Does an agent have actual, or ostensible, authority to vary contract terms?

A recent decision of the Supreme Court of Queensland, in Evans v Jan, [1] provides an important warning for agents, in their dealings with contracting parties, not to do anything to vary an essential term of the contract without express, written instructions to do so.

In this case, it was found that the agent’s dealings with the purchaser, with respect to the acceptance of the late payment of a deposit, had not been undertaken with the seller’s actual, or ostensible, authority, and, as a consequence, the purchaser’s attempt to specifically enforce the contract was rejected, and the seller’s termination of the contract upheld and the deposit forfeited.

The case turned upon whether the agent, in sending emails and text messages to the purchaser as to the late payment of the deposit, was acting within the scope of her authority.

It was ultimately found that she was not.

The facts

The plaintiff (the proposed purchaser of the property) had entered into a standard residential property sale contract to purchase a property for $985,000 from the seller (the defendant).

The contract provided for a 10% deposit of $98,500 to be paid upon entry into the contract and, beyond that, the contract was subject to finance.

The contract was signed, by electronic means, at different times, on 22 January 2024.

The action proceeded to hearing on the basis that the parties accepted the contract that had been “formed” on 23 January 2024, when the agent sent an email to the purchaser stating that the property was “under contract now” and, pursuant to the contract, the deposit was to be paid on that date.

However, the deposit was not paid, in full, until two days later, on 25 January 2024, in breach of an essential term of the contract of sale.

The seller relied upon the failure to pay the deposit on time to justify the termination of the contract.

The purchaser sought to resist the termination, and specifically enforce the contract, on the basis of his exchange of emails and texts with the agent.

In this regard, the purchaser relied on the fact that, at 9am on 24 January 2024, the day after the contract had been “formed”, the purchaser transferred $45,000 into the agent’s trust account, accompanied by the email, “Do apologise.  Deposit today and balance tomorrow.  Very sorry bank is painful to deal with”.

The agent responded, at 10.58am on 24 January 2024, in the following terms, “Ok as long as I let seller know 2 deposits today and tmr (tomorrow)”.

The balance of the deposit was finally paid into the agent’s trust account by three instalments on 25 January 2024, totalling $98,500.

However, whilst this was going on, the seller was seeking legal advice about the termination of the contract, on the basis that the deposit had not been paid on 23 January 2024, in breach of an essential term of the contract.

The contract was terminated by the seller on 28 January 2024, on the basis of the purchaser’s failure to pay the deposit on 23 January 2024.

The purchaser contended that the termination could not be justified because the agent had acted within the scope of her actual, or ostensible, authority, when dispatching text messages to the purchaser concerning the payment of the deposit in instalments, upon which the purchaser claimed that he relied.

The purchaser gave evidence to the effect that he believed that the agent had actual authority to represent the seller in all aspects of the sale – and hence, to dispatch the text messages concerning the payment of the deposit late and by instalments – because the contract of sale had not nominated any solicitors to act on behalf of the seller and given the fact that all communications to date had been with the agent, rather than the seller.

The purchaser contended that, “but for” the text messages sent by the agent –permitting the payment of the deposit, in instalments, on 24 and 25 January 2024, he would have attended at his bank, on 23 January 2024, and arranged for the payment of the deposit that day in full.

The seller’s evidence

The seller gave evidence to the effect that she had never authorised the agent to send the text messages as to the payment of the deposit late and by instalments and had never been asked by the agent to agree to an extension of time for the payment of the deposit.

Actual authority?

In contending that the agent had “actual authority” to represent the seller in the transaction and, in particular, to agree to the extension of time concerning the payment of the deposit, the purchaser argued that he relied upon the following facts, namely that:

1. the agent was appointed to sell the property;
2. the parties had agreed that the contract of sale was “formed” on 23 January 2024 on the basis of the agent’s email attaching the contract, stating that the property was “under contract now”; and
3. on the basis of the agent’s text message, in which she stated that “we would like the buyer to deposit their 10% today” (24 January 2024), which, it was contended, the seller saw and did not disagree with, so suggesting that the payment of the deposit, other than in a manner contemplated by an essential term of the contract, had been accepted by the seller.

The court rejected those arguments and held that:

“Generally, actual authority, even implied actual authority, must be found in the conduct of the alleged principal, not the  conduct of the alleged agent. To the extent that the realtor's transmission of the signed contract constituted any representation of authority, it was a representation made by the realtor, not the defendant. The same can be said about the realtor's accompanying request that, "We would like the buyer to deposit their 10% ..." The use of the plural pronoun "we" when requesting that the plaintiff pay the deposit is not indicative of the email having been sent with the defendant's (the seller’s) actual authority. The contract of sale nominated the realtor's agency as the deposit holder or stakeholder and the use of the plural pronoun is consistent with the request being made on behalf of the deposit holder under the contract. Under clause 2.2(1) of the contract of sale the deposit holder was to hold the deposit until one of the parties became entitled to it.

… the defendant’s expectation that the realtor would send the signed contract to her solicitors accorded with what the realtor did. She emailed it to the defendant's solicitors. The fact that she also emailed it to an employee of the plaintiff's solicitors and copied the plaintiff into that communication are not matters which cause me to doubt the defendant's denial that she authorised the realtor to send the contract to the plaintiff. I have no hesitation in accepting as truthful her evidence that  she did not ask the realtor to send the email to the plaintiff or anticipate that she would.” [2] (emphasis added)

The court concluded that the purchaser had failed to prove that the agent had the actual authority of the seller to send the text messages of 24 January 2024 as to the payment of the deposit late and by instalments.

Ostensible authority?

The purchaser then argued that, even if it could not be established that the agent had “actual authority” to send the text messages, the purchaser was entitled to proceed on the basis that the agent had “ostensible authority” to do so and he was justified in relying upon the agent’s “ostensible authority”.

In this regard, the purchaser asserted that the seller had held out, or represented, that the agent had authority to send the text messages, because the seller had not nominated any solicitors to act on her behalf, and the agent had sent the email on 23 January 2024 stating that the contract had been “formed” on that date and calling for the deposit to be paid.

However, the Court rejected the proposition that the agent had “ostensible authority” as to the waiver of the essential term of the contract as to the payment of the deposit and held:

“Whether considered alone or in combination, these circumstances do not establish that the realtor had ostensible authority to agree to the payment of the deposit on terms inconsistent with those provided for in the contract. The provision of the signed contract was an act done by the realtor. Her act cannot be  the foundation of any ostensible authority. Again, the email just informed the recipients that a contract had been formed and the deposit was required.” [3]

Affirmation

The purchaser then argued that the seller had “affirmed” the contract of sale after 23 January 2024, despite non-payment of the deposit, rather than terminating the contract once the deposit had not been paid on the date nominated in the contract, by the dispatch of the agent’s text messages on 24 January 2024, making alternative arrangements for the payment of the deposit late and by instalments.

The court held that the agent’s text messages could not be properly read as indicating that the seller had unequivocally decided to affirm the contract, cognizant of her right to terminate it, because the text messages dispatched by the agent could only be properly read as “contingent upon” the seller’s consent to the proposed new payment arrangements for the deposit. 

That is, the text messages were equivocal and could not be construed as consistent only with an affirmation of the contract.

Estoppel

Having failed to establish actual, or ostensible, authority, or that the contract had been affirmed by the seller, the purchaser’s estoppel case, namely that it would be inequitable for the seller to rely upon the failure to pay the deposit to justify the termination of the contract, also, predictably failed.

Judgment

The seller was successful in holding the termination of the contract, and secured the forfeiture of the $98,500 deposit, based on the fact that the deposit was not paid, as it ought to have been, on 23 January 2024, so breaching an essential term of the contract of sale.

Discussion

The result in this case is an important reminder for agents to ensure that any communication with the other party to the contract about compliance with an essential term of a contract cannot be undertaken by the agent on his or her own volition, but must be taken only after the agent has sought instructions from his or her principal as to whether, or not, the principal is prepared to enforce, or waive, compliance with an essential term of the contract, such as the payment of the deposit. 

Those instructions must be confirmed in writing.

Whilst the agent in Evans may have been acting with the best of intentions in seeking to shepherd the parties to a concluded deal, in doing so the agent cannot overstep his or her authority by purporting to vary a party’s right to insist upon strict compliance with an essential term of a contract of sale.

Read another story about property sales: Agents' entitlement to commission and more than one effective cause of sale.

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