Part 5: Mistake, Rectification & Misrepresentation mistake

Smith v. Hughes (1871)

unilateral mistake not enough

Defendant, a horse trainer, refused to accept a shipment of new oats from plaintiff, saying that the contract had been for "old oats." The plaintiff could recall no such reference. The court ordered the contract performed because it appeared that the words "old oats" were never used at the moment of "meeting of minds." "There is no legal obligation on the vendor to inform the purchaser that he is under a mistake, not induced by the act of the vendor." A unilateral mistake does not prevent the acceptance of an offer unless (1) the mistake is as to the terms of the contract (as opposed to motivation) and (2) the mistake is known to the offeree at the time of purported acceptance. Some members of the court were also impressed with the fact that the defendant had been given a sample of the oats which he held in his possession for two days. Mistaken assumptions are immaterial to a contract. "If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."

Bell v. Lever Brothers Ltd. (1932)

a heavy onus

A severance payment was made to senior executives of a subsidiary of Lever Brothers Ltd. At the time, Lever Brothers was unaware that the senior executives had been in breach of their fiduciary duties as directors of the subsidiary. They tried to have the court void the severance contract claiming it was paid under a mistake of fact. "Mistakes as to the quality of the thing contracted for raises ... difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties, and as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be." But in this case, the court concluded that the "identity of the subject-matter was not destroyed by the mutual mistake." Once a contract has been made, when both parties have agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless set aside for failure of a condition precedent or fraud. Neither party can rely on his own mistake even if the mistake was, to his mind, fundamental.

Solle v. Butcher (1950)

voidable mistakes under equity

A high rent was given to Solle by Butcher in the mistaken belief, shared by both, that the amount would have been permitted under rent control legislation. Solle later sued Butcher claiming reimbursement of the difference between the control level and the actual rent paid. Butcher counter-claimed asking for rescission which, in the final analysis, the court granted. This case is best known for its extensive review of the law of mistake. The court said that a mistake can be of the kind which renders a contract void from the start or ab initio. These mistakes are the purview of the common law and are to be considered in light of the Lever Brothers decision (see above). Other mistakes are the purview of equity and make a contract voidable if to do so renders no injustice to a third party and if it would be "unconscientious for the other party to avail himself of the legal advantage which he had obtained." "Unconscientiousness" was defined as a mistake induced by a material misrepresentation even though not fraudulent or fundamental, or if one party is aware of the other's mistaken belief and does not correct it. Equity, the court added, can also set aside a contract based on mistake if the "parties were under a common misapprehension either to the 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." In this case, the mutual mistake of fact made the contract voidable and it was consequently rescinded.

Toronto-Dominion Bank v. Fortin (1978)

equity, part II

A receiver exceeded his authority by trying to sell a company and during the course of his attempts, he accepted a non refundable deposit of $25,000 from a prospective purchaser. When the purchaser decided to back out of the deal, he negotiated with the receiver and had his deposit reduced to $10,000. When a court later found that the receiver did not have the authority to sell the company, the prospective purchaser claimed the return of the entire deposit, arguing that the money was paid under "a mistake of law." The court ruled the compromise agreement "though not a nullity at (common) law, is liable to be set aside in equity."

McRae v. Commonwealth Disposals Commission (1951)

Relying on rumours, the Commission sold to McRae the remains of a marooned oil tanker. But there was no tanker at the specified location and, apparently, never had been. McRae sued the Commission for breach of contract and damages. The Commission tried to say that the contract was based on a mistake but the court noted that the Commission "took no steps to verify what they were asserting and any "mistake" that existed was induced by their own culpable conduct. In these circumstances it seems out of the question that they should be able to assert that no contract was concluded."

R. v. Ron Engineering & Construction (Eastern) Ltd. (1981)

An error in calculations in the "contract A" of a tender process was held not to invalidate the contract. The contractor intended to submit the figures he submitted right up to and including the moment of submitting the tender, which formed contract A (see summary of facts in Page 4).

Calgary v. Northern Construction Co. (1986)

snapping it up

An error in calculations was made by a clerk of a tenderer, resulting in a bid $180,000 less than it should have been. It was only after the tender had been selected that the contractor discovered his staff's mistake. But the court found that the error was "to motive and not to terms. The tender sum sent to the city was the term which Northern intended to offer. It decided to offer that term because of a mistake, a mistake which offered it a false reason or motive to make that offer. By the traditional rule, then, the construction contract is enforceable notwithstanding this mistake." The court then declined to interfere with the contract under equity because it could not find the contract "unconscionable" as there was no "grossly disproportionate burden upon the tenderer."

Lindsey v. Heron & Co. (1921)

Lindsey offered stock in "Eastern Cafeterias of Canada" to defendant who gave $10.50 each. But when the defendant discovered his mistake (he really wanted "Eastern Cafeterias Limited" stock, a different company), he tried to argue that there was no contract. The court disagreed. "Judged by any reasonable standard, the words used by the defendants manifested an intention to offer the named price for the thing which the plaintiff proposed to sell, i.e., stock in Eastern Cafeterias of Canada Limited."

Staiman Steel Ltd. v. Commercial & Home Builders Ltd. (1976)

reasonable man

A purchaser bid for steel at an auction thinking it was a mix of new and used steel, when it was really only used steel. The court said that since the one party thought that the lot included new steel and the other that it did not, that this was a mutual mistake. In these cases, "the court must decide what reasonable third parties would infer to be the contract from the words and conduct of the parties. It is only a case where the circumstances are so ambiguous that a reasonable bystander could not infer a common intention that the court will hold that no contract was created. In this case ... a reasonable man would infer the existence of a contract to buy and sell the bulk lot without the building steel and therefore ... there was a contract to that effect binding on both parties, notwithstanding such mutual mistake."

Glasner v. Royal LePage Real Estate (1992)

If a party tries to slip in an important amendment "and if the circumstances are such that the amendment might readily be missed, he should be particularly reluctant to assume ... knowledge (of that amendment by the other party).... Equity will relieve against performance of a contract obtained by a party who knew the other side was mistaken about a material fact and who took advantage of that mistake."

Lewis v. Averay (1972)

beware the conman

A person managed to con a person selling a vehicle that he was a famous actor and made off with the car leaving a forged cheque in the actor's name. The con-man then sold the vehicle to another unsuspecting man who was looking for a car, this time assuming the identity of his first victim. The court held that the first contract, though voidable for fraud or mistaken identity, was valid until so voided and the contract stands before third parties who have, in good faith, acquired rights under it. Thus, valid title was conveyed to the second victim and the loss was absorbed by the first victim.

Saunders v. Anglia Building Society (1971)

read it!

A plea of non est factum will fail "if the signing of the document was due to his own negligence ... (meaning) carelessness." For example, failing to read a contract before signing it. As far as the kind of difference required between the document believed in, and the contract in reality, the court said that the difference would have to be "fundamentally ... radically ... or totally different."

Marvco Color Research Ltd. v. Harris (1982)

I said "read it!"

Through no fault of the bank, defendants signed a loan guarantee without reading the document first and relying on the representation of the loan debtor's word that they were only signing an insignificant administrative document. When the bank tried to collect from the defendants, the latter pleaded non est factum. The court said no. The carelessness of the party requesting non est factum should not be allowed against an innocent third party when it was through his own carelessness that he failed to discover the misrepresentation. "The party who, by the application of reasonable care, was in a position to avoid a loss to any of the parties, should bear any loss that results when the only alternative available to the courts would be to place the loss upon the innocent appellant."