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The Supreme Court of South Carolina has ruled that discovery of wetlands on a property following closing does not allow the purchaser to rescind the contract.
Sudhir Patel ("Purchaser") purchased a parcel of real estate from Truck South, Inc. ("Seller") in order to build a motel next to an interstate highway. It was an instalment sale, and the purchase contract required the Purchaser to make a series of payments to the Seller over time. The purchase contract required that the property be "free from encumbrances". Following the purchase, an architecture firm inspecting the property discovered water on the property and requested an inspection by a federal agent. Eventually, part of the property was declared protected federal wetlands, and so the Purchaser could not build a motel on the property. The Purchaser immediately stopped making payments to the Seller, and the Seller filed a lawsuit seeking performance of the contract. The trial court ruled in favor of the Seller, and on procedural grounds, the Court of Appeals reversed the trial court. The Seller appealed to the state's highest court.
The Supreme Court of South Carolina affirmed the trial court's ruling in favor of the Seller. The court considered whether the wetlands on the property were an encumbrance which clouded the property's title and made it unmarketable. An "encumbrance" is a claim or liability attached to property (like a lien or mortgage) which lessens the value of the property, but is not an ownership right. The court ruled that the wetlands was not an "encumbrance" and thus did not make the title unmarketable. The presence of the wetlands was simply a business risk assumed by the Purchaser, and without an express provision in the purchase agreement, the Purchaser could not escape his contractual obligations.
The court briefly considered the other arguments raised by the Purchaser. It first rejected the argument that a unilateral mistake required voiding the purchase. One of the requirements for rescinding a contract based on a unilateral mistake would be evidence showing that the Seller knew of the wetlands before entering into the purchase contract. The Purchaser was unable to produce any such evidence, and so the court rejected this argument. Similarly, the court rejected the "mutual mistake" argument advanced by the Purchaser seeking to rescind the contract. Courts rescind agreements for a mutual mistake only when both parties are mistaken on a material element of their agreement. No such mistake existed here. Rather, the Purchaser simply failed to include a wetlands contingency in his agreement with the Seller. Thus, the court affirmed the trial court's judgment in favor of the Seller.
Truck South, Inc., v. Patel, 339 S.C. 40, 528 S.E.2d 424 (2000).