General Principles of Interpretation

• Author: John D. Mccamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 705-748

CHAPTER 19

GENERAL PRINCIPLES

OF INTERPRETATION

A. INTRODUCTION

The law of contracts provides an institutional framework within which

parties who wish to do so can establish an enforceable agreement giv-

ing effect to their mutual intentions. The law of inter pret at ion of agree-

ments addresses the diff‌i cult task of determining, on the basis of the

parties’ actual agreement, what those intentions should be considered

to be. The process of interpretation is an exercise of giving meaning to

the terms adopted by the parties in formulating their agreement.1 It is

ofte n said that t he proc ess of inter pretat ion is a n exer cise i n attem pting

to ascertain the “true intentions” of the parties. In Consolidated-Bath-

urst Export Ltd. v. Mutual Boiler & Machinery Insurance Co.,2 for ex-

ample, Estey J. observed as follows: “the normal rules of construction

lead a court to search for an interpretation of which, from the whole of

the contract, would appear to promote or advance the tr ue intent of the

parties at the time of entry into the contract.”3

1 See generally K. L ewison, The Interpretation of Contracts, 3d ed. (London: Sweet

& Maxwell , 2004). Se e also E.W. Patter son, “The Interpretation and Con struc-

tion of Contract s” (1964) 64 Colum. L . Rev. 833; R. Sul livan, “Interpreting

Contracts in P ractice and Theory” (2000) 13 Sup. Ct. L. Rev. (2d) 369.

2 (1979), 112 D.L.R. (3d) 49 (S.C.C.).

3Ibid. at 58.

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THE LAW OF CONTR ACTS706

For a variety of reasons, however, the “true intentions” of the parties

may be an elusive quarry. As a matter of fact, in a particular case, the

parties might have quite different intentions at the time of contracting,

with respect to the meaning or signif‌i cance of various aspects of their

arrangements. The agreement may be entered into on the basis of a stan-

dard or printed form that at least one of the parties and perhaps both of

them have neither read nor, if read, understood. The meaning of ind ivid-

ual terms or phrases in the agreement may be obscure and may not have

been clearly considered by the parties at the time of contract formation.

The language employed may be ambiguous. The parties may have at-

tached different meanings to particular terms of the agreement.

It would not be sensible for courts, in many if not all of these kinds

of circumstances, simply to throw up their hands and conclude that

since the “true intentions” of the parties cannot be established, the

contract has no meaning and will not be enforced. Inescapably, then,

the process of construction or interpretation of agreements must have

an objective component, enabling the interpreter to attribute mean-

ing to the agreement even in the absence of “true intentions.” Such

an approach could rest and does in fact to some extent rest on a pre-

sumption that the part ie s intended the terms of the agreement be given

their literal meaning rega rdless of whether either party understood that

meaning at the time of contract formation. Taken to an extreme, this

objective or literal approach would simply render the actual intentions

of the parties irrelevant.

The law of interpretation, however, does not exclusively embrace

either the subjective or objective perspective. On the contrary, the law

of contract interpretation represents a subtle blend of subjective and

objective elements attempting to determine what the parties probably

did intend on the one hand and, on the other hand, rely ing on objective

methods of interpretation to settle points of diff‌i culty that cannot be

res olved on a more su bjecti ve basi s. Thus , for ex ample, i t is tr aditi onally

accepted that it is appropriate to look at the parties’ objectives in enter-

ing into the transaction to determine how to interpret a particular pro-

vision of the agreement. The approach is to determine what the parties

actually intended the agreement to mean. However, a party that wishes

to assert that the agreement means something other than the mean-

ing conveyed by a literal interpretation of the terms used faces the full

weight of the objective element in the law of contract interpretation.

In this chapter and in Chapters 20 a nd 21, the law of interpretation

is subdivided into f‌i ve separate topics. In section B of this chapter, we

consider f‌irst the law concerning the sources that may be examined

for the purpose of interpreting an agreement. Although the law of in-

General Pr inciples of Interpretation707

terpretation applies, in principle, to both written and oral agreements,

the rules of interpretation have developed principally in the context

of interpreting written agreements. The f‌i rst question to be addressed,

then, is to determine the n at ure of ot her documents or factual informa-

tion — often referred to as “extrinsic aids” — that may be examined to

assist in the interpretation of the written agreement. We will then turn

to consider the traditional principles or maxims, canons or guidelines

to interpretation that provide the interpreter with some assistance in

the exercise of attributing meaning to the terms of an agreement. In

section D of this chapter, we consider the basis upon which courts

imply terms in agreements, typically to f‌i ll gaps in the agreement left

by the parties. As we shall see, the process of implication is sometimes

one of giving effect to the “true intentions” of the parties but probably

more often is an exercise in attributing hypothetical intentions to par-

tie s tha t they would , as re ason able pe rson s, hav e art icula ted if they had

considered the matter in question. Indeed, in a certain range of cases,

courts imply terms i n agreements that may be considered to be imposed

as a matter of judicial policy rather than inferred from the actual or

hypothetical intentions of the par ties. Two discrete problem s that have

attracted much judicial discussion will be given separate treatment in

Chapters 20 and 21. In Chapter 20, an account is given of the history

and current status of the doctrine of fundamental breach, a doctrine

that has developed with respect to the interpretation or control of the

use of exculpatory or limitations clauses. In Chapter 21, the question

of whet her, under C anadi an common l aw, courts have fas hioned a do c-

trine requiring parties to perform their obligations in good faith will

be examined. As will be suggested, it appears that such a doctrine is

slowly emerging in the form of an implied term to this effect.

B. SOURCES

1) Introduction

The f‌i rst step in the process of interpretation is to identify the target

of interpretation, the communications between the parties that con-

stitute the terms of their agreement. In the typical case, the object of

interpretation will be an agreement between the parties that has been

recorded in writing. As we have seen, the parties will be bound by the

terms of a written agreement that they have signed4 or, indeed, by the

4 See Chapter 6, sect ion C(3).