Rescission is an equitable remedy which is granted only in the sound discretion of the court. A court need not grant rescission in every case in which the mutual mistake relates to a basic assumption and materially affects the agreed performance of the parties.
A landowner constructed an apartment building on his property and installed a septic system without a permit and in violation of the health code. The landowner conveyed title to the property to the sellers who are the appellants in this case. The appellants sold the said property to the appellees, but shortly thereafter, the county health board then obtained a permanent injunction prohibiting human habitation of the property due to the defective sewage system. The buyers initiated an action against the sellers to rescind the land sale contract on the basis of mutual mistake and failure of consideration. The appellate court entered judgment in favor of the buyers.
Whether a contract may be rescinded at all times on the basis of mutual mistake.
On appeal, the court found that the buyers were not entitled to recission. Both the buyers and the sellers believed that the property was suitable for human habitation when they entered into the land sale contract. Both parties were blameless because neither the sellers nor the buyers knew of the defective septic system. The court was faced with two equally innocent parties and concluded that the risk should be allocated to the buyers. The parties' land sale contract also contained an "as is" provision allocating the risk to the buyers.