Introductory and Contract Law

Words: 2317
Pages: 9
Subject: Sample papers

Part A

Answer the following questions on the case of:

Peter Smythe v Vincent Thomas [2007] NSWSC 844 (3 August 2007)


1. In what court was the case heard? 1 mark (30words)

The case was heard in the Supreme Court of New South Wales, under the jurisdiction of the Division of Equity.

2. Name the judge and explain his title. 2 marks (80words)

Appellate Judge Rein; sitting in the Court of Appeal, he reviews records of other court trials related to the case in question and read briefs as submitted by the parties to the case. In addition, they listen to verbal arguments put forward by the attorneys of the plaintiffs and defendants, after which they make consider their truthfulness and acceptance in light of the facts of the case and the relevant laws. Finally, they make judgments on whether there was injustice during the trial.  They review trial court records, read briefs submitted by the parties, and listen to oral arguments by attorneys, and then decide whether error or injustice occurred during trial.

3. Name the Plaintiff and defendant and their counsel. 4 marks ( max. 150words)

The plaintiff in the case is Peter Smythe, a buyer who had placed a bid for a Wirraway Australian Warbird aircraft on eBay. The defendant, Vincent Thomas, had allegedly rescinded on his promise to sell the aircraft to the plaintiff on account of him (plaintiff) being the highest bidder at the expiry of the bidding time-frame, and despite his (defendant) having made a promise to accept the bid. D Kasep is the counsel of the plaintiff, while D M Loewenstein stood as counsel for the defendant. The counsels are legally recognized advisers of their clients during a court proceeding, by way of presenting evidence in support of their respective clients’ cases.

4. What particular circumstances led Rein AJ to doubt the credibility of the defendant’s version of events? 3 marks ( max. 200word)

The Appellate Judge doubted the defendant’s argument due to the following reasons. Firstly, the defendant had not specified any circumstances under which a contract cannot be reached. The judge also noted that the defendant had previously used eBay services, and therefore it was deemed that he understood, the circumstances under which a contract was reached, and hence his obligations to sell. Similarly, the defendant’s registration with eBay is defined by definite terms and conditions, whose implications bind him to a regal relation with prospective buyers. Thus, it was unconscionable for the defendant to argue that the terms of engagement between him and eBay are only parallel to the terms of engagement between eBay and the buyer (plaintiff). The judge determined that they crossed to suggest seller-agent-buyer relationship present in traditional auctions.

Finally, the phone conversation between the plaintiff and the defendant shortly prior to the expiry of the bidding indicated that that was a contract reached between the two parties in the form of a promissory agreement. The existence of common intention and acceptance of the payment deposit offered by the plaintiff suggest that an agreement had been reached. As the judge pointed out, “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” (Rein, 2007).


5. The defendant argued there was no binding and enforceable agreement, what were the components of this argument? 4 marks (max. 200words)

The defendant’s arguments that there was no binding and enforceable agreement were based on the following observations. First, that his engagement terms with eBay do not imply a binding regal relation with a third party, and therefore the law should not presume his obligation to sell under eBay terms and conditions. Secondly, the defendant contended that the placement of an advert on eBay is not practically different from one placed in a newspaper classified section, in which case there is no binding obligation by the seller to sell. Further, he pointed out that eBay was not a means through which enforceable contracts can be effected, as there was no direct and physical seller-buyer dealings. On the contrary, he asserted, it was merely a forum in which potential buyers met potential sellers, with no guarantee that the selling or buying of items will take place. His maintained that the listing of items on eBay website was nothing more than ‘an invitation to a treat.” Finally, he argued that since he had not discussed the payment terms with the plaintiff, the contract had not been finalized hence unenforceable.

6. How is agreement reached in a traditional auction? 2 marks (max. 80 words)

In a traditional auction an agreement is reached through the seller contracting an agent to sell items on his/her behalf. The agent- an auctioneer, acts as a bridge between seller and potential buyers. During the auction, the highest bidder will win the item, and the selling is sealed at the fall of the hammer, which effectively signifies an agreement to sell at the offered price. It is made formal by the signing of documents prepared prior to the auction, of whose contents both parties have knowledge of.

7. What differences did Rein A J outline between a traditional auction and an on-line auction? 5 marks (max. 250words)

The differences between a traditional auction and an on-line auction are characterized by the medium and manner in which they are performed. In a traditional auction, the items to be sold may be physically present during the time of bidding. An online auction, on the contrary, involve bidding and payment for listed items that are not physically present, but whose quality and physical state is made available to potential buyers through descriptions and graphical presentations. Secondly, a traditional auction is conducted by an agent with the authority to sell, or make an agreement on behalf of the seller, with the seller reserving the right to withdraw the items before the fall of the hammer. On the other hand, there is no physical agent in an online auction, since the service provider has no authority to transact on behalf of the involved parties. Equally, the seller cannot withdraw the items on sale.

Thirdly, traditional auctions are said to be concluded, and an agreement reached, when the hammer falls upon the highest bid. In an online auction, there is no specific ‘moment of the hammer,’ so to speak. The conclusion of the auctioning, and the reaching of an enforceable agreement, is determined by the highest bid upon the expiry of the auctioning period, provided such a bid is above the minimum bidding price. Finally, a traditional auction may involve the supervision of the items on sale before the placement of a bid. It can also involve the verification of the seller’s identity prior to making an offer. An online auctioning departs from this framework in that the bidding, and in fact the payment for items, can be made before their actual state has been verified. The buyer relies solely on the information provided by the seller on the service provider’s website.


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?(80 words)

Rein AJ regarded “The automatic close of bidding at a fixed time and the generation of an eBay advice headed “won” appearing on the screen, and the acceptance by the parties to an eBay auction as the equivalent of the fall of the hammer” (Rein, 2007). The close of bidding at a fixed time automatically shuts off further bidding or new offers, therefore giving the highest bidder upon closing the right to buy. The fall of hammer in traditional auctioning has a similar implication, in that it determines the winning buyer and the selling price, which cannot be reversed even if higher bids are offered thereafter.

9. Why was an order for specific performance of the contract appropriate in this case? 2 marks (80words)

The order for specific performance was appropriate because both parties had acted in manners that both implied and demonstrated their intention to enter into a regal relation, buy accepting the offers made in relation to the selling-buying of the item on sale. Additionally, some key elements of a contract such as agreement on certain binding terms were fulfilled, such as the buyer’s willingness to pay the reserve price as determined by the seller. Similarly, there was explicit consideration by both parties through performance, since the buyer paid the deposit for the aircraft, a sum that the seller had previously agreed upon.


10. Why was the final order not made in this hearing? 1 mark (50 words)

The final order was not made in the hearing because it had not been discussed and agreed upon by the parties. The mode of payment of the remaining amount was yet to be finalized, and therefore could not be subject to a court hearing.

11. Why was the matter heard in the Supreme Court? 4 marks (max. 250 words)

Under normal circumstances, the Supreme Court usually determines cases whose verdict as determined by the trial courts is disputed by one party to the case. However, this particular case has not been tried in the lower cases, making it technically ‘illegible’ for the attention of the Supreme Court.

Nonetheless, the nature of the case and circumstances surrounding the dealings between the parties falls beyond the jurisdiction of the lower courts. Firstly, the plaintiff and defendant come from two different jurisdictions, i.e. South Australia and Albury respectively. Consequently, the only law determined relevant to the case was that of New South Wales under the jurisdiction of the Division of Equity of the Supreme Court.

Secondly, the involvement of eBay as a third party to the case made it necessary to review the case in the Supreme Court. EBay is a Dutch company operating in a foreign territory. As such, state laws may not apply since its operations are not limited to the jurisdiction of a state court. Finally, the breach of the terms and conditions of engagement as stipulated by eBay suggest a dispute between the parties, which necessitates the attention of a relevant intervener, which in this case is the judgment of an appellate judge. The Supreme Court was the only authority with the powers to review the terms of online auctioning via eBay.

Part B 10 Marks

McMuffins Ltd is a fast food company based in Queensland. Yesterday, before work had started, an argument arose between three kitchen hands: Tom, Dick and Harry. Over the weekend, Tom had offered to sell his motorbike to Dick for $5000. Dick said this was far too much but he would pay $4000. Tom refused. Before Tom left for work this morning Dick phoned to say he would buy the motorbike for $5000 but Tom said he had already sold it to Harry for $4,500. It was not a good day for Dick: he was one of the six employees of McMuffins Ltd that buy a weekly lottery ticket, each contributing an equal amount of money. Every week the money is collected by Lotty, the office junior, who also buys the lottery ticket. The group has always agreed to share any winnings equally but have not to date won anything. Lotty discovered this morning that the lottery ticket has won $1,000,000, she tells the other members of the group

that she intends to claim the money for herself and leave McMuffins Ltd.


1. Has Tom reached an agreement? 4 marks (Up to 150 words)

Under the circumstances, it could said that Tom has reached an agreement with Harry, but not with Dick. For a binding agreement to be made, there are two basic elements that the involved parties must fulfill. First, there must be an offer by either party, or the acceptance of the offer by both parties. In this case, Tom has proposed an offer to sell his motorbike. However, Dick has not accepted the terms, i.e. the price of $ 5 000. Likewise, Tom has not accepted the offer of $ 4 000 made by Dick.

On the other hand, it is within reason to presume that there is an agreement between Tom and Harry because there was a transaction between the two parties. The transfer of title of ownership to Harry presumes the fact that either Tom made a new offer which Harry accepted, or the latter offered to pay $ 4 500, which the former equally accepted.

2. Is Lotty obliged to share the lottery winnings amongst the group? 6 marks (Up to 250 words)

Lotty is under obligation to share to share the lottery winnings amongst the group. Considering the terms of agreement among the parties, it is clearly evident that there is a binding contract. First, there was an agreement to enter into the lottery competition, and members were required to make weekly contributions- which was accepted . There was also an executed consideration, since the parties made prompt payments as agreed. By fulfilling these elements, the parties, Lotty included, had expressed their intention to create a legal relationship. Further, there is lack of evidence to overturn or refute any presumption that such an intention is present. If any, then the burden of proof shifts to Lotty against whom the presumption is made. Until she proves otherwise, the court, acting as a reasonable bystander, can objectively determine that there was a common intention for the lottery winnings to be shared equally amongst the group.

Finally, Lotty’s decision to claim all the winnings for herself cannot be justified under the circumstances surrounding her dealings with the other parties. It is a private intention since it is not what the other parties were thinking or believed was the case at the time of making the contract. On the other hand, thoughts/intentions are private until they communicate to the other stakeholder parties. By failing to make her private thoughts known, it is therefore presumed by the law that her decision is a breach of contract, and in effect not enforceable.

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