A brief summary as to what this case means for you:

Although this case does not deal with franchise law specifically, its principles are applicable to the entering into and enforcement of franchise agreements, or contracts generally. Essentially, where a party is seeking to rescind a contract based on a mistake they made, the court will tend to uphold the contract unless: a) the mistake was evident on the face of the contract at the time of entering into the contract so as to prevent formation of the contract; b) the unmistaken party acts in a fraudulent or unconscionable manner; or c) the fulfillment and enforcement of the contract would be grossly unjust (with "grossly" being a very high standard to meet).

TORONTO TRANSIT COMMISSION v. GOTTARDO CONSTRUCTION LTD.

[2005] O.J. No. 3689, Ontario Court of Appeal
Borins, Feldman and Rouleau JJ.A.
September 7, 2005.

The Toronto Transit Commission (the "TTC") opened tenders for a major project. Gottardo Construction Limited ("Gottardo") was the lowest bidder. Shortly after the tenders were made public, Gottardo advised the TTC that it had made a $557,000 error in the tender amount. Gottardo claimed that it was not obligated to honour the tender amount because of the error. The TTC claimed that Gottardo was bound to honour the tender, and when Gottardo did not the TTC accepted another tender and sued Gottardo claiming damages of $434,000, being the difference between Gottardo's tender price and the tender which the TTC ultimately accepted.

At trial, the judge found that TTC's tender instructions were in such a form that a contract had not come into existence upon the opening of sealed tenders. Additional documents had to be provided, pursuant to the terms of the tender offer, prior to a contract coming into existence. The trial judge dismissed the TTC's claim. The trail judge went on to say, by way of aside, that even if she was wrong and a contract had come into existence, she would have granted Gottardo rescission on equitable grounds. The TTC appealed, and its appeal was allowed.

The issues on this appeal were threefold. The first is whether a contract was entered into when the tenders were opened. The second is whether Gottardo's error was apparent on the face of the tender documents so as to prevent formation of a contract. The third is whether equitable rescission was available to Gottardo.

In summary, the rule governing tenders, as set forth by the Supreme Court of Canada, is that when the parties intend to initiate contractual relations is determined by analysing the tender instructions. Analysing the tender instructions, the Court of Appeal found it was clear that the parties intended contractual relations to commence the moment that the tenders were opened. The tender was capable of acceptance by the TTC at any time from that point onwards up to a period of 120 days, during which time the TTC could request any additional documentation it felt it needed. Therefore, in answer to the first issue, a contract was entered into when the tenders were opened.

Turning to the second issue, the document containing the error showing the difference in the actual tender price compared to the tender price submitted, was not provided to the TTC until after the contract was formed. There was therefore no apparent error on the face of the tender documents so as to prevent formation of a contract.

Regarding the third and final issue, it is recognized that equitable rescission may only be granted in cases of unilateral mistake when the unmistaken party engaged in fraud or some other unconscionable conduct. As long as the unmistaken party knows of the mistake, without having caused it, the mistaken party cannot seek a suit for rectification on the grounds of mistake. The court conceded that some financial hardship would flow to Gottardo from enforcement of the contract, but there was no unique circumstance which would justify rescission of the contract. The court stated that "the burden imposed on Gottardo by the enforcement of the contract freely entered into is not so grossly disproportionate so as to make enforcement of it by the courts unconscionable."

Previous Featured Cases