Q.
Zakaria has been trying to sell his condominium for a few months. May be the market has been slow, or his asking price being too high - RM550,000. Similar property around the same area was going for RM500,000.
Jenny being a registered negotiator with a Estate Agency Firm approached Zakaria and striked a deal with a potential buyer Mr King. All parties were satisfied with the condition of the property, however Mr King told Jenny that he would only agree if Zakaria could give him a 10% discount, i.e. RM525,000 instead of RM550,000.
With this, Jenny got another buyer to buy from Zakaria at RM535,000. Mr King came to know about this, and got angry with Jenny. What went wrong? Cite your answer referring to case law on counter offer.
A.
There are two part of the issues here, one the offer and counter offer, another the duty of care with the agent - principal relationship.
Counter Offer -
When Mr King made the counter offer of RM525,000, he has terminated the offer from Zakaria at RM550,000. Hence Zakaria can proceed to sell his property to any third party. There ceased to be any binding contract between Zakaria and Mr King.
Thus case law Hyde v Wrench 1840, illustrates this point.
Wrench offered to sell his farm in Luddenham to Hyde for £1000, an offer which Hyde declined. On 6 June 1840 Wrench wrote to Hyde's agent offering to sell the farm for £1000, stating that it was the final offer and that he would not alter from it.[1] Hyde offered £950 in his letter by 8 June, and after examining the offer Wrench refused to accept, and informed Hyde of this on 27 June.[2] On the 29th Hyde agreed to buy the farm for £1000 without any additional agreement from Wrench, and after Wrench refused to sell the farm to him he sued for breach of contract.[2]
Lord Langdale's judgement read:
"Under the circumstances stated in this bill, I think there exists no valid binding contract between the parties for the purchase of this property. The defendant offered to sell it for £1000, and if that had been at once unconditionally accepted there would undoubtedly have been a perfect binding contract; instead of that, the plaintiff made an offer of his own, to purchase the property for £950, and he thereby rejected the offer previously made by the defendant. I think that it was not afterwards competent for him to revive the proposal of the defendant, by tendering an acceptance of it; and that, therefore, there exists no obligation of any sort between the parties.[2]"
Ref:
Hyde v Wrench 1840. Available from:
http://en.m.wikipedia.org/wiki/Hyde_v_Wrench#Judgment
Duty of Care -
On the second issue of 'duty of care' between Jenny and Mr King, Jenny has erred on her part in carrying out her duty of care towards Mr King. Mr King is her principal, therefore Jenny should safeguard his interest, rather than turning away to a third party for a better deal. She has 'conflict of interest' with the presence of third party, and should have disclosed her position to the third party and Mr King that she was working for both of them.
In such case, she should have concluded the counter offer from Mr King with Zakaria before she embarked on negotiating with a third party. Upon refusal of the counter offer from Mr King, Jenny should gave notice to Mr King before talking to Zakaria on the offer of RM535,000 from the third party.
Mr King can report Jenny's negligence of 'duty if care' to her Estate Agency Firm to claim for damage and/or report her offense to The Board of Valuers, Appraisers and Estate Agents Malaysia (LPPEH) for a fine on her wrong doing under her registered agent. As the transaction is RM535,000. Jenny would have gained a 3% commission from this transaction, ie RM16,050. Thus, this sum would be taken off from her to compensate Mr King.
Normile v Miller 1985 -
However, Jenny can defend her case with citing of Normile v Miller 1985. In this case, there were two bidders for the same property on sale by Miller. Normile was bidding at a price offer which he gave until tomorrow 5:00pm. However, after having received Normile's offer, Miller made changes and counter offer back to Normile. Normile however, did not response. Meanwhile, another bidder Segal who was represented by the same broker, was also counter offering separately. The owner Miller chose to sell the property to Segal. Thereafter, the real estate broker informed Normile that the counteroffer had been revoked by stating “you snooze, you lose; the property has been sold.” and Normile sued. His contention being that the contract he offer to bid with Miller was still in force, and by selling the property to Segal, Miller had breach the contract. Prior to 5:00 p.m. on August 5, Normile initialed Defendant’s counteroffer and delivered it with the earnest money deposit. However, Normile and Segal filed separate actions, which were consolidated. The trial court granted the Segal’s motion for summary judgment.
Held. There is not an enforceable contract between Normile and Miller to purchase the property. When a potential purchaser submits an offer to the seller and the seller makes changes to the offer prior to signing, it is generally referred to as “qualified or conditional acceptance.” The type of acceptance is a counteroffer and functions as a rejection of the original offer submitted by the potential purchaser. In the present case, because Defendant Miller changed terms of Normile’s offer, Defendant did not accept Normile’s offer. In fact, Defendant’s counteroffer actually operated as a rejection of Normile’s offer.
So, if a counter offer is a notice of rejection to the original offer, there being no obligation to go back to Zakaria as there is no need to continue the original contract, as it is no more in effect. Hence, as long as there is any third party who come along with a bid higher than Mr King's, Jenny owes no binding contract to Mr King in the original contract of RM550,000. Jenny would have told Zakaria of the two counter offers and Zakaria would have chosen the counter offer of RM535,000 rather than RM525,000.
Jenny could argue that she has presented the two counter offers to Zakaria, as she owes to both principals equal 'duties of care' and Zakaria chose without her influence.
Ref:
Own account with reference to Normile v Miller 1985, available from:
http://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-knapp/reaching-agreement-the-process-of-contract-formation/normile-v-miller/2/