Lenawee County Bd. of Health v. Messerly

Brief Fact Summary.

Shortly after purchaser bought property for the purpose of generating rental income, the property was condemned as unfit for human habitation.

Synopsis of Rule of Law.

Whether rescission is the proper remedy to a mutual mistake should be determined on a case-by-case basis.

Facts.

The Appellants, William and Martha Messerly (Appellants), owned an apartment building, which they sold to the Appellees, Carl and Nancy Pickles (Appellees), who hoped to use the building as rental property.  The land contract contained a provision stating that the purchaser agreed to accept the property “as is.”  Soon after taking possession, Appellees discovered raw sewage seeping out of the ground.  The Lenawee County Board of Health condemned the property and initiated suit to obtain a permanent injunction proscribing human habitation.  Appellants then filed a cross-complaint against Appellees seeking payment on the land contract.  Appellees counterclaimed seeking rescission of the contract based on the mutual mistake of the parties that the property was fit for human habitation and could therefore generate rental income.  The trial court found against the Appellees.  The Court of Appeals found that the mutual mistake went to a basic element of the contract and granted rescission.

Issue.

Is rescission a proper remedy when a contract was formed due to mutual mistake?

Held.

No, in the instant case.  Judgment reversed.
•    Whether rescission is the proper remedy to a mutual mistake must be determined on a case-by-case basis
•    The court found that the mistake affected the essence of the contractual consideration, as both parties thought they were contracting to purchase and sell income-generating property.
•    The court also found that rescission is not proper in this case because the parties did not equally share the blame.  Instead, the “as is” clause in the purchase and sale agreement shifted the risk to the purchaser.

Discussion.

The court began its analysis by examining the landmark “barren cow” case, where mistake was defined as “not of the mere quality…, but [going] to the very nature of the thing.”  The court found that although the mistake in the instant case involved the value of the property, it was not a collateral mistake because the fact that the property was to be used to generate rental income went to the essence of the transaction.  Next the court determined whether rescission would be proper under these facts.  The court looked to the parties to determine where the blame fell because rescission may be proper where the parties equally share the blame for the mistake.  The court found that the blame could not be shared equally due to the “as is” clause, which shifted the blame to the purchaser.  Therefore, rescission was not proper.