Substantive Legal Content

Danger Lurks in Dark Places and Purchase Orders

Here are some of the provisions which I have found lurking in purchase orders (a “PO”):

1.            The P.O. replaces every provision in the vendor’s quotation and invoice.

2.            The provisions of the P.O. include terms set out on the purchaser’s website, which the purchaser may change at any time. All changes will be binding on the vendor. It is the vendor’s responsibility to monitor the purchaser’s website to see which new terms have been imposed on it.

3.            The purchaser is a “most favoured customer” and the vendor promises that no other customer has been given or will be given any more favourable terms than were given to the purchaser, including price, incentives, discounts, marketing assistance and warranties. The purchaser has the right to audit the vendor’s financial and customer records to ensure compliance.

4.            The purchaser may impose a penalty if a shipment arrives early or late or may simply return a shipment that arrives late to the vendor at the vendor’s expense.

5.            Allegedly defective goods may simply be destroyed by the purchaser or returned to the vendor without notice or a return authorization, and at the vendor’s cost.

7.            The purchaser may inspect the vendor’s premises, employee records and financial records pertaining to the manufacture of the goods. The vendor is not allowed to make a change to its premises used to manufacture the goods without thirty days advance notice to the purchaser.

8.            The vendor is not allowed to subcontract any of the work.

9.            The purchaser will be the joint owner of intellectual property developed by the vendor to produce the products.

These provisions are illustrative of provisions found in forty-page documents and made part of the P.O. by reference in the P.O. to the purchaser’s website.

Sometimes a P.O provides that simply acknowledging receipt of the P.O. will indicate acceptance of the terms of the P.O. Other times a P.O. will provide that shipping the goods indicates acceptance of the terms of the P.O.

Vendors have to be aware of the terms on which they are selling their products and have procedures in place to respond to P.O.s which contain unreasonable terms.

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