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If your business is product-based, sooner or later one of your suppliers is bound to deliver damaged goods. Here are six steps you should take when that happens:

1.      Take a Picture. As soon as you notice the damage, take several pictures of the damaged items and the container they were delivered in. If your camera has a time-stamp feature, use it.  Email a set of the pictures to yourself for safe-keeping. Make sure the pictures are clear and the damage is obvious.

2.      Determine where the goods came from. If the goods were shipped by boat from overseas, different risk of loss provisions may apply than if the goods were delivered by truck from New Jersey. If you don’t already know, figure out the source of the goods.

3.      Determine who had the risk of loss at the time that the goods were damaged. Under the Uniform Commercial Code, if the goods were shipped via a common carrier under a “shipment” contract or if the invoice notes that the goods were F.O.B. (“free on board”) at the seller’s location, then the risk of loss most likely transferred to you as the buyer when the goods were placed with the common carrier (such as Fedex or UPS) that delivered the goods to you. Your agreement with the seller may alter the U.C.C. provisions so you should also check your contract, invoice, and bill of lading.

4.      If your supplier bore the risk of loss, determine if there is a limit on his liability or if he has insurance to cover the loss. Check your invoice or bill of lading to determine if your supplier has limited his liability. If so, determine if liability is limited to a certain amount ($200) or for a particular type of damage. The invoice or bill of lading may also contain a provision that you checked for insurance. Or you may have signed a separate document either accepting or declining insurance. If you bear the risk of loss, check your own general liability and business interruption insurance policies to see if they offer any protection.

5.      Make a call. Call your supplier and see if you can reach an amicable agreement about replacement of the damaged goods and any restitution of profits you may have lost as a result of the damage. This call should be limited to reporting the damage and asking the supplier to replace the goods and compensate you for any loss. If you are transferred to an attorney, politely decline to speak without your own attorney present.

6.      Hire a trusted lawyer. If step 5 fails to lead to an amicable resolution, call your attorney. Ideally, if you are in business, you should already have a relationship with a competent attorney. If not, find someone who can help you and provide them with all of the documents you already pulled together in steps 1-4. Good luck!