Contract law attorneys at Gehres Law Library assist organizations in negotiating, drafting and reviewing contracts. Our legal team also provides advice on contractual obligations and provides representation when conflicts arise in connection with contracts.
While some business transactions involve traditional, negotiated contracts, a substantial number of business transactions are conducted via a purchase order alone. The question that arises when something goes wrong is whether a purchase order is considered a binding contract and, if so, what are each party’s contractual obligations?
Understanding the Battle of the Forms
Contract formation requires an offer, made by one contracting party, and acceptance by the other. Under traditional common law, a mirror image rule applied to contract formation. If an offer was made by one party, no contract was formed unless the acceptance agreed to all offer terms. If the purported acceptance changed the terms of the transaction in any way, it was considered to be a counter-offer which then had to be accepted.
The dilemma that frequently arose with the application of this rule is many transactions do not involve a formal offer and acceptance. Instead, many business and commercial transactions are simply conducted by purchase orders. A buyer may send a purchase order to a seller, and this purchase order will likely contain standard boilerplate language outlining the buyer’s terms of purchase that are applicable to all transactions the buyer enters into. The seller, upon receiving the purchase order, may send back an acknowledgement of intent to fulfill the order – or an acceptance of the offer to buy. However, the seller’s acceptance is often evidenced by another form, with its own boilerplate language, which may conflict with the buyer’s boilerplate terms and conditions.
If the buyer’s purchase order and seller’s confirmation contain different terms, no contract would be created under common law because the “mirror image” rule would dictate that only a counter-offer had been made through this process. And yet, buyers and sellers all over the world would act as though an enforceable contract had been formed. In an effort to implement rules of law which reflected the reality of how organizations were doing business, the Uniform Commercial Code (“UCC”) was written. The UCC is a uniform act governing certain contracts and commercial transactions with provisions that have been adopted, in whole or in part, throughout the United States. Click here for more information on the California UCC.
In UCC 2-207 *, it is established that a written confirmation or other definite expression of acceptance can constitute acceptance to create a contract, even if the expression of acceptance outlines additional or different terms than the original offer. This is true except in circumstances where the acceptance is made conditional on the offerer assenting to the additional or different terms. In other words, the seller’s form would be considered acceptance of the buyer’s offer to purchase, even if the seller’s form set forth different requirements than the buyer’s form – as long as the seller didn’t make acceptance of the buyer’s original offer conditional on the buyer agreeing to the seller’s new or different terms.
When an acceptance is returned that contains differing terms from the offer, the additional or different terms may become part of the contract, or may not – depending upon applicable state law and depending upon the nature of the new or different terms. While there are many nuances involved, generally the new or different terms will become part of the contract unless they materially alter the original agreement, unless the original offeror provides timely notice of objection to the new terms or unless the original offer contained language specifying that the offer could only be accepted based on the original terms.
*§ 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
- (a) the offer expressly limits acceptance to the terms of the offer;
- (b) they materially alter it; or
- (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
Getting Help from Contract Law Attorneys at Gehres Law Library
Gehres Law Library provides assistance determining if a contract was created via the exchange of purchase orders or other business forms. Our award-winning legal team also advises companies on business practices which may give them an advantage over others when using form documents, and provides seasoned representation in cases where contractual disputes arise. Give us a call at 858-964-2314 or contact us online to find out more about how our contract law attorneys can help with your case.