Stephen A. Smith

Professor & William Dawson Scholar

Faculty of Law, McGill University

3674 Peel St.

Montreal, Quebec H3A 1W9

1-514-398-6633

I don't think that we can (always satisfactorily) explain mutual mistake in terms of an implied condition precedent, and have said so in print and so must really believe it (See A Burrows and E Peel, Contract Terms ch 6 pp 104-106). Just as frustration cannot  be adequately explained by implied conditions subsequent ("If the music hall burns down the agreement comes to an end").mutual mistake cannot always be satisfactorily explained by implied conditions precedent ("if the music hall does not exist, there is no contract") .

I think this because in many cases such an implication will be wholly artificial as it cannot be determined what the parties would have agreed if they had thought about the matter in advance. The court's task is not that of *positively* implying a condition. Rather the court's task is the *negative* one of construing the limits on the actual words the parties have used. Words are not intended to be absolute. So the word 'game' in relation to the babysitter is not intended to include knife throwing or poker although 'game' can include these things in other contexts. The word 'game' is qualified'.  Similarly in contract the limits of what has been contracted for must be ascertained, and where the promises do not upon their true construction cover the unforeseen situation, because the for example the subject-matter unforeseeably does not exist, the promises do not bind.

For myself I think there is a difference between inserting something which is, observably, not there, and construing the limits of what clearly is there. If a term is not there I can see how it might be inserted because it is " necessary to give business efficacy to the contract." I cannot quite see how we can insert something which is observably not present by asking what the words which are there "may be reasonably understood to mean". Construing the proper limits of words is rather different from adding in new clauses.

Rob

From: Kelvin F.K. Low [mailto:kelvin.low@gmail.com]
Sent: March-24-09 8:38 AM
To: obligations@uwo.ca
Subject: Re: [ODG] Implied terms

There are indeed many cases of mutual mistake whereby an implied condition precedent analysis would apply. Cases of res sua would certainly fall within this category. Provided there is no contrary intention, cases of res extincta probably would too. However, since Solle v Butcher at the earliest and Associated Japanese Bank at the latest, mutual mistake cases are cases falling beyond this analysis.

If frustration and mutual mistake are related doctrines, differentiated only on the basis of when the common assumption is falsified, then it seems sensible that mutual mistake cannot be explained on the basis of the parties' intentions. After all, it is a requirement for frustration to apply that the frustrating event be unforeseeable. This, of course, raises the question of what we mean by the parties' intentions. If, by the parties intention, we mean what they actually thought but failed to express, then it is difficult to understand how they can intend a particular result to follow an unforeseeable event. If that is true for frustration, that must equally be true of mutual mistake.

It is, of course, plausible that by the parties' intention, we do not mean their actual intention (given that the event was unforeseeable), but what they would have intended had their attention been drawn to that unforeseeable event at the time of contracting. The two types of implied intention are quite different. Until Stack v Dowden, the courts seemed to consider the latter type of implied intentio irrelevant. This seems to have been the case in contract, trusts, and statutory interpretation.

Such "implied" intention is regarded as fictitious because the parties never actually had the intention. It is, I suppose, unfortunate that the descriptions "fictitious" and "artificial" are regarded as carrying a perjorative overtone. I am hesitant to dismiss such fictitious "implied" intentions as inherently without value. There must be cases, perhaps many cases even, where it is not difficult to determine what the parties would have agreed at the time of contracting if they had indeed been forewarned of the unforeseen event. However, it is equally true that occasionally, the conclusion reached by the courts on the basis of such fictitious reasoning is conclusive and circular - where the assertion that, if the parties had been forewarned, they would have agreed on such and such a result, is nothing more than an assertion.

Certainly, if such fictitious implied intentions were a plausible device in divining the parties intentions, I don't see why the courts should limit themselves to implied conditions precedent (for mutual mistake) or implied conditions subsequent (for frustration). The parties could (theoretically) agree to an implied price escalation clause or any number of potential variations to the contract. But perhaps it would be unworkable to introduce an infinite variety of possible agreements?

But I digress. I think that the Privy Council's decision remains well within the orthodox and conservative view of real implied intentions and does not justify fictional implied intentions. This is not to say the device of real implied intentions may not be manipulated by the courts. It is easy enough to conclude that, on the evidence, this is what the parties really intended but did not express when the reason why the court really reaches its conclusion is because it feels that this ought to be the bargain between the parties.

Cheers,

Kelvin Low

2009/3/24 Jason Neyers <jneyers@uwo.ca>

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Jason Neyers
Associate Professor of Law & 
Cassels Brock LLP Faculty Fellow in Contract Law
Faculty of Law
University of Western Ontario
N6A 3K7
(519) 661-2111 x. 88435