Discussion:Contract dispute over meaning of cost.
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Steve16808 (talk|edits) said: | 23 February 2010 |
| We recently sold one of our lines of business, which was wire products manufacturing. We sold the plant, equipment and existing inventory. The sales contract read that the inventory would be sold at the cost of the seller to produce the inventory. The dispute arises because the buyer interprets the cost of the inventory to be direct labor, materials, and plant overhead only. The plant does not have any back office support. The seller interprets it to mean all costs to get the inventory to the point of the sale, which includes interest, management salaries, and a share of the administrative costs, such as back office support of the manufacturing plant during the build period. I would like to hear opinions from both sides, and any actual outcomes from similar situations. Thanks very much for any help. | |
| 23 February 2010 | |
| I think I could argue either way. Depends who I'm representing. This is why I like to review documents before deals are finalized, you never know when something might be interpreted differently. | |
| 23 February 2010 | |
| the attorney probably put a definitions section in the contract | |
| 25 February 2010 | |
| If the actual wording just says "cost of the seller" then you've got quite a pickle. Rkrcpa1 is right. That can be interpreted and/or argued in almost any direction. Direct costs would be the management accounting definition, and would include less costs. Fully absorbed costs - a GAAP concept - would be the more cost-inclusive definition. There are many shades of inbetween.
Kevin is also right, though, that many terms are defined. Lawyers drafting contracts frequently use this trick: if the word is capitalized, that means it is defined somewhere else. If "cost" begins with a capital C, look around and find earlier instances of the word to see if it has a more detailed description. | |
| 25 February 2010 | |
| I would also imagine that the lawyer <if they are any good> would have put in an arbitration clause as well.
Now, if the only goal was to "get er done", well, then I see a whole storm of trouble. | |
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