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The courts are frequently asked to resolve disputes around the meaning of certain words in contracts given, as they often are, to drafting by the parties themselves, and not legal experts. A wide range of general interpretation rules guide the courts in their inevitable (and unenviable) task of having to interpret a contract which is, on the face of it, ambiguous:
If both parties agree on a certain interpretation to be given to a term in a contract, a court has no reason or justification for pursuing the matter further and should accept this interpretation.
A court will always try to discover the intentions of the contracting parties using the plain, ordinary and popular meanings of the words used. Reference to a common usage dictionary is perfectly in order. A court should not try to re-write a contract using interpretation rules but, rather, to use these rules to pinpoint the intentions of the parties at the moment of contract.
| Machintger v. Hoj Industries Ltd. (1992) | Courts will imply a term into a contract based on a test of "necessity.... In determining what is necessary, regard must be had to both the inherent nature of a contract and of the relationship thereby established." Examples repeated by the court included the duty of care imposed on a servant, the duty not to disclose confidential information, not to betray secret processes or the duty of an employer not to require his employee to perform an illegal act. The court, in this case, said that the requirements for reasonable notice in employment contracts fall into the category of terms implied by law since this duty was not displaced by express contrary agreement. |
It should be assumed that no article of the contract is void of any meaning or superfluous but must have some purpose. It is only where no clear alternate interpretation is available to remove absurdity or ambiguity from an article, that the court will void an article of a contract.
A court can refer to words that have been crossed out, or words in headings, margins, recitals or preamble for the purposes of interpreting terms of the contract which are ambiguous.
Where ambiguity is an issue, a court may refer to the factual circumstances under which the contract was signed or agreed upon to assist in interpretation. These could include letters or earlier agreements but not earlier drafts.
The same word used in one place in a contract should be given the same meaning throughout the document.
The word " may " is permissive and not obligatory. The word "about", " approximately " or "almost" do not constitute any guarantee that the signatory will meet or exceed estimates worded in such a fashion unless performance falls significantly short of these estimates.
A court may even incorporate a business custom into a contract if it is so certain, universal and notorious as to be worthy of judicial notice unless this trade or commercial usage was unknown to one of the parties (or not reasonably known) or contradicted by a specific term in the contract. This would apply within the context of certain industries or professions which have standard operating procedures.
Where a contract is open to two different but equally probable interpretations, it is interpreted against the author, especially if there is a power imbalance between the parties (" verba fortius accipiuntur contra proferentem ").
| Scott v. Wawanesa Mutual Insurance Co. (1989) | If language of an insurance contract is ambiguous, the contra proferentem doctrine applies. But "when the wording is clear and unambiguous, courts should not give it a meaning different from that which is expressed by its clear terms, unless the contract is unreasonable or has an effect contrary to the intention of the parties." In this case, a majority of Canada's Supreme Court thought that the insurance clause in question was unequivocal and "the damages suffered by the appellants are clearly excluded." |
If a conflict develops between a type-written part and a hand-written insertion, the contract will be interpreted giving more weight to the hand-written part.
The " parol evidence rule " applies which holds that verbal evidence ("parol") will not be allowed to contradict a written contract. To this, there are several exceptions. For example, some provinces have trade practice legislation which, for consumer transactions, the parol evidence rule is set aside if the alleged verbal agreement purports to prove deception or unconscionability. The text of British Columbia's Trade Practice Act (as of January 1997) reads as follows:
"In a proceeding in respect of a consumer transaction, a rule of law respecting parol or extrinsic evidence, or a term or provision in a consumer transaction, shall not operate to exclude or limit the admissibility of evidence relating to the understanding of the parties as to the consumer transaction or a particular term or provision of it."
The parol evidence rule has been severely criticized by numerous law reform experts; that it is "ambiguous" and "more honoured in its breach than its observance." Nevertheless, it still forms an important part of Canadian contract law.
| Hawrish v. Bank of Montreal (1969) | Hawrish personally guaranteed a loan to a company but on the bank manager's assurance that the guarantee would be released if another guarantee, from the company's directors, was obtained. This latter guarantee was obtained but Hawrish's was not released. Nothing in the guarantee document suggested that it was of limited duration. "The appellant's argument fails on the ground that the collateral agreement allowing for the discharge of the appellant cannot stand as it clearly contradicts the terms of the guarantee bond which states that it is a continuing guarantee." |
| Bauer v. Bank of Montreal (1980) | "This (verbal or parol) evidence would go towards imposing a limit on the bank's rights with respect to the security given by the debtor. This would clearly contradict the terms of the guarantee which, as has been pointed out, gave the bank the right to abstain from registration and perfection of security. On this basis, it would be impossible under the parol evidence rule and any collateral agreement founded upon it could not stand." |
| J. Evans & Son (Portsmouth) Ltd. v. Merzario (Andrea) Ltd. (1976) | In a contract for the transoceanic shipment of goods, a clause stated that the shipper "reserves to itself complete freedom in respect of... procedure to be followed in the handling and transportation of the goods." But there was a verbal agreement in which the defendant promised that they would transport the plaintiffs cargo below deck. The court's decision: "The question is whether the company can rely on those exemptions. I do not think so. The cases are numerous in which oral promises have been held binding in spite of written exempting conditions... There was a plain breach of the oral promise." One of the judges thought that the contract was "partly oral, partly in writing.... In such a case the court does not require to have recourse to lawyers' devices such as collateral oral warranty in order to seek to adduce evidence which would not otherwise be admissible. The court is entitled to look at all the evidence.... One has to treat the promise that no container would be shipped on deck as overriding any question of exempting conditions." |
| Gallen v. Butterley (1984) | Subsequent to oral assurances that buckwheat would smother weeds, farmers entered into a contract which contained the words: "no warranty... pertaining to the seed sold... and will not in any way be responsible for the crop." The buckwheat planted did not act as a weed control and the crops were smothered and destroyed. The British Columbia court decided that the evidence showed an oral warranty that defeated the "the strong presumption" in favour of the written contract. It then issued a series of "comments" about the parol evidence rule:
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Where a law such as the Statute of Frauds requires a certain kind of contract to be in writing, it is enough that the contract be signed by the person against whom enforcement is sought even though the plaintiffs to a contract suit did not themselves sign the contract. Where a written contract is required, the contract should contain, as a minimum, the names and signature of the party against whom the contract is to be enforced, identification of the property and the price. Provincial legislation varies substantially on the requirement of a written document to ensure the enforceability of a contract. British Columbia only requires a written document for guarantee (answering for the debt or default of another) and land contracts. Manitoba has eliminated the Statute of Frauds entirely.
"Subject to this Act and any Statute in that behalf, a contract of sale may be made in writing, either with or without seal, or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties; provided that nothing in this section shall affect the law relating to corporations." {From B.C.'s Sale of Goods Act.}
| Dynamic Transport Ltd. v. Oak Detailing Ltd. (1978) | A contract for the sale of "four acres more or less" was challenged as being "not sufficiently certain to satisfy the Statute of Frauds." But the court constructed the contract, including reference to the conduct of the parties, to make reasonable adjustments for a warehouse that sat on the border of the proposed division. "Courts have gone a long way in finding a memorandum in writing sufficient to satisfy the Statute of Frauds," wrote the court. |
| Deglman v. Guaranty Trust Co. (1954) | A nephew said that while he lived with, and cared for, his aunt, she had promised him the house they lived in. Upon her death, the court rejected his claim because there was no written document as required under the Statute of Frauds for contracts concerning land. The court stated that to succeed in a case of this nature, the acts relied upon as part performance must be "as could be done with no other view or design than to perform that agreement." But the court did allow a quantum meruit claim for the value of his services, considerably less then the value of the real property. |
| Thompson v. Guaranty Trust Co. (1974) | A labourer worked with a farmer for fifty years, the latter promising to convey the property to him upon his death. This was done but the will was lost. The evidence showed total commitment by the labourer to the farm over the course of those fifty years and there was third-party testimony to the effect that the deceased farmer had stated his wish that the farm go to the labourer. The court allowed the land transfer to the labourer despite the absence of a written document required under the Statute of Frauds because of the circumstances, the evidence and that the actions of the labourer were referable to, and indicative of, a contract dealing with the farm. |
| Lensen v. Lensen (1984) | The court expounded on the requirements to circumvent the Statute of Frauds requirements for claiming a land contract without a written document. In this case, the large investments of the son could hardly be equated with that of a tenant. In addition, the court found that the son had passed up on other chances to buy land because he believed that the family farm had been dedicated to him. Acting upon the alleged contract to his detriment "is an important circumstance when determining whether or not the acts relied upon are sufficient enough." |
| Currie v. Thomas (1985) | On matters of contracts of sale of land and the requirement of a written document under the Statute of Frauds, if there was "sufficient part performance", the requirement of a valid written contract is lifted. Quoting from a 1976 English decision, Steadman v. Steadman, the court said that "to do this, the plaintiff has to prove that (i) on balance of probability he acted to his detriment; (ii) it was more probable than not he so acted because he was contractually obliged to the defendant to do so; (iii) such actions were consistent with the oral agreement which he alleges." |
Where a written and signed contract is required, a signature need not be at the end of the contract, as long as it does not appear to be restricted to one or more specific terms next to which it is apposed. The fact that a contract is hand-written by a defendant may suffice in lieu of signature. Initials may also be enough.
Alterations inserted after the time of signature, without the consent of the other party, are not permissible and may result in the rescission of the contract.
" Time is of the essence " means that any violation of deadlines contained in the contract will equate to a breach of contract. Any delay will allow the other party to terminate the contract. "Time is of the essence" can be presumed in some contracts.
A fine distinction is made with regards to articles that set out an amount another party must pay for non-performance (called " liquidated damages "). As a general rule, the court will not enforce penalty clauses but it will enforce articles which "pre-determine damages". The most important factor in determining whether a clause is a penalty clause or a pre-determination of damages is the reasonableness of the amount.
Exclusion clauses that prevent damage claims based on the contract are legal although they cannot operate to protect a party from fraud. Exclusions clauses must be brought to the attention of all parties and will be interpreted strictly against the author. A party can never agree to waive the right to address itself to a court of law absolutely and for all purposes for contractual redress although it can be bound to an agreement to prior arbitration or be bound to a waiver against a claim for damages. Mind you, even if a contracting party retains the right to petition a court, a court will, barring fraud, uphold a validly signed exclusion clause. All this may be tempered by provincial legislation. For example, many provinces have insurance and sale of goods legislation which restricts or regulates the use of exclusion clauses. However, the parties remain free to contract out of the provincial legislation.
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