Bell v Lever Bros [1932] AC 161

KEY POINTS

• For a contract to be considered void due to a common mistake, the mistake must pertain to the very essence of the agreement and be so fundamental that it serves as a foundational assumption without which the parties would not have agreed to the contract.

• Common mistake, in contract law, typically refers to a situation where both parties are mistaken about a fundamental fact that forms the basis of the contract. If such a mistake exists, it can make the contract voidable.

FACTS

• Mr. Bell held the position of managing director for a span of five years in a company owned by Lever Bros. Ltd. During his tenure, Mr. Bell engaged in personal trading activities for personal profit, a conduct that contravened the terms of his employment contract with the company.

• Notably, Lever Bros. Ltd was unaware of Mr. Bell's trading activities at the time. The situation took a significant turn when Lever Bros. Ltd extended an offer of redundancy to Mr. Bell, leading to the termination of his employment contract.

• As a part of this offer, the company proposed a payment of £30,000 to be provided to Mr. Bell as compensation for the termination. When the plaintiff found out that Mr. Bell engaged in personal trading to to the detriment of the company, they sued Mr. Bell to recover the money given on the ground of mutual mistake.

JUDGEMENT

• Appeal dismissed. The mistake did not meet the threshold of a fundamental assumption.

COMMENTARY

• This case serves as a crucial precedent in contract law, offering guidance on the threshold for a common mistake to invalidate a contract and shedding light on the dynamics of unilateral contracts.

ORIGINAL ANALYSIS

• Plaintiff paid compensation to Defendants for dismissing them, but later realised that because of Defendants’ activities (unknown until time of dismissal) Plaintiff would have been entitled to dismiss them without compensation and sued them to recover the money given based on mutual mistake (since both parties assumed that the money had to be paid). 

• HL held that the mistake was not sufficiently fundamental to void the contract. The majority reached this decision by different reasoning. 

Lord Atkin

• Mistake can nullify or negate consent. Mistake as to quality does not affect consent unless it is the mistake of both parties AND the changed quality renders the thing “essentially different from the thing as it was believed to be.” 

• Is an agreement to terminate a broken contract of a different kind (i.e. “essentially different”) to an agreement to terminate an unbroken contract? No - The same contract is being set aside/terminated and Plaintiff received exactly what it wanted (redundancies). 

• It is irrelevant that he 

  1. Could have achieved the same results in a different way (e.g. by suing to terminate) or

  2. that Plaintiff would not have so agreed had the truth been known. 

• Equally if A buys a good from B and B has made no representations but A believes it to be better than it really is and pays a high price, the contract is valid. Same here. 

Lord Thankerton

• The mistake in this case was as to the ability to terminate the contracts by other means. The mistake has to be as to an “essential and integral” element of the contract. Not satisfied here. 

McKendrick

• Very odd that it wasn’t considered important enough to void the contract. 

• MacMillan’s answer is that during the trial the point about mistake had only come up as a secondary alternative to fraud (not proved) and so Plaintiff had not collected enough evidence as to how fundamental the breach was. 

  • If this is true, we can still apply the principles but NOT use this case by analogy. 

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