COA: Attorneys can rely upon representations of other attorneys

The Indiana Court of Appeals reaffirmed a two-decades-old Indiana Supreme Court ruling, saying attorneys are entitled to rely upon the representations of other attorneys when it ruled on a case where a company was charged a higher price for a piece of property than it should have been because of the price the property’s attorney gave to the company.

In November 2009 AES Restaurants LLC agreed to purchase an Arby’s from Millie One Inc. and Edward Kramer and lease the property. Three years later, the successor in interest in the property, Focus Realty Group LLC, said it wanted to exercise an option the agreement to buy the property as well.

The two parties had already agreed the purchase price of the property would be $400,000 plus 12 percent of the then-current annual net lease of the south building, which was also located on the property. Focus’ attorney Adam Davis asked for the current lease so he could determine the price.

Kramer’s attorney, W. Randall Kammeyer, said the rental value was $1,600 a month, so the price should be $560,000. After some other negotiations, the purchase price was set at $564,500.

But, as the purchase was closing, Davis found out the lease on the south building was $1,200 a month and not $1,600 a month. Kammeyer said he responded with his own rental value of the property because he thought he could potentially rent out more space in the south building. Davis went through with the purchase anyway to prevent even more damage.

Later, Focus filed a lawsuit alleging breach of contract and fraud, seeking to recover the $40,000 the group overpaid for the property and moved for summary judgment. The trial court granted it, but denied summary judgment on a fraud claim. Kramer appealed.

The COA said the companies used the wrong formula to determine the purchase price. Under the correct formula, the purchase price should have been $401,728. Instead, the companies used the formula for the capitalization rate, which is much more. Since both agreed to use the capitalization rate formula, however, that’s the one that was judged.

Kramer argues that the parol evidence rule prohibits courts from considering parol or extrinsic evidence for the purpose of varying or adding to the terms of the written contract, but the COA said parol evidence can be considered if it is not being offered to vary the terms of the written contract and to show that fraud, intentional misrepresentation or mistake entered into the formation of a contract. The COA said the trial court did not need to look past the tactics used to make the deal, as Kramer suggests.

Also, Kramer argued the terms of the option in the contract created an issue of fact, but the COA said the terms were completely clear. Kramer said emails that were exchanged back and forth debating the final price demonstrate the parties disagreed over what current annual net lease meant, but the COA disagreed. “Terms of a contract are not ambiguous merely because controversy exists between the parties,” Judge L. Mark Bailey wrote in the opinion.

The COA said Kramer should pay back the $40,000 to Focus, with interest.

The COA also said Davis could have asked for a copy of the current lease at the outset of the negotiations to prevent all of this, but he shouldn’t have had to. An attorney should be able to rely on another attorney’s representation, in this case Davis relying on Kammeyer for correct figures. When Kammeyer didn’t provide correct figures, it put Davis in a bad position, and instead of suing for specific performance, which could have cost a lot more, he chose to go through with the deal and mitigate his damages.

The case is Edward P. Kramer v. Focus Realty Group LLC, successor in interest to AES Restaurants LLC, 29A04-1508-PL-1089.

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