When is a Deal Not a Deal?

When is a Deal Not a Deal?

Let's suppose you own a manufacturing company, and you meet with a salesman from your primary equipment supplier, the ABC Equipment Company. You've known the salesman for years, and he's always been trustworthy and reliable.

"You really need to take a look at our new XYZ 1000 model," he tells you. "It's on sale for $200,000 till the end of the month. It can put out 125 units per hour. The model you've got now is in good shape, but it's 10 years old and only does 75 units per hour on a good day."

He's got your attention. On an 8 hour shift, you'll turn out 400 more units. 2000 extra units a week, with no added overhead. That'll look pretty sweet on your bottom line. "Send me a proposal," you tell him.

A few days later he sends you an email. "Here's the proposal on the XYZ 1000 you requested. As I mentioned, it's rated at 125 units per hour. Price and terms of payment are set forth below. Let me know if you're interested and I'll send over the paperwork so we can get going."

You decide to take the plunge. He sends over the usual boilerplate forms. You look them over, and the price and terms are what he promised. You sign the forms, send them back, and 20 days later the XYZ 1000 is delivered and installed.

At the end of the month you get the production reports from your production manager - and you discover that the XYZ 1000 is only turning our 85 units per hour. "It's a nice machine," your production manager tells you. "But 125 units per hour? Are you nuts? It's nowhere close to that." You call the salesman. "Yeah, I was told it would do 125 units an hour. Apparently, the engineers got it wrong. Sorry. How's it working otherwise?

Next stop: lawyer's office. "We made a deal," you tell your lawyer. "I was promised 125 units an hour. I didn't get what I was supposed to get and it wasn't worth the investment. I want my money back. We made a deal."

The first thing any experienced lawyer would do at that point is to check what you signed. Almost always, toward the back of the document, there will be a paragraph titled something like "Entire Agreement" or "Merger and Incorporation Clause," which says something like this:

This Agreement represents the complete agreement between the parties and supersedes all prior agreements, promises and representations, oral or written, which shall be of no force and effect.

Simultaneous translation: Whatever you were told before you signed the boilerplate forms doesn't matter; the only thing that counts is what you signed. And, surprise surprise, what you signed doesn't say anything about 125 units an hour. The result: The deal you made with the salesman is no deal at all. It's what the law calls "parol evidence" - a fancy term meaning, roughly, "you lose."

These kinds of situations arise all the time, in contexts ranging from material purchases to consulting contracts, and they're easy to prevent. If given a chance, your lawyer would have insisted that the salesman's promise be incorporated into the sales documents, and that the standard provisions that limit your rights if the equipment does not perform up to specs be removed. If the ABC Equipment Company refused, you would have known, before you made the deal, that the salesman's promise was worthless. If the ABC Equipment Company agreed, you'd be in the driver's seat.

The moral: prevention is, as always, easier than cure. Give us an opportunity to help you, before it's too late.