In Re Estate of McKenney
2008 D.C. App. LEXIS 330, 2008 WL 2827527, 953 A.2d 336 (2008)
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Rule of Law:
A contract may be rescinded for a material misrepresentation that induces a party to enter into the agreement. To obtain rescission, a party does not need to prove all the elements of fraudulent misrepresentation, but only that the misrepresentation was material and that they relied upon it.
Facts:
- Geraldine B. McKenney died in 1990, leaving her home to her sole heir, her son Joseph W. McKenney, Jr.
- For over a decade, property taxes on the home went unpaid, accruing to over $100,000.
- In November 2004, Khalid B.M. Eltayeb approached McKenney, a banquet steward with no real estate experience who was living in a shelter.
- Eltayeb told McKenney the house was facing imminent demolition, introduced a man who supposedly had the demolition contract, and pressed for a quick decision to 'stop' the demolition.
- Eltayeb did not disclose the property’s true value or that there was a right of redemption for the unpaid taxes.
- McKenney, feeling pressured, accepted Eltayeb's offer of $1,200 for his interest in the property, which was worth at least $150,000.
- Eltayeb had McKenney sign probate documents but concealed a page listing the home's $150,000 value.
- In March 2005, a third party informed McKenney of the property's real value, prompting him to seek legal action.
Procedural Posture:
- Khalid B.M. Eltayeb filed a Petition for Probate in the D.C. Superior Court (probate court/court of first instance).
- The probate court appointed Eltayeb as the personal representative for the estate of Geraldine B. McKenney.
- Joseph W. McKenney, Jr., filed a petition in the same court to remove Eltayeb as personal representative and to rescind the assignment of his property rights.
- After evidentiary hearings, the probate court found that Eltayeb had made substantial fraudulent misrepresentations.
- The probate court granted McKenney's petition, removing Eltayeb as personal representative and voiding both the assignment of rights and the subsequent quitclaim deed.
- Eltayeb, as appellant, appealed the probate court's decision to the District of Columbia Court of Appeals, the highest court in the jurisdiction.
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Issue:
Does a party's use of material misrepresentations, such as falsely claiming a property faces imminent demolition and concealing its true value, justify the equitable remedy of rescission of a contract to purchase property rights?
Opinions:
Majority - Steadman, Senior Judge
Yes, a party's use of material misrepresentations justifies the rescission of a contract. The court distinguished between a tort action for fraudulent misrepresentation, which requires clear and convincing evidence of intent to deceive, and the equitable contract remedy of rescission, which only requires proof by a preponderance of the evidence that a material misrepresentation induced the other party to enter the contract. The court found that Eltayeb made several material misrepresentations, including the false claim of imminent demolition and the concealment of the property's true value. McKenney's reliance on these statements was justified because the claim was not preposterous given the large tax debt, and Eltayeb created a high-pressure situation that prevented McKenney from conducting an independent investigation. Therefore, the evidence was sufficient to support the trial court's decision to rescind the assignment and void the resulting deed.
Analysis:
This decision reinforces the distinction between the tort of fraud and the equitable remedy of rescission. It clarifies that a party seeking to void a contract does not need to meet the high 'clear and convincing' evidentiary standard required to prove fraud for damages. By allowing rescission based on a material misrepresentation proven by a 'preponderance of the evidence,' the court makes it easier for vulnerable parties who were induced into inequitable agreements to have those contracts voided. This precedent strengthens protections for individuals in transactions characterized by a significant disparity in knowledge and bargaining power.
