Duties, Rights, and Remedies of Agents and Principals

Question 1

What type of relationship exists between a principal and an agent?

Answer 1

The principal-agent relationship is fiduciary, based on trust.

Question 2

What is the duty that both the principal and agent owe each other?

Answer 2

Both the principal and the agent owe each other the duty to act with the utmost good faith.

Question 3

What is the basis of a fiduciary relationship?

Answer 3

A fiduciary relationship is based on trust, requiring each party to act with the utmost good faith.

Question 4

What are the five duties of the agent?

Answer 4

Performance, Notification, Loyalty, Obedience, Accounting.

Question 5

What is the agent’s duty of performance?

Answer 5

The agent must use reasonable diligence and skill when performing duties.

Question 6

What happens if an agent fails to perform their duties?

Answer 6

Liability for breach of contract may result.

Question 7

What degree of skill is required from an agent?

Answer 7

The degree of skill required is that expected of a reasonable person under similar circumstances, or special skills if claimed.

Question 8

What is the agent’s duty of notification?

Answer 8

The agent is required to notify the principal of all matters that concern the subject of the agency.

Question 9

What happens if the agent does not inform the principal of important matters?

Answer 9

It is assumed that the principal is aware of any relevant information acquired by the agent.

Question 10

What is the agent’s duty of loyalty?

Answer 10

The agent must act solely for the principal’s benefit and not for personal gain or the benefit of a third party.

Question 11

What is considered a breach of loyalty?

Answer 11

Disclosing confidential information or making secret profits at the principal’s expense.

Question 12

What is an example of a breach of loyalty?

Answer 12

An agent purchasing property for themselves and then reselling it to the principal without disclosure.

Question 13

What is the agent’s duty of obedience?

Answer 13

The agent must follow all lawful and clearly stated instructions from the principal.

Question 14

When can an agent deviate from the principal’s instructions?

Answer 14

In emergency situations when the principal cannot be consulted.

Question 15

What is the agent’s duty of accounting?

Answer 15

The agent must keep and make available to the principal an account of all property and funds received or paid out on the principal’s behalf.

Question 16

What must an agent do with gifts received in connection with the agency?

Answer 16

The agent must account for the gifts and maintain a separate account for the principal’s funds.

Question 17

What can happen if an agent fails to properly account for funds?

Answer 17

The agent may be subject to disciplinary action and liable to the principal.

Question 18

What are the four duties of the principal?

Answer 18

Compensation, Reimbursement and Indemnification, Cooperation, Safe Working Conditions.

Question 19

What is the principal’s duty of compensation?

Answer 19

The principal must pay the agreed-upon or reasonable value for the agent’s services.

Question 20

What happens if no compensation amount is agreed upon?

Answer 20

The principal must pay the customary compensation for such services.

Question 21

What is the principal’s duty of reimbursement?

Answer 21

The principal must reimburse the agent for any funds paid out at the principal’s request and for necessary expenses incurred during the agency.

Question 22

What is the principal’s duty of indemnification?

Answer 22

The principal must compensate the agent for liabilities incurred due to authorized and lawful acts on the principal’s behalf.

Question 23

What is an example of indemnification?

Answer 23

If an agent forms a contract for the principal and the principal fails to perform, the principal must indemnify the agent for any liabilities incurred.

Question 24

What is the principal’s duty of cooperation?

Answer 24

The principal must cooperate with the agent and assist in performing the agent’s duties, ensuring nothing prevents the agent from performing them.

Question 25

What happens if the principal violates an exclusive agency?

Answer 25

The principal may be held liable for the agent’s lost profits if they violate an exclusive agency, such as by selling in the agent’s territory.

Question 26

What is an example of a failure to cooperate?

Answer 26

If Penny sells her products in Andrew's exclusive territory, she fails to cooperate, and may be liable for his lost sales or profits.

Question 27

What is the principal's duty regarding safe working conditions?

Answer 27

The principal must provide safe working premises, equipment, and conditions, and must inspect for unsafe situations.

Question 28

What insurance often covers the employer’s liability for safe working conditions?

Answer 28

State workers' compensation insurance typically covers the employer’s liability for employees' safety.

Question 29

What remedies are available when there is a breach of duty in an agency relationship?

Answer 29

Monetary damages, termination of the agency relationship, an injunction, and required accountings.

Question 30

What right does an agent have regarding compensation?

Answer 30

An agent has the right to be compensated for their services.

Question 31

What right does an agent have regarding reimbursement and indemnification?

Answer 31

An agent has the right to be reimbursed and indemnified for funds paid out and necessary expenses incurred during agency duties.

Question 32

What right does an agent have regarding the work environment?

Answer 32

An agent has the right to a safe working environment.

Question 33

What right does an agent have regarding interference by the principal?

Answer 33

An agent has the right to perform agency duties without interference by the principal.

Question 34

What remedy can an agent seek if the principal breaches their duty?

Answer 34

An agent can withhold further performance and demand that the principal give an accounting in certain situations.

Question 35

What remedies does a principal have for an agent's breach of fiduciary duty?

Answer 35

A principal has contract remedies and tort remedies for breaches of fiduciary duty by the agent.

Question 36

What tort remedies does a principal have if the agent engages in misrepresentation or negligence?

Answer 36

The principal can seek remedies for misrepresentation, negligence, deceit, libel, slander, or trespass by the agent.

Question 37

What can justify the termination of an agency relationship by the principal?

Answer 37

Any breach of fiduciary duty by the agent may justify the principal’s termination of the agency.

Question 38

Watercraft Inc. employs Vern as a sales agent for a trial period. At the end of the period, Watercraft and Vern disagree on the amount of the commissions Vern is due for sales that he made. Vern may demand specific performance. a constructive trust. nothing. an accounting.

Answer 38

an accounting Vern may demand an accounting. Unless the agent and principal agree otherwise, the agent must keep and make available to the principal an account of all property and funds received and paid out on the principal’s behalf. This includes gifts from third parties in connection with the agency. The agent has a duty to maintain a separate account for the principal’s funds and must not intermingle these funds with the agent’s personal funds. If a licensed professional (such as an attorney) violates this duty, he or she may be subject to disciplinary action by the licensing authority (such as the state bar association). Of course, the professional will also be liable to his or her client (the principal) for failure to account.

Question 39

Energy Company employs Fred to negotiate the purchase of mineral rights for future mining projects. Fred secretly buys some of the property and sells it to Energy at a profit. Fred has breached the duty of notification. the duty of loyalty. the duty of performance. no duty.

Answer 39

the duty of loyalty Loyalty is one of the most fundamental duties in a fiduciary relationship. Basically, the agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party. For instance, an agent cannot represent two principals in the same transaction unless both know of the dual capacity and consent to it. In this case, Fred has represented both Energy and himself – essentially two principals. The duty of loyalty also means that any information or knowledge acquired through the agency relationship is confidential.

Question 40

Larry is an agent for Mary. She gives him clear instructions to enter into contracts on her behalf only on Mondays, Wednesdays, or Fridays. He enters into a contract on her behalf on Tuesday. Larry has breached the duty of performance. the duty of obedience. no duty. the duty of loyalty.

Answer 40

the duty of obedience When acting on behalf of the principal, an agent has a duty to follow all lawful and clearly stated instructions of the principal. Any deviation from such instructions is a violation of this duty. During emergency situations, however, when the principal cannot be consulted, the agent may deviate from the instructions without violating this duty. Whenever instructions are not clearly stated, the agent can fulfill the duty of obedience by acting in good faith and in a manner reasonable under the circumstances. Larry was told to act only on Monday, Wednesday or Friday. He did not. There is no indication that it was an emergency and he was unable to contact Mary.

Question 41

Perez, an artist, is about to negotiate a contract to sell a series of paintings to Barber’s Art Gallery for $25,000. Perez’s agent learns that Barber is insolvent and will be unable to pay for the paintings. The agent owes Perez the duty of notification. the duty of performance. the duty of loyalty. no duty.

Answer 41

the duty of notification An agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency. This is the duty of notification, or the duty to inform. Generally, the law assumes that the principal is aware of any information acquired by the agent that is relevant to the agency—regardless of whether the agent actually passes on this information to the principal. It is a basic tenet of agency law that notice to the agent is notice to the principal.

Question 42

Lorene, an attorney, contracts with Milos to incorporate the client’s business. Their contract stipulates the amount of the fee. On completion of the work, the attorney’s right to be paid this amount arises from the client’s duty of compensation. reimbursement. no duty. indemnification.

Answer 42

compensation The attorney’s right to be paid arises out of the client’s duty of compensation. In general, when a principal requests certain services from an agent, the agent reasonably expects payment. For instance, when an accountant or an attorney is asked to act as an agent, an agreement to compensate the agent for this service is implied. The principal therefore has a duty to pay the agent for services rendered.

Question 43

Curly Fries Inc. grants its agent Diane an exclusive territory in which to sell its products. The company cannot compete with Diane in that territory under the duty of compensation. indemnification. reimbursement. cooperation.

Answer 43

cooperation The company cannot compete with Diane in that territory under the duty of cooperation. A principal has a duty to cooperate with the agent and to assist the agent in performing his or her duties. The principal must do nothing to prevent that performance. Diane has an exclusive right to the territory. If the company competes with her there, they are acting to prevent her performance

Question 44

Jon contracts with Kino to buy a certain number of sheep for Kino’s Animal Farm. Jon makes a deal with Lila for the sheep, but neither Jon nor Kino pays the price. Lila sues Jon for breach. Jon’s right to hold Kino liable for any damages is the right to cooperation. indemnification. reimbursement. compensation.

Answer 44

indemnification Jon’s right to hold Kino liable for any damages is the right to indemnification. fy the agent for liabilities incurred in the course of the contracted work. When Lila sues Jon for failing to pay, Kino is obligated to compensate the Jon for any costs incurred by him as a result of the Kino’s failure to perform the contract.

Question 45

Suva is an agent for Tax Accountants, Inc. On the firm’s behalf and at its request, Suva pays Uzo for specially coded software. Suva’s right to obtain the amount of the payment from Tax Accountants arises under the duty of cooperation. reimbursement. indemnification. compensation.

Answer 45

reimbursement Whenever an agent disburses funds at the request of the principal, the principal has a duty to reimburse the agent. The principal must also reimburse the agent (even a gratuitous agent) for any necessary expenses incurred during the reasonable performance of her or his agency duties. Agents cannot recover for expenses incurred because of their own misconduct or negligence.