ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
KARL L. MULVANEY EUGENE M. FEINGOLD
NANA QUAY-SMITH STEVEN P. KENNEDY
CANDACE L. SAGE Law Offices of Eugene M. Feingold
Bingham Summers Welsh & Spilman Munster, Indiana
R. STEVEN RYAN
DAVID M. AUSTGEN Barce & Ryan
Austgen & Decker Kentland, Indiana
Crown Point, Indiana
THE FIRST BANK OF WHITING ) n/k/a CENTIER BANK, ) ) Appellant-Cross-Appellee-Defendant ) ) vs. ) No. 56A03-9705-CV-142 ) THOMAS SCHUYLER, ) ) Appellee-Cross-Appellant-Plaintiff )
drains and into the Building. Storm water also came in the Building through the north door,
but management was able to stop that water after a very short period of time by using simple
barriers. Because management was unable to stop the sewer backup, approximately 12 of
the 15 racquetball courts were damaged and had to be replaced. After the flood, management
discovered that during construction of the Building the architect had failed to install a check
valve designed to prevent water backflow on the sewer line. A check valve was then
installed and no other backups were experienced during the Building's operation as a
racquetball club. In the years following the 1981 flood, racquetball club members recall
viewing evidence of minor seepage and moisture in the Building, the origin of which was
unknown. Aside from the minor seepage, the Building experienced no serious water
problems after the 1981 flood.
In the Spring of 1985, the Bank foreclosed on the Building, the racquetball facility was closed, and the Building remained vacant until 1987. In 1987, Schuyler, a commercial real estate developer, arranged to tour the Building with the idea of buying the Building and converting it into office space. Before one of Schuyler's visits to the Building, bank employee Herb Southworth had discovered that the carpet in the lower level of the building had become wet and that several of the racquetball floors had become damaged. Southworth investigated the cause of the damage and discovered that a hot water heater had rusted and was leaking in the lower level. Southworth immediately contacted the water department and had the water shut off and had drying crews brought in to dry the carpet. Thereafter, Schuyler met with Southworth to tour the Building. At the time Schuyler toured the
Building, he observed the damp carpeting and warped racquetball floors. When Schuyler
inquired as to the cause of this visible water damage, Southworth explained to him that the
damage was caused by the broken hot water heater. Schuyler made no further inquiries of
Southworth about any water problems in the history of the Building. Prior to his purchase
of the Building, Schuyler was given blue prints of the entire Building, inspected the Building,
and viewed all sump pumps and drains.
In 1988, Schuyler purchased the Building for $550,000.00 and proceeded to remodel the Building for use as office space. Subsequent to its purchase by Schuyler, the Building experienced a number of externally-generated water problems whereby water either flowed, seeped, or backed-up into the building. Schuyler suffered substantial expense in repairing the damages suffered to the Building and eventually lost the Building to foreclosure.
Thereafter, Schuyler filed his complaint against the Bank alleging that it had committed actual fraud when it sold the Building to him without disclosing the history of water problems experienced at the racquetball facility. Schuyler sought both compensatory and punitive damages for his alleged injuries. The Bank denied Schuyler's allegations and filed a Motion for Summary Judgment which was granted by the trial court. In response to a Motion to Correct Error filed by Schuyler, the trial court reversed its original entry of summary judgment and reinstated Schuyler's claims. The case proceeded to trial by jury. The jury found in Schuyler's favor and awarded Schuyler $223,000.00 in compensatory damages and $800,000.00 in punitive damages. Thereafter, in response to a Motion to
Correct Error filed by the Bank, the trial court vacated the punitive damage award and
ordered a new trial on that issue. This appeal and cross-appeal ensued.
party from making a thorough inspection. For, if in addition to his
silence, there is any behavior of the seller which points affirmatively to
a suppression of the truth or to a withdrawal or distraction of the
parties' attention to the facts, the concealment becomes fraudulent.
Id. Indeed, a seller cannot be permitted to partially disclose the facts as he knows them to
be, so as to deliberately create a false impression in the mind of the buyer by failing to fully
reveal the true state of affairs. Thompson v. Best, 478 N.E.2d 79, 84 (Ind. Ct. App. 1985).
Although both Perry and Thompson involved the sale of residential property rather than commercial property, we find a review of the facts of those cases instructive here. In Perry, the purchasers of a new home brought a fraud claim against the seller for damages arising out of their purchase of the home. At the time of the sale the seller/bank knew that the home had serious structural defects and was, in fact, sliding down a hill to a river. Among other things, walls had cracked, pillars had become detached, and water had flowed through the house ruining the carpet. Although the bank could have made adequate repairs costing $1,900.00, the bank chose instead to spend only $550.00 in making what may be described as cosmetic repairs. Upon inspection of the home by the buyers and their realtor, the buyers discovered the wet carpet and a detached pillar. The evidence revealed that when the buyers inquired as to the cause of the damage, the bank affirmatively misrepresented the cause of the wet carpet and the detached pillar and assured the buyers that the defects would be cured. There was additional evidence that the inside of the house had been repainted to cover up the water marks. We concluded that such acts amounted to sufficient
misrepresentation to impose a duty on the bank and its representative to disclose the whole
truth. Id. at 432.
Similarly, in Thompson v. Best, 478 N.E.2d 79 (Ind. Ct. App. 1985), prior to the purchase of a home, the buyer and seller entered into a discussion regarding the presence of a sump pump in the basement of the house and the drainage tiles around the house. The buyer specifically asked the seller if he had had a water problem with the house and the seller responded that he had not. Following his purchase of the home, the buyer discovered a second sump pump which had been previously covered up by the seller's belongings. After another inquiry to the seller regarding any water problems and the need for a second pump, the seller again denied that the house had any drainage problems. To the contrary, the evidence showed that seller experienced severe drainage difficulty in the home's basement while residing in the home. As a result of the drainage problems, the buyer experienced flooding of major proportions in the basement. Based upon this evidence, we concluded that "once [the seller] took it upon himself to explain the house's drainage situation, vis a vis describing the tasks of the sump pump and the tiles, he was required to disclose the entire situation, not just those portions that would not spoil a sale of the house." Id. at 84.
The facts of the instant case do not rise to the level of either Perry or Thompson, and are insufficient to support a fraud claim. The circumstances surrounding the parties' relevant dealings with one another are not in dispute. While touring the Building with Bank representative Southworth, Schuyler inquired into the visible water damage he noticed to the lower level of the Building. Southworth responded that the water damage was caused by a
broken water heater. There is no evidence to suggest that Southworth's explanation of the
cause of the visible damage was inaccurate, and Schuyler asked nothing further.
Unlike in Perry, the Bank made no misrepresentation regarding the cause of the visible damage to the lower level of the Building. Southworth answered fully and honestly the question posed to him. There is no evidence that the Bank, or Southworth as its representative, engaged in deceptive conduct in an attempt to conceal any material facts regarding the Building's water history.
Moreover, unlike the "partial" disclosure in Thompson, Southworth did not undertake to explain the sewer/septic system of the Building, the drainage capabilities of the Building, or the Building's experience seven years earlier during the 1981 flood. Southworth merely explained the damage caused by the broken water heater, the only damage which Schuyler had inquired about. Schuyler, an experienced commercial real-estate developer, made no inquires regarding whether the Building had experienced any externally-generated water problems such as seepage or sewer backup or, in fact, whether the Building had any problems whatsoever other than the visible damage he viewed upon touring the Building. We disagree with Schuyler that the evidence supports that the Bank somehow misled him into believing that the broken water heater was the "only" problem involving water that the Building had ever experienced. Such an inference from Southworth's representation is unreasonable and unsupported by case law.
As a matter of law, the Bank had no duty to disclose the Building's entire water history to Schuyler. In the absence of a duty, mere silence is not actionable fraud. Perry,
467 N.E.2d at 431. There was insufficient evidence to support the jury's verdict on the issue
of fraud, and judgment on the evidence is appropriate. Accordingly, Schuyler is not entitled
to compensatory damages for his fraud claim.See footnote
Moreover, because compensatory damages
are a prerequisite to an award of punitive damages, Sullivan v. American Cas. Co. of
Reading, PA., 605 N.E.2d 134, 140 (Ind. 1992), Schuyler is similarly not entitled to punitive
damages on this issue. Thus, the need for a new trial on punitive damages has been obviated.
The judgment is vacated and the cause is remanded with instructions to enter
judgment for the Bank.
HOFFMAN, J. and STATON, J. concur.
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