Fundamentals of Agency Law

“Hello there, my name is James … James Bond and I am … well … a Realtor”. In the Greater Vancouver area there have been an abundance of famous real estate Agents at any given time, at least famous by name that is. In addition to James Bond and, of course, my own last name (‘ Frascati’ is one of the famous wines of Italy as well as the seventh hill of Rome ), we have had Agents the caliber of Omar Sharif, Vera Cruz, Charlie F. Brown and one Giuseppe Mussolini ( you could spot him on the street because he wore invariably a black shirt and had that certain martial … how should I say … goose step …). Not to mention Yuri Gagarin ( no relation to the astronaut ), Carl Marx, Richard (Dick) Nixon and – yes – Douglas MacArthur ( tough guy to deal with … ) with his newly-found pal John Yamamoto, to name some more. And, faithful to the oriental tradition that characterizes this neck of the woods, we have been sporting at various times a Ding Dong, a King Woo Kong as well as a Sing T. Sing, a Wu Win-chi Wu ( who used the initials WWW ) and two Ho Chi Minh’s. The longest name I have ever come across is Guillermo Oreporemotichovea ( but his friends called him ‘Cy’ … no wonder ) and the most memorable slogan ever adopted, to my knowledge, by a Realtor belongs to an Agent by the name of Bob Bye ( now defunct, possibly of starvation … ) who used to post ads on the paper the likes of ” List with Bob Bye – The Guy with the Tie “. Yet, despite the variety of names and walks of life, all Agents – especially in real estate – must abide to the axioms of the Law of Agency when it comes to fulfilling their professional mandates.

An Agent is a person who is authorized to act on another person’s behalf. The person for whom he acts is called his Principal. Because the Agent has authority given to him by the Principal, he can create a legal relationship between the Principal and a third party. For example, a purchasing agent can order goods from a third party on behalf of his principal, so long as the purchase is made within the scope of the agent’s authority. In such instance, the principal must pay for the goods because he is effectively bound by the agent in a contract with the third party. The agent, on the other hand, is not a party to the contract.

The relationship between an agent and his principal is created by contract. Under the Agency Contract the agent is given authority to do certain things in his principal’s place. In exchange for the service provided by the agent to act on his principal’s behalf, the principal pays the agent a fee or commission. Agents are not employees. The distinction between an agent and an employee is the degree of control and method of remuneration. A principal tells the agent what he wants and leaves it to the agent how to bring about the result. An employer, on the other hand, tells the employee what to do and how to do it. Furthermore, the agent is usually paid by way of a commission that becomes payable only when he brings in the result. An employee, instead, expects to be remunerated for the number of hours he works regardless of whether or not the result is accomplished. Real Estate Agents are a particular kind of agents. A real estate agent acts on behalf of his principal, almost always the Seller, but can also act on behalf of a Buyer and can, in fact, act on behalf of both Seller and Buyer at the same time subject to certain restrictions. The contract that spells out the terms and conditions of the authority confered by a Seller to the real estate agent is called the Listing Agreement. With the Buyer, the name changes to Buyer’s Agency Agreement.

Based upon the wording of the contractual agreement between the principal and the agent, the authority to act confered upon the agent falls into one or more than one of the following categories. The agent’s authority to act can be express, implied, , by ratification, , usual, and apparent, .

Express Authority

Express authority is the authority given by to the agent by the contract. The contract can be in writing or verbal. Real estate agents are given usually express authority under a Listing Agreement and here in British Columbia all listing agreements involving land or an interest in land ( such as a lease ) must be in writing in order to be enforceable, pursuant to the Real Estate Services Act . It must be understood that a listing agreement is not a contract to sell or otherwise convey an interest in land but, rather, an agreement by and through which one party ( the Agent ) agrees to market an interest in land and the other party ( the Principal ) agrees to pay a commission on completion.

Implied Authority

Even when precise words are used in the express authority, an agent may find himself in circumstances where the acts he wants to do are not covered by those words. It is sometimes possible to imply authority from the precise words. More specifically, an agent would have implied authority to carry out an act if the agent has no choice but to do it in order to fulfill his express authority. For example, a real estate agent’s authority may be only to sell a certain parcel of land or a certain house for his principal. The agent may wish to show the property to prospective purchasers during the owner’s absence. If the agent had no authority to do so both he and the prospective purchasers would be trespassers and, therefore, liable to the owner in damages. Because showing a property is necessary and incidental to effecting a sale, the agent can imply the authority proximately from his express authority, provided nothing in the contract states otherwise.

Authority by Ratification

Sometimes an authority can be created retroactively. For example, where an agent enters into a contract on behalf of his principal but the contract is beyond the agent’s express authority, he can be given authority in the past. This is done by ratification. If the principal consents after the fact to be bound by the unauthorized acts of his agent, he has ratified the contract. The end result is, therefore, that the principal is bound by the contract just as if the agent had been so authorized in the first place.

Usual Authority

Usual authority arises when an agent is engaged by the principal to act in a particular transaction and such transaction is governed by ‘customs of the trade’ . In such case the principal is considered to have consented to the agent acting in accordance with such customs, as long as they are lawful and reasonable and the principal has not indicated otherwise.

Apparent Authority

Under certain circumstances, furthermore, an agent can bind his principal to a third party even though the agent was not authorized to do so. This arises where a principal has acted in such a way that he leads third parties to believe his agent has authority to perform certain acts on his behalf. If the third party deals with the agent in the bona fide belief that the agent has the authority represented, it is called apparent authority.

In general, any person of sound mind can act as an agent, since the agent does not need to have the capacity to contract out that the principal must have ( refer to my Article entitled ‘Fundamentals of Contract Law’ for further information ). As a result, an infant agent ( i.e. an agent under the age of majority ) can negotiate a binding contract between the principal and a third party. The infant agent is, however, a party to the agency contract and could therefore use his own incapacity to contract out to repudiate the agency contract with his own principal.

Luigi Frascati

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