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.