Non-Conforming Goods or Services: What to do?

Occasionally, when your San Diego business makes a contract, the other party to the contract delivers non-conforming goods and/or services. Here is a quick rundown on your options if this happens to you. First, you should retain and consult with a good corporate lawyer.

San Diego Business Contracts: Contract Remedies

After retaining a trusted and talented corporate lawyer, the next step is to read your contract. Your contract may be silent as to what remedies you may have for delivery of non-conforming goods and/or services, but most contracts have some provision with respect to breach of obligations. If the contract has procedures or remedies, those should be followed.

San Diego Business Contracts: Real World Remedies

Aside from the remedies that might be written in your contract, there are a number of real-world, practical scenarios including:

1. Accept the non-conforming goods — this is often not the best response
2. Accept the non-conforming goods and demand a price adjustment — this is a common response
3. Accept the non-conforming goods, demand a price adjustment, and raise a stink indicating that non-conformance is unacceptable — this is also common and avoids inadvertently modifying your contract by course-of-conduct; make sure there is written correspondence
4. Reject the non-conforming goods entirely and demand return of money
5. Reject the non-conforming goods and demand replacement
6. Accept or reject the non-conforming goods and cure the defect demanding that seller pay for any costs associated with cure

Here are a couple of examples: suppose the contract is for apples of a certain quality (“A”) and a certain size (“8”). However, what is delivered are “A” quality apples, but only size “6.” If you are a grocery store, the smaller apples are probably still saleable, but a lower price will probably have to be charged. Thus, the store can accept the smaller apples, but insist on a price adjustment. It is probably important to state — in writing — that acceptance of the small apples is not a modification of the contract which requires size 8 or larger.

In an example of scenario #6 from the list above, the store could reject the apples and buy conforming apples from another supplier charging the original supplier with any extra costs (including any higher price differential, extra shipping costs and any other excess incidentals). Sometimes it is possible to ACCEPT non-conforming goods and ALSO cure the defect. Apples are not a good example, but consider delivery of wooden bookshelves. The contract requires that the shelves be delivered painted; but the ones delivered are unpainted. Here, the furniture store could accept and then have them painted, charging the original vendor the costs associated therewith.

Most of these scenarios are based on legal rights established under the Uniform Commercial Code (“UCC”). While the UCC itself applies to the sale of goods, the legal principles apply equally as well to the provision of services.

Obviously, the various practical scenarios should be undertaken in consultation and in negotiation with the non-conforming supplier. A demand letter is another option to consider. Depending on the response from the supplier, the scenario might change. Maybe you start with scenario #3, but the supplier is adamant that no price adjustment will be forthcoming. Under those circumstances, the scenario becomes #4 (rejection of goods). The goal of these scenarios is to avoid costly litigation, but sometimes litigation is unavoidable.

San Diego Business Contracts: Right to Inspect

Note that if there has been more than one incident of delivery of non-conforming goods or if it seems likely that more incidents will occur in the future, it may be necessary to modify the contract to allow for inspection prior to delivery with any costs to be paid for by the supplier.

San Diego Business Contracts: Where No Remedy is Allowed for Non-Conforming Delivery

As an aside, there are some rare circumstances in which there is no remedy for the buyer/receiver when delivery is made of non-conforming goods. This happens — rarely — when the goods delivered EXCEED the contractual obligations without the seller trying to charge anything other than the contract price. In our apple example from above, if size #9 apples are delivered, then the grocery store will have no claim for breach of contract (assuming such apples are better than size #8 apples).

San Diego Business Contracts: Contact San Diego Corporate Law

Every business needs experienced business attorneys to provide legal advice concerning business contracts. If you have contracts that need to be drafted or reviewed or if you need help understanding your options and what might be best for your unique circumstances, contact attorney Michael Leonard of San Diego Corporate Law. To schedule a consultation, contact Mr. Leonard via email or by calling (858) 483-9200.

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