Many contracts between businesses are created piecemeal using bids and purchase order forms, often via e-mail, telephone, or online. A vendor submits a bid, and receives a purchase order (or even just a purchase order number) in return. The vendor then delivers the goods ordered. What happens if a dispute arises due to the fact that terms in the bid, purchase order, and invoice are not consistent? What contract terms apply? The answer might not be what you think.
Uniform Commercial Code Governs
Lawyers call this situation “the battle of the forms,” and who wins depends on the rules in the Uniform Commercial Code (“UCC”), codified in Colorado as C.R.S. 4-1-103. You might say that the UCC reverses the old proverb “Let the buyer beware”. When businesses enter into contracts using bids and purchase orders, the proverb should be, “Let the seller beware.”
To oversimplify, the UCC says that, when businesses (the UCC calls them “merchants”) enter into a contract, if terms in a bid and a purchase order conflict with each other, the terms in the last form accepted to create the contract govern. If terms are missing from all the forms used to create the contract, many can be implied by law.
When a Contract is Formed
This means when a vendor makes a bid to a business and receives a purchase order in return, the terms of the purchase order will govern the transaction, and usually supersede those of the bid, if the vendor agrees to complete the transaction. For this reason, it’s important to review a purchase order form the same way you would a formal contract document, to confirm that the terms are acceptable, before providing goods or services.
Often these days a bid is sent via e-mail, and the vendor gets only a purchase order number in return, with no form. In that case especially, be sure to ask for and read through the purchase order form, or online terms and conditions.
If you would like a purchase order reviewed, or you have questions about how the UCC applies to you, contact our Business Law Group attorney, David A. Closson, at [email protected].