LOA Ch 4

a failure to perform one part or all of the terms and conditions of a contract. What qualifies as a material breach to the contract may be stated in the contract itself.

Breach of Contract

The ratification where there is wording and expression

express ratification

a listing that did not sell during the specified period with the listing broker.

expired listing

• The seller's broker agrees to the terms of the listing agreement. • The buyer's broker agrees to use his or her best efforts to find a suitable property and represent the buyer in that purchase.

Acceptance of Authority by Broker

The agent's authority may be actual or apparent. Actual authority requires a third party to have been officially granted the authority to act on behalf of a company, apparent authority does not require an official granting of power.

Agent's Authority

The person appointed by another to sign a POA.

Attorney-in-Fact

Bankruptcy of the principal is a valid reason for the termination of agency. The mere insolvency of the principal does not automatically terminate the agent's authority.

Bankruptcy of Either Party

Although an agency relationship can be created by an oral agreement between the principal and the agent, a sensible real estate broker will always have a written agreement. This is because Texas law requires a real estate broker to have a signed, written agreement if the broker needs to sue the principal for payment of a commission. Additionally, Texas requires written permission from sellers that gives brokers authority to perform specific acts, such as advertising or placing "For Sale" signs on the seller's property.

Brokers and agency relationships

A written agreement is preferable (but not required) when creating an agency. Nor does a person have to receive compensation or have a license to create an agency relationship. However, the agent must have a Texas real estate license if the principal engages the agent to do activities that require a real estate license.

CREATING AN AGENCY RELATIONSHIP

• Sellers determine the listing price of the property and when it will be shown. • Buyers determine the type of house they desire as well as when they will be available to be shown properties

Control of the Broker by the Client

Even after the agency relationship is terminated, each party may continue to have certain rights stemming from that relationship, such as the broker's right to collect compensation or the agent's duty of confidentiality to the client. A broker has an obligation to keep a client's information confidential and must use reasonable care to prevent his or her employees or sales associates from disclosing or using a client's confidential information. Remember, the duty of confidentiality extends for one year past the revocation or termination of the brokerage agreement.

DUTIES OF AGENCY THAT SURVIVE TERMINATION

Death of an agent will terminate an agency not coupled with an interest. If this is a broker the agency terminates upon their death because their license expires and there is no legal representation.If a real estate agent dies, the brokerage agreement continues with the sponsoring broker and all listing held by the broker and all agents under the broker will become inactive in the case of death of the broker.

Death of the Agent

The ____________________________ operates as an immediate and absolute revocation of the agent's authority, unless the agency is one coupled with an interest.

Death of the Principal

• A listing agreement gives the broker the authority to market the property under certain terms and conditions. • A buyer's representation agreement gives the broker the authority to represent the buyer's best interests in the transaction.

Delegation of Authority by the Client

The loss or destruction of the subject matter of the agency or the termination of the principal's interest is yet another ground for terminating the agent's authority. The agent's authority ceases when the agent has notice of the fact.

Destruction or Condemnation of the Property

Estoppel means that if the principal causes third persons to believe that someone is his agent and that third party deals with the agent, then the principal cannot deny the agency relationship even though it did not exist in fact. Ratification means that if a person having no authority whatsoever, purports to act as an agent and the purported principal later adopts the acts of that agent, an agency relationship has retroactively been created.

Difference between Agency by Estoppel or by Ratification

• The person, who is going to give ratification, must be in existence at the time of activity. • The person who is going to give ratification should have capacity to contract, at the time of activity as well as at the time of ratification. • The agent must have stated he or she acted on behalf of the principal. • The principal must have had the ability to complete the action at the time the agent entered the contract. Example: David is a minor who obtains a loan from a money lender and executes a promissory note and deed of trust. Before repayment of the debt, he becomes 21 and executes another promissory note to replace the first note. The Court decides that the second note also is not valid because the person who has given ratification has no capacity to contract at the time of activity, i.e. at the time of getting loan. • The principal must know all material facts. Knowledge may be imputed by what a prudent person would be expected to know or learn. • Ratification should be given within reasonable period after the activity the concept of reasonable period depends upon nature of the situation. • Ratification must be absolute. To entire activity ratification is to be given. Partial ratification carries no validity. • The fact of ratification must be communicated to all parties in connection with the activity. • The activity which is going to be ratified must be a lawful activity. • Ratification relates back to date of activity. Although ratification takes place after the date of activity, it will be assumed that ratification is given on the date of activity.

Elements Necessary for Agency by Ratification

1. The parties to the contract must be capable of contracting. 2. The parties must consent to the agreement. 3. The contract must have a valid object. 4. The contract must be supported by sufficient consideration. 5. The contract must be in writing in order for the broker to receive compensation.

Essential Elements of an Enforceable Brokerage Agreement

a legal bar that prevents a person from asserting facts or rights that are not consistent with what was implied by the person's previous behavior.

Estoppel

In __________ agency, actual authority is directly granted to or conferred upon the agent or employee in express terms, and it extends only to such powers as the principal gives the agent in direct terms, with the express provisions controlling.

Express agency

• Was there a failure of an essential feature on the contract which had induced the non-breaching party to enter the contract? • Did the breach go to the substance of the contract and defeat the non-breaching party's purpose for making it? • Did the breach affect a matter of vital importance going to the essence of the contract? • Did the non-breaching party receive substantially less or different from that which he had bargained to receive?

Facts Considered by Courts in Determining a Material Breach

(also known as usual authority) is the authority of an agent acting on behalf of another person or entity. The person acting with implied authority does what is reasonably necessary in order to effectively perform his duties.

Implied authority

If, through no fault of either party, the contract becomes impossible (or highly impractical) to perform, a brokerage agreement will terminate. A classic example is the property being destroyed by fire or natural disaster.

Impossibility of Performance

An agency coupled with an interest is a special type of agency that is _____________________ by the principal. It is not terminated by the death or incapacity of either the principal or the agent. It can only terminate when the agent's obligations are performed.

Irrevocable Agency

• Written agreement • Compensation • License

Items Not Required to Create Agency

Buyers claimed that no contract ha been created. Buyers agent stated that he did not have the buyers permission to make the changes that were faxed to the sellers agent at a price of 2.1 million. He had mistakenly faxed that document to the sellers agent and had intended to fax it to the buyer for consideration. Result: Seller sued for breach of contract and fraud. Court look at issue of statue of frauds but noted the changes were never initialed, seller argued that the agent had the authority to sign on behalf of the buyers and by sending info, bound the buyers. Court relied on a long line of Texas cases confirming that a real estate agent is a special agent not a general agent and therefore cannot bind a principal to a transaction. Court noted the seller had presented no evidence the buyer had signed/initialed the counter offer at 2.1 mil. also the seller gave no evidence that the buyers agent was sending the sellers agent the counter offer at 2.1 mil with their original signatures let alone any evidence they adopt them for purposes of a counter offer. The seller argued that even if the buyers did not sign the last counteroffer the buyers had ratified it. Court held that the seller had presented no evidence of such ratification. on completing motions for summary judgment the trial granted summary judgment for the buyer holding no contract had been created.

Joseph v. James - Agency Not Ratified

The loss of capacity of a party resulting from temporary or permanent mental incompetency may result in the termination or suspension of the agency relationship. Also, if the agent's authority is coupled with an interest, it is not suspended by the principal's insanity. However, if the agency is created by a durable power of attorney, the agency does not terminate.

Loss of Capacity of Either Party

Case: Using a TAR commercial form, the first buyer made a "low ball" offer. The seller directed the agent to mark through the price and substitute a higher price which the broker did, initialed and delivered it to the buyers broker. A higher offer from a second buyer was presented. Thereafter, the deadline for acceptance of the offer passed without action from either party. When the first buyer became aware of the higher offer, and the sellers position that the buyer must match this new price. The buyer signed the contract sent to them with the change and the seller had a signed a contract with the higher offering buyer. The first buyer filed suit to enforce his contract and filed a notice of the pending suit in real property records thus preventing the sale of the second buyer. Results: The court ruled no binding contract existed between the first buyer and the seller. Citing that the special agency relationship of a broker did not include actual authority to bind the owner/consummate a sale. However the court stated that there could be situation in which a brokers signature could bind the brokers

Mushtaha v. Kidd: No Actual Authority to Bind Principal

refers to rights granted or taken away without the party's action or cooperation, but instead by the application of law to a specific set of facts. The rule that death or insanity terminates an agent's authority is based on the policy that the principal's estate should be protected from potential fraudulent activity on the part of the agent.

Operation of law

acceptance or approval of an act already performed. Soon after ratification, the person who has done the activity becomes agent and that person who has given ratification becomes principal.

Ratification

• Misconduct or habitual intoxication of the agent that interferes with his/her employment • The refusal of the agent to obey reasonable instructions or to permit the principal to make a proper audit of his/her accounts • Serious neglect or breach of duty by the agent • Dishonesty or untrustworthiness of the agent • The agent's failure to pay a debt owing to the principal • Disloyalty of the agent like using the agency to make secret profits

Reasons Principal May Revoke an Agency Without Breach

• The seller relies on the listing broker to market the property. • The buyer relies on the broker to represent his or her best interests.

Reliance on the Broker by the Client

An agent can also terminate an agency by renunciation, i.e., withdrawing consent to act on the principal's behalf. A court cannot compel an agent to continue acting on behalf of a principal.

Renunciation by the Agent

Since the relationship between a client and broker is a personal one, the client has the right to ______________ the agency relationship at any time. However, the agency cannot be coupled with an interest, and no third party's rights can be involved. If the cancellation is without good reason, the principal may be liable for breach of contract.

Revocation by the Principal

If a change of law (supervening illegality) makes the object of an offer illegal. It terminates the offer. Agency can be terminated by a change in the law.

Supervening Illegality

a legal doctrine that holds a person responsible for the actions of another person. Vicarious liability means that Person A can be held legally responsible for the harm caused by Person B's negligent actions—even though Person A did not directly cause that harm. It is an exception to the general rule that we are only responsible for our own actions.

Vicarious liability

both parties declare the terms and put their intentions in words, either orally or in writing. An agency created by agreement is the most common way to create an agency relationship.

express agreement

specifically states that it is not affected by the principal's subsequent disability or incapacity. In Texas, a specific form (found in section 752.051 of the Texas Estate Code) must be used when creating a durable power of attorney form. The powers granted in the statutory form are described in sections 752.101 through 752-109. The powers conferred include transactions involving real property, tangible personal property, stock and bonds, commodities, options, banking, business operations, insurance, annuities, estates, and trusts.

durable power of attorney

If the principal intentionally confers express powers to the agent to act for him or her, the agent possesses actual authority (also called express authority).

actual authority

also called Ostensible agency

agency by estoppel

created after the fact when the principal agrees to be bound by the actions of another person who was acting without authority.

agency by ratification

the principal, either knowingly or even mistakenly, permits the agent or others to assume that the agent possesses authority to carry out certain actions when such authority does not, in fact, exist.

apparent authority

an oral or written contract between a client and a broker in which the broker agrees to accept valuable consideration from the client or another person for assisting, soliciting, or negotiating the sale, purchase, option, rental or lease of real property, or the sale, exchange, option or purchase of a business.

brokerage agreement

a private employment agreement between a real estate broker and a buyer and is used when a broker is retained to help someone purchase real property. TREC does not have promulgated buyer representation agreements, but TAR provides certain forms to its members.

buyer representation agreement

occurs when the client or broker "fires" the other. However, if the cancellation is without good reason, a seller may be liable for breach of contract and could be liable to pay a commission to the listing broker.

conditional release

The best way to end an agreement, ideally, real estate agency relationships terminate through____________________. For example, a sale is made, escrow is closed, and the purpose of the agency relationship has been accomplished.

fulfillment of the agreement

a legal document, which gives the agent the power to manage the principal's assets and financial affairs while the principal is alive and is of sound mind.

general power of attorney

a person who is not paid by a principal for the work he or she does. A person who acts as a gratuitous agent can never be forced to work as an agent.

gratuitous agent

an agency relationship that arises out of the conduct of the parties and the impressions they give to the world, rather than because of a written or oral (express) agreement.

implied agency

The ratification where there is no expression

implied ratification

a private employment agreement between a seller and a real estate broker and is used when a seller retains a broker to assist with the sale of real property. TREC does not have promulgated LA, but TAR provide forms to its members.

listing agreement

at any time during the course of a listing or buyer representation agreement, both parties can decide, mutually, to terminate the agreement

mutual rescission

created when the principal (not the agent) creates the appearance of an agency that in actuality does not exist.

ostensible agency

a written document, usually notarized, that gives a person legal authority to act as an agent or an attorney-in-fact on behalf of another person.

power of attorney

means, "let the superior answer." The doctrine makes principals liable for agents acting within the scope of their authority. Not only does this concept apply to things the agent does, but it also applies to things the agent neglects to do.

respondeat superior

authorizes the agent to do certain specific acts. Typically, the special power of attorney is used to allow the agent to handle specific matters when the principal is unavailable or unable to do so.

special power of attorney

agreements used by brokers in sales transactions: written listing and buyer representation agreements.

two most common brokerage agreements

both the broker and the client agree to cancel the brokerage agreement and end the relationship. Each party will have no further contractual obligation to the other.

unconditional release