Arinako v Minipe [1994] PNGLR 450 (21 October 1994)

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CONTRACT - Oral contract - Offer and acceptance by telephone - Whether binding contract.

The respondent offered to sell a motor vehicle to the appellant, the offer being made in a telephone conversation between the parties. The appellant accepted the offer and a price was agreed. Subsequently, the appellant made part payment of the purchase price. On his failure to pay the agreed price in full, the respondent commenced proceedings in the District Court for breach of contract. The District Court gave judgment for the respondent and ordered payment of the whole of the agreed price, with interest and costs with no deduction being made for the part payment. On appeal, the appellant argued, inter alia, that no contract existed.

1. There being no rule of law in Papua New Guinea as to whether an offer and acceptance concluded by telephone constitutes a binding contract, section Sch 2.3 of the Constitution should be applied to formulate an appropriate rule.

2. Contracts made by telephone or telex follow the ordinary rules of offer and acceptance. If no particular method is prescribed, the form of communication will depend on the nature of the offer and the circumstances in which it is made.

3. A contract made by telephone is complete only when one party hears the answer of the other party accepting the offer.

SAWONG AJ: This is an appeal against the decision of the District Court sitting at Mendi, where the said Court ordered the appellant to pay the sum of K8,000 together with interest of K1,920 and costs of K80, a total of K10,000, to the respondent.

1. The magistrate erred in law in giving weight to the one and only witness called by the complainant, who is his brother.

2. The magistrate erred in law in holding that a contract existed when no offer and acceptance was made.

3. The magistrate wrongly objected to admission of evidence to show that some monies were paid to the complainant.

I propose to deal with the grounds of appeal in the chronological order as they appear.

Counsel for the appellant, Mr Sapu, submitted that the credibility of the one witness was questionable. He submitted that the complainant and the respondent and his witness are related and, therefore, their evidence was somewhat tainted. He submitted that this particular witness had a vested interest over the matter and, therefore, the learned magistrate ought to have exercised some caution with regard to that particular witness’ testimony. He submitted that, as the witness and the respondent were brothers and there was the likelihood of their evidence being concocted, the learned magistrate ought to have given little weight or, alternatively, no weight to this particular witness’ evidence.

On the other hand, counsel for the respondent, Mr Yalal, submitted that the respondent called two witnesses, that is himself and one Moses Kati. He submitted that Mr Kati and the respondent are not brothers. He further submitted that the learned magistrate saw the demeanour of those two witnesses, gave weight to the evidence and accepted the evidence of the complainant and his witness. He further submitted that the learned magistrate had to decide on the issue before him, he was the best person to observe the demeanour of the witnesses who gave evidence, and he chose to accept the evidence of the respondent and his witness. He, therefore, submitted that the learned magistrate did not make any error in law.

Although the argument raised by the appellant may be sound, there is no evidence to suggest that this was, in fact, the case here. I find that the learned magistrate did not err and did not fall into an error.

The second ground of the appeal is that the learned Magistrate erred in law in holding that a contract existed when there was no definite offer and no acceptance was made. The evidence of the respondent and his witness, contained in the transcript, was that a conversation by telephone took place between the respondent and the appellant. In that conversation, the respondent made an offer to sell the vehicle to the appellant for K8,000. The appellant accepted that offer, and he stated that he would use the vehicle and pay the respondent the sum of K8,000 from the earnings of the use of the vehicle. The respondent’s witness, Moses Kati, confirmed hearing the conversation between the appellant and the respondent where the respondent offered to sell to the appellant the vehicle for the sum of K8,000 and where the appellant accepted the offer and agreed to pay the sum of K8,000 to the respondent from the proceeds of the use of the motor vehicle.

The issue here is whether the telephone conversation between the appellant and the respondent, where an offer was made for sale of the motor vehicle by the respondent to the appellant and the acceptance by the appellant to purchase the motor vehicle from the respondent, amounted to a binding and enforceable contract between the parties.

The undisputed fact, as found by the learned magistrate, is that a legally binding and enforceable contract had been entered into by the parties. The respondent had offered to sell the motor vehicle for valuable consideration, and the appellant had accepted that offer. The agreement was entered into by telephone between the parties. It was an instantaneous communication to sell and to buy between the parties.

I have been unable to find any authorities in Papua New Guinea directly on the point in issue, that is, whether an offer and acceptance made by telephone is a legally binding and enforceable agreement as between the parties. Thus, there appears to me no clear rule of law that is appropriate and applicable to the circumstances of the country. Accordingly, I am of the view that Sch. 2.3 must be considered. Schedule 2.3 of the Constitution reads as follows:

(1) If in any particular matter before a court there appears to be no rule of law that is applicable and appropriate to the circumstances of the country, it is the duty of the National Judicial System, and in particular of the Supreme Court and the National Court, to formulate an appropriate rule as part of the underlying law having regard:

(a) in particular, to the National Goals and Directive Principles and the Basic Social Obligations; and

(d) to the legislation of, and to relevant decisions of the courts of, any country that in the opinion of the court has a legal system similar to that of Papua New Guinea; and

(e) to relevant decisions of courts exercising jurisdiction in or in respect of all or any part of the country at any time,

I, therefore, propose to examine the relevant legislation and decisions in other jurisdictions which are in similar terms to our own and then to consider what the law is and should be in the circumstances of Papua New Guinea.

In Australia, the law is that contracts made by telex or telephone follow the ordinary rules of offer and acceptance. If no particular method is prescribed the form of communication will depend on the nature of the offer and the circumstances in which it is made. See Cheshire and Fifoot Law of Contracts, Australia 6th edn, (1992) p 80 para 139.

In England, in Entores Ltd v Miles Far East Corp [1955] EWCA Civ 3; [1955] 2 All ER 493, the Court of Appeal considered the issue of an agreement entered into between the parties by the use of telex. An English company in London was in communication with a Dutch company in Amsterdam, acting as agents for an American principal, by telex. Each company had in its office a teleprinter machine by means of which, on the two machines being connected by the post office, a message typed by one company’s clerk was simultaneously and automatically typed out on paper by the other’s machine. The English company received an offer for goods from the Dutch company by telex and made a counter offer, which the Dutch company accepted by telex. Denning LJ said at 494:

“When a contract is made by post it is a clear law throughout the common law countries that the acceptance is complete as soon as the letter of acceptance is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing. ...

Now take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes ‘dead’ so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off, because people usually say something to signify the end of a conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I hear his answer accepting the offer.”

The Entores decision was approved and applied in Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34 and has been applied in a number of Australian cases, in relation to the telephone conversations in Aviet v Smith & Searls Pty Ltd (1956) 73 WN (NSW) 274; WA Dewhurst & Co Pty Ltd v Cawrse [1960] VicRp 44; [1960] VR 278 at 282; and Hampstead Meats Pty Ltd v Emerson & Yates Pty Ltd [1967] SASR 109.

In my view, the views expressed by Denning LJ and in Australia in the authorities cited above are entirely appropriate and applicable in Papua New Guinea. It is common knowledge and practise in modern Papua New Guinea that contracts are made by telephone. I consider that the principles I have cited above are applicable and appropriate in the circumstance of Papua New Guinea. Accordingly, I apply the principles in that case to the facts of this case.

The learned magistrate came to the conclusion that a firm offer and a firm acceptance and a binding contract had been entered into over the telephone conversation between the appellant and the respondent for the sale of the motor vehicle by the respondent to the appellant for the consideration of K8,000. There was very clear evidence that the respondent offered to sell the motor vehicle to the appellant for the sum of K8,000. This offer was made by telephone by the respondent to the appellant. The appellant spoke to the respondent in that same conversation and accepted the offer to buy the motor vehicle. The offer and acceptance was between the appellant and the respondent; the conversation was between them and it was instantaneous.

The learned magistrate, in his reasons, properly concluded that a legally binding contract had been entered into between the appellant and the respondent for the sale and purchase of this motor vehicle.

It follows that I find that the learned magistrate did not err in law in concluding and making a finding that a binding contract had been entered into by telephone between the appellant and the respondent for the sale and purchase of this motor vehicle for valuable consideration. Accordingly, I dismiss this ground of the appeal.

So far as the third ground of the appeal is concerned, Mr Sapu, counsel for the appellant, submitted that the learned magistrate erred in not allowing a copy of the bank statement from the appellant. That bank statement contained evidence of withdrawal of a sum of K3,600. He submitted that it was tendered, or the appellant attempted to tender the document but it was objected to by the counsel for the respondent, and the learned magistrate accepted the objection and did not allow the documentary evidence to be admitted. Counsel for the appellant submitted that the appellant had given sworn evidence that he had given the sum of K3,600 to the respondent and he, the appellant, wanted to support his oral testimony by tendering the copy of his bank statement showing the withdrawal of the sum of K3,600.

On the other hand, counsel for the respondent submitted that the document merely showed a withdrawal for the sum of K3,600 appearing on the bank statement. He submitted that there was no evidence as to what had happened to that money and to whom it was paid to or who received it. He further submitted that there was no evidence before the court that the sum of K3,600 was paid as part payment and that, therefore, the third ground of appeal was very shallow and should not stand as a ground of appeal.

I have had a closer scrutiny of the evidence contained in the depositions from both parties and their witnesses with regard to this ground of appeal. They both gave sworn testimony. I have also had a close scrutiny or reading of the reasons of the learned magistrate.

Firstly, with regard to the testimony of the appellant. In his sworn evidence-in-chief, he stated that he gave the sum of K3,600 to the respondent when the respondent came and asked the appellant to pay him money. The appellant stated that that was the third time when the respondent asked the appellant for the money. He said that he took this money from his PNGBC passbook account. He produced the copy of the passbook account, which is under his name with the PNGBC at Mendi. He showed the court where he withdrew the sum of K3,600. It is marked in his evidence-in-chief as annexure exhibit “C” by the court. There is nothing in that transcript showing that the counsel for the respondent had objected to the tendering of that photocopied bank statement. There is nothing to show that the court had either rejected or accepted the objection, if any, raised by the counsel for the respondent. Further in cross-examination in question 22, Mr Yalal asked the appellant in what year he gave the respondent K3,600, and the appellant, in answer, said in 1993.

There is, therefore, evidence or basis had been led in the examination-in-chief and supported in cross-examination that this piece of documentary evidence went through and supported the appellant’s contention that he had paid the sum of K3,600 in 1993 to the respondent.

However, the learned magistrate does refer to this piece of evidence in his reasons for his judgment. He says that the piece of evidence was disputed by the complainant’s counsel on the basis that the bank statement did not indicate the exact date the money was alleged to have been paid to the complainant. However, looking at transcript of the evidence of the appellant, it was never suggested nor put to him by counsel for the respondent that he did not pay the sum of K3,600 to the respondent. In fact, as I have said earlier, he was cross-examined and it was directly put to him and he said that he paid the sum of K3,600 to the respondent in 1993 as part payment of the purchase price. Furthermore, there is also undisputed evidence that the appellant had also paid a further sum of K800 to the respondent. The learned magistrate, once again, did not allow for this to be deducted.

In these circumstances, I am of the opinion that the learned magistrate had erred in not allowing or admitting this piece of documentary evidence and in not taking this piece of evidence into consideration in his deliberations. In so doing, I find that the learned magistrate made an error which, in my view, caused substantial miscarriage of justice. Accordingly, I allow this ground of the appeal.

Finally, it was submitted for the appellant that if the appeal is upheld, the matter should be remitted to the District Court for re-hearing. Alternatively, it was submitted that if the appeal is allowed, then the sum of the monies which have been paid by the appellant to the respondent should be deducted from the sum of K8,000. On the other hand, counsel for the respondent submitted that the whole of the appeal should be dismissed and the orders of the learned magistrate confirmed.

The power of the National Court on appeal is derived from s 230 of the District Courts Act Ch 40 which reads as follows:

(1) On the hearing of an appeal, the National Court shall inquire into the matter, and may:

(c) affirm, quash or vary the conviction, order or adjudication appealed from, or substitute or make a conviction, order or adjudication which ought, on the evidence before the National Court, to have been made by a District Court; and

(d) remit the case for hearing or for further hearing before the Court which made the conviction, order or adjudication or any other competent court; and

(e) exercise a power which the Court that made the conviction, order or adjudication might have exercised; and

(f) make such further or other order as to costs or otherwise as the case requires.

(2) An appeal shall be allowed only if it appears to the National Court that there has been a substantial miscarriage of justice.”

For the reasons that I have given, I find that there has been a substantial miscarriage of justice.

Accordingly, I allow the appeal in part only. In other words, I allow the appeal insofar as it relates to ground 3 of the grounds of appeal.

Having allowed the appeal in part, I now have to consider what is the appropriate course to be taken pursuant to s 230 of the District Courts Act.

I have given considerable thought with regard to the various courses open to this Court under the provisions of that section. I am of the view that the courses open to me under s 230(1)(a) and (b) are not relevant and applicable in this case.

In my view, the appropriate cause open in this case would be the consideration of the application of s 230(1)(c),(d) and (e) of the Act.

I have thought a great deal about this matter and, having looked at the history of the proceedings that had been taken to complete the matter before the District Court, and in the exercise of my discretion, I do not propose to remit the matter to the District Court for further hearing. I consider that the appropriate course would be to vary the orders made by the learned magistrate so far as they relate to the quantum of the consideration, with the consequence that the interest component and the cost component will have to be varied also.

It appears from the learned magistrate’s decision that he had not deducted the sum of K800 which the appellant had paid to the respondent. I have already allowed, or made a finding, that the learned magistrate had erred in not allowing the documentary evidence of the sum of K3,600 being paid to the respondent. These amounts will also have to be deducted from the sum of K8,000. The total amount to be deducted is, therefore, K4,400. The amount payable by the appellant to the respondent is, therefore, K3,600. Interest on that amount at 8% from the date of the complaint to the date of the judgment in the District Court is K169.06, together with the cost of the District Court of K80, a total of K3,849.06. My formal orders are as follows:

3. I confirm the order of the District Court that judgment be entered in favour of the respondent.

4. I quash the order of the District Court in so far as it relates to the amount payable by the appellant to the respondent, and I vary the amount payable by the appellant to the respondent.

6. I order that each party bear his own costs for the proceedings in this appeal.

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Papua New Guinea Law Reports

Arinako v Minipe [1994] PNGLR 450 (21 October 1994)

PNG Law Reports 1994