Solle v Butcher [1950] 1 KB 671

Key Point

Denning LJ sought to lay down an equitable doctrine of mistake, under which contracts would be voidable and not void in this case – however, this was rejected by the Court of Appeal in Great Peace v Tsavliris Salvage [2002] 3 WLR 1617.

Facts

  • The landlord (D) purported to increase rent from £140 to £250.
  • However, the parties had not abided by the legally required procedure to vary rent under the Rent Acts, as such the actual rent payable by the tenant (C) was fixed at £140 under the law.
  • C sued D for restitution of overpaid rent.
  • D made a counterclaim for rescission of the lease on the ground of common mistake so as to avoid paying restitution for rent that was already paid.

Held (Court of Appeal)

The lease contract was voidable and was set aside.

Denning LJ

Common Law and Equitable Doctrines of Mistake

  • Denning LJ thought that since the ‘fusion of of law and equity’ under the Judicature Acts there are two categories of mistake in English law:
    1. mistake in common law, which renders a contract void and
    2. mistake in equity, which renders a contract voidable but not void.

Mistake in Common Law

  • Mistake in common law which renders a contract void is limited to cases of common mistake as to the existence of goods (where the goods perished before sale) or title of the goods (where the goods actually belonged to the buyer all along).
  • Those are ‘really contracts which are not void for mistake but are void by reason of an implied condition precedent, because the contract proceeded on the basic assumption that it was possible of performance’.
  • All other forms of mistake do not render contracts void in common law as the contract is good when the parties have agreed on it based on outward appearances.

Mistake in Equity

  • Existing categories of common mistake (with the exceptions above) and unilateral mistake which render a contract void will render a contract voidable instead going forward:
    • Unilateral mistake as to terms or identity do not void the contract, merely renders it voidable.
    • Common mistake as to quality will render a contract voidable. Denning LJ said that if Bell v Lever Bros [1932] AC 161 had been considered on equitable grounds, the result might have been different.
  • The general rule is that ‘court of equity would often relieve a party from the consequences of his own mistake, so long as it could do so without injustice to third parties‘.

Wider Equitable Doctrine of Fundamental Mistake

  • Denning LJ also expanded the scope of the doctrine of mistake beyond its existing categories.
  • “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.”

Rationale for the Equitable Doctrine of Mistake

  • ‘Much of the difficulty which has attended this subject has arisen because, before the fusion of law and equity, the courts of common law, in order to do justice in the case in hand, extended this doctrine of mistake beyond its proper limits and held contracts to be void which were really only voidable, a process which was capable of being attended with much injustice to third persons who had bought goods or otherwise committed themselves on the faith that there was a contract. In the well-known case of Cundy v Lindsay, Cundy suffered such an injustice.’

Current case

  • D, the landlord had made a ‘mistake which was to him fundamental: he would not for one moment have considered letting the flat for seven years if it meant that he could only charge 140l. a year for it’.
  • It was unfair to allow C to take advantage of the mistake, £250 is the fair and economic rent and was permitted by the Rent Acts after procedures are taken.

Commentary

In Great Peace Shipping it was held that the equitable doctrine of mistake no longer exists in English law as it is inconsistent with Bell v Lever Bros [1932] AC 161.

The reason why Denning LJ wanted mistake to render contracts voidable and not void can be put in simple terms:

  1. When contracts are void, it does injustice to a third party who bought goods from a rogue that defrauded the goods from the seller under a void contract in good faith.
  2. As injustice to third parties is minimised, the types of mistakes that are actionable can be expanded beyond the limited existing categories.