Have You Read Your Purchase Order Terms and Conditions? (Part 1)
By Brian S. Thompson

Most purchases of goods and services by a company occur without incident. However, for those instances when problems do occur, a well-drafted set of purchase order terms and conditions can be of great benefit.

Perhaps the most important provision in a set of purchase order terms and conditions is the “acceptance/agreement” clause, which is also referred to as the “magic language.” The purpose of this language is to allow you to impose your terms and conditions on the seller, while attempting to prevent the seller from imposing its terms and conditions on you. Under Section 2-207 of the Uniform Commercial Code, a definite and seasonable expression of acceptance or a written confirmation that is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered, unless acceptance is made conditional on assent to the additional or different terms. Additional terms are considered as proposals for addition to the contract and become part of the contract unless the offer expressly limits acceptance to the terms of the offer, the additional terms materially alter the offer, or notification of objection to the additional terms has already been given or is given within a reasonable time.

As a purchaser, the first question that must be answered is: Do you want to do business only on your terms and conditions or not at all, or do you want to have a deal and then do the best you can to make your terms and conditions applicable? If you want to do business only on your terms and conditions, then your offer must be made conditional, for example “This purchase order is issued on the express condition that the seller agrees to all the terms contained herein. No other terms are acceptable.” The risk in using this type of approach is that if the seller responds to your purchase order with its own sales terms and conditions form, no contract has been formed. If the price of what you are trying to purchase suddenly goes up and you want to enforce your rights under your purchase order, you may have a difficult time, because under the terms of your purchase order there is no contract.

A purchaser may not wish to take the “all or nothing” approach, preferring instead to have a legally enforceable contract and attempt to make its terms and conditions applicable instead of the seller’s terms and conditons. An example of this type of approach is the following provision: “Any proposal for additional or different terms or any attempt by seller to vary, in any degree, any of the terms of this offer in seller’s acceptance shall not operate as a rejection of this offer unless such variance is in the terms of the description, quantity, price, or delivery schedule of the goods but shall be deemed a material alteration thereof and this offer shall be deemed accepted by seller without such additional or different terms.”

In order to further limit the incorporation into the contract of additional terms that may be contained in the seller’s terms and conditions, purchase order terms and conditions should limit acceptance of the purchase order to the terms contained therein and object to the seller’s terms. The following language is an example: “Any acceptance of this purchase order is limited to acceptance of the express terms of the offer contained on the front and back of this purchase order and any additional or different terms that may be contained in any documents furnished by the seller are hereby objected to and rejected.”

Lastly, in order to guard against the possibility that the seller’s terms and conditions constitute the offer and the purchaser’s terms and conditions constitute the acceptance, the following may be appropriate: “If this purchase order shall be deemed an acceptance of a prior offer by seller, such acceptance is limited to acceptance of the express terms contained herein. Any additional or different terms contained in the terms reflecting seller’s prior offer shall be deemed material and are hereby objected to; provided, however, that this purchase order shall not operate as a rejection of that prior offer unless such variance is in the term of the description, quantity, price, or delivery schedule of the goods.” Alternatively, as discussed above, if the buyer wishes to have a contract only on its own terms, the following language should be used: “If this purchase order shall be deemed an acceptance of a prior offer by seller, such acceptance is expressly conditional on seller’s assent to any additional or different terms contained herein.”

Combining the provisions described above results in the following “magic language”:
“Seller’s commencement of work on the goods subject to this purchase order or shipment of such goods, whichever first occurs, shall be deemed as an effective mode of acceptance of purchaser’s offer to purchase contained in this purchase order. Any acceptance of this purchase order is limited to acceptance of the express terms of the offer contained on the front and back hereof. Any proposal for additional or different terms or any attempt by seller to vary, in any degree, any of the terms of this offer in seller’s acceptance is hereby objected to and rejected, but such proposals shall not operate as a rejection of this offer unless such variances are in the terms of the description, quantity, price, or delivery schedule of the goods but shall be deemed a material alteration thereof and this offer shall be deemed accepted by seller without such additional or different terms. If this purchase order shall be deemed an acceptance of a prior offer by seller, such acceptance is limited to acceptance of the express terms contained herein. Any additional or different terms or any attempt by seller to vary in any degree any of the terms of this purchase order shall be deemed material and are objected to and rejected; provided, however, that this purchase order shall not operate as a rejection of that prior offer unless such variance is in the term of the description, quantity, price, or delivery schedule of the goods.”

In Part 2, we will examine other important provisions to include in a set of purchase order terms and conditions.
 

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