Solle v Butcher 21/10/13 16:09

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Solle v Butcher
[1950] 1 KB 671

Court of Appeal

Butcher let a flat to Solle for £250 per year. Both parties believed at the time of letting that the flat
was not subject to the Rent Restriction Acts. If it had been subject to the Rent Restriction Acts the
appropriate rent would have been £140 per year. Butcher claimed that he relied on Solle's
assurances that the flat was not subject to the Rent Restriction Acts. Later Solle brought an action in
the County Court claiming that the flat was subject to the Rent Restriction Acts and that, therefore,
his rent should only be £140 per year. Butcher claimed that the lease was either void at common law
for mistake or voidable in equity.

Denning LJ

'In this plight the landlord seeks to set aside the lease. He says, with truth, that it is unfair that
the tenant should have the benefit of the lease for the outstanding five years of the term at
£140 a year, when the proper rent is £250 a year. If he cannot give a notice of increase now,
can he not avoid the lease? The only ground on which he can avoid it is on the ground of
mistake. It is quite plain that the parties were under a mistake. They thought that the flat was
not tied down to a controlled rent, whereas in fact it was. In order to see whether the lease can
be avoided for this mistake it is necessary to remember that mistake is of two kinds: first,
mistake which renders the contract void, that is, a nullity from the beginning, which is the kind
of mistake which was dealt with by the courts of common law; and, secondly mistake which
renders the contract not void, but voidable, that is, liable to be set aside on such terms as the
court thinks fit, which is the kind of mistake which was dealt with by the courts of equity. 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. He
bought the handkerchiefs from the rogue, Blenkarn, before the Judicature Acts came into
operation.) Since the fusion of law and equity, there is no reason to continue this process, and
it will be found that only those contracts are now held void in which the mistake was such as to
prevent the formation of any contract at all.

Let me first consider mistakes which render a contract a nullity. All previous decisions on this
subject must now be read in the light of Bell v Lever Bros Ltd. The correct interpretation of that
case, to my mind, is that, once a contract has been made, that is to say, once the parties,
whatever their inmost states of mind, have to all outward appearances agreed with sufficient
certainty in the same terms on the same subject matter, then the contract is good unless and
until it is set aside for failure of some condition on which the existence of the contract depends,
or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it
was a nullity from the beginning, no matter that it was a mistake which to his mind was
fundamental, and no matter that the other party knew that he was under a mistake. A fortiori, if

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the other party did not know of the mistake, but shared it. The cases where goods have
perished at the time of sale, or belong to the buyer, 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...

Applying these principles, it is clear that here there was a contract. The parties agreed in the
same terms on the same subject-matter. It is true that the landlord was under 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 £140 a year for it. He made the fundamental
mistake of believing that the rent he could charge was not tied down to a controlled rent; but,
whether it was his own mistake or a mistake common to both him and the tenant, it is not a
ground for saying that the lease was from the beginning a nullity. Any other view would lead to
remarkable results, for it would mean that, in the many cases where the parties mistakenly
think a house is outside the Rent Restriction Acts when it is really within them, the tenancy
would be a nullity, and the tenant would have to go; with the result that the tenants would not
dare to seek to have their rents reduced to the permitted amounts lest they should be turned
out.

Let me next consider mistakes which render a contract voidable, that is, liable to be set aside
on some equitable ground. Whilst presupposing that a contract was good at law, or at any rate
not void, the 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. The court, it was said, had
power to set aside the contract whenever it was of opinion that it was unconscientious for the
other party to avail himself of the legal advantage which he had obtained: Torrance v Bolton
per James LJ.

The court had, of course, to define what it considered to be unconscientious, but in this respect
equity has shown a progressive development. It is now clear that a contract will be set aside if
the mistake of the one party has been induced by a material misrepresentation of the other,
even though it was not fraudulent or fundamental; or if one party, knowing that the other is
mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him
remain under his delusion and concludes a contract on the mistaken terms instead of pointing
out the mistake. That is, I venture to think, the ground on which the defendant in Smith v
Hughes would be exempted nowadays, and on which, according to the view by Blackburn J of
the facts, the contract in Lindsay v Cundy, was voidable and not void; and on which the lease
in Sowler v Potter, was, in my opinion, voidable and not void.

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...

... [T]he House of Lords in 1867 in the great case of Cooper v Phibbs, affirmed the doctrine
there acted on as correct. In that case an uncle had told his nephew, not intending to
misrepresent anything, but being in fact in error, that he (the uncle) was entitled to a fishery;
and the nephew, after the uncle's death, acting in the belief of the truth of what the uncle had
told him, entered into an agreement to rent the fishery from the uncle's daughters, whereas it
actually belonged to the nephew himself. The mistake there as to the title to the fishery did not
render the tenancy agreement a nullity. If it had done, the contract would have been void at
law from the beginning and equity would have had to follow the law. There would have been
no contract to set aside and no terms to impose. The House of Lords, however, held that the

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mistake was only such as to make it voidable, or, in Lord Westbury's words, "liable to be set
aside" on such terms as the court thought fit to impose; and it was so set aside.

The principle so established by Cooper v Phibbs has been repeatedly acted on...

Applying that principle to this case, the facts are that the plaintiff, the tenant, was a surveyor
who was employed by the defendant, the landlord, not only to arrange finance for the purchase
of the building and to negotiate with the rating authorities as to the new rateable values, but
also to let the flats. He was the agent for letting, and he clearly formed the view that the
building was not controlled. He told the valuation officer so. He advised the defendant what
were the rents which could be charged. He read to the defendant an opinion of counsel
relating to the matter, and told him that in his opinion he could charge £250 and that there was
no previous control. He said that the flats came outside the Act and that the defendant was
"clear." The defendant relied on what the plaintiff told him, and authorized the plaintiff to let at
the rentals which he had suggested. The plaintiff not only let the four other flats to other people
for a long period of years at the new rentals, but also took one himself for seven years at £250
a year. Now he turns round and says, quite unashamedly, that he wants to take advantage of
the mistake to get the flat at £140 a year for seven years instead of the £250 a year, which is
not only the rent he agreed to pay but also the fair and economic rent; and it is also the rent
permitted by the Acts on compliance with the necessary formalities. If the rules of equity have
become so rigid that they cannot remedy such an injustice, it is time we had a new equity, to
make good the omissions of the old. But, in my view, the established rules are amply sufficient
for this case...

In the ordinary way, of course, rescission is only granted when the parties can be restored to
substantially the same position as that in which they were before the contract was made; but,
as Lord Blackburn said in Erlanger v New Sombrero Phosphate Co: "The practice has always
been for a court of equity to give this relief whenever, by the exercise of its powers, it can do
what is practically just, though it cannot restore the parties precisely to the state they were in
before the contract." That indeed was what was done in Cooper v Phibbs. Terms were
imposed so as to do what was practically just. What terms then, should be imposed here? If
the lease were set aside without any terms being imposed, it would mean that the plaintiff, the
tenant, would have to go out and would have to pay a reasonable sum for his use and
occupation. That would, however, not be just to the tenant.

The situation is similar to that of a case where a long lease is made at the full permitted rent in
the common belief that notices of increase have previously been served, whereas in fact they
have not. In that case, as in this, when the lease is set aside, terms must be imposed so as to
see that the tenant is not unjustly evicted. When Sir John Romilly MR was faced with a
somewhat similar problem, he gave the tenant the option either to agree to pay the proper rent
or to go out... If the mistake here had not happened, a proper notice of increase would have
been given and the lease would have been executed at the full permitted rent. I think that this
court should follow these examples and should impose terms which will enable the tenant to
choose either to stay on at the proper rent or to go out.'

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