Agency Relationship-Rights and Duties of an Agent

An agent often acts on behalf of, and subject to the control of another person. For example, an agent may perform negotiations and draft contracts for another (the principal). An agency relationship stems from a contractual agreement between the parties whether written or oral.

In general, an agent has a right to be compensated, allowed to work without interference, reimbursed for losses, provided with a safe work environment, and indemnified for working on behalf of the principal.

An agent has two basic types of duties to a principal--a duty of loyalty, which includes a fiduciary duty, and a performance-based duty, which includes a duty of care.

Duty of Loyalty

Agency is a special relationship that gives rise to fiduciary duties on the part of the agent. As a fiduciary, the agent owes the principal a duty of loyalty, which generally requires the agent to act solely for the benefit of the principal (and not for the benefit of the agent or third parties) in matters connected with the agency. This duty applies to all agents, whether they are gratuitous or compensated and can vary depending on agreement.

The agent has the following duties:

1) Duty not to deal with the principal as an adverse party. For example, an agent cannot, without the principal's knowledge, purchase goods from the principal if the principal has retained the agent to sell those goods.

2) Duty to refrain from acquiring a material benefit. There is a requirement to refrain from acquiring a material benefit in connection with transactions undertaken on the principal's behalf.

3) Duty not to usurp a business opportunity. This duty arises when either the nature of an opportunity or the circumstances under which the agent learned of it require the agent to offer the opportunity to the principal.

4) Duty not to compete. An agent has a duty to refrain from competing with the principal concerning the subject matter of the agency and from assisting the principal's competitors.

5) Duty to disclose--multiple principals. An agent who acts for more than one principal in a transaction between or among them owes duties of disclosure, good faith, and fair dealing to each.

6) Duty not to use the principal's confidential information. An agent has a duty to refrain from using the principal's confidential information for the benefit of anyone other than the principal, including the agent.

The agent has the following performance-based duties:

1) Contractual duties. An agent has an implied duty to act in accordance with the terms of any contract between the parties.

2) Duty of care. An agent has a duty to act with care, competence, and diligence normally exercised by agents in similar circumstances, as reflected by local standards.

3) Duty of obedience. An agent must act within the scope of his/her actual authority and comply with reasonable instruction.

4) Duty to provide information. An agent has a duty to provide relevant information to the principal pertaining to the subject matter of the agency and that the agent knows the principal would wish to have.

5) Duty to keep and render accounts. An agent has a duty to keep the principal's property separate from the agent's property. Also, an agent has a duty to keep and render an accounting of the principal's money and other property.

Forming an agency relationship may be difficult and time consuming. It is beneficial to retain experienced and professional attorneys in order to maximize the effectiveness of your claim. Please call Aziz Legal by phone at (408) 203-4627 or email us at abid@azizlegal.com.

This article is merely informational and is not intended to be used as legal advice. Use of any information from this article is for general information only and does not represent personal legal or tax advice, either express or implied. Readers are encouraged to consult Aziz Legal, or another attorney, for any specific legal matters.