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Michael
Michael, Attorney
Category: Business Law
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Experience:  Experienced Business Lawyer
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I import shoes from Brazil and wholesale them in the U.S. The

Resolved Question:

I import shoes from Brazil and wholesale them in the U.S.
The factory sent me 1000 pairs of shoes that 1/3 of them were defective.

Not only can I not sell approximately 300 pairs, but this has really hurt my reputation with my retail vendors for obvious reasons.

The factory has been very hesitant about giving me credit for the defects.
What should I do?
Submitted: 2 years ago.
Category: Business Law
Expert:  Michael replied 2 years ago.
Hi there, my name is XXXXX XXXXX I'm a business law attorney with experience in all aspects of business law. I'll do my best to assist you.

I'll need some more information before I can answer:

Was there any other agreement between you and the supplier? Did you have any contract? This includes statements that might have been included on a PO, invoice, packing list, etc. Particularly statements regarding dispute resolution and jurisdiction such as arbitration, mediation, location, etc.

How soon did you notice the defect? How obvious is the defect? How soon did you notify the supplier?

Was the financing any sort of escrow or letter of credit arrangement?

Have you done much business with this supplier before, and would you continue to do so in the future if you reach a satisfactory resolution?
Customer: replied 2 years ago.

Our contract states simply that i contract the factory to make shoes for me and any dispute will be resolved by Brazilian courts.

I have emails that state that the factory will be responsible for any issues that I may have regarding the quality, but no signed contract stating this.

I have POs that are signed by me and confirmed, invoices, etc.
Regarding documentation, everything has been well organized.

This is regarding 1000 pairs of shoes including 5 different styles.
There are certain defects that pertain to each individual shoes.

For example, glue stains, cork material that is peeling and bubbling, knife marks, zippers falling apart, etc.

We received the shipment in our warehouse and started to send these shoes to our retail customers, after a few days and many complaints, we began inspecting the shipment and continue to have issues on a daily basis. We notified the supplier immediately and they have been giving me the "run-around".

The financing term was simply given to me based on my financials, not letter of credit was given.

We have been doing business with this supplier for 2 years and we have has our issues, but nothing this bad. I chose not to request any compensation for the proir problems.

I might consider doing business with this supplier if they compensate me for these issues.

The invoice total is $58,000 and have requested $18,000 in compensation.

 

Expert:  Michael replied 2 years ago.
Okay, that gives me enough to work with, and the first thing you stated is what I was concerned about: "any dispute will be resolved by Brazilian courts". That's a jurisdiction selection clause, and it means what it says. That brings with it a whole list of problems if it were to go to litigation, including international travel, hiring foreign counsel, dealing with an unreliable court system that may favor its residents, etc.

You also might have issues with having accepted the goods without inspection, having obvious defects. Absent a warranty to the contrary, the transaction is complete upon acceptance in that case and there's not much you can do legally.

Added to this is your ongoing relationship with the supplier. It sounds like it's worked as well as expected for both parties up until this point. You probably don't want to rock the boat too much if you can avoid it.

All this means a litigation approach may not be preferable for you, at least at first. Be creative and leverage your business relationship. They'd probably be more likely to do something such as discount a future order or add free goods than to hand over cash. You also might of course have to bend a bit on the amount, but get what you can.

If things start to get contentious, you should try to get them to agree to non-binding mediation. It's far less expensive than other means of dispute-resolution, and has far fewer pitfalls. A good mediator might be able to hammer out a satisfactory compromise in an hour for a months-long dispute (a good attorney might be able to do so as well).

In the future, have your larger contracts reviewed by an attorney. You could have had this go much easier if you had more favorable language in there (such as mandating binding arbitration in the states, etc.). Be aware of the shipping terms (FOB, CPT, etc.), their effects, and be sure to inspect prior to acceptance, or have a good, enforceable factory warranty in place.

I hope this answer has been helpful. I'd be happy to further clarify my response and follow up with any other questions. If you're satisfied with my answer, remember to hit the "accept" button. Bonuses and positive feedback are always appreciated! -Michael
Customer: replied 2 years ago.

Shouldn't the factory be required to delivery the products as promised?

It's not really feasible to inspect every shoe for defects.

 

Expert:  Michael replied 2 years ago.
Yes, they are generally required to do so. However, it's subject to what I noted above.

No, you don't generally have to inspect every item of a large shipment, just reasonably inspect it for obvious defects. It's the buyer's duty to reject non-conforming goods, and failure to reject constitutes acceptance. It sounded from your description the defects were more obvious, and would be found with reasonable inspection. Perhaps that is not the case, and I don't know the details, but you would have to make that argument to a Brazilian judge if you wanted to rely on it. Frankly, I have no idea what the Brazilian legal system is like. It's just so tenuous an argument that is so expensive and uncertain to enforce that I would only rely on such a course of action as a last resort.

International transactions tend to be so uncertain that buyers of large quantities/dollar-values usually don't rely on the legal system, but rather try to prevent issues through a variety of means. That would mean for example for an FOB sea cargo shipment an agent in the foreign country would do a basic inspection that the goods met the requirements prior to loading, or an agent in the US would do such an inspection in the US port prior to release by the carrier. Then the funds would be transferred and the cargo released at the same time via bill of lading exchanged for letter of credit, and everybody can be reasonably sure that the transaction is legitimate. That limits the necessity of relying on the dispute resolution terms in the contract, though of course nothing can eliminate it. Something to consider going forward.
Customer: replied 2 years ago.

I thank you for your answers.

So you think that my the only realistic option would be to negotiate something with the factory and most probably for future credit for products.

One more thing, what would you consider a fair factory warranty in my situation.

Thanks

Expert:  Michael replied 2 years ago.
You know your business relationship with them better than anyone, so obviously go for as much as you can get. It's just usually easier to get a company to swallow an exchange of goods and service for online business than a cash transfer.

You should definitely include some sort of warranty or guarantee if you can get it out of them. That would relieve you of a lot of the headache. It's just difficult to get foreign factories to agree to that in my experience. They want the transaction over and done with...
Michael, Attorney
Category: Business Law
Satisfied Customers: 58
Experience: Experienced Business Lawyer
Michael and 6 other Business Law Specialists are ready to help you
Expert:  Michael replied 2 years ago.
I just wanted to see how your issue with your supplier is progressing, and if there is anything else I can assist you with. Please feel free to contact me if there's anything else I can do for you.

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