Obligations International Trade Contracts

Goods being of bad quality

Under the Sale of Goods Act 1979, s.13(1), for the sale of goods by description, there is an implied duty that the goods will correspond with the description in the contract. This can relate to the quality of the goods as well. In the present deal, there is a possibility of there being a problem or defect in the quality of the goods because as per the terms of the contract, 4F is responsible for the import of additive from Amazon through RCL who are to supply the standard multi-modal containers to Amazon and procure the carriage of the stuffed Containers by road from the premises of Amazon to the Port of Santos (Brazil) and then by sea to the Port of Valencia (Spain), from where these are to be carried by road from Valencia to Nottingham by an arrangement ETL. HOT will not get to inspect the goods for quality at Amazon. Therefore, there is a possibility of there being a mismatch between the quality promised and quality received by HOT. This happened in Weiler v Schilizzi, where the seller in CIF terms of a cargo described goods as ‘Calcutta linseed, tale quale’, but the oil was adulterated with rapeseed and mustard seed; therefore, the seller was held to be in breach of contract.

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In this case, the payment schedule requires reciprocal undertakings by the named banks who will pay the required sums on the exchange of documents. As the banks are not in a position to inspect the goods while making the payments, the bank is only liable for making a payment if it was restrained from making such payments on account of the seller not sending the goods that match the quality agreed to as noted in Discount Records v Barclays Bank and Standard Chartered Bank v. Pakistan National Shipping Corporation.

Both CIF and FOB contracts are applicable to the contracts that relate to carriage by sea and inland waterways. The difference between these contracts relate to the point at which the risk shifts from the seller to the buyer. In FOB contract, the risk transfers to the buyer when the goods are loaded on to the carrier; whereas in CIF contract the risk stays with the seller until the documents are received by the buyer. In FOB contracts, the risks that are attached to the buyer arise from the nature of the contract and carriage terms. In a classic FOB contract, the buyer has to nominate the ship for the carriage of goods, and it is a presumed duty of the buyer in the contract. The buyer has to give a notice of nomination to the seller within a reasonable period of time, else the seller can terminate the contract. In a CIF contract, the buyer makes a payment on receipt of the bill of lading, which once accepted passes on the constructive delivery to the holder.

The CIF contract gives protection to both buyer and seller as the seller undertakes the charges for shipping and insurance and tenders shipping documents to the buyer, allowing protection from risk as against the carriage and insurance, and the buyer pays for the goods as against the tender of documents.

Risks for HOT of unenforceability Uncertainty in applicable law and mandatory regulation With respect to the transactions between HOT and 4F, the applicable law is the English law, as is clearly provided by the BIFA 2005a regulations, para 23, which provides that the governing law with respect to contract between company (4F) and customer (HOT) shall be the English law and any dispute arising out of such contract shall be subject to the exclusive jurisdiction of the English courts.
Loss or damage to cargo during transportation In case of loss or damage to cargo during transportation, the BIFA 2005a regulations, para 23 provides that 4F is not liable for any loss or damage if such loss or damage is caused due to strike, lock-out, stoppage or restraint of labour, and 4F is unable to avoid these by the exercise of reasonable diligence and for any cause or event which 4F is unable to avoid, and the consequences of which it cannot prevent by the exercise of reasonable diligence. Non-paymentv
Order Now In cases of non-payment, the BIFA 2005a regulations are applicable where 4F is involved as 4F trades subject to BIFA 2005a. Para 8(a) of BIFA 2005a provides that the company, in this case, 4F, has the general lien on all goods and documents relating to goods that are in its possession. In such case, storage charges will also continue to accrue on the payments. Para 9 authorises 4F to retain and be paid all brokerages, commissions, allowances and other remunerations that it pays to freight forwarders. With relation to the purchase of Additives, payment is to be made by a time order bill of exchange which is to be drawn for the price of each shipment expressed in US Dollars and on HOT and avalised by HOT’s bankers, Nottingham Bank and payable in favour of Amazon’s bankers, Banco do Brasilia on the expiry of 30 days from sight. Amazon and HOT will agree to arrange for their bankers to effect an exchange of the BOE for the BOL and that exchange between Banco do Brasilia and Nottingham Bank will be performed notionally by the exchange of reciprocal undertakings whereby each bank will agree to hold the BOL or the BOE to the order of the other bank. This reciprocal undertaking represents the promises made by banks guaranteeing payment on the submission of the

With relation to the purchase of Additives, payment is to be made by a time order bill of exchange which is to be drawn for the price of each shipment expressed in US Dollars and on HOT and avalised by HOT’s bankers, Nottingham Bank and payable in favour of Amazon’s bankers, Banco do Brasilia on the expiry of 30 days from sight. Amazon and HOT will agree to arrange for their bankers to effect an exchange of the BOE for the BOL and that exchange between Banco do Brasilia and Nottingham Bank will be performed notionally by the exchange of reciprocal undertakings whereby each bank will agree to hold the BOL or the BOE to the order of the other bank. This reciprocal undertaking represents the promises made by banks guaranteeing payment on the submission of the appropriate documents. In this case, both the banks may be issuing and confirming banks as the case may be; the issuing bank will pay the promised price of goods, provided that documents submitted conform strictly with the requirements in the reciprocal undertakings. In case of non-payment,


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