ATTORNEY FOR APPELLANT: ATTORNEY FOR APPELLEES:
LATRIEALLE WHEAT JOHN M. HAECKER
Angola, Indiana Grimm & Grimm
COURT OF APPEALS OF INDIANA
LLOYD STRONG, )
vs. ) No. 76A03-0202-CV-54
STEVE A. JACKSON and JUDY L. JACKSON, )
APPEAL FROM THE STEUBEN SUPERIOR COURT
The Honorable William C. Fee, Judge
Cause No. 76D01-9908-CP-469
November 4, 2002
OPINION - FOR PUBLICATION
Lloyd Strong appeals the trial courts judgment upholding the sale of his personal
property to Steve Jackson and reforming the contract that transferred Strongs real property
to Jackson rather than rescinding it. Jackson effectively cross-appeals the reformation of
the real estate contract. We affirm in part, reverse in part, and
We restate the issues before us as:
I. whether the trial court erred in concluding that the real estate transaction was
the result of constructive fraud;
II. whether the trial court erred in reforming the real estate contract to provide
Strong with an equitable life estate in the property instead of rescinding the
contract altogether after it concluded the contract was the result of constructive fraud;
III. whether the trial court erred in concluding the sale of Strongs personal property
to Jackson was not the result of constructive fraud.
There are no fewer than three sides to many parts of this story,
which we must attempt to harmonize.
See footnote Strong, who was born in 1919,
has known Jackson, born in 1944, for a number of years. Jackson,
who is an owner of several Fort Wayne businesses, frequently hunted on Strongs
102 acre Steuben County farm, where Strong has lived for many years, at
Strongs invitation. In 1994, Strong brought a lawsuit against his son, Gary,
in relation to farming operations they were supposed to be jointly undertaking in
DeKalb County. That lawsuit ultimately resulted in a $33,996.41 judgment against Strong
on counterclaims brought by Gary, which judgment this court affirmed on appeal in
a memorandum decision.
Strong v. Strong, No. 17A03-9602-CV-48 (Ind. Ct. App. April
11, 1997). Strong frequently consulted Jackson on various matters, including his lawsuit
and ongoing dealings with Gary. On August 1, 1997, Strong designated Jackson
as his attorney-in-fact. Strong executed a second power of attorney document naming
Jackson on May 26, 1998, just a few weeks after Strong had named
his son Frank and his wife as his attorneys-in-fact.
Gary took little action to collect his judgment against Strong for nearly a
year after we affirmed it, and Strong made no attempt to pay it.
In the spring of 1998, however, a new attorney for Gary requested
the issuance of a writ of execution against Strongs Steuben County property.
At a May 13, 1998 hearing in DeKalb County on that request and
other matters, Strong testified under oath that he had no assets with which
to pay the judgment. The DeKalb Circuit Court issued the writ following
the hearing; thereafter, the Steuben County Sheriff notified Strong on May 27, 1998,
that he would proceed with a sheriffs sale of Strongs property as requested
in the writ if Strong did not pay the judgment by June 26,
1998. Garys attorney scheduled depositions with Strong and Jackson for June 18,
1998, in relation to an apparently fraudulent mortgage Strong had granted on the
Steuben County farm.
Attorney Allen Stout and Jackson explored with Strong various options for paying the
judgment, none of which Strong agreed to follow. At this point, the
parties stories sharply diverge. The evidence most favorable to the judgment, however,
reveals that on June 17, 1998, Strong telephoned Stout and said that he
had agreed to transfer his Steuben County property and the personal property thereon
to Jackson, in exchange for which Jackson would pay the judgment. Strong
also indicated that Jackson had promised that Strong could live on the farm
for the rest of his life. Stout telephoned Jackson and confirmed this
plan, including that Strong would be allowed to live out his life on
the farm, but Jackson told Stout he would not accept the real estate
with a life estate to Strong attached to it. Stout apparently did
not pass this information along to Strong.
On June 18, 1998, Strong drove approximately one hour from his home to
Jacksons office in Fort Wayne. There, Strong was presented with the Warranty
Deed and Bill of Sale Stout had prepared. Stout said something to
the effect that after Strong signed these documents, Jackson would own everything, down
to the kitchen table, to which Strong replied Good. . . .
Gary cant get my property. Tr. pp. 393-94. Strong then signed
the documents. As Strong left, Jackson reassured him that he could continue
living on the farm as Jackson had promised. Later, at the trial
in this matter, Strong testified that he thought he was signing some type
of restraining order against Gary and that the light in Jacksons office was
so poor he could not see what he was signing. Stout testified,
however, that Strong did not appear to be having any trouble with his
vision or competency when he signed the documents. Strong also attested in
an affidavit produced earlier in this litigation that he knew he signed a
deed transferring the real property to Jackson. Several witnesses testified that the
office was well lit. A competency exam performed on Strong in December
1997 indicated he displayed no signs of dementia and had an I.Q. of
109. Later in the day of June 18, 1998, Jackson tendered a
check to Garys attorney in the amount of $41,268.85 to satisfy the outstanding
judgment plus interest.
Strong continued to live on his Steuben County farm without interference until August
9, 1999, when Strongs new attorney wrote Jackson informing Jackson that his power
of attorney was being revoked and requesting that he reconvey the property he
obtained on June 18, 1998, to Strong. When Jackson refused, Strong sued
Jackson and his wife (who had obtained joint title to the property) on
August 18, 1999. Strong also moved for the issuance of a temporary
restraining order and a preliminary injunction to prevent Jackson from disposing of certain
items of personal property purportedly transferred to Jackson on June 18, 1998.
Jacksons counsel agreed in open court on September 2, 1999, not to dispose
of the personal property and to permit Strong to continue to reside on
the property during the pendency of the case; the restraining order and motion
for an injunction were then dismissed.
The trial court conducted a hearing on this matter in July and August
of 2001 and entered findings of fact and conclusions thereon on January 11,
2002. It concluded that Jackson had committed constructive fraud by accepting transfer
of the real estate without securing a life estate in the property for
Strong. The trial court, therefore, reformed the real estate contract by granting
Strong an equitable life estate in the farm, with entitlement to the balance
of the CRP payments
See footnote for the farm after Jackson paid the necessary taxes
and insurance; Jackson was also ordered to reimburse Strong for CRP payments received
during the course of the litigation and not paid to Strong. The
trial court also concluded, however, that the personal property sale was an arms
length transaction and not the result of constructive fraud. The trial court
also subsequently awarded Jacksons trial counsel attorney fees related to the temporary restraining
order that prevented Jackson from disposing of the personal property. It awarded
counsel $1255.50 for those fees and, in a separate judgment, deducted that amount
from the $4777.45 Jackson owed Strong for the CRP payments, resulting in a
net judgment to Strong in the amount of $3521.95. Strong now appeals,
and Jackson effectively cross-appeals.
At Strongs request, the trial court entered findings of fact and conclusions thereon
pursuant to Indiana Trial Rule 52(A). In reviewing a judgment where findings
and conclusions have been entered, we first must determine whether the evidence supports
the findings and second, whether the findings support the judgment.
Bogue, 736 N.E.2d 782, 787 (Ind. Ct. App. 2000). Findings of fact
are clearly erroneous only when the record lacks any evidence to support them.
Id. In reviewing the findings and judgment entered by the trial
court, we consider only the evidence favorable to the judgment and all reasonable
inferences flowing therefrom. Id. If a party has requested specific findings
of fact and conclusions of law pursuant to Indiana Trial Rule 52(A), we
may affirm the judgment on any legal theory supported by the findings.
Id. at 789. Before affirming on a legal theory supported by the
findings but not espoused by the trial court, the reviewing court should be
confident that its affirmance is consistent with all of the trial courts findings
of fact and inferences drawn from the findings. Id.
I. Constructive Fraud Real Estate Transaction
We begin by assessing Jacksons claim that the trial court erred in concluding
that constructive fraud had occurred in relation to the real estate transfer.
Constructive fraud arises by operation of law from a course of conduct, which,
if sanctioned by law, would secure an unconscionable advantage, irrespective of the actual
intent to defraud. Drudge v. Brandt, 698 N.E.2d 1245, 1250 (Ind. Ct.
App. 1998). There are essentially two lines of cases in Indiana regarding
constructive fraud. One simply lists the five elements of constructive fraud:
(i) a duty owing by the party to be charged to the complaining
party due to their relationship; (ii) violation of that duty by the making
of deceptive material misrepresentations of past or existing facts or remaining silent when
a duty to speak exists; (iii) reliance thereon by the complaining party; (iv)
injury to the complaining party as a proximate result thereof; and (v) the
gaining of an advantage by the party to be charged at the expense
of the complaining party. See, e.g., Rice v. Strunk, 670 N.E.2d 1280,
1284 (Ind. 1996).
On the other hand, there are numerous cases that, without mentioning these five
elements, hold as follows:
In Indiana, various legal and domestic relationships raise a presumption of confidence and
trust as to the subordinate party on the one hand and a corresponding
influence as to the dominant party on the other. Lucas v. Frazee,
471 N.E.2d 1163, 1166 (Ind. Ct. App. 1984). These relationships include, among
others, principal and agent. Id. at 1166-67. Where the relationship is
one of principal and agent, if the plaintiffs evidence establishes (a) the existence
of a fiduciary relationship, and (b) the questioned transaction between the two (2)
parties resulted in an advantage to the dominant party in whom the subordinate
party had reposed both their trust and confidence, the law imposes a presumption
that the transaction was the result of undue influence exerted by the dominant
party, constructively fraudulent, and thus void. Id. at 1167. Once these
facts are established, the burden shifts to the dominant party in the relationship
to rebut the presumption by clear and unequivocal proof. Id.
In re Estate of Wade, 768 N.E.2d 957, 961-62 (Ind. Ct. App. 2002),
trans. denied; see also Matter of Good, 632 N.E.2d 719, 721 (Ind. 1994)
(Transactions entered into during the existence of a fiduciary relationship are presumptively invalid
as the product of undue influence.); Reiss v. Reiss, 516 N.E.2d 7, 8 (Ind. 1987)
(holding that in certain relationships, including principal and agent, the law raises a
presumption of influence upon the subordinate party by the dominant party); Clarkson v.
Whitaker, 657 N.E.2d 139, 144 (Ind. Ct. App. 1995), trans. denied (The law
presumes fraud when a person with a fiduciary duty benefits from a questioned
transaction.). Strong urges that a presumption of fraud arose in this case;
Jackson cites the five-part Rice analysis as the proper test without addressing the
burden-shifting aspect of cases like Wade and Lucas.* * * * *
We hold, pursuant to the holding expressed in Wade and Lucas, that a
plaintiff alleging the existence of constructive fraud has the burden of proving the
first and last elements enumerated in Rice: a duty owing by the
party to be charged to the complaining party due to their relationship, and
the gaining of an advantage by the party to be charged at the
expense of the complaining party. The duty mentioned in the first element
may arise in one of two ways: by virtue of the existence
of a fiduciary relationship, or in the case where there is a buyer
and a seller, where one party may possess knowledge not possessed by the
other and may thereby enjoy a position of superiority over the other.
Epperly v. Johnson, 734 N.E.2d 1066, 1073 (Ind. Ct. App. 2000). If
the plaintiff meets the burden of proof with respect to those two elements
and establishes the existence of a fiduciary relationship, the burden shifts to the
defendant to disprove at least one of the second, third, and fourth elements
of Rice by clear and unequivocal proof: no making of deceptive material
misrepresentations of past or existing facts or remaining silent when a duty to
speak exists, no reliance thereon by the complaining party, or no injury to
the complaining party as a proximate result thereof. We observe, however, that
in a constructive fraud action based on misrepresentations between a buyer and a
seller and not the existence of a fiduciary relationship, no presumption of fraud
arises and the burden is on the plaintiff to prove all five elements
of the Rice test.
The trial courts findings and conclusions do not indicate that it precisely followed
the above analysis. It listed a paraphrasing of the five Rice elements
of constructive fraud without indicating that a presumption of constructive fraud arose in
this case or that Jackson had the burden of refuting such a presumption.
We may affirm this judgment on any legal theory consistent with the
trial courts findings, however, and are confident that we can do so with
respect to this issue by applying the constructive fraud test we have outlined
to the facts found by the trial court.
We begin by noting our earlier decision in Strong v. Strong, in which
we affirmed an award of attorney fees in favor of Gary and against
Strong for bringing a frivolous claim, and where we stated that Lloyd is
a stubborn, uncooperative man. Slip op. p. 13. There is little
in the record in the present case that would cause us to modify
that observation. As an example, he testified under oath at the May
13, 1998 DeKalb County hearing on Garys attempts to collect the judgment that
he had no assets with which to pay it, but testified at the
trial in this case that he had had $45,000 in cash with which
to pay the judgment as of June 18, 1998, without explaining his May
13, 1998 testimony or how he might have acquired that much cash in
a little over a month.
Jackson, however, does not dispute the trial courts finding that the facts clearly
and convincingly reflect a relationship of continuous trust and confidence [by Strong in
Jackson] beyond the formality of the Power of Attorney. Appellants App. p.
19. This supports the conclusion that Strong adequately proved the first element
of the Rice test, a duty owing by the party to be charged
to the complaining party due to their relationship. It also establishes the
existence of a fiduciary relationship between Jackson and Strong. [A] confidential or
fiduciary relationship exists when confidence is reposed by one party in another with
resulting superiority and influence exercised by the other. Estates of Kalwitz v.
Kalwitz, 717 N.E.2d 904, 914 (Ind. Ct. App. 1999). We have previously
recognized that the relationship between an attorney-in-fact and his or her principal is
a fiduciary one. Villanella v. Godbey, 632 N.E.2d 786, 790 (Ind. Ct.
App. 1994). Additionally, although the trial court entered no specific finding on
whether Jackson gained an advantage from the transaction, he makes no claim on
appeal that he did not gain such an advantage.
See footnote Thus, Jackson essentially
concedes that Strong adequately proved the fifth element of the
The question then becomes whether Jackson presented clear and unequivocal evidence to rebut
one of the three remaining constructive fraud elements found in Rice. The
trial courts ultimate findings regarding these three elements of material misrepresentation, reasonable reliance
thereon, and resulting injury to Strong are summarized in its Conclusions, numbers 11
Plaintiff has proven the existence of all elements required for constructive fraud and
the existence of all elements required for a breach of a confidential or
fiduciary relationship by [Jacksons] accepting transfer of the real estate without securing a
life estate for Plaintiff, Lloyd Strong.
Defendant, Steve A. Jackson, told Plaintiff that Plaintiff could continue to live on
the Steuben County Farm and that Defendant would give Plaintiff the balance of
the CRP money after Defendant paid the taxes and insurance for the Steuben
County Farm. However, the Defendant, Steve A. Jackson, testified that he cannot
be sure whether he told Plaintiff this before or after the conveyance on
June 18, 1998. He testified that his wife told him it was
prior to June 18th. At any rate, he testified that he was
definitely committed to it. Findings are entered that the preponderance of the
evidence is that the statement occurred prior to the conveyance on June 18th.
Appellants App. p. 22.
II. Constructive Fraud Remedy
Much of Jacksons argument that he made no material misrepresentation or that Strong
did not reasonably rely on the promise that he could live out his
life on the farm is based on the involvement of attorney Allen Stout
in this transaction. Indeed, the trial court does refer to Stout as
Plaintiffs attorney in its findings, and Stout had represented and given advice to
Strong in his ongoing legal battles with Gary. However, Stout testified at
his deposition, which was introduced into evidence, that he viewed his role in
this transaction as merely a scrivener, and that [w]hat [Strongs and Jacksons] price
was and what their agreement was was really none of my business.
Appellants App. p. 519. Furthermore, after Strong told Stout that he was
going to transfer the farm to Jackson and that Jackson had promised him
he could continue to live there for the rest of his life, Stout
called Jackson to confirm this plan. Jackson did so, but also stated,
after being asked by Stout, that he would not accept the farm with
a life estate to Strong attached to it. There is no evidence
Stout ever related this comment or its legal importance to Strong, and Stout
drafted the warranty deed without reserving a life estate to Strong as directed
by Jackson and contrary to what Strong believed the transaction would entail.
Stout also testified in his deposition, I dont know that I pointed out
to [Strong] the absence of a life estate. Appellants App. p. 490.
It is clear to us that Stouts involvement in this transaction was
insufficient to remove the taint of constructive fraud.
Jackson also contends he made no misrepresentation that Strong could have reasonably relied
upon regarding the reservation of a life estate to Strong. He bases
this argument on the fact that the warranty deed itself makes no mention
of a life estate and apparently on the fact that Jackson did not
use the words life estate when promising Strong that he could continue to
live on the farm as long as he wished. He also points
out that Stout had advised Strong, before he signed the warranty deed, that
Jackson would thereafter own everything, including the kitchen sink. Tr. p. 816.
We are not persuaded that Jackson did not make a material misrepresentation, or
that Strong did not reasonably rely upon such a misrepresentation. It is
well-settled that although an oral promise as to future conduct will not support
an ordinary fraud action, such promise may form the basis of a constructive
fraud action if it induces one to place himself in a worse position
than he would have been in had no promise been made and if
the party making the promise derives a benefit as a result of the
promise. See Kalwitz, 717 N.E.2d at 913; Farrington v. Allsop, 670 N.E.2d
106, 109 (Ind. Ct. App. 1996). For example, a constructive trust may
arise where there is a confidential relationship between the grantor and the grantee,
and the grantor relies upon the transferees promise to reconvey the property in
the future. Kalwitz, 717 N.E.2d at 913.
Here, the trial court specifically rejected Strongs assertion that Jackson made a promise
to reconvey the farm, but did accept that Jackson had promised to allow
Strong to continue to live on the farm for the rest of his
life. It is also reasonable to infer that this promise was a
decisive factor that induced Strong to transfer title to the property to Jackson.
We conclude it is of little relevance that Jackson did not use
the term of art life estate when promising Strong that he could live
on the farm for as long as he lived, even after the property
was transferred to Jackson. Regardless of what Jackson said precisely, it is
clear that he promised Strong the equivalent of a life estate in the
farm. We also believe the fact that the warranty deed does not
mention a life estate does not negate the existence of constructive fraud as
a matter of law. The very essence of a constructive fraud action
based on the existence of a fiduciary relationship is that one party places
a special trust and confidence in a dominant party and, therefore, it is
presumed that a transaction entered into during such a relationship is not an
arms length transaction, wherein each party would be bound to closely examine the
terms of the contract to protect his or her interests rather than relying
on a fiduciarys representations. We also are unconvinced that Stouts advice to
Strong before he signed the deed renders Strongs reliance on Jacksons promise unreasonable.
Strongs knowledge that Jackson would own all of his property after he
signed the warranty deed and bill of sale does not necessarily equal knowledge
that he would be left with no interest in the property whatsoever, e.g.
a life estate.
Finally, Jackson seems to argue that Strong was not injured by this transaction
because Jackson had allowed Strong to live on the farm as promised and
took no action to force Strong off the farm until Strong called the
transaction into question.
See footnote We acknowledge that, up until August 9, 1999, Jackson
had permitted Strong to reside on the farm as he had promised; it
was only after this date that Jackson attempted to force Strong off the
property. Strong, therefore, is not entirely without blame as to his current
predicament. Nevertheless, the fact that Jackson legally could force Strong off the
property, under the contract as originally written, highlights the worthlessness of Jacksons promise
where the warranty deed did not reserve a life estate in the property
to Strong. The promise was wholly dependent on Strongs remaining on good
terms with Jackson and left Strong without legal recourse if Jackson ever decided
to renege on his promise. We hold that Jackson has failed to
establish by clear and unequivocal evidence that his acceptance of Strongs real property
without reservation of a life estate to Strong, as effectively promised, did not
result in injury to Strong. In sum, the trial courts findings on
the issue of the transfer of the real estate are not clearly erroneous,
and the trial court did not err in concluding that those findings established
the existence of constructive fraud with respect to that transfer.
Next, we address whether the trial court ordered an appropriate remedy after it
concluded that the real estate transfer from Jackson to Strong was the result
of constructive fraud. Strong contends that once the trial court found the
existence of constructive fraud, it could not simply order reformation of the warranty
deed by granting Strong a life estate in the property. Rather, he
claims, the trial court should have declared the entire transaction void, which we
take to mean the contract should have been ordered entirely rescinded or a
constructive trust should have been imposed. It is true some cases state
that a transaction resulting from constructive fraud is deemed void.
N.E.2d at 963. The use of the word void, however, should not
be read as limiting the remedies available after a finding of constructive fraud
to rescission or imposition of a constructive trust.
It is axiomatic that [a] court of equity has jurisdiction to reform written
documents. Peterson v. First State Bank, 737 N.E.2d 1226, 1229 (Ind. Ct.
App. 2000). Although reformation is an extreme remedy, it may be appropriate
(1) where there is a mutual mistake such that the written instrument does
not reflect what the parties truly intended; and (2) where there has been
a mistake on the part of one party accompanied by fraud or inequitable
conduct by the other party. Id. The second of these situations
is applicable here.
It is true that fraud in the inducement of a contract may also
be a basis for rescission. Hart v. Steel Products, Inc., 666 N.E.2d
1270, 1275 (Ind. Ct. App. 1996), trans. denied. The remedy of rescission
only entitles a plaintiff to be returned to the status quo, which usually
necessitates a return of money or other things received or paid under the
contract, plus reimbursement as special damages, for any reasonable expenditures incurred as a
proximate result of the fraudulent conduct. Id. The rescinding party must
also restore all benefits received under the contract. Id. Finally, a
constructive trust may be imposed where a person holding title to property is
subject to an equitable duty to convey it to another on the ground
that he would be unjustly enriched if he were permitted to retain it.
Kalwitz, 717 N.E.2d at 912 (quoting Melloh v. Gladis, 261 Ind. 647,
656, 309 N.E.2d 433, 438-39 (1974)). The duty to convey the property
may [a]rise because it was acquired through fraud, duress, undue influence or mistake,
or through a breach of a fiduciary duty, or through the wrongful disposition
of anothers property. Id. As an equitable remedy, one seeking imposition
of a constructive trust would be bound by the equitable principle, he who
seeks equity must do equity. Alber v. Standard Heating & Air Conditioning,
Inc., 476 N.E.2d 507, 510 (Ind. Ct. App. 1985). As with rescission,
we conclude this would require a plaintiff to return benefits received from a
defendant, if any, before a constructive trust on property transferred to a defendant
could be imposed.
The trial court here had good reason to order the remedy it did,
rather than ordering a complete rescission of the contract or imposing a constructive
trust. Either rescission or a constructive trust would have required Strong to
return to Jackson the benefit that Strong had received under the contract, namely,
Jacksons paying the outstanding judgment against Strong. The very transfer of the
property to Jackson arose because of either Strongs inability or unwillingness to pay
an outstanding judgment in favor of his son and the threat of a
possible sheriffs sale of the property to satisfy that judgment. Given the
background of this case, it was entirely reasonable for the trial court to
reform the contract by granting Strong a life estate in the real property
rather than rescinding the contract, which would result in Strong being required to
reimburse Jackson for the $41,268.85 he paid to satisfy the judgment and which
history indicates would be difficult to collect. A plaintiff seeking rescission of
a contract bears the burden of proving the ability and willingness to reimburse
a defendant for any benefits received under the contract. See Hart, 666
N.E.2d at 1275. Strong did not meet that burden. In fact,
we find several pages of testimony in which Strongs attorney unsuccessfully attempted to
elicit Strongs agreement to reimburse Jackson for the judgment he paid to Gary
if the contract was rescinded.
Unlike many constructive fraud cases, this is not an instance where the victim
of the fraud received absolutely nothing or very little in return for a
transfer of property to the fiduciary. It is undisputed that Jackson paid
the $41,268.85 judgment Strong owed to Gary after Strong transferred the property to
Jackson. By doing so, Strong avoided losing the farm in a sheriffs
sale, the process for which Garys attorney had begun and which he testified
he was definitely going to pursue. In addition to this material benefit
Strong received from transferring his real property to Jackson, Strong received the visceral
pleasure of knowing Gary could not take possession of that property, as revealed
by his comments when the property was transferred to the effect that if
he had no property, Gary could not get it. Given these intangible
factors, we cannot say Jackson was unjustly enriched by the transfer of the
real property if Strong is reserved a life estate in the property.
The trial court did not err by reforming the real estate contract, rather
than rescinding it or imposing a constructive trust.
III. Constructive Fraud Personal Property Transaction
Finally, Strong contends it was fundamentally inconsistent for the trial court to conclude
on the one hand that the real property transfer was the result of
constructive fraud, and on the other hand that the transfers of the related
personal property were an arms length transaction. Appellants App. p. 19.
We reiterate our earlier holding: to establish the presumption of constructive fraud,
a plaintiff must prove (1) a duty owing by the party to be
charged to the complaining party due to their relationship and (2) the gaining
of an advantage by the party to be charged at the expense of
the complaining party. If those two elements are proven, and the relationship
between the parties is a fiduciary one, the burden shifts to the defendant
to establish by clear and unequivocal evidence that (1) no material misrepresentations were
made in violation of the duty owing to the plaintiff, (2) the plaintiff
did not reasonably rely on any such misrepresentation,
or (3) the plaintiff was
not injured by the transaction.
In the trial courts view, there was one distinguishing characteristic between the real
estate and personal property transactions related to the element of whether any material
misrepresentations were made that induced Strong to enter into those transactions with Jackson.
Specifically, although it found that Jackson had told Strong, prior to the
conveyance of the real property, that he could continue to live on the
farm for the rest of his life, it also found [n]o evidence exists
that promises were made regarding the personal property or the Plaintiffs continued use
of it. Appellants App. p. 23. In other words, the trial
court concluded that Jackson established he made no material misrepresentation in violation of
his fiduciary duty to Strong with respect to the personal property.
Our review of the record reveals that some evidence does exist that promises
were made regarding Strongs continued use of the personal property. Attorney Stout
testified in his deposition, which we emphasize was introduced into evidence, as follows:
Q: . . . Was there a reason that you were given why Mr.
Strong was giving over not only his real estate but all of the
personal property to Mr. Jackson?
A: Yes. . . . He explained to me that by doing that
he was going to be able to continue to use the property and
enjoy the property, continue to mow his farm with his machinery, live on
the farm, still have the income from the farm and Gary Strong was
going to get nothing. * * * * *
My client told me he was going to get to live on the
property and that, the rest of his life and he would be able
to run his tractors and play with his lawnmowers and that he would
get all of the income from the property.
Appellants App. pp. 473, 523 (emphases added). Thus, there is evidence in
the record that Jackson promised Strong the continued use of his personal property,
at least with respect to farm machinery, in conjunction with his continuing to
live on the real property. We also observe that a promise to
Strong that he could live out his life in the farmhouse where he
had lived for many years would seem to carry an implied promise that
he could continue to use household items of personal property. Furthermore, we
note that much of the evidence regarding the real estate transfer, which the
trial court found was constructively fraudulent, overlaps and is in many respects identical
with the evidence regarding the personal property transfer, which it found was not
constructively fraudulent. The trial courts finding of no evidence of any promise
with respect to the personal property is thus, by our standard of review,
It would be improper for us to judge the weight and significance of
this evidence and conclude, as a matter of law, that Jackson has failed
to establish by clear and unequivocal evidence that he made no misrepresentations with
respect to the personal property or that Strong did not reasonably rely on
any such misrepresentations. That being the case, we reverse that part of
the trial courts judgment concerning the personal property transfer and remand for the
trial court to reconsider whether the transfer of Strongs personal property to Jackson
was the result of constructive fraud . Given the constructive fraud finding with
respect to the real property transfer and the existence of some evidence of
alleged promises regarding the personal property, we believe that further clarification and explanation
regarding the personal property transfer is necessary. Additionally, we instruct the trial
court to apply the constructive fraud analysis we have outlined in this opinion:
it would appear Strong has already established that Jackson owed a fiduciary
duty to him and that Jackson benefited from the personal property transaction.
Thus, the burden is Jacksons to establish that that transaction was not constructively
fraudulent by clear and unequivocal evidence that he made no material misrepresentations concerning
the personal property, that Strong did not reasonably rely on any such representation,
or that Strong was not injured by the transaction. We leave it
to the trial courts discretion as to whether a new hearing on this
issue should be held or whether it may amend its findings, conclusions, and
judgment in accordance with this opinion based on the evidence it has already
We affirm the trial courts judgment finding the existence of constructive fraud with
respect to Strongs transfer of his real property to Jackson as well as
the trial courts remedy of reforming that transaction by granting Strong an equitable
life estate in the property. However, we find that the trial courts
primary finding supporting its conclusion that there was no constructive fraud with respect
to the personal property transaction is clearly erroneous. We reverse the trial
courts judgment on this issue and remand for further proceedings consistent with this
Affirmed in part, reversed in part, and remanded.
BAKER, J., and VAIDIK, concur.
The testimony of Strong and Jackson, of course, frequently conflict on many
points, but the testimony of attorney Allen Stout, who was also involved in
this transaction, also often conflicts with both Strongs and Jacksons version of events.
Footnote: The record does not reveal what a CRP payment is. We
assume this refers to the Farm Service Agencys Conservation Reserve Program, which pays
annual rent to landowners for planting permanent vegetation on idle, highly erodible farmland.
See Farm Service Agency Online Conservation, at http://www.fsa.usda.gov/dafp/cepd/crpinfo.htm.
Evidence in the record estimated the value of the Steuben County farm
on June 18, 1998, as $153,000, and the value of Strongs personal property
on that date as $45,335; Jackson, therefore, received property worth nearly $200,000 in
consideration for his payment of a $41,268.85 judgment against Strong.
Footnote: One week after Strongs counsel requested that Jackson reconvey the property to
Strong, Jacksons counsel responded with a letter stating Mr. Jackson has elected to
terminate your occupancy of the above-described premises. Plaintiffs Ex. 45. Jackson
did not pursue this course of action following the parties agreement on Strongs
request for a preliminary injunction.
Footnote: We also observe, although not specifically found by the trial court, that
in calculating the monetary circumstances of this transaction, it is not enough to
simply state that Jackson received real property with an estimated value of $153,000
on June 18, 1998, in exchange for $41,268.85, because the $153,000 number was
based on two assumptions that do not apply in this case. First,
the appraisal is apparently based on the propertys market value, defined as [t]he
most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller,
each acting prudently, knowledgeably and assuming the price is not affected by undue
stimulus. Plaintiffs Ex. 32. Second, the appraisal is also apparently based
upon a fee simple interest in the site.
Id. Here, Garys
attorney was proceeding with due speed to subject the Steuben County farm to
a sheriffs sale in order to satisfy the judgment; it is almost certain
that a sheriffs sale of the property would not have resulted in the
market price of the property given the above definition of that term.
Additionally, the reservation of a life estate in the property to Strong also
would certainly affect the value of the property to Jackson, as he would
have a remainder interest in it, not a fee simple. Finally, Strong
would not have had the option of retaining a life estate in the
property if it had been sold at a sheriffs sale. By transferring
the property to Jackson, Strong avoided the sheriffs sale, which would have resulted
in the loss of all his interest in the property and, most likely,
a sale price well below the propertys market value.
Our reversal and remand on this issue necessarily reverses the award of
attorney fees to Jacksons trial counsel based on his defense of the temporary
restraining order Strong obtained to prevent Jackson from disposing of the personal property,
because the award was based on this issues resolution in Jacksons favor.
Because of our reversal and remand on this issue, we need not definitively
resolve today whether the trial court improperly awarded attorney fees. Jackson points
to Indiana Trial Rule 65(C), however, as authorizing an award of attorney fees
when a party is wrongfully enjoined.
See GKC Indiana Theatres, Inc. v.
Elk Retail Investors, LLC, 764 N.E.2d 647, 654 (Ind. Ct. App. 2002).
Strong seems to argue that the restraining order in this case should not
be considered wrongful because it was dismissed pursuant to an agreement between the
parties. He cites no authority for his argument, however, thus waiving any
argument on this point. See Jackson v. State, 735 N.E.2d 1146, 1154
We also note that the parties agree on appeal that if the attorney
fees to Jacksons counsel were properly awarded, the trial court erred by both
awarding them to counsel in one judgment and deducting that same amount from
another judgment owing to Strong, thus effectively requiring Strong to pay those fees