Dealing with Vendors and Suppliers: Documenting Key Assumptions

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May 04, 2018

Dealing With vendors and suppliers: Documenting Key Assumptions

In the context of a contractual relationship, an assumption is “key” when it speaks to something that could affect the cost or difficulty of the vendor’s or the customer’s performance of their respective contractual obligations. The parties usually have a number of these assumptions, which are typically instrumental in leading the parties to enter into the contractual relationship.

First and foremost, if an assumption is important to a customer, the customer should expresslyst ate that assumption in the contract. If the assumption does not appear, a party must resort to claiming that the court should interpret the contract to have required it, or that the parties intended it. However, typically a court must be convinced that the contract is ambiguous before it will consider parol evidence. See, e.g., Golden Gate Acceptance Corp. v. General Motors Corp., 597 F.2d 676 (9th Cir. 1979).

Another potentially applicable doctrine is the doctrine of frustration of purpose, whichrequires  a showing that , after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language of the circumstances indicate the contrary. See, e.g., U.S. v. Moulder, 141 F.3d 568 (5th Cir. 1998). As application of these doctrines varies widely with the factual circumstances and can be uncertain, the better practice is to remove this uncertainty.

Many assumptions are easily documented. Examples would include the nature and amount ofaccess a  customer would provide a vendor to key personnel, or particular internal resources, or the date or dates or times of day that the vendor will have access to a work site. A customer should use the same techniques applicable to the scope of work and the warranties and performance standards, that is, by using objective language and measurable criteria. A savvy vendor will typically request that the customer include one or more of the vendor’s own assumptions in the contract. For example, the vendor may request the inclusion of a statement that the vendor’s obligations to perform are contingent on the customer making certain resources or assistance available.

While these assumptions are often eminently commercially reasonable, the buyer should take care to limit the assumptions where necessary. To do this, the buyer should clearly demarcate where its obligations begin and end, and include an “integration” provision (sometimes referred to as a “merger” or “entire agreement” provision), in the contract.

An integration provision typically serves to bar parol evidence offered for the purpose ofaddi ng to or varying from the plain meaning of the language in the contract. The scope of this prohibition varies from state to state, however. In some states, the provision is a complete bar to such evidence except when offered to prove fraud in the execution. See, e.g., 1726 Cherry Street Partnership by 1726 Cherry Street Corp. v. Bell Atlantic Properties, Inc., 653 A.2d 663 (Pa.Super. 1995). In other states, the provision does not bar such evidence when offered to prove fraud in the inducement. See, e.g., Walid v. Yolanda for Irene Couture, Inc., 40 A.3d 85, (N.J.Super. App. Div. 2012).

Regardless, by employing an integration provision together with a set of objective, clear lydelineated assumptions, a customer can reduce the likelihood that unstated and misaligned assumptions will derail a contractual relationship.

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