Q.B. No. 2000 of A.D. 1981. IN THE COURT OF QUEEN'S BENCH JUDICIAL CENTRE OF REGINA BETWEEN: BETWEEN: FOSSIL FUEL DEVELOPMENT LTD., PLAINTIFF PLAINTIFF and and TUDEX PETROLEUMS LTD., DEFENDANT DEFENDANT AND BETWEEN: TUDEX PETROLEUMS LTD., PLAINTIFF BY COUNTERCLAIM and and FOSSIL FUEL DEVELOPMENT LTD., and SYDNEY LOVELL, DEFENDANTS BY COUNTERCLAIM W. J. HERLE for the plaintiff, P.J. GALLET for the defendant, GEATROS, J. This action is brought by Fossil Fuel Development Ltd. "Fossil" against Tudex Petroleums Ltd. "Tudex" for breach of contract claiming damages. The following scenario is illustrative of my determination of the facts on the evidence. Sydney Lovell is the principal officer of Fossil. Indeed, it is his company. He incorporated it for the purpose of becoming involved with Tudex. Andrew Crooks, Lionel Conn and Bill Molle were at the material time the three principal officers of Tudex. heard evidence from Lovell, Crooks and Conn. Molle was not called. That he was not required to testify found not to be factor on my assessment of the events as they unfolded. Conn is the main force behind Tudex. He and his father are the main shareholders. Crooks, lawyer, was brought into Tudex by Conn. He is the counsel for Tudex. Molle was until June, 1982, the chief financial officer of Tudex. Lovell made known to Conn his interest in becoming involved with Tudex. It was time when Tudex needed investment money. Tudex came into being for the purpose of exploring properties for oil and gas. Funds would be needed for drilling operations. Investment capital was foremost in the minds of Crooks, Conn and Molle. Tudex was not concerned where the investment capital should come from. Lovell held out that he had contacts in eastern Canada. He had no experience in, or knowledge of, the oil and gas field. He had most recently been involved in the operation of restaurant. He had sold art. But Lovell had impressed Conn in particular, as salesman. So in April, 1981, Lovell's company was retained by Tudex to survey the market in eastern Canada. The relationship between the parties is fairly stated in memorandum, dated April 19, prepared by Molle for Crooks, to the effect that Fossil would be retained "... to conduct marketing study of the Montreal and eastern Canadian market places relative to the willingness of these market places to participate with Tudex in series of drilling programmes .. It was agreed that the fee for the aforementioned study would be $31,500 and that the fee would be payable in advance." Tudex says the study was to take three months. The position of Fossil is that the period was six months. Whatever may have been the time frame the marketing study did not continue beyond June 2. That was when the parties entered upon the arrangement or contract constituting the basis of this action. At all events, the consideration of $31,500 was paid. The new contract is reflected in the letter written by Conn for Tudex to Fossil for the attention of Lovell: This is to confirm our understanding that you will engage Mr. Syd Lovell as Fund Development Officer and in that capacity you will cause Mr. Lovell to devote the bulk of his time to drilling fund program for Tudex Petroleums Ltd. in accordance with the terms of that drilling program established by Tudex from time to time and in consideration thereof, it is agreed that Tudex will pay to Fossil Fuel Development Ltd. the sum of $75,000 in twelve equal and consecutive monthly instalments of $6,250 each, such instalment to be payable on the last day of each calender month commencing June 30, 1981. The allegation of Tudex, consistent with its pleading, is that it was induced to engage Lovell as "fund development officer", through the medium of Fossil, by Lovell representing to Tudex that investment capital in significant sums was readily available, and that Lovell had access to such sums. Mr. Herle contends, as Lovell testified, that Lovell's only obligation was to introduce potential investors to Tudex, and then it was to be left to Tudex, through one of its officers, to meet with those people and explain to them the advantages of investing. find Lovell was of that view. But not so Tudex Lovell's retainer was to actually acquire funds which would be used to finance Tudex. reject the contention that Tudex was induced to enter into the agreement of June 2. There was no misrepresentation. But at the same time find that when Conn wrote the letter that day it was intended by Tudex that Lovell was obligated under the agreement (following the market study) to bring in investment capital, and Lovell thought his part in the venture was confined to the area of introducing potential investors. There was a misunderstanding. It may be classified as mutual mistake. In the words of Cheshire Fifoot, 9th ed. (1976), page 225, "Each is mistaken as to the other's intention, though neither realizes that the respective promises have been misunderstood." Much time and space has been taken up by counsel in oral and written argument having to do with the parol evidence rule. Mr. Herle argues that Tudex is seeking to contradict or vary the terms of the contract outlined in the letter of June 2, 1981. That is not so. There is no ambiguity. Lovell was hired as fund development officer. The question is what was intended by that designation. In Staidman Steel Ltd. v. Commercial Home Builders Ltd. (1977), 1976 CanLII 826 (ON SC), 71 D.L.R. (3d) 17, Southey, J., at pages 21 and 22, referred to the following statement of Blackburn, J. in Smith v. Hughes, L.R. Q.B. at page 607: "If, whatever man's real intention may be, he so conducts himself that reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms." Here mutual mistake existed. Tudex thought Fossil, through Lovell, was to bring in investment capital and Lovell thought his obligation did not extend to that. The applicable principle, stated by Southey, J. in the Staidman Steel Ltd. case, at page 22, is that "... the Court must decide what reasonable third parties would infer to be the contract from the words and conduct of the parties who entered into it. It is only in case where the circumstances are so ambiguous that reasonable bystander could not infer common intention that the Court will hold that no contract was created." In this case, have little difficulty in concluding reasonable man would infer contract conditional upon Lovell acquiring investment capital for Tudex. Indeed, the designation "fund development officer" and the phrase "drilling fund program" is indicative of that. There was contract to that effect binding on Fossil. The market study program was terminated prematurely. The time had come for Lovell to deliver the funds needed by Tudex. Lovell had indicated that identifiable investors were in place. There was an instance, for example, of an imminent likely investment of $500,000. And that was when the market study was still in progress. The market study could accomplish much of what Lovell says he was to do as fund development officer. It is not reasonable that the market study would be terminated and Lovell hired at monthly retainer of $6,250 if his new duties were to be more or less the same. That is not mere speculation. find it to be an irresistible inference to be made on the evidence. In the words of Grange, J. in Brooklin Heiqhts Homes v. Major Holdings Development Ltd. (1978) 1977 CanLII 1831 (ON SC), 80 D.L.R. (3d) 563, at page 570: ".. ".. The undertaking was not ambiguous, (Tudex) was not mistaken as to its meaning, had reasonable expectation which is entitled to protection and in no way contributed to the mistake of (Lovell). Upon any objective test the plain meaning of (the letter of June 2, 1981), and the meaning taken from it by (Tudex) could reasonably be inferred." Now, by September Tudex rightly concluded that the kind of performance it was entitled to expect from Lovell was not forthcoming. Lovell was not delivering for the monthly stipend he was being paid. No investment capital whatever had been received. So Tudex sought new relationship with Lovell. To that end there was telephone conversation between Crooks and Lovell. There followed letter, dated September 18, 1981, from Crooks, for Tudex, to Fossil directed to Lovell; "This letter will confirm our telephone conversation with you of September 18, 1981, wherein we agreed to substantial change in Fossil Fuel's relationship with the Tudor Group." (Tudex is part of the Tudor Group). No longer was there to be monthly retainer. Compensation would be negotiated on "deal-by-deal basis". Lovell denies that he agreed to the termination of Fossil's arrangement with Tudex outlined in the letter of June 2, 1981. Assessing the evidence relating to Lovell's conduct after Crooks' letter of September 18, find that he realized his relationship with Tudex, in the terms of the letter of June 2, 1981, was at an end. It is unnecessary to outline that evidence because upon my stated view of the matter it is of no moment whether Lovell agreed or not. When there was a failure of performance by Fossil in an essential part of the contract Tudex was entitled to repudiate it. The letter of September 18 effectively did that. So the claim of Fossil that there has been breach by Tudex entitling it to damages must be denied. In its counterclaim Tudex seeks rescission, not only of the contract of June 2, 1981, but also of the agreement relating to the market study. The dismissal of Fossil's action effectively releases Tudex from any further obligation under the contract of June 2, 1981. The repudiation of the contract by Tudex is legitimized. So an order for rescission is not necessary. And Tudex, having accepted the performance by Fossil on the marketing study and paid the consideration therefor, there is no basis for rescission of the agreement pertaining thereto. Tudex further counterclaims for judgment for $56,500, and damages. Presumably, that sum reflects $31,500 paid for the market study and $6,250 for each of the months of June to September, 1981 (a total of $25,000) on the agreement of June 2, 1981. The claim for $31,500 is rejected on the same ground that rescission of the agreement relating to the market study is disallowed. The claim for the balance, $25,000, is not well founded. It is implicit in Crooks' letter of September 18 that Tudex would forgo any claim for payments made to Fossil to the time of termination. That is so because the payment of the retainer for the month of September was enclosed by Crooks with the letter. Similarly, case for an award of damages apart from the claim for $56,500 has not been made out. final matter. Fossil amended its statement of claim to provide for claim of damages relating to common shares of Tudex. The allegation is that contemporaneously with the contract of June 2, 1981, it was agreed Fossil would purchase the shares and payment for same deducted from the monthly instalments of $6,250 under the primary agreement. That agreement having failed, Fossil's claim as regards the shares falls with it. The main issue was whether Fossil's allegation of breach of contract is well founded. have determined that it is not. would dismiss Fossil's claim with costs. would also dismiss the counterclaim of Tudex but, in the circumstances, without costs. DATED at the City of Melville, in the Province of Saskatchewan, this 31st day of July,A.D. 1984.
The Plaintiff contracted to provide market survey to the Defendant. Before its completion, the contract was replaced by second contract for Fund Development Officer. Each party had a different understanding of the duties of the Fund Development Officer which misunderstanding the Judge classified as a mutual mistake. The failure of performance by plaintiff entitled defendant to repudiate the contract. Defendant's counterclaim for rescission of first agreement, and repayment of monies paid under second agreement, failed where it accepted plaintiff's performance and paid consideration therefore.