Contract Law: Fulfilling the Reasonable Expectations of Honest Men - Case Study Example

ASSIGNMENT PART A The following questions have been answered with reference to the case law - Peter Smythe v Vincent Thomas [2007] NSWSC 844 (3 August 2007)1 Question 1: In what court was the case heard (1 mark) The case under reference was heard before the New South Wales Supreme Court, Equity Division. Question 2: Name the judge and explain his title. (2 marks) The Judge hearing the case was Rein AJ Question 3: Name the plaintiff and defendant and their counsel. (4 marks) The plaintiff in the case under reference was Peter Smythe represented by his Counsel B Kasep. The defendant in the case under reference was Vincent Thomas represented by his Counsel D M Loewenstein. Question 4: What particular circumstances led Rein AJ to doubt the credibility of the defendant's version of events (3 marks) There were a number of reasons which led Rein AJ to doubt the credibility of the defendant's version of events which Rein AJ enumerated as follows: (a) The plaintiff had a contemporaneous note of his conversation with the defendant, the authenticity of which was not challenged. His affidavit evidence was not inconsistent with what was in the note. (b) The plaintiff by his manner and demeanor appeared to Rein AJ to be truthful in his answers. There was one area of difficulty in the plaintiff's evidence when he seemed to assert that the defendant had actually agreed to six weeks for payment of the balance of the purchase price but he conceded that his note pointed to a lack of agreement on that point - the note confirmed what was contained in para 5(1) of the plaintiff's second affidavit and the plaintiff could be understood as saying that he knew that the defendant wanted the balance after a further six weeks and that did not trouble the plaintiff. It did not lead Rein AJ to doubt the general veracity of the plaintiff. (c) The defendant in his affidavit said nothing about having received an offer from the plaintiff for $150,000 (the plaintiff on his evidence made no such offer in the telephone conversation). It was not put to the plaintiff that he had made an offer to the defendant or that the defendant had rejected it. The defendant swore in the witness box however that it had been said in an answer in cross examination. Given that that was his explanation for why the plaintiff was not entitled as highest bidder, Rein AJ found his failure to refer to it in his affidavit surprising and his evidence on this point difficult to accept. (d) The plaintiff said that when he spoke to the defendant, the defendant told him that the Wirraway had a current airworthiness certificate. The defendant when cross examined on this said that the airworthiness certificate had expired in July 2006. He said he did not recall if he told the plaintiff that there was a current airworthiness certificate. (e) The defendant's version of events, which involved him saying that he would not agree to sell the aircraft unless the buyer inspected it, is not credible and particularly so since he listed the aircraft on eBay for sale without any indication that the buyer should inspect first. (f) Further the defendant had also listed the Wirraway on the "Buy now" section of eBay for $275,000, and claimed that had anyone clicked on that he would not have sold if the Wirraway had not been inspected (T40-T41), which further diminished his credibility. (g) The defendant himself had purchased many items (including Vintage car parts) on eBay and knew that he was entitled to the items when he had been the highest bidder, and Rein AJ found his assertion that he did not understand that he was committed to sell as somewhat surprising. Question 5: The defendant argued there was no binding and enforceable agreement, what were the components of this argument (4 marks) The defendant accepted that both he and the plaintiff accepted, by clicking on an "accept" button, the terms and conditions of eBay but the defendant's argument was that there was no binding and enforceable agreement as between the plaintiff and the defendant. To support his contention the defendant's arguments had four alternative components: (a) The only contracts in existence were between eBay and the plaintiff and eBay and the defendant. Those parallel contracts never crossed over into an agreement between the plaintiff and the defendant. (b) The placement of an advertisement for sale by the defendant on eBay was no different to the placement of an advertisement in the classified advertisement section of the Sydney Morning Herald, the Trading Post or the Wentworth Courier. It was argued by the defendant that it should be characterized as no more than that and what the plaintiff did was no more than make an invitation to treat. (c) Even if what occurred could otherwise be viewed as an offer and acceptance, the time for payment was to be negotiated and hence there was no complete agreement. (d) The plaintiff waived his right to bid at the auction. Question 6: How is agreement reached in a traditional auction (2 marks) To explain the manner in which an agreement was reached in a traditional auction, Mr Kasep drew attention to a passage in G T Morice, "Sale by Auction in Holland" (1915) 32 South African Law Journal 140 at 141 in the following terms: "Another mode of holding an auction which is referred to by the Dutch writers, was bij de brandende kaars, or, as it was called in England - by inch of candle. After the conditions of sale had been read out, a piece of candle was lighted, and would-be buyers commenced bidding against one another. The last bid before the candle burnt out won the day. (Fockema Andreae's Oud-Neder. Burgerlijk Recht II, p. 28). In this form of auction the system of bidding must have been one of raising the price, the going out of the candle corresponding to the fall of the hammer in a modern auction." Question 7: What differences did Rein AJ outline between a traditional auction and an on-line auction (5 marks) The differences between what transpires at a traditional auction and an online auction were enumerated by Rein AJ as follows: (a) at a traditional auction there is a human agent in the form of the auctioneer; (b) the auctioneer in a traditional auction, is the agent of the seller (as per "Benjamin's Sale of Goods" (2006) 7th ed, London: Sweet & Maxwell, para 2-004) and the auctioneer had the authority to execute a contract on behalf of the seller and buyer. Rein AJ referred to Wright v Madden [1992] 1 Qd R 343 at 346; (c) in a traditional auction the seller can at any time before the hammer is lowered withdraw his goods from sale. Rein AJ referred to "Benjamin's Sale of Goods" which stated that "Each bid is an offer which the auctioneer as agent for the seller, is free to accept or reject" (para 2.004). Question 8: What did Rein A J regard in an eBay auction as the equivalent of the fall of the hammer in a traditional auction; and what is the significance of each (2 marks) Rein AJ held that there was no difficulty in considering online auctions as a species of auction. The automatic close of bidding at a fixed time and the generation of an eBay advice headed "won" appear to have been accepted by the parties to an eBay auction as the equivalent of the fall of the hammer. Section 60(2) of the Sale of Goods Act2, deals with modes of completion other than fall of a hammer. What Rein AJ tried to conclude was that due to the advent of technology, the customs in the conduct of an auction could change over a period of time, although the concept had remained the same. At one point of time, as stated by G T Morice, "Sale by Auction in Holland" (1915) 32 South African Law Journal 140 at 141, the going out of the candle signified that the time for making bids had expired which was equivalent to the fall of a hammer in auctions which at that point of time were considered as more modern methods of concluding an auction. Similarly, acknowledging the fact that information technology had taken the world to the next level, Rein AJ tried to bring out in the course of his judgement that the significance of the automatic close of bidding at a fixed time and the generation of an eBay advice headed "won" as well as the fall of the hammer in traditional auctions were that no further bids could be placed and that the item would be assigned to the highest bidder, before the automatic closure of the bid (in the case of eBay) or the fall of the hammer (in traditional auctions). Question 9: Why was an order for specific performance of the contract appropriate in this case (2 marks) Firstly there was an issue that the Wirraway was not, at the time of the judgement, in flying condition, it having been left in a partially dismantled state and was not the subject of any existing certificates of airworthiness. The second issue was that it was not in the possession of the defendant but rather in a hangar owned by a third party. So far as the first point is concerned, there was evidence from the defendant that the amount of work necessary to complete the 100 hour maintenance work was not that substantial - in the order of between $8000 and $10,000. That and the evidence of the degree of dismantling of which the defendant advised the plaintiff points to a relatively small amount of work to be done. The obligation to ensure that the work is done and that all necessary certificates are obtained rested on the defendant. So far as the second point is concerned it was also necessary for the defendant to ensure that anything necessary to be done (ie payment of moneys due to the third party) was completed. Question 10: Why was the final order not made in this hearing (1 mark) It was agreed by counsel for both parties that should the view be taken by Rein AJ that the contract was to be specifically performed it would be appropriate to permit the parties time to endeavour to reach agreement on the precise form of orders including dealing with the $15,000 paid into Court by the plaintiff, and to list the matter before the duty judge in the following week to enable agreed short minutes to be then handed up, or failing that, any argument on the form of the orders could be ventilated. Question 11: Why was the matter heard in the Supreme Court (4 marks) The matter was heard directly in the Supreme Court because primarily because of its jurisdiction as none of the lower Courts had jurisdiction to hear the matter. The Supreme Court is the highest court in New South Wales, established by the 1823 which now operates under the Supreme Court Act (1970)3 and the Civil Procedure Act 20054. The Court has unlimited civil jurisdiction and handles the most serious criminal matters.5 There are two Divisions in the Supreme Court and its work is divided between them. They are the Common Law Division and the Equity Division (as of 1 July 1999). Among other matters, the Equity Division also has the jurisdiction to hear equity and commercial matters pertaining to claims to have contracts specifically enforced. On a perusal of the case under reference, it is certain that it pertains to a commercial contract and the remedy claimed was one of specific performance. Hence it was the Supreme Court which had jurisdiction to hear the matter. PART B Question 1: Has Tom reached an agreement (up to 150 words) (4 marks) Issue:- Whether there is a concluded contract between Tom and Dick Rule of Law:- The existence of an agreement between the parties is usually analysed through the rules of offer and acceptance.6 This may be expressed as a clear indication ("offer") by one party (the "offeror") of a willingness to be bound on certain terms and a communication by the other party (the "offeree") to the offeror of an unqualified assent to that offer ("acceptance"). The "acid test" in a case where offer and acceptance cannot be identified, according to Justice Cooke in Meates v Attorney-General, "is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain."7 Once the offer has been accepted, we can say that the parties have reached an agreement. Application:- In the given case Tom had made an offer to sell his motorbike to Dick for $5000. Dick refused the offer and therefore there was no agreement between Tom and Dick. Dick further made an offer to Tom to purchase the motorbike for $4500. This offer was refused by Tom, and therefore there was still no contract between Tom and Dick, which meant that Tom was free to offer the motorbike to any other party, which he rightly did. There was a binding contract between Tom and Harry but not between Tom and Dick as neither of the offers made by Tom or Dick, were accepted by either of the parties. Conclusion:- There was no concluded agreement between Tom and Dick. Question 2: Is Lotty obliged to share the lottery winnings amongst the group (up to 250 words) (6 marks) Issue: What is Lotty's contractual obligation if any, to share the winnings of the lottery. Rule of Law:- The most important feature of a contract is that one party makes an offer for an arrangement that another accepts. This can be called a 'concurrence of wills' or 'consensus ad idem' (meeting of the minds) of two or more parties. There must be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, and a contract will be formed when the parties have met such a requirement.8 An objective perspective means that it is only necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person, not that they actually did want to form a contract. Application: We must examine what the agreement between the six employees including Lotty was. The agreement was to jointly contribute money for purchasing the lottery ticket, on the understanding that the winnings would be shared equally between them. Hence the consensus ad idem or the understanding was that the winnings would be equally shared. Since Lotty was the office junior, she was given the responsibility of collecting the money and buying the ticket, however, this did not mean that she would be entitled to the winnings solely. When the lottery ticket she bought, won an amount of $1,000,000, it was actually purchased with the joint contribution of all the six employees and each would be entitled to an equal share of the winning as per their agreement. Even though there was no written contract between the parties, the parties had intended that once they had jointly contributed to buy the ticket, if they won, they would jointly share the winnings. Conclusion:- Hence, Lotty is obliged to share amongst the group and would be entitled only to 1/6th of the amount. REFERENCES 1. http://www.austlii.edu.au/au/cases/nsw/supreme_ct/2007/844.html. 2. Section 60(2) of the Sale of Goods Act, 1923 - "a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner: until such announcement is made any bidder may retract his or her bid," 3. http://www.austlii.edu.au/au/legis/nsw/consol_act/sca1970183/longtitle.html - Supreme Court Act 1970 - "An Act to provide for the concurrent administration of law and equity in the Supreme Court; to amend and consolidate the law with respect to the administration of justice and the procedure and practice of the Supreme Court; to repeal the Common Law Procedure Act 1899 , the Equity Act 1901 and certain other Acts; to amend the Partnership Act 1892 and certain other Acts; and for purposes connected therewith." 4. http://www.austlii.edu.au/au/legis/nsw/consol_act/cpa2005167/longtitle.html - An Act with respect to practice and procedure in civil proceedings. 5. http://www.legislation.nsw.gov.au 6. For a High Court case illustrating the adoption of the offer and acceptance approach to formation see, for example, R v Clarke (1927) 40 CLR 227; [1928] ALR 97; (1927) 1 ALJ 287. 7. [1983] NZLR 308, 377. 8. Lord Steyn, 'Contract Law: Fulfilling the Reasonable Expectations of Honest Men' (1997) 113 LQR 433; c.f. 133 BGB in Germany, where "the actual will of the contracting party, not the literal sense of words, is to be determined". Read More