Real Estate Law: Chapter 2 Law of Agency
How Agencies are Created
-Express Agency -Implied Agency -Ostensible Agency -Agency of Estoppel -Agency of Ratification -Dual Agency -Agency Disclosure
Honesty
A character trait of a person who is open and truthful in dealings with others.
Tort
A civil wrong or violation of a duty.
Agency Coupled with an Interest
Agency in which an agent has a financial interest in the subject matter of the agency. The agency is created to benefit the agent or a third party. California Civil Code Section 2356 states that an agency coupled with an interest cannot be terminated by death or incapacity of the principal or by the unilateral act of the principal.
Express Agency
An agency created by a specific agreement, either written or oral.
Agency of Estoppel
An agency created when a principal's conduct led another to believe in the existence of the agency and thereby to act to his or her detriment. When an ostensible agency is created and a third person reasonably acts to that person's detriment basedon the belief of the existence of the agency, the person who allowed the ostensible agency to exist would be estopped (barred) from denying the existence of the agency.
Ratification
Approval of an agreement to which the approving party was not legaly bound. By ratification, the party agrees to be bound by the agreement.
Customary Authority
Authority implied by virtue of an agent's position.
Loyalty
Faithful adherence to one's promise, oath, word of honor, etc.
Integrity
Following a strict code of conduct or standard of values.
Due Care
Reasonable (nonnegligent) care.
Express Authority
The stated authority of an agent (written or verbal)
Bankruptcy
The trustee in a bankruptcy can terminate an agency or allow it to continue. If the bankruptcy of an agent impairs the agent's ability to perform, the principal can terminate the agency.
Implied Authority
Understood (not express) authority that is reasonably necessary to carry out the agency.
Disclosure
Written explanation of the types of agency relationships that are possible.
Types of Agents
-General Agent -Special Agent -Power of Attorney
Termination of Agency
1 -Expiration of its term 2 -Extinction of the subject matter 3 -Death 4 -Renunciation 5 -Incapacity of Agent or Principal 6 -Agreement of the Parties 7 -Full Performance 8 -Bankruptcy
Authority of Agents
1 -Express Authority 2 -Implied Authority 3 -Customary Authority 4 -Delegation of Agent's Authority
Fiduciary Duties of an agent
1 -Fiduciary Duty 2 -Full Disclosure 3 -Due Care 4 -Loyalty 5 -Honesty 6 -Accounting 7 -Integrity 8 -Obedience 9 -Agent's Duty to 3rd Persons
Accounting
A comprehensive system for collecting, analyzing, and communicating financial information
Elect
A decision about the type of agency relationship for the transaction.
Obedience
A form of compliance that occurs when people follow direct commands, usually from someone in a position of authority.
Power of Attorney
A written agreement whereby a principal appoints an agent, known as attorney-in-fact, to act in their place.
Full Disclosure
Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.
Expiration of its term
An agency automatically ends with the expiration of its stated term.
Agency of Ratification
An agency created by a principal's approving an unauthorized act of another. A principal can form an agency by ratification by accepting the benefits of an agreement made by an unauthorized agent or by an agent who has exceeded their agreement. A principal cannot ratify part of an indivisible agreement; the entire agreement must be ratified. After knowing of the unauthorized act, the principal can ratify the act by words or actions that indicate the intent to be bound by said act. It can also be ratified through silence or the failure to repudiate and unauthorized act after receiving knowledge of it. California Civil Code Section 2314 states: "A principal can void prior ratification if the ratification were made imperfect knowledge of the material facts of the transaction. Example: If in ratifying a tenancy, the owner believed the unauthorized agent had entered into a month-to-month tenancy, Upon discovering the tenancy was actually for 20 years, the owner could recind the ratification.
Dual Agency
An agency situation in which the agent represents more than one party to the transaction. A dual agency exists when an agent represents two principals who are negotiating wich each other and have conflicting interests. To avoid the possibility of a court determination that a dual agency exists, a broker must make certain that buyers fully understand that the broker might not be their representative. Stating that the broker is ther representative of the seller, may not be enough to avoid a determination of dual agency if the agent's conduct has led a buyer to believe they were being represented.
Agent's Duty to 3rd Persons
An agent has a duty of honest and fair dealings with others. The principal and agent could be held liable for the agent's misrepresentation, fraud, or failure to disclose to a third party detrimental information that the agent knew or should have known. Many agents arrange loans for buyers. If an agent is to receive a fee for arranging a loan, this fact must be conveyed to the buyer who must understand that they can make loan arrangements without use of the agent's services. Once an agent takes on the responsibility of obtaining a loan for a buyer, the agent is put in an agency position even though the broker was the sole agent of the seller for the purpose of the sale. The agent then has a duty to obtain the loan that best meets the needs of the buyer, not the loan that provides the greatest financial remuneration for the agent. The broker could be liable to a borrower if the broker by negligence or design recommended a loan to a borrower that was clearly not in the borrowers best interest.
Death
Because an agency is a personal relationship, death of either the principal or the agent terminates the agency. If either the principal or the agent is a corporation, the death of corporate officers would not terminate the agency because a corporation is considered a separate legal entity.
Renunciation
Because an agency requires consent of the parties, either the principal or the agent can renounce the agency. If a party wrongfully breaches the agency, that party could be liable for damages.
Ostensible Agency
California Civil Code Section 2298 states: "An agency is either actual or ostensible" If one person causes others to believe that another person is their agent when that is not true, the courts can declare the principal bound due to the existence of an apparent or ostensible agency. California Civil Code Section 2300 states: "An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him"
Agency Disclosure
California Civil Code Section 2375 requires the agent to provide a written agency disclosure to the parties for the sale, purchase, exchange, or lease of one to four residental units and mobile homes to prevent misunderstandings by buyers and sellers as to whom the agent represents and what the agency duties are. The lisiting agent can choose to be either a seller's agent or a dual agent representing both seller and buyer. The listing agent has specific duties to the seller, the listing agen can't elect to be solely a buyer's agent. The selling agent who locates a buyer can choose to be a seller's agent, a buyer's agent, or a dual agent. The listing would set forth the agency contemplated, and the purchase form would include agency confirmation. The California Association of Realtors (CAR) Form AD indicates the agent's responsibility as seller's agent, buyer's agent, or dual agent representing both seller and buyer. 3 steps in agency disclosure: 1. Disclosure 2. Elect 3. Confirm Some states allow a broker to take a tranaction broker or facilitator position, then he/she would be considered a third-party middleman with no advocacy or fiduciary duties to either buyer or seller. But he/she does have duties of confidentiality as to information received from either party, as well as duties of fair and honest dealing and to meet the needs of the parties. Compensation is an indication of an agency relationship, an agent need not receive consideration for an agency relationship to exist. A broker who acts for more than one party to a transaction without the knowledge and consent of all parties involvd would be subject to disciplinary action. An undisclosed dual agency also would be grounds for recission of the contract as well as forfeiture of rights of compensation. **California law allows dual agencies and some other states don't because of the belief of conflict of interest. Besides the separate agencies, some states allow the brokerage office to represent the buyer and another agent in the same office to represent the seller.
Proof of Agency
Can be established by circumstantial evidence with relevant factors including: The situation of each party and their words and actions. The existence of an agency is ordinarily a question of fact for the jury. The burden of proving the existence of an agency relationship is on the person who seeks to benefit by the existence of the agency. Persons seeking such benefits might include an agent seeking compensation from a principal or a principal who wishes to prove that a person might wish in fact their agent to establish the existence of agency duties. A 3rd person might wish to prove that the person they contracted with was actually an agent so as to hold a principal liable.
Liability of Agents
For any damages of principal if agent breaches a duty; to principal for any torts or other acts committed in excess of express or implied authority
General Agent
Has the authority to perform all necessary acts for the principal within a specified area. Example: -managing finances -arranging the conseratee's care -making other important decisions (signing a contract)
Equal Dignities Rule
If an agency act must be in writing, the agency authority to perform the act also must be in writing.
Incapacity of Agent or Principal
If the agent is no longer capable of acting as an agent, or the principal becomes mentally incapacitated, the agency terminates. An agent who loses their license would be incapable of performance, so the agency would terminate.
Breach of Agency
If the agent violates his or her duties to the principal, the law will hold the agent liable for damages caused by that breach of duty. The remedies available to a principal vary depending on the duty violated. Wrongful acts of an agent toward a third party may result in a third-party lawsuit against the principal. Such an action could be based on a breach o
Special Agent
Is limited to those acts specifically set forth in the agency agreement. The agent normally has NO power to sell the owner's property, buy property for the buyer, or contractually bind the owner.
Implied Agency
Not the result of a stated agreement but is created by the actions of the parties that indicate reasonable intent to form an agency. Be aware, promises to serve the best interest of another COULD BE construed as an agreement to act in an agency capacity even if the promise is gratuitous.
Liability of Principals
Principal will be liable for torts committed by an agent if there is a principal-agent relationship and the tort was committed by the agent within the scope of that relationship
Full Performance
Satisfactory completion of the object of the agency terminates the agency.
Agent
Section 2295 of the California Civil Code states: "An agent is one who acts for or represents another, called the principal, in dealings with third person. Such representation is called an agency." An agent is one who acts for or represents another. An agent represents a principal, payment and notifying the agent of a fact is generally considered payment and notifying a fact to the principal. The legal relationship of an agency requires free consent of bothe the agent and the principal. Courts will not force a relationship against their will. A principal or agent can end the relationship at any time. But the who does so may be liable for damages if terminating the agency breaks a contractual promise. Those who can't perform an act themselves can legally appoint someone to act as their agent to perform the act. Civil Code Section 2296 states: "Any person having the capacity to contract my appoint an agent and any person may be an agent." A person who wishes to appoint as agent must have both the legal and mental capacity to do so. Legal capacity involves age and/or legal restrictions on crontracting, while mental capacity is defined by state of mind. Principals who lack the capacity to perform an act of become contractually bound CANNOT appoint an agent to perform the act or to contractually bind them. If the act must be in writing, the appointment of someone to perform the act MUST be in writing.
Attorney-In-Fact
Should not be confused with an attorney-at-law. Civil Code Section 2450, Statutory Power of Attorney form. Powers of attorney are normally given for specific purposes, such as to sign a deed when the owner is not available; this is an example of a specific power of attorney. General power of attorney conveys broad powers to the attorney-in-fact to operate in the place of the principal and to contractually bind the principal within the specified area of the agency. The document should be in recordable form, including acknowledgemnt of the principal's signature by a notary public, so it can be recorded allowing the attorney-in-fact to sign recordable documents on behalf of the principal. If the principal dies, the power of attorey is automatically terminated. An attorney-in-fact need not possess a real estate license. The exemption from licensing applies only to particular of isolated transactions and may NOT be used as a substitute for a broker's license.
Extinction of the subject matter
The destruction of the property automatically terminates a listing or management agency agreement in the absence of any agreement. Impossibility terminates the agency.
Respondeat Superior
The doctrine that the master is liable for the acts of his or her servants (applies to agency and employment relationships)
Fiduciary Duty
The duty of trust and confidence.
Estoppel
The legal doctrine that a person cannot raise a right of defense after their words or actions to the contrary led another perty to act to their detriment. The doctrine of estoppel is one of equity to achieve justice.
Agreement of the Parties
The principal and the agent can mutually agree to terminate their agency.
Confirm
Written signed confirmation of agency (usually part of a purchase agreement)
