What is "Rectification" in Contract Law? 4: Evidence Required

Previous posts: Definition of Rectification; unilateral mistake; mutual mistake.

We conclude our four-day examination of the law of rectification with an analysis of how a party actually goes about proving its case, and how the court will determine whether or not they succeed.

The court will consider:

• all the relevant documents [Clarke v. Thermidaire, (fn1), ¶26 and Royal Bank v. El-Bris, (fn2), ¶ 20-22];
• the oral evidence of the parties and/or witnesses, including the key issue of whether the oposing sides are in agreement or have differing versions of the facts [Clarke v. Thermidaire, (fn1), ¶ 26]
• the later conduct of the parties, [Royal Bank v. El-Bris, (fn2), ¶ 32].

Please note that:

1. When the court considers oral evidence it is doing something that it rarely does in contract cases: outside (also called "extrinsic") evidence to contradict or add to the terms of a contract is normally not allowed. (This is called the "parol evidence rule".) However, parol evidence is permitted in rectification cases. [Royal Bank v. El-Bris, (fn2), ¶ 24].
2. A court may order rectification even if the testimony of the party seeking rectification is not corroborated by the documentary evidence. [Royal Bank v. El-Bris, (fn2), ¶ 24; Sylvan, (fn2), ¶ 43.]
3. The judge need not specifically use the word "rectification" to apply the doctrine of rectification. [Royal Bank v. El-Bris, (fn2), ¶ 6.]

A caution!
The doctrine of rectification is not an everyday thing. "[P]arties, especially experienced and sophisticated parties, cannot routinely look to this remedy to correct mistakes in signed contracts." The courts have been consistent in their cautions against "opening the floodgates". [Royal Bank v. El-Bris, (fn2), ¶ 35.]

Footnotes:

fn1 - H.F. Clarke Ltd. v. Thermidaire Corp. Ltd., [1973] 2 O.R. 57 at 64 - 65 (C.A.), [reversed on other grounds 1974 CanLII 30 (S.C.C.), [1976] 1 S.C.R. 319].

fn2 - Royal Bank of Canada v. El-Bris Limited, [2008] 92 O.R. (3d) 779 (C.A.).

fn3 - Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club, 2002 SCC 19 (CanLII), [2002] 1 S.C.R. 678 (S.C.C.)

Augustine's Law No. IV

"If you can afford to advertise, you don't need to."

Augustine's Laws, © 1997, Norman R. Augustine.

What is "Rectification" in Contract Law? 3: Mutual Mistake

Two days ago I did a post on the law of "rectification", a legal concept used "to correct a contract which has been mistakenly drawn so as to carry out the common intention of the parties and have the contract reflect their true agreement"; yesterday I addressed rectification in cases where the mistake lay only on one side.

Today's blog post will address what happens when both parties make a mistake.

The case

We continue our examination of the Ontario Court of Appeal's decision in Royal Bank of Canada v. El-Bris Limited, [2008] 92 O.R. (3d) 779 (C.A.). In that case the bank sought to collect on a guarantee: a businessman had given a personal guarantee for $700,000 in additional credit, and, as a part of that guarantee, had pledged a collateral mortgage. He repaid the debt, and sought a discharge of the mortgage (which was granted), but the bank pursued him for $700,000 under the guarantee. The businessman took the position that the guarantee had been for only $700,000, not $1,400,000, that the mortgage had been security for the guarantee, and with the repayment of the $700,000 the discharge of the mortgage his personal obligation was now terminated. The paperwork supported the bank's side that his guarantee was not limited to the $700,000; the businessman asserted that such a limitation was what was intended all along and sought rectification.

The trial judge agreed with the businessman, finding that the "parties intended the collateral mortgage to be security for Ellis's guarantee" and that paying off the collateral mortgage entitled him to a discharge of his obligation under the personal guarantee. The Court of Appeal dismissed the bank's appeal, agreed with the trial judge -- and thus also with this Mr. Ellis and not the rather more notorious one(s) -- agreed with the businessman.

The law

First and most importantly, the four-part test for unilateral mistake detailed yesterday does not apply to cases of mutual mistake. In such cases the test is less stringent, and has been laid down by the Court of Appeal in a previous case: Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. 1996 CanLII 1232 (ON C.A.), (1996), 28 O.R. (3d) 327 at 336 (C.A.):

"the remedy of rectification is available only in certain defined circumstances and cannot be invoked to correct every mistake. In principle, rectification is permitted, not for the purpose of altering the terms of an agreement, but to correct a contract which has been mistakenly drawn so as to carry out the common intention of the parties and have the contract reflect their true agreement. The remedy is normally granted only where the mistake is mutual or common to the contracting parties."

In short, rectification exists to make the mistaken written contract reflect the real agreement of the parties; thus, to obtain rectification in a case of alleged mutual mistake becomes a question of fact and thus one for the presentation and examination of clear evidence. Does the evidence make it clear what the alleged real contract was?

When may the Court exercise its jurisdiction to grant rectification? In order for a party to succeed on a plea of rectification, he must satisfy the Court that the parties, all of them, were in complete agreement as to the terms of their contract but wrote them down incorrectly. It is not a question of the Court being asked to speculate about the parties’ intention, but rather to make an inquiry to determine whether the written agreement properly records the intention of the parties as clearly revealed in their prior agreement. The Court will not write a contract for businessmen or others but rather through the exercise of its jurisdiction to grant rectification in appropriate circumstances, it will reproduce their contract in harmony with the intention clearly manifested by them, and so defeat claims or defences which would otherwise unfairly succeed to the end that business may be fairly and ethically done... (fn1)

Tomorrow: the evidence required to obtain rectification.

(fn1) - H.F. Clarke Ltd. v. Thermidaire Corp. Ltd., [1973] 2 O.R. 57 at 64 - 65 (C.A.), reversed on other grounds 1974 CanLII 30 (S.C.C.), [1976] 1 S.C.R. 319.

The Execution, by Alden Nowlan

On the night of the execution
a man at the door
mistook me for the coroner.
"Press," I said.

But he didn't understand. He led me
into the wrong room
where the sheriff greeted me:
"You're late, Padre."

"You're wrong," I told him. "I'm Press."
"Yes, of course, Reverend Press."
We went down a stairway.

"Ah, Mr. Ellis," said the Deputy.
"Press!" I shouted. But he shoved me
through a black curtain. The lights were so bright
I couldn't see the faces
of the men sitting
opposite. But, thank God, I thought
they can see me!

"Look!" I cried. "Look at my face!
Doesn't anybody know me?"

Then a hood covered my head.
"Don't make it harder for us," the hangman whispered.

I believe this poem to be in the public domain. Kindly notify through the email address of any copyright claims or information regarding copyright status.

What is "Rectification" in Contract Law? 2: Unilateral Mistake

Yesterday I did a post on the law of "rectification", a legal concept used "to correct a contract which has been mistakenly drawn so as to carry out the common intention of the parties and have the contract reflect their true agreement" (but not for the purpose of altering the terms of an agreement). Rectification can be applied in cases where the mistake lies solely on one side (unilateral rectification) or multiple sides (mutual rectification). Today's post deals with unilateral mistake.

The law in this area has been set by the Supreme Court of Canada in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club, 2002 SCC 19 (CanLII), [2002] 1 S.C.R. 678, (often just called "Sylvan"), a case where a party sought rectification of an inaccurately drafted contract, mistakenly and negligently signed by the party seeking the correction. The Supreme Court said that such a party must meet a four-part test:

1. There must be a "previous oral agreement inconsistent with the written document".
2. "[T]he other party knew or ought to have known of the mistake and permitting that party to take advantage of the mistake would amount to unfair dealing", (conduct the Supreme Court called "fraud or conduct equivalent to fraud"
3. "[T]he document can be precisely rewritten to express the parties’ intention".
4. "[E]ach of the first three prerequisites must be demonstrated by convincing proof". (fn1)

Each and every one of these prerequisites must be met for the court to grant rectification on the grounds of unilateral mistake. They are not required for cases of common or mutual mistake; there the “traditional rule,” still applies. (fn2)

Note that the Supreme Court permitted rectification even in the face of applicant party's negligence:

[C]ourts ought to hold commercial entities to a reasonable level of due diligence in documenting their transactions. Otherwise, written agreements will lose their utility and commercial life will suffer. Rectification should not become a belated substitute for due diligence. [...] On the other hand, most cases of unilateral mistake involve a degree of carelessness on the part of the plaintiff. [...] [It is legally significant that the doctrine of rectification] applies "only where there has been an agreement that preceded the writing. In such a case, a party’s negligence in failing to read the writing does not preclude reformation if the writing does not correctly express the prior agreement". [Emphasis added.] [T]he plaintiff seeks no more than enforcement of the prior oral agreement to which the defendant has already bound itself."

Tomorrow: Mutual or Common Mistake.

David Sanders,
Camberwell House

fn1 - The quotations are from Royal Bank of Canada v. El-Bris Limited, [2008] 92 O.R. (3d) 779 (C.A.), where Laskin J.A gave an excellent summary. ["J.A." is a title used by judges of appellate courts.]

fn2 - Royal Bank of Canada v. El-Bris Limited, [2008] 92 O.R. (3d) 779 (C.A.), ¶ 17.

What is "Rectification" in Contract Law? 1: Definition

The Ontario Court of Appeal put it very neatly in Royal Bank of Canada v. El-Bris Limited, [2008] 92 O.R. (3d) 779 (C.A.) :

Rectification is an equitable remedy designed to ensure that one party is not unjustly enriched at the expense of another. A court will rectify an inaccurately drawn written agreement so that it conforms to the agreement the parties intended to make. In Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. 1996 CanLII 1232 (ON C.A.), (1996), 28 O.R. (3d) 327 at 336 (C.A.), Robins J.A. explained the remedy’s underlying rationale, while acknowledging that rectification cannot be used to correct every mistake.

"The remedy of rectification is available only in certain defined circumstances and cannot be invoked to correct every mistake. In principle, rectification is permitted, not for the purpose of altering the terms of an agreement, but to correct a contract which has been mistakenly drawn so as to carry out the common intention of the parties and have the contract reflect their true agreement. The remedy is normally granted only where the mistake is mutual or common to the contracting parties."

Rectification can address either a unilateral mistake or mutual mistake. Posts on these will follow after this one. Please come back and review them, or subscribe to this site's RSS feed.

It is important to note that a court may admit parol evidence to determine wither to rectify the terms of a written agreement to confirm to the real intention of the parties. Please see my subsequent post for information on the "parol evidence rule"!

PILLAR's Power of Philanthropy Conference - April 5, 2007

David Sanders (me!) at Pillar's Power of Philanthropy Conference, April 5, 2007. At left is Nancy McQuillan, Executive Director of the London Employment Help Centre. I am a member of the Board of LEHC (formerly LUHC), but at the time that the picture was taken I was the Strategic Planner on staff. I have since moved back to the Board but retain involvement in LEHC's exciting strategic planning process. The ongoing success of this organization is due in very large measure to Nancy and to its fantastic staff. It has been and continues to be a pleasure to be a contributing part of that team.

ADR - Alternative Dispute Resolution

ADR = Alternative Dispute Resolution

Alternative Dispute Resolution (ADR) can be defined as resolving disputes through means other than -- one could say in the space between -- direct negotiation on the one hand and the intervention of the court system or administrative law tribunals on the other.

Familiar types of ADR are mediation, and arbitration. Further information can be found at the Camberwell House website, including information on different types of mediation such as guided mediation, neutral mediation and facilitated negotiation. All these ADR types have one thing in common: the intervention of a fair-minded professional; this person either assists parties in reaching an agreement (mediation) or makes an independent adjudication of their dispute (arbitration).

ADR is well established as a less expensive, faster and highly effective means of resolving disputes.

A job-searching thought

Lord God I hate the Overqualified thing. I get that and always think, "Look, just exploit me. I'm asking you to. Please."

"Athenae", First Draft, comments, on employment, courtesy of The Real Interrobang.

What's "reasonable" on a restrictive covenant?

What's a "restrictive covenant"?

In contract law, a "restrictive covenant" is a part of a contract which limits one party's freedom of action. ("Covenant" is just a fancy word for "bargain" or "agreement", and restrictive speaks for itself.) Common examples of restrictive convenants are non-competition or "no moonlighting" clauses in employment contracts and restrictions on land use in real property sales.

The Staebler case: Restrictive employment Covenants in Ontario

The Ontario Court of Appeal, (Ontario's highest appellate court, subject to being overridden only by the Supreme Court of Canada) in H.L. Staebler Company v. Allan et al.* recently examined whether a restrictive covenant in an employment contract was reasonable

The defendant employees were commercial insurance sales people who left their , left their employer for a competing insurance broker, also named as a defendant. The employees had, with their previous employer (the plaintiff) contracts with a restrictive covenant which mandated that they wouldn't conduct business with any of the plaintiff's clients they to whom they had provided service for two years after termination: a non-competition clause. Over a hundred clients moved their business to the defendants' new employer. The plaintiff sought and obtained an injunction, (which is "an order of the court requiring a person to not do some act or not continue to do some act that the court considers they have no right to do or, in the case of a mandatory injunction, an order that requires the person to do what the court considers they are legally required to do").

The case went to trial where the trial judge found that the restrictive covenant was enforceable, that the defendants had to pay general damages (also called compensatory damages) but not punitive damages. Both sides appealed that decision.

The Court of Appeal allowed the appeal by the defendants, (finding the restrictive covenant unenforceable), and dismissed the employer's cross-appeal which sought punitive damages. Why?

• The restrictive covenant did not meet the test for enforceability set out by the S.C.C.: “only if it is reasonable between the parties and with reference to the public interest”.

" ... This test reflects the competing principles that must be balanced when a court is called on to decide the validity of such a covenant. On the one hand, there is the `important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants'. [...] Open competition benefits both society and the affected employees. Society benefits from having greater choice and employees benefit as they have greater employment opportunities. On the other hand, however, `the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power'. [...]"

• "Neither of trial judge's findings that employees knew they would not receive benefit of `gifted' clients unless they signed employment contracts with employer or that employees enjoyed close personal relationship with clients justified trial judge's conclusion that restrictive covenant was reasonable."
• The absence of geographical limit combined with blanket prohibition on conducting business rendered restrictive covenant overbroad and unenforceable.
• The clause unreasonably restricted employees' economic interests and went beyond what was necessary to protect employer's proprietary interest; a "non-solicitation clause" was enough in in conventional employer / employee situations
  

It is also of note that the Court of Appeal, in deciding that the restrictive covenant was not enforceable thus concluded that the new employer (also a named defendant) was not liable for the tort of inducement breach of contract. (Note: that tort will be covered in a subsequent post. Keep an eye out for it by signing up for the RSS feed at lower right.)

Footnote(s)
* "et al." is the abbreviation for the Latin phrase meaning "and the others". It is used in case citation where the "title of proceedings" (also called the "style of cause", which is the proper case name found on the court documents) has multiple parties. Nobody wants to have to write down a many, many names just to name the case, so the first surname or company name found in the title of proceedings is used, followed by "et al." to let you know of all the others. In this case there were seven defendants, the first-named of whom in the title of proceeding was Tim James Allan, hence "...Allan et al.".

Further Reading:
Elsley v. J.G. Collins Insurance Agencies, [1978] 2 S.C.R. 916, 1978 CANLII 7, (S.C.C.): the Supreme Court of Canada's take on restrictive covenants and restraint of trade.

A funny complaint about corporate bonuses

"We don’t even have lemon capitalism any more, we have straight-up ski-mask-and-gun capitalism. "

"Steve LaBonne", on a Pandagon thread.

Jury Notices, racism, bias and fair trial

A recent appellate decision, Kayhan v. Greve, addressed the issue of potential racism in juries.

A civil suit arose out of a motor vehicle accident. The defendant served a jury notice, (which is a document giving notice to the plaintiff that the defendant wanted a trial by jury; civil cases in Ontario are more normally heard by judges alone). The plaintiff, Muslim-Canadian woman of Afghani descent, brought a motion to strike the jury notice on the grounds that she would not receive fair trial because of current political climate. The trial judge granted that motion and struck the jury notice because, in his view:

"there is a strong risk, a reasonable apprehension that there could be bias on the part of the jury based on a system where there are no checks. Prescreening is not an adequate check and there is no - not like in a criminal case, there is no opportunity to challenge by way of cause in a civil case".

The defendant appealed the striking-out of the jury notice to the Divisional Court and that appellate court allowed the appeal. It was held that it is not enough for a judge to simply take judicial notice of inherent prejudice on part of potential jurors in case involving certain minorities. Such a conclusion without supporting evidence that potential civil jurors would be impossibly tainted, and that lack of impartiality would cause them to be unable to set aside their bias, was improper exercise of judicial discretion. The Divisional Court's view was that:

"Even if the trial judge had a basis for doing so, it is not enough to simply take `judicial notice' of inherent prejudices on the part of potential jurors in a case involving certain minorities. Arguably, minorities in Canada have suffered from intolerance and prejudice. Nevertheless, the trial process has prevailed. Needless to say, given the tragic events of September 11, 2001, and the subsequent terrorist attacks linked to radical Muslims, there may be a level of caution in Canada which may in some people have expanded to outright bias and prejudice. To conclude, however, that potential civil jurors would be impossibly tainted, without any supporting evidence, and that the lack of impartiality would cause them to be unable to set aside their bias, notwithstanding procedural safeguards, would be to improperly exercise judicial discretion."

The Divisional Court rested its decision on that of the Supreme Court of Canada in R. v. Find (a criminal law case):

"As a practical matter, establishing a realistic potential for juror partiality generally requires satisfying the court on two matters: (1) that a widespread bias exists in the community; and (2) that some jurors may be incapable of setting aside this bias, despite trial safeguards, to render an impartial decision… These two components of the challenge for cause test reflect, respectively, the attitudinal and behavioural components of partiality [...]"

CASE CITATION: Kayhan v. Greve, 2008 CarswellOnt 4039, 238 O.A.C. 257, 295 D.L.R. (4th) 756, 92 O.R. (3d) 139, 2008 CanLII 32832, (Div.Ct.)

Just how bad is the American recession?

The plunging gold line shows just how far down American job losses have gone in this -- as yet incomplete -- recession compared to all other post-WW2 recessions.

An American Thought on an American situation

From poster "Dave Kreuger" at The Agitator, (an American libertarian blog belonging to Radley Balko, who has done some first-rate work on militarization and civil liberties issues), a comment on recent United States Supreme Court jurisprudence on raids, searches and seizures:

The guaranty that people should “be secure in their person, houses, and papers” has been thrown out by the [U.S.] Supreme Court as conflicting with the government’s mission of protecting people’s security. That’s not to say they’ve thrown out the baby with the bathwater. It’s saying they threw out the baby and didn’t even touch the bathwater.

Closely held family corporations and estates

From Eugene Meehan's Supreme Court of Canada L@wLetter
Issue No. 7 - Thursday, February 5, 2009

My thanks to Mr. Eugene Meehan, Q.C., for his kind permission to post this extract in its entirety.

Cheryl Sylvestre and Jack, Donny, Bing and Cam Frye, are five children of the late George H. Frye who died in 1991, leaving the shares of his company, George H. Frye Holdings Ltd., to his children in equal shares. As Donny was a disabled adult, Bing, Cheryl and Cam were appointed trustees of two trusts held for his benefit. The letters patent under which the company was incorporated in 1968 contained a provision restricting the right to transfer shares of the company without the express resolution of the board of directors.

In 1991, the five siblings entered into a shareholders' agreement that was confirmed by a second agreement signed in 1994 containing a clause restricting the transfer of shares, and requiring any shareholder wishing to sell his or her shares to first offer them to the company, and then to the other shareholders on a pro rata basis. The agreement only permitted a sale to a non-shareholder after these offers were declined. The agreement also acknowledged that the intention was to preserve the Frye Group as a family business, and for all of the children to share equally in it.

The Frye siblings feuded constantly over the years over control of the business. In 1994, Bing sold all of his shares back to the company, increasing the interest held by Cam, Jack, Cheryl, and Donny's trusts to 25 percent each. Cam passed away in April 2002 and, pursuant to his will, Cheryl and a friend were appointed as his estate trustees, and all of his shares in the company were bequeathed to Cheryl. Jack brought an action challenging the validity of the gift to Cheryl, alleging that Cam lacked domicile in Ontario and testamentary capacity at the time he made the will; that Cheryl asserted or should have been presumed to have asserted undue influence over Cam when he made his will; and that the shareholders' agreement prohibited Cam from transferring his shares to Cheryl through his will.

The Ontario Superior Court of Justice gave an order declaring the bequest to Cheryl was null and void. The C.A. allowed the appeal. Issues include whether the C.A. erred by enforcing the provisions of the will and ignoring provisions in the shareholders agreement.

John Arthur Frye v. Cheryl Vanessa Sylvestre et al. (Ont. C.A. September 9, 2008) (32886)

[The Supreme Court of Canada the appeal from the Ontario Court of Appeal.]:
"The application for leave to appeal...is dismissed with costs to the respondent Cheryl Vanessa Sylvestre in her personal capacity, payable by the applicant."

Eugene Meehan, Q.C.
Chair, Supreme Court Practice Group
Lang Michener
300 - 50 O'Connor Street
Ottawa ON K1P 6L2
Phone: (613) 232-7171
Fax: (613) 231-3191

Ontario, Alberta, Yukon, NWT & Nunavut
Licenced to Practise Law in the State of Arizona, U.S.A.

The Ontario Superior Court trial decision of Mr. Terrence L.J. Patterson can be found here.

The Ontario Court of Appeal decision which allowed the appeal from Patterson J.'s decision, can be found here.

If you wish to subscribe to Mr. Meehan's Supreme Court of Canada newsletter, please go here and sign up!

"Parental Alienation"

In family law, "parental alienation" is the phrase used to describe where one divorced parent systematically turns the children against the other parent. Some Canadian courts have, in the past, viewed the concept with some suspicion; there is caselaw out there where the courts have said, in effect, that trying to bend the children back towards the alienated parent is not in their best interests because the damage is done. There is also caselaw rejecting such conduct as an independent tort where the alienated parent can sue the alienating one. On the other hand there are other cases where the courts have held that the views of the children should not be given too much weight where those views have been created by an alienating parent.

Is this changing? In a surprising and newsworthy decision, one Superior Court Judge has decided that one mother's "consistent and overwhelming campaign, for more than a decade, to alienate [a father's ] three children from him" -- a campaign which was harsh and pathological and included ignoring assessments, the Children's Lawyer, and misuse of the police -- merited the switch of custody from mother to father. (The full text of the decision is very much worth reading, especially the table where alienating behaviours are listed and detailed.) Custody of the children was awarded to the father, even though the mother had been the custodial parent for about a decade:

The three children of the marriage have been alienated from the Applicant [the father] over a long period because K. D. [the mother, the Respondent in this case] is unable to accept that it is in the best interests of the children to have a relationship with their father. She has been given several opportunities to change her behaviour over many years, and refuses to do so. I find that her unrelenting behaviour toward the children is tantamount to emotional abuse... [...] [F]or the children to have any further contact with the Respondent, significant therapeutic intervention is necessary. [...] It is now time for [the father's] and the children’s fates to be free from K. D’s control. She has shown that she cannot be entrusted with it.

This is only one Superior Court decision and has no binding force on other Superior Court judges, who are free to accept it or reject it. Only an appellate-level decision (from the Divisional Court or the Court of Appeal) can bind lower courts. Further, the mother's behaviour in this particular case appears to have been so unbalanced, self-centered and obsessive that it would have been bizarre if the court had not intervened. (The Barbara Kay piece in the National Post, noted below, asks very valid questions about why this behaviour was tolerated for so long and whether any but the emotionally strongest and wealthiest alienated parent could get to this winning point.) It remains to be seen, therefore, whether this holding will be applied in other cases where the facts are less shocking, and whether or not the decision of Justice Faye McWatt will be adopted by other judges in general or approved at an appellate level.


Further Reading:
Full text of the decision in A.G.L. v. K.B.D.
"Mom loses custody for alienating dad: Ruling a 'wake-up call' for parents who use kids to punish ex-partners" - Tracy Tyler, Toronto Star, January 24, 2009
"Brainwashing the kids to spite the ex" - Barbara Kay, National Post, January 30, 2009
"The Cult of Parenthood: A Qualitative Study of Parental Alienation", Amy Baker, Ph.D - [in PDF format, and in HTML format].