Part 8- Agency Law, Chapter 35: The Agency Relationship, Doc 3 - Edubirdie

University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
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229

Pages:

2
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bratrochanter

Overview of Key Duties and Responsibilities in Agency Law 1. Agent’s Duties to Principal: o Segregation, Record-Keeping, and Accounting: Agents must keep the principal’s property separate from their own and maintain detailed records of all transactions. Commingling funds or failing to account properly can lead to legal repercussions, as these actions could indicate misappropriation. o Duty to Avoid Material Benefits: Agents should not accept personal gains, such as bribes, kickbacks, or gifts, from third parties in transactions involving the principal. However, customary small gifts or tips are often acceptable, especially if allowed by the principal. o Duty of Good Conduct: Agents must avoid actions that could harm the principal’s business, such as damaging company property or making offensive statements that might drive away clients. o Faithful Service Doctrine: In cases of severe disloyalty, like conflicts of interest or working for competitors, agents may face repercussions, including potential forfeiture of compensation received during the period of disloyalty. 2. Case Study on Duty of Loyalty: Sanders v. Madison Square Garden: o Faithless Servant Doctrine: MSG attempted to use this doctrine to reclaim Browne Sanders’ earnings, arguing she had breached loyalty by allegedly falsifying tax records. However, the court ruled that for the doctrine to apply, the disloyalty must directly impact job performance. Since there was no proof of such impact, MSG’s claim was denied. 3. Principal’s Duties to Agent: o Compensation: Principals must pay agents as agreed, or according to industry standards if compensation isn’t explicitly defined. Compensation may be conditional on achieving specific results, like a real estate agent’s commission based on a sale. o Reimbursement and Indemnity: Principals are generally obligated to reimburse agents for authorized expenses incurred during agency work. If an agent incurs liability through authorized actions, the principal may need to indemnify them unless the agent acted negligently or beyond their authority. 4. Termination of Agency: o By Parties’ Actions: Agencies can be terminated by fulfilling the purpose of the agency, mutual agreement, or revocation by either party. o By Law: Agencies automatically end in cases of death, incapacity, or significant changes in circumstances affecting the principal or agent. These principles highlight the critical balance in agency law, ensuring that agents act in their principals’ best interests, while principals provide appropriate support and protection for agents acting within their authority.

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Part 8- Agency Law, Chapter 35: The Agency Relationship, Doc 3

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