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15.3: Duties of Agents and Principals

  • Page ID
    49129
  • 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

    list of 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:

    1. The principal may recover damages the breach has caused;
    2. The principal may receive any profit the agent received as a result of a breach of the duty of loyalty; and
    3. 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

    list of duties owed by principals to agents

    If a principal breaches a duty owed to the agent, the agent has two available remedies:

    1. The agent may recover damages the breach has caused; and
    2. The agent may terminate the agency relationship.
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