PurchasingTerms & Conditions

“The Battle of the Forms”UCC §2-207

NJHEPA DBE Fair – August 17, 2005

Presented by…

Brian E. Rounsavill, CPM, APP

Associate Director of Purchasing

brouns@princeton.edu

www.princeton.edu/purchasing

Session Outline

Elements of a Contract

Common Purchasing Forms

Uniform Commercial Code (UCC)

Knock Out Rule (UCC §2-207)

Common Clauses

Conclusions

Concluding Remarks

Elements of a Contract

1. Mutual Consent The parties to the contract have a mutual

understanding of what the contract covers.

Example: A contract for the sale of “lamps“. The buyer thinks they will be getting light bulbs. The seller believes he is contracting to sell

decorative lighting. No “meeting of the minds” / the contract will

likely be unenforceable.

Elements of a Contract

2. Offer & Acceptance

The contract involves an offer from one party, that is accepted by the other party.

Example: A contract for the sale of a copier. The seller offers a copier to the buyer for $5,000. The buyer signs the bill of sale for the copier. The buyer's acceptance of the offer is necessary to

create a binding contract for the sale of the copier. Note: A counter-offer is not acceptance, and

will typically be treated as rejection.

Elements of a Contract

3. Consideration

In order to be valid, the parties to a contract must exchange something of value.

Example: In the case of the sale of the copier: The buyer receives something of value in the form

of the copier. The seller receives $5,000.

Elements of a Contract

4. PerformanceIn order to be enforceable, the action covered by the contract must be completed.

Example: In the case of the sale of the copier: The buyer pays the $5,000 purchase price. The seller delivers the copier. In a typical "breach of contract" suit, the party

alleging the breach will say it performed all of its duties under the contract, while the other party failed to perform its duties or obligations.

Elements of a Contract

5. LegalIn order to be enforceable, a contract cannot violate the law.

Example: In the case of the sale of the copier: If the buyer contracts with a thief to steal a copier

for $5,000, and the thief does not steal it, then the buyer cannot take the thief to court to force the thief to steal the copier.

The court would, however, order the thief to give the money back.

Elements of a Contract

6. Possible

In order to be enforceable, a contract must be possible.

Example: In the case of the sale of the copier: If the copier was destroyed or lost just prior to the

date when it was to be sold, then the contract is impossible to fulfill, so it need not be performed.

Common Purchasing Forms

Workflow of Pre-Printed / Automated Forms

RFQ(Buyer’s Request)

Quotation(Seller’s Offer)

Purchase Order (Buyer’s Acceptance)

Order Acknowledgement(Seller’s Performance Confirmation)

Uniform Commercial Code (UCC)

The UCC is an act passed with slight modifications by each state that establishes legal guidelines to regulate commercial transactions.

The UCC imposes a general standard of reasonableness and good faith on the contracting parties. For merchants, this standard is raised to honesty in fact and adherence to reasonable commercial standards of fair dealing in the trade. [UCC 2-103]

Note: UCC Applies to Goods – not Services.

UCC §2-207 - Additional Terms

(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.

Example: Buyer’s Purchase Order.

UCC §2-207 - Additional 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.

UCC §2-207 - Additional Terms

(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.

“Knock Out Rule” (UCC §2-207)

In February 2002, New Jersey courts adopted the “knockout rule” to resolve disputes under UCC §2-207.

Conflicting terms are disregarded (or “knocked

out”) and do not become a part of the contract.

The contract consists of the terms upon which both parties have expressly agreed, plus any applicable code “gap filling” provision.

“Knock Out Rule” (UCC §2-207)

Example: Buyer's purchase order states that disputes

will be litigated in the courts of New Jersey. Seller's acknowledgement states that

disputes will be litigated in Florida courts. Most courts would apply the "knock out"

rule, where neither the "New Jersey courts" nor “Florida courts" clauses would apply. Instead, the common law would apply - allowing a civil suit to be brought in any state that has proper jurisdiction.

Common Clauses

WARRANTY:

All Goods shall conform to the specifications of this Agreement and shall be merchantable, free from defects (including defects in design and fit), and suitable for the intended purposes shall remain in effect for at least one year following __________ of the Goods or Services. The foregoing warranties are in addition to and shall not be construed as limiting any other warranties or buyer protections that exist by operation of law. In all respects, performance shall comply with all applicable federal, state and local laws and regulations.

Seller: Buyer:

Shipment Acceptance

Common Clauses

INVOICES:

Invoices are due, Net 30 days upon_________.

Seller: Buyer:

Receipt Acceptance

Common Clauses

PAYMENT:

Buyer shall remit payment to Seller net 30 days after _______________.

Seller: Buyer:

Shipment Acceptance

Common Clauses

RISK OF LOSS:

With respect to Goods, risk of loss shall pass from the Seller to the Buyer upon ________________.

Seller: Buyer:

Shipment Acceptance

Common Clauses

DELIVERY:

Unless otherwise specified, all deliveries are to be shipped ____________.

Seller: Buyer:

FOB Origin FOB Destination

(Shipping Point) (Delivery Point)

Common Clauses

Indemnification:

_____(A) ______ shall defend, indemnify and hold harmless the _____(B) _____ , its officers, employees, trustees, agents and representatives from and against any and all claims, demands, damages, liabilities, expenses, losses of every nature and kind (collectively, “claims”), including but not limited to attorney's fees and costs, sustained or alleged to have been sustained in connection with or arising out of the performance hereunder.

Seller: Buyer:

A = Buyer A = Seller

B = Seller B = Buyer

Common Clauses

Consequential Damages:

In no event shall the ___________ be liable for anticipated profits or for incidental or consequential damages. The _____________’s liability on any claim of any kind for any loss or damage arising out of or in connection with or resulting from this agreement or from the performance or breach thereof shall, in no case exceed _______________________.

Seller: Buyer:

Value of the Order Seller’s Insurance Limits

Conclusions

Purchasing and vendors should make every effort to ensure that Terms & Conditions are: Applicable Fair and Reasonable Ethical Mutual (Two-Way Street) Agreed to (documented in writing) in advance

Questions/Concluding Remarks

Questions

Concluding Remarks

References

“Contracts from the Supplier’s Perspective”, R.W. Pearse, Inside Supply Management, Institute of Supply Management, May 2005.

Handbook of Buying and Purchasing Management, H.E. Hough and J.M. Ashley, 1992.

Purchasing and Supply Management, D.W. Dobler and D.N. Burt, 1996.

Purchasing Contract Law, UCC & Patents, M.M. Grieco, 1998. Purchasing Law & Forms, Business Laws, Inc., 2001. Purchasing Manager's Desk Book of Purchasing Law, Third

Edition, D.B. King and J.J. Ritterskamp, Jr., 1998. The Purchasing Handbook: A Guide for the Purchasing and

Supply Professional, J.L. Cavinato and R.G. Kaufman, 1999. Clipart courtesy of FCIT.