‘Downright rogue’ sets up in estate agency and accepts numerous deposits on the same property–Court bound by previous decisions to penalise vendor on rogue’s default–Majority unwilling to allow representations made to purchaser about fate of money to influence decision–All three judges join in hoping for a review of the law–Lord Denning appeals for attention of Parliament
This was an
appeal by Mr David John Finch, of Acton Lane, Watford, from a judgment of Judge
MacNair at Watford County Court on March 18 1974 awarding the respondents, Mr
and Mrs Malcolm John Sorrell, of Exmouth Road, Watford, £550, being the amount
of a deposit paid to Emberdene Estates on the proposed purchase of 11 Cardiff
Road, Watford.
Mr J H Vallat
(instructed by Hart, Fortgang & Co, of Edgware) appeared for the appellant,
and Mr G M Newman
respondents.
Giving
judgment, LORD DENNING said: Samuel Stuart Levy was an undischarged bankrupt.
Yet he set up in business as an estate agent. He got printed paper headed,
‘Emberdene Estates: auctioneers, estate agents, surveyors and valuers.’ He had his head office at an address in
Watford, and branch offices in Luton and Rickmansworth. I will call him ‘the
estate agent.’ He was a downright rogue.
He used to operate in this way. He got the owner of a house to put it into his
hands for sale. Then he would get prospective purchasers to view it. He would
tell them that, in order to get an option on it, they ought to pay him a
deposit, and he would then be in a position to get a mortgage on it for them
from the building society. By this means he got several deposits on any one
house. He did so on one house after another: several deposits on each house,
six or seven deposits of £500 or £600 each on a single house. Afterwards he
decamped with the money. The police found him and he was prosecuted. He pleaded
guilty to 13 cases of theft of money deposited with him in respect of house
purchases, and he asked for 41 other offences to be taken into consideration.
He was sentenced to five years’ imprisonment. Many innocent people have
suffered. Who is to suffer the loss?
Those who paid the deposits say that the vendor of the house is
answerable for the fraud of the estate agent and must pay them back the money.
The vendor says that that is not fair on him, that he ought not to be made to
pay back money which he never received or authorised, and that they ought to
bear the loss themselves.
This is a
typical case. Mr Finch was the owner of 11 Cardiff Road, Watford. I will call
him ‘the vendor.’ In 1971 he decided to
sell his property and buy another house. He called on Emberdene Estates. Mr
Levy of that firm–the estate agent–came round and said that the house would
fetch about £5,250. Later he put it up to £5,500. About 15 young couples came
to see the house. Five of them–Mr Smythe, Mr Maynard, Mr Bence, Mr Barry and Mr
Farrell–all paid deposits. But the vendor did not know of this, except that Mr
Smythe and Mr Maynard both said that they had paid a deposit to Emberdene
Estates. Eventually the vendor got tired of people coming round. He told the
estate agent that if Mr Barry was prepared to buy, there was no reason for
showing others round. Then there came Mr and Mrs Sorrell. I will call them ‘the
purchasers.’ The vendor showed them
round. They said they liked the house and would contact Emberdene Estates. On
November 22 1971 they went to the offices of Emberdene Estates. They saw Mr
Levy, the estate agent, who told them that the price was £5,500 and that a
deposit of 10 per cent would be required, that is, £550. He said that the money
would have to be transferred to the building society, with whom he dealt, and
that this would be enough to get a 90 per cent mortgage, ie £4,950. The
purchaser said, ‘We were under the full impression at this stage that we were
to have first option on the property.’
They raised the amount in two instalments. The first was for £100, on
which the estate agent said, ‘Make it £112 to cover the surveyor’s fees.’ So on November 22 1971 they gave him a cheque
for £112, for which he gave them a receipt:
November 22
1971
Received from
Mr M J Sorrell £112, being preliminary deposit re 11 Cardiff Road, Watford.
Price £5,500 freehold, subject to contract.
The estate
agent produced a mortgage proposal form to the building society, and the
purchasers completed some of the details. On December 2 1971 the purchasers
went to pay the balance of £450. The estate agent offered to lend them £200
towards it, ‘as the building society likes to be sure it is your own money, and
not borrowed money.’ This was another
representation that the deposit was going to the building society. But the
purchasers declined the loan. They said they had enough to pay the balance. So
they drew a cheque for £450, and the estate agent gave them this receipt:
December 2
1971
Received from
Mr and Mrs Sorrell the sum of £450, being balance of 10 per cent deposit re 11
Cardiff Road, Watford, Herts. Price £5,500 subject to contract.
The purchasers
filled in the forms and did all that was necessary for the building society,
but later the estate agent disappeared. The purchasers saw the vendor (Mr
Finch) and told him about the deposit. The vendor said that it was not his
problem. The purchasers said, ‘I thought we would get the deposit back from
Levy (the agent) or Finch (the vendor), but primarily from Levy’–that is,
primarily from the agent.
Such are the
facts. Now for the law. Mr Vallat felt that, owing to recent decisions in this
court, he had to concede that these propositions would apply. When an estate
agent receives a deposit from a proposed purchaser before a contract is made,
and afterwards the contract is never concluded and the agent makes default,
then:
(i) If the agent signs the receipt expressly ‘as
agent for the vendor,’ the proposed purchaser can recover the deposit from the
vendor. It was so held by this court in Ryan v Pilkington [1959]
1 WLR 403.
(ii) If the agent signs the receipt in his own
name without qualification, not saying that he signs it on behalf of the vendor
or anyone else, the proposed purchaser can recover the deposit from the vendor.
It was so held by the majority of this court in Burt v Claude Cousins
& Co [1971] 2 QB 426.
(iii) If the agent signs the receipt expressly ‘as
stake-holder,’ the proposed purchaser can still recover the deposit from the
vendor. That seems to be implicit in the reasoning of the majority of this
court in Barrington v Lee [1972] 1 QB 326, because it was only
the judgment against the agent which prevented the prospective purchaser from
suing the vendor.
I must say
that I did not agree with those propositions at the time, and I do not agree
now, but Mr Vallat felt he was bound by them in this court. So he sought to
distinguish them by reason of the representation which the agent made to the
purchaser about the building society. The purchaser gave this account to the
police, and the judge accepted it as an accurate recollection of what occurred
on November 22 1971: ‘He said that a 10 per cent deposit would be required. . .
. He then said that I would have to transfer the money from my building
society, the Leeds Building Society, to the building society with whom he
dealt. He asked how much we had available in total, to which I replied, ‘£500
to £600.’ He said that this would be
enough to get a 90 per cent mortgage, and that the particular building society
he had in mind would give us £4,950. We were under the full impression at this
stage that we were to have first option on the property.’ Later, on December 2 1971, when they paid the
balance, the purchaser gave this account of the conversation: ‘I told the
estate agent, Mr Levy, that we had come to pay the deposit. He said, ‘Are you
sure you’ve got enough in the bank, because I can lend you £200 until you get
it in there, as the building society likes to be sure it is your own money and
not borrowed money.’ We replied we had
sufficient to pay it off.’
If the
purchaser had been used to the ways of the world, he would have realised that
this was all humbug. His deposit would not go to the building society. But the
estate agent said it would, and he said it, no doubt, so as to lead the
purchaser to believe that it was going to the building society as part of the
purchase price. If the purchaser had known anything about conveyancing, he
would have realised that this was not true. The purchase price is payable to
the vendor and not to the building society. The building society were to be
lenders of it, not receivers of it. Nevertheless, humbug as it was, the
statement was a representation–fraudulent, no doubt–that the deposit was to be
paid to the
quite distinguishable from the others. I will take the three possible causes of
action:
First,
money had and received by the vendor to the use of the purchaser. If the purchaser sued the vendor for £550 as money had and
received, that action would fail. The vendor never received the £550, nor was
he ever entitled to receive it. The sale was subject to contract, which means
that there was no contract to sell. The vendor was not entitled to the £550 and
could not call upon the estate agent to pay it to him.
Second, a
contract by the vendor to repay the £550 to the purchaser. The estate agent told the purchaser that the money was to be paid
to the building society. That negatives any contract by the vendor to repay it.
If an agent makes a contract for a named principal, having actual or ostensible
authority to do so, then that principal is bound by the contract. If the agent
had no authority (actual or ostensible) to act for the named principal, he is
liable for breach of warranty of authority. But by no possibility can a third
person, not being the named principal, be bound by the contract. A third person
may be liable as undisclosed principal when no other principal is named, but
not when someone else is named as principal.
Third,
fraud. It was said that the vendor employed the
estate agent as his agent to introduce a purchaser, and is responsible for the
fraud of the agent, relying on Lloyd v Grace, Smith & Co
[1912] AC 716. But that case only makes a principal liable for a fraud
committed by an agent for his own benefit if the fraud is committed in the
course of the agent’s apparent authority: see Morris v Martin
(C W) & Sons [1966] 1 QB 716 at page 727. In this case, the estate
agent did not act within any apparent authority conferred on him by the vendor.
He represented to the purchaser that he was receiving the deposit for the
building society. In the face of that representation, I do not think the vendor
can be made answerable for the estate agent’s frauds, which were committed for
his own benefit and not for the benefit of the vendor.
In short,
whether the claim against the vendor be put in contract or in tort, he is only
liable for the return of the deposit if it was received by the agent within his
apparent authority. In this case any apparent authority is negatived by the
estate agent’s representation that he was receiving it for the building
society. So the vendor is not liable. On this ground I would allow the appeal.
My brethren think it must be dismissed. I regret this, because I think it very
hard on the vendor. There were five or six proposed purchasers, each of whom
paid £500 or £600 on a deposit on this one house. Each did it, no doubt, for
his own benefit, because he thought that by so doing he would have a good
chance of getting the house. The estate agent decamped with the lot, that is,
with £3,000 or more on this one house. If the vendor is made liable to repay
each of them, he will be ruined, all due to the fraud of the estate agent. It
will be hard on the proposed purchasers to lose their deposits, but far more
hard on the vendor to have to repay the lot. I would only add this. While most
estate agents are of good standing and credit, there are a few who are not.
They issue printed forms which contain stipulations which are most unfair. They
get people to pay them deposits on houses, and then default. There ought to be
tighter control so as to prevent these abuses. I know that all responsible
members of the profession would welcome it. I wish that Parliament could find
time to deal with it.
BROWNE LJ: I
regret that I cannot agree with my Lord that this appeal should be allowed.
Like Edmund Davies LJ, as he then was, in Barrington v Lee [1972]
1 QB 326, and Sir John Pennycuick in the present case, I see great force in
Lord Denning’s dissenting judgments in Burt v Claude Cousins & Co
Ltd [1971] 1 QB 426 and Barrington v Lee (supra), but
we are bound by the decisions of the majority of this court in those cases. I
can only hope that the problem will be reconsidered by the House of Lords
before too long.
I agree that
the decisions of this court in the above cases establish propositions (ii) and
(iii) stated by my Lord in his judgment. I think they also establish the
following further proposition:
(iv) When someone who wants to sell his house puts
it in the hands of an estate agent, he gives the estate agent authority to
receive a pre-contract deposit on his behalf. Whether this authority is express
or implied, it is an actual authority to receive the deposit (see Burt’s
case, per Sachs LJ at page 445 and Megaw LJ at pages 452-454; and Barrington’s
case, per Lord Denning MR at page 336, and the two authorities there cited). In
the case of an estate agent, his ostensible or apparent authority to receive a
deposit on behalf of the prospective seller will normally coincide with his
actual authority (see per Sachs LJ in Burt at page 445, and per Lord
Denning in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
at page 583).
In this case
it seems to me clear that Mr Levy had actual authority from Mr Finch to receive
a deposit from a prospective purchaser of 11 Cardiff Road. Mr Finch said in
evidence that in September or October 1971 he had been to Emberdene Estates
(ie, Mr Levy) and ‘asked him to make arrangements to sell the property for us’
(evidence, page 22). This implied a general authority to take a deposit. When
the Sorrells came to see the house on November 19, they were told by Mrs Finch
that they would have to see the estate agent, and the judge found that in
saying that Mrs Finch was acting as agent for her husband (judgment, page 8). I
think that Mr Finch was holding out Mr Levy to the Sorrells as being Mr Finch’s
agent for all the purposes which are normally within the scope of an estate
agent’s authority from a prospective seller, including taking a deposit from
the Sorrells. Mr Vallat submitted that it was not within the scope of Mr Levy’s
actual authority to take deposits from more than one prospective purchaser of
the house. I think it was. If a prospective seller puts his house in the hands
of more than one estate agent, it seems to me that each of the agents has
authority to accept a deposit from a different purchaser, and I can see no
reason why the same estate agent should not have authority to accept more than
one deposit, in spite of the doubts suggested by Stephenson LJ in Barrington
at page 347. On the evidence and the judge’s findings, the Finches knew that Mr
Levy had accepted several deposits on 11 Cardiff Road–from Mr Maynard, Mr Barry
and Mr Farrell–and made no objection. Anyhow, so far as the Sorrells were
concerned, I think that Mr Levy had ostensible authority to accept a deposit
from them.
But my Lord
has held that Mr Levy did not receive the money paid to him by the Sorrells as
agent for Mr Finch, nor as stakeholder, because of the representations he made
to them about the building society. Mr Vallat, I think, put the same point
rather differently by saying that the Sorrells cannot rely on any ostensible
authority of Mr Levy to receive the deposit on behalf of Mr Finch, because they
ought to have been put on notice or inquiry by what Mr Levy said about the
building society and by his offer to lend them money towards the deposit. As I
understand it, my Lord’s view is that Mr Levy represented that he was taking
the money paid by the Sorrells to pay it over to the building society; that
therefore he did not receive it as agent for Mr Finch, nor as stakeholder, but
as agent for the Sorrells; and that this case is therefore distinguishable from
Burt and Barrington. With some regret, I am afraid I cannot
agree. The judge found that the £550 paid by the Sorrells was ‘paid as 10 per
cent deposit of the purchase price, and that Mr and Mrs Sorrell thought they
would get their money back if the purchase did not go through and that by making
the deposit they would have a first option on the house. . . .
described by Mr Sorrell in his statement’ (judgment, pages 9-10). Later he
said, ‘I am satisfied that when the money was paid over to the estate agents it
was paid as a deposit of 10 per cent of the purchase price’ (judgment, page
14). These findings seem to me to be fully justified by the evidence of Mr
Sorrell and by the two receipts (pages 48 and 50 of the documents). Mr Vallat
suggested that the judge was misled by the word ‘deposit,’ and that these
payments were not a ‘deposit’ in the sense of an earnest, but were taken for
payment to the building society to get a mortgage. I accept, as the judge
found, that there was a discussion between the Sorrells and Mr Levy about
getting a mortgage, and that Mr Levy offered to help, and some forms were
filled up; I am also willing to accept that Mr Levy led the Sorrells to believe
(in their ignorance) that if the sale went through the £550 was going to be
paid to the building society which was going to grant the mortgage. In making
any arrangements with the building society he would have been acting as agent
for the Sorrells. But in my view Mr Levy had both actual and ostensible
authority from Mr Finch to receive the ‘deposit’ (in the sense of an earnest)
from the Sorrells, either as agent for Mr Finch or as stakeholder.
In either
case, Mr Finch is liable to the Sorrells, on the authority of the decisions of
the majority of this court in Burt and Barrington. Even if the
Sorrells thought that the deposit might be used, if the sale went through,
towards the purchase price in a particular way (ie, by payment to a building
society rather than to the vendors), I do not think that this affects the
nature of the original payment–ie, as a deposit, as the judge found–nor the
capacity in which it was originally received by Mr Levy, nor that this
distinguishes the case from Burt and Barrington. Equally, I
cannot see why any such belief should have put the Sorrells on inquiry as to Mr
Levy’s authority to receive the deposit. Accordingly, on the authority of the
majority decisions in those cases I feel bound to hold that this appeal should
be dismissed. I agree with my Lord that in the circumstances of this particular
case it does not matter whether the plaintiff’s case is put in contract or
quasi-contract or in tort. In my view, the plaintiff succeeds on either basis,
and I would dismiss the appeal.
SIR JOHN
PENNYCUICK: It is not in dispute that this court is bound by its decisions in
the cases of Burt v Claude Cousins & Co and Barrington
v Lee to hold that where an agent receives a deposit from a prospective
purchaser as stakeholder, and there is nothing more to it, the prospective
purchaser can recover the deposit from the prospective vendor, should the agent
default. I see great force in the dissenting judgments of the Master of the
Rolls in those cases, but the point is settled and there would be no purpose in
going over the ground again. I, too, hope that this point will be reconsidered
by the House of Lords.
In the present
case, the judge found as a fact that the money paid by Mr Sorrell to Mr Levy
was paid as a deposit of 10 per cent of the purchase price. The terms of the
two receipts given by Mr Levy to Mr Sorrell, and the evidence of Mr Sorrell
himself, amply warrant this finding, and for myself I find it impossible to set
it aside or go behind it. I recognise that in his statement to the police and
again in his evidence at the trial, Mr Sorrell used words showing that he
thought the money paid by him to Mr Levy might in some way come to be paid to
the building society (see the statement to the police, ‘He [Mr Levy] then said
I should have to transfer the money from my building society, the Leeds
Building Society, to the building society with whom he dealt,’ and the note of
evidence, ‘I thought £100 would come off purchase price to be paid to my
building society or to Mr Finch,’ which the judge found to be an accurate
recollection of what occurred between Mr Sorrell and Mr Levy). That certainly
shows that Mr Sorrell had a very imperfect understanding of the mechanics of a
purchase of land with the assistance of a building society mortgage. But to my
mind it is insufficient to displace the finding of fact that this money was
paid as a deposit, or to introduce a qualification that by reason of Mr Levy’s
representation the deposit must be treated as having been paid upon special
terms as to its application which would exclude the ordinary consequences of
the payment of a deposit to a stakeholder. The representation, as I see it, can
go no further than this, that the money paid as a deposit on account of the
purchase price to become payable to Mr Finch would be applied towards discharge
of that purchase price through the medium of the building society.
I think it
right to add that I do not myself find much force in the consideration of
relative hardship. It is certainly a grave hardship upon either of these two
innocent parties that he should suffer through the fraud of Mr Levy. But the
cumulative hardship upon Mr Finch arises from his own act in permitting Mr Levy
to accept a pre-contract deposit from a number of prospective purchasers, and I
do not think this is a legitimate consideration in assessing the degree of
hardship which falls on Mr Finch and Mr Sorrell as between themselves. With
great deference to the view of the Master of the Rolls, I think that this
appeal should be dismissed.
The appeal
was dismissed, no order being made as to costs except one for legal aid
taxation. Leave to appeal to the House of Lords was granted.
