Say you’re a merchant of goods and have a customer that places a $100,000 order to be delivered by September 15. The goods must be delivered in a timely fashion so that your customer can fulfill their contractual obligations to resell the units to their customers. Due to supply chain issues, your delivery is late and the goods aren’t delivered until September 30. Are you, the seller, still liable for the late delivery of goods?
In New York, Article 2 of the Uniform Commercial Code governs agreements for the sale of goods and details when parties are liable for damages under a contractual breach. Whether a seller is liable for damages depends on the actions taken by the buyer.
For example, prior to the original expected delivery date of September 15, the seller advises the buyer of the delay, and the buyer, in turn, goes to another seller for replacement goods in order to satisfy its needs. The buyer then properly cancels the contract, however, the replacement goods cost $50,000 more than the original ones. In this instance, under the UCC, the buyer is considered to have “covered” by making a reasonable purchase of substitute goods. A buyer may then recover from the original seller the difference between the cost of the cover and the original contract price together with any incidental or consequential damages incurred. According to the UCC, a buyer who makes a cover purchase does so “in substitution for those due from the seller,” meaning that the buyer cannot accept the late goods and sell them at a profit after seeking the difference of the cover replacement goods from the seller.
What Happens If the Buyer Accepts the Late Delivery of Goods
What if the buyer accepts the late goods and doesn’t cover with a substitute seller? As long as the buyer has given notice to the seller that they breached the contract due to the late delivery, the buyer may recover any damages resulting from the seller’s breach, along with incidental and consequential damages. According to the UCC, incidental damages include “any reasonable expense incident to the delay or other breach.” Consequential damages include “any loss resulting from requirements and needs of which the seller at the time of the agreement had reason to know and which could not reasonably be prevented by cover.”
Consequential damages can be limited or excluded in a written contract unless such limitation or exclusion is unconscionable. The goal of the UCC is to put the buyer in as good a position as the buyer would have been had the seller properly performed. It is not designed to give the buyer a windfall. However, the seller should always be mindful that if they deliver goods late, and the buyer accepts but fails to pay, the buyer still may have their own claim for damages incurred due to the seller’s lateness. This is important to be aware of as it can affect the amount a seller can recover through debt collection.
If you have a debt collection matter you need assistance with, contact Frank, Frank, Goldstein and Nager for a consultation. We have the experience that pays.
