Unilateral and Mutual Rectification

Rectification is permitted to ensure that a document reflects what the document was intended to reflect. The easiest example is where two party agree to transfer a property for an agreed upon price and the price is incorrectly written down in a purchase and sale agreement.

A court will not allow a slip of the pen to change what was actually agreed to.

Where the parties agree to one thing and what is understood between them is written down wrongly there is a mutual mistake. Rectification is fairly straightforward here. Where one party along is mistaken and the other party, realizing the mistake, stands silent the issue is more complex.

Generally, where there is a mutual mistake it is easier to obtain rectification than where rectification is sought in the context of a unilateral mistake. 

Today's Court of Appeal decision in Royal Bank of Canada v. El-Bris Limited, 2008 ONCA 601 clarifies the law:
 

2.         The Remedy of Rectification

[13]          Rectification is an equitable remedy designed to ensure that one party is not unjustly enriched at the expense of another.  A court will rectify an inaccurately drawn written agreement so that it conforms to the agreement the parties intended to make.  In Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 28 O.R. (3d) 327 at 336 (C.A.), Robins J.A. explained the remedy's underlying rationale, while acknowledging that rectification cannot be used to correct every mistake.
The remedy of rectification is available only in certain defined circumstances and cannot be invoked to correct every mistake.  In principle, rectification is permitted, not for the purpose of altering the terms of an agreement, but 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.  The remedy is normally granted only where the mistake is mutual or common to the contracting parties.

[14]          RBC, however, argues that to obtain an order for rectification Ellis must show more than a common intention. He must also satisfy Sylvan's [[2002] 1 S.C.R. 678. ]four prerequisites to rectification. I do not agree.

[15]           Sylvan was a case of unilateral mistake. The party seeking rectification, because of his own negligence, had mistakenly signed an inaccurately drawn document.  Binnie J., writing for court, set out four prerequisites for parties seeking rectification for unilateral mistake: (i) a previous oral agreement inconsistent with the written document; (ii) the 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;  (iii) the document can be precisely rewritten to express the parties' intention; and (iv) each of the first three prerequisites must be demonstrated by convincing proof.

[16]          The case before us is not a case of unilateral mistake.  On the trial judge's reasonable view of the record, it is a case of common mistake: when entering into the written agreement neither party intended to create two independent $700,000 obligations.  Both thought the obligations were connected

[17]          The prerequisites in Sylvan do not apply to cases of common or mutual mistake. The following statement by Binnie J. para. 31 of Sylvan clarifies the scope of the application of the prerequisites: "The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake (as here), provided certain demanding preconditions are met." Sylvan, in effect, broadened the circumstances in which courts could rectify a unilateral mistake, allowing rectification subject to the "demanding preconditions" outlined above. It left untouched the circumstances, under the "traditional rule," in which courts could rectify a mutual or common mistake. See also John D. McCamus, The Law of Contracts ( Toronto: Irwin Law, 2005), at 555-62; Wasauking First Nation v. Wasausink Lands Inc., [2004] O.J. No. 810 at paras. 76-85 ( C.A. ) (discussing Sylvan but not applying the Sylvan preconditions to a case of mutual mistake).

James Morton
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