Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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Agency Created by Estoppel

July 26, 2013 - Updated: July 26, 2013

 

 

 

The very difficult issues raised in the area of agency are the ones that are not quite so clear. Here, the agent is not appointed by an express written agreement. If that were the case, then the position of the parties would be clear and the rights and responsibilities would fall into place.

 

And, it’s not even verbal, which poses its own issues. This agency appointment arises simply out of the conduct of the parties.

 

In this case, there is nothing in writing. The agency appointment comes as an interpretation of the conduct of the parties. “A” must be the agent of “P” because “P” treated him like an agent, and also, “A” acted like an agent, and “P” confirmed this, or did nothing to prevent others from believing it to be true.

 

It is difficult, but not impossible to prove. This agency appointment arises by the conduct of the principal, and in law, this is often referred to as “estoppel”. In other words, the principal, having acted in a certain way has given the impression that there was an agency appointment, so later on, the principal will be estopped from denying its existence.

 

It is interesting since at the outset, there was no appointment. The authority of the agent was not real. It was apparent or ostensible. It looked like there was an agency appointment, but there wasn’t one in fact.

 

The most frequent set of circumstances confirming the agency, is the adoption by the principal, after the fact, of the contract negotiated by the agent. So, once the principal has chosen to come forward and accept the benefits of the contract, he cannot later deny the existence of the agency. This is actually referred to as agency created by ratification.

 

With ratification, there will usually be paperwork and with estoppel, there is no paperwork. Ultimately, it is simply an interpretation or decision by the courts.

 

Issues concerning real estate matters arise frequently. An agency appointment is created by a listing agreement for a seller or a buyer representation agreement for a buyer. There is a start date and an end date. Those dates are clear from the written agency appointments. But, what about the period just before the agreement, and the period of time after the agreement expired? Is there still an agency? In law, there may very well be such an agency depending upon the conduct of the parties.

 

One particularly fatal error is made by sales representatives searching for properties on behalf of buyers. Frequently, the representative will simply conclude they will work with the buyer for a while and enter into an agency agreement before submitting an Offer. But, that’s too late! The regulations in fact require this step to be undertaken as soon as practicable and no later than the submission of an Offer.

 

The effect, of course, is that the discussion about agency never took place until it was far too late. The agency in most situations had been created very early on, at the outset, and perhaps before the first property was shown. Consequently, we have an agency arise by conduct of the parties, perhaps for a month or two, prior to a subsequent agency being documented in writing.

 

The Real Estate and Business Brokers Act, 2002 prevents the collection of a commission unless the arrangement is reduced to writing, but, that does not preclude the earlier agency appointment by conduct. Duties and obligations can certainly arise out of that appointment.

 

The principal may have provided the agent with apparent or ostensible authority to act. This situation usually arises from a series of events, or undertakings. Take for example, 9 circumstances in which “A” was authorized to purchase items from “T” on behalf of “P”. We now have 9 instances in series, and when #10 arises, “T” may simply presume that “A” has authority to act. It would be up to “P” to intervene, ahead of time, and properly inform “T” to the contrary. From a legal perspective, “P” has clothed “A” with ostensible or apparent authority to act on his behalf. The principal will be estopped from denying this later.

 

Courts have struggled to explain the two concepts:

 

1) actual authority              ,

 

2) apparent, ostensible authority.

 

A well known case on point is Freeman & Lockyer v. Buchurst Park Properties (1964) 2 Q.B. 480.

 

Actual Authority

 

  • Actual authority is a legal relationship between principal and agent
  • The scope is to be determined by ordinary contract principles
  • Looking at express words, usage in the trade, course of business between parties
  • The third party is a stranger, and knows nothing of the authority
  • If such actual authority exists, then the second contract, negotiated by the agent is between P and T

 

Apparent or Ostensible Authority

 

  • This authority arises out of the relationship between the principal and the third party
  • The authority is created by a representation(s) made by the principal to the contractor, intended to be acted upon by the contractor (third party) that the agent has authority
  • The agent is a stranger to this relationship, that is, the principal and contractor relationship
  • Once the contractor enters into the contract, the principal is estopped from denying the agent’s authority
  • The matter of actual authority is irrelevant

 

 

As a result, any limitation or restriction on an agent’s authority must be brought to the attention of a third party contractor.

 

If there are internal rules, limitations, restrictions, procedures, or policies to be followed by the agent all imposed by the principal, unknown to the third party contractor, then they are clearly not binding upon the third party contractor.

 

In one case (Reid v. McKenzie 1921, 3 W.W.R.72), a principal wanted to see and examine samples before the deal would become firm. That was fine as between “P” and “A”, but it was not part of the “P” and “T” agreement. The agent failed to put it in that deal. The principal was stuck with the deal as negotiated by the agent of its behalf. In that case, the Judge pointed out that the company had equipped the agent with contract forms (purchase orders), sent the agent out to make calls and were therefore bound by the deals struck by the agent. There was apparent or ostensible authority, which became “real” once there was a contract, even though the agent never, ever had actual authority to do so.

 

The very dangerous type of agency appointment is the one which is not reduced to writing. It’s not express, it’s not verbal, it’s just an inference from the conduct of the parties.

 

This is also the area which will be fraught with legal problems and potential lawsuits.

 

Note: as used above:

 

“P”  - principal

 

“A” - agent

 

“T” – third party contractor

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

 


Tagged with: agency conduct estoppel principal agent third party ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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