Miller Paving Ltd. v. B. Gottardo Construction Ltd.
86 O.R. (3d) 161
Court of Appeal for Ontario,
Goudge, Gillese and Lang JJ.A.
June 7, 2007
Contracts -- Mistake -- Plaintiff supplying materials to defendant for construction project -- Parties signing agreement in which plaintiff acknowledged that it had been paid in full for all materials supplied -- Plaintiff subsequently discovering that it had inadvertently failed to bill defendant for various loads of material -- Defendant having been paid by owner for material -- Doctrine of common mistake not available to plaintiff -- Agreement providing that plaintiff bore risk of mistake -- Subject matter of contract not becoming something different from what it was believed to be as result of mistake -- Mistake plaintiff's fault -- Defendant having altered its position as result of mistake.
The plaintiff supplied materials to the defendant for use in a construction project. The parties signed an agreement in which the plaintiff acknowledged that it had been paid in full for all the materials it had supplied. The plaintiff subsequently discovered that it had inadvertently failed to bill the defendant for various loads of material, and rendered a further invoice. The defendant refused to pay, although the defendant had itself been paid by the owner for most of the material. The plaintiff brought an action to recover the outstanding amount. The action was dismissed. The trial judge found that the agreement stood as a complete bar to the plaintiff's claim and that the misapprehension as to the facts did not justify setting the agreement aside. The plaintiff appealed, arguing that the trial judge erred in failing to properly apply the doctrine of common mistake to the agreement.
Held, the appeal should be dismissed.
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. If they have, that will govern. In this case, the agreement clearly allocated to the plaintiff the risk that payment in full had not been received. Even if the plaintiff could resort to the doctrine of common mistake, it could not succeed in setting aside the agreement. First, to apply the common law approach, the plaintiff had to show that as a result of the common mistake, the subject matter of the contract had become something essentially different from what it was believed to be. The subject matter of the agreement was the release of all further claims. Nothing about the mistaken assumption changed that subject matter. Second, to engage the equitable doctrine of common mistake, the plaintiff had to show that it was not at fault. The finding of the trial judge that the mistake was due to unexplained errors in the plaintiff's own procedures and was not in any way the responsibility of the defendant made this impossible. Then, if one were to add to the scales of equity the enrichment of the defendant that resulted, this would be offset by the finding that, as a result of the overpayment, the defendant had altered its position, purchasing equipment with the money. On the facts of this case, the court ought not to use its equitable jurisdiction to set aside the agreement for common mistake.
Bell v. Lever Brothers Ltd., [1932] A.C. 161, [1931] All E.R. Rep. 1, 76 Sol. Jo. 50 (H.L.); Solle v. Butcher, [1950] 1 K.B. 671 (C.A.), consd
APPEAL from the judgment of Loukidelis J., 2005 9204 (ON SC), [2005] O.J. No. 1206, 3 B.L.R. (4th) 66 (S.C.J.), dismissing an action for recovery of cost of materials sold and delivered.
Cases referred to Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd., [2003] Q.B. 679, [2002] 4 All E.R. 689, [2002] 2 Lloyd's Rep. 653 (C.A.), not folld [page162] Authorities referred to McCamus, J.D."Mistaken Assumptions in Equity: Sound Doctrine or Chimera?" (2004) 40 Can. Bus. L.J. 46
Rocco Di Pucchio, for appellant. Martin Greenglass, for respondent.
The judgment of the court was delivered by
[1] GOUDGE J.A.: -- The appellant Miller Paving Limited ("Miller") contracted to supply aggregate materials to the respondent B. Gottardo Construction Ltd. ("Gottardo"), which then used the materials for a highway extension it had contracted to build for the owner of the highway. On December 20, 2001, Miller and Gottardo signed an agreement in which Miller acknowledged that it had been paid in full for all the materials it had supplied. Then, on January 31, 2002, it rendered a further invoice after discovering deliveries for which it had not billed Gottardo. Gottardo relied on the December 20 agreement to resist the claim, although Gottardo had itself been paid by the owner for most of these materials.
[2] Miller advanced its claim first on the basis of materials sold and delivered pursuant to its supply contract, and in the alternative, based on the doctrine of unjust enrichment. The trial judge found that the December 20 agreement stood as a complete bar to both, and concluded that the misapprehension as to the facts did not justify setting the contract aside.
[3] Miller appeals, arguing that the trial judge erred in failing to properly apply the doctrine of common mistake to the December 20 agreement.
[4] For the reasons that follow, I conclude that the trial judge reached the correct decision. I would therefore dismiss the appeal.
[5] The additional facts of relevance are straightforward and uncontested.
[6] In 1999, Gottardo contracted with SLF Joint Venture ("SLF"), the owner of Highway 407, to obtain and spread the aggregate materials required for an eight kilometre extension of the highway. Gottardo then contracted with Miller to supply the aggregate materials that it would use for the highway extension.
[7] Gottardo paid Miller an agreed price per ton, and SLF paid Gottardo a higher price per ton, the difference covering Gottardo's cost of placing, spreading and compacting the material. [page163]
[8] The procedure used for the supply of material by Miller was that each load would be weighed at its pit. On delivery to the highway site, a Gottardo employee would sign the delivery ticket as accepted. One copy was kept by Miller, one by Gottardo and one was forwarded to SLF.
[9] SLF paid Gottardo on the basis of the accepted delivery tickets. For its part, Miller sent invoices to Gottardo on a regular basis and Gottardo's accounts payables clerk, Ms. Sulcana, checked them against the delivery tickets and paid them subject to any variations she discovered. Up to the point of the disputed invoice, Gottardo had paid Miller more than $4,700,000 for more than 12,000 truckloads of material.
[10] The highway extension project was completed in September 2001, and at SLF's request, Gottardo signed a full and final release of all claims it might have against SLF.
[11] Gottardo delivered this release on October 4, 2001. Prior to doing so, Ms. Sulcana spoke to Miller's credit manager three times, on September 3, September 19 and October 2, to confirm that Miller had been fully paid by Gottardo. Subject to an outstanding balance owing of $190,528.17, Miller confirmed that this was so.
[12] Subsequently, on December 20, 2001, Gottardo provided Miller with a cheque for this outstanding balance, and at the same time the parties signed the following document:
Memorandum of Release
Date: December 20, 2001
Contractor: B. Gottardo Construction Ltd.
Supplier: Miller Paving Limited
Owner: SLF Joint Venture
Project: C1102E, Grading & Drainage, E2, Hwy. 407
The contract agreement between B. Gottardo Construction Ltd. (contractor) and Miller Paving Limited (supplier) for the supply of granular materials on the above referenced project is now acknowledged as being completed in full. The supplier acknowledges and agrees that payment in full has been received for the materials supplied.
This agreement is binding upon all parties as acknowledged and agreed to by signature forthwith; and accept the terms, conditions, and representations contained in this agreement.
Contractor: Supplier:
B. Gottardo Construction Ltd. Miller Paving Limited
[page164]
[13] Then, in late January 2002, Miller discovered that, through inadvertence, it had failed to bill Gottardo for various loads of material delivered between June 2001 and September 2001. As a result, it delivered an invoice to Gottardo for $480,603.95. At trial, the trial judge adjusted this amount downward to $448,669.64 based on a comparison with SLF's figures. Accordingly, Miller has reduced its claim to the latter amount.
[14] At first, Gottardo doubted that it had been paid by SLF for the material that is the subject of the disputed invoice. However, by the fall of 2002, it acknowledged that it had received payment from SLF for most of it.
[15] The trial judge found as a fact that there was no reason for Gottardo to know of any outstanding amounts owed to Miller when the December 20 agreement was signed, nor ought it to have known. Miller acknowledged at trial that at the time of the December 20 agreement, it told Gottardo that it had paid all Miller's accounts and that there were no more to come.
[16] The trial judge also found that Miller's failure to send the disputed invoice until early 2002 was due to a "gross oversight" that occurred within that company. Miller does not dispute this finding. At trial, it acknowledged that a single or series of internal processing failures led to the delay in invoicing, for reasons it simply did not know. Miller agreed that it was not asserting that Gottardo had any responsibility for the failure to invoice certain deliveries until January 2002.
[17] Finally, the trial judge found as a fact that the "windfall" funds received by Gottardo from SLF for these deliveries were expended by Gottardo in the purchase of equipment, thereby altering its position. There was ample evidence to support this finding, including that of Mr. Gottardo who testified that the purchases were made out of cash flows sourced from these funds and that the purchases would not otherwise have been made.
[18] In dismissing Miller's claim, the trial judge found that the December 20 agreement ought not to be set aside simply because of the misapprehension as to the facts, and that it was both a complete answer to any claim on the supply contract and a sufficient juristic reason to deny recovery for unjust enrichment, particularly given that Gottardo had altered its position after receiving the "windfall" funds.
Analysis
[19] The central issue in this appeal is whether the trial judge erred in failing to apply the doctrine of common mistake to set aside the December 20 agreement. Miller candidly acknowledges [page165] that if the trial judge did not err, that contract prevents it from claiming on the subsequent invoice for goods sold and delivered, and also constitutes a juristic reason to deny recovery for unjust enrichment.
[20] There can be no doubt that this is a case of common mistake. Miller and Gottardo reached an agreement on December 20, 2001 on the terms of their memorandum of release, but shared an error with respect to an important contextual circumstance, namely that all material supplied by Miller had been paid for by Gottardo. At the time, each thought that this was so. The question is whether in all the circumstances the contract should be set aside because of that common mistake. The court's task in such circumstances has been aptly described by Professor John D. McCamus in "Mistaken Assumptions in Equity: Sound Doctrine or Chimera?" (2004) 40 Can. Bus. L.J. 46 at p. 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.
[21] As in other areas of law, the Canadian doctrine of common mistake has drawn heavily on its English antecedents. The two most important cases are the 1932 decision of the House of Lords in Bell v. Lever Brothers Ltd., [1932] A.C. 161, [1931] All E.R. Rep. 1 (H.L.) and the 1949 decision of the English Court of Appeal in Solle v. Butcher, [1950] 1 K.B. 671 (C.A.).
[22] Bell articulated the test for determining whether a contract is void for mistake at common law. The well-known opinion of Atkin L.J. in that case is most often cited. His view was that for the doctrine to operate, it must be shown that the subject matter of the contract has become something essentially different from what it was believed to be. At p. 218 A.C., he said this:
Mistake as to quality of the thing contracted for raises more difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be.
[23] In Solle, Denning L.J. developed the equitable jurisdiction to set aside as voidable contracts that might be found enforceable at common law. This allowed the court to relieve for common mistake when it would be "unconscientious" in all the circumstances to allow a contracting party to avail itself of the legal advantage it had obtained, and where this could be done without injustice to third parties. At p. 693 K.B., Denning L.J. put the equitable approach to common mistake this way: [page166]
A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.
[24] As is well documented by Professor McCamus at p. 68 of his article, I think it is now undeniable that not just the common law doctrine of common mistake, but also the equitable doctrine, have been woven into the fabric of Canadian contract law. Indeed, in this appeal, neither party takes issue with that proposition.
[25] In England, however, the decision of Great Peace Shipping Ltd. v. Tsavliris Salvage (International) Ltd., [2003] Q.B. 679, [2002] 4 All E.R. 689 (C.A.), may have changed things for that country. In that case, after a detailed analysis, the Court of Appeal was of the view that Solle could not stand with Bell and therefore should not be followed. In addition to apparently eliminating the equitable doctrine, the court also elaborated and restated the test for declaring a contract void at common law. At p. 703 Q.B., the following is said:
[T]he following elements must be present if common mistake is to avoid a contract:
(i) there must be a common assumption as to the existence of a state of affairs;
(ii) there must be no warranty by either party that that state of affairs exists;
(iii) the non-existence of the state of affairs must not be attributable to the fault of either party;
(iv) the non-existence of the state of affairs must render performance of the contract impossible;
(v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.
[26] Great Peace appears not yet to have been adopted in Canada and, in my view, there is good reason for not doing so. The loss of the flexibility needed to correct unjust results in widely diverse circumstances that would come from eliminating the equitable doctrine of common mistake would, I think, be a step backward. In his article, Professor McCamus makes a very effective case to this effect. However, I need not finally decide that question here because, as I will show, this case does not turn on the existence or non-existence of the equitable doctrine. Whether or not Great Peace is applied, the appellant would not succeed in setting aside the December 20 agreement. [page167]
[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. See Great Peace, at p. 703 Q.B.
[28] In my view, the December 20 "Memorandum of Release" as it is titled, is just such a contract. It clearly provides that it is the supplier that "acknowledges and agrees that payment in full has been received for the materials supplied". Moreover, the billing practice here, as with most supply contracts, made it the responsibility of the supplier to determine what was owing for the material supplied and to then invoice for that amount. When the contract language is read in the context of this factual matrix, I conclude that the contract clearly allocates to Miller the risk that payment in full has not been received. I would therefore find that the December 20 agreement itself requires Miller to bear the consequence when that risk transpires, rather than allowing it to invoke the doctrine of common mistake.
[29] However, even if Miller can resort to the doctrine, I do not think it can succeed in setting aside the December 20 agreement.
[30] First, to apply the common law approach found in Bell, Miller must show that as a result of the common mistake, the subject matter of the contract has become something essentially different from what it was believed to be. With the payment of $190,528.17 of the same date, that subject matter was the release of all further claims, as the title of the agreement clearly implies. Nothing about the mistaken assumption changes that subject matter. And, even if the Great Peace reformulation of the common law doctrine of common mistake were the law of Canada, Miller would still not prevail. Apart from anything else, it would be required to show that the non-existence of the presumed state of affairs was not its fault. For the reasons set out below, it cannot do so.
[31] Second, to engage the equitable doctrine of common mistake as described in Solle, Miller must show that it was not at fault. The finding of the trial judge that the mistake was due to unexplained errors in Miller's own procedures and was not in any way the responsibility of Gottardo makes this impossible. Then, if one were to add to the scales of equity the enrichment of Gottardo that resulted, this would be offset by the finding that, as a result of the overpayment, Gottardo altered its position. I would therefore conclude that, on the facts of this case, the court [page168] ought not to use its equitable jurisdiction to set aside the December 20 contract for common mistake. It is not unjust for Gottardo to avail itself of the legal advantage it obtained.
[32] In summary, I conclude that the December 20 agreement itself precludes Miller from resorting to the doctrine of common mistake, but that even if it could do so, neither the common law doctrine nor the equitable doctrine of common mistake would result in the contract being set aside. Hence, Miller's claim must fail whether based on the claim for materials supplied or on the doctrine of unjust enrichment because the December 20 agreement stands in its way.
[33] The appeal must therefore be dismissed, with costs to the respondent Gottardo fixed at $15,000 inclusive of disbursements and GST. I would conclude by thanking both counsel for their able submissions.
Appeal dismissed.