Our next case, Raffles v. Wichelhaus is famous and memorable. Just about everyone who's ever taken a common law contracts class in the United States will remember the case about the two ships named Peerless whose names, if you think about it, certainly weren't accurate. The case comes from Britain in 1864, during the height of the British Raj in India and the industrial revolution in Britain. The textile mills in Northern England needed a constant supply of raw materials and in 1864, the American Civil War had shut down cotton exports from the American South. And so, this case deals with a contract for the sale of cotton shipped from Bombay in India. The defendant, Wichelhaus, agreed to buy 125 bales of cotton from the plaintiff, Raffles, when it arrived in Liverpool on the ship named Peerless. Unfortunately, there were two different ships named Peerless plying the route between industrial Liverpool and the capital of Britain's largest colony. Wichelhaus thought that they had agreed the cotton would arrive on the Peerless that sailed from Bombay in October while Raffles thought they had agreed on the Peerless that had sailed in December. You can see the October Peerless in this picture. When the cotton actually arrived on the December Peerless, Wichelhaus refused to buy the cotton and so Raffles sued. It's likely that the underlying reason for the dispute is that the two parties were speculating on the price of cotton, and that the price of cotton had increased over the months in question. Therefore, the parties were very concerned about when the ship carrying the cotton would depart. At the time, as in the Merchant of Venice, there can be no guarantee of exactly when or even whether ships travelling across the seas would arrive. This opinion is an English case and so it looks a bit different from the American decisions we have read from around the same time period. You'll notice that the reporter's summary or report of the case begins with the pleadings of each of the parties, followed by a summary of the arguments that each barrister made with interjections by the judges. The actual decision by the court or to use the Latin phrase 'per curiam' comes at the very end and just says that the defendants won. The court was faced with the question of whether there was a contract at all given that the two parties had had different understandings of which ship would carry the cotton. The court said there was not a contract. The key concept in the case is typically called "The Meeting of the Minds." In American contract law, this case and British law generally call it "consensus ad item" which is Latin for "agreement on the same thing." The idea is that in order for two parties to form a contract, they must be thinking the same thing when they make it. Their minds must meet otherwise there hasn't really been an agreement and so, there is nothing for the law to enforce. In this case, the two parties misunderstood each other because of the ambiguity of the term Peerless. Note, that the misunderstanding is different from mistake which we'll discuss later in the course. Misunderstanding means that there was never a contract in the first place because there was no agreement. Mistake on the other hand involves false beliefs about aspects of what is being traded, and often means that the contract is not void but voidable by the mistaken party. This ruling has concerned contract scholars over the years because courts have a very hard time looking inside the heads of the parties, to see what they were thinking when they made their contracts. In his book The Common Law, later Supreme Court Justice, Oliver Wendell Holmes Jr., pointed out that if the ship's had had different names, and one of the parties had simply got the name wrong, they would have been bound by this ship name on the contract, even though there had never in fact been a meeting of the minds. In his view, though, Holmes was willing to go further. He said, "the true ground of the decision in Raffles was not that each party meant a different thing from the other... but that each said a different thing. The plaintiff offered one thing, the defendant expressed his assent to another." The plaintiff and defendant were essentially saying different words that merely sounded the same? Frankly, this seems to me like philosophical sophistry. To me and most other commentators, the parties said the same thing as a matter of objective conduct. It was just ambiguous. Commentators have even pointed out that the Peerless doctrine may not be necessary. Alan Farnsworth argued that in cases like this, neither party would be able to sufficiently prove that the other had not performed according to the contract, and so the contract would be unenforceable anyway. On a similar view we could say that there is insufficient objective evidence for a contract when the object of manifestation is ambiguous, as it is here. The doctrine about meeting of the minds has been enshrined in Section 20 of the Second Restatement. Subsection one deals with cases like Peerless. If there's an important ambiguous term in the contract and neither party or each party knows that it is ambiguous, and the other party is thinking of a different meaning, then there is no mutual assent. And so there is no contract. This can be thought of as the Peerless case in another sense. It's hard to find other examples of pure symmetric misunderstandings. Many commentators have tried to find reasons why the buyer or the seller might have been in fact in a better place to avoid this misunderstanding. These commentators have tried to identify the party who, in the words of subsection one, had a better, quote, "reason to know the meaning attached by the other." Subsection 2 deals with the asymmetric version of the situation, where one party knows or should have known the other's meaning but not vice versa. In these cases, the meaning attributed by the party that didn't know is the meaning of the contract, and the contract is valid. In other words, if a party knows what the other party thought the contract meant, that party has to abide by what he or she knew the other party was thinking. So, suppose the same scenario happened as in Raffles v. Wichelhaus, except that Wichelhaus knew that Raffles was thinking of the December Peerless. Under the Second Restatement, is there a contract? And who would win the case? Well, the answer is A. As section 20, subsection two of the Restatement tells us, in an asymmetric information case like this, the party who knows the other's interpretation is bound to it. That means that Wichelhaus, as much as he would like it to be the October Peerless, is bound to buy cotton from the December Peerless. Raffles will win the case. In this lecture, we have seen that when two parties don't understand key terms of a contract in the same way, there is no contract because there has been no meeting of the minds. But when the situation is asymmetric with one party knowing the other's interpretation and not vice versa, both parties are bound to the interpretation that both of them are aware of.
