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Non-cancelable Agreements, Getting Around the Non-cancelable Part
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Rick C
Jan 23, 2022, 9:50:43 AM1/23/22
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Company J uses company C as a contract manufacturer to assemble electronic systems. Company C buys components from company A as indicated in the bill of material supplied by company J.
Company A has standard terms and conditions of sale which were altered in negotiations between all three companies. All three companies are parties to the "Agreement and Terms and Conditions of Sale" to be governed by the laws of Florida. The (unstated) intent of the Agreement was to supersede the typical language in purchase orders (POs) and specify details of payment terms, warranty, returns, liability, etc. In particular, the Agreement states the "all sales are non-cancelable".
There is language making this Agreement subordinate to an existing contract between companies J and C, "Notwithstanding the foregoing, as between C and J, this Agreement shall be subordinate to the contractual relationship between C and J". To me this sounds like it is saying this Agreement does not alter the relationship between C and J rather than saying the existing contract between C and J has any impact on this Agreement from the "as between C and J" part of the sentence.
Approximately 15% of the orders have been delivered. There was no time frame indicated in any documents. During negotiations the original intent was to make all deliveries in 2021, however as negotiations dragged on it become apparent this was not possible. Company J indicated it was no problem to deliver into 2022. The deliveries are somewhat behind the estimated schedule provided by company A subsequent to the order being placed.
Company C wishes to cancel unfilled deliveries. Company A would suffer serious loss of anticipated revenue and profits if deliveries are canceled at this time. Company A would also lose significant sums invested in material procurement as well as indirect expenses.
How enforceable is the "non-cancelable" aspect of this Agreement if company C wishes to cancel the remaining deliveries? What options does company A have?
--
Rick C.
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Company A has standard terms and conditions of sale which were altered in negotiations between all three companies. All three companies are parties to the "Agreement and Terms and Conditions of Sale" to be governed by the laws of Florida. The (unstated) intent of the Agreement was to supersede the typical language in purchase orders (POs) and specify details of payment terms, warranty, returns, liability, etc. In particular, the Agreement states the "all sales are non-cancelable".
There is language making this Agreement subordinate to an existing contract between companies J and C, "Notwithstanding the foregoing, as between C and J, this Agreement shall be subordinate to the contractual relationship between C and J". To me this sounds like it is saying this Agreement does not alter the relationship between C and J rather than saying the existing contract between C and J has any impact on this Agreement from the "as between C and J" part of the sentence.
Approximately 15% of the orders have been delivered. There was no time frame indicated in any documents. During negotiations the original intent was to make all deliveries in 2021, however as negotiations dragged on it become apparent this was not possible. Company J indicated it was no problem to deliver into 2022. The deliveries are somewhat behind the estimated schedule provided by company A subsequent to the order being placed.
Company C wishes to cancel unfilled deliveries. Company A would suffer serious loss of anticipated revenue and profits if deliveries are canceled at this time. Company A would also lose significant sums invested in material procurement as well as indirect expenses.
How enforceable is the "non-cancelable" aspect of this Agreement if company C wishes to cancel the remaining deliveries? What options does company A have?
--
Rick C.
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Stuart O. Bronstein
Jan 23, 2022, 11:42:20 AM1/23/22
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Rick C <gnuarm.del...@gmail.com> wrote:
> Company C wishes to cancel unfilled deliveries. Company A would
> suffer serious loss of anticipated revenue and profits if
> deliveries are canceled at this time. Company A would also lose
> significant sums invested in material procurement as well as
> indirect expenses.
>
> How enforceable is the "non-cancelable" aspect of this Agreement
> if company C wishes to cancel the remaining deliveries? What
> options does company A have?
There are some situations in which the "non-cancelable" clause would
> Company C wishes to cancel unfilled deliveries. Company A would
> suffer serious loss of anticipated revenue and profits if
> deliveries are canceled at this time. Company A would also lose
> significant sums invested in material procurement as well as
> indirect expenses.
>
> How enforceable is the "non-cancelable" aspect of this Agreement
> if company C wishes to cancel the remaining deliveries? What
> options does company A have?
not apply. Since no time frame for delivery was included, the law
will mandate that deliveries must be made within a "reasonable
time." In that situation it would be up to a judge or jury (and
possibly what they had to eat that morning) to determine whether
cancelation of the contract was justifiable.
If there was another breach that would cause Company C not to get the
benefit if its bargain (meaning essentially to get what it was
supposed to get under the contract), Company C would have the right
to rescind (cancel) the contract.
I don't know off the top of my head if the "subordinate" clause would
allow the contract between C and J to supersede the terms of the
other contract. But since all three were parties to the other
contract, probably not. Allowing that would breach the implied
covenant of good faith and fair dealing.
Based what the information provided, C is unlikely to have the right
to cancel future deliveries. A situation that makes it unpleasant or
difficult to fulfill your duties under a contract does not excuse
them. And someone certainly cannot cancel their obligations under a
contract because "I changed my mind" or "I have a very strong desire
to do so."
--
Stu
http://DownToEarthLawyer.com
Rick C
Jan 23, 2022, 2:42:39 PM1/23/22
to
Thanks for your input. If I didn't mention it, obviously I will be contacting my lawyer Monday.
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Rick C.
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Rick C
Jan 28, 2022, 7:33:01 PM1/28/22
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Seems there is conflicting language in the Terms and Conditions. The lawyer is also looking at the Terms and Conditions indicated in the PO. I think it comes down to language that refers to "orders" and other language that refers to "sales" being non-cancelable.
Is it reasonable to consider it a sale when the PO is accepted rather than when goods are shipped?
--
Rick C.
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Is it reasonable to consider it a sale when the PO is accepted rather than when goods are shipped?
--
Rick C.
-- Get 1,000 miles of free Supercharging
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Stuart O. Bronstein
Jan 29, 2022, 11:48:42 AM1/29/22
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Rick C <gnuarm.del...@gmail.com> wrote:
> Is it reasonable to consider it a sale when the PO is accepted
> rather than when goods are shipped?
When the PO is accepted is when the contract is formed. So yes, that
> Is it reasonable to consider it a sale when the PO is accepted
> rather than when goods are shipped?
can well be considered when the sale takes place.
--
Stu
http://DownToEarthLawyer.com
Barry Gold
Jan 29, 2022, 3:24:21 PM1/29/22
to
On 1/28/2022 4:32 PM, Rick C wrote:
> Seems there is conflicting language in the Terms and Conditions. The lawyer is also looking at the Terms and Conditions indicated in the PO. I think it comes down to language that refers to "orders" and other language that refers to "sales" being non-cancelable.
>
> Is it reasonable to consider it a sale when the PO is accepted rather than when goods are shipped?
A PO (Purchase Order) is, in effect, an offer to buy. When the seller
> Seems there is conflicting language in the Terms and Conditions. The lawyer is also looking at the Terms and Conditions indicated in the PO. I think it comes down to language that refers to "orders" and other language that refers to "sales" being non-cancelable.
>
> Is it reasonable to consider it a sale when the PO is accepted rather than when goods are shipped?
notifies the buyer that it has accepted the PO, then there is a contract
and it can only be canceled or modified by mutual consent (or as
specified in the terms of the PO).
Note that the acceptance MUST be communicated to the buyer. The buyer
can rescind the offer up to the moment that the seller communicates that
acceptance.
There's a whole complicated set of law about offer and acceptance, but
it comes down to this (usually)
1. An offer is effective when received by the offerer
2. An acceptance is effective when sent by the acceptor. (That is, if it
is sent by US mail, it is effective when dropped into a US Mail
colletion box or the equivalent at a Post Office.)
3. A revocation is effective when received.
So it is possible for the acceptance and revocation to "cross in the
mail", but if the acceptancw was sent before the revocation is received,
the acceptance is effective and there is a contract.
This could even apply to e-mail, although the time period is typically
much shorter.
--
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Rick C
Jan 29, 2022, 5:40:51 PM1/29/22
to
A document, Terms and Conditions of Sale was signed by all parties involved and includes the words, "All sales are non-cancelable and non-returnable (NCNR)." Another section says, "This Agreement may NOT be altered, supplemented, or amended by the use of any other document(s) unless otherwise agreed to in a separate written agreement signed by the parties." It also states in event of a conflict this document takes precedence over "all other documents" including a PO or order confirmation. This document was signed before the PO was accepted. So it would seem any language in the PO terms and conditions would not apply.
There is also a section that mentions, "Should (company C) cancel a purchase order after (company A) has confirmed acceptance of such purchase order, (company C) will be responsible to (company A) for costs and expenses directly related to the canceled order".
It seems it is key as to the definition of "sales". If an accepted purchase order is a "sale", then it can not be canceled. If it is not a "sale" until the goods are shipped, then it would seem the latter paragraph regarding "costs and expenses" is the relevant section. In that case, it becomes important to designate what are "costs and expenses directly related to the canceled order".
--
Rick C.
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Stuart O. Bronstein
Jan 30, 2022, 1:07:21 AM1/30/22
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Barry Gold <bg...@labcats.org> wrote:
> A PO (Purchase Order) is, in effect, an offer to buy. When the
> seller notifies the buyer that it has accepted the PO, then there
> is a contract and it can only be canceled or modified by mutual
> consent (or as specified in the terms of the PO).
I'll agree with that.
> A PO (Purchase Order) is, in effect, an offer to buy. When the
> seller notifies the buyer that it has accepted the PO, then there
> is a contract and it can only be canceled or modified by mutual
> consent (or as specified in the terms of the PO).
> Note that the acceptance MUST be communicated to the buyer. The
> buyer can rescind the offer up to the moment that the seller
> communicates that acceptance.
provisions of the purchase order, it could be a unilateral contract
that would be formed, not by communication of acceptance, but by
performance.
For example, in the days before on-line purchases with email
confirmations, you might send a check and a purchase order to, say,
Sears, to ask them to send you a case of toilet paper. Sears could
drop a note in the mail to tell you they accepted your offer. But in
practice they would simply ship the toilet paper. That was an offer
of a unilateral contract, and the contract was formed by shipping
what was ordered. They were not required to accept the order or send
the purchased goods. But once they did, the contract was formed.
--
Stu
http://DownToEarthLawyer.com
Stuart O. Bronstein
Jan 30, 2022, 1:07:44 AM1/30/22
to
Rick C <gnuarm.del...@gmail.com> wrote:
> It seems it is key as to the definition of "sales". If an
> accepted purchase order is a "sale", then it can not be canceled.
> If it is not a "sale" until the goods are shipped, then it would
> seem the latter paragraph regarding "costs and expenses" is the
> relevant section. In that case, it becomes important to designate
> what are "costs and expenses directly related to the canceled
> order".
In the world of sales, receiving and accepting an order is normally
> It seems it is key as to the definition of "sales". If an
> accepted purchase order is a "sale", then it can not be canceled.
> If it is not a "sale" until the goods are shipped, then it would
> seem the latter paragraph regarding "costs and expenses" is the
> relevant section. In that case, it becomes important to designate
> what are "costs and expenses directly related to the canceled
> order".
considered a sale. The law looks at usage in the trade for many
things. I believe this definition would be one of them.
--
Stu
http://DownToEarthLawyer.com
Barry Gold
Jan 31, 2022, 5:48:32 PM1/31/22
to
On 1/28/2022 4:32 PM, Rick C wrote:
> Seems there is conflicting language in the Terms and Conditions. The lawyer is also looking at the Terms and Conditions indicated in the PO. I think it comes down to language that refers to "orders" and other language that refers to "sales" being non-cancelable.
>
> Is it reasonable to consider it a sale when the PO is accepted rather than when goods are shipped?
>
> Is it reasonable to consider it a sale when the PO is accepted rather than when goods are shipped?
A PO (Purchase Order) is, in effect, an offer to buy. When the seller
notifies the buyer that it has accepted the PO, then there is a contract
and it can only be canceled or modified by mutual consent (or as
specified in the terms of the PO).
notifies the buyer that it has accepted the PO, then there is a contract
and it can only be canceled or modified by mutual consent (or as
specified in the terms of the PO).
Note that the acceptance MUST be communicated to the buyer. The buyer
can rescind the offer up to the moment that the seller communicates that
acceptance.
can rescind the offer up to the moment that the seller communicates that
acceptance.
There's a whole complicated set of law about offer and acceptance, but
it comes down to this (usually)
1. An offer is effective when received by the offerer
2. An acceptance is effective when sent by the acceptor. (That is, if it
is sent by US mail, it is effective when dropped into a US Mail
colletion box or the equivalent at a Post Office.)
3. A revocation is effective when received.
So it is possible for the acceptance and revocation to "cross in the
mail", but if the acceptancw was sent before the revocation is received,
the acceptance is effective and there is a contract.
This could even apply to e-mail, although the time period is typically
much shorter.
it comes down to this (usually)
1. An offer is effective when received by the offerer
2. An acceptance is effective when sent by the acceptor. (That is, if it
is sent by US mail, it is effective when dropped into a US Mail
colletion box or the equivalent at a Post Office.)
3. A revocation is effective when received.
So it is possible for the acceptance and revocation to "cross in the
mail", but if the acceptancw was sent before the revocation is received,
the acceptance is effective and there is a contract.
This could even apply to e-mail, although the time period is typically
much shorter.
Barry Gold
Jan 31, 2022, 7:56:06 PM1/31/22
to
On 1/29/2022 2:40 PM, Rick C wrote:
> It seems it is key as to the definition of "sales". If an accepted purchase order is a "sale", then it can not be canceled. If it is not a "sale" until the goods are shipped, then it would seem the latter paragraph regarding "costs and expenses" is the relevant section. In that case, it becomes important to designate what are "costs and expenses directly related to the canceled order".
As I and others have pointed out, a PO becomes a "sale" when the seller
> It seems it is key as to the definition of "sales". If an accepted purchase order is a "sale", then it can not be canceled. If it is not a "sale" until the goods are shipped, then it would seem the latter paragraph regarding "costs and expenses" is the relevant section. In that case, it becomes important to designate what are "costs and expenses directly related to the canceled order".
notifies the buyer that it has been accepted. Also, when the seller
ships the requested item(s), even if he doesn't seprately communicate
"acceptance".
I think sending the goods is an "acceptance", and like a separate
letter, is effective when put in the hands of a carrier -- which is
usually the point where the seller can no longer change his mind -- it's
on its way.
Mike Anderson
Feb 3, 2022, 12:46:13 AM2/3/22
to
acceptance, even if it's not a written document saying "we accept"? We
use non-verbal communications all the time. I don't really see much
difference in the following:
1) I send a PO and payment on Jan 1st and it's received by the seller on
Jan 8th.
2) Seller sends me a letter on Jan 8th, saying "I accept. Shipment will
be in two weeks."
3) Two weeks later, on Jan 22nd, it ships.
and
1) I send a PO and payment on Jan 1st and it's received by the seller on
Jan 8th.
2) (skipped)
3) Seller sends me the item on Jan 22nd.
When they actually ship the item, *that* could be taken as the point of
communication from the seller that it was accepted without needing the
step 2 in between (although if there was that two week delay in
shipping, I could cancel any time in that three week period instead of
only having a week. And the "three weeks to cancel" assumes I am able to
get the cancellation to them immediately with no mail delays, of course.)
Barry Gold
Feb 3, 2022, 10:16:10 AM2/3/22
to
acceptance by performance.
Stuart O. Bronstein
Feb 3, 2022, 10:16:45 AM2/3/22
to
depends on how the "offer" or purchase order is written. Sometimes
they're written to say that no contract is formed, and they have no
obligation, unless someone on their side actually signs the purchase
order. But in many cases simply sending the goods that were ordered
is sufficient to constitute acceptance and form a contract.
--
Stu
http://DownToEarthLawyer.com
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