Commercial Contracts between Companies - Essay Example

Introduction The Watchtower Ltd had the responsibility of providing remedies to the ic Gift Ltd for the losses incurred. The former provided the latter with defective goods that led to other losses, which were unanticipated. According to the rules of engagement signed by the two parties, the seller was supposed to compensate the seller for any loss incurred, due to supply of defective goods. On the other hand, though, the seller should take necessary legal steps, in the event that the buyer decides to have all the previously purchased goods returned. Unless the seller can proof that all the goods were defective, the buyer is entitled to decline such a move and seek for legal redress. Watchtower vs. Classic Gift Ltd The two partners entered into a contract, where Watchtowers Ltd was supposed to supply Classic Gift Ltd with both the antique watches and the cleaning oil. The latter owns several shops that specialize in the sale of such watches. The managing director of Classic Gift Ltd agreed on a contract with Matthew Achbold, who was the sales director at Watchtower. It is this contract that was supposed to bund the two parties, in ensuring that everything happened according to the stipulations therein. The challenge After the delivery of the goods to Classic Gift, it was found that some of the oil provided had some defects. According to the letter addressed to the sales director of Watchtower, the oil led to malfunctioning of some watches, which were cleaned. It is because of this issue that Julie Fitz thought that they were entitled to compensation because of the losses incurred. In their reply, the Watchtower indicated that indeed one of the batches of oil supplied may have been contaminated or had defects. The sales director however appeared to defend the fact that the rest batches were up to standard. However, according to the letter addressed to the supplier (seller), the buyer wanted full refund of the money used to make the purchased. In addition to that, the seller insisted that they need to be compensated due to the number of watches that had been affected. For that, reason, apart from refunding the total amount of purchase, there was need to further pay 2,000 pounds. Discussion Prior to the purchase of the materials, Watchtower provided Classic Gift Ltd with a document 1, which provided the terms and conditions that would make the contract legally binding. Some of the stipulations were that for the contract to remain binding, both parties had to address each other in writing, and within some stipulated period of time1. Secondly, the seller was supposed to ensure that he supplied goods that were free of any defects to the buyer. However, to facilitate this provision, the buyer on the other hand was supposed to inspect the goods sent to ensure they were of the required standard and quality, upon detection of any anomalies, the buyer is obligated to address the buyer in writing, giving their dissatisfactions in the goods2. However, such a complaint was supposed to be done within the first 14 days. If these days elapse, the buyer was not entitled to any compensation. As part of ensuring that the seller was compensated, the terms and conditions stipulated that, the seller would either get partial or full refund. In addition to that, the seller may be provided with another butch of goods that meet the required standard. From the above explanation, it is clear that Classic Gift Ltd was entitled to compensation. The letter addressed to the supplier was made within 14 days. The letter highlighted the losses that the company had suffered due to the contaminated oil. According to Unfair Contract Terms Act 1977, it is imperative to ensure that the buyer of the goods proof reasonably that there was actually a loss that was incurred. Such a loss must be linked to the mistake done by the seller. In the above issue, it is outright that the seller was entitled to remedies. Firstly, it appears that the buyer may have had the knowledge that some of the oil supplied was defective. This is explained by the fact that when the buyer received the complaint, the sales director replied by stating that there was a batch, according to the knowledge of the company, that was defective. However, this is legally wrong in the first place. The seller was supposed to have been supplied with only quality goods to ensure that there was no loss suffered by the seller. According to the stipulation of the terms and conditions, the seller was only supposed to sell goods, which were of the required quality. On the other hand, if the quantity of the oil needed was not enough, the seller would have let the buyer know, and renegotiate on how the remaining batch would be supplied latter. However, this did not happen. The seller was acting out of selfish interests, and did not care about the damage that would occur if the oil was used by the buyer. Even after having the knowledge of the potential threat that would occur, none of the management team members informed the buyer. This therefore indicates that the company would be liable of the losses incurred by the buyer. However, this issue is a complicated one since the buyer may also claim that the inclusion of the defective batch of oil was not an exercise of negligence. The company may proof that indeed duty of care to the client had actually been ensured and that the loss suffered due to the defective oil was unanticipated. Secondly, the company may decide to rely on the stipulation of the Unfair Contract Terms Act 19773. As indicated before, this is a provision that seeks to protect the sellers against any unreasonable claims by the buyers4. Under this, he could rely on the case study of Stewart Gill Ltd v Horatio Myer & Co Ltd. Under this, the judge ruled in favour of Stewart Gill Ltd. In this case, Horation Mye & Co Ltd did the purchase of conveyor belt and realized that it had defects5. The affected party refused to clear pay the remaining amount that was owed to the company supplying the goods. However, using the unfair contract terms, it was found that there was no enough reasons that would have warranted the seller to pay damage to the buyer6. Similarly, the Watchtower has a chance to refuse to pay any whole damage, which the buyer is claiming. E Employing the provision of inspecting the goods before using them, Watchtower Ltd may be exempted from the additional 2,000 pounds, or half of it. Despite the fact that it was not easy for the buyer to inspect the quality of oil provided, it would have ensured that the oil was only used on one watch at a time. According to the letter, it appears that several of these watches had been rendered useless after being destroyed by the oil. Unless the company can proof that these watches were cleaned at the same time, the seller has an advantage. The seller would be expected to at least clean one of the watches at a time, especially in the initial time. Each of the batches supplied should be used to clean at least one watch to ensure that all the oil provided is of high quality. However, acting on the impression that the oil was okay, several watches became functionless. The seller should not have taken the chances of trying to continue using the oil even after observing that it had an effect on the watches cleaned. The buyer would therefore rely on such information to deny its case. Secondly, there appears to be a problem with the way the buyer approached the whole issue of compensation. In the terms and conditions, it was clearly indicated that only the goods, which had defect, would be returned to the buyer for replacement. The goods were to be replaced and sent to the buyer. Apart from that, the seller was expected to return part of the money if there were no goods to replace the spoilt ones. Focusing on the case provided though, it appears that the seller is planning to return all the goods to the seller without caring whether they are defective or not. This, in the first place contravenes the agreement signed by the two parties. Stating that all the goods will have to be returned should not be taken lightly by the seller. The latter should sue to allow the legal justice system to redress the issue. The company did actually indicate that only one of the supplied batches may have been defective. There was nothing wrong with the antique watches bought since there was no official complaint from the buyer. Therefore, it seems there was an ill motive by the buyer. The issue was supposed to be oil, and the seller was supposed to be given time to address the problem. This action leaves many unanswered questions. Firstly, could it be possible that the buyer had seen a better deal somewhere and therefore was looking for a way to terminate the contract with Watchtower Ltd? Secondly, could the buyer have noticed that there was a decreased demand of the antique watches in the market and therefore did not want to take any stock for fear of losses? These and many other scenarios could be explained as the main motive that led to this kind of act by the seller. According to the terms and conditions therefore, the seller would therefore be expected to only pay the defect goods7. This could be done by replacing the materials that had the defect, or by ensuring that money, with a similar value to the spoilt goods was refunded. On the other however, the seller would also claim and lack of trust as a main reason for the termination of the contract. It would argue that the seller had the knowledge that a whole batch of oil had the stated defects. However, the company went ahead and provided the goods without taking into consideration of the losses that would be suffered by the company. For this purpose, the seller would be in a position to argue that it feared to continue using the remaining goods as a way of preventing further complications. As it had been explained from the case between the two partners, the buyer has a reputation in the market. It had been selling the antique watches for a long time in many different shops. Therefore, to ensure that this business continued to thrive, there was need to ensure that the reputation of the shop was safeguarded8. This would however be achieved by ensuring that the shops continued selling quality goods. However, with the current uncertainty with the goods bought, the buyer would not be in a position to know whether such goods would help in retaining the reputation of the shop. It would therefore be important for the buyer to defend its position by stating that it did not trust the quality of goods supplied to it. The fact that the seller sold counterfeit goods is by itself a contravention of the agreed upon terms and conditions. Secondly, the buyer will argue that the decision was reached upon the realization that the terms and conditions were very clear about the acts. According such rules, the seller was entitled to remedy for any losses that were incurred. In the case of the watches that were rendered useless because of the oil that had been used, the buyer was supposed to be compensated. This was part of the mistake by the seller. The seller is therefore entitled to full payment of all the losses suffered in the process. In addressing the question of detecting the anomalies in the goods supplied upon supply, the buyer would argue that there was no way of determining the quality of oil. It is difficult to tell whether oil is defective or not through observation. It had to be used to the provided goods for such faults to be noticed. The seller would therefore argue that she was relying on the trust between the two parties when using such oil. She acting under the assumption that the seller had already ensured that the quality of the goods provided met the required standards. According to the rules governing the contract, the seller is expected to ensure that the goods provided to the client are of high quality as discussed and agreed by the parties. It therefore follows that the seller has a responsibility of providing the seller with quality goods. In conclusion, this is a complicated case that would require deeper analysis of the agreement signed by the two parties prior the said transaction. The seller has the responsibility of compensating the buyer of the losses that has been incurred9. The losses in this case refer to the watches that were rendered useless and the batch of oil, which was defective. The seller was therefore expected, according to the rules of engagement, to ensure that the buyer received either part of the money, equivalent to the loss suffered, or the replacement of the goods in question. However, the seller is not supposed to accept the return of all the goods, which had been sold. This is unless the buyer proofs that there were any damage to the antique watches and the remaining butches of oil. For this reason, the buyer is entitled to act within the stipulation of the rules of engagement. There was no provision that the buyer should be allowed to return all the goods to the seller unless they were defective. For that reason, the seller may seek legal redress to have justice on the matter. Question 2 Introduction The European competition law is clear on how competing firms, or any business should conduct itself in the market. Firstly, the law ensures that the consumers are protected against exploitation by any of the established business. The law was provided to address the social phenomenon of unfair competition in the market. In European nations, the members that abide by the provisions of this law ensure there is fairness for the competing firms. This is achieved by controlling the market share of every business. According to the law, none of the businesses is allowed to control more than 38% of the market share. Measures are taken to ensure there is no fixing of the prices in the market, to drive others out of business. With the need to have control of the market, the Climbers limited will need to abide by such rules. The company seeks to ensure that it expands in the market to dominate over other competitors. Chambers Limited The managing director of this company seeks to have the scope of the business expanded. The company deals with the supply of the climbing equipment this will lead to increase in market share which currently stands at about 15%. To achieve this, Karen Poole, the managing director seeks to recruit a number of distributors. The latter are supposed to ensure that goods are sold in all the countries, which are defined by the company. There is an agreement, which the distributors are expected to sign. It states that none of the distributors would be allowed to obtain the materials from another suppler apart from Chambers Ltd. In addition to that, the price of the goods should not be altered, but should remain as set by the company. Thirdly, it is expected that the distributors will seek to protect the reputation of the company by behaving in professional way. Finally, the managing director sought to bar the distributors from purchasing such materials from any competing company, before and after the termination of the contract. The opportunity and challenge present As indicated above, the company seeks to dominate the market by increasing its market share. The expansion by the company is necessary for growth and development. The market liberalization gives such firms the prerogative to invest in as many locations as possible. For that reason, goal by the managing director to have increased number of distributors sell the goods should is welcome. However, there are a number of issues that should be addressed before the business can fall into problems. The business seeks to control the prices in the market. As indicated, the managing director states that one of the agreements with the distributors is that none of them will be allowed to change the price of the goods. The price is to remain as it has been set by the company. However, this is unacceptable bearing in mind that most of the European nations are capitalists. This means that solely the forces of demand and supply controls the prices of goods and services. Stating that the distributors are barred by the company from changing the price of the commodities is working under the assumption that all the countries have similar economic environment. For instance, the presence or absence of competitors in the market may determine the price of goods. If all the distributors should the materials with the same price, some of them may not be in business after some time. This is because the competitors in the market will overwhelm them. Secondly, there are the issues of rules of engagement binding the distributors and the company. The goal is to ensure that the distributors should not buy materials from any other supplier during the period of engagement. The distributors are also supposed to ensure that they do not purchase the materials from any company two years after the termination of their services.in addressing this issue; the company will only receive compensation if the first condition is not maintained by the distributors. If the distributors purchase the materials during the period of engagement, the company has the right of suing such members. It will be able to get such issues addressed through proper legal channels10. However, it is imperative to note that the second condition may not work. Asking the distributors not to purchase materials from any other supplier for two years after termination of contract is impractical. The biggest question is, how will such distributors survive during that period? Secondly, what is this company seeking to proof? Is this a way of promoting dominance in the market? These questions need to be addressed. The company will need to ensure that its practices are in line with the European competition law. In conclusion, the decision by the managing director to expand the business is okay. There is freedom for such an act to take place. However, while the company intends to expand, it should be wary of a number of issues. Firstly, it must ensure that it does not get involved in certain unscrupulous business activities. While competition in the business is allowed, there is a limitation to it. The European completion law indicates that there is need to ensure that the world of business is fair to all. For that reason, it would be imperative for the company to ensure that the market share did not increase beyond the expected 38%. According to the law, if this happens, it means that such a company has dominated the market, which is unacceptable. One of the main weaknesses that the company should seek to address, is that of asking the distributors not to purchase materials from any other supplier two years after termination of the rules of engagement. This is not only unfair to such distributors but also denies other business members chance to have their goods sold. For that reason, for this business to operate legally, the issue of pricing should be controlled by the forces of demand and supply and not the business itself. This will appear as a way of exploiting the consumers, which is against the rules contained in the European competition law. Bibliography A Burrows 2009 A Casebook on Contract 2nd end Hart, Oxford Biondi et al. 2003 The Law of State Aids in the European Union Chris Townley, Article 81 EC and Public Policy, Hart Publishing, 2009. E McKendrick 2000 Contract Law 8th edn Palgrave Ewan McKendrick 2005Contract Law - Text, Cases and Materials Oxford University Press ISBN 0-19-927480-0 Geradin 2000 The Liberalisation of State Monopolies in the European Union and Beyond H Collins 2000 Contract Law in Context CUP J Hilliard and J O’Sullivan 2006The Law of Contract 2nd edition Jill Poole 2006 Casebook on Contract Law 8th Ed., Oxford University Press Jones, Alison and Sufrin, Brenda 2007 EC Competition Law: Text, Cases and Materials, Oxford University Press, 3rd Ed. ISBN 978-0-19-929904-1 Monti, Giorgio 2007 EC Competition Law, Cambridge University Press, ISBN 0-521-70075-2 Oughton, D W (2000). Sourcebook on Contract Law. Cavendish Publishing. p. 411. ISBN 1843141515. PS Atiyah 2000 An Introduction to the Law of Contract Clarendon, Oxford Paul Craig and Grainne de Burca (2003). EU LAW, Text, Cases and Materials. Oxford University Press. p. 1063. Quigley & Collins 2007 EC State Aid Law Szyszczak 2007 The Regulation of the State in Competitive Markets in the EU Tobler, Christa; Beglinger, Jacques; Wessel Geursen 2011, Essential EU Competition Law in Charts, Budapest: HVG-ORAC / E.M.Meijers Institute of Legal Studies, Leiden University. ISBN 978-963-258-118-7. Visualization of EU Competition law, eur-charts.eu. Wilberforce, Richard 1999 The Law of Restrictive Practices and Monopolies, Sweet and Maxwell Whish, Richard 2008Competition Law, 6th Ed. Oxford University Press, ISBN 978-0-19-928938-7 Read More