"This contract shall constitute the entire
agreement between the parties with respect to the subject matter
hereof and shall not include any representation, promise or
warranty other than those set out herein."
The purpose of these clauses, known as "entire
agreement" clauses, which are often found in commercial
contracts, is to prevent the parties who entered into a final
contract from invoking prior discussions or understandings to give
a different meaning to its provisions. The reasoning underlying
such a clause is simple: because the contract is supposed to
reflect the final agreement between the parties as to their rights
and obligations and, accordingly, their true intent, it would be
dangerous to allow them to go back to discussions or understandings
that preceded the contract. Such clauses basically aim to preserve
the stability of contracts.
The courts have generally upheld such clauses and excluded
evidence relating to verbal or written understandings that preceded
the signature of the final contract. However, the Superior Court,
in the case of IHAG-Holding AG v. Intrawest
Corporation, put aside the "entire agreement" clause
included in the final agreement to consider a prior letter of
intent in order to determine the method to be used to calculate the
The facts of the case may be summarized as follows: a letter of
intent, which did not bind the parties, stipulated an elaborate
formula for the calculation of the purchase price of a sports
complex located in the Gatineau region. The final agreement signed
by the parties reproduced this same formula but with a drafting
mistake that had the effect of increasing the purchase price by
$6.2 million relative to the amount that would have been obtained
if the formula set out in the letter of intent had been correctly
The Superior Court decided to set aside the formula for
calculating the purchase price in the final contract signed by the
parties and instead applied the formula set out in the letter of
intent, which did not bind the parties. The Court concluded that it
was justifiable to set aside the "entire agreement"
clause and return to a prior understanding when it was obvious that
one party was trying to rely on that clause in order to take
advantage of a mistake. In fact, the drafting error, which both
parties were unaware of until then, was only discovered at the time
of paying the "earnout payment" element of the price. The
seller had then tried to apply the "entire agreement"
clause that allowed it to set aside the less favourable formula
contained in the letter of intent. However, the application of an
"entire agreement" clause cannot have the effect of
setting aside each party's obligation to act in good faith.
As for the letter of intent, although it did not bind the
parties, the Court concluded that it could be applied since it
truly represented their real agreement respecting the formula for
determining the purchase price.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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