LESSON 7: CREATION+TERMINATION OF AGENCY Flashcards
How is an agency relationship created?
An agency relationship is created by an agreement between two parties: the principal and the agent. However, for the law of agency to work, it requires three parties: the principal, the license holder (agent), and a third party.
What is required to create an agency relationship?
“Mutual consent” by all parties is required to create an agency relationship.
What is Actual Agency?
Actual Agency is an agency where the agent is directly employed by the principal to represent their interests.
What is Agency by Estoppel?
Agency by Estoppel is an agency created by law through a principal’s actions that lead a third party to reasonably believe that an agency exists.
What is Agency by Necessity?
Agency by Necessity arises in an emergency situation, where the agent acts without the principal’s prior authorization due to exigent circumstances.
What is Agency by Operation of Law?
This is another term for Agency by Estoppel, where the agency relationship is created through the operation of legal rules rather than by an agreement.
What is Agency Coupled With an Interest?
An agency where the agent has both the power to act on behalf of the principal and a legal interest in the property or estate involved.
What is Agency in Fact?
Agency in Fact is an agency created voluntarily by the principal, such as through a contract.
What is Apparent Agency?
Apparent Agency is the same as Agency by Estoppel, where the third party believes an agent has authority due to the principal’s actions.
What is Exclusive Agency?
Exclusive Agency is an arrangement where the agent has the right to represent the principal exclusively, often in a particular market.
What are the three classes of Exclusive Agency contracts?
- The contract does not prevent the principal from making direct sales but stops the appointment of other agents. 2. The agent is the only one with rights to sell. 3. The agent has rights to commissions on all sales, whether made by the agent or not.
What is Express Agency?
Express Agency is an agency created when the principal gives written or oral authorization to the agent to act on their behalf.
What is Financing Agency?
A Financing Agency is a bank or other entity that advances funds, intervenes in payment, or makes advances in contracts for sale.
What is General Agency?
General Agency is when a principal delegates authority to an agent to act on their behalf in a broad range of actions related to a business or trade.
What is Implied Agency?
Implied Agency arises from the conduct of the principal that implies an intention to create an agency relationship.
What is Ostensible Agency?
Ostensible Agency is another term for Agency by Estoppel, where the agent appears to have authority due to the principal’s actions.
What is Agency by Ratification?
Agency by Ratification occurs when the principal approves or ratifies the actions of the agent after the fact.
What is Special Agency?
Special Agency is an agency where the agent is authorized to conduct a single transaction or a series of transactions that do not involve continuous service.
What is Undisclosed Agency?
Undisclosed Agency is when an agent deals with a third party without the third party knowing the agent is acting on behalf of a principal.
What is Universal Agency?
Universal Agency is the same as General Agency, where the agent has broad authority to act on behalf of the principal in various matters.
How can an agency relationship be created in writing?
An agency relationship can be created through a written agreement, such as a Power of Attorney (POA), which grants specific or broad authority to an agent.
Can an agency relationship be created verbally?
Yes, an agency relationship can be created verbally, although written agreements are recommended to avoid confusion and legal issues.
Why did Broker A not get commission from Seller B?
In Texas, oral agreements are not enforceable for commission payments. To sue for commission, the agency agreement must be in writing.
What is Agency by Estoppel?
Agency by Estoppel is when a third party believes an agent has authority due to the principal’s actions, even though no such authority exists. The principal cannot deny the authority, which binds them to the agent’s actions.
What is Agency by Ratification?
Agency by Ratification occurs when the principal retroactively approves an agent’s actions after they’ve been completed, even if the agent did not initially have the authority.
Can you provide an example of Agency by Ratification?
If an agent bids $7,500 at an auction when they were only authorized to bid up to $5,000, and the principal pays the bill for $7,500, the principal ratifies the agent’s action by paying the bill.
What is Ostensible Authority?
Ostensible Authority (also called Apparent Authority) is when a third party believes the agent has authority based on the principal’s actions, even if no actual authority existed.
How does Ostensible Authority differ from Agency by Estoppel?
Ostensible Authority presumes the agency relationship exists and the agent had the authority to act, while Agency by Estoppel arises when the principal’s actions lead a third party to believe an agency exists, even without such authority.
What is Implied Authority?
Implied Authority is the authority that is assumed to exist because it is necessary or customary for the agent to perform their duties. It fills in gaps left in the express authority.
What is Gratuitous Agency?
Gratuitous Agency is when the agent agrees to act without compensation. Despite no payment, the agent still has all the duties and obligations of an agency relationship.
Is it acceptable for a broker to work for free in an agency relationship?
Yes, a broker can agree to work for free for a friend or family member, but they are still bound by all duties and responsibilities of an agent. It is recommended that the terms of the agreement be in writing.
What are the important facts about creating an agency relationship?
An agency relationship does not require writing or payment, but it does require authorization by the principal and acceptance by the agent.
How is an agency relationship terminated?
An agency relationship can be terminated voluntarily, involuntarily, or by operation of law.
What is the termination method of Lapse of Time?
An agency terminates when the agreed-upon time period expires, unless extended. For example, a one-year agency agreement ends after one year.
What is the termination method of Purpose Achieved?
The agency relationship ends once the purpose for which the agent was hired has been achieved, such as selling a property or negotiating a contract.
How can an agency relationship be terminated by mutual agreement?
Both parties (principal and agent) may agree to terminate the relationship, regardless of the reason.
What are certain events that cause automatic termination of an agency?
Certain events such as death, insanity, or bankruptcy of either the principal or agent can cause automatic termination.
What are the termination methods by acts of the parties?
Termination can occur by accomplishment of purpose, expiration, mutual agreement, renunciation by the agent, or revocation by the principal.
What are the termination methods by operation of law?
Agency may terminate automatically due to events like the death of a party, destruction of property, illegality, or bankruptcy of the owner.
What is Rescission?
Rescission is the cancellation of an agreement, returning both the principal and agent to their original legal positions. It can be mutual or unilateral, but must be legally justified if unilateral.
What is Renunciation by Agent?
Renunciation is when the agent voluntarily terminates the agency by giving notice to the principal. In some cases, such as a power of attorney, renunciation can be verbal, though it’s best in writing.
Does renunciation by the agent need to be in writing?
Renunciation does not have to be in writing unless the power of attorney is recorded in county real estate records. However, it is recommended to have a written renunciation for clarity.
How does renunciation impact third parties?
If a third party (e.g., an auctioneer) is unaware of the renunciation, they may still rely on the agent’s authority, as the agent was previously authorized.
What is Abandonment in terms of agency?
Abandonment occurs when the agent fails to perform duties, such as not looking for property or ignoring communications, effectively terminating the agency without legal consequence.
How is the agency terminated by the Destruction of Property?
If the property subject to the agency is lost or destroyed, the agency terminates automatically by operation of law.
Can you provide an example of termination due to the destruction of property?
If the property (e.g., an Appaloosa stallion at an auction) is destroyed before the purchase can occur, the agency is automatically terminated.
How is the agency terminated by Completion of Purpose?
Once the agent completes the purpose of the agency, such as buying the property or fulfilling the instructions, the agency is automatically terminated.
How does Bankruptcy of the Principal affect the agency?
If the principal files for bankruptcy, the agency terminates automatically by law because the principal’s assets are now controlled by the bankruptcy court, ending their authority to engage agents.
How does the Bankruptcy of the Agent affect the agency?
The agent’s bankruptcy automatically terminates the agency, as the agent no longer has authority to act on behalf of the principal.
What happens when the agent dies?
The death of the agent terminates the agency relationship. The agent’s rights to act on behalf of the principal are not transferable under a will or trust.
How does the death of the principal affect the agency?
The death of the principal terminates the agency by operation of law, as there is no longer a principal for the agent to represent.
What are Illegal Circumstances in agency termination?
If the agency is formed for an illegal purpose, the agency is unenforceable and terminated. Additionally, if a broker’s license is revoked or suspended, the agency relationship terminates.
How does Insanity affect an agency relationship?
The agency is generally terminated by operation of law if either the principal or agent is declared legally insane, though certain types of agency relationships may continue if the principal expressed a desire for the agent to continue.
What is the main change in Durable Power of Attorney (DPOA) law effective September 1, 2017?
The main change is the replacement of the term “attorney-in-fact” with “agent.”
What is essential to avoid complications when dealing with a DPOA in real estate transactions?
It is essential to ensure that the brokerage and/or attorney are knowledgeable about the new law, to avoid potential rejections by the lender or closing company, which could lead to a deal collapse.
What is a suggested procedure when a POA is involved in a transaction?
A procedure should be in place to obtain approval of the DPOA from all involved parties, especially the lender, and to ensure that all deadlines regarding acceptance, rejection, and certification are met.
How long does a lender have to accept or reject a durable POA?
The lender has 10 business days to accept or reject the DPOA, unless an extension is requested.
What are the deadlines for a lender to accept or reject a DPOA after receiving a certification or legal opinion?
After receiving a certification, the lender has 7 business days to accept or reject. After receiving a legal opinion, the lender has 10 business days to decide.
What happens if a DPOA is not written in English?
If the DPOA is not in English, the lender can extend the deadline by requesting an English translation within 5 business days. The deadlines start again after the translation is received.
When is a DPOA deemed accepted by the lender?
If the lender does not reject the DPOA within the prescribed deadlines or extensions, the DPOA is deemed accepted.
What reasons can a lender use to reject a DPOA?
The lender can reject the DPOA for specific reasons, such as: a criminal history, refusal to comply with requests, conflicting instructions, good faith belief of invalidity, or if the principal may face abuse or exploitation.
What is the consequence of wrongful rejection of a DPOA?
If a DPOA is wrongfully rejected, the principal may be awarded damages.
What are the statutory requirements for a Durable Power of Attorney in Texas?
A DPOA must be written, contain specific language regarding its durability, and include certain provisions such as authority to act in the event of disability or incapacity.
How can a DPOA be used in real estate transactions?
The agent can be authorized to sign home equity loan documents if the DPOA is signed at the lender’s office, attorney’s office, or title company.
Can the agent be compensated for their role in the DPOA?
Yes, the principal can choose to provide compensation for the agent, or prevent it, within the DPOA.
How does divorce affect a DPOA?
If a principal divorces a person who was appointed as their agent, the DPOA terminates unless specifically stated otherwise in the agreement.
What other issues are addressed in the Durable POA statutes?
The statutes address issues like military POAs, controlling laws, conflicting laws, multiple agents, successor agents, and fiduciary access to digital assets.
How can an agency be terminated?
Agency generally ends when either the principal or agent terminates it, unless specific provisions are in place. Exceptions include agency coupled with an interest or agency by estoppel.
What is “agency by estoppel”?
Agency by estoppel occurs when the principal acts in a way that would lead a third party to reasonably believe the agency still exists, even if it was technically terminated.
What is “agency by ratification”?
Agency by ratification occurs when a principal accepts an action taken by an agent even after the agency was terminated, reviving the agency for that specific action.
What events terminate a Durable Power of Attorney?
A Durable Power of Attorney can terminate if the principal dies, a guardian is appointed, or the principal is divorced from the agent unless otherwise specified.
What is revocation in agency law?
Revocation is the cancellation or withdrawal by the principal of the agency authority that was previously granted. It ends the agency relationship by the principal, unlike renunciation, which is when the agent ends the relationship.
How does revocation differ from renunciation?
In renunciation, the agent ends the agency relationship, while in revocation, the principal ends the relationship.
Can a principal revoke an agency without a basis?
Yes, the principal can revoke the agency without a basis, as long as they notify the agent. This ends the agent’s power to act on their behalf and bind them to contractual obligations.
When is the revocation effective with respect to third parties?
The revocation may not be effective immediately with respect to third parties if the principal’s behavior causes a third party to reasonably rely on the agent’s authority and they are unaware of the termination.
What happens if an agency is revoked but the revocation is not communicated to a third party?
If the revocation is not communicated to the auctioneer, for example, the agent may still act on the principal’s behalf, as in the case where the agent buys a horse at an auction after the agency was revoked.
What happens to the duties of the agent after termination of the agency?
Even after the termination of an agency, the agent continues to owe duties to the principal, such as maintaining confidentiality and providing an accounting of any funds received or expended.
What specific duty does an agent owe regarding confidentiality after the termination of the agency?
The agent continues to owe the principal the duty to retain information obtained during the agency in complete confidentiality. This is especially important for real estate agents or attorneys.
What is an example of a breach of the duty of confidentiality by an agent?
If an agent tells prospective buyers that the principal is desperate to sell, breaching confidentiality, the agent could face penalties, such as the suspension or revocation of their license.
How does the duty to provide an accounting continue after termination of the agency?
The agent remains obligated to provide an accounting of all funds received or expended on behalf of the principal even after the agency is terminated. This includes accounting for all purchases, contracts, and the transfer of funds held by the agent back to the principal.
What is the principal’s duty regarding compensation or reimbursement after the termination of the agency?
The principal is still obligated to pay any compensation or reimbursement due to the agent but not yet paid.
What happens if both the principal and agent owe each other money after the termination of the agency?
If the agency agreement is silent on the issue, common law suggests that the agent is entitled to offset any amounts due to them against what they owe to the principal.
