Barrer v. Women's National Bank

761 F.2d 752 (D.C. Cir. 1985)

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

• Innocent material misrepresentation
• Materiality
• Justifiable reliance
• Nondisclosure (R2d § 161)
• Rescission

Facts

On June 24, 1981, Lester Barrer’s personal home was sold at an IRS tax sale because of his inability to pay employment taxes owed by his closely-held corporation. The taxes had been asserted against him personally as a 100-percent penalty. The home was purchased at the tax sale by Edward L. Curtis, Jr., for $16,326, subject to the underlying mortgage. The Internal Revenue Code allowed Barrer to redeem the property within 120 days by paying the purchaser the purchase price plus interest. Barrer was advised that he could redeem his home by delivering $17,400 to the IRS or to Curtis on or before October 22, 1981.

On October 20, 1981, two days before the redemption deadline, Barrer went to Women’s National Bank to discuss a personal loan for the redemption amount. He had waited until the last minute because he had been involved in negotiations over the sale of his business and had expected to use the proceeds to redeem the house. Barrer completed a loan application that omitted a $5,300 estate debt and did not disclose that his existing mortgage was in foreclosure. The bank approved the loan and issued a check. Before the check cleared, the bank learned of the omissions from a third party and stopped payment. Barrer lost the house.

Holding

Barrer sued the bank for damages from its rescission. The bank moved for summary judgment on the ground that Barrer’s innocent material misrepresentations justified its avoidance of the contract. The magistrate found that Barrer had made five material representations to the bank that were not in accord with the facts and granted summary judgment for the bank. The D.C. Circuit reversed. The court held that the magistrate had applied the wrong legal standard by failing to consider the legal distinctions between affirmative assertions of fact and nondisclosure, between assertions of fact and statements of opinion, and by neglecting to investigate whether the bank actually and justifiably relied on the representations in deciding to make the loan.

Reasoning

Writing for a panel of Mikva, Edwards, and Starr, Circuit Judge Harry T. Edwards walked through Restatement (Second) of Contracts §§ 159, 161, 162, and 164. A misrepresentation under § 159 is an assertion not in accord with the facts. Innocent misrepresentations are actionable under § 162(2) if they are material. Section 161 governs nondisclosure as misrepresentation. Section 164 makes a contract voidable when the misrepresentation was material AND the recipient was justified in relying.

The court emphasized that the magistrate’s analysis stopped at the first two elements (in accord with facts, material) and skipped the third (justifiable reliance). On summary judgment, that omission was reversible error. The bank’s actual reliance, and whether that reliance was reasonable in light of its own ability to investigate and the timing pressure Barrer faced, were triable questions for the finder of fact.

The court also flagged the magistrate’s failure to distinguish affirmative misrepresentation from nondisclosure. Where Barrer was silent on a material fact rather than affirmatively misstating it, the operative rule shifts to § 161, which limits the duty to disclose to four specified circumstances. The magistrate had treated all five of Barrer’s “misrepresentations” identically, without sorting them into affirmative-assertion and nondisclosure buckets.

Why it matters

Barrer is taught for three doctrinal moves:

• Innocent material misrepresentation is real doctrine. Students reflexively look for intent. R2d § 162(2) does not require it. Materiality plus justifiable reliance suffices.
• Justifiable reliance is the third element. Many courses teach the doctrine as “misrepresentation + materiality” and stop there. Barrer makes the reliance element doctrinally visible by reversing summary judgment for failure to analyze it.
• Nondisclosure and affirmative misrepresentation are governed by different rules. R2d § 161 (nondisclosure) has narrower elements than § 162 (affirmative). The casebook pairs Barrer (affirmative) with Hill v. Jones (nondisclosure) to make the distinction operational.

In the casebook’s Chapter 12, Barrer sets up the modern misrepresentation framework. Hill in the next class extends the doctrine to silence. Together they map the territory that students will be asked to apply in any misrep fact pattern on the final.

Barrer v. Women's Nat'l Bank, 761 F.2d 752 (D.C. Cir. 1985).