N386

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

TOPLIS & HARDING PTY LTD

V

DADI TOKA AND GRANDSEN (THIRD PARTY)

Waigani
Woods AJ

28-29 July 1982
2 September 1982

PRINCIPAL AND AGENT - Liabilities of agent - For money received - Real estate agent - Deposit to secure tenancy - No agreement entered into - Agent stakeholder - Agent personally liable to account.

A real estate agent who accepts money from a prospective tenant of premises to secure the tenancy before any firm lease agreement is entered into, receives the money as stakeholder, and is personally liable to account therefore in the event of no agreement being entered into whether or not there is disclosure of any principal.
Barrington v. Lee [1971] 3 All E.R. 1231 at pp. 1237, 1238 applied.

Cases Cited:

Barrington v. Lee [1971] 3 All E.R. 1231.
Henning v. Ramsay [1964] N.S.W.R. 1165.
Lakeman v. Mount Stephen (1874) L.R. 7 H.L. 17, H.L.
Pole v. Leask (1863) 33 L.J. Ch. 155.
Pollard v. Bank of England (1871) L.R. 6 Q.B. 623.
R. v. Pilkington [1971] 2 All E.R. 631; (1958) 42 Cr. App. R. 233.
Sorrell v. Finch [1976] 2 All E.R. 371.
Thomson v. Davenport (1829) 9 B. & C. 78; 109 E.R. 30.

Action
These were proceedings in which the plaintiff sought to recover moneys paid to a real estate agent to secure a tenancy agreement.

Counsel:

J. G. Fuller, for the plaintiff.
C. J. Coady, for the defendant.
J. Everingham, for the third party.
Cur. adv. vult.

2 September 1982

WOODS AJ: I begin with a brief statement of the facts of this case. The plaintiff company late in 1980 sought rental accommodation for a prospective employee and a Mr. Allan, the general manager of the company, was, in early December, introduced to the defendant who, at the meeting, produced a business card calling himself a real estate agent. Mr. Allan and Mr. Toka inspected a residence and Mr. Allan indicated he was prepared to lease the property, but first it would need to be cleaned up. The residence was again inspected on 26th December and Mr. Allan indicated that the company was not prepared to enter into the lease and take delivery of the keys as the premises were still in a filthy condition. On that day a cheque for K1,300 was paid to Mr. Toka and this represented one month’s rent and was obviously paid to secure the premises to Toplis & Harding Pty. Ltd. In January 1981 when Mr. Allan again contacted Mr. Toka’s office, about the fact that very little had been done to clean up the residence, he was told that the property was no longer available as it had been sold. Toplis & Harding Pty. Ltd. thereupon sought the return of the K1,300 they had paid to Mr. Toka. Mr. Toka did not return the money saying it had been accounted for to the owner of the property. Toplis & Harding Pty. Ltd. is now seeking recovery of the money paid to Mr. Toka, and Mr. Toka has joined a Mrs. Grandsen as a third party saying he has accounted to her for the money.

How far an agent can commit his principal forms the essential core of the whole law of agency in contract. Most of the law centers around whether the principal has actually been committed by the agent. In the case of Pole v. Leask (1863) 33 L.J. Ch. 155, the House of Lords unanimously laid down that if a person deals with another as agent and seeks to charge a third person as principal, the onus is on him to show that the agency exists, that the agent has the authority he assumes to exercise, or that the principal is estopped from disputing it.

It is then a fundamental concept of the law of contractual agency that once an agent brings his principal into contact with the third party, he himself normally drops out and retains neither the right to sue nor the liability to be sued. The converse of that would be that where he does not bring forward his principal or conceals his existence, he must therefore be liable.

Cases do cover where at first only the agent is known, and then the principal is revealed. In Thomson v. Davenport (1829) 9 B. & C. 78; 109 E.R. 30 at p. 33, Lord Tenterden C.J. states:

"I take it to be a general rule, that if a person sells goods (supposing at the time of the contract he is dealing with a principal), but afterwards discovers that the person with whom he has been dealing is not the principal in the transaction, but agent for a third person, though he may in the mean time have debited the agent with it, he may afterwards recover the amount from the real principal; ..."

(Lord Tenterden then goes on to cover the case when knowing the agency and knowing the principal, the party elects to choose the agent as his debtor, then having made the election and losing against the agent, he cannot then proceed against the principal.)

Littledale J., in the same case stated (at p. 34) the proposition that:

"The general principle is, that the seller shall have his remedy against the principal, although he may by electing to take the agent as his debtor, abandon his right against the principal."

In verbal contracts, the question of the existence or non-existence of the agent’s liability is a question of fact, see Lakeman v. Mountstephen, (1874) L.R. 7 H.L. 17, H.L.

In the case before me we have an oral agreement between the agent and the manager of Toplis & Harding Pty. Ltd., where the agent has deliberately not brought his principal into contact with Toplis & Harding Pty. Ltd. Must he therefore still assume liability? The case of Pollard v. Bank of England (1871) L.R. 6 Q.B. 623, at p. 630, was referred to me but that case involves the principle that money paid under a mistake of fact to an agent may be recovered back from that agent, unless he has in the meantime paid it to his principal, in which case the recourse of the party who has paid the money is against the principal. But in the case before me at present, it is not a question of a mistake of fact but where the principal is undisclosed and the party therefore cannot be bound to chase someone he does not know or who has been deliberately concealed from him.

In this case Toplis & Harding Pty. Ltd. paid some money to Mr. Toka to secure the tenancy to the house. This payment was made before any firm lease agreement had been entered into. It is clear that Toplis & Harding Pty. Ltd. were not prepared to take the tenancy at that stage as Mr. Toka had to get the house into a suitable condition. Normal business practice would be that a tenancy agreement would be entered into before occupation and moneys would be paid over in accordance with the terms of that tenancy agreement. However, here it is apparent that to secure the promise and as an indication of their good intent, Toplis & Harding Pty. Ltd. paid over the equivalent of a month’s rent as a pre-contract or pre-lease payment to be applied as the first month’s rent when occupation was given and the lease commenced. So it was a kind of security deposit to be applied as the first month’s rent in due course. In the words of Lord Denning M.R. in the case of Barrington v. Lee [1971] 3 All E.R. 1231 at pp. 1237-1238:

"To my mind, the claim to the return of the deposit lies in contract and nothing else. When the purchaser pays a deposit to an estate agent, in the course of negotiations before any contract is concluded, there is clearly an implied promise by someone to repay it if the negotiations break down. But who is that someone? Who makes the promise to repay it? The estate agent or the vendor? If the estate agent receives the deposit ‘as stakeholder’, then it is the estate agent who makes the promise to repay, and he alone can be sued for it.

If the estate agent receives the deposit ‘as agent for the vendor’ (having actual authority on that behalf) then it is the vendor who makes the promise to repay. The estate agent must hand it to the vendor on demand; and the vendor alone is liable to return it. If the estate agent receives the deposit, without saying in what capacity he receives it, it is his duty to hold it pending the outcome of the negotiations. He must not hand it over to the vendor. When the negotiations break down, he must return it to the purchaser. The purchaser can sue the estate agent for money had and received which is based on an imputed promise to repay."

I regard the moneys paid by Toplis & Harding Pty. Ltd. to Mr. Toka as akin to the deposit referred to by Lord Denning.

I see the intention of Toplis & Harding Pty. Ltd. in this situation to be the same as Lord Goddard C.J., said was the situation in R. v. Pilkington [1971] 2 All E.R. 631; (1958) 42 Cr. App. R. 233, where he held that the inference was irresistible that the appellant was receiving the money as stakeholder and he said 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.

I see Mr. Toka as an agent like the agent referred to by Lord Russell in the case of Sorrell v. Finch [1976] 2 All E.R. 371 at p. 383, where he said:

"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 (implied) nor ostensible (apparent) authority to ask for or receive a pre-contract deposit as agent for the vendor."

Of course one must bear in mind that the case Sorrell v. Finch faced the question whether where there was a defaulting agent could the third party recover from the vendor in a situation where the vendor did not know of the existence of the relevant third party.

In cases like this where the agent adopts a policy of not disclosing the principal or even whether there is another person as principal, the agent must accept the responsibility and be personally liable.

The fact that the agent here had accounted to his principal for the moneys received from Toplis & Harding Pty. Ltd. even before an agreement had been entered into between the owner and the lessee and before occupation had been given does not absolve the agent from his liability. Actually the way agents are able to deal with other people’s moneys, is frightening to say the least. Rental moneys, according to the evidence of Mr. Toka, do not have to go into a trust account and there seems to be no regulation or control at all. The case of Henning v. Ramsay [1964] N.S.W.R. 1165, gives us the analogy of the deposit in a real estate situation. That was the case where a deposit was held not to become the property of the intending vendors until the making of the contract. In that case the contract itself had not been fully confirmed at the time the agent dealt with the deposit and accounted to his principal for it. Taylor J., at p. 1175 said:

"What the enquiry is directed to, is the intention of the parties as to the terms upon which the prospective purchaser pays the money to the agent and the agent receives it from him. An agent ordinarily in a case of a deposit paid on the proposed sale and purchase of real estate is, in the absence of any special conditions, a stakeholder to receive a deposit and would be so regarded by a prospective purchaser."

To determine on whose behalf the agent received the amount, regard must be had to what took place between the agent and the person paying the deposit.

In this case before me very little took place. There was no written agreement merely a promise to take the property once it had been put in order and in the meantime, money was paid, calculated at a month’s rent to secure that promise. It can only have been a sum as a kind of guarantee, to become rent once the tenancy commenced. In the meantime, it was a stake to be held by the agent as the guarantee of the lessee taking the property. I do not think it could be seen as anything else but a sum paid to the agent to be applied as rent if the lease came into force but if it did not, it should be repaid to the lessee. It can in no stretch of the imagination be seen as a non-refundable deposit or such like.

It is not that I am trying to protect the members of the public in such situations. The law already protects them in such situations by finding that the agent is personally liable.

In this case because of the circumstances already referred to I find this is a case where the agent is liable for the money given to him by the plaintiff company. There was never any agreement between the plaintiff and Mrs. Grandsen, the plaintiff never knew who Mrs. Grandsen was, her name only appeared after the money was paid by the company and it was never clear to the plaintiff in what capacity she existed.

I find for the plaintiff company in this matter against the defendant in the sum of K1,300.

I order that the defendant pay the costs of the plaintiff and the third party.

__________________________

Solicitor for the plaintiff: Gadens.
Solicitor for the defendant: Kirkes.
Solicitor for the third party: Warner Shand Wilson & Associates.
Orders accordingly.