When you authorize someone to act for you, agency law imposes a set of fiduciary duties on that person that go well beyond ordinary contract obligations. The fiduciary duties under agency law include loyalty, care, obedience, accounting, and a duty to keep you informed. The Restatement (Third) of Agency, the most widely cited authority on the subject, spells each of them out, and courts enforce them aggressively when an agent puts personal interests ahead of the person they serve.
When These Duties Attach
An agency relationship forms whenever one person (the principal) gives another person (the agent) authority to act on their behalf, and the agent agrees. No formal contract is required. A handshake, verbal instructions, or conduct that implies consent is enough. What matters is that both sides understand the agent will act for the principal’s benefit and subject to the principal’s control.
Authority comes in two forms. Express authority is spelled out directly, in a written contract, a power of attorney, or verbal instructions. Implied authority covers tasks reasonably necessary to carry out those express instructions. Hire someone to manage your rental property, and they have implied authority to arrange routine repairs even if you never said so. The moment either kind of authority exists, fiduciary duties attach automatically. The agent cannot negotiate them away or disclaim them.
Duty of Loyalty
Loyalty is the bedrock. Under Restatement (Third) of Agency § 8.01, an agent owes a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the relationship.1Open Casebook. Restatement of Agency (Third) Excerpts In practice, the agent cannot use their position to benefit themselves at your expense.
Self-dealing is the most common violation. Section 8.03 bars an agent from dealing with the principal as an adverse party or on behalf of one.1Open Casebook. Restatement of Agency (Third) Excerpts If you hire an agent to sell your house and they secretly buy it through a shell company to flip later, that is a textbook breach. Any profit the agent made from the maneuver belongs to you.
Section 8.02 blocks an agent from accepting material benefits from third parties in connection with the work. A purchasing agent who takes kickbacks from a supplier violates this duty even if the deal was a good one for the principal. Section 8.06 adds that an agent cannot represent two parties with opposing interests in the same transaction unless both parties give informed consent after full disclosure of the conflict.1Open Casebook. Restatement of Agency (Third) Excerpts
Competition is another bright line. Section 8.04 prohibits an agent from competing with the principal or helping competitors while the relationship is active.1Open Casebook. Restatement of Agency (Third) Excerpts An employee who starts a rival business and solicits your clients while still on your payroll has breached. One carve-out: the agent may prepare for post-termination competition, as long as the preparations do not cross into actual competition or misuse of confidential information.
Duty of Care
An agent must perform the work with the skill and diligence a reasonable person would bring to similar tasks. Perfection is not the standard. Honest mistakes and poor business judgments are not automatic breaches. The question is whether the agent acted the way a competent person in that role would have acted under the same circumstances.
The bar shifts with the agent’s qualifications. A friend who agrees to watch your business for a weekend without pay is a gratuitous agent held to a lower standard. That person must avoid reckless carelessness but is not expected to perform like a professional. A licensed stockbroker, real estate agent, or attorney charging for expertise is held to their industry’s professional standard. If your broker makes trades no competent broker would make, good faith does not eliminate liability.
When negligence causes a loss, you can sue for compensatory damages. An attorney who misses a filing deadline and gets your case dismissed, or a property manager who ignores a code violation that triggers fines, has fallen below the standard of care. Courts weigh the industry context and the agent’s training in deciding whether performance was acceptable.
Duty of Obedience
Under § 8.09, an agent must act within the scope of their actual authority and follow all lawful instructions from the principal.1Open Casebook. Restatement of Agency (Third) Excerpts An agent who substitutes personal judgment for yours has breached, even when their approach would have produced a better result. Tell your agent to buy a specific piece of equipment for $10,000 and they buy a different model for $15,000 instead, and the agent is personally liable for the excess.
This duty has an absolute limit. An agent is never required to do anything illegal or unethical. If a principal demands that the agent forge a document, lie in a legal proceeding, or commit fraud, the agent must refuse. Following an illegal instruction does not shield the agent, and it usually creates fresh liability.
When an agent acts beyond the scope of their authority, the agent bears personal responsibility for the consequences. The principal is generally not bound by unauthorized acts, and the agent may have to cover any losses that third parties suffer because of the overreach.
Duty of Accounting
Section 8.12 requires every agent to keep the principal’s property clearly identified, avoid mixing it with anyone else’s property, and provide a full accounting of money received or spent on the principal’s behalf.1Open Casebook. Restatement of Agency (Third) Excerpts It is a hard requirement, not a suggestion, and it applies across professions.
The most serious violation is commingling, where the agent deposits your money into a personal account or blends your assets with their own funds. Even temporary commingling can trigger severe consequences. The reason is practical: if the agent’s personal creditors come after the agent’s accounts, your money needs to be clearly separate and identifiable. Agents who handle client funds are typically required to maintain dedicated escrow or trust accounts for exactly this reason.
When an agent cannot account for funds, the consequences escalate quickly. Civil suits for conversion are common. In cases involving intentional misappropriation, criminal charges for embezzlement become a real possibility. Professional licensing boards treat accounting failures as among the most serious violations, and permanent license revocation is a routine outcome for agents who fail to maintain proper trust accounts.
Duty to Inform
Under § 8.11, an agent must make reasonable efforts to share facts with the principal when the agent knows or should know those facts would affect the principal’s decisions or are material to the agent’s own responsibilities.1Open Casebook. Restatement of Agency (Third) Excerpts If your real estate agent discovers a major structural defect in a property you are about to buy, or learns that a buyer’s financing fell through, the agent must tell you immediately.
This duty carries a legal consequence that catches many principals off guard: imputed knowledge. Information your agent acquires while acting within the scope of their authority is legally treated as information you possess, whether the agent actually told you or not. If your agent learns about a problem and stays silent, you may still be treated as having known. The agent’s failure to pass along material facts can expose you to liability and leave you with a claim against the agent for the resulting losses, including rescission of contracts and damages for nondisclosure.
Remedies When an Agent Breaches
Courts take fiduciary breaches seriously, and the available remedies reflect that. You are not limited to recovering out-of-pocket losses. Several remedies target the agent’s gains rather than the principal’s losses, because the point is to strip any incentive for disloyalty.
- Disgorgement. A court orders the agent to surrender all profits earned through the breach. You do not need to prove you suffered any particular loss. The fact that the agent profited from disloyal conduct is enough.
- Constructive trust. When an agent acquires specific property through a breach, a court can declare that the agent holds the property in trust for you. This prevents the agent from selling or disposing of the asset before you can recover it.
- Fee forfeiture. Courts can require the agent to return all compensation earned during the period of disloyalty, not just the portion tied to the specific breach. This remedy is particularly common with attorneys, brokers, and corporate officers.
- Compensatory damages. You recover the actual financial losses the breach caused, such as a lost business opportunity or the cost of correcting the agent’s mistakes.
- Punitive damages. In cases involving fraud, malice, or especially egregious conduct, some jurisdictions award additional damages designed to punish the agent. These awards vary widely by state, and some states cap them by statute.
How Long You Have to Sue
Every breach of fiduciary duty claim has a statute of limitations. The deadlines vary. For fiduciary relationships governed by the federal ERISA statute, such as retirement plan administrators, the limit is generally six years from the breach or three years from the date you actually discovered it, whichever comes first. If the fiduciary concealed the breach through fraud, that deadline extends to six years from the date of discovery.2Office of the Law Revision Counsel. 29 US Code 1113 – Limitation of Actions
Outside ERISA, state law controls, and deadlines range from two to six years depending on the jurisdiction and how the claim is characterized. Many states apply a discovery rule that delays the start of the limitations period until the principal knew or should have known about the breach. This matters because fiduciary breaches are often concealed. An agent stealing from you is unlikely to tell you about it, and the discovery rule prevents the clock from running while the violation is still hidden.
What Survives After the Relationship Ends
Ending an agency relationship does not erase every obligation. Under § 8.05, an agent has a continuing duty not to use or disclose the principal’s confidential information for the agent’s own purposes or for third parties.1Open Casebook. Restatement of Agency (Third) Excerpts This obligation continues indefinitely after the relationship ends. A former employee who walks out with client lists, trade secrets, or proprietary formulas and uses them at a competing firm has breached a duty that survived termination.
The line between what a former agent can and cannot use is the line between general skills and confidential information. A former agent is free to take general industry knowledge, professional skills, and personal contacts to a new position. They cannot take the former principal’s trade secrets, proprietary data, or confidential business strategies. Some principals reinforce this through nondisclosure agreements, though those agreements must be reasonable in scope; an NDA so broad that it effectively prevents the agent from working in the industry at all may be unenforceable.
What You Owe the Agent
Fiduciary obligations run primarily from agent to principal, but the relationship is not entirely one-sided. The principal owes the agent several duties that keep the arrangement fair and workable.
- Compensation. If the agreement calls for payment, you must pay the agent for work performed. Withholding earned compensation is a breach.
- Indemnification. When an agent incurs expenses or legal liability while properly carrying out your instructions, you must cover those costs. If following your directions leads your agent into a lawsuit, you cannot leave them to pay for it alone.
- Reimbursement. Money the agent reasonably spends on your behalf must be repaid. This covers travel expenses, supply purchases, and similar outlays made in the course of the agent’s work.
- Good faith dealing. You cannot deceive the agent about the nature or scope of the work, withhold information the agent needs to perform safely, or set up the agent to take the blame for your decisions.
These obligations exist whether or not the parties put them in a written contract. They are default rules of agency law, and a principal who violates them may face claims for breach of the agency agreement and damages for any harm the agent suffers as a result.