Duties of an Agent/Rights of a Principal

Question 1

What is a fiduciary?

Answer 1

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter or circumstances which give rise to a relationship of trust. Fiduciary is a broader concept than the concept of agency.

Question 2

Are all types of agency relationships fiduciary?

Answer 2

Yes.

Question 3

In what cases will the law imply duties between the principal and the agent?

Answer 3

Where no clear agency agreement exists or is silent on certain aspects of the relationship, for example, the agent’s authority.

Question 4

What are the duties of the agent?

Answer 4

OBEY the instructions of the principal;
ACT in good faith in the principal’s interest (fiduciary duty);
KEEP accounts.
EXERCISE due skill and care;

Question 5

What should the agent does if he is given general instructions or no instructions?

Answer 5

The agent should act in a way which reflects his best judgement as well as the accepted customs of their profession or trade.

Question 6

What will happen if the agent acts excessively?

Answer 6

He will be personally liable to the principle.

Question 7

What will happen if the principal gives the agent unclear instructions?

Answer 7

The principal will be liable for any loss flowing from these instructions.

Question 8

What will happen if the agent does not comply with the principal’s instructions?

Answer 8

The agent will be personally liable for any losses resulting from non-compliance.

Question 9

What happened in Gilmour v Clark?

Answer 9

Gilmour was an Edinburgh merchant who instructed a carrier as his agent to take some goods to the Leith docks to be loaded onto a specific ship, the Earl of Zetland. For legitimate reasons the goods were loaded onto a different ship and the ship was lost. The agent was liable to the principal for the value of the goods.

Question 10

What are the facts of Graham and Co v United Turkey Red Co Ltd? What does this case illustrate?

Answer 10

Here the pursuer was an agent or the defendant as principal - they entered into a contract in 1914. The contract prohibited the agent from selling cotton goods supplied by other parties other than the principal. In 1917 the agent brought an action of accounting against the principal for the whole period of which they had acted for the principal. As the contract had been broken from 1916 onwards the agent was only entitled to accounting from 1914 to 1916.
This case illustrates the duty of the agent to obey the instructions of the principal.

Question 11

What obligations does an agent have in relation to acting in good faith in the principal’s interest?

Answer 11

PERSONAL information must not be disclosed;
ACT personally;
NOT to use the position for one’s own benefit;
ACCOUNT to principal;
DUTY to avoid conflicts of interest and not to let personal interest conflict with business interest;

Question 12

What is the Latin maxim for the duty to act personally?

Answer 12

Delectus personae.

Question 13

Are there exceptions to the general rule that delegation is not allowed in agency?

Answer 13

Yes.

Question 14

Give examples of when delegation may be allowed.

Answer 14

Delegation may be expressly permitted in the agency agreement itself; delegation may be implied from particular facts or circumstances; it mat be that delegation is common in the industry, trade or profession in which the agent operates.

Question 15

When will the sub-agent also owe duties to the principal?

Answer 15

When the agent delegates power to the sub-agent.

Question 16

What are the facts of De Bussche v Alt?

Answer 16

The plaintiff has been appointed as an agent to sell a ship for a particular price. Permission was granted for the appointment of a sub-agent and this was granted to Alt. Alt was instructed to sell the ship in Japan. In a dispute over the sale of the ship and the appointment of the sub-agent it was held that Alt’s appointment was valid and thus a contractual relationship existed between Alt and the principal.

Question 17

What was decided in Robertson v Foulds?

Answer 17

The court held that a solicitor can instruct a local solicitor to conduct the case when the case is being held in another part of the country.

Question 18

What is the first possible outcome of delegate?

Answer 18

The new agent may replace the original agent as the only relationship involved in the contract.

Question 19

What is the second possibility outcome of delegation?

Answer 19

That there is an agent and then also a sub-agent.

Question 20

What will happen if the principal has not given his permission to delegate?

Answer 20

The original agent will be liable for any act or omission of both himself and of the second agent or the sub-agent.

Question 21

What does the duty to account involve?

Answer 21

An agent must account to the principal for all the benefits received by the agent during the period of agency.

Question 22

Why does this rule exist?

Answer 22

It is to try and prohibit any secret profits or benefit being earned or retained by the agent.

Question 23

What impact does this have on the agent working for other principals?

Answer 23

This does not stop the agent from acting for another principal at the same time, even if the two principals for whom the agent is working are acting in competition. This occurred in Lothian v Jenolite Ltd.

Question 24

What should the agent do with regards to property?

Answer 24

The agent should keep his own property entirely separate from the principal’s property. If they are confused then the principal may be entitled to all the property, unless the agent can prove which property he owns.

Question 25

What does not using the position for one’s own benefit involve?

Answer 25

The position must not be used to secure a financial position for the agent, unless it is done with the authority and knowledge of the principal.

Question 26

What happened in Boardman v Phipps?

Answer 26

The agent was a solicitor to a trust. The trust had substantial holding of shares in a particular company. The agent solicitor advised the trust to buy additional shares in that company. The trust did not follow this legal advice. The solicitor bought the shares himself. The share value subsequently increased. The trust claimed that the agent had used his position as their agent to further his own financial position. The court held that the trust was entitled to claim. The agent had only acquired the information on the shares through his work with the trust and so had to account to the trust for the profit he had made on the shares.

Question 27

What occurred in Boston Deep Sea Fishing and Ice Co v Ansell?

Answer 27

Ansell was the managing director of the claimant company. He has the power to order goods for the company but he was ordering the goods from a particular supplier and accepting commission and a bonus. He was making secret profit when he was ordering goods on behalf of the company. The court held that Ansell was in breach of his fiduciary duty.

Question 28

Which case illustrates the duty of the agent not to disclose confidential information?

Answer 28

Liverpool Friendly Victoria Society v Houston.

Question 29

What are the facts of Liverpool Friendly Victoria Society v Houston?

Answer 29

An insurance agent, who had worked for Liverpool Victoria for four years before being dismissed, was found to be liable to Liverpool Victoria in damages for a loss of business suffered by the company. Before his dismissal, the salesman saw detailed lists of the company’s customers. After being dismissed by Liverpool Victoria the salesman offered the lists to a competing society which then made approaches to people on the lists.

Question 30

Which situations should an agent avoid within the duty to avoid conflicts of interest?

Answer 30

The agent should avoid situations where the agent’s interest conflicts with the principal’s interests. This does not prevent the agent from acting for more than one principal at a time, even when there are competing interests.

Question 31

What occurred in Lothian v Jenolite Limited?

Answer 31

Lothian agreed to sell some of Jenolite’s products and that he would be paid in commission. The initial agreement was to last four years but it was brought to an end by Jenolite just after one year. Lothian claimed damages for breach of contract. Jenolite counterclaimed and argued that because Lothian had bought and sold products from different competitors that this was in itself a breach of contract. It was held that because the original contract had not said that Lothian could only sell Jenolite’s products that he was permitted to sell the products of Jenolite’s competitors.

Question 32

Which duty (and sub-duty) does Lothian v Jenolite Limited illustrate?

Answer 32

This shows that within the duty of the agent to act in the good faith in the principal’s agent there is also a duty to avoid situations where the agent and the principal’s interests conflict, however, this does not prevent the agent from acting for more than one principal with competing interests.

Question 33

What is the risk that the agent runs if he does not avoid potential conflicts of interest?

Answer 33

The agent may be seen to be generating “secret profit” and so would have to account for this profit. This will not happen in every situation.

Question 34

Which area of agency law does McPhersons Trustees v Watt illustrate?

Answer 34

This shows that the agent must ask in the agent must act in good faith in the principal’s agent and that agents must avoid potential conflicts of interest.

Question 35

What are the facts of McPhersons Trustees v Watt?

Answer 35

A solicitor, Watt, acted on behalf of the trustees in relation to the sale of four houses. Without telling the trustees he had arranged for his brother to be the purchaser of the four houses and Watt would then take over two of the houses, paying 50% of the price himself. The whole contract of sale was deemed invalid by the court because of Watt’s relationship of confidentiality with the trustees. Lord Blackburn did consider only making the contract for the sale of the two houses in which Watt was intending to buy invalid, but he decided that this was one contract and so the sale of all four houses should be invalid.

Question 36

Which area of agency law does McPhersons Trustees v Watt illustrate?

Answer 36

This shows that the agent must ask in the agent must act in good faith in the principal’s agent and that agents must avoid potential conflicts of interest.

Question 37

What are the facts of McPhersons Trustees v Watt?

Answer 37

A solicitor, Watt, acted on behalf of the trustees in relation to the sale of four houses. Without telling the trustees he had arranged for his brother to be the purchaser of the four houses and Watt would then take over two of the houses, paying 50% of the price himself. The whole contract of sale was deemed invalid by the court because of Watt’s relationship of confidentiality with the trustees. Lord Blackburn did consider only making the contract for the sale of the two houses in which Watt was intending to buy invalid, but he decided that this was one contract and so the sale of all four houses should be invalid.

Question 38

What occurred in Armstrong v Jackson and what area of the law does this case illustrate?

Answer 38

The principal asked his agent to purchase 600 shares in a company and the agent, instead of purchasing the shares from the market, sold his own shares in the company to the principal. The decision of the court was that the principal was entitled to have the agreement for the purchase of the shares set aside on the basis that the agent was in breach of his duty to not let personal interest influence his work. This shows that the agent must ask in the agent must act in good faith in the principal’s agent and that agents must avoid potential conflicts of interest.

Question 39

If the agent tells the principal of a conflict of interest will this exclude him from accusations of conflict of interest?

Answer 39

In some cases it will, however, in other situations such as the solicitor/client relationship, even disclosure of the conflict of interest may still result in a breach of duty. Secret profit may be discovered and the contract terminated, the agent losing any right to be paid for the period of the contract was operating but there was a breach.

Question 40

What is the final duty of the agent?

Answer 40

To exercise due care and skill.

Question 41

What is the nature and extent of due and skill and care which must be exercised?

Answer 41

This can vary. If the agent is a member of a particular profession then the level of skill and care expected is that of a reasonably competent member of that profession.

Question 42

Will an agent from a particular trade or profession be held liable if he has made an error or judgement?

Answer 42

He will not be held liable as long as it can be shown that he acted in a way which showed reasonable knowledge, care and skill.

Question 43

What standard was set in Bell’s Commentaries for the reasonable level of due care and skill if the agent is not a member of a particular trade or profession?

Answer 43

“The skill of a prudent man in managing his own affairs”.

Question 44

What is the final duty of the agent?

Answer 44

To exercise due care and skill.

Question 45

What is the nature and extent of due and skill and care which must be exercised?

Answer 45

This can vary. If the agent is a member of a particular profession then the level of skill and care expected is that of a reasonably competent member of that profession.

Question 46

Will an agent from a particular trade or profession be held liable if he has made an error or judgement?

Answer 46

He will not be held liable as long as it can be shown that he acted in a way which showed reasonable knowledge, care and skill.

Question 47

What standard was set in Bell’s Commentaries for the reasonable level of due care and skill if the agent is not a member of a particular trade or profession?

Answer 47

“The skill of a prudent man in managing his own affairs”.

Question 48

What happened in Alexander Turnball & Co Ltd v Cruickshank & Fairweather?

Answer 48

A patent agent failed to inform his principal of the requirement to renew the patent and so the agent was sued for the loss resulting from the expiration of the patent. In defence the agent argued that the pursuer had never intended to renew the patent and so there was no loss. The court said this was irrelevant and that the agent had failed to exercise due care and skill. This illustrates the duty of the agent to exercise due care and skill.

Question 49

What are the facts of Fearn v Gordon and Craig?

Answer 49

A law agent was employed to prepare the conveyance of heritable property in his client’s favour. He failed to research properly any encumbrances on the property. He had breached his duty as an agent to exercise due care and skill.

Question 50

Explain briefly the duty of the agent to keep accounts.

Answer 50

Although there is no fundamental requirement that these be written most agency agreements require accounts to be in writing. If there is any discrepancy which the agent is unable to explain then this has to be made good by the agent even in the absence of accusations of dishonesty.

Question 51

What occurred in the case of Tyler v Logan?

Answer 51

The manager of a Dundee shoe sop was entitled to pay his employer £60 for a shortfall of stock amounting to that value. There was no evidence of dishonesty but this was part of his duty as an agent.