Agent’s fiduciary duties to principal - Next Generation Bar Exam

1. What must an agent do with a benefit received from a third party in connection with the agency?

   Account for it to the principal. Gifts, commissions, and kickbacks received for agency transactions belong to the principal.

2. What is an agent's duty regarding competition during the agency?

   The agent may not compete with the principal or assist the principal's competitors. The prohibition lasts throughout the agency relationship.

3. A purchasing agent accepts a $5,000 'gift' from a supplier after placing large orders with it for the principal. What must the agent do with the money?

   Turn it over to the principal. A benefit received from a third party in connection with agency transactions belongs to the principal.

4. What remedy allows a principal to recover the profits an agent made by breaching the duty of loyalty?

   Disgorgement of the profits, even if the principal suffered no loss. The remedy removes the agent's gain rather than compensating the principal's loss.

5. What is the core of an agent's duty of loyalty?

   To act loyally for the principal's benefit in all matters connected with the agency. The duty bars secret profits, self-dealing, competition, and misuse of confidential information.

6. Under the Restatement (Third), what makes a principal's consent to an agent's conflict of interest effective?

   The agent acts in good faith, discloses all material facts it knows, and the transaction is fair. Consent must be informed and the agent must deal fairly with the principal.

7. While still employed, a sales manager solicits her employer's customers to move their business to the company she plans to start. What duty has she breached?

   The duty of loyalty. Soliciting customers goes beyond permitted preparation and is competition during the agency.

8. What may an agent do while still employed to prepare for competing after the agency ends?

   Make preparations to compete, so long as it does not otherwise breach a duty, such as by soliciting customers. Forming a company or leasing space is permitted; soliciting the principal's customers or employees is not.

9. What standard of care does an agent owe the principal?

   The care, competence, and diligence normally exercised by agents in similar circumstances. An agent with special skills must use them.

10. What duty does an agent owe regarding the principal's instructions?

    To comply with all lawful instructions within the scope of the agency. An agent must also act only within the scope of its actual authority.

11. What must an agent avoid with respect to the other side of a transaction for the principal?

    Acting as, or on behalf of, a party adverse to the principal without the principal's consent. Self-dealing and dual representation are breaches absent informed consent.

12. What is an agent's duty regarding the principal's confidential information?

    Not to use or disclose it for the agent's or a third party's purposes, during or after the agency. The duty survives termination of the relationship.

13. What duty does an agent owe regarding information relevant to the principal?

    To use reasonable effort to provide facts it knows that the principal would want to have. The duty does not extend to information the agent must keep confidential for another.

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