Put the Buyer in a "Box".(sales contracts)(Brief Article)

Protecting Against the "Defective-Goods" Defense in Sales Contracts

Time to Inspect

How often has your company been faced with a scenario where a buyer has a large delinquent balance, and after ignoring requests and demands for payment, the buyer claims that the goods were "defective" and that the invoices will not be paid? How can a seller best protect itself through terms in a sales contract?

When the parties agree to the sale of goods, whether verbally or through written agreement, a contract of sale is created. Sales contracts are governed by the Uniform Commercial Code (UCC). This code has been enacted in nearly all states, with the exception of Louisiana, which has only enacted pertinent portions of the UCC.

When the buyer claims that the goods were "defective" long after the goods were delivered, the issue created is commonly known as the "402.607 problem," named after the applicable UCC section. In general, this section provides that a buyer has accepted the goods if the buyer, after a reasonable opportunity to inspect them, Fails to reject the goods.

However, what may appear to be a "reasonable" amount of time to a seller will often not constitute a "reasonable" amount of time to a buyer. The issue involved and interpretation required can often become difficult and expensive to decide.

To best confront this issue, sellers should consider placing a reasonable time frame, in specified days, in their sales contracts, requiring the buyer to inspect the goods and make a timely and effective rejection, or the goods are to be deemed accepted. This may help eliminate a later dispute on the issue of what constitutes a "reasonable opportunity" for the buyer to inspect the goods. It is clearly defined in the contract.