Business law Tyler\'s Sport\'s Bar and Grill ordered twenty cases of vintage win
ID: 450201 • Letter: B
Question
Business law
Tyler's Sport's Bar and Grill ordered twenty cases of vintage wine from a winery in Southern France. The Contract called for the wine to be shipped "CIF" aboard a vessel leaving Nice and arriving at the Port of Philadelphia on the Delaware River two weeks later. When Joe Roberts uncorked the first bottle soon after the shipment arrived, he discovered that all of the wine had spoiled. A sample bottle had been tested prior to shipment and no problem was detected. Robert is now wondering what, if any, legal action he may take to recover the cost of the wine.
Questions:
1. Based upon what laws will this matter proceed?
2. Who do you believe will win the lawsuit? Please explain
Explanation / Answer
The great majority of international shipping contracts may be classified either as c.i.f. (cost, insurance and freight) contracts or f.o.b. (free on board) contracts. These terms and their meanings have developed over many years in accordance with the practice of merchants and the interpretation of the intention of the parties adopted by the courts. C.i.f. is one of the oldest and probably most well known in general trade.
C.i.f. is one of the most popular trade terms used in international sale contracts where sea carriage is involved:
It is a type of contract which is more widely and more frequently in use than any other contract used for the purposes of seaborne commerce. An enormous number of transactions, in value amounting to untold sums, are carried out every year under c.i.f. contracts.
The seller is to ship, at the time specified in the contract or, when the time is not expressly provided, within a reasonable time, goods of the contractual description in a ship bound for the destination named in the contract. The seller also has the option of purchasing goods of the contract description already afloat. The obligations of the seller under a c.i.f. contract are performed by the tendering of the shipping documents to the buyer as soon as possible after shipment. This entails the delivery of a bill of lading for the carriage of goods, a policy of insurance covering the reasonable value of the goods and an invoice showing the amount due from the buyer.
C.i.f. contracts are attractive to both the seller and the buyer. The seller can charge a higher price since the extra services of obtaining shipping space and insurance are taken into account. The margin of profit for the c.i.f. seller could be substantially higher than in the case of an f.o.b. contract due to the fact that he is normally likely to obtain reasonable rates for insurance and carriage. Moreover, the seller is usually paid for the goods before their arrival at destination, that is, upon the tendering of the documents to the buyer or to the bank in the case of a documentary credit arrangement.
COMMERCIAL SALE UNDER MALTESE LAW:
The contract of commercial sale has always been considered to be the most important of commercial contracts since it concerns the objective act of trade “par excellance” i.e. the purchase of a thing for the purpose of reselling it. It is rather strange that after recognising the importance of the contract of commercial sale, our legislator did not include express provisions in the Commercial Code to govern such a contract.
It was clearly the intention of the legislator to regulate commercial sales by means of the provisions of the Civil Code. In section 3 of our Commercial Code, which lays down the sources of Maltese commercial law, it is stipulated that the civil law is to apply in the absence of any provisions in the Commercial Code relating to commercial matters and in default of any usages of trade.8 It must be noted that the intention of the legislator does not fit in perfectly with the hierarchy laid down in section 3 because usages of trade, which are to prevail over the civil law, have been ignored.
In an international sale transaction we have a number of subsidiary contracts with which the contract of sale is very closely connected such as the contract of carriage of goods and the contract of insurance. The delivery of the shipping documents also plays an important role because such documents are considered to represent the goods and thus the delivery of the documents amounts to the delivery of the goods. Furthermore, it is common to have payments made under documentary credit, which requires two further contracts, that is, the contracts of the bank with the buyer and the seller respectively.
Export transactions frequently embody special trade terms which are not customary in home transactions. Our focal point is the c.i.f. clause, a trade term which has been developed by international mercantile custom and is in universal use in foreign trade transactions. There is no specific mention of this special trade term in Maltese law, however there is no doubt that the rights and obligations emanating from it have been imported into our law by usage. This is evidenced by the fact that a considerable number of c.i.f. sales are conducted annually and our courts have been interpreting this clause since the beginning of the previous century.
THE ESSENCE OF THE C.I.F. CONTRACT:
The essential feature of the c.i.f. contract is that a seller fulfils his part of the bargain by tendering to the buyer the proper shipping documents and not by the actual physical delivery of the goods. On presentation of regular and complete shipping documents the buyer is bound to pay the price, irrespective of the arrival of the goods. The buyer cannot refuse the documents and ask for the actual goods, nor can the vendor withhold the documents and tender the goods they represent.
The obligations imposed on a seller under a c.i.f. contract are well known, and in the ordinary case, include the tender of a bill of lading covering the goods contracted to be sold and no others, coupled with an insurance policy in the normal form and accompanied by an invoice which shows the price and, as in this case, usually contains a deduction of the freight which the buyer pays before the delivery at the port of discharge. Against tender of these documents the purchaser must pay the price. In such a case the property may pass either on shipment or on tender, the risk generally passes on shipment or as from shipment, but possession does not pass until the documents which represent the goods are handed over in exchange for the price. In the result, the buyer, after receipt of the documents, can claim against the ship for breach of the contract of carriage and against the underwriters for any loss covered by the policy. The strict form of c.i.f. contract may, however be modified. A provision that a delivery order may be substituted for a bill of lading or a certificate of insurance for a policy would not, I think, make the contract be concluded on something other than c.i.f. terms.
The seller is not obliged to deliver the goods at the agreed destination; he is only under a negative duty not to prevent the goods from being delivered to the buyer at the destination.
A (c.i.f.) buyer who takes delivery from the ship at the port of destination is not taking delivery of the goods under the contract of sale, but merely taking delivery out of his own warehouse.
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