Daily Development for Monday, May 1, 1995

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

VENDOR/PURCHASER; MUTUAL MISTAKE: Where buyer acquires property for construction of a residence, and subsequently discovers that property is unsuitable for that purpose because it is in flood plain, buyer may rescind on the basis of mutual mistake. Reilley v. Richards, 632 N.E.2d 507 (Ohio 1994). The purchaser seeking rescission was found by the court not to have been negligent in failing to discover that a significant portion of the property was located in a flood-plain because he was deemed an unsophisticated buyer (even though he was an attorney!) and could not have discovered the fact by mere observation of the property.

Further, notably, rescission of the purchase contract in the case was upheld even though the purchase agreement gave the purchaser the right to terminate the purchase contract within a specified period if all "soil...and other site related conditions" were not acceptable. The buyer had not taken advantage of this provision. The decision was 4-3, with a strong dissent.

Comment: As the dissent points out, at least it ought to be up to the buyer to disclose his purpose carrying out the contract if the buyer intends that frustration of that purpose will justify rescission. Here, apparently, it would have been possible to build on the site, but location of the residence and, undoubtedly, costs of construction would have been higher than buyer intended. Further, again as the dissent points out, where parties clearly allocate the risk of a mistake, then there is no mutual mistake excuse. On the issue of soil suitability the intention of the parties was clear that the buyer had sixty days to identify such problems (the buyer himself had drafted the clause). It is difficult to see how the court could conclude that the parties intended the risk to remain with the seller after that point.

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