The Principles of Interpreting a Contract

Interpreting a Contract

Parties often cannot agree on what the contract between themselves actually meant, so principles of contract interpretation have developed over years.

The principles of interpreting a contract were clearly articulated by the Court of Appeal in Athwal v. Black Top Cabs Ltd., 2012 BCCA 107:

[42] The contractual intent of parties to a written contract is objectively determined by construing the plain and ordinary meaning of the words of the contract in the context of the contract as a whole and the surrounding circumstances (or factual matrix) that existed at the time the contract was made, unless to do so would result in an absurdity. Where the language of a contract is not ambiguous (that is, when viewed objectively it raises only one reasonable interpretation), the words of the written contract are presumed to reflect the parties’ intention. An interpretation that renders one or more of the contract’s provisions ineffective will be rejected.

[43] Extrinsic evidence to explain the meaning of an unambiguous contractual provision is not admissible. Evidence of a party’s subjective intention in executing the contract, or of their understanding of the meaning of the words used in the contract, is not admissible to vary, modify, add to or contradict the express words of the written contract. This is particularly so where a contract contains an “entire agreement” clause. …

[71]         The Court of Appeal in Atwal referred at some length to its earlier decision in Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 in describing how and when extrinsic evidence  may be considered to aid the interpretation of an agreement which provided:

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

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