This case concerns a property sale that was later challenged due to claims of real estate deception and exploitation. The seller, facing financial difficulties, sold a property share for significantly less than its true market value after being misled by the buyer. The court ruled that the real estate deal should be cancelled due to misrepresentation, but rejected the claim of exploitation, clarifying the distinction between misleading conduct and a poor business decision.

Edited by Yehuda Danino, with the assistance of intern Ofir Madmoni

This case review discusses a District Court decision involving a lawsuit to cancel a real estate deal due to both misrepresentation and exploitation — where the asset was sold for a fraction of its true market value. Under Israel’s Contracts Law (General Part), 1973, a contract can be canceled after being signed in certain cases — including misrepresentation and exploitation.

Misrepresentation occurs when one party misleads the other (by action or omission), influencing their decision to enter into the contract. This claim, under Section 15 of the law, requires four elements: a valid contract, an error made by one party, a misleading act by the other party, and a causal link between the misrepresentation and the decision to sign the contract.

Exploitation applies when one party takes advantage of the other’s distress, mental or physical weakness, or lack of experience, imposing unusually harsh terms. This claim requires all of the following: a disadvantaged state, exploitation of that state, and contract terms significantly worse than standard.

Case Background:

The plaintiff, owner of a share in real estate, signed a sale agreement with a real estate company (the defendant), selling 1/30 of the property for NIS 300,000. Originally, the plaintiff asked for NIS 800,000. The defendant presented a printout from Israel’s Tax Authority showing a recent comparable sale with a value of NIS 250,000. The plaintiff objected, and the buyer raised the offer to NIS 300,000 — which he ultimately accepted.

After signing, the plaintiff was shocked to learn that the real value of the property, according to an appraisal, was NIS 800,000. He argued that the defendant deliberately gave false information about the property’s value, inducing him to sell at a low price — a clear case of real estate deception. He also claimed the defendant exploited his financial distress, as he was burdened with debt and didn’t properly assess the deal’s fairness.

The defendant denied any wrongdoing and argued that the plaintiff had every opportunity to verify the value on his own. According to them, if there was any error, it was only in the business judgment of the deal, not a legal ground to cancel the real estate deal.

Court Ruling:

The court sided with the plaintiff on the claim of misrepresentation and canceled the sale agreement, while rejecting the claim of exploitation.

On exploitation: The court agreed the plaintiff had financial difficulties, but not to the severe level required to meet the legal threshold. His situation was long-term, not extreme or sudden, and he had other assets. There was also no evidence that the buyer knew of the plaintiff’s distress or acted unfairly because of it. Since all three conditions must be met for a claim of exploitation, the court dismissed this argument.

On misrepresentation: The court found clear evidence that the buyer misled the seller by presenting a partial and inaccurate document about market prices. This directly influenced the plaintiff’s decision. Drafts of the agreement even show the initial price was NIS 800,000 — confirming that the buyer’s actions led to a reduced sale price. Therefore, the four legal conditions for misrepresentation were met, and the contract was voided.

The court rejected the defendant’s claim that the plaintiff’s mistake was only about the deal’s profitability. The “risk test” used by courts distinguishes between accepted business risks and deliberate deception. In this case, the plaintiff didn’t simply take a bad risk — he was misled.

This ruling emphasizes the legal distinction between a bad business decision and actionable real estate deception. While parties are expected to check the facts before signing, the presentation of false or misleading information can justify canceling a contract.