Contract on Wrong Home Can Be Canceled

  Question: In a large Chandler subdivision, we were shown several houses that had all been re-possessed by a major bank after foreclosure. We decided to make an offer on one of the houses, and we signed the contract prepared by our real-estate agent. A few days after escrow was opened, however, we attempted to meet with the home inspector at the house and we realized that we had bought the wrong house. The mistake occurred because our real-estate agent had used information from the bank about another house in preparing the contract that we signed. The bank refuses to cancel the contract, however, because the bank says that any mistake was not their mistake. Can the bank enforce the contract against us?

  Answer: No. There was a mutual mistake of a material fact by you and the bank that allows either of you to cancel the contract. The 1864 English case known as the “Peerless” case is the case establishing the right to cancel, or rescind, a contract if there is a mutual mistake of a material fact. In this Peerless case the buyer agreed to buy cotton that was arriving on the ship Peerless leaving from Bombay, India. In fact, however, there were two ships named Peerless leaving from Bombay, India; one ship leaving in October and another ship leaving in December. The buyer meant the ship Peerless that was leaving in October, and the seller meant the ship Peerless that was leaving in December. The buyer refused to pay for the cotton that arrived later than the buyer expected on the ship Peerless leaving in December. The seller sued the buyer.

  The English court ruled in favor of the buyer on the grounds that there was no enforceable contract because there was no “meeting of the minds” between the buyer and the seller. The buyer and the seller were thinking of two different ships named Peerless. Similarly, in your situation there was no “meeting of the minds” between you and the bank. The bank was intending to sell you a house that you did not intend to buy. Therefore, the contract can be canceled.

  If you would like assistance regarding commercial or residential transactions, potential litigation, HOA issues, estate planning or other legal matters, please call our office at 602.957.9810 and arrange for an initial consultation with one of our real estate attorneys.

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