It is common for suppliers to make proposals to contractors that state that the supplier’s terms will govern the transaction, despite any additional or different terms in the contractor’s purchase order. Among the terms most commonly included in suppliers’ proposals are disclaimers of express and implied warranties under the UCC, and limitations of liability for damages arising from defects in the supplier’s products.
It is equally common for contractors to ignore the above-mentioned limitation provisions and issue purchase orders that contain express warranty and indemnity provisions that directly conflict with the terms of their suppliers’ documents. Contractors will also often include language to the effect that the P.O. is conditioned on the supplier’s agreement to its terms. In legal circles, this exchange of contradictory documents by sellers (suppliers) and buyers (contractors) is known as the “battle of the forms.”
What usually happens in this situation is that the supplier ships the goods and the contractor pays for them as though there is a contract between them to do so, without ever attempting to reconcile the conflicting terms between the vendor’s proposal and the contractor’s purchase order. If the supplier’s proposal contains a limitation of liability clause or disclaimer of express warranties, but the contractor’s purchase order ties the supplier to the same terms and conditions as the contractor signed up with the owner to perform, a conflict arises. When that happens, what terms will a court consider to have been included in the parties’ agreement?
This conflict is governed by Uniform Commercial Code (“UCC”), in Washington, the applicable section of the UCC is codified at RCW 62A.2-207, which reads as follows:
(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.
(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.
(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 Title.
The common scenario laid out above would be governed by subsection (3) of RCW62A.2-207. Because: (a) no contract would be formed under subsection (1) unless the supplier agreed to the subcontractor’s additional terms, which it usually does not; and (b) no meeting of the minds would be found on the conflicting terms under subsection (2) because the supplier has limited acceptance to its own terms, the subcontractor’s terms materially alter the proposal,[1] and/or the supplier has already given notice in its proposal that it objects to any additional or different terms.
A court confronted with that scenario would therefore look for terms in each party’s form that are in harmony, ignore conflicting terms, and supply the rest from course of dealing, usage of trade, and specific provisions of the UCC, which imply warranties and liability for consequential damages for breach of those warranties.
Note: If the contractor does not condition its purchase order on the supplier’s acceptance of its terms, then the court will find that a contract was formed under subsection (1) based on the vendor’s proposal’s terms-including its warranty disclaimers and limitations of liability-and that the subcontractor’s purchase order’s conflicting terms were mere proposals that the supplier did not accept. Tacoma Fixture Co. v. Rudd Co., Inc., 142 Wn.App. 547, 554, 174 P.3d 721 (2008); CBS, Inc. v. Auburn Plastics, Inc., 413 N.Y.S.2d 50, 67 A.D.2d 811 (1979).
PRACTICE POINTER: Contractors should always include language in their purchase orders that conditions their acceptance of a supplier’s proposal on the supplier’s agreement with the terms of the contractor’s purchase order. If the supplier explicitly agrees to those terms then the contractor’s purchase order will control the transaction. If not, at least the supplier’s attempted disclaimers and limitations of UCC warranties and liability under RCW62A.2-207(3) will get eliminated.
SAMPLE LANGUAGE:
Any proposal by Supplier for additional or different terms to this Purchase Order (other than with respect to the description, quantity, price or delivery schedule) shall be deemed a material alteration and this Purchase Order shall be deemed accepted by Supplier without any additional or different terms. Contractor objects to all terms and conditions in addition to or different from the terms and conditions contained in any written acceptance or order confirmation which may be issued by Supplier. In the event this Purchase Order is deemed an acceptance of a prior offer by Supplier, Contractor’s acceptance is limited to the express terms contained herein and any additional or different terms contained in Supplier’s proposal shall be deemed material and are hereby objected to and rejected. This Purchase Order shall operate as a rejection of Supplier’s offer if it contains variations to the description, quantity, price or delivery schedule of the goods.
[1] Conflicting provisions dealing with disclaimers of warranties have been held to be material by Washington courts. Hartwig Farms, Inc. v. Pacific Gamble Robinson Co., 28 Wn. App. 539 (1981). In the Hartwig case, the court held that the UCC “does not imply disclaimers; in fact, disclaimers are not favored in the law. Thus, RCW 62A.2-207 should not be used to supply the negotiated agreement required for an effective disclaimer.”