CHAPTER 14
Formation of Contract

Occasionally, buyer will insert a provision in their contract that invalidates any changes seller makes to the terms and conditions of the contract. Such a provision is often referred to in buyer’s contract as Formation of Contract. Classic language reads as follows:

This order is buyer’s offer to seller and acceptance by seller is expressly limited to the terms of this offer. Any different or additional terms of seller’s acknowledgment are hereby objected to and rejected by buyer, regardless of the form of such acknowledgment. No modification of the contract shall be effective unless in writing signed by the party to be charged with the modification. No modification shall bind buyer unless signed by an authorized purchasing representative of buyer.

RISK

Through insertion of this clause, buyer tries to limit seller’s ability to dispute any terms and conditions of the contract, and/or to dissuade seller from disagreeing with any part of the contract. If seller does not address onerous terms and conditions, the risk associated with acceptance of each varies. For example, if seller accepts language that allows buyer to terminate a contract for delay, even if the interruption is due to force majeure, buyer may terminate seller’s contract and seller will lose any future profit associated with that project. Losses in profit may be substantial, but will not typically devastate a company. A potentially more devastating clause if not addressed involves intellectual property. If seller does not take exception to buyer’s right to assume all intellectual property associated with the contract, seller may inadvertently give up all rights to their intellectual property, regardless of whether it is a preestablished product of seller.

RESPONSE

Seller should ensure that any terms and conditions that they do not agree with are negotiated prior to acceptance of any order and made part of the contract. Anything less may put seller at risk.