Contracts I, Pages 463–475

Barrer v. Women's National Bank

United States Court of Appeals, District of Columbia Circuit, 1985

Facts:

Plaintiff's $130,000 house was sold at a tax sale by the IRS for $16,000. Plaintiff owed the IRS $38,000, but he could redeem it for $17,000. Plaintiff went to defendant to get a loan to buy back his house and filled out a loan application, disclosing that he had a $65,000 mortgage on the house and the $38,000 in tax debt. The purchaser of plaintiff's house told defendant that plaintiff had further debts than he disclosed. Defendant ran a credit report and learned of five more debts they didn't know about:

  1. He was actually six months behind on his mortgage payments, not two like he said he "thought" he had.
  2. His mortgage was being foreclosed on.
  3. His company was $11,000 in debt, and he could have been liable.
  4. He had a contingent liability of a $5,300 debt by his wife's estate.
  5. He had $1,500 in unsatisfied judgments against him.
The bank then rescinded their loan agreement, causing plaintiff to lose his house.

Procedural History:

The district court granted defendant summary judgment.

Issue:

Was the parties' contract voidable due to fraud from nondisclosure?

Rule:

R2C § 161

Reasoning:

  1. Defendant misunderstood how far behind on his mortgage payments he was as he believed they stopped once the house was sold in the tax sale.
  2. Defendant testified he did not know the house was being foreclosed on at the time.
  3. Defendant believed at least part of the $11,000 to be included in the $38,000 he disclosed. It may not have even been personally against him at the time.
  4. Although plaintiff asked the court to assign this liability to him, they did not and actually assigned it all to his wife, meaning that he was not liable at all.
  5. Plaintiff disclosed that he was a defendant in some lawsuits and that he owed some small amount of money as a result but that he expected his health insurance to cover most of them.

Holding:

The facts do not justify a summary judgment that nondisclosures justified rescission. A jury trial must determine the facts. Reversed and remanded.