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Contracts - Mistake and Rectification (2). Wonderland Power Centre Inc. v. Post and Beam on Wonderland Inc.
In Wonderland Power Centre Inc. v. Post and Beam on Wonderland Inc. (Div Ct, 2022) the Divisional Court considered an issue of rectification, here in a real property registration context:[30] Rectification is an equitable remedy granted at the discretion of the motion judge. A discretionary order of a motions judge is subject to significant deference on appeal and should be interfered with only where the motion judge misdirected herself, came to a decision that is so clearly wrong that it amounts to an injustice, or gave no or insufficient weight to relevant considerations: see Penner v. Niagara (Regional Police Services Board), 2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27. In addition, an appellate court may intervene where the trial judge exercised his or her discretion based on a wrong principle: see Soulos v. Korkontzilas (1995), 1995 CanLII 2074 (ON CA), 25 O.R. (3d) 257 (C.A.), at paras. 6, 15, aff'd 1997 CanLII 346 (SCC), [1997] 2 S.C.R. 217. I am of the opinion that the motion judge exercised her discretion based on wrong principles, misdirected herself, and gave insufficient weight to relevant considerations.
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[33] The motion judge correctly identified the issue – that rectification is not available against a bona fide purchaser for value with notice. ...
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Rectification Analysis
[39] Wonderland’s motion for rectification was brought and granted under section 160 of the Land Titles Act:Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register. [Emphasis added.] [40] The “estates or rights acquired by registration under this Act”, as referred to in s. 160, are generally set out in s. 78(4) of the Act, which provides that an instrument is effective when registered “according to its nature and intent”:When registered, an instrument shall be deemed to be embodied in the register and to be effective according to its nature and intent, and to create, transfer, charge or discharge, as the case requires, the land or estate or interest therein mentioned in the register. [41] Rectification of registered interests after purchase by a third party is of particular concern because of the importance of the reliability and integrity of the land registry to all aspects of land law and conveyancing. Certainty is critical to conveyancing. As stated by the Divisional Court per curiam in 1168760 Ontario Inc. v. 6706037 Canada Inc., 2019 ONSC 4702, at paras. 13-14:13 The LTA establishes the land titles regime in Ontario. Its essential purpose is to "provide the public with security of title and facility of transfer" by setting up a register and guaranteeing that the person shown as the registered owner is the legal owner, subject only to registered encumbrances and enumerated statutory exceptions.
14 There are three principles found in the land titles regime that together embody the doctrine of indefeasibility of title:. The mirror principle, whereby the register is the perfect mirror of the state of title;
. The curtain principle, which holds that the purchaser need not investigate past dealing with the land, or search behind the title as depicted in the register; and
. The insurance principle, whereby the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. [Citations omitted.] The case continues on the inefficacy of rectification if a later purchaser takes title as "a bona fide purchaser for value without notice." [para 42-69].
. Lee v. 1435375 Ontario Ltd.
In Lee v. 1435375 Ontario Ltd. (Ont CA, 2013) the Court of Appeal characterizes the contractual law of common mistake:(1) Common Mistake
[37] The formation of a legally binding contract requires a meeting of the minds – consensus ad idem. When the meeting of the minds is based on a common error as to some fundamental fact, the parties’ agreement, viewed objectively, is “robbed of all efficacy”: Ron Ghitter Property Consultants, at para. 13, referring to M.P. Furnston, Cheshire, Fifoot and Furnston’s Law of Contract, 14th ed. (London: Butterworths, 2001).
[38] The motion judge accepted the test set out by Lord Atkin in the famous decision of the House of Lords in Bell v. Lever Bros. Ltd., [1932] A.C. 161, at p. 225:The proposition does not amount to more than this that, if the contract expressly or impliedly contains a term that a particular assumption is a condition of the contract, the contract is avoided if the assumption is not true. [39] In R. v. Ontario Flue-cured Tobacco Growers’ Marketing Board, 1965 CanLII 212 (ON CA), [1965] 2 O.R. 411, (C.A.), at para. 24, this court accepted the following definition taken from William R. Anson, Principles of the English Law of Contract and of Agency in Relation to Contract, 21st ed. by A.G. Guest (Oxford: Clarendon Press, 1959):Where the parties contract under a false and fundamental assumption, going to the root of the contract, and which both of them must be taken to have had in mind at the time they entered into it as the basis of their agreement, the contract is void. . Lee v. 1435375 Ontario Ltd.
In Lee v. 1435375 Ontario Ltd. (Ont CA, 2013) the Court of Appeal characterized the contractual law of equitable mistake:(2) Equitable Mistake
[41] The motion judge also relied on the jurisdiction of the court to relieve against common mistake where it would be inequitable to enforce the contract. She referred to the observation of Lord Denning in Solle, at p. 693, quoted above, which was accepted by this court in Miller Paving Ltd. v. B. Gottardo Construction Ltd., 2007 ONCA 422, 86 O.R. (3d) 161.
[42] In Miller Paving, this court observed that while the doctrine of equitable mistake may have been abandoned in England as a result of the decision of the Court of Appeal in Great Peace Shipping v. Tsavliris Salvage, [2003] Q.B. 679, that decision had not yet been adopted in Canada. This court observed, however, at para. 27:.... In considering whether to apply the doctrine of common mistake either at common law or in equity, the court should look to the contract itself to see if the parties have provided for who bears the risk of the relevant mistake, because if they have, that will govern. ....
[79] The law of mistake cannot be used to place a risk on a party where the contract has allocated that risk to another party. It will be recalled that, in Miller Paving, this court observed, at para. 27:Before turning to the application of any of these tests to the facts of this case, it must be noted that Great Peace does provide one useful reminder that is of significance here, whether or not its approach to common mistake is adopted in Canada. It is that in considering whether to apply the doctrine of common mistake either at common law or in equity, the court should look to the contract itself to see if the parties have provided for who bears the risk of the relevant mistake, because if they have, that will govern. [Citations omitted.] See also Wm. Sindall PLC v. Cambridgeshire C.C., [1994] 1 W.L.R. 1016 (C.A.); 0707448 B.C. Ltd. v. Cascades Recovery Inc., 2011 BCSC 1065, at paras. 118-122.
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[83] In Miller Paving, this court referred at para. 20 to an article by Professor John D. McCamus, “Mistaken Assumptions in Equity: Sound Doctrine or Chimera?” (2004) 40 Can Bus. L.J. 46, at 47:In determining whether an agreement should be considered unenforceable by reason of the mistaken assumption that infects its creation, courts must engage in a delicate exercise of balancing the competing values of contractual stability and the provision of relief in cases of severe injustice. . Kearns v. Canadian Tire Corporation, Limited
In Kearns v. Canadian Tire Corporation, Limited (Ont CA, 2020) the Court of Appeal interpreted a settlement contract:[31] The motion judge applied Olivieri v. Sherman, 2007 ONCA 491, 86 O.R. (3d) 778, the controlling authority regarding the enforcement of minutes of settlement. In doing so, he made five key findings.
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[38] The motion judge precisely identified the fundamental flaw in Canadian Tire’s position when he wrote, at para. 26:The problem is not one of ambiguity. The problem, from [Canadian Tire’s] perspective, is that when it entered into the Minutes of Settlement, the persons with authority to commit to the terms of settlement did not know that the November 23, 2018 payment had been made to [Mr. Kearns]. [Emphasis added.] [39] To this comment I would add that certain factors prevent accepting Canadian Tire’s assertion that the Minutes resulted from a unilateral mistake that justifies their rectification. To put the factors within their proper legal context, to succeed on an assertion of unilateral mistake Canadian Tire must establish that a mistake occurred and there was fraud, or the equivalent of fraud, on Mr. Kearns’ part in that he knew, or must be taken to have known, when the agreement was executed that Canadian Tire misunderstood its significance and he did nothing to enlighten the company: Alampi v. Swartz (1964), 1964 CanLII 303 (ON CA), 43 D.L.R. (2d) 11 (Ont. C.A.), at p. 17; Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720, at para. 15; 2484234 Ontario Inc. v. Hanley Park Developments Inc., 2020 ONCA 273, 150 O.R. (3d) 481, at para. 26.
[40] The first factor is that while the Canadian Tire representatives who attended the mediation may not have known that the November Payment had been made to Mr. Kearns, others in the company certainly knew. Although Canadian Tire adduced evidence to suggest that a clerk had dropped the ball in making the payment and a supervisor had failed to catch the blunder, the payroll records of the company clearly showed that the payment had been made to Mr. Kearns. The company’s representatives at the mediation deposed that they had reviewed the pay stubs for Mr. Kearns.
[41] Second, Canadian Tire’s argument ignores a key principle of contractual interpretation. It suggests that the ““context”, or factual matrix, that the motion judge failed to take into account included the subjective understandings, or state of mind, of the two Canadian Tire representatives at the time of the mediation. But, as taught by Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 58, the factual matrix consists only of objective evidence of the background facts at the time of the execution of the contract – that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contract: see also, Olivieri, at para. 44. Evidence of the undisclosed or uncommunicated subjective knowledge or state of mind of the two Canadian Tire representatives at the mediation does not qualify as part of the factual matrix that could assist the interpretative process.
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