The short version
- Under US sales law a written contract for goods is not enforceable beyond the quantity shown in the writing — so a supply agreement with no quantity term commits nobody to anything.
- The "perfect tender" right to reject goods failing to conform in any respect does not apply to instalment contracts. There, you may reject a delivery only if the defect substantially impairs the value of that instalment and cannot be cured.
- Once you accept goods you must notify the seller of any breach within a reasonable time or be barred from every remedy, and the burden of proving the defect shifts to you.
- If a supplier starts to look unreliable, you can demand adequate assurance of performance in writing and suspend your own performance. Failure to give it within a reasonable time — never more than 30 days — is a repudiation you can act on.
The legal rules below come from Article 2 of the Uniform Commercial Code, which governs transactions in goods and not services. Cross-border sales may fall under an international convention instead. Outside the US the terminology differs; the commercial questions do not.
Quantity is the one term you cannot leave vague
The statute of frauds for goods says a writing "is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing." Every other term can be argued from context. Quantity cannot — so a framework agreement letting the buyer order "such quantities as it requires" binds neither side to a single unit.
That is sometimes what both parties want. Three structures say so, with different consequences.
| Structure | What it commits you to | Where it goes wrong |
|---|---|---|
| Firm volume | A stated number of units over a stated period | You carry the demand risk. Add a tolerance band and a right to reschedule. |
| Requirements contract | To buy your actual requirements from this supplier | Requirements must be taken in good faith, and no quantity "unreasonably disproportionate" to a stated estimate may be demanded — the estimate matters as much as the words |
| Minimum order quantity only | Nothing beyond the size of each order | The supplier owes you no capacity. In a shortage you are behind every customer who committed. |
One more consequence: exclusive dealing in the goods implies an obligation on the seller to use best efforts to supply them and on the buyer to use best efforts to promote their sale. Exclusivity is not a one-way favour.
The perfect tender rule, and why it probably does not apply to you
The headline rule is buyer-friendly to the point of severity. If "the goods or the tender of delivery fail in any respect to conform to the contract", the buyer may reject the whole, accept the whole, or accept some commercial units and reject the rest. In any respect — late, short, mislabelled.
Then comes the exception that covers most supply agreements. Where a contract authorises delivery in separate lots to be separately accepted, it is an instalment contract, and a lot may be rejected only where the non-conformity "substantially impairs the value of that installment and cannot be cured". A defect big enough to impair the whole contract breaches the whole; otherwise you take the delivery and claim the difference.
The seller also has a right to cure. Where a tender is rejected and the time for performance has not expired, it may notify you of an intention to cure and deliver conforming goods within the contract period. So "we rejected it, so we are free" is usually wrong.
The shipment is wrong. What can you actually do?
Have you accepted the goods yet?
Not yet accepted
Reject the whole, or reject part and keep the rest. On an instalment contract only for a defect that substantially impairs that instalment and cannot be cured. The seller may still cure within the contract period.
Already accepted
Notify the seller of the breach within a reasonable time or lose every remedy. You now carry the burden of proving it. Undoing acceptance needs a defect that substantially impairs value to you, and prompt action before the goods change condition.
Acceptance is a trap door, and notice is the latch
Three rules operate together once goods are accepted, and each of them costs a buyer something.
What acceptance costs a buyer, in three steps
On acceptance
The notice clock starts
Notify within a reasonable time of discovering the breach, or be barred from any remedy at all. Not reduced — barred.
Immediately after
The burden moves to you
Before acceptance the seller must show it tendered conforming goods. Afterwards you must establish that it did not.
To undo it
Revocation, on three conditions
A non-conformity substantially impairing value to you, notice within a reasonable time, and no substantial change in the goods' condition.
All of which makes the inspection and rejection clause the most valuable paragraph in the agreement. Set the inspection period in days from delivery, what a valid rejection notice contains, who pays return freight, and where rejected goods sit. Add that acceptance of one shipment waives nothing in another, or one tolerated deviation becomes the standard.
Watch the limitation period separately. An action for breach of a sale contract must generally be brought within four years of accrual, and the parties may reduce that to not less than one year but may not extend it. So a supplier's twelve-month claims window is enforceable — and for a component that fails in the field after eighteen, that clause is the whole dispute.
Quality: what you get for free, and how easily it is taken away
Where the seller is a merchant in goods of that kind, a warranty of merchantability is implied unless excluded. Merchantable goods must pass without objection in the trade under the contract description, be fit for their ordinary purposes, run "of even kind, quality and quantity within each unit and among all units involved", and be adequately contained, packaged and labelled.
That consistency requirement is the one manufacturers care about and rarely think to write down. It is the difference between a batch that meets specification on average and a batch where every unit does.
It is also removed easily. To exclude it the language "must mention merchantability and in case of a writing must be conspicuous", and "as is" or "with all faults" excludes all implied warranties. That paragraph sits on the back of the order acknowledgement, in capitals, doing more work than anything on the front.
Supply agreement clause checklist
The structure a supply agreement needs, free to read — products and specifications, orders and forecasts, delivery, inspection and rejection, price, warranties and term. Useful for checking what a supplier's draft leaves out.
Lead times, and the difference between a date and a target
Read the delivery clause for hedging words before you read the number. "Estimated", "approximately", "target", "subject to availability" and "indicative" each convert an obligation into an aspiration. A lead time that means something is a fixed number of days from order acceptance, with a tolerance and a consequence attached.
- Firm and forecast horizons. Orders inside a firm window bind both sides, a middle window allows rescheduling within a percentage band, and beyond that is forecast only. Say what cancellation inside the firm window costs.
- Late delivery consequence. Without one you are left claiming provable loss you cannot document. A modest agreed sum per day, capped, works better — but it must be a genuine pre-estimate of loss rather than a threat, or you are in the liquidated damages versus penalty argument.
- Capacity and allocation. A clause allocating constrained supply pro rata across customers is honest; silence means finding out during the shortage.
- Change of specification. Who may change what, with how much notice, and who pays for stock bought against the old one.
Tooling: owning it and being able to reach it are different things
Where the supplier builds moulds, dies or fixtures specific to your part — the territory of a manufacturing agreement rather than a plain supply contract — four questions decide who controls the relationship afterwards. Answer them before the tool is cut.
- Who owns it. If you paid for the tool, say so. If the cost is amortised into the unit price, say when title passes and what happens if forecast volume is never reached.
- How it is identified. Tagged with your name and an asset number, listed in a tooling schedule, segregated in the supplier's records. An unmarked tool is hard to claim.
- Who may use it. Exclusive to your parts, not run for anyone else, not modified without consent.
- How you get it back. Rights to inspect and to take possession on termination or insolvency, a stated release period, and the drawings, CAD files and process parameters — because a tool without the process that runs it does not immediately make good parts elsewhere.
Then be realistic about the gap between the clause and the world. A tool in a factory whose owner disputes an invoice is not something you collect on a Tuesday, and what a local court would do depends on where that factory sits. Buyers with volume answer it structurally — duplicate tooling at a second source, or the tool held by an independent toolmaker. If the supplier improves your part, say who owns the improvement: see who owns the work.
When the supplier starts to look shaky
There is a mechanism for this that almost nobody uses. Where reasonable grounds for insecurity arise about the other side's performance, a party may demand adequate assurance in writing, and may — if commercially reasonable — suspend performance for which it has not already received the agreed return. Failure to give that assurance "within a reasonable time not exceeding thirty days" is a repudiation of the contract.
The pre-signature pass
Supply and manufacturing agreements
- A quantity term that appears in the writing — firm volume, or requirements with a stated estimate. An MOQ alone commits no capacity.
- Specification attached as a schedule: drawing, materials, tolerances, test method, acceptable quality level.
- Inspection period, rejection notice requirements, return freight, a no-waiver clause, and a defined material non-conformity.
- Lead time as a firm number from order acceptance, with firm and forecast horizons and a capped late-delivery remedy.
- Warranty period, a claims window you can live with, and a price mechanism with notice before any increase.
- Tooling ownership, marking, exclusive use, surrender on termination, and rights to drawings and process data.
- Continuity: last-time-buy rights, notice before discontinuation, and a right to qualify a second source.
One habit is worth more than any of these clauses. Put every rejection, quality complaint and schedule change in writing on the day it happens, to a named person, with the order number on it. The notice rule means an accepted defect raised only by telephone is, at law, close to no complaint — and the contract cannot help you if the record does not exist.
Sources
- UCC § 2-201 — statute of frauds and the quantity term
- UCC § 2-306 — output, requirements and exclusive dealings
- UCC § 2-601 — buyer's rights on improper delivery
- UCC § 2-612 — instalment contracts
- UCC § 2-508 — cure by seller of improper tender
- UCC § 2-607 — effect of acceptance and notice of breach
- UCC § 2-608 — revocation of acceptance
- UCC § 2-314 — implied warranty of merchantability
- UCC § 2-316 — exclusion or modification of warranties
- UCC § 2-609 — right to adequate assurance of performance
- UCC § 2-725 — statute of limitations in contracts for sale
General information, not legal advice. This guide explains how these documents and rules generally work. Law varies by jurisdiction and changes, and none of it is applied to your circumstances here. For anything consequential, consult a licensed attorney where you are.
Frequently asked
What should a supply agreement include?
The products and their specification as an attached schedule, a quantity mechanism, ordering and forecasting rules, lead times with consequences for lateness, price and how it may change, inspection and rejection rights, warranties and their duration, tooling ownership if any is built, liability limits, and termination with wind-down obligations. Quantity and specification are the two the law will not fill in for you.
Can I reject a shipment that is only slightly wrong?
On a single-delivery sale, yes — US sales law lets a buyer reject goods that fail to conform in any respect. On an instalment contract, which is what most scheduled supply agreements are, no: you may reject only where the defect substantially impairs the value of that instalment and cannot be cured. If you need a stricter standard, define material non-conformity in the contract.
What is a minimum order quantity clause?
A term setting the smallest quantity the supplier will produce in one run, usually driven by set-up cost. It governs the size of each order, not the total you must buy, so an MOQ alone commits neither side to a volume and gives you no claim on capacity. If you need the supplier to reserve output for you, that is a separate volume or capacity commitment.
Who owns tooling paid for by the customer?
Whoever the contract says, which is why it needs saying. If the buyer pays for the tool outright, an ownership clause plus physical marking and a tooling schedule is the minimum. Where the cost is amortised into the unit price, state when title passes and what happens if forecast volumes are never reached. Then plan for recovery, because possession is what decides this in practice.
What can I do if a supplier looks like it is about to fail?
Where reasonable grounds for insecurity exist, US sales law lets you demand adequate assurance of performance in writing and suspend your own performance where commercially reasonable while you wait. If adequate assurance is not given within a reasonable time — never more than thirty days — that failure is treated as a repudiation, which frees you to source elsewhere without being the party in breach.