Legal Issues in Supply Chain Management

Legal and Acquisition and Supply Chain Management (SCM) Issues
Supply chain management is a field that continues to advance as technological advancements and globalization continue affecting the business environment. Changes in supply chain management are also attributable to the emergence of new global alliances that enable businesses to connect on various aspects of the supply chain (Association for Supply Chain Management, 2018). As supply chain management evolves, business owners, leaders, and managers face a variety of legal and other issues. Legal and acquisition and supply chain management issues characterized the modern supply chain framework. This paper examines a case study involving some legal, acquisition, and other issues relating to supply chain management. Some of the issues included in the analysis include contract formation, risk of loss, and tort liability.
Case Scenario
Smith’s Imports, a corporation registered in Florida and headquartered in Miami, ordered a shipment of wine worth $10,000 on January 2, 2015, from the Cortez Winery in Santiago, Chile. While the order was placed electronically through Cortez’s website, the owner of Smith’s Imports did not read the terms and conditions despite agreeing. These terms stated that the buyer would be liable for any loss after delivery to the destination. When processing payment, which was due upon arrival of the wine in Miami port, Smith’s Imports administrative assistant entered the wrong information on the transaction documents. Consequently, the money was scheduled to be sent to an olive company operating in Tuscany, Italy. The wine was eventually shipped, but delivered to the wrong warehouse while Smith’s owner waited a week before taking further action since he was on vacation.
Payments for the shipment was eventually sent to the wrong company while the misplaced wine turned to vinegar after staying at the wrong warehouse for several weeks. As a result, U.S. Customs took charge of the remains of the shipment and hired independent contractors to move it to storage. One of the independent contractors was injured and required 30 stitches and a Tetanus shot after one crate split open when moving them due to a defect in design. After notification by U.S. Customs, Cortez filed a lawsuit against Smooth Shipping and Smith’s Imports seeking payment and damages for lost goods. On the other hand, Smith’s Imports sued Cortez and Smooth Shipping for damages brought by the loss of sales to retailers including lost profits. Additionally, the injured independent contractor is planning to file a lawsuit for damages brought by the injuries.
Contract Formation
The above scenario is an example of some of the legal, acquisition, and supply chain management issues that emerge during the sales of goods. These issues can be resolved using relevant laws, particularly the Uniform Commercial Code (UCC). UCC is a legal code that provides a framework for international contracts, sales contracts, common law contracts, commercial sales transactions, and guidelines for the sale of services. According to Fullerton & Knowles (n.d.), this code is not applicable to the sale of real estate, contracts incorporating significant labor, service agreements/employment contracts, marriage settlements, and security interests or liens in real estate.
The first toward addressing the legal, acquisition, and supply chain management issues in this scenario is examining contract formation based on applicable laws and elements of a contract. Since this case entails the sale of goods, determine the existence of a legally binding contract between the parties is the first step toward addressing the emerging issues. Generally, a contract of sales of goods is an agreement in which the seller transfers or agrees to transfer goods to the buyer for an agreed-upon price. Based on the UCC code, contract formation occurs once an offer has been made and accepted between parties. In this case, the contract was formed electronically as Smith’s Imports ordered a shipment of wine from Cortez electronically. As stated in case facts, Smith’s Imports placed the order through Cortez’s website using a typical electronic order form.
E-contracts have become common in the modern business environment as businesses carry out their transactions online. Jain (2016) defines an electronic contract (e-contract) as an agreement that is created and signed in electronic form. Such contracts are sometimes established in the form of “click to agree” or “I agree” button on a page containing the terms of agreement. By clicking on this button, an e-contract is formed even without signing anything as the buyer agrees to pay a certain amount of money to the seller in exchange of provision or delivery of a product or service. Therefore, Smith’s Imports and Cortez Winery entered into an e-contract despite not signing anything. This contract was established after Smith’s placed the order electronically and clicked on the “I agree” button. The electronic contract between these two parties was established as the agreement met all elements of a legally binding or valid contract. When a dispute arises between parties to an agreement, the complaining party must prove the existence of these elements to demonstrate the existence of a legally binding/valid contract with the other party or parties. The electronic contract between Smith’s Imports and Cortez Winery incorporates all the elements of a contract as follows:
Offer
The first element of a legally binding contract is an offer, which is primarily an expression of willingness to enter into an agreement on certain terms. In this regard, one of the parties to the contract makes a promise to do or refrain from doing certain things. An offer should be made with the aim of becoming legally binding upon acceptance (MacMillan & Stone, 2012). With respect to the sale of goods, an offer is made when one party promises to provide or deliver goods to the other in exchange for money or something valuable. Rai (2019) states that for e-contracts to be formed, the consumer/user/buyer searches for available products or services displayed on the seller’s website. He/she then selects what to buy. However, the website showing these products/services does not make the offer, but provides an actual invitation to make the offer. The customer initiates the offer depending on the availability of goods or services in the shopping cart. In this case, Cortez’s website displayed the wine products for selection by potential buyers or customers like Smith’s Imports. Cortez’s website did not make the offer, but provided an actual invitation for an offer from Smith’s Imports. The offer was initiated by Smith’s Imports when the owner, Rolando Smith, placed an order for wine.
Consideration
The second element of a contract that is evident in this case is consideration, which is something of value promised in exchange of the particular action or non-action. For a contract to be legally binding and valid, legal consideration must exist. Consideration implies that parties to the agreement promise to give and receive something in return (Rai, 2019). In this scenario, Cortez Winery agreed to provide wine in exchange of a significant amount of money. On the other hand, Smith’s Imports agreed to give money in exchange of wine from Cortez. Since this consideration existed between the parties, it was not a gift, which is voluntary and not enforceable as it does not entail consideration for the promise.
Acceptance
The third element of a contract shown in this scenario is acceptance, which occurs once an offer has been made and the legal consideration considered suitable. Based on the UCC code, a binding contract is established once an offer has been made, considered, and accepted. Under this code, the offer can be accepted in any reasonable manner and medium. For example, sending a response letter is a reasonable manner of accepting an offer resulting in a legally binding and valid contract between two or more parties. For electronic contracts, a reasonable manner and medium for acceptance include email response, website forms, and online agreements. Cortez Winery accepted Smith’s offer and agreed to receive payment once the shipment arrived in the port of Miami. Cortez proceeded to prepare and email the Bill of Landing along with the invoices to Smith’s Imports as an indicator of acceptance of the offer. In most cases, acceptance of an offer is not effective until it is communicated to the party (MacMillan & Stone, 2012). By emailing the Bill of Landing and invoices, Cortez essentially communicated acceptance of the offer to Smith’s.
Mutuality
The other element of a contract that is evident in this case is mutuality, which implies the parties understand and agree to some basic terms and substance of the contract (Judicial Education Center, 2020). These parties had the intention to create lawful relations relating to the sale of goods. Additionally, they were legally competent to enter into a contract as lawful business entities. Even though the parties had no actual face-to-face communication, they entered exercised free and unaffected consent when entering into the agreement through the click-through process. Smith’s Imports completion of the online form and clicking on the “I agree” button despite not reading the “Terms of Agreement” was an indicator of genuine and unaffected consent. On the other hand, Cortez Winery demonstrated mutuality and unaffected consent by accepting Smith’s offer and sending the Bill of Landing and invoices via email. This was an indicator that both parties understood and agree to some basic terms of the contract.
Risk of Loss
The major legal issue surrounding this case is damages and losses on the part of Smith’s Imports and Cortez Winery. As previously indicated, Cortez sued Smith’s Imports and Smooth Shipping for damages for the lost goods. On the other hand, Smith’s Imports sued Cortez and Smooth Winery for damages relating to the loss of sales to the retailers including profits. The determination of the legal issue, in this case, requires identifying which party should bear the risk of loss of the wine based on applicable laws. Risk of loss is a legal term in contract law that is used to determine which party is liable for the burden of risk for damages that occur to goods after completion of the sale, but before delivery. The Uniform Commercial Code is relevant and applicable in determining the risk of loss as it establishes rules for this issue. These rules are applied to different issues surrounding contracts to determine the risk of loss.
Under UCC, the risk of loss generally stays with the seller until the goods are delivered. Therefore, any damages or loss is the seller’s problem until the goods are delivered to the buyer. However, if the seller breaches terms of the contract and the buyer rightfully rejects the goods, the risk of loss is the seller’s problem even after delivery. Based on Uniform Commercial Code § 2-509(3), the risk of loss shifts to the buyer upon receipt of goods. However, the seller retains the risk of loss if the buyer neither takes possession nor receives the goods (Barnes, 2009). When the contract requires or permits the seller to ship goods to a specific destination and duly tender the goods while in the carrier’s possession, the risk of loss passes to the buyer. The risk of loss also passes to the buyer when the contract does not require/permit the seller to deliver the goods at a specific destination.
Based on the “Terms of Agreement”, the buyer (Smith’s Imports) was liable for any loss of the wine after delivery to the destination. While the risk of loss would ordinarily pass to Smith’s Imports because Cortez met its delivery obligations, the facts of this case show otherwise. Cortez Winery was required to deliver the goods at a particular destination i.e. warehouse “E” at Port Miami as specified in the Bill of Landing. However, the goods were not delivered to this destination though the shipment was duly tendered while in the possession of the carrier. In addition, the shipment of the wine products involved the use of FOB (Free On Board), which is used to determine when costs, obligations, and risks involved in the delivery of goods passes from the seller to the buyer. Uniform Commercial Code § 2-509 specifies rules on contracts involving delivery by a common carrier other than the seller. Cortez Winery delivered the goods using Smooth Shipping, a common carrier. Since the contract was a destination contract involving a FOB in the buyer’s city, the risk of loss is on the seller as specified in Uniform Commercial Code § 2-509 (Barnes, 2009). Therefore, Cortez Winery bears the risk of loss of the wine based on this rule.
Tort Liability
After the remains of the wine stayed at the harbor for several weeks, U.S. customs hired independent contractors to move crates to storage. During this process, one of the contractors was injured and is planning to file a lawsuit seeking damages for these injuries. However, the contractor needs to identify the right party to sue and the legal theory that would act as the basis for the suit. In essence, the independent contractor needs to identify tort liability in order to determine the party to sue. Generally, a tort is an act or omission other than a violation of contract that results in injury or harm to another. Independent contractors usually enter into agreements with employers while retaining their initial ways of operations. As a result, these contractors are not obligated to any requirements except what is specified within the contract.
Existing laws direct employees to seek compensation or benefits for any workplace injuries through the workers’ compensation system. Independent contractors cannot obtain benefits under the workers’ compensation system since the basis for their agreement with an employer is timely payment for their work. However, independent contractors are not prevented from bringing negligence lawsuits against the entity they are working for in case of a workplace injury. In such instances, the independent contractor must prove the employer’s negligence in order to hold him/her liable for the injuries (Hart, 2020). Therefore, the independent contractor should sue U.S. Customs for his injuries. In the lawsuit, the contractor could argue that U.S. Customs’ negligence contributed to the injuries. While the U.S. Customs took charge of the remains of the wine, they did not carry out due process to ensure the crates were safe before hiring an independent contractor to move them to storage. This would imply that U.S. Customs failed to provide a safe work environment that could have prevented the injury. Therefore, the legal theory that would act as the basis for the lawsuit is negligence on the part of the employer. Independent contractors can sue entities they are working for in case of workplace injuries under the theory of negligence (Justia, 2018).
In conclusion, this scenario is an example of legal, acquisition, and supply chain management issues that emerge in the modern business environment. While Smith’s Imports and Cortez Winery had no actual face-to-face conversations and did not sign anything, they created a legally binding contract. The contract was established electronically and incorporated all the elements of a valid contract including offer, legal consideration, acceptance, and mutuality. However, the contract between these parties ended up in loss of the wine and lawsuits seeking damages for the losses. Based on Uniform Commercial Code § 2-509, Cortez Winery bears liability for the loss of the wine. Additionally, the independent contractor should sue U.S. Customs for his injuries under the legal theory of negligence.
References
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Fullerton & Knowles. (n.d.). Chapter 4 – The Uniform Commercial Code Sale of Goods. Retrieved September 12, 2020, from https://fullertonlaw.com/uniform-commercial-code#_Toc494894335
Hart, D. (2020). What Are Your Rights to Compensation as an Independent Contractor When You’re Injured on the Job? Retrieved September 12, 2020, from https://www.thehartlawfirm.com/library/independent-contractors-rights-after-a-workplace-accident.cfm
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Judicial Education Center. (2020). Elements of a Contract. Retrieved from The University of New Mexico website: http://jec.unm.edu/education/online-training/contract-law-tutorial/contract-fundamentals-part-2
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MacMillan, C. & Stone, R. (2012). Elements of the Law of Contract. Retrieved from University of London website: https://www.dphu.org/uploads/attachements/books/books_4071_0.pdf
Rai, I.A. (2019, October 11). Essentials of E-Contracts. Retrieved September 12, 2020, from https://medium.com/feelium-e-contract/essentials-of-e-contracts-a5bf00782219