Case Study: The Natural Gas
The Natural Gas Case In the Natural Gas case, a German company and a Dutch gas reseller (the plaintiffs) is suing an Austrian partnership company (the defendant) for a breach of contract. The plaintiffs negotiated and agreed to purchase 3000 metric tons of propane gas for $381 per metric ton from the defendant. Because of the two companies never conducting business with one another, the plaintiffs agreed to secure a letter of credit with its purchase. To secure the letter of credit with the purchase, the plaintiff’s bank requested information from the defendant as to what state the gas would be loaded aboard.
The defendant then told the plaintiff that they would obtain the necessary information to them. The plaintiff requested several times to the defendant about the location, but the defendant never replied. The defendant’s U. S. supplier later told the defendant that it would not export the gas to the plaintiff’s place of destination, which was Belgium. The plaintiff then notified the defendant of that because of their breach of contract, the Dutch reseller made a substitute purchase at a higher price that the defendant had promised.
The plaintiff then forwarded the claim of the increased costs of $15,000 to the defendant, in which the defendant rejected the claim. Risks Because of the rejected claim from the defendant, the defendant is at risk for breach of contract, and could pay for the loss of profits of the plaintiff, which was $15,000 or pay the entire replacement purchase of $141,131. The plaintiff also could be at risk. The plaintiff never told or indicated to the defendant that they wanted avoidance from the contract.
The defendant is entitled to be notified of some sort of avoidance of contract, and must be made clear of the avoidance. If the contract is not avoided, the loss of damages cannot be resolved in agreement with CISG Articles 75 and 76. Articles 75 and 76 summarizes to that if a contract was avoided under a breach of contract, and the buyer has purchased goods from a replacement, the seller would have to pay for the loss of profit along with the entire purchase of goods from the replacement. However, because there was not proved to be avoidance in contract from the plaintiff, Article 74 could only take place.
Article 74 means that the damages awarded from a breach of contract would only be for the loss of profit and may not exceed the loss. Another risk for the plaintiff is the duty to mitigate. If the plaintiff did not make reasonable effort to mitigate the losses, the plaintiff may not be able to claim any damages. Outcome The outcome of the case was the plaintiff was awarded damages of the full $141,131. The defendant made claim that the plaintiff breached their obligation by not mitigating. It was up to the defendant to prove such claims.
The defendant could and did not prove any claims towards the plaintiff. The court found that the seller’s breach of contract was totally the fault of the seller. Therefore, the plaintiff is entitled the loss of profits and to recover the $141,131. Explanation and Conclusion There are questions that arise in the ruling of this case. Questions such as did the buyer breach because of not obtaining a letter of credit? The answer is no. The letter of credit could not be completed because of the lack of required information from the seller.
Therefore, the fault was on the seller. The next question is did the seller breach? Yes, the seller breached the contract because the seller negotiated and made a deal to the buyer promising them a price and delivery of a product, and the product was never delivered; causing the seller to buy from a replacement at a higher cost. Next question is was the contract avoided? The answer is no; the contract was not officially avoided in accordance with Article 49 of CISG by the buyer. Although, the buyer had grounds to avoid the contract, they did not.
Article 49 states “the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract” (CISG, 2006). The next question is was the buyer entitled to lost profits; the answer is yes. The buyer is entitled the loss of profits because the buyer notified the seller that they were going with a resale. Because the seller knew of the resale of goods, the buyer is entitled to the loss of profits.
Next question is did the buyer fail to mitigate; the answer is it was not proven. The case did not whether or not the buyer mitigated or not. The seller claimed that the buyer did not mitigate, it is up to seller to prove that the buyer did not mitigate; the seller could not nor did not prove such. Therefore, it is not known whether the buyer did or did not mitigate. The last question is how may these risks be minimized? The answer is to follow proper procedures at all times to cover all tracks.
For the buyer in this situation, before making a negotiation and deal, ensure that their third party is aware of all information. The buyer should have gone over all information to its U. S. supplier stating that a buyer wants gas delivered to Belgium. The seller could have then received the information from its supplier saying that it could not deliver to Belgium before making a final deal. As far as the buyer, the risks could be minimized by following procedure as to avoiding the contract and mitigating.
The buyer in this case was lucky from the outcome. If the seller had proof that the buyer did not mitigate, the buyer would not been awarded full damages. References August, R. , & Mayer D. , & Bixby M. (2009). International Business Law Text, Cases, and Readings (chapter 10. ) 5th; Upper Saddle River, NJ: Pearson. United Nations Convention on Contracts for the International Sale of Goods, (2006). Article 49. Retrieved July 9, 2011, from http://ruessmann. jura. uni-sb. de/rw20/gesetze/CISG/cisgedex. htm