SALE LAW-1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A LEGAL CASE

NAME:

COURSE:

TUTOR:

UNIVERSITY:

 

INTRODUCTION

The convention of United Nation on the sale of goods internationally (CISG) is the most successful effort in the unifying of the international trade. The treaty can be termed as self executing and its objectives are to remove barriers in the international trade. The treaty creates rules that govern the sale of goods in the international market by setting the obligations and rights of all the parties that are involved in the contract of international sales. The treaty was signed in February 2007 and by then it attracted about seventy member states who transact about two third of the goods that are transacted in  the international market. This treaty is an advancement of various treaties that were signed from 1960’s such as the Vienna convention which was signed in 1969. The international sale commission of the United Nation seeks to harmonize international sale of goods through the use these treaties. There have been legal issues that arise from this treaty more so relating to the extent to which these laws should be applied. Some member states have questioned many issues that are not addressed by this treaty though they are addressed by the domestic laws of contract (Pace international law review, 2006, p.153). This study addresses a case in the international sales of goods where two parties conflict over their terms of sale.

LEGAL ISSUES

After retirement Suzan decided to set up a tea society in Ruritania.   She placed an order to bring tea consignments from Kelly’s tea emporium on free on board terms on behalf of the tea society. According to the contract, the goods were supposed to be brought in from UK in 2004 November by the tea emporium company. The contract that was signed the two companies was based on the international tea traders federation which excluded terms of convention of the Vienna sales. According to the contract they signed, an arbitration clause was included which stated that all disputes were to be solved using the process that is provided by the federation.

Suzan, who was acting as the agent of the company, also contracted JD’s carriers who were supposed to ship the goods from UK to Ruritania. Though the goods were transported to the port on time, they were not delivered to its destination until December 1. By this date of delivery, the prices of tea had already hiked and it was higher than the contract price. When Kelly who was acting as the agent for the tea emporium contacted Suzan on the same issue, she agreed to pay the extra money that arose due to the hiked price. When Suzan agreed these new terms, Kelly continued with the other arrangements and therefore loaded the consignments for shipment. A bill of lading was issued by the master to Kelly who gave it to Suzan. Later Suzan paid the contract price which was originally agreed after accepting the bill. After the goods were delivered, Suzan realized that about half of the goods had been damaged during the process of transportation before they were loaded. The damage was not attributed to shipment since it could not be realized until it was finally unpacked at their destination.  It was also evident that the goods were not handled carefully by the carrier.

LEGAL FACTS

From this legal dispute, it is evident that the tea consignments did not arrive on time as it was agreed on the contract. The tea was supposed to arrive in November but instead, it arrived on December 1. This delay may have attributed to the rise of the tea prices on arrival.  The market price of the tea had changed and it was higher than the contract price on arrival. It is also evident that the consignment was damaged on the process of transportation by the JD’s carrier and the tea society did not receive tea in good conditions as it had expected.

DISCUSSION

The business contract in this case involved three parties who were involved the process of buying and selling tea. These parties include Suzan who was the buyer in the contract and acting on behalf of the tea society, Kelly was the seller and acting as the agent of the emporium tea and finally, the JD’s carrier who were contracted to transport the consignments to the loading port. The contract is an international contract since it involved parties who were transacting goods from different countries. The tea consignment was shipped from UK to Ruritania which means it was an international sale contract. So this contract is governed by the United Nation Convention for International Sale of Goods. This convention clearly define the rights and obligations of all the parties that are involved in the in the international contract. This provision covers the rights and obligations of the buyer, the seller and any other third parties such as the carriers.

SELLER’S OBLIGATIONS

According to this convention  sec 2(30), the seller has an obligation to ensure that  goods which have been ordered has been delivered on time, any document that  is related to those goods must also be handed over together with the goods  to ensure even the property in the goods is also transferred.  According to article 31(a), the seller has an obligation of handing over the goods to the carrier for them to be transmitted to the buyer. This will apply if the goods in the contract involve some form of carriage.  Article 33 of the convention requires the seller of the goods to ensure that goods are delivered on time as it was specified in the contract. If the date is not specified in the contract, the goods should be delivered in a time that is reasonable from the date when the contract was concluded. According to this article, the seller in this case (emporium tea) had an obligation to ensure that the goods were delivered on time. However, the tea consignments which were supposed to arrive in November arrived on December 1, which was not the agreed date on the contract. The Kelly tea company could defend this claim by arguing that on their part they had ensured that the goods were transported to the port on time only for the vessel to arrive late. This is acceptable according to the convention since the reason for lateness was not as a result of the failure of the seller but the shipment company. The article also requires the seller to hand over all the documents that are related to the goods to the seller on the right time. This was done in the case between Kelly and Suzan since Kelly handed over the bill of lading on time to Suzan.

According to sec 2 (35), the seller has a responsibility to ensure that the goods arrive to the buyer in conditions that were agreed in the contract of sale.  The convention requires that the goods in the contract should arrive to the destination of the buyer in the right quality, quantity and descriptions as they were set in the contract for sale. This may include descriptions such as size, packaging, color among other requirements. The goods must also be fit for the use or purpose which they are intended. According to article 35(d), the goods must be packaged or contained  in a manner that ensure that the goods are protected and preserved as they are supposed. The seller also has an obligation to ensure that the goods are inspected before their departure to the buyer. If there will be no enough time for such inspection, the seller has a responsibility to ensure that arrangements are made to inspect the goods at any other time.

According to these provisions, the Kelly’s tea emporium has a responsibility to ensure that the tea consignments had met some conditions before their arrival to the tea society. The provisions require that the seller ensure that goods that are sold reach the buyer in the right quality, quantity and other descriptions.  When the goods arrived at the buyer’s destination, they had not met these requirements since they were damaged. The tea consignments were not fit for their use or purpose. The seller had the responsibility to ensure that these goods had been protected and preserved well for their transportation. There is possibility that the goods were damaged during the process of transportation just because they had not been well protected and preserved for the transportation as required by the United Nation Convention. If the goods were properly protected and preserved, the goods could not have been damaged in the process of transportation. Again the convention requires that the goods be thoroughly inspected by the seller before releasing them for transportation and transshipment.  The seller of the tea consignments was supposed to ensure that the goods were thoroughly inspected before they left the port.  However this was not done and therefore the damage in the goods was not noticed. If Kelly took some time to inspect the goods before their departure, he could have noticed the damage in the goods and therefore communicated to the Suzan before time for the necessary action.

REMEDIES OF THE BREACH OF THE CONTRACT

There are several remedies that the tea society may apply for the breach of the contract by the emporium tea. According to the Hague convention of 1964 on international sale of goods, there are several remedies that the buyer may take when the seller fail to perform his duties as required by their contract. First, the buyer may demand the seller of the goods to perform his obligation as it was required by the contract.  This may involve the seller supplying the goods on the right time, place, quantity, quality or any other description to the buyer.  If it calls for replacement, the seller must replace all the damaged goods according to their specifications on the right time, place and price as it was agreed in the contract. Secondly, the seller also has a right to declare the contract void which means that the contract between the two parties will not hold any longer. The buyer may exercise this right if the seller fail to deliver goods in the status they were ordered. This may also happen if the goods are delivered on a later date than they were agreed in the sale contract. However, this must be done within a short time after the seller deliver the goods and buyer inspect them and notify the seller that they have not met the conditions as they were agreed in the contract. If it takes longer time than this, the buyer may lose his right to declare the contract void. This should also happen after the buyer informs the seller about the status of the goods and the seller fails to rectify those goods on time. Third right that the buyer may exercise over seller is that right to reduce the contract price. If the buyer feels that the seller has not delivered goods in the conditions that were described in the contract, he may refuse to pay the full contract price claiming that the goods has not met the conditions he required them to meet  in their sale contract.

Thus in the case between Kelly and Suzan, the seller may be said to have breached their sale contract. Though emporium tea may claim that the goods were damaged by the carriers, the seller also had a responsibility to ensure that goods were delivered in conformity to the conditions which were agreed on their terms of contract. The seller had a responsibility to ensure that goods were well packaged in a way they could be transported without any form of damage.  The tea society may claim damages for the goods that were not inconformity with the agreed conditions in the contract. First the tea society may require the emporium tea to perform their obligation as it was required in the contract. The contract required the emporium tea to ensure that the tea consignments they were selling to the tea society were not damaged and they had met the requirement as the two parties agreed in the contract. This may require the emporium tea to replace all the goods that were damaged in the transportation process. Secondly, the tea society may also require the emporium tea to reduce the price of the consignments in order to cater for all the goods that were damaged during the process transportation. Thirdly, the tea society may also declare the contract void if they inform the emporium tea and they fail to replace all the damaged goods on time. This may require the emporium tea to refund all the money the tea society had paid for the tea consignments. The legal case below show how the damage in the transportation of the goods may be handled in the court of law.

Sea-Link Marine Services Ltd. et al. v. Doman Forest Products Limited, 2003 FCT 712

During the process of transshipment some goods were lost and therefore the plaintiff filed a case in the court in order to claim for damage from the defendants. The vessel which was carrying the good encountered a dangerous weather that made it to drastically shift thus leading to the loss and damage of some cargo. The contract between the two parties had placed the responsibility of the goods to the shipping company and therefore it was supposed to take care of the goods. In its ruling the court found that the shipper had responsibility to ensure that goods arrived in their destination in the right conditions as it had been agreed in the contract. Thus the court ruled that the shipper should pay the plaintiff for the damage of the cargo.

However, the seller may defend himself from paying these damages by arguing that he had no responsibility against any damage that might have resulted due to handling of goods. According to Klotz and Barret (1998, p.220), the seller in the international sale contract does not give the buyer the warrant for any damage that may arise from the handling or shipping of goods. The seller does not also take responsibility from any loss that may result from causes that are not within the limit of the seller. These causes may include water damage, fire, lightning, flood, excessive voltage, earthquake, alteration or any other similar cause.  In this contract, the seller had no responsibility of transporting goods. The buyer entered into a contract with the third party who was responsible for the transportation of goods. Suzan acting on behalf of the tea society   signed a contract with the JD’s carriers who were supposed to transport the goods to the port for shipment. The carriers therefore had a responsibility to ensure that good care was taken during the transportation of the goods. They were to ensure that goods were handled with care during the process of transportation in order to avoid any form of damage. Thus the society ought to have claimed any damage on the goods from the JD’s carrier and not from the seller of the goods. Again the emporium tea may also argue that the damage of the goods during the process of transportation was beyond their control and they could not have done any thing to ensure that the transportation company did not damage the goods. They were only responsible for ensuring that the goods sold were in good conditions during transportation by ensuring good package and preservation of the goods during the process of transportation and transshipment. If granted in the court of law, this will scrap the responsibility of the seller from paying any compensation that may result from the damage of the goods. This is in line with the way Kelly argued that the responsibility of the emporium tea was just to ensure that the tea consigngments were delivered to the port in the expected conditions. Kelly continued to argue that the carrier company damaged the goods during transportation and therefore the society should claim any damage from the JD’s carrier company. The emporium tea may continue to claim that they were given a clean bill of lading at the port which proved that the consignments were in the expected conditions when they arrived at the port.  If the goods were not in good condition, then he could not have been given a clean bill of lading.

 Lovat inc. v. Blue Anchor Line, 2007 FC 491

The case involved the transmission of goods in the international sale of goods which were purchased in Toronto Canada and they were taken to Turkey. The plaintiff claimed that goods were damaged by rust in the process of transshipment to their final destination.  The defendant argued that goods were in good conditions when they were unloaded in the last vessel in Istanbul and therefore any damage could have occurred during their transportation from the port in Istanbul to their final destination by track. The goods were transported by a carrier which was independent of the contract. The court ruled that it could not be proved that the goods were damaged in the hands of the defendant and therefore the case was dismissed. Claims that the carrier was responsible to pay the damage were also dismissed by the court arguing that they were not party to the contract. Thus it possible also for the law court to dismiss this case on the same legal grounds.

CONTRACTUAL PRICE

This is a form of consideration that the buyer gives in exchange of goods and services he will receive. The contract price is agreed when the two parties are making their terms of contract. Any change in the terms of the contract should be communicated between the two parties on time to make sure that the other party has enough time to adjust to the new terms of the contract. This also applies to the contract price which may change due to other external factors such as the increase in the cost of production thus increasing the market price. When this happen after the date of the contract, the seller may inform the buyer of any changes in the contract price in order to give buyer a chance to reconsider those terms and see whether he will accept those new terms. When the market price of the goods hiked, Kelly as the agent of the emporium tea informed Suzan of the changes in the contract price and Suzan accepted to pay the extra money which arose as the difference between the contract price and the market price. This was in accordance with the contractual terms and under this condition, the tea society could have paid the new price of tea consignments. However, Suzan accepted to pay the new price hoping that all will be well and goods will be received in good conditions just as it was agreed in the contract. Unfortunately, this did not happen and goods were received with some serious damage which made Suzan to change her mind. The fact that goods were not delivered in their good conditions means that the buyer could refuse to pay extra money since the goods were not in the required conditions. Therefore the tea society can refuse to pay for the extra money claiming that the emporium tea did not deliver goods in good conditions and instead they are supposed to pay the society for the damage instead of it paying the extra money. Using this argument, the claim for Kelly may not be therefore justified before the court.

On the other hand, Kelly may claim that the emporium tea were not responsible for the damage since the JD’s carrier were responsible for the transportation. This may give the company some legal grounds to claim payment of the extra money by the tea society. On this basis, the emporium tea may argue that they had met all the contract terms as they had agreed in the contract with the tea society. This means they were supposed to receive full consideration since they had performed their part of the contract. Again, Kelly may argue that he communicated the changes in the contractual terms on time to the tea society through Suzan who agreed the changes. The acceptance of the changes made Kelly to continue with all the other arrangements which he could not had done if Suzan rejected the new changes.

ADVANTAGES OF STANDARD FORM CONTRACT

This is a type of contract which does not allow the parties in the contract to negotiate the terms of the contract. All the terms of the contract are usually set and the parties in the contract may either accept those terms and take the contract or may refuse those terms and reject the contract. The terms are standard and usually set before the contract date. This type of contract mostly applies to the parties who do not have equal bargaining powers.  For instance, an individual who wants to buy goods from an international company may use standard contract. The parties are unequal partners who may not have equal power to bargain thus preferring the use of standard form contract. The case Steven v. Fidelity & Casualty Co is an example of a case that involved this type of contract. Standard form contract has many advantages compared to other normal contracts which make them preferable in many business transactions.  First these type of contract saves a lot of time to the parties who are involved since they do not have to spend a lot time to set terms and conditions of the contract. The parties just use the standard terms which are always set and they do not have to take time before agreeing on those terms.  The parties involved just need to decide whether they will like those terms or whether they will not like them. Time spent in negotiation in other types of contracts is saved since the parties do not need to negotiate on the terms of the contract. In the case between the tea society and the emporium tea, Kelly and Suzan had to spend a lot of time in negotiating the terms of the contract. This time could have been saved if the two parties used standard form contract.

Another advantage of standard form contract is its ease of use. This type of contract is not complicated and both parties can understand its terms without difficulty since they are standard. This will make it easy for parties to perform their duties thus facilitating the performance of the contract. If tea society and emporium tea had used this type of contract it would have been easier for them to use it because its terms are known to them since they have used them in other transactions. The other advantage of standard form contract is that it is more reliable than other types of contract since none of the parties have ability to change the terms of their contract. When the conditions changes, the terms of the contract do not change and the two parties will have to stick to the initial terms of their agreement. This will be an advantage to both parties and particularly to the weaker party. The stronger party may choose to change the terms of the contract and more so in its favour which will not be good to the interests of the weaker party. In the case between the tea society and the emporium tea, the emporium tea changed the contract price claiming that the market price of the goods has increased.  Though this could be true, if the two parties had signed a standard form contract, this change could not be allowed since the terms of the contract are set and there is no room for negotiation.   This will favour the tea society which was required to pay the extra money resulting from the market price increase.

DISADVANTAGES OF STANDARD FORM CONTRACT

Though the standard form contract has the above mentioned advantage, it also has a number of disadvantages. First, the fact that the contract does not allow for negotiations means the parties may not be fully satisfied with all the terms of the contract. This means that even after the performance of the contract, parties may not be fully satisfied. In the case between the tea society and the emporium tea, all the conditions that will satisfy both parties would not have been attained due to the limitations of this contract.  Failure to include all the likes and dislikes of both parties mean that the contract would not have served all their interests. Secondly, this type of contract does not give room for adjustment even when the conditions beyond the control both parties changes. This means that both parties may not be satisfied when such external condition happen and in one way or another affect their transactions. These changes may increase cost to the parties which is not accounted for in the contract price thus reducing the benefits that parties were supposed to receive from the performance of the contract. In the case between the tea society and the emporium tea, change in the market price of the tea consignment could not have been accommodated if the parties used this type of contract.  This contract could not have allowed Kelly to change the contract price to cater for the increased market price. This means the contract could not have been performed since the seller could not have accepted to continue with the contract in the new price of the goods. This is because the terms could not be favourable to the emporium tea. Another disadvantage of this type of contract is that there may be misunderstanding between the parties that may arise due to differences in the interpretation of the terms of contract as they are stipulated in the contract. This may increase chances of dispute between the parties as they interpret the terms of the contract differently. In the case between the tea society and the emporium tea, dispute is arising because of different interpretation of the terms of contract. This could have been made worse if parties had used a contract that has standard terms.

CONCLUSION

The legal case between the tea society and the emporium tea involve international sale of goods. Thus, the United Nation Convention will apply in deciding this case which might have resulted due the use of standard form contract. The tea society may file a case in the court of law against the emporium tea in order to be compensated for the damages.

 

REFERENCES

Klotz, James & Barrett, John, 1998. International sales agreements: an annotated drafting and negotiating guide. First edition, Kluwer publisher, Hague, Netherlands.

http://books.google.co.ke/books?id=3vzVcqxe8HEC&pg=PA235&lpg=PA235&dq=responsibility+of+third+party

Review of the Convention on Contracts for the International Sale of Goods 2005. Pace International Law Review . Retrieved on March19.

http://books.google.co.ke/books?id=bojqMOwdmx4C&pg=PA135&lpg=PA135&dq=liability+case+in+the+intern

United Nations Convention on Contracts for the International Sale of Goods, 2010. United Nations Publication Sales  No. E.10.V.14.

 

LEGAL CASES

Steven v. Fidelity & Casualty Co., 377 P. 2d 284 – Cal: Supreme Court 1962

Sea-Link Marine Services Ltd. et al. v. Doman Forest Products Limited, 2003 FCT 712

Steven v. Fidelity & Casualty Co., 377 P. 2d 284 – 1962

 

 

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