Mark Pestronk
Mark Pestronk
Q: Several months ago, our agency entered into a new, formal contract with a major corporate client that we have been handling on a handshake basis for many years. Before we ever saw the new contract, we had hired several new agents, expanded our office, signed long-term technology contracts and incurred other expenses based on the corporation's CFO's promise that we would have a long-term relationship. A few days before we started work, the CFO sent us the contract, and we were surprised to see a clause stating that the corporation could terminate for any reason on 60 days' notice. When we tried to have that clause changed, the CFO stated, "Don't worry about it. That's just what the attorneys insist on. I guarantee we will have a long-term relationship." So, I signed. Two months later, the CFO changed his mind because a competitor came in with a lower price, and he terminated us with 60 days' notice, leaving us deeply in the hole.  Could we sue the corporation for some sort of misrepresentation, based on what the CFO said? Our local attorney says we have to go by the letter of the contract, but what do you think?

A: The general rule is that the written agreement takes precedence over anything anyone said. This is especially true where the contract is unambiguous and needs no interpretation.

To resolve any doubts, almost all formal contracts have what is called an "integration" or "merger" clause near the end, stating that the written agreement is the sole agreement between the parties and supersedes all prior or simultaneous oral or written statements by the parties. These clauses make contracts easier to interpret and disputes easier to decide.

However, there is an exception to the rule that only the written contract counts. If you can prove that the CFO induced you to sign based on an intentional misrepresentation, then you could have a case for fraudulent inducement of the contract.

I recently found a reported precedent on this very subject involving a travel agency and its corporate client: McEvoy Travel Bureau v. Norton Co., decided by the highest state court in Massachusetts in 1990. I was pleasantly surprised that the case was decided in the agency's favor.

The court noted that, "Norton's representative reassured McEvoy that the parties in fact would continue to have a long-term arrangement and that the termination clause was 'inoperative' and 'meaningless,' a mere technicality that Norton's law department had required. Based on these statements, McEvoy decided to sign the agreement a day or so after the meeting."

The court held that statements like these that a party did not intend to invoke a contractual termination clause, and that the clause was included in the contract only at the insistence of that party's attorneys, could form the basis for fraud claim, if that statement misrepresented actual intent of the speaker just before the contract was signed. The jury, in fact, found that the company really misrepresented its actual intent and awarded $500,000 in damages, which was upheld on appeal.

The court also found that the plaintiff reasonably relied on the company's oral assurances and, like you, incurred substantial long-term expense commitments in reliance on the company's assurances. It was also significant that there was no real negotiation of the written contract, as it was sprung on the agency at the last minute.

What happened to you is certainly similar to what happened to McEvoy Travel. So, if you can get the CFO to admit what he told you (which may be an impossible task), a second opinion may be worth exploring.
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