Why “We Had An Understanding” May Not Be Enough
April 22, 2026
BY: IAN ANDREW LAW
Commercial relationships rarely run on formal documents alone. People make calls, send quick emails, cut informal side deals, and rely on shared assumptions. That is normal business life.
The problem starts when the formal contract and the informal understanding no longer seem to point in the same direction. In litigation, the phrase "we had an understanding" is often where difficulty begins, not where relief becomes easier.
Key Takeaways
• Informal understandings do not always override formal contract language.
• Objective context can matter, but private intent has limits.
• Entire agreement, amendment, and notice clauses can change the analysis quickly.
• Post-dispute assertions about what everyone meant are often weaker than contemporaneous records.
• If a commercial change matters, it is safer when the documents show it.
Why This Issue Shows Up So Often
Businesses adapt in real time. Delivery schedules change. Pricing gets adjusted informally. Performance problems are tolerated for a period. A relationship that began under strict written terms may evolve into a looser operating reality. That can work perfectly well until the relationship breaks down.
Once that happens, the written deal tends to regain centre stage very quickly.
What Ontario Courts Usually Look For
Ontario courts interpret the contract in its objective commercial setting, but they do not generally treat subjective, uncommunicated intention as a substitute for the document itself. That means an informal assumption may matter less than the parties hoped unless it is reflected in the written record, supported by objectively provable conduct, or tied to a legally recognized basis such as waiver, estoppel, amendment, or a different contractual structure.
In other words, saying that everyone understood something is not the same as proving that the law will give effect to it.
Why The Written Record Still Wins Most Of The Time
If the contract contains an entire agreement clause, a written-amendment requirement, a strict notice clause, or detailed performance mechanics, the informal understanding becomes harder to advance. That does not make it impossible, but it changes the fight. The case may become less about commercial memory and more about whether there was a legally effective variation, waiver, or representation.
That is often a much harder argument than clients expect.
The Practical Lesson
Commercial relationships benefit from flexibility. Legal disputes benefit from recordkeeping. The two are not incompatible. If an operational change matters enough that someone may later say, "that was the real deal," it is usually worth asking whether the documents say that too.
An informal understanding may be commercially real and legally important. But in Ontario contract disputes, it still has to survive the written agreement, the rules of evidence, and the objective record.
Sources
• Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.
• Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20.
• General Ontario common-law principles respecting waiver, estoppel, amendment, and entire-agreement analysis; no single Ontario statute is exclusively determinative for this article.
This article is for general information purposes only and does not constitute legal advice. Reading this article does not create a solicitor-client relationship. If you require advice specific to your situation, contact my office.