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(1926) JELR 87213 (CA)

Court of Appeal  •  16 Jul 1926  •  United Kingdom



BANKERS L. J. I wish to make it quite plain that in my opinion this case must be decided upon the footing that the respondents, the house agents, were acting in good faith in this matter, but under a misapprehension as to their legal position in reference to their client.

The material facts are these: Mr. Keppel, the appellant, was the owner of some house property. The respondents had been employed by him to collect the rents and look after the property, and in that way he was known to them, but the fact that they had been so employed is immaterial for the present purpose. He was anxious to sell the property, and he get into communication with the respondents in reference to that matter. They had some time before valued the property at 7000l., but the appellant, apparently, was anxious to sell the property. When he gave them instructions to try and find a purchaser, he named the price of 6500l. which they were to ask, but he intimated that he would be prepared to consider favourably an offer of 6000l. Those instructions were given on May 28, 1925. The respondents straightway put themselves into communication with a number of persons who were on their books, dealers in property, estate agents, and persons who they thought might be interested in this property. They at once got into touch with a Mr. Essam, who on the very next day, May 20, made an offer of 6150l. As soon as he made the offer, Mr. Atkins, a member of the respondents’ firm, went to see the appellant and communicated the offer to him; and the appellant expressed himself highly gratified at so quickly receiving an offer at that figure; he instructed Mr. Atkins to accept the offer subject to contract, and wrote a formal letter authorizing him to accept Mr. Essam’s offer subject to contract.

I pause here to state plainly what is now well established, that where a person accepts an offer subject to contract, it means that the matter remains in negotiation until a formal contract is settled and the formal contracts are exchanged; so that although those instructions were given by the appellant to the respondent Atkins, the matter remained negotiation in the eye of the law until June 11, that being the date on which the contracts were exchanged, though they were apparently signed on June 8. So between May 29, when the authority was given to close with Mr. Essam’s offer subject to contract, and June 11 or possibly June 12, the matter, as between the plaintiff and Mr. Essam, remained in negotiation.

One of the persons to whom Mr. Atkins, as representing the plaintiff, had sent particulars of this property was a Mr. Daniel. Mr. Daniel happened to be away from home at the time. When he returned home, on June 2, he found the particulars which Mr. Atkins had sent to him. He got into communication with Mr. Atkins, and then found out that the property was sold subject to contract. There is a copy of a telephone message from Mr. Atkins to Mr. Daniel, dated June 2, at 2 p.m., which says: “Said he had considered matter and seen his solicitors. Told it was sold subject to contract. He si sorry. Said it went on Friday”.

Mr. Daniel was not deterred by the news that the property had been sold subject to contract. He went to see Mr. Atkins. There is an extract from Mr. Atkins’ diary of June 3 which shows exactly what happened: “Mr. J. Daniel called. Will purchaser take a profit on his deal. He made an offer of 6750l.”

Now, when Mr. Daniel made that offer, Mr. Atkins, as I think, made the unfortunate mistake of communicating to Mr. Essam, but not to Mr. Keppel, the fact that Mr. Daniel was prepared to give a larger sum than Mr. Essam. The communication with Mr. Essam appears in a note of a telephone message from Mr. Atkins to Mr. Essam on June 3 at 3:50P.M., which is : “Asked if he would accept 600l. profit on his deal – namely 6750l.” – that is to say, he was passing on to Mr. Essam Mr. Daniel’s offer – “Said I had offer of that amount. How much would our commission be. 150l. about would be scale but if he would accept offer we would take 100l. Has to give Bickford something so cannot accept. Lowest 7250l. Suggested he should make it 7000l. to which he eventually agreed. Commission 120l.”

The matter went on, and a contract was exchanged between Mr. Essam and Mr. Daniel at a price of 6950l., and then the matter got to the appellant’s ears. A good deal of trouble ensured, and ultimately this action was brought. The action was brought by the appellant against the respondents for breach of their duty as agents in not disclosing to him this offer which they had received from Mr. Daniel. The respondents retaliated by saying that they were under no duty to him in reference to the matter at all, and they counter-claimed for their commission.

So far as the claim is concerned, the question turns entirely upon what the respondents’ position was in reference to the appellant during the interval between May 29 and June 11. They do not dispute that they were employed as his agents to dispose of the property; or that so long as they continued his agents they were under an obligation to make to him all proper disclosures; or that if, while still his agents, they had received this offer from Mr. Daniel of a larger sum than Mr. Essam had offered, they were under a duty to disclose that fact. But their position has been throughout that, as soon as they had introduced Mr. Essam, who was a willing purchaser, and the appellant had accepted his offer, although it was an acceptance subject to contract, they had completed their obligation as agents, and had earned their commission, and were free to act as independent persons whose agency, so far as the appellant was concerned, had terminated.

The question is, what in these circumstances was the position in law of the respondents? I am satisfied after the very full discussion which has taken place that at any rate their duty as agents did not terminate until the contracts were exchanged between the plaintiff and Mr. Essam. I do not mean that they were bound to look out for other purchasers; but I do mean that so long as they continued agents, it was their duty to communicate any offer which came to them larger or more satisfactory than the one which they had already submitted to their principal. I think that duty is plain, where, as here, the information comes as a result of submitting particulars which they had submitted in the first instance to Mr. Daniel as agents for the appellant.

In these circumstances, I am not going to discuss all the matters which have been debated in testing this question whether the agency had or had not determined, because it seems to me that an agent may well say: “I have done everything which, assuming that the matter went through, would entitle me to receive my commission”, and yet remain under the obligation of an agent to disclose such matters as the particular offer in this case.

As indicating that this is the correct view of the situation I will give three instances of what might have occurred during the interval between May 29 and June 12. Of course Mr. Essam might have changed his mind; the matter was only in negotiation. If he had done so it could not be said that the respondents were entitled to their commission upon the ground that they had done all they were bound to do, and had earned their commission as soon as the appellant accepted the offer subject to contract. Again, these respondents were not employed as exclusive agents; if the appellant had found a purchaser during this period who was prepared to give more, or who for some reason was a more desirable purchaser, he would have been entitled to sell the property to that person, and the respondents would have had no cause of complaint. Or again, if the other agents had found during this interval a person whom the appellant preferred, or who would give a larger amount, the appellant would have been entitled to accept that person, and the respondents would have had no cause of complaint. Those are three good tests of the position as between these parties, indicating that it is not true to say that the relationship between the parties ceased on May 29, and that on that date the respondents were entitled to their commission and were entitled to say that they were free for all purposes from any duty as agents for the appellant.

I think, therefore, that these gentlemen, the respondents, misunderstood their position; and that they and other agents must understand that in the circumstances existing in this case, they are not free from the responsibility of agents merely because their client is prepared to accept an offer subject to contract, and that their responsibility continues until formal contracts are approved and exchanged.

The amount of damages is the difference between the amount which Mr. Essam in fact gave, and the amount which Mr. Daniel would have given if the respondents had done what it was their duty to do, and had communicated to the appellant the fact that he was a willing purchaser. It may be, as Mr. Bowstead suggested, that if the respondents had done what they ought to have done, Mr. Daniel would have got this property for less than he in fact gave for it, and the appellant would have got not very much more than he in fact got. But it does not do to guess in these matters, and I do not think that the respondents, who have committed a breach of their duty, are entitled to take up the position of saying: “If we had done our duty, Mr. Daniel would not have offered as much, and Mr. Keppel would have got less”. I think, as the parties have left the matter of the damages to us, we are not guessing, but we are taking a fair estimate of the position when we say that Mr. Daniel’s offer of 6750l., which he was prepared to give, was one which the appellant would have accepted, and that the measure of damages is the difference between the 6150l. and the 6750l., that is 600l. ; but the appellant could not have obtained that sum without paying commission upon it at 1 1⁄2 per cent. that leaves the damages at 591l. The appellant contended that the agents have disentitled themselves to recover the commission, but I do not take that view at all. It seems to me that an agent might quite properly claim his commission, and yet have to pay damages for committing a bona fide mistake which amounts to a breach of duty. In these circumstances, I think the respondents are entitled t the claim which they make for commission. The appeal therefore will be allowed, and judgment entered for the appellant for 591l. with costs, and for the respondents for the amount that they claim, with costs; and the plaintiff must have the costs of the appeal.

ATKIN L.J. I agree. It is plain from the facts of this case that the appellant was prepared to sell this block of flats in Walham Green for 6150l., a price which appeared highly attractive to anybody who was in the market for that class of property at that time.

The respondents were estate agents, who had managed the flats for the appellant. He had put the flats in the hands of well known agents, who for two or three weeks had failed to dispose of them. He then employed the respondents to sell the flats, and within twenty-four hours the respondent Atkins had obtained a purchaser who was prepared to buy the flats at a price which the appellant was prepared to accept. The purchaser was introduced to Mr. Atkins by a Mr. Bickford, of whom we know nothing except that he is said to be an investor in this class of property, and he eventually got something out of the profit which Mr. Essam, that is the purchaser who was introduced, made on the transaction.

Mr. Essam was in fact another estate agent in London, but apparently he concealed this fact from Mr. Atkins, to whom he only gave an address in Nottingham. Mr. Atkins put his offer forward, having got it reduced to writing, and presented it to his principal, the appellant; and the appellant accepted the offer subject to contract, and signed a letter addressed to the respondents in those terms.

The result of that was that the matter still remained in negotiation; that the appellant had intimated that he was prepared to carry on the negotiations upon the footing of that price being agreeable to him, and that the negotiations were to be continued after that stage, not by his agents but by his solicitors.

Now I am not surprised that a great deal was made of this transaction with Mr. Essam, and of the fact that his London address and his occupation were not disclosed to the appellant; but after hearing the witnesses, the judge decided that the matter went through in good faith on the part of Mr. Atkins, and I am not prepared to dissent from that decision. The real bearing of the transaction is that it clearly excited suspicion in the minds of the appellant and his advisers when they knew of it, and that indicates that he would very likely have withdraw from the negotiations with Mr. Essam if in fact he had discovered what the true facts were. That is the real bearing of these facts upon the matter which we have to discuss.

This matter went through in the way that I have described on the Friday before the Whitsuntide holiday, and on Whit Tuesday a Mr. Daniel, who it appear was a tenant of the flats, and had been in communication with Mr. Atkins and had been given particulars and an order to view, rang up early in the morning and said that he had been considering this matter; and he was then, apparently, told that the property had been sold. Mr. Atkins’ dairy says that he told him it had been sold, and an entry of a telephone message says that it had been sold subject to contract. Mr. Daniel, who obviously wanted the flats, then asked whether the purchaser would take a profit upon his deal, and eventually he was told that he must make a large offer, at least 600l. more than the gentleman had given in fact, and eventually Mr. Daniel was induced to offer 6950l., which he did on Tuesday, June 2.

Now the matter was still in negotiation, as I have said, because there was no concluded contract between Mr. Essam and the appellant until June 8 or 11; it does not matter which, it was the next week at any rate. It appears to me that in those circumstances the agents having obtained that further offer were under an obligation to disclose it to their principal, the appellant. They had got it from a person to whom they had communicated the particulars on behalf of the appellant, and from a person who had approached them on the Tuesday originally as being the agents of the appellant; and they were consequently under a plain duty to disclose this offer of a letter price to their principal, unless the employment had come to an end and they were under no contractual obligation to him at all.

That is the question which we have to discuss. Were they at that time under any contractual obligation to the appellant? It appears to me to be a complete mistake to suppose that when agents are employed to sell a property, their duty ends when they have introduced a purchaser ready and willing to buy the property. It is true that if the transaction goes through, that is all they need prove in order to earn their commission; but up to the time at which there is in fact a concluded agreement between the purchaser and the vendor, the agents still have a duty to their principal. For instance supposing after they had introduced a purchaser ready and willing to purchase, but, the matter still being in negotiation, they discovered that the person so introduced was either a person who insolvent, or a person of bad character, or a person who intended to employ the premises for some purpose contrary to law, or perhaps contrary to the conditions in the vendor’s agreement, then it appear to me to be plain that it would be their duty to their principal to disclose those facts to him. On the other hand, supposing that the purchaser, while still in negotiation, applied to the agents for further particulars of the property in order to complete the negotiations, which particulars had been entrusted to the agents by the vendor for the purpose of imparting to prospective purchasers, then in my opinion they would be committing a breach of their duty to their principal the vendor if they declined to give those particulars, on the ground that they owed no further duty to anybody in the matter. And, if the proposed sale went off because of that refusal, the principal, the vendor, might have a substantial cause of complaint against the agents; he would have a claim for breach of the contract to use reasonable skill and diligence in the obtaining of a purchaser, a person who would purchase the property. For those reasons it appears to me to be a mistake to suppose that the contractual relationship ends as soon as a person has been introduced who is in fact ready and willing to purchase. It continues as long as the negotiations between him and the vendor continue. To my mind that is made plain by the words of Lord Watson in Toulmin v. Millar (1), which, though obiter dicta, are of great weight. I think, therefore, that there was a breach of contract.

Now, has it caused damages? Mr. Daniel was a purchaser of this property at a sum which eventually turned out to be 6950l. It is true that he began by a lower offer, and it may very well be that if his offer had been disclosed to the appellant, he might have got the property at a smaller sum. I am not satisfied that the largest sum would necessarily have been obtained, but I think it is right to fix the sum which Mr. Daniel offered without any demur, namely, 6750l., as being the sum which would have been obtained.

I do not agree with Mr. Hawke that the appellant fails to prove his, damages because he was not called. I think the proper inference from the facts is that he would have been prepared to entertain the further offer, and would not have considered himself bound by the negotiations which had begun, even though he had put his signature to a document that he was prepared to accept the offer subject to contract. At any rate, if the respondents intended to show that the appellant would not have taken the higher price, the burden of proving it lay on them and they obviously failed t prove it. Therefore it appears to me that the damages should be as has been stated.

The other question is whether the respondents should succeed on their counterclaim. Now I am quite clear that if an agent in the course of his employment has been proved to be guilty of some breach of fiduciary duty, in practically every case he would forfeit any right to remuneration at all. That seems to me to be well established. On the other hand, there may well be breaches of duty which do not go to the whole contract, and which would not prevent the agent from recovering his remuneration; and as in this case it is found that the agents acted in good faith, and as the transaction was completed and the appellant has had the benefit of it, he must pay the commission. Therefore, I think, the defendants are entitled to recover on their counterclaim.

The result is that I think that the appeal must be allowed with costs, and that the judgment should be carried by entering judgment for the plaintiff for 591l., but the judgment on the counterclaim must stand.

SARGANT L.J. I am of the same opinion, and will add very little. In my view, counsel for the respondents were seeking unduly to limit the responsibility of the estate agents, in respect both of its extent and of its duration. As regards extents, the argument at one time seemed to suggest that the agents were merely agents for the purpose of obtaining a purchaser. That is not so. They were agents for the purpose of obtaining the best purchase price which could reasonably be obtained, and it is quite clear that if the offer of Mr. Daniel had come before the making of the quasi contract with Mr. Essam, it would have been a gross dereliction of duty if the agents had not informed the principal of the receipt of that larger offer.

With regard to the duration of their responsibility, I think that the agents here have not fully apprehended what is now a definite rule of the Court, that an agreement subject to contract is merely in the stage of negotiation. That has been said over and over again since Sir George Jessel enunciated it in Winn v. Bull (1), and it has been definitely laid sown in this Court two years ago, in the case of Chillingworth v. Esche (2). There it was held that when upon such an imperfect contract a so-called deposit was paid, that deposit was not really in the nature of a deposit at all, but remained the property of the person paying it, and had only been really intended to form a deposit in the true sense in case it should happen that there was ultimately a formal and definite contract entered into. The agents here seem to have though, and I think persons who are wholly or partly laymen might well think, that some definite change took place in the relationship between them and the vendor as soon as this contract had been made subject to contract; and if that particular form of words had not been used, but it had otherwise been clear that the matter had not got beyond the stage of negotiation, I doubt very much whether they would have attempted to draw this hard and fast line setting a limit to their duty on the date in question. To my mind it is quite clear as regards time, that when agents are employed to find a purchaser for a property, their position as agents cannot definitely end at any time short (at the earliest) of the time when a definite binding contract is entered into and exchanged: and that if in the interval they receive information – whether, as in this case, from someone with whom they had originally communicated on behalf of their principal, or from some outside source, which tends to show that the value of the property was greater than had been supposed, or is otherwise of a nature to influence materially the judgment of their principal in going on with, or ceasing to go on with, the contract which was being originally negotiated, they are bound to communicate that information to their principal; and if they do not do so, they are guilty of a breach of their duty as agents. If the respondents had heard, two days after the formation of this agreement subject to contract, that the property had been scheduled to be taken for the purposes of a public improvement, or that some other event had happened, quite disconnected with the agency, which necessarily increased the amount which the vendor might expect to obtain, then it seems to me that they would be definitely bound, in their capacity of agents for sale for this vendor, to communicate that information to him. That being so, it follows that in my judgment the appellant is entitled to succeed upon the claim. On the other part of the case, I have nothing to add to what has fallen from the other members of the Court.

BANKES L.J. The appeal will be allowed, and judgment will be entered for the appellant for 591l. with costs here and below. The judgment for the respondents on the counterclaim will stand.

Judgment accordingly.

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