Fiduciary Duties of an Agent

*Photo by Simon Cunningham is licensed under CC 2.0. *

As I discussed in a previous post, an agency relationship exists where one party—the principal—authorizes a third party—the agent—to act on his behalf as if he were actually the one acting. This provides the agent with a significant amount of power, and so the law provides for the fiduciary duties of an agent—meaning that the agent must act in the best interest of the principal.

Duties of an Agent

The agent particularly owes a duty of loyalty to his principal. This means that one of the duties of an agent is to avoid doing anything that harms the principal, that exceeds the authority granted by the principal, and that helps the principal’s competitors.

Partnership Relationship

Agency relationships often exist simultaneously with partnership relationships. Partners are agents of the partnership, and so must act in the best interest of the partnership. A partner may not use his position to enrich himself at the expense of the partnership.

There are therefore some special rules that apply to the duties of an agent in the context of a partnership. For example, where a partnership is winding up, the duty of loyalty of an agent requires the partner to report any profit or benefit he attained from the winding up of the partnership.

A Duty That Cannot Be Waived

It is important to recognize that fiduciary duties of an agent exist among partners, and these duties cannot be eliminated. Partners cannot agree among themselves to eliminate the fiduciary duties that exist among partners—that is, the duty of loyalty and the duty of care.

These duties are imposed by law and cannot be waived, even where all partners agree to waive them. A partnership arrangement exposes the partners to a great amount of liability risk—which is why I generally recommend against operating a business as a general partnership—and so the law takes these duties very seriously.

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See Also:

Agent Liability to a Third Party

Agency Relationships