Sometimes it takes a costly court battle over the meaning of one sentence in a specification or an overlooked contract term to alert a contractor or supplier to the critical importance of contractual language. As discussed in Construction Law Comments' Fall 1999 "Battle of the Forms Round One: What Do You Mean I Can't Recover All My Damages?" the failure of contractors and suppliers to carefully scrutinize written forms exchanged during the purchase and sale of goods can be risky. This is especially so given the significance which courts attach to certain written phrases in the purchase and sale of goods which are subject to the Uniform Commercial Code. The following example illustrates this point.
Let's suppose a plumbing supplier (supplier) has had much success resolving its disputes through arbitration. That same supplier has also lost tens of thousands of dollars over the years because purchase orders it accepted made its right to payment conditional on the customers' receipt of payment from the contractor or owner. The supplier resolves to have all future disputes decided through arbitration and to furnish materials only to those customers who agree to pay on delivery. He vows that never again will he go to court or accept the risk of owner insolvency.
Let's also suppose a major plumbing contractor (contractor) contacts the supplier. They agree to a six figure dollar order for pipe needed for plumbing renovations to a commercial building. The contractor promptly sends a written purchase order to the supplier stating the price, quantity, shipment terms, and a payment stipulation that makes the contractor's receipt of payment from the owner a condition precedent to the contractor's obligation to pay the supplier. The purchase order does not mention arbitration. The supplier agrees with the basic terms, but wants to make sure any future dispute with the contractor will be arbitrated, and wants to get paid upon delivery whether or not the contractor ever gets paid by the owner. What can the supplier do? The supplier could send a written confirmation, prior to shipping the pipe, containing additional provisions requiring arbitration and requiring payment on delivery. But those provisions standing alone might not guarantee the supplier its terms. In Massachusetts, however, if the supplier added the words "acceptance of contractor's purchase order is expressly made conditional on contractor's assent to the terms of this confirmation" the contractor would be bound by the terms contained in the supplier's written confirmation, unless it expressly objected to the additional terms. Assuming the contractor received the supplier's confirmation without comment, and subsequently accepted delivery, a Massachusetts court would likely enforce both the arbitration and payment provisions. Isn't this unfair to the contractor whose legal obligation has been substantially altered by provisions it has never expressly accepted or acknowledged? Not necessarily. The contractor here could have avoided these added provisions simply by notifying the supplier promptly that it rejected them. If the supplier then shipped the materials, it could not claim the benefit of the terms stated in its written confirmation. Of course, on rejection of its terms, the supplier could refuse to ship. In light of this disagreement over substantive contract terms, it is likely a Massachusetts court would find no contract had been formed, and the parties could walk away from the deal. Express rejection of terms stated in a supplier's confirmation is not a contractor's only means of protection. The contractor, in the above example, could have included language in its purchase order expressly limiting the supplier's acceptance to the terms stated in the purchase order. In that event, any additional terms stated in the supplier's confirmation would have no effect, even if the contractor failed to respond.
In the end, the only truly certain means of "getting your terms and keeping theirs out" is by bargaining in good faith over those terms, and reaching agreement acceptable to both parties.
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