📋 Overview

You've received a demand letter from a customer or business partner alleging that you, as a vendor, failed to perform under a supply agreement or contract. These claims typically involve late delivery, defective goods, failure to meet specifications, or service failures. California Commercial Code Article 2 governs sale of goods, while common law contract principles apply to services.

⚠ Consequential Damages Risk

Buyers often claim lost profits, production shutdowns, and third-party damages. These consequential damages can dwarf the contract value itself.

🕒 Cover Damages

Under Commercial Code 2712, buyers can "cover" by purchasing substitute goods elsewhere and recover the price difference from you.

💰 Limitation Clauses

Your contract may limit liability to the purchase price or exclude consequential damages. Review your terms carefully.

Common Vendor Non-Performance Claims

  • Late delivery - Goods or services not provided by the deadline
  • Defective goods - Products don't conform to specifications or warranty
  • Quantity shortages - Less delivered than ordered
  • Failure to meet specs - Goods don't match the technical requirements
  • Service failures - Work not performed to professional standards
  • Supply chain disruption - Inability to deliver due to upstream issues
$450
Attorney Response on Letterhead

Contract review, legal analysis, professional response with up to 2 revisions. Protects against overreaching claims.

Schedule Review

🔍 Evaluate the Claim

Before responding, review your contract, performance records, and any communications about the alleged issues.

Risk Assessment Matrix

Claim Type Potential Exposure Risk Level
Total failure to deliver Contract price + cover damages + consequentials HIGH
Defective goods causing harm Property damage + personal injury + punitive HIGH
Late delivery Actual damages from delay, often limited MEDIUM
Minor non-conformance Cost of cure or price adjustment LOW
Rejected but curable goods Cost to cure + modest delay damages LOW

📄 Contract Review

  • ✓ Delivery terms and deadlines
  • ✓ Specifications and requirements
  • ✓ Limitation of liability clauses
  • ✓ Force majeure provisions

📝 Performance Records

  • ✓ Delivery receipts and tracking
  • ✓ Quality inspection records
  • ✓ Communications about any issues
  • ✓ Change orders and modifications

⚠ Check Your Limitation Clauses

Well-drafted vendor contracts often include: Limitation of liability (capping damages at the contract price), Exclusion of consequential damages (blocking lost profits claims), Exclusive remedies (limiting buyer to repair/replacement), and Short notice periods (requiring prompt claim notification). These clauses are generally enforceable in California.

🛡 Your Defenses

California law and the Commercial Code provide several defenses to vendor liability claims.

Contractual Limitation of Liability

If your contract limits liability to the purchase price or excludes consequential damages, these limitations are generally enforceable under Commercial Code 2719, unless unconscionable or personal injury is involved.

When to use: Your contract contains liability caps or consequential damage exclusions.

Right to Cure (Commercial Code 2508)

If the buyer rejected goods before the delivery deadline, you have the right to cure by delivering conforming goods within the contract time. Even after the deadline, you may have a reasonable time to cure if you had grounds to believe the goods would be acceptable.

When to use: You offered to fix or replace the goods and the buyer refused.

Buyer's Failure to Mitigate

Under Commercial Code 2712, buyers must cover reasonably and in good faith. If they overpaid for replacement goods or unreasonably delayed finding alternatives, their damages should be reduced.

When to use: Buyer sat on their hands, waited too long, or paid inflated prices for cover goods.

Force Majeure / Commercial Impracticability

Commercial Code 2615 excuses delay or non-delivery when performance becomes impracticable due to unforeseen events (supply chain disruptions, natural disasters, government actions).

When to use: Events outside your control prevented performance (pandemic, embargo, natural disaster, supplier failure).

Buyer's Own Breach / Modification

If the buyer breached first (failed to pay, changed specifications mid-stream, interfered with performance), your obligations may be excused or damages offset.

When to use: Buyer didn't pay on time, changed the order without notice, or blocked your performance.

Acceptance and Waiver

Under Commercial Code 2606-2607, if the buyer accepted the goods (used them, kept them beyond a reasonable time, failed to notify of defects), they may be barred from rejection and limited to warranty remedies.

When to use: Buyer used the goods, didn't complain at delivery, or waited too long to raise issues.

🚨 Weak Defenses to Avoid

  • "Our supplier failed us" - Generally not an excuse unless force majeure applies
  • "The specs were unclear" - You should have sought clarification
  • "Everyone ships late" - Industry practice doesn't excuse contract breach
  • "We tried our best" - Best efforts don't excuse non-performance

⚖ Response Options

Based on your evaluation, choose the appropriate response strategy.

Offer to Cure

If the issue is fixable, offer to cure the defect, deliver replacement goods, or complete the work. This demonstrates good faith and may limit damages.

  • Preserves customer relationship
  • Limits liability to cure cost
  • Shows good faith

Invoke Contract Limitations

If your contract caps liability or excludes consequential damages, respond firmly invoking these limitations.

  • Caps your exposure
  • Forces realistic negotiation
  • Preserves defenses

Negotiate Settlement

Offer a partial refund, credit, or replacement to resolve the matter. Often cheaper than litigation even if you have defenses.

  • Ends dispute quickly
  • Avoids legal costs
  • May preserve relationship

Dispute & Defend

If you performed properly or the claim is overblown, dispute it formally and assert your defenses.

  • Creates counter-pressure
  • May deter weak claims
  • Protects reputation

📊 Vendor Claim Exposure Analysis

Example: $75,000 supply contract dispute

Contract price (if no limitation) $75,000
Cover damages (difference paid) $25,000
Claimed lost profits $150,000
Their attorney fees (if clause) $40,000+
Your defense costs $50,000+
MAX EXPOSURE WITHOUT LIMITS $340,000+

💡 With Liability Limits

If your contract properly excludes consequential damages and caps liability at the contract price, your exposure drops dramatically. Even paying the full contract value ($75,000) plus defense costs is better than unlimited exposure. This is why limitation clauses are so important.

📝 Sample Responses

Copy and customize these response templates for your situation.

Offer to Cure
We acknowledge receipt of your letter dated [DATE] regarding [PO/Contract Number]. While we believe we substantially performed our obligations, we value our business relationship and want to address your concerns. We offer the following resolution: 1. [Replacement of the affected goods at no charge / Credit of $X toward your next order / Completion of the remaining work by DATE] 2. Our team will be available to inspect and address any issues at your facility on [DATE] 3. We commit to [specific remedial action] going forward We believe this resolution fully addresses your concerns and fulfills our contractual obligations. Please confirm your acceptance by [DATE]. This offer is made without admission of liability and pursuant to California Evidence Code Section 1152.
Invoke Liability Limitations
We have reviewed your demand letter and the underlying [Agreement/Purchase Order] dated [DATE]. While we dispute the characterization of events in your letter, we direct your attention to the following provisions of our agreement: Section [X] expressly provides: "IN NO EVENT SHALL VENDOR BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR INDIRECT DAMAGES, INCLUDING LOST PROFITS." Section [Y] further limits our total liability to the amount paid under this contract. Your demand for [$AMOUNT] in consequential damages is therefore barred by the terms you agreed to. Under California Commercial Code Section 2719, such limitations are enforceable. We are willing to discuss the limited remedies available under the contract, but we reject any claim for damages exceeding the contract price of [$AMOUNT].
Force Majeure Defense
We acknowledge the delivery delays you reference and understand your frustration. However, our performance was excused by events beyond our control. As you are aware, [describe force majeure event - supply chain disruption, natural disaster, government action, pandemic-related closure, etc.] affected our ability to perform. This event falls squarely within Section [X] of our Agreement, which provides: [quote force majeure clause]. Under California Commercial Code Section 2615, a seller is not in breach for delay or non-delivery when performance has become impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption of the contract. We notified you of this event on [DATE] and have worked diligently to resume performance. We are now able to deliver [describe current status]. We value your business and hope to continue our relationship, but we cannot accept liability for circumstances beyond our control.
Dispute - Buyer's Breach
We reject your claim that we breached the [Agreement]. The facts are as follows: On [DATE], we delivered goods conforming to the specifications in PO [NUMBER]. Your personnel signed the delivery receipt without noting any defects. On [DATE], you unilaterally changed the specifications to require [describe changes]. This change was not reflected in the original contract and was not accompanied by a change order or price adjustment. Furthermore, our invoice dated [DATE] in the amount of [$AMOUNT] remains unpaid, in violation of the contract's payment terms. Under California law, your material breach in failing to pay and unilaterally changing specifications excuses any further performance obligation on our part. We demand payment of [$AMOUNT] within 10 days, plus interest. If we do not receive payment, we will pursue all available legal remedies.

🚀 Next Steps

What to do after receiving a vendor non-performance claim.

Step 1: Review the Contract

Read the entire contract, focusing on specs, delivery terms, limitation of liability, force majeure, and dispute resolution clauses.

Step 2: Document Your Performance

Gather all delivery receipts, inspection records, communications, and evidence of your efforts to perform.

Step 3: Check Insurance

Review your commercial general liability and professional liability policies - the claim may be covered.

Step 4: Respond Strategically

Choose your approach based on the strength of your position: cure, invoke limits, negotiate, or defend.

If They File Suit

  • Answer within 30 days - Assert all defenses including contractual limitations
  • Check for arbitration clause - You may be able to compel arbitration
  • Consider early motion practice - Contract interpretation issues may be resolved on summary judgment
  • Preserve evidence - All production records, communications, and quality control docs

Preventing Future Claims

  • Strong limitation clauses - Cap liability and exclude consequentials in all contracts
  • Clear specifications - Document exactly what you're providing
  • Written change orders - Never accept verbal modifications
  • Prompt notification - Communicate early about any delivery or performance issues

Get Professional Help

Vendor claims can threaten your business reputation and finances. Get a professional response letter drafted on attorney letterhead.

Schedule Consultation - $450

California Resources

  • Commercial Code 2601-2616: Buyer's and seller's remedies
  • Commercial Code 2719: Contractual modification of remedies
  • Commercial Code 2508: Seller's right to cure
  • Commercial Code 2615: Excuse by failure of presupposed conditions