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CANCELLING A PURCHASE ORDER?

By: Rabbi Max Sutton



THE CASE

Cancelling a Purchase Order?

Alan operated a ladieswear wholesale company. He was approached by an investment company interested in purchasing a large amount of his inventory. The investment company was in the process of buying a nationwide chain store on the verge of bankruptcy, and they anticipated needing an enormous amount of merchandise. The merchandise, once purchased, would prepare the stores for a going-out-of-business sale. The investment company further requested to purchase from Alan an accessory item that he did not own, though he assured them that he could supply them with the item. Alan immediately reached out to Joe, owner of a ladies’ accessory company, and explained to him in detail the situation whereby his valuable contact was searching for merchandise.

Naturally, Joe was pleased with the opportunity to move his inventory, and offered the product to Alan at a reasonable price. Shortly thereafter, the investment company informed Alan that they were scheduled to finalize the purchase of the chain stores in just a few days’ time. They told Alan that thereafter they intended on placing their orders with him for immediate delivery, since by law the running a GOB Sale has a time limitation. Under pressure for time, Alan finalized the purchase of Joe’s merchandise by completing a formal purchase order. The purchase order detailed the item, the quantity, the price, the delivery date, and the terms of payment.

The very next day the investment company notified Alan that their deal had fallen through. The nationwide chain store was not declaring bankruptcy, due to last minute funding they received to continue operations. The investment company thanked Alan for his time, and pledged to do business with him in the future. Alan phoned Joe to cancel his order, but Joe refused to accept the cancellation. In Bet Din Joe explained that since Alan filled out a legally binding purchase order he may not renege. Alan responded that Joe knew all along that his purchase of the accessory item was contingent on the investment company’s purchase of the chain stores. Alan provided emails that attested that he included Joe in every stage of his interaction with the investment company. Alan explained that Joe understood the possibility of the deal not going through, and that the purchase order was only processed because of the immediate delivery requirement.

Is Alan required to take the merchandise? How should the Bet Din rule and why?

TORAH LAW

According to the ruling of the Shulhan Aruch, any form of transaction viewed as binding in local commercial markets is enforceable by Torah law. Hence, a signed purchase order, which is a standard binding transaction in today’s commercial markets, is enforceable by a Bet Din. Nevertheless, in rare instances all forms of transactions are subject to cancellation, and thus, at times, even a purchase order can be rendered null and void.

A sale that is predicated on a specific contingency is subject to nullification if the contingency of the sale is not executed. In a classic Talmudic case, an affluent elderly man was falsely notified that his son perished, and the man subsequently distributed his assets and properties to his friends and extended family members. When the elderly father was informed that his son was indeed alive, he requested to nullify the distribution and reverse the transfer of title awarded to the many recipients. His claim was accepted, and the transactions were nullified on the basis that it was only executed contingent on the passing of his son. Although no explicit contingency was stipulated, nevertheless, it was assumed by the recipients at the time of the distribution that the transfer was predicated on the passing of the son.

Leading halachic authorities rule in compliance with the
above-mentioned Talmudic law, and have consistently nullified sales when clear assumed contingencies were the basis for the transaction. In one city in Eastern Europe a king requested to purchase all the white linen readily available in the city. The king contracted the services of a Jewish merchant, and in turn the Jewish merchant ordered from other Jewish suppliers in the city all their available stock of white linen. Prior to the shipping of the merchandise the king was overthrown in battle and the Jewish merchant cancelled his order with the other suppliers. In Bet Din the merchant was released from all obligation, since the suppliers clearly assumed at the time of the transaction that the order was contingent on the king’s ultimate purchase of the white linen. In short, an assumed contingency at the time of a sale can serve as basis to ultimately nullify a sale.

Additionally, a considerable halachic debate exists regarding instances in which one signs a binding transaction not for the sake of finalizing a sale but rather to expedite a potential sale. Although the document was signed, since both parties agree that the initial intent was only to expedite a sale, the sale is arguably not binding. While this is a matter of dispute, it can serve as an additional reasoning for a Bet Din to release a party from their obligation to complete the sale.

By Torah law, a party that has possession of the funds in dispute can withhold payment and rely on various opinions that support his view. The above-mentioned laws can serve as basis to nullify a sale by releasing a purchaser from the obligation of a signed purchase order.

VERDICT

An Assumed Contingency

Our Bet Din ruled in favor of Alan by releasing him of all obligation. Although Alan signed a purchase order, nevertheless, it was clearly understood by Joe, the seller, that the merchandise was strictly purchased by Alan in order to sell it to the liquidating investment company. Joe understood prior to and during the time of sale that the enormous quantities of inventory being purchased was only to satisfy the liquidating company’s order. It was apparent to all that Alan had no intention whatsoever to shoulder the burden of owning merchandise in an unaffiliated industry. Hence, the sale was clearly contingent on the liquidator’s ultimately buying the merchandise, and was rendered null and void in the absence of their subsequent purchase. Furthermore, there is reason to believe that since Joe agrees that the purchase order was initially signed to expedite the order and not necessarily to finalize it, that the transaction is inherently not a binding one. Additionally, since Alan is in possession of the funds in dispute, he is entitled to resist shipment of the merchandise and to withhold his payment based on the above-mentioned rulings.