TO: Partner VR
FROM: Associate Riyad
RE: Danielle Case-The Box Master Case-International Sale of Goods
DATE: 24 April 2013
Issues
·
Is
Danielle under a legal obligation to make payment on the invoice for the 30,000
ballotin boxes?
·
Is
Danielle under a legal obligation to make payment on the invoice for the 40,000
ordinary boxes?
·
Was
there any trade usage established between the parties as to make silence an
acceptable means of communication in certain respects?
·
What
are the remedies available to Danielle under the circumstance?
Summary
Danielle
is under no obligation to pay under any of the invoices sent by The Box Master.
Besides, there is no usage established between the two parties as to make
silence an acceptable means of communicating between them. The remedies
available to her under the circumstances include damages and the option of
avoiding the contract in respect of the 30,000 boxes.
Discussion of each issue
Whether Danielle is under an obligation to
pay on the invoice for 30,000 ballotin boxes
Article 53 places an obligation on the part
of the buyer to pay for the goods contracted for. Absent any further analysis,
Danielle would be obliged to pay on the invoice for the 30,000 ballotin boxes
unexpectedly received on November 14.Indeed this was the holding in the
Switzerland case of Kantonsgeritcht
Schaffhausen where it was reiterated that the buyer must take delivery of
the goods as well as make payments for the same. Danielle has already taken
delivery and paid for an initial 10,000 ballotin boxes. The issue arises,
however, as to whether these additional 30,000 boxes are part of the contract
between the two parties. It is true that the original contract between the two
parties was in respect of 40,000 ballotin boxes. Delivery of these boxes was
set at the specific date of 16 October 2012. It follows from this that either
the late delivery of these 30,000 boxes was with respect to a separate contract
or they were being done in fundamental breach of the initial contract.
In the first assumption, article 29(1) allows
for the mere agreement between the parties to modify a contract. In Oberstar Gerichtshof, Austria case, it
was also reiterated that only an agreement between the parties is enough to
modify a contract. There is no need for any formalities so long as the
circumstances suggest that the parties actually modified their contract. The
communications from the parties suggests that they implicitly agreed to modify
some of the terms of their contract. For instance, the original contract had
stipulated the delivery of the 40,000 ballotin boxes on 16 October but the
parties were still willing to accommodate each other past this date. This is
evidenced by Danielle’s communication to Box Master instructing them to arrange
to send 40,000 boxes on October 22 which was later than 16 October. Subsequent
communications further indicate that the parties eventually agreed on a final
date of November 13 as the date of delivery. The delivery on 14 was therefore
out of the agreed date. It has also been held in CLOUT case no. 120 that silence by one party in respect of a
proposal by the other seeking to modify a contract does not of itself
constitute acceptance of those proposals. This makes it difficult for Box
Master to assume that Danielle accepted their offer of supplying the ballotin
boxes in beyond the November 13 deadline.
Whether there was any trade usage established between the parties as to
make silence an acceptable means of communication in certain respects?
Silence may nevertheless be construed as
acceptance of the proposals of the other party if the usage and practices of
the parties establish that would have been the case. Article 9(2) binds the
parties to the usage accepted by them and which are recognized under
international law as well as the practices between them. The argument could be
made that both Danielle and the Box Master had established a practice of taking
silence from one party to mean acceptance of proposals by the other party.
Numerous examples exist where either of the parties never replied to a
communication from the other but nevertheless seemed to have accepted the
proposals of that other. For instance, Danielle did not respond to the email
from the Box Master on the 20 October explaining the problems they were having
with their factory. Despite this failure to respond, Danielle nevertheless
accepted the delivery of 10,000 boxes on 26 October. Similarly, the Box Master
did not respond to her letter of October 27 setting the last deadline at
November 13. Despite this failure to respond, they still made an effort and
indeed delivered the remaining batch on November 14 even though it was late. Whatever
the pattern that these few instances may indicate, it would not be reasonable to
conclude any binding usage given that their relationship is only one year old.
The other assumption would be that the late
delivery of these 30,000 boxes constituted a fundamental breach of the
contract. Article 35(1) provides to the effect that the seller is to deliver
goods complying with contract specifications. In Landgericht Paderborn 19996, raw plastic containing a lower
percentage of a certain material from the one specified in the contract was
held to amount to a lack of conformity with contract specifications. As a
consequence, the seller was held to be in breach of their obligation under the
contract. Similarly, CLOUT Case no. 282
has held that a shipment of goods in quantity that is less than the contract
specification amounts to a lack of conformity to the contract. A holding of non
conformity was also the case in CLOUT case no. 168 where a used care licensed
two years earlier than indicated in the contract specification was held not to
have conformed. The 30,000 ballotin boxes in respect of which payment is sought
actually conform both in quantity and in quality. Nevertheless, their delivery
does not conform to the November 13 deadline specified in the contract. This
string of authorities would indicate that the Box Master is in breach of their
obligations. As per CLOUT Case no. 84,
a seller can discharge this obligation by showing that the contract did not
specify a certain term that the buyer claims not to have been conformed with. In
that case, delivery of shellfish containing a higher level of cadmium did not
violate article 35(1) as the parties had not specified the maximum level of
cadmium. This case does not apply to the contract under analysis as the parties
actually specified the date of delivery to be November 13.
It is not enough for the buyer to merely know
that the goods are not in conformity, rather article 39 requires the buyer to give notice of such a failure to conform
to the seller within a reasonable time or two years at the latest. In the
German case of Amtsgericht Augsburg 1996,
the late delivery of seasonal goods was held to fall under the categories where
a buyer should give notice to the seller. It would be safe to conclude that
both Danielle and the Box Master understood that they were contracting for the
seasonal festivities of Thanksgiving and Charismas making late delivery of the
30,000 boxes to amount to a breach requiring notification to the seller. It
should be noted, however, that courts have been reluctant to include time of
delivery as one of those specifications to which conformity may apply. This
reluctance may be informed by the fact that article 33 that deals with time of
delivery is found in a different section from that dealing with lack of conformity. Notwithstanding
that separation, there is no reason to exclude late delivery of seasonal goods
from the list. It is now December 23 while the late delivery of the 30,000
boxes was received on November 14. This is more than one month and Danielle is
yet to notify the Box Master that the delivery is not in conformity due to
their being late. It is, however, necessary to note that the lawyers for the
two sides have been in contact and this matter must definitely have come up in
their discussions. This makes it safe to assume that the relevant notification
has been given.
From the exploits of the foregoing, it is
clear that neither was the contract modified to include a delivery of the
30,000 ballotin boxes on December 14 nor does this delay conforms to the
contract specification as required by article 35. As such, Danielle is under no
legal obligation to pay on the invoice accompanying the delivery of these
boxes. This information is important as article 39 stipulates that notice is to
be given to the seller and not any other person. Thus, it was held in CLOUT Case no.220 that communication to
another party which did not concern the seller did not meet the requirement of
article 39. In that case, the buyer had communicated the defects of the goods
to its customers. It has, however, been held in CLOUT case no.364 that
communication given to the agent of the seller suffices for the purpose of
article 39. This would support the contention that communicating with the
lawyer for Box Master was sufficient to fulfill the requirements of article 39.
Whether Danielle is under an obligation to pay on the invoice for 40,000
ordinary boxes
An obligation to pay for these goods can only
arise if it is shown that there was a contract between the two parties in this
respect. Article 14 stipulates that a proposal for an offer to be bound if
accepted must be definite. This was the holding in CLOUT case no. 417.The letter sent to Danielle on October 20
included a proposal to sell to her the 40,000 ordinary boxes at a price of $
1.50 each. This proposal was clearly definite as it set both the price and the
quantity of goods in question. It only remained for Danielle to accept this
offer for a contract to come into effect.
Article 18 provides that silence or
inactivity on the part of the offeree does not constitute acceptance. Thus, in CLOUT case no. 309 silence on the
part of offeree where parties had no prior dealings did not amount to acceptance.
Thus, Danielle’s silence following The Box Masters’ offer on October 20 cannot
be taken to constitute acceptance. In any case, article 17 stipulates that an
offer terminates when a rejection reaches the offeror. Danielle intention
communicated her rejection of the offer to The Box Master on 27 October
satisfying the requirement of article 17. It follows from this that The Box
Master had no grounds for sending an invoice for these 40,000 boxes knowing
that their offer to sell them to Danielle had been expressly rejected. As such,
there is absolutely no obligation to pay on that invoice.
What remedies are available to Danielle under the circumstances?
Articles 49 allow the buyer to declare the
contract as avoided. There are, however, those cases like article 49(1) (a)
where the buyer can only avoid the contract following a fundamental breach on
the part of the seller. Fundamental breach is defined in article 25 as that
which substantially deprives the buyer of the expectations in the contract. It
was held in Corte di Appello di Milano
1998 that late delivery in itself does not amount to a fundamental breach.
It nevertheless, becomes a fundamental breach where time is made of the essence
either by so contracting or when the relevant goods are seasonal. For one, the
parties did contract that time was to be of the essence and Danielle was keen
to remind the sellers that she particularly needed the goods for the upcoming
December season. The late delivery on November 14 was, therefore, a fundamental
breach. The buyer’s right to avoid is also subject to the seller’s right to
cure failure of performance under article 48 if such cure can be done without
causing unreasonable delay to the buyer.
Secondly, article 45 provides entitled a
buyer to claim damages in cases where the seller has committed a fundamental
breach. The recoverable damages are all those losses that would have been
foreseeable at the time of the conclusion of the contract or some other
reasonable time after the conclusion. This includes even lost profits. Article
77, however, places an obligation on the party claiming damages to take
mitigating steps to reduce such lose. It CLOUT case no. 166, a buyers failure
to find substitute goods was held not to have violated the mitigating
requirement as it was alleged that there were difficulties in finding such
substitutes. Danielle did take steps to mitigate her loses by sourcing for
10,000 boxes from China at a higher price entitling her to claim damages.
Conclusion
The analysis reveals that Danielle is not
under an obligation to make payment on any of the invoices. With respect to the
invoice for 30,000 boxes, the sellers have committed a fundamental breach
entitling her to avoid that part of the contract and reject the goods. On the
other hand, there was no contract for the 40,000 ordinary boxes in respect of
which she owes any money. Nevertheless, she has a number of remedies to fall
back on including both claim for damages and the right to avoid.
Recommendation
Both the law and facts are in favor of
Danielle and she may elect not to pay on any of the invoices. It would,
however, be in the interest of their continued business relationship that she
claim damages instead of avoiding the contract in respect of the 30,000
ballotin boxes.
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