Case Study – The Teetotaling Winebibber

Posted: January 5th, 2023

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Case Study – The Teetotaling Winebibber

People and organizations enter into contracts from time to and how they handle the interaction or deal with each other is a vital requirement. Fundamental components that all parties into a contract must adhere to are the terms and conditions guiding the practice. However, failing to consider the terms guiding the practice could result in revocation or cancellation of the deal, something which could offend either one or all sides into a sales contract. Consequently, those who are likely to enter into a contract of large magnitude should spend time to be conversing with what is required of them and to know the potential implications of failing to abide by developed rules and regulations. The report focuses on the contract between McKenzie McCormick, a businesswoman in charge of a chain of restaurants in the U.S., and Vasilis Doukas who is renowned for his mastery in wine production. The case presents a typical example of a contract where one of the parties fails to comply with the implied conditions provided along with the request, and how one party into the deal fails to accept the products claiming that they do not abide by the offered directives. The study specifically addresses how the misunderstanding would be handled under the guidelines of various international regulations that govern sales contracts such as the CISG, UCC, and free carrier (FCA) Incoterm. In addition, the report explains how the case would be determined if handled following the contract laws in Colorado, which is where the buyer originates from. The findings from the case analysis reiterate the importance of following all contract laws to achieve a flawless deal where all parties are contented.  

Question 1 – Applying CISG and UCC 

It is important to clarify that a contract exists between McCormick and Doukas due to several reasons. The deal qualifies as a contract because it fulfills the four vital elements of a contract. Both McCormick and Doukas have an agreement whereby Doukas makes an offer to produce and deliver non-alcoholic wines and McCormick accepts the offer by accepting it and even communicating her intentions. In addition, both parties can comprehend the terms of their obligations under the deal. Moreover, the two agree on a consideration, which is the amount to be paid, something which McCormick has already provided some part of the bill. Finally, a contract exists between the two because both parties express their clear intention to enter a legally binding deal. 

The UN Convention on Contracts for the International Sale of Goods (CISG) applies to the contract because the regulation is formed to enhance international trade. The policy was adopted on 11 April 1980 and came into force on 1 January 1988. Zeller (4) informs that the regulation promoted fairness and uniformity in the international contract because the guideline is an international law whose global application is undisputable. CISG provides uniform legislation of the contract that applies although the contracting parties come from different countries. In such a case the law applies directly, avoiding recourse to regulations of private global regulations to choose the regulations applicable to the deal, adding substantially to the predictability and certainty of the contract. 

The UCC (Uniform Commercial Code) is a comprehensive compilation of regulations regulating all commercial deals in the U.S. Gabriel (39) asserts that both parties into the deal must first agree to follow the directives of the UCC in addressing the emerging issues bearing in mind that the regulation only applies to deals in the U.S. as much as it also impacts on international engagements. However, both parties may less likely to follow the UCC because Doukas states in his terms and conditions that any emerging dispute would be addressed in Athens following Greek law, while McCormick maintains that any emerging concern would be handled concerning the commercial law of the State of Colorado. Nevertheless, both can choose to use UCC if they revoke their earlier standings and choose to follow the American regulation. 

Question 2

Based on the guidelines of GISC, it is apparent that Doukas made a valid offer to McCormick in July. The offer is valid because it meets all the qualities because it entails all the required components, including the nature of goods, their prices, quantity, and other important information that would help the buyer to know what to expect. For example, Doukas explains during his July 10 call that he would produce the non-alcoholic beverages while meeting the specified requirements in the specified price range and that they would have the same original taste. Doukas also asked McCormick to specify the quantity, which the latter ordered for 40 cases that would comprise 480 bottles. Furthermore, several factors show that Doukas made another valid offer in his email to McCormick dated July 12. The offer is valid because the wine producer describes the goods (high quality non-alcoholic Greek-style red and white wine), and because Doukas mentions the price of €15,000 for 20 cases of each together with €2000 for shipping and handling prices.

The provisions Doukas provides in the offer are essential because they help McCormick to determine whether the provisions comply with her needs and capacity. The contractual attachment that already exists between Doukas and McCormick implies that it would be incorrect for Doukas to withdraw the offer on July 20 if McCormick had not responded within the specified date. It is incorrect to withdraw the offer within the specified date because his terms say that the price quote is valid for 30 days, which will not be due by July 12 from the time of making the offer. Thus, the only appropriate option, in this case, is to wait until the specified duration elapses. 

Question 3

Acceptance of the offer is one of the primary requirements for developing a valid contract under the provisions of the CISG. Gabriel (89) writes that under the GISC, acceptance of the offer should be unconditional, and should be communicated in real-time. It is fundamental to note at this point that any negotiations that happen between the contracting parties do not amount to acceptance, but instead, they are counter-offers in a bid to engage in a deal that satisfies all parties. McCormick’s response on July 21 amounts to a valid acceptance because the buyer responds via email asking the winemaker to send along samples together with bottle label designs approval. In addition, McCormick sends an acknowledgment form that informs Doukas that she has approved his proposal, but if the pact complies with the provisions offered along with in the acknowledgment form. Specifically, McCormick claims that she would accept the deal if the contract shall be regulated by the commercial law of Colorado.

The other factor showing that McCormick has accepted the offer is that she remits payment of 10,000 euros via wire transfer on the same day as a down payment following Douka’s directives. It is significant to acknowledge that remaining silent is not usually regarded as acceptance, unless one portrays other clear intentions that the buyer intended to accept the deal in the way they conduct themselves, such as by way of conduct such as paying for the ordered items (Gabriel 92). Moreover, it is important to mention that what amounts to clear acceptance could differ based on the type and nature of the contract. Nevertheless, a clear case of acceptance exists on the part of McCormick s provided for in the CISG. 

Question 4

The contract between Doukas and McCormick includes an identified date of delivery term, but CISG room for adjustment. Doukas responded to McCormick’s approval of the samples and said that he would generate and transport the products on or before September 15, and would deliver the items on September 30. However, Article 29(1) of the CISG allows that contracts may be adjusted or fired by the sheer agreement of the participating sides. Thus, Viscasillas (170) argues that neither the common law directive of the need for thought for the deal to be altered nor the cause obligation originated from civil law systems, is directed under CISG.

The contract between Doukas and McCormick falls under the agreement outlined in Article 11 of CISG, which outlines that a contract of sale must not be evidenced or concluded by writing and is not prone to other requirements as to form, and one that can be proved by way of witnesses. It is different from the conditions outlined in Article 29(2) that focuses on the formation of written contracts, and which is referred to as no oral modifications (NOM) under common law guidelines (Viscasillas 171). Viscasillas (171) further informs that the NOM clauses do not permit the adjustment of the contract unless the change happens in writing. Therefore, the provisions of Article 29(1) show that Doukas and McCormick can agree on another date of delivery. However, the producer (Doukas) would be free to deliver the goods upon completing the production, packaging, and shipping process according to CISG if the participating sides had not included a date of delivery. The date of delivery would depend on the nature of the product to be delivered and the time it is likely to take to produce the entire batch. Nevertheless, the delivery should not take longer than expected by the other party into the contract. 

Question 5

The contract between Doukas and McCormick would be enforceable under the CISG if the parties in the contract chose to finalize the deal during their telephone discussion on July 10. The interactions as of July 10 displayed all the key features that the CISG requires for an enforceable contract to exist. For example, an offer and acceptance already exist. Doukas already accepts that he can come up with the type of wine that McCormick wants, and the latter already approves of the quantity that she needs, therefore expressing acceptance. Besides the contract would be enforceable under the CISG because both parties already display the capacity to comprehend the terms and any other obligations under the regulation. Both Doukas and McCormick give their content freely, such that there cannot be any forms of misrepresentation, force, inappropriate influence, or cohesion. None of the parties in the contract suffers from mental problems and all are above 18 years old. Already, the parties engage in consideration, which means that they have exchanged some form of value regarding the products. McCormick informs Doukas that she would be interested in wines that presently sold for around €25 to €35 per piece, and with further discussion, they would easily arrive at the final price. More fundamentally, the contract would be enforceable under the CISG because both parties already show the intention to proceed with the contract. Another factor that would qualify the contract as enforceable under CISG if the parties chose to reach the final agreement on July 10 is that Article 11 stipulates that the agreement must not be writing and that a verbal agreement is enough so long as all parties are willing to meet their obligations. 

Even though the UCC allows for the formation of legal contracts without formal documentation, the agreement between Doukas and McCormick would not be enforceable under UCC because the cost of the deal surpasses the limits provided for in the U.S.-based regulation. The UCC, too, acknowledges that commercial contracts are usually not written and often do not require agreements to be in writing (Uniform Law Commission). The regulation only requires written documents in few instances, such as particular contracts for the sale of goods as provided for in Article 2 of the UCC. The report by Uniform Law Commission reveals that the UCC may also require a written contract under specific lease contracts for goods as directed in Article 2A. The UCC may also require documentation in contracts that develop a security interest in personal items where the goods are not in the custody of the secured side.

However, one factor according to Uniform Law Commission that could render the contract between Doukas and McCormick not to be enforceable under UCC is that the regulation directs that all agreements beyond $500 must be in writing. The UCC demands that the deal must be signed by the side against which enforcement is identified. In other words, Uniform Law Commission implies that a side that does not ascent to a contract in the context of UCC typically cannot be obliged by a court of law to abide by the terms and conditions. Therefore, it is highly likely that Doukas would undergo significant loss for any breach by McCormick should the case be tried following the provisions of the commercial law of the State of Colorado that follows the UCC because no one would face liability if the agreement is not in writing. 

Question 6

A warranty is a vital aspect of a contract that could either be express or implied. An express warranty according to the provisions of Article 35 (1) of CISG is formed whenever the provider of the goods affirms that the items will meet specific standards. The seller may make an express warranty as part of the bargaining process by affirming or promising that the goods will meet specific measures, describing the goods in a particular way, or offering a sample or model. Any of these provisions based on the argument by Gabriel (102) will develop an express warranty that the items will abide by the description, promise, model, sample, or fact. An implied warranty, on the other hand, is an assurance that an item is appropriate for its intended function, and is usually regulated by state laws. Doukas provides an express warranty in his assurance to McCormick that he can effectively generate a high-quality non-alcoholic Greek-style white and red wine using the vacuum distillation technology. In addition, he sends samples of the bottle design, which impresses McCormick.

However, Doukas would have appropriately disclaimed any warranties in the contract if the contract had included the clause “Seller Disclaims all Warranties, Express and Implied, as to these Goods.” Gabriel (102) refers to Article 35(2) of CISG informs that Doukas would disclaim any warranties if the buyer had not brought the seller’s attention to the required qualities and standard and whether the buyer took an active role in designing the product and advising the producer as to the production or manufacturing process. The court in this case would have to determine whether Doukas honors his expressed and implied warranties and whether the buyer (McCormick) played a fundamental role in the production of the final product as delivered. 

Doukas would also have the chance to disclaim warranties under UCC. The regulation under 2-316(2) provides concrete information about the modification or exclusion of warranties. It informs that any exclusion of expressed and implied warranty must be in writing and convincing enough. Doukas would also disclaim any warranties under the UCC if under the guidelines by Gabriel (105) he developed his terms and conditions in a way, which states that no warranties would surpass the description provided in the initial agreement. Doukas would also successfully disclaim the warranties if when McCormick before finalizing the deal has examined and approved the items, a model, or a sample as much as she desires or refused to examine the samples. In addition, Gabriel (105) points out that the seller would disclaim the warranty if the buyer changed the conditions in the course of the dealing. Thus, the court would have to rule whether Doukas has the right to disclaim warranties based on the facts of the case.  

Question 7

Doukas has breached the contract between him and McCormick. The seller fails to meet the express and implied conditions provided by the buyer, specifically regarding the requirement on the alcoholic content of the product. McCormick is categorical in her order. She wanted a “red wine that was fruity but not too sugary, with reasonable tannins, and a relatively sweetened, white, desert-style wine”. Doukas proceeded to assure the buyer that he would eliminate the alcoholic content from several various small batches of the products. Therefore, McCormicks can take advantage of some of the remedies provided under the CISG to benefit from any damages. However, CISG does not provide specific guidelines and definitions of the breach and lacks clear directives on penalties for breach. The policy according to Zeller (5) stipulates that fundamental breach depends on what contracting sides agreed in their deal as well as the prevailing or emerging circumstances. 

Zeller (5) informs about Article 6 of CISG, which directs that opt-out or termination of the contract is only possible in fundamental breaches or extreme cases. McCormick may have the chance to pull out of the deal if she manages to convince the bench the breach is fundamental, and that she has suffered such harm as to significantly deprive her of what she is entitled to get out of the deal. Doukas may also rely on certain terms of Article 6 of CISG that could protect him from stiffer penalties now that it is apparent he violated the terms of the expressed warranty. In addition, McCormick may argue that the breach is fundamental because the significant violation of expectations generated by the breach was predictable by the breaching side who seemed to have known that it would be difficult to produce an alcohol-free product from the alcohol-based beverages. One fundamental claim that Doukas can give in defense of his conduct is that the standards in the U.S. are not the same as the provisions in Europe, a factor that the court is likely to consider. 

Question 8

McCormick and Doukas can choose from the various payment methods that would allow them to meet the financial obligations associated with the process. Often, Bridge (155) informs that contract payments will be offered based on reimbursing invoices. However, participating sides may settle on an approach they find appropriate or one that is permitted by law. Bridge (155) recommend advance payment as a possible financing arrangement is, which entails submitting the entire required sum before receiving the goods. However, Bridge (157) argues that the approach is suitable when both parties are certain that the final product will meet the expressed and implied conditions of the contract.

Alternatively, the parties in the contract may choose to use progress payment whereby the buyer release payments to the seller at various phases of the contract. For instance, the buyer may give some money as a down payment, remit some amount again upon completion of the design, and give the last amount upon delivery. A third financing option that Bridge (157) identifies as being effective is installment payments whereby parties into the contract agreement on the sum the buyer remits to the buyer after every specified time after receiving the product. The buyer is still free to give a down payment when using installment payments. The final financing plan that the contracting parties can apply that Bridge (157) recognizes as being effective is lease payment whereby the buyer pays the winemaker on a regular time-indicated basis as the restaurants sell the products. A suitable financing plan for this contract is progress payment. The plan requires the buyer to submit money to the producer at various phases of production. The technique is effective because it relieves the buyer the stress of having to pay later. 

Question 9

International Commercial Trade Terms (Incoterms) are terms for selling that sellers and buyers utilize so they can communicate which side is in charge of the risks, costs, and obligations linked to moving the products to the customer when engaging in an international deal. Incoterms according to the description by UNDP (34) are lawfully binding pacts produced by the International Chamber of Commerce and are followed by nearly all nations. The ICC reviews the terms to ensure that they are in line with modern provisions of global trade. When customers are buying products globally, UNDP (34) argues, sellers will in many instances assign a three-letter abbreviation of one of the eleven terms to indicate what the terms of the contract would be. The identified terms are ex-works or ex-warehouses (EXW), free carrier (FCA), free alongside ship (FAS), free on board (FOB), cost and freight (CFR), cost, insurance & freight (CIF), carriage paid to (CPT), carriage & insurance paid (CIP), and delivered at place (DAP) (UNDP 34). Contractors must focus on all these terms to achieve effective delivery of goods. 

The other two terms are delivered at place unloaded (DPU) and delivered duty pay (DDP). A suitable term for Doukas is DAP, where the winemaker must deliver the goods to the final, identified place upon which the buyer assumes responsibility for other charges, including unloading the consignment from the ship and loading onto an awaiting truck. The buyer will also meet the charges associated with taxes, including customs fees and import duties. The term is suitable for Doukas because it will save him from the costs associated with the shipping process. An appropriate term for McCormick is DDP that according to UNDP (35) requires the winemaker to take charge of all duties, including clearing import duty, customs fees, and other tax obligations. The term is suitable for the buyer because it protects her from incurring the costs associated with the shipping process. Alternatively, the parties into the deal could use the terms of container yard to container yard (CYCY), which entails storing the consignment at a particular station at the port before they are ultimately shipped off. Nevertheless, the approach may consume much time, which makes it less inappropriate. 

Question 10

The FCA is one of the Intercoms terms that define the roles a seller and a buyer play in the shipping or transportation of purchased items. Doukas will be responsible for moving the consignment to an identified destination within the customer’s nation, often a shipping hub or port, airport, or warehouse, or any other station where the transportation agency functions. It could even be at the buyer’s place of work. He includes the shipping fee in the total cost of the products and takes risk of loss until the point of delivery. McCormick takes responsibility from the carrier’s station. She begins with settling the freight fees and meets the fees associated with importation and delivery. The approach is the opposite of DDP where the seller would incur most of the charges associated with the transportation of the purchased items. McCormick, therefore, should make adequate preparations should it be apparent that she would use the FCA terms. Nevertheless, McCormick does not have to focus on export licenses and other related information because this is the duty of the seller. 

Question 11

It is a violation of the law for a customs official to ask for additional payment with the promise of facilitating the shipment process. The U.S. law is very specific regarding the fees buyers pay when collecting their items under the FCA Incoterm. For example, the buyer is required to pay customs duties and value-added tax, as well as certain specific importation fees. Payment should be channeled to an official account and the one making the payment should receive an official receipt as an acknowledgment of the transaction. The payment to the Greek customs official could not be deemed a legal “grease payment” because no one else is aware of the request. Indeed, grease payment is not acceptable because it is a form of extortion or bribe, usually issued to an officer in power to expedite a business transaction, decision, or transportation of goods.

Those who ask for such payments usually do it for self-gain or are under the instructions of leaders who aspire to make personal benefits from such collections. McCormick should not accept to give the payment because it is unethical. The act goes against the ethical theory of deontology, which implies that a good and ethical action yields good results. Giving the payment, in this case, is definitely unethical, and likely to cause more problems should senior management find out about the informal request. An appropriate way to handle the situation is to report the matter to the U.S. Customs and Border Protection that oversees the generation of custom fees in the U.S. Reporting the matter is the most suitable option to avert similar incidences in the future because informing the authorities about such deals would prompt reshuffling of position or pave way for more trustworthy employees. 

Question 12

Both Doukas and McCormick would be exempted from the loss emanating as a result of the ship being hijacked. Article 76 would excuse Doukas from undergoing any expense because the accident could be termed as unforeseeable, and therefore difficult to avert. Thus, Doukas would not be asked to pay an additional fee as damages even if he fails to deliver the items even after the buyer had issued some down payment. Similarly, the accident would allow McCormick to avoid any liabilities due to the same reason that the incident was not anticipated. The buyer in this case will not be required to pay the additional fee even if the seller encountered all the costs in producing and shipping the products.

A suitable way to have dealt with a possible failure to honor the terms and conditions of the deal would be to include come up with such a term during the original formation of the pact. Considering such an eventuality while forming the guiding structures would present the chance to know what steps to take to avoid potential losses that usually come with such unexpected attacks. Murphey (461) thinks that the CISG needs to come out clearly regarding the possible eventualities when such incidents happen to avoid confusions that could exist when such accidents happen. Contractors should also first take time to understand what the law says about what happens when such calamities occur. Taking time to read through the provisions could create the urge to include such clauses, which makes it easier to address the matter should they happen. The good thing is that it costs nothing to include such clauses yet their impact could be immense, especially in a case where either or both of the contracting sides could lose valuable properties. 

Question 13

The party that would take responsibility for the delay caused by a ship that had run aground as a result of bad weather resulting in damage to the wine is the carrier. Even though the shipping company could not foresee a possibility of the weather becoming unbearable, the firm’s management or the team in charge of transporting the goods would have to meet the liability because the consignment is under the shipping company’s custody. The same scenario applies where a ship has a loose propeller that falls in the middle of the sea, causing much delay. It is apparent in this case that the products would reach their destination within the desired time if the carrier ensured that the vessel is in good condition and not likely to fail during the transit. However, the shipping company would not be liable for their entire cost in both cases because the incidents could be termed as unforeseeable. A possible scenario, in this case, is that all parties into the deal will take charge for what happens, to ensure that one side does not feel the pinch yet the incidents could be termed as accidents.  

Question 14

A federal district court in Colorado would have the authority to handle a case of breach of contract filed by McCormick taking into account that the mandate to address such cases lies with state courts. The court would rely on the UCC, which (Graffi 341) identifies as the primary legislation for handling such cases in the U.S. The jury would consider some of the key components associated with a valid enforceable contract under the UCC and will determine based on these terms whether a breach of the contract exists. For example, the court will examine whether the seller breaches the contract by description, or by sample, or by description and sample. In addition, the jury would want to find out how the breach fits in with international legislation such as CISG, and whether the identified breaches also feature in international law. The Colorado-based court is likely to find Doukas as being guilty of breaching the contract because, to begin with, both parties do not enter into a written deal although the sum of the agreement surpasses $500. Another main factor that could lead the court to terminate the contract as being breached by the seller is that he does not produce the specific features that the buyer identifies in her order. Instead, he proceeds to deliver items that have slight deviations from the requested goods, which pushes the buyer to revoke the supplied wine. 

Summary

The study focuses on a case study detailing a contract between McCormick and Doukas. The analysis of the case provides valuable tips that may help others seeking to enter into similar contracts to engage in deals that are not likely to end in revocation and subsequent litigations. A fundamental lesson from the case study is the need to observe all the terms and conditions of a contract to avoid legal battles that usually take time and require more resources to handle. Parties entering into a contract should spend time being conversant with the regulations issued by CISG and UCC. Such provisions make it easier to understand the obligations a party has to fulfill in a sales of goods contract. However, disregarding such regulations could render the agreement null and void as it happens with McCormick and Doukas, an incident that could cause substantial loss and pain to the losing side. The case shows the importance of being sincere and honest in adhering to the expressed and implies warranties, and if possible engage buyers by showing them a sample or model. The study reveals the importance of following the Incoterms and selecting the best terms that would suit either the buyer or the seller. Failing to identify and use the most suitable Incoterms terms could subject either of the parties to significant shipping fees that could be difficult to cope with. 

Works Cited

Bridge, Michael. The International Sale of Goods. Oxford University Press, 2018.

Gabriel, Henry. Contracts for the Sale of Goods: A Comparison of U.S. and International Law. Oxford University Press, 2008.

Graffi, Leonardo. “Case Law on the Concept of “Fundamental Breach” in the Vienna Sales Convention.” International Business Law Journal, no. 3, 2003, pp. 338–349.

Murphey, Aurthur. “Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley.” George Washington Journal of International Law & Economics, vol. 23, 1990, pp. 414-474.

UNDP. Shipping and Incoterms. UNDP, 2008.

Uniform Law Commission. “Uniform Commercial Code.” Uniform Law Commission, 2021, https://www.uniformlaws.org/acts/ucc. Accessed 19 April, 2021.

Viscasillas, Pilar. “Modification and Termination of the Contract (Art. 29 CISG).” Journal of Law and Commerce, vol. 25, no. 167, 2006, pp. 167-179.

Zeller, Bruno. “Penalty Clauses: Are They Governed by the CISG?” Peace International Law Review, vol. 23, no. 1, 2011, pp. 1-14.