Contract and agency law principles

English contract law developed as a remedy for the breach of informal agreements reached by word of mouth (by parol). Common Law considers a contract is a voluntary assumption of responsibility. When a party is voluntary assuming responsibility to each other (in favourable of) then if the party is intended to legally be bound the will insist that responsibilities are met. In a contract, trustworthiness is more important than a mere piece of paper. [1] 

Where the contract (irrespective of any variation or extension) affords an unforeseen or undisclosed benefit to one of the contracting parties, the common law usually lets the benefit rest undisturbed. However, the foundation of English law contains not just the common law but also Equity, which is operating on a man’s conscience.

This following research essay is based on the contract law and agency law principles. This mainly focuses on the landmark decision in the case of English v Dedham Vale Properties [1978] and how did the court decision helped to develop the common law.

This case emphasises many important legal principles such as contract for sale, Vendor and Purchaser, Fiduciary relationship, agency, misrepresentation and liability for damages. However, this research essay mainly focuses on contract for sale and agency law though other legal issues are considered.

Case Facts and the Decision

English v Dedham Vale Properties [1978] [2] 

Mr. and Mrs. English owned a freehold house and about four acres of land adjoining it. The adjoining land, which would have ripe for development. However, it was refused by the planning authority to grant planning permission. Mr. and Mrs. English so decided to sell the property to defendant property company Dedham Vale Development Properties Ltd. During the negotiation period (1971), an employee of Dedham vale Property Company on the instructions of the Managing Director applied for planning permission for the part of the plot. The application purported to be made on behalf of Mr. and Mrs. English and they knew nothing about it. Although the employee of the defendant company did mention to the plaintiffs that the company proposed to make a planning application in respect of a small plot of the property, he did not make its form clear. He did not mention that it was proposed to make it in the plaintiffs' names. The plaintiffs gave no consent to the use of their names for any application. Relying upon the said presentations the plaintiffs agreed to accept the money from defendants. Therefore, the sale was concluded as a written contract and completed the conveyance. The planning permission was granted, but the plaintiffs were not informed of that fact. In 1972, the plaintiffs issued a writ seeking rescission of the conveyance and damages for false representation. However, Mr. English subsequently died in1974, but, the cause of action being a joint one, which survived to Mrs. English, she had continued the action on her own.

Slade J. Chancery Division held that the representations made by the employee of the defendant company during the pre- contract negotiations were not false to his knowledge at the time they were made. The employee did not induce the plaintiff into the contract. The planning application about the small plot did not affect the truth of the representation made by the employee. Therefore, the plaintiff’s claim for damages for false representation failed. No misrepresentation made by the defendant but there was a fiduciary relationship arose between the plaintiff (vendor) and Defendant (purchaser).

Fiduciary relationship imposed a duty on the defendant to disclose his acts to the plaintiffs before conclusion of the contract. Therefore, the defendant was liable to account to the plaintiff for any profit made as a result of the purported agency. Consequently, the defendant was under a duty to account for the profits received as result of the successful planning application.

Slade J. distinguished the above case with With v. O'Flanagan [1936] Ch. 575 [3] . In this case, , during the course of negotiations for a contract, one of the parties has made a statement which is at the time false in fact, but which he believes to be true and which is material to the contract. Also during the course of the negotiations he discovers the falsity of the statement, he becomes under an obligation to correct his erroneous representation. if during such negotiations a party makes a material statement which was true at the time it was made, but which before the conclusion of any contract becomes untrue, he is under an obligation to disclose to the other the change in circumstances. In either situation, his wrongful failure to disclose may be treated as a deemed misrepresentation. Therefore, court held that where a statement is rendered false by a change in circumstances there is a duty to disclose the change. A failure to do so will result in an actionable misrepresentation.

Slade J. mentioned comparing to the above case, English V Dedham Vale Properties Ltd, [4] 

These were the only representations, which Mrs. English claims to have induced her to enter into the contract. The making of the planning application in relation to the small plot, did not affect the truth of the representations in any way. They did not cause the statements, which agent had made in relation to the prospects of obtaining planning permission for the whole plot to be any less true than they had been at the time when they were made. In these circumstances, the principle of With v. O'Flanagan   did not itself impose any obligation on agent to disclose to Mrs. English the making of the planning application.

The judge indicated that the agent was under an obligation to obtain her consent to the making of the application before contract for other reasons. The judge concluded that the principle of With v. O'Flanagan did not itself impose on agent or the defendant company any obligation to disclose the fact that planning permission had been obtained, for by that time Mrs. English was already committed to the contract. Therefore, the defendant is liable in damages on the grounds that, since it placed itself in the position of a self-appointed agent in making the planning application, without the plaintiffs' authority. An implied contract must be deemed to have arisen between the defendant and the plaintiffs, and the defendant was in breach of the duties arising from such implied contract in failing to disclose the making and result of the planning application. If this plan was disclosed to the plaintiff, they might reasonably be supposed to be likely to influence in deciding whether to conclude a contract or not.

There should be an express contract that can be found on the express mutual consent of the contracting parties, so an implied contract must be found on the implied mutual consent of the parties interested. There is lack of mutuality between parties in this case because agent of the defendant company did apply for planning permission without plaintiffs’ consent.

Slade J. applied the dictum of Lord Denning M.R. in Phipps v. Boardman [1965] [5] 

that the defendants were throughout in the position of agents for the trustees and consequently were constructive trustees for the plaintiff had never informed consent of all trustees to any other arrangement. Where a person has assumed to have authority when in truth he has no authority. It has always been held that he is accountable just as if in fact he had the authority, which he assumed. Once it is found that the agent has used his principal's property or his position to make money for himself he is accountable for it. It matters not that the principal has lost no profits or suffered no damage. Nor does it matter that the principal could not have done the act himself. Nor does he have to find that the act, which brought about the profit, was done within the course of his employment. The reason is simply because it is money which the agent ought not to be allowed to keep. He gained an unjust benefit by the use of his principal's property or his position and must account for it (post, pp. 1017G, 1019D-E).

They were liable to account for their profit made on land the acquired proportionate to the plaintiffs’ selling price of land. There was no contract of agency. The judges made their decision (as did Wilberforce J in Phipps v. Boardman [1965]) wholly on the concept of self-appointed agency as being the sole basis of accountability. However, if property is received by one continuing or assuming to act as agent for another, then the property is held as trustee for that other.

In English Law, there is duty of good faith. The parties should disclose important matters about the transactions to each other and make reasonable efforts to reach agreement. However, contract law does require contract parties not to make false statement. In Law of Agency, the agent is expected to behave in a manner reflecting respect for the commercial legal power to commit the principal to contracts. The principal can agree to the displacement or amendment of these fiduciary obligations, but there must be fully informed consent; and the burden is upon the agent to show not only the actual consent but also that the principal gave it willingly and after being fully informed.

Considering the accountability of the agents (treating employees as agents), It is quite clear that if an agent uses property, with which he has been entrusted by his principal, so as to make a profit for himself out of it, without his principal's consent. Then he is accountable for it to his principal. Such fiduciary relationship arises in the sense that there is a duty on the proposed purchaser to disclose to the vendor before the conclusion of the contract what he has done as the vendor's purported agent, and correspondingly, in the event of non-disclosure. There is a duty on him to account to him for any profit made in the course of the purported agency, unless the vendor consents to his retaining it. In such circumstances, the person who, for his own private purposes, uses the vendor's name and purports to act as his agent cannot reasonably complain if the law subjects him to the same consequences vis-à-vis his alleged principal as if he had actually had the authority which he purported to have. This is that in all the circumstances of the case the defendant became and is accountable in equity to Mrs. English in respect of the profit derived by it from the planning application made. the defendant made a substantial profit through the obtaining of the planning permission and is liable to account to Mrs. English in equity for that profit.

In my judgment, in the end the question of the liability, if any, of the defendant to account must depend on the view which the court takes as to the nature of the relationship subsisting between the defendant and the plaintiffs at the date when the planning application was made. The liability to account would, in my judgment, arise if, though only if, the relationship was in the eyes of equity a fiduciary one in the sense that it imposed relevant fiduciary duties on the defendant towards the plaintiffs. In this context, I regard one point as being of great significance. As I have indicated, if the plaintiffs had learned of the application which had been made in their names and in respect of their property before contracts had been exchanged, they would have been entitled to say to the defendant and Mr. Mead. “We ratify and adopt this application, which has been made in our names, as our own application and neither of you are to have anything more to do with it." Furthermore, this is, I think effectively the course which the plaintiffs would have actually adopted, unless a more favourable form of contract had then been offered to them This being so, I do not think that a Court of Equity should or will allow the defendant to be in a better position than that in which it would have found itself if, before exchange of contracts, the defendant, or Mr. Mead had told the plaintiffs of the application which had been made in their names, as I think it or he should have told them. I do not think that the categories of fiduciary relationships which give rise to a constructive trusteeship should be regarded as falling into a limited number of strait-jackets or as being necessarily closed. They are, after all, no more than formulae for equitable relief. As Ungoed-Thomas J. said in Selangor United Rubber Estates Ltd. Cradock (No. 3) [1968] 1 W.L.R. 1555, 1582:

“The Court of Equity says that the defendant shall be liable in equity, as though he were a trustee. He is made liable in equity as trustee by the imposition or construction of the Court of Equity. This is done because in accordance with equitable principles applied by the Court of Equity it is equitable that he should be held liable as though he were a trustee. Trusteeship and constructive trusteeship are equitable conceptions."