Opinion ID: 184636
Heading Depth: 3
Heading Rank: 1

Heading: Promissory Misrepresentation

Text: Fraudulent misrepresentation requires proof of (1) a falserepresentation (2) made in reference to a material fact,(3) with knowledge of its falsity, (4) with the intent to deceive,and (5) an action that is taken in reliance upon the representation. Hercules & Co., Ltd. v. Shama Restaurant Corp.,613 A.2d 916, 923 (D.C. 1992). To prevail, the plaintiff mustalso have suffered some injury as a consequence of hisreliance on the misrepresentation. See Dresser v. Sunderland Apartments Tenants Ass'n, Inc., 465 A.2d 835, 839 (D.C.1983). Although an erroneous forecast of an event's future occurrence is not actionable in tort, where a promisor misrepresents his present intent to perform an act in the future, thepromisee may state a claim for tortious misrepresentation. In Bennett v. Kiggins, 377 A.2d 57 (D.C. 1977), the D.C.Court of Appeals explained the distinction: When a person positively states that something is to be done or is to occur, when he knows the contrary to be true, the statement will support an action in fraud. On the other hand, a prophecy or prediction of something which it is merely hoped or expected will occur in the future is not actionable upon its nonoccurrence. Id. at 61. Because the alleged tortfeasor must have misrepresented either his current intent to perform or his existingknowledge concerning the likelihood that an event wouldoccur in the future, the tort of promissory misrepresentationis consistent with the general rule that an erroneous representation of future events is not tortious. See 37 Am. Jur.2d, Fraud and Deceit, s 68 (1968) (The gist of the fraud insuch cases is not the breach of the agreement to perform, butthe fraudulent intent of the promisor, the false representation of an existing intention to perform where such intent is in factnonexistent, and the deception of the obligee by such falsepromise.); Restatement (Second) of Torts s 525 (1976)(One who fraudulently makes a misrepresentation of fact,opinion, intention or law for the purpose of inducing anotherto act or to refrain from action in reliance upon it, is subjectto liability to the other in deceit for pecuniary loss caused tohim by his justifiable reliance upon the misrepresentation.); see also Fraud, 37 C.J.S. s 15, at 195 (1997). Ms. Chedick argued at the trial and repeats on appeal that,consistent with its practice, Capital City intended to preventher from repaying her mortgage so that it could foreclose onher property and that she would not have signed the note hadshe known that Capital City would seek to frustrate herperformance. Chedick Complaint at p 46. In support of herclaim, Ms. Chedick relied upon evidence that Capital Cityrepeatedly miscalculated her monthly obligation, that itforced her into default by capitalizing costs that should havebeen assessed as separate fees, that its conduct was consistent with how it had treated other customers (after which ithad foreclosed on them), and that it significantly overestimated the amount required to pay off the mortgage (therebyscuttling a sale that would have precluded it from obtainingthe property through foreclosure). At the close of the trial, the court instructed the jury that [t]he general rule is that an action for fraud can exist only if there was a misrepresentation of a past or existing fact, not a promise to do something in the future. But a promise made with an existing intention not to perform, that promise can be a fraudulent misrepresentation. In this case, you must find on the first element of the claim of fraud by a clear and convincing evidence that Capital City ... entered into the promissory note and deed of trust with the intent not to perform. You must find that Capital City ... had this intention not to perform at the time that the note was entered into or at the time the promissory [note] was made, and this was the time that the note was signed. A breach of the term of the contract which occurred later cannot alone serve as proof of this intention.... As you know, the plaintiff has tried to show and produced evidence that the amount of the note and the amount of the liability and the debt was accelerated so fast and so high that Capital City ... must have had the intention not to let her ever pay off the note so they could take over the property. Similarly, in its order denying a new trial, the district courtheld that [i]f a party enters into a contract with the express intention not to honor it, his false promise is a fraudulent misrepresentation which can be actionable as fraud.... ... Plaintiff argued to the jury that Capital City ... never intended to allow plaintiff to abide by the terms of the agreement, but intended to foreclose on the property from the beginning. The Court finds that this theory fits comfortably within the law regarding promissory fraud. Capital City contends that D.C. law recognizes a cause ofaction for promissory misrepresentation only when the promise is neither memorialized as an explicit contract term (e.g.,an undertaking to provide $42,000 on a date certain) norimplied by law in the contract (e.g., the obligation to act withgood faith); in other words, the misrepresentation must be acollateral statement of fact that induced the execution of thecontract. Thus Capital City argues that the district courtmisinterpreted D.C. law when it instructed the jury (andaffirmed in its post-trial order) that the breach of an implicitterm of a contract could be tortious. We review the districtcourt's legal instructions de novo. See Joy v. Bell HelicopterTextron, Inc., 999 F.2d 549, 556 (D.C. Cir. 1993). It is true that no reported D.C. case has held that a mereintent not to perform a contractual duty can give rise to acause of action sounding in tort. Nevertheless, such a holding is not precluded by any of the cases that have recognizedthat a misrepresentation of one's intent to perform a collateral commitment might be tortious. See, e.g., Howard v. Riggs Nat'l Bank, 432 A.2d 701, 706-07 (D.C. 1981) (holding thatdefendant had not committed tort because its agent's collateral comment had been made in good faith); see also Shear v.National Rifle Ass'n, 606 F.2d 1251, 1253-54, 1259 (D.C. Cir.1979) (holding that breach of collateral promise was actionable). Some time ago, we observed in a footnote that [a]promise or contractual commitment may be actionable as amisrepresentation if at the time of its making the promisorhad no intention of carrying it out. Day v. Avery, 548 F.2d1018, 1026 n.39 (D.C. Cir. 1976) (citing William Prosser, Tortss 109 at 729-30 (4th ed. 1971)). The D.C. courts have neitheradopted nor rejected the rule averred to in Day. Indeed, ourown review of District case law suggests that they have hadno occasion to do either, which is not surprising consideringthat the class of cases to which our comment in Day refers isvery narrow. The present case, however, falls within Day'slimited scope. We must therefore decide whether applicationof that rule would be consistent with existing D.C. law. To the extent that D.C. courts have spoken to this issue atall, they have not rejected the application to contractualcommitments of the general rule that a misrepresentation ofone's intent to perform a duty may give rise to a tort. SeeBennett, 377 A.2d at 61. Despite Capital City's arguments tothe contrary, it is clear that D.C. law does not distinguishbetween a promisor's breach of implicit and explicit contractual representations. See Blake Const. Co., Inc. v. C.J.Coakley Co., Inc., 431 A.2d 569, 577 (D.C. 1981) (treatingbreach of implicit and explicit contractual obligations in thesame manner). It is equally plain that every party to acontract necessarily represents that it intends to perform allits obligations, whether implicit or explicit. See Restatement(Second) of Contracts s 1 (1979). The narrow issue beforeus, therefore, is whether the tort of fraudulent misrepresentation in the District of Columbia includes a cause of actionarising from a party's intent not to perform a contractualobligation that it is about to undertake. D.C. courts have distinguished between a failure to performsuch an obligation and a misrepresentation of one's intent toperform. See, e.g., Urban Invest., Inc. v. Branham, 464 A.2d 93, 98 (D.C. 1983) (The fact that the repairs were notperformed ... does not support a conclusion that appellants,in representing that the repairs would be completed, neverintended to carry out the promise.). Similarly, the courtshave recognized that material misrepresentations upon whicha party relies may generate a cause of action sounding in tort. See, e.g., Howard, 432 A.2d at 706. We are confident, then,that if this case were before a D.C. court, it would apply therule that we suggested in our footnote in Day; thus it followsthat we find no error in the district court's statement of thelaw in its jury instructions and in its post-trial order. 2. Sufficiency of the Evidence Supporting the Elements ofFraud A jury's verdict will stand unless the evidence and allreasonable inferences that can be drawn therefrom are soone-sided that reasonable men and women could not disagreeon the verdict. But the evidence must be more than merelycolorable; it must be significantly probative. Smith v.Washington Sheraton Corp., 135 F.3d 779, 782 (D.C. Cir.1998) (internal quotation marks and citations omitted). Capital City contends that no misrepresentation occurredhere; and even if one did, that Ms. Chedick failed to proveeither that she detrimentally relied on Capital City's implicitrepresentation that it would act in good faith or that itsalleged misrepresentation caused any ascertainable damage. Capital City also alleges that there is no contemporaneousevidence that it intended to breach its duty to act in goodfaith. While Capital City is correct that Ms. Chedick failed toproduce a smoking gun, she did present circumstantial evidence that Capital City intended from the outset to ignore itsduty of good faith and fair dealing. By capitalizing closingfees (rather than charging them to her as ancillary expenses),Capital City prematurely caused Ms. Chedick's account to gointo default and the interest rate to rise to 30 percent even ifshe had made the scheduled monthly payments on time. Ms.Chedick also presented evidence that Capital City's practicewas to use consistently faulty accounting together with the harsh terms of its notes to confuse and overburden itsmortgagees, thereby forcing them into default. The jury wascertainly entitled to take this pattern into account in findingthat, from the outset, Capital City did not intend to act ingood faith. Capital City's remaining arguments derive from the theorythat Ms. Chedick (who still retains title to 1013 U Street)could not have been defrauded because she was on the vergeof losing the property at the time she entered the loanagreement and would have lost it if she had not secured theCapital City loan. Capital City ignores the fact that, in alllikelihood, Ms. Chedick would have been in a better positionfinancially if she had not secured the mortgage, even thoughit permitted her to retain nominal control over the property. When she sought to sell 1013 U Street and pay off theCapital City mortgage, the property was valued at $135,000. Capital City, however, claimed a lien of $98,000, leaving Ms.Chedick with a net residual value of $37,000. Thus enteringinto the mortgage agreement would have harmed Ms. Chedick if her equity prior thereto exceeded that amount. Ms. Chedick testified that she had purchased 1013 U Streetfor $100,000 and that in 1994, when she sought the loan fromCapital City, it was worth about $120,000. At that time, Ms.Chedick had a cash investment in the property of $68,000, butowed $32,000 on the original note and $10,000 in back taxes. Thus, if the foreclosure sale had gone through in 1994 and theproperty been sold for its estimated value, Ms. Chedick wouldhave netted $78,000 ($120,000 minus $42,000 for the note andback taxes), for a profit of $10,000 over her investment. Bycontrast, if the 1995 prospective sale had materialized, shewould have suffered a $31,000 loss ($68,000 less the $37,000she would have netted from it). We conclude, then, that the record evidence supports boththe jury's finding that Capital City misrepresented its intentto perform in good faith and its conclusion that Ms. Chedicksuffered injuries as a result of her signing the loan agreementin reliance on that misrepresentation. The jury was entitledto find that Capital City's consistent overstatement of the amount due on Ms. Chedick's mortgage, its improper accounting, and the resulting frustration of her efforts to pay downthe mortgage breached Capital City's duty to act in good faithand confirmed its intent to ignore that obligation.