Quoted: How Retailers Can Partner with Factories to Cancel Production Orders, Sourcing Journal (March 23, 2020)
03/23/2020In the fashion sector, purchase orders are considered binding contracts, according to Alan Behr, a partner at the Phillips Nizer law firm who specializes in fashion law. That’s true whether the buyer is the retailer or the wholesaler buying materials and inputs necessary for making finished goods.
"The business risk is on the purchaser," Behr added. "That’s true for everyone anywhere along the chain."
While it’s common for P.O.s to contain a "force majeure" clause outlining circumstances when the obligation cannot be met or executed—usually due to an ‘act of God’ like an earthquake or tsunami —"there’s not a lot of law written about diseases" like the coronavirus pandemic, Behr said.
So what to do? Consider the business relationship, he advised, and forge a resolution that offers a win- win for both parties.
"The legal argument should be the last result," Behr said. "This requires a business solution based on ‘You need me and I need you.’"
Working through the crisis together is the best way to come out stronger on the other side, he added.
And while canceled goods are likely to spark a few lawsuits in the months ahead, "95 percent of all litigation filed is for vengeance, except matrimonial where it’s all 100 percent," Behr noted. "Avoid getting into the vengeance mentality.
"This is called the fashion business, not the fashion temper tantrum," he added. "Everyone needs to calm down."
If parties really choose to bicker over damages, the aggrieved party has a duty to mitigate and find "some other place to sell the goods to," Behr said, adding that the reality stands even for unfinished goods and inputs. "Even the button maker will have to find someone else to buy your buttons." That obligation also mitigates how much can be collected in damages, which usually is limited to the difference between the original contracted amount and the total collected when sold to the subsequent second buyer.
Special orders, however, are subject to different rules. A brand that orders proprietary, logoed buttons is "obliged" to collect those goods, for example. "It’s the same rule as you move up the chain. The customer’s purchaser must honor the contract," Behr said.