In real estate, an “agent” is an individual who acts in an authorized capacity on behalf of another individual, company or firm. It is important to keep this in mind to better understand what an agency by estoppel entails. This last term is used to refer to that situation where a person appears to be an agent of a specific entity (person or company) performing representation or transactions. In the event of a legal conflict, the principal entity is responsible for any transaction or contract. Therefore, it will be legally prevented from denying a link with the false agent. We know that this can be confusing for you. Therefore, in this article we will tell you everything you need to know about agency by estoppel.
In which situations does it apply?
Before answering this question, it is necessary to clarify these terms so that you can put them into context. Remember that:
- The Principal: The company, firm or person being represented.
- The Agent: Seller who takes the authorized or unauthorized position, to represent the principal.
- The third party: Person who relies on the existence of a relationship between the above.
Now, when does it apply? In this context the law is usually very rigorous. An agency by estoppel may apply in a case where the principal has negligently caused the third party to enter into transactions with the agent allegedly representing the principal.
Also, there may be an agreement between the principal and the “agent” for mutual benefit. In this sense, the principal (the company) helps to strengthen the appearance of an existing relationship. Therefore, any transaction that has consequences makes it legally binding. You should know that this applies if a company provides some kind of material to the agent that validates their relationship (cards, forms, etc.).
Example for Agency by Estoppel
Agency by Estoppel may be more common than you think. Let’s use a simple example in the real estate industry to help you understand it better.
For example, let’s say that a person acts as if he/she were an agent of a real estate agency, so he/she tries to represent you before third parties. In this case, the real estate agency directive knows what is going on but does not direct its efforts to put an end to the situation because, in one way or another, it is making a profit.
The supposed “agent” has folders with the logo of the real estate agency and business cards that help other people to trust what he presumes to be.
In the event of a legal dispute with a third party, it is inevitable that the principal (real estate agency) will be involved. The third party will sue the agency with which it assumes to have done business through an “authorized agent”. In this case, a court could determine that the real estate agency is “estopped” from denying an agency relationship with the “agent”. These is the agency by estoppel.
Even if the case was inadvertent or consensual, a third party (i.e., a client) was allowed to believe in the authority of that “agent”.
This issue is often very complicated. Generally, companies, individuals or organizations involved in this type of situation may face unexpected charges.
What role does “Apparent Authority” play?
This term can be very important, above all it is necessary to learn to distinguish it, a real authority is not the same as an apparent authority. An apparent authority occurs when there is the manifestation of certain elements that give fidelity to the situation. In this sense, the conduct of a person can lead him to think that he is authorized for certain actions on behalf of another.
That is to say, to adopt this conception in a legal field it must be taken into account that the authority manifested or the perceptible elements must be evident. In this way, the principal can be bound in the case. Believe it or not, in the world of real estate or sales in general this is very common.
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