Broker of record at firm with five experienced associate licensees becomes hospitalized for long-term mental health treatment. What happens to listing agreements?
Correct Answer
B) Mental incapacity terminates listing agreements
Under California agency law and general contract law principles, mental incapacity of the principal (the broker, who is the contracting party on listing agreements) terminates the agency relationship as a matter of law. The listing agreement is a contract for personal professional services tied specifically to the broker's license and judgment — when that capacity is lost, the contract cannot continue. The DRE does not step in to supervise the associates, and the associates themselves are not parties to the listing contract, so no legal mechanism exists for them to simply continue servicing those listings without new agreements.
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