Chapter 35 – The Agency Relationship
The courts was unwilling to allow MSG to retain the benefits of her work without having
to pay for the benefits it received when the employee has violated only incidental rules
that do not affect her job performance.
8. The material on the principal’s remedies for an agent’s breach of fiduciary duty has been
eliminated. Here is the text from the 9th edition:
Many claims and remedies are possible when an agent breaches a duty to her principal.
If the agency was created by contract, for example, the agent’s wrongdoing may breach
that contract and may enable the principal to obtain the various kinds of contract
damages. Also, a principal may obtain injunctive relief where, for instance, an agent
discloses or threatens to disclose confidential information, or misappropriates or threatens
to misappropriate the principal’s property. In addition, a principal may rescind contracts
made by an agent who has represented two principals without the knowledge of one or
both, has dealt with himself, or has failed to disclose relevant facts. Finally, agents who
retain money or property due the principal (including bribes or gifts), or who profit from
the breach of duty, may be liable for the amount of their unjust enrichment.
Tort claims are possible when the agent has misbehaved. A principal may recover for
losses caused by his agent’s negligent failure to follow instructions, to notify, or to
perform with appropriate skill and care. The tort of conversion is available where an
agent has unjustifiably retained, stolen, transferred, destroyed, failed to separate, or
otherwise misappropriated the principal’s property.
9. Chapter Introductory Problem (p. 952): This is a good capstone question on agents’
fiduciary duties.
10. The Global Business Environment (p. 963): The Code of Conduct of the International
Consortium of Real Estate Associations illustrates that ethics codes and legal duties exist
in the real estate agency industry worldwide.
E. Duties of Principal to Agent
1. Duty to compensate
a. Besides the examples in the text, the principal is ordinarily not bound to compensate
close family members.
b. Regarding contingent compensation, consider a manufacturer who agrees to pay a
sales agent a commission on all orders that the principal accepts and approves. The
principal will be obligated to pay the commission once it accepts and approves an
order, even if later developments make it impossible to ship the goods specified in
the order. But no matter how hard the agent works, the commission will not be
payable if her efforts fail to produce suitable orders–unless the principal’s failure to
accept and approve is so arbitrary that it amounts to a failure to cooperate.
c. You might note that it is often desirable to have a written agency contract that clearly
states the basis on which the agent is to be compensated. This is especially true if the
compensation is contingent.
2. Duties of reimbursement and indemnity: These duties are difficult to distinguish, and it
may not be worth the effort to try. Restatement (Third) of Agency section 8.14 treats
reimbursement as a special case of the principal’s general duty to indemnify.
3. The material on the agent’s remedies for breach of the principal’s duty has been
eliminated. Here is what a previous edition said on the subject:
An agent’s claim for breach of the duties just discussed often is contractual, and normal
contract remedies–except specific performance–are available. In some cases, a
principal’s failure to pay, indemnify, or reimburse an agent enables the agent to acquire a
lien on property or funds of the principal that are in the agent’s possession. This usually
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