Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: this post is not legal advice; seek competent legal counsel in all legal matters.  This post draws attention to what buyers need to know about how law affects commerce.  For further information, the reader is directed to the best source in print, The Purchasing Manager’s Desk Book of Purchasing Law by Donald B. King and James J. Ritterskamp, Jr., published by Prentice Hall.

We all know that oral contracts are commonplace and most of us have engaged in them.  Yet, the question always arises in seminars about the legality and risks of such oral contracts.

In restaurants, when you give your selections to the server, you are engaging in an oral contract.  Presuming the food comes according to your specifications, it is consumed and the bill paid; volia, a completed contract.  All is well even if you don’t like the soup as the server will deduct that from the bill.  The verbal contract becomes a “fait accompli” (French expression meaning done deed.  According to King and Ritterskamp, however, “the laws does not police, control, or interfere with such (oral) contracts.

The business landscape for merchants, defined by the Uniform Commercial Code (UCC) as either a buyer or a seller, can be full of land mines for the oral contract user.  King and Ritterskamp go on to state that “The law will not consider your complaints if they arise from the purchase or sale of goods having a value of $500 or more because such a verbal contract is not enforceable in a court.”  To make matters worse, the authors also state that “…an oral contract for services is enforceable in court without a writing if the services can be performed within one year from the date of the contract.  The amount of the contract for services is immaterial.  Only the length of time of the service is to be performed dictates whether or not a writing is required for the contract to be enforceable.”  Hmm, none of this sounds like it will have a happy ending.

Purchasing Manager’s Desk Book of Purchasing Law

Now if all the foregoing were not bad enough, add to this the problem of what the UCC refers to in Section 2-207, Subsection 4, point A.  “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.”

The problem here, and it is the major reason why professional buyers must never engage in oral contacts, is found in Section 2-204(1) which states in part that, “It ignores the need to determine who is the Offeror and who is the Offeree.”

The reader recalls from a previous post that the Offeror’s terms and conditions govern the document.  Let’s take an example to illustrate how buyers can run hard aground with oral contracts.

Suppose the established routine in place has a buyer placing verbal orders for thousands of dollars of widgets.  The product is delivered, inspected, and accepted and then payment is made.  Thus the “conduct of the parties” has established a “path of contract”.  However that contact is not enforceable in a court of law and the Offeror cannot be identified.

We all know that there is never a problem until there is a problem.  With oral contracts, it is merely a matter of time and risk before a big problem happens.

Moral of the story.  Avoid oral contracts put everything you buy into a written contract and ensure that the contract form used identifies the buyer as the Offeror.

This is not legal advice; it is just good business practice.  Leave the oral contracts to the restaurant.