Abraham instructed Sarah, an auctioneer to sell his house auction. The sale was subject to a reserve price of Sh. 1 million. Sarah advertised the house stating that it was subject to a reserve price. However, she sold the house to her Sister Mary at Sh. 900,000. Abraham has refused to accept the proceeds and to transfer the house to Mary. Mary has demanded the transfer of the house Abraham to her.
Explain the legal position of Abraham, Sarah and Mary. (10 marks)
• This problem is based on the fiduciary obligations of an agent and the consequences of breach thereof.
• An agent is bound to act in good faith for the benefit of the principal and must avoid conflict of interest disclosure of any personal interest in contracts.
• In this case, the agent acted contrary to the principals instructions and is guilty of breach of the fiduciary obligations selling the house to a relative.
• Abraham is entitled to have the house back. In addition he is entitled to sue Sarah in damages for breach of duty. Mary is entitled to a refund of the amount paid as the sale is fraudulent as she is deemed aware of the reserved price.