Legal Positions of Artefacts and Midas - Case Study Example

 1. Legal Positions of Artefacts and Midas The legal relation between Artefacts and Midas is based upon the provisions of the contract that they both entered into. By definition, a contract is a legal instrument signifying the meeting of the minds between parties to deliver certain goods or perform specific services (McKendrick, 2009). In order for a contract to be valid, certain requisites must be met including an offer and acceptance of the offer, legal consideration, capacity of the parties to enter into contract and compliance with the formalities of contract (McKendrick, 2009). As stated by the Court in the case of Tweedle v Atkinson1, for the contract to be enforceable, the parties must commit themselves to reciprocal promises to deliver something of value to the other party. In our hypothetical case, Artefacts is juridical entity while Midas is a businessman and presumably owns a legal business. As it is, we can safely assume that both parties are legally capable to enter into contract. When it comes to the object and consideration of the contact, Arterfacts offered the antiques for sale to Midas, a merchant based in Australia. The offer was accepted and a letter of credit was drawn as payment for the antiques. Based on the facts, we can safely say that we have a valid contract that is enforceable among the parties thereto. By virtue of the valid contract existing between Midas and Artefacts, the two parties are now bound to fulfill the provisions of the contract. The obligation of Artefacts towards Midas is to deliver the goods in good condition and in a timely manner. On the other hand, the obligation of Midas towards Artefacts is to pay consideration stipulated in the contract. The failure of Arterfacts to deliver the antiques to Midas as specified under the contract constitutes a breach of the agreement. Note that Midas specifically told Artefacts that he wants to auction the antiques on the last week of March but the goods arrived on April 1. Even if the parties did not specifically stipulate the exactly date as to when the goods are supposed to arrive in Sydney, the intentions conveyed by Midas to Artefacts constitutes an implied obligation on the part of Artefacts to deliver the items in question on or before the last week of March. Any delays and deviations from the agreed date of delivery can held as breach of contract and may be used as grounds for recovery of compensation for damages and other remedies afforded by law to the aggrieved buyer. However, before damages can be awarded to the aggrieved party, the party seeking compensation must show to the court that it suffered injuries or damages due to the acts or omissions of the party at fault. Only when the aggrieve party is able to prove the court that the acts or omissions of the other party caused the damage shall the court award compensation to the aggrieved party. In the case at bar, can Artefacts successful put the blame for the delay on the courier? No, Artefacts cannot wash its hands and put the blame entirely on the courier, Hurricane Liner. There are at least two contracts existing between the parties at this point. The first, there is a contract of sale between Artefacts and Midas and second, there is a contract for the delivery of the antiques between Artefacts and Hurricane Liner. According to the Court in the case of Suisse Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale2, the contract of sale governs the buyer and the seller only and not the courier that is hired to deliver the goods. We have to understand that only those who are privy to the contract are bound by the provisions of the contract. Even if a person or entity has interest over the subject of the contract in question, if that person or entity is not directly involved or is not a party to the contract, that person or entity does not have any enforceable right based on the contract. Since the contract of sale is between Artefacts and Midas, Artefacts cannot escape responsibility from the delay in the delivery of the item by passing the blame to the courier, Hurricane Liner. We have to understand that Hurricane Liner is not part of the contract of sale so Midas has no legal relationship with the courier. Since there is no legal relationship between Hurricane and Midas, the former could not be held liable to Midas for the delay but rather, it is liable to Artefacts who contracted it services. Note that the contract between Hurricane and Artefacts are separate from the contract between Artefacts and Midas. Since there are two different contracts involved in this case, we have to distinguish the obligations, rights and remedies of the parties involved in the two different contracts. With regards to the contract of sale between Artefacts and Midas, Midas has the right to reject the goods delivered to him if such goods do not correspond to the description stated in the contract of sale. As stated by the Court in the case of Saphena Computing v. Allied Collection Agencies3, the parties to the contract may set standards of quality in the goods that are offered by way of contract to have basis for redressed. Any deviations from the agreed quality of the goods can be considered as a breach of contract and may be used as basis to institute certain remedies in Court. According to Section 11N of the Supplies of Goods and Services Act 1982, the buyer of the goods may require the seller to repair or replace the good when the goods delivered do not conform to the quality agreed in the contract. Moreover, section 11N of the Supplies of Goods and Services Act 1982 states, all expenses in the relation to the repairs or replacement of defective goods shall be for the account of the party at fault. If the goods are rendered useless to the buyer due to delay or fault of the seller, the buyer may ask the seller for reduction of the purchase price or the recession (Supplies of Goods and Services Act 1982 Section 11P). In the case of Artefacts and Midas, Midas has the right to ask Artefacts for the recession of the contract because the antiques arrived later than the specified time when Midas was supposed to auction the antiques. Aside from asking for the recession of the contract of sale, Midas can also demand from Artefacts the return of the money paid by Midas in consideration of the sale of the antiques. However, Midas cannot compel Artefacts to return the entire amount paid since Artefacts has already incurred some expenses for the delivery of the goods. According to the Sales of Goods and Services Act 1982, in case of recession of contract, the seller may deduct the reasonable expenses it incurred to deliver the goods to the buyer. Deducting a portion of the amount paid to cover for expenses incurred by the seller in delivering the goods to the buyer is an equitable measure to protect the interest of the seller (McKendrick, 2009). The recession of the contract does not bar Midas from demanding for compensation for damages in relation to the non-delivery of the goods on time. According to the court in the case of Dunlop Pneumatic Tyre Co Ltd v Selfridge Co Ltd4, if one party incurred damages due to the acts of the other, that party may institute a case for recovery of damages from the other party. However, despite the fact that the parties find it hard to enforce the contract due to the failure of one or both parties to perform what is required of it, if a party involved did not sustain any damages or loss due to the failure of the other party to perform its obligations, that party may not be entitled to compensation for damages (Dunlop Pneumatic Tyre Co Ltd v Selfridge Co Ltd5. This means that if Midas cannot show to the court that he sustained damages or losses due to the non-delivery of the antiques, he cannot recover damages from Artefacts. On the other hand, if Midas can show to the court that he incurred losses due to unrealized business transactions due to the failure of Artefacts to deliver the antiques in time for the auction, Midas may be able to recover damages for economic losses. When it comes to Artefacts’ remedies, it can go after Hurricane Liners for breach of contract for failure to deliver the antiques on time. Artefacts can also demand for compensation for damages and losses from Hurricane Liners, following the rulings of the court in the cases of Hedley Byrne6 v Heller and White v Jones7. However, the remedies afforded by law to Artefacts are subject to the clauses of the contract of insurance. In other words, the remedies for recovery of damages are affected by the agreements of the parties. 2. Potential liability of Moneywise to Artefacts According to the court in the case of Gian Singh v Banque de L'Indochine8 and in the case of Hamzeh Malas & Sons v British Imex Industriers Ltd9, the principles of strict interpretation of the provisions of the letters of credit bind the bank to honor the letter of credit when presented together with proof of compliance of the provisions thereof. Under the principle of strict interpretation, the provisions in the letter of credit are to be literally interpreted by the parties. Moreover, the principle of strict interpretation does not allow the bank to make any diversions from the instructions stated in the letter of credit. Based on this decision of the court, we can surmise that the bank has the obligation to ask the holder of the letter of credit to present documents that will satisfy the requirements of the letter of credit. According to the court in the case of O’Meara (Maurice) Co v National Park Bank10, the obligation of the is limited to what has been stipulated in the letter of credit and it has no obligation to personally examine or verify if the terms and conditions of the sales contract between the buyer and the seller have been satisfied before it honors the letters of credit. As it is, if the beneficiary presents the draft to the bank together with the requirements needed for the release of the money, the bank is has the obligation to honor the drafts even if it has reason to believe that the contract of sale has been frustrated. Since the bank is bound by the terms and conditions stipulated in the letter of credit, the bank is duty bound to compel the beneficiary of the draft to present the evidences needed for the bank to honor the draft. As it is, the bank is bound to explain to the bearer of the letter of credit the requirements needed for the acceptable of such letter of credit. In the case at bar, when the bank failed to explain Artefacts why it rejected the letter of credit, Artefacts hired the services of a lawyer and incurred legal expenses. Since there is no clear showing that the bank refused to give information to Artefacts when asked to do so, Artefacts cannot compel the bank to pay for the legal fees in incurred in connection with the letter of credit. Arterfacts has a copy of the letter of credit and since the provisions of the letter of credit are clearly stipulated therein, all Artefacts has to do is to read the stipulations and find out what it needs to present to the bank in order for the bank to honor the letter of credit. Moreover, Artefacts has the option to simply call the bank and demand for an explanation instead of hiring a lawyer to interpret the provisions of the letter of credit and determine what documents are needed by the bank. Since Artefacts did not absolutely have to hire a lawyer in this case, it cannot compel the bank to pay the solicitor’s fees. 3. Liability of Hurricane Lines According to English law, common careers are absolutely liable for goods carried by it except in instances of loss or damages involving natural disasters, acts of public enemies, fault or fraud by the shipper and inherent defect in the goods shipped (Gregory v Commonwealth Railways Cmr11. In the case at bar, there are three main issues that we need to address namely, (a) the legal implication of the delay incurred when Tornado in picked up some refugees along the way and was detained by the authorities for two weeks when it brought the refugees to port, (b) the liability of Hurricane Lines for the damages and loses in the cargo, and (c) the validity of the exclusionary clause in the bill of lading which absolve Hurricane Line of any liability on the cargo prior to its loading. To determine the liability of Hurricane Lines let us discuss these issues one by one. The act of Tornado in picking up the refugees falls under the exception set by the court in the case of Gregory v Commonwealth Railways Cmr12. The refugees were running away from the consequences of the acts of their enemies and in the process, they end up in the water needing help. Given the situation, it was only proper that “Tornado” pick them up and bring them to safety. The fact that the Tornado was kept ashore by the authorities pending the investigation of the case was beyond the control of the carrier thus, this situation should not be held against the carrier. Although common law dictates that carriers should not deviate from the route defined in the bill of lading or in the contract of carriage (Brandt v Liverpool Brazil & Riverplate S.S. Co.13; Joseph Thorley v Orchis SS14; Lilley v Doubleday15, Article IV (4) of the Carriage of Goods by Sea Act 1992 specifically says that "any deviation in saving or attempting to save life or property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules". The humanitarian act of the “Tornado” should not be taken against it. According to the court in the case of Gregory v Commonwealth Railways Cmr16, delays incurred by the carrier due to acts of enemies, excuses the carrier from liabilities against delay. As it is, since the Tornado picked up refugees who were victims of act of enemies, it cannot be held liable for damages for making diversions during its voyage. With regards to the second issue regarding the liability of Hurricane Lines for the damages and losses in the cargo, the Carriage of Goods by Sea Act 1992 clearly states that the carrier has the duty to load the cargo properly and see to it that the cargo reaches its destination in good condition. According to the court in the case of Lovett v. Hobbs17, since the carrier has control over the cargo is liable for any damages and loses sustained by the cargo while it is under its care. In the case at bar, some of the antiques were lost, some of them were broken and some were damaged by woodworms when they arrived at the port of destination. The fact that the goods sustained damages while they were under the care of the carrier made the carrier liable. According to the court in the case of Gregory v Commonwealth Railways Cmr18, the carrier may only be absolved from liability for losses or damages in the cargo when such losses or damages were incurred through natural disasters, acts of enemies, inherent defects of the goods or through the fault of fraud of the shipper. In the case at bar, some of the antiques were damaged by woodworms which may have come from the previous cargo of the ship. In this case, the carrier may be held liable for such damage. The carrier may also be held liable for loses and breakage in the cargo. As for the third issue regarding the validity of the exclusionary clause, the clause maybe considered as binding among the parties. As enunciated by the court in the case of George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd19, exclusionary clauses that are not unconscionable and does not put some of the parties thereto at a gross disadvantage are deemed binding on the parties. 4. Liability of Goodwill Insurance The terms and conditions stipulated under the insurance policy determine the liability of the insurer and the insured. Under the Marine Insurance Act 1906, the parties to the insurance contract must display utmost good faith in carrying out their tasks and obligations. As stated by the Court in the case of Carter v Boehm (1766)20, “insurance is a contract of speculation” where the underwriter trusts the insured’s representation and good faith forbids the parties from concealing what the privately know regarding the status or condition of the goods insured. If the parties to the contract acted in good faith and there were no misrepresentation whatsoever, the contract is considered as valid and enforceable. However, misleading statements or improper representation on the part of the insured can void the contract. According to Section 33 (3) of the Marine Insurance Act 1906, if the warranty of the insured is not complied with, the insured shall be held in breach of the contract and the insurer may be discharged from liability of damages on the cargo but “without prejudice to any liability incurred by him before that date.” In other words, if the insured misrepresented the quality or condition of the goods, the insurer cannot be held liable for indemnity from that point on. However, if the damage happened before such misrepresentation was made, the insurer may still be held liable for the damages incurred subject to other exclusionary provisions that the parties may agree upon. In our hypothetical case, the parties to the insurance contract are Goodwill, the insurer, and Artefacts, the owner of the cargo ensured. The facts of the case stated that Artefacts insure the goods in transit “under the Company's Marine Policy and Institute Cargo Clauses B.” Cargo Clauses B covers reasonable damages resulting for fire explosion, vessel or craft being stranded, sunken or capsized, vessel collision, discharge of cargo at port of distress, loss due to general average sacrifice, washing overboard, entry of water into the vessel and total loss of cargo while loading or when cargo is lost overboard.21 However, the insurer may be absolved of liabilities if the cargo is lost because of the willful misconduct of the assured, ordinary leakage, weak and tear, unsuitability of packaging, delay (even though the delay be caused by a risk insured against) and deliberate damage or destruction of the cargo insured by the wrongful act of any person or persons22. Given the facts of our case, we can conclude that Goodwill insurance does not have any liability towards Artefacts due to the following reasons (a) there was a delay in the delivery of the goods to the port of destination, (b) some of the antiques were broken and some were lost due the wrongful act of person or persons, and (c) the cargo was not properly wrapped in sealed containers, thus, woodworms were able to reach the cargo and cause damage. The fact that the delay was incurred due to humanitarian reasons does not affect the provisions of the contract between the insurer and the insured in this case. Note that when the insured institute Cargo Clauses B, it subjects itself to the provisions of these clauses. Since the clauses absolve the insurer of liabilities for damages resulting from the delay of the delivery of the goods, the insured cannot compel the insurer to pay compensation for the damages. We have to understand that the specific provisions in the contract of insurance signed by the parties governs the relationship of the parties and if the contract of insurance specifically absolves one of the parties from any liability upon the happening of a certain event, then such absolution from liability should be honored by the parties to the contract. When it comes to the broken and damaged antiques, the insurer cannot be compelled to pay for them. Note that the goods were damaged due to the deliberate actions of other persons so the insurer cannot be held liable for these damages under the insurance contract that institutes Cargo clauses B. In the same manner, the defect in the packaging of the cargo also absolves the insurer from its liability towards the insured. Note that the shipper has the obligation to pack the goods properly before shipment and the failure of he shipper to do so should not be taken against the carrier. Bibliography Books 1. Burrows A, A Casebook on Contract (2nd edn Hart, Oxford 2009) 2. McKendrick E, Contract Law (8th edn Palgrave 2009) 3. van Houtte, H., (2002) The Law of International Trade (London, UK, Sweet and Maxwell Ltd.,) Articles 1. Connal, R.C. (2007), compensation under the commercial agents (council directive) regulations 1993, Vol.28, Pp.211- 214, at page 211 Laws 1. Supplies of Goods and Services Act 1982 2. Unfair Contract Terms Act 1977 3. Carriage of Goods by Sea Act 1992 4. Marine Insurance Act 1906 Cases 1. Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1966] 1 Lloyd's Rep. 529 2. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 3. Saphena Computing v. Allied Collection Agencies [1995] FSR 616 4. Tweedle v Atkinson (1861) 1 B&S 393 5. Tyre Co Ltd v Selfridge Co Ltd [1919] AC 847 6. Gian Singh v Banque de L'Indochine [1974] 1 W.L.R. 1234 7. O’Meara (Maurice) Co v National Park Bank (1925)146 NE 636 8. Gregory v Commonwealth Railways Cmr (1949) 66 CLR 50 9. Brandt v Liverpool Brazil & Riverplate S.S. Co. (1924] 1 K.B. 575 10. Hedley Byrne & Co. v Heller & Partners Ltd. [1964] A.C. 465 11. White v Jones [1995] 1 All.E.R. 691 12. Henderson v Merrett Syndicates [1994] 3 All.E.R 506 13. Joseph Thorley v Orchis SS [1907] 1 K.B. 660 14. Lilley v Doubleday (1881) 7 QBD 510 Read More