Burggraff v. Baum

Supreme Judicial Court of Maine · 1998 · Contracts

Contractscontractsrescissionmutual mistakemistake of factmistake of lawzoning restrictionsland sale contract

Facts

The parties entered into an installment contract for the sale of undeveloped shorefront property, and the buyers drafted the contract without a contingency clause. Both sides discussed building plans for a residence and a cabin near the water, and both believed only certain setback rules applied to the lot. After the contract was signed, a civil engineer informed the buyers that the property was within the town's Resource Protection District, which restricted construction of the access road and cabin without permits. The buyers then sought a price reduction, negotiations failed, they stopped making payments, and they sued for rescission.

Issue

When both parties know the property is subject to land use restrictions but are mistaken about which zoning regulations apply and what those regulations permit, is that a mutual mistake of fact that justifies rescission, or a mistake of law that does not?

Rule

A contract may be rescinded for a good-faith mutual mistake of fact, but not for a mutual mistake of law. When both parties know the underlying facts yet reach an erroneous conclusion about the legal effect of those facts or about what the law requires, the error is a mistake of law, and rescission is inappropriate.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Asheville, North Carolina, Lena Ortiz agreed to buy a wooded hillside lot from Martin Keene under a signed land-sale contract. Before signing, both discussed Lena's plan to build a small studio, and both knew the parcel was subject to county land-use regulation, but they assumed only the general setback ordinance applied; after signing, a planner told Lena that a separate ridgeline ordinance prohibited the studio at the chosen site absent special approval.

If Lena sues to rescind based on mutual mistake, what is the strongest analysis?

Explanation. A contract may be rescinded for a good-faith mutual mistake of fact, but not for a mutual mistake of law. Here, both parties knew the lot was regulated; their error concerned which ordinance applied and what it permitted. Under the majority's rule, that is a mistake of law, not fact, so rescission is inappropriate.