Agency Law in estate management

INTRODUCTION

The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party.

Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between:

Agents and principals;

Agents and the third parties with whom they deal on their principals' behalf; and Principals and the third parties when the agents purport to deal on their behalf.

The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of another.

Agency relationships are common in many professional areas such as: • Employment.

Real estate transactions (e.g. real estate brokerage, mortgage brokerage). In real estate brokerage, the buyers or sellers are the principals and the broker or his salesperson who represents each principal is his agent. Financial advice ( e.g. insurance agency, stock brokerage, accountancy)

Contract negotiation and promotion ( e.g. business management) such as: publishing, fashion model, music, movies, theatre, show business, and sport).

OBJECTIVES

The objectives of this unit are:

1. Examine how agency can be created. 
2. Understand the concept of agency law and
3. Learn the three broad classes of agent 

The Concept of agency law

Agency can be created by contract (express or implied, oral or written), by ratification (assent is given either to an act done by someone who had no previous authority to act or to an act that exceeded the authority granted to an agent), by estoppel (a person allows another to act for him/her to such an extent that a third party reasonably believes that an agency relationship exists), or necessity (a person acts for another in an emergency situation without express authority to do so).

The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. 

A contract is a promise, or set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. It is a mutually binding agreement. In order to form a contract there must be mutual assent such as a valid offer and acceptance between parties. The parties must have the legal capacity to enter a contract, and adequate consideration must exist. Furthermore, the subject matter of the contract must be legal. The general rule is that minors and insane persons cannot enter contracts. There are also occasions when intoxicated persons do not have the legal capacity to enter contracts.

A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.

SELF ASSESSMENT EXERCISE 1

• Explain how agency is created and its concept. 

The Legal Principles

There are three broad classes of agent

1. Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client. 
2. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and 
3. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time. 

SELF ASSESSMENT EXCECISE 2

• Mention the three broad classes of agent. 

CONCLUSION

Now that you have read through this unit, you ought to be knowledgeable about the creation, concept and legal principles of agency law. In addition, a contract was defined for better understanding of agency law.

SUMMARY

The foundation of agency law has been laid by the aspects (creation, theory and broad classes) considered above which will afford better understanding of other aspects of agency law.

TUTOR MARKED ASSIGNMENT

Identify the type of agency created by estate agent and their principal.