Manufacturing Supply Quality Breach Demand Letters
Demand letter strategy for UCC Article 2 goods transactions: non-conforming goods, buyer and seller remedies, inspection rights, and quality breach recovery
When a manufacturer or supplier delivers goods that don’t match the contract specifications, quality standards, or sample, the Uniform Commercial Code (UCC) Article 2 provides buyers with powerful remedies. A properly structured demand letter preserves these rights and creates settlement leverage.
Perfect Tender Rule (UCC § 2-601): If goods or delivery fail to conform to the contract in any respect, buyer may reject the whole, accept the whole, or accept any units and reject the rest.
Right to Inspect (UCC § 2-513): Buyer has right to inspect goods before acceptance and payment, unless otherwise agreed (e.g., C.O.D. terms).
Rejection of Goods (UCC § 2-602): Rejection must be within reasonable time and buyer must notify seller. Rejected goods must be held with reasonable care for seller’s disposition.
Revocation of Acceptance (UCC § 2-608): Even after accepting goods, buyer can revoke if non-conformity substantially impairs value and buyer accepted on reasonable assumption defect would be cured or without discovery of defect.
Cover Damages (UCC § 2-712): Buyer may purchase substitute goods and recover difference between cover price and contract price, plus incidental and consequential damages.
- Contract Terms and Specifications: Reference purchase order, sales contract, or quote. Quote specification sections verbatim. Attach relevant portions as exhibits.
- Delivery and Inspection: State date of delivery, when inspection occurred, and what defects were discovered. Reference UCC § 2-513 inspection rights.
- Notice of Non-Conformity: Detail specific ways goods fail to conform—wrong dimensions, materials, colors, quality, functionality. Include photos, test results, or third-party inspection reports.
- Rejection or Revocation: Clearly state whether you are rejecting goods (if not yet accepted) or revoking acceptance (if already accepted). Cite UCC § 2-602 or § 2-608.
- Seller’s Right to Cure: If applicable, note that you offered seller opportunity to cure and seller failed or refused. Include dates and correspondence.
- Buyer’s Remedies: State what remedy you’re seeking: (1) return and refund; (2) price reduction; (3) replacement goods; or (4) cover damages if you purchased substitute goods.
- Cover Damages Calculation: If you purchased substitute goods, show contract price vs. cover price differential, plus incidental damages (inspection, shipping, storage costs) and consequential damages (lost profits, production delays).
- Holding Goods for Disposition: State that you are holding rejected goods at seller’s disposal and seller must arrange pickup within reasonable time. Note any storage fees accruing.
- Deadline: Give seller 10-15 business days to respond and arrange remedy.
- Preservation of Rights: Note that you reserve all rights and remedies under UCC Article 2 and the contract.
Under UCC § 2-606, acceptance occurs when buyer: (1) signifies acceptance after inspection; (2) fails to reject after reasonable opportunity to inspect; or (3) does any act inconsistent with seller’s ownership (like reselling or using goods in production).
Once you accept, you lose the right to reject. You may still revoke acceptance under § 2-608, but the standard is higher—non-conformity must “substantially impair value” and you must show why you didn’t discover the defect earlier.
Strategy: Inspect promptly, document defects immediately, and send rejection notice within days of delivery. Don’t use or modify the goods if you plan to reject.
If you purchased substitute goods from another supplier after rejecting non-conforming goods, UCC § 2-712 allows recovery of:
- Cover price differential: Difference between what you paid for substitute goods and what you would have paid under the original contract.
- Incidental damages (UCC § 2-715(1)): Costs of inspection, transportation, storage, and arranging cover purchase.
- Consequential damages (UCC § 2-715(2)): Lost profits, production delays, customer penalties, or other losses that seller had reason to know would result from breach. These must be proven with reasonable certainty.
Key requirement: Cover must be made in good faith and without unreasonable delay. You can’t wait months, buy at inflated prices, and then claim full cover damages.
If delivery deadline hasn’t passed or seller had reasonable grounds to believe goods would be acceptable (e.g., you accepted similar goods before), seller has right to cure by delivering conforming goods within reasonable time.
Strategy: In your demand letter, acknowledge seller’s cure right if applicable, give reasonable time to cure (7-15 days), and state that if cure isn’t offered or completed by deadline, you will pursue cover and damages. This strengthens your position by showing you acted in good faith.
As a manufacturer or supplier, you have UCC Article 2 remedies when buyers refuse to accept conforming goods, reject goods wrongfully, or fail to pay for accepted goods. Here’s how to structure seller-side demands.
Action for Price (UCC § 2-709): Seller may sue for contract price if buyer accepted goods or if goods cannot be resold at reasonable price.
Resale and Damages (UCC § 2-706): Seller may resell goods and recover difference between resale price and contract price, plus incidental damages.
Market Price Damages (UCC § 2-708): If resale isn’t practical, seller may recover difference between contract price and market price at time/place of tender.
Lost Profit (UCC § 2-708(2)): For “lost volume sellers” (manufacturers who could have made both the original sale and the resale), may recover lost profit.
Wrongful Rejection Defense: If buyer rejects conforming goods or rejects improperly (e.g., after acceptance, without timely notice, or for pretextual reasons), seller can demand full contract price.
- Contract and Specifications: Reference purchase order, sales contract, or quote confirming buyer’s order and specifications.
- Conforming Delivery: State that goods delivered conform to contract specifications. Include manufacturing records, quality control reports, and shipping documentation.
- Buyer’s Acceptance: Show that buyer accepted goods under UCC § 2-606—took possession without timely rejection, used goods, or failed to reject after reasonable inspection opportunity.
- Payment Obligation: State contract price and payment terms. Note that payment is due regardless of buyer’s later dissatisfaction if goods were conforming at delivery.
- Rejection Defense: If buyer attempted to reject, explain why rejection was improper—untimely, inadequate notice, goods actually conforming, or acceptance already occurred.
- Cure Efforts: If buyer raised quality concerns, detail your offers to cure through repair, replacement, or price adjustment, and buyer’s unreasonable refusal.
- Demand Amount: Contract price plus interest (if contract allows), storage or holding costs if goods were returned, and any resale losses if you had to resell at discount.
- Alternative Remedy Calculation: If goods were returned and you resold them, calculate damages as contract price minus resale price under UCC § 2-706.
- Deadline: 10-15 business days for payment or good-faith response.
- Mitigation: Note that you have duty to mitigate (resell goods if possible) and that you’ve done so or explained why resale isn’t feasible.
Standard rule: If you resell rejected goods to another buyer, your damages are contract price minus resale price. But if you’re a manufacturer or volume dealer who could have made both sales (the breaching buyer’s and the resale buyer’s), you may be entitled to full lost profit under UCC § 2-708(2).
Requirements: You must prove you had capacity to make both sales and would have made the resale anyway. This doctrine protects manufacturers from losing profit when buyer breaches.
When buyer claims goods were non-conforming:
- Industry standards and merchantability: Argue that goods met industry standards and were merchantable even if not perfect. UCC requires goods be “fit for ordinary purposes,” not custom perfection.
- Prior course of dealing: If buyer accepted similar goods before without objection, this course of dealing defines the standard. “You accepted these specs 10 times—why object now?”
- Buyer-caused defects: If buyer’s mishandling, improper storage, or misuse caused defects, buyer can’t reject. Document proper packaging and handling instructions.
- Economic waste: If buyer used or resold goods, rejecting them now would cause economic waste. Courts disfavor rejection after buyer extracted value.
UCC § 2-601’s “perfect tender rule” seems to let buyers reject for any deviation from contract. But courts and the UCC have limited this:
- Substantial performance: Many courts apply substantial performance doctrine for commercial transactions—buyer can’t reject if goods substantially conform and defects are minor.
- Rejection must be in good faith: Buyers can’t use trivial defects as pretext to escape bad bargain when market price drops.
- Seller’s cure right: If time remains or seller had reason to believe goods would be acceptable, seller can cure, limiting buyer’s rejection right.
In goods quality disputes, physical samples are the best evidence. Both buyers and sellers should:
- Buyers: Retain samples of non-conforming goods, unopened packaging, and photographs. Don’t return everything—keep representative samples even after rejection.
- Sellers: Retain samples from the same production run or lot. If buyer claims defects, you can test retained samples to verify conformity.
Courts give significant weight to physical evidence and third-party testing. “He said, she said” quality disputes are weak; lab reports and retained samples are strong.
Goods quality disputes under UCC Article 2 create strong settlement pressure because both sides face risk: buyers risk paying for non-conforming goods, sellers risk losing sale and profit. Understanding UCC remedies framework helps predict settlement ranges.
- Clear non-conformity, buyer rejected promptly: 80-100% recovery for buyer (full refund or replacement goods), or seller takes goods back and resells, recovering only resale differential.
- Minor non-conformity, goods still usable: 10-30% price reduction, buyer keeps goods. Reflects diminished value but avoids return/replacement costs.
- Buyer accepted and used goods before complaining: 20-40% buyer recovery, reflecting that buyer extracted some value and may have forfeited rejection rights.
- Disputed conformity (buyer says non-conforming, seller says conforming): 30-60% settlements, often with independent testing or expert evaluation driving compromise.
- Late rejection or pretextual claims: 0-20% buyer recovery if seller proves acceptance occurred or rejection was bad faith due to market price drop.
Many goods quality disputes settle with partial refunds or price adjustments:
- Example: Buyer ordered 10,000 units at $5/unit ($50,000 total). Upon delivery, 15% of units have minor cosmetic defects. Settlement: 20% price reduction ($10,000 refund), buyer keeps all goods.
- Why it works: Buyer gets compensation for diminished value, avoids hassle of return and re-procurement. Seller keeps bulk of sale, avoids return shipping and restocking costs.
- When to use: Minor non-conformity that doesn’t make goods unusable, both sides want to preserve ongoing business relationship.
Many supply contracts include arbitration clauses. Key differences:
- Expert evidence: Goods disputes often turn on technical specifications. Arbitrators with industry background may understand evidence better than juries.
- Speed: Arbitration typically resolves in 6-12 months vs. 18-36 months for trial.
- Cost sharing: Arbitration filing fees ($5k-$15k) are split, creating settlement pressure. But arbitration can still cost $50k-$150k in attorney’s fees for complex cases.
- Remedy limits: Some arbitration clauses limit consequential damages or cap awards, affecting settlement calculations.
- Demand letter to response: 10-20 days
- Negotiation phase: 30-90 days
- Arbitration (if needed): 6-12 months from filing to award
- Litigation to settlement: 12-24 months
- Trial and judgment: 24-42 months from filing
I represent both buyers seeking remedies for non-conforming goods and sellers defending against wrongful rejection or pursuing payment. My approach focuses on UCC Article 2 mechanics and practical commercial resolution.
UCC Rights Analysis: I evaluate whether you properly preserved rejection rights through timely inspection and notice, or whether you must proceed under revocation of acceptance with higher burden of proof.
Damages Strategy: I help you calculate and prove cover damages, incidental costs, and consequential losses, working with your team to document business impact and replacement purchases.
Demand Letter Drafting: I draft UCC-compliant rejection notices and demand letters that cite applicable code sections, detail non-conformity, preserve all remedies, and create settlement pressure through clear damages calculations.
Negotiation and Litigation: I negotiate price adjustments, replacement terms, or refunds, and I handle arbitration or litigation when settlement isn’t possible, including expert witness coordination for technical specifications disputes.
Acceptance Defense: I analyze whether buyer’s actions constitute acceptance under UCC § 2-606, including use of goods, untimely rejection, or failure to properly notice defects.
Conformity Documentation: I help you marshal evidence that goods delivered met contract specifications—manufacturing records, quality control data, prior course of dealing, and industry standards.
Cure Strategy: I advise on when and how to offer cure under UCC § 2-508 to preserve your contract price rights and demonstrate good faith.
Payment Demands: I draft demands for contract price under UCC § 2-709 or resale/market differential damages under UCC §§ 2-706/2-708, and I represent sellers in arbitration or litigation to recover full amounts owed.
If you’re dealing with a manufacturing or supply quality breach—whether you’re a buyer with non-conforming goods or a seller facing wrongful rejection—I can help you understand your UCC Article 2 rights and develop an effective resolution strategy.
Use the Calendly link below to schedule a strategy call, or email me directly at owner@terms.law.
Schedule Strategy CallUCC § 2-602 requires rejection within a “reasonable time” after delivery. What’s reasonable depends on the goods and industry—for perishables, hours or days; for complex machinery, weeks. Generally, inspect as soon as commercially feasible and reject within days to a few weeks at most. Delays of months will likely be found unreasonable and result in deemed acceptance.
Once you use goods in a way inconsistent with seller’s ownership, you’ve accepted them under UCC § 2-606. However, you may still be able to revoke acceptance under UCC § 2-608 if non-conformity substantially impairs value and you either accepted on reasonable assumption it would be cured, or didn’t discover the defect due to difficulty of inspection. Revocation is harder to prove than initial rejection.
Under UCC § 2-602 and § 2-604, you must hold rejected goods with reasonable care for a reasonable time to permit seller to remove them. If seller doesn’t respond to your rejection notice within reasonable time, you can: (1) store them and charge reasonable storage fees; (2) ship them back to seller at seller’s expense; or (3) resell them on seller’s account after giving notice. Document all efforts and costs—these become part of your damages claim.
Seller has the right to cure under UCC § 2-508 if time for performance hasn’t expired or if seller had reasonable grounds to believe goods would be acceptable. However, cure must result in conforming goods—seller can’t offer “close enough” substitutes. If seller tenders conforming cure within reasonable time, you must accept it. But if seller misses the cure deadline or tenders non-conforming “cure,” you can refuse and proceed with cover and damages.
Seller can recover: (1) contract price under UCC § 2-709 if goods can’t be resold at reasonable price; (2) resale differential under § 2-706 if seller resells goods (contract price minus resale price); (3) market price differential under § 2-708 (contract price minus market price); or (4) lost profit under § 2-708(2) if seller is a “lost volume seller” (manufacturer who lost sale that could have been made in addition to resale). Seller must mitigate by attempting to resell if commercially reasonable.