Mutual mistake of fact is an accepted basis for rescission. In Arizona a contract may be rescinded when there is a mutual mistake of material fact which constitutes an essential part and condition of the contract.
Buyers and sellers entered into a contract for the purchase of a tract of land solely for agricultural production. After the property was purchased, the buyers discovered that the property had insufficient water and was thus unsuitable for the intended use. The buyers sought rescission and recovery for the improvements that were made on the land. The trial court found that the buyers were entitled to rescission, based upon mutual mistake and ordered the sellers to refund the purchase price plus pay for the buyers' development costs.
Were the buyers entitled to a recission?
The court held that a contract could be rescinded where there was a mutual mistake of material fact which constituted an essential part and condition of the contract. The proper measure of restitution required that the rescinding party return or offer to return, conditional on restitution, any interest in property that he received in the bargain. The offer to surrender possession of property received under the contract need not be unqualified but may be made conditional upon the vendor's restitution of amounts paid on the contract, less proper allowances in respect of the vendee's use of the premises. The buyer was not entitled to the costs of developing the land.