Domestic Sales of Real Estate Properties - Essay Example

? Commercial Law – Domestic Sales of Real E Properties ID Number & Total Number of Words: 2,999 Introduction Commercial law is defined as “the law governing commercial transactions including all forms of trade or business”1. In most cases, commercial law serves as the legal basis used that can be applied to business people who are engaged not only in the field of commerce but also in trading, sales, and merchandising practices. Aside from determining the acceptable conduct when establishing a business relation with another person or a company, commercial lawyers are using the commercial laws in regulating not only the corporate contracts but also the hiring practices of the companies, the manufacturing process of goods, and the actual sales of the consumer goods, or the contracts for the international sale of goods (CISG)2, 3. For example, with regards to the commercial practice in UK, the “generally accepted standards of practice” (GASP) is often used as a legal guideline when drafting contracts between or among the merchants4. With regards to the sale of goods, either the “Sale of Goods Act” or the “Supply of Goods and Services Act” can be applied in commercial law5. With regards to consumer protection, the Consumer Protection Advisory Committee (CPAC) together with the Department of Trade and Industry (DTI) in UK requires the companies and business people to observe the guidelines stipulated under the “Fair Trading Act”6. As defined by Millett MJ, fiduciary “is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”7. Therefore, “fiduciary duty” is the legal term used to describe the legal obligation of a fiduciary to consider the best interest of another person or group of parties involved. Within this context, fiduciary could result in the development of trust that one party gives to another person as both parties enter into a business dealing or contract. For instance, in any given business transaction, the sellers of various goods and services such as in the case of real estate agents have the fiduciary duty to be honest in delivering the right quality products and services owed to the buyers based on the agreed market price, quality and quantity8. In case of a sole proprietor, it is directly the seller who usually owes fiduciary duty to his buyer. In case of small and medium enterprises or a mutlinational companies, it is usually the board of directors who owes direct fiduciary duties to the affected parties. It means that fiduciary duties of the board of directors should focus on the best interests of the company9. When discussing issues related to fiduciary duties, uncertainties often arises when determining the extent in which a company or entreprenuers owe their fiduciary duties to other people. For instance, in response to the case of Hendersen v Merret Syndicates Ltd.10, Lord Browne-Wilkinson mentioned that “the phrase ‘fiduciary duties’ is a dangerous one giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. That is not the case… Moreover, and more relevantly, the extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties”11, 12, 13. Considering the statement made by Lord Browne-Wilkinson, this essay will seek to prove that not all fiduciaries will have the same level of duties in all circumstances. As part of going through the main discussion, this essay will identify and discuss several true-to-life cases to prove that the legal obligation or the extent and nature of the fiduciary duties owed to another person or group of parties involved is mostly determined by the reference to any underlying contractual relationship between the parties involved. Discussion In the case of Hendersen v Merret Syndicates Ltd.14, Lord Browne-Wilkinson mentioned that it is “a mistaken assumption that all fiduciaries owe the same duties in all circumstances”15, 16, 17. After reading some books and other related articles, the statement made by Lord Browne-Wilkinson can be clearly explained upon examining the true nature of fiduciary duties. First of all, it was mentioned earlier that the term “fiduciary” is all about the trust that one party gives to another person as both parties enter into a business dealing or contract. Because of trust, people who are engaged in business tend to develop a better and stronger business relationship. Under the UK common law, fiduciary duties are mostly determined by the specific terms and conditions that are clearly written in a contract18, 19. With this in mind, the problem with developing fiduciary relationship is that commercial or business law does not consider such relationship alone as the basis for any future legal punishment or consequences20. It means that in the absence of a business contract that clearly identiy and state the exact duties that are expected to be delivered out of a fiduciary relationship, people who failed to receive fiduciary duties from the person who owes the duty may have a lesser chance of winning the case. According to Millet LJ, “not every breach of duty by a fiduciary is a breach of fiduciary duty”21, 22. To prove that the legal obligation or the extent and nature of the fiduciary duties owed to another person or group of parties involved is mostly determined by the reference to any underlying contractual relationship between the parties involved, it is best to take a look at the case of Bristol and West Building Society v Mothew23. Before the housing bubble in August 1988, Mothew acted as the solicitor to the buyers of a house in Romford. At the selling price of ?73,000, the West Building Society was in agreement to extend the loan value of ?59,000 to the buyer. The remaining ?14,000 was paid by the buyers using their own money. Eventually, misunderstanding between the buyer, the West Building Society, and Mothew happened when the Barclays came in the picture. In exchange of the ?3,350 loan made with the bank, an agreement was made that a second charge should be made to Barclays. Although Mothew was aware of such arrangement, he failed to discuss the issue with the West Building Society. When the buyer failed to pay the loan to the West Building Society, the company regained its right to the property which was eventually sold at ?53,000. Because of the ?6,000 loss, the interest and other expenses, Mothew was legally sued by the West Building Society for grounds of negligence, breach of trust, and breach of contract. However, the court did not completely accept all the arguments made by the West Building Society for the reason that the West Building Society gave Mothew the authority to pay the money upon the purchase completion24. Since the West Building Society failed to put in some conditions to the authority given to Mothew, the Court concludes that Mothew is not guilty of breaching trust. In other words, Mothew was found guilty only on the grounds of breaching his contractual and fiduciary duty by not being able to inform them about the second charge but not on breaching trust. Fiduciary duty means that fiduciary should avoid having a conflict between their own interest and the clients25, 26, 27. In the case of real estate agents, this group of sellers is strictly required to avoid not only actions for another person whose personal interests are conflicting with the sales agents’ clients28. Several previous cases also suggest that real estate agents should avoid developing an interest in their clients’ property29. According to Millett LJ in the case of Logicrose Ltd v Southend United Football Club Ltd., the personal interests of the buyers and sellers are conflicting with one another30. For this reason, it is also not advisable for real estate agents to act on both the buyers’ and sellers’ personal interest under one transaction31. The case of Kelly v Cooper is all about the commission behind the selling of a house32. As a defendant, Cooper was an estate agent. In 1993, Kelly agreed to Cooper that he will pay him commission upon selling his house. Without telling Kelly, Cooper also agreed to sell Kelly’s neighbour’s house in exchange of a commission. When Cooper was trying to sell both house to a prospective buyer, Kelly heard from the prospective buyer that Cooper was trying to sell him both his house and Kelly’s neighbour’s house. For this reason, Kelly legally sued Cooper for the damages caused by breaching his duty of not telling him about his intention to sell his neighbour’s house. In many other real estate agent cases such as the Blackham v Haythorpe33, a real estate agent is legally allowed to breach his duty or be in a situation whereby his own interest matters provided that the real estate agent was able obtain informed consent to their clients. In line with this, the case of Lowther v Lord Lowther strongly suggest that informed consent can be satisfied if the real estate agent has been frank and honest with regards to the price wherein the buyers are willing to pay34. Furthermore, the case of Grantwell Pty Ltd v Franks show that informed consent should also include the actual valuation or real value of property he or she is selling to his or her client35, 36. However, such policy does not literally apply in the case of Kelly v Cooper. Since there was no written contract that could oblige Copper to disclose any information with regards to his business with other clients, Cooper was legally set free to assist other clients in selling their houses. Furthermore, there was no written contract stating that Cooper is legally prohibited from helping other clients sell their houses in exchange of a commission37. For these reasons, Kelly lost the case over Cooper. In reality, not all real estate agents or contractors are free to enter and participate in a two-tier marketing transaction. To prove that breaching the fiduciary duties are highly dependent on a case-to-case basis, it is necessary to take a closer look on other similar cases. For example, similar to the case of Kelly v Cooper, the case of Daly v Sydney Stock Exchange Ltd38 and Lintrose Nominees Pty Ltd v King39 are good examples showing that informed consent is not necessarily applicable to real estate agents who are acting for the potential buyers within the same real estate transaction that has no consent. Particularly in the case of Dargusch v Sherley Investments Pty Ltd, informed consent given by the real estate agent who are acting for a buyer should not be limited to the act of informing the buyer about the maximum price that the buyer should be paying for the property40. Rossetti Marketing Ltd v Diamond Sofa Co Ltd41 is a good case example wherein both parties decided to enter a contract dealing wherein the Diamond appointed Rossetti to become its sole agent that is responsible for placing orders on behalf of Diamond among its accredited retailers in UK and Eire. The Diamond legally sued Rossetti after learning that Rossetti has been acting for competitors even after Rossetti was appointed by Diamond to be its sole contracting agent. Even though there were no written contract stating the Rossetti could act for the benefit of other companies that are directly competiting with Diamond, the Court of Appeal approached this particular case by determining whether or not Rossetti had given his full information about his plan to act for competitors and whether or not Diamond was able to give Rossetti informed conset to such act. On the grounds that Diamond was able to give Rossetti a full informed consent about acting for competitors and in consideration of the Commercial Agents Regulations, Rossetti was found guilty of breaching his fiduciary duty by acting for the competitors. In the case of Fullwood v Hurley42,, the real estate agents are required to disclose their secret commission or profit to the principal in order to fully satisfy the principles of informed consent. It means that the real estate agents who failed to observe full disclosure of their secret profit or commission is already a breach of fiduciary duty to their client and is a legal basis wherein the real estate agents could be legally sued for ciminal liability43. In line with this, Lord Russell in the case of Boardman v Phipps44 clearly explained that real estate agents can be held legally liable when proven guilty of failure to disclose secret profit, commission, or accept bribe in a transaction. If this concept is applicable to all real estate agent cases, then Mothew in the case of Bristol and West Building Society v Mothew45 should have been made liable for breaching his fiduciary duty to the West Building Society. However, instead of making Mothew liable for breaching his fiduciary duty to the West Building Society, Millet LJ publicly announced that “not every breach of duty by a fiduciary is a breach of fiduciary duty”46, 47. Upon exploring and analysing the differences wherein each and every real estate cases were being considered in the court strongly suggest that the legal obligation or the extent and nature of the fiduciary duties owed to another person or group of parties involved is mostly determined by the reference to any underlying contractual relationship between the parties involved. For this reason, Lord Browne-Wilkinson in the case of Hendersen v Merret Syndicates Ltd.48 stated that “the phrase ‘fiduciary duties’ is a dangerous one giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances”. Conclusion “Fiduciary duty” is pertaining to the legal obligation of a fiduciary to consider the best interest of another person or group of parties involved. As a general rule, fiduciary are expected to perform their duties at the best interest of the clients49, 50. By creating a conflict of interest between the fiduciaries and their clients, fiduciaries can be legally sued by the other parties for the ground of breaching their fiduciary duties as business professionals. Specifically the case of Bristol and West Building Society v Mothew51 is a good example wherein claimants who legally sue other people for the ground of breaching a fiduciary duty that is purely based on a business or contractual relationship is not a legally strong ground to allow the company to legally recover their business loss. To enable the West Building Society recover its financial loses, the company should appeal to court using some equitable principles52. In the case of Kelly v Cooper, the Court clearly explains that breach of fiduciary duty should be based on a written contract53. Without a clear written contract, the defendant can be legally free from any form of obligation to the person he or she is transacting with. Even though a written contract can be used as a basis in determining whether or not a purchasing contractor or a real estate agent has breached their fiduciary duties to other people involved, the case of Rossetti Marketing Ltd v Diamond Sofa Co Ltd54 shows that the court of appeal can also used the principles of informed consent in determining whether or not a purchasing contractor or a real estate agent is guilty of breaching their fiduciary duties to other parties involved in a business transaction. References C Bamford, Principles of International Financial Law. (Oxford University Press 2011). S Christensen & W Duncan (2004). Professional Liability and Property Transactions. (The Federation Press 2004). D Frase, R Helm, & M Day, Practitioner's Guide to Conflicts of Interest in the Financial Services Industry. (1st Edition. Sweet & Maxwell 2012). M Lunney & K Oliphant, Tort Law: Text and Materials: Text and Materials. (3rd Edition. Oxford University Press 2008). C Mallon & S Waisman, The Law and Practice of Restructuring in the UK and US. (Oxford University Press 2011). R Rajend & N Persadie, Commonwealth Caribbean Business Law. (Cavendish Publishing 2004). C Rossini, English As a Legal Language. (1st Edition. Kluwer Law International 1998). S Worthington, ‘Fiduciaries: When is Self-Denial Obligatory?’ 500 (1999) CLJ 501. S Worthington, Commercial Law and Commercial Practice. (Hart Publishing 2003). Read More