When businesses engage in transactions and procure goods or services from one another, they often exchange various documents, including quotations and purchase orders. These documents play a crucial role in the negotiation and execution of contracts, but are they considered contracts themselves?
In this article, we will explore the legal significance of quotations and purchase orders in the context of business agreements.
A quotation, often known as a “quote” or a “price quote,” is a document sent by a seller to a prospective buyer. It details the product, price, quantities, delivery dates, and payment terms under which the seller is ready to offer products or services.
Sellers generally use quotations to provide potential purchasers with an approximation of the costs connected with a transaction.
Key characteristics of quotations
1. Offer: A quote is commonly seen as a seller’s offer to the customer. It specifies particular terms and conditions that, if accepted by the buyer, can serve as the contract.
2. Revocable: Unless clearly stated otherwise, a quote is revocable at any time. Some quotes expressly state that it is open for acceptance by the buyer for a period of time only. This indicates that the seller has the right to withdraw or amend the offer before the customer accepts it or after the deadline given.
3. No Purchase Obligation: Receiving a quote does not oblige the buyer to make a purchase. It is an invitation to negotiate, and the buyer has the option of accepting, rejecting, or countering the terms offered.
Understanding purchase orders
A purchase order (PO) is a document that a buyer issues to a seller. It formalises the buyer’s intent to acquire products or services and contains specifics such as the item description, quantity, price, delivery date, and payment terms. When a customer sends a purchase order and the seller accepts it, a legally binding agreement is formed.
Key characteristics of purchase orders
1. Offer: If there was no quotation issued by the seller and a buyer issues a purchase order to the seller, the purchase order is considered an offer to the seller with the terms set out therein.
2. Legal Obligation: When a seller accepts a purchase order, a binding contract is created, and both parties are legally bound to meet the responsibilities indicated in the purchase order.
3. Protection Against Disputes: Purchase orders serve as a clear record of the agreed-upon terms and conditions, which can aid in the prevention of conflicts and misunderstandings between the parties.
Are these documents considered a contract?
If a quotation containing terms and conditions is sent by the seller to the buyer, once the buyer accepts the quotation, for example by signing on it or by issuing a purchase order containing the seller’s terms and conditions, then there is a binding contract.
If no quotation was sent by the seller to the buyer, and the buyer issues a purchase order based on the buyer’s own terms and conditions, if the seller accepts the purchase order, then there is a binding contract.
To summarise, when a quotation is issued, it is merely an offer by the seller. It will only become a contract if it is accepted by the buyer. Purchase orders, on the other hand, usually signify the acceptance by the buyer of an offer from the seller (for example, from a quotation) and establish a legally enforceable contract between the parties. However, if no quotation was issued and a purchase order is the only document containing the terms and conditions between the parties which are accepted by the seller, then this can be a contractual document.
Quotations and purchase orders in commercial litigation
When disputes arise between businesses over transactions, the legal status of quotations and purchase orders becomes crucial. If a party believes that the other has breached the contract or failed to fulfil its obligations, they may turn to the legal system for resolution.
Commercial litigation services in Singapore, such as those offered by DC Law LLC, can be invaluable in such situations. These services include expert guidance on contract disputes and their potential resolutions, which can include negotiation, mediation, arbitration and more.
Here at DC Law LLC, our experienced attorneys can provide the support and legal representation needed to navigate complex business disputes and protect your rights and interests.
For more information, contact us today.