In Split Decision, Court of Appeals Determines What Constitutes Major Defect in Purchase Agreement

On appeal from a bench trial judgment in favor of a purchaser who backed out of a condominium purchase because their inspection revealed that no power was being delivered to several outlets in the condo, the Court of Appeals reversed the trial court’s judgment and determined that the problem complained of did not constitute a major defect.

In Fischer v. Heymann, No. 49A04-1004-PL-231, the seller of a condo unit entered into a purchase agreement with a buyer that allowed for the buyer to conduct an inspection of the property before closing the deal and included that the buyer could terminate the agreement if it found what could be termed a “Major Defect” that the seller was unable or unwilling to remedy. After hiring an inspector and conducting the inspection, it was found that several outlets around the residence were not receiving power. The inspection report classified this problem as a “major concern” which was the highest level of alert on the report. The buyers presented the report to the seller who, through an agent, said that she would not be able to remedy to problem by the stated closing date and requested a two-week extension. The buyers did not grant the two-week extension and instead gave the seller several extra days to fix the problem. The day before the extension was to expire, the buyers entered into a new agreement with another seller and instructed their agent not to deliver their termination letter to the first seller until the extension period had ended. The seller eventually fixed the power issue in what turned out to be a minor repair but after receiving the termination letter, and sued the buyer for specific performance or, in the alternative, damages including attorney’s fees and costs.

In its opinion, the Court of Appeals cited to the language in the contract, stating that termination could be sought for a “major defect” and determined that the buyers must have “reasonably believed” that the defect was major. The court held that the defect in the condo was not of the major variety and also held that the buyers were not able to claim that they held a reasonable belief because the inspection report, despite listing the power issue as a “major concern,” also stated that it might be easily fixed. Because the buyer did not hold a reasonable belief that there was a major defect, as defined within the contract agreement, the trial court’s decision was reversed and remanded to determine the seller’s fees and costs.

In a dissenting opinion, however, Judge Brown focused on the fact that the seller did not remedy the issue until after the agreed upon closing date (and subsequent extension) had passed. Because the remedy did not take place within the time frame listed in the agreement, and because the contract also contained a “time is of the essence” clause, the dissent believed that the agreement should have been struck down and the trial court’s decision should have been upheld.

About Bose McKinney & Evans LLP

Bose McKinney & Evans LLP is a business law firm, headquartered in Indianapolis, Indiana, serving both publicly held and privately held businesses, governmental entities and high-growth industries. Our clients include Fortune 100 companies, international manufacturers, national and regional financial institutions, agribusinesses, sports teams, university-incubated start-ups, media, utilities, cities and schools, to name a few. We strive to build strong relationships with our clients as key business advisors, to exceed expectations in the quality of our work, to be knowledgeable about our clients’ businesses and sectors, to be responsive to service needs and to continually seek to improve the delivery of client services. Our ultimate focus is on our clients.
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