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LESSON 6
Real Property Transactions and Agency Law
Note: Selected readings can be found under "Online Readings" on your Course Resources webpage
Assigned Reading
1. Real Estate Division. 2012. Real Property Law. Vancouver: UBC Real Estate Division.
Chapter 6: Real Property Transactions and Agency Law
Recommended Reading
1. Case Law:

Price v. Malais (1982) – duties arising from agency contract

Lombard Properties Ltd. v. Block Bros. (1988) – duty not to misuse information

Ocean City Realty Ltd. v. A&M Holdings Ltd. (1987) – duty to disclose all material information
Learning Objectives
Upon completion of this lesson, the student should be able to:
1. describe how an agency relationship can be created and be able to explain the various types of authority that
an agent has;
2. identify the various types of listing agreements and be able to distinguish among them;
3. discuss the information required for a valid listing contract;
4. discuss the formal requirements of a listing/agency agreement, including the requirement of writing;
5. explain the duties and obligations an agent owes to his or her principal and be able to apply them to a real
estate agency relationship;
6. discuss how and when an agent becomes personally liable to a third party;
7. explain when a principal is liable to pay commission to a real estate agent;
8. list the circumstances which would render an agency agreement terminated;
9. outline the major considerations involved in drafting a contract of purchase and sale; and
10. discuss conditions precedent, the difference between an objective and subjective condition precedent, the
requirement of fulfilling the condition, and when a condition precedent can be unilaterally waived.
6.1
Lesson 6
Instructor's Comments
In completing this lesson, students will gain an understanding of the relationship between the buyer, the seller,
and the real estate agent in property transactions. Different types of agency arrangements are examined and the
duties of the real estate agent which arise from these arrangements. The information required for a listing
agreement is also discussed.
In the majority of residential real estate transactions, one or more of the parties is represented by an agent. The
agent may represent the seller, the buyer, or sometimes both the seller and the buyer. Agency representation also
occurs in commercial real estate transactions, as well as in other contexts in real estate and other professions.
Insurance agents, commission sales people, purchasing agents, and officers of corporations all act in an agency
capacity. Chapter 6 of the course manual introduces the elements of the agency relationship in general, but
because of the prevalence of the agency relationship in the residential sales context, the chapter concentrates on
and uses examples based upon this area. Remember when reading through this chapter that the basic principles
apply to all agency relationships; keep in mind, however, that some of the specific relationships created to deal
with the unique residential real estate agency situation (and in particular, the limited dual agency relationship)
would be unheard of in the traditional common law of agency.
The chapter also covers the use of condition precedents in real estate transactions, explaining the difference
between a subjective and objective condition, as well as the requirement of good faith in endeavouring to remove
a condition precedent. This is a very interesting area, as it can impact the enforceability of a contract for
purchase and sale.
Review and Discussion Questions
1. Saul, a licensed salesperson (representative) employed by OJ Realty Ltd., obtained a listing contract for the sale
of a warehouse complex owned by AB Vendor Ltd. and valued at $4.8 million. Saul negotiated a sale of the
property to Mrs. Perch, a wealthy Calgary oil magnate. After the sale was completed, it was discovered by AB
Vendor Ltd. that, during negotiations with the purchaser, Saul had agreed to pay Mrs. Perch $50,000 from his
portion of the commission. AB Vendor Ltd. refused to pay any commission to either OJ Realty Ltd. or Saul.
OJ Realty and Saul are bringing a lawsuit for breach of contract against AB Vendor Ltd. to recover the
commission.
By refusing to pay commission, is the vendor liable to OJ Realty and Saul for its breach of the listing
contract? What must the agent (broker) prove to succeed in recovering commission? What remedy is
available to AB Vendor Ltd.? Give reasons for your opinions. Confine your answers to the principles of
agency law contained in this chapter.
2. A licensee obtained a listing on a block of undeveloped land to be sold at $5,000 per acre. The licensee
obtained an offer to purchase at $5,055 from a developer. The transaction closed and the licensee received a
commission. The vendor recently learned that 2 weeks after the vendor's acceptance, but before the
completion date, the licensee had purchased a 25% interest in the block of land through an informal
partnership agreement with the developer.
(a) List three obligations under the law of agency which have been breached by the agent. Give reasons for
your opinion.
(b) What common law remedy, if any, does this vendor have?
6.2
Real Property Transactions and Agency Law
3. Explain in your own words the meaning of the term "fiduciary". Can a real estate salesperson
(representative) be a "fiduciary"? If so, explain how and when this occurs.
4. Your client wants to sell his family home and feels he should be able to find a buyer among his network of
friends. However, he also likes the idea of someone else doing the advertising and carrying out open houses.
Discuss the various types of real estate listings he could consider, and any advantages or disadvantages of
each for his situation.
5. Your wife wants to move, but you don't, having just finished paying off the mortgage on your home.
Reluctantly, you put the house on the market and receive, within two weeks, a cash offer above the listing
price. You accept the offer subject to a clause you insert: "sale subject to the vendor finding a suitable family
home within 2 weeks."
The day you list your home your wife finds a house similar to yours, but in need of some restoration and
decorating. It is listed at a price slightly lower than your house's asking price. You make an offer to
purchase the house, thinking if you change your mind you can later be able to back out of the deal due to the
"subject to" clause you decide to put in: "subject to the purchasers obtaining a mortgage at current market
rates or other suitable financing within 3 weeks." You sign the contract for purchase and sale and do
nothing. When asked to remove your subject to clause, you say you are not obliged to, as you haven't
obtained financing, so you won't be purchasing the house.
The seller is extremely upset, as he knows you have had a good offer on your home for the past three
weeks. Are you allowed to do this?
6.3
Lesson 6
ASSIGNMENT 6
CHAPTER 6: Real Property Transactions and Agency Law
Marks 1 mark per question.
1.
In which of the following examples is the licensee in breach of her agency obligations?
(1)
(2)
(3)
(4)
2.
Tara was asked by Jim to sell his car while he was out of the country on an extended trip. She
was to receive 10% of whatever price she could get. Tara had to go away for two weeks so she
left the car with her mother with full instructions on what to do. Tara's mother sold the car the
first week Tara was away.
Samantha had a listing on Wilbert's house. Wilbert thought that his house was worth a small
fortune and told Samantha not to bring any prospective purchasers through the house unless
they provided a cheque for $10,000 first. Samantha knew that Wilbert was kidding himself
about the quality of his house so she did not require purchasers to provide the cheque.
Lisbeth was the listing agent of Paula's house. Homer wanted to make an offer on Paula's
house and Lisbeth wrote it up. The price was to be adjusted by the cost of relocating a
staircase, which the parties had discussed as costing in the range of $4,000 - $6,000. The
clause read: "Vendor to bear the cost of relocation of the stairway". When the actual bids for
the work came in they were all above $15,000.
The agent has breached her obligations in all of the above examples.
Mike wanted to purchase a ten acre waterfront lot on Saltspring Island from Janice. He intended to
subdivide the lot into ten 1-acre parcels and to sell nine of the resulting lots to finance the construction
of a vacation home for his family on the remaining lot. In order to protect himself, he made the contract
subject to his receiving approval of the subdivision plans from the Island Trust, one of the Gulf Island
approving authorities. Mike later found another ten acre parcel which he preferred, and because he had
not yet applied for the approval of the subdivision from the Island Trust, he decided to delay applying
for the subdivision in order to use the condition precedent to avoid purchasing Janice's lot.
Which of the following is TRUE?
(1)
(2)
(3)
(4)
Because the contract of purchase and sale between Mike and Janice did not contain a promise
that Mike would use his best efforts to satisfy the condition, Mike can successfully use the
condition precedent to avoid purchasing Janice's lot.
Fulfilment of the condition precedent can be waived by Janice so that the approval of the
subdivision is not necessary in order for her to ensure that the transaction completes.
If Mike changes his mind and waives the fulfilment of the condition precedent requiring that he
receive the Island Trust's approval, he may be still be liable to Janice for any increased
construction costs caused by his delay in obtaining subdivision approval.
Mike is under an implied obligation to use his best efforts to secure performance of the
condition, and therefore Mike cannot use the condition to avoid the contract unless he has failed
after using his best efforts to obtain subdivision approval.
***Assignment 6 continues on next page***
6.4
Real Property Transactions and Agency Law
3.
Mr. Burns listed his house for sale with Lisa. Murphy viewed the house and made an offer at $20,000
less than the list price. When he was talking with Lisa, Murphy told Lisa that his aged mother lived one
block away and that he had to be in the neighbourhood to care for her. Murphy told Lisa that he had
been looking in the neighbourhood for one year and Mr. Burns' house was the first one that had been
suitable. He said "Boy, this house is worth a fortune to me!" Lisa presented the offer to Mr. Burns
without any explanation and Mr. Burns accepted it. Which of the following statements is TRUE?
(1)
(2)
(3)
(4)
4.
Tibor asks Victor to sell his lawn mower and power pruning and edging tools for him. When Magda
comes to see the tools, she asks to take the lawnmower to a shop to have it checked. Victor allows her
to do so. What is the nature of Victor's authority?
(1)
(2)
(3)
(4)
5.
Lisa owes a duty of fairness to all persons with whom she deals and this means that she must
treat information such as that she received from Murphy as confidential and she cannot
communicate it to anyone without Murphy's permission.
Since there is no profit to Lisa in this situation apart from her commission, she has done
nothing wrong in relation to Mr. Burns.
By not informing Mr. Burns of Murphy's special desire to buy in his neighbourhood, Lisa may
have breached her obligation to disclose all material information, since Mr. Burns may have
decided to make a higher counter offer if he had known of Murphy's eagerness to buy.
Lisa had no obligation to tell Mr. Burns what Murphy's plans were since Lisa was not selling
her own property in the transaction.
Victor has express authority to sell the mower and tools and no authority to allow Magda to
remove the mower from the premises.
Victor has express authority to sell the mower and tools and to allow Magda to have the mower
inspected.
Victor has usual authority to sell the mower and tools and implied authority to allow Magda to
have the mower inspected.
Victor has express authority to sell the tools and implied authority to allow Magda to have the
mower inspected.
Shafik asked Noor to sell his 1965 Mustang convertible for him and send him the money in England,
where he was starting a business. He told Noor to sell the car for whatever she could get above
$25,000. Noor advertised the car for a month and did not get an offer over $17,000. Finally, Salim
offered $21,000 and Noor accepted, thinking that it was the best price she could get. Which of the
following statements is TRUE?
(1)
(2)
(3)
(4)
Salim is entitled to buy the car for $21,000 and Shafik can sue Noor for the balance of $4,000
for her breach of the agency contract.
Salim cannot enforce the sale of the car since Noor did not have authority to sell for less than
$25,000, and Salim can sue Noor for breach of warranty of authority.
Salim can enforce the sale of the car but he will have to pay $25,000 to Shafik and sue Noor
for the $4,000 difference.
None of the above statements is true.
***Assignment 6 continues on next page***
6.5
Lesson 6
6.
Victor signed a standard exclusive right to sell listing agreement appointing Andrew as his agent to sell
his country estate, Whiteacre, at a price of $500,000 cash. After 3 weeks and numerous open houses,
Andrew obtained a cash offer from Peter of $450,000. Since Victor was away for a week, and not
wanting to lose what he now felt was an advantageous sale, Andrew signed the contract of purchase and
sale as vendor on behalf of Victor who was shown as the principal. Subsequently, Victor, feeling the
price was too low, refused to sign the deed of conveyance on the completion date.
Based on the above facts, consider the following statements and select the best answer.
A.
B.
C.
D.
(1)
(2)
(3)
(4)
7.
C and D are true; A and B are false.
A, B, C, and D are false.
A, B, C, and D are true.
A, B, and D are true; C is false.
What is the result where an agent enters a contract on behalf of his principal for which he has no
authority and the principal later adopts the contract?
(1)
(2)
(3)
(4)
8.
Peter cannot enforce the contract against Victor since a listing does not authorize a
licensee to sell.
Peter can sue Andrew for damages for breach of warranty of authority.
Peter can enforce the contract against Andrew since he signed as vendor.
Peter cannot enforce the contract against Victor since Victor did not hold out Andrew
as his agent to sell.
Such a contract cannot be binding on the principal unless the contract is remade after the
principal extends her authority.
The principal will be bound by the contract but will have a claim for damages against her agent
for breach of the agency contract.
The contract will not bind the third party if it decides that it does not want to make the contract
after learning of the agent's initial lack of authority.
The contract is binding on both the third party and the principal and there is no liability on the
part of the agent.
When a real estate company is acting not only as the listing agency for a property but also as the agent
for the buyer, the company has become a dual agent. This situation presents an obvious conflict;
however, the company can continue to act for both parties if the agent promptly:
A.
B.
C.
D.
makes full disclosure to both the vendor and the purchaser of the existence of the dual
agency.
obtains permission from both principals to proceed in the matter.
obtains a new listing contract from the purchaser outlining the dual agency role.
discloses the identity of both the vendor and the purchaser to the opposite party.
Which of the following is/are TRUE?
(1)
(2)
(3)
(4)
The agent must do only A and B.
The agent must do only A, B, and C.
The agent must do only D.
The agent must cease to act in the situation.
***Assignment 6 continues on next page***
6.6
Real Property Transactions and Agency Law
9.
Valdi, an owner of real property, told Abdul, a real estate agent, in part as follows: "You have sole and
exclusive authority to sell my property. I will pay you a commission of 6% if the property is sold."
Abdul agreed and they shook hands to seal the deal. Which one of the following statements is TRUE?
(1)
(2)
(3)
(4)
10.
Which of the following events will terminate an agency relationship?
(1)
(2)
(3)
(4)
11.
Revocation of the agency by the principal
Frustration
Performance
All of the above
An agent will be personally liable to third parties:
(1)
(2)
(3)
(4)
12.
The above contract means that Valdi must pay 6% of the sale price to Abdul unless Valdi sells
the property himself.
Abdul may accept any offer on Valdi's property which meets Valdi's terms.
It would be prudent for this contract to be in writing.
The above contract is called a statutory power of attorney.
whenever the agent contracts on behalf of a principal.
where the agent fails to disclose that he or she is an agent.
where the agent has no written authority.
in all of the above circumstances.
Which of the following are TRUE statements about the relationship between the agent and principal?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
In buyer-agency the vendor and the buyer each enter into a separate agency
relationship with their respective agent.
Agency disclosure has been interpreted to require that agents disclose that their
primary responsibility is to protect and promote their principal's interests while
remaining responsible for fair and honest dealing with all parties.
In sub-agency both the listing agent and the selling agent have the vendor as their
principal.
In sub-agency the selling agent has obligations to the vendor, and the buyer is the third
party.
Only A and C are true.
Only B and D are true.
Only A, B, and D are true.
All of the statements are true.
***Assignment 6 continues on next page***
6.7
Lesson 6
13.
Eric wanted to move into a larger house and listed his home with Andrew, a licensed real estate agent.
The listing agreement contained the following clause:
The Seller hereby lists exclusively with the Listing Agent the Property until
11:59 pm on August 30, 2009.
One or more of the following statements may be TRUE.
A.
B.
C.
D.
The listing agreement may be a multiple listing agreement.
The listing agreement is an exclusive listing agreement.
The listing agreement grants to Andrew a power of attorney to accept offers on behalf
of Eric.
The listing agreement is an open listing.
Without knowing more about the listing agreement, indicate which statements are TRUE.
(1)
(2)
(3)
(4)
14.
Only A and D are true.
Only A and B are true.
Only D is true.
Only B and C are true.
Which of the following is TRUE?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
15.
A listing agent owes the same duties to a purchaser, as they do to their principal.
If an agent exceeds his or her authority when dealing with a third party, the agent may
be liable to that party for breaching his or her warranty of authority.
The principal will always be liable to the third party for losses suffered as a result of
the agent exceeding his or her authority.
Under common law, an agent must disclose any information that may influence the
principal's conduct.
A only
B only
A and C only
B and D only
A standard Multiple Listing Service (MLS) contract must:
(1)
(2)
(3)
(4)
have the property sold by the listing agent.
be for a higher rate of commission than other listing contracts.
be submitted to the Real Estate Board before the property may be sold.
meet none of the above requirements.
***Assignment 6 continues on next page***
6.8
Real Property Transactions and Agency Law
16.
An agent owes a duty to his or her principal not to make a secret profit. This means that an agent must
keep the principal fully informed about:
(1)
(2)
(3)
(4)
17.
Which of the following statements is FALSE regarding a contract of purchase and sale?
(1)
(2)
(3)
(4)
18.
The purchaser must pay the deposit or there is no binding contract.
An agent cannot return a deposit to the purchaser without a release from the vendor or acting
under a court order.
A purchaser must act in good faith in trying to fulfill a condition precedent if the condition
benefits them.
Subjective condition precedents can render an intended contract unenforceable.
Which of the following is a duty owed by a principal to his or her agent?
(1)
(2)
(3)
(4)
19.
all of the agent's personal business dealings.
the agent's annual tax return.
all of the actual benefits and prospective benefits accruing to the agent in a transaction.
only the actual profits received by the agent.
The duty of full disclosure.
The duty to act solely for the agent's benefit.
The duty to pay remuneration in accordance with the agency contract.
All of the above are duties owed by a principal to his or her agent.
Which of the following statements is/are true?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
Real estate agents cannot usually make binding contracts with a purchaser on behalf of
their principals.
If an agent has habitually acted without express authority, and the principal has not
made known the actual limits of the agent's authority, the agent may have agency by
estoppel, or apparent authority.
A principal does not need to be in existence at the time a contract was entered into –
they only need to be able to ratify the contract entered into by an agent.
When a property is listed for sale, the listing is considered an offer to sell the
property.
A only
C and D only
A and B only
B only
***Assignment 6 continues on next page***
6.9
Lesson 6
20.
George agrees to pay Phillip a commission if Phillip can sell George's rowboat for $300. Although
George never mentioned it specifically, Phillip found it necessary to allow potential buyers to take the
boat out for a ride. What type of authority does Phillip have to permit this?
(1)
(2)
(3)
(4)
___
20
no authority
express authority
usual authority
implied authority
Total Marks
Planning Ahead
Please note that Project 1 is due this week, in addition to Assignment 6.
Once Project 1 has been received by the Real Estate Division, you can
view its answer guide online (it is numbered "Assignment 11").
***End of Assignment 6***
6.10