Deck 10: The Interpretation of Contracts

Question 1

A makes a contract under which B Company is to repair and repaint A's pier.Under the contract,A has the right to specify the materials to be used.B Company induces A to specify the use of a particular paint that it made,giving A assurances of its quality.The paint is supplied by B Company,but it is found to be unsuitable,and A has to spend $40 000.00 to correct the matter.In a lawsuit by A against B,

A)the court will find that the inducement of the quality of paint was a collateral contract that formed the consideration for the main contract to repair and repaint A's pier.
B)the court will find that B Company's inducement of the quality of the paint was a mere invitation to treat and nothing more.
C)the court will be unable to get around the parol evidence rule and A will lose her or his law suit.
D)the court will find that A should have ensured that the inducement of the quality of the paint was put into the written contract.
E)the court will find that B Company's assurances about the quality of the paint is a condition precedent to the contract.

Answer 1

A

Question 2

The plaintiffs were growers of oranges in Spain and the defendants were ship owners.The plaintiffs wished to export their oranges to England and shipped them to the defendants' vessel,relying on an oral promise by the defendants' agent that the vessel would sail straight to London.In fact,the vessel went first to Antwerp,so that the oranges arrived late in London and the plaintiffs lost a favourable market.When the plaintiffs claimed damages for breach of contract,the defendant owners relied on the bill of lading,which expressly allowed them to proceed "by any route whether directly or indirectly" to London.In this case,

A)the bill of lading is evidence of the entire contract between the plaintiffs and ship owners.
B)the bill of lading contains an express term,and the defendants are bound by that term.
C)the contract consists of both the written bill of lading and the oral promise by the defendant's agent.
D)evidence of the oral promise of the defendant's agent cannot be admitted because of the parol evidence rule.
E)the court will find that there is no contract at all.

Answer 2

C

Question 3

Allen was negotiating to rent a flat in Bob's house.During the negotiations,Allen told Bob that if he took the flat,he would have use of two basement rooms for the storage of his surplus furniture and also the use of the garden.Subsequently,a written agreement was drawn up for the lease of the flat that made no reference to either the storage rooms or the garden.In this case,

A)because the negotiations were not included in the contract,Allen will get the flat,not the storage rooms or garden.
B)because of the parol evidence rule,Allen cannot give evidence of the use of the storage rooms and garden as being part of the contract
C)although the parol evidence rule applies,the contract being partly oral and partly written,Allen can give evidence about the storage rooms,but not the garden.
D)although the parol evidence rule applies,the contract being partly written and partly oral,Allen can provide evidence of the oral part of the contract about the storage rooms and garden.
E)none of the above

Answer 3

E

Question 4

A is employed by B as a truck driver.C is A's partner,and they go on deliveries together.One day,while backing up the truck,A drives negligently and injures C.C successfully sues B on the basis of vicarious liability.In a law suit by B against A,

A)the court will try to create a new employment contract between A and C so as to allow C to recover from A.
B)the court will imply a term into A's contract of employment with B that A will take reasonable care and skill in the performance of his duties.
C)the court will not imply any term into A's contract of employment with B.
D)the court will look to custom and usage of the trade to determine whether it should imply a term in the employment contract between A and C.
E)none of the above

Question 5

What is a condition precedent?

A)an event that happens before a contract takes effect
B)an event that is related to a contract and happens before a contract takes effect
C)an unconditional undertaking given by a promisee to the promisor to perform an event before a contract takes effect
D)any set of circumstances or events that the parties agree must be satisfied or must happen before their contract takes effect
E)an undertaking,conditional on the execution of a contract between the parties,that a promisee makes to a promisor prior to entering into a contract

Question 6

A and B enter into a lease whereby A is to lease a unit in a plaza from B to be used as a retail men's clothing store.When the lease is drawn up and signed,it simply says that A is leasing the unit as a store.A now takes the position that he can have any kind of store and decides to rent out videos and DVDs,just like the Video and DVD store already in the plaza.In this situation,

A)the court will attempt to resolve the ambiguity for A and B.
B)the court will look to the intention of A and B in entering into the lease.
C)the court will permit evidence that A intended to use the store as a retail men's clothing store and that B leased the unit to A on this basis.
D)the term store in the written lease is ambiguous.
E)all of the above

Question 7

An implied term is

A)a term that the court will ask the jury to consider implying in the contract.
B)a term that the promisor intended to include in the contract.
C)an express term that is removed from the contract.
D)a term that the parties advise the court can be implied into the contract.
E)a term that is not included in the contract but which the parties,as reasonable persons,would have included had they thought about it.

Question 8

Mercantile Limited,a corporation in Toronto,enters into an agreement with Jackson to advance $300 000 to Jackson for the purchase of farming equipment.Jackson agrees to give Mercantile Limited a mortgage over his home as security for the advance of the money.The terms of the agreement contain an appraisal provision that the commitment to make the loan is subject to an appraisal of Jackson's home of at least $350 000.The appraisal provision is known as

A)an implied term.
B)a warranty.
C)a condition term.
D)a condition precedent.
E)an appraisal warranty.

Question 9

A and B have just signed a written agreement for the purchase by A of B's house.During the negotiations,A made it clear to B that his purchase was conditional on A conducting a building inspection of house within five days of the date of the agreement,which was satisfactory to A.However,this condition is not included in the agreement.In this situation,

A)evidence of the building inspection would be admissible because it is a collateral agreement,the consideration for which is the agreement of purchase and sale.
B)evidence of the building inspection would not be admissible because,since this is an agreement for land,the Statute of Frauds applies to bar evidence of the building inspection.
C)evidence of the building inspection cannot be given because of the parol evidence rule.
D)evidence of the building inspection would be admissible because it is a subsequent agreement.
E)evidence of the building inspection would be admissible because it is a condition precedent to the agreement of purchase and sale.

Question 10

Michael Products Limited and Jensen Corporation enter into an agreement under which Michael Products Limited agrees to supply 20 tonnes of soap to Jensen Corporation.Jensen agrees to pay $20 000 for the product.The agreement includes a provision to the effect that the agreement is conditional of Jensen providing a letter from a bank,no later than two days after the execution of the agreement,that Jensen Corporation has the funds to pay for the goods.Three days after the signing of the agreement,Michael Products Limited has not provided the letter from the bank.Jensen Corporation can ________ because ________.

A)continue with the contract; the contract is not void
B)walk away from the contract; the contract is void
C)continue with the contract; the contract is effective
D)terminate the contract; the contract is void

Question 11

In choosing between conflicting testimony,a court will

A)refuse to accept either testimony because one person's word is as good as another's,and it will impose its own meaning.
B)seek corroboration of one of the versions of a story from a third party,and if that is not possible,it will choose between the versions by basing its decision on the credibility of the parties.
C)choose a version of the story that is in accordance with well-known legal principles.
D)refuse to accept either testimony because one person's word is good as another's,and it will impose a meaning that is determined by a jury of ordinary persons.
E)choose the version of the story that is in accordance with societal norms.

Question 12

A agrees to paint B's house.B then says to A,"If you paint my house,I'll give you $500.00." In this situation,

A)the first agreement does not include the price,but the second agreement does.
B)together,the promise to pay and the first agreement to paint form one whole contract.
C)the entering into the main contract is the consideration for the collateral contract.
D)the promise to pay $500.00 is collateral to the first agreement to paint.
E)all of the above

Question 13

What is the parol evidence rule?

A)the rule that requires that persons on parole seek the approval of a court before entering into any contract
B)the rule that requires a party to a contract from adducing evidence from a third party regarding discussions he or she may have had with such a third party about the provisions of a contract
C)a rule that prevents convicted persons on parole from entering into contractual obligations
D)the rule that prevents a party from adding to a contract a term that was previously agreed upon but was not included in the final written contract.
E)The rule that prevents a court from interpreting a contract that is illegal.

Question 14

A and B have been dealing together for 10 years,during which time A buys steel ingots from B.Throughout the 10-year period,A has always ordered the highest quality steel from B and B has delivered it.Last week,A ordered 1000 ingots of steel from B,but when he filled out the purchase order,A forgot to specify the highest quality of steel,and when the purchase order was received,B's employee delivered steel ingots of a lesser quality to A.A refuses the shipment,and B,whose business is suffering in a bad economy,finds himself forced to sue A.In this situation,

A)the court will be unable to import any kind of term into the contract because it is in writing.
B)the court will consider that it was a condition precedent to the purchase by A that the steel ingots be of the highest quality.
C)the court will look at the previous dealings of A and B and imply a term that B was to supply steel ingots of the highest quality.
D)the court will set aside the contract by reason that it is silent as to the quality of steel that B is to supply to A.
E)none of the above

Question 15

Which of the following is NOT a usual source of implied terms?

A)terms that are reasonably necessary,in accordance with the expectation of the parties,to promote business efficacy
B)long-established customs in particular types of trades
C)long-established customs in particular types of transactions
D)what the parties discussed prior to entering the contract
E)none of the above

Question 16

A collateral contract is

A)an unenforceable agreement that is related to another written agreement.
B)a separate agreement between the parties included in a written contract.
C)an agreement between parties to a contract that precedes another written agreement.
D)a separate agreement between the parties made at the same time as a main agreement between the parties,but not included in the written document.
E)a void agreement that is related to another written agreement.

Question 17

When a person goes to court to have a provision of a contract interpreted,the court will

A)ask a jury to determine the meaning of the words.
B)assign its own meaning to the words.
C)seek the most reasonable meaning that can be attributed to the words in the circumstances.
D)examine the facts of the situation and then ask the parties what they meant.
E)determine the meaning of the words by asking the parties what they meant.

Question 18

A and B are negotiating a contract by faxes going back and forth between them.During their negotiations,they agree on the subject matter of the contract,the price,and the date of performance.However,both agree that once the negotiations are complete,a formal written contract will be prepared and signed.In this situation,

A)one issue is whether the decision of A and B to put the negotiations into a formal written contract is a mere expression of their desire as to the manner in which the contract transaction will proceed.
B)one issue is whether the negotiations contain all of the essential elements of a contract.
C)one issue is whether the decision of A and B to put the agreement that arises out of the negotiations into a formal written contract is a term of the agreement.
D)one issue is whether the decision of A and B to put the negotiations into a formal written contract is a condition precedent to the formation of a contract.
E)none of the above

Question 19

Which of the following is NOT true?

A)The parol evidence rule does not affect the interpretation of express words already in a contract.
B)The parol evidence rule does not prevent evidence of oral contracts entered into after the written contract.
C)The parol evidence rule permits evidence of oral contracts entered into after the parties entered the written contract.
D)The parol evidence rule excludes evidence of oral contracts entered into after the parties entered into a written contract.
E)The parol evidence rule excludes terms that were discussed before entering into a contract but were not included in the contract.

Question 20

A agrees to buy a share in B's invention for a certain sum on the condition that C first approves the invention.However,the written contract makes no reference to C's approval.C never gives his approval.B now sues A for the purchase price.In this situation,

A)whether or not C gives his approval is not relevant to the main contract between A and B.
B)C's approval is a condition precedent that must be met before there is a contract between A and B
C)the parol evidence rule applies to exclude the condition of C's approval.
D)C's approval would be a warrantee used to overcome the parol evidence rule.
E)A cannot rely on C's approval as a condition to the contract with B,because C is not a party to the contract.

Question 21

The consideration for a main contract can be a collateral contract.

Question 22

Evidence regarding certain oral terms that were discussed between the parties to a contract that has been reduced to writing

A)cannot be introduced into court because of the rule of express terms.
B)cannot be introduced into court because there were no prior dealings between the parties.
C)cannot be introduced into court because of the parol evidence rule.
D)cannot be introduced into court because of the rule regarding consideration.
E)cannot be introduced into court because of the rule of implied terms.

Question 23

Generally speaking,the parol evidence rule is hard and inflexible.

Question 24

When parties deal expressly with a matter in a contract,a court is not precluded from finding an implied term regarding that same matter.

Question 25

A court will sometimes recognize the existence of an implied term from discussions that the parties had prior to entering into the contract.

Question 26

To determine the ordinary meaning of words in a contract,the court will consider

A)what the intention of the parties was.
B)what the parties said during their negotiations.
C)what the dictionary says.
D)what is usual business practice.
E)all of the above

Question 27

The parol evidence rule excludes evidence about the formation of a contract.

Question 28

The parol evidence rule does not permit evidence of oral contracts entered into between the parties after they enter into a written agreement.

Question 29

Mercantile Limited,a corporation in Toronto,enters into an agreement with Jackson to advance $300 000 to Jackson for the purchase of farming equipment.Jackson agrees to give Mercantile Limited a mortgage over his home as security for the advance of the money.The terms of the agreement contain an appraisal provision that the commitment to make the loan is subject to an appraisal of Jackson's home of at least $350 000.The appraisal provision is known as an appraisal warranty.

Question 30

Conditions precedent can be enforced if they are oral.

Question 31

Which of the following is NOT true?

A)The parol evidence rule does not affect the interpretation of express terms already in a contract.
B)Implied terms usually result from long-established customs.
C)When parties deal expressly with a matter in a contract,a court is not precluded from finding an implied term on the same matter.
D)The parol evidence rule does not exclude evidence of an oral agreement that the parties may each after they have entered into the written agreement.
E)The courts will admit evidence of an oral understanding about a condition precedent even when the written contract specifies that the rights of the parties are governed exclusively by the written contract.

Question 32

The contra proferentem rule is used against the party who made the contract in favour of the party who did not.

Question 33

The parol evidence rule does not permit evidence of oral contracts entered into between the parties before they enter into a written agreement.

Question 34

Explain how courts choose between conflicting testimony.

Question 35

Implied terms usually result from

A)a decision of the court.
B)a decision of the promisee.
C)long-established customs of a particular trade.
D)a decision of the promisor.
E)agreement between the parties.

Question 36

A business contract includes a term saying that a manufacturer will use "smooth-grained sand" in a construction project "if this quality is available.The court will most likely imply that the terms of the contract require the manufacturer to put reasonable efforts into trying to find the specified materials.This is an example of the court introducing an implied term based on

A)statutory requirements.
B)previous dealings between the parties.
C)business efficacy.
D)principles of statutory interpretation.
E)the nature of the trade.

Question 37

To interpret the express provisions of a contract,a court will

A)examine the most widely held meaning of the words.
B)begin with the ordinary meaning of the words and then will examine their meaning within the context of the words.
C)examine the ordinary meaning of the words and then will determine the most widely held meaning of the words.
D)begin with the ordinary meaning of the words and then will ask a jury to determine the societal meaning of the words.
E)examine the meaning of the words within the context and then will examine the ordinary meaning of the words.

Question 38

In the formation of a contract,the intention of the parties may be just as important as the essential elements of the contract.

Question 39

A court will sometimes recognize the existence of an implied term from customs in a particular trade or transaction.

Question 40

A judge is in the best position to assess credibility.

Question 41

From the point of view of risk management,what conclusion about the clarity of form of a contract would you suggest arises out of your reading of this chapter?

Question 42

What is the plain meaning approach to the interpretation of contracts? What are the limitations of this approach?

Question 43

What are some of the primary goals of a court in interpreting a contract?

Question 44

When a condition precedent is not satisfied,the contract ceases to exist.Explain.

Question 45

When a contract is subject to a condition precedent and the condition is not satisfied,the contract ceases to exist.Explain.

Question 46

As far as managing legal risks,what strategies can contracting parties adopt to reduce the risk of encountering disputes with respect to the interpretation of the contract?

Question 47

The contra proferentem rule establishes a form of equality among the parties to a contract.Explain.

Question 48

The dictionary meaning of a word does not always clarify its meaning.Explain.

Question 49

Is not implying terms in a contract contrary to the rule that the function of the court is not to write or rewrite the contract for the parties?

Question 50

What is an implied term? In what circumstances are the courts likely to find that an implied term is appropriate to the interpretation of the contract?

Question 51

The dictionary meaning of a word does not always clarify its meaning.Explain.