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RATIFICATION OF
AGENT’S UNAUTHORIZED ACTIONS IN A REAL ESTATE TRANSACTION: IF THE AGENT
AGREES WITHOUT YOUR AUTHORITY, CAN YOU STILL BE BOUND?
Introduction:
During the often
breathless give and take of real estate transactions, it is not uncommon
for offers and counteroffers to be exchanged verbally or by telephone
and far too often the buyer or seller finds that his or her broker or
agent has made a commitment to a part of the transaction that the buyer
or seller does not like. For example, the agent may agree to some
financing or some repair that the seller may consider inappropriate or
assumption of some repair obligation that the buyer considers excessive.
Can the agent bind
the buyer or seller in such a way?
Usually not, as
discussed below. But if the agent’s principal engages in certain later
acts that “ratify” the commitment of the agent, then the principal may
be bound. “Estoppel” may also bind the principal.
This article shall
briefly describe the limits on the authority of the agent to act and the
perils of ratification and estoppel faced by the principal of the agent.
The reader should first review our article on
Real Estate
Transactions before reading
further.
Agency and
Principal:
One who is
authorized to act for another and can bind that person is an “agent” of
the person who is bound and the person who so authorizes the agent to
act in this manner is the “principal.” Agency can be permanent or, more
often, temporary for a particular transaction or a set period of time.
Agency can be granted in writing or verbally and can even be implied by
the acts of the principal. Typically, a real estate transaction has the
broker or real estate agent granted written authority by the buyer or
seller to negotiate and make offers on real property.
Anyone who has read
the agreement that California law requires the real estate agent to
utilize for residential agency is aware of the myriad restrictions
imposed upon the agent under the law and contract. Most listing
agreements simply grant the agent the right to list the property and
negotiate, subject to final approval of the seller. Many buyers use an
agent to locate and negotiate on property that they wish to buy, again
maintaining the right for the final authority to approve any offer or
counter offer made. In all these matters, the agency is subject to
written authority granted to the agent by the principal (both buyer and
seller) under the written agreement normally required by California law.
In such real estate
transactions the agent is normally subject both under the agreement and
the license law to conform to strict limitations on what can be said and
what commitments can be made. The restrictions are less for commercial
property transactions but many still apply.
Oral Agency in Real
Estate Transactions
Agency law in
general allows the creation of an agency relationship by an oral
understanding of the parties or even if such agency relationship can be
reasonably inferred by the actions of the principal.
However, real estate
transactions must almost always be in writing under the Statute of
Frauds requirement in California. See our article on
Contracts.
How does that effect oral granting of agency?
Under the “equal
dignities rule” the statute of frauds is satisfied only if the agent’s
authority to bind the principal to a land sale is evidenced by a writing
signed by the principal. The principal’s oral authority to an agent is
generally sufficient for any purpose except that an authority to enter
into a contract required by law to be in writing can only be given by an
instrument in writing. (Rutter, California Practice Guide, Real
Property Transactions, Greenwood and Asimov, Execution by Agent, Section
4:269, p.4-61; Ulloa v. McMillin Real Estate & Mortg., Inc.
(2007) 149 Cal.App.4th 333, 339 [57 Cal. Rptr. 3d 1, 5]; see
Estate of Stephens (2002) 28 Cal.4th 665,672 [122 Cal.Rptr. 358,
362—where agent did not have written authority to execute deed as a
principal’s agent, conveyance not authorized under Section 2309.]
Ratification.
A principal may
“ratify” an agent’s act even if the original agency did not extend to
such a commitment to the third party. For example, if I authorize my
agent to only offer a certain type of financing, but my agent offers
more and I do not protest and allow the deal to continue, that could be
considered ratifying the act of the agent and thus binding me. Whether
ratification occurs is normally a question of fact for the judge or
jury.
However, as set
forth in Rutter, California Practice Guide, Real Property Transactions,
Greenwood and Asimov, Applicable to Ratification of Agent’s Invalid Act,
Section 4:269.1-4:269.2, “[w]hile the principal’s ratification of the
agent’s act may validate an agent’s unauthorized act, the “equal
dignities” rule also applies to the ratification. A principal’s
ratification of an agent’s act can be made only in the manner that would
have been necessary to confer an original authority for the act
ratified. (Civil Code 2310) Thus, just as an agent’s authority to
execute a purchase/sale agreement must be in writing, so too must a
principal’s ratification of an invalid execution by the agent. [Estate
of Stephens, supra, 28 Cal.4th at 673, 122 Cal. Rptr.2d
at 363—principal’s oral ratification of agent’s execution of deed
ineffective; Behniwal v. Mix (2005) 133 Cal.App.4th
1027, 1039 [35 Cal.Rptr. 320, 329]
In short, if the
original deal required a writing to be binding, I cannot ratify verbally
the agent’s verbal commitment…my ratification would have to be in
writing.
What Writing
Required?
Documents of high
levels of specificity, such as escrow instructions, have been held to
ratify an agent’s acts in entering into a deal. (Behniwal v. Mix,
supra 133 Cal.4th at 1039, 35 Cal. Rptr.3d at 329) A
principal’s written ratification of an agent’s invalid execution of an
agreement need not itself set forth the terms of the agreement. This is
because the terms have been identified already, and the only outstanding
issue is whether the principal’s acceptance of them can be ascertained
from the ratification documents. (Behniwal v. Mix, supra 133
Cal.4th at 1040, 35 Cal. Rptr.3d at 329-330)
Thus, for example,
the principal’s signature on disclosure documents executed in connection
with a real property purchase and sale transaction (e.g., a natural
hazard disclosure statement, or the notice of the availability of a
statewide database showing the proximity of registered sex offenders
effectively ratified the underlying purchase and sale agreement and,
subsequently the transactions. (Behniwal v. Mix, supra, 133 Cal.4th
at 1040-1042, 35 Cal. Rptr.3d at 329-331)”
Estoppel
While the general
law is that representations that are made beyond the agent’s scope of
authority do not bind the principal except for ratification (discussed
above) in addition the principal may be bound by the doctrine of
estoppel. (Grasslands Water Ass’n v. Lucky Leven Land & Cattle Co.
(1952) 112 Cal.App.2d 776 [247 P.2d 380]) Estoppel is a doctrine that
states that it would be unfair or unjust to allow a party to take
advantage of the reasonable reliance of a third party by avoiding a
commitment. Thus, if I advise you that you can paint the house and I
will get X to compensate you, but I never did so, claiming that it was
not my house and I was not serious, you can claim I am liable since you
reasonably relied on my representation and I should be “estopped” from
denying liability.
But, principles of
estoppel may not be invoked to directly contravene statutory limits. (See
Medina v. Board of Retirement, Los Angeles County Employees Retirement
Assn. (2003) 112 Cal.App.4th 864 [5 Cal.Rptr. 3d 634] and
Beynon v. Garden Grove Medical Group (1980) 100 Cal.App.3d 698
[161 Cal/ Rptr. 146]) The statute of frauds would almost certainly
continue to be applied, though, again, the trier of fact would have to
investigate the evidence.
Conclusion
Note that the
principal finding him or herself bound by the unauthorized act of the
agent may still have a cause of action against the agent for such
activity even if ratification or estoppel ends up binding the principal.
But the lesson is
that if your agent has apparently tried to bind you in an unauthorized
manner, be sure to get full legal analysis of the situation to avoid the
doctrines of estoppel and ratification which may still bind you to the
deal…and be sure to consider carefully whether the Statute of Frauds
would still grant you protection. In real estate transactions, you are
probably, but not certainly, safe. |
