Buying a business is a major investment—and when the deal turns out to be far from what was promised, it can feel like betrayal. Whether it’s undisclosed liabilities, inflated revenue claims, or hidden structural problems, Ontario law may offer you remedies. At Round Table Legal Services, we help individuals and corporations across Southern Ontario—including the GTA—navigate these complex legal issues with clarity and confidence.

Understanding Your Rights: Rescission and Misrepresentation in Business Sales
If you were misled into buying a business, you may have legal grounds to rescind the contract or claim damages. Two key legal concepts come into play in these cases: rescission and misrepresentation.

1. Rescission: Undoing the Deal
Rescission is a legal remedy that seeks to cancel the contract entirely, returning both parties to
their pre-contract positions. This can be particularly powerful in business transactions where the
buyer discovers:
● False or misleading financial records
● Undisclosed debts or liabilities
● Misrepresentation of assets, leases, or licenses
● Breach of fiduciary duties or insider nondisclosures
To pursue rescission in Ontario:
● The misrepresentation must be material.
● You must act promptly upon discovering the issue.
● You cannot affirm (accept) the contract after learning of the misrepresentation.
● Rescission may be barred if third-party rights have intervened or if restoration of the
original state is impossible.

2. Misrepresentation: When Sellers Bend the Truth
Misrepresentation occurs when a false statement of fact induces you to enter a contract—like buying a business based on exaggerated profit margins or false customer retention data. Under Ontario law, misrepresentation falls into three categories:

a. Fraudulent Misrepresentation
This involves intentional deception—the seller knew the information was false or acted recklessly. You may be entitled to both rescission and damages, including punitive damages in serious cases.

“[A fraudulent statement] is made by a person knowing it to be false or recklessly not
caring whether it is true.” – Peek v. Derry
“[It’s] no defence that the victim could have discovered the truth.” – Performance
Industries Ltd. v. Sylvan Lake

b. Negligent Misrepresentation
When a seller makes statements without verifying their truth—such as casually claiming “the
business has no debts” without checking—that can be actionable. You must show:
● A duty of care based on a special relationship;
● A false or misleading statement;
● Reasonable reliance on the statement; and
● Damages resulting from it.

Krawchuk v. Scherbak is a key case: Once a seller speaks, they must do so honestly
and fully. Partial truths or omissions can be just as misleading as outright lies.

c. Innocent Misrepresentation
While innocent (non-negligent, non-fraudulent) misrepresentations may not lead to damages, they may still support a claim for rescission, especially if the misstatement induced the purchase.

Entire Agreement Clauses and Your Rights
Even if your contract has an entire agreement clause, Ontario courts may still allow a claim for misrepresentation depending on:
● The wording of the clause,
● The parties’ relative sophistication,
● The nature of pre-contract negotiations, and
● Whether excluding misrepresentation would contradict the contract’s spirit.

D.L.G. &; Associates Ltd. v. Minto Properties Inc. highlights how these factors can affect
your claim.

What Kind of Compensation Can You Get?
If rescission isn’t an option—or you choose to keep the business—you may still be eligible for damages, such as:
● Expectation damages (what you expected to gain)
● Reliance damages (what you spent based on the contract)
● Consequential losses (like lost opportunities or customer churn)
● Punitive damages (in egregious fraud cases)

At Round Table Legal Services, We Help You Reclaim What’s Yours.

If you believe you were misled when buying a business—whether by fraud, false promises, or hidden liabilities—you don’t have to navigate this alone. At Round Table Legal Services, we take a holistic, strategic approach to uncovering misrepresentation and enforcing your rights under Ontario contract law.

We’ll walk you through every step of the process, from gathering evidence to pursuing rescission or damages. Contact us today to schedule a consultation—we’re here to help you get the justice (and the business) you paid for.