Principles of Contract Law

Millennium Veterinary Hospital Corporation v. SR & R Bay Ridges Ltd., 2007 CanLII 28328 (ON SC)

[13] The relevant contract principles are as follows:

i. The plain, literal and ordinary meaning of a written contract shall be given effect

[14] The cardinal rule in the interpretation of a written contract shall be governed by the written word and in particular the plain, literal and ordinary meaning of the written word in the contract unless to do so would result in absurdity. Wallis v. Smith (1882), 21 Ch.D. 243 (C.A.), Warren D. Beamish Enterprises Inc. v. Innocan Inc. [1994] O.J. No. 1460.

ii. Parole evidence shall only be admitted where the contract is ambiguous

[15] Where the language of a written contract is unambiguous, no extrinsic parole evidence may be admitted to alter, vary, interpret or contradict in any way the words used in the document. <i?Hawrish v. Bank of Montreal, 1969 CanLII 2 (SCC), [1969], S.C.R. 515, Fridman, The Law of Contract (2nd) 1986, Craighampton Investments Ltd. v. Ayerswood Developments Ltd. et al (1984) 4 O.A.C. 124 (C.A.). S.M. Waddams in The Law of Contracts (5th) 2005 a para. 329 provides that “it is well established that parole evidence may be admitted to amplify an incomplete description.”

[16] Rulings as to what evidence may be admitted in a case involving the interpretation of a contract ought to be made by the judicial officer charged with the resolution of the main issue. That judge will have all of the facts and is best placed to determine whether the language is ambiguous and whether to turn for help to one or more of the kinds of extrinsic evidence which may be available. Zeitler v. Inmet Mine Corp. [2001] O.J. No. 5022.

iii. The parties’ intention in forming the contract shall be considered in light of the contract as a whole

[17] It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole. ­­­­­­­­­­­­­­­­­­­­Lavin Agency Ltd. v. Blackhall & Co. (2004) O.J. No. 1287 (Ont. C.A.).

[18] For example, in B.G. Checo International Ltd. v. British Columbia Hydro and Power, 1993 CanLII 145 (SCC), [1993], 1 S.C.R. 12 the Supreme Court of Canada stated… it is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole…where there are apparent inconsistencies between different terms of a contract, the court should attempt to find an interpretation which can reasonably give meaning to each of the terms in question. Only if an interpretation giving reasonable consistency to the terms in question cannot be found, will the court rule one clause or the other ineffective…. In this process the term will, if reasonably possible, be reconciled by construing one term as a qualification of the other term.

[19] The Ontario Court of Appeal also recognizes the position that the classical theory of contract interpretation emphasizes that courts should ascertain and give effect to the intention of the parties. Within the context of ascertaining and giving effect to the intention of the parties, the courts have also used the doctrine of good faith to ensure that the parties do not act in such a way as to defeat the objectives of the agreement already made. CivicLife.com Inc. v. Canada (Attorney General), 2006 CanLII 20837 (ON CA), [2006], O.J. No 2474 (Ont. C.A.).

[20] In relation to lease interpretation, the court must examine the whole of the lease to determine the intent of the parties at the time the contract was entered into, “not at a subsequent time when a third party may have a different intent”. The proper approach is to ask the following question: “bearing in mind the relevant background, the purpose of the document, in considering the entirety of the document, what would the parties to the document reasonably have understood the contested words to mean?” 1536165 Ontario Limited v. City of Toronto Economic Development Corp., [2004] O.J. No. 1151 (Ont. Sup. Ct. of Justice).

iv. Contracts shall be interpreted contra proferentum

[21] The doctrine of contra proferentum establishes that when words in a lease or contract are imprecise, then the interpretation most favourable, within reason, to the person who is not the drafter of the agreement must be adopted. City of Toronto v. Greenspoon Brothers Ltd., [1980] O.J. No. 3647 (Ont. C.A.).

v. Contracts must be interpreted in a commercially reasonable manner

[22] The courts function when interpreting contracts is to prevent absurdities. Contracts should be interpreted to give business efficacy to the terms of the agreement. 1525292 Ontario Ltd. v. Canadian Tire Real Estate Ltd., [2004] O.J. No. 1881.