Canada: The Second Opinion: Who Needs Lawyers? When Laypeople Draft Contracts That Are Uncertain, Ambiguous And Incomplete, The Courts Must Strive For A "Sensible And Businesslike" Interpretation, Says The ABCA
When complex commercial contracts have been drafted entirely by
laypeople — without any input or advice from legal counsel
— issues of interpretation can be a challenge. This is
particularly true in circumstances where, years later, the parties
themselves disagree as to specific elements of their
agreement. In a recent ruling, Schmidt v. Wood, 2014 ABCA 80, the
Alberta Court of Appeal demonstrates the efforts expected of a
court in order to find a satisfactory construction of such
At issue were two interlocking contracts addressing the
marketing of current and future products invented by one of the
parties. As acknowledged by the Court, the agreements were
not models of perfect drafting:
The original two contracts are obviously not drafted by lawyers.
Parts are ambiguous or uncertain, and there are gaps in the topics
As the ABCA went on to explain, however, this lack of clarity
did not relieve the Court of its duty, if at all
possible, to identify a reasonable interpretation:
Complete certainty as to which is the correct alternative
meaning maybe is not possible here. But where business people draft
their own contract, without using lawyers, the maxim res magis
valeat quam pereat ["let things survive rather than
perish"] is especially important. The court should strive to
make the contract work, not to upset it. .... The poorer the
quality of drafting, the less picky should be the interpretation,
and the greater the effort to make the contract sensible and
With this noble goal in mind, the Court proceeded to identify,
address, and overcome each of the flaws in the
Although the Court agreed that the two contracts
contradicted one another in several important ways, it
concluded that this discrepancy could be resolved by characterizing
the second and later contract as an amendment of the
first. As the Court explained, "Lay people tend not to
word amending documents, especially amending contracts, the way
that lawyers do."
Although one of the parties failed to sign or seal the
second (amending) contract, the Court rejected this as a relevant
impediment to its effectiveness. As the Court noted, the
party who had failed to sign the agreement now sued to enforce it,
thereby ratifying the amendments.
Although acknowledging that the contract referred to
"present and future products of Giant LLC North America,"
a company that had no such products, the Court concluded
that this provision "could not be read literally."
Instead, the words should be given a "looser and
more purposive interpretation" that could be reconciled
with the actual facts.
The ABCA also adopted the so-called "armchair rule"
— traditionally used to identify a testator's intention
when interpreting a will — by taking into account those
facts which the parties knew when they signed the
Finally, in construing the contracts, the Court made use of the
parties' own post-contractual conduct, in the form of
several additional agreements which they had subsequently
negotiated and executed. As the Court of Appeal explained,
the language used by the parties in these later agreements
"show[s] the parties' knowledge when contracting" and
also "give[s] evidence of the parties' contemporary [word]
usage and understanding when operating under the original two
With the assistance of these lenient interpretative tools, the
ABCA was able to identify the meaning which the parties had
intended their original agreements to have, thereby resolving the
One can only hope that these Herculean efforts by the Court of
Appeal do not serve to convince other
businesspeople that they should continue to draft their own
commercial contracts without the assistance of in-house or external
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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