178. See id. at 1012nn.5-6.

179. Id. at 1013.

180. 604 N.E.2d 607 (Ind. 1992).

181. Town & Country Homecenter, 725 N.E.2d at 1 01 3 (Sullivan, J., concurring).
182. Id. at 1014.

183. Id. at 1 1 3 (citation omitted).

184. See id.

185. Id.



200 1 ] PROPERTY LAW 985

"revisited" and for the Indiana Supreme Court to "reopen the matter and resolve
it in a manner not unfair to any party to such financial and fiduciary
transactions."

186

Judge Staton dissented from the majority's result and issued a separate
opinion. Judge Staton did not see the court's analytical options of a duty as
limited to agency principles. He noted that "'courts will find a duty where . .

.

reasonable persons would recognize it and agree that it exists,'"
187

and he found

the source ofthat duty in traditional tort principles. Using the same three factor
balancing test used by the court in Pippin discussed above, Judge Staton looked

to "the relationship of the parties," 4he reasonable foreseeability of the harm,"
and "public policy concerns"

188
to determine whetherNCB in its function as loan

closer owed a duty to Town & Country as an unpaid material supplier.
With regard to the existence of a relationship, Judge Staton noted that "[a]

relationship that gives rise to a duty does not necessarily have to emanate from

a contract."
189

Non-contractual duties can arise depending upon the nature ofthe
parties' relationship and the knowledge possessed by the party accused of
negligence.

190
In this case, NCB clearly had knowledge that Woods had not been

paid, and that knowledge was relevant to a loan closing where the borrower's
funds are to be used to pay for construction of the house for the borrower. In

such a context, Judge Staton found it to be a departure from custom and practice

to disburse loan proceeds to a general contractor without making provision for
payment to unpaid material suppliers.

191
Accordingly, there was a relationship

between the parties that weighed in favor of finding a duty.

With regard to the foreseeability ofharm factor, Judge Staton concluded that
both the type of harm and the identity of the harmed party were foreseeable to
NCB. The identity ofthe harmed party was actually known to NCB as a result
ofTown & Country's pre-lien notice letter to Fellows, which he brought to the
attention of NCB's loan officer, and as a result of the loan officer's direct
questions to Woods at closing. The type of harm, non-payment of the material
supplier by Woods, was also foreseeable given that Woods did not pay Town &
Country in a timely manner as construction progressed and NCB provided the
opportunity for Woods to continue to avoid payment. Thus, the foreseeability of
the harm component also weighed in favor of finding a duty owed by NCB.

Finally, Judge Staton concluded that a public policy interest would be

furthered by finding a duty of care in this case for at least two reasons. First,

NCB's closing agent acted with "a total disregard for the interests of persons
known to have an interest in the proceeds ofthe real estate closing." 192 Second,

186. Mat 1014.
187. Id. (quoting Gariup Constr. Co. v. Foster, 519 N.E.2d 1224, 1227 (Ind. 1988)) (Staton,

J., dissenting).

188. Id.

189. Id.

190. See id.

191. See id.

192. Mat 1015.



986 INDIANA LAW REVIEW [Vol. 34:955

NCB's conduct "flies in the face of well established custom and practice in the
lending industry."

193 As closing agent, NCB was in the best position to prevent
the harm that Town & Country suffered, and that harm would have been
prevented ifNCB had utilized standard construction loan techniques to insure the
absence of liens. The simplest technique NCB could have employed at the loan
closing to avoid harm would have been to issue a check payablejointly to Woods
and Town & Country. Woods would not have been able to negotiate such a
check on his own and could not have dissipated the funds without paying Town
& Country. NCB would have incurred no burden in the process of preventing
harm. Thus, the third component of foreseeability was also established to
support the existence of a duty from NCB to Town & Country. Judge Staton
would have reversed the decision ofthe trial court and remanded the case for a
trial to determine breach of duty, proximate causation and damages.

The Town & Country case raises difficult questions about the circumstances
in which it is appropriate to impose a duty of one party in favor of another.
These questions certainly arise in the context of a purchase of real estate, as in

McAdams, and in loan closings for the improvement of real estate, as here, but
they can also arise in other multi-party contexts where the participants' interests
differ and one party occupies a role that affects each ofthe others. The scope of
the duty of the party in control of the closing has traditionally been limited by
contract principles, with duties being found by express agreement, implied from

conduct, or based on third-party beneficiary rules, or by agency principles, with

duties limited to the principal-agent relationship. Judges Staton and Sullivan

would add negligence principles as an additional source of duty.
194

Is such a source ofduty advisable? Why should NCB be charged with a duty
to look out for the interests of anyone besides itself and its customer simply

because it is the source ofmoney that several people may wish to have access to?
If one examines the parties involved in a typical loan closing, and the already

existing means each has to protect its interests, the answers may not be
immediately clear. The interest ofthe borrower is to receive the real estate and
any improvements that may have been constructed thereon free and clear of all
but permitted liens or claims and to have the loan proceeds used to achieve this

result. The land owner (or buyer) can achieve this result in several ways. He can
insist on a no-lien contract with the general contractor; he can insist that the
general contractor post payment and completion bonds; he can insist on lien

waivers from all laborers and material suppliers at the time of each progress

payment and at final closing; he can insist on the issuance of check payable
jointly to the general contractor and laborers or material suppliers; he can insist

on a retainage to have resources on hand to pay unexpected claims. While each

ofthese techniques will not be available in every case, the landowner does have

the means to protect himself.
The lender's interest in insuring free and clear title to the real estate on which

193. Id. (quoting id. at 1013 (Sullivan, J. concurring)).

1 94. Judge Staton also refers to "justifiable reliance" in the opening paragraph ofhis dissenting

opinion. Id. at 1014.



200 1 ] PROPERTY LAW 987

it will hold a mortgage to secure repayment ofthe owner's promissory note is in
many ways similar to the owner's interest. Often a lender will insist on one or
more of the techniques described above even if the owner would be willing to
forego them. A lender can also insist on a lender's policy of title insurance
insuring against the existence ofmechanic's liens. Such coverage may not be the
easiest item to obtain, but it is available. In short, the lender too can protect its

interests.

Material suppliers, like Town & Country, also have existing mechanisms to
protect their interests. Initially, Town & County, as vendor, had the ability to
structure its credit relationship with Woods, as customer, in a way that protected
Town & Country against a default by Woods. Even after credit was extended,
Town & Country had several techniques to protect its interests. It could have
requested an express agreement with NCB for jointly payable checks or for
progress payments paid directly to it based upon appropriate documentation.
Town & Country could have protected its interests by complying with the clear
requirements ofthe mechanic's lien statute. It could have pursued Fellows under

the owner's liability provisions of the mechanic's lien statute for any
construction loan proceeds not yet disbursed to the general contractor. The issue
of NCB's liability to Town & Country would never have arisen if Town &
Country had not failed to implement every protective device available to it.

Such an individualistic interest view of a multi-party closing would lead to
the conclusion that, absent the express representation by NCB's representative
to Fellows that Town & Country's unpaid bills would be handled at closing,
NCB had an interest in protecting only its own position and was not obligated to
be concerned with the interest of other parties. It is this philosophical view that
underlies the holding of the court in Prudential Insurance Co. v. Executive

Estates, Inc.,
195

that "generally, a lender has no obligation to protect even the

interests of its borrower unless bound to do so by an agreement."196 If the
parties' interests and obligations are to be evaluated in this manner, how can a
lender have a duty to protect the interests of an unpaid material supplier if that

lender has no duty even to its borrower?

As proposed by Judges Baker, Sullivan, and Staton, the time has come to
broaden the scope of parties' duties beyond strictly private contract and agency

arrangements and to acknowledge the existence of duties owed on the basis of
social considerations instead. In this case, onceNCB acquired actual knowledge
that Town & Country had not been paid andNCB had the means to prevent harm,
its duties ceased to be measured solely by its private interests in the loan
transaction. It then acquired duties to a party with which it had no other interest

other than a generalized interest in not causing harm to a foreseeable victim.
But what should NCB have done at the closing if Fellows had directed that

the closing proceed as it did, with Town & Country unpaid and only with Woods'
promise to pay Town & Country from the check he would receive at closing? If

195. 369 N.E.2d 1117 (Ind. Ct. App. 1977).

196. Town & Country Homecenter, 725 N.E.2d at 1010 (citing Prudential Ins. Co., 369
N.E.2datll23).



988 INDIANA LAW REVIEW [Vol. 34:955

NCB had fully informed Fellows ofthe potential problems that could arise from
paying loan proceeds solely to Woods and Fellows had still insisted that closing
proceed, should we expect NCB to have refused to close? Such a situation does
not differ in effect from the facts of the case as Fellows suffered no harm from
any breach of duty NCB may have owed to him because Town & Country
forfeited all of its claims against Fellows. The harm to Town & Country is no
less foreseeable in the hypothetical situation, but to impose a duty on NCB in
favor of Town & Country would pit the lender against the wishes of the only
party to the closing with whom it has a direct relationship, the borrower, and
would be so to benefit a party with whom it has no direct relationship and which
has other self-protection devices at its disposal.

The individualistic view of a multi-party closing, in which each party,
including the lender, has the means to protect its own interests and is expected
to do so, and the social view, in which a lender may have duties to other parties
quite apart from its self-interests in the deal, can be reconciled if the lender's

foreseeability based duties to others is restricted to circumstances in which the

lender assumes the role ofmanaging the closing. In effect, a lender that controls
the closing of a construction loan voluntarily assumes two roles—lender and
closing agent. These roles differ significantly, and the duties associated with

each cannot be treated as coextensive. In a situation where the closing is
conducted by a person or entity not a party to the deal, such as a title company
representative, a lender's duties to others should continue to be measured by
contractual agreement and agency principles. Third party interests can be

protected by the independent closing agent. However, in a situation where the

lender undertakes to conduct the closing, it should be compelled to look beyond
its individual interests and to act in a manner that avoids the unreasonable risk

of harm to foreseeable third parties. Evaluating a lender's duties in this way
would both give effect to existing customs and practices ofthe construction and
lending industries and prevent injustice arising from foreseeable harm to known
and innocent parties.

B. Sequencing Collection Remedies: National City Bank v. Morris
197

In National City Bank, the court of appeals reviewed rules relating to the

relationship ofcollection mechanisms available to a mortgagee who has both an
in rem foreclosure judgment against the debtor's property and an in personam
judgment against the debtor individually. The facts of the case are convoluted

and involve three mortgage foreclosure actions against the debtors' property and

three complaints for money judgment against the debtors individually. After
resolving an issue concerning standing of the various creditors, the court of

appeals confronted a dispute between creditors National City Bank and Lovold,
to whom National City Bank (NCB) had assigned an Equity Reserve Agreement
and Mortgage that secured part ofajudgment that NCB had obtained against the
debtors. Subsequently, Lovold obtained an Agreed Judgment and Order of

1 97. 717 N.E.2d 934 (Ind. Ct. App. 1 999).



200 1 ] PROPERTY LAW 989

Foreclosure against the debtors. After filing a praecipe for a sheriffs sale,

Lovold also obtained an Agreed Final Order ofGarnishment, which subjected the
debtors' wages to garnishment in Lovold's favor. NCB, which did not assign all
of its claims against the debtors, filed a motion to have the garnishment order set

aside on the ground that Lovold had not obtained a deficiencyjudgment because
the foreclosure sale had not yet occurred. The trial court denied NCB's motion,
and NCB appealed. 198

The appellate court began its analysis ofNCB's motion by stating:

The issue of whether the trial court was correct in denying NCB's
motion to set aside the agreed garnishment order turns upon both an
interpretation ofcertain sections ofTitle 32 dealing with the payment of
debt where there is an express written agreement for the payment of
money secured by a mortgage and an interpretation of the case law
explicating these sections.

199

The statutory provisions that the court said were implicated in this issue are
Indiana Code sections 32-15-6-3, -6-5, -6-6, and -6-7.200 These four statutes
establish a procedure whereby: 1) in rendering ajudgment offoreclosure courts

shall give a personal judgment against any party, including the mortgagor, who
may be "'liable upon any agreement . . . for the payment ofany sum . . . ofmoney
secured by the mortgage'";

201
2) the court shall order the mortgaged property "'to

be first sold before levy ofexecution upon other property ofthe defendant'";
202

3) the court shall order that the balance due on the mortgage and costs which may
remain unsatisfied after the sale ofthe mortgaged premises "'shall be levied on

any property ofthe mortgage-debtor'";
203

4) the sheriffshall "'forthwith proceed

to levy the residue of the other property of the defendant'" if any part of the

judgment remains unpaid after sale of the mortgaged property;
204

and 5) "a

creditor shall not [(a)] proceed to foreclose a mortgage while 'prosecuting any

other action for the same debt or matter which is secured by the mortgage' or
[(b)] 'prosecute any other action for the same matter' while foreclosing the

mortgage or prosecuting a judgment of foreclosure."
205

The trial court concluded that none of these statutory provisions were
violated because the garnishment order sought by Lovold was supplemental or
auxiliary to the foreclosure action and, therefore, was not the "any other action"
prohibited by section 32-15-6-7 nor was the garnishment action a levy of
execution within the scope of section 32-1 5-6-3

,

206
Accordingly, the trial court

198. See id. at 935-36.

199. A* at 936.

200. See id. at 936-37.

201. Id. at 937 (quoting Ind. CODE § 32-15-6-3 (1998)).

202. Id. (quoting IND. CODE § 32-15-6-3).

203. Id. (quoting IND. CODE § 32-15-6-5).

204. Id. (quoting IND. CODE § 32-15-6-6).

205. Id. (quoting IND. CODE § 32-15-6-7).

206. See id. at 937-39.



990 INDIANA LAW REVIEW [Vol. 34:955

concluded that it was proper for a creditor to seek an order of garnishment after
it obtained an order of foreclosure but before the foreclosure sale had been
completed and the amount of the deficiency, if any, was established.

The court ofappeals found no error in the trial court's analysis ofsection 32-
1 5-6-7. Instead it said that the "central issue" was "whether the legislature, in
mandating in Ind. Code [section] 32-1 5-6-3 that the mortgaged property must be
sold before 'levy ofexecution' on other property ofthe defendant, intended that
the phrase of 'levy ofexecution' should include garnishment actions."

207
After

reviewing the definitions of key terms and the supreme court's interpretation of
predecessor statutes for evidence of legislative intent, the court of appeals

concluded that "levy of execution" does include garnishment proceedings.
208

The rationale for the court's decision in National City Bank is found in its
reference to a trio ofIndiana Supreme Court decisions issued between 1 876 and
1 898.

209
In each of these decisions, the supreme court held that other property

of the debtor cannot be levied until after the foreclosure sale of mortgaged

property is completed. Each court reasoned that until the foreclosure sale is

completed the amount of deficiency to be collected by levy of execution is
uncertain. The court of appeals in National City Bank concluded that the same
need to determine the amount ofa deficiencyjudgment applied to a creditor's use
of garnishment proceedings and, therefore, such proceedings fall within the

statutory prohibition against "levy ofexecution" in Indiana Code section 32-1 5-

6-3 against.
210

Specifically the court of appeals said:

[0]nce a creditor obtains a judgment of foreclosure, it is necessary to

wait until the sale and concomitant determination of the deficiency, if

any, before levying on any other property. Thus, although a creditor may
pursue both judgment on the note and a judgment of foreclosure at the
same time, once she obtains a judgment of foreclosure, she may not
execute upon any other property ofthe debtor until the foreclosure sale

has occurred and a deficiency has been determined.
211

Accordingly, the court of appeals held that the trial court erred in issuing a

garnishment order before the foreclosure sale had occurred.

National City Bank recognizes the principle that property that has been
pledged as collateral to secure repayment of a debt should be made to stand for
that debt before other assets ofthe debtor are levied upon and in so doing raises

at least indirectly the proper balance of powers between mortgagees and

mortgagors. Indiana law suspends levy of execution only if the mortgagee first

obtains ajudgment offoreclosure. Ifthe mortgagee decides to forego execution

on the mortgaged property, he can pursue collection of a personal judgment by

207. Mat 938.
208. Id.

209. See Mitchell v. Ringle, 50 N.E. 30 (1898); Thomas v. Simmons, 2 N.E. 203 (1885);

Willson v. Binford Adm'r, 54 Ind. 569 (1876).

210. National City Banky 717 N.E.2d at 938.

211. Id.



200 1 ] PROPERTY LAW 99

1

all available means, including garnishment. In some states, no such election of
remedies exists and the mortgagee must proceed against the real estate first.212

Only if a deficiency remains and the state does not have an anti-deficiency
judgment statute,

213 may the creditor pursue other collection procedures. Despite
the prohibition ofgarnishment proceedings until after the amount ofa deficiency
is established by a foreclosure sale, creditors in foreclosure proceedings in
Indiana still occupy a comparatively favorable position as they enjoy powers and
options not available in some other states.

C. The Equity ofRedemption and the Recording System: Finucane v. Union
Planters Bank, N.A.

214

Finucane not only confirms priority rules to resolve competing claims of
ownership of land but it also impliedly demonstrates the principles underlying
the equity of redemption and even addresses the integrity of the recording

process. In this case, Union Planters Bank filed a complaint to foreclose on a
mortgage on real estate owned by Secrest and others. The trial court entered a
personal money judgment against Secrest in favor of the bank and issued a
decree foreclosing the bank's mortgage and directing the sheriff to sell the
property to satisfy thejudgment. The sheriffs sale was scheduled for March 25,
1999.

Three days before the scheduled sale, Secrest sold the property to Hamilton
Proper North for $ 1 50,000. The bank received sufficient proceeds from the sale,
$83,877.49, to pay the judgment against Secrest in full. However, neither
counsel for the bank nor the sheriff received notice ofthe private sale until after
March 25, and the foreclosure sale took place as scheduled. Finucane was the
successful bidder at the foreclosure sale and purchased the property for $91 ,000.

Finucane received a sheriffs deed on March 26, and he recorded that deed on
March 30. Even though Secrest had given a warranty deed to Hamilton Proper
on March 22, that deed was not recorded until March 3 1 , which meant it was not
discoverable in the public records when Finucane recorded his deed. The bank
filed a motion to vacate the sheriffs sale and to set aside the sheriffs deed on the
ground that Secrest had paid the loan balance in full on March 22, which
rendered the foreclosure action moot. Finucane filed a motion to intervene and
argued that his sheriffs deed was superior to the deed to Hamilton Proper
because Finucane was a bona fide purchaser who recorded his deed first. The
trial court granted the bank's motion, vacated the sheriffs sale, and ordered the

county clerk to refund Finucane's money; Finucane appealed.215

The court of appeals concluded that the bona fide purchaser concept is an

212. See, e.g., NY. Real Prop. Acts Law §§ 1301, 1401 (McKinney 1979).
213. See, e.g., N.C Gen. Stat. § 45-21.38 (1976); Robert M. Washburn, The Judicial and

Legislative Response to Price Inadequacy in Mortgage Foreclosure Sales, 53 S. Cal. L. Rev. 843

(1980).

214. 732 N.E.2d 175 (Ind. Ct. App. 2000).

215. See id. at 176.



992 INDIANA LAW REVIEW [Vol. 34:955

equitable doctrine and that is within the discretion ofthe trial court to balance it
against other equitable factors involved in the case.

216
Here, the trial court's

discretion to set aside the sheriffs sale was supported both by absence of
communication about the sale to Hamilton Proper and by the law relating to
mortgage indebtedness.

An unseverable attribute of a mortgage is the mortgagor's equity of
redemption. At any time up to the moment that the sheriff strikes offthe sale of
the foreclosed property to a buyer, the mortgagor has the absolute right to redeem
the property from foreclosure by paying to the mortgagee the full amount ofthe
unpaid principal, accrued interest, and allowable expenses. Secrest exercised this

right by way of his sale to the property to Hamilton Proper.
Once this sale was completed and the mortgagee's interest in the property

was satisfied, the foreclosure proceedings became moot. The appellate court
noted that there can be no foreclosure proceeding without a mortgage and that,

as a matter of law, there cannot be a mortgage without an underlying

indebtedness. The court stated: "It is well settled that "the mortgage is a mere
security for the debt' [and that] there must be some obligation for the [mortgage]
lien to secure. When that obligation is discharged the mortgage becomes functus
officio and legally dead."

217
The result is that the legal justification for the

sheriffs sale ceases to exist.
218

Finucane argued that the bank's judgment had not been released on the

judgment docket of the clerk and therefore had not been extinguished. As a
result, the public document recording system indicated to Finucane that the
property was still subject to foreclosure on the sale date. The appellate court
rejected this argument by stating that it is the payment of the underlying

indebtedness that effects the release of the judgment, not the recording of the

release.
219 The recording merely gives notice ofthe release to third parties.

Under most circumstances, one who qualifies as a bona fide purchaser will
be considered to have the superior interest in property, and here Finucane

purchased the property for value and without notice ofthe private sale. Further,

the maxim that "first in time is first in right" is a fundamental concept of real
estate law, and Finucane recorded his sheriffs deed ahead ofHamilton Proper's

deed. Nonetheless, it should always be remembered that foreclosure proceedings

are actions in equity and not at law, and courts always retain their equitable

powers to reach a "just" result, even if doing so affects other generally accepted

principles and displays a gap in the reliability of the recording procedures for

persons dealing with a parcel of real estate.

VI. The Impact of the Statute of Frauds on Transfers of Real Estate

Two opinions issued by the court ofappeals in the survey period considered

216. See id. at 177.

217. Id. at 177 (quoting Egbert v. Egbert, 132 N.E.2d 910, 918 (Ind. 1956)).

218. See id.

219. See id. at 177-78.



200 1 ] PROPERTY LAW 993

the application of the statute of frauds to real estate transfers. The statutes of
frauds in American law can be traced to the passage of a statute enacted by the
British Parliament in 1677.

220
This statute, and all of its progeny, recognize the

danger of fraudulent testimony and the difficulties of proof inherent in
allegations of a breach ofan oral contract and seek to eliminate the opportunity

for such fraud by requiring that contracts involving certain types ofmatters must
be in writing to be enforceable. One type of contract that has been within the
scope ofthe statute of frauds from the beginning is an agreement for the sale of
real estate.

Indiana has multiple statutes of frauds, including a general statute
221

and
several specialized statutes, at least two of which are relevant to transfers of
interests in real estate.

222
Indiana's general statute of frauds provides:

[N]o action shall be brought . . . upon any contract for the sale of lands

. . . [ujnless the promise, contract or agreement upon which such action

shall be brought, or some memorandum or note thereof, shall be in
writing, and signed by the party to be charged therewith, or by some
person thereunto by him lawfully authorized. . . ,

223

This statute was interpreted in two Indiana appellate court decisions published
during this survey period. The first opinion considered the scope of the statute
of frauds, that is, the types of real estate transactions that are covered by its

provisions. The court of appeals' decision is likely to surprise, and possibly
dismay, many readers because it adopts an extremely restrictive interpretation of
the scope of the statute that excludes many types of transactions previously
considered to be well within the statute's reach. Even though this opinion was
vacated by a grant of petition for transfer, it still merits discussion both on the
legal principles involved and on the methodology (or lack of it) used by the court

to reach its decision. The second case considered the availability of the part-
performance doctrine as an alternative to a writing as a means of satisfying the
statute of frauds, thereby rendering an oral promise to convey an interest in real

estate enforceable.

220. 29 Car. 2 ( 1 677). The short title ofthe British Statute ofFrauds is "An Act for prevention

of Frauds and Perjuryes."

221. See Ind. CODE § 32-2-1-1 (1998).

222

.

The specialized statutes offrauds that are relevant to real estate transfers are Indiana Code

section 32-2-2-1 (promises to pay a real estate commission must be in writing to be valid) and

section 32-2-1.5-1 to -1.5-5 (promises to extend credit, which could include credit to pay for

construction of, or improvements, on real estate must be in writing to be valid). Other specialized

statutes of frauds include the requirement under article 2 of the Uniform Commercial Code that

contracts for the sale of goods, or for modifications of contracts for the sale of goods, in excess of

$500 must be in writing to be valid. See IND. Code § 26-1-2-201 (2000).

223. Id. §32-2-1-1.



994 INDIANA LAW REVIEW [Vol. 34:955

A. Scope ofthe Statute ofFraudsfor Real Estate "Sales ":

Brown v. Branch224

Brown provides a model setting for the statute of frauds' concern with the
difficulty of relying on allegations of oral promises in real estate matters. The
case involves a romantic relationship that vacillates between affection and anger,
between union and break-up, between living together in Indiana and living apart
in different states. Emotions and motivations of the parties were bound to run
high.

It is unfortunate that the court of appeals' analysis neglects to identify any
of the competing policies involved in favor of applying either the statute of
frauds or the exception to that rule provided by promissory estoppel principles.
The inadequacy of the analysis raises serious concerns about the opinion, both
as it directly affects the parties involved and as it would have affected other
people in the future, had the opinion been permitted to stand, who would have
been compelled to look at Brown as a source ofcommon law. There is much for
the Indiana Supreme Court to make right in this case.

Clifford Brown and Rhonda Branch were involved in a stormy romantic
relationship over a ten-year period. Brown owned a house in which he and
Branch lived for some unspecified time. During that period, the relationship
reached a point where Branch moved out of Brown's house and moved to
Missouri. At an unspecified time during Branch's residency in Missouri, she and
Brown had a telephone conversation in which Brown stated that ifBranch would
move back to Indiana she would "always have the . . . house."225 Branch first
testified that she had decided to return to Indiana prior to Brown's statement

about the house, but she later "clarified" her testimony to mean that Brown's
promise about the house was "a major influence and factor in her decision to
return to Indiana."

226

Following Branch's return to Indiana, the relationship ended again, and when
Brown refused to convey ownership ofthe house to Branch, she sued to compel
that conveyance on the theory of promissory estoppel. Brown moved for
summaryjudgment on the ground that any promise he had made to Branch was
unenforceable under the statute offrauds. His motion was denied, and following
trial, the court concluded that the elements of promissory estoppel had been

met.
227 As a result, Brown was ordered to convey title ofthe house to Branch.228

On Brown's appeal, the court of appeals was faced with two issues: first,
was Brown's promise that Branch "would always have ... the house" within the
scope of the statute of frauds, and second, did Branch establish the elements of

224. 733 N.E.2d 17 (Ind. Ct. App.), trans, granted, 741 N.E.2d 1259 (Ind. 2000). As of the

date this Article was sent to the printer, the Indiana Supreme Court had not acted further on this

case.

225. Id.

226. Id.

227. See id. at 20.

228. See id.



200 1 ] PROPERTY LAW 995

promissory estoppel. With regard to the first issue, both the court of appeals'

decision and its analytical process are disturbing.

Indiana's statute of frauds includes "any contract for the sale of lands."
229

In analyzing Brown's promise, the court of appeals recited several maxims of
statutory interpretation but relied most heavily on the rule that even though "[t]he

legislature's definition of a word binds us . . . "when the legislature has not
defined a word, we give the word its common and ordinary meaning.'"230 The
decision in this case, and an important principle ofproperty law, depended on an
analysis ofthe scope ofthe meaning ofthe word "sale" as used in the statute of
frauds. Brown contended that "sale" is meant to mean "conveyance," while
Branch contended that the term is restricted solely to an exchange ofmoney for
title. The court's entire analysis of the scope of transactions within the statute
of frauds consists of one paragraph in which the sole authority cited is Black's

Law Dictionary.231

The court quoted the dictionary as defining the word "sale" to mean '"[a]
contract between two parties, called, respectively, the 'seller' . . . and the 'buyer,'
... by which the former, in consideration ofthe payment or promise ofpayment
of a certain price in money, transfers to the latter the title and possession of

property.'"
232 The court concluded that because Branch did not enter into a

contract for Brown's house wherein she "agreed to pay for or purchase the

property," Brown's "promise ofthe . . . house to [Branch] was not a 'sale.'"233

Further, the court stated that although Branch's promise to return to Indiana

"may have been consideration for the promise ofthe house," that consideration
"certainly was not the type of consideration contemplated when property is
sold."

234 The court never explains why this conclusion is "certain," and its sole
source of authority for the differentiation between sufficient and insufficient

consideration was, once again, limited to one definition from Black's Law
Dictionary. The definition chosen for the word "sale" by the court of appeals
was restricted to include a "transfer ofproperty for a fixed price in money or its
equivalent . . . [and a] contract whereby property is transferred from one person

to another for consideration ofvalue."
235 Having created a major premise based

on these definitions, the court of appeals concluded that "the Statute of Frauds
does not apply to this case because there was not a sale of land."

236
Thus, "no

229. IND. CODE § 32-2-1-1 (2000).

230. Brown, 733 N.E.2d at 22 (quoting Citizens Action Coalition of Ind., Inc. v. Ind.

Statewide Ass'n of Rural Elec. Corps., 693 N.E.2d 1324, 1327 (Ind. Ct. App. 1998)). The court

also notes, in a footnote, that "the Statute of Frauds does not use the terms sale and conveyance

interchangeably." Id. at 21 n.2. The significance of this statement is not explained.

231. See id at 22.

232. Id. (quoting BLACK'S Law DICTIONARY 1337 (6th ed. 1990)).
233. Id.

234. Id.

235. Id. (quoting BLACK'S LAW DICTIONARY 1337 (6th ed. 1990)).
236. Id.



996 INDIANA LAW REVIEW [Vol. 34:955

writing was necessary and the Statute ofFrauds is not an appropriate defense"237

for Brown.

There are at least two significant problems with the court of appeals'
analysis. First, the opinion completely ignores a rich history ofIndiana Supreme
Court and Indiana Court ofAppeals opinions, both recent and long-standing, that
have applied the statute of frauds to many situations other than a "contract
between two parties, called, respectively, the 'seller' . . . and the 'buyer,' ... by
which the former, in consideration of the payment or promise of payment of a
certain price in money, transfers to the latter the title and possession of
property."

238
For example, Indiana appellate courts have found the statute of

frauds to be applicable to: ( 1 ) an agreement to grant a mortgage on real estate;
239

(2) an alleged oral agreement for a grantor to continue in possession ofreal estate

after title to that real estate had been conveyed to grantee by deed;
240

(3) an

antenuptial agreement whereby two persons agree that upon the death of either
of them, the survivor will not assert a claim against the decedents' real

property;
241

(4) an oral option contract for the purchase real estate;
242

(5) a parol

gift of land;
243

(6) an oral agreement to reconvey real estate;
244

and (7) an oral

agreement to bequest and devise a share of real property to an illegitimate child

in exchange for a promise by the child's mother to forebear filing a paternity

suit.
245 None of these transfers, long considered to be within the scope of the

statute of frauds, would meet the overly constrictive concept of "sale" used by
the court of appeals in Brown.

Had the Brown court consulted these existing precedents it would have been
precluded from adopting its constrained definition ofthe statutory term "sale."

237. Id

238. Id (quoting Black's Law Dictionary 1337 (6th ed. 1990)).
239. See Brown v. Stapleton, 24 N.E.2d 909, 91 1 (Ind. 1940) ("[A]n oral promise to give a

mortgage on real estate is within the statute of frauds and can not be enforced . . . .")).

240. See Guckenberger v. Shank, 37 N.E.2d 708, 713 (Ind. App. 1948) (en banc) ("It is the

law that a right to the possession of real estate is an interest therein, and any contract which seeks

to convey an interest in land is required to be in writing.") (emphasis added)).

241. See Rainbolt v. East, 56 Ind. 538, 539 (1877) ("[The] part of the contract [dealing with

claims against real estate] is within that clause ofthe statute [offrauds], which prohibits an action

upon a contract for the purchase of real estate . . . unless the contract is in writing.").

242. See Hilker v. Curdes, 133 N.E. 851, 853 (Ind. App. 1922) (an option to purchase land,

if accepted, "would not afford a basis for a decree of specific performance, as it would be within

the statute of frauds").

243. See Osterhause v. Creviston, 1 1 1 N.E. 634, 636-37 (Ind. App. 1916) ("A parol gift . .

.

of land, may be taken out of the statute of frauds [only] by clear and definite proof of the . . . gift

followed by full possession, use, and control of the land.").

244. See Lux v. Schroeder, 645 N.E.2d 1 1 14, 1 1 17 (Ind. Ct. App. 1995), trans, denied("Lux

cites no . . . authority for the proposition that an agreement to reconvey real estate is not a contract

for the sale of land subject to the statute of frauds, nor does our research reveal any.").

245. SeeHurd v.Ball, 143N.E.2d458,463(Ind. App. 1 957) ("[S]uch a contract has been held

to be within the inhibition of the Statute of Frauds.").



2001] PROPERTY LAW 997

The definition chosen by the court will certainly permit more actions to proceed
on the basis of oral allegations alone than was previously thought possible, and
the evidentiary and fraud prevention functions of the statute of frauds will be
frustrated.

The court of appeals' view of the statute also enabled it to sidestep any
analysis of whether the statute of frauds could be satisfied by way of a non-
writing substitute. Indiana law recognizes that a promise that would otherwise
be subject to the statute of frauds can be removed from its operation through
promissory estoppel.

246
Courts that have used promissory estoppel to take an oral

promise out ofthe statute of frauds recognize that "[a] statute that was designed
to prevent fraud cannot be used as an instrument of fraud."

247 A claim of
estoppel cannot remove a case from the operation of the statute of frauds,
however, "where the promise relied upon is the very promise that the Statute
declares unenforceable ifnot in writing."

248
In addition, ifthe promisor's refusal

to carry out the oral promise must result not only in the denial of the benefit of
the oral bargain but must also result in "the infliction of an unjust and
unconscionable injury and loss,"

249
before a court can enforce the oral promise

notwithstanding the statute of frauds.
230

The court evades this issue entirely in Brown by stating that:

because we hold that [Brown's] oral promise ofthe . . . house to Rhonda
does not constitute a contract for the sale of land and thus, the Statute of
Frauds does not apply, we need not discuss whether the injury was such
that the claim would otherwise be removed from the Statute ofFrauds.251

By failing to analyze the "unjust and unconscionable injury and loss" element
and the requirement that the plaintiffs actions are "referable" to the oral

promise,
252

the Brown court missed the opportunity, and obligation, to examine
the proper balance between the policies furthered by the statute offrauds and the

policies furthered by the exception. The choices involved are not easy to make,
but they deserve to be addressed.

The statute of frauds aims to guard against the temptation to commit fraud
and against the weaknesses offallible memories by requiring certain promises to
be in writing before they can be enforced. With its emphasis on evidentiary
reliability, the operation of the statute can in some instances result in the
unenforceability of promises that were actually made. Any apparent harshness
of the statute is ameliorated by the exceptions to the statute that a court can

246. Wabash Grain, Inc. v. Bank One, Crawfordsville, NA, 713 N.E.2d 323 (Ind. Ct. App.

1999).

247. See Whiteco Indus., Inc. v. Kopani, 514 N.E.2d 840, 844 (Ind. Ct. App. 1987).

248. Brown, 733 N.E.2d at 21 (quoting Ohio Valley Plastics, Inc. v. Nat'l City Bank, 687

N.E.2d 260, 264 (Ind. Ct. App. 1997)).

249. Id. at 22 (quoting Wabash Grain, Inc., 713 N.E.2d at 326).

250. See id.

251. Id.

252. Perkins v. Owens, 721 N.E.2d 289 (Ind. Ct. App. 1999).



998 INDIANA LAW REVIEW [Vol. 34:955

utilize in appropriate cases. The promissory estoppel exception seeks to prevent
a promisor from using the statute of frauds as a shield to insulate himself from
responsibility for unwritten promises that would result in injustice ifthe promise
is not enforced.

Perhaps the element of promissory estoppel that "injustice can be avoided
only by enforcement ofthe promise"253 examined by the Brown court leads to the
same result as the statute of fraud exception requirement that the promisee's
reliance produce "an unjust and unconscionable result."

254
Also, perhaps the

"reasonable reliance"
255

element of promissory estoppel is analogous to the

"referable to the oral promise"
256

requirement of the exception to the writing

requirement. Then again, the two analyses may not be interchangeable, and the
evidentiary functions served by the factors that must be shown for an exception
to the writing requirement of the statute of frauds may not be adequately
advanced by an alternative analysis.

That part ofthe Brown opinion that examines the parties
9
words and actions

in the context of the elements of promissory estoppel also lacks any case law

analysis, and this absence ofcase law reasoning is the second significant problem
with the Brown opinion. The opinion contains no reference to precedent and
fails to analogize or distinguish the facts ofprevious cases and the current one.
The Brown court's substantive analysis of Branch's promissory estoppel claim
consists ofnearly three pages. In those three pages, the court analyzed whether

Brown made a promise, whether Branch's reliance on Brown's promise was
reasonable given his drinking problems and the "tumultuous" nature of their

relationship, whether Branch's reliance was definite and substantial, and whether
injustice would result if Branch was not awarded ownership of the house. For
all of these issues, the court cites only one case, Weinig v. Weinig?

51
and only

then to identify the elements of promissory estoppel.
258

The facts ofthis case disclose that Branch had once before quit her schooling
and job in Missouri and had moved back to Indiana to be with Brown without
any promise pertaining to the house. Further, Branch testified that she had

decided to move back to Indiana to be with Brown the last time before he made
any statements about the house. Given those facts, the analysis ofthe elements
of promissory estoppel merited more discussion than a repetition of the facts
before the trial court and a conclusory statement that the appellate court would

not reweigh that evidence. The appellate court should have established the case
law standards by which the trial court's conclusion could bejudged as proper or

improper. Unfortunately, that was not done.

253. Brown, 733 N.E.2d at 23.

254. Id. at 22 (citing Wabash Grain, Inc., 713 N.E.2d at 326).

255. /rf.at23.

256. />er*i>w,674N.E.2dat292.

257. 674 N.E.2d 991 (Ind. Ct. App. 1996).

258. See Brown, 733 N.E.2d at 23. The court referred to Weinig one additional time, but only

in the context ofquoting from Branch's appellate brief, in which she referred to Weinig in support

of her reliance argument. See id. at 24.



200 1 ] PROPERTY LAW 999

Although the common law has the ability to change to meet changed
conditions, case law reasoning is built upon predictability, which is inherent in
the principle ofstare densis. Given similar facts, a case to be decided today will
have the same result as a case decided in the past. This stability informs the
party to litigation that the decision resolving their disputed claims is fair, and
therefore acceptable even to the loser. In the absence ofany meaningful case law
analysis, this function ofthe common law is not fulfilled by the Brown opinion.

Closely related to the fairness assurance arising from predictability is the

idea that case law reasoning serves as a check on the idiosyncracies ofjudges.

An individualjudge is hindered by the press ofprecedent cases from substituting
(or being perceived as substituting) her chosen result for a result shaped by the

decisionmaking process employed by other judges. The comfort of objectivity
is lost in the absence of application of precedent, as in Brown.

Finally,judge-made common law supplies a basis for people to choose to act,
or to refrain from acting, in a particular way in the future. Decided cases enable
people to predict whether conduct they are contemplating will be permissible or

subject to court intervention. Separated as it is from any sequence of prior

decisions, the Brown opinion engenders uncertainty, not certainty, in ordering
future conduct.

The functions of common law are inseparable from the form of case law
reasoning. Selection of appropriate precedent cases and thoughtful analysis of

those precedents, resulting in either analogy to or distinction from the case under

consideration, are not optional. Any other approach does not do justice to "the
Grand Tradition of the Common Law [which] is our rightful heritage."259

B. The Part-Performance Doctrine: Perkins v. Owens260

Perkins contains an analysis of a contention that the part-performance

exception to the statute of frauds should operate to make an oral promise to
convey an interest in land enforceable. Two property owners, Owens and Leedy,
purchased separate lots in 1978 from Stottlemyer Lumber Company. These lots
were contiguous to lots that Owens and Leedy already owned. Stottlemyer
retained ownership ofa thirty-foot strip of land that it needed to provide access

to its property. In 1992, Perkins purchased land from the same piece ofproperty
out of which Owens' and Leedy's lots had been subdivided. The deed from
Stottlemyer to Perkins included the thirty-foot strip.

Owens and Leedy filed a complaint to have that portion ofthe Stottlemyer-
Perkins deed that contained the thirty-foot strip declared void. Owens and Leedy
contended that they had a prior oral agreement with Stottlemyer that obligated

it to transfer title of the strip to them once it had sold all of the remaining lots

created from its property, and they sought an order of specific performance of

that oral agreement. The trial court entered a general judgment in favor of

259. LEWELLEN, supra note 1, at 189.

260. 721 N.E.2d 289 (Ind. Ct. App. 1999).



1000 INDIANA LAW REVIEW [Vol. 34:955

Owens and Leedy, and Perkins and Stottlemyer appealed.261 The court ofappeals
reversed the trial court's decision in a memorandum decision and remanded the
case to the trial court with instructions to enter findings of fact and conclusions

of law sufficiently specific to satisfy a request for special findings that had been
filed at trial.

262 The trial court entered a subsequent order in favor ofOwens and
Leedy on the basis that the oral agreement between them and Stottlemyer was
taken out ofthe statute offrauds by the part-performance doctrine.263 The court
of appeals, which retained jurisdiction over the case, then reviewed the trial
court's second order. The court ofappeals reversed the trial court's decision and
remanded with instructions to enter a judgment in favor of Perkins.264

In the latter Perkins opinion, the court of appeals recognized the rule that

"[o]ral contracts may be excepted from the statute of frauds by the doctrine of
part performance."

265 To qualify underthe part-performance exception, the party
seeking to enforce the oral agreement must show "some combination of the
following: payment of the purchase price or a part thereof; possession; and
lasting and valuable improvements on the land."

266 The parties did not contest
the issue of payment for the thirty-foot strip because such payment was
considered to have been included in the purchase price of the two original lots.

The court ofappeals analyzed the possession and improvements requirements
and found both to be lacking. Between the dates of Owens' and Leedy's
purchase of land from Stottlemyer in 1978, and Stottlemyer's sale to Perkins in

1992, Owens and Leedy had used the thirty-foot strip by landscaping it, by
placing a utility barn on it, by using it for a garden and as a place to store

firewood. The court of appeals concluded that these uses did not sufficiently
evidence the unequivocal possession required by the part performance doctrine,

especially when such acts began prior to the alleged oral promise.267

Additionally, the appellate court noted that the possession yielded from one party

to the other must be "referable to the contract."
268

Again, because Owens and
Leedy began their uses of Stottlemyer's property prior to their purchase dates,
their possession of it was not "referable to" the alleged oral promise. "Finally,
the appellate court concluded that Owens' and Leedy's uses of the thirty-foot
strip did not constitute "valuable and lasting" improvements.

269 With only the

payment element satisfied which "standing alone, is insufficient to remove a case
from the statute of frauds,"

270
the court of appeals concluded that Owens and

Leedy had not established part-performance to take Stottlemyer's oral promise

261. See id. at 291.

262. See id.

263. See id.

264. See id. at 294.

265. See id. at 292.

266. Id.

267. See id.

268. Id. at 292-93.

269. /</. at293.

270. Id. at 292.



200 1 ] PROPERTY LAW 1 00

1

out of the statute of frauds.

Perkins provides a ready contrast to Brown as the former contains a
recognition of the valid policies supporting the statute of frauds that is wholly

missing from the latter. In Perkins, the court recognized that the statute offrauds

"is intended to preclude fraudulent claims which would probably arise when one
person's word is pitted against another's and which would 'open wide those
ubiquitous flood-gates of litigation.'"

271
In other words, the writing does not

prove the contents of the parties' alleged agreement; it merely provides some
assurance that an agreement may have been made. At the same time, the court
also acknowledged in Perkins that circumstances exist which can substitute for

a writing and still fulfill the evidentiary safeguards that underlie the statute of

frauds. One of those writing substitutes is part performance. However, to be
acceptable as a writing substitute a party's part performance must provide some
assurance that an agreement was made. This assurance comes from satisfaction
of the three required elements. In this manner, the "validity of the rationale

behind the statute of frauds"
272

is preserved, even "rather strictly adhered to,"
273

while still permitting avoidance of "the infliction of an unjust and

unconscionable injury and loss"
274

where a trier of fact may conclude that they
exist. The identification and balancing ofcompeting policy interests and the use
of precedent distinguishes this case from Brown.

Conclusion

The law ofproperty developed in Indiana in 2000 displays some ofthe wide
diversity of issues that affect the ownership, transfer, and financing of real

property and improvements. The court of appeals issued opinions relating to
several stages of property ownership, from retaining a broker to acquire real

property to foreclosure procedures. The court's opinions also considered
different estates in real property, from leasehold interests to fee simple

ownership. In addition to subject matter, the development ofthe law ofproperty

in 2000 serves as a reminder that the reasoning process used to make a decision
is as much a part ofthe common law as the rules themselves—so much so that the
process has been said to have "come to represent the very meaning ofour law."

275

271

.

Id (quoting Summerlot v. Summerlot, 408 N.E.2d 820, 828 (Ind. Ct. App. 1980)).

272. Id

273. Id

274. Brown v. Branch, 733 N.E.2d 17, 22 (Ind. Ct. App. 2000).

275. Alfred H. Knight, The Life of the Law 41(1 996).



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