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27. Is the lender entitled to cancel disbursement of the funds and rescind the loan agreement?
A man needed a loan to purchase a business. The man submitted to a lender a loan application that included a then-accurate statement of his financial condition. The lender reviewed the application and concluded that the man was creditworthy without verifying any of his information. A week after the man submitted his application, however, his financial condition changed significantly for the worse. The man did not report this change to the lender. Two days later, the lender approved the loan, and the man and the lender signed a loan agreement. Before disbursing the loan funds, the lender learned of the change in the man's financial condition.
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A is incorrect. The lender had no duty to make an independent assessment. Reliance on the man's representations regarding his financial condition before signing the loan agreement was reasonable.
B is incorrect. Although the man did not make an affirmative misrepresentation, failure to disclose his changed financial condition is the equivalent of an assertion.
C is incorrect. Concealment requires an affirmative act. Here, the man failed to disclose the change in his financial circumstances rather than affirmatively acting to conceal it.