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Legover industries Ltd is a custom furniture maker. Its president and only shareholder, Hieronynmous
Firple, recently sold the company to blackLeather LtD, a company that is also in the furniture business.
The parties negotiated a lengthy contract of purchase and sale. One of the Clauses in the contract
stated, "any tax liabilities existing at the time of the signing of the agreement shall be payable by the
seller". Six months after the contract the contract was signed, Canada Revenue Agency (CRA) sent
blackleather a notice of reassessment. CRA discovered a tax liability for a taxation you're prior to the
sale that it had overlooked. Blackleather could easily pay the amount owing to the CRA but thinks Firple
is responsible for paying. Also, Blackleather's principal found Firple Difficult to deal with and their
feelings about him are mostly negative. On that basis they would not mind making him pay.
Blackleather accordingly demanded that Firple reimburse blackleather for the $8,000 it must
pay to the CRA. Firple is not retired and plays gulf in warm places on a year-round basis. He is a cranky,
rigid individual who spends most of the year outside Canada. Firple does not want to pay, on the
grounds that this tax liability did not exist when the agreement was signed. It only became a tax liability
when the CRA said it was, which was after the agreement was signed. In Response, Blackleather says
that the liability existed prior to the signing of the agreement. The fact that the liability was not known
to exist until after does not permit firple to dodge the responsibility of paying, as the purpose was to
affix liability for taxes for the period when Firple Controlled the Company. When Consulted, Lawyers on
both sides said the answer was not clear cut and arguments could be made for both positions. Discuss
the applicability of Negotiation, Mediation, Arbitration, and Litigation to the facts of the case.