Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

Exercise 3

BACKGROUND AND FA CTS In April 2006, WPS, Inc., submitted a formal proposal to manufacture equipment for Expro Americas, LLC, and Surface Production Systems, Inc. (SPS). Expro and SPS then submitted two purchase orders. WPS accepted the first purchase order in part, and it accepted the second order conditionally. Among other things, WPS required that, by April 28, 2006, Expro and SPS give their "full release to proceed" and agree to "pay all valid costs associated with any order cancellation." The parties' negotiations continued, and Expro and SPS eventually submitted a third purchase order on May 9, 2006.
The third purchase order did not comply with all of WPS's requirements, but it did give WPS full permission to proceed and agreed that Expro and SPS would pay all cancellation costs. With Expro and SPS's knowledge, WPS then began work under the third purchase order. Expro and SPS soon canceled the order, however, so WPS sent them an invoice charging them for the cancellation costs. At trial, the jury and court concluded that there was a contract and found in WPS's favor. Expro and SPS appealed.
IN THE LANGUAGE OF THE COURT
Terry JENNINGS, Justice.
* * * * * * * WPS replied with a conditional acceptance of the second purchase order. WPS also stated that its conditional acceptance depended upon the receipt of a revised purchase order by April 28, 2006. Although it is undisputed that Expro * * * and SPS did not issue a revised purchase order by this date, the evidence * * * reveals that the parties continued their discus- sions and negotiations over those matters that had yet to be resolved. * * * The parties operated as if they had additional time to resolve the outstanding differences. [Emphasis added.]
Expro * * * and SPS submitted their revised third purchase order on May 9, 2006, agreeing in writing to virtually all the matters that had remained unresolved to that date. * * * Most importantly, Expro * * * and SPS provided * * * a "full release to proceed" and agreed to "pay all valid costs associated with any order cancellation." In his testimony, [SPS's vice president] conceded that the term "Release to Proceed" "basically means that one party is in agreement," authorizing the other party to go forward. * * * WPS had previously sought the release to proceed so that it could "diligently" perform its obligations under the contract. The jury could have reasonably concluded that WPS, having now obtained the release * * * and * * * [the] promise to pay cancellation charges * * *, was contractually obligated to perform and meet the delivery date. [Emphasis added.]
DECISION AND REMEDY The Texas appellate court found that WPS had a contract with Expro and SPS. It affirmed the lower court's judgment for WPS.
THE LEGAL ENVIRONMENT DIMENSION?In allowing a party to condition its acceptance on additional terms, does contract law make negotiations more or less efficient? Explain your answer.
THE ECONOMIC DIMENSION?Why would a manufacturer like WPS want its purchase orders to include terms such as those at issue in this case? Why would a buyer like Expro or SPS want to exclude such terms?