Court divided on purchase agreement termination

The judges on the Indiana Court of Appeals were split in deciding whether the seller of a condominium should have to refund a deposit to purchase after the buyers discovered electrical problems that turned out to be minor issues.

In Gayle Fischer v. Michael and Noel Heymann/ Michael and Noel Heymann v. Caryn J. Craig, et al., No. 49A04-1004-PL-231, Gayle Fischer appealed the judgment ordering she reimburse the earnest money deposit of Michael and Noel Heymann and pay their litigation costs and attorneys fees after the couple backed out of an agreement to purchase Fischer’s condominium. The Heymanns entered into a purchase agreement and paid $5,000 in earnest money, and as a condition of the agreement they had the home inspected. The purchase agreement allowed for them to terminate the agreement if the inspection revealed a major defect and the seller is unable or unwilling to remedy the defect before closing.

The Heymanns’ inspector listed as a major concern on his report that there was no power to the outlets in two bathrooms and an outlet on a balcony. The Heymanns agreed to give Fischer until Feb. 18, 2006, to resolve the issue. On Feb. 17, they put an offer on a different unit, and on Feb. 19, they executed a document for release from Fischer’s unit. On Feb. 20, Fischer’s electrician fixed the problems by pushing a GFI reset button and replacing a light bulb.

Fischer then sued the Heymanns for specific performance of the purchase agreement or for reimbursement of maintenance expenses along with the difference between the agreed upon price and the present fair market value and attorneys fees and costs.

Chief Judge Margret Robb and Judge Patricia Riley reversed, holding the evidence doesn’t support the trial court’s finding that the Heymanns reasonably believed there was a major defect. They held the Heymanns had to have an objectively reasonable belief that the property contained major defects. The findings in the inspection don’t support an objectively reasonable belief that the defect was major.

“The report indicates there was no electrical power to three outlets, which could be and in fact was easily repaired. Therefore, under an objective standard, this would not have a significant adverse effect on the property’s value or significantly impair the health or safety of occupants,” Chief Judge Robb wrote.

The majority noted the buyer must be held responsible for selecting an inspector whose technical capability and approach to identifying and conveying problems in an inspection report enable a compromise as to repairs or cost deductions between a buyer and seller or termination of the purchase agreement. Any failure by the buyer’s inspector must be faulted to the buyer.

“Any incompetency of the Heymanns’ inspector – demonstrated by his failing to resolve the problem by pushing the GFI reset buttons and triggering the Heymanns’ concern as to the seriousness of the electrical problems – must be faulted to the Heymanns,” she continued. “It was the Heymanns’ responsibility to clarify with the inspector the extent of the electrical problem prior to their basing their decision to terminate the agreement on his findings.”

Judge Elaine Brown dissented, pointing out that there was no evidence the inspector chosen by the Heymanns wasn’t qualified, that his inspections were substandard, or that the report was lacking in quality.

She also dissented on the matter that the Heymanns gave Fischer through Feb. 18 to agree to remedy the problems, but she failed to do so. Judge Brown pointed to a part of the purchase agreement that states time periods in it are calendar days and shall expire at midnight of the date stated unless otherwise agreed to. By its terms, the purchase agreement expired at midnight on Feb. 18, she wrote.

The majority remanded for the trial court to determine the extent of damages owed to Fischer, as well as trial and appellate attorneys fees and costs.