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Commercial Litigation & Insolvency News Alert: Is your agency agreement properly signed? No contract = No commission

News Alert 04 March 2015

A recent South Australian case makes clear how important it is for agents to ensure that agency agreements, and other contracts for which they have responsibility, are properly signed.  In that case, the failure to have a contract executed correctly caused a property sale to fall over and a real estate agent to be liable for legal costs.

The case (Knight Frank Australia Pty Limited v Paley Properties Pty Limited [2014] SASCFC103) involved the purchase of a commercial property for $1.5million.  The agent obtained a contract from the vendor and passed it on to the proposed purchaser for signing.  The purchaser (a company) had two directors but only one of them signed the contract.  The Corporations Act provides that where a company has more than one director, a person is entitled to assume that the contract has been properly executed if it has been signed by at least two directors or by a director and the company secretary.

The purchaser withdrew from the transaction before completion and the vendor sued the purchaser for failing to complete and sued the agent for failing to have the contract properly signed.  The vendor was unsuccessful in its claim against the purchaser since the contract had not been signed in accordance with the requirements of the purchaser's constitution and the vendor was unable to rely on the presumption as to the execution provided for by the Corporations Act.

The vendor then argued that the director who had signed the contract acted as an agent for the company and so bound the company by his signature.  However the contract contained an execution clause for directors who were acting as agents for their companies but this clause had not been signed.  Consequently the Court held that the director had not purported to be acting as an agent of the company and was not personally liable because he never represented that he was an agent of the company.  If the director had signed the agency execution clause without having necessary authority to do so, it is likely that he would have been personally liable to pay damages to the vendor.

As the agent had been entrusted by the vendor with the responsibility of ensuring that the contract was properly signed, the agent ended up being liable for half of the costs incurred by the vendor in the proceedings.  Thus the agent not only failed to obtain commission on a sale but ended up being liable to pay legal costs to other parties.

The message for agents is:

  • Make sure that where a document is to be signed by a company it is signed by two directors (or a director and the company secretary) - unless the company only has one director who is also the company secretary, in which case that director’s signature is enough. If this occurs you are entitled to assume, pursuant to the Corporations Act, that the contract has been executed in accordance with the company's constitution; and
  • Where a contract is to be signed by one director on behalf of a multi-director company, make sure the director clearly indicates that he is signing for and on behalf of the company. If the director does not have the necessary authority from the company to do so, he or she may be personally liable for damages.

Alistair Little, Partner
Sydney

Ashley Cameron, Solicitor
Sydney

News Alert 04 March 2015
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