Lesson 6: Agency LAw

Question 1

unilateral offer of subagency

Answer 1

This confusion stemmed from a clause that was standard in most listing agreements at that time: the unilateral offer of subagency.

This clause stated that any selling agent who found a buyer through a multiple listing service (MLS) automatically became a subagent of the seller.

Question 2

cooperation and compensation provision

Answer 2

In the 1980s, to address this issue, multiple listing services replaced the unilateral offer of subagency in their listing agreements with a cooperation and compensation provision.

Under this provision, other members of the MLS are called cooperating agents; they do not automatically represent the seller.

Question 3

ostensible authority

Answer 3

If a principal intentionally or negligently allows a third person to believe the agent has been granted authority, that authority is known as ostensible authority.

An ostensible (or apparent) agent appears to be authorized to do something, but actually is not.

If a third party relies in good faith on an ostensible agent’s authority, the principal will be bound by actions within the scope of that ostensible authority.

Question 4

implied warranty of authority

Answer 4

Now let’s look at a closely related subject. A person who acts as an agent in dealings with third parties warrants that she has the authority to perform on behalf of the principal.

California’s Civil Code states that an agent who acts without actual or implied authority (or who acts outside the scope of her authority) is liable to third parties for breach of an implied warranty of authority.

Question 5

imputed knowledge

Answer 5

The liability of a principal and an agent is affected by the imputed knowledge rule.

Under California law, if either the principal or the agent has information that should be communicated to the other in the exercise of ordinary care and diligence, then the other is also considered to know that information—even if the information was never actually conveyed.

Question 6

vicarious liability

Answer 6

Under general agency law, a principal may be held liable for her agent’s negligent or wrongful acts. This is called vicarious liability.

This rule is based on a very old common law doctrine called respondeat superior. Under this doctrine, the master (the employer or principal) is legally responsible for the actions of the servant (the employee or agent). The doctrine prevents a person from avoiding responsibility for an action by having someone else carry it out.

Question 7

agency coupled with an interest

Answer 7

California’s Civil Code states that an agency coupled with an interest cannot be revoked, and does not terminate upon the death or incapacity of the principal.

An agency is coupled with an interest if the agent has a financial interest in the subject matter of the agency.