Why The Principal - You - Should Know About The Principles Of Contract And Agency

So why should you be concerned with the principles of contract or the principles of agency? Well you should be if you are buying or selling a property in the UK, using the services of an estate agent, or taking out a mortgage loan.

It surely is understood by everyone the mortgage loan process has two sides - you, as the borrower, and the lender, usually a bank or perhaps a building society. No problems there.

However, buying a house and getting a mortgage are in actual fact contracts, involving you and the seller and lender.

Thus, the contract in its simplest form requires two sides, with each of the parties bound by legal requirements and rules.

And underpinning the legalities and rules are the principles of contract and the principles of agency. It is worth understanding both of these.

Right, let's get down to the real basics of what a contract is. In its simplest form, it can be described as a legal arrangement, entered by two or more people. The principles of contract flesh this relationship out.

A contract implies something is given by one side and accepted by the other. Doing so places legal obligations on both sides.

The 'something' given is known in legal terms as a consideration. Kind of old world? In terms of property, the buyer's consideration is cash, which he or she hands over. The seller's consideration is, naturally, the property.

You'd be right in assuming there's so much more to this than the number of parties involved and the parting with a consideration.

There are several more rules that must be complied with - even before either of the parties gets involved. It's called the capacity to enter into a contract in the first instance.

In the UK, that means they have to be 18 or over, and be legally able to buy or sell any property. And each party must be of sound mind.

Honesty is another necessity, hence the idea of utmost good faith.

In other words, truthful answers when either side asks a question.

And let's face it, this is extremely important when it comes to any dealings in property. The buyer's solicitor will almost certainly ask one or two probing questions as a matter of routine. So many issues can have an impact on a property's value - disputes with neighbouring property owners, for example, or environmental factors, and so on.

Legal consequences might arise if it is found out later that certain information provided was less than truthful.

When dealing with property, too, the principles of agency may also become a factor. That's because most property transactions involve the use of estate agents, to bring together buyer and seller.

The principles of agency involves a relationship between an agent and a principal. An agent is a person who acts for someone else, the principal. In our property situation, the principal is normally the seller of the property and the agent the estate agent.

Thus in law, whatever is done by the agent is deemed to have been done by the principal.

Of course, that is a rather simple explanation and in the real world the situation is likely to be much more complex. However, in terms of our estate agent, his or her job might be nothing more than passing on interested offers to the seller.

Compare this to other more complex types of agency where the agent may perhaps be given more authority to act on behalf of the principal, within, of course, certain agreed and predefined parameters.

This may often be the case with an IFA (independent financial adviser) and their client. The IFA may have been given authority to take independent action with regard to, for example, investment decisions. However, any such action will normally fall within parameters already agreed.

So, whether straightforward, or more complex, all conditions of an agency should be set down in writing before any action is taken - independently or otherwise - by the agent.

So, when an agent takes action on behalf of a client, the agent knows exactly what the limits are right from the start.

Of course, as in many other areas of everyday life, the principles of agency may become a little bit more complex.

There could be situations where the action of the principal may appear to give the agent authority beyond any agreed limits.

This apparent authority serves to legitimise the actions taken by the agent, despite those actions being outside the parameters agreed at the start of the relationship.

Agents sometimes do step over the boundaries set out. In such a situation, legal action often may be taken by the principal if required.

Or perhaps if the actions taken by the agent are deemed acceptable, after the event has taken place, the principal may in fact ratify the actions. This state of affairs is known as ratification.

In this very short article, we've underlined some of the important issues surrounding the buying and selling of property. We've also considered the principles of contract and the principles of agency. Both of these are important parts to understand.

Article Source: http://www.109b.com/artdash

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