As-Is Clauses and Mutual Mistake in Property Settlements: Title vs. Physical Condition

Introduction

In Soho Land Development, Inc. v. Oakland County Treasurer, Michigan Supreme Court No. 168022 (May 9, 2025), the plaintiff—Soho Land Development, Inc.—brought suit against the Oakland County Treasurer for allegedly breaching a 2016 settlement agreement that required the transfer of various parcels of real property. Some of these parcels were foreclosed condominium lots that, unbeknownst to both parties, had already reverted by operation of law to the condominium association under MCL 559.167(3). The Treasurer never held valid title and thus could not convey the lots. The Treasurer argued that an “as is, without warranty” clause in the agreement barred any claim; the trial court agreed. The Michigan Court of Appeals rejected the “as-is” defense but remanded for further proceedings because neither party had formally sought rescission based on a mutual mistake. The Treasurer sought leave to appeal the Court of Appeals’ decision; the Supreme Court denied leave. Justice Welch’s concurring opinion, however, clarified the legal framework for mutual mistake, rescission, and the scope of “as-is” clauses in settlement agreements.

Summary of the Judgment

The Michigan Supreme Court, by order, denied the Treasurer’s application for leave to appeal the December 16, 2024 Court of Appeals judgment. The Court was “not persuaded that the question presented should be reviewed.” Justice Welch concurred to emphasize:

The trial court erred in granting summary disposition for the Treasurer regarding the vacant lots because the Treasurer had implicitly represented valid title, even if not warranting physical condition.
The Court of Appeals correctly held that a mutual mistake existed as to title, and that the “as is, without warranty” clause did not cover title defects.
Neither party had formally requested rescission; thus, on remand the circuit court may entertain properly pleaded motions for rescission or reformation in the exercise of its discretion.

Analysis

Precedents Cited

Lenawee County Board of Health v. Messerly, 417 Mich 17 (1982): Establishes the elements of mutual mistake, reference to Restatement (Second) of Contracts § 151 (definition of “mistake”) and § 154 (allocation of risk). The Court held that a mutual mistake as to physical condition can warrant rescission only if the mistake relates to a basic assumption and the contract does not allocate the risk to one party (via an “as is” clause).
Restatement (Second) of Contracts, § 151, p. 383 (definition of “mistake”), § 154 (risk of mistake)—federal treatise adopted by Michigan courts to clarify the doctrine of mutual mistake and risk allocation.
Dykstra v. Huizinga, 362 Mich 420 (1961); Schwaderer v. Huron-Clinton Metro Authority, 329 Mich 258 (1951); Scott v. Grow, 301 Mich 226 (1942): Landmark Michigan cases on equitable reformation of deeds and land contracts.
Goldman v. Century Ins. Co., 354 Mich 528 (1958); Urick v. Burge, 350 Mich 165 (1957); Modern Displays, Inc. v. Hennecke, 350 Mich 67 (1957); Heath Delivery Serv. v. Mich. Mut. Liability Co., 257 Mich 482 (1932): Equitable reformation in other contractual contexts.
Cove Creek Condo Ass'n v. Vistal Land & Home Dev., LLC, 330 Mich App 679 (2019): Held that 2002 PA 283 amendments to MCL 559.167(3) do not apply retroactively to reversions that occurred before the effective date.

Legal Reasoning

Justice Welch’s concurrence distills the following reasoning:

Mutual Mistake as to Title: Both parties believed the Treasurer held title pursuant to MCL 211.78k(5) & (6) after foreclosure—but the property had already reverted under MCL 559.167(3) because no units were developed within ten years.
"As Is" Clauses and Risk Allocation: The trial court treated the “as is, without warranty” clause as allocating to Soho the risk of every defect, including title. Under Messerly, an “as is” clause may allocate risk of unknown physical defects, but it does not logically extend to an underlying legal title right unless expressly stated.
Rescission vs. Reformation: The mistaken assumption was core to the parties’ exchange. Under Restatement § 151 and Messerly, rescission is available when a mistake relates to a basic assumption and materially affects performance, unless the contract allocates the risk. Equitable reformation is also a possible remedy but has historically been applied primarily to deeds.
Procedural Posture: The Court of Appeals remanded because no party had pleaded or moved for rescission or reformation in the trial court. A court should not order such relief sua sponte without a proper request.

Potential Impact

This decision—via Justice Welch’s concurrence—will influence future property and settlement disputes in several ways:

Parties will be reminded to define the scope of “as is” clauses with precision, specifying whether they cover title defects or only physical conditions.
Counsel must consider title searches and statutory reversion risks before settlement, especially under statutes like MCL 559.167(3).
Trial courts will expect parties to formally plead rescission or reformation when mutual mistake is alleged, rather than granting relief sua sponte.
It clarifies that mutual mistake of title—distinct from physical defects—can support equitable rescission when no risk-allocation clause bars it.

Complex Concepts Simplified

Mutual Mistake: Both parties have the same false belief about a factual circumstance at the time of contract formation. If that fact is fundamental, the contract may be rescinded.

“As Is, Without Warranty” Clause: A clause that shifts risk of unknown physical defects to the buyer. It does not automatically cover legal defects—like invalid title—unless the clause says so.

Rescission: Equitable remedy that unwinds the contract and returns parties to their pre-contract positions if a mutual mistake undermines the basis of the bargain and risk is not allocated.

Equitable Reformation: Court-ordered rewriting of a contract or deed to reflect parties’ true intent when a mistake misstates their agreement.

Conclusion

The denial of leave in Soho Land Development, Inc. v. Oakland County Treasurer confirms that Michigan courts will scrutinize the interplay between mutual mistake and risk allocation clauses. Justice Welch’s concurrence provides a clear framework:

Mutual mistake of title—distinct from physical condition—can justify rescission.
An “as is” clause does not cover every type of defect; drafters must expressly include title warranties if desired.
Parties seeking rescission or reformation must properly plead and pursue those remedies in the trial court.

These principles reinforce the importance of precise drafting, thorough title investigation, and careful pleadings in property settlement agreements.