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BU231 OC - Chapter 10-13 Reading Notes.doc

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Keith Masterman

1 READING NOTES Chapter 10: The Interpretation of Contracts Parties may disagree about the meaning of a contract once its formed. We now discuss the nature of these disagreements and how they are resolved. Relationship Between Formation and Interpretation of Contracts When two sides disagree they can either realize that the original terms were too ambiguous for acceptance, and thus void, or concede different meanings In construing we are not dealing with fraud or deceit, each party believes their interpretation of the contract is correct and the other party is wrong Interpretation of Express Terms Two Approaches to Interpretation o Strict / Plain Meaning Approach Restricts interpretation to the ordinary or dictionary meaning of a word, words can still have many different definitions o Liberal Approach Looks to the purposes of the parties in drafting their agreement, what did they intend? Stresses circumstances surrounding the contract as well as negotiations, knowledge of each party How the Courts Apply the Approaches o Eg. Does build imply supplying the materials o To build literally means to construct, but in many circumstances it may include the supply of materials o Since there is an ambiguity the court will look outside the contract to surrounding circumstances Hear evidence of previous transactions between the parties, investigate whether materials were previously supplied Even look to whether there is evidence of discussing the cost of materials during negotiations How Courts Choose Between Conflicting Testimonies o Court is reluctant to accept direct testimony of one party rather than the other, it will seek a corroboration from a third party most often o As a last resort a court will choose between versions, basing its decision on the credibility of the parties themselves, which story seems more reasonable Special Usage of Words o Another important element is special usage of words in particular trades and in particular areas of the country ie. Build means strictly labour in carpentry in Ontario o Evidence of special usage is not necessarily conclusive, a court may decide that a word was used in its general manner, not special Contra Preferentum 2 If one side wrote the whole contract, then we should favorably rule towards the person with no input, Goal of the Courts: To Give Validity to Contracts Frequently it may seem easier to degree agreement unenforceable, but then courts would not encourage reliance on seriously made agreements Courts lean towards keeping an agreement alive o If at all possible the courts will assign a meaning to ambiguous words in order to make the contract enforceable Sale of Goods Act Definitions o Goods - means all property personal, other than things in action and money, and includes produce, industrial growing crops, and things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale; o Sale - includes a bargain and sale as well as a sale and delivery Caveat Emptor o Buyer beware Implied Conditions and Warranties o Title You have to own the good originally to sell it, have rights to sell it o Description Goods should match description in catalogue o Quality Previously used / refurbished If the buyer explicitly or implicitly demonstrates a need for a product from a seller of that type, there an implied condition that the goods will be reasonably fit for such purpose o Sample Your product should be same as the sample, free of defects o Role of Exemption Clause Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract If a party seeks to rely on one it should be brought to the attention of the other party Likely to be upheld if it is industry practice When dealing with the public sufficient notice needs to be given Contra preferentum will apply Parol Evidence Parol means outside of original agreement Involves information about negotiations outside the written contract May shed light on choice of words in current contract o Look to earlier drafts for any patterns in dialogue of developing contract Examples: earlier drafts of the contract, previous offers, letters, emails, phone messages 3 o Often used to prove misrepresentation, duress, mistake etc. Parol Evidence Rule According to this rule, a party cannot later add a term previously agreed upon between parties but not included in the final form of the contract o Eg. One party may persuade the other to leave a term out because it will be confusing or because the employer may object to it This evidence may not be used to add a term to an existing written contract. Exceptions: o Does not exclude evidence about the legality of the contract, the capacity of the parties, mistake, duress, undue influence or fraud. Why? Because these involve only the circumstances, not the written document itself o Written contract is not the entire agreement If a party can show that the writing was not intended to contain the whole contract, but merely a part of it, then you may introduce evidence of these oral terms Eg. A Producing a small written document for the bank of B to the effect that they will deliver # units of x in order for B to begin production.. Doesnt matter if the written document goes against the original document because its not meant as entire contract o Outside term is a collateral contract (has its own consideration) Entirely separate undertaking agreed on by parties, but not included in the written contract, probably because written contract seemed inappropriate place for it Collateral agreement may be enforced as a separate contract quite independent of written document As such it needs its own o/a/c/i to be considered as collateral o Condition precedent to the contract Condition precedent is any set of circumstances or events that parties stipulate must be satisfied or happen before their contract takes effect Doesnt need to be in writing, even if it falls within Statute of Frauds or Sale of Goods Act If the party claiming that a condition precedent was agreed on and not met can produce evidence to support the claim, a court will recognize it and declare the large written contract void Implied Terms Second approach is to consider whether the intention of the parties can be achieved only by acknowledging the existence of an implied term 4 o An implied term is a term not expressly included by both parties in the agreement, but would have reasonably included had they thought of the potential for problems in the future o Eg. Moorcock Doctrine Defendants owned a wharf, contracted that for a fee the Moorcock would be loaded at their port While the ship was docked there the tide went out and the hard ridge below the dock damaged the vessel The owner of the boat sued and recovered damages on the grounds that it must be presumed the defendants implied that the facilities were reasonable safe why? Because it was a necessary provision for carrying out the contract Courts try to restrict the circumstances for relying on the Moorcock decision, parties should bring up as many problems as possible before signing anything! o As a general rule, when parties deal expressly with a matter in their contract, it precludes a court from finding an implied term that deals with that matter in a different way o But, even in lengthy and complex contracts courts will reach a decision that a term may be implied so that the purpose of a contract will not be defeated Eg. If a land developer gets Sobeys as an anchor for customers at its new shopping mall, Sobeys is expected to have the store open and not just lease the s
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