The Slow Death of the Handshake
Best Practices from a Litigator’s Perspective
Gray Reed & McGraw, LLP
Alexis Foster
Gray Reed & McGraw, LLP
[email protected]
Chance K. Decker
Gray Reed & McGraw, LLP
[email protected]
The Steel Industry is the Most Litigious it has been in
Decades . . . Maybe Ever
Battle of the Forms
Typical Transaction
Request for Quote
Quote
Purchase Order
Order Confirmation/Performance
Invoice
The competing T&Cs are often
unreasonable, one-sided, boilerplate
T&Cs, printed in small print
on the back of a document
And neither party signs the other’s document
Whose Terms and Conditions Apply?
The Uniform Commercial Code
• “To provide clarity,
ensure uniformity in the
adopting states, and to
promote certainty and
predictability in
commercial
transactions.”
• “Miserable, bundled,
patched-up job [and]
arguably the greatest
statutory mess of all time.”
Under the UCC, a contract for sale
of goods can be formed
“in any manner”
sufficient to show agreement.
A contract is formed through two
communications
OFFER and ACCEPTANCE
The Offer
• The offeror “intended” to
make an offer;
• The terms of the offer were
“clear and definite”; and
• The offeror communicated the
“essential terms” of the offer.
Which Communications Does the Court have
to Choose from?
RFQ
Quote
Purchase
Order
Order
Confirmation
Invoice
Can a Quote be the Offer?
YES!
Quote in Response to RFQ can be an Offer
“A detailed quote can constitute an
offer, particularly if the quote is
in response to a specific inquiry.”
Elements of Detailed Quote
Only Needs to Include:
Price
+
Quantity
+
Description
Does Not Need to Include:
Shipping Terms
or
Delivery Date
or
Additional Service Work
Now that we have an Offer, What about the
Acceptance?
The Acceptance
• 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.
Which Communications Does the Court have
to Choose from?
RFQ
Quote
Purchase
Order
Order
Confirmation
Invoice
Can a Purchase Order be an Acceptance?
Yes!
Whose Terms and Conditions Apply?
Offeror’s T&Cs Govern
Where the acceptance contains terms that are
different or in addition to the terms of the offer, the
additional terms are to be construed as proposals for
addition to the contract. Such terms become part of
the contract unless:
(1) the offer expressly limits acceptance to the terms
of the offer;
(2) they materially alter it; or
(3) notification of objection to them has already been
given or is given within a reasonable time after notice
of them is received.
NEVER
UNLESS . . .
The communication that is determined to
be the acceptance states that the party’s
acceptance is expressly made conditional
on the other party’s assent to the
additional or different terms contained in
the acceptance.
Test Cases
Formal Offer – Informal Email Acceptance
B
THE CONTRACT
BUYER’S BREACH
OF WARRANTY
CLAIMS AGAINST
SELLER ARE BARRED
Formal Offer – Performance as Acceptance
Company A Performs
THE CONTRACT
RD
3
SELLER PAYS
PARTY FOR DAMAGES
CAUSED BY BUYER
Informal Email Offer – Informal Email Acceptance
THE CONTRACT
EVERYONE LOSES
Formal Offer – Formal Acceptance + Magic Language
The Purchase Order has the following language
“This is an offer to purchase material. In the event
this offer is determined to be an acceptance of your
offer to sell material, Buyer’s acceptance of your
offer is expressly conditioned on your acceptance to
the terms and conditions contained herein.”
THE CONTRACT
The terms of the contract consist of
those terms on which the writings of the
parties agree, together with any gapfiller terms provided by the UCC.
How Do You Protect Yourself?
• Use a Formal Quote
• Always attach T&Cs to your Quote
• Use a Formal Purchase Order
• Always attach T&Cs to your Purchase Order
• Include the magic language on all T&Cs
The Perfect Tender Rule
Perfect Tender Rule – UCC § 2.601
[U]nless otherwise agreed . . . , if the goods or the tender
of delivery fail in any respect to conform to the contract,
the buyer may
(1) reject the whole; or
(2) accept the whole; or
(3) accept any commercial unit or units and reject the
rest.
Rejection Must be in Good Faith
“[R]ightful rejection” means rejection which satisfies both
the perfect tender requirement of [the UCC], and the
buyer's general duty to act in good faith.”
Oil Country Specialists, Ltd. v. Philipp Bros., 762 S.W.2d 170, 179 (Tex. App.
1988), writ denied, 787 S.W.2d 38 (Tex. 1990).
Rejection Must be Clear and Unambiguous
The notice of rejection must be “clear and unambiguous.”
HCI Chemicals (USA), Inc. v. Henkel KGaA (5th Cir.)
Sufficient Rejection Language
“By this letter, Distributor, Co. formally notifies Pipe, Co. that Distributor, Co.,
has rejected the pipe delivered to the Port of Houston by Mill, Co. on June 16,
2017 pursuant to PO No. 1501 due to late delivery.”
“The pipe did not arrive on time, so we are rejecting the pipe delivered
to Houston on June 16th.”
“I’m not paying for that late-%@#+€!” pipe!”
Insufficient Rejection Language
“This is an unfortunate situation for all of us and we’re going to have to
work through it together.”
“As you know, the pipe arrived three weeks late. This has caused us
serious complications that Mill, Co. has committed to addressing.”
“[No communication whatsoever].”
Rejection Must be Within Reasonable Time
“Rejection of goods must be within a reasonable time after
their delivery or tender. It is ineffective unless the buyer
seasonably notifies the seller.”
UCC § 2.602; Southern Tank & Culvert Company, Inc. v. Edisto Asphalt
Company, Inc., 330 S.E.2d 545 (S.C. Ct. App. 1985).
Time Measured from Delivery Date
“Reasonable time for the purpose of rejection is measured
from the date of delivery rather than from the time by
which the buyer should have discovered nonconformity.”
EPN-Delaval, S.A. v. Inter-Equip, Inc., 542 F. Supp. 238 (S.D. Tex. 1982).
Must have Opportunity to Inspect
[A]cceptance does not occur until the buyer has had a
reasonable opportunity to inspect the goods, the
reasonable time for rejection must take into account the
time for inspection.
EPN-Delaval, S.A. v. Inter-Equip, Inc., 542 F. Supp. 238 (S.D. Tex. 1982).
Reasonable Time?
One year?
Too Late
Southern Tank v. Ediston Asphalt (S.C.)
Three Months?
Too Late
Interval Steel Corp. v. Borg & Beck (Mich.)
Fifteen Days?
Too
Late!
Princeton Ind. Prod. v. Princeton Metals (Ill.)
Review
1. Reject for any non-conformity
2. Rejection must be clear and unambiguous
3. Rejection must be timely
4. Check the terms and conditions
Seller’s Remedies on Wrongful
Rejection
Seller’s Remedies on Wrongful Rejection
Seller’s Remedies – UCC § 2.706
The seller may resell the goods concerned or the
undelivered balance thereof. Where the resale is made in
good faith and in a commercially reasonable manner the
seller may recover the difference between the resale price
and the contract price together with any incidental
damages, but less expenses saved in consequence of the
buyer's breach.
Seller’s Remedies – UCC § 2.706
[R]esale may be at public or private sale . . . but every
aspect of the sale including the method, manner, time,
place and terms must be commercially reasonable.
Documentation is Critical
Seller’s Remedies – UCC § 2.706
Where the resale is at private sale the seller must give the
buyer reasonable notification of his intention to resell.
Sufficient Notice of Resale
“Dear Customer, Co.—
By this letter, you are formally notified that Distributor, Co. has elected to
resell the materials ordered by Customer Co. pursuant to Purchase Order No.
1000, consisting of 100,000 linear feet of [describe pipe] via one or more
private sales in accordance with Section 2.706 of the Uniform Commercial
Code.
Signed:
Distributor, Co.”
Sufficient Notice of Resale
“Dear Customer, Co.—
Distributor, Co. is going to resell the materials you ordered under PO
#1000 through private sales.
Signed:
Distributor, Co.”
Sufficient Notice of Resale
“Re: PO #1000
We are going to resell the materials you ordered to any customer we
can find.
Have a nice day.”
Ask your customer for help
Review
1. Aggrieved seller can resell to mitigate losses
2. Must give notice of intent to resell
3. Resale must be commercially reasonable
4. Documentation is critical
Non-Payment
Before You Sell
• Credit Application
• Add Interest Provision to Quote
• Security Agreement
Before You Ship
• Send PMSI Notices
• File a UCC-1 Financing Statement
• File a Mineral Lien
• Send Notice to Property Owner
The Day After Non-Payment
• Reclaim the Material
• Send Demand Letter
• File Suit within 30 days
Section 232 Investigation
• Countries?
• Tariffs?
• Findings?
• Quotas?
• Products?
Section 232 Investigation Addition to T&Cs
Where You are the Buyer
“Notwithstanding anything to the contrary, all material purchased herein is subject to
immediate cancellation at Buyer’s sole discretion pending any finding by the U.S. Department
of Commerce pursuant to Section 232(B) of the Trade Expansion Act of 1962 that the country
of origin of or the material purchased herein threatens to impair U.S. national security,
whether such finding is prior to or after purchaser’s acceptance of the material. This
includes any agreement or action by the U.S. government, including but not limited to the
imposition of any tariff(s) it deems necessary to adjust the imports of such material so that
such imports will not threaten to impair the national security and including any action taken
by the U.S. government against fairly traded products that are imported to the U.S. that are
in addition to or supplement the usual trade remedy provisions dealing with dumped or
subsidized products that target unfairly traded imports, regardless of whether such
agreement or action is proactively or retroactively enforced. Any such agreement or action
imposed by the U.S. government shall be deemed a material breach on the part of Seller of
any contract entered into between the parties and in addition to Buyer’s option to cancel its
purchase, Buyer may instead opt to demand specific performance of the parties’ contract and
will be entitled to set-off any amounts charged to Buyer, including but not limited to tariff
amounts, against the original purchase price of the material.”
Section 232 Investigation Addition to T&Cs
Where You are the Seller
"Notwithstanding anything to the contrary, all material purchased herein is subject
to immediate cancellation at Seller’s sole discretion pending any finding by the
U.S. Department of Commerce pursuant to Section 232(B) of the Trade Expansion
Act of 1962 that the country of origin of or the material purchased herein threatens
to impair U.S. national security. This includes any agreement or action by the U.S.
government, including but not limited to the imposition of any tariff(s) it deems
necessary to adjust the imports of such material so that such imports will not
threaten to impair the national security and including any action taken by the U.S.
government against fairly traded products that are imported to the U.S. that are in
addition to or supplement the usual trade remedy provisions dealing with dumped
or subsidized products that target unfairly traded imports, regardless of whether
such agreement or action is proactively or retroactively enforced. Any such
cancellation shall be non-recourse as against Seller. Buyer expressly agrees that
any such cancellation shall not give rise to a claim by Buyer against Seller for
specific performance, costs of cover or any other direct, indirect, consequential, or
incidental damages or costs caused by Seller’s cancellation under this provision.”
Gray Reed & McGraw, LLP
Alexis Foster
Gray Reed & McGraw, LLP
[email protected]
Chance K. Decker
Gray Reed & McGraw, LLP
[email protected]