## Facts

- A seller agreed in writing to sell a single-family house in Providence, Rhode Island, to a buyer for $54,000; the buyer paid a $2,000 deposit.
- During negotiations, the buyer asked about termites; the seller and/or her real estate agent represented that the house was free of termites and suggested an inspection was unnecessary.
- The written agreement contained a merger (integration) clause but did not address termites.
- A subsequent inspection before closing reported the property was inhabited by termites.
- The buyer refused to close and did not appear at the scheduled closing.
- The seller later sold the property to a different purchaser for $35,000 and sued the original buyer for specific performance or damages (including the $19,000 difference).
- The buyer counterclaimed for rescission and return of his deposit based on misrepresentation about termites.
- A jury found for the buyer on the counterclaim; the seller appealed, arguing the evidence and instructions did not support rescission and that the trial court should have directed a verdict for the seller.

## Issues

1. Whether an innocent but material misrepresentation by a seller (or agent) about the condition of real property permits rescission of a purchase agreement and recovery of the buyer’s deposit.
2. Whether a merger clause bars rescission based on pre-contract misrepresentations.
3. Whether proof of innocent misrepresentation is barred where the pleadings alleged intentional misrepresentation, and no timely trial objection to variance was made.
4. Whether the trial court erred in denying the seller’s motion for a directed verdict on the buyer’s counterclaim.

## Decision

- The Supreme Court of Rhode Island affirmed the judgment for the buyer on the counterclaim.
- The court held that an innocent misrepresentation of a material fact may justify rescission and restitution.
- The court held the merger clause did not bar evidence of, or relief for, material misrepresentation inducing the agreement.
- The court held any pleading-to-proof variance (intentional vs. innocent misrepresentation) was waived because the seller did not object at trial and the issue was tried by implied consent.
- Applying the directed-verdict standard (viewing evidence and reasonable inferences most favorably to the nonmoving party), the court found sufficient evidence for the jury to conclude the buyer relied on a materially false representation about termites.

## Legal Principles

- A party induced to contract by misrepresentation may elect rescission to recover what was paid, distinct from an action for deceit seeking damages.
- Scienter is required for deceit damages but is not required for rescission based on a material misrepresentation.
- A misrepresentation is material if it is likely to affect the conduct of a reasonable person in the transaction.
- A merger (integration) clause does not bar rescission where the contract was induced by a material misrepresentation, even if innocently made.
- When an issue is tried by the express or implied consent of the parties, it is treated as if raised in the pleadings; failure to object to variance at trial forfeits the point on appeal.
- On review of a denied directed verdict, evidence and reasonable inferences are taken in the light most favorable to the nonmoving party.

## Conclusion

The court upheld rescission and return of the buyer’s deposit because the seller’s material misrepresentation about termite infestation, even if innocent, induced the agreement; the merger clause did not bar that remedy, and procedural objections based on variance were waived absent a timely trial objection.


Halpert v. Rosenthal, 107 R.I. 406, 267 A.2d 730 (R.I. 1970)