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Wong v. Stoler A138270 2015 DJDAR 7095 1st District

In real estate sale, court should have granted rescission due to clear misrepresentation by seller, despite the impracticability of unwinding the transaction.

Wayson and Susanna Wong bought a home in San Carlos from Ira and Toby Stoler in 2008. Documents the Stolers provided represented to the Wongs that the property was connected to a public sewer system. However, it was not; it used a private sewer system not serviced by the city. After the Wongs took possession and began an extensive remodel, they learned of the private sewer system. They sought rescission, and also sued the Stolers for misrepresentation and breach of contract, among other claims. Evidence at trial showed the private sewer system was susceptible to failure, and that the Stolers had been aware of system’s provenance. The court found that the Stolers had acted with reckless disregard but denied rescission because of the impracticality of unwinding the transaction. The court instead granted “alternative equitable relief” in the form of declaratory relief and an equitable decree of indemnity.

Reversed. Cal. Civil Code section 1689(b)(1) permits rescission when “the consent to the contract of the party rescinding was given by mistake or obtained through fraud or undue influence exercised by the party as to whom he rescinds.” To effect a rescission, a party must promptly (1) give notice, and (2) restore to the other party everything of value which he has received under the contract. However, service of pleading in an action seeking relief based on rescission serves in lieu of both the above. For their part, courts must restore parties affected by rescission “as nearly as possible to their former positions.” In the real estate rescission context, that means ensuring sellers return payments and buyers restore possession. Here, the Wongs’ complaint established multiple grounds for rescinding the purchase agreement (e.g. fraud, negligent misrepresentation), thus satisfying the statutory requirements above. Therefore, the trial court erred in declining to effectuate the Wongs’ rescission and granting only the alternative award, which failed to put the Wongs “as nearly to their former positions” as possible.

Further support for the proper measure of measure of medical expense damages.