Offer and Acceptance in Contract Formation
Question:
Discuss about the Contract Law Of James Operates Furniture Store in Sydney.
James operates a furniture store in Sydney offering collectibles and antiques for sale. He emails Mr. Iwento, who is a Kamarian on his interest to purchase wooden elephants. Iwento offers James 100 elephants at $1000 each. James replies to Iwento telling him that he would accept the statues at $1000 each but only on Delivery Duty Paid (DDP) terms and not Free On Board (FOB). He further writes to him that he will pay a deposit of 40%, and later pay 60% when he receives the statues. Iwento does not communicate to James, but three weeks later James receives a call from the customs boarder In Australia telling him that his consignment has arrived. The officer at the boarder also advises him that he should pay an import duty of $1500 for the statue and that the statues will not be available for another week. The statues will not be available as they have t be checked for insects as there is no record of treatment before leaving Kamaria. The officer further advised James that several of the statues appear damaged due to lack of sufficient packaging.
In this scenario, the issue is whether a contract exists between Iwento and James and what are the terms of the contract. Also, the other issue is whether James can claim any damages against Iwento for any breaches of the contractual terms. The other issue is which incoterm applies to the contract, whether Delivered on Duty or Free of Board
Cartwright (2014) asserts that for a contract to be valid there has to be offer and acceptance. When one party makes a statement which is clear, and can be accepted by the other party to agree, it amounts to a valid offer. Offer shows the willingness of a party to enter a contract. According to Dimmateo 2009, p.236)acceptance in a contract can either be communicated or construed by the performance and thus amount to a bilateral contract. In the case above the contract is also governed by United Nations Convention for the International Sale of goods CISG incoterms which apply to Australia, because it is a signatory. The scenario does not state whether Kamaria is a signatory, but James makes an offer made under the CISG, hence acceptance will also be construed under CISG.CISG applies to contracts where the contracting parties are members of different states. Hence the CISG can apply to the agreement made by James and Iwento. Under the CISG, incoterms, on the formation of a contract provides in Article 19 (1) that a reply to an offer which contains additions or modification becomes a counter offer. If the terms do not materially alter the terms of the contract, then it will amount to acceptance but with little modifications on offer Cross & Miller (2011).
Article 23 provides that when an offer becomes effective according to the CISG, the contract becomes conclusive.18 (1) includes both conduct and statement by offeree as indicating acceptance, silence does not mean acceptance under this provision. 18 (3) provides that performing an act like dispatching goods or payment amounts to acceptance. CISG under article 32 requires that goods are properly packaged, which is in a way to preserve and protect the goods as stipulated in article 2 Burnett &Bath (2009).
Application of CISG and Incoterms
Hinkelman, Denegri, Kang, Goheen, Freitas, Wooley, Shippey, Auerbach, Waring, Clark, & Curry, (2010) shows that Under DDP incoterms, the seller is required to ensure the goods are delivered to the buyer has paid all the duties, taxes, and any other expenses incurred when delivering the goods until the goods are cleared. DPP represents a maximum obligation when handling the goods.
Given the above, according to the CISG, we see that here is the formation of a valid contract. After a series of communications, Iwento makes an offer to sell 100 Statues to James at $1000 each per FOB. However, James writes a response telling Iwento he will accept his offer of 100 statues at $100 each but on DPP terms. This amounts to a counter offer as per section 19 (1) of the CISG, where the terms are varied. Iwento does not communicate back, but James is informed by the customs that his consignment arrived and he is required to pay $1500 import duty. We see that when James responded, he makes a counter-offer varying the terms to be on DPP terms and not FOB. Iwento by conduct and with the capacity of the offeree, when he sends the consignment and it arrives in Australia accepts the offer, creating a legally binding contract. This means that he had read and accepted James’ terms to import 100 statues for $1000 each and on DPP terms. Therefore under section 18 (3) of the CISG, an acceptance exists in this situation by performance (Roth & Happ 2017). Therefore a valid contract comes into existence. More so, James commits to his offer when he offers to pay 40% in advance and 60% upon completion
A valid contract is formed under James’ terms which he offered to take the 100 statues under Delivered Duty Paid terms. Under these terms, the risk of the seller is extended further than the Free On Board terms. Kumar (2015) shows that under the DPP incoterms the seller is required to pay the $1500 import duty. The DPP incoterms place maximum responsibility on the seller, including clearance and ensuring that the packaging was well done. The DPP also requires that the seller takes necessary measures to ensure that the goods are in good condition, and in this situation insect free Lista (2016).
Conclusion
A valid contract comes into existence after offer and acceptance and in this scenario when goods are transported by Iwento to Australia. Despite the lack of communication, a valid contract comes to existence by performance, When the contract comes into existence, the counter-offer made by James are majorly the terms used to construe what the terms of the contract will be. In this Case, CISG applies, and we see a fundamental breach in different aspects. First of all, the seller does not perform due diligence in the packaging, and many statues arrive broken. The seller also, does not treat the wooden statues, causing further delay and inspection in the customs. Lack of treatment could also cause some of the statues to be destroyed hence making them unusable. We see under CSIG and the DDP incoterms, that the seller must ensure that goods arrive in good condition and that packaging is sufficient. We see the seller has maximum responsibility in ensuring that the goods arrive in good condition. Consequently, the sellers’ lack of due diligence leads to a fundamental breach making the statues reach the border spoilt and due to improper packaging, and perhaps lack of treatment. Consequently, the seller is liable for breach and should pay damages.
James can claim for specific performance in regards to payment of the import duty of $1500. This is because under DDP intercorns the seller is required to pay all duties and taxes Kumar (2015). James can also claim for damages in the form of a refund for the goods which arrive spoilt and the amount he may use to treat the wooden statues. In the scenario we see goods appear damaged due to improper packaging and perhaps lack of treatment. Not packaging the goods properly is a breach of CISG rules section 32. Claims can also be made on the expenses James incurs while collecting the goods, especially if the goods are taken to a port which he may not have chosen or not convenient to him. The risk transfers to the buyer when goods are made available to the seller. So in the scenario, the goods being delayed are still the seller’s liability, inspection damages or when offloading the goods during the process, could increase the seller’s liability (Gillette& Walt 2016, p. 276).
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