DUTIES OF THE AGENT AND PRINCIPAL TO EACH OTHER

Question 1

RIGHTS AND DUTIES BETWEEN PRINCIPAL
AND AGENT
2.1.1 Agent’s Duties to the Principal

Answer 1

• An agent (even an unpaid one) is a fiduciary of their principal.
• So, in addition to any express contractual duties that agent owes principal, fiduciary duties of loyalty, obedience to lawful instructions, & reasonable care under the circumstances (including duty to disclose all relevant info) are owed.

Question 2

Duty of Care

Answer 2

• Agent owes a duty to principal to carry out agency w/ reasonable care.
• The degree of care is a “sliding scale” depending on any special skills of agent
• While a gratuitous & a compensated agent may owe same duty of care, measure of “reasonableness” may vary b/c compensation is a proper circumstance to consider (cts will probably expect a gratuitous agent to put less effort into being careful than they would expect a paid agent to exercise).

Question 3

Duty of Loyalty

Answer 3

• Agent owes a duty of undivided loyalty to principal.
• This includes the following obligations:
  (1) Agent may not use their position as agent to profit for themselves.
• If they do, they must account to principal for any profits made while carrying out principal’s instructions.
  (2) Agent must act solely for benefit of principal & not to benefit themselves/3rd party.
  (3) Agent must refrain from dealing w/ their principal as an adverse party/from acting on behalf of an adverse party.
  (4) Agent may not compete w/ their principal concerning subject matter of agency.
  (5) Agent may not use principal’s property (including confidential info) for agent’s own purposes/ 3rd party’s purposes.

Question 4

Duty of Obedience

Answer 4

• Agent must obey all reasonable directions of principal.
• If agent disobeys a reasonable direction, agent will be liable to principal for any loss principal suffers.

Question 5

Principal’s Remedies for Agent’s Breach of Duties

Answer 5

• Principal’s remedies against agent include K actions (against compensated agents), tort actions, actions for secret profits, equitable actions for an accounting, imposition of a constructive trust (an equitable remedy whereby a “trust” is imposed to transfer property gained through unjust enrichment
  back to the intended party, meaning, from wrongdoing agent to principal), & w/holding of compensation for intentional torts/intentional breaches of fiduciary duty.
• Principal may recover actual profits/ properties held by agent whether/not agent’s profit has caused principal any loss.
• Principal may also terminate agency prior to any termination date in a K.
• When it comes to breach of fiduciary duty, note that a wide range of equitable remedies are available to a court.
• In general, a court can do whatever it wants to “do justice” in the situation.

Question 6

Subagents

Answer 6

• Subagent: person appointed by agent to perform functions that agent has consented to perform on behalf of agent’s principal.

Question 7

Tip

Answer 7

Remember that not every person appointed by agent is a subagent. Agent may also appoint a coagent (another agent of principal). In doing so, agent does not delegate their own power to that person. Employees of a single org are presumed to be coagents, not subagents (ex. manager & store clerk are coagents).

Question 8

Liability of Agent

Answer 8

• Agent has absolute liability to principal for breaches by subagent.

Question 9

Duties

Answer 9

• If principal authorized agent to appoint subagent, subagent owes principal same duties as agent owes principal.
• If agent was not authorized to appoint a subagent, subagent does not owe duties to principal but does owe duties to agent.

Question 10

Principal’s Duties to the Agent

Answer 10

• Principal’s duties to an agent are not fiduciary in nature, as fiduciary responsibilities run only from agent to principal.
• Nevertheless, principal has several obligations to agent.
• Principal owes agent all of duties imposed by their K, reasonable compensation, & reimbursement for expenses.
• Ex, if agent incurs expenses/suffers other losses in carrying out principal’s instructions, principal has duty to indemnify agent.
• Principal also generally should cooperate w/ agent & not unreasonably interfere w/ agent’s performance

Question 11

Tip

Answer 11

Note that if agency agreement is silent regarding
compensation, agent is entitled to reasonable
compensation. Also remember that a principal
generally owes no duty to compensate a subagent even if agent had authority to hire subagent.

Question 12

Agent’s Remedies

Answer 12

• A compensated agent has usual K remedies against principal (but has a duty to mitigate damages).

Question 13

Real Estate Brokers’ Contracts

Answer 13

• In a typical real estate broker’s K, broker is entitled to compensation when there is a buyer ready, willing, & able to purchase property.
• If seller/principal refuses buyer’s offer that was w/in the terms agreed by broker/agent & seller/principal, seller/principal will be found to be breaching duty not to interfere w/ agent’s duties & will owe agent their
  agreed compensation.