YU TAI HING LAND AGENCY LIMITED v. LEUNG WING YIN

IN THE COURT OF APPEAL

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JUDGMENT

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Power, J. delivered the judgment of the court

1. The respondent plaintiffs, Yu Tai Hing Land Agency Limited, are real estate agents. The appellant defendant, Leung Wing Yin, is a partner, together with three others, in a restaurant situated in Hennessy Road. The premises ("the premises") which gave rise to this dispute are situated next door to that restaurant at ground floor to third floor of 93-97 Hennessy Road. The premises became vacant towards the end of 1985 and on the 4th of November, the appellant and her three partners went to see a Mr Woo Pui-tong of a firm known as Collective Nominees who act as rent collectors for Mr Law Shiu-chun, the owner of the premises, with a view to renting them. Mr Woo took the party to see Mr Law and a discussion took place in which a rent of $90,000 per month exclusive of management fees and rates was mentioned. No agreement was reached.

2. On the 6th of November, the appellant and her partners saw Mr Woo again and she told him, according to his evidence, that "she agreed with all the terms".  Mr Woo then took them to see a Mr Dominic Sham Heung-kuen,the assistant manager of the plaintiff estate agency. It appears that Collective Nominees acts as the rent collection. agency for Mr Law and that the plaintiff acts as his letting agent. The firms and Mr Law are, however, intimately connected as "the boss" of both firms is Mr Law's elder brother. Mr Woo said in his evidence that he "told Dominic Sham that both parties had discussed and agreed the terms for the premises and asked him to prepare a contract - a tenancy agreement in fact." The witness went on to say that some documents were signed and that a deposit of $45,000 was paid by cheque in favour of Collective Nominees Limited.  It appears that this cheque was mistakenly made out in that name by the defendant. It should have been in the name of the plaintiff.  In the outcome the trial judge was satisfied that the cheque was received and accepted by Mr Sham and that the plaintiff, if the defendant was found to be entitled to the return of the money, was precluded from denying its liability in relation thereto on the ground that it was not made out in its favour. This witness went on to say that on the 6th of November, the defendant had agreed with all the terms.

3. Mr Dominic Sham pave evidence saying Mr Woo brought the defendant and her three partners to see him on the 6th of November and told him that they had discussed and agreed upon the terms for letting premises. He asked me to put in writing what they had "discussed and agreed on". He went on to say that he then did so on "a form - a document which we usually use".  The use of this form, which may well have not been appropriate to the situation then obtaining between the parties, has given rise to the difficulties which resulted in this action.

4. It is a form letter which the plaintiff sends to prospective tenants setting out the terms for a lease which the landlord would be prepared to consider upon application being made in those terms by the signing and returning of the letter within three days together with a booking fee. It expressly states that the negotiations are "Subject to Formal Contract." The letter would clearly be an appropriate one to be sent when the estate agent had no authority to agree or when he was setting out terms which varied from those to which he had authority to agree but it is not appropriate to cover the circumstances sworn to by the plaintiff's witnesses. The case for the defendant is that this form letter is so imprecise and uncertain that it does not constitute any concluded agreement. The case of the plaintiff might, not without some difficulty it is true, have proceeded upon the basis that there was a concluded oral agreement arrived at on 6th November which was evidenced by the terms of the letter and that the statements therein, inconsistent with there having been such a concluded agreement, were contrary to the intention of the parties and should be treated as surplusage. That has, however, never been the plaintiff's case. At the trial it was submitted that the relevant agreement was that arrived at on or about the 15th November and it has been submitted that the relevant agreement was a very restricted one that can be spelt out from Term 18 of the form letter and from the opening passage thereof.

5. The form letter states in its opening passage "With reference to the recent discussion with you regarding a proposed tenancy of the above premises, we write to confirm that our client prepare (sic) to consider an application from you for a tenancy, subject to formal contract, in accordance with the following terms and conditions".

6. The letter contains 20 terms. Term 1 details the premises. Term 2 names the landlord - Mr Law Shiu-chun. Term 3 states that the tenant is "to be confirmed later, it will be a newly established limited company". Term 4 sets out the term of the lease as five years with an option to renew for a further 2 years. Term 5 fixes the commencement late as the lst December 1985. Term 6 specifies a monthly rental of $90,000, to increase to $117,000 for the fourth and fifth year and to $152,100 for the sixth and seventh year Terms 7 and 8 set out that the rates and management fees are to be paid by the tenant and Terms 9 and 10 state that the rental deposit and the management fee deposit are to be equivalent to two months payments. Term 11 states that there will be no other deposits. Term 12 states that the premises are for commercial use. Term 13 states that stamps and legal fees were to be borne by the landlord and tenant in equal shares. Term 14 states that there will be one month commencing from the 1st December 1985 rent free period and that all rates, management fees and utility charges during that period were to be borne by the tenant. Term 15 states that the temporary electricity supply for decoration purposes is to be paid by the tenant. Term 16 states that the debris removal from decoration is to be done at the cost of the tenant. Term 17 states that written consent has to be obtained from the landlord before any decorations, alterations or fitting out is done Term 18, the meaning and effect of which is in issue, states "Interim deposit : Upon signing of this confirmation the tenant should pay a sum of $45,000 as interim deposit for renting the said premises.  This sum shall be deducted from the rental deposit as mentioned in item (9). The tenancy agreement should be executed at Amelia Cheung & Co. Solicitors, on or before 30th November 1985, failing which the interim deposit and the further interim deposit hereinafter mentioned now paid would be forfeited and this confirmation shall be treated as null and void by all parties concerned." Term 19 fixes the take-over date at the 15th November 1985 and Term 20 states that the tenant should pay a further interim deposit of $142,200 on or before that date.

7. The letter concludes "Please confirm your acceptance of the above by signing and returning the attached copy of this letter together with your cheque for the booking fee within three days from the date hereof". The letter was signed by Mr Sham on behalf of the plaintiff and it was signed by the defendant under the words "Confirmed and accepted by the tenant".

8. The letter in its terms does not do what Mr. Woo and Mr Sham suggested it was intended to do, i.e., in the words of Mr Sham "put in writing what they had discussed and agreed on".  The letter as phrased is no more than an offer by the owner through his agent to consider an application made to him in the terms set out therein. It would normally be followed by an indication from the owner that he was prepared to enter into a tenancy agreement on those terms and that the matter would finally be concluded by the execution of the lease,

9. The term "booking fee" used in the final sentence of the letter is not appropriate. There is, however, no argument that it refers to anything other than to the interim deposit referred to in paragraph 18.

10. Whatever the parties thought their legal relationship to be, sometime prior to the 15th of November, when further interim deposit was due to be paid, the defendant asked that the date for payment be extended to the 20th and that the rent free period be extended.

11. After negotiation Mr Sham issued a further letter dated 15th November which the defendant again signed stating that she "confirmed and accepted" its terms. This letter stated that there would be rent free period of three months from the take-over date of the 15th of November and that the further interim deposit must be paid on or before the 20th November 1985. It also stated that "the tenancy agreement should be executed at Amelia Cheung  & Co. Solicitors, on or before 30th November, 1985, failing which the interim deposit of $45,000 paid by you and the further interim deposit of $142,200 to be paid by you on the 20th November 1985 shall be forfeited and confirmation letter dated 6th November 1985 and this supplemental letter shall be treated as null and void by all parties concerned". The letter said, finally: "Save and except as varied as above, all the other terms and conditions as stated in the said confirmation letter shall remain the same". The defendant on the 15th November handed over a cheque for $142,200 which was post-dated to the 20th November. This cheque, when presented, was dishonoured and it is the subject of the plaintiff's action.

12. At some time after the 20th November, the defendant sought the advice of Hampton, Winter & Glynn, Solicitors who, on the 28th November, wrote a letter to Amelia Cheung, Solicitors, which stated, inter alia, that the payment of the further interim deposit would be made at the time of the execution of the tenancy agreement.

13. On the 3rd December Amelia Cheung replied, in a letter headed "Subject to Contract", enclosing a draft tenancy agreement and stipulating that it must be signed by the 7th of December. The letter made no comment on the stipulation that the further interim deposit would be paid on execution. The letter also stated that their client was not bound to rent the premises unless the tenancy agreement was signed and returned. On the 6th of December, Hampton, Winter & Glynn wrote proposing certain amendments to the tenancy agreement. On the 9th of December, Amelia Cheung by letter agreed to these amendments and enclosed the tenancy agreement in duplicate. This letter was also headed "Subject to Contract".

14. On the 18th of December, Amelia Cheung wrote saying that unless the tenancy agreement was executed by the 20th, their client would "forfeit the deposit already paid" and would not lease the premises.

15. On the 20th of December Hampton, Winter & Glynn wrote seeking to renegotiate the rent. This request was rejected by Amelia Cheung on the same day by a letter which extended the time for execution of the tenancy agreement to the 23rd of December.

16. On the 24th of December, the lease not having been executed, Amelia Cheung wrote, saying that their client "exercised his right to forfeit the booking fee of $45,000 as well as the deposit of $142,200".

17. The plaintiff then took action to recover the amount of the dishononred cheque.  In his defence the defendant pleaded "that the cheque was made payable to and was received by the plaintiff in the plaintiff's capacity as agent for one Law Siu-chun ("the landlord") in pursuance of an agreement in writing contained in the plaintiff's letter of the 6th day of November 1985, signed by the defendant and by the plaintiff (again as agent for the landlord), as varied by a further letter of the plaintiff dated the 15th November 1985, signed as previously.  The defendant will refer the trial hereof to the said letters for their full terms and effect". The defendant went on to plead that "the said agreement was not intended to create legal relations and/or was not legally binding upon either party since it was made expressly subject to formal contract. No formal contract has ever been entered into, as contemplated by the said agreement or at all" and that the "agreement was wholly unsupported   by consideration from the plaintiff or his principal and that the defendant is therefore not liable upon the said cheque". The defendant also pleaded that clause 18 was unenforceable as it provided for a penalty.

18. The defendant in a counterclaim sought the return of the sum of $45,000 that had been paid on 6th November on the grounds both that there was no consideration for the payment thereof and that it was a penalty.

19. The plaintiff, in reply, pleaded a partly oral and partly written agreement entered into between the plaintiff and the defendant "on or about the 15th November 1985" whereby the plaintiff had agreed to let the premises to the defendant.  It pleaded that the written part of this agreement was evidenced by the letter of the 6th November 1985 which was described as "a written proposal for a tenancy", the letter of the 15th November 1985 and the cheque dated the 20th November 1985. The plaintiff relied, in particular, upon the statement in the letter of the 15th November 1985 which expressly provided, that, the "sums of $45,000 and $142,200 being interim deposits would be forfeited to the plaintiff should the defendant fail to execute the tenancy agreement on or before the 30th November 1985." The plaintiff denied that they were liable to return the $45,000.

20. Mr Ho, who appeared for the plaintiff at the trial and who appears before us with Mr Tang, Q.C., stated at the trial that the letter of the 6th November was not being relied upon as constituting a binding contract but was only an invitation to treat.   He relied squarely upon the agreement which he said was primarily evidenced by the letter of the 15th November. Mr Sarony who appeared for the defendant at the trial argued that there was a complete failure of valuable consideration and that the defendant was therefore not liable on the dishonoured cheque.

21. The trial judge does not appear to have been satisfied that any consideration for the dishonoured cheque flowed from the plaintiff pursuant to the agreement of 15th November. He held that it was sufficient if consideration flowed from a third party and held that the consideration had come from the landlord and was to be found in the fact that to his detriment he reserved the premises for the defendant between the time of the handing over of the cheque and the time when the lease agreement should have been executed.

22. As for the cheque for $45,000, he found that, although it was made out to Collective Nominees Ltd., it was accepted by the plaintiff's representative as payment of money due to them and was satisfied that the plaintiff could not "turn around and say he is not liable on it because it was not made out in his favour". The judge was satisfied that this amount was paid in anticipation of a final agreement and that, until that agreement was executed, the defendant was entitled to recover it. He gave the defendant judgment in the sum of $45,000.

23. It appears that Mr Ho, in his closing address, suggested that there was a further oral contract that the payment of the interim deposit was to give the defendant a period up to the 30th of November in which to decide whether to accept the proposed tenancy.

24. Although the judge refused to entertain this argument because it had not been pleaded he came, in the end, to hold for the plaintiff, as regards the dishonoured cheque, upon the basis, which had also not been pleaded, that the consideration was that the landlord had reserved the premises for the defendant.

25. Mr Sarony submitted to this Court, as he had to the trial judge, that there was never any binding agreement between the plaintiff and the defendant and that, whatever the parties may have thought, the conversations and the letters of the 6th and 15th of November did not bind either side. He submitted, given this, that the money must be regarded as earnest money paid to the plaintiff as a middle man to be held by him pending the execution of the lease and that, when the lease was not executed, the defendant was entitled to the return of that money. He submitted that the learned judge was right in finding that the $45,000 should be returned to the defendant and was wrong in holding that there was consideration for the issue of the cheque for $142,200.

26. Mr Tang raised for the first time in the hearing before this Court the argument that the consideration for the payments required to be made by clause 18 of the letter of the 6th November, was the statement by the landlord that he was prepared to consider the application for tenancy. He submitted that clause 18 and the opening paragraph of the letter constituted a contract sufficient in itself and that the fact that the letter itself was only an invitation to treat in no way affects the enforceability of that contract. He asked this Court to find that there was a contract in which the plaintiff said: "In consideration of your undertaking to pay the interim deposit and a further interim deposit and to agree that they will be forfeited if the tenancy agreement is not executed, I am prepared to consider an application from you in the terms set out in my agent's letter of 6th November 1985."

27. This was the first time such an agreement had been suggested. However that may be, the plaintiff has now advanced this argument without objection from the defendant and we will proceed to consider the argument upon its merits.

28. Mr Tang cited Chillingworth v. Esche⁽¹⁾ to establish the proposition that the terms and conditions of the contract establish in any particular case whether or not a deposit is returnable. We have no hesitation in adopting that as a correct statement of law and turn to look at the suggested contract in the present case. What we must ask is whether, in the circumstances, there was valuable consideration. Does the offer y an owner to consider an application by a prospective tenant in terms which have been outlined to the tenant by the owner's agent constitute valuable consideration. We are satisfied that it does not. There is no detriment to the owner nor is there in any real sense an advantage to the prospective tenant. The prospective tenant does no more than make an offer in terms approved by the owner. We do not consider that any valuable consideration arises when an owner seeking tenants says that he will consider offers. We also have the grave doubts that a separate and distinct contract as suggested can in fact be spelled out from the documents in the circumstances as they then stood.  For these reasons the plaintiff fails in this argument.

29. Mr Tang further argued that there was consideration for both the payment of $45,000 and for the dishonoured cheque in the plaintiff's having, at the implied request of the defendant, not put the property on the market while pending the execution of the lease. This was much the same consideration, although differently stated, as was found by the judge. Mr Tang referred to Crears v. Hunter⁽²⁾ arguing that the plaintiff did not advertise pending execution of the lease and that his forbearance to advertise must be considered in the same light as the forbearance to sue by the plaintiff in Crear's case. That decision, however, makes it clear that, where there is no express promise to forbear, actual forbearance is sufficient only if coupled with an implied request. Lindley, L.J. at 346 said:-

There must, it is clear, be evidence of an implied request.

30. It is true that it was stated in evidence that the plaintiff did not advertise after the 6th of November.  We can find, however, no evidence of any implied request in that regard by the defendant Further, it was never pleaded that the owner or the plaintiff when not advertising were doing so in response to an implied request. We are satisfied that there was no forbearance to advertise at the request, express or implied, of the defendant.

31. Mr Tang finally submitted, citing Poolway Ltd. v. Abdullah⁽³⁾, that consideration for both cheques arose, firstly, from the fact that the plaintiff had been prepared to accept a cheque rather than cash and, secondly, from the plaintiff's warranty to the defendant of its authority to sign the agreement and, with regard to the second cheque, to receive he cheque payable to itself as named payee in diminution of the defendant's obligation to pay the full amount of the purchase price to the landlord. We are satisfied, and a reading of the case cited supports our view, that consideration comes into existence, as regards the first submission, only when the cheque is given in payment of a legal obligation and, as regards the second submission, only when the agreement gives rise to an enforceable obligation. There being no enforceable agreement and no debt due thereunder, no consideration could flow from the plaintiff to the defendant.

32. We are satisfied that there was no consideration for the dishonoured cheque and that the plaintiff is not entitled to judgemnt thereon. As to the counterclaim, we are also satisfied, accepting the trial judge's finding that, although the cheque was made out to Collective Nominees Ltd., Mr Sham received it on behalf of the plaintiff, that the plaintiff is liable, given that there was no consideration, to return the $45,000 to the defendant.

33. The appeal is allowed and the judgment for the plaintiff in the court below set aside.   The cross-appeal of the plaintiff is dismissed. The appellant is entitled to her costs here and of the trial.

(1)    [1924] 1 Ch. 97

(2)    [1887] 19 Q.B.D. 314

(3)    [1974]1 W.L.R. 493