Question

Redd is the owner of an art gallery in Amsterdam. He has what he has always believed was a Rembrandt painting in his gallery. However, the Rembrandt Project has recently added this painting to the list they are currently reviewing, because they are of the opinion it may not be authentic. Learning this, Redd wants to sell the Rembrandt now before any official ruling on its authenticity. Redd remembered that his colleague, Blathers, was the curator for the Art Gallery of Ontario (AGO). Blathers mentioned to him at a show last year that the AGO was very interested in acquiring a Rembrandt for its collection. Redd decided to take Blathers up on this offer. He sent Blathers a standard form used by art dealers setting out a sale for the Rembrandt for $2.7m. He sent it to Blathers by fax on Friday, September 27. The form indicates that Redd will hold the painting until a response is received by October 27. Blathers saw the fax on Monday, September 30 and became exhilarated. He filled out the portions of the form left blank for him and agreed to have the AGO purchase the Rembrandt from Redd for $2.7m. Blathers sent the form back to Redd by mail on October 1. Unfortunately, he made a mistake with one number in the address line, so it ended up being sent to another address. The recipient threw it in the garbage. Redd never received Blathers' mail. Very happy about the purchase, Blathers left for a three week holiday on October 2. Not hearing back from Blathers, Redd figured he was not interested, so on October 7 he put an ad in a special art dealers journal stating: “For sale, one Rembrandt painting. Price: $2.7million.” While on holiday, Blathers meets up with his Celeste, who is also a museum curator of sorts. Celeste tells Blathers that she saw an ad placed by Redd in the Museum Curator’s Quarterly offering his Rembrandt painting for sale. Blathers was upset, and telephoned Redd. He left Redd a voicemail on October 12 stating that he mailed back the form on October 1 indicating his willingness to buy the painting, which he expected him to honour. In the meantime, on October 10, the Rembrandt Project got back to Redd with their verdict on the painting’s authenticity – they deemed that the painting was not an authentic Rembrandt. Learning of this, Redd became worried that the reputation of his gallery would suffer if he kept the painting, but he also could not afford to sell the painting for less than the cost of a true Rembrandt. 2 days later, Redd picked up Blathers’ message that the form had become lost in the mail, and that he was still interested in buying the painting from him. Redd felt relieved, and closed the deal with Blathers, selling him the alleged Rembrandt painting for $2.7 million. A couple of months later, a member of the board of the Rembrandt Project is visiting the AGO. He spots the inauthentic Rembrandt on the wall, and informs Blathers at once. Blathers is devastated, and wants to sue Redd for selling him an inauthentic painting. QUESTION In your answer, please respond to and discuss the following: •

1.Identify the elements of the contract that were present in the contract’s formation

2.Explain any issues with the communication of the offer or its acceptance

3. Explain what Redd did wrong in the context of contract law, and what Blathers options for recovery would be

Answer 1

Answer :

The following elements where in the contract; Offer and acceptance. consideration, intention to create legal relations, capacity to contract.

The offer was made by Redd to Blathers, the curator for the Art Gallery of Ontario (AGO) through the was communicated through fax. The acceptance was communicated back through the post by blathers as he accepted all the conditions (see Smith v Hughes). Consideration in common law requires that a price be exchanged for the promise being made (Carlill v Carbolic Smoke Ball Co 1893). In our case, the price for the Painting was set $2.7 million. This distinguishes contracts from gratuitous promises. for the test of intention to enter into legal relations, an objective approach is adopted by courts. i.e. whether it would appear to a reasonable observer that they did (Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd 1989). In our case, a reasonable person would have considered the price and fax to mean that the parties intended to be legally bound by the sale. As for capacity, common law does not enforce contracts involving the mentally unstable individuals (Gibbons v Wright 1954), those intoxicated (Blomley v Ryan 1956), and minors. Since both parties were neither minors or of unable to understand the contract terms due to intoxication or mental instability, they had capacity to contract under common law.

Where post (or probably other non-instantaneous modes of communication) are subject to a different doctrine (post rule!), this principle states that the offer is deemed to be accepted by the parties (expressly or implicitly) as by the time of posting the mail.

What Redd did wrong was pre-contractual misrepresentation. Pre-contractual misrepresentations may provide contractual remedies at common law or statutory remedies pursuant to the Competition and Consumer Act 2010 (Cth). Section 18 prohibits an individual (including a corporation) acting in a commercial or commercial manner from engaging in activities that is misleading or deceptive or likely to deceive or misguide. Since Redd did not inform Blathers of the authenticity of the panting, this amounts to misleading contact (Demagogue Pty Ltd v Ramensky 1992). Both statute and common law provide the party innocent of the misleading contact the right to terminate the contract. Additionally, courts will award damages to restore the injured victim to their original financial status they enjoyed before entering into the contract (see Chambers v. Nasco, 1991).

References.

Carlill v. Carbolic Smoke Ball Company, 1 Q.B. 256 (1893).

Poole, J. (2014). Casebook on contract law. Oxford University Press, USA.

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (SC of NSW, 1989)

Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 110 ALR 608; (1992) 39 FCR 31 (Federal Court (Full Court))

Laycock, D., & Hasen, R. L. (2018). Modern American Remedies: cases and materials. Wolters Kluwer Law & Business.

Chambers v. Nasco, Inc., 501 U.S. 32, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991).

Gibbons v. Wright, 91 C.L.R. 423 (1954).

Blomley v. Ryan, 99 C.L.R. 362 (1956).