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FOR PUBLICATION
ATTORNEY FOR APPELLANT: GARY M. SELIG Indianapolis, Indiana ATTORNEYS FOR APPELLEE: J. DAVID HOLLINGSWORTH BRENT R. BORG Church, Church, Hittle & Antrim Noblesville, Indiana

IN THE COURT OF APPEALS OF INDIANA
GAYLE FISCHER, Appellant-Plaintiff, vs. MICHAEL AND NOEL HEYMANN, Appellees-Respondents. ____________________________ MICHAEL B. HEYMANN and NOEL N. HEYMANN, Third-Party Plaintiffs vs. CARYN J. CRAIG, MICHAEL FOX, and F.C. TUCKER COMPANY, INC., Appellees/Third-Party Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

FILED
of the supreme court, court of appeals and tax court

Feb 24 2011, 10:08 am

CLERK

No. 49A04-1004-PL-231

APPEAL FROM THE MARION SUPERIOR COURT The Honorable Cynthia Ayers, Judge Cause No. 49D04-0605-PL-19166

February 24, 2011

OPINION - FOR PUBLICATION

ROBB, Judge

Case Summary and Issues Michael and Noel Heymann (collectively the "Heymanns") backed out of an agreement to purchase a condominium from Gayle Fischer, and Fischer sued. Following a bench trial, Fischer appeals the trial court's judgment in favor of the Heymanns, ordering that Fischer reimburse their earnest money deposit and pay their litigation costs and attorney's fees. On appeal Fischer raises two issues, which we restate as: 1) whether the trial court clearly erred in concluding the property's electrical concerns constitute "major defects" as defined in the purchase agreement, and 2) whether the trial court clearly erred in concluding Fischer failed to timely respond to the Heymanns' repair request. Concluding the trial court clearly erred in concluding major defects existed, we need not review the trial court's decision as to Fischer's response to the Heymanns' request, and accordingly, we reverse and remand. Facts and Procedural History On February 4, 2006, the Heymanns entered into a purchase agreement to purchase a condominium from Fischer for $315,000, with a closing date of May 31, 2006. Pursuant to the agreement, the Heymanns paid $5,000 in earnest money, and on February 6, the

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Heymanns timely exercised their right to have the condominium independently inspected for defects. The purchase agreement provided the Heymanns could terminate the agreement under the following conditions: If the Buyer reasonably believes that the Inspection Report reveals a MAJOR DEFECT with the Property and the Seller is unable or unwilling to remedy the defect to the Buyer's reasonable satisfaction before closing (or at a time otherwise agreed to by the parties), then this Agreement may be terminated by the Buyer or such defect shall be waived by the Buyer and the transaction shall proceed toward closing. Under Indiana Law, "Defect" means a condition that would have a significant adverse effect on the value of the Property that would significantly impair the health or safety of future occupants of the Property, or that if not repaired, removed, or replaced would significantly shorten or adversely affect the expected normal life of the premises. BUYER AGREES THAT ANY PROPERTY DEFECT PREVIOUSLY DISCLOSED BY SELLER, OR ROUTINE MAINTENANCE AND MINOR REPAIR ITEMS MENTIONED IN ANY REPORT SHALL NOT BE A BASIS FOR TERMINATION OF THIS AGREEMENT. ALL TIME PERIODS APPLICABLE TO INSPECTION RESPONSES SHALL BE REASONABLE. Appellant's Appendix at 273. The Heymanns hired an inspection company, which inspected the property and prepared an inspection report that categorizes and color-codes substantive findings as "CONCERNS," "REPAIRS," "MAINTENANCE," "ITEMS TO MONITOR," "GENERAL COMMENTS," and "ACCEPTABLE," and explains this terminology for clearer understanding of substantive findings. Id. at 499. "CONCERNS," the most severe category, is described as follows: We use this category to identify systems or components that, in our opinion, you should be concerned about for one or more of the following reasons; 1) The system or component is not performing its intended function.

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2)

The system or component is a safety hazard to the occupants of the property.

3)

The system or component is negatively affecting the property's habitability.

4)

The system or component has a high probability of incurring substantial expense to repair or replace now or in the near future.

Items listed as CONCERNS should be evaluated by professionals in the appropriate trades before closing. It is our intention that items listed as CONCERNS be thoughtfully considered before closing. Id. The inspection report of the condominium deemed all items "acceptable" except as noted, and categorized findings as "Major Concerns," "Repairs," "Maintenance," "Monitor," and "General Comments." E.g., id. at 512. Although the report included numerous findings in all of the categories, the "Major Concerns" relevant to this appeal state: "There is no electrical power to the outlets in the half bathroom and second floor bathroom and exterior outlet on the balcony." Id.; see also id. at 511 ("No power was observed to the outlet on the balcony."). These "Major Concerns," as denoted on the pages of the report, were again included as "CONCERNS" in the report's two-page summary of findings. Id. at 513. On February 10, the Heymanns submitted to Fischer a "Buyer's Inspection Response," in which they agreed to accept the property if Fischer resolved the following: "Electrical power to the outlets in the half bathroom and second floor bedroom and exterior balcony. Light over half bath sink does not work properly (probably bulb replacement)." Id. at 279.

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The Heymanns reserved the right to inspect the property again prior to closing, but demanded Fischer respond by February 13. Fischer responded on February 13 via an "Amendment to Purchase Agreement," by checking a box that reads "The time for making any responses to inspections is extended to" and filling in "February 28, 2006." Id. at 280. On February 15, the Heymanns agreed to extend Fischer's time for response to February 18. Id. at 281. Fischer's agent telephoned the Heymanns' agent before February 18, and stated Fischer was going to fix the problem but needed an extension because of the unavailability of the electrician until February 20. Fischer's agent testified she told the Heymanns' agent "I can't speak for [Fischer] because I'm not her. I'm not my seller. But this was my feeling. You know, I just wanted to let [the Heymanns' agent] know that it's not a big issue." Transcript at 63. On February 17, the Heymanns put in an offer on a different condominium unit and executed a document for release from Fischer's unit, but instructed their agent not to deliver the release to Fischer until February 19. On February 19, the Heymanns' agent delivered their signed release to Fischer, which she refused to agree to or sign. Also on February 19, the Heymanns entered into a purchase agreement as to the second unit. On February 20, Fischer's electrician resolved the electrical problem by pushing the GFI reset button on the faces of the outlets, and Fischer replaced a light bulb. Following the Heymanns' failure to pay an additional down payment, Fischer brought suit for specific performance of the purchase agreement or, in the alternative, damages for reimbursement of maintenance expenses and the difference between the agreed

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upon price and the present fair market value, and attorney's fees and costs. The Heymanns answered, raised affirmative defenses, counterclaimed for damages, and brought a third-party indemnity claim against their agent. Fischer moved for findings of fact and conclusions of law, and following a bench trial, the trial court entered findings of fact and the following conclusions of law: CONCLUSIONS OF LAW *** 10. Defect as defined in the agreement . . ., means a condition that would have significant adverse effect on the value of the Property, or that if not repaired, removed, or replaced would significantly shorten or adversely affect the normal life of the premises. 11. In the inspector's report concerns is defined as a system or component having a high probability of incurring substantial expense to repair or replace now or in the near future; or the system or component is a safety hazard to the persons of [sic] the property; or the system or component negatively affects the property's habitability. 12. The inspector expressed major concerns that there was no electrical power to the outlets in several rooms in the home. 13. The court finds the definition of concern as used by the inspector and defect as in agreement are substantially the same. 14. The electrical problems listed in the Inspection Response constitute "Major Defects" pursuant to the agreement, line 138, and it was reasonable for the Heymanns to conclude that the Inspection Report designated said electrical problems as "Major Defects." 15. Fischer failed to agree to remedy the "Major Defects" as set out in the Inspection Response on or before February 18, 2006. 16. On or about February 19, 2006 the agreement between the Heymanns and Fischer became void. *** 19. The Heymanns' deadline of February 18, 2006 was not met and there was no agreement. 20. Because there was no contract formed, pursuant to the agreement, . . . the Heymanns' earnest deposit of Five Thousand Dollars ($5,000.00) must be returned to them. 23. [sic] Pursuant to the agreement, . . . the prevailing party in any legal or equitable proceeding shall be entitled to recover attorney's fees and court costs. 6

... 23. [sic] The Court makes no order on the Third Party Complaint since same is moot based on finding for the Heymanns and against Fischer. ... Appellant's App. at 19-20. Fischer now appeals. Discussion and Decision I. Purchase Agreement A. Standard of Review Upon appeal of a trial court's special findings of fact and conclusions of law entered pursuant to Indiana Trial Rule 52(A), we follow a two-part standard of review. Angelone v. Chang, 761 N.E.2d 426, 428-29 (Ind. Ct. App. 2001). We determine first whether the evidence supports the findings, and second, whether the findings support the judgment. Id. at 429. We will reverse only if the findings or judgment are clearly erroneous. Id. "Findings of fact are clearly erroneous when the record lacks any evidence or reasonable inferences from the evidence to support them. A judgment is clearly erroneous when a review of the record leaves us with a firm conviction that a mistake has been made." Id. We do not reweigh the evidence or assess the credibility of witnesses, and "consider only the evidence and the inferences flowing therefrom that are most favorable to the judgment." Id. B. Contract Interpretation Interpretation and construction of contracts are questions of law. Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870 N.E.2d 494, 501 (Ind. Ct. App. 2007). In reviewing questions of contract interpretation and construction upon appeal, we read the contract "as a whole when trying to ascertain the parties' intent, and we will make all attempts to construe 7

the language in a contract so as not to render any words, phrases, or terms ineffective or meaningless." Id. Further, we "must accept an interpretation of the contract that harmonizes its provisions, as opposed to one that causes the provisions to conflict." Id. The crux of the dispute over whether the electrical problems constitute major defects as defined by the purchase agreement stems from each party's focus on a different portion of the relevant clause. In particular, the Heymanns contend they were free to terminate the agreement because they reasonably believed the electrical problems were major defects, while Fischer contends the electrical problems required (at most) minor repairs and thereby could not have been a basis for termination. In accordance with the rules of contract interpretation, we interpret the purchase agreement to mean the Heymanns had the right to terminate the purchase agreement if they "reasonably believe[d]" the defects were "MAJOR DEFECT[S]," so long as the reasonableness of their belief is evaluated objectively, as opposed to subjectively. Appellant's App. at 273. This interpretation harmonizes the portions of the clause upon which each party bases its argument

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