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4.3
Law of Agency

www.GOBCrealestate.com
 4.3- Law of Agency

Why do people hire Agents?

AGENT CAPACITY
• The agent possesses knowledge, skills, and
• Has the authority to represent and act on
abilities that the principal does not.
behalf of another person (principal)
• Due to geographical or other limitations, the • Any person of sound mind can act as an
agent is able to perform a certain action that agent
the principal cannot. • Does not need the capacity to contract

• The principal does not have the time or

desire to perform certain actions. An Infant can act as an agent

The Real Estate Service Act (RESA)

• the Agent must be licensed under RESA
• be at least 19 years of age
PRINCIPAL VS. THIRD PARTY
• be of good reputation
➢ Principal A person must not provide real estate services to or on behalf of
➢ The party that YOUR another, for or in expectation of remuneration, unless the person
BROKERAGE/YOU represent is licensed under RESA or exempted from the requirement to be
➢ Third party licensed.
➢ The other parties in the transaction Acting on behalf of another = AGENCY
(that you DON’T represent) Remuneration = Commission/ Payment

“Fiduciary” Duty

a person who holds a position of trust with

respect to someone else and is obliged to act
solely in the other person’s benefit (because
of the relationship of trust)

Overarching “umbrella” fiduciary duty = DUTY OF LOYALTY

Key purpose of an agent:

• achieve best results for their principal

• act solely for the benefit of the principal
• put the principal’s interests ahead of all others
(including their own!)
• duty of confidentiality
• duty to avoid conflicts of interest
(incl when the agent is putting their own interests first!
Example: saving of the agent’s time or money in
getting the transaction finished quickly)
A breach of a fiduciary duty may also result in disciplinary
proceedings by the BCFSA

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Remuneration = rewards, money, commission, bonuses
 4.3- Law of Agency

The Agency Relationship

EXPRESS CONTRACT IMPLIED AGENCY
Written or Oral An agency can be implied by conduct
Mutual agreement of both parties (1) Created by/through the conduct of the parties
(1) Clear understanding of what is expected (2) Can create an agency relationship
through your actions based on your
(2) Clear statement of terms; best chance of getting
actions/words
paid

RATIFICATION AGENCY BY ESTOPPEL

An agent’s authority can be granted retroactively Where the principal acts in such way as to lead a 3rd party to
believe that the agent has authority to act on behalf of the
Authority by Ratification principal (Client)
When the agent informs the principal of his actions and the Very limited right
principal accepts, the principal will be bound by the
contract

SCOPE OF AN AGENT’S AUTHORITIES

ACTUAL AUTHORITY- With Express Contract Relationship

EXPRESS Authority IMPLIED Authority USUAL or CUSTOMERY

What the job is! How you do the job! How you do the job!
• Created and limited by the terms Every agent has implied authority to do The agent is governed by what is usual
of the contact anything necessary for carrying out the in the trade
• Promise to pay commission express authority granted

(Multiple Listing Contract- length, (showings, negotiations, etc.) (to collect keys, deposit)
agency, commission)

APPARENT AUTHORITY- results from the operation of the Legal Doctrine of ESTOPPEL
With AGENCY BY ESTOPPEL Relationship

Where the 3rd party would reasonably consider, from the conduct
of the principal (client) and the agent, that the agent did in fact
NOTE the difference:
possess authority
• Implied agency – Agent misleads
someone
Not common
• Apparent authority Principal misleads
someone
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 4.3- Law of Agency

TERMINATION OF AUTHORITY
➢ At will*
➢ Revocation (orally, in writing, expressly)
➢ By Conduct (the act of the Principal that is inconsistent with the communication of authority)
➢ Frustration (house burns down)
➢ Death, Insanity or bankruptcy

*Either party can terminate the relationship at will because the relationship is based on mutual consent

DUTIES:
AGENT DUTIES TO HIS PRINCIPAL PRINCIPAL’s DUTIES TO AN AGENT

(1) The duty of loyalty, confidentiality, full disclosure 1). To pay commission
2). Duty to indemnify (repay) the agent
(2) The duty to exercise reasonable care and skill
3). Comply with the agency agreement- NEW
(3) The duty to carry out the lawful instructions of the
Commission is due when the title has been exchanged for
principal
money
(4) The duty to account for all monies held for the
If a seller and a buyer conspired to wait for the listing to
principal
expire and finish the deal after, the brokerage may be
DUTY of CONFIDENTIALITY does NOT terminate when the entitled to the commission.
relationship ends

AGENT & 3rd PARTY Agent is not a party to the

contract AGENCY DISCLOSURE
May be personally liable to a third party:

1). No Disclosure of Agency Before assisting or representing anyone, an

The injured party may choose to sue either the Principal or the Agent agent must disclose about the type of
representation/relationship
2). No Authority or Insufficient Authority
The consumer MUST BE fully informed to give
if an agent makes a contract with a third party on the principal’s behalf without
their Informed consent !!
having the authority to do so, the agent may be liable to the third party for damages
for breach of warranty of authority. The Common Law may still require further
disclosure!
3). Torts Committed by the Agent
“my principal authorized me” is not a defence

Principals are responsible for the actions of their agents; therefore, principal may
also be liable to the third party

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 4.3- Law of Agency

Questions
1). Which of the following statements is FALSE with respect to an agent?

(1) An infant may act as an agent.

(2) One additional limitation on the capacity for real estate agents, as opposed to common law for other industries, is that
they must also be licensed under the Real Estate Services Act.
(3) Because the agent represents a party to a contract, to bind the principal and the agent, he or she also has the capacity
to contract on his or her own behalf.
(4) None of the above-mentioned statement.

2). When an agent acting within the scope of his authority and having disclosed that he is acting as an agent enters into a
contract with a third party, the parties to that contract are:

(1) The agent and the principal

(2) The principal and the third party
(3) The third party and the agent
(4) The principal, the agent and the third party

3). Alan is Peter's agent with the express authority to rent Peter's cottage for the summer months. However, in his capacity
as Peter's agent, Alan accepts an offer to purchase the cottage instead. When Peter discovers the incident, he is so
impressed by the price, he calls and tells the purchasers that he adopts Alan's act. Which of the following is the result of
these actions at law?

(1) Peter has ratified Alan's actions, therefore the purchasers cannot sue Alan for breach of warranty of authority.
(2) When Peter adopted Alan's act, he created legal authority by means of revocation.

4). Where a principal of an agent has acted in such a manner as to lead third parties to believe that his agent has authority
to perform certain acts on his behalf, and a third party deals with the agent in bona fide belief that the agent has the
authority that he/she represents, the agent is said to have:

(1) Actual authority

(2) Express authority
(3) Legal authority
(4) Apparent authority

5). Carol asked Tim to sell her car and her mountain bike for her while she was away on holiday. She gave Tim the keys to
the car and told him to accept any price in excess of $1,700 for the car, and $300 for the bike. Which of the following is
an example of implied authority?

(1) Tim sold the car to Meri for $1,750.

(2) Before Meri was willing to purchase the car, she insisted that she test drive the car and have it checked by the
automobile association, which Tim allowed her to do.
(3) When Meri was viewing the car, she noticed a small roof rack sitting in Carol's garage. She said that she would like to
buy the rack to carry her camping gear on Carol's car. Tim said that he would include the rack in the sale for an
additional $75, to which Meri agreed. When Carol returned, she told Tim that she was pleased that he had sold the rack
since she had no more use for it.
(4) After advertising the bike for sale at $300 in vain, Tim sold the bike to Sandra, the only person to make an offer, for
$260. Carol accepted the money when she returned, although she was disappointed not to get the full price.

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 4.3- Law of Agency

6). Paul grants Luke, his agent, express authority to list his house but has not explicitly granted the right to show it to
potential buyers. If Luke shows the house to a potential buyer, he would likely be acting on:
(1) Apparent authority
(2) Express authority
(3) Agency by estoppel
(4) Implied authority

7). Which one of the following types of authority would NOT provide an agent with sufficient authority to create a binding
contract between his principal and a third party?

(1) Implied authority

(2) Apparent authority
(3) Assumed authority
(4) Express authority

8). Lucy asked Ricci to act as her agent at the auction of the paintings of a famous BC painter. Lucy is an enthusiastic art
collector and tells Ricci that no matter what, she must become the owner of the deceased’s famous “Apple tree” painting. Ricci
is also told that under no circumstances is he to come away from the auction without buying the painting for Lucy. At the
auction, the deceased BC painter’s “Apple tree” painting is offered with a second “small tree” painting. The two paintings are
offered as a package and accordingly, Ricci as the successful bidder, purchases both paintings for Lucy. What type of authority
did Lucy provide Ricci with, in their agency relationship?

(1) Express authority only

(2) Both express and implied authority
(3) Customary authority only
(4) Neither express nor implied authority as there has been a breach of implied authority

9). Which of the following scenarios would result in the termination of an agency relationship?
(1) An oral revocation of the agency relationship by the principal
(2) An oral revocation of the agency relationship by the agent
(3) The death, insanity or bankruptcy of the principal or the agent
(4) All of the above

10). Which of the following events will terminate a real estate agency relationship?

(1) Actions of an agent which exceed the terms of the agent's authority under the listing agreement
(2) A failure by the agent to present all offers to the principal
(3) An offer by the agent to purchase for herself the principal's property
(4) An act of the principal which is inconsistent with the continuation of the agent's authority

11). In which of the following situations will the agency authority continue to exist?

A. Lorne lists his house for sale with Steve. The house burns down.
B. Lorne enters into an exclusive listing agreement with his agent Mark. Lorne then sells the property himself without Mark’s
assistance.
C. Lorne enters into a written listing contract for the sale of his house with Brad. Brad dies.
D. Lorne tells his agent over the phone that he no longer has the authority to sell his house.

(1) A only
(2) B and C only
(3) D only
(4) None of the above
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 4.3- Law of Agency
12). We often talk about the duties of an agent to the principal, however, at common law, what duty is owed by a principal to
his or her agent.

(1) The duty to act solely for the agent’s behalf

(2) Duty to indemnify the agent for any expenses which the agent may have incurred during the transaction
(3) The duty of full disclosure
(4) All of the above are duties owed by the principal to the agent

13). Which of the following is NOT a fiduciary duty that an agent owes to his principal:

(1) The duty of loyalty

(2) The duty to exercise reasonable care and skill
(3) The duty to carry out the lawful instructions of the principal
(4) The duty to indemnify the principal

14). Where an agent with authority enters into a contract with a third party and does not disclose that he or she is acting as an
agent:
(1) The third party may sue either the agent or the principal to enforce the contract.
(2) The principal may sue the agent to enforce the contract.
(3) Only the agent may sue the third party to enforce the contract.
(4) There is no contract in existence because there is no disclosure.

15). When a listing contract has expired, and the listed property is later sold to a purchaser who was first introduced to the
property by the listing brokerage during the listing period, the brokerage will:

(1) Always be entitled to commission in these circumstances

(2) Be entitled to commission where the vendor and purchaser have conspired to sell after the expiry of the listing to avoid
commission
(3) Be entitled to commission if he/she can prove the purchaser inspected the house with one of its licensees
(4) Never be entitled to commission in these circumstances

Answers: 1(3), 2(2), 3(1), 4(4), 5(2), 6(4), 7(3), 8(2), 9(4), 10(4), 11(4), 12(2), 13(4), 14(1), 15(2),

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 4.3- Law of Agency

My Notes:

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