Lenawee County Board of Health v. Messerly

Michigan Court of Appeals · 1980 · Contracts

295 N.W.2d 903 (1980)

Updated July 26, 2026

ContractsMutual mistakeRescissionFailure of considerationLand contractsland contractbasic assumptioncollateral matter

Facts

The Pickleses purchased real property from the Messerlys on a land contract intending to use it as income-producing rental property. Several days after execution, the Pickleses discovered raw sewage on the property, and the Lenawee County Health Department condemned the property as unfit for human habitation. The record supported the trial court's finding that neither the Messerlys nor the Barneses knew of the defect or made any fraud or misrepresentation concerning the sewer system. Trial evidence showed the property could not support an ordinance-approved sanitary system for the existing use, that even a single-family use was not feasible except through an expensive pump-and-haul system, and that the cost of such a system exceeded the property's net rental income while demolition costs exceeded land value.

Issue

Whether the Pickleses were entitled to rescind the land contract on the basis of mutual mistake, where both buyer and seller believed the property was usable as income-producing rental property but it was in fact condemned and effectively valueless for that purpose. Relatedly, whether the circumstances amounted to a failure of consideration warranting equitable relief.

Rule

Mutual mistake is grounds for rescission when both parties, at the time of contracting, were mistaken about a fact assumed as a basic basis of the bargain, and enforcement would be materially more onerous than if the fact were as believed. In land contracts, rescission is appropriate when the mistake concerns a basic element of the contract and results in the conveyance of essentially different property than the parties contemplated, rather than merely affecting a collateral matter or diminishing value.

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

In Toledo, Nina Patel agreed to buy a four-unit house from Owen Mercer on land contract so she could collect rental income. Two days later, city inspectors discovered that the parcel was too small to support any lawful sewage system for multiunit occupancy, and the only lawful alternative would cost more each year than the building's expected net rent; neither party knew this when they signed.

If Nina seeks rescission, what is the strongest argument in her favor?

Explanation. Rescission for mutual mistake is available when both parties were mistaken about a fact assumed as the basis of the transaction and enforcement would be materially more onerous because the property received is essentially different from what was contemplated. Here, the bargained-for subject was income-producing rental property, but the parcel is effectively useless for that purpose. The majority made clear that fraud, concealment, or an express warranty is not required, and that mere diminished profitability is not enough.