Principal and Agent Flashcards
What are the duties of the principal to the agent?
Absent an agreement to the contrary, the principal is obligated to his agent to:
- compensate the agent for services rendered;
- reimburse the agent for reasonable expenses incurred by the agent in the scope of his agency;
- indemnify and exonerate the agent for any liability that result from his good faith performance of his duties;
- cooperate with the agent in the performance of his duties; and
- exercise due care toward the agent.
What are the agent’s remedies for a principal’s breach?
The agent may seek the usual remedies available for breach of an agency contract.
The agent retains a lien on any property of the principal of which he has lawful possession.
The agent may set off any money owed to him by the principal against monies collected on behalf of the principal.
The principal may use any of the following defenses in the event of his breach:
- the statute of frauds;
- illegality;
- the agent’s disobedience; or
- the agent’s contributory negligence.
What are the duties of the agent to the principal?
- Duty of care
Absent an agreement to the contrary, an agent is obligated to show a duty of care to the principal, with a duty to:
a. perform the contract and render services with reasonable care;
b. obey the principal in all reasonable directions, outside of illegal or unethical orders;
c. act only within the scope of his actual authority;
d. act with the care, competence, and diligence normally exercised by agents in similar circumstances, and if the agent is possessed of a higher level of skill, to exercise that level of skill; and
e. indemnify the principal against loss caused by the agent’s wrongful behavior or failure to act with reasonable care.
- Duty of loyalty
The agent has a duty to avoid self-dealing.
The agent must not usurp business opportunities.
The agent owes a duty of confidentiality.
The agent owes a duty not to compete.
- Duty to account
The agent has a duty to account for money and property received and to keep the principal’s assets separate from his own assets.
- Duty of candor
The agent must fully disclose to the principal any facts relevant to the agent’s duties that he reasonably believes the principal might want to know.
- Dual Agency Rule
When an agent acts for more than one principal in negotiations between multiple principals, the transaction is voidable by either principal, unless both principals have prior knowledge of the representation and give their consent.
What are the principal’s remedies for an agent’s breach?
A compensated agent may be held liable for damages to the principal that result from the agent’s breach of fiduciary duties. Generally, an uncompensated agent cannot be held liable.
Any transaction resulting from a breach of the agent’s fiduciary duty is voidable by the principal.
Where the agent breaches his duty of loyalty to the principal, the appropriate remedy is disgorgement of any profits the agent made from his disloyalty, and, if others have also benefited from the breach, liability of the agent for the profits of third parties, even if the agent did not receive any part of the profits.
If the agent has intentionally breached his fiduciary duty, the principal may withhold compensation.
Punitive damages may be attributed to the principal under the doctrine of respondeat superior.
What are the agent’s duties and obligations to third parties?
An agent’s liability to a third party on a contract signed by the agent depends on whether the principal was fully disclosed.
If a third party knows of the principal’s existence and identity at the time of the transaction, the agent will not incur the personal liability unless he takes additional actions to assume personal liability.
If the principal is partially disclosed or left unidentified at the time of the transaction, the agent is presumed to be a party to the contract.
If the existence of a principal directing the agent’s action is unknown, the agent will be assumed to be contracting on his own behalf. Disclosure after the signing of the contract will not relieve the agent of liability. However the third part must then elect to sue either the principal or the agent.
Who may a third party sue?
Upon learning of the identity and existence of an undisclosed principal, the third party may elect to sue either the principal or the agent. An agent may elect to file suit against both the principal and the agent.
To be binding, the election to sue must be made with knowledge of the previously undisclosed principal. A suit brought against an agent prior to learning the identity of the principal does not act as a waiver of the third party’s rights as against the principal.
