“Intention” in the Interpretation of Contractual Agreements (Ontario)

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

“Intention” in the Interpretation of Contractual Agreements

Many people seem to be confused by the role of “intention” in the interpretation of contractual agreements. They seem to think that Judges will always look behind the scenes to determine what the parties might have been thinking.

In their view, this would be the “right” course of action. It would be fair and it would be reasonable.

However, nothing could be further from the truth.

Who cares what people thought! What does it matter? What did they actually write down on a piece of paper? That’s the “key”.

The same people who place undue emphasis upon “intention” are often the same people who are lousy at putting together a properly drafted agreement in the first place. Their personal safety net is “intention”. They complain about misunderstandings and refer to the number of years that they have been “in the business”.

Analysis by a Court

1)    Clarity

 

If the contract is clear, then, it’s clear. It’s not ambiguous, the Judge will simply decide what it means.

 

2)    Ambiguity and Uncertainty in the Wording

If the wording is unclear and the Judge can’t make “head nor tail” out of the document, then the Judge may need to resort to extrinsic evidence.

3)    Extrinsic Evidence

 

Ordinarily, the Judge will only look at the contract itself and try to figure out what was meant. Assuming that this is not possible, then the Judge may apply the parol evidence rule. This is on the basis of an exception. The document is confusing, ambiguous and unclear, very poorly drafted.

 

Only if that is the case, will the Judge permit any evidence to be introduced to help explain the document. Most of the time, the Judge will simply have the contract and will interpret its meaning based upon the wording.

 

When it’s so bad, that it’s not possible, then witnesses may be called to testify as to the intention behind the contract. The Judge will look to the intention of the parties and seek to give effect to the contract which the Judge believes that they both negotiated.

 

The Judge will not under any circumstances be coming up with a newly negotiated arrangement between the parties which the Judge believes to be fair. That’s outside of the parameters of interpretation. Judges are not negotiating new contracts for people who are inept in putting together a proper document in the first place.

 

The Judge is still limited to the interpretation of the contract between the parties, and if it’s meaningless, then so be it.

Missing Appliances

Bob agrees to sell his house and list it with “appliances included”. The Buyer’s agent drafts a poor Offer and leaves out the “appliances”. This simply means that the appliances are not included. It has nothing to do with Bob’s original intention or even the fact that the Buyer might have offered the full listing price or even more.

Were the appliances included? No!

So, that’s it. No ambiguity. No appliances. It’s very clear.

When a Judge interprets this agreement, there is clarity in the contractual wording. The parol evidence rule will prevent the calling of any witnesses and any reference to extraneous material including the listing agreement. This evidence is excluded.

Oddly, some agents will often argue that the appliances are included because the Seller offered their availability in the listing.

Sorry, this is just crazy thinking!

Intention only matters when there is a lack of clarity.

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

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