Magee v Pennine Insurance Co Ltd


[1969] 2 All ER 891

Court of Appeal


In 1961 Magee signed a proposal form for the insurance of a motor car. In it he said that he held a provisional driving licence when, in fact, he had never held a driving licence. His real purpose in applying for the insurance was to obtain insurance for his 18 year old son who would have had to pay a much higher premium for car insurance if he had applied only in his own name. The trial judge found that Magee's misrepresentation in the proposal form was not fraudulent; the form having being filled in by the man at the garage who had sold him the car. In 1965 his son was involved in an accident whilst driving the car. The insurance company decided that the car was a write off and offered Magee £385 in full settlement of the claim. Magee orally accepted the offer. Then the insurance company discovered that Magee had made a misstatement in the original proposal form. They then told Magee that they were not liable on the insurance policy because of Magee's misstatement. The trial judge held that the insurance company was entitled to repudiate the policy on the ground of the misstatement but that they were liable on a contract of compromise which had been formed when Magee had accepted their offer of £385 in full settlement of the claim.


The issue before the Court of Appeal was whether the 'compromise contract' was void for mistake.


Lord Denning MR


... Accepting that the agreement to pay £385 was an agreement of compromise, is it vitiated by mistake? The insurance company was clearly under a mistake. It thought that the policy was good and binding. It did not know, at the time of that letter, that there had been misrepresentations in the proposal form. If the plaintiff knew of its mistake - if he knew that the policy was bad - he certainly could not take advantage of the agreement to pay £385. He would be 'snapping at an offer which he knew was made under a mistake'; and no man is allowed to get away with that. But I prefer to assume that the plaintiff was innocent. I think we should take it that both parties were under a common mistake. Both parties thought that the policy was good and binding. The letter of 12th May 1965, was written on the assumption that the policy was good whereas it was in truth voidable.


What is the effect in law of this common mistake? Counsel for the plaintiff said that the agreement to pay £385 was good, despite this common mistake. He relied much on Bell v Lever Brothers Ltd and its similarity to the present case. He submitted that, inasmuch as the mistake there did not vitiate that contract, the mistake here should not vitiate this one. I do not propose today to go through the speeches in that case. They have given enough trouble to commentators already. I would say simply this: A common mistake, even on a most fundamental matter, does not make a contract void at law; but it makes it voidable in equity. I analysed the cases in Solle v Butcher and I would repeat what I said there:


'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.'


Applying that principle here, it is clear that, when the insurance company and the plaintiff made this agreement to pay £385, they were both under a common mistake which was fundamental to the whole agreement. Both thought that the plaintiff was entitled to claim under the policy of insurance, whereas he was not so entitled. That common mistake does not make the agreement to pay £385 a nullity, but it makes it liable to be set aside in equity.


This brings me to a question which has caused me much difficulty. Is this a case in which we ought to set the agreement aside in equity? I have hesitated on this point, but I cannot shut my eyes to the fact that the plaintiff had no valid claim on the insurance policy; and, if he had no claim on the policy, it is not equitable that he should have a good claim on the agreement to pay £385, insurance company to an agreement which it would not have dreamt of making if it had not been under a mistake. I would, therefore, allow the appeal and give judgment for the insurance company.