Rancourt v. Verba
165 Vt. 225, 1996 Vt. LEXIS 36, 678 A.2d 886 (1996)
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Rule of Law:
When a contract for the sale of land is based on a mutual mistake of fact concerning a material quality of the property that was a basic assumption of the agreement, the injured party is entitled to the remedy of rescission, which returns both parties to their pre-contract positions.
Facts:
- Defendants sold a ten-acre lakeshore lot in North Hero to Plaintiffs for $115,000.
- Defendants knew that Plaintiffs intended to build a residence on the lot in close proximity to the lakeshore.
- Prior to the closing, Defendants had placed fill on the intended building site.
- After the sale, Plaintiffs also placed fill on the site in preparation for construction.
- The parties subsequently learned the designated building site was a protected wetland.
- Due to state and federal wetland regulations, it was impossible to obtain the necessary permits to build a residence on the lakeshore site.
- Plaintiffs were ordered to remove all fill that had been placed on the building site, including that placed by both parties.
Procedural Posture:
- Plaintiffs sued Defendants in the trial court, seeking to rescind the land sale contract on the basis of mutual mistake.
- The trial court found that a mutual mistake of fact existed regarding the property's suitability for lakeshore development.
- Instead of granting rescission, the trial court gave Defendants the choice to either rescind the transaction or pay Plaintiffs $55,000 in damages for the diminished value of the lot.
- Defendants elected to pay the damages rather than rescind the sale.
- The trial court entered judgment in favor of Plaintiffs for $55,000, plus certain costs and attorney's fees.
- Defendants appealed the award of attorney’s fees, and Plaintiffs cross-appealed the court's failure to order rescission as the remedy.
- The case is before the Vermont Supreme Court for review.
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Issue:
Does a court have the discretion to award damages by reducing the purchase price, rather than granting rescission, when a land sale contract is based on a mutual mistake of fact regarding a material quality of the land, such as its suitability for development?
Opinions:
Majority - Allen, CJ.
No. When a contract has been entered into under a mutual mistake regarding a material fact affecting the subject matter, the injured party may avoid the contract. The proper remedy for a mutual mistake that goes to the substance of the bargain is rescission, which restores the parties to the status quo ante. Awarding damages by abating the purchase price improperly substitutes a new contract for the one the parties actually made, a contract they would not have entered into had they known the true facts. This principle, previously applied to mistakes of quantity in land sales, applies with equal or greater force to mistakes regarding the land's quality or permitted uses. While there are limited equitable circumstances where a court might depart from rescission (e.g., if rescission is impractical or a party assumed the risk), none of those circumstances apply here. Because the parties' clear intent—to buy and sell a buildable lakeshore lot—was frustrated by the mutual mistake, Plaintiffs are entitled to rescind the contract.
Analysis:
This decision solidifies rescission as the primary and presumptive remedy for mutual mistake in land sale contracts where the mistake concerns a material quality of the property. It extends the logic from cases involving mistakes of quantity to those of quality, thereby limiting the equitable discretion of trial courts to reform contracts by adjusting the price. The court's holding emphasizes that when a mistake undermines a fundamental assumption of the bargain, the goal is not to create a new, 'fairer' deal but to unwind the transaction entirely. This precedent strengthens the position of an injured party seeking to void a contract based on a fundamental, shared misunderstanding of the property's essential characteristics.
