BU231 Chapter Notes - Chapter 10: Contra Proferentem, Parol Evidence Rule

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26 Jan 2013
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BU231 Chapter 10 The Interpretation of Contracts
The Relationship Between Formation and Interpretation of Contracts
-Construing interpreting
-Most of the time parties do not have conflicting interpretations because they have understood each
other well enough to complete their bargain without dispute
-However, disagreements about interpretation of contracts are a common risk in business arrangements
The Interpretation of Express Terms
Two Approaches to Interpretation
-Strict or plain meaning approach an approach that restricts interpretation to the ordinary or
dictionary meaning of a word
-Liberal approach an approach that looks to the intent of the parties and surrounding circumstances,
and tends to minimize, but does not ignore, the importance of the words actually used
How the Courts Apply the Approaches
-Rather than choosing between them, a court will apply both approaches and choose the best meaning
for the circumstances
How the Courts Choose Between Conflicting Testimony
-Often parties to a contract give conflicting evidence about the circumstances surrounding its formation
-In order to decide which testimony to accept, the court will seek corroboration of one of their versions,
if possible, from a non-party or from the actions of the parties in relation to the contract
-It decides which story seems more reasonable
Special Usage of Words
-To interpret the express terms of a contract, the court begins with the dictionary definition of the
words used, and then examines their meaning in the context of this contract, these parties, and the
surrounding circumstances
-Another important element is evidence of special usage of words, particularly in regards to trades and
to areas of the country
-Evidence of special usage is not necessarily conclusive: a court may decide that the word was used in a
general rather than a special way, perhas the user of the word was aware that the other party was not
familiar with the trade usage
Special Types of Contracts
-Some types of contracts require special interpretation
-Contra proferentem a rule of contract interpretation that prefers the interpretation of a clause that is
least favourable to the party that drafted the clause
-Exemption clause a clause in a contract that exempts a party from liability
Predicting the Likely Decision of a Court
-The business person’s closest, if imperfect, substitute for this legendary figure must be her lawyer, who
can offer insight during drafting of the contract and when an interpretation dispute arises
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