Wrong square footage leads to rescission of agreement of purchase and sale
December 29th, 2020
In Issa v. Wilson,[1] the Ontario Court of Appeal affirmed a trial decision[2] that set aside an agreement of purchase and sale on the basis that the size of the real property had been misrepresented in the listing for sale. The fact that the agreement of purchase and sale had an entire agreement clause did not displace the effect of the misrepresentation as to square footage.
A real estate agent (Jarrah) represented both the home seller (Wilson) and the home buyer (Issa). Jarrah represented to Issa that the home was 2,100 square feet when it was, in fact, only 1,450 square feet. Jarrah admitted that he was negligent in making this representation. He had relied on a previous real estate listing that set out the inaccurate square footage rather than taking steps to verify the actual square footage himself. Copies of the Multiple Listing Service (MLS) listing were given to prospective buyers, including Issa, showing the square footage as between 2,000 to 2,500.
Wilson also told Issa that the property was either 2,000 or 2,250 square feet on the basis that he had been paying property insurance on that square footage for quite some time.
Issa never measured the property himself, although he had ample opportunity to do so. His evidence was that he relied on Jarrah and the MLS listing for the size of the property. He signed the agreement of purchase and sale and believed that he was obligated to complete the transaction.
The error only came to light when Issa’s mortgage lender flagged the actual size of the property following an appraisal by a third party. At that point, Issa did not wish to close and asked for his deposit back.
Historically, courts in Ontario have declined to order rescission of agreements of purchase and sale where there were size discrepancies. Notwithstanding this judicial tendency, the trial judge concluded that the facts of this case were such that rescission of the agreement of purchase and sale was warranted. Issa was a young, first-time home buyer and the negligence of Jarrah had been admitted.
Ferguson J. set out the relevant legal tests to the facts:[3]
- Rescission for the non-fraudulent misrepresentation as to the square footage was appropriate as it was material and induced Issa to enter into the agreement of purchase and sale.[4]
- The material misrepresentation made the agreement of purchase and sale voidable, not void. When Issa found out about the misrepresentation, he had the right to elect to affirm or rescind the agreement of purchase and sale within a reasonable time thereafter.[5]
- Equity also allowed the rescission of the agreement of purchase and sale in that it was procured by innocent or negligent misrepresentation.[6]
- The “entire agreement clause” or a general exclusion clause in the agreement of purchase and sale did not override a specific representation on a point of substance which was intended to induce Issa into the making of the agreement.[7]
- Wilson was vicariously liable for the negligent misrepresentations made Jarrah.[8]
- Jarrah, as real estate agent for Issa, owed fiduciary duties including a duty to act with utmost good faith. Jarrah was also required to be reasonably competent and to have acted with reasonable diligence and integrity in relation to the material aspects of the transaction.[9]
- A purchaser’s inspection of a property can determine their expectations.[10] The trial judge found that Issa’s inspection of the property did not determine his specific expectations. He was given representations from both Jarrah and Wilson about the size of the property as well relied upon the MLS agreement. His inspections did not override his expectation that this was the size of the property. The trial judge considered Issa’s young age, inexperience with square footage, and being a first-time home buyer when considering the reasonableness of his belief.
On appeal, the appellants argued that because Issa had actually inspected the home, his reliance on the misrepresentation as to the size of the property was displaced. The Court of Appeal rejected this as an absolute proposition of law. It held that the remedy of rescission of a contract may be obtained on the basis of misrepresentation where the defendant made a false statement that was material and induced the plaintiff to enter into the contract.[11] There was also nothing improper with the trial judge’s reference to Issa’s age and inexperience in home buying as relevant contextual factors to the underlying decision.[12]
Issa’s deposit was ordered returned and the appeal dismissed.
[2] Issa v. Jarrah, 2019 ONSC 6744 (CanLII)
[3] Issa v. Jarrah, 2019 ONSC 6744 (CanLII) at para 17
[4] Singh v. Trump, 2016 ONCA 747 (CanLII), [2016] O.J. No. 5285 (C.A.); Panzer v. Zeifman (1978), 1978 CanLII 1658 (ON CA), 20 O.R. (2d) 502 (C.A.); Beer v. Townsgate1 Limited, 1997 CanLII 976 (ON CA), [1997] O.J. No. 4276 (C.A.); Tejani v. Abreu, [1994] O.J. No. 776 (Gen. Div.); Halsbury’s Laws of Canada-Real Property (2016 Reissue) HRP-182.
[5] Walton v. Landstock Investment (1977), 1976 CanLII 669 (ON CA), 13 O.R. (2d) 693 (C.A.).
[6] Bruce Kercher and Michael Noone, Remedies (2ed), The Law Book Company Limited (1990) pp. 257-262.
[7] Beer v. Townsgate1 Limited (supra); Sodd Corporation Inc. v. Tessis, 1977 CanLII 1415 (ON CA), [1977] O.J. No. 2371 (C.A.); 7326246 Canada Inc. v. Ajilon Consulting, 2014 ONSC 28 (CanLII), [2014] O.J. No. 538 (Div. Ct.); Singh v. Trump (supra).
[8] Beer v. Townsgate1 Limited (supra); Straus Estate v. Decaire, 2011 ONSC 1157 (CanLII), [2011] O.J. No. 737 (S.C.J.).; Goldstein v. Davison, [1994] O.J. No. 1018 (Gen. Div.); Fridman, H.L., Canadian Agency Law, Third Edition.
[9] Winsham Fabrik Canada Ltd. v. Re/Max Allstars Realty Inc., [2001] O.J. No 1478 (S.C.J.)
[10] LeMesurier v. Andrus (1984), 31 R.P.R. 143 (Ont. H.C.)
[11] Panzer v. Zeifman et al. (supra); Singh v. Trump (supra)
[12] Beer v. Townsgate I Limited (supra)
