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Defective Goods: Damages That A Business Can Recover Under NY Law

As noted in our news section, earlier today it was reported that a well-known manufacturer of construction materials, Powers Fasteners, was recently sued in breach of contract and warranty because Powers apparently switched the concrete anchors that it supplied to Irwin Seating on a major project, and when Irwin tested those anchors, they failed several field tests. While on the surface this seems relatively straightforward, there is a strange wrinkle to this case, namely, by whom they are being sued.

In this particular case, Powers is being sued by middleman/supplier Screws and More – not Irwin – because Screws had contracted with Irwin for a large project for stadium seats, and the failure of the Powers concrete anchors that had been purchased through Screws and More prompted Irwin to terminate their agreement with Screws in favor of completing the project using a different contractor.

Interestingly, Powers has openly speculated that Screws and More brought this lawsuit in a vain attempt to link this case with another more infamous instance where Powers’ products failed, when their defective ceiling tiles fell off the inside of Big Dig Tunnel in Boston, which ended in a $16 million civil settlement this past December. From the news article, it appears that Powers has moved to dismiss the case (or at least large portions of the case), and contends that this case is “frivolous.”

Powers’ contention raises an important question: assuming for the sake of argument that Powers in fact replaced the concrete anchors it was supposed to provide with different, inferior products, or even that Powers’ products were simply defective, and that Powers’ actions caused Irwin to terminate its agreement with Screws and More, what recourse would – or should – Screws and more have against Powers? Stated differently, if you are a middleman that relies on the quality or efficacy of a manufacturer’s products, and the manufacturer’s products and defective and fail, effectively breaching their contract with you, and causing your small business to incur losses of existing contracts as well as prospective clients and business, what damages can you realistically recover from the manufacturer?

Since, in most cases, it will be extremely difficult to allege with sufficient specificity[1] – let alone prove – that the manufacturer deliberately and fraudulently substituted inferior goods, the middleman’s relief will likely come down to a dual question: what does the contract say, and by extension, what doesn’t it say?

As you may be aware, many contracts have provisions that limit the manufacturer’s liability to the cost of the particular defective part, and disallow any further damages that may flow from the alleged defective product. Therefore, if you are relying heavily on the quality of a particular product for a big job, following are 3 suggestions to help assure that your small business’s interests are protected: 1) make sure that the product meets all requisite specifications before you market it; 2) make sure your contract with the manufacturer specifies the exact product, as well as the standards that the product is expected to meet in order to satisfy the contract’s terms; and, 3) if the manufacturer fails to meet the contract’s requirements, make sure that you have a backup supplier ready to meet the job’s demands.

Although putting these safeguards in place may be both annoying and time consuming, they sure beat looking for a scapegoat after you’ve lost the job to a rival supplier.