Dismissal of Fraud Case Overturned

Showing reliance in a fraud case does not require magic words during a plaintiff’s testimony. In Erwin v. Great River Road Supercross LLC, No. W2017-00150-COA-R3-CV (Tenn. Ct. App. Oct. 19, 2017), plaintiffs sued defendants based on a real estate purchase. Defendants had provided a warranty deed to plaintiffs that “specifically warranted against encumbrances,” but the property was actually subject to a $20,000 mortgage, which was not paid off at the time of closing. As part of this suit, plaintiffs alleged that this misrepresentation constituted fraud.

The trial court found that “[t]here was indeed an intentional misrepresentation made that the real property was unencumbered,” but it held that plaintiffs had not established the required element of reliance. The trial court found that “[o]ne Plaintiff testified that he did not rely on the unencumbered language in the deed when making the decision to purchase the property” and held that the claim failed.

On appeal, the Court of Appeals reversed this decision and remanded the intentional misrepresentation claim for further proceedings. The Court reviewed the plaintiff in question’s testimony, and noted that he stated that the warranty deed specifically said the property was unencumbered, that the property was in fact encumbered by a mortgage, and that he did not know about the mortgage until after the purchase had taken place and he received a foreclosure notice. The Court held:

[W]e agree with the parties’ statements at oral argument that [plaintiff] did not testify ‘that he did not rely on the unencumbered language in the deed when making the decision to purchase the property.’ The trial court’s finding regarding the reliance element, which provided the basis for the trial court’s decision that there was no fraud, is simply not supported by the evidence.

This was the correct decision by the Court of Appeals. Here, it appears that the trial court inferred that plaintiff did not rely on the misrepresentation simply because he did not testify specifically to that reliance. While it would have been beneficial for the plaintiff’s attorney to elicit testimony about reliance, this case should not have been decided based on a failure to show reliance.