Do businesses have to pay for defective goods they receive? Let’s say your company orders 1,000 vacuum cleaners from a distributor. You receive the vacuum cleaners and perform a general inspection. As far as you can tell, the goods seem in working order. Your company then proceeds to sell the vacuums to other buyers.
After 30 days, you begin to receive calls from your buyers that the vacuums purchased no longer seem to be working. Your company refuses to pay for the vacuums sent, and the distributor sues you for non-payment. What are your rights?
Understanding Your Options
Once you discover the defective goods, you must communicate with the distributor in a timely and prompt manner that you want to return them. This way the seller distributor knows to remove the goods as soon as possible. If they don’t, they would be liable for the time your company incurs holding and storing the goods in possession. This is a cause of action for “failure to remove inferior or defective goods.”
You can then either submit an affirmative defense for an offset or for a counterclaim against the distributor. This can help offset any loss of business, goodwill, and other consequential damages that may occur from unknowingly selling defective products to your customers.
If the parties have a written agreement that contains a provision of a warranty, and the distributor fails to abide by the warranty terms to either replace or repair the goods in question, you can sue the distributor for breach of express warranty. Usually, the damages for breach of express warranty are limited to the remedies listed in the underlying agreement.
Even if there is no express written warranty, under the Uniform Commercial Code (UCC) if the seller is a merchant of the goods in question, then the distributor would be liable for breach of implied warranties. The distributor could be liable for failing to provide goods fit for a particular purpose for which they were required, which resulted in your company’s losses. The distributor could be liable for breach of the Implied Warranty of Merchantability – a merchant’s basic promise that goods purchased work as expected. Your company is entitled to damages based on the fact that the goods did not work as intended.
If, prior to the transactions, there was a sample or model used in negotiations between the parties, the UCC states that goods delivered must conform to the sample or model leading to the transaction. In the absence of fraud, the warranty does not cover latent defects, unless the seller is the manufacturer. Then it may extend to latent defects growing out of the process of manufacture. If upon delivery the goods fall below the quality of the sample, your company may either reject them or may accept and sue for damages.
As stated above, there are remedies for purchasers for goods delivered that are later discovered to be defective, as long as the purchaser is proactive and notifies the seller as soon as they discover the defect.
If you are a business owner looking for assistance with a debt collection matter, contact Frank, Frank, Goldstein and Nager for a consultation.
