When entering into an agreement, ensure that your understanding of the agreement is in line with the understanding that a reasonable person would have.
If there is a mistake of terms in an agreement, the court will use an objective test that asks what would the reasonable person think the terms meant? Unless an unusual description of the terms of the agreement is clearly worded in a contract, an agreement between parties will be based on a reasonable individual’s point of view.
Hobbs v. Esquimalt and Nanaimo Railway Co. stands as precedent for this. In this case, E. & N. Ry. Co. (sales agent) executed an agreement to sell land to Frank Hobbs (Hobbs). Hobbs had thought that the sale of the land included mineral rights.
However, The Esquimalt and Nanaimo Railway Company (Railway Company) stated that the sales agent was not given permission to sell the mineral rights for the land, and that the Railway Company used the word land to mean land minus any mineral rights. Furthermore, the contract drafted between the two parties did not make any mention to the minerals rights of the land, and simply sought out to sell the land itself. Hobbs sued the Railway Company for mispresentation.
The court found that a misunderstanding by one party of an agreement is insufficient to invalidate a contract. Rather, the court decided to determine how a reasonable person would interpret the terms of the contract, for example, would a reasonable contracting party interpret the words to mean that the land and the minerals were sold?
The court ultimately decided that neither the Railway Company nor the sales agent had made any mention to the mineral rights of the land. Therefore, the mistake of assuming that the sale of the land included the sale of mineral rights was unreasonable and careless.
Confirm the Terms of the Agreement
An interesting case that predates Hobbs v. Esquimalt and Nanaimo Railway Co. rejected the use of an objective test and overlooked the view of a reasonable person.
The claimant, a gun manufacturer, was in contact with the defendant, a gun maker. The defendant asked the claimant for a sample of the claimant’s rifles that, if they were acceptable to the defendant, could potentially lead to an order of 50 rifles by the defendant from the claimant. The defendant also stated the price that he/she would be willing to pay.
The defendant later told an independent telegrapher to send a message to the claimant to send three (3) rifles. However, the telegrapher misheard and sent a message saying to send the rifles. As a result, the claimant sent all fifty (50) rifles, which the defendant subsequently refused to accept. The claimant later sued for breach of representation and warranty on the failure to honour the ordered quantity.
The court found that the defendant was not responsible for the telegraph operator’s mistake, because the telegraph operator was a third party to the agreement. Moreover, the court used a subjective test to come to this conclusion, in that they analyzed the intention of the buyer rather than a reasonable person’s interpretation of the situation. This case contradicts the court ruling within Hobbs v. Esquimalt and Nanaimo Railway Co. which applied a reasonable person test.
Ultimately, careful drafting and clarity of contract terms will assist you to avoid issues of this nature altogether.