Solle v Butcher 26 Nov 1949 [1950] 1 KB 671, CA

A landlord and tenant mistakenly believed a flat was not subject to rent control and agreed on a rent of £250. The lawful rent was £140. The court set the lease aside in equity, establishing a doctrine of equitable mistake.

Facts

The defendant, Charles Butcher, had leased a building containing five flats. He carried out substantial alterations to a flat which had previously been damaged by a bomb. The plaintiff, Godfrey Solle, was a surveyor who had advised Butcher on the alterations and was aware of the Rent Restriction Acts. Both parties, acting on advice Solle had been involved in obtaining, believed that the alterations made the flat a ‘new’ dwelling and therefore not subject to the rent restrictions applicable to the original building. The standard rent for the flat, had it not been altered, would have been £140 per annum. Believing it was exempt, Butcher leased the flat to Solle in 1947 for a term of seven years at a rent of £250 per annum. After two years, Solle sought a declaration that the standard rent was £140 and claimed to recover the amount he had overpaid. Butcher counterclaimed for rescission of the lease on the ground of common mistake.

Issues

The central legal issue was whether the lease was void at common law or voidable in equity due to the parties’ common mistake regarding the applicability of the Rent Restriction Acts. Specifically, the court had to determine:

1. Whether a contract entered into under a common mistake about the legal status of its subject matter (a mistake of private right or law) could be set aside.
2. The distinction and relationship between a mistake that renders a contract void at common law and one that makes it voidable in equity.
3. If the lease was voidable, on what terms should rescission be granted.

Judgment

The Court of Appeal, by a majority, allowed the landlord’s cross-appeal and set the lease aside on terms. The tenant’s appeal was dismissed.

Lord Denning’s Leading Judgment

Lord Denning delivered the leading judgment, establishing a distinct doctrine of equitable mistake. He distinguished the narrower scope of mistake at common law, which renders a contract void ab initio, from the broader jurisdiction of equity to intervene where a mistake makes a contract voidable. He held that the mistake in this case was not so fundamental as to void the contract at common law, as the lease was still valid and conferred a legal estate upon the tenant. However, he found that equity could provide relief.

Once a contract has been made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew that he was under a mistake.

He formulated the test for equitable intervention:

A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.

Applying this, he found the misapprehension was fundamental and that the landlord was not ‘at fault’ in a way that would bar equitable relief. He concluded that the court should grant rescission, but on terms that would be just to both parties. The order allowed the tenant to choose between surrendering the lease entirely or accepting a new lease at the full rent of £250, which was now permissible.

Lord Justice Bucknill’s Concurring Judgment

Bucknill LJ agreed with Lord Denning. He considered the mistake to be a ‘common mistake of fact on a matter of fundamental importance’ and held that this rendered the contract voidable. He agreed that the proper remedy was to set the lease aside on the terms proposed by Lord Denning, finding them to be just and equitable.

Lord Justice Jenkins’ Dissenting Judgment

Jenkins LJ dissented, arguing that the mistake was one of law and that equity should not intervene. He held that the House of Lords in Bell v Lever Bros Ld had laid down a comprehensive rule for common mistake which did not allow for a separate, more lenient doctrine in equity. In his view, for a mistake to have any effect, it had to be so fundamental as to negate the consent of the parties, making the contract void at common law. As this was not the case here, he believed the lease was valid and binding and would have dismissed the landlord’s cross-appeal.

Implications

The decision in Solle v Butcher was highly significant for establishing, for over 50 years, a distinct and flexible doctrine of equitable mistake in English contract law. It gave courts the power to render a contract voidable for a common mistake that was fundamental but not sufficiently serious to make it void at common law under the stricter test in Bell v Lever Bros Ld. This allowed for more nuanced, just outcomes through the remedy of rescission on terms, preventing one party from unfairly taking advantage of a shared error while allowing the court to impose conditions to protect the other. The case became a leading authority on how equity could temper the rigidity of the common law regarding contractual mistakes, although this equitable jurisdiction was later significantly curtailed by the Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002].

Verdict: The landlord’s cross-appeal was allowed and the lease was set aside. The tenant was given the option to either surrender the lease or accept a new lease at the previously agreed rent of £250 per annum.

Source: Solle v Butcher 26 Nov 1949 [1950] 1 KB 671, CA