Contract Law: Cause for Rescission
Douglas Wilhelm Harder, M.Math. LEL
Department of Electrical and Computer
Engineering
University of Waterloo
Waterloo, Ontario, Canada
ece.uwaterloo.ca
dwharder@alumni.uwaterloo.ca
© 2013 by Douglas Wilhelm Harder. Some rights reserved.
Cause for Rescission
Outline
An introduction to the engineering profession, including:
– Standards and safety
– Law: Charter of Rights and Freedoms, contracts, torts, negligent
malpractice, forms of carrying on business
– Intellectual property (patents, trade marks, copyrights and
industrial designs)
– Professional practice
• Professional Engineers Act
• Professional misconduct and sexual harassment
– Alternative dispute resolution
– Labour Relations and Employment Law
– Environmental Law
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Cause for Rescission
Rescission
Once parties enter into a contract, there may be
questions of equity where a court will allow a party of the
contract to rescind the contract
– This is a remedy for harm caused to one party of the contract
This can be done at any time and it involves the
unwinding of the obligations and benefits of all parties
– The goal is to return all parties back to the original state prior
(status quo ante) prior to the contract
Also called cancellation, reversing, etc.
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Cause for Rescission
Cause for Rescission
There are numerous cases whereby one party may
apply to the courts to rescind a contract:
–
–
–
–
Misrepresentation
Duress
Economic duress
Undue influence
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Cause for Rescission
Misrepresentation
A false statement or a false assertion of a fact is
described as a misrepresentation
If one party is influenced by a misrepresentation to enter
into a contract, that party can apply for a rescission of
the contract
– The deceived party will usually be given the option of voiding the
contract—that is, the contract will be made voidable by the
courts
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Cause for Rescission
Misrepresentation
There are two types of misrepresentation:
– Innocent and fraudulent
The options available to the injured party will depend on
the type of misrepresentation
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Cause for Rescission
Innocent Misrepresentations
An innocent misrepresentation occurs when a party
makes any false statement or false assertion of fact and
where the party does not appreciate the statement is
false
– The deceived party may, within a reasonable period of time upon
the discovery of the misrepresentation, apply for rescission
– The deceived party may also claim for damages with respect to
any losses that have resulted as a consequence of the contract
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Cause for Rescission
Fraudulent Misrepresentations
A fraudulent misrepresentation occurs when a party
makes a false statement or a false assertion of a fact
“(1) knowingly, or
(2) without belief in its truth, or
(3) recklessly, careless whether it be true or false.”
This description was made during Derry v Peek, 1889
“where the fact that an alleged belief was destitute of all
reasonable foundation would suffice of itself to convince the
court that it was not really entertained, and that the
representation was a fraudulent one.”
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Cause for Rescission
Fraudulent Misrepresentation
In the case of fraudulent misrepresentation, not only may
the deceived party apply for compensation of any losses
that may have occurred, they may also sue for additional
damages based on the fraudulent deception
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Cause for Rescission
Fraudulent Misrepresentation
If you commit fraud and another party to whom you owe
a duty of care has been harmed by that fraudulent act,
we will see later that you can be held liable
Fraud is, however, also a criminal act
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Cause for Rescission
Fraudulent Misrepresentation
Fraud
380. (1) Every one who, by deceit, falsehood or other fraudulent
means, whether or not it is a false pretence within the meaning of
this Act, defrauds the public or any person, whether ascertained or
not, of any property, money or valuable security or any service,
(a) is guilty of an indictable offence and liable to a term of imprisonment
not exceeding fourteen years, where the subject-matter of the offence
is a testamentary instrument or the value of the subject-matter of the
offence exceeds five thousand dollars; or
(b) is guilty
(i)
(ii)
of an indictable offence and is liable to imprisonment for a term not
exceeding two years, or
of an offence punishable on summary conviction,
where the value of the subject-matter of the offence does not exceed
five thousand dollars. million dollars.
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Cause for Rescission
Fraudulent Misrepresentation
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The Conservative government under Steven Harper has
added a minimum sentencing term for fraud over
$1,000,000:
Minimum punishment
(1.1) When a person is prosecuted on indictment and convicted of
one or more offences referred to in subsection (1), the court that
imposes the sentence shall impose a minimum punishment of
imprisonment for a term of two years if the total value of the subjectmatter of the offences exceeds one million dollars.
Cause for Rescission
Misrepresentation and Engineering
Any misrepresentation in an engineering design may
allow a party to rescind any contract resulting there from
Consider Township of McKillop v Pidgeon and Foley,
1908
– In this case, the specification gave the estimated amount of
excavation required for a particular project
– The contractor submitted a tender based on that submission
– It was found that the estimation was 16 % less than that required
– This would have eaten up any profit the contractor would have
benefitted from
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Cause for Rescission
Misrepresentation and Engineering
An error in an estimate will not, in general, allow a
contractor to sue for further funds and, in general, such
suits have failed
Consequently, the judge considered this to be an
innocent misrepresentation and gave the contractor the
option of repudiating the contract
– A repudiation is a declaration by a party to a contract that it does
not intend to fulfill the obligations of the contract
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Cause for Rescission
Duress
If a contract is entered into as a result of intimidation, it is
said that the intimidated party was under duress
“an act as a result of violence, threat or other
pressure against the person”
Duress may also include a threat of imprisonment, for
example, threatening to expose criminal behaviour to
intimidate an individual into entering into a contract
The duress may be directed against either a party or a
close relation
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Cause for Rescission
Economic Duress
On occasion, the courts will also entertain economic
duress, as in Gotaverken Energy Systems Ltd. v Cariboo
Pulp & Paper Co., 1993
– The owner required a refit of a boiler
– The contractor would be paid in excess of $24 million
– The project had to be completed during a shutdown period and
the contractor was to work two 11-hour shifts seven days a week
– Problems that were the responsibility of the owner resulted in
substantial losses for the contractor during the project
– The owner was ready to acknowledge these
– The contractor, however, threatened to reduce the working hours
from 154 hr/wk to 36 ½ hr/wk unless the contract was rewritten
– The new contract was thrown out but the contractor did still
receive additional costs of $6 million
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Cause for Rescission
Undue Influence
When one party has significant influence on another in
forcing the other party to enter into a contract, it is said to
be undue influence
– This is usually restricted to family situations where the positions
are significantly unequal
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Cause for Rescission
References
[1]
[2]
[3]
[4]
D.L. Marston, Law for Professional Engineers, 4th Ed., McGraw Hill, 2008.
Julie Vale, ECE 290 Course Notes, 2011.
Wikipedia, http://www.wikipedia.org/
Criminal Code of Canada
http://laws-lois.justice.gc.ca/eng/acts/C-46/page-180.html#h-105
These course slides are provided for the ECE 290 class. The material in it reflects
Douglas Harder’s best judgment in light of the information available to him at the
time of preparation. Any reliance on these course slides by any party for any other
purpose are the responsibility of such parties. Douglas W. Harder accepts no
responsibility for damages, if any, suffered by any party as a result of decisions
made or actions based on these course slides for any other purpose than that for
which it was intended.
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