Citation. 150 Ariz. 94, 722 P.2d 262, 1986 Ariz.
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Brief Fact Summary.
The Plaintiffs, Roy Renner and some associates (Plaintiffs), rescinded a contract with the Defendants, the Kehls and the Moyles (Defendants), after it was learned that the parties made a mistake of material fact as to a condition of the land.
Synopsis of Rule of Law.
A contract may be rescinded where there is a mutual mistake of material fact that constitutes “an essential part and condition of the contract.”
The Defendants held leases on more than two thousand acres of unimproved land and decided to sell their interests. The Plaintiffs therefore contracted with the Defendants for the purchase of said leases for the purpose of cultivating jojoba. Both parties believed that there was sufficient water available underground to sustain jojoba production. However, after drilling five test wells, the Plaintiffs determined there was not sufficient water available underground to suit their needs and rescinded the agreement. The Plaintiffs then sued for reimbursement of their purchase price.
Did the Plaintiffs properly rescind the contract upon learning that the leased land was unsuitable for its intended use?
Yes. When there is a mutual mistake of a material fact that constitutes “an essential part and condition of the contract,” the contract may be rescinded. Here, the Plaintiffs intended to use the leased land for the purpose of cultivating jojoba. Both parties were of the opinion that sufficient water was available beneath the land for jojoba production. After drilling five test wells, the Plaintiffs discovered that there was not sufficient water for commercial jojoba production. Since both parties believed that there were adequate water supplies underground and this was “a basic assumption on which both parties made the contract,” the mutual mistake materially altered the “very bases of the contract.” Hence, the contract was voidable.
A contract is voidable where the parties make a mutual mistake of fact.