RSM225 Fall 2019 Sahni Class 11 Lecture Outline.pdf - RSM225 Legal Environment of Business CLASS 11 CONTRACT LAW(Part 4 Interpretation Privity

RSM225 Fall 2019 Sahni Class 11 Lecture Outline.pdf -...

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1 CLASS 11: CONTRACT LAW (Part 4): Interpretation, Privity, Assignment and Discharge of Contracts Raj Sahni This is an outline only. Students are responsible for all assigned reading and lecture content. Copyright © 2019. R.S. Sahni. All Rights Reserved. RSM225 Legal Environment of Business Ambiguous Clauses in Contracts Example 1: A homeowner enters into a contract with a contractor for renovation of a kitchen. Clause: The contractor agrees to renovate the kitchen for $10,000, including removal and installation of flooring tiles and removal of old cabinetry and installation of new cabinetry selected by the homeowner. Question: Are the materials (tiles and cabinets) included in the price or is it only labour that is included? Ambiguous Clauses in Contracts (Cont’d) Example 2: A Canadian company (CanCo) enters into a contract to supply information technology services to a U.S. company (AmCo). Clause: CanCo will supply two I.T. personnel to AmCo during the term of the contract at a rate of $100 per hour. Question: Is the rate in Canadian dollars or U.S. dollars? Is the rate of $100/hour for both I.T. personnel combined or $100/hour per person?
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2 Ambiguous Clauses in Contracts (Cont’d) Example 3: The purchaser of two “X-Treme Coffee” coffee shops includes a restrictive covenant in a contract to ensure the seller does not compete with the business. Clause: The Seller agrees that for a period of two years the seller will not work in the coffee business and the Seller will not own or operate a coffee shop within two kilometres of the X-Treme Coffee locations. Question: Can the Seller open a coffee shop within a two kilometer radius of X-Treme Coffee after two years? If the Purchaser opens a new X-Treme Coffee shop location in the future, is the Seller prohibited from opening a coffee shop within two kilometres of that new location? Part I: Interpretation of Contracts 1. Interpretation of Contracts Language is imperfect – a clause in a contract may have different meanings and may be subject to different interpretations. Each party may take a different view of what the clause means Also, it is not possible to put every potential issue into a written document. Therefore the contract may fail to fully set out all understandings and expectations of the parties Often, each party has their own understanding of what the contract means – and a Court must determine what a “reasonable” interpretation is Where a Court cannot arrive at a reasonable interpretation, it may hold that the terms are so vague that no contract exists at all (void for vagueness) - but this is rare – Courts will do their best to uphold a contract
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3 2. Methods of Interpretation Strict/literal interpretation : Court looks at the plain (dictionary) meaning of the words (strict construction) Problems with this method are that it ignores the intentions of the parties and words can have multiple meanings Contra Proferentem: w here only one party drafted the contract, Courts will usually strictly interpret (s
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