Bell v Lever Bros Ltd [1932] AC 161 (HL)
Facts: Lever Bros paid Bell and another director substantial compensation (over £50,000) to terminate their service contracts. Lever Bros later discovered that the directors had committed breaches entitling the company to terminate without compensation. Lever Bros claimed the severance agreements were void for common mistake: both parties had believed the contracts were valid and enforceable, when in fact they could have been terminated for cause.
Held (3:2): The contract was not void. The House of Lords held that a common mistake must relate to a matter rendering performance "essentially and radically different" from what was contemplated. The mistake here went to the quality of the contract (its value to Lever Bros), not its substance or subject-matter.
Significance: Bell v Lever Bros establishes the extremely narrow scope of common mistake at common law. Lord Atkin emphasized that the law does not relieve parties from "hard bargains" or errors of judgment.
Solle v Butcher [1950] 1 KB 671 (CA)
Facts: A flat was let at a rent that both parties mistakenly believed was the maximum permitted under the Rent Acts. In fact, the flat was not subject to control, and a higher rent could have been charged. The landlord sought rescission in equity.
Held: The Court of Appeal, led by Lord Denning MR, held that the contract was not void at common law (the mistake was not sufficiently fundamental under Bell v Lever Bros), but could be rescinded in equity on terms. Equity would relieve where the mistake was fundamental enough to make it unconscionable to hold the parties to the contract.
Significance: Solle v Butcher appeared to establish a more generous equitable jurisdiction, operating alongside the common law. However, it was later overruled in Great Peace.
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407, [2003] QB 679
Facts: The defendants, salvage contractors, chartered the claimants' vessel, the Great Peace, to assist a ship in distress. Both parties believed the Great Peace was close to the distressed vessel (about 35 miles away). In fact, it was much further (about 410 miles). The defendants cancelled the charter and refused to pay the cancellation fee, arguing common mistake.
Held: The contract was not void at common law (the mistake did not render performance impossible or radically different). The Court of Appeal, in a landmark judgment by Lord Phillips MR, held that there is no separate equitable jurisdiction to rescind for common mistake. Solle v Butcher was wrongly decided and was overruled. The only question is whether the contract is void under the stringent Bell v Lever Bros test.
Significance: Great Peace dramatically narrowed the scope of mistake. Relief is now available only in the rarest of cases. The decision reflects a policy preference for certainty and the protection of third parties.
Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919
Facts: A rogue, using a stolen driving licence, fraudulently impersonated another person (Mr Patel) in a car dealership. The dealer facilitated a hire-purchase agreement between the rogue (posing as Patel) and Shogun Finance. The rogue sold the car to Hudson, an innocent purchaser. The issue was whether the hire-purchase contract was void for unilateral mistake as to identity, or merely voidable for fraud.
Held (3:2): The contract was void. The majority held that in a written contract, the objective intention was to contract with the person named in the document (Patel), not the rogue. Because the rogue was not Patel, there was no consensus ad idem, and the contract was void ab initio. Consequently, no title passed to Hudson.
Significance: Shogun Finance is controversial. The minority (Lords Nicholls and Millett) argued that the distinction between face-to-face and written contracts is unprincipled and that all such contracts should be voidable, not void. The case highlights the tension between protecting innocent third parties (like Hudson) and preventing fraud.
Raffles v Wichelhaus (1864) 2 H & C 906
Facts: A contract for the sale of cotton stipulated delivery "ex Peerless from Bombay." Unknown to the parties, there were two ships named Peerless, sailing from Bombay at different times. The buyer meant one ship; the seller meant the other.
Held: There was no binding contract. The parties were at cross-purposes, and a reasonable observer could not determine which ship was intended. This is the classic case of mutual mistake.
Significance: Raffles illustrates the objective test of agreement. Where ambiguity cannot be resolved objectively, no contract is formed.
Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255
Facts: A fraudster purported to sell machinery to the claimant bank, which advanced money on the basis of a guarantee by the defendant. The machines did not exist. The defendant sought to avoid the guarantee on grounds of common mistake.
Held: The guarantee was void. Steyn J held that the non-existence of the machines was a matter of fundamental importance, and the guarantee was implicitly conditional on their existence. The risk of non-existence was not allocated to the guarantor.
Significance: Associated Japanese Bank demonstrates the importance of risk allocation. The court must construe the contract to determine whether one party impliedly assumed the risk of the mistake.
Cundy v Lindsay (1878) 3 App Cas 459 (HL)
Facts: A rogue named Blenkarn ordered goods by post, signing his name to resemble "Blenkiron & Co," a reputable firm known to the seller. The seller dispatched goods believing it was dealing with Blenkiron & Co. Blenkarn sold the goods to Cundy, an innocent purchaser.
Held: The contract was void for unilateral mistake as to identity. The seller intended to contract with Blenkiron & Co, not Blenkarn. No title passed to Cundy.
Significance: Cundy v Lindsay is the leading case on unilateral mistake as to identity in written contracts, affirmed in Shogun Finance. It exemplifies the harsh consequences for innocent third parties.
Lewis v Averay [1972] 1 QB 198 (CA)
Facts: A rogue, posing as a well-known actor, bought a car from Lewis, paying by cheque. The rogue sold the car to Averay, an innocent purchaser. The cheque was dishonoured.
Held: The contract was voidable, not void. In a face-to-face transaction, there is a strong presumption that the seller intends to contract with the person physically present, regardless of that person's claimed identity. Title passed to Averay.
Significance: Lewis v Averay reflects the policy preference for protecting innocent third parties in face-to-face dealings. The distinction between void and voidable is outcome-determinative.