Duties of agents and principals

Question 1

To Reimburse Reasonable Expenses—The principal must reimburse the agent for expenses incurred in carrying out the agency agreement.

Answer 1

Absent contrary agreement, the principal is responsible for expenses the agent incurs in reasonably performing his or her activities on the principal’s behalf.
The expenses must be related to performing duties and cannot be excessive
The principal would also be liable for any injuries the agent experiences in performing his or her duties for the principal.

Question 2

Fiduciary Duty

Answer 2

1. The agency relationship is a fiduciary relationship.
2. Because an agent is a fiduciary, the agent owes a supreme duty of loyalty to his or her principal. The agent cannot make a profit at the principal’s expense.
3. Subagents owe a fiduciary duty to the agent who hired them as well as to the principal of the agent
4. Duty to Follow Instructions (Duty of Obedience)—The agent should follow the principal’s instructions unless those instructions call for illegal or immoral acts.
5. Reasonable Care—The agent should discharge all responsibilities carefully and is theoretically liable in negligence to the principal for damage caused by carelessness.
6. Accounting—The agent has a duty to provide the principal with an accounting for all funds of the principal.
7. No Commingling Funds—The agent should always keep any of the principal’s funds in the agent’s custody separate from agent’s own funds and should always be able to tell the principal exactly where the funds are located.
8. Duty of Disclosure—The agent should immediately inform the principal of any important information that the principal would want to know.

Question 3

Duty of Loyalty—As a fiduciary, an agent acts in the best interest of the principal and does not make profits on transactions at the principal’s expense.

Answer 3

No competition—Agents’ duty of loyalty means that they cannot compete with their principals.
No conflict of interest
No appropriation of business opportunities
No disclosure of confidential information

Question 4

Termination by fulfillment

Answer 4

An agency relationship is terminated when the conduct authorized under the agency relationship is complete.

Question 5

Termination by lapse of time

Answer 5

If an agency relationship is restricted in length and the authorized length of time ends, then the agency relationship ends.

Question 6

Termination by a specified event

Answer 6

An agency relationship established to accomplish an event ends when that event is done.

Question 7

Termination by mutual agreement

Answer 7

An agency relationship ends when the principal and agent agree that they wish to end their relationship.

Question 8

Termination by unilateral act of one party—(“You’re fired” or “I quit”)—When the principal or agent fails to perform the duties under the agency agreement, the agency relationship ends, just as in the case of any breach of contract. In addition, the principal can terminate an agent for business reasons. Absent a contract, the principal has the right to terminate an agent for cause or no cause.

Answer 8

Exception to the grounds for termination—A principal cannot (i.e., has neither the right nor the power to) terminate an agency coupled with an interest.
An agency coupled with an interest is a unique agency relationship, created by a writing, that gives the agent some interest vested in the property that is the subject matter of the agency relationship.

Question 9

Termination by bankruptcy

Answer 9

Bankruptcy of the principal is another event that can trigger an operation-of-law termination of an agency, if the principal’s bankruptcy would cause the agent to realize that P would no longer wish A to enter into transactions on P’s behalf.
Bankruptcy of the agent terminates an agency relationship only if the agent’s bankruptcy would impair A’s ability to act as an agent.

Question 10

Termination by circumstances such as loss or destruction of subject matter—The loss or destruction of the property that is the subject matter of the agency relationship terminates the agency relationship.

Answer 10

Termination by operation of law ends ALL authority: express, implied, and apparent. The duty of notice does not apply because the law has ended the agency relationship.