Facts
- Sellers owned roughly fifty acres spanning Dover and Medfield, Massachusetts; buildings were in Dover, and the only established access crossed the Medfield portion.
- Buyer, a nonprofit entity, negotiated to purchase the property to operate a tennis and swim club.
- At the time of negotiations, both towns’ zoning by-laws allowed a noncommercial club use as of right, and both parties proceeded on that assumption.
- The parties executed a purchase-and-sale agreement on January 31, 1972, requiring delivery of marketable title “free from encumbrances, except … existing building and zoning laws.”
- Unknown to both parties when they contracted, Medfield had already published notices (January 27 and February 3, 1972) for a hearing on a proposed zoning amendment that would require a special permit for the contemplated club use.
- By statute, adoption of the amendment could operate retroactively to the notice date, threatening the buyer’s assumed right to use the Medfield access and to operate the intended club without discretionary approval.
- After learning of the pending amendment, the buyer refused to close and sought rescission and return of its deposit on a theory of mutual mistake.
Issues
- Whether a purchase-and-sale agreement is voidable for mutual mistake when both parties were unaware, at contract formation, that public notice had already issued for a proposed zoning change with potential retroactive effect impairing the contemplated use.
- Whether a clause making title subject to “existing building and zoning laws” allocates to the buyer the risk of this already-existing, but unknown, zoning notice and its statutory consequences.
Decision
- The Supreme Judicial Court of Massachusetts affirmed a decree rescinding the agreement and ordering return of the deposit.
- The court held that the contract language placed on the buyer the risk of zoning restrictions enacted between contract and closing.
- The court also held that the parties’ mutual ignorance of the already-published zoning-hearing notice was a mutual mistake of an existing, material fact not allocated by the agreement.
- Because the mistake concerned a basic assumption of the bargain and materially affected the exchange, equitable rescission was proper.
Legal Principles
- A standard “subject to existing building and zoning laws” clause generally allocates to the buyer the risk of zoning changes enacted after the contract but before delivery of the deed.
- A contract may be rescinded for mutual mistake when both parties share an erroneous belief about an existing fact that is a basic assumption of the contract and materially affects performance or value.
- A mistake is not excused where the contract allocates the relevant risk; absent such allocation, equity may grant rescission to avoid enforcement of a bargain formed under a shared, material factual error.
- An already-published notice initiating a zoning-amendment process, coupled with statutory retroactivity to the notice date, can constitute an existing fact for mutual mistake analysis.
Conclusion
The court allowed rescission because both parties contracted on the shared assumption that the intended nonprofit club use and access were secure as of right, while an already-published zoning-hearing notice—capable of triggering retroactive restrictions—was an unknown, material existing fact and not a risk the contract assigned to the buyer.