An Analysis of the Legal Issues and Opinions for the Lae of Contact - Case Study Example

Introduction Whereas, a Sale of Contract was agreed between two parties, ly, AFEC Inc. (the seller) and Agro International Corporation, (the buyer), by c.i.f. Antwerp contract to supply 50,000 tonnes of grain of quality x-at, with Certificate of Grain Quality Control conclusive at US $202.10 per tonne. The goods were to be shipped directly between the months of February and March from a West African port, as applicable under English law. The Issues The facts are: that AFEC Inc shipped 50.100 tonnes of grain on the nominated vessel from the Port of Lagos, Nigeria; that although the shipment of the consignment commenced on 2nd April 2009, AFEC Inc persuaded the master of the ship to issue a bill of lading dated 31st March 2009; that the master of the ship was also persuaded by AFEC Inc. to include in the bill of lading, both a deviation and a deletion clause in that Antwerp was substituted for Rotterdam as the port of discharge. Additionally, AFEC Inc. Insured the cargo on minimal terms, covering catastrophe losses only although there were much wider cover available on the insurance market. AFEC Inc. tendered documents including the 1) commercial invoice, 2) the bill of lading, and 3) the insurance policy to the buyers, Agro International Corporation. AFEC thereby created the following breaches and violations of the elements of the Contract of Sale under the Sale of Goods Act 1979 giving rise to the consequent issues: 1. Contract a. Changing the nature of the contract unilaterally by altering and deleting clauses of the contract without the consent of the buyer b. Changing the port of discharge without the consent of the buyer 2. Goods a. Failure to supply the correct quality assurance certification 3. Delivery of goods a. Failure to supply the contracted quantity of goods b. Failure to load the cargo within the contractual time period: Breach of condition 4. Transfer of risk a. Failure to ensure appropriate risk insurance Analysis of Legal Issues An analysis of the legal issues and opinions are provided in the following paragraphs. First: It is clear from the information provided that the contract between the two parties is a simple c.i.f. contract for the shipping of goods with a named port of destination. The seller charged the buyer an inclusive price covering the cost of goods, freight and insurance, vide T.D. Bailey, Son & Co. V. Ross T Smyth & Co. Ltd. (1947) LI. L. Rep. 147 (HL)₁. Second: One of the most important duties of the seller is to guarantee that the goods supplied conform to the terms of the contract. It is observed from the facts supplied that the seller has violated the terms of the contract on three counts. a) Quantity shipped – It is clear from the facts of this case that the seller shipped only 51.100 tonnes instead of the agreed 50,000 tonnes. Consequently, the buyer has the right to reject the shipment or pay for only what the buyer has received. If the amount supplied is larger than the amount contracted for, the buyer may accept but pay only the contracted rate. There is an exception where if the shortfall is not great when it is held that a refusal would not be reasonable. Section 30 of the Sale of Goods Act states: “(1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at he contract rate, (2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.” However, “if the shortfall or, as the case may be, excess is so slight that it would be unreasonable for him to do so”₂ , but also if the contract contains words such as “approximately”, “more or less” or “about” the seller may add three percent of the whole amount Payne & Routh v William Lillico & Son (London) 3 Ll. L. Rep. 110 (KBD)₃. b) Quality of shipment – The fact that the seller has failed to provide the agreed upon certification from M/S Grain Quality Control Inc. implies that the grain supplied does not conform to the provisions laid down in the contract as one can see in the case of Mash & Murrel Ltd. v. Joseph I. Emanuel Ltd. [1961] 1 W.L.R. 862 (QBD). c) Time of shipment – In the matter of the sale of generic goods the seller is bound to supply appropriate goods of the description on the contract as per case of Bowes v. Shand (1876 – 77) L.R. 2 App. Cas. 455 (HL)₄. In the case here under review, shipment time was restricted to February/March 2009, although loading was actually completed on 2nd April 2009. According to established practice, if 70 percent of the loading was completed within the stipulated time period, it would be construed to have been completed within the stipulated time. However, in this case, only 50.100 tonnes were loaded against a contracted consignment of 50,000 tonnes. To load a consignment of 50,000 tonnes of grain the ship would require at least 7 to 10 days berthed in the Nigerian Port of Lagos, given the conditions of infrastructure available at the port. The delay at the port exceeded two days of the contractual period and only 0.1 percent of the grain supply could be loaded during the entire two months of the allocated time period. An important contractual duty of the seller is related to the bill of lading. The seller must deliver the goods to the destination stipulated on the contract and the bill of lading. There are a number of conditions in the bill of lading that must be followed. The first, is that the bill of lading must be valid and effective when the shipment is tendered as a title of document and as contract according to the case of Arnold Karberg & Co. v Blythe Green Jourdain & Co [1916] 1 K.B. 495 (CA)₅. The second, is that it must state that the gods have been actually shipped not just received for shipment as evidenced in the case of Diamond Alkali Export Corp. v. Fl. Bourgeois [1921] 3 K.B. 443)₆. The third is that it must be issued on time without any delay in accordance with usual business practice. (vide Hansson v Hamel & Horley [1922] A.C. 36 (HL)₇. The fourth condition of the bill of lading is that it must be genuine. There should not be ‘any bad tender’ such as the wrong date in this case (vide James Finlay & Co Ltdv NV Kwik Hoo Tung [1929] 1 K.B. 400 (CA)₈. , or issue a bill of lading for goods that have been shipped before (vide Hindley & Co Ltd v East Indian Produce Co. Ltd. [1973] 2 Lloyd’s Rep. 515 (QBD)₉. The fifth condition is that it must be unaltered which means that there is no change in its information (Siat di del Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep. 53 (CA)₁₀. The last condition of the bill of lading is that it must be supplied for the carriage of gods to the destination particular to the contract of sale (S.I.A.T. did al Ferro v Tradax Overseas S.A. [1980] 1 Lloyd’s Rep. 53 (CA)₁₁. The above case is concerned with the seller violating the specified conditions in the bill of lading. In the case here under review, the seller colluded with the master of the ship to issue a bill of lading two days prior to the actual date of embarkation i.e. 2nd April 2009. The date on the bill of lading was 31st March 2009. The seller also induced the master of the ship to alter the bill of lading with a deviation and deletion clause whereby AFEC Inc. substituted Antwerp as the port of discharge in lieu of Rotterdam. Another area that the seller must consider is that he obtains a policy of insurance which covers the usual risks upon the terms current in the trade in favour of the buyer. The insurance policy must be valid even if it does not totally cover the definite loss that has occurred. (vide Groom v Barber [1915] 1 K.B. 316). But an insurance policy may not be effective if it is voidable by reason of misrepresentation or non-disclosure, or for breach of warranty, unless confirmed by the underwriter (Cantiere Meccanico Bridisino v Janson [1912] 3 K.B. 452 (CA)₁₂. The second condition is that an insurance policy must cover all the usual risks in the trade which may not mean the cover for all risks (vide Law & Bonar Ltd v British American Tobacco Co. Ltd [1916] 2K.B. 605. The third condition is that the insurance policy must cover just the contract goods (vide Manbre Saccharine v Corn Products [1919] 1 K.B. 198₁₃. The fourth condition is that it must cover the contracted goods and no others (vide Manbre Saccharine v Corn Products [1919] 1 K.B. 198₁₄. The fifth condition is that the insurance policy must be available for the buyer’s benefit and it must be Assignable by Endorsement under S. 50(3) of the Marine Insurance Act 1906 Diamond Alkali Export Corp. v Fl. Bourgeois [1921] 3 K.B. 443₁₅. Having discussed at length the insurance cover possibilities as above, it is clear that the seller in this case only provided the minimal cover for catastrophic losses whereas he failed to provide cover for usual risks under the terms of trade to cover fire, spoilage and so on which is available in the insurance policy market. Another important requirement is that the seller must submit the insurance policy, commercial invoice and the bill of lading as appropriate documents to the buyer. In addition the seller must tender any other documents stipulated in the contract (vide Toepfer v Lenersan-Poortman NV [1980] 1 Lloyd’s Rep. 143₁₆. The seller is not always bound to deliver at the agreed destination (vide Bowen Bros. V Little [1907] 4 CLR 1364). A seller who submits defective documents is give a second chance to tender the right documents and goods meeting the contractual description before the end of the time period stipulated in the original contract of sale. (vide Barrowman Phillips & Co v Free & Hollis [1878] 4 Q.B.D. 50 (CA)₁₇. Accordingly, it is clear that the buyer had demanded a certificate of quality issued by M/S/ Grain Quality Control Inc. but was not supplied to them. However, the seller did furnish other documents such as the commercial invoice, the insurance policy and the bill of lading, two of which, as seen above, with deficiencies. The c.i.f. contract in the current case has not been legally frustrated by either a) destruction of goods before shipment, or b) operations becoming impossible due to unavoidable occurrences (e.g due to civil unrest), or c) breakdown of diplomatic or commercial relations. Conclusion It is argued that the seller AFEC Inc. had conducted a fraudulent transaction since the seller must have been aware of the inability to supply a large quantity of grain, of the specified quality specifications, within the stipulated time period, at the agreed upon cost, but failed to inform the buyer sufficiently well in advance. The seller, AFEC Inc may be sued for breach of contract. Read More