Lenawee County v. Messerly

The Messerly couple bought an apartment building & the surrounding land to generate rental income. They were un-aware that the prior owner had installed a septic system on the property without a city permit & in violation of the health code.

5 years later, the Messerlys sold the property to the Pickles. The contract between Messerly & Pickle stated that buyers have examined the property & agree to accept it in its current condition.

Within a week of the latest sale by the Pickles, they discovered raw sewage seeping out of the ground. No economically feasible solution to the problem was available.

The Lenawee County Board of Health (the "Board") condemned the property.

The Board sued the sellers & buyers of the condemned property, prohibiting human occupancy. The circuit court granted the Board's suit.

In the meantime, the buyers stopped making payments on the condemned property. At the same time, the seller sought foreclosure. A cycle of back & forth suits of the buyers & sellers on each other ensued.

The trial court determined that neither the buyers (Pickles) nor the latest sellers (Messerlys) knew about the sub-par septic system until after the conclusion of the real estate sale.

The Messerlys won agains the buyers Pickles because the buyers had bought the property "as is" which meant that they have assumed the risk of hidden problems.

In contrast, the Michigan Appellate Division reversed the judgment in favor of Messerly. The appellate court decided that a mutual mistake had occurred.

Is rescission appropriate if there has been a mutual mistake of a material fact & the contract specifies which party assumes the risk of loss in such an event?

Unanimous holding: Rescission is not appropriate if a contract allocates the risk of loss in the event of a mutual mistake regarding a material fact.

The buyers aren't entitled to rescission of the contract. The Pickles must bear the cost of the condemned property.

Both parties mistakenly believed that the property was suitable for human habitation.

Courts grant rescission as an equitable remedy on a case-by-case basis.

Caveat emptor = let the buyer beware