BU231 Chapter Notes - Chapter 11: Collateral Contract, Sobeys, Condition Precedent

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30 Mar 2013
Chapter 11: 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
oStrict / Plain – Meaning Approach
Restricts interpretation to the ordinary or dictionary meaning of a
word, words can still have many different definitions
oLiberal 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
oEg. Does ‘build’ imply supplying the materials
oTo build literally means to construct, but in many circumstances it may
include the supply of materials
oSince 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
oCourt is reluctant to accept direct testimony of one party rather than the
other, it will seek a corroboration from a third party most often
oAs a last resort a court will choose between versions, basing its decision
on the credibility of the parties themselves, which story seems more
Special Usage of Words
oAnother 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
oEvidence of special usage is not necessarily conclusive, a court may
decide that a word was used in its general manner, not special
Contra Preferentum
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