Abstract
The purpose of this paper is to provide a reasonable explanation on the right of the injured party in a commercial contract to file for damages on the breach of contract. The applicable Incoterm contract was also discussed based on the non-delivery of goods as stated in the contract. The article discussed the rights available to the buyer or the seller for the failure on the part of one of the parties to the commercial contract to fulfill their obligations that were previously agreed upon. The valid grounds that will allow the parties to recover for damages were also discussed in detail. The concept of consequential damages due to lost profits or the amount to be awarded by the court should be on the basis of the actual losses sustained by the injured party was clearly explained in the article. The legal basis for the recovery of damages was explained using peer-reviewed journals, articles and international business law books as references.
Keywords: breach of contract, damages, certificate of inspection, purchase price, buyer and seller.
SUSTAINABLE DEVELOPMENT AND INTERNATIONAL BUSINESS LAW
1.) Yes, the buyer can claim for reimbursement of the purchase price of RMB 201,000 that was actually paid to the seller and can also claim for damages due to breach of contract. Based on the given set of facts, the seller violated the terms of the contract when it failed to obtain a certificate of inspection from the State of Administration of Import and Export Commodity that will certify the quality and quantity of the goods. Under the common view, it shall be the moral duty of the parties to a contract to keep their promises if order to avoid an action for breach of contract.
The facts of the case shows that the seller had the deliberate intention not to obtain the required certificate of inspection by arguing that since the goods had already passed the Chinese customs, it serves as proof that the said goods were deemed inspected and that the goods had been presumed to be of satisfactory quality. In this given case, the seller’s argument is clearly devoid of merit since the goods were of poor quality due to disproportionate sizes, failure to match the coloring charts and poor workmanship was shown when the fillings of the jackets leaked on both the inside and the outside. Such circumstances will show that the seller failed to meet the standards and quality of goods as specified in the contract. Failure to comply with the terms and conditions stated in the agreement is tantamount to breach of contract that will entitle the buyer to claim for reimbursement and damages.
The rule of common is that where one of the parties to the contract sustains a loss by reason of breach of contract shall be entitled to be compensated for the lost economic interest based on the contract. Where specific performance is no longer available, the injured party should be placed in the same situation as if the contract has been performed by being paid or compensated for the loss that was incurred (Cohen and McKendrick, 2005, p.288).
Based under the contract law, the buyer shall be entitled to claim consequential damages for breach of contract for the lost profits that the buyer would have earned by re-selling the goods to third parties. The court upholds the right of the injured party to claim for economic loss sustained in the event that there is a breach of contract. The court protects the expectation interest on the part of the injured party. In effect, it is the duty of the court to place the plaintiff in a position where such person is supposed to experience if the contract had been performed as originally planned (Emanuel, 2006, p.327).
In this given case, the buyer sustained extraordinary losses that resulted when it failed to perform its obligation to its client, Leisure’s Company for the resale of the goods. Thus, due to return of the rejected goods due to poor quality Leisures Company sought for damage amounting to 28,333 dollars. If the seller was only able to deliver quality goods, the buyer would not have been obligated to pay its client, Leisures Company the sum of 28,333 dollars. It was clearly shown that the seller sustained economic losses when the goods where returned and even have to pay for damages for not being able to comply with his obligation.
Thus, the buyer should be given full compensation for losses sustained that resulted due to such losses. Under the concept of consequential damages, which is the biggest part of commercial damages that may have resulted due to lost profits, the amount to be awarded by the court should be on the basis of the actual losses sustained by the injured party in order to avoid paralyzing trade and commerce (Roach, 2003). The consequential damages must be computed based on the start of the actual date of the trial for the determination and computation of the lost profits (Roach, 2003).
In this given case, the buyer is entitled to claim the amount of RMB 201,000 and 28,3333 dollars paid to its client, Leisures Company for failure to deliver the goods as expected. The buyer is not only entitled to claim for actual damages to be computed on the pecuniary loss sustained, but can also recover consequential damages, which should be based on income projections and lost profits (Roach, 2003).
According to the provisions of the Incoterms 2010 on CIF Contracts, it shall be the obligatory on the part of the seller to obtain evidence of conformity, such as pre-inspection certificates and certificates of quality required by the contract of sale (A1 CIF). Therefore, the failure on the part of the seller to obtain, procure and prepare the documents that are part of the pre-requisites as stated in the commercial contract is tantamount to a breach of contract (Carr and Stone, 2014, p.31).
The contractual duty is unconditional which simply means that the contract does not provide for parties to be excused from their obligation to perform under problematic contingencies, to pay such a high cost (Shavell, 2006, p.839). Both the seller and the buyer would want that they comply with specific performance based what was previously agreed upon based on the contract. Thus, specific performance can be defined as that which would have reflected the true wishes of the parties, or the duty to perform based on the terms of the contract.
In fact, the buyer has duly notified the seller two days after the delivery of the goods, or on October 20, 2005 that it wishes to return the goods due to poor quality. The seller failed to respond despite the notice, which left the buyer with no other course but to sell the goods at a discounted price. Despite giving the proper notice to the seller, the buyer was even forced to pay damages to its client, Leisures Company for not being able to fulfill its obligation to deliver quality jackets for resale.
It was clearly stated in the contract under Clause 5 that the buyer is given 30 days from the time of the arrival of the goods to raise any claims or objections pursuant to that inspection report. Therefore, the failure of the seller to obtain the particular inspection report has given the buyer the right to file a claim. In fact, the buyer has filed a timely claim when it notified the seller on October 18, 2005, which is sixteen (16) days from the time of the arrival of the goods on October 4, 2005, that it had the intention to return the goods due to poor workmanship. The seller deliberately intended not to reply despite the notice, which is a clear manifestation of bad faith on his part.
The seller’s failure to obtain the necessary certificate of inspection from the State of Administration of Import and Export Commodity that will certify the quality and quantity of the goods prior to the delivery of the said goods makes him liable for breach of contract. Therefore, the buyer is entitled to claim for economic loss, loss of profits and damages. Furthermore, the report issued by the Beijing Department of Quality Control that the jackets that were delivered to the buyer were “below-grade” shows that the goods did not pass the quality control under Chinese customs.
2.) The Incoterm that is applicable to this particular case is CIF or the cost, insurance and freight. CIF is the term that is applicable in this case since the seller under the CIF contract must ensure that the goods are of good quality by requiring the seller to tender the documents specified in the contract of sale, such as the certificate of inspection. In the absence of an express stipulation, the seller should tender the following documents including the bill of lading, insurance policy, invoice and the documents required by customs (Carr and Stone, 2014, p.21).
Where the seller fails or refuses to tender the valid documents, or to deliver the goods, the buyer has the right to sue for damages for non-delivery (Carr and Stone, 2014, p.21). In this particular case, while it may be true that the seller was able to deliver the goods on time, it was shown that the seller has deliberately intended not to obtain the required certificate of inspection. Such failure to tender a valid document has given the buyer the right to sue and file for damages. The argument of the seller is equivalent to bad faith since it later turned out that the goods were of poor workmanship. The seller’s explanation that the goods had already passed the Chinese customs cannot serve as proof that the said goods had been inspected and considered to hold satisfactory quality.
Therefore, the seller’s argument cannot be considered as a valid defense due to the unsatisfactory quality of the goods based on disproportionate sizes, failure to match the coloring charts and poor workmanship. The failure of the seller to obtain a certificate of inspection from the State of Administration of Import and Export Commodity is equivalent to non-delivery of a valid document that will certify the quality and quantity of the goods. Under the principle of common view, it shall be the moral duty of the parties to a contract to keep their promises if order to avoid an action for breach of contract (Cohen and McKendrick, 2005, p.288). Such being the case, the buyer is entitled to recover reimbursement for the amount the he paid based on the contract price of RMB 201,000 and can also claim for damages.
Part of the obligation of the seller is to deliver the goods that shall match the description mentioned in the contract. The CIF Contracts under Incoterms of 2010 (A1 CIF) states that under the rules, the seller must provide goods that are in conformity with the contract of sale, to procure and prepare the documents (Carr and Stone, 2014, p.31). Thus, there is a clear showing that the seller failed to deliver the goods that will match the description in the contract due to disproportionate sizes, failure to match the coloring charts, and poor workmanship. It was also shown that the fillings of the jackets leaked on both the inside and the outside, which left the buyer with no other choice but to sell the goods at a discounted price in a nationwide liquidation of sale. In effect, the buyer suffered loss of profits, which entitled him to claim for economic loss or loss of profits and damages.
Another point to highlight is the fact that it was clearly stated in the contract under Clause 5 that the buyer is given 30 days from the time of the arrival of the goods to raise any claims or objections pursuant to that inspection report. Therefore, the failure of the seller to obtain the particular inspection report has given the buyer the right to file a claim. In fact, the buyer has filed a timely claim when it notified the seller on October 18, 2005 or sixteen (16) days, from the time of the arrival of the goods on October 4, 2005 that it had the intention to return the goods due to poor workmanship. The seller deliberately intended not to reply despite the notice, which is a clear manifestation of bad faith on his part.
Under Incoterms 2010 on CIF Contracts, it shall be the duty or obligation of the seller to obtain evidence of conformity, such as pre-inspection certificates and certificates of quality required by the contract of sale (A1 CIF). The failure on the part of the seller to procure and prepare the documents mentioned in the contract is considered a breach of contract (Carr and Stone, 2014, p.31).
Finally, a common view is that the moral duty of the parties to a commercial contract should keep their promises, wherein it can be implied that contracts should not be breached (Shavell, 2006, p. 865). Therefore, the law should specifically enforce contracts.
References:
Carr, I. and Stone, P., 2014. International Trade Law, 5th ed. New York: Routledge.
Cohen, N. and McKendrick, E. , 2005. Comparative Remedies for Breach of Contract. Oregon. Hart Publishing.
Emanuel, S., 2006. Contracts. New York: Aspen Publishers.
Roach, G. P., 2003. “Correcting uncertain prophecies: An analysis of business consequential damages”. The Review of Litigation, 22, 1, pp. 1-68.
Shavell, S., 2006. “Specific Performance Versus Damages for Breach of Contract: An Economic Analysis”, Texas Law Review, 84, 4, pp. 831-876.
