In Australia, secondary letters are becoming more common due to changes in federal labour law created by the WorkChoices Act. WorkChoices restricts the collective agreements that parties can register for enforcement by labour courts, and also requires that CBAs be strictly limited to labour-related matters. The inclusion of clauses, even minor and non-workplace clauses (p.B payment of contributions) may render a cost-benefit analysis inapplicable. In response, many unions and employers use cover letters to reach agreement on non-employment issues and do not register these cover letters with the federal government – relying on customary law to enforce cover letters.  The parol evidence rule of contract law renders ancillary agreements inapplicable in many circumstances, but focuses doctrinally on whether the main agreement is sufficiently complete or whether the ancillary agreement contradicts the main agreement. Under an exception to the parol proof rule, collateral evidence may be considered if a party presents evidence that the main agreement was deception. “The focus [of teaching] is on the wrong thing. In many of these cases, the evidence of the parallel agreement is very credible because it is the real deal, but the problem is that it is fraud, and should the law sanction the fraud [by allowing the application of the parallel agreement]? Cohen said. “What is most worrying, at least in my opinion, is that the courts are almost completely unaware of the impact of enforcement or non-performance on the interests of third parties.” Parallel agreements tend to appear when the main agreement is used as a type of property, for example. B secured for a loan, Cohen said.
“Sub-agreements are private transactions on information, and it is the information that affects the value of the contract as property or the ownership characteristics of the contract that delimit the property, and this second contract. is hidden from interested third parties who otherwise try to find out what the value of the property is or what are the characteristics of the ownership of the main agreement,” he said. “Collateral deals are fundamentally bad if there`s no good reason to keep this third-party information secret, which is also known as fraud.” Another innocent explanation sometimes put forward for parallel arrangements is that they may signal a desire for non-legal application. “How confident we are. that parallel chords really serve as a signal? Cohen asked. Cohen argued that if the parties really want any part of their agreement to be legally unenforceable, they could spell that out in the main agreement. In contract law, a cover letter has the same power as the underlying contract.  However, courts may declare invalid ancillary agreements that conflict with the main collective agreement.  The provisions of the CBA govern the interpretation of ancillary agreements.
In the United States, several courts of appeal have held that in disputes where ancillary agreements do not contain dispute resolution procedures, the parties must use the dispute resolution mechanism of the underlying collective agreement (in these cases, arbitration) to resolve the dispute.    We recommend that you educate your employees about the dangers of this practice. A transaction that may appear to be a “low risk” to a sales or R&I employee could come back to follow the dealer if the lender discovers the “parallel contract” with the customer. Court discussions about side deals date back at least to the 19th century and probably earlier, and they are also a common feature of recent financial scandals, Cohen said. “There is at least anecdotal and circumstantial evidence that side deals are a fairly large phenomenon exploited by fairly sophisticated people with a lot of money at stake,” he said. “Parallel agreements used for fraudulent purposes tend to include some sort of omission that hides the parallel agreement rather than the commission – that is, a false affirmative statement.” Parallel agreements effectively co-opt the other party (Merrill Lynch in the enron example) so that they do not whistle the agreement. Using the contract as property also facilitates the concealment of property as tangible property, he said. The problem with the decision not to enforce either agreement is that neither party has the incentive to detect fraud, which “may not be the best way to protect the interests of third parties.” If the courts enforce the main agreement through strict application of the parol proof rule, losses suffered by third parties could be eliminated, Cohen suggested. But “the secondary part can bear all the risk of fraud”. The application of collateral agreements can help third parties in some cases. A court could choose to enforce the ancillary agreement on the condition that the aggrieved third party – for example, the IRS – is informed of the fraud. “You might also have other types of solutions based on the idea of notifying” third parties that would solve the fraud problem.
You`ll be surprised to learn that sales and R&I staff sometimes make “parallel arrangements” with the customer, in which the dealer lends the customer a small amount of money to grant the loan and close the deal. Your first reaction might be, “But it doesn`t happen at my dealership,” and while we hope it`s true, it happens more often than it should. In addition, these “ancillary agreements” could violate the assurances given by the customer when signing the purchase and sale contract. For example, the Reynolds and Reynolds Massachusetts Standard Form Motor Vehicle Purchase Agreement (“P&S”) states that “Buyer represents and warrants that no loan other than the foregoing has been granted to Buyer by Dealer.” If your employees enter into “sub-agreements” with the customer, your dealer will grant the customer a “loan” in violation of the P&S. As soon as you enter into an “ancillary agreement” regarding the extension of the loan, this “representation” of the customer in the P&S is no longer correct. The fact that the ancillary contract remains hidden from third parties does not necessarily mean that third parties are deceived. It may be justified to enter into a secret supplementary agreement if the agreement is necessary to protect a trade secret, intellectual property or employee privacy. “[But] even if there are legitimate needs for confidentiality or interests for confidentiality, are secret agreements still necessary to protect those legitimate interests from secrecy?” Cohen suggested that, in some cases, the main agreement could stipulate that this is a confidential matter without, for example, disclosing the confidential information itself. B, when an employee signs a trade secret disclosure agreement. Alternatively, the main agreement itself could be secret or the parties involved could be obscured if the main agreement is shown to third parties who have an interest in the non-confidential parts, which also has broader implications for contract law and contract theory, Cohen argued. Collateral agreements are about the entire contractual paradigm that exists in contract theory, Cohen said, because collateral agreements are a deliberate attempt to render the main contract incomplete. “There are many ways for contract theory to think about secondary agreements and the idea of contract as property.” He concluded, “Sometimes we have to look to the side to see what`s right in front of us.” In addition, these “ancillary agreements” could violate the assurances given by the customer when signing the purchase contract.
For example, the Reynolds and Reynolds Massachusetts Standard Form Motor Vehicle Purchase Agreement (“P&S”) states that “Buyer represents and warrants that no loan other than the foregoing has been granted by Dealer.” If your employees enter into “collateral agreements” with the customer, your reseller will grant the customer`s “credit” in violation of P&S. Once you make a “side statement” regarding the renewal of the loan, this “representation” of the customer in P&S is no longer accurate. .