Price quoted vs Purchase Order

Question

Somewhat "hypothetical" question:

I priced something for a customer, a total of 500 pcs, each individually listed, on an invoice for $100.00 each, for a total of $50k.

This customer then sends me a purchase order, which I sign for a price of $50K. This purchase order shows the total amount of the order, but not he amount of pieces.

Since then, he has placed 5 orders of 50 pieces each (250 pcs total).

Now, he never sent payment or placed an order for those 500 pcs. He's called everytime, given me payment for 50 pcs and placed the order for 50 pcs.

Obviously, the price is different for 50 pcs, because it takes longer to make 50 pcs then 100 pcs (time per pc) and material prices have increased (we are now 10 months after his original order / purchase order). So for every piece in these orders, he has paid $55.00 per pc.

Its one thing if I quote a service for something and I myself delay manufacturing or installation, so then I have to deal with the increase in costs, but we never got paid for the original scope, so we never purchased that material, for example.

He now calls me saying that we have overcharged him in every order. I've explained to him that he ordered in small batches, not a bundle as quoted (actually invoiced) and that the material cost has increased. He believes that because I signed the Purchase Order we are bind to sell him these items for those prices.

My questions are:

1 - Do we have to sell for those prices? The Purchase order was for 500 pcs, so was the original invoice (which he never paid, instead placed small orders). Since he sent a PO for 500 pcs, that means technically he should have placed an order for 500 pcs correct? So these small orders technically do not match his original PO, and could be considered different orders, correct? (if he wants to get technical).

3 - I am myself not overly worried about this, I can take the easy way out with less headache and just make the remainder of the pieces for less money to have the final price be the same $50k. I'm not gonna lose that much in what the cost of the material is for me, but it is gonna cost me more in labor and reduce the profit on the material. I can see how I should've protected myself better, by perhaps not pricing by item, by writing "priced as a bundle", but ultimately, who is right and who is wrong?

Just to give an example, these are custom made items. Things that don't lose value as new, lets say like a metal chair. You can purchase the same chair today for $50, but next year, the same model, made later on, costs $60 because of the increase in costs.

If it also makes a difference, this took place in MA.

If I can clarify things better, let me know and I'll edit the question.

Please don't be harsh, I'm not a lawyer, I'm trying to learn to be able to back myself up better in the future.

Answer 1

Obviously, the price is different for 50 pcs

It is by no means obvious that the price is different for 50 pieces, particularly if you didn't tell him when he ordered 50 pieces that it was.

What is obvious that terms of your contract(s) are not clear. They are not so unclear as to render the contract(s) void (probably) but, from what you have stated, it is not clear if:

1. There is one contract or several,
2. If the contract is for 500 pieces at $50,000 or some other number at $50 each, or at $55 each.
3. If the contract is for 500 pieces, it is clear by conduct that these can be taken in installments, however, it is not clear how much (if anything) is due for each installment or how long the customer has to take delivery of the entire order.

As always, the exact answers will depend on the exact wording of the communications between the parties and when the contract(s) came into existence. However, analyzing what you have stated:

I priced something for a customer, a total of 500 pcs, each individually listed, on an invoice for $100.00 each, for a total of $50k.

First, this can't be an "invoice" because at this point there is no contract and you have done nothing that would entitle you to payment. This is in contract law, an offer. From the description it is not clear if the offer was only open to acceptance in toto or if parts of the offer could be accepted.

This customer then sends me a purchase order, which I sign for a price of $50K

if this was an unconditional acceptance of your offer (whatever it was) we now have a contract. If it wasn't we have a counter-offer.

Let's assume that this creates the contract.

He has then requested delivery of the 50,000 units in installments. You have accepted this request by conduct. He has agreed to pay in installments by conduct. So far, so good.

Within a reasonable time, you each must complete your obligations under the contract: that is, you must deliver 500 pieces and he must pay $50,000. The contract is silent on how much must be paid in each installment so this is something you need to agree. If you can't agree then the right amount is probably $50 each in the absence of any other method of pricing it. At this point, you have probably overcharged him.

Answer 2

From what I can see the customer is trying it on, and indeed it may be arguable that he has breached the contract by not placing a PO for 500 items but not paying for it (assuming, as appears to be the case - that payment was required prior to release of the goods).

By him paying the higher price for each order at the time of each smaller order, he has entered into a new contract each time, and he has no recourse against you after the fact to say he has been overcharged.

To answer your questions -

1. No, you do not need to sell for those prices (on smaller quantities). If the original quote is still valid, you may be liable to fill an order for 500 pieces for 50k - you don't need to provide anything else to him.

2. You could have been clearer, but that is almost always the case - and, unless he paid you $50k, you were clear enough.

To understand the law -

The law is fairly straight forward and universal. A contract (agreement) has various elements which need to be fulfilled to be valid. There are others but the main ones are -

Offer, Acceptance, meeting of the minds and Consideration.

The problem with the original contract for 50k - and this is not a problem for you - is there was no consideration. (Indeed it is unclear there was acceptance).

By you offering to sell subsequent smaller orders of a higher per piece price, his paying (providing consideration) prior to delivery implies acceptance and a contract is formed.

There is also the concept of "meeting of the minds" - and he could argue there was no meeting of the minds, but as he is the one claiming this - after making payment - the burden would fall to him to show there was no meeting of the minds - but this would be very difficult as he made payment. (The question is would "the reasonable man" expect to pay the large quantity rate for a small quantity), and he would have to explain why he made payment for the higher amount...