Duties Owed By Agents to Principals

Question 1

Duties Owed By Agents to Principals

Answer 1

Include:

• Duty of Care
• Duty of Loyalty
• Duty to Account
• Duty of Candor
• Duty of Confidentiality
• Duty not to Compete

Question 2

Duty of Care

Answer 2

Absent an agreement to the contrary, the agent is obligated to show a duty of care including:

• following the principal’s reasonable instructions (those that are not illegal or unethical)
• performing duties with reasonable care
• indemnifying the principal against loss caused by the agent’s wrongful behavior or failure to act with reasonable care
• acting with care, competence, and diligence normally exercised by agents in similar circumstances and if the agent possesses a higher level of skill, to exercise that level of skill

Question 3

Duty of Loyalty

Answer 3

Arises from fiduciary character of the relationship. An agent must:

• prefer the interests of the principal over those of the agent or others
• avoid self-dealing
• neither compete with the principal nor usurp business opportunities belonging to the principal

Question 4

Self-Dealing

Answer 4

An agent who acts for his own benefit, instead of that of the principal. An agent must prefer the interests of the principal to his own or those of others in acting for the principal.

Question 5

Duty to Account

Answer 5

An agent has the duty to account for money or property received for the principal, and to keep the principal’s assets separate from his or her own assets.

Question 6

Duty of Candor

Answer 6

An agent must fully disclose to the principal any facts relevant to a transaction that they reasonably believe the principal might want to know.

Question 7

Duty of Confidentiality

Answer 7

An agent may not use confidential information obtained from the principal to the detriment of the principal, even if the information has not been obtained through his agency

Question 8

Duty Not to Compete

Answer 8

An employee may, while still employed, prepare to enter into competition once his employment ends by setting up his own business, so long as he does not take away from his employer’s business by soliciting customers or key employees (the duty ends upon termination of relationship).

Question 9

Dual Agency Rule

Answer 9

When an agent acts for more than one principal in negotiations between those principals, the transaction is voidable by either principal, unless both principals are fully informed of the dual rep and give their consent

Question 10

Principal’s Remedies for Agent’s Breach of Fiduciary Duties

Answer 10

• A compensated agent may be liable for damages (uncompensated agent generally cannot)
• Any transaction resulting from a breach of the agent’s fiduciary duty is voidable by the principal
• Disgorgement
• Punitive Damages (malice or bad faith)
• Withholding compensation (if agent intentionally breached fiduciary duty)

Question 11

Disgorgement

Answer 11

Where the agent breaches his duty of loyalty to principal, the appropriate remedy is disgorgement of any profits the agent realized from his disloyalty. The principal need not have suffered a loss in order to recover.