The intricate legal considerations made in the judgment of the First Hall of the Civil Court of April 30 in the names of Cater Group Limited et v Baketech Supplies and Services Limited will certainly capture the attention of traders, lawyers, and – since the case involved cake – those with somewhat of an insatiable sweet tooth.
The plaintiff company produced food to be served in catering establishments, including restaurants and cafeterias. In December 2010, it had ordered several machineries from the respondent company, among which, a cake-cutting machine. The plaintiff company complained that this machine was not working as it should have; it was not cutting the cakes properly, and instead, it was pushing them out with excessive force and throwing them on the floor. The plaintiff company complained that as a result, it had to employ extra man-hours to do what the cake-cutting machine was supposed to do.
In any other case, these facts would have normally led to a common action under article 1390 of the Civil Code, an action available to a buyer where there is a consignment of aliud pro alio – one thing instead of another. What propels an action is when there is a difference to be assessed both on the basis of the buyer’s expectations of the thing bought as well as on the basis of the agreement with the seller himself. In fact, the law states that if the thing which the seller offers to deliver is not of the quality promised, or is not according to the sample on which the sale was made, the buyer may elect either to reject the thing and demand damages, or to accept the thing with a diminution of the price upon a valuation by experts.
These would have been the two sole options available to the plaintiff company (being a buyer), had this case not had one peculiarity – an e-mail sent on January 9, 2013 by a representative of respondent company, promising to provide the plaintiff company with a replacement of the cake-cutting machine originally consigned.
Rather than pursuing an action under article 1390, the plaintiff company opted to set aside its rights as purchaser, and to enforce instead the subsequent promise and request damages.
‘Novation’ is the legal principle by which an existing contract is extinguished, and a new contract is brought into being in its place
The question that the court sought to answer was this: in this case, could one speak any longer of a buyer-seller relationship, or was the relationship between the parties now to be solely assessed on the basis of the subsequent promise in the e-mail of January 9, 2013?
The plaintiff company argued – and the court agreed – that evidence demonstrated that the original seller-buyer relationship between the parties was later substituted with a new obligation born out of the promise made in the e-mail of January 9, 2013. The court stated that this substitution constituted what is legally known as ‘novation’.
Simply put, ‘novation’ is the legal principle by which an existing contract is extinguished, and a new contract is brought into being in its place. It is one of those legal concepts that saw its beginnings in Roman law, and managed to fight through centuries of legal development to subsist until today.
Quoting various judgments, the court found that the promise made by the respondent company to deliver a new cake-cutting machine constituted an entirely new obligation that extinguished that prior one; the nature of which had been strictly circumscribed in the parties’ respective roles as seller and buyer.
The court disagreed with the respondent company that the e-mail in question could not constitute an agreement as defined by law in article 1233 of the Civil Code (which lists which transactions must be expressed in public deed or private writing), for it satisfied the elements of the law. Indeed, promises such as those made in the respondent company’s e-mail were valid and fully legally enforceable, even if made verbally.
The court went further; it quoted article 9 (1) of the Electronic Commerce Act, Chapter 426 of the Laws of Malta, which states that: “An electronic contract shall not be denied legal effect, validity or enforceability solely on the grounds that it is wholly or partly in electronic form or has been entered into wholly or partly by way of electronic communications or otherwise.”
Having determined the existence of a valid obligation, the court moved to analyse the plaintiff company’s requested remedy. It stated that the words of the e-mail could not be read in a vacuum and out of the context in which they were said. Therefore, while it was acknowledging that the obligation to replace the cake-cutting machine did indeed exist, it stated that it would not be ordering the respondent company to provide the replacement promised. The court ordered the respondent company to return the price originally paid by the plaintiff company, which was much lower than a replacement.
The court also stated it would be ordering the payment of damages.
The court considered that when the machine originally purchased was not functioning well and the respondent company failed to substitute it, the plaintiff company had to carry on its activity manually, leading to added time and expenses. Calculations produced by the plaintiff company demonstrated that these extra expenses equalled €69,045.03. However, it was also proven that in late 2012 the plaintiff company had borrowed another machine which could cut most of the cakes produced by the plaintiff company. As a result, the court decided to only grant damages for expenses incurred during 2011 and 2012.
Documents exhibited in court showed that during that span, the plaintiff company had a total of 36,957 cakes which needed to be cut. An employee was paid an hourly rate of €5.66 to do such a job, with each cake taking an average of 3.5 minutes to be cut. Therefore, the court concluded that the actual expenses incurred were in the sum of €12,202, to be paid by the respondent company to the plaintiff company, with interest.
Carlos Bugeja is senior associate at Azzopardi, Borg & Abela Advocates.