Contract of International Sale of Goods - Assignment Example

Running Head: International Contracts International Contracts Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date According to Bonell (2009) a contract has the following six elements: offer and acceptance, mutual agreement, consideration, competent parties, legality of purpose and must be in a proper form. Offer and acceptance is an element of contract that shows the indication of a parties’ intention to enter into a binding contract with one another, while on the other hand acceptance is agreeing to be bound by the offer. Acceptance cannot be subjective and involves a communicated acceptance of the offer (Schlechtriem and Schwenzer, 1998). In the case the offer is made by Printco whose representative has travelled to New York to negotiate a sale of 15 print presses to Worldnews. Worldnews’ acceptance of the offer is on condition that any dispute in the contract is arbitrated using New York law. The second element of an agreement that must be present is mutual agreement. According to Bonell (2009), mutual agreement is where both parties agree on the common purpose of the agreement and the terms of the contract. Both Printco and WorldNews are aware the contract is for the sale of 15 print presses and it is shown in the case that they both agreed to a final price of fifteen million for the 15 presses. Consideration is another important element in establishing the presence of a contract between parties. Consideration refers to the service, money or good given in exchange for a service or a good (Schlechtriem and Schwenzer, 1998). In this case the consideration for the 15 print presses accepted by both parties is fifteen million US dollars. Legal capacities of parties or competency of parties to enter into contract is another important element that must be present to make a contract legally binding. According to Beale et al (2010), the capacity of a trading organization to contract is granted by its constitution. From the case both PrintCo and WorldNews are incorporated in Germany and the United States respectively. A Company is a competent party as it has the same powers to contract as an individual. Legality of purpose is concerned with the intentions of parties in making a contract. A contract must not be made for a purpose that is illegal for example a contract to kill a person or to buy stolen goods (Beale et al, 2010). The purpose of this contract is the transfer of ownership of the 15 printing presses from the Manufacturer; PrintCo to the buyer Worldnews. This is an ordinary sale of goods contract and there is no indication of the parties engaging in an illegality by participating in this contract. Generally oral and written contacts are acceptable proper forms of contracts. Under United States law a contract of sale of Goods that is above $500 must be put in writing (Robertson, 2010). Evidence that the Contract between Printco and Worldnews is in a proper form is shown by the presence of a clause to arbitrate any dispute in the contract using New York law. This clause shows that the contract is in a written form. Therefore, with all the elements of a contract present, the contract between Printco and WorldNews is legally binding. Part 2 WorldNews as the buyer of the print presses may argue that Printco breached their contract by delaying the shipment of the presses and also by delivery of one of the presses in a damaged condition (Xia, 2011). WorldNews as the buyer performs its part of the contract by inspecting the presses upon arrival and when it notices one of the presses is damaged it gives notice to Printco. At one point Printco asked Worlnews to pay an additional 20% as the cost of production had gone up. WorldNews may seek the remedy of contract avoidance as provided by the UN Convention on the International Sale of Goods (CISG). However, contract termination is an extreme measure which the CISG Art. 49 (2) makes available in cases were one party has fundamentally breached the contract. If Worldnews decides to terminate the contract it would severe it contractual relationship with PrintCo and release itself from any obligation arising from the contract. According to Honnold and Flechtner, (2009), the CISG tries to prevent situations where contracts are avoided as parties to a contract have already accrued various expenses related to the transaction. One of the major advantage provided by the CISG to sellers is that it has provisions where the seller can increase the price of commodity to cover any increase in the production cost. Printco uses this provision to pass on the increased cost of producing the presses to World news and this therefore cannot be taken as a breach of the contract. In this case, PrintCo as the seller has already paid for shipping of the presses and for their insurance during shipment. Therefore, if Newsworld decides to terminate the entire contract, PrintCo will make huge losses due to the cost it incurs in performing the contract. Alternatively, since only one of the presses is damaged, WorldNews may seek for a price reduction as remedy for the damaged press as provided by Article 74 of the CISG. Worldnews may also ask PrintCo to send another Press to replace the damage one (Enderlein and Maskow, 1992). The price reduction remedy and the ability to ask for replacement goods are an advantage to buyers applying the CISG in resolving contractual disputes with international sellers. On the other hand, PrintCo’s late delivery can by remedied by giving Printco additional time to deliver the damaged press. According to Enderlein and Maskow (1992) late delivery of Goods does not constitute Fundamental breach unless the buyers intended use of the goods becomes impossible or the buyers interest in receiving the goods ceases. Worldnews may be unable to access CISG remedies because the “CIF” terms of the contract take priority over the CISG especially in situations where risk is being transferred (Speidel, 1995). On the other hand Printco may argue it has not received payment for the goods shipped. The banks refusal to pay Printco is unjustified as the misspelling is a minor discrepancy that does not change the intention of the letter of Credit (Zhang, 2012). Secondly, the term of sale in the contract was “CIF” meaning responsibility for the goods passed on to WorldNews once the goods were loaded on to the ship (Zhang, 2012). Therefore, Printco may refuse to remedy the damage to one of the presses by a price reduction or replacement goods as WorldNews may want. PrintCo can argue that Article 9 (2) of the CISG binds Worldnews to the CIF terms of the contract as it only requires a party to be familiar with INCOTERMS in order to be bound by them (Honnold and Flechtner, 2009). Under the CIF terms and NachFrist Period of the CISG, Printco may argue that it was either not responsible for the delay of the shipment or that it had additional time to perform the contract (Enderlein and Maskow, 1992). Although Printco did not fully comply with the contract by delivering 14 of the agreed 15 presses in good condition, PrintCo substantially performed its end of the contract. In this case Printco may prevail over WorldNews if the dispute was to be resolved in a court. By accepting the “CIF” clause in the contract WorldNews accepts responsibility for damage of the Goods being shipped to them (Honnold and Flechtner, 2009). The buyer cannot result to the CISG to avoid the contract or neither obtains the remedy of price reduction or replacement of Goods as the term of the contract make it impossible for WorldNews to access these remedies. According to Enderlein and Maskow (1992) the CISG is meant to keep parties in a contract rather than provide ways of terminating contracts. The CISG seeks to make sure one country national laws do not take precedent over the laws of another trading partner. Most disputes arbitrated by applying CISG are decided in the source country in this case (Enderlein and Maskow, 1992) Germany the home country of Printco would be the first option for settling this dispute. However, the two parties had agreed to apply New York law to any dispute that arose meaning New York is the most probable option for resolving this dispute. A third option would be to use an international arbitration tribunal located in a third country. PrintCo will be able to access the 15 million paid for the 15 presses as the terms of the contract favour them (Xia, 2011). PrintCo’s insistence on the use of a letter of Credit is very advantageous as they only have to show conformity to the Sale of Goods contract to access payment. In this way the use of the letter of credit ensures Printco will receive payment for the goods shipped regardless of whether Worldnews may dispute Printco’s contract performance. Consequently, the use of a letter of credit places the seller at a significant disadvantage especially where the conditions of sale are CIF. References Beale, H., Tallon, D., Vogenauer, S., Rutgers, J. W., & Fauvarque-Cosson, B. (2010). Cases, materials and text on contract law. Hart. Bonell, M. J. (2009). An international restatement of contract law: the UNIDROIT principles of international commercial contracts. Martinus Nijhoff Publishers/Brill Academic Publi. Enderlein, F., & Maskow, D. (1992). International Sales Law: United Nations Convention on Contracts for the International Sale of Goods: Convention on the Limitation Period in the International Sale of Goods: Commentary. Oceana Honnold, J., & Flechtner, H. M. (2009). Uniform law for international sales under the 1980 United Nations convention. Kluwer law international. Robertson, D. (2010). Symposium Paper: Long-Term Relational Contracts and the UNIDROIT Principles of International Commercial Contracts. Austl. Int'l LJ, 17, 185. Schlechtriem, P., & Schwenzer, I. (Eds.). (1998). Commentary on the UN Convention on the International Sale of Goods (CISG). Clarendon Press. Speidel, R. E. (1995). Revision of UCC Article 2, Sales in Light of the United Nations Convention on Contracts for the International Sale of Goods, The. Nw. J. Int'l L. & Bus., 16, 165. Xia, Y. A. N. G. (2011). Application and Control of International Conventions to Settlement of Export Enterprise by Letter of Credit. Business Economy, 3, 012 Zhang, Y. (2012). Documentary letter of credit fraud risk management. Journal of Financial Crime, 19(4), 343-354. Read More