Legal Principles and Key Points
- In the case of Bell v Lever Brothers Ltd  AC 161, the courts ruled on whether a mistake in contract subject matter counts as an operative mistake or not.
- This contract law case concerned mistake and rescission.
- This case brings into light equity and common law principles.
Facts of the Case
- D employed C for five years to act in leadership positions for the Niger Company until they did not need their assistance in the company.
- C and D contracted for compensation over the early termination of previous employment contract.
- D then discovered that C entered into secret deals justifying contract termination.
- In the lower courts it was held the contract was void for mistake.
- Whether there was a common mistake.
- Whether the contract should be rescinded or not.
Held by House of Lords
- Appeal allowed – it was held there was no operative mistake because C was no longer bound to contractual obligations with D.
- D received what they bargained for but would not have contracted with C if they had known all the facts.
- “In such a case, a mistake will not affect assent unless it is the mistake of both parties and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be”.
- “A buys a picture from B: both A and B believe it to be the work of an old master, and high price is paid. It turns out to be a modern copy. A has no remedy in the absence of representation or warranty”.
- This case establishes the standard for mutual mistakes and questions whether new facts alters the subject-matter in contracts.
Lord Warrington of Clyffe (dissenting)
- The judge held the “erroneous assumption was essential to the contract which without it would not have been made”.
- “It is true that the error was not one as to the terms of the service agreements, but it was one which, having regard to the matter on which the parties were negotiating – namely, the terms on which the service agreements were to be prematurely determined and the compensation to be paid therefor, was in my opinion as fundamental to the bargain as any error one can imagine”.
- In this case there were two dissenting judges showing conflicting opinions over the application of the doctrine of mistake and what constitutes as fraudulent misrepresentation.