Sorrell v Finch

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Wilberforce,Lord Salmon,Lord Edmund-Davies,Lord Fraser of Tullybelton,Lord Russell of Killowen
Judgment Date12 May 1976
Judgment citation (vLex)[1976] UKHL J0512-2
Date12 May 1976

[1976] UKHL J0512-2

House of Lords

Lord Wilberforce

Lord Salmon

Lord Edmund-Davies

Lord Fraser of Tullybelton

Lord Russell of Killowen

Sorrell (A.P.) and Another (A.P.)
(Respondents)
and
Finch (A.P.)
(Appellant)

Upon Report from the Appellate Committee, to whom was referred the Cause Sorrell (Assisted Person) and another (Assisted Person) against Finch (Assisted Person), That the Committee had heard Counsel, as well on Monday the 29th, Tuesday the 30th and Wednesday the 31st, days of March last, as on Thursday the 1st day of April last, upon the Petition and Appeal of David John Finch (Assisted Person) of 79 Hagdon Lane, Watford, Hertfordshire, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 12th of June 1975, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament, might seem meet; as also upon the Case of Malcolm John Sorrell (Assisted Person) and Kathleen Alexius Sorrell (Assisted Person), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 12th day of June 1975, complained of in the said Appeal, be, and the same is hereby, Set Aside except so far as regards the provision for the taxation of Costs and for leave to appeal, and that the Judgment of His Honour Judge MacNair, of the 18th day of March 1974, also be Set Aside and judgment in lieu thereof be entered in the Watford County Court for the Defendant: And it is further Ordered, That the Costs of the Appellant and of the Respondents in this House be taxed in accordance with the provisions of Schedule 2 to the Legal Aid Act 1974, the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Watford County Court, to do therein as shall be just and consistent with this Judgment.

Lord Wilberforce

My Lords,

1

I have had the advantage of reading in advance the text of the speech to be delivered by my noble and learned friend, Lord Edmund-Davies. I agree with it and would allow the appeal.

Lord Salmon

My Lords,

2

For the reasons given in the speech prepared by my noble and learned friend, Lord Edmund-Davies, I too would allow the appeal.

Lord Edmund-Davies

My Lords,

3

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 thirty years and has been variously answered, has at last reached your Lordships' House for determination.

4

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, M.R.:

"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 fifteen 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 22nd November 1971, Mr. and Mrs. Sorrell (the purchasers) 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% 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% mortgage, i.e. £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 purchasers 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 22nd November 1971 they gave him a cheque for £112, for which he gave them a receipt:

"22nd November 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 2nd December 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:

"2nd December 1971.

Received from Mr. and Mrs. Sorrell the sum of £450, being balance of 10% 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 is 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."

5

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 Q.B. 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 L.J. and Sir John Pennycuick affirmed that judgment, but Lord Denning M.R. 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".

6

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.

7

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 W.L.R. 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.

8

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, L.J., cited an observation of Lord Russell of Killowen in Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108, 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 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."

9

Morris and Willmer, L.JJ., 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 acknowledgments 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.

10

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 M.R., delivered eleven...

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