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Contract Law: Mistake Douglas Wilhelm Harder, M.Math. LEL Department of Electrical and Computer Engineering University of Waterloo Waterloo, Ontario, Canada.

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Presentation on theme: "Contract Law: Mistake Douglas Wilhelm Harder, M.Math. LEL Department of Electrical and Computer Engineering University of Waterloo Waterloo, Ontario, Canada."— Presentation transcript:

1 Contract Law: Mistake Douglas Wilhelm Harder, M.Math. LEL Department of Electrical and Computer Engineering University of Waterloo Waterloo, Ontario, Canada ece.uwaterloo.ca © 2013 by Douglas Wilhelm Harder. Some rights reserved.

2 Outline An introduction to the engineering profession, including: –Standards and safety –Law: Charter of Rights and Freedoms, contracts, torts, negligent malpractice, forms of carrying on business –Intellectual property (patents, trade marks, copyrights and industrial designs) –Professional practice Professional Engineers Act Professional misconduct and sexual harassment –Alternative dispute resolution –Labour Relations and Employment Law –Environmental Law 2 Mistake

3 The Contract as a Starting Point We have seen, through the parol evidence rule, that oral communications prior to a written contract cannot, in general, affect the terms of the contract –There are a few exceptions, which we will continue to see Mistake 3

4 Mistakes What happens if there is a mistake in the written contract? –Are parties responsible for mistakes in the preparation of a written document? –Answer: it depends! Mistake 4

5 Mistakes We will look at three types of mistakes in contracts: –Common –Mutual –Unilateral Mistake 5

6 Common Clerical Mistakes When both parties are agreeing on a contract and a mistake occurs when the contract is drafted, this is considered a common mistake –It was a mistake made by both parties in the preparation of the agreement In such a case, a clerical error will allow a party to apply to a court to rectify the contract Mistake 6

7 Common Clerical Mistakes When applying for rectification, the onus is on the plaintiff to demonstrate that the contract differs from all prior communications on the terms of the contract –Therefore, it is always critical that you track all communications regarding the agreement on the terms of a contract Mistake 7

8 Common Mistakes In the case of Courturier v Hastie, 1856, the sale of corn was declared void because the corn, at the time of the establishment of the contract, had already decayed –The buyers were not liable for the price of the lost corn –Both assumed that the corn existed when it did not More recently, in Australia, there was McRae v Commonwealth Disposals Commission, 1951 –The commission sold McRae a shipwrecked tanker containing oil –The shipwreck, however, did not exist –In this case, the CDC had claimed that the contract was void –It was found, however, that CDC had promised the tanker existed; thus, they were found to have breeched the contract 8 Mistake

9 Common Mistakes Another example of a common mistake that did not void a contract is the more recent Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd., 2002 –Tsavliris was in the business of aiding and salvaging ships –The Cape Providence required assistance and Tsavliris was told the tug Great Peace was 35 miles away –Tsavliris entered into a contract, but terminated it later when he determined the tug was 410 miles away –The court found that, while it would take 22 hours to cover the distance, this would not have been a sufficient delay so that its performance would be “essentially different from those the parties envisaged when the contract was concluded.” 9 Mistake

10 Mutual Errors What happens when both parties have a mistaken understanding of an essential term in a contract? Under such cases, the court will attempt to come up with a reasonable interpretation of the contract before declaring the contract void Mistake 10

11 Mutual Errors Consider Raffles v Wichelhaus, 1864, where two contracting parties were mistaken about an essential term in a contract –The contract stated that the buyer would purchase cotton from Bombay at a given price from a ship named The Peerless “to arrive ex Peerless from Bombay” –Unfortunately, there were two ships coming from Bombay, one arriving in October and the other in December –The buyer stated he was under the assumption the cotton was on the October, while the cotton was delivered in December –The courts could not come up with a reasonable interpretation and therefore they voided the contract Mistake 11

12 Unilateral Mistakes The most difficult errors are unilateral: when only one party makes a mistake 12 Mistake

13 Unilateral Mistakes Consider the case of Hartog v Colin & Shields, 1939 –It was agreed that 30,000 hare skins would be sold at 10 d per skin, amounting to £1,250 –The written contract, however, said “30, d per lb” –This reduced the amount to approximately £400 – less than a third The courts found that the plaintiff must have known the defendant made an error and it was wrong to take advantage of that error 13 Mistake

14 Unilateral Mistakes In Canada, however, there has been a more recent precedence: Imperial Glass Ltd. v Consolidated Supplies Ltd. –After receiving the dimensions of a window over the phone, an employee of the defendant calculated sq. ft. instead of sq. ft. resulting in a quote for $2000 –Based on this number, the appellant submitted a bid –Further communications included: We confirm herewith our quotation of $2, for supplying the following Twin-Seal Units for Kitimat Elementary School.... It is to be understood that the above quotation is based on the number of units and sizes as indicated and any changes will call for a revision of this quotation. 14 Mistake

15 Unilateral Mistakes Only after the order was placed was the mistake noticed and the defendant attempted to withdraw from the contract The court determined that the behaviour of the plaintiff, while seriously unethical, did not constitute fraud –The court did not relieve the defendant for their mistake 15 Mistake

16 Unilateral Mistakes A more recent case is Belle River Community Arena Inc. v W.J.C. Kaufmann Co. et al. saw a subtle distinction –The defendant is a contractor who submitted a bid that was substantially lower –The bid was $641,603 being $70,800 less than the intended bid –The tenders were to remain open for a period of 60 days –While the plaintiffs opened the bids, they did not immediately proceed to accept the Kaufmann bid –The next morning, Kaufmann sent the following: Re new Tri-Community arena building please withdraw our quotation dated January 11, 1973 due to a serious error in our tender. 16 Mistake

17 Unilateral Mistakes A more recent case is Belle River Community Arena Inc. v W.J.C. Kaufmann Co. et al. saw a subtle distinction –The plaintiff, never-the-less, informed Kaufmann that their bid was accepted –No contract was ever formally presented to Kaufmann –Instead, the plaintiff went with the next lowest bidder and then sue for $15,091, the difference –The court found that because no formal contract had ever been offered to Kaufmann, the contractor had never actually refused to honour its tender –In the United States, if a mistake in a tender is known to a party accepting tenders, the tendency is to side with the contractor in any case where the bid is accepted under such terms 17 Mistake

18 References [1]D.L. Marston, Law for Professional Engineers, 4th Ed., McGraw Hill, [2]Julie Vale, ECE 290 Course Notes, [3] Wikipedia, These course slides are provided for the ECE 290 class. The material in it reflects Douglas Harder’s best judgment in light of the information available to him at the time of preparation. Any reliance on these course slides by any party for any other purpose are the responsibility of such parties. Douglas W. Harder accepts no responsibility for damages, if any, suffered by any party as a result of decisions made or actions based on these course slides for any other purpose than that for which it was intended. 18 Mistake


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