| The Peerless
Raffles v. Wichelhaus
159 ER 375(1864)
|Cotton on the Dock in India
Misunderstanding: Avoidance of the Contract
In the case of Raffles v. Wichelhaus (1864) 159 Eng.Rep. 375, the seller agreed to sell cotton to the buyer. Shipment was to made from Bombay on the ship named Peerless. However, there were two ships named “Peerless.” One was to sail in October and the other in December. Defendants intended to accept the cotton on the ship that sailed in October and refused to accept the cotton on the ship that sailed in December. It was held by the court that there was no binding or enforceable contract. The rule of the Peerless case is that no contract arises unless both parties have the same meaning in mind. I.e., there must be agreement on the same thing. (Rest.2d §20).
Where the parties attach the same meaning to the terms used in their agreement, the interpretation of the agreement should be in accord with that meaning even if a third party might interpret the language differently. (Rest.2d §201(1).)
Whatever an objective observer might think, if the contracting parties attach different meanings to the same term, then neither is bound by the understanding of the other unless one of them knew or had reason to know what the other understood the disputed term to mean. (Rest.2d §201(2).)