978011 Ontario Ltd. v. Cornell Engineering Co.
[Indexed as: 978011 Ontario Ltd. v. Cornell Engineering Co.]
53 O.R. (3d) 783
[2001] O.J. No. 1446
Docket No. C30940
Court of Appeal for Ontario
Weiler, Rosenberg and MacPherson JJ.A.
April 20, 2001
- Application for leave to appeal to the Supreme Court of Canada dismissed November 1, 2001 (Gonthier, Major and Binnie JJ.). S.C.C. Bulletin, 2001, p. 1969. S.C.C. File No. 28665.
Employment--Contracts--Plaintiff drafted contract to provide personal services to defendant--Personal services contract contained clear and obvious termination clause providing for compensation to plaintiff at rate equal to two times total remuneration paid to plaintiff to date in event of unilateral termination of agreement--Personal relationship between parties and trust reposed in plaintiff by defendant did not impose duty on plaintiff to bring term to defendant's attention--Defendant was in position of ascendancy--Plaintiff specifically asked defendant to read contract before signing it--Defendant did not act with any special regard for plaintiff's interests throughout relationship--Trial judge erred in purporting to rectify personal services agreement by striking out termination clause.
The defendant C Ltd. was owned by S and B. S was a very experienced businessman with a Masters Degree in Business Administration from Harvard. M, a professional engineer, was a family friend of S who acted as a personal mentor to him on business matters. B decided to sell his shares in the defendant company. S approached M and discussed the purchase by M of B's interest. M agreed to go to work for the defendant and to purchase B's shares in three instalments. It was a term of the agreement that M had to satisfy B that he had the ability to take over B's role as president of the company. M was advised by the company's accountant that it would be beneficial to all parties for M's services to be provided through a corporation, pursuant to a written services agreement. S asked M to prepare a written document. M obtained a standard form contract from his professional association and made a number of revisions. He struck out the termination provisions in the printed contract and inserted, in slightly larger type, a provision that if either the personal services contract or the agreement to purchase B's shares at the completion of the contract were terminated or changed, the company would pay compensation to M equal to two times the total remuneration already paid to M to date. M presented the agreement to S and asked him to read it. S signed the agreement without reading more than the first page. He did not read the termination clause. The company subsequently unilaterally terminated the services agreement. M brought an action to enforce the termination clause. The trial judge held that, in the circumstances under which the agreement was signed, M owed a duty to bring the termination clause to S's attention before S signed the contract. The trial judge purported to rectify the agreement by striking out the termination clause. He then dismissed the action. M appealed.
Held, the appeal should be allowed.
Absent a special relationship, the common law in Canada has yet to recognize that in the negotiation of a contract, there is a duty to have regard to the other person's interests. The failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. Nor is the fact that the clause was not subject to negotiations sufficient in itself. The law does, however, regulate contractual conduct between individuals through the imposition of three types of standards: unconscionability; good faith; and the fiduciary standard. The circumstances where the law requires more than self-interested dealing on the part of a party share certain characteristics. First, one party relies on the other for information necessary to make an informed choice, and, second, the party in possession has an opportunity, by withholding or concealing information, to bring about the choice made by the other party. If one party to a contract relies on the other for information, that reliance must be justified in the circumstances. The following five factors are indicative of situations where reliance is justified: (1) a past course of dealing between the parties in which reliance for advice, etc. has been an accepted feature; (2) the explicit assumption by one party of advisory responsibilities; (3) the relative positions of the parties, particularly in their access to information and in their understanding of the possible demands of the dealing; (4) the manner in which the parties were brought together and the expectation that could create in the relying party; and (5) whether trust and confidence has been knowingly reposed by one party in the other.
The trial judge erred in finding that before signing the contract, S was entitled to expect that M would specifically tell him about the termination clause because they had a fiduciary-type relationship. Although S and M were friends and S acted as a mentor in advising M on his career, M had no prior dealing and no relationship with B. The undisputed purpose of the services agreement was to facilitate the transfer of B's shares to M. M was at the mercy of B's discretion in that even if he raised the money for the first payment towards the purchase of B's shares, B still had to be satisfied of M's ability to run the company before transferring his shares. Without the termination clause, M had no protection from B. It was S who explicitly assumed advisory responsibilities and it was S who was in a position to influence M. M intended to leave the agreement with S to read and advised him to read it. S and B would have had ready access to the necessary information had it not been for S's precipitous act in deciding to sign the agreement after reading only the first page. M did nothing to pressure S to sign the agreement without reading it. The agreement was easy to read, and the changes to the standard form contract were easy to detect. S's failure to act reasonably in the circumstances should not exonerate the company from the terms of the contract. The negotiating tactics which S employed in the sale of B's shares indicated a commercial arm's-length approach to business dealings with M. He did not have regard for M's interests. He was not a "relying party" on M. Having regard to all the circumstances, S was not justified in law in expecting that he would not be bound by the termination clause in the services agreement when he signed it without reading it.
Before the remedy of rectification can be obtained, an applicant must establish: (a) that the written document in issue does not reflect the true intention of the parties; and (b) that the parties shared a common, continuing intention up to the time of signing the document concerning a matter that is not reflected in the agreement. In order for the trial judge to apply the doctrine of rectification, he not only had to find that the services agreement did not represent the common intention of the parties, he had to be positively satisfied as to what their common intention was. In the absence of any common intention as to what was to happen if the services agreement were unilaterally terminated, rectification was inapplicable. Before the signing of the services agreement, there was no common intention nor any understanding as to what would happen if the company unilaterally terminated M because there was never any discussion about it beforehand.
Even if the doctrine of rectification were applicable to a unilateral mistake when the contract is no longer capable of performance, it would be inappropriate to apply it in this case.
APPEAL from a judgment of Cullity J. (1998), 1998 14745 (ON SC), 41 B.L.R. (2d) 219, 41 C.C.E.L. (2d) 118 (Ont. S.C.J.) dismissing an action to enforce a termination clause in a contract.
Cases referred to Bell v. Lever Brothers Ltd., [1931] All E.R. Rep. 1, [1932] A.C. 161, 101 L.J.K.B. 129, 146 L.T. 258, 48 T.L.R. 133, 76 Sol. Jo. 50, 37 Com. Cas. 98 (H.L.); Can-Dive Services Ltd. v. Pacific Coast Energy Corp. (2000), 2000 BCCA 105, 134 B.C.A.C. 19; Craven v. Strand Holidays (Canada) Ltd. (1982), 1982 1859 (ON CA), 40 O.R. (2d) 186, 142 D.L.R. (3d) 31 (C.A.); Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 1996 1232 (ON CA), 28 O.R. (3d) 327, 133 D.L.R. (4th) 550, 1 R.P.R. (3d) 1 (C.A.), revg (1993), 1993 8633 (ON SC), 14 O.R. (3d) 528, 33 R.P.R. (2d) 27 (Gen. Div.) [Leave to appeal to S.C.C. refused (1996), 96 O.A.C. 233]; Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1, 148 D.L.R. (4th) 496, 32 B.L.R. (2d) 1, 35 C.C.L.T. (2d) 298 (C.A.); Freedman v. Mason, 1958 7 (SCC), [1958] S.C.R. 483, 14 D.L.R. (2d) 529; H.F. Clarke Ltd. v. Thermidaire Corp., 1973 41 (ON CA), [1973] 2 O.R. 57, 33 D.L.R. (3d) 13, 9 C.P.R. (2d) 203 (C.A.), revd 1974 30 (SCC), [1976] 1 S.C.R. 319; Hartog v. Colin & Shields, [1939] 3 All E.R. 566 (K.B.); L'Estrange v. Graucob (F.) Ltd., [1934] All E.R. Rep. 16, [1934] 2 K.B. 394, 103 L.J.K.B. 730, 152 L.T. 164 (D.C.); Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860, 2000 SCC 60, 186 F.T.R. 231n, 193 D.L.R. (4th) 1, 262 N.R. 285, 36 R.P.R. (3d) 175, 3 C.C.L.T. (3d) 1; Montreal Trust Co. of Canada v. Birmingham Lodge Ltd. (1995), 1995 438 (ON CA), 24 O.R. (3d) 97, 125 D.L.R. (4th) 193, 21 B.L.R. (2d) 165, 46 R.P.R. (2d) 153 (C.A.); Pointe Anne Quarries Ltd. v. "M.F. Whalen" (The) (1921), 1921 57 (SCC), 63 S.C.R. 109, 63 D.L.R. 545; Stepps Investments Ltd. v. Security Capital Corp. (1976), 1976 648 (ON SC), 14 O.R. (2d) 259, 73 D.L.R. (3d) 351 (H.C.J.); Tilden Rent-A-Car Co. v. Clendenning (1978), 1978 1446 (ON CA), 18 O.R. (2d) 601, 83 D.L.R. (3d) 400, 4 B.L.R. 50 (C.A.) Authorities referred to Finn, P., "The Fiduciary Principle" in T. Youdan, ed., Equity, Fiduciaries and Trusts (Scarborough, Ont.: Carswell, 1989) Gonthier, Hon. Charles D., "Liberty, Equality, Fraternity: The Forgotten Leg of the Trilogy, or Fraternity: The Unspoken Third Pillar of Democracy" (2000), 45 McGill L.J. 567 Story, J., Commentaries on Equity Jurisprudence, as Administered in England and America, 13th ed. (Boston, Little, Brown, 1886) Waddams, S.M., The Law of Contracts, 3d ed. (Toronto: Canada Law Book, 1993)
Brian P. Bellmore and Karen M. Mitchell, for appellant. John P. Brown and Patrick Hill, for respondent.
The judgment of the court was delivered by
WEILER J.A.:--
Overview
1The respondent, Cornell Engineering Company Limited ("Cornell"), unilaterally terminated its contract (hereinafter called the Services Agreement) with the appellant, 978011 Ontario Ltd., for the services of Glenn Macdonald ("Macdonald"). The appellant brought an action to enforce the clause in the contract that provided for compensation upon unilateral termination. In the alternative, the appellant claimed damages at common law for the wrongful dismissal of Macdonald. Robert Stevens, who signed the Services Agreement on behalf of the respondent, did not read the termination clause before signing it. Stevens and his partner, Remzi Bimboga, are the sole shareholders, officers and directors of the respondent. The trial judge held that, in the circumstances under which the Services Agreement was signed, Macdonald owed a duty to bring the termination clause in the agreement to Stevens' attention before Stevens signed the contract. The trial judge purported to rectify the Services Agreement by striking out the termination clause. After striking out the termination clause, the trial judge dismissed the appellant's action in its entirety.
2The appellant submits that Macdonald did not conceal the termination clause from Stevens and that he had no duty to draw the termination clause to the attention of Stevens simply because outside of the business relationship Macdonald and Stevens maintained a personal relationship as friends. The appellant further submits that the doctrine of rectification does not apply when, as here, the mistake is unilaterally Stevens' and the contract is no longer capable of performance.
3For the reasons that follow, I would agree with the appellant that Macdonald had no duty to draw the termination clause to Stevens' attention. I say this for two reasons. First, although there was a relationship of trust between Stevens and Macdonald, it was one in which Stevens acted as a mentor and was in a position of ascendancy, not dependency, with respect to Macdonald. Second, Macdonald discharged his duty, if one existed, when he advised Stevens to read the contract. If Stevens had followed Macdonald's advice he would have had the means to ascertain the terms of the clearly visible termination clause.
4The trial judge also erred when he purported to rectify the contract by striking out the termination clause. In order for the remedy of rectification to apply, there must be a mutual intention between the parties concerning what would happen in the event Cornell unilaterally terminated the Services Agreement. There is no evidence that such a mutual intention existed. The parties had never discussed what was to happen in the event Cornell unilaterally terminated the Services Agreement. Even if the doctrine of rectification were applicable to a unilateral mistake when the contract is no longer capable of performance, it would be inappropriate to apply it in this case.
The Facts
The parties
5Macdonald, aged 41, is a qualified professional engineer with aspirations to own a business. He is the sole shareholder, director and officer of the appellant corporation.
6Bimboga is also 41 years of age. He studied and worked abroad and emigrated from Turkey to Canada in 1985. Around this time, he met Stevens and they went into business together. Because of his uneasiness with the English language, he relied on Stevens' articulateness, knowledge and familiarity with the Canadian business scene. Stevens took care of "external" matters while Bimboga concentrated on the "internal" and production side of the business.
7Stevens is 70 years of age and a very experienced businessperson. He holds a Masters Degree in Business Administration from Harvard University. Prior to purchasing Cornell in 1990, he was the owner of Beatty Brothers, an appliance manufacturer. He also was the Vice-Chair and a member of the Board of Directors of General Steelwares, a company which had $600 million in annual sales. As Vice-Chair, the presidents of the six divisions of General Steelwares reported to him. He is knowledgeable and experienced in matters of contract negotiation and formation.
8Stevens was a friend of Macdonald's family for many years and had acted as a mentor to Macdonald on business matters since January 1992, providing business and career advice to him. Macdonald valued their relationship and respected Stevens. He did not question Stevens or his expertise on business matters and looked up to him as a role model.
9Cornell was incorporated in Ontario in 1945 and carried on the business of stamping metal to be used in the manufacturing of household appliances. Stevens and Bimboga purchased Cornell in 1990 and were the sole shareholders, officers and directors of Cornell. Stevens owned 51 per cent of the Cornell shares and Bimboga owned the remaining 49 per cent. Stevens and Bimboga had financed the total purchase price of Cornell in 1990.
Events leading up to the signing of the Services Agreement
10In or about 1992, Bimboga developed health problems and decided to sell his shares in Cornell. There was a Shareholders Agreement between Stevens and Bimboga containing a buy-sell clause. This clause required Stevens to sell his shares unless a purchaser could be found for Bimboga's interest. It was in Stevens' interest to find a purchaser for Bimboga's shares.
11In June 1992, Macdonald sought Stevens' personal advice regarding the purchase of another company that Macdonald was in the process of negotiating. During the meeting, Macdonald began to consider the opportunity of working for Stevens and to learn more about the business as an employee.
12By letter dated June 23, 1992, Macdonald raised the possibility of working under Stevens at Cornell. He stated that he could not "imagine a more exciting or rewarding opportunity", that he would "never let Stevens down", and that he would "love to give [Stevens] a chance to pass on some of [his] expertise to someone who is willing, eager, and more than capable to sop it up like a dry sponge. I would love to be that sponge".
13As a result of this letter, Stevens met with Macdonald on June 26, 1992. After Macdonald indicated he would be interested in working for Cornell, Stevens suggested that Macdonald might want to buy Bimboga's interest. Stevens also suggested that, when he retired, Macdonald might acquire his majority interest as well.
14Over the next several months, Stevens and Macdonald discussed the possible terms for Macdonald to purchase Bimboga's interest in Cornell. Initially, Stevens advised that the price of Bimboga's shares was $1,000,000. Then Stevens advised that Bimboga had changed his mind and did not want to sell his shares. A few weeks later, Stevens told Macdonald that Bimboga would sell his shares for $1,150,000. Later, he again told Macdonald that Bimboga had changed his mind.
15In September 1992, Stevens told Macdonald that Bimboga would sell his shares for $1,450,000. Macdonald did not ask why the price kept increasing. (Bimboga testified that his asking price for his shares was always $1,450,000. Stevens testified that it was his negotiating style to advise Macdonald that the shares were not for sale.)
16Macdonald was to make a first payment of $650,000 for Bimboga's shares in January 1995. Cornell was to provide financing for $150,000, leaving Macdonald to obtain financing for the remaining $500,000. During a two-year period Macdonald also had to satisfy Bimboga that he had the ability and experience to take over Bimboga's role as president of Cornell.
17On October 5, 1992, Stevens advised Macdonald that Bimboga had agreed to the flexible closing date and to pay a salary of $55,000. As a result of the agreement, Macdonald declined a salary of $135,000 per year as President of Don Park and did not pursue further interviews for a position at Noranda. Macdonald began work at Cornell on January 4, 1993.
The Services Agreement
18Stevens arranged for Macdonald to meet with Cornell's accountant on February 17, 1993. The accountant advised that it would be beneficial to both Cornell and Macdonald for his services to be provided to Cornell through the appellant corporation, pursuant to a written Services Agreement. Stevens asked Macdonald to prepare a written agreement.
19Macdonald had not previously prepared such an agreement. He obtained a copy of an 11-page printed contract for the provision of engineering services from his professional association as a guide. He prepared two copies of the printed agreement on which he made a number of revisions to the standard form document -- striking out some of the clauses and attaching labels over the deleted clauses on which he had typed other terms. The amendments to the first page of the document described the services to be performed for Cornell over a period of two years for an annual fee of $55,000.
20Macdonald struck out the termination provisions in the printed contract and opposite them inserted the following clause in slightly larger type:
1.7 Without the mutual consent of the Client and the Engineer, should either this contract or the agreement to purchase 49 per cent of Cornell Engineering Company Ltd. by Glenn Macdonald at the completion of this contract, be terminated or changed, the following terms shall be honoured:
(a) the engineer and Glenn Macdonald shall be released from all conditions and commitments associated with both this contract and the agreement to purchase 49 per cent of Cornell Engineering Company Ltd.
(b) the client shall pay compensation to the Engineer at a rate equal to two times the total remuneration already paid to the Engineer to date.
There had been no prior discussion between the parties as to what would occur if Macdonald's employment was terminated and he did not purchase the shares of Cornell.
21On March 3, 1993, Macdonald presented two copies of the Services Agreement to Stevens at his office and asked that Stevens read the agreement. Macdonald was anticipating that Stevens would need time to review the 11-page contract and would likely suggest some amendments. In his evidence-in-chief, Stevens testified that he asked Macdonald, "Does this cover what you want, what you want to do?" to which Macdonald replied, "yes". In cross-examination, Stevens testified that he asked Macdonald, "Is this agreeable to you?" to which Macdonald responded, "Is this agreeable to you?" Stevens then told Macdonald, "It looks like you've covered everything you wanted."
22Stevens acknowledged that he knew it was important to read a document before execution, because once signed one would be bound by the document whether it had been read or not. He admitted that he read and agreed with the terms described on the first page of the Services Agreement and specifically agreed to the provisions regarding the performance of the described services over a two-year period at the rate of $55,000 per year.
23There was no pressure on Stevens to sign the Services Agreement. Because Stevens was in a position of ascendancy, Macdonald testified that he did not consider it appropriate to demand that Stevens read the Agreement before signing it.
Performance of the Services Agreement
24From January 4, 1993 to July 4, 1994, Macdonald provided the services referred to in the Services Agreement and the appellant rendered monthly invoices. On August 26, 1993, Macdonald, Stevens and Bimboga reviewed a third and final draft of an agreement containing the terms of the share purchase upon which they had all agreed (the "Skeleton Agreement"). The substantive provisions of the Skeleton Agreement were as follows:
-- Cornell shall redeem all shares owned by Bimboga and re- issue shares to Macdonald on a pro-rata basis as he pays for them.
-- The price paid by Macdonald to Bimboga for his share interest shall be $1,450,000.00 payable in the following way:
(a) $500,000.00 payable on January 4, 1995,
(b) $300,000.00 payable on January 6, 1997,
(c) $650,000.00 payable on January 8, 1999.
-- Macdonald may pay Bimboga the $300,000.00 sum prior to January 6, 1997.
-- Interest shall be calculated monthly on the unpaid portion of the $300,000.00 at a rate of prime plus 1 per cent and paid by Macdonald to Bimboga on January 5, 1996 and January 6, 1997.
-- The closing date may be earlier than January 4, 1995 should it be agreed by Stevens, Bimboga, and Macdonald.
-- Bimboga shall be available for a period of three months after the closing date to assist in the daily operations of Cornell.
25When Macdonald reviewed the draft documentation prepared by Cornell's solicitors, he advised Stevens that it was not satisfactory. Stevens advised Macdonald that revisions to the draft should be deferred until Macdonald had obtained financing for the share purchase.
26Macdonald made extensive efforts to obtain financing for the purchase of Bimboga's shares. By July 1994, about 18 months into the Services Agreement, these efforts had not been successful. Macdonald admitted that there was no point in continuing the Services Agreement if he could not obtain financing but he still hoped to do so.
27On July 4, 1994, Bimboga requested a meeting during which he and Stevens told Macdonald that they would not pay for services rendered during the month of June 1994 and would not pay any future remuneration. They also demanded that Macdonald sign the share purchase documentation in the form prepared by Cornell's solicitors and immediately deliver a $60,000 deposit to Bimboga. Macdonald was told that unless he agreed to those demands, "the deal was dead." Macdonald requested an opportunity to speak to a financial or legal advisor.
28On July 5, 1994, after meeting with his advisors, Macdonald advised Bimboga and Stevens that he was not prepared to work without remuneration but would provide a $60,000 deposit to be placed in trust upon signing a mutually acceptable share purchase agreement. Bimboga, however, continued to demand that he be paid $60,000 immediately or he would sue Macdonald for the salary already paid, legal costs and "suffering".
29Shortly before trial, Macdonald received payment from Cornell for services rendered in June.
The Trial Judge's Reasons
30The following excerpts encapsulate the trial judge's reasons, reported at (1998), 1998 14745 (ON SC), 41 B.L.R. (2d) 219 at pp. 238-41, 41 C.C.E.L. (2d) 118 (Ont. S.C.J.):
No cases were cited by counsel in which a contract was avoided, or equitable relief granted, on the ground of a unilateral mistake that consisted of one [party's] ignorance of the existence of a particular term in a written agreement. However, I do not believe that there can be any material distinction in principle between such a case and those like Stepps Investments Ltd. v. Security Capital Corp. (1976), (1977), 1976 648 (ON SC), 14 O.R. (2d) 259] where, unknown to one of the parties, provisions had been omitted or a case such as Hartog v. Colin & Shields, [1939] 3 All E.R. 566 (Eng. K.B.) where an offer for sale of a commodity was mistakenly expressed in terms of a particular price per pound instead of per piece.
In considering the legal effect of Stevens' mistake, the relationship between the Services Agreement and the oral contract of employment between Cornell and Macdonald that preceded it is of the utmost importance. The latter contained no provision for compensation to Macdonald in the event of a termination of the Share Purchase Agreement or of negotiations for such an agreement. The question had not been discussed.
The substitution of the Services Agreement for the contract of employment was made primarily for tax purposes. Although the objects of the Services Agreement were defined in terms of specific projects to be completed by the Plaintiff through Macdonald -- and although there is evidence that Macdonald worked diligently to complete them -- the evidence is overwhelming that the main purpose of the Services Agreement was the same as that of the employment contract: to permit Macdonald to acquire the necessary knowledge and expertise to satisfy one of the preconditions for a share purchase. It was, as I have mentioned, conceded that, if the parties agreed not to proceed with the share purchase, the Services Agreement would terminate. In my judgment, Bimboga and Stevens would have been quite reasonable in assuming that the Services Agreement would contain nothing substantive that was not in the employment contract, other than the procedures discussed with the tax expert from Price Waterhouse for the purpose of giv ing tax efficacy to an agreement for services to be provided by the Plaintiff through its employee, Macdonald.
The possible qualification that must be considered arises from Mr. Bellmore's submission that, even if all the above facts were proven, equitable relief should be denied as the mistake arose from Stevens' negligence in not reading the agreement. Mr. Bellmore relied heavily on the decision of the Court of Appeal in Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1, and, in particular, on the following passage from the judgment of the Court delivered by Robins J.A. [at p. 2]:
As a general proposition, in the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread: . . . Failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. A businessman executing an agreement on behalf of a company must be presumed to be aware of its terms and to have intended that the company would be bound by them. The fact that Mr. Gordon chose not to read the contract can place him in no better position than a person who has. Nor is the fact that the clause is in a standard pre-printed form and was not a subject of negotiations sufficient in itself to vitiate the clause. L'Estrange v. Graucob, [1934] 2 K.B. 394 at p. 403, . . . Craven v. Strand Holidays (Canada) Ltd. (1982), 1982 1859 (ON CA), 40 O.R. (2d) 186 (C.A.) at p. 194 . . .
In the circumstances of that case the Court of Appeal held that the trial judge was in error in finding that it was an "unacceptable commercial practice" for the party who prepared the contract to fail to bring the clause in dispute to the attention of the other party. The Court found that there was no special relationship existing between the parties that imposed any such obligation.
In the circumstances of this case, I find that such a special relationship existed. Stevens was Macdonald's mentor. He had taken a genuine and great interest in Macdonald and his career plans and had been generous with his advice and assistance. As far as Macdonald's career was concerned, the relationship was more akin to that of a parent than just a family friend. They were working towards an association that in everyday language could be described as a partnership and that, in my view, would have much the same fiduciary implications. Macdonald had been effusive in his gratitude to Stevens and had assured him that he would never let him down. Stevens trusted Macdonald completely and relied upon him to prepare the Services Agreement in accordance with their prior discussions. In these circumstances I believe that Stevens was entitled to assume that Macdonald would not present him with an agreement that contained important provisions that were not in the employment contract without drawing their existence to his attention. When, contrary to his accustomed practice, Stevens proposed to sign the Services Agreement without reading beyond the first page, Macdonald chose to remain silent notwithstanding his knowledge that Stevens was unaware of the existence, and purported effect, of paragraph 1.7. While Macdonald had no obligation to actively advance or protect Stevens' interests during their negotiations -- the relationship was not a fiduciary one in that sense -- Macdonald had, in my judgment, a sufficient obligation to act in good faith towards Stevens to require disclosure of the existence of paragraph 1.7: Waddams, The Law of Contracts (3rd ed., 1993), paras. 427-33; Finn, "The Fiduciary Principle", in Essays in Equity, Fiduciaries and Trusts, T.G. Youdan ed., (Carswell, 1989), at pp. 16-24. Stevens' alleged negligence arose out of his reliance that Macdonald would act in good faith. Macdonald did not do so and, in my judgment, he is not entitled to rely on the terms of the paragraph.
The Law
31The law to be applied to this case is not really in issue. A succinct formulation of the law is found in Can-Dive Services Ltd. v. Pacific Coast Energy Corp. (2000), 2000 BCCA 105, 134 B.C.A.C. 19 by Southin J.A. at para. 137, in which she quotes J. Story, Commentaries on Equity Jurisprudence, as Administered in England and America, 13th ed. (Boston, Little, Brown, 1886), vol. 1, paras. 147-55. Story states that a unilateral mistake as to a material term of a contract will afford a ground of relief in equity where the mistake operates as a fraud or surprise upon the ignorant party. However, Story adds at para. 147:
But in all such cases the ground of relief is not the mistake or ignorance of material facts alone, but the unconscientious advantage taken of the party by the concealment of them. For if the parties act fairly, and it is not a case where one is bound to communicate the facts to the other upon the ground of confidence or otherwise, there the court will not interfere. . . .
32This quote encapsulates the fact that we have a judicial system that emphasizes individual responsibility and self- reliance. Generally, parties negotiating a contract expect that each will act entirely in the party's own interests. Absent a special relationship, the common law in Canada has yet to recognize that in the negotiation of a contract, there is a duty to have regard to the other person's interests, namely, to act in good faith: see Bell v. Lever Brothers Ltd., [1932] A.C. 161, [1931] All E.R. Rep. 1 (H.L.), and more recently, Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, 2000 S.C.C. 60 at para. 73. In keeping with the principle of self-reliance imposed by law on each party to a contract, the failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. Nor is the fact that the clause was not subject to negotiations sufficient in itself: see Fraser Jewellers (1982) Ltd. v. Dominion Electric Prot ection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1 at p. 10, 148 D.L.R. (4th) 496 (C.A.); L'Estrange v. Graucob (F.) Ltd., [1934] 2 K.B. 394 at p. 403, [1934] All E.R. Rep. 16.
33The law does, however, regulate contractual conduct between individuals through the imposition of three types of standards: unconscionability, good faith and the fiduciary standard. All three standards are points on a continuum in which the law acknowledges a limitation on the principle of self-reliance and imposes an obligation to respect the interests of the other. They are defined by P. Finn, "The Fiduciary Principle", in T. Youdan, ed., Equity, Fiduciaries and Trusts (Scarborough, Ont.: Carswell, 1989), 1 at 4 as follows:
"Unconscionability" accepts that one party is entitled as of course to act self-interestedly in his actions towards the other. Yet in deference to that other's interests, it then proscribes excessively self-interested or exploitative conduct. "Good faith", while permitting a party to act self- interestedly, nonetheless qualifies this by positively requiring that party, in his decision and action, to have regard to the legitimate interests therein of the other. [See Note 1 at end of document] The "fiduciary" standard [See Note 2 at end of document] for its part enjoins one party to act in the interests of the other -- to act selflessly and with undivided loyalty. There is, in other words, a progression from the first to the third: from selfish behaviour to selfless behaviour. Much the most contentious of the trio is the second, "good faith". It often goes unacknowledged. It does embody characteristics to be found in the other two.
34The circumstances where the law requires more than self- interested dealing on the part of a party share certain characteristics. First, one party relies on the other for information necessary to make an informed choice and, second, the party in possession of the information has an opportunity, by withholding (or concealing) information, to bring about the choice made by the other party. See Finn, supra, at pp. 17-18 [See Note 3 at end of document] and Waddams, The Law of Contracts, 3d ed. (Toronto: Canada Law Book, 1993), at para. 438. If one party to a contract relies on the other for information, that reliance must be justified in the circumstances. Finn, supra, suggests at p. 20 that the following five factors are indicative of situations where reliance is justified:
(1) A past course of dealing between the parties in which reliance for advice, etc., has been an accepted feature;
(2) The explicit assumption by one party of advisory responsibilities;
(3) The relative positions of the parties particularly in their access to information and in their understanding of the possible demands of the dealing;
(4) The manner in which the parties were brought together, and the expectation that could create in the relying party; and
(5) [W]hether "trust and confidence" knowingly [has] been reposed by one party in the other.
35The presence of one of these elements alone will not necessarily suffice to justify the imposition of a duty in law on the other. Dependence, influence, vulnerability, trust and confidence are of importance only to the extent that they evidence a relationship suggesting an entitlement not to be self-reliant: see Finn, supra, at p. 47. While the relationship may be the foundation for the entitlement, in and of itself, the relationship does not create the entitlement. The entitlement arises either because one party has no ability to readily inform himself or herself by accessing important information or because one party has an inability to appreciate the significance of the information. That inability may be due to a cognitive disability or it may arise out of the circumstances created by the other party. To determine whether the entitlement is created, regard must be had to all the circumstances.
Issue on Appeal
36The trial judge found that prior to signing the contract, Stevens was entitled to expect that Macdonald would specifically tell him about the termination clause because they had a fiduciary-type of relationship. Was he correct? The answer to this question requires a more detailed examination of the facts and the trial judge's findings.
Analysis
37The trial judge found that a special relationship existed between Macdonald and Stevens based on the following factors: Stevens had previously advised Macdonald about career prospects; they were working towards a partnership and partners owed one another a fiduciary duty. Despite these findings, the trial judge found at para. 65, "Macdonald had no obligation to actively advance or protect Stevens' interests during their negotiations." Therefore, the relationship was not a fiduciary one.
38However, based upon Stevens' complete trust in Macdonald, the trial judge found that Macdonald had an obligation to act in good faith towards Stevens. He went on to hold that this obligation to act in good faith required Macdonald to disclose the existence of the termination clause to Stevens, and that Stevens should not be held responsible for his own negligence in failing to read the agreement because he had trusted Macdonald and relied on him to prepare the Services Agreement.
39I respectfully disagree that Stevens was justified in law in relying on Macdonald to bring the termination clause to his attention. In reaching his conclusion, the trial judge relied on Finn, supra, and Waddams, supra. I will also follow the indicia used by these authors as a guide in my conclusion.
(1) Past course of dealing
40When Stevens signed the Services Agreement, he did so on behalf of Cornell. Although Stevens and Macdonald were friends and Stevens acted as a mentor in advising Macdonald on his career, Macdonald had no prior dealing and no relationship with Bimboga, the other person affected by the Agreement. The undisputed purpose of the Services Agreement was to facilitate the transfer of Bimboga's shares in Cornell to Macdonald. Macdonald was at the mercy of Bimboga's discretion in the sense that even if he raised the money for the first payment towards the purchase of Bimboga's shares, Bimboga still had to be satisfied of Macdonald's ability to run the company before transferring his shares. Without the termination clause, Macdonald had no protection from Bimboga.
41It is also important to recall that Macdonald turned down a salary of $135,000 as President of Don Park for an indefinite period in return for a two-year employee position for $55,000. In this context, the termination clause in the Services Agreement, although one-sided, was not unreasonable. Furthermore, by entering into the Services Agreement, Macdonald was potentially relinquishing his common law protection from wrongful dismissal. In these circumstances, the inclusion of a termination clause in the agreement was not unusual.
42At para. 58, the trial judge considered Hartog v. Colin & Shields, [1939] 3 All E.R. 566 (K.B.) and Stepps Investments Ltd. v. Security Capital Corp. (1976), 1976 648 (ON SC), 14 O.R. (2d) 259, 73 D.L.R. (3d) 351 (H.C.J.) and concluded that there is no material distinction in principle between those cases and the present one. In both Hartog, supra, and Stepps Investments, supra, the parties had specifically discussed and agreed to a term of a contract that was then unilaterally changed without notice to the other party.
43It appears that the trial judge was of the opinion that since Macdonald had already started work for Cornell, all of the terms of his employment had been agreed upon and therefore the termination clause was a unilateral change to the oral agreement. Technically, the parties to the oral contract were not the same as the parties to the written contract. The oral contract was entered into by Macdonald personally, the written contract was entered into by the appellant corporation. More importantly, there was no discussion, and no prior agreement between any of the parties regarding termination.
44Upon seeing the 11-page agreement, Stevens must have known from the length of the document that it contained terms other than the few that had been agreed upon orally. The terms that had been agreed upon orally, namely, compensation of $55,000 per annum, at the rate of 1/12 per month, and the duration of the agreement, two years, were all on the first page which Stevens read.
(2) Explicit assumption by one party of advisory responsibilities
45It was Stevens who explicitly assumed advisory responsibilities and it was Stevens who was in a position to influence Macdonald.
(3) Relative positions of the parties, particularly in their access to information and in their understanding of the possible demands of the dealing
46Macdonald intended to leave the agreement with Stevens to read and in fact advised him to read it. Stevens and Bimboga would have had ready access to the necessary information had it not been for Stevens' precipitous act in deciding to sign the agreement after reading only the first page. Macdonald did nothing to pressure Stevens to sign the agreement without reading it.
47The Agreement was easy to read with clear headings including the heading "Termination" in bold. The changes to the standard form were easy to detect. After the heading "Termination" there is a line drawn through the remainder of the pre-printed portion that remains visible on the right-hand side. The amendment that is typed in is located on the opposite side and stands in slightly larger type than the pre-printed font and is clearly worded. Stevens could readily have accessed the information concerning the termination clause by simply reading the Services Agreement.
48In Stepps, supra,5 part of the rationale for the decision of Grange J.A., that there was a duty on the party making a change to the agreement to draw it to the attention of the other side, was that the significance of the change was not easy to detect. That is not the situation here. Nor is this a case where a party has accepted a standard form contract containing onerous and verbose provisions in small type and in circumstances where it could not reasonably be expected for the signing party to read to the contract: see Tilden Rent-A-Car Co. v. Clendenning (1978), 1978 1446 (ON CA), 18 O.R. (2d) 601, 83 D.L.R. (3d) 400 (C.A.). In this case, Stevens, an experienced person in signing contracts, had the opportunity to examine the documents, and was encouraged to do so. The clause is plainly visible, clearly worded and capable of being detected as in Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 1996 1232 (ON CA), 28 O.R. (3d) 327, 133 D.L.R. (4th) 550 (C.A.), leave to appeal to the S.C.C. refused (1996), 96 O.A.C. 233; Craven v. Strand Holidays (Canada) Ltd. (1982), 1982 1859 (ON CA), 40 O.R. (2d) 186, 142 D.L.R. (3d) 31 (C.A.). Stevens' failure to act reasonably in the circumstances should not exonerate Cornell from the terms of the contract.
(4) The manner in which the parties were brought together and the expectation that could be created in the relying party
49The negotiations for the sale of Bimboga's shares, carried out through Stevens, involved the use of a negotiation "tactic". Stevens represented that the sale was on, then off, then on again, returning each time to Macdonald with an increase in the purchase price. In acting in this manner Stevens did not have regard for Macdonald's interests and therefore this conduct would not require Macdonald to have regard for Stevens' interests. The negotiating tactic that Stevens implemented indicates a commercial arm's-length approach to business dealings with Macdonald. The actions of Stevens do not suggest that he, on behalf of Cornell, was a "relying party" on Macdonald.
50In deciding what the expectations of the parties were at the time the contract was signed, the court is entitled to have regard to the parties' actions after the signing of the contract: Montreal Trust Co. of Canada v. Birmingham Lodge Ltd. (1995), 1995 438 (ON CA), 24 O.R. (3d) 97 at p. 108, 125 D.L.R. (4th) 193 (C.A.). When Cornell withheld payment to Macdonald under the Services Agreement in June 1994, the trial judge found that Stevens, "supported or at least acquiesced in, and associated himself with Bimboga's threats to cause Cornell to discontinue the payments". Both before and after the signing of the contract, Stevens' actions do not give rise to a reasonable expectation that Macdonald would have regard for his interests.
(5) Whether trust or confidence has knowingly been reposed by one party in the other
51The trial judge found that Stevens trusted Macdonald completely and Macdonald knew this. He found in effect that Macdonald took advantage of that trust. The trial judge appears to conclude that Macdonald took advantage of this "special relationship" without adequate consideration of all the circumstances. As Finn, supra, indicates, the presence of trust and confidence may be the foundation for a reasonable expectation that one party should have regard to the interests of the other but it, alone, will not create that obligation. Stevens was in an advisory position to Macdonald, it was not the other way around. Quite apart from advancing Macdonald's interests, when their interests did not coincide, Stevens appears to have had no regard for Macdonald's interests in his dealings with him. As a sophisticated and experienced businessperson, Stevens had the cognitive ability to appreciate the significance of the document he was signing. That ability was not impaired as a result of any act by Macdo nald.
52Having regard to all of the circumstances, Stevens was not justified in law in expecting that he would not be bound by the termination clause in the Services Agreement when he signed the agreement without reading it.
(6) Is rectification applicable?
53Before the remedy of rectification can be obtained an applicant must establish: (a) that the written document in issue does not reflect the true agreement of the parties, and (b) that the parties shared a common, continuing intention up to the time of signing the document concerning a matter that is not reflected in the agreement: Can-Dive Services Ltd. v. Pacific Coast Energy Corp., supra, at para. 159; H.F. Clarke Ltd. v. Thermidaire Corp., 1973 41 (ON CA), [1973] 2 O.R. 57 at pp. 64-65, 33 D.L.R. (3d) 13 (C.A.) (revd on other grounds, 1974 30 (SCC), [1976] 1 S.C.R. 319); Pointe Anne Quarries Ltd. v. "M.F. Whalen" (The) (1921), 1921 57 (SCC), 63 S.C.R. 109 at pp. 126-27, 63 D.L.R. 545.
54In order for the trial judge to apply the doctrine of rectification, he not only had to find that the Services Agreement did not represent the common intention of the parties, he had to be positively satisfied as to what their common intention was. In the absence of any common intention as to what was to happen in the event that the Services Agreement was unilaterally terminated, rectification is simply inapplicable. Prior to the signing of the Services Agreement, there was never any common intention or understanding as to what was to happen in the event that Cornell unilaterally terminated Macdonald because there was never any discussion about it beforehand. The trial judge accepted Stevens' evidence that he would not have signed the agreement had he known of the termination clause. There is no evidence, however, that Macdonald would have signed the Services Agreement without the termination clause.
55In view of my conclusion, it is unnecessary for me to deal with the other issues raised by the appellant.
Conclusion
56I would allow the appeal, set aside the judgment of the trial judge and grant judgment in accordance with the termination clause in the Services Agreement with costs here and at trial to the appellant.
Appeal allowed.
Notes
Note 1: At pp. 11-12, Finn, supra, gives examples of relationships where a duty of good faith has been imposed. These include an applicant applying for insurance; a doctor counselling a patient on a proposed treatment.; the possessor of superior information dealing with one to whom that information is not reasonably accessible.
The duty of good faith requires the person exercising a power or discretion to have regard to the other person's interests but this does not necessarily mean that the other person's interests are paramount; see Freedman v. Mason 1958 7 (SCC), [1958] S.C.R. 483, 14 D.L.R. (2d) 529; The Hon. Justice Charles D. Gonthier, "Liberty, Equality, Fraternity: The Forgotten Leg of the Trilogy, or Fraternity: The Unspoken Third Pillar of Democracy" (2000), 45 McGill L.J. 567 at pp. 583-84, subtitled "Good Faith in Contracts".
Note 2: Well-known categories of fiduciary relationships that come to my mind here include solicitor-client, trustee and cestui que trust, parents and children under age, adults and "ancient" parents, and relationships where one of the parties has some known infirmity. Before enforcing a contract in these relationships, acourt will want assurance that in entering into the contract the ascendant party acted only with regard to the dependent party's interests.
Note 3: Although Finn's comments are directed to the circumstances in which a fiduciary relationship will be found, I am of the opinion that they are equally applicable to the circumstances in which a lesser duty of good faith will be imposed.
