Paper 1 · Contract & Agency Law
Contract & Agency Law for the RES Exam
Every property transaction is a web of contracts (OTP, sale & purchase, tenancy agreement) entered into through agents. The RES exam tests whether you understand how a contract forms, when it can be undone, and what an agent is and isn't allowed to do.
Elements of a valid contract
- Offer — a definite promise to be bound on specific terms.
- Acceptance — unqualified agreement to the offer's terms.
- Consideration — something of value exchanged by each side.
- Intention to create legal relations.
- Capacity — the parties must be legally able to contract (age, sound mind).
- Genuine consent & legality — no vitiating factor (fraud, duress), and a lawful purpose.
An advertisement or property listing is an invitation to treat, not an offer — the buyer makes the offer, which the seller may accept or reject. Get this backwards and the whole formation analysis goes wrong.
Offer & acceptance, in motion
- A counter-offer destroys the original offer — the original can no longer be accepted.
- An offer can be revoked any time before acceptance (revocation must be communicated).
- An offer lapses after a reasonable time, on a stated deadline, or on the offeror's death.
- Acceptance must be communicated to the offeror, and on the offeror's terms.
Terms: conditions vs warranties
| Term | Importance | Remedy if breached |
|---|---|---|
| Condition | Goes to the root of the contract | Terminate + claim damages |
| Warranty | Minor / collateral | Damages only (contract continues) |
| Innominate | Depends on seriousness of breach | Either, depending on the effect |
Vitiating factors (what undoes consent)
- Misrepresentation — a false statement of fact inducing the contract (see below).
- Mistake — a fundamental, shared error about the subject matter.
- Duress / undue influence — consent obtained by illegitimate pressure.
- Illegality — an unlawful purpose makes the contract void.
Void, voidable, unenforceable
| Status | Meaning | Example |
|---|---|---|
| Void | No contract ever existed in law | Illegal purpose; no capacity |
| Voidable | Valid until the innocent party rescinds it | Induced by misrepresentation or duress |
| Unenforceable | Valid, but a court won't enforce it | Sale of land not evidenced in writing |
Writing requirement: under s6(d) of the Civil Law Act, a contract for the sale or disposition of land (or an interest in land) must be evidenced in writing and signed by the party to be charged — otherwise it is unenforceable. This is why property deals run through written OTPs and S&P agreements.
Law of agency — types of authority
| Authority | How it arises | Effect |
|---|---|---|
| Actual — express | Expressly given by the principal | Binds the principal |
| Actual — implied | Reasonably incidental to the express authority / usual for the role | Binds the principal |
| Apparent / ostensible | Principal's conduct leads a third party to believe authority exists | Binds the principal even if no actual authority |
An agent's fiduciary duties
- Act in the principal's best interest with loyalty.
- Avoid conflicts of interest (and disclose any).
- No secret profit or secret commission — disclose and account for all money.
- Obey lawful instructions and exercise reasonable care and skill.
- Keep the principal's affairs confidential.
Misrepresentation
A false statement of fact that induces the other party to contract. Three types, with different remedies (Misrepresentation Act):
| Type | Meaning | Remedy |
|---|---|---|
| Fraudulent | Made knowingly / recklessly false | Rescission + damages (deceit) |
| Negligent | No reasonable grounds to believe it true | Rescission + damages |
| Innocent | Honest and reasonable but still wrong | Rescission (or damages in lieu, at court's discretion) |
Remedies for breach of contract
| Remedy | What it does |
|---|---|
| Damages | Money to put the innocent party where performance would have |
| Specific performance | Court orders the deal to be completed — common for land (each property is unique) |
| Rescission | Unwind the contract, restore the parties to their pre-contract position |
| Termination | End the contract for breach of a condition + claim damages |
Agency: creation, ratification & termination
- Created by agreement, by conduct, by necessity, or by estoppel (apparent authority).
- Ratification — a principal can adopt an act done without authority, making it binding as if authorised.
- Terminated by completion of the task, mutual agreement, revocation/renunciation, or by death/incapacity/bankruptcy of either party.
Edge cases & 'what-ifs'
- Verbal deal for land — generally unenforceable; sale of land must be evidenced in writing (s6(d) Civil Law Act).
- Buyer is a minor — lacks full capacity, so the contract is usually voidable.
- Agent exceeds authority but the principal ratifies — the act becomes binding as if authorised.
- A counter-offer is made — the original offer is destroyed and can't later be accepted.
- Misrepresentation type matters — fraudulent/negligent give rescission + damages; innocent gives rescission (damages only at the court's discretion).
- Undisclosed principal — an agent acting within authority can still bind a principal whose existence wasn't disclosed.
- Duress / undue influence / unilateral mistake — can render a contract voidable.
Practice question
A seller verbally agrees to sell his condo to a buyer at an agreed price. Nothing is put in writing. The seller later refuses to proceed. Can the buyer enforce the sale?
- A. Yes — a verbal agreement is fully binding
- B. No — a contract for the sale of land must be evidenced in writing
- C. Yes, but only if there were witnesses
- D. Only if a deposit was paid
Exam takeaway
Answer: B. Under s6(d) of the Civil Law Act, a contract for the sale or disposition of land must be evidenced in writing and signed to be enforceable — which is exactly why deals run through a written OTP and S&P. (A paid deposit can sometimes help evidence a contract, but the safe, examinable rule is the writing requirement.)
▸ Landmark cases you can cite
- Carlill v Carbolic Smoke Ball Co (1893) — a clear promise in an advertisement can be a *unilateral offer* accepted by performing the act; the deposited £1,000 showed intention to be bound. (The exception that proves the 'ads are invitations to treat' rule.)
- Partridge v Crittenden (1968) — as a rule, an advertisement is an *invitation to treat*, not an offer.
- Pharmaceutical Society v Boots (1953) — goods on display are an invitation to treat; the customer makes the offer at the till.
- Hyde v Wrench (1840) — a *counter-offer* destroys the original offer, which can no longer be accepted.
- Derry v Peek (1889) — *fraudulent* misrepresentation is a false statement made knowingly, without belief in its truth, or recklessly careless whether it is true or false.
- Hedley Byrne v Heller (1964) — a *negligent misstatement* causing pure economic loss is actionable where a special relationship / assumption of responsibility exists — the direct risk for an agent who relays information.
The trap
“I just repeated what the seller told me” is not a full defence to misrepresentation. An agent who passes on a false statement of fact can still be liable — verify material claims before relaying them. Also: don't confuse an invitation to treat (the listing) with an offer (the buyer's).
Exam takeaway
For any agency scenario, ask two questions: did the agent act within authority (actual or apparent?), and did they meet their fiduciary duty (conflict? secret profit? misrepresentation?). Almost every Paper 1 agency question reduces to those two.
Apply it · the IRAC method
A salesperson secures an exclusive listing from a seller. During marketing the salesperson receives an offer from a buyer who happens to be the salesperson's own relative, and quietly encourages the seller to accept it without disclosing the relationship.
- IIssue: Has a valid contract (agency agreement) been formed, and has the salesperson breached the duties owed as the seller's agent?
- RRule: A binding contract requires offer, acceptance, consideration, intention to create legal relations, and capacity. Under the law of agency, an agent owes the principal fiduciary duties: to act in the principal's best interest, to avoid conflicts of interest, and to make full disclosure of any personal interest or benefit. The estate agency relationship makes the salesperson the seller's agent, bound by these duties and the Estate Agents Act framework.
- AApplication: The signed exclusive listing is a valid contract — the seller offered the appointment, the salesperson accepted, and consideration (the promise of service for commission) supports it. However, by promoting a related buyer's offer and concealing the relationship, the salesperson placed personal/family interest above the seller's, creating an undisclosed conflict of interest and breaching the fiduciary duties of disclosure and acting in the client's best interest.
- CConclusion: The agency contract is valid, but the salesperson has breached the duty of disclosure and to act in the seller's best interest; the relationship must be fully disclosed and the seller allowed to decide freely, or the salesperson risks CEA disciplinary action.
Worked case study · Section B style
An agent, acting beyond his actual authority, agrees a price the seller never approved. The buyer signs an OTP relying on the agent's apparent authority. • Agent exceeded actual authority • Buyer believed he was authorised
- (i) If the seller held the agent out as authorised, apparent (ostensible) authority may bind the seller
- (ii) The seller could instead ratify the unauthorised act and adopt the deal
- (iii) If neither applies, the agent may be liable to the buyer for breach of warranty of authority
- (iv) An unauthorised act can never bind the principal in any circumstances
- A.(i), (ii) and (iii) only
- B.(i) and (iv) only
- C.(iii) only
- D.All of the above
Show answer & explanation
Answer: A. (i)–(iii) are correct: apparent authority or ratification can bind the principal; otherwise the agent answers for breach of warranty of authority. (iv) is the trap — holding-out or ratification can bind the principal.
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Practise exam-style questions on Contract & Agency Law — with instant answers and explanations.
Practise Contract & Agency Law questions →Common questions
- Is a property listing a legal offer?
- No — a listing or advertisement is an invitation to treat. The offer is made by the prospective buyer, which the seller is then free to accept or reject.
- Can an agent be liable for repeating a seller's false claim?
- Yes. Passing on a misrepresentation can still expose the agent to liability; “I only repeated what the seller said” is not a complete defence. Material claims should be verified.
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