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Chapter 11

BU231 Chapter 11

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Wilfrid Laurier University
Keith Masterman

1 READING NOTES 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 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
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