A contract only exists with consensus ad idem, a common understanding between parties during the formation of the contract.

This condition is a necessary requirement to the formation of a contract. If there is a misunderstanding between parties, which subsequently results in the parties coming to an agreement with different subject matters in mind, then there is no meeting of the minds, and thus there cannot be a binding contract.

Raffles v Wichelhaus [1864] stands as precedent for this rule. In this case, the claimant entered into a contract to sell cotton from India to the defendant.

The contract specified that the cotton would arrive in Liverpool on the ship Peerless. Coincidentally, there happened to be two British ships named Peerless arriving from India, one in October and the other in December. The defendant had though the ship would arrive in October, and the claimant had understood that the ship would arrive in December.

As a result, the defendant refused to accept the cotton in December and renounced the contract, stating that the contract was for cotton that was to arrive in October.

The court first attempted to find a reasonable interpretation of the situation in order to preserve the agreement.

However, in this instance, the court could not determine which ship named Peerless was intended in the contract. As a result, the court determined that there was no meeting of the minds within the agreement because the two parties did not agree on the same thing. There was no binding contract and the court held that the defendant was not responsible for paying for the cotton.

 

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