Unauthorized deductions: a legal perspective.(HEADLINE)

Unauthorized deductions typically arise in three broad contexts:

1. Customers that take a deduction for a discount based on timely payment when in fact they are outside the allowable time period.

2. Claims that goods were defective particularly without notifying the creditor or giving the creditor an opportunity to cure the defect.

3. Construction setting, usually deficiencies by subcontractors or defects in materials.

The adage, "an ounce of prevention is worth a pound of cure" applies to deductions. One way to solidify your position on unauthorized discounts is to add language to your order acknowledgement or credit application specifically stating that any discounts are only applicable within the discount period stated. Consider specific language that expressly conditions acceptance of the order on the buyer/customer's acceptance of this provision.

In the sale of goods scenario, add a provision that expressly requires the buyer to provide notice within a stated time period if there is a potential claim of defect or non-conformity. Add a provision to the order acknowledgement that limits a buyer's remedy as well--repairs or replacement of the defective product by the seller within a reasonable period of time after notice of defect. Again, expressly condition acceptance of the order on the buyer's acceptance of these terms. This can put you in a stronger position if a "battle of the forms" develops between your contract terms and conditions and those sought by your customer.

If you don't have these terms in your documents, you still have rights under Article 2 of the Uniform Commercial Code. Section 2-508 gives the seller the right to an opportunity to cure defects as ...