Fiduciary Duties of Agents under Business Organizations

10 Jul 2025 --
0 Comments

Fiduciary Duties of Agents under Business Organizations

Introduction

In business organizations, an agent acts on behalf of a principal to perform tasks, make decisions, or enter contracts. Because agents have the power to affect the principal’s legal and financial interests, they owe fiduciary duties — the highest standard of care — to act loyally and in good faith.

What Are Fiduciary Duties?

A fiduciary duty is a legal obligation requiring an agent to act in the best interests of the principal, putting the principal’s interests above their own.

Core Fiduciary Duties of Agents

Duty of Loyalty
The agent must avoid conflicts of interest, self-dealing, or acting for personal gain at the expense of the principal.

Duty of Care
The agent must act with reasonable care, skill, and diligence in performing their duties.

Duty of Obedience
The agent must follow the lawful instructions of the principal and act within the scope of authority.

Duty to Account
The agent must keep and provide accurate records of transactions and not commingle funds.

Duty of Confidentiality
The agent must keep the principal’s information confidential.

Illustrative Case Law Examples

🔹 Case 1: Breach of Duty of Loyalty

Facts:
An agent was negotiating a business deal for the principal but secretly purchased the property themselves at a lower price.

Issue:
Did the agent breach fiduciary duty?

Holding:
The court held that the agent breached the duty of loyalty by self-dealing without disclosure or consent. The agent must account for profits and possibly return the property.

Principle:
Agents cannot secretly profit from transactions involving the principal’s business without full disclosure and approval.

🔹 Case 2: Duty of Care in Negligent Conduct

Facts:
An agent failed to conduct proper due diligence before signing a contract on behalf of the principal, resulting in financial loss.

Issue:
Was the agent negligent?

Holding:
Yes. The court held that the agent breached the duty of care by not exercising reasonable skill and caution expected in the circumstances.

Principle:
Agents must perform their duties competently and with reasonable care.

🔹 Case 3: Exceeding Authority – Breach of Duty of Obedience

Facts:
An agent entered into a contract outside the scope of authority granted by the principal.

Issue:
Is the agent liable for acting beyond authority?

Holding:
The agent breached the duty of obedience. The principal was not bound by the contract and the agent was liable for losses caused.

Principle:
Agents must act strictly within their granted authority.

🔹 Case 4: Duty to Account and Misappropriation

Facts:
An agent collected money on behalf of the principal but failed to remit it and used it for personal expenses.

Issue:
Did the agent breach fiduciary duties?

Holding:
Yes. The court held that the agent breached the duty to account and misappropriated funds.

Principle:
Agents must keep proper accounts and cannot misuse principal’s funds.

🔹 Case 5: Confidentiality Breach

Facts:
An agent disclosed confidential business plans of the principal to a competitor.

Issue:
Was this a breach?

Holding:
Yes. The court found a breach of the duty of confidentiality causing damage to the principal.

Principle:
Agents must keep principal’s information confidential and not disclose without consent.

Summary Table of Fiduciary Duties

Duty	Description	Agent’s Obligation
Duty of Loyalty	Avoid conflicts of interest, self-dealing	Act solely for principal’s benefit
Duty of Care	Exercise reasonable skill and diligence	Perform tasks competently
Duty of Obedience	Follow lawful instructions and authority limits	Act within scope of authority
Duty to Account	Keep accurate records; do not misuse principal’s funds	Provide transparency and proper accounting
Duty of Confidentiality	Protect principal’s confidential information	Do not disclose or misuse sensitive information