Four conditions must be met before a contract may be voided for innocent misrepresentation. The recipient of the alleged misrepresentation must demonstrate that the maker made an assertion: (1) that was not in accord with the facts, (2) that was material, and (3) that was relied upon (4) justifiably by the recipient in manifesting his assent to the agreement. District of Columbia law adds a fifth condition, i.e., that the recipient relied to his detriment.
After an 11th hour rescission by the bank of its agreement to make a mortgage loan to the borrower, Lester Barrer, the borrower brought an action for damages against Women’s National Bank (WNB). WNB defended and moved for summary judgment on the ground that Barrer had made innocent material misrepresentations in his loan application that justified the Bank’s avoidance of the contract. The district court granted summary judgment for the bank. Barrer appealed.
Did the court correctly apply the elements necessary for recession?
The court held that the district court tested the borrower’s misrepresentations against only two of the five elements necessary for rescission: whether the representations were in accord with the facts and whether they were material. In making those inquiries, the magistrate failed to consider the legal distinctions between assertions of fact and nondisclosure and between assertions of fact and statements of opinion. But, the magistrate neglected to investigate whether the bank actually relied on the representations in deciding to make the loan, whether that reliance, if it existed, was justifiable, and whether appellee relied to its detriment. Furthermore, the magistrate incorrectly concluded that there were no legally probative, material issues of fact in dispute. The court reverse and remanded.