When What You Got Isn’t What You Bought: Legal issues with seller nondisclosure or misrepresentation – Part 3 of 4

Coeur d’Alene, Idaho, August 7, 2017. In this third part of our series, we address the issue of mistake. Sometimes only one party is mistaken about a particular fact, and sometimes both parties are mistaken. Idaho law treats the issue of mistake differently in those two cases.

PART 3: Common-Law Claims: Mistake

An aggrieved party in a real estate transaction may request a court to rescind a transaction on the grounds of “mistake.” Idaho law recognizes unilateral mistake and mutual mistake. “Unilateral” mistake refers to a mistaken understanding of fact by one party to the transaction. “Mutual” mistake refers to a mistaken understanding by both parties.

A party who makes a unilateral mistake cannot rescind or modify the contract unless the other party made a misrepresentation or knew about the mistake. Dennett v. Kuenzli, 936 P.2d 219, 226, 130 Idaho 21, 28 (1997); citing Cline v. Hoyle & Assoc. Ins., Inc., 108 Idaho 162, 164, 697 P.2d 1176, 1178 (1985); Cohen v. Merrill, 95 Idaho 99, 104, 503 P.2d 299, 304 (1972). A mistake must be so significant that it defeats the object a party had when first entering into the contract. Bailey v. Ewing, 105 Idaho 636, 639, 671 P.2d 1099, 1102 (App. 1983).

For example, a buyer may have a mistaken understanding about the physical condition of the property. But the buyer cannot rescind the purchase because of that unilateral mistake unless he or she proves (1) the seller made a misrepresentation or knew about the buyer’s mistake and (2) that the mistake defeated the buyer’s purpose in buying the property.

If a buyer and seller make a mutual mistake and that mistake defeats a party’s purpose in the transaction, that party can sue to have the transaction rescinded. Primary Health Network, Inc. v. State Dept. of Admin., 137 Idaho 663, 668, 52 P.3d 307, 312 (2002). There may be an actual defect in the property, or there may be a mistaken belief about an attribute of the property for the buyer’s purpose. Thus, if both parties have the same mistaken belief about an attribute of the property that is critical to the buyer’s purpose in entering into the transaction, and that attribute defeats the buyer’s purpose, the buyer may be able to rescind the sale under the mutual mistake doctrine.

As you can imagine, proving a mistake can be very expensive. For a mistaken belief by only one party, that party must not only prove they believed something about an attribute of the property that was not true, but also that the other party knew about the mistake or made a misrepresentation. When both parties have a mistaken belief about the same attribute, each party’s understanding about the attribute must be proven. Further, after that proof is made, the buyer has to prove that the property attribute in fact defeats the buyer’s purpose for entering into the transaction.

As with fraud, Idaho’s statute of limitations period for mistake claims is three (3) years. I.C. § 5-218(4).

Note: This post is not legal advice, and should not be relied upon as such. Different sets of facts will likely lead to different legal conclusions. If you need assistance with real property matters, call Bristol George, PLLC for a forty-five minute, no charge consultation to see if we can help.

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