The courts have granted the remedy of rescission to purchasers in cases where misrepresentations made by the defendant (vendor) were false, material and induced the plaintiff to enter into the contract. Of note in the two decisions discussed below is (a) the expansion of what a court will consider as “material” misrepresentation and (b) the fact that the misrepresentation of the material fact created liability not only for the vendors but also for the real estate agents who were found to be negligent because of their failure to independently verify the vendor’s suspicious misrepresentations about the property.
Issa v Wilson
In the 2020 decision of Issa v. Wilson, the Ontario Court of Appeal (“ONCA”) dealt with a real estate agent with a multiple representation mandate who had made representations to the 26 year old first-time purchaser regarding the size of a residential property in Stouffville. In making these representations, the agent who had 11 years of experience chose to rely on statements made by the vendor and information from a 12-year old listing of the property. When the agent prepared the MLS listing, he recorded the size of the home as 2,000-2,500 sq ft and the vendor also told the purchaser that it was about 2000 sq ft. The agent made no effort to measure or independently verify the size of the property. As it turned out, an appraisal revealed that the property was actually only 1,450 sq ft. Shortly after discovering this fact (“misrepresentation”), the purchaser communicated that he was not prepared to complete the transaction. At court, the purchaser sought the return of his $50,000 deposit and a rescission on the basis that his acceptance was induced by a material misrepresentation.
The ONCA affirmed the lower court decision of the Ontario Superior Court of Justice’s (“ONSC”) which ordered rescission in Issa v. Jarrah, 2019 ONSC 6744. In reaching its decision, the trial judge did not follow the line of cases in which recission had been denied on the basis that an alleged misrepresentation by the vendor about the size of the property was displaced by the purchaser’s inspection of the property. In affirming the ONSC’s decision in Issa v. Jarrah, the ONCA endorsed the trial judge’s partial reliance on the purchaser’s young age and lack of experience in concluding that the purchaser’s inspection did not override the misrepresentations made by the vendor and the agent. The court took the following factors into consideration in concluding that the misrepresentation in question was material and induced the purchaser to enter into the transaction: the fact that the purchaser had been in search of a house large enough to live with his parents and three sisters and the fact that he had immediately communicated his decision not to proceed with the deal as soon as he found out about the square footage.
In reaching its decision, the ONCA noted that the agent had acted negligently in not measuring the property to verify the actual size. From this, it can be extrapolated that, where an agent with a multiple representation mandate has reason to suspect material representations made by the vendor are inaccurate/incomplete, the agent has a duty to either the vendor, the purchaser, or both, to ensure that suspicious representations made by the vendor are verified.
This general principle is reminiscent of the ONCA’s reasoning in the landmark decision of Krawchuk v. Scherbak, 2011 ONCA 352.