Contract Ratification

Sometimes an agent’s authority to act on behalf of a principal can be established retroactively. An agency is created by ratification when a principal gives power to act after the fact.

Example 1: Where an agent enters into a contract on behalf of his principal but the contract is beyond the agent’s express authority, he can be given authority in the past via ratification. If the principal consents after the fact to be bound by the unauthorized acts of his agent, he has ratified the contract. The result is, therefore, that the principal is bound by the contract just as if the agent had been so authorized in the first place.

Example 2: The principal may ratify unauthorized acts by accepting the benefits of the act. If a principal receives an offer negotiated by a person who was not originally contracted to represent him or her, the principal has ratified an agency.

Many know the ethics of reciprocity as the Golden Rule, to “do unto others that you would have them do unto you.” The preamble to the Code of Ethics and Standards of Practice of the National Association of REALTORs® contains this statement:

…REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied by the Golden Rule, “Whatsoever ye would that others should do to you, do ye even so to them.” For people living in western cultures, the Golden Rule is seen as the standard for good conduct and selflessness.

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An agency is by ratification when a principal gives authority to act after the  

Estoppel

Great care should be taken when making promises that you should know will be reasonably relied upon by someone else. “Estoppel” relates to a legal standard that, if someone makes a statement that they know will be relied on by another, and that person does rely on it, then the first person cannot withdraw that statement later. They are “estopped” from denying they made such a statement and had to accept the other side’s reliance as binding them to that statement.

For example, a tenant who has been renting a home has learned that the home he lives in is now for sale. He also discovers that the property owner is working with a real estate agent. Because the tenant does not want to move, he contacts the owner’s agent expressing interest in purchasing the property. After speaking with the principal, the agent tells the renter that if he makes specific improvements to the property he can purchase the home for less than the asking price. The renter then spends his own time and money to make the improvements to the home.

Later, the principal informs the agent that the improvements will not qualify the tenant to purchase the property for a discounted price. In this example, through estoppel, the principal could be obligated for the creation of an agency relationship with the broker that binds the principal to the contract.

NOTE: In agency by estoppel, the principal is required to acknowledge that an agency relationship exists to protect a third party’s interests.

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In agency by the principal is required to acknowledge that an agency relationship exists to protect a   party’s interests.

Agent Representing Seller Only Should Not be Obligated to Disclose Comparable Sales Information to Buyer

The Seller has insisted on listing the property at a list price that is above the listing agent’s comparable price opinion because the seller believes that the property is worth the price. Is a listing Broker violating a duty to the seller by providing the buyer information that is public knowledge or is a matter of public record, such as comparables, when that information is detrimental to the seller’s interest?

A listing Broker is an agent with fiduciary duties to the seller. E.g., Haymes v. Rogers, 70 Ariz. 257, 219 P.2d 339 (1950) (a real estate broker employed to sell property owes the duty of utmost good faith and loyalty to his principal and a fiduciary relationship exists). This broker-client agency relationship imposes on a Broker the fiduciary duties of “utmost good faith, integrity, honesty, and loyalty in her transactions with the principal…” Musselman v. Southwinds Realty, Inc., 146 Ariz. 173, 175, 704 P.2d 814, 816 (App. 1985).

A listing Broker is obligated to exercise reasonable care to effect a sale to the best advantage of the seller: i.e., secure the best terms at the best price obtainable. See, e.g., Vivian Arnold Realty Co. v. McCormick, 19 Ariz. App. 289, 506 P.2d 1074 (1976) (broker has the duty to effect a sale for a seller on best terms possible); Meerdink v. Krieger, 550 P.2d 42 (Wash. App. 1976) (broker has a duty to exercise reasonable care, skill, and judgment in securing best bargain possible).

Despite this fiduciary duty to the seller, the listing Broker is obligated to disclose known information to the buyer that materially and adversely affects the consideration to be paid for the property. See Lombardo v. Albu, 199 Ariz. 97, 14 P.3d 288 (2000) (the agent’s disclosure obligations are consistent with the disclosure obligations of the client); see also A.A.C. R4-28-1101(B). However, public information such as comparable price information should not be the type of material and adverse information that the listing Broker is legally obligated to disclose to the buyer. See, e.g., Buffington v. Haas, 124 Ariz. 36, 601 P.2d 1320 (1979) (absent an agency relationship a broker has no obligation to advise a non-client as to the advisability of the contract terms). [Note: other types of public information could be of the type that would require disclosure, despite its public nature: for example, an impending zoning change].

Therefore, the listing Broker should not be legally obligated to disclose the comparables to the buyer. Further, if the disclosure would prevent the listing Broker from effecting a sale to the best advantage of the seller, the listing Broker would breach a duty to the seller by disclosing the information, unless, of course, the Broker obtains the seller’s consent.

Quick Quiz

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Therefore, the listing Broker should not be legally to disclose the comparables to the buyer.