Rectifying Sloppy Agreements

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A 25-page court decision out of the Supreme Court of British Columbia has triggered today’s blog posting. The decision describes a convoluted, time-extended, back-and-forth negotiation over a set of interrelated, broker-prepared offers to buy and sell. In that marketplace, such documents signed by the offering party and “accepted” by the other one become “contracts of sale and purchase.” The back and forth with these documents began in early February, After a number of handwritten changes and the addition of a couple of pages, they were finally “accepted” in late July.

There were a few issues with the wording of the three separate “contracts,” one for each of the three properties being sold. We will focus on two of those “issues,” but will describe all those we think the court described.

One of the main issues had to do with the way the buyer’s name was shown. It appeared in multiple places in each contract. The actual buyer’s name included the word “Investment,” but the broker who first prepared the documents wrote “Development.” Fortunately, for the sake of sanity, the buyer noticed these errors and made corrections, but just not thoroughly enough. By way of example, the name printed above the buyer’s signature line in one of the contracts read “Development” when it should have read “Investment.” Both companies actually existed and they, in fact, were related entities.

The other main issue was that the prices rose and fell as the negotiations progressed. When the seesaw came to a halt, the preprinted prices for two of the contracts were overwritten with their respective final figures. The new prices were handwritten in both words and numbers. One read as follows: “One Million One Hundred and Fifty ($1,150,000).” The other looked like this: “One Million One Hundred Thousand ($1,190,000).”

Wherever these handwritten changes were made to the buyer’s name or to the purchase prices, both buyer and seller initialed the changes.

In the interest of our reader’s time, we’ll note only one more “anomaly.” It appears that one of the initial documents had five pages and each of those pages was identified as “X/Y,” X being the page number and Y being the total number of pages. So, the last page of the originally prepared document was numbered: “6/6.” Along the way, three additional pages were added as: “5/7,” “6/7,” and “7/7.” What is more, pages 1/6 through 6/6 (the originally prepared document) were signed by both buyer and seller, whereas pages 5/7 through 7/7 of the rider were signed only by the seller.

Page “6/6” of the original document contained two clauses numbered 3.1 and 3.2. The author of pages “6/7” and “7/7,” apparently enamored with those particular clause numbers, used them again for very similar provisions. Along with the “name” error and the “price” error, the court needed to deal with this “peculiarity.” [For good measure, in its own written decision, the court, in its decision paragraph 36 refers to these clauses as being cited in paragraph 34 of the decision. In reality, they were cited in paragraph 33. Sloppiness must be contagious.]

The seller sought to repudiate the contracts based on the theory that they neither actually identified a definite buyer nor set out definite prices. [It also asserted that there was no “offer and acceptance,” a legal requirement for a binding agreement.] The buyer responded with a lawsuit asking the court to “rectify” the contracts.

Frankly, we don’t know where we’ve been all of these years, but Ruminations has no memory of ever hearing about a principle of contract construction called: “rectification.” Perhaps it is a unique Canadian “thing.” If it is, then kudos to our neighbors to the north. The principle makes sense. Just what is “rectification”? Well, in our longest ever “grab” from a court’s decision, here’s what we found describing “rectification” (with some clarifying editing on our part:

The principle of rectification can arise from the parties’ mutual mistake or a party making a unilateral mistake.

Rectification is an equitable remedy that courts may apply to various legal documents that stand as instruments expressing intended legal relations. Rectifiable documents can include contracts …

Rectification does not change the intended legal relation: it would not, for example, change the essence of the agreement between contracting parties. Rather, rectification changes an instrument’s mistaken expression of that intention.

Rectification is restorative, not “retroactive”: “[Rectification] is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other”

Since rectification restores a truth to an instrument’s expression, it acts, in time, from the point of instrument formation forward.

The party seeking rectification bears the onus.

For the court to exercise its equitable jurisdiction to rectify a document, a petitioner must satisfy the court that the request to rectify merely aligns the document with the true intentions underlying it, and that the aspects to be rectified are mistakes that obstruct the true intentions behind the document’s formation.

The governing test for rectification for a mutual mistake [is that] the applicant seeking rectification must establish[:]

  1. that the written instrument does not reflect the true agreement of the parties; and
  1. that the parties shared a common continuing intention up to the time of signature that the provision in question stands as agreed rather than as reflected in the instrument.

Rectification is available where it is established that the written agreement, which is purportedly still in effect, does not accurately record the parties’ agreement.

It is not available to rectify the agreement itself (such as when the parties say that the agreement has led to unintended or unexpected results).3. The standard of proof remains the civil standard of balance of probabilities.

The quality of the evidence, however, must be “clear, convincing and cogent.”

It, therefore, falls to a party seeking rectification to show not only the putative error in the instrument but also the way in which the instrument should be rectified in order to correctly record what the parties intended to do.

The court’s task in a rectification case is corrective, not speculative

Where, therefore, an instrument recording an agreed-upon course of action is sought to be rectified, the party seeking rectification must identify terms which were omitted or recorded incorrectly and which, correctly recorded, are sufficiently precise to constitute the terms of an enforceable agreement.

The inclusion of imprecise terms in an instrument is, on its own, not enough to obtain rectification; absent evidence of what the parties had specifically agreed to do, rectification is not available.

While imprecision may justify setting aside an instrument, it cannot invite courts to find an agreement where none is present.

The rest of today’s blog posting has been made very easy to write. In an understatement, the court characterized the documents as having been sloppily drafted. Based on what was presented to the court, it easily found that there was a definitely intended buyer. There was more than sufficient evidence to show that the agreed-upon prices were those shown by the “numbers,” and not the “words.”

Is today’s posting more than just a “story” and a revelation that Ruminations has learned about something called, “rectification”? No, it isn’t. Here what else we have to say.

We agree with almost all of what Bryan A. Garner recommends as to how to write contract documents. One on his “rules” is not to use both words and numbers, but to use only numbers. Years ago, Ruminations had a “Zen” moment and “converted” overnight to his position. Why use both? If the rule of construction for conflicts between the two is to validate words over numbers, then why use the numbers at all? But, words are confusing. By example, they aren’t how we are accustomed to seeing prices. What do price labels use? How do speed limit signs read? The bottom line: just use numbers. They are easier to proofread. Doing so will lead to fewer errors.

What about how we name or identify the parties? What is the purpose of using a party’s name over and over in a document, especially when the parties are also identified by their roles, such as “buyer” or “purchaser”? Once you’ve associated a party with its role, almost always in the very first paragraph of your agreement, just use that “label.” Then, if a party (often, the buyer) decides to create a special entity for the transaction, you don’t have to find every instance in the agreement where you had used the “old” name. There’s another benefit. If the agreement is assigned by the original party to another party, its rights and obligations clearly get transferred to the assignee and none remain with the “name” unless that is explicitly provided in the agreement. What is more, when the name of a party is intrinsically made part of a condition, such as “if XYZ Company’s tangible net worth falls below $10.00, then this Agreement will automatically terminate,” we won’t be asking if, after assignment, the test is to be applied to XYZ Company or to the assignee.

Just as importantly, let’s stop using “roles” that invite confusion and lead to common errors. How many times have each of us seen errors created by switching “offeror” and “offeree” in a document? Or, by switching “lessor” and lessee” in a lease? How about “buyer” or “prospective buyer” and “seller” or “prospective seller”? In the case we’ve described, there were both an “Investment” company and a “Development” company. What if the named buyer was “Investment” and the contract gave a due diligence right to the “Development” company? There would be nothing wrong with that, except that’s not what the buyer had in mind.

Yes, readers could reasonably argue that all we have laid out today is a case of “sloppiness” and that there is no real reason to change the way we write our agreements. In a perfect world, one where there was no such thing as sloppiness, not even a little or only rarely, that might be correct. But, this is the “real” world. That means we need to make structural changes to the way we write our documents with the purpose of reducing the opportunity for sloppiness. There might be a reader or two who have never been sloppy, but we wouldn’t be betting more than a nickel ($0.05) on that proposition.

[Bryan A. Garner is a prolific author about legal writing. Look for his books. A good place is at Amazon.com. He has a new volume coming out next week, “Guidelines for Drafting and Editing Contracts.” It might be worth exploring. Look for books by Kenneth A. Adams as well.]

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Comments

  1. Ira—I usually agree with all your posts but today I have a minor point of disagreement. Although I agree that using both words and numerals for numbers is unwise, I prefer using words rather than numerals because it is all too easy to transpose numerals or miss a typo; words may be harder to proofread but there is also less chance for error. —Bob

  2. I agree whole-heartedly about not stating monetary amounts in words. I often just use numbers for time periods too, but more often than not the lawyer on the other side inserts the words. Another smaller thing I do is define each amendment as the “Amendment,” not the “Third Amendment,” etc., so I don’t accidentally misname it within the document.

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