Unilateral Mistake

1
Unilateral Mistake

• Contracts

2
What Is This, and Why Is It Problematic?

• This is one of the most dangerous types of
  mistake for the court to accept too easily.
• If it is accepted too easily, then it allows a
  court to worry more about what one of the parties
  says was their intention at the time of contract.
• This inherently cannot be said to be the
  intention of the parties but rather the
  intention of one party.

3
Mistake (contd)

• Yet, the tension on the other side of the
  equation is that the courts do not want to force
  what is clearly a bad deal down the throat of one
  party when it is clearly established that there
  is a substantial injustice to one of the parties,
  and/or a substantial windfall to the other of
  them.

4
Mistake (contd)

• Therefore, the courts are forced to walk a
  tightrope between
• Doctrinal purity (adherence to the law as
  established, which is in favour of upholding
  those agreements that appear to be contracts)
  and
• The desire to do what appear to be justice in a
  given case (which would at least sometimes seem
  to require that the rules not be applied so
  inflexibly as to disallow a remedy to a party
  that appears to be deserving of it)

5
Mistake (contd)

• The hardliners would say that the idea of doing
  justice is fine in the abstract, and even in the
  context of the particular case, but it is very
  difficult to lay out in advance rules that are
  principled for future cases on the basis that
  they are just. The law of contract depends on
  the ability of parties to know what their rights
  are when entering into the contract.

6
Mistake (contd)

• Those who promote the opposite view see law as
  only a means to an end. The end in this case is
  justice. Therefore, if the law does not achieve
  its desire end justice then as the old adage
  goes, the law is an ass.
• The distinction between these two extremes is
  clearly presented in disagreement between the
  majority and the dissent in the next case. Note
  that the dissent represents the law in Canada and
  the U.K.

7
Mistake (contd)

• The seller of goods, services or land knows their
  true quality. The buyer, however, does not know
  the quality of the horse, the habitability of the
  house, or the number of customers for the garage.
  After the purchase is made by the buyer, the
  buyer becomes aware of the true value of the
  subject-matter.

8
Stambovsky v Ackley

• The plaintiff bought a house that was known in
  the local community to be haunted. When this
  became clear to the plaintiff, the plaintiff
  sought to rescind the contract.
• This occurred prior to closing (so execution is
  not a bar to rescission) (paragraph 17)
• The court refuses to allow the defendant to argue
  that the house is not haunted, because the
  defendant
• The court says that there was no way that the
  buyer could have discovered this (paragraph 4).

9
Stambovsky v. Ackley (contd)

• In general, silence without more is insufficient
  to allow rescission unless there is
• Confidential relationship
• Fiduciary relationship or
• Active concealment
• This is an equitable concept (paragraph 6)
• Having mentioned the haunting as a point of
  interest for others, she owes at least the same
  to the contractual party (paragraph 12)

10
Stambovsky v. Ackley (contd)

• As a matter of remedy
• Misrepresentation
• Warranty
• Voidable for fundamental mistake (Dennings view
  from Solle v. Butcher Common mistake case,
  could be applied to unilateral mistake as well)

11
Stambovsky v. Ackley (contd)

• The rule of caveat emptor places the
  responsibility on the buyer to do due diligence,
  ask questions, examine the subject-matter, and if
  felt necessary, negotiate contractual protections
• The reason for this is that at common law, the
  solution to a finding of mistake is rather
  draconian there is no contract, and there never
  was one.

12
Smith v. Hughes

• The plaintiff thought that he was selling new
  oats, which he was. The defendant looked at a
  sample and thought that was buying old oats.
  There was no mention of whether the oats were old
  or new.
• The defendant wants out of the contract the
  plaintiff wants to get paid

13
Smith v. Hughes (contd)

• Paragraph 12
• The parties must agree on the same thing in the
  same sense. That is, if A thought that the terms
  of the contract were X, and in fact the terms
  were otherwise, there is no contract.
• Paragraph 13
• When one party causes the mistake as to terms, it
  is a breach, this is not a mistake which will
  entitle the party at fault to undo what would
  otherwise be a contract

14
Smith v. Hughes (contd)

• Paragraph 15
• If one party know that the other is mistaken as
  to terms, then you cannot force them to live with
  that mistake
• If the word old had been used by the plaintiff,
  then there would have been a breach of contract,
  given that the seller would be unable to deliver
  what was promised.

15
Smith v. Hughes (contd)

• If one knows that the other party is mistaken as
  to the terms of the contract, then the contract
  is void (paragraphs 12 and 15).
• This does not apply if the mistaken party induces
  the contract, but makes a mistake as to terms
  (paragraph 13)

16
Smith v. Hughes (contd)

• However, if the mistake is only as to the quality
  of the goods (as opposed to the terms of the
  contract), then there is no mistake which would
  invalidate the contract (paragraph 16)

17
Hartog v. Colin Shields

• The plaintiff made a deal to buy rabbit skins
  from the defendant.
• The defendants said that their offer to sell
  contained a mistake, and that the plaintiff would
  have known it simply by looking at the offer.
• The negotiations had been per piece, not on a per
  pound basis.
• The offer was expressed on a per pound basis,
  which made it cheaper for the plaintiff buyer to
  purchase than the defendant intended.

18
Hartog v. Colin Shields (contd)

• Anybody would have known something was up
• When the mistake is contained within the offer,
  and the non-mistaken party is the offeree, the
  attempt to form a contract by accepting the
  offer, this is called snapping up the offer
  (paragraph 2).
• If one knows that the other party is mistaken as
  to the terms of the contract, then the contract
  is void

19
Mistake (contd)

• Construction contracts
• The offers in construction contracts tend to be a
  bit different than other offers.
• They are often built on a system of tenders.
• The thing about this is that replaces negotiation
  with competition
• To allow people out for unilateral mistake as to
  terms in these circumstances adds uncertainty no
  only to the relationship between the offeror and
  the owner, but also to the tendering system as a
  whole.

20
Imperial Glass Ltd. v. Consolidated Supplies Ltd.

• The appellant is a supplier and installer of
  window panes the respondent is a manufacturer of
  a particular type of windows.
• October, 1957 The appellant is asked to bid on
  a construction project. Before making a bid, the
  appellant phoned the respondent. An employee of
  the respondent miscalculated the square footage
  by 90 per cent, and quoted 2,000 as a price.

21
Imperial Glass Ltd. v. Consolidated Supplies Ltd.
(contd)

• October 11th, 1957 Tender submitted
• November 6th, 1957 Bid accepted
• December 11th, 1957 Confirmation provided
• December 13th, 1957 Order placed
• December 17th, 1957 Mistake discovered
• December 23rd, 1957 Offer revoked

22
Imperial Glass Ltd. v. Consolidated Supplies Ltd.
(contd)

• The trial judge held that the quotation given in
  October was not an offer to sell. The Court of
  Appeal agrees (paragraph 11)
• The trial judge held that a binding contract was
  entered into when the appellant on December 13th
  accepted the respondent's offer made in on
  December 11th. The Court of Appeal agrees.

23
Imperial Glass Ltd. v. Consolidated Supplies Ltd.
(contd)

• The trial judge held that the respondent had
  knowledge of the appellants mistake. The Court
  of Appeal says that they will not disturb this
  finding

24
Imperial Glass Ltd. v. Consolidated Supplies Ltd.
(contd)

• There is no mistake in the offer here (paragraphs
  12 and 18)
• This is not like Solle v. Butcher (paragraph 16)
  Common mistake (the court calls it mutual
  mistake)
• Therefore, Hartog v. Colin Shields does not
  apply because the mistake is not in the offer
  itself

25
Imperial Glass Ltd. v. Consolidated Supplies Ltd.
(contd)

• The mistake is not relevant because
• There was no fraud on the part of the
  non-mistaken party (paragraph 19)
• There was negligence on the part of the mistaken
  party (paragraph 20)

26
Buffalo Municipal Housing Authority v. Gross
Plumbing Heating Co.

• The defendant was a contractor who bid on a
  project involving the plaintiff. The defendant
  put in a bid bond to ensure that if the bid were
  accepted, the bid would not be revoked. It
  turned out that there was a substantial clerical
  error in the bid to the tune of almost 89,000.

27
Buffalo Municipal Housing Authority v. Gross
Plumbing (contd)

• The defendant immediately notified the plaintiff.
  The plaintiff seeks to keep the bid bond. The
  plaintiff could see the error by reviewing the
  supporting documentation
• This is not the law in Canada
• The plaintiff could have simply offered the
  chance to fix this and this reject the bid, or
  accept if so inclined.

28
Buffalo Municipal Housing Authority v. Gross
Plumbing (contd)

• The negligence of the bidder does not deny
  relief, that is, the bidder can still get out of
  the contract based on a mistake in the offer if
  that mistake means that the parties were not ad
  idem
• The distinction between errors as to terms and
  those of calculation is not a meaningful one.

29
Buffalo Municipal Housing Authority v. Gross
Plumbing (contd)

• Therefore, we ought to look to ensure that
• The error is clerical in nature business errors
  will not suffice
• The error is sufficiently large that to allow the
  plaintiff to enforce the contract so create would
  be unconscionable.
• If so, then the court will say that there is a
  unilateral mistake, and set aside the contract
• Negligence of the bidder is irrelevant here

30
Ron Engineering v. Ontario

• The contract made an offer that (as it turned
  out) was about 632,000 lower than the next
  lowest bid.
• The tender documents said that if the bid was
  withdrawn, or the successful bidder refuses to
  enter into the main contract, then the tender
  deposit is lost.
• The bidder realized that the tender was low prior
  to the opening of bids. Upon realization that
  this had occurred, the bidder tried to withdraw
  the tender.

31
Ron Engineering v. Ontario (contd)

• The owner accepted the lowest bid, and when the
  contractor refused to complete the construction
  contract, the owner accepted the second-lowest
  bid
• The contractor sued to recover the deposit the
  owner counter-sued for damages
• Not evident on the face of the tender (paragraph
  10)
• Contractor not trying to pull a fast one
  (paragraph 10)

32
Ron Engineering v. Ontario (contd)

• We need to protect the bidding system (paragraph
  20)
• Contract A v. Contract B
• Contract A is a unilateral contract (we will see
  later that this is wrong), placing obligations on
  the tenderer
• If there is a mistake in calculation of the bid
  made at the contract A stage, this is not a
  legally relevant mistake unless the error would
  be obvious on the face of the tender.

33
M.J.B. Enterprises Ltd. v. Defence Construction
(1951) Ltd.

• Tendering process in which the owner said that
  contingent bids were not allowed
• The successful bidder put in a contingent bid
• MJB was one of the bidders whose tender was not
  chosen.
• The respondent claims that the privilege clause
  a clause that says The lowest or any tender
  shall not necessarily be accepted means that
  they can accept any tender they like.

34
M.J.B. Enterprises Ltd. v. Defence Construction
(1951) Ltd. (contd)

• Not every tendering process will necessarily need
  a Contract A- Contract B analysis (paragraph 17)
• Contract A is not unilateral, meaning that it can
  place obligations on the owner (paragraphs 18-19)
  
• The content of Contract A is determined by the
  terms of the tender call, depending on the
  intentions of the parties (paragraphs 22-23)

35
M.J.B. Enterprises Ltd. v. Defence Construction
(1951) Ltd. (contd)

• The privilege clause does allow the owner to
  choose the bid that is not the lowest (paragraph
  30).
• But, the privilege clause does not give the owner
  the right to choose a non-compliant bid
  (paragraph 30).

36
Martel Building Ltd. v. Canada

• Martel leased most of a building to the
  government.  Prior to the end of the lease, the
  landlord's CEO met a subordinate of the
  governments Chief of Leasing to discuss renewing
  the lease.  
• The Chief of Leasing to obtain a proposed rental
  rate even though it intended to commence a tender
  process but  no action was taken. 

37
Martel Building Ltd. v. Canada (contd)

•  The Chief of Leasing did not contact Martel when
  directed to report on the status of negotiations
  and, at monthly meetings, led the appellant to
  believe that a proposed lease rate was
  forthcoming but nobody informed the respondent of
  this expectation.  

38
Martel Building Ltd. v. Canada (contd)

• The respondent's CEO twice contacted the
  appellant,  resulting in a meeting which the CEO
  believed was to commence negotiations but in
  which the appellant maintains that it told the
  CEO that it would proceed to tender unless it
  received a very attractive offer. The CEO
  presented proposed rental rates that fell outside
  a range suggested by an appraisal commissioned by
  the appellant.

39
Martel Building Ltd. v. Canada (contd)

• The appellant set a date to complete negotiations
  and, when that date passed, began steps to
  approve a tender by preparing a report. The
  report first recommended a lease renewal but no
  final decision was made before a revised report
  recommended proceeding to tender due to declining
  market rental rates.

40
Martel Building Ltd. v. Canada (contd)

• Approval for a tender was obtained.  The CEO
  heard rumours that a tender was to begin and
  telephoned the Chief of Leasing.  The parties met
  the same day an expression of interest was
  advertised to solicit interest in the tender.
• The CEO said he left the meeting with an
  understanding that the appellant would recommend
  a lease renewal if he offered a rate of 220 per
  square metre.  Two days after the meeting, he
  advised the Chief of Leasing that he could offer
  that rate

41
Martel Building Ltd. v. Canada (contd)

• However, the appellant decided that remaining
  terms would have to be settled that day. The
  respondent could not respond that quickly.  Its
  offer was rejected and tender documents were
  issued.  Under the terms of the call for tenders
  the appellant was not obligated to accept the
  lowest bid.

42
Martel Building Ltd. v. Canada (contd)

• The respondent submitted the lowest of four bids.
  The appellant conducted a financial analysis of
  the bids to consider the total costs that would
  be incurred as a result of accepting any one
  tender and added to the respondent's bid
  approximately 1,000,000 for fit-up costs and
  60,000 to cover the installation of a secured
  card access system.  The tender was awarded to a
  competitor.

43
Martel Building Ltd. v. Canada (contd)

• What is important, therefore, is that the
  submission of a tender in response to an
  invitation to tender may give rise to contractual
  obligations, quite apart from the obligations
  associated with the construction contract to be
  entered into upon the acceptance of a tender,
  depending upon whether the parties intend to
  initiate contractual relations by the submission
  of a bid. If such a contract arises, its terms
  are governed by the terms and conditions of the
  tender call.