Realty Reality: Seller's Actions May Ratify Agent's Signing by Bob Hunt
A recent memo from the California Association of Realtors®' (CAR) Legal Department draws our attention to some important principles with respect to the signing of contracts. The memo refers to a 4th District California Court of Appeal case, Behniwal v. Mix, a case that contains plenty of features not to like. The Mixes listed their condominium for sale in June of 2002. Within a few weeks they received an offer of $520,000 from the Behniwals. At the direction of the Mixes, their agent prepared a counteroffer of $540,000. Their agent also signed the Mixes' names. (At trial, Mrs. Mix testified that she had not given the agent verbal authorization to do this; but, in the decision, the trial judge wrote, "The Court disbelieves Mrs. Mix' testimony [on this point] …"). The Behniwals accepted this counteroffer, which they believed to be bona fide. An escrow was opened, and on July 3 the Mixes signed a number of disclosure documents required for the transaction. A few days later, Mr. Mix had to go to a hospital emergency room. Purportedly because of his health problems, the Mixes sought to cancel the transaction and instructed escrow accordingly. A few months later, the Behniwals sued for specific performance. The Mixes based their defense on a legal doctrine known as the statute of frauds, which, among other things, requires that a contract to sell real estate must be in writing and signed by the parties. Every licensee learns that and every broker/manager reinforces that learning. Moreover, as agents are told over and over, they cannot, without written authorization, sign documents on behalf of their clients. Here we quote from the appellate decision: "In fact, the trial court specifically found: (1) Mrs. Mix had orally authorized the Mixes' agent to sign the basic papers; (2) the Mixes knew there was an agreement to sell the property; and (3) the Mixes action had misled the Behniwals into thinking they had purchased the condominium." Nonetheless, the trial court denied the Behniwals' request for specific performance. It concluded "there was no writing on the sellers' part ratifying the agent's actions …," and therefore the Mixes were not bound by the contract. (More precisely, no contract had been formed.) But the Appellate Court disagreed. It noted that subsequent action by a principal can be "sufficient to ratify an agent's authority to have entered into a written contract …," albeit such ratification would have to be in writing. The Court gave examples of cases where the signing of escrow instructions had been taken to be ratification of a contract that had not been properly signed. In this case, though, because the escrow instructions were contained within the purchase document, there were no additional escrow instructions (that repeated the terms of the deal) to be signed. However, the court noted that the Mixes had signed a number of disclosure documents, some of which referred to "the agreement, this transfer, and the close of escrow". It found that the signing of these documents constituted sufficient written ratification of (the agent's authority to sign) the contract. Moreover, the court observed, "If the Mixes wanted out of the deal because [the agent] had accepted it behind their back, they should have screamed bloody murder in early July, rather than signing disclosure documents which gave every objective indication that they wanted to go through with 'the' agreement, 'this' transfer, and 'the' escrow." So what's the lesson here? Clearly, agents shouldn't sign contracts on behalf of their principals without written authorization to do so. But, if it does happen, and if the clients move forward and act as if they believe they have a deal, they are liable to find out that they in fact do have a deal -- one to which they can be held. |
