Texas Real Estate State Practice Exam

What legal concept arises when a principal accepts an agent's unauthorized actions?

1. Broker exclusive agent receives commission no matter who sells the property

2. Court prevents the principal from denying that agency, agency by estoppel

3. Prohibits monopolies

4. Agent acts without permission

The correct answer is: Court prevents the principal from denying that agency, agency by estoppel

The correct answer identifies the legal concept of agency by estoppel, which occurs when a principal accepts the actions of an agent that were not formally authorized. When a principal knowingly allows an agent to act in ways that might imply broader authority than what was granted, the principal may be bound by those actions due to their acceptance. This is particularly relevant in real estate transactions, where the conduct of the agent can significantly impact the principal's obligations. In this context, if a principal accepts or benefits from the actions of the agent despite those actions being unauthorized, the law can prevent the principal from denying the existence of that agency relationship. Essentially, it creates a form of protection for third parties who may rely on the actions of the agent, believing them to be within the scope of their authority based on the principal's conduct. This protects the broader interests of stability and trust in commercial transactions. The other options touch on different subjects. For instance, one speaks about a broker’s entitlement to commission regardless of who sells the property, which pertains to contractual agreements and exclusive rights rather than agency law. Another choice mentions the prohibition of monopolies, which is a matter of antitrust law, and the last option simply describes an agent acting without permission, which does not capture the