*** Chapter Outcome ***
List and explain the duties owed by an agent to her principal.
C. DUTIES OF AGENT TO PRINCIPAL
The duties are usually defined in the contract. Other duties are imposed by
law, unless the parties agree otherwise. An agent is a fiduciary (a person in a
position of trust and confidence) and owes her principal the duties of
obedience, diligence, and loyalty; duty to inform; and duty to provide an
accounting.
Duty of Obedience
An agent must act within the limits of his authority and follow all lawful
instructions. Any unauthorized action, improper delegation of authority, or
commission of a tort within the scope of employment would constitute a
breach of this duty.
Duty of Good Conduct
An agent must act reasonably and to avoid conduct that is likely to damage the principal’s
enterprise.
Duty of Diligence
An agent must exercise reasonable care and skill in conducting the
principal’s business (must not act negligently), but he may also be held to a
higher, special skill level if he possesses this capability.
Duty to Inform
Information provided to an agent is deemed to be received by the principal,
and the agent has a duty to make all reasonable e&orts to actually inform his
principal.
Duty to Account
An agent must keep and render accounts to the principal of money or other
property received or paid out on the principal’s account. Commingling of the
Fiduciary Duty
Requires that an agent demonstrate utmost loyalty and good faith in
conducting the principal’s business.
Conflicts of Interest — An agent must act solely in the principal’s interest
and may not take action in con,ict with his principal’s interest.
Self-dealing — Agent may not buy from himself on the principal’s behalf
without the principal’s consent.
Duty Not to Compete — An agent cannot compete with his principal or
otherwise act on behalf of a competitor.
Misappropriation — An agent may not use property of the principal for the
agent’s own purposes or for the benefit of a third party.
Confidential Information — An agent may not personally use or disclose
to another confidential information of his principal.
CASE 19-3
DETROIT LIONS, INC. v. ARGOVITZ
United States District Court, Eastern District of Michigan, 1984
580 F. Supp. 542, affirmed, 767 F. 2d 919
http://scholar.google.com/scholar_case?q=580+F.Supp.
+542&hl=en&as_sdt=2,34&case=17442812739569541102&scilh=0
Demascio, J.
[Jerry Argovitz was employed as an agent of Billy Sims, a professional football player. Early
in 1983, Argovitz informed Sims that he was awaiting the approval of his application for a
U.S. Football League franchise in Houston. Sims was unaware, however, of Argovitz’s
extensive ownership interest in the new Houston Gamblers organization. Meanwhile, during
the spring of 1983, Argovitz continued contract negotiations on behalf of Sims with the
Detroit Lions of the National Football League. By June 22, Argovitz and the Lions were
very close to an agreement, although Argovitz represented to Sims that the negotiations were
* * *
The relationship between a principal and agent is fiduciary in nature, and as such
imposes a duty of loyalty, good faith, and fair and honest dealing on the agent. [Citation.]
A fiduciary relationship arises not only from a formal principal-agent relationship, but
also from informal relationships of trust and confidence. [Citations.]
In light of the express agency agreement, and the relationship between Sims and
Argovitz, Argovitz clearly owed Sims the fiduciary duties of an agent at all times relevant to
this lawsuit.
A fiduciary violates the prohibition against self-dealing not only by dealing with himself
on his principal’s behalf, but also by dealing on his principal’s behalf with a third party in
which he has an interest, such as a partnership in which he is a member. * * *
Where an agent has an interest adverse to that of his principal in a transaction in which
he purports to act on behalf of his principal, the transaction is voidable by the principal
unless the agent disclosed all material facts within the agent’s knowledge that might affect
the principal’s judgment. [Citation.]
Once it has been shown that an agent had an interest in a transaction involving his
principal antagonistic to the principal’s interest, fraud on the part of the agent is presumed.
The burden of proof then rests upon the agent to show that his principal had full knowledge,
not only of the fact that the agent was interested, but also of every material fact known to the
agent which might affect the principal and that having such knowledge, the principal freely
consented to the transaction.
It is not sufficient for the agent merely to inform the principal that he has an interest that
conflicts with the principal’s interest. Rather, he must inform the principal “of all facts that
come to his knowledge that are or may be material or which might affect his principal’s
rights or interests or influence the action he takes.” [Citation.]
has shown by a preponderance of the evidence that he informed Sims of every material fact
that might have influenced Sims’ decision whether or not to sign the Gamblers’ contract.
We conclude that Argovitz has failed to show by a preponderance of the evidence either:
(1) that he informed Sims of the [material] facts, or (2) that these facts would not have
influenced Sims’ decision whether to sign the Gamblers’ contract. * * *
*** Chapter Outcome ***
List and explain the duties owed by a principal to his agent.
D. DUTIES OF PRINCIPAL TO AGENT
Contractual Duties
Principal owes agent the contractual duties of compensation,
reimbursement, and indemnification. But agent may agree to exclude or
modify any of these.
Compensation — Principal must compensate agent, unless agent agrees to
serve without pay. If contract does not specify amount of compensation,
principal has a duty to pay the reasonable value of authorized services that
the agent performs.
CASE 19-4
GADDY v. DOUGLASS
Court of Appeals of South Carolina, 2004
359 S.C. 329, 597 S.E.2d 12
http://scholar.google.com/scholar_case?q=359+S.C.+329&hl=en&as_sdt=2,34&case=12426376097857542113&scilh=0
Kittredge, J.
Ms. M was born in 1918 and grew up in Fairfield County [South Carolina]. She moved to
Greenville, where she majored in sociology at Furman University and later worked for the
South Carolina Department of Social Services. After retiring, Ms. M returned to Fairfield
where she lived on her family farm with her brother, a dentist, until his death in the early
1980s. Ms. M never married.
Dr. Gaddy was Ms. M’s physician and a close family friend. * * *
Conversely, Ms. M had little contact with many of her relatives, including Appellants
[third cousins of Ms. M].
In 1988, * * * Ms. M then executed a durable general power of attorney (1988 durable
power of attorney) designating Dr. Gaddy as her attorney-in-fact. * * *
* * * Concerns about Ms. M’s progressively worsening mental condition prompted Dr.
Gaddy to file the 1988 durable power of attorney in November 1995. Pursuant to the 1988
durable power of attorney, Dr. Gaddy began to act as Ms. M’s attorney-in-fact and assumed
control of her finances, farm, and health care. His responsibilities included paying her bills,
tilling her garden, repairing fences, and hiring caregivers.
In March 1996, Dr. Gaddy discovered Ms. M had fallen in her home and fractured a
vertebra. Ms. M was hospitalized for six weeks. During the hospitalization, Dr. Gaddy
fumigated and cleaned her home, which had become flea-infested and unclean to the point
where rat droppings were found in the house. Finding that Ms. M was not mentally
Dr. Gaddy had Ms. M examined and evaluated by Dr. James E. Carnes, a neurologist, in
December 1996. After examining Ms. M, Dr. Carnes found that she suffered from dementia
and confirmed she was unable to handle her affairs.
As Ms. M’s Alzheimer’s disease progressed and her faculties deteriorated, Dr. Gaddy
managed her financial affairs, oversaw maintenance of her properties, and ensured that she
received constant care including food, clothing, bathing, and housekeeping. * * *
Ms. M’s long-standing distant relationship with some members of her family, including
Appellants, changed in March of 1999.
witness to the execution of the March 12 documents, was likewise not informed of Ms. M’s
dementia.
Armed with the revocation of the 1988 power of attorney and recently executed power
of attorney in their favor, Appellants prohibited Dr. Gaddy from contacting Ms. M. Dr.
Gaddy was even threatened with arrest if he tried to visit Ms. M.
On March 15, 1999, three days after Ms. M purportedly revoked the 1988 documents
and executed the 1999 durable power of attorney, Dr. Gaddy initiated the present action as
her attorney-in-fact pursuant to the 1988 durable power of attorney. He alleged, among other
* * *
Medical testimony was presented from five physicians who had examined Ms. M. * * *
[They concluded that Ms. M. (1) was “unable to handle her financial affairs” and “would
need help managing her daily activities,” and (2) would not “ever have moments of lucidity”
to “understand legal documents.”]
* * *
The trial court concluded that Ms. M lacked contractual * * * capacity “from March 12,
1999 and continuously thereafter.” As a result, he invalidated the 1999 revocation of the
1988 durable power of attorney and * * * the 1999 durable power of attorney, and declared
valid the 1988 durable power of attorney. Finally, he awarded Dr. Gaddy litigation expenses
to be paid from Ms. M’s assets.
Since 1986, the South Carolina Legislature has expressly authorized and sanctioned the
use and efficacy of durable powers of attorneys. * * *
* * *
“In order to execute or revoke a valid power of attorney, the principal must possess
contractual capacity.” [Citation.] Contractual capacity is generally defined as a person’s
ability to understand in a meaningful way, at the time the contract is executed, the nature,
scope and effect of the contract. [Citation.] Where, as here, the mental condition of the
principal is of a chronic nature, evidence of the principal’s prior or subsequent condition is
admissible as bearing upon his or her condition at the time the contract is executed.
[Citation.] * * *
Here, the credible medical * * * testimony presented compellingly indicates that Ms. M
suffered from at least moderate to severe dementia caused by Alzheimer’s Disease, a chronic
and permanent organic disease, on March 12, 1999. We are firmly persuaded that Ms. M’s
dementia, chronic and progressive in nature, clearly rendered her incapable of possessing
contractual capacity to revoke the 1988 durable power of attorney or execute the 1999
power of attorney. We find this conclusion inescapable based on the record before us.
* * *
Tort and Other Duties
A principal owes his agent the same duties under tort law that the principal
owes all parties. A principal has a duty to disclose to an agent the risks that
the principal knows or should know, if the principal should realize the agent
is unaware of such risks. And where the agent is an employee, the principal
owes additional duties.
NOTE: See Figure 19-1 for a summary of the duties of principals and agents.
*** Chapter Outcome ***
Identify the ways in which an agency relationship may be terminated.
E. TERMINATION OF AGENCY
Agency is terminated when the principal’s consent is withdrawn. Agency can
be terminated by the acts of the parties or by operation of law.
Acts of the Parties
Lapse of Time — Authority conferred on agent for a specified period of time
terminates when the time expires or, if no period is specified, at the end of a
reasonable period.
any time. But if such revocation constitutes a breach of contract by the
principal, the agent may recover damages.
Renunciation by the Agent — The agent has the power to end the agency
by notifying the principal that she renounces the authority given her by the
principal. If the renunciation violates a contractual obligation then the agent
is liable to the principal.
Operation of Law
Certain events, by operation of law, automatically terminate agency.
Death — The death of the agent terminates the agent’s authority. The
death of the principal also terminates the agent’s authority when the agent
has notice of the principal’s death. The Uniform Durable Power of Attorney
Incapacity — Incapacity of the principal or agent that occurs after the
formation of the agency terminates the agent’s authority. But a durable
power of attorney is an agency relationship that remains e&ective despite
the subsequent incapacity of the principal. The Uniform Durable Power of
Attorney Act and the UPOAA allow the holder of a power of attorney that is
not durable to exercise it on the incapacity of the principal, if its exercise is
in good faith and without knowledge of the principal’s incapacity.
Change in Circumstances — An agent’s actual authority terminates upon
the occurrence of circumstances on the basis of which the agent should
reasonably conclude that the principal no longer would assent to the agent’s
taking action on the principal’s behalf.
Irrevocable Powers
A power given as security “is a power to a&ect the legal relations of its
creator that is created in the form of a manifestation of actual authority and
held for the benefit of the holder or a third person.” Restatement, Section
3.12. A power given as security creates neither a relationship of agency nor
actual authority, although the power enables its holder to a&ect the legal
relations of the creator of the power. Restatement, Section 3.12, comment b.
The power arises from a manifestation of assent by its creator that the
holder of the power may, for example, dispose of property or other interests
of the creator.
The Restatement’s definition includes, but is more extensive than, the rule in
some States regarding an agency coupled with an interest, in which the
holder (agent) has a security interest in the power conferred upon him by the
creator (principal).For example, an agency coupled with an interest would arise
where an agent has advanced funds on behalf of the principal and the agent’s
power to act is given as security for the loan.