Laws that regulate ancillary agreements – agreements made outside contracts known to the public – should focus on protecting the legitimate interests of third parties and investors, said law professor George Cohen at a November 7 conference that marked his appointment as a professor of corporate law. But there is a greater responsibility related to this practice that your employees probably do not know about. When your employees enter into “incidental agreements” with your customers, your distributor may violate your indirect credit contracts with your lenders. For example, the Massachusetts Dealer Agreement (M-T Agreement) contains a language that prohibits these “incidental agreements.” As part of the M-T agreement, a trader who will hand over his contracts to M-T gives a positive image of the fact that the contract submitted to him is the only agreement between the customer and the distributor with respect to the transaction. The merchant also indicates that the amount identified as “down payment” in the sales contract is correct and was actually received by the merchant in the form of a cheque or cash by the customer. An “incidental agreement” between the merchant and the customer is contrary to these provisions and could jeopardize your credit relationship. If you feel that a letter is important or necessary, we are informed when developing and negotiating these documents. in some situations, they are also called comfort letters. Get in touch with me to discuss how we can help and what it will cost. If you need a secondary letter for business reasons, contact me, or maybe we can help you with other business advice or other contracts? When evaluating ancillary agreements, the courts might consider whether the agreement had any other plausible purpose than to mislead one or more parties, Cohen suggested. Some scientists have argued that contracting parties could use an ancillary agreement to avoid design costs. Design costs “could explain some ancillary agreements [but] it doesn`t seem to explain much,” Cohen said. Courts and commentators sometimes suggest that standardized forms limit what can be included in contracts, but Cohen responded that, in some cases, standard forms are used to discourage ancillary agreements, and if not, forms often have room for written supplements.
- April 12, 2021