Johnson v. Wysocki (IN)

Summary: Under Indiana Disclosure Statutes (Ind. Code § 32-21-5), sellers are liable for fraudulent misrepresentations made on disclosure forms when they have actual knowledge that the representations are false at the time they complete the forms.

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Johnson v. Wysocki, 990 N.E.2d 456 (Ind. 2013).


Facts: Joseph and M. Carmen Wysocki sought to purchase real estate held by William and Barbara Johnson. Prior to finalizing the purchase agreement, Barbara Johnson executed a Seller’s Residential Real Estate Sales Disclosure Form. The form stated the property was (1) not in violation of applicable building codes, (2) all work had been done with a building permit when required, (3) there were not structural or foundational problems, and (4) there were no issues with moisture, water, or roof leakage. The Wysockis signed the disclosure form before signing the purchase agreement. Under the purchase agreement the Wysockis elected to obtain their own independent inspection before closing.

The inspection noted no roof leaks, major deficiencies, electrical issues or structural defects. However, the inspection was limited to readily accessible areas and visual observations of conditions apparent when inspected. After the inspection, the Wysockis waived any further independent inspections and agreed to accept the property “as is” based on the inspection report. However, after taking possession, the Wysockis discovered several defects related to the structure and wiring of the property. The Wysockis paid for repairs and sued the Johnsons. The Wysockis sued for (Count I) fraud, and (Count II) breach of contract or, alternatively, conversion because the Johnsons’ removed pump systems connected to the pool and several landscaping ponds.

The trial court granted summary judgment on Count II in favor of the Johnsons. Regarding Count I, the trial court held the Johnsons liable for several, but not all, defects. Both parties appealed.

The Court of Appeals affirmed in part and reversed in part. In reversing the trial court’s judgment in favor of the Wysockis, the court held that the Wysockis failed to show that the Johnsons had actual knowledge of the defects. Thereafter, the Wysockis filed for a transfer to the Supreme Court of Indiana, which was granted.


Holding: Reversed and Remanded. The issue presented before the court was whether the Indiana Disclosure Statutes usurped the application of common law fraudulent misrepresentation and the principle of caveat emptor.

The court stated that Ind. Code § 32-21-5-7 provided that Disclosure Statutes create liability for sellers when they fail to fully or truthfully disclose the condition of certain feature of their property. Further, while departing from the caveat emptor theory, the Disclosure Statutes were, as reasoned by the court, actually a codification of common law fraudulent misrepresentation. The court found that the statutes were meant to relieve the buyer of needing to initiate a specific inquiry in order to get honest disclosure about significant features of a purchase. Additionally, the statutes were meant to force the sellers to initiate disclosure. Therefore, the court held, “for those types of residential real estate transactions to which they apply – and for the property features which are addressed within them – [the Indiana] Disclosure Statutes [abrogate]…common law principles.” Johnson v. Wysocki, 990 N.E.2d 456, 466 (Ind. 2013). Sellers were found liable for fraudulent misrepresentations made on Disclosure Forms when they had actual knowledge that the representation was false at the time they completed the form. However, the applicability of the statutes was limited to those transactions within their scope.

Concerning the Wysockis’ claim, the court held that the trial court applied the wrong standard. Instead of applying the applicable “actual knowledge” standard, the trial court erred in applying the less rigorous “should have known” standard. Therefore, the court declined to assess the findings, and remanded the case to the trial courts.


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By: ATG Underwriting Department | Posted on: Fri, 06/20/2014 - 3:24pm