Estate agents’ commission — Successful appeal by agents from county court decision rejecting claim — Undisclosed principal — Election — Whether abandonment by estate agents of rights against vendor’s agent and unequivocal election to look to principal, a foreign company incorporated in Panama or Liberia and managed from Channel Islands — Estate agents’ instructions to sell came from the respondent, a solicitor, and initially there was no mention of the existence of any principal — After estate agents had obtained an acceptable offer they were informed that the respondent was acting for a foreign company — The estate agents acknowledged the company as a client and matters proceeded to an exchange of contracts, but when the estate agents submitted their account for commission the respondent alleged that they had not earned it in full — This led to proceedings in the county court against the respondent, in which the assistant recorder held that the estate agents had elected to look to the principal, the foreign company, alone and that the respondent was under no liability — Alternatively, the assistant recorder held that there had been a novation of the contract whereby the company had been substituted for the respondent as the other party — Held that, although the assistant recorder had stated the law correctly in general, he had erred in its application — There was no evidence that the appellant estate agents had made an unequivocal election to look to the foreign company as the principal alone and to abandon their rights against the respondent — Letters on which the assistant recorder relied were consistent with the estate agents still looking to both the company and the respondent rather than indicating that they had decided to look to the company alone — As to the suggested novation, here again there was no evidence of a giving-up by the appellants of their rights against the respondent in exchange for a consensual right against the company — Appeal by estate agents allowed — Per May LJ, ‘The clearest evidence of an election is at least the commencement of proceedings against one or other of the two relevant parties’
The following
case is referred to in this report.
Clarkson
Booker Ltd v Andjel [1964] 2 QB 775; [1964]
3 WLR 466; [1964] 3 All ER 260, CA
This was an
appeal by Chestertons from a decision of Mr Assistant Recorder A W E Wheeler at
Amersham County Court dismissing their claim for commission against the
defendant, the present respondent, Arturo Barone, in respect of the sale of a
leasehold property at 24 Daska House, Chelsea, London SW3.
P W Birts
(instructed by Roche Hardcastles) appeared on behalf of the appellants; F A
Philpott (instructed by Barone, of Amersham, Bucks) represented the respondent.
Giving
judgment, MAY LJ said: This cautionary tale involves an appeal from the
dismissal of a plaintiff estate agents’ claim for commission by a judgment of
Mr Assistant Recorder A W E Wheeler in the Amersham County Court on June 20
1986. The appellants now seek to have that dismissal of their claim set aside
and judgment entered for them for a total sum of £2,070, about which there is
no dispute, comprising what would have been the commission payable in respect
of the transaction together with VAT.
The facts of
the case are uncomplicated. The plaintiffs are a well-known firm of estate
agents and surveyors carrying on business with a substantial number of offices
in London and elsewhere. The defendant is a solicitor who had as a client, for
the purposes of this litigation, a foreign company incorporated either in
Panama or Liberia, but managed from the Channel Islands. An officer of that
company owned the leasehold property at 24 Daska House, Chelsea, London SW3,
which he or she wanted to sell. They instructed the defendant to set the
necessary proceedings in motion and on September 14 1984, having received oral
instructions from Mr Barone, the plaintiff appellants wrote back to him
confirming his instructions to offer the flat for sale on the stated terms and
in the antepenultimate para in the letter wrote:
We do assure
you of our best endeavours to find a purchaser and would confirm that in the
event of a sale resulting through our introduction, we shall look to you for
payment of our commission being 3% of the agreed sale price including any
contents, plus VAT. This commission will include normal promotion costs.
Thereafter,
the estate agents set about obtaining an offer which would be acceptable to the
vendor of the property and having obtained one of £60,000 communicated it to
the defendant, or to somebody in his office, when they were told that Mr Barone
was in truth acting for a foreign limited company known as Rosemary Inc, the
existence of which and his authority to act on behalf of which had not
theretofor been disclosed to the estate agents.
It seems that
the offer of £60,000 for the property was acceptable to the vendors and
consequently on November 2 1984 the appellants wrote to Rosemary Inc c/o Mr
Barone for the attention of Mrs Jeffries in his office as follows:
In accordance
with your instructions, we are pleased to confirm that we have accepted on your
behalf and subject to contract, the offer made by our applicant, Mr S Allabert,
to purchase the above . . .
We take this
opportunity to confirm that upon completion we shall look to you for payment of
our commission being 3% plus VAT of the agreed sale price in accordance with
our letter of September 14 1984.
The parties’
solicitors were in due course put in touch with each other in the usual way and
shortly after the new year contracts were exchanged for the sale and purchase.
On January 3 1985 the appellants wrote to Mr Barone, again for the attention of
Mrs Jeffries:
We were
pleased to learn that the contracts for the sale of the above have been
exchanged and we have pleasure in enclosing our commission account. We request
that you kindly seek our mutual client’s authority to settle this immediately
upon completion.
Enclosed with
that letter was the appellants’ commission account addressed to ‘Rosemary Inc
Per [Mr Barone’s firm]’ for the sum of £1,800, being 3% on the £60,000 sale
price, together with £270 VAT, making a total of £2,070.
Thereafter Mr
Barone, either acting on behalf of the foreign
express instructions, contended that the estate agents had not earned in full
the commission for which they had invoiced Rosemary Inc. After the matter had
been put into the hands of the estate agents’ solicitors and there had been an
exchange of correspondence into which it is unnecessary to go further, these
proceedings were issued by the estate agent appellants against Mr Barone
personally.
The learned
assistant recorder, in a judgment which has been of the greatest assistance,
clearly and succinctly set out the facts and issues between the parties. He
stated the basic principle of law applicable in a quotation from Halsbury’s
Laws of England, vol 1, 4th ed, para 853:
Where a
person makes a contract in his own name without disclosing either the name or
the existence of a principal, he is personally liable on the contract to the
other contracting party, though he may be in fact acting on a principal’s
behalf. He will continue to be liable even after discovery of the agency by the
other party, unless and until there has been an unequivocal election by the
other contracting party to look to the principal alone.
That was a
defence which Mr Barone in this litigation raised to the appellants’ claim for
commission. Albeit that the original instructions had been given to the
appellants by his acting on behalf of an undisclosed principal, so that prima
facie he was personally liable with the principal for the commission, his
contention was, as was accepted by the assistant recorder, that there had been
a sufficient election as referred to in that passage from Halsbury and
that accordingly there was no liability. Further or alternatively, the
defendant contended that there had in any event been a novation of the contract
between him and the appellants, whereby his principal, Rosemary Inc, had been
substituted for him as the other party to the appellants in the contract under
which they were instructed to find a purchaser for the relevant flat. The
learned judge found in favour of the defendant on that contention also.
The submission
on behalf of the appellants is that the learned judge erred on both those
points, that there was insufficient material upon which he could conclude that
there had been a sufficient election within the relevant principles of law and
similarly, because there is very little dispute that the two points go
together, that there was insufficient material upon which the learned judge
could have found a novation.
We have been
referred to one or two authorities. I think it is sufficient merely to refer to
Clarkson Booker Ltd v Andjel [1964] 2 QB 775. That was a case
concerning the supply of goods and services by the plaintiffs to the defendant,
who at the material time had been acting (as had Mr Barone in the instant case)
as an agent for an undisclosed principal.
This type of
case, as appears from the textbooks and other authorities, has to be dealt with
on its own particular facts and accordingly I think it unnecessary to go into
detail to the facts of the Clarkson Booker case. I merely go to the
judgment of Russell LJ at p 794 and a short passage at p 795 where the precise
scope of the doctrine of election in this particular context is set out. At p
794 the learned lord justice said:
The defendant
having contracted as agent for an undisclosed principal, the plaintiffs were
entitled to enforce the contract either against the defendant on the footing
that he was contracting and liable as principal, or against the principal on
the footing that the defendant was not liable, being merely an agent. The
plaintiffs could not enforce the contract against both. Their right against the
defendant and their right against the principal were inconsistent rights. At
some stage the plaintiffs had to elect to avail themselves of one of those
inconsistent rights and abandon the other. The question is whether the correct
conclusion from the facts of this case is that, prior to the issue of their
writ against the defendant, the plaintiffs had so elected.
Then at p 795:
The position
is that in every case the external acts of the plaintiff must lead to the
conclusion, as a matter of fact, that the plaintiff has settled to a choice
involving abandonment of his option to enforce his right against one party.
The essential
elements in the principle of election, in so far as applicable to the instant
case, are made clear not only in those two passages from the learned lord
justice’s judgment but also in the quotation from Halsbury read by the
assistant recorder, which I have already mentioned, that there must be an
unequivocal election to look to the principal and to look to the principal
alone. Where the plaintiff is entitled to look to either principal or agent and
he indicates his intention of enforcing his rights, it is only when it can be
demonstrated that there has been such an unequivocal election and that the
plaintiff has abandoned his rights against one or other of the two parties that
the doctrine of election bites and the plaintiff is no longer entitled to seek
to recover against both principal and agent.
It is, with respect,
in that regard that I think that the learned assistant recorder, in the course
of his reasoning twice took too large a step. I say that without in any way
seeking to derogate from the comments that I have already made about the
excellence of his judgment and the assistance that the court has obtained from
it.
On the facts
of the instant case, looking at the evidence to which our attention has been
drawn, and the correspondence, the overwhelming probability seems to me to be
that, at least until objection was taken to the estate agents’ invoice for
commission, neither party applied their minds to the strict legal position
between the estate agents on the one hand and Mr Barone and his client,
Rosemary Inc, on the other. For my part I do not think either of them, although
it might be said that both of them were remiss not to have done so, really
considered the legal principles involved in the liability of agents acting for
undisclosed principals or the question of election at all. That they did not apply
their minds necessarily leads to the conclusion (upon which I shall elaborate
in a moment) that there was not the necessary election and abandonment on the
part of the estate agents sufficient to preclude them from recovering
successfully against Mr Barone.
I say that
because of the comment which the learned assistant recorder made in his
judgment in relation to the letter of November 2 which they wrote to Rosemary
Inc after they had heard that the corporation was in truth the intended vendor
rather than Mr Barone. In contrasting the two letters of September 14 and
November 2, which I have quoted, the assistant recorder said of the second:
It shows that
the plaintiffs were looking back at the letter of September 14 and indicating
that they were no longer looking to Mr Barone the defendant as being under an
obligation to pay the commission, but were clearly looking forward to Rosemary
Inc as being responsible for that sum.
That is the
first place in which the assistant recorder has, in my view, taken too large a
jump in the course of his reasoning. The two letters of September 14 and
November 2 are, I think, equally consistent with the estate agent appellants
still looking to both the principal and the agent, rather than indicating that
they were no longer looking to Mr Barone but only to Rosemary Inc. Similarly,
when the learned assistant recorder moved on to the letter of January 3 1985,
enclosing the commission invoice, he quoted the relevant passage from the
letter and continued:
That account
is addressed to Rosemary Incorporated per the defendant and indicates the
amount of the commission. The words ‘We request that you kindly seek our mutual
client’s authority to settle this immediately upon completion’ seem to me to
categorically indicate that, especially when read with the earlier letter of
November 2 1984, the defendant was no longer being treated as a party to whom
the plaintiffs would look for payment. They were looking for payment to
Rosemary Inc and to them alone. The defendant was no longer regarded by them as
a client: their client was Rosemary Inc.
The assistant
recorder was there correctly setting out the legal principles to be applied,
but on the facts of the case it is his finding that the estate agents were
looking to Rosemary Inc and to them alone that in my judgment does not
logically follow from either that which had gone before or the facts of the
case. There is nothing in any of the three letters to which I have referred, or
the facts, to indicate that there had been an abandonment of the estate
agents’ rights against the agent, Mr Barone. In my opinion, there was certainly
the suggestion that in the circumstances Rosemary Inc were, it might be said,
the principal party liable for the commission, but I can see nothing in the
facts or letters to indicate an abandonment; a giving up of the simultaneous
right, if it arose, to go against the agent, Mr Barone, at the same time.
Again, when
one turns over the page of the judgment, the learned judge said:
There is not
at this stage or since September 14 1984 any indication anywhere, orally or in
the documentary evidence, that the defendant would in addition be looked to for
payment.
I think that
is putting it the wrong way round. The doctrine of election, in order to excuse
the agent acting on behalf of the undisclosed principal, requires that agent in
those circumstances to show that the third party has abandoned or will no
longer look to him for payment; it is not sufficient that he would be looked to
for payment merely in addition to his principal. He, the agent for the
undisclosed principal, remains liable at the same time as the principal, unless
and until he can demonstrate that the other party to the contract has abandoned
the legal right that he has against him.
the bottom of that same page of his judgment:
At this point
in time the defendant was entitled to conclude from the correspondence, from
the attitude of the plaintiffs, that he had dropped out as a principal, and
that payment was no longer being sought from him. The plaintiffs were now
looking to Rosemary Inc . . .
So far so
good. But then the assistant recorder adds:
and no one
else.
There is in the
correspondence an indication that the estate agents were looking to Rosemary
Inc because Rosemary Inc were the vendors of the relevant flat and they would
be the party who, in all the circumstances, would pay the commission out of the
sale price which they received from the purchaser of their flat. But there is
nothing that I can see in the correspondence or the facts to support the
conclusion that the estate agents were looking to Rosemary Inc alone.
In those
circumstances, I am driven to the conclusion that in the present case the
learned judge was wrong in the conclusion to which he came on the facts and
material before him that there had been an election.
I would wish
to add this. Whether or not there has been an election is, I think, largely a
question of fact and we have in this case a finding of fact by the learned
judge below that there had been by the appellants an election — an abandonment
of their rights against Mr Barone. However, as Willmer LJ said in Clarkson
Booker Ltd at p 792:
Since the
relevant evidence is all contained in the correspondence, we have been invited
to review his findings and to draw our own inferences from the correspondence.
In a case such as the present
as the learned
lord justice thought was the Clarkson Booker case and as I think is the
instant case
[this court]
is entitled to take this course, for we are in as good a position to draw
inferences
from the
correspondence and the other circumstances of the case
as was the
judge.
Turning
briefly from the question of election to the question of novation, Mr Philpott,
on behalf of the respondent to this appeal, made it clear that he was relying
not upon any express contract of novation but on an inferred contract of
novation to be inferred from all the circumstances of the case. That being so,
I think that the point which falls for decision on the novation question is
precisely the same point as fell for decision on the election question. Was
there an express abandonment? Was there
a clear giving-up by the estate agents of their rights against the agent, Mr Barone,
in exchange for a consensual right against the vendor principal and against the
vendor principal alone? I think that it
necessarily follows from what I have said that in my view the learned assistant
recorder erred in concluding that there was any novation in this case.
Before leaving
this appeal, I would add this. We were shown in the course of the argument
references in Bowstead on Agency, 15th ed, and a like passage in the
second volume of Chitty on Contract, each of which it appears were
edited by the same editor, which indicate that there is little, if any,
authority in which there has been held to have been an election in the general
circumstances of the instant appeal short of there being judgment in favour of
the plaintiff against one or other of the principal or agent, save in two
cases, to which Bowstead refers, where the defence could have been based
equally well on an estoppel, as it was based on the principle of election.
For my part, I
think it is difficult to think of facts where a plaintiff is claiming against
both principal and agent, the agent having acted originally on behalf of the
principal undisclosed, where an election can be shown without legal proceedings
having been started. However, I would not like to be thought to be saying that
in exceptional circumstances such a situation could not arise. It seems to me,
however, that the clearest evidence of an election is at least the commencement
of proceedings by the plaintiff against one or other of the two relevant
parties. That, I think, was probably the difficulty which Willmer LJ found in
the Clarkson Booker case, because, as he said at the end of his
judgment, he regarded the case as being very near the borderline.
Be that as it
may, for the reasons that I have indicated, I think that the learned judge
erred in his reasoning in reaching the conclusion either that there had been an
election on the part of the estate agents to sue only the foreign corporation
or that there had been any question of a novation by which the corporation was
substituted for Mr Barone, the original agent.
In those
circumstances I, for my part, would allow this appeal and substitute for the
judgment below a judgment for the plaintiffs for the sum of £2,070, together
with any appropriate interest there may be and about which we can no doubt be
told by counsel in due course.
Agreeing,
CROOM-JOHNSON LJ said: There was a dispute in the course of the trial as to
whether the defendant had been an agent for the undisclosed principal and had
in fact contracted with the plaintiffs at the same time disclosing that there
was a principal in existence and that therefore he was contracting only as an
agent. The learned assistant recorder, after having heard the evidence about
that, came to a clear conclusion. He accepted entirely the evidence of Mr
Pallot, the witness called on behalf of the plaintiffs, and indeed several
other witnesses who were called for them, that there was initially no mention
of the existence of any principal standing behind Mr Barone. Accordingly, the
whole question which arose was this, that in law Mr Barone was therefore taken
to have initially contracted as a principal. When the plaintiffs discovered, as
they did discover at about the beginning of November, the existence of Rosemary
Inc and agreed to treat Rosemary Inc as a client, did that involve an
abandonment by them of their rights against Mr Barone?
It was
suggested by counsel for the respondent that this matter had only been raised
because after Mr Barone had written to the plaintiffs on January 21 1985
indicating that in his view and in the view of the principal the plaintiffs had
not earned their fee (it being suggested that during protracted negotiations on
the sale they had formed the view that the plaintiffs were acting as agents for
the purchaser and not the vendor), it was thereafter the appearance on the
scene of solicitors acting for the plaintiffs which had raised for the first
time the suggestion that Chestertons were entitled to sue Mr Barone as
primarily liable himself for having contracted as he did. That must involve
that only the circumstances as at that date would have to be looked at in order
to see whether or not there had been an abandonment by the plaintiffs of their
rights against Mr Barone.
It was said in
Clarkson Booker v Andjel at the bottom of p 792 and the top of p
793 by Willmer LJ that there would have to be something which was a truly
unequivocal act so as to preclude the plaintiffs in that case from subsequently
suing the defendant. He went on to say:
This, I
think, involves looking closely at the context in which the decision was taken,
for any conclusion must be based on a review of all the relevant circumstances.
The reliance
which was placed upon the letter of November 2 by Mr Barone in the present case
was that, when Chestertons wrote, as they then did, to Rosemary Inc c/o Messrs
Arturo Barone at his address, saying that they were ‘pleased to confirm that we
have accepted on your behalf and subject to contract, the offer made by our
applicant . . . to purchase the [premises]’, they were in those circumstances
switching their expectations of payment from Mr Barone to Rosemary Inc. It was
suggested that para three of that letter, ‘We take this opportunity to confirm
that upon completion we shall look to you for payment of our commission being
3% plus VAT of the agreed sale price in accordance with our letter of 14th
September 1984,’ indicated that. On the other hand, it was quite clear that
that letter came to be written because it was only immediately before then that
Chestertons had been told for the first time that Mr Barone was acting as an
agent for Rosemary Inc. The evidence apparently had been that Mr Shingles, who
was one of the negotiators acting on behalf of Chestertons, was happy to accept
Rosemary Inc as clients from then on, because that is what he had been told and
he had been asked to send the letter to them in those terms.
What clearly
did not happen, either in a letter or at all, was that there was an abandonment
by Chestertons of their rights against Mr Barone. They were quite content to
add Rosemary Inc as another client to Mr Barone. But there was never any clear
intention, shown in writing or in any other way, that they were electing to go
only against Rosemary Inc. The letter was quite sufficient to meet the test
laid down in Clarkson Booker v Andjel and in my view that was not
sufficient to allow Mr Barone to escape his liability. Moreover, when the
account was ultimately sent to Rosemary Inc, addressed to them with the request
that Mr Barone would make the usual arrangements for the commission due to the
estate agents to be retained out of the purchase price, that was done as a
matter of routine and certainly not as a way of indicating that Mr Barone was
no longer to be regarded as responsible, as he was hitherto in law.
For the
reasons which my lord has given, I, too, agree that this appeal ought to be
allowed, both on the question of election and on the question of novation.
NOURSE LJ
agreed with both judgments and did not add anything of his own.
The appeal
was allowed with costs.
