Primer on Contract Interpretation (Part 3)

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In two earlier posts (see here and here), we reviewed the Alberta Court of Appeal’s guidelines to assist with basic contract interpretation (in Bhasin v. Hrynew). In this post we wrap up our primer on the Court’s guidelines. According to the Court:

  • Mental suffering is not compensated in contracts law (the only caveat is whether “harsh modes of termination” might trigger damages in the case of an employment contract).
  • What if one of the parties is at a significant disadvantage in bargaining power? Where two parties are negotiating and there is some inequality in “bargaining power, need, or knowledge”, that alone is not enough to justify an amendment to the terms of a contract. However, the court might be willing to step in and amend the terms of a contract in the case of “actual unconscionability”. What does “unconscionable” mean? It depends…. Here’s an example: In the recent case of Maloney v. Dockside Marine Centre Ltd., 2013 BCSC 395, an exclusion clause in a standard purchase-and-sale contract was consider by the court to be “unconscionable” because there was an inequality in the position of the parties, with a sophisticated and experienced vendor versus an unsophisticated purchaser.
  • What if you are negotiating and the other side makes a promise that never makes it into the agreement? There is a concept in contract law called “parol evidence”. This refers to evidence of verbal or extraneous negotiations or agreements between the parties, that might explain, interpret or alter the written terms of a contract. Think of all the discussions and email exchanges that never appear in the final written document… but they might help explain or shed light on certain provisions of the written agreement. The Court has indicated that such evidence should be used very conservatively. An “entire agreement” clause can validly exclude this type of evidence of previous negotiations or promises (assuming there is no actual fraud). In other words, do not rely on this type of evidence to explain the written agreement. If you want a certain term or promise in the agreement, then it should appear in writing.
  • “Courts should be especially wary of altering or interpreting creatively formal contracts carefully negotiated and written, with legal advice”; and finally
  • “Courts should not attempt after the fact to rewrite a contract to accord with what the court now thinks, or one party now believes, is more just or more businesslike, especially in the full light of hindsight.”

Topics:  Canada, Contract Interpretation

Published In: Civil Remedies Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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