Part A Mini Essay (50%):
People may seek litigation when disputing
contracts due to a noteworthy difference in interpretation between the
different parties. Therefore, the courts
attempt to answer the question of interpretation by asking how a ‘reasonable
business person’ would have interpreted the contract. One of the ways to determine this is by using
the literal approach to contractual interpretation. When reading a contract using the literal
approach, you give words their ordinary meanings. For example, say a business owner had hired a
contractor and the contract that had been mutually signed said that ‘the owner
reserves the right to change when the best times are to perform the necessary
work.’ Now let’s say the contractor
begins work during the day and the owner decides, out of nowhere, that he wants
him to complete his work from 12am to 4am.
If a judge reads this clause in a contract using the literal approach,
it means exactly what it says which is the owner reserves the right to change
when the best times are to perform the necessary work. While the literal approach may seem like the
most common-sense way of interpreting contracts, it fails to take into account
some necessities when dealing in business.
Utilizing the literal approach in business
makes it more difficult to ascertain the intentions or circumstances of when
the contract was developed. It fails to consider the context of the document as
well as all other available circumstances.
This is an important question for the courts to answer because understanding
the context of the document could be necessary in establishing the truest
meaning of the contract. Another problem
with the literal approach to reading contracts can be illustrated by the
article, Primer on Contractual
Interpretation, when it states, “Business men often record the most
important agreements in crude and summary fashion; modes of expression
sufficient and clear to them in the course of their business may appear to
those unfamiliar with the business far from complete or precise.” (Hall, Feder,
2012) Based on this fact, it can be more challenging to attain what business
people meant in the contract simply by assigning words just their literal
meaning. Finally, it could be relevant for
a contract to be interpreted based on the date it was created, not when the
parties decided to go to court. For
these reasons, it could be more advantageous for people of business to use the
contextual approach. The contextual
approach to contracts, “goes beyond the four corners of the document by looking
at the parties’ presumed intentions and their circumstances.” (McInnes, 2013)
Using this form of interpretation allows business people the possible benefits
of ascertaining the correct meaning of a contract as they may have intended it
It is also important to note several rules that may be discussed in
court when interpreting contracts. One
of these rules is called golden rule.
(McInnes, 2013) The golden rule says that any word in a contract will have its
normal meaning unless its normal meaning would change the contract, turning it
into an absurd or illogical document. (McInnes, 2013) The golden rule matters
because it would be impossible for a court to determine the interpretation of a
contract if it was absurd or illogical. Another
rule to consider in interpretation of contracts is the parol evidence rule. When an agreement or contract is put
together, there are sometimes certain parts of the contract that may have been
communicated verbally as opposed to being written directly into the
contract. These verbal guarantees cannot
be enforced in court. However, because
of the parol evidence rule, it is possible to have them enforced if they meet
certain criteria. (McInnes, 2013) First, parol evidence is admissible if it is
used to fix a mistake in a contract.
Second, it can be used to prove that a contract may not have ever existed
or is defective in some way, shape, or form.
Parol evidence is admissible if it can help determine if there are any
uncertainties or doubts within the contract.
It can also demonstrate that a contract is missing either the
plaintiff’s or defence’s “complete agreement” (McInnes, 2013). If any verbal guarantee was given that meets
these criteria, then they may be admissible and enforced in court. Another rule to consider is the contra proferentem rule. (McInnes, 2013)
This rule helps to make certain that the interpretation of the contract’s
meaning is least favourable to the person who wrote it. For example, say a private money lender wrote
a contract that a lendee had signed, and the lender decided to take them to
court for failure to adhere to the parameters of the contract. When the courts are reviewing the contract,
they will interpret any unclear elements in favour of the lendee.
Part B Mini Essay (50%):
discussing whether you can use reliance damages to escape the consequences of a
bad bargain, we should first establish what reliance damages are and what it
means to seek them. Reliance damages
represent the financial value of any expenses that were wasted during a
contract. These expenses also include
any wasted opportunities the plaintiff had during the contract as well. Reliance damages are intended to be
‘backward-looking’. This means that when
a plaintiff is seeking reliance damages, they are asking to be put back in the
position they were in before they had agreed to the contract in question. Effectively, the plaintiff is asking the
courts to undo all effects of the contract.
On the other hand, it is important to consider expectation damages when deciding
on forms of compensation. This is
because while a plaintiff is entitled to sue for both, should they win the
court case, they must decide which one they prefer to receive, or which one is
most beneficial to their situation. They
are not allowed to choose both. Expectation
damages are the opposite of reliance damages.
They represent the value of benefit the plaintiff would have received if
the contract had been completed. Unlike
reliance damages, expectation damages are ‘forward-looking’ meaning that their
purpose is to attempt to complete a contract.
Effectively, the plaintiff is asking the courts for the value of what
they would have been entitled to if the contract had been completed properly.
amount of reliance damages that can be awarded to a plaintiff has a very
important limitation. According the
text, “They can be awarded only to the extent that a contract is unprofitable.”
(McInnes, 2013). What this means is that
when suing for reliance damages, you cannot pursue the benefits that you would
have received if the contract had been completed, as you would be able to with
expectation damages. You are only
allowed to be compensated for the amount that was lost due to the contract in
financial value or opportunistic value.
For example, say you entered into a contract and you have decided to
take the defence to court because of a lack of completion. In this contract, you had agreed to pay $1000
for landscaping on your house and the defence had failed to provide said
landscaping. When seeking reliance
damages, you are asking for damages up to the $1000 that you paid for the
landscaping, which would place you in the same position you were in before the
contract had been signed.
this rule changes if you had entered into a ‘bad bargain’. Entering into a bad bargain means that if you
had entered into a contract and even if the contract had been completed
properly you still would have suffered a loss.
When calculating reliance damages, you are not allowed to use reliance
damages as an escape from the consequences of a bad bargain. For example, say you are a business owner and
you bought supplies for $1,000 with a down payment of $500, and the market
value of the supplies was only $800. If
the contract was not completed properly and you decided to sue for reliance
damages, you could only be rewarded damages up to $800. When the plaintiff decided to buy the
materials for more than they were worth they accepted that even if the contract
was completed, there would still be a loss.
Even if the contract had been completed, you would still not be able to
use reliance damages to redeem the amount of money you had lost due to a bad
McInnes, Mitchell, Ian Kerr, J. VanDuzer. (2013) Managing the Law:
The Legal Aspects of Doing Business, 4th Edition. Pearson Learning
Solutions, VitalBook file.