(Daniel - Please insert Chapter 9 00 - Beginning Slide)
Chapter 9 - Agency Law
THE AGENT / PRINCIPAL RELATIONSHIP
Agency - One party delegates the transaction of some lawful business or power to another, when dealing
with a third person called a customer. When a licensee begins working with a seller, the licensee is
known as the seller's agent. If a licensee begins working with a buyer, the licensee is known as the
buyer's agent. If a licensee is representing a buyer and a seller in a transaction, the licensee is known as
a dual agent. In any of these three scenarios the licensee is representing a principal (seller/buyer or
client) and is therefore an agent of that principal/client. A customer is any party that the agent deals
with when representing the principal/client.
Example: A licensee is working with a seller (client) at an open house. Any party that walks through the
door and starts looking around is a "customer".
1. Creates a Fiduciary Relationship - A fiduciary is one that is authorized to represent the interests of
another in legal proceedings. An agent represents the seller or the buyer or both in a real estate
transaction. A licensee is therefore a fiduciary.
2. Principal - This is the one being represented by an agent. In the real estate industry the principal is
also known as "the client". This is usually, but not always, the one who will pay the agent for his/her
services. The principal is also known as a client.
(On the next page, please insert Section 9 slides 001 & 001A)
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THE AGENT / PRINCIPAL RELATIONSHIP
3. Agent - This is the one who acts in a fiduciary capacity for the principal. In most States, the broker is
the agent of the seller, buyer, or both. The broker enters into agreements with the seller, buyer, or both.
A new licensee will be the salesperson of the broker. The broker's salesperson working with a seller will
be an agent of the seller. A salesperson working with a buyer is an agent of the buyer. If the broker has
two separate salespersons with one working with a buyer and the other working with the seller in the
same transaction, the broker would be a dual agent.
a. Fiduciary Capacity - This is the relationship of utmost good faith and loyalty that an agent owes to
his/her principal. Agents are to protect the interests of their clients in all matters regarding a real estate
transaction.
b. Principal Reliance - The principal relies on the agent/licensee to protect his/her interests in a real
estate transaction. This reliance can be expressed in a written or oral agency contract. Note: Most States
require a written (expressed) contract between the principal and agent/licensee.
4. Customer - The one who enters into a real estate contract with the principal through the efforts of the
principal's agent. A customer is a 3rd party to an agency relationship. The principal is the 1st party; the
agent/licensee is the 2nd party. Everyone else in the world would be a 3rd party; a customer.
Example: M decides to sell her home for $300,000. M enters into a "listing" agreement with licensee Z
to sell her home. M is the 1st party and Z is the 2nd party. Any person who comes forward to buy the
home is a customer; a 3rd party.
(On the next page, please insert Section 9 slides 002 & 002A)
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CREATING AN AGENT - PRINCIPAL RELATIONSHIP
In order for an agency relationship to exist, the principal must have delegated responsibilities to the
agent in regard to performance on behalf of the principal. In other words, the principal must stipulate
what the agent is to do on the principal's behalf.
1. Express Contract - This is a contract that is expressed between the principal and the agent; between
the client and the licensee.
a. Written or Oral Agreement - Agency contracts can be an oral agreement or a written
contract. Some States such as the State of Washington require the agency contracts to be in
writing.
b. Agent Limits - An agency contract in the real estate industry is a limited contract. The agency
contract limits the agent's action to those powers specifically agreed to in the contract. The
agency powers are limited to powers within the real estate area.
(On the next page, please insert Section 9 slides 003 & 003A)
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AN EXPRESS CONTRACT - WRITTEN
In Writing - Most real estate contracts must be in writing as required under the Statute of Frauds. The
following are express contracts that must be in writing:
1. Earnest Money Receipts - When a purchaser puts down earnest money with their offer to buy, the
earnest money (E/M) receipt for the money must be in writing.
2. Property Management Agreements - When a principal hires another (fiduciary) to manage their real
estate holdings, the agreement must be in writing.
3. Listing Agreements - When a seller signs a listing agreement with a licensee to list their home on the
Multiple Listing Service (MLS), the agreement must be in writing.
4. Options Contract - Options to buy in the future and any lease that is 1 year or longer, etc. must be in
writing.
(On the next page, please insert Section 9 slides 004 & 004A)
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AN EXPRESS CONTRACT - ORAL
Designated/Principal Broker - The licensed broker that is "personally" responsible for the entire
operation of a firm is "designated" as such with the State. Some States call this person the Principal
Broker.
Oral Agreements - Some real estate agreements may be oral in nature. These agreements are usually
between licensees and are not covered by the Statute of Frauds. The following are express contracts that
can be oral:
1. Agreements to Split Commissions - When there are multiple licensees involved in a real estate
transaction, the licensees will often times split the commission between those licensees involved.
Example: Licensee Y has a friend in another part of the State that wants to sell their home. Y calls
licensee M, local to the friend, and gets M the listing. M agrees over the phone to pay Y 10% of his/her
commission for the lead.
2. Designated Broker's Employment Agreement - Designated/Principal brokers (in charge) will pay
an affiliated licensee a percentage of the commission for real estate services rendered.
Example: Designated/Principal Broker W agrees to pay affiliated licensee Y 50% of any commission
that Y brings into broker W's office.
(On the next page, please insert Section 9 slides 005 & 005A)
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TYPES OF AGENCY
When a principal/client enters into an agency contract with a licensee, the agency agreement will
establish the powers that the principal is granting the licensee/agent. The licensee cannot exercise any
powers beyond those granted under the agency agreement. The following are examples of the different
types of agency.
1. "Universal Agency" - A written agreement where the agent has the actual power to sign legal
documents for his/her principal. This is normally formed for people who are incapacitated physically or
mentally. In regard to real estate, the agent under this agreement can act as if he/she were that person.
The agent would have General Power of Attorney on behalf of the principal/client. This is rarely done,
BUT if the principal were living abroad, he/she would probably give the agent universal agency power
to allow sale of the property in question.
2. "General Agency" - This is similar to universal agency but it does involve a power of attorney
designation. General agency includes all business affairs of the principal, but not personal aspects. A
general agency would have the power to bind his/her principal on business and real estate matters.
3. "Specific Agency" (Special Agent) - This agency relationship gives the agent representative power,
but it is limited to only one specific business activity outlined in their agency agreement. This is the
form of agency that licensees are involved with regarding the principal's needs.
4. Managing Broker - Normally, the managing broker does not have power of attorney nor does the
broker need it. The client is capable of taking care of themselves, but needs help in one specific area;
real estate.
Listing Agreement/Specific Agency - The listing agreement creates a specific agency. It only states "I
will pay you a commission if you find a ready, willing, and able buyer". The listing agreement does not
give the broker the right to accept and bind the sale or to sign legal documents on behalf of the principal.
(On the next page, please insert Section 9 slides 006 & 006A)
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IMPLIED AGENCY CONTRACT
If a principal condones actions of their agent, the actions are determined by the court to be implied
powers or contract.
1. Condoned Action - If an agent/licensee uses powers and goes beyond the agency agreement and the
principal fails to protest, these condoned actions are under an implied contract; implied by the principal
for lack of action.
a. Created - Implied contracts are created by approval of actions and not by written or oral
agreement.
b. Known - The actions of the agent must be done with knowledge of principal. The principal
agrees to honor the unauthorized act either due to lack of action or by acknowledgment by the
principal.
c. Ratification - The lack of action on the part of the principal for a known wrongful action by
their agent is known as ratification. The principal ratifies their agent's action by lack of action or
correction.
d. Agency Power - The principal is stating that the agency power existed since the principal
condoned the action. The principal did not try to rectify or correct the action. In effect, the
principal is allowing the public to believe that their real estate person has the power because
he/she is not exercising control over the agent.
Express Power - The act of non-action would now become part of the agent's express powers by
ratification of the written agency agreement.
(On the next page, please insert Section 9 slides 007 & 007A)
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APPARENT AGENCY CONTRACT/OSTENSIBLE
CONTRACT
The apparent contract factors are interesting in that we are a part of this aspect every business day. An
apparent contract power is based on actions and tradition. These are powers that appear to the public to
be reasonable and customary in their nature.
Example: The power to show the principal's property to willing buyers may not be in the agency
agreement, but it is an industry characteristic that the general public assumes by history and action.
1. Public Assumption - If an agent wrongfully tells the public that he/she has the right to do something
the public may assume he/she has that right if it appears to be reasonable and logical.
2. Estoppel - This will bind the principal to the contractual action because of the apparent power
exercised by their agent. This is an example of waiver and estoppel in that the principal is esstoped from
the desired or correct action by the agent. Once the principal waives his/her right, they are esstoped from
gaining it back.
3. Sue/Litigation - The principal may then sue the agent for the agent's wrongful act. The courts would
hold the actions to be a breach of fiduciary capacity.
(On the next page, please insert Section 9 slides 008 & 008A)
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WHOM DO YOU REPRESENT?
When a party represents the interests of another, we have an agency relationship. The key in an agency
relationship is who is the licensee an agent of?
Agent ---------------> Principal buyer's agent or seller's agent or dual agent
Attorney -----------> Client - An attorney is an agent of the client
Listing Managing Broker ---> Seller - The listing managing broker is an agent of the seller
Broker ----------------> Broker represents the firm and/or designated broker
Note: Most States require the licensee to state in writing who they are representing in an agency
capacity.
Note: In most States the affiliated licensee is a subagent of the managing broker. The managing broker
is the agent of the seller or the buyer or both. The seller and the buyer are the principals in an agency
relationship. Usually, the seller and the buyer would each have their own agent.
(On the next page, please insert Section 9 slides 009 & 009A)
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DUTIES OF THE PRINCIPAL/SELLER TO THE AGENT
When an agency contract is drawn between the seller/ principal and the listing broker/agent, the
principal has the responsibility to provide for the professional needs of his/her agents so that the agents
can provide the contracted services. The following represent the duties of the seller to his/her agent:
1. Contract - The principal must perform in accordance with the sales contract that was drawn with the
agent/listing broker. If the broker provides willing and capable buyers, the principal must pay the agent a
commission.
2. Work "FOR" - The principal must furnish an opportunity to work. The listed property must be
available for showing. The principal cannot prevent the agent from showing the property to willing
buyers.
3. Do Not Interfere - The principal cannot interfere with the agent's work. If a buyer presents an offer,
the principal/seller must listen to the offer. The principal cannot revoke the listing agreement.
4. Revoke Listing - If the broker is advertising and actively trying to sell the property, the principal
cannot revoke the listing. If the principal revokes the listing he/she would have to pay damages to the
broker. This is based on contract law as stipulated in the listing agreement.
Example: The principal has a listing agreement with a broker and pulls the listing agreement because
the principal has found a buyer on his/her own. The principal would still have to pay the broker a
commission.
5. Broker Financing - The principal cannot revoke the sales contract at all if the "agency is coupled
with an interest". If the broker has a financial interest in the property (coupled with an interest), the
principal cannot pull the listing agreement.
Example: The broker provided financing to build condominiums. The principal would be paying
installment payments on the loan and the broker would have the exclusive right to sell the units.
(On the next page, please insert Section 9 slides 010 & 010A)
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DUTIES OF THE PRINCIPAL/SELLER
The principal (your client) must perform required actions within a reasonable time frame. When the
property is sold, the seller/principal must perform the necessary legal actions to transfer title in a timely
manner. Any undue delay on the part of the principal is called "latches" and would still require the
seller/principal to pay a commission.
Example of Latches: The seller must clear title and provide the agreed upon documents at closing. Any
intentional delay by the seller to encourage the buyer to "back-out" would mean the principal would still
have to pay a commission to the broker. The reason is that the broker performed under the agreement,
but the principal did not perform.
1. Accurate Information - The principal must give the agent accurate information to rely upon. The
broker and salespeople are going to be relaying the information to possible purchasers and other
licensees who are bringing their buyers forward. If the information is incorrect, lawyers could get
involved.
2. Accurate Records - Keep and render accurate accounts regarding the property. This would include
any outstanding liens on the property such as the property tax records. This would also include any
easements across the property or any easements that the property enjoys across another person's
property.
(On the next page, please insert Section 9 slides 011 & 011A)
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DUTIES OF PRINCIPAL (Continued)
1. Legal Liability - The principal(s) would assume legal liability for AUTHORIZED acts that he/she
has granted to his/her agent; granted to you, the licensee.
2. Proper Acts - All proper acts of an agent are the acts of his/her principal. If the principal gives
authorization for specific action of the agent, the principal is legally responsible.
Example: The principal gives authorization to show the seller's property to buyers. If a buyer is injured
on the property, the principal could be held liable. Normal homeowners insurance would protect the
seller/principal from any financial loss.
3. Improper Acts - The improper acts of an agent are the acts of his/her principal. This is the case if the
principal knew of the act.
Example: The principal instructs the agent to keep people away from the swimming pool. The agent
shows the pool and someone gets hurt. If the principal knew the agent was doing this and didn't take
steps to stop it, the principal could be liable. If the agent's actions are unknown to the principal, only
the agent is responsibility for the acts outside his/her authority.
(On the next page, please insert Section 9 slides 012 & 012A)
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LEGAL LIABILITY BETWEEN THE PRINCIPAL AND
AGENT
Lawsuits - In the case of a lawsuit in real estate, the buyer will always sue the seller for injuries suffered
under a Sales Contract and an Earnest Money (E/M) Receipt. The injured buyer may also sue the
managing brokers and brokers involved in the sale. This is America and anyone can "have their day in
court."
1. Seller Sues - The seller may sue his/her managing broker if the managing broker was outside the
scope of specific authority. The seller may sue if the agent was participating in an illegal act or the agent
was outside the seller's knowledge and control (outside the powers of the listing agreement).
2. Managing Broker Sues - The broker may sue the affiliated licensee if he/she was working outside
the scope of their authority. This is the case if the act was outside broker's knowledge and control (the
affiliate goes beyond the employment contract).
3. Managing Broker Sues Managing Broker - The broker may also sue if another broker or
salesperson has breached their fiduciary capacity. All licensees are to protect the interest of their client;
the principal. If a licensee does not do this and the listing broker gets sued, the listing managing broker
can sue the wrongful licensee.
Example: A broker under the managing broker tells buyers that the seller/principal will accept a price
$10,000 less than the listed price. If the seller found out and sued the managing broker, the managing
broker could sue the broker.
Pay Compensation As Agreed - The principal must pay the agent a commission as agreed to in the
listing agreement.
(On the next page, please insert Section 9 slides 013 & 013A)
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FIDUCIARY DUTIES OF THE AGENT TO THE PRINCIPAL
Fiduciary duties of the agent to the principal are to provide protection for the principal's interest. The
agent must provide the principal with a position of trust, loyalty, and confidence. The principal is relying
on the agent to protect his/her interests in a real estate transaction.
Example: The agent knows that the principal's property is up for rezoning and will immediately increase
in value. The agent must tell the principal of this information. You are protecting the principal's interest.
Example: The principal tells the agent that he/she must sell the property right away. The agent can't
divulge this to possible buyers or agents of possible buyers.
1. Representing a Principal - Generally an agent can only represent one principal in a given
transaction; either the agent for the buyer or the agent for the seller.
a. Exception - If both the seller and the buyer have full knowledge and give written consent, the
agent can represent the buyer and the seller in a real estate transaction. CAREFUL - Though the
State allows this your future employing managing broker might not allow this.
2. Dual Agent - When an agent is representing the buyer and the seller it is called "dual agency". This is
when there are 2 or more principals being represented by one agent.
(On the next page, please insert Section 9 slides 014 & 014A)
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FIDUCIARY CAPACITY OF AGENT TO CLIENT
When working with the seller, the agent is a fiduciary for the seller. The agent is to represent the seller's
interest and no one else. When representing the buyer, the agent protects the buyer's interest and no one
else. Only the dual agent represents the seller and buyer, BUT the agent must gain permission from both.
1. No Competing - An agent may not compete with his/her principal. The agent may not act on behalf
of a competitor in a transaction. This is against the agent's fiduciary capacity. The agent owes 110%
loyalty to his/her client.
2. Seller's Agent - If he/she is an agent of the seller, he/she must not work to the betterment of the buyer
in order to make a sale.
a. Injuring the Seller - If an agent is employed as a "seller's agent", it is wrong for the agent to
buy for him/herself. It is also questionable for the agent to represent someone else who is bidding
on the property. It could be construed that the agent is pursuing business with the intent of
injuring the seller.
3. Buyer's Agent - If you are employed as a "buyer's agent", you may not buy that property for yourself
or some other person. The agent cannot come in with a higher bid.
4. Dual - The agent is attempting to represent both parties in the transaction. This is legal, but must have
permission from both parties.
5. Disclosure - An agent can buy for him/herself or someone for whom the agent has a conflict of
interest if the seller knows the facts and agrees to them in writing.
Inside Information - An agent may not use information obtained in the course of employment to the
detriment of his/her principal. An agent obtains important personal information from their principal. To
divulge this information to other licensees is to the detriment of the seller and is against fiduciary
capacity.
Example: The principal wants to move out-of-town "as quick as possible". Some agents would simply
tell others that the seller is "motivated". Other licensees and their clients might take advantage of this
knowledge.
1. Agent Knowledge - The knowledge of the agent is to be made the knowledge of his/her principal.
When an offer comes in from a buyer, the knowledge of the problems associated with the offer should
be talked about with the seller.
Example: The offer will cause excessive points and closing costs. The agent should let their
principal/client be aware of these monetary considerations.
(On the next page, please insert Section 9 slides 015 & 015A)
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FIDUCIARY CAPACITY - PROFESSIONAL SERVICES
There are many services that a licensee provides his/her client. This is always true whether the client is
the buyer, seller, or both. The following represent aspects of professional service.
1. No Additional Compensation - An agent cannot make "secret profit" for him/herself through
collusion with others.
2. Prudent Action - An agent must act in a reasonable, prudent manner. An agent should not exceed
his/her abilities to perform in a professional manner for his/her client.
3. Abilities - An agent should only accept employment that he/she can professionally perform.
Example: The agent has many listings that he/she is working with and can't do an adequate job of
showing. The agent should work a commission split and hire another licensee to help out.
Example: A new agent is taking a listing on a large shopping center owned by a friend. The agent does
not have the commercial ability to be helpful to the client/friend.
4. Authorized Acts - An agent is subject to a lawsuit by his/her principal for unauthorized acts on the
part of the agent.
Example: If an agent is instructed to show only during day light hours in the listing agreement, he/she
should not go in at night.
5. Must Obey - The agent is under the control of his/her principal. The agent must follow legal
directions of principal.
a. Illegal Acts - The agent cannot be forced to obey illegal instructions of the principal. Agents have to
answer to the profession and the State for illegal acts.
6. Monetary Responsibility - If an agent is empowered to collect money or hold property, the agent
must account for it accurately.
(On the next page, please insert Section 9 slides 016 & 016A)
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AGENT'S RELATIONSHIP WITH THE 3RD PARTY
If an agent is working as the buyer's agent, the seller would be a 3rd party. If an agent is working as a
seller's agent, the buyer would be a 3rd party. The 3rd party is simply the other party that is part of the
real estate sales contract.
Agent Responsibility - An agent does not owe the 3rd party a "Fiduciary Relationship". The agent is
not employed by the 3rd party and is obligated to their client to obtain the best side of a sale.
1. Integrity - An agent owes a normal level of honesty and integrity to the 3rd party. As a real estate
professional, this will be part of your reputation within the industry.
2. Disclosure - An agent must reveal to all parties, including the 3rd party, any personal interest that the
agent has in any real estate transaction.
3. To the 3rd Party - The agent should always state that he/she is an agent for his/her principal. This is
an integrity aspect. Parties to negotiation should know who represents each party.
4. Licensed - An agent should state that he/she holds a real estate license. Some States require the
licensee to carry a pocket license with them at all times. It is a good idea to show this to each involved
party that the licensee comes in contact with in a real estate transaction.
5. Ownership - If an agent has an interest in the subject real property the agent is required to state any
ownership or monetary interest in the property. This is a requirement of State law.
6. Material Facts - The agent must disclose any known material fact about the subject property in a real
estate transaction. A material fact is one that would affect the buyer's decision regarding the purchase of
the subject property. In cases of law, the buyer would simply have to say "Had I known the truth, I
would not have entered into a contract."
Example: The agent knows there is an underground heating oil tank on the property. If the agent fails to
inform a buyer of this fact, it is concealment AND A MATERIAL FACT. If the agent says there is no
underground tank it is a misrepresentation AND A MATERIAL FACT. The courts and/or the Real
Estate Division might rule it fraud, which could be deemed a criminal offense.
(On the next page, please insert Section 9 slides 017 & 017A)
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AGENCY CONTRACT - VOIDABLE
Fraud, concealment, or material misrepresentation by an agent or seller leads to a voidable contract.
1. Material Misrepresentation - This is a false statement of a material fact with no intent to deceive
on which the injured party relied. If it were an attempt to deceive, the courts would rule it fraud. A
misrepresentation is less severe than fraud. In either case it makes the contract voidable by the injured
party. There is no clear offer and acceptance.
a. Puffing - This is an exaggeration or an over-statement regarding the subject property. Puffing
is not enough of an injury to void a contract.
Example: The agent of the seller states "that roof will last forever". This is an exaggeration or
opinion. The opinion is not the same as a material fact.
2. Concealment - Failing to disclose a material fact on which an injured party would have relied and
therefore not entered into the contract. This too makes the purchase contract voidable by the injured
party. There is no clear offer and acceptance.
3. Fraud - Fraud is a false statement with the intent to deceive and to induce a person to enter into a
contract against their best interest. This too makes the contract voidable by the injured party.
Example: An agent states that the house was owned by an older couple knowing it was actually seized
by the DEA as a drug lab.
(On the next page, please insert Section 9 slides 018 & 018)
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TERMINATING AN AGENCY CONTRACT
When a real estate agency (listing) contract is in effect between a principal (seller) and the agent, the
parties to the contract have different opportunities to terminate their arrangement. The following
represent the various ways that an agency contract can be terminated:
1. Mutual Agreement (Rescission) - If a principal and an agent mutually agree to form an agency
contract, they can mutually agree to terminate the contract. This is called rescission.
2. Expiration Date - All listing agreements must have an expiration date. When that date is reached, the
principal and agent have mutually agreed in advance that the listing agreement is over.
3. Fulfillment of the Purpose - If the goal of the listing agreement is reached, the sale of the property,
the agent has Tendered Performance. The agent has completed his/her requirement under the
agreement. The listing agreement has a specific piece of property. Once this specific property is sold, the
agreement is completed.
4. Revocation by the Principal - The principal can unilaterally (one-sided) revoke the agent's authority
to represent the seller/principal. This can be done if no injury is caused to agent/broker.
a. Managing Broker Costs - If the broker has spent advertising money and is actively seeking a
sale, the seller/principal may have to pay damages for breach of contract to the broker.
b. Managing Broker Interest - If a listing agreement is an "agency coupled with an interest, the
seller/principal cannot unilaterally terminate the listing agreement. The seller is obligated until
expiration date of agreement.
Example: The managing broker gave a construction loan to the principal to make corrections to the
structure. This is an "agency coupled with an interest and the principal is bound until the expiration of
the listing agreement.
(On the next page, please insert Section 9 slides 019& 019A
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TERMINATING THE LISTING (AGENCY) AGREEMENT
There are some additional methods through which the contract (listing agreement) can be terminated by
the agent or principal (seller/client).
1. Renunciation by the Agent - An agent may at anytime revoke the listing agreement, if no loss is
suffered by principal/seller. The agent probably could not back out of the agreement if:
a. Advance Fee - The seller had paid an "advance fee" to the managing broker to do advertising.
If the advertising had not been done, the agent could not back out of the listing agreement.
b. Ongoing Sale - The seller had accepted an offer by a buyer, an ongoing sale. If there was an
ongoing sale, the agent could not unilaterally back out of the listing agreement.
2. Bankruptcy, Death, or Insanity - If either the principal or the agent suffered bankruptcy, death, or
insanity, they would be ruled incompetent and the contract would be ruled voidable. The listing
agreement is also based on "personal aspect". The signing agent and the signing principal intend to do
business with each other. Each is not obligated to work with another individual. The original intent was
to do business with the specified parties of the agreement; personally. If a new managing broker or a
new owner is present, a new listing agreement would have to be renegotiated.
3. Change of Business Conditions - If there are drastic changes to the property in question that changes
its value, the agent or principal may pull out of the listing agreement.
Example: If oil was discovered on the listed property and the value has increased considerably, the
principal/seller can terminate the agreement.
4. Loss or Destruction - If there is a loss or there is destruction of the subject property, the listing
agreement can be terminated.
Example: If the house is severely damaged by flood, the listing agreement can be terminated.
(On the next page, please insert Section 9 slides 020& 020A)
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TERMINATING THE LISTING (AGENCY) AGREEMENT
5. Loss of Qualification - If either the principal or agent had a change of status, the listing agreement
can be terminated.
Example: The broker lost his/her license by State action. The principal can back out of the listing
agreement. If the principal lost the property in a friendly card game, the managing broker does not have
to work with the new owner.
a. Disloyalty of an Agent - This would be considered breach of fiduciary capacity and the principal can
terminate the agreement.
Example: The agent has been misrepresenting the property to the public (disloyalty). The principal can
terminate the agreement because the principal is responsible for his/her agent's actions. If the principal
continued the arrangement with this knowledge, the principal would be libel in litigation (lawsuit)
proceedings.
6. Law Changes - If the State where the property is located changes the real estate laws, this makes the
agency authority illegal. The principal is not obligated to keep the contract in force and break the law.
7. War - When the U.S.A. goes to war with another country, if the principal and/or the agent are citizens
of that belligerent country, the other party may terminate the listing agreement.
(On the next page, please insert Section 9 slides 021 & 21A)
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