Legal Liabilities When Brokers Real Exceed Their Authorized Scope

Brokers real exceed their authorized scope is a central issue in current real estate transactions. Under the 2015 Civil Code, an authorized representative may only execute transactions within the limits of the written agreement. Arbitrarily establishing transactions beyond this authority directly affects the lawful rights of all related parties. In the following article, Long Phan Consulting Company provides a detailed analysis of current regulations and the resulting legal consequences.

What is a Brokers real exceed their authorized scope?

Before analyzing legal liabilities, it is necessary to understand what happens when brokers real exceed their authorized scope and how this situation is defined in legal theory and practice. Real estate brokerage is a commercial intermediary activity in the real estate sector. Under Clause 2, Article 3 of the 2023 Law on Real Estate Business, real estate brokerage is a form of real estate service business.

Concurrently, Clause 11, Article 3 of the 2023 Law on Real Estate Business explains that real estate brokerage involves acting as an intermediary for parties in buying, selling, transferring, leasing, subleasing, or lease-purchasing real estate. The broker performing this act does not directly participate in the contract as a buyer or seller but plays a transaction coordinating role.

>>>See more: Authorization for Real Estate Brokers to Sign Contracts

Legal regulations regarding the scope of authorization for brokers

To determine when brokers real exceed their authorized scope, it is essential to examine the legal regulations that define the limits of authorization granted to brokers. Legal regulations on authorization define the boundaries of responsibility and authority for the representative during task execution. Clients must note that all authorization agreements must be established in writing to ensure evidentiary value before jurisdictional bodies. Below are the core legal aspects of authorization in brokerage activities.

Overview of delegation

An overview of delegation helps clarify the legal framework within which brokers operate and explains the circumstances under which brokers real exceed their authorized scope. Authorization is an agreement between parties wherein the authorized party (the representative) is obligated to perform tasks in the name of the authorizing party (the principal). When executing an authorization contract, parties typically aim to create an authorization contract or a Power of Attorney (POA).

Under Article 562 of the 2015 Civil Code, an authorization contract is an agreement where the authorized party must perform work on behalf of the principal, and the principal only pays remuneration if agreed upon or prescribed by law. Through this contract, parties agree on the transfer of tasks and the receipt of benefits.

In essence, the authorized party represents the principal in performing specific legal acts. Once notarized or authenticated, the authorization contract becomes legally effective, and the agreed-upon contents are recognized by law.

Legal regulations regarding the scope of authorization for brokers

Understanding the legal provisions governing authorization is important in identifying situations where brokers real exceed their authorized scope in commercial or civil transactions. Article 138 of the 2015 Civil Code regulates authorized representation as follows:

• Individuals and legal entities may authorize other individuals or legal entities to establish and perform civil transactions.
• Household members, cooperative groups, and other non-legal-entity organizations may agree to appoint a representative to establish and perform civil transactions regarding common property.
• Persons aged 15 to under 18 can be authorized representatives, except in civil transactions that the law requires to be established and performed by persons aged 18 or older.

The scope of representation (authorized scope) of a broker is prescribed in Article 141 of the 2015 Civil Code:

• A representative broker may only establish and perform civil transactions within the scope of representation based on: A decision by a competent authority; the legal entity’s charter; the authorization content; or other legal provisions.
• If the specific scope cannot be determined, the legal representative has the right to establish and perform all civil transactions for the principal’s benefit, unless otherwise prescribed by law.
• An individual or legal entity may represent multiple different individuals or legal entities but must not act in the name of the principal to establish/perform transactions with themselves or with a third party they also represent, unless otherwise prescribed by law.
• The representative broker must notify transacting parties of their scope of representation.

Based on this, the scope depends on the parties’ agreement in the contract.

Brokerage exceeding the scope of authorized representation

Brokerage activities become legally problematic when brokers real exceed their authorized scope, especially in cases where the broker acts beyond the authority granted by the principal. This behavior usually stems from profiteering motives or ignorance of the legal limits in the service contract. Clients must carefully analyze the following factors to identify violations.

Basis for the emergence of agency relationships

The agency relationship forms the legal foundation of brokerage activities and determines the boundaries within which brokers must act to avoid situations where brokers real exceed their authorized scope. Pursuant to Article 135 of the 2015 Civil Code, representation relations arise based on:

• A written authorization or authorization contract between the principal and the authorized party.
• Representation by law (parents naturally representing a minor to open a bank account).
• A decision by a competent state agency.
• A legal entity’s charter.

The broker is authorized to act on behalf of the principal

When a broker is authorized to represent the principal, the scope of such authorization becomes crucial in preventing cases where brokers real exceed their authorized scope. This is a situation where an authorized broker acts beyond the scope of their authorization, but the authorized broker still acts in the name of the authorizing party. In this case, it is still considered that the person has exceeded the scope of their authorization.

The broker acted beyond the scope of his authorization

In some transactions, disputes arise because brokers real exceed their authorized scope, acting beyond the authority granted by the principal. According to regulations, exceeding one’s authority results in the transaction being invalidated. However, there are some exceptions. Therefore, whether or not a brokerage transaction exceeding the scope of authorization will be approved depends on many factors.

Legal consequences of brokers exceeding the scope of their authorization

Once brokers real exceed their authorized scope, various legal consequences may arise, affecting the validity of transactions and the liability of the parties involved. Under Article 143 of the 2015 Civil Code, the consequences of civil transactions established and performed by a representative exceeding the scope of representation include:

1. The transaction does not give rise to rights and obligations for the represented principal, EXCEPT in cases where:

• The represented principal agrees;
• The represented principal knows but does not object within a reasonable time;
• The represented principal is at fault, causing the transacting third party to not know, or have no way of knowing, that the transaction exceeded the authorized scope.

     2. Rights and obligations are not generated for the portion exceeding the scope, unless the transacting third party knew or should have known about the overstep but proceeded anyway.

     3. The third party has the right to unilaterally terminate or cancel the civil transaction (for the exceeding portion or the entirety) and demand damage compensation, unless they knew/should have known about the overstep, or in the exceptional cases mentioned in point 1.

     4. Joint liability: If the representative broker and the transacting third party intentionally establish and perform a transaction exceeding the authorized scope, causing damage to the principal, they must bear joint responsibility for compensation.

>>>See more: Role of Real Estate Brokers in Land Transactions

Long Phan Consulting Company provides consulting services on matters related to authorizing real estate brokers

Long Phan Consulting Company commits to maximizing the protection of your rights in real estate transactions and disputes regarding broker authorization. With a team of experienced experts, we structure our professional support into the following key area:

• Review and draft authorization agreements and brokerage service contracts carefully to maximize control over the scope of the broker’s authority.
• We advise on risk mitigation measures when clients transact through intermediaries, including verifying professional licenses and business reputation.
• We represent our clients in negotiating and mediating with brokers and third parties to resolve disputes arising from actions exceeding our authority.
• Assist in gathering evidence and legal documents to prove the broker’s misconduct in the course of performing their assigned duties.

Some frequently asked questions when brokers real exceed their authorized scope

Below are common inquiries regarding what happens if brokers real exceed their authorized scope:

If a broker signs a deposit contract on their own initiative when they are only authorized to find clients, is that contract invalid?

This deposit agreement will be void with respect to any portion exceeding the scope of representation as stipulated in Article 143 of the 2015 Civil Code, unless the Client consents or is aware of it without objection within a reasonable period.

If you do not agree, the broker shall be solely responsible for fulfilling its obligations or compensating the buyer, and this transaction shall not create any rights or obligations for you.

In what cases are transactions exceeding the scope of authorization still obligating you to carry them out?

The transaction remains legally valid for you if you are at fault for causing a third party to be unaware that the broker is acting beyond their authority, as stipulated in Clause c, Point 1, Article 143 of the 2015 Civil Code. This often occurs when you hand over original documents, seals, or make statements that lead the buyer to have absolute confidence in the broker’s decision-making abilities.

Can a broker be held criminally liable for intentionally misleading about the scope of their authorization?

This behavior could constitute the crime of “Fraudulent appropriation of property” under Article 174 of the 2015 Penal Code (amended 2017) if the broker uses deceptive tactics regarding authorized power to appropriate the client’s deposit or payment. If it is simply a mistake or exceeding authority without the element of appropriation, the case will remain at the level of a civil dispute.

What is the time limit for you to object to a transaction established by a broker that exceeds their authority?

The law stipulates that you must object within a “reasonable time” from the time you become aware of a transaction exceeding the authority of the notary public, as per Clause b, Point 1, Article 143 of the 2015 Civil Code. Although the law does not specify a particular number of days, it is generally advisable to send a written notice or notify a notary public immediately to avoid being perceived as tacitly consenting (silence is consent).

If a broker acts as both your representative and the buyer’s representative, is that against the law?

This practice is prohibited under Clause 3, Article 141 of the 2015 Civil Code, which stipulates that an individual may not enter into a transaction with a third party, for whom they are also acting as a representative, in the name of their represented party. Unless otherwise provided by law, such a transaction may be declared invalid if the parties have conflicting interests.

Do third parties have the right to demand a refund from you if they have given money to an unauthorized broker?

A third party is only entitled to claim payment from you if you have actually received the money from the broker or if you have approved the transaction, as stipulated in Clause 1, Article 143 of the 2015 Civil Code. If you did not receive the money and did not agree to the transaction, the third party must directly claim payment from the broker based on the personal liability of the authorized representative.

Does the portion exceeding the scope of representation that is deemed invalid affect the entire power of attorney agreement?

Invalidating the portion exceeding the scope of the authorization usually does not invalidate the entire authorization contract if the remaining parts can still be independently performed according to Article 130 of the 2015 Civil Code. You can still continue the brokerage relationship for other legitimate matters, but it is generally recommended to terminate the contract to ensure the safety of your assets.

Conclusion

Understanding the legal liabilities that arise when brokers real exceed their authorized scope requires profound knowledge of civil and real estate business laws. Equipping yourself with legal knowledge helps you proactively protect your assets and avoid prolonged, unnecessary disputes.

For in-depth advice and support in handling broker violations, please contact Long Phan Consulting Company via Hotline 1900636389 for direct guidance on preventing authorization overreach.