Sally calls about an urgent issue with her catering company (Gravy Train, LLC) contract with the federal government. Her usual supplier was hospitalized and could not ship her weekly order needed to service her military accounts. Sally was referred by General Messhall to a different supplier to fill the order. Sally faxed her standard pre-printed order form to the new supplier for $17,642.54 worth of goods. The order form contained the foodstuff, quantity, payment terms, and the amount listed on the front and the usual boilerplate terms on the back. Within two days, Sally received the order from the substitute supplier. The supplier also sent his pre-printed invoice form with the supply delivered on the front and different boilerplate terms than Sally’s invoice on the back that also contained a payment term penalty. Jack’s business form included a price differential for $20,642.54, a three-thousand dollars price increase over Sally’s invoice. When Sally received the goods the next day, she immediately put them in cold storage. That same day Sally received a call from someone that identified himself as, “Jack, the Substitute Supplier.” Jack stated, “Ehey! Dis is Jack, the Substitute Supplier.” I want to inform you that your payment for the shipment is overdue, and “cause you’re late; the Vig rate is an additional $3,000 per day plus the base price.” Sally said Jack told her to review his invoice, which stated that a penalty of $3,000 per 12 hours default nonpayment surcharge attaches for late payments.
Sally retorts, “yea well, I don’t accept.” She instantly retrieved his invoice and read the terms on the back of the invoice and realized that the supplier’s form did have payment terms demanding payment for delivery of goods within 12 hours of delivery. That calculated out to be $6,000 over her regular invoice price and another $3000 due in 12 hours. Sally noted that her form had a different term for payment that gave her 30 days net payment. Jack, the substitute supplier, told Sally before hanging up that if he doesn’t receive his cash, plus any penalties due, he was going to file a lawsuit immediately for breach of the terms of his delivery order.
Sally retrieves her form and compares the two order forms side by side. She notes a substantial difference in the boilerplate terms but notes other conditions are similar but noticeably different enough to make the effect substantially unfavorable to her. Jack’s form matches the goods requested, listed the correct quantity, and the delivery terms were the same as her form required. Jack’s standard terms (often called “boilerplate”) were utterly unreasonable and one-sided not matching hers at all. He had the right to substitute non-conforming goods, did not warrant the quality of the products. His form demanded that dispute resolution through mandated arbitration to determine any dispute unless it involved the interpretation of a price term. Since the issue involved pricing, Jack could sue in Federal Court in his state based on diversity.
Is it normal to use purchase and acceptance order forms for commercial goods without a signed contract? It is very normal to use order forms without a signed contract in commercial transactions. Purchase/acceptance orders are fast and cover essential information and requirements of merchants. Contracts take time, and the process does not always result in an agreement, nor are contracts completed on time once the lawyers are involved. With merchants, time is of the essence; they need it now! Purchase orders, while written by a lawyer, do not have the benefit of a lawyer’s oversight when there are crossing forms designed to expedite a commercial transaction now. As a result, the merchants don’t end up with signed contracts. The question is, at what point is a contract formed, if at all, and what are the terms? Purchase order disputes continuously end up in litigation. These cases are very fact-specific, with the result determined by the specific transaction in question. The ultimate issue with competing purchase order form terms and no signed contract, is “what’s enforceable?”
Sally asks that you advise her if the supplier is trying to rip her off or if there is simply a misunderstanding. She believes she is in the right because it was her order and invoice. She states she never agreed to the terms of his invoice, and it appears that Jack has agreed to her terms because he sent the supplies.
Based on the information Sally has provided, prepare an IRAC formatted response outlining the issues answering the questions below:
- This question has four parts:
- What are the elements needed to form a contract?
- Is an agreement enforceable?
- What is a “Purchase Order?
- How would you characterize the terms of a Purchase Order?
- Is there a difference between a purchase order (Invoice) and a contract? If so, what is different between the two?
- Are Purchase Orders (Invoices) controlled under Contract law or the Uniform Commercial Code (UCC)?
- Is there an advantage of a contract over an invoice? If so, what are the advantages and disadvantages of each instrument?
- Under the facts of this case study, how many transactions are there, one or two transactions? Explain?
- How or when is an enforceable agreement formed in contract negotiation? How about with Purchase Orders (Invoices), when is an enforceable agreement established under the UCC? Is there a binding agreement in this case? Why or why not?
- What facts are in Sally’s favor of canceling the order?
- What facts are in Jack’s favor in enforcing payment?
- In Contract Law, you must have a meeting of the minds before there is an enforceable agreement or, the Acceptance must match the Offer. What is this Contract Rule called?
- Common-Law Contracts require that the Acceptance must not add or change any terms of an offer. What is it called when an Acceptance of an Offer changes terms of the Offer?
- In this case, is there a meeting of the minds under the UCC using Invoices that differ in terms? Explain.
- Have the parties formed a contract? If so, what are the enforceable terms? If not, how should this dispute be resolved?
- What should Sally do to show she did not accept the goods? Has she accepted the goods? Explain?