Commercially Reasonable

Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60 (CanLII)

[79] As we will explain below, contractual interpretation also requires courts to consider the principle of commercial reasonableness and efficacy. Contracts ought therefore to be interpreted “in accordance with sound commercial principles and good business sense” (Scanlon v. Castlepoint Development Corp. (1992), 1992 CanLII 7745 (ON CA), 11 O.R. (3d) 744, at p. 770). As Lord Diplock explained in Antaios Compania Naviera S.A. v. Salen Rederierna A.B., [1985] 1 A.C. 191 (H.L.), at p. 201, “if detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense”. The principle that requires contracts to be read in a commercially reasonable and efficient manner is therefore an important interpretive aid in construing contractual terms.

[80] Ultimately, contractual interpretation involves the application of various tools — including consideration of the factual matrix and the principle of commercial reasonableness — in order to properly understand the meaning of the words used by the parties to express their agreement.

Bhasin v. Hrynew, 2014 SCC 71 (CanLII), [2014] 3 SCR 494

[61] The fact that commercial parties expect honesty on the part of their contracting partners can also be seen from the fact that it was the American Bar Association’s Section of Corporation, Banking and Business Law that urged the adoption of “honesty in fact” in the original drafting of the Uniform Commercial Code (“U.C.C.ˮ): E. A. Farnsworth, “Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Codeˮ (1963), 30 U. Chicago L. Rev. 666, at p. 673. Moreover, empirical research suggests that commercial parties do in fact expect that their contracting parties will conduct themselves in good faith: see, e.g., S. Macaulay, “Non-contractual Relations in Business: A Preliminary Study” (1963), 28 Am. Soc. Rev. 55, at p. 58; H. Beale and T. Dugdale, “Contracts Between Businessmen: Planning and the Use of Contractual Remedies” (1975), 2 Brit. J. Law & Soc. 45, at pp. 47-48; S. Macaulay, “An Empirical View of Contract”, [1985] Wis. L. Rev. 465; V. Goldwasser and T. Ciro, “Standards of Behaviour in Commercial Contracting” (2002), 30 A.B.L.R. 369, at pp. 372-77. It is, to say the least, counterintuitive to think that reasonable commercial parties would accept a contract which contained a provision to the effect that they were not obliged to act honestly in performing their contractual obligations.

[62] I conclude from this review that enunciating a general organizing principle of good faith and recognizing a duty to perform contracts honestly will help bring certainty and coherence to this area of the law in a way that is consistent with reasonable commercial expectations.