Here’s a simple summary of the impact the different purchase variations may have. The key
is Subsidiaries of both the Buyer and Supplier are independent legal entities and agreements
written by Parent Companies do not apply to Subsidiaries unless either the Parent Company has the authority to bind the Subsidiary or the Subsidiary Agreement to the same terms. The same happens in reverse where Subsidiaries can't bind their Parent Companies
Contract between Buyer Parent Company and Supplier Parent | ||
Purchaser | Selling entity | |
1. Buyer | Supplier Parent Company | All terms of the agreement will apply to these purchases. |
2. Buyer’s Subsidiary | Supplier’s Parent Company | Unless the Buyer Entity that signed the agreement has the authority to also bind its Subsidiaries to the agreement and did so in the agreement, the terms of the agreement would not apply. To get those terms the Subsidiary needs to create their own agreement between themselves and the Supplier. That separate agreement could be the issuance of a PO, which incorporates the terms of the Agreement and that is accepted by the Supplier. The alternative a separate agreement between the Subsidiary and the Supplier agreeing to be bound to the same terms. |
3. Buyer | Supplier Subsidiary | Since the Supplier Subsidiary was not a party to the Agreement, the terms of the agreement would not apply. To get those terms the Buyer needs to create their own agreement between themselves and the Supplier Subsidiary. That separate agreement could be the issuance of a PO, which incorporates the terms of the Agreement and that is accepted by the Supplier. The alternative a separate agreement between the Supplier Subsidiary and the Buyer agreeing to be bound to the same terms. |
Contract between Buyer Parent Company and Supplier Subsidiary | ||
1.Buyer | Supplier Subsidiary | All terms of this agreement will apply to these purchases. However, since Buyer’s agreement is with a Supplier subsidiary rather that the Supplier, the Buyer can only look to that Subsidiary for any performance or recovery of damages. The parent company would only become obligated if they provide a “Company Guarantee” or “Parent Guarantee” where they agree to be responsible for the financial obligations of the Subsidiary. |
2. Buyer’s Subsidiary | Supplier Subsidiary | Since neither of these entities were parties to the original agreement, a separate agreement needs to be put in place between those parties. That separate agreement could be the issuance of a PO that incorporates that Agreement by reference which is accepted by the Supplier, or a separate agreement between the Subsidiary and the Supplier entity agreeing to be bound to the same terms. When dealing with a subsidiary, the Buyer Subsidiary can only look to that Supplier subsidiary for any recovery of damages. The parent company would only become obligated if they provided a “Company Guarantee” or “Parent Guarantee” where they agree to be responsible for the financial obligations of the Subsidiary. |
Contract between Buyer Parent or and either the Supplier or Supplier Subsidiary | ||
Purchaser | Selling entity | |
1. Buyer | Supplier Authorized Distributor | None of the terms of the agreement apply. For any terms of the Buyer – Supplier agreement to apply, the agreement would need to specifically agree that the Supplier will extend the enforceability of its terms on Buyer’s purchases from the Distributor as if the Buyer purchased it directly. Without a specific Supplier commitment that they will be responsible for those purchases, all performance and recoveries must be from the Distributor. |
2. Buyer’s Subsidiary | Supplier Authorized Distributor | Same as above. |
Outsource Situations | ||
Contract between Buyer or Buyer Subsidiary and Supplier or Supplier Subsidiary | ||
Purchaser | Selling entity | |
Third Party | Supplier or Supplier Subsidiary | None of the agreement terms apply to the Third Party unless agreement authorizes the Third Party to purchase under the same terms or the 3rd party is named a “Third Party Beneficiary” to the agreement where they can purchase under and enforce the terms directly with the Supplier. |
Contract between Third Party and Supplier. | ||
Purchaser | Selling entity | |
Third Party | Supplier | None of the agreement terms would apply to the Buyer and Buyer would have not rights to enforce the agreement with the Supplier. To have those rights the Agreement would need to either make the a “Third Party Beneficiary” to enforce the terms directly with the Supplier |
Other Situations | ||
Purchaser | Selling entity | |
Buyer | Broker | None of the terms apply. Likelihood that Supplier will allow enforceability of terms on these purchases is unlikely. Recoveries would be based on agreement with Broker and recoveries would only be against the Broker |
Buyer Subsidiary | Broker | Same as above |
Third Party | Broker | Same as above |
Purchaser | Selling entity | |
Buyer, Buyer Subsidiary, or third party. | Manufacturer’s Representative | Depends upon how order is placed. If placed in the Name of the Supplier, in care of the representative You would have enforceability if the agreement designated the Manufacturer’s representative to receive orders. If the agreement was silent as to their authority it becomes more problematic where you may need to show course of dealing. Unless specifically authorized in the agreement, orders placed directly with a Manufacturers Representative in their name would not have any of the contract terms apply and that would be a transaction where the purchase and sole recourse would be with the Manufacturers Representative. |
