Estate agents — Commission — Whether agents entitled to payment — Construction of agency agreement — Agents appointed ‘as sole agents’, but the form provided that until the expiration of the agency agreement ‘the vendor will not consent to sell the property to anyone not introduced by’ the agents — The agents introduced a couple who were interested in purchasing, but on the same day as this introduction the vendors accepted an offer from a person, not introduced by the agents, who was willing to pay the asking price of £330,000 — This was £5,000 more than the amount which had been offered by the couple introduced by the agents — Agents succeeded in the county court in an action for breach of contract, but this decision was reversed in the Court of Appeal on a point not put to the judge below
agency agreement’ provided for commission at 1.25% plus VAT on the introduction
of a person ready, willing and able to purchase the property — However, a
clause making provision for the termination of the agreement by notice stated:
expiration of such notice the vendor will not consent to sell the property to
anyone not introduced by Property Choice. If this is contravened Property
Choice will be entitled to the same commission in the same circumstances as if
we had effected an introduction.
sale to the ‘private buyer’ did not in fact proceed to completion or even to
exchange of contracts, owing to delay on the part of the vendors — In giving
judgment for the agents for breach of the agreement the trial judge assessed damages
at 20% less than the full commission; he regarded the second sentence quoted
above as constituting a penalty — The vendors appealed
vendors argued that the agreement was a sole agency agreement and not an
agreement conferring sole selling rights covering a sale by the vendors to a
‘private buyer’ — The wording of the agreement was ambiguous but should be
interpreted as meaning ‘anyone introduced by any other agent’ — Alternatively,
the words capable of a wider interpretation should be rejected as repugnant or
misleading — These arguments were not accepted by the judge nor was a
submission that ‘consent to sell’ contemplated something approaching a binding
contract — A ‘more formidable argument’, however, not raised below, proceeded
as follows — The parties had provided that, in the event of a breach by the
vendors, the agents ‘will be entitled to the same commission . . . as if we had
effected an introduction’ — However, in the events which had happened, the
agents would not have become entitled to a commission on the introduction of a
private buyer who did not complete
submission seemed at first sight conclusive against the agents’ claim, but they
had a further argument to deploy — They contended that they could still mount a
damages claim to recover their actual loss, although they were not entitled to
payment of the full commission on the vendors’ breach — Their argument was that
the agreement did not preclude a right to damages in circumstances where no
right to commission arose on the wording of the agreement — The Court of
Appeal, however, were not persuaded by this submission — In the court’s view,
the sentence quoted above beginning ‘If this is contravened’ applied in all the
circumstances in which a breach might arise — It set out what the parties
intended to be the agents’ only remedy, namely the benefit (if any) of the deal
made with the ‘private buyer’ — If that proposed sale proceeded, the agents
would get their commission, but if (as happened) it did not, they would not —
It followed that the claim of Property Choice must fail — Appeal allowed
The following case is referred to in this
report.
Ladd v Marshall [1954] 1 WLR 1489;
[1954] 3 All ER 745, CA
This was an appeal by the defendants,
Frank Fronda and his wife, Pamela Fronda, from a decision of Mr Recorder
Coningsby QC, at Bromley County Court, in which he ordered the defendants to
pay to the plaintiffs, Property Choice Ltd, estate agents, £4,017.75 and
interest, by way of damages for breach of agreement relating to the sale of a
house belonging to the defendants.
Steven Whitaker (instructed by A J Bond
& Co, of Bromley, Kent) appeared on behalf of the appellants; Philip
Cayford (instructed by Pritchard Joyce & Hinds, of Beckenham, Kent)
represented the respondents.
Giving judgment, NICHOLLS LJ said:
This is an appeal by the defendants from an order made by Mr Recorder Coningsby
sitting in the Bromley County Court on December 12 1989. He ordered the
defendants to pay to the plaintiffs the sum of £4,017.75 by way of damages and
interest thereon for breach of a written contract made between the parties and
dated November 4 1987.
Shortly stated, the material facts as
found by the judge are as follows. The defendants, Mr Frank Fronda and Mrs
Pamela Fronda, are the joint owners of an attractive house at 5 Whitecroft Way,
Beckenham, Kent. That is where they live. From about 1986 the house was up for
sale. Despite the efforts of several local estate agents, the house was still
unsold in November 1987. The plaintiffs, Property Choice Ltd, carry on business
as estate agents. On November 4 Mr Chydzik, who was the manager of the
plaintiffs’ Beckenham branch, had a meeting with Mr and Mrs Fronda at their
home. Mr Chydzik looked over the property and advised on an asking price of £330,000.
This was a substantially higher figure than had been recommended previously.
The upshot of the meeting was that Mr Fronda signed for himself and with the
authority of his wife a contract appointing the plaintiffs, Property Choice, as
their agents for the sale of the property.
On the front of the printed form, below
the usual particulars, appeared the following sentence:
We appoint Property Choice to act as sole
agents in the sale of the above property at the rate of 1.25 per cent plus VAT
as per the terms and conditions of business set out overleaf.
Immediately below that sentence appeared
the date. The document was signed, as I have said, by Mr Fronda and also on
behalf of Property Choice by Mr Chydzik.
Overleaf there were seven terms. Clauses
4 and 5 read:
4
The vendor will pay our commission overleaf if Property Choice introduce
directly or indirectly a person ready willing and able to purchase the said
property.
5
The sole agency agreement commences from the date overleaf and shall
continue until terminated by either party giving the other not less than seven
days notice in writing but the vendor shall not give notice to Property Choice
so as to expire earlier than four weeks from the date overleaf. Until the
expiration of such notice the vendor will not consent to sell the property to
anyone not introduced by Property Choice. If this is contravened Property
Choice will be entitled to the same commission in the same circumstances as if
we had effected an introduction.
Over the ensuing three months Property
Choice took the usual steps to market the property. They prepared a coloured
brochure, they circulated details to would-be purchasers and they showed 12
potential buyers round the house. On Saturday, February 13 1988, Property
Choice introduced to Mr and Mrs Fronda a Mrs Elsayed who was interested in
buying the house at the price of £325,000. Property Choice thought she might be
willing to increase the offer to £330,000. She wanted to return on Sunday, the
following day, with her husband.
I pause in the narrative of the history
to interpose that, at the outset of the hearing of this appeal today, Mr
Whitaker, for the appellants, asked for an adjournment to enable evidence to be
obtained from Mrs Elsayed about these events. We were told that she did not
give evidence at the trial and that she would give evidence to a different
effect from the history as found by the judge. Mr Fronda, we were told, also
wished to obtain evidence about these events from a former employee of Property
Choice. We refused to grant any adjournment.
I can well understand that Mr Fronda
feels very strongly about this matter and the judge’s refusal to accept his
evidence. But we were
has there been any suggestion that Mrs Elsayed’s whereabouts could not easily
have been discovered at that stage. All that the Frondas or their solicitors
had to do, so it seems, was to ask Property Choice for Mrs Elsayed’s address.
In these circumstances, assuming in favour of the defendants that the further
evidence would be credible and be likely to have had an important bearing on
the outcome, even so the third of the well-known requirements of Ladd v Marshall*
is clearly not satisfied in this case.
*Editor’s note: Reported at [1954] 1 WLR
1489.
I return to the history. On February 13 a
Mr Andrew Reeves also visited the house. He had not been introduced by Property
Choice. He made an offer of £330,000. That offer was subject to contract and
subject to survey in the usual way. Mr Fronda accepted that offer. He
telephoned Property Choice and said he had a private buyer. On the following
Monday, February 15, Property Choice wrote a letter, complaining of what had
occurred and alleging that there had been a breach of contract. They claimed
payment of their commission under clause 5. On March 3 they commenced these
proceedings. On the following day Mr and Mrs Fronda gave seven days’ notice determining
the contract but, of course, by then that was too late to be of any relevance.
In the event, the proposed sale to Mr
Reeves did not proceed to completion, or even to exchange of contracts. That
was not due to any unwillingness or inability on the part of Mr Reeves. Mr and
Mrs Fronda dragged their feet. The reason for this is not wholly clear. Despite
fortnightly promptings by Mr Reeves, no progress was made. So on May 15 Mr
Reeves gave up and withdrew his offer. By then he had found somewhere else.
At the trial the judge held that Mr and
Mrs Fronda were in breach of contract. They consented to sell to Mr Reeves in
breach of clause 5. He held further that the provision in the third sentence of
clause 5 was not a genuine pre-estimate of Property Choice’s loss, so that that
provision was a penalty. He proceeded to assess the amount of damages in
respect of the loss which Property Choice had suffered by reason of the breach.
He was satisfied that Mr and Mrs Elsayed
were likely to be ‘able’ purchasers in the sense that they had the necessary
finance available to complete the purchase of the property within a reasonable
time. The judge said that all the evidence pointed to the strong likelihood
that Property Choice would have been able to earn their commission through the
introduction of Mr and Mrs Elsayed.
Nevertheless, mindful that there is many
a slip twixt cup and lip, the judge considered that he should not order the
payment of damages in a sum equal to the full amount of the commission.
Instead, he made a reduction of 20%.
There has been no cross-appeal by
Property Choice, either in respect of the judge’s holding that the third
sentence of clause 5 represents a penalty or in respect of the reduction of
20%.
The first point taken on this appeal is
this. A sole-agency agreement is one which precludes a house-owner from
instructing another estate agent to act for him. It does not preclude a
house-owner from selling his house to someone who approaches him otherwise than
through another agent. In other words, it does not preclude a deal with a
so-called private buyer. By way of contrast is a contract which is sometimes,
if rather confusingly, labelled a sole selling agency or a sole selling
agreement. The latter gives the estate agents greater rights than the former.
In the case of a sole selling agency, the house-owner may be liable to pay
damages or commission at the agreed rate whether the purchaser was introduced
by another agent or not.
Mr Whitaker submitted that in the present
case Property Choice were expressly appointed as sole agents. To the extent
that clause 5 would confer on Property Choice greater rights than those
normally arising under a sole-agency agreement, that would be inconsistent with
the basic objective of the contract. The wording is ambiguous, so he submitted.
He submitted that the phrase in clause 5 ‘anyone not introduced by Property
Choice’ should be construed as meaning ‘anyone introduced by any other agent’.
Alternatively, he submitted that, if that is not correct, then the second sentence
in clause 5 is inconsistent with the rest of the agreement and should be
rejected as repugnant. In the still further alternative, he submitted that the
contract was misleading in so far as clause 5 conferred greater rights than one
would expect in a sole-agency agreement. The effect of clause 5 ought to have
been drawn clearly to Mr Fronda’s attention, but that was not done.
I cannot agree with any of these
submissions. It is axiomatic that a contract must be read as a whole. Here, the
terms of clause 5 in their essential particulars are plain and clear. The
phrase ‘anyone not introduced by Property Choice’ could not be clearer. The
judge found that Mr Chydzik explained the nature of the agreement to Mr Fronda
on November 4, and that it amounted to an agreement granting sole selling
rights whether or not those particular words were actually used on that day by
Mr Chydzik. In my view, there was evidence entitling the judge so to find. He
saw and heard the witnesses and, I add, a duplicate copy of the contract as
signed was left by Mr Chydzik with Mr Fronda.
Mr Whitaker’s next point concerned the
meaning of the phrase ‘consent to sell’ in clause 5. He submitted, and I
accept, that in general an agreement to sell subject to contract is not a
binding contract. Mr Whitaker submitted that in this clause ‘consent’ means
‘agree’ and ‘consent to sell’ does not mean ‘consent to treat’. He submitted
that the subject to contract and survey offer made by Mr Reeves, and accepted
by Mr Fronda, amounted to no more than the latter. Mr Whitaker did not go so
far as to say that the phrase ‘consent to sell’ bites only when a householder
entered into a binding contract, but his submission went virtually that far. He
submitted that ‘consent to sell’ occurs when the vendor agrees to sell to a
purchaser who offers without qualification and that that generally occurs just
before contracts are exchanged. It was, he submitted, the vendor’s corollary of
‘ready, willing and able’.
Again, I am unable to agree. The phrase
‘consent to sell’ has to be read and understood in its context. The purpose of
the restriction in the second sentence of clause 5 is that the house-owner
shall not take the step which precludes the estate agent from earning his
commission. The estate agent earns his commission by introducing a person
ready, willing and able to buy. But, once a house-owner has done a deal with
someone not introduced by Property Choice by agreeing to sell the house to him,
even on a ‘subject to contract’ basis, there is there and then an end of the
matter so far as the estate agent is concerned unless that deal subsequently
falls through. The agents will no longer send people round to look at the house
and make offers. It would be pointless.
Take this very case. Following Mr
Fronda’s deal with Mr Reeves, he phoned the agents and said, in effect, ‘I have
sold the house to a private buyer, do not bring round the Elsayeds or anyone
else’. Of course, that was all subject to contract. But I am in no doubt that
it is just this common-form situation that the phrase ‘consent to sell’ in the
second sentence was directed at. And so it would be understood by householders
reading these conditions.
Like the judge, therefore, I can see no
justification for reading into this phrase a requirement that would have the
effect that there was no breach of clause 5 if it should turn out that the
person with whom the householder did his deal was not ready, willing and able
to buy.
I turn next to a more formidable
argument. This was not put to the judge. What is said by Mr Whitaker is that,
in the third sentence of clause 5, the parties have agreed on and provided for
the consequence of a contravention of the second sentence. They have provided
for what is to be the consequence in the event of a breach. They have provided
that, in that event, ‘Property Choice will be entitled to the same commission
in the same circumstances as if we had effected an introduction’. In other
words, what one has to do is to look to see whether, had the private buyer, as
I will call a buyer not introduced by Property Choice, been introduced by
Property Choice, Property Choice would, in the events which happened, have been
entitled to commission under clause 4. If not, that is an end of the matter.
There is no room for a damages claim when, quite apart from any question of a
penalty, there would be no entitlement to a payment of commission under the
third sentence of clause 5 in the events which happened.
In the present case, Property Choice do
not contend that, had they introduced Mr Reeves, they would, in the events
which happened, have become entitled to commission. Where Property Choice join
issue with this argument is that they do not accept that, by the third
sentence, the parties covered the whole ground of what was to be the position whenever
there was a contravention of the second sentence. They contend that they can
still mount a damages claim to recover their actual loss, even though they are
not entitled to payment of the full commission under the third sentence.
This raises a short but not altogether
easy point of construction of this agreement. Mr Whitaker submitted that the
purpose of the third
no breach. Indeed, they were perhaps to be put into what might be a better
position in so far as, for commission purposes, they were to have the benefit
of the private buyer even though they had not found him. That was intended to
be the remedy available in the event of a breach. Mr Cayford, for the
respondents, submitted that the third sentence does not preclude a right to
damages in circumstances where no entitlement to commission arises under that
sentence. The third sentence gave rise to entitlement in certain events only.
Outside those events, the position remained that the party in breach could
bring a claim for damages in respect of his actual loss.
I prefer Mr Whitaker’s contention. The
third sentence applies in all the circumstances in which a breach might arise.
The opening phrase of the third sentence reads: ‘If this’ — and that is a
reference to the restriction in the second sentence — ‘is contravened’ and then
the third sentence carries on by providing for the consequence in that event.
It seems to me that, by those words, the parties set out the consequence that
was to follow in the event of any contravention of the restriction. They set
out what was intended to be the estate agents’ remedy. The estate agents lost
the opportunity to commission. The consequence of that was to be as spelled out
in the third sentence. They were to have the benefit of the private buyer and
the deal made with him. If that proposed sale proceeded, they would get their
commission; if not, they would not.
It must be remembered that this contract
was a comparatively short-lived one. Its duration was four weeks certain and
thereafter terminable on seven days’ notice. So it is perhaps understandable
that the remedy for contravention, if the householder consented to sell to a
private buyer, was that, for commission purposes, the estate agents should have
the benefit of that deal.
On that footing it follows, and it is not
disputed, that the claim by Property Choice in this action must fail. The
point, as I have said, was not one put to the judge, but none the less his
judgment cannot stand.
That suffices to dispose of this matter,
but I may perhaps add this. It should not be thought that the result of this
construction of the contract is to deprive Property Choice of what otherwise
would be a substantial award of damages. That is not so. Let me explain. Mr
Whitaker submitted that, had there been no dealing by Mr Fronda with Mr Reeves
and had Mr Fronda agreed to sell the property to Mr and Mrs Elsayed at the
asking price of £330,000, there is no reason to suppose that that sale would
have been any more likely to have proceeded to a stage where Property Choice
would have become entitled to their commission than did the sale to Mr Reeves.
The judge, in assessing damages, did not approach this point in quite that way,
and I shall not pursue the matter in any depth. But it seems to me that there
is great force in this submission by Mr Whitaker. So that, even if the point of
construction had been decided in favour of Property Choice, nevertheless, for
my part, I do not think the agents would have been entitled to more than a very
modest award of damages.
For these reasons, I would allow this
appeal.
STUART-SMITH LJ agreed and did not add
anything.
The appeal was allowed. The plaintiffs
were ordered to pay the defendants’ costs of the appeal and half the
defendants’ costs in the court below.