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 agreements.

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 covered.

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 businesslike...

With this noble goal in mind, the Court proceeded to identify, address, and overcome each of the flaws in the parties' agreements:

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...