- January 26, 2010
- Posted by: Christopher Hanson
- Category: Real Estate
Napoleon Solo; Simon Templar; Derek Flint; and – of course – Bond, James Bond. All of them, great agents. But did they owe “fiduciary duties?”
A real estate agent is a fiduciary to the client, and as a result incurs a host of responsibilities – and potential liabilities. So, what makes an agent, an “agent?” Not as much as you’d think. (And it isn’t a Walther PPK.)
An agency relationship, generally, is created by an express or implied contract between the principal and the agent. RJ Kuhl Corp. v. Sullivan (1993) 13 CalApp4th, 1589, 1599. The extent of the duties of the agent are determined by the terms of the agreement between the parties. Carleton v. Tortosa (1993) 14 CalApp4th 745, 755; Rest 2d. Agency, §376.
An agency relationship must be a consensual one. Nichols v. Arthur Murray (1967) 248 CalApp2d, 612. As a consensual relationship, the creation of a real estate broker-principal agency is subject to the general rules for the formation of a contract. Thus, it can be expressly or impliedly created. However, just as any contract, there must be a mutual intention to be bound.
Creation of Agency by Implication. The creation of an agency need not be by express written agreement. No special formalities are required for the creation of the agency, Vargas v. Ruggiero (1961) 197 Cal.App.2d 709, and it may be implied from the conduct of the parties, Montoya v. McLeod (1985) 176 Cal.App.3d 57, where the facts and circumstances show that the parties intended that one person is to represent another in communications with third persons. However, one does not become an agent simply by offering assistance or making suggestions. Violette v. Shoup (1993) 16 Cal.App.4th 611.
Creation of Agency by Oral Agreement. The agency may be created by an oral agreement without any writing to evidence the relationship. An oral agreement authorizing someone to act as an agent and find a buyer for the principal’s property, under which the agent receives confidential information respecting the property, is sufficient to create a fiduciary relationship between the parties. Gann v. Williams Brothers Realty, Inc. (1991) 231 Cal.App.3d 1698. The agency relationship may be created and fiduciary duties imposed on the agent, even though there is no written memorandum under the statute of frauds for the recovery of a commission by the agent.
Factors considered when determining whether there is an agency. Various factors have been considered in determining whether an agency has been created, but the decisions have not been consistent in the importance of these factors. Depending on the context of the issue, one test may be more predominant than the other tests. The various factors include the right of the principal to control the activities of the agent, the agent’s right to exercise discretion, and the payment of compensation, but the primary test is the intention of the parties.
When Fiduciary Duties Arise. A broker’s fiduciary duties arise at the creation of the agency relationship, in most cases when the employment contract (listing agreement for sellers; purchase offer, for buyers; or a confirmation of an agency disclosure statement for both) is executed. Bate v. Marsteller (1959) 175 CalApp2d 573, 577-581.
What about the Saturday visitor while on Floor Duty? Is that person now a “client?”
No, that alone does not give rise to the creation of an agency relationship. “While the necessary agency relationship may be implied from the parties conduct, such conduct must be more substantial than the act of a broker submitting property to a man who simply entered the broker’s office to make an inquiry.” Price v. Eisan (1961) 194 CalApp2d 363, 365.
Similarly, the agency imposes strict fiduciary duties on the agent who cannot be burdened with these obligations against his or her will. If the purported agent never assumes to act on behalf of the purported principal as an intermediary with a third party, there is no agency relationship. Schmidt v. Beckelman (1960) 187 Cal.App.2d 462.
When Does it All End? As between the principal and the agent, the agency is terminated by the expiration of its term; the extinction of its subject; the death of either the agent or the principal; a renunciation by the agent; a revocation by the principal; or the incapacity of the agent to perform his or her duties or of the principal to contract. The authority of a subagent is likewise terminated by the agent’s death.
If a specified term is not placed on the duration of the agency, it is presumed that the parties intended it to continue for a reasonable time as a question of fact or until terminated by one of the parties after the expiration of a reasonable time.
Distinguishing agency obligations and the right to compensation. A distinction must be drawn between the contractual relationship and the agency relationship. In order to recover a commission, there must be a contractual relationship between the broker and the client by a written agreement of employment signed by the principal. The requirement of a writing does not apply to the creation of the agency.
So, you can be stuck with the obligations and liabilities of a fiduciary – without the benefit of getting paid. (Maybe you’ll want that Walther PPK after all?)
Summary of factors for determining the creation of an agency:
- A writing setting forth an agency.
- Participation in the negotiations.
- Exercise of discretion on behalf of the principal.
- Brings or helps to bring the parties to a meeting of the minds.
- Receives confidential information creating a fiduciary relationship.
- Degree of control of the principal over agent.
- Payment of compensation.
- The intent of the parties to create an agency.