Common Mistake CASES
In English law, a common mistake occurs when both parties to a contract share the same mistaken belief about a fundamental fact, potentially rendering the contract void.
Definition and principles
Common mistake arises when both parties enter into a contract based on an incorrect assumption that significantly impacts the contract’s substance. If the mistake undermines the very foundation of the agreement, the courts may declare the contract void.
Types of common mistake
- Res extincta: Mistake regarding the existence of the subject matter (e.g., a contracted item has already been destroyed).
- Res sua: Mistake relating to ownership, where one party already owns the subject matter of the contract.
- Mistake as to quality: Rarely leads to void contracts unless the mistake renders the subject matter fundamentally different from expectations.
Case example: Lever Bros Ltd v Bell (1931)
In Lever Bros Ltd v Bell, the House of Lords held that a mistake about the quality or value of the subject matter did not render the contract void unless it went to the root of the agreement. The employees’ undisclosed breaches did not sufficiently alter the substance of the agreement.
Consequences of common mistake
Contracts affected by fundamental common mistake can be declared void, with parties restored as closely as possible to their original positions. However, courts are reluctant to invalidate contracts, generally favouring the contract’s enforceability.
Criticism and limitations
Critics argue that the concept of common mistake is restrictive and uncertain, particularly regarding the threshold for what constitutes a fundamental mistake. Courts approach claims of common mistake cautiously, emphasising commercial certainty and stability.
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A developer purchased land and later discovered a sewer, seeking to rescind the contract for misrepresentation and mistake. The court held there was no misrepresentation or operative mistake and, obiter, that damages in lieu of rescission would have been appropriate. Facts William Sindall Plc (the purchaser) agreed to purchase land from Cambridgeshire County Council (the vendor) for over £5 million for a housing development. After completion, the purchaser discovered a private foul sewer running across the land, which was not known to either party at the time of the contract. The presence of the sewer hampered the planned development. The
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
An agreement was made for cotton arriving on the ship 'Peerless' from Bombay. Unknown to the parties, two ships of that name sailed from Bombay months apart. The court held that as the parties meant different ships, there was no consensus, and therefore no binding contract. Facts The claimant, Raffles, agreed to sell 125 bales of Surat cotton to the defendants, Wichelhaus & Anor. The written agreement specified that the cotton was ‘to arrive ex “Peerless” from Bombay’. However, there were two ships named ‘Peerless’ sailing from Bombay: one which sailed in October and another which sailed in December. The
Defendants chartered a ship believing it was 35 miles from a vessel in distress, when it was actually 410 miles away. They cancelled, claiming common mistake. The court held the contract was not void, as the mistake was not fundamental enough to make performance impossible. Facts The vessel ‘Cape Providence’ suffered serious structural damage in the South Indian Ocean and was in danger of sinking. The defendants, Tsavliris, a professional salvage company, offered a salvage service. To assist, they urgently needed to charter a nearby vessel. They were informed by Ocean Routes, a reputable maritime location organisation, that the claimants’
A contract was made for the sale of a cargo of corn believed to be in transit. Unbeknownst to both parties, the corn had already deteriorated and been sold. The House of Lords held the contract was void as its subject matter did not exist. Facts A contract was made in London for the sale of a cargo of Indian corn, which both parties believed was being shipped from Salonica to the United Kingdom. However, prior to the date of the contract, the cargo had begun to ferment and deteriorate. The master of the ship lawfully sold the corn at
A nephew leased a fishery that, unbeknown to both him and his cousins (the lessors), he already owned. The House of Lords set the agreement aside for mutual mistake, establishing that a mistake as to a private right of ownership is a mistake of fact. Facts The appellant, Cooper, believing he had no entitlement, entered into an agreement to lease a salmon fishery from the respondents (his uncle’s daughters, represented by Phibbs). Both parties believed the fishery belonged to the respondents as heirs of the deceased uncle. Cooper’s uncle had previously assured him that he was entitled to the fishery.
Facts Lever Brothers Ltd (Appellants) held a controlling interest in the Niger Company. Mr Bell and Mr Snelling (Respondents) were appointed as chairman and vice-chairman, respectively, of the Niger Company under five-year service contracts. As part of a corporate restructuring, Lever Brothers decided to terminate these appointments prematurely. They entered into compensation agreements with Bell and Snelling, paying them £30,000 and £20,000 respectively, in consideration for the early termination of their service contracts. Subsequent to these payments, Lever Brothers discovered that both Bell and Snelling had, during their employment, committed serious breaches of their duties as directors. They had secretly
