September 10, 2014
It occasionally happens that a contract is drafted, but somewhere between the handshake and the printer, something goes horribly wrong. The written words do not match what was intended. If this is caught before signing, the rule of law is like the rule of basketball “no harm, no foul.” You fix the mistake before you sign.
But what if the error is not noticed until long after, when the parties are no longer friendly?
In those situations, the person who suffers from the error might go to court and seek a remedy called “rectification”.
Rectification is used to make sure that the parties’ documents express the parties’ intention at the time the document was finalized. The effect of rectification is to amend the contract by court order. This is different from when a contract is ambiguous – that is, where the words might be interpreted two different ways. Rectification is not used to repair ambiguities because the interpretation of an ambiguous agreement is an exercise that courts do all the time.
You can imagine that this does not happen easily, or everybody who made a bad deal would be lining up for rectification.
Rectification is what we call an “equitable remedy”. This means that it is a rule created by judges to provide relief when the result of the ordinary rules of law (like the courts enforcing written agreements as written) would result in an unfair result. Because it is an equitable remedy, it is discretionary. That is, the judge only awards it when it is fair to do so.
The biggest “maxim of equity” that the judge must consider is that a person seeking equity must have “clean hands”. This has nothing to do with washing up before dinner. It means that if you created the mess by acting improperly yourself, or tried to unfairly take advantage of it, you will not get the court’s assistance to fix your mess.
Another important maxim is “delay defeats equities” (or “equity aids the vigilant, not the indolent”) – so if you need rectification, you need to act soon after discovering the error. One reason a judge might not rectify the agreement is if other people would suffer harm as a result- a bank with a mortgage on the wrong property for instance.
There are certain elements that a court needs to find to grant rectification:
- There must be a document to be rectified- usually a contract- might also be a cheque, a release, a lease, a deed, a mortgage.
- There needs to be proof that both parties shared the same prior and continuing intention to agree to the same – something different than what is in the document to be rectified(sometimes called the “prior agreement”). The “continuing” aspect means proof that this common intention remained unchanged at the date that the document to be rectified was signed or agreed to.
- The prior agreement is best proven by “objective evidence” – which usually means some paper of some sort, but verbal evidence is acceptable – remember though it needs to be evidence of an agreement, not just of one person’s intention (that is what is called “subjective intent” – the judge does not care about that).
- The balance of the evidence must favour the side claiming an error was made. There used to be a rule that “convincing proof” was needed. That is no longer the law.
- Rectification is available where the mistake was “mutual”. That is, where the parties had the same intention or the same deal in mind, but not where each party understands something different, which means that there was no prior agreement, and thus, nothing to rectify.
- The person seeking rectification must be able to put into clear language the alternative wording needed to fix the mistake. The simpler the better – the judge will not rewrite the whole agreement.
- Rectification may be available where the mistake was unilateral or one-sided, but only in cases of fraud or sharp practice- for example where the drafter made a change in the final draft without pointing it out to the other side.
The best protection is of course avoiding errors in the first place. This is why, although home-made contracts may be enforceable in law, we recommend that any important agreement be drafted or reviewed by a lawyer, and you should be prepared to spend the time with the lawyer to make sure that your understanding of the deal is reflected in the document.
When good drafting fails, rectification, while not a remedy that we use frequently, is a valuable item in our tool kit, and one we need to use wisely and quickly where appropriate.