You’ve entered into what seems to be a lucrative deal to distribute a new product. As a distributor you are the middleman between manufacturers and retailers. Your role is essential to getting the product from the factory line into consumers’ hands. However, when customers get a faulty item, the retailers may blame you (the distributor) for lost revenue rather than going directly to the manufacturer.
This was the concern of a New Mexico distributor of “Mini Dumps”, a machine that transforms pickup trucks into dump trucks, when they were delivered damaged goods. The Mini Dumps distributor purchased a number of these machines, but found them to be in faulty condition upon arrival. Accordingly, the distributor rejected the goods and sought to cancel the agreement as they were “no longer interested in selling Mini dumps.” However, the manufacturer refused to pick up the defective goods.
So how can a distributor protect itself when a manufacturer sends damaged goods?
Distributors should take care to inspect shipment delivered from the factory to see if the shipped goods are fit for their intended use. If the goods do not conform with the expectations set out in the distribution agreement, the distributor can seek to recover incidental damages if these are not limited by the supply contract: so check your Limitation of Liability section. Incidental damages might cover costs related to inspection, transportation, and care for the non-conforming goods. These expenses can be substantial in some situations.
Fortunately in the case of the Mini Dumps, the distributor had not agreed to limit its ability to recover incidental damages in the distribution agreement. The court found that the distributor was entitled to recover thousands of dollars in incidental damages for unloading costs, employee expenses, long distance calls, storage fees, and more.
Before a shipment arrives in damaged condition, check your contract’s Limitation of Liability section to make sure it does not restrict your ability to claim incidental damages. Or use Contract Wrangler, and we can warn you automatically if your distribution contracts are waiving this important right for you to recover expenses if your manufacturer fails to deliver as promised.