Pre-contract deposit with estate agent–Vendor does not impliedly or ostensibly authorise estate agent to receive such a deposit, whether as agent for the vendor, ‘stakeholder,’ or in any other capacity–A prospective purchaser who pays such a deposit can look only to the estate agent for its return, and loses it if the estate agent fails to repay it–Rayner v Paskell & Cann (1948) 152 Estates Gazette 270 cited and approved by the House
This was an
appeal by Mr David John Finch, of Acton Lane, Watford, from a decision of the
Court of Appeal affirming, by a majority, a judgment of Judge MacNair at
Watford County Court awarding the respondents, Mr and Mrs Malcolm John Sorrell,
of Exmouth Road, Watford, £550 on their claim for the return of a pre-contract
deposit paid to an estate agent in 1971.
Mr David Kemp
QC and Mr J H Vallat (instructed by Hart, Fortgang & Co, of Edgware)
appeared for the appellant, and Mr C French QC and Mr G M Freeman (instructed
by Enever, Freeman & Co, of Ruislip) represented the respondents.
LORD
WILBERFORCE said that he had had the advantage of reading in advance the text
of the speech to be delivered by Lord Edmund-Davies. He agreed with it and
would allow the appeal.
LORD SALMON
said that for the reasons given in the speech prepared by Lord Edmund-Davies,
he too would allow the appeal.
LORD
EDMUND-DAVIES: When an owner of property asks an estate agent to find a
purchaser for his house, and the estate agent receives a deposit from a person
who has it in mind to buy the house, but at a time when the negotiations are
still ‘subject to contract,’ is the vendor liable to repay the depositor in the
event of the estate agent misappropriating the sum deposited? This question, which has arisen with a certain
measure of frequency in the courts over the last 30 years and has been
variously answered, has at last reached your Lordships’ House for
determination. The particular facts giving rise to the question are always
important, and I begin with those of the present case. For such purpose I
cannot do better than to quote from the unreported judgment of Lord Denning MR:
Mr Finch was
the owner of 11 Cardiff Road, Watford. I will call him ‘the vendor.’ In 1971, he decided to sell it 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 purchasers said: ‘We were under the
full impression at this stage that we were to have first option on the
property.’ The
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 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.
In his clear
and careful judgment the learned county court judge came to the conclusion that
the decided cases, and in particular Burt v Claude Cousins & Co
[1971] 2 QB 426, compelled him to hold in favour of the Sorrells, who had sued
Mr Finch for the return of their £550. In the Court of Appeal Browne LJ and Sir
John Pennycuick affirmed that judgment, but Lord Denning MR dissented, saying,
‘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.’
The claim was
originally based on contract alone, but by amendment was extended to assert the
vendor’s liability in tort for ‘the fraudulent misrepresentation of the said
representative that he intended at the time the said deposit was paid over to
hold the same as a deposit whereas at the material time he intended to convert
the same to his own use’ and for the fraudulent conversion which later
followed. Dealing first with the claim in contract, it is common ground that
liability in the vendor is dependent upon the estate agent having acted on his
behalf and as his agent in receiving the £550 claimed. The fons et origo
of asserting that such was the case is Ryan v Pilkington [1959] 1
WLR 403, where, unknown to the prospective vendor, the estate agent obtained
two sums by way of deposit from the prospective purchaser, receipting the first
payment as ‘agent for’ the vendors and the second simply as ‘agent.’ The sale having gone off, the depositor
failed to recover from the estate agent the sums paid, and thereupon sued both
him and the property-owner. The trial judge found that the estate agent had
acted in the matter as agent for the owner and was therefore not liable, but
that the owner himself was. Dismissing his appeal, Hodson LJ cited an
observation of Lord Russell of Killowen in Luxor (Eastbourne) Ltd v Cooper
[1941] AC 108 at 124, that in circumstances such as those of the instant case
‘No obligation is imposed on the agent to do anything,’ and continued at p 409:
It is prima
facie in the interests of the vendor that the proposed purchaser should
give an earnest of his expressed intention to become owner of the property in
question. In my judgment, looking at the matter through the eyes of a
reasonable prospective purchaser, the act of the agent in taking a deposit is
within the scope of the apparent authority which is given to the agent by his
principal.
Morris and
Willmer LJJ concurred, holding that the estate agent had acted within his
ostensible authority, and each attaching importance to the fact that to the
plaintiff’s knowledge, in return for the payments he had made, he was given
acknowledgements that the sums had been received merely as ‘agent,’ a fact
quite inconsistent with the depositor’s later assertion that there was a
personal liability in the agent to repay. As I later observed in Maloney
v Hardy & Moorshead (1970, unreported), the case was therefore
authority for saying that the estate agent had the vendor’s implied authority
to receive on her behalf a deposit from a potential purchaser. But in the light
of later developments in this branch of the law, it is indeed unfortunate that
the Court of Appeal did not then have before it the decision of Lord Greene MR
delivered 11 years earlier in Rayner v Paskell & Cann and
reported only in (1948) 152 EG 270, which became more widely known only through
the researches of his successor, Lord Denning MR, when printed in 1971 as an
appendix to his judgment in Burt v Claude Cousins & Co (ante,
at p 439). Dismissing an estate agent’s appeal against a decision that he was
obliged to repay a deposit paid to him ‘subject to contract,’ and for which he
had given a receipt with no indication of the capacity in which he was acting,
Lord Greene MR said:
The
respondent was entitled to expect the appellants to hold the money as
stakeholders until he entered into a binding contract, and . . . as this
was the usual practice in the case of estate agents who took deposits subject
to contract, the appellants were stakeholders and had wrongfully parted with
his money . . . it must be taken that the appellants received the money on the
terms customary in the profession, whether the respondent knew of them or not.
. . . On the findings of fact the judge could not do otherwise than hold that
the appellants were under the duty of stakeholders.
Another
decision unfortunately not referred to when the Court of Appeal was considering
Ryan v Pilkington was that delivered some months earlier in the
Court of Criminal Appeal by Lord Goddard CJ in R v Pilkington
(1958) 42 Cr App R 233. There, in relation to circumstances indistinguishable
from those of the instant case, he held ‘that the inference was irresistible
that the appellant was receiving the money as stakeholder,’ and added:
When these
persons paid their money to the appellant . . . they meant that, if no contract
was concluded, they were to have their money back. Who else was to have
it? The vendor would have no right to
the money. . . . There was no engagement on either side and the money had to be
refunded.
There was,
indeed, no novelty about these observations, and the law had long been similar
in Australia and New Zealand; see, for example, Wells v Birtchnell
(1893) 19 VLR 473, Whinfield v Lovell [1926] VLR 185, Fischer
v Parry [1963] VLR 97, Egan v Ross [1928] 29 NSWR 382, and
Richards v Hill [1920] NZLR 724, where, holding liable the land
agents who had parted with a deposit received by them, Salmond J said at p 728:
The
defendants had no right so to part with the deposit. It was held by them for
and on account of the plaintiff until and unless a complete contract was
effected between her and the vendor. No such contract was ever effected, and
the defendants must account for the deposit accordingly to the plaintiff.
It occasions
no surprise that these Commonwealth decisions were not cited to Sachs J (as he
then was) before he delivered what was to prove his seminal judgment in Goding
v Frazer [1967] 1 WLR 286, which has powerfully influenced this branch
of the law ever since. Unfortunately, neither was Rayner v Paskell
(ante), though on a later occasion the learned judge was to make his
comments on it. In that case, like the present, there was no mention of the
terms on which the deposit was paid ‘subject to contract.’ Observing (p 293G) that ‘there is no
authority that binds a judge of first instance on the issue,’ and holding the
house-owner liable in an actionclaiming the sum deposited as money paid by the
plaintiff to the defendant’s use, the learned judge said (p 293C):
To my mind, .
. . in the absence of some express provisions, the vendor must remain
responsible for its return whether or not it has remained throughout in the
hands of the estate agent. So long, however, as it remains in the hands of the
estate agent, the latter is, on the happening of any event entitling the
purchaser to its return (and that includes a simple demand at any time before
some contract is made affecting the allocation of the deposit), in law
personally liable to return it. That is not to my mind because an estate agent
technically agrees to be a stakeholder but because he must be deemed to be
authorised by the vendor to pay it over immediately it became due to the
purchaser and accordingly the deposit then becomes money had and received to
the use of the purchaser. If and in so far as it is the practice of estate
agents to retain in their hands these deposits, the practical result is the
same as if they were stakeholders, the risk of whose solvency is borne by the
vendor. In essence, however, my opinion is that estate agents take the deposit
as agents of the vendor who throughout is liable for its return; with the
purchaser having also in appropriate circumstances a remedy against any estate
agent who, in fact, retains that deposit. (It is perhaps as well to add that
if, contrary to my above view, estate agents do in law receive such deposits as
stakeholders, I would have held that the vendor must all the same bear the risk
of their insolvency.)
In the
unreported Court of Appeal decision in Maloney v Hardy &
Moorshead (February 12 1970) which turned on whether an estate agent had
authority to engage a subagent, Russell LJ expressed misgivings over the use of
the phrase ‘as stakeholder’ in relation to the receipt of pre-contract
deposits, adding: ‘Whether the money stays with the agent is entirely in the
hands of the purchaser, and the vendor has no say in it or control over it. In
such circumstances I would not hold the vendor responsible.’ I, too, pointed out:
The essence
of stakeholding in vendor and purchaser cases is that a binding contract
of sale has been entered into, and the intending purchaser deposits with a
third party a sum to be held pending completion; meanwhile the third party
holding their deposit may part with it to neither contracting party without the
consent of the other, and if competing demands arise he can interplead. But . .
. in the present case the plaintiff was entitled to demand the return of his
£450 and none could lawfully gainsay him. The [vendor] thus lacking any ability
to prevent the estate agent from complying with such a demand, it seems
difficult to see how the latter can be said ever to have been holding the money
as stakeholders for anyone.
And so we come
to Burt v Claude Cousins & Co [1971] 2 QB 426, where judicial
battle was well and truly joined. There, as in the instant case, the
prospective purchaser was given a simple acknowledgement of receipt of the
deposit paid to the estate agent, who later defaulted. Dissenting from the
conclusion of Sachs and Megaw LJJ that the property-owner was liable to make
good that default, Lord Denning MR held that only when the estate agent, being
duly authorised to do so, received a deposit ‘as agent for the vendor’ is the
latter liable; if he received it ‘as stakeholder,’ he is under a duty to hold
in in medio pending the outcome of a future event.
He does not
hold it as agent for the vendor, nor as agent for the purchaser. He holds it as
trustee for both to await the event: see Skinner v Trustee of the
Property of Reed (a Bankrupt) [1967] Ch 1194, 1200 per Cross J.
Until the event is known, it is his duty to keep it in his own hands; or to put
in on deposit at the bank. If the purchaser should become entitled to the
return of his deposit, he must sue the estate agent or solicitor for it: see Eltham
v Kingsman (1818) 1 B & Ald 683; Hampden v Walsh
(1876) 1 QBD 189. He cannot sue the vendor, because the vendor has never
received it, or become entitled to receive it.
At p 436C the
Master of the Rolls continued:
I cannot
believe that he receives it as agent for the vendor; for if that were so, the
estate agent would be bound to pay it it over to the vendor forthwith; and the
vendor alone would be answerable for its return. That cannot be right. Seeing
that no contract has been made, the vendor is not entitled to a penny piece. If
the estate agent should pay it over to the vendor, he does wrong; and if the
vendor goes bankrupt, the estate agent is answerable for it . . . Rayner
v Paskell & Cann. Seeing that the estate agent must not, before a
contract is made, hand the deposit over to the vendor, what is he to do with
it? Clearly he must keep it in his own
hands until a contract is made, or the purchaser asks for it back. And what is
he then but a stakeholder? . . . If no
contract is made, the estate agent must return the deposit to the purchaser and
can be sued if he does not. . . . The proper inference is that he receives the
money as stakeholder and not as agent for the vendor. I cannot agree,
therefore, with the decision of Sachs J in Goding v Frazer.
Sachs LJ, who
adhered to the view he had expressed in the earlier case, summarised his
‘conclusion as to the terms upon which an estate agent is authorised by a
vendor to receive and hold a deposit (subject, of course, to any contrary
agreement between them)’ in the following passage (p 447G), into which I have
taken the liberty to insert letters to demarcate the different points involved:
(a) He is authorised, or perhaps it would be
better to say instructed, to hold the deposit in his own possession unless and
until an event occurs upon which he is authorised to dispose of it.
(b) In the event of the purchaser demanding its
return before any contract is concluded, ie during the ‘pre-contract’ period,
he has to return the deposit to him.
(c) In the event of a contract being concluded,
it is to be disposed of in accordance with the terms of that contract, be they
express or implied.
(d) The instruction to hold the deposit in his,
the estate agent’s, possession is one which during the pre-contract period
precludes him in the absence of the consent of both the depositor and the
vendor from handing it over to the vendor or any person the latter may
nominate; but, of course, entitles him to place it in his, the estate agent’s,
account at a bank of repute.
(e) The above terms correspond with the practice
of estate agents as set out in the evidence in the instant case and also in
other cases which have come before the courts. Indeed, it has now become, to my
mind, a matter of judicial knowledge that it is the practice of estate agents
to receive deposits on the above-mentioned standard terms.
Of the
foregoing conclusions, Mr French, counsel for the respondents, founded himself
upon (b) and (c). But I understood him to say that he
respectfully regarded (a) and (d) as too emphatically expressed,
and that the outcome of the decided cases was not unequivocal enough for any
taking of judicial notice to arise. Megaw LJ, concurring in the conclusion
arrived at by Sachs LJ (452B), basically founded himself on the proposition
that:
In the
absence of special circumstances justice requires that the prospective vendor
rather than the prospective purchaser should bear the loss. It is the
prospective vendor who has chosen the estate agent; who has clothed him with
the capacity of agent; and who has enabled him to ask for and receive a deposit
in connection with the business to which the agency relates.
Such agency
arose, in the view of Megaw LJ, from the indisputable proposition that ‘every
agent has implied authority to do whatever is necessary for, or ordinarily
incidental to, the effective execution of his express authority in the usual
way’ (Bowstead on Agency, 13th ed art 28); and further, from the
evidence of the purchaser’s wife in that case ‘that she knew that it was not
uncommon for estate agents to ask for and get deposits when, as here, the price
was agreed; she agreed it was a usual thing.’
That decision was considered a few months later in Barrington v Lee
[1972] 1 QB 326, where the estate agent expressly received a pre-contract
deposit ‘as stakeholder.’ The facts differed
in an important respect from the instant case, for the depositor had there
obtained judgment against the estate agent, and the Court of Appeal unanimously
held that it must follow that he could not also get judgment against the
prospective vendor. But, even had that event not happened, Lord Denning MR
would nevertheless have held in favour of the vendor, while Stephenson LJ and I
took the view that in those circumstances
(ante) and hold the vendor liable. I expressed the view that ‘were the
judicial slate clean’ I, in common with the Master of the Rolls, should have
exculpated the vendor, whereas Stephenson LJ (344CD and 346FH) regarded the
suggested relationship of estate agent and vendor as ‘a surprising sort of
agency’ in rendering both agent and principal liable in certain circumstances,
but not unique on that account. And so, at long last, to the instant case,
where Lord Denning MR summarised the effect of the foregoing decisions in the
following propositions (with all of which he again expressed disagreement):
(i) If the agent signs the receipt expressly as
agent for the vendor, the proposed purchaser can recover the deposit from the
vendor: Ryan v Pilkington (1959).
(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 again recover the deposit from the
vendor: Burt v Cousins (1971).
(iii) If the agent signs the receipt expressly as
stakeholder, the proposed purchaser can still recover the deposit from the
vendor: Barrington v Lee (1972).
Browne LJ
while acknowledging the great force of the dissenting views of the Master of
the Rolls held himself bound by the authorities to support propositions (ii)
and (iii), and added that they also established that ‘(iv) when someone who
wants to sell his house puts it into the hands of an estate agent, he gives the
estate agent authority to receive a pre-contract deposit on his behalf.’ Browne LJ accordingly felt bound to hold that
the vendor was liable. So also did Sir John Pennycuick, who echoed the hope
expressed by Browne LJ that the whole topic would soon be considered by your
Lordships’ House.
The primary
basis of the vendor’s liability seemingly is that to engage an estate agent ‘to
find a purchaser’ is to confer upon him authority to receive money as agent for
his principal (per Hodson LJ, Ryan v Pilkington, ante, at
p 409); it seems, therefore, to be a case of actual, though implied, authority,
save that at an earlier stage in his judgment Hodson LJ said (p 407), ‘the
vital question in this case is whether he was acting within the scope of his apparent
authority,’ and answered it by saying (p 409): ‘It is surely relevant to remember
that ability to purchase is one of the qualities which one looks for in a
purchaser. Accordingly, the requirement for the payment of a sum of money by
way of deposit would seem to me to be permissible as evidence of some ability
to purchase, some indication that the proposed purchaser was not a man of
straw.’ But the validity of such a
conclusion depends upon the extent to which the taking of a pre-contract
deposit on such terms as to make the prospective vendor liable therefor
can be regarded as reasonably incidental to the simple engaging of an estate
agent to find a ready, willing and able purchaser. Some limits on his authority
to commit the owner must, and have been, imposed; for example, the estate agent
cannot enter into a binding contract of sale (Keen v Mear [1920]
2 Ch 574, 579) nor one of letting (Navarro v Moregrand Ltd [1951]
WN 335). And, as I ventured to point out in Barrington v Lee (ante,
p 339D), ‘It is too simplistic to say that, because it was the would-be vendor
who appointed the estate agent in the first place and so put him in a position
to receive a deposit, the justice of the case demands that the vendor should be
held liable to recompense the purchaser if loss results,’ The same could be
said of many persons undoubtedly appointed as agents, certain of whose
activities nevertheless fall outside their authority; see the monitory
observations of Lord Halsbury LC in Farquharson Bros & Co v King
& Co [1902] AC 325 at 331-2. In such circumstances, as in the instant
case, where the issue raised is which of two innocent parties is to suffer for
the default of a third, the matter has to be determined in accordance with
strict legal principle and with nothing else. As Dixon CJ said in National
Insurance Co of New Zealand v Espagne [1961] 105 CLR 569:
Intuitive
feelings for justice seem a poor substitute for a rule of law antecedently
known, more particularly where all do not have the same intuitions.
For my part, I
remain of the view I expressed in Barrington v Lee (ante,
at 339E) that:
. . . the
just solution of the problem of which of two innocent parties should suffer
should depend very largely (and possibly conclusively) upon what rights could
have been asserted by each of them in respect of the money in the agent’s hands
at all material times.
It being
common ground that before a contract was concluded neither vendor nor estate
agent could gainsay the purchaser’s demand for its return, I fail to see that
the justice of the case demands that the vendor, however personally innocent,
should be held liable to repay the depositor in the event of the agent
defaulting. It is not open to the prospective purchaser to deny knowledge of
his unfettered legal right to get his money back at that stage, and if, with
that actual or imputed knowledge, he chooses to pay a deposit and leave it in
the estate agent’s hands, while one must naturally have sympathy with him, such
intuitions of justice as I possess do not demand that he should be recouped by
a vendor who shares his innocence and differs from him only in engaging someone
to find a purchaser for his house. In this I am glad to find myself in the
company of Sir John Pennycuick, who in the present case said: ‘I do not myself
find much force in the consideration of relative hardship.’
It has to be
said respectfully that the hitherto prevailing majority view as to the
authority of an estate agent in the pre-contract stage is an extremely odd one.
It involves the inference that he possesses the authority of the vendor to
receive it as his agent; but although the deposit is received in that
representative capacity, the recipient must nevertheless return it to the
depositor at his request, and the principal has no control over it, save that,
in the words of Sachs J in Goding v Frazer (ante, p 293A):
There seems
to be nothing in law to preclude the vendor from making such bargain as he
would wish with the estate agent as to how and by whom any deposit should be
held, and in particular (if he so preferred) from arranging that the deposit be
paid into the hands of his solicitor or of himself.
I know of no
such right in the vendor nor of any support for it in the authorities, and in
my judgment it is non-existent. It is right to add that the learned judge
seemed to have later resiled from that view; see Burt v Claude
Cousins & Co (ante, at 447G to 448B). It is the fact that in
this alleged relationship of agency the vendor has no control over property
alleged to have been received on his behalf, which makes it so unlikely and so
wide a departure from the ordinary law (see Edgell v Day (1865)
LR 1 CP 80) as to be unacceptable. Equally odd, with respect, is the view
expressed by Sachs LJ in Burt v Claude Cousins & Co (at p
449) that ‘a claim manifestly does lie against the estate agent whatever the
answer to the question as to status or capacity,’ whereas it is a truism that
where an agent makes a contract solely in his capacity as agent he is not
liable to the third party thereon, even if sums paid to him as agent by a third
party still remain in his possession (Ellis v Goulton [1893] 1 QB
350 (CA) and Bowstead on Agency, 13th ed 373). For my part, the
difficulty is not cleared up by adverting, as Megaw LJ did in Burt v Claude
Cousins & Co (as p 455CG), to the fact that an agent may undertake
personal liability to the third party in the course of making a contract on
behalf of his principal, and that it would not be foreign to the concept of
agency for the estate agent to have authority from the prospective vendor to
take the deposit as his agent and to take it subject to the obligation that he
must repay it to the depositor on demand. In none of the reported cases did the
estate agent expressly
implying one. On the contrary, the better view appears to me to be that his liability
to account to the depositor rests solely upon an implied term of the
transaction between him and the depositor and springs in no way, direct or
indirect, from the relationship between him and the vendor.
In my
respectful judgment, these cases have unfortunately been ‘off course’ ever
since the extempore judgments in Ryan v Pilkington (ante)
were delivered, despite the repeated efforts of Lord Denning MR to put matters
right. It may well be that the prevailing error sprang originally from a
two-fold source which was itself attributable to confusing terminology. First,
the styling of the intermediary as an ‘estate agent’ may, however
subconsciously, have induced the notion that whatever he did in relation to the
vendor’s property he did on his behalf; as my noble and learned friend, Lord
Salmon, observed in the course of submissions, such confusion might never have
arisen had the intermediary been styled a ‘realtor’ or by some such other
description. And secondly, the consistent assertion right back to Rayner
v Paskell & Cann (ante) that he received a pre-contract
deposit as a ‘stakeholder’ may well have led to blurring the difference between
his position vis-a-vis the depositor according as to whether the deposit was
paid before or after the contract of sale had been concluded. Whether or not
such factors contributed in some measure to the decision in Ryan v Pilkington,
the critical comments of Mr David Kemp strike me as very cogent. He points out
that the claim there not exceeding £200, no appeal lay on a question of fact,
and the county court judge had found (p 404) that the deposit ‘was paid to the
first defendant as agent for the second defendant and not as a
stakeholder.’ The appeal on law must
therefore have been based on the trial judge having misdirected himself or on
the complete absence of evidence to support such a finding. But ‘Pilkington had
gone into the witness box saying that he was at all times agent for a disclosed
principal, Gem, and that the plaintiff ought to sue Gem and not him, Pilkington’
(see Willmer LJ, p 413). The next witness called was none other than Gem
himself, and he never denied having given authority to Pilkington to receive a
deposit on his behalf, nor did he challenge Pilkington’s authority when Ryan
first informed him of the deposit he had paid. On the totality of the evidence
it would indeed have been impossible to exculpate Gem, for there was the
uncontradicted evidence of Pilkington of express authority; and Morris LJ
stressed (p 412) that the case depended on its own facts. Hodson LJ made clear
(pp 408-9) that no expert evidence was called concerning the practice of estate
agents and that ‘the question of law whether the action of the agent here was
within the scope of his authority is not directly covered by authority, and one
has to apply first principles.’ In my
respectful judgment, it is not in accordance with first principles to hold that
the estate agent in such circumstances as the present was authorised to receive
on the vendor’s behalf a pre-contract deposit in the absence of express
or impled authority so to do, and in neither way was such authority here given.
Nor does the prospective vendor’s knowledge that a deposit had been received of
itself impose any liability upon him to repay it.
For the
foregoing reasons, had the Court of Appeal not been bound by the earlier
authorities to which I have referred, I hold that they should have allowed the
vendor’s appeal from the adverse judgment of the learned county court judge.
This House being free to consider the matter afresh, I accordingly would
reverse the majority decision of the Court of Appeal. It only remains for me to
deal shortly with the further ground of claim, introduced by amendment. It will
be recalled that this was based on the allegation that Levy fraudulently
misrepresented to the plaintiffs that he intended to retain as a deposit the
sum paid to him, whereas in reality he intended to convert it to his own use,
and thereafter proceeded to do so. Assuming such allegations to be established,
there would still be no liability in the defendant unless Levy was acting in
the course of his employment by the defendant in making such a fraudulent
misrepresentation, or his action was authorised or ratified by the defendant,
or can be regarded as having been done within his actual or apparent authority;
see Bowstead 13th ed 329 and the many cases there cited. Accordingly,
holding as I do that Levy had no authority from the defendant to receive any
deposit as his agent, and there being no suggestion of the latter’s complicity
in any fraudulent misrepresentation, it follows that nothing Levy said in order
to induce the payment of that deposit can implicate the vendor. The claim under
this alternative head must accordingly also fail. In thus holding that the appeal
should be allowed, I must make clear that I share the deep misgivings of your
Lordships that the innocent plaintiffs should, through absolutely no fault of
theirs, find themselves in their present unfortunate plight. Any steps which
can be taken by the appropriate professional body to prevent the recurrence of
such cases should be promptly taken, for they are not uncommon, they arouse
great concern, and they tend to give the whole profession a bad name, despite
the high integrity of the vast majority of its members.
LORD FRASER OF
TULLYBELTON said that he had had the advantage of reading in draft the speeches
of Lord Edmund-Davies and Lord Russell of Killowen. He agreed with them, and he
too would allow the appeal.
LORD RUSSELL
OF KILLOWEN: This appeal raises a question of general importance in cases in
which A, wishing to sell his house, goes to an estate agent to find a possible
purchaser; the estate agent obtains in the course of negotiations a deposit or
deposits from a possible purchaser or possible purchasers; negotiation does not
reach the stage of contract; and the deposit or deposits cannot be recovered
from the estate agent, who has spent them for his own purposes and is insolvent
or has otherwise made off with them. Is the vendor then to be held liable to
repay the depositors? In the Court of
Appeal counsel for the vendor found himself obliged by previous decisions of
that court, unpalatable as they were to Lord Denning MR, to accept the
following propositions:
(i) If the agent signs the receipt expressly as
agent for the vendor, the proposed purchaser can recover the deposit from the
vendor: 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 vendor or
anyone else, the proposed purchaser can recover the deposit from the vendor: Burt
v Claude Cousins & Co [1971] 2 QB 427.
(iii) If the agent signs the receipt expressly as
stakeholder, the proposed purchaser can still recover the deposit from the vendor:
Barrington v Lee [1972] 1 QB 326.
Counsel for
the vendor therefore had to rely upon a particular feature of the present case
as a distinction. Lord Denning MR upheld that distinction but his brethren
found themselves unable so to do. In your Lordships’ House the previous
decisions are of course open to review, and of them consideration is first
required, after a summary of the facts in the instant case.
The estate
agent was, so far as is known, a man with no professional qualifications, and a
member of no professional organisation. He was, unknown to either the vendor
appellant or to any of the possible purchasers concerned, a dishonest rogue and
an undischarged bankrupt. He traded under the fairly high-sounding style of
Emberdene Estates. The vendor, having decided to sell his house, 11 Cardiff
Road, Watford, called on the estate agent in order to put his house on the
market. The estate agent took particulars of the house for this purpose, the
idea being that it should be offered for negotiation at £5,500. Nothing was
said about any deposits being taken by the estate agent, nor, naturally, about
the capacity in which he was to receive such deposits. In fact no mention was
made of commission on introduction of a willing pur-
purchasers came to see the house. Five of them (apart from the respondents)
paid deposits to the estate agent, presumably the receipts given by the estate
agent being in like form to those given to the respondents. When the
respondents (who may conveniently be called the purchasers) came to see the
property, the vendor knew that two possible purchasers had paid a deposit to
the estate agent, but nothing was said between vendor and purchasers as to
this. Subsequently the purchasers returned to the estate agent, who told them
that a deposit of 10 per cent of the purchase price of £5,500 would be
required. They paid this in two sums to the estate agent by cheque made out to
the estate agent in his trade name. He gave them two receipts made out on
Emberdene Estates’ writing-paper, signed with no definition of the capacity in
which he took the money: that is to say, he did not in terms say either that he
received as the agent of the vendor or that he received as stakeholder. In each
case the house and price were identified, and it stated that the receipt was
for a sum being preliminary deposit or balance of deposit re 11 Cardiff Road,
but no reference was made to any vendor, who might for all that appeared on the
document have been trustees or a mortgagee. Both documents contained the words
‘subject to contract.’ Accordingly we
have a situation in which (i) the vendor did not expressly authorise the estate
agent to receive as agent for the vendor pre-contract deposits from possible
purchasers, and (ii) the estate agent did not purport to receive any deposit as
agent for whoever might be the vendor of the property.
An estate
agent, despite the style, is an independent person, engaged ordinarily on a
commission basis, to find and introduce a willing purchaser. He is not the
agent of the vendor to contract on his behalf; his actions are attributable to
the vendor only in a strictly limited sense, as for example the making of
representations as to the condition of the property. In my opinion an estate
agent has neither actual (impled) nor ostensible (apparent) authority to ask
for or receive a pre-contract deposit as agent for the vendor. It is true that
it has become quite common for estate agents to receive pre-contract deposits,
and that in one sense this earnest of genuine interest is beneficial to the
vendor; but it is also beneficial to the purchaser who hopes thereby to get his
foot in the door, and indeed, in time of acute housing shortage it is I believe
not unknown for a would-be purchaser to press a deposit on the estate agent for
that very reason. In my opinion the decision in Ryan v Pilkington
[1959] 1 WLR 403 (CA), in so far as it was based upon the footing that an
estate agent has implied actual authority or ostensible apparent authority to
receive a pre-contract deposit as agent for the vendor, is erroneous. The
second of the three cases in the Court of Appeal which counsel for the vendor
felt obliged to accept below was Burt v Claude Cousins & Co
[1971] 2 QB 426. The decision in that case (where the estate agent did not
purport to receive the pre-contract deposit as agent for the vendor) was based
upon in the decision in Ryan v Pilkington that the estate agent
had either implied or ostensible authority to receive a pre-contract deposit as
agent for the vendor, and accordingly must also in my opinion be regarded as
erroneous. I find it impossible to accept a theory of authority from a vendor
to the estate agent to accept a deposit as agent for the vendor on terms
that so long as all remains in negotiation the estate agent must on no account
pay the deposit to the vendor or to the vendor’s order, but on the contrary
must on demand of the purchaser pay it back to the purchaser without reference
to the vendor: see per Sachs LJ [1971] 2 QB at pp 447-448. That appears to me
with all respect to be juridically unacceptable. The third case mentioned above
is Barrington v Lee [1972] 1 QB 326, in which the estate agents
had received the deposit ‘as stakeholders’ The majority felt themselves
constrained by the decision in Ryan v Pilkington and the
reasoning of the majority in Burt v Claude Cousins & Co to
hold that the vendor was prima facie liable to refund the deposit to the
purchaser, on the footing that the estate agents had implied authority from the
vendor: though since the purchaser had sued the estate agents to judgment, that
operated as a bar on the facts of the case to an action against the vendor.
The subject
matter of these decisions is of course at large in this House. In my opinion,
(i) in cases such as the present it is wrong to say that by the engagement of
an estate agent there is conferred upon the estate agent either implied or
ostensible authority to receive a deposit from a would-be purchaser as agent of
the vendor, and (ii) if the estate agent receives a deposit either without
other definition of his character or in terms ‘as stakeholder,’ and the estate
agent goes bankrupt or otherwise defaults, the vendor is not liable to the
purchaser. (As to ‘stakeholder’ I adhere to the view expressed by me obiter in Maloney
v Hardy & Moorshead noted at [1971] 2 QB at p 442.) The crucial point in my opinion is that at
all times until contract the purchaser is the only person with any claim or
right to the return of the deposit moneys, and his right is a right on demand:
whereas the vendor has no such claim or right and no control over the deposit
moneys. It has been said that ‘in justice’ the one of two innocent people to
suffer should be the vendor who chose the estate agent. But this seems to me
too loose an approach to the problem, which should be solved by analysis of
legal rights and relationships. A would-be purchaser is not obliged to pay a
pre-contract deposit, and can in any event require that it be paid into joint names.
The vendor, on the other hand, if the line of cases mentioned is upheld, may
(as here) find himself liable to repay the whole string of deposits–worth
perhaps more than the house–without being able to avoid or control the
situation: for the suggestion that he might insist that the cyclostyled
particulars should bear in bold lettering the warning that any pre-contract
deposits be not paid to the estate agent’s sole name is hardly practical. My
opinion is not of course intended to cast any doubt on the liability of the
vendor for the default of a stakeholder auctioneer: in such cases the deposit
is paid to the auctioneer on contract, and the purchaser is required by the
vendor to make the payment: he has no option. As to the alternative ground
based upon fraud, I have nothing to add to the reasoning of my noble and
learned friend Lord Edmund-Davies. In the circumstances I need not enlarge upon
the particular feature of this case which Lord Denning MR considered to be
justification for distinguishing the previous decisions. For these reasons, in
my opinion this appeal should be allowed.
