Contracts I, Pages 438โ€“447

Lenawee County Board of Health v. Messerly

Supreme Court of Michigan, 1982

Facts:

Plaintiffs, the Messerlys, solds defendants, the Pickleses, a house with a septic tank that the previous owner had installed improperly. Part of the contract said provided that that purchaser examined the property and agreed to accept it in its present condition and that there were not other additional understandings. Five or six days later when the defendants went to introduce themselves to the tenants, they discovered raw sewage seeping out of the ground. Defendants then did not pay. Plaintiffs sued defendants for not paying. Defendants sued plaintiffs for rescission for lacking consideration.

Procedural History:

Trial court dismissed defendants counterclaim because there was no mistake because nobody knew about the previous owner's faulty installation. Court of Appeals reversed defendants claim against plaintiffs.

Issues:

  • Should defendants prevail in avoiding this land contract on the basis of mutual mistake and failure of consideration?

  • Was there a mistaken belief entertained by the parties and was is the resultant legal significance?

Rules:

  • A contractual mistake cannot be a prediction as to a future occurrence or non-occurrence.

  • Page 445

    [R]escission is indicated when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and which materially affects the agreed performances of the parties.

  • R2C ยง 154(a)

  • When two equally innocent parties are mistaken, the purchasers should be allocated the risk.

Reasoning:

  • The septic system was defective before the sale and was thus not a prediction of a future event.

  • The "as is" clause refers to those defects which were unknown at the time, assigning hte risk of loss to the Pickleses.

Holding:

  • The parties did entertain a mutual misapprehension of fact, but the circumstances of this case do not warrant rescission.

  • The parties were mistaken as to the income-producing capacity of the property.

Judgment:

Reversed.