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Oops - Mistakes in Contracts

All family law contracts should be negotiated in good faith. There must be a clear "meeting of the minds" in forming a contract to ensure each party gives and receives exactly what he or she bargained for. That is not always the case. There are times when parties, in forming a contract, are not on the same page, and that can lead to costly consequences. 

There several types of mistakes in Canadian contract law, each with unique remedies:

Mutual Mistake

A mutual mistake occurs when both parties are mistaken about different terms of a contract, that is, they do not share the same mistake. An old English decision Raffles v Wichelhaus (1864), 1159 ER 375, gives the example of parties that contracted to buy and sell cotton contained in a ship called Peerless. It turned out that there were two different ships named Peerless, and the parties disagreed which Peerless would be the vessel carrying the cotton, which caused problems for the buyer. The Court declared the contract void because of mutual mistake.

The Court in Raffles found that a mutual mistake will render a contract void if: a) the agreement contains a latent ambiguity which can reasonably be interpreted in more than one way; and b) each party interprets the ambiguity in different ways. The second part of the Raffles test has been expanded in later cases, and the common law now states that a court must decide what a reasonable third party would infer to be the contract from the words and conduct of the parties who entered into it - if the reasonable bystander could not infer a common intention between the parties, the Court will hold that no contract was created, Staitmen Steel Ltd. v Commercial & Home Builders Litd. (1976), 13 OR (2d) 315 (Ont HC).

Common Mistake

Common mistake occurs when parties make the same mistake. For example, one party contracts to sell a vase to another, when, unbeknown to both, the vase was destroyed and no longer exists, Romank v Achtem, 2009 BCSC 1757. The Court in Romank states that as a matter of common law, the result of a proven common mistake is that the contract is void. At common law, where a common mistake is pleaded, the common error "must be so fundamental that the agreement is robbed of all efficacy", Hannigan v Hannigan, 2007 BCCA 365.

When faced with a common mistake, there are other remedies available to courts that are more flexible, and allow for the rescission or removal of certain terms of a contract. There are important factors a court may consider in deciding whether to grant alternative or equitable relief (a court decision made out of fairness) to a party who has suffered loss a result of a common mistake.

The Court in Romank cited The Law of Contracts by John D. McCamus in presenting a scenario where equitable relief, short of voiding a contract, could be granted:

competing tensions of contractual stability and relief for egregious error are best reconciled at attempting to determine whether the parties have explicitly or implicitly allocated the risk of error in their agreement and, if not, in considering whether the presence of error has given rise to a sever and surprising imbalance in the values being exchanged under the affected transaction.

The Court in Romank further elaborated on what constitutes a "surprising imbalance of values" in citing the 1979 Alberta Court of Queen's Bench decision Adams v Canadian Co-operative Implements Lts., 20 AR 533:

... whether the error in question is sufficiently material to render what the plaintiff obtained under the contract substantially different from what he believed he was going to obtain.

Unilateral Mistake

The common law remedy of rectification (correcting a contract) is available in respect to separation agreements when there is a unilateral mistake, Williamson v Williamson, 2004 SKCA 65. A unilateral mistake is a like common mistake, except that one party discovers the mistake and takes advantage of the mistake.

The Supreme Court of Canada set out conditions precedent for rectification in the context of a claim of unilateral mistake in Sylvan Lake Golf Course & Tennis Club Ltd. v Performance Industries Ltd., 2002 SCC 19:

  • a previous oral agreement inconsistent with the written document;
  • the other party knew or ought to have known of the mistake and permitting the party to take advantage of the mistake would amount to unfair dealing;
  • the document can be precisely rewritten to express the parties intention; and
  • the above three prerequisites must be demonstrated by convincing proof that may fall short of the criminal standard, but over the low end of the civil balance of probabilities standard.

If you have questions or concerns about a family law contract, an experienced lawyer at Soby Boyden Lenz LLP would be happy to meet with you.

Micah Chartrand is an Associate Family Lawyer with Soby Boyden Lenz LLP. Micah is experienced is preparing written agreements to meet the unique needs of family law clients. To schedule a consultation, please contact Micah's assistant, Jorie, at 403-262-0000. 

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