Does Contract Law or the UCC Apply?
85th Annual International Purchasing Conference & Educational Exhibit
New Orleans, Louisiana
Donald L. Woods
Slides Used in Class Discussion
(ISM Conference, New Orleans, LA - 2000)
Which Law Applies - UCC or Contract Law?
To better understand the importance of knowing the answer to the above question, let us walk through the following common problems Purchasing repeatedly encounters.
- A buyer called out of state and placed an order for bath towels, and sent the following purchase order to the supplier:
Is there a valid and binding agreement?
"Quantity 2000 bath towels at vendor's cost (no profit), per phone call to Suzie Q on March 30, 1999."
- Your supply contract for paper specified delivery at 90 days ARO (After Receipt of Order). On day 85 you receive a call from the supplier's salesman that they need a few extra delivery days, but he guarantees the goods will be in your hands by day 95.
What is your response?
- You received a document that stated, "We offer to sell you ten (10) carloads of coal at the price of $600.00 per car, delivery to your dock in San Francisco within one week ARO. This is a firm offer that will remain open for 150 days and you may accept by remitting payment with an order." On day 100 you send an order and the proper payment, but within 5 days the order is rejected and the payment returned.
Did seller breach a valid contract that was formed when you accepted the offer?
- You ordered 50 black widgets in boxes of 5 widgets each. When they were received, they were put in the warehouse that followed the "first in/first out" theory of inventory control and the invoice was paid. Six months later the first of the boxes was opened and you ultimately discovered that all 50 widgets were red.
What do you do now?
- Your purchase order/contract for computer hardware has a shipping requirement of FOB your dock. When the truck backed up to your dock and the trucker opened the trailer door, the cardboard box containing the computer you purchased had two large holes indicating a very serious forklift damage.
What action do you recommend to the receiving clerk?
- A consultant you hired for an environmental study has been working diligently with you to complete the project, but it is obvious that the contract will not be completed on time. Both of you want to amend or extend the deadline.
What elements of a contract must be included in the negotiations?
- You entered into a written agreement with a contractor to have an 8-ton refrigeration unit installed on your office building. He was not able to locate a reasonably priced 8-ton unit, so he asked for permission to install two 4-ton units. When you refused he said he was going to walk off the job.
What do you say to him now? Especially when you learn it will cost twice as much to have another contractor complete the job?
Answers as discussed in the workshop are included in the text in the Conference Proceedings.
In addition to the applicable state statutes or Uniform Commercial Code, a good reference book is Miller, Roger LeRoy and Jentz, Gaylord A., "Business Law Today, The Essentials", West Publishing Company, 4th Ed., 1997.