15.3: Duties of Agents and Principals
Because they are in a fiduciary relationship, agents and principals owe each other specific duties. While the duties are similar in nature, there are differences based on their roles.
Duties of Agents
Figure 15.2 Duties of Agents
Agents are fiduciaries of principals and so they are required to act with the highest duty of care. In particular, agents owe principals the following duties:
| Duty | Description |
|---|---|
| Account | Agent must keep proper records to account for all principal’s money and property given to agent |
| Care | Agent must act reasonably, in good faith, and avoid negligence at all times |
| Inform | Agent must inform principal of all material facts that affect principal’s interests |
| Loyalty | Agent cannot engage in any dealings that compete or interfere with the principal’s business or interests |
| Obedience | Agent must obey all principal’s instructions within scope of agency unless they are illegal or unethical |
| Protect confidential information | Agent cannot use or disclose principal’s confidential information |
If an agent breaches a duty owed to the principal, the principal has three available remedies:
- The principal may recover damages the breach has caused;
- The principal may receive any profit the agent received as a result of a breach of the duty of loyalty; and
- The principal may rescind a transaction when the duty of loyalty is violated.
Duties of Principals
Principals also owe duties to agents as part of the fiduciary relationship. These duties are:
| Duty | Description |
|---|---|
| Compensation | Principal must pay agent for work performed |
| Honesty | Principals cannot deceive agents about the nature and scope of the work they are to perform |
| Indemnification | Principal must hold agent harmless and free from legal liability for actions properly taken on principal’s behalf |
| Loyalty | Principal cannot engage in any dealings that prevent agent from performing agency tasks |
| Reimbursement | Principal must reimburse agent for money reasonably expended on behalf of principal |
Figure 15.3 Duties of Principals
If a principal breaches a duty owed to the agent, the agent has two available remedies:
- The agent may recover damages the breach has caused; and
- The agent may terminate the agency relationship.