Business Associations: Fiduciary Duties and Termination of Agency

These flashcards cover key concepts, definitions, and legal principles discussed in the lecture on fiduciary duties and the termination of agency, suitable for exam preparation.

What is an agent in the context of fiduciary duties?

An agent is a fiduciary who acts on behalf of a principal, subject to the principal's control.

Define fiduciary relationship.

A fiduciary relationship exists when one party is duty bound to act with utmost good faith for the benefit of the other party.

What is the essence of a fiduciary relationship?

It resides in the open-ended control by one person over property owned by another or discretionary power over another.

What is a fiduciary duty?

It is the highest standard of duty imposed by law on duty-bearers.

What are the functions of fiduciary duties?

They fill gaps in contracts, provide ex post enforcement mechanisms, and ensure that fiduciaries do not misbehave.

What does COALD stand for in fiduciary duties?

Care, Obedience, Accounting, Loyalty, Disclosure.

What is the duty of care?

An agent must act with the care, competence, and diligence normally exercised by agents in similar circumstances.

What is the standard of care for gratuitous agents?

It reflects what is reasonable to expect under the circumstances, including the skill and experience of the agent.

What does an agent's duty of obedience entail?

An agent must only act within the scope of their actual authority and comply with lawful instructions from the principal.

What happens if an agent acts beyond their authority in an agency agreement?

The agent may still be liable for costs if they act in a prohibited manner, even if the third party was unaware.

What is the accounting duty of an agent?

An agent must not deal with the principal's property as their own and must keep accurate accounts of property transactions for the principal.

Define loyalty in the context of fiduciary duties.

A fiduciary must act solely for the benefit of the principal and not place their own interests ahead of the principal's.

What constitutes a breach of loyalty for an agent?

Receiving secret profits, kickbacks, or bribes without informing the principal constitutes a breach of loyalty.

What was the outcome in Reading v. Regem regarding secret profits?

The agent was required to pay the secret profits back to the principal due to breaching his duty of honesty.

What does Restatement (Third) § 8.02 state about material benefits?

An agent must not acquire a material benefit from a third party through their position as an agent.

What does the duty of disclosure require of an agent?

An agent must provide the principal with material facts within their knowledge that could affect the principal's judgment.

What was the key ruling in Rash v. J.V. Intermediate, Ltd regarding fiduciary duties?

The appellate court ruled that the agent violated his duty by failing to disclose a contract with his own scaffolding company.

What is the principal's duty to compensate the agent?

The principal must pay the agent for services that are not gratuitous or trivial, typically with customary industry fees.

What does indemnification involve for agents?

The principal must protect the agent against losses incurred due to the principal's misconduct during the agency.

What are the principal's duties of cooperation to the agent?

The principal must assist the agent in the performance of duties related to the agency.

What rights does an agent have if duties are not compensated?

An agent can withhold performance and demand an accounting, as well as recover damages for past and future services.

What grounds can terminate an agency relationship?

Termination can occur by agreement, acts of the parties, or operation of law.

What is meant by 'agency at will'?

An agency relationship presumed to be terminable at any time by either party after notice.

What is the effect of revocation by the principal?

The principal's revocation ends the agent's authority to act on their behalf.

What constitutes renunciation by the agent?

When the agent notifies the principal that they are quitting the agency relationship.

When does termination of the agency occur automatically?

Termination occurs automatically upon the death of either the agent or the principal.

What is 'grabbing and leaving' in relation to agents?

A situation where former employees take customer lists and solicit former clients after leaving the company.

What court case involved employees taking customer lists after resignation?

Town & Country v. Newberry.

What duty does an agent owe regarding competing with the principal?

An agent must refrain from competing with the principal during the agency relationship.

What is a principal's duty regarding reimbursement to the agent?

The principal must repay the agent for expenses incurred while acting on behalf of the principal.

What is the principle behind fiduciary duties in contract breaches?

It is often easier to prove a breach of fiduciary duty than a contractual duty due to different evidentiary requirements.

What alternative remedies exist for breach of fiduciary duty?

Tort remedies including punitive damages may be available, unlike limited contract remedies.

What does Restatement (Third) § 8.04 entail regarding an agent's competitive actions?

An agent has a duty not to assist the principal's competitors during the agency.

What are the consequences if an agent fails to disclose important information?

The agent may be in breach of their fiduciary duty if they do not disclose material facts.

What must an agent disclose about conflicts of interest?

An agent must disclose any potential conflicts of interest that could affect their obligations to the principal.

Explain the significance of confidentiality in agency relationships.

An agent may not use or disclose confidential information obtained during their agency for personal gain.

Define the term 'material fact' in the context of agency duties.

A material fact is any information that could significantly affect the principal's decision-making.

What happens to fiduciary duties after the termination of agency?

Some fiduciary duties may continue even after the agency relationship ends, particularly regarding confidentiality.

What is the legal standard for agents regarding special skills?

Agents with special skills must exercise that care, competence, and diligence commensurate with their expertise.

What is required of agents when they receive compensation from third parties?

Agents must disclose any remuneration from third parties to ensure they are acting loyally in the principal's interest.

What determines the reasonable expectation of an agent's conduct?

The reasonable standard is based on the circumstances, their skills, and the professional context.

What is an example of an agent acting contrary to their fiduciary duties?

Accepting a bribe from a third party to influence the principal's business decisions.

Hypothetical: An agent, managing a principal's art collection, learns that a valuable painting is severely undervalued. Without informing the principal, the agent secretly buys the painting through a shell company. Is this a breach of duty?

Yes, this is a clear breach of the duty of loyalty and disclosure, as the agent used confidential information for personal gain and failed to disclose a material fact to the principal.

Hypothetical: A real estate agent's principal instructs them to sell a property for no less than 500,000. A buyer offers 480,000. The agent, believing this is the best offer the market will bear, sells the property for 480,000 without consulting the principal. Has the agent breached a duty?

Yes, the agent has breached the duty of obedience by acting outside the scope of their actual authority and disregarding the principal's specific, lawful instructions.

Hypothetical: An agent is hired to invest the principal's funds, which they do by putting all of the money into highly speculative, volatile stocks without adequate research. Many investments lose significant value. What duty might have been breached?

The agent likely breached the duty of care by failing to act with the competence and diligence normally exercised by agents in similar circumstances, especially regarding investment decisions.

Hypothetical: An agent, responsible for managing a principal's rental properties, consistently mixes the principal's rent money with their personal funds in a single bank account and provides infrequent, unclear financial statements. What duty is being violated?

This violates the duty of accounting, which requires agents to keep accurate accounts of the principal's property and not commingle funds.

Hypothetical: An agent discovers a significant defect in a property they are trying to sell for their principal. Fearing it might deter buyers, the agent decides not to inform the principal about the defect. What duty has been breached?

The agent has breached the duty of disclosure by failing to provide the principal with material facts within their knowledge that could affect the principal's judgment.

Hypothetical: After an agency relationship terminates, a former employee (agent) uses a confidential customer list, which they memorized while employed, to solicit the former principal's clients for their new competing business. Is this generally permissible?

Generally, no. Even after termination, former agents owe a continuing duty of confidentiality regarding trade secrets and confidential information obtained during the agency, as seen in cases like Town & Country v. Newberry ('grabbing and leaving').

Hypothetical: A principal hires an agent to perform specific construction work. During the work, the principal repeatedly fails to provide necessary materials on time, causing the agent delays and additional costs. What duty might the principal be breaching?

The principal might be breaching their duty of cooperation by failing to assist the agent in the performance of duties related to the agency, potentially causing the agent losses.

Hypothetical: An agent incurs unexpected travel expenses while performing duties exactly as instructed by the principal. The principal refuses to pay these expenses, arguing they were not explicitly pre-approved. What is the principal's duty here?

The principal has a duty of reimbursement to repay the agent for expenses incurred while acting on behalf of the principal, especially if those actions were within the scope of authority and necessary.

What is an agent in the context of fiduciary duties?

An agent is a fiduciary who acts on behalf of a principal, subject to the principal's control.

Define fiduciary relationship.

A fiduciary relationship exists when one party is duty bound to act with utmost good faith for the benefit of the other party.

What is the essence of a fiduciary relationship?

It resides in the open-ended control by one person over property owned by another or discretionary power over another.

What is a fiduciary duty?

It is the highest standard of duty imposed by law on duty-bearers.

What are the functions of fiduciary duties?

They fill gaps in contracts, provide ex post enforcement mechanisms, and ensure that fiduciaries do not misbehave.

What does COALD stand for in fiduciary duties?

Care, Obedience, Accounting, Loyalty, Disclosure.

What is the duty of care?

An agent must act with the care, competence, and diligence normally exercised by agents in similar circumstances.

What is the standard of care for gratuitous agents?

It reflects what is reasonable to expect under the circumstances, including the skill and experience of the agent.

What does an agent's duty of obedience entail?

An agent must only act within the scope of their actual authority and comply with lawful instructions from the principal.

What happens if an agent acts beyond their authority in an agency agreement?

The agent may still be liable for costs if they act in a prohibited manner, even if the third party was unaware.

What is the accounting duty of an agent?

An agent must not deal with the principal's property as their own and must keep accurate accounts of property transactions for the principal.

Define loyalty in the context of fiduciary duties.

A fiduciary must act solely for the benefit of the principal and not place their own interests ahead of the principal's.

What constitutes a breach of loyalty for an agent?

Receiving secret profits, kickbacks, or bribes without informing the principal constitutes a breach of loyalty.

What was the outcome in Reading v. Regem regarding secret profits?

The agent was required to pay the secret profits back to the principal due to breaching his duty of honesty.

What does Restatement (Third) § 8.02 state about material benefits?

An agent must not acquire a material benefit from a third party through their position as an agent.

What does the duty of disclosure require of an agent?

An agent must provide the principal with material facts within their knowledge that could affect the principal's judgment.

What was the key ruling in Rash v. J.V. Intermediate, Ltd regarding fiduciary duties?

The appellate court ruled that the agent violated his duty by failing to disclose a contract with his own scaffolding company.

What is the principal's duty to compensate the agent?

The principal must pay the agent for services that are not gratuitous or trivial, typically with customary industry fees.

What does indemnification involve for agents?

The principal must protect the agent against losses incurred due to the principal's misconduct during the agency.

What are the principal's duties of cooperation to the agent?

The principal must assist the agent in the performance of duties related to the agency.

What rights does an agent have if duties are not compensated?

An agent can withhold performance and demand an accounting, as well as recover damages for past and future services.

What grounds can terminate an agency relationship?

Termination can occur by agreement, acts of the parties, or operation of law.

What is meant by 'agency at will'?

An agency relationship presumed to be terminable at any time by either party after notice.

What is the effect of revocation by the principal?

The principal's revocation ends the agent's authority to act on their behalf.

What constitutes renunciation by the agent?

When the agent notifies the principal that they are quitting the agency relationship.

When does termination of the agency occur automatically?

Termination occurs automatically upon the death of either the agent or the principal.

What is 'grabbing and leaving' in relation to agents?

A situation where former employees take customer lists and solicit former clients after leaving the company.

What court case involved employees taking customer lists after resignation?

Town & Country v. Newberry.

What duty does an agent owe regarding competing with the principal?

An agent must refrain from competing with the principal during the agency relationship.

What is a principal's duty regarding reimbursement to the agent?

The principal must repay the agent for expenses incurred while acting on behalf of the principal.

What is the principle behind fiduciary duties in contract breaches?

It is often easier to prove a breach of fiduciary duty than a contractual duty due to different evidentiary requirements.

What alternative remedies exist for breach of fiduciary duty?

Tort remedies including punitive damages may be available, unlike limited contract remedies.

What does Restatement (Third) § 8.04 entail regarding an agent's competitive actions?

An agent has a duty not to assist the principal's competitors during the agency.

What are the consequences if an agent fails to disclose important information?

The agent may be in breach of their fiduciary duty if they do not disclose material facts.

What must an agent disclose about conflicts of interest?

An agent must disclose any potential conflicts of interest that could affect their obligations to the principal.

Explain the significance of confidentiality in agency relationships.

An agent may not use or disclose confidential information obtained during their agency for personal gain.

Define the term 'material fact' in the context of agency duties.

A material fact is any information that could significantly affect the principal's decision-making.

What happens to fiduciary duties after the termination of agency?

Some fiduciary duties may continue even after the agency relationship ends, particularly regarding confidentiality.

What is the legal standard for agents regarding special skills?

Agents with special skills must exercise that care, competence, and diligence commensurate with their expertise.

What is required of agents when they receive compensation from third parties?

Agents must disclose any remuneration from third parties to ensure they are acting loyally in the principal's interest.

What determines the reasonable expectation of an agent's conduct?

The reasonable standard is based on the circumstances, their skills, and the professional context.

What is an example of an agent acting contrary to their fiduciary duties?

Accepting a bribe from a third party to influence the principal's business decisions.

Hypothetical: An agent, managing a principal's art collection, learns that a valuable painting is severely undervalued. Without informing the principal, the agent secretly buys the painting through a shell company. Is this a breach of duty?

Yes, this is a clear breach of the duty of loyalty and disclosure, as the agent used confidential information for personal gain and failed to disclose a material fact to the principal.

Hypothetical: A real estate agent's principal instructs them to sell a property for no less than 500,000. A buyer offers 480,000. The agent, believing this is the best offer the market will bear, sells the property for 480,000 without consulting the principal. Has the agent breached a duty?

Yes, the agent has breached the duty of obedience by acting outside the scope of their actual authority and disregarding the principal's specific, lawful instructions.

Hypothetical: An agent is hired to invest the principal's funds, which they do by putting all of the money into highly speculative, volatile stocks without adequate research. Many investments lose significant value. What duty might have been breached?

The agent likely breached the duty of care by failing to act with the competence and diligence normally exercised by agents in similar circumstances, especially regarding investment decisions.

Hypothetical: An agent, responsible for managing a principal's rental properties, consistently mixes the principal's rent money with their personal funds in a single bank account and provides infrequent, unclear financial statements. What duty is being violated?

This violates the duty of accounting, which requires agents to keep accurate accounts of the principal's property and not commingle funds.

Hypothetical: An agent discovers a significant defect in a property they are trying to sell for their principal. Fearing it might deter buyers, the agent decides not to inform the principal about the defect. What duty has been breached?

The agent has breached the duty of disclosure by failing to provide the principal with material facts within their knowledge that could affect the principal's judgment.

Hypothetical: After an agency relationship terminates, a former employee (agent) uses a confidential customer list, which they memorized while employed, to solicit the former principal's clients for their new competing business. Is this generally permissible?

Generally, no. Even after termination, former agents owe a continuing duty of confidentiality regarding trade secrets and confidential information obtained during the agency, as seen in cases like Town & Country v. Newberry ('grabbing and leaving').

Hypothetical: A principal hires an agent to perform specific construction work. During the work, the principal repeatedly fails to provide necessary materials on time, causing the agent delays and additional costs. What duty might the principal be breaching?

The principal might be breaching their duty of cooperation by failing to assist the agent in the performance of duties related to the agency, potentially causing the agent losses.

Hypothetical: An agent incurs unexpected travel expenses while performing duties exactly as instructed by the principal. The principal refuses to pay these expenses, arguing they were not explicitly pre-approved. What is the principal's duty here?

The principal has a duty of reimbursement to repay the agent for expenses incurred while acting on behalf of the principal, especially if those actions were within the scope of authority and necessary.