## Facts

- David Richards agreed to sell Thomas Reilley a residential lot in Dublin, Ohio, intended as a homesite.
- The lot bordered a stream and was located on a cul-de-sac.
- After contracting, the parties learned the property lay substantially within a FEMA-designated flood-hazard area; evidence indicated more than half of the lot was in the hazard zone.
- Local regulation prohibited building or placing fill in the floodway and within twenty feet of the floodway boundaries; any building in other flood-hazard portions depended on the nature and impact of proposed development.
- Both parties testified they were unaware of the floodplain condition when they formed the contract.
- Reilley intended to build a family home; his builder later refused to build due to floodplain-related warranty concerns.
- The purchase contract contained a 60-day “escape clause” permitting Reilley to rescind upon discovering unacceptable conditions; an inspection occurred within that period, but the flood-hazard designation was not discovered until after the 60 days elapsed.
- Reilley sued for rescission based on mutual mistake; the trial court granted rescission after a bench trial, finding the floodplain condition severely limited residential construction.
- The court of appeals reversed, reasoning Reilley had not proven the lot was unbuildable and could have discovered the condition earlier with additional investigation.

## Issues

1. Whether rescission of a real estate purchase contract is proper when the parties were mutually mistaken about a material characteristic of the property.
2. Whether rescission is barred if the buyer was negligent in failing to discover the mistake before contractual deadlines.
3. Whether an appellate court may reverse a trial court’s rescission judgment supported by competent, credible evidence on the essential elements.

## Decision

- The Supreme Court of Ohio reversed the court of appeals and reinstated the trial court’s rescission judgment.
- The Court held rescission was proper because the parties shared a mutual mistake about a material property characteristic affecting use as a homesite.
- The Court concluded there was competent, credible evidence that Reilley was not negligent in failing to discover the flood-hazard status within the escape-clause period.
- The Court determined the court of appeals improperly reweighed the evidence rather than applying the manifest-weight/competent-credible-evidence standard.

## Legal Principles

- A real estate contract may be rescinded for mutual mistake when the mistake concerns a material part of the contract and the complaining party was not negligent in failing to discover it.
- A mistake is material if it concerns a basic assumption on which the contract was made and materially affects the agreed exchange, frustrating the parties’ intended transaction.
- In reviewing a bench-trial judgment, an appellate court must affirm if there is some competent, credible evidence supporting the essential elements; reversal is warranted only if the judgment is against the manifest weight of the evidence.
- A buyer’s lack of negligence is assessed in context; rescission is not defeated merely because additional, extraordinary investigation might have uncovered the condition earlier.

## Conclusion

The Ohio Supreme Court held that a buyer may rescind a land-sale contract when both parties were unaware of floodplain restrictions that materially impaired the property’s intended residential use, and when the buyer was not negligent in failing to discover the condition; the court of appeals erred by overturning a trial court judgment supported by competent, credible evidence.


Reilley v. Richards, 632 N.E.2d 507 (Ohio 1994)