Defendant, being a large user of coal, entered into separate contracts with seve

Question

Defendant, being a large user of coal, entered into separate contracts with several coal companies. In each contact, it was agreed that the coal company would supply coal during the year in such amounts as the manufacturing company might desire to order, at a price of $55 per ton. In February of that year, Defendant ordered one thousand tons of coal from Plaintiff, one of the contracting parties. Plaintiff delivered five hundred tons of the order and then notified Defendant that no more deliveries would be made and that it denied any obligation under the contact. In an action by Plaintiff to collect $55 per ton for the five hundred tons of coal delivered, Defendant files a counterclaim, claiming damages of $1,500 for failure to deliver the additional five hundred tons of the order and damages of $4,000 for breach of agreement to deliver coal during the balance of the year. What contract, if any, exists between Defendant and Plaintiff?

1. Highlight the pertinent facts;

2. Identify the issue of law posed by the case problem;

3. What should be the decision in the case?

4. The reasoning for such decision.

Explanation / Answer

About the contract

The contract that exists between the defendant and plaintiff is the Contract for the supply and demand of goods. According to the contract, the supplier agrees to provide the company with supplies and raw materials according to the contract and mutual agreement that has been signed between the two parties. The important documents that are being signed during the contract are price and delivery schedule, quotation form, acceptance form, mutual agreement form etc.

As described in the above case, the defendant has signed contracts with several companies. The contract agreed that the suppliers would provide coal to the defendant company during the year as much as they wish to order. They have also set the price of $55 per ton.

Details of the Contract for the supply and demand of goods

Generally, the contract covers pertinent details about the documents to be submitted, description of goods supplied, charges of payment including taxes, regarding delivery of goods, security associated with performance which shall be taken by the supplier as an assurance to supply the raw materials or goods, inspection of supplies, packaging etc. Moreover, it is according to the mutual agreement and interests of both the parties to decide upon the details of these aspects. For instance, how much penalty and what percentage of the contract price, should be set as penalty etc.

Important documents

Both the parties, the supplier and the receiver agrees to sign the contract based on integral documents such as price and delivery schedule, acceptance of bid, quotation or bid form etc.

Charges and payment

The total charge for the delivery of supplies shall be USDYYY. This is applicable to any incidental costs too. This section also covers various other details like when to pay the price, after how many days of delivery etc.

Goods or services supplied

The supplier agrees to supply the goods or raw materials in accordance with the specifications such as quantity, unit, unit price etc.

Delivery

This is a section in the contract. According to the delivery section, the defendant or receiver has the right to charge a penalty of 0.1 percent of the total amount of contract for the damages they had incurred due to delay in supply. This is calculated on a per day basis. They have the right to charge penalty for a breach of contract too.

Violation of Contract

As agreed on the contract the defendant ordered one thousand tons of coal. But they got only 500 tons.

In the case of violation of the contract, the defendant company i.e., the receiving company has got the right to terminate the contract. They can send a notice to the supplier demanding for any loss that has resulted as a result of failure of delivery.

As per the contract the penalty is normally 0.1 percent of the total contract price per day of the delay or violation or delay of delivery schedule according to the contract.

Case scenario

According to the case, it is highly justifiable that the defendant charged $1500 as claims for the damage that occurred due to non-delivery of 500 tons. The coal supplying company has agreed to collect $50 per ton. Therefore, for 1000 tons it amounted to approximately $50000. The defendant company must had incurred a loss of $ 25000 or more due to delay or no production, from the sales of finished products.

As per the contract, the defendant has an advantage to get a penalty amount of at least $2500 or more, according to the total contract amount. Assuming the contract amount of at least $ 25000 or more, the penalty amount of $1500, charged by the defendant on the plaintiff is reasonable. This can be justified according to the breach of contract.

Issue of multiple suppliers

The case states that the defendant has signed contracts with multiple suppliers. A major disadvantage of dependence on multiple suppliers is that sometimes each supplier seems to be less responsive to the demand.

At the same time, in a multiple sourcing strategy, the demand will be equally distributed among all the suppliers. This makes each supplier responsive to regarding the final decision. Moreover, the decision will always favor the defendant company according to the contract for the demand and supply of goods the companies had signed. Further, the defendant is eligible to demand a penalty for the damage incurred to them and for the breach of contract.

Decision in the case

According to the case and the contract being signed between the two parties, it is justifiable for the defendant to receive a penalty of 0.1 percent of the total contact or a percentage of the damages incurred due to delay in supply. The penalty of $4000 for breach of contract is also justifiable.

Reasoning/Rationality of decision

Further, considering the delay in production or non-production that occurred due to non-supply of coal, the defendant might have incurred loss in their sales or decrease in their total revenue. This will adversely affect the defendant’s reliability and integrity to their customers with whom they might have signed another contract regarding supply of finished product, market share and position, competitive advantage etc. Therefore, the damage that the defendant had incurred is huge and they deserve a penalty amount from the supplier. The penalty amount of $4000 is justifiable in this scenario.

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