“The principles of contract interpretation are not in issue on this appeal. In interpreting a contract, effect must first be given to the intention of the parties. The principles are explained in Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888:
[T]he normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intention of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of a policy which promotes a sensible commercial result. (p. 901)
In B.G. Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12 the Supreme Court provides further guidance:
It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole (pp.23-24)
Applying that principle to domestic contracts, a court must search for an interpretation that is in accordance with the parties’ intention at the time they entered into the contract. Where two interpretations are possible, the court should reject the one that would produce a result that the parties would not have reasonably expected at the time they entered into the contract. Instead, the court should favour an interpretation that promotes the reasonable expectations of the parties and that provides a sensible result in the family law context. To arrive at such an interpretation, the court must interpret the provision in the context of the entire contract, including the entirety of the section at issue, to discern the likely intention of the parties.”
MacDougall v. MacDougall, 2005 CanLII 44676 (ON CA) at 20-22