D was the owner of a lot subject to M-1 zoning. D wished to sell the land, so he hired a real estate broker to help.
In all signs on the property and all advertisements, the property was represented as being zoned M-1.
P was looking for an M-1 lot for his business. He heard about the land and contacted the D's agent.
There were restrictions on the usage of the lot, and some uses of the land had to be approved by an industrial park building committee. Neither D nor his agent ever told P about these restrictions.
After the purchase contract was signed, P learned about the restrictions and that the land was unsuitable for his purposes.
P sued D to rescind the contract.
Procedural History:
Lower court found for D.
DE Supreme Court reversed, found for P, contract rescinded.
Issues:
If one party makes assertions that are true on the surface but are actually innocent misrepresentations, can the other party who relied on these assertions seek relief from the contract?
Holding/Rule:
A party who relies on assertions from another party that appear to be true on the surface but are actually innocent misrepresentations may seek relief from the contract.
Reasoning:
From the Second Restatement §164, "If a party's manifestation of assent is induced by either a fraudulent or material misrepresentations by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient."
It would be unjust and inequitable to permit a person who has made false representations, even innocently, to retain the fruits of a bargain induced by such representations.
Although a statement may be facially true, it may constitute an actionable misrepresentation if it causes a false impression as to the true state of affairs, and the actor fails to provide qualifying information to cure the mistaken belief. (Restatement 159)
The agent is not liable since it is the vendor's duty to see that its salesmen have the pertinent information.
The merger clause in the contract does not preclude the buyer from rescinding a contract if there is an innocent but material misrepresentation.
Dissent:
None.
Notes:
An agent operates on the behalf of the seller, so it is the same as if the seller did it.
