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Spirit Of The Agreement

Experienced traders are generally comfortable crafting the terms of an economic contract: they negotiate at the best price, negotiate fractional shares and repair detailed exit clauses. But these same experienced professionals often spend so much time drafting the letter of the agreement that they pay little attention to the social contract or the spirit of the agreement. Therefore, while the parties agree on paper on the same conditions, they may have very different expectations about how the agreement will work in practice. Without them coming to a real meeting of heads, the agreement they have signed can get upset. The game of the system, also called „Rules Lawyering“, is a pejorative expression applied to someone who follows the letter of the law to achieve a result that the spokesperson is immoral or contrary to the spirit of the law. There are two reasons why this may be possible. A law may have been drafted in such a way as to allow ambiguity or there may be restrictions in the scope or jurisdiction of the law. For example, an offshore bank account can be used to reduce domestic tax obligations in some countries. What approach do you expect in case of conflict: informal discussion, mediation, binding arbitration, court? What happens if the differences persist? The social contract should not only complement the economic contract, but the economic contract itself can effectively embody much of the social contract. In the late 1980s, for example, Chrysler deliberately restructured both the letter and spirit of its contracts with suppliers to save its business. In 1989, the company faced an expected overrun of $1 billion for a new program, an uncovered retirement obligation of $4.5 billion, and a record loss of $664 million in the fourth quarter. To stop the bleeding, Chrysler decided to revolutionize its supplier relationships (with other strategic measures).

The auto giant had traditionally sold its business to the qualified bidder, which offered the lowest price, and had relied on competition from OEMs to cut costs. The company was now looking for long-term partnerships with a subgroup of its traditional suppliers. With this new model, the partner should not only improve its own performance, but also improve Chrysler`s business beyond the supply relationship. A recent case before the Supreme Court of Queensland confirmed the rule established in the Laurinda case.