Real estate agency standard contracts must comply with consumers laws
A recent judgement delivered in a lawsuit concerning estate agency fees upheld the prevalence of good faith and consumer protection over the contents of the signed agreement. Contracts are not to be merely applied at face value. In the interpretation and implementation of contracts, it is the parties’ intention that counts. While it is generally held that a contract is a reflection of the parties’ intentions, this is not always the case. There may be contracts that are unclear, which may contain clauses that do not reflect a party’s intentions, or others which one was not even aware of.
In Excel Homes Real Estate Ltd vs. Martin Pace et decided by the First Hall of the Civil Court last September, the plaintiff real estate agency was not allowed to enforce its standard form contract against the client (defendant), because the Court found that this contract did not reflect the intentions of both parties. In particular, it did not reflect the intentions of the defendants who were given the impression that the scope of the agreement was one thing and not anther. It also maintained that the contractual clause invoked was invalid and unenforceable because it breached the defendants’ consumer rights as protected under Malta’s consumer laws.
Agency Agreement
The plaintiff company had approached the defendants after it learned they wanted to sell their home, asking them the price being requested, and permission to list the property on its books. The agency sent its agents to view the property the next day and asked the defendants to sign an agency agreement. The defendants had no objection to such a listing provided that this would not be a sole agency agreement, since the property was already on the books of another agency. The plaintiff agency agreed to this and the defendant signed the agreement. The agency then introduced a potential buyer to the defendants who offered the price sought. This notwithstanding, the defendants did not accept other conditions being imposed by such potential buyer, as a result of which the deal fell through. Thereafter the plaintiff demanded from the defendants a ‘commission’ for ‘estate agency services’, invoking a clause in the agency agreement which stated :
“I/we hereby appoint your company as agents to market and negotiate the transfer (by sale, exchange or other title) of the abovementioned property on the terms specified in this agreement, which terms I/We confirm to be true and exhaustive in all respects. In the event that you should introduce the abovementioned property to a purchaser, who is willing to acquire the property on the terms herein stated, and also in the case of sale and also in the cases of exchange, I/we undertake to pay your company a brokerage fee of 5% (plus VAT) of the transfer price for your services, which brokerage fee shall become due to your company on the earlier date between the transfer of the property or the date when I/we refuse your offer of the above mentioned price” .
This clause effectively meant that the brokerage fee would be due to the agency even if the offer was refused, and no sale took place. Since the defendants refused the offer made at the listed price, the plaintiff company maintained that the brokerage fee fell due, and thus sued for payment.
The defendants rejected this claim stating that the contract was null because the defendant consented to it under pressure. They also claimed, subsidiarily, that being a contract between a trader and a consumer, the provisions of the Consumer Affairs Act (Chapter 378) ought to apply, and since the above clause was in breach of such provisions (specifically articles 44 to 47 of the Act), it was unenforceable. They further pleaded that they never discussed other terms and conditions regarding the sale of the property, except after the agreement was signed, and that the agency did not explain the contents of the agreement to the defendant prior to his signing, amongst other pleas.
Pacta Sunt Servanda – the contracting parties’ intentions and good faith
The main thrust of the plaintiff company’s argument was that an agreement ought to be respected. The court delved into the matter citing extensive case-law which, inter alia, upheld this reasoning, namely that the wording in a contract reflects the parties’ true intentions and their pact, which must thus be honoured and implemented, needing no further evidence (Contra testimonium scriptum, testimonium non scriptum non aufertur). However, it also cited case-law upholding an essential element to all contracts, this being the good faith of the contracting parties, as stipulated in article 993 of the Civil Code. Citing extensively from another judgement (Anthony Schembri et vs. Aldo Busuttil et, First Hall Civil Court, 15/07/2019) the Court held that good faith must feature on both sides, and throughout their contractual relationship, even at negotiation stage. It noted that it has also been held that bad faith need not necessarily result – it would suffice if a party was prejudiced by the other’s negligence. Such a requisite entails a sense of loyalty, rectitude and fairness towards the other contracting party – a legal requisite rooted in ethical grounds.
While acknowledging that contracting parties are in duty bound to examine and understand the document to be signed, the Court commented that parties are equally obliged not to be ‘underhanded’, or disloyal, and that all contracts are to be implemented in good faith amongst the parties. It concluded that in this case such good faith was lacking on the part of the estate agency, which first lured the defendants on certain terms, placing undue pressure on them to sign, only to surprise them later with other detrimental terms of which they were unaware. The above brought into play other aspects affecting the validity of the agreement, namely the consent given, which was claimed to have been vitiated as it was induced and obtained under pressure.
“Din is-sitwazzjoni fejn il-konvenuti ġew rinfaċċati b’assikurazzjoni li biss fuq suċċess ta’ bejgħ li kienet dovuta l-kommissjoni, imbagħad jiffirmaw ftehim ta’ listing sulla faccia, li wara hu miżgħud b’kundizzjonijiet tekniċi, hija sitwazzjoni kapsjuża għall-aħħar. Frankament il-Qorti ma tqies li hawn hu applikabbli l-prinċipju li saħħqet fuqu s-soċjeta’ attriċi “imputet sibi”. Ma tistax tinvoka dan meta hi l-ewwel tiġbed in-nies lejha b’wegħda li tgħid mod imbagħad torbot il-bejjiegħa, li mhux svelti fis-suq, b’varji kundizzjonijiet tekniċi li jikkontradixxu l-ewwel offerta/introduzzjoni tagħha. Din l-attitudni tinduċi faċilment għal iżball u tpoġġi l-bona fede marbut mal-konvenzjoni fid-dubbju!”
Pacta Sunt Servanda – except for Unfair Contracts
On the basis of the pacta sunt servanda principle, agreements must be kept and ought to be applied, and are not subject to interpretation. It is only where the agreement is lacking to the point that the parties’ intentions are unclear, or where circumstances later emerge which were not properly catered for in the contract, that interpretations are warranted. This case presented one such scenario, leading the court to attempt an interpretation by delving into the parties’ intention behind the agency agreement.
Consumer rights cannot be trampled on
In the Court’s view the defendants were consumers, given that the agency was a trader that had engaged with the defendants in its line of business. Accordingly, the Court had to examine the standard agency agreement from a consumer affairs standpoint. It found that apart from lacking good faith and the required free consent, mentioned above, the contract was also flawed since it contained conditions which ran counter to the dispositions of the Consumer Affairs Act (Ch. 378), in flagrant breach of the defendants’ rights as consumers.
The defendants invoked articles S.44 to 47 of Ch. 378 which essentially prohibit ‘unfair terms’ in consumer contracts. In particular article 44 (2) ‘g’ prohibits a clause or condition “requiring a consumer who fails to fulfil his obligation, to pay to the trader as compensation a sum which is disproportionately high to the value of the goods or services purchased or hired;” The defendants also resorted to article 44 (2) ‘m’ which considers as unfair a term which is “irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract”.
Reference was made to another judgement delivered by the Court of Appeal (Inferior) in F Advertising Limited vs Anthony u Mary Rose konjuġi Tabone (App, Inf, 9/1/2009), which maintained that the Court must not only look out for any imbalances or unfair terms in favour of the trader, but also for other circumstances which may have placed the consumer at a disadvantage :
“M’ghandux lanqas f’dan l-ezercizzju jintilfu di mira certi cirkustanzi partikulari li jkunu ezistew fil-mument tal-kontrattazzjoni. Ad ezempju, il-kondizzjoni ta’ inferjorita` negozjali u, ghaliex le, anke kulturali, talkonsumatur, il qaghda soggettiva li jkun jinsab fiha fil-waqt talkonkluzjoni tal-ftehim – certa urgenza li jottjeni s-servizz jew ta’ xi stat illitterat tieghu, jew, ukoll, dak ta’ l-affidament li jkun ghamel fuq il-kummercjant. Dawn huma whud biss mill-elementi li gudikant, f’kazijiet ta’ din ix-xorta, jista’ jiehu in konsiderazzjoni. L-illustruzzjoni taghhom hi biss ezemplikativa u ma jfisserx li l-lista hi ezawstiva.”
It is for the Court to determine which expressions or terms proved to be unfair and disproportionate to the point that they create an imbalance in favour of the trader to the detriment of the consumer. This obliged the court to look at the facts of this case through the lens of Chapter 378, and specifically the above-quoted articles.
In considering article 44 (2) ‘g’ the Court maintained that the contract was indeed unfair because it provided a compensation that was by far disproportionate to the service carried out by the agency, and which the no consumer would have willingly accepted to pay (“tenut kont ta’ dak li l-verita’ għamlet l-attriċi qua xogħol waqt it-trattativi bejn il-bejjiegħa u x-xerejja, u li fil-fatt ma wasslet biex ikkonkludiet qatt dan in-negozzju, lanqas sal-punt tal-konvenju, u dak li kienet tkun dovuta kieku għalqet dan in-negozju, tqies li s-somma minnha mitluba twassal għal sproporzjon konsiderata s-servizz offrut”).
The Court also found the contract in breach of article 44 (2) ‘m’ because the defendants were overpowered by the estate agents of the plaintiff company, who outnumbered them, and presented them with an agreement there and then. In so doing the defendants were denied a fair chance to read and understand the contents and repercussions of such an agreement, so that they had “no real opportunity of becoming acquainted before the conclusion of the contract”.
The defendants were assisted by Dr. Peter Fenech of Iuris Advocates