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The disclosure statutes, Ind. Code ch. 32-21-5, require sellers of certain residential real estate to disclose the condition of (and existence of defects in) certain aspects of the property they have placed on the market. And once the seller undertakes to make those disclosures, it is fully in keeping with common law that the disclosures must be full and truthful. Because when a buyer makes specific inquiries about the condition of a property, the seller is already required to fully declare any and all problems associated with the subject of the inquiry. Also, once sellers disclose facts within their knowledge, they must already disclose the whole truth without concealing material facts. The sellers may not partially disclose the facts as they understand them, creating a false impression in the buyer by failing to fully reveal the true state of affairs, nor may they disclose only those portions that would not spoil a sale of the house. Therefore, the disclosure statutes are a codification of these requirements. The general assembly has simply relieved the buyer of needing to initiate a specific inquiry in order to get honest disclosure about significant features of a purchase and, by the same token, it has forced the seller's affirmative duty to initiate disclosure—and therefore full and honest disclosure—about those same features.
The owners of a home sold it after completing Indiana's statutory disclosure forms, attesting to the home's condition. Shortly after moving in, the buyers discovered a number of defects that required considerable expense to remedy. The buyers sued the former owners, alleging fraudulent misrepresentation. The trial court found the sellers liable for certain defects, but the Court of Appeals (Indiana) reversed that finding. The Indiana Supreme Court granted transfer, vacating the decision of the Court of Appeals.
Under the circumstances, could the buyers sue for fraudulent misrepresentations on the form on the basis of Indiana's Disclosure Statutes?
The supreme court held the buyers could sue for fraudulent misrepresentations on the form because, (1) while the disclosure statutes, Ind. Code ch. 32-21-5, did not make the disclosures contractual warranties, under Ind. Code §§ 32-21-5-9 and 32-21-5-7(3) (2008), they were representations, and (2) Ind. Code § 32-21-5-9 (2008) only barred a breach of warranty claim. The disclosure statutes abrogated common law relieving a seller of liability when a buyer could inspect the property, and created liability for sellers' knowing false representations on the disclosure form because Ind. Code § 32-21-5-11 (2008) contemplated liability for any error within the seller's actual knowledge, despite significance or the buyer's reliance. The seller was only liable for transactions the disclosure statutes covered because (1) statutes in derogation of common law were strictly construed, and (2) the general assembly presumably knew the common law when enacting them and did not intend to change it beyond their terms.