Simon's Megalomaniacal Legal Resources

Contracts - Interpretation - Objective Factors Only

. Ferraro v. Neilas

In Ferraro v. Neilas (Ont CA, 2023) the Court of Appeal articulates that contract law is based on objective - not subjective - intentions:

[29] The principles of Canadian contract law focus on determining the objective, not subjective, intentions of the parties, as expressed by the language of an agreement, understood in light of the surrounding circumstances or factual matrix. As summarized in the dissenting reasons (although not on this point) in Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394, at para. 74:

This Court has described the object of contractual interpretation as being to ascertain the objective intentions of the parties. It has also described the object of contractual interpretation as discerning the parties’ “reasonable expectations with respect to the meaning of a contractual provision”. In meeting these objects, the Court has signalled a shift away from an approach to contractual interpretation that is “dominated by technical rules of construction” to one that is instead rooted in “practical[ities and] common-sense”. This requires courts to read a contract “as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”. [Citations omitted.]

. Oxygen Working Capital Corp. v. Mouzakitis

In Oxygen Working Capital Corp. v. Mouzakitis (Ont CA, 2022) the Court of Appeal held that only objective evidence is admissible on contractual interpretation:

[10] The motion judge first considered whether there was a genuine issue requiring a trial based on the record alone and without utilizing the enhanced fact-finding powers under r. 20.04. His interpretation of the MFA and guarantees based on their plain wording is unassailable. We agree with his conclusion that the appellants’ subjective, unilateral understanding that their guarantees only applied to the November 2019 transaction is inconsistent with the plain wording of the MFA and the guarantees that contain no such restriction, and is in any event irrelevant to the objective factual matrix that may assist with the interpretation of an agreement. As the Supreme Court instructed in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 58, while “[t]he nature of the evidence that can be relied upon under the rubric of ‘surrounding circumstances’” will vary, it “should consist only of objective evidence of the background facts at the time of the execution of the contract” and not the parties’ unilateral subjective intentions.

. 2484234 Ontario Inc. v. Hanley Park Developments Inc.

In 2484234 Ontario Inc. v. Hanley Park Developments Inc. (Ont CA, 2020) the Court of Appeal comments that a contract is to be assessed by the objective behaviour of the parties, not what they 'meant' subjectively:

[51] The principles of contractual interpretation exclude consideration of either party’s subjective intention in determining whether the parties reached an agreement. In Olivieri v. Sherman, 2007 ONCA 491, 86 O.R. (3d) 778, at para. 44, this court re-stated the principle that only objective factors are relevant in determining whether the parties reached a consensus:

As was stated by Middleton J.A. in [Lindsey v. Heron Co. (1921), 1921 CanLII 538 (ON CA), 64 D.L.R. 92 (Ont. C.A.)] at 98-9, quoting Corpus Juris, vol. 13 at 265:

The apparent mutual assent of the parties essential to the formation of a contract, must be gathered from the language employed by them, and the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. It judges his intention by his outward expressions and excludes all questions in regard to his unexpressed intention. If his words or acts, judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real but unexpressed state of his mind on the subject.

[52] Equally, evidence of a party’s subjective intention is irrelevant to what the parties’ agreement means: Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at para. 54; Sattva, at paras. 59-61.

[53] The principle that subjective intentions are ignored when interpreting an agreement is also applicable to interpreting an antecedent agreement in rectification cases: McLean v. McLean, 2013 ONCA 788, 313 O.A.C. 364, at para. 61. In Fairmont, at para. 29, the court quoted the following from the English Court of Appeal in Frederick E. Rose (London) Ld. v. William H. Pim Jnr. & Co., [1953] 2 Q.B. 450 (C.A.), at p. 461:Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties — into their intentions — any more than you do in the formation of any other contract.