Common Mistake in Contract

Author(s): J. W. Harris
Source: The Modern Law Review, Vol. 32, No. 6 (Nov., 1969), pp. 688-691
Published by: Wiley on behalf of the Modern Law Review
Stable URL: https://www.jstor.org/stable/1093649
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 688 THE MODERN LAW REVIEW VoL. 32

will limit and modify it to the exten

be given to the main object and in
these statements must, it is submit
context and to refer to the construc
question. If they were given a wider
re-introduce the substantive doctrine of fundamental breach which
the House of Lords rejected in the Suisse Atlantique case. In this
connection reference may be made to Garnham Harris c8 Elton Ltd.
v. Alfred W. Ellis (Transport) Ltd.20 It was there held that a
carrier was not protected by an exclusion clause in general terms 21
when a load of copper was stolen after it had, without the authority
of the owner, been entrusted to a sub-contractor. Paull J. said:
" Clearly the conditions of the contract do not apply to an act of
conversion . . . unless indeed, as would be most unlikely, there were
express conditions to cover such an act. .. ." 22 The present posi-
tion seems to be that general words (such as " however caused ")
will not protect against liability for fundamental breach, but that
effect may be given to provisions which specifically and unequi-
vocally refer to breaches of this kind.
G. H. TREITEL.

COMMON MISTAKE IN CONTRACT

THE concept of " mistake " in the law of contract has two guises:
either it refers to mistakes which are alleged to vitiate agreement
(" unilateral " or " mutual" mistake), or to mistakes alleged to make
contracts ineffective even where agreement exists [" common " (also
termed " mutual ") mistake]. Both aspects represent the very best
kind of grist for the mill of academic controversy. Disputes about
common mistake, with practical implications, relate to three issues:
first, is there a rule of the common law which provides that, where
some category of common fundamental mistake exists, a contract
must be declared void for all purposes? Or is there no such rule,
but only a rule of equity which provides that, in the case of some
common mistakes, a court may, on the suit of either party, set the
contract aside on such terms as it thinks just ? Secondly, if only
the equitable rule is part of English law, to what kinds of common
mistake does it apply ? Thirdly, in what circumstances will the
right to ask for rescission in equity for common mistake be lost ?
Little direct light was thrown on any of these problems by the
decision of the Court of Appeal in Magee v. Pennine Insurance Co.
Ltd.1 The plaintiff signed a proposal form for the insurance of a
motor-car with the defendants. The form was actually filled in by

19 Anglo-Continental Holidays Ltd. v. Typaldos Lines (London) Ltd. [1967] 1

Lloyd's Rep. 61, 66. The Suisse Atlantique case was not mentioned.
20 [1967] 2 All E.R. 940.
21 The clause referred to " Non-delivery (however arising) .
22 [19671 2 All E.R. 940, 943.
1 [1969] 2 All E.R. 891.

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Nov. 1969 NOTES OF CASES 689

the salesman at the garage wher

to the plaintiff, it contained a
ticular it was misstated that th
whereas he had in fact never do
for the use of his son. The prop
and the insurance policy base
another car. This car was dama
made a claim in respect of it
settlement of the claim and th
of Appeal, by a majority of tw
were not bound by this contra
on the basis of a mistake comm
was in existence a binding insur
one which the defendants were
misstatements in the proposal.
On the first issue mentioned
gave a characteristically clear
mon mistake, even on a most f
a contract void at law; but it
judgment of Fenton Atkinson
the judgment of Lord Dennin
stated it to be a proposition acc
Lever Brothers 3 that, where consensus -has been reached on the
basis of a particular fundamental assumption which is untrue,
" the contract is avoided." " This suggests that nullity follows auto-
matically from the mistake, without the need for a claim for
rescission being made by one of the parties and granted by the
court. Yet later in his judgment he stated that it would be
equitable for the insurance company to be able to avoid the con-
tract.5 Winn L.J., dissenting on the question whether the facts
disclosed an operative common mistake, analysed Bell v. Lever
Brothers in a way which disclosed no ruling on this point.'
Dicta can be found in the judgments of the House of Lords in
Bell v. Lever Bros. to support the classical theory that a common
fundamental mistake has the effect of automatically avoiding a
contract,' and for the converse view that the juridical effect of
such a mistake depends, at common law, on the presumed intention
of the parties." The latter view has two practical advantages: it

2 Ibid. at p. 893.
3 [1932] A.C. 161.
4 [1969] 2 All E.R. 891, 896.
5 Ibid.
6 Ibid. at p. 895.
7 11 M.L.R. 257; Sheikh Brothers Ltd. v. Ochsner [1957] A.C. 136.
8 McRae v. Commonwealth Disposals Commission (1951) 84 C.L.R. 377 (73
L.Q.R. 340; 33 C.B.R. 164); Nicholson t Venn v. Smith Marriott (1947) 177
L.T. 189; Solle v. Butcher [1950] 1 K.B. 671; Leaf v. International Galleries
[1950] 2 K.B. 86; Harrison & Jones Ltd. v. iBunten Lancaster Ltd. [1953]
1 Q.B. 646; Rose (London) Ltd. v. Pim Junior & Co. Ltd. [1953] 2 Q.B. 450;
Grist v. Bailey [1967] Ch. 532. These same dicta can also be interpreted to

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690 THE MODERN LAW REVIEW VOL. 32

avoids the blunt instrument of auto

reconstruction-of-the-contract solut
is impossible to say what the parties
contemplated the mistake, it leaves
ex post facto justice.
Clearly not every kind of common
equitable jurisdiction. In Huddersf
Henry Lister 8 Son Ltd., Kay L.J.
" when once the court finds that an
between parties who were under a c
fact." ' In the present case Lord Den
son L.J. stated that the mistake must be " fundamental," 10
while Winn L.J. stated that it must be " a mistake as to the nature
or at the very least the quality of the subject-matter." ' All
references to " foundation," " fundament," " substance " or " sub-
ject-matter " of contracts, in this context, are notoriously difficult
to apply in concrete situations. They are, it is submitted, un-
necessary if it is accepted that there is no common law rule specify-
ing nullity as the automatic consequence of common mistake. If
there is such a rule, sonorous adjectives are needed to keep its
scope narrow. But if only the flexible and discretionary equitable
rule exists it is enough for a common mistake materially to affect
the interests of the parties for it to be applicable.
Rescission in equity on the ground of common mistake is a last-
ditch remedy, to be resorted to only when the mistaken facts or
rights were not covered by the express or implied terms of the con-
tract and were not covered by the words of a misrepresentation.
Since a misrepresentor, however innocent, has at least done some-
thing to contribute to the other party's misfortune, which one who
merely shares a mistake has not, it would make sense if the right
to rescind for common mistake could be lost at least as easily as
the old right to rescind for innocent misrepresentation.12 Clearer
judicial statement of the exact scope and limits of the equitable
doctrine of common mistake is not to be hoped for, until it is
finally recognised that it is a purely equitable doctrine.
Lord Denning M.R. said that if the plaintiff knew of the defen-
dants' mistake, he would not be able to hold them to the contract
because this would be " snapping at an offer." 13 It is submitted

support the variant of the classical theory put forward by the learned authors
of Cheshire & Fifoot, The Law of Contract, namely, that common mistake
leads to automatic voidness when it amounts to absence of subject-matter (7th
ed. p. 198). This view cannot be accepted because it presupposes a concept
of " subject-matter of the contract " as something distinct from and extraneous
to the terms of the contract.
[9 1895] 2 Ch. 273, 284; cf. Cooper v. Phibbs (1867) L.R. 2 H.L. 149, 170 (Lord
Westbury).
10 [1969] 2 All E.R. 891, 894, 896; cf. Solle v. Butcher [1950] 1 K.B. 671, 693
(Denning L.J.); and Grist v. Bailey [1967] Ch. 532, 536 (Goff J.).
11 [1969] 2 All E.R. 891, 895.
12 Leaf v. International Galleries, supra; Oscar Chess Ltd. v. Williams [1957]1 1
All E.R. 325. 13 [1969] 2 All E.R. 891, 893.

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 Nov. 1969 NOTES OF CASES 691

that this is to confuse several issues:

contract one party can be held to have
facts exists, he is liable for breach of a term of the contract.- If
one party makes a mistake in articulating the terms of his offer
and this is known, or ought reasonably to have been known, to the
other party, an acceptance is no true acceptance and the mistake
vitiates agreement." But if neither of these approaches is possible,
as they would not have been on the facts of the present case, and
the contract is not one uberrimae fidei (with a duty of disclosure),
one party's mistake is under the principle in Smith v. Hughes 16
regarded as a mistake only as to motive, which gives rise to no
remedy. English law knows nothing of a general contractual re-
quirement of good faith. It therefore congratulates one who by his
acumen has taken advantage of, but not caused, another's mistake;
but if a material mistake is shared, and it falls neither to the blame
nor to the credit of either party, an event has occurred which is
entirely extrinsic to the bargain, and relief may be sought in equity.

J. W. HaRRIS.

LIMITATION OF ACTIONS AND THE INNOCENT PURCHASER

Eddis v. Chichester Constable 1 raises but does not settle the

interesting question of the liability under the Limitation Act 1
of P who purchases for value in good faith property from X wh
X has obtained or sold in circumstances which amount to fraud or
a fraudulent concealment as against O, the true owner, of his right of
action. If O discovers the wrongful sale more than six years later
he cannot seek the recovery of the property in 'an action against P
because section 26 of the Limitation Act, which prevents time run-
ning in various situations until the plaintiff has discovered the fraud,
concludes with the proviso that " nothing in this section shall
enable any action to be brought to recover, or enforce any charge
against, or set aside any transaction affecting any property
which-(i) in the case of fraud, has been purchased for valuable
consideration by a person who was not a party to the fraud and
did not at the time of the purchase know or have reason to believe
that any fraud had been committed." However the law is not so
clear if O merely seeks damages against P for conversion, i.e., seeks
not " to recover . . . any property " but " the value of any pro-
perty." P may claim that the statute protects him on either of two
grounds: (i) if the proviso does not protect him, he is nonetheless
not within section 26 (a) or (b) because the fraud of X is not the
fraud "of any person through whom he claims" within the meaning

14 McRae v. Commonwealth Disposals Commission, supra.

15 Hartog v. Colin & Shields [1939] 3 All E.R. 566.
16 (1871) L.R. 6 Q.B. 597.
1 [1969] 1 W.L.R. 385; [1969] 3 W.L.R. 51; [1969] 1 All E.R. 546; [1969]
2 All E.R. 912.

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