Law Of Agency
The Law of Agency is rooted in over 500 years of Common Law (Common Law, according to Black’s Law dictionary — 6th Edition — “Comprises the body of those principles and rules of action, relating to the government and security of persons and property, which derive their authority soley from usages and customs of immemorial antiquity, or from the judgements and decrees of the courts recognizing, affirming and enforcing such usages and coustomes; and, in this sense, particularly the ancient unwritten law of England.” Many states, including Vermont, follow the common law, except when it is specifically contradicted by statutes.
What is Agency; What Does an Agent Do?
An Agent acts on behalf of another person and is subject to that person’s control. The one for whom action is taken is the principal; the one who acts on behalf of the principal is the agent.
- General Agent
- A general agent is authorized to conduct a series of transactions involving a continuity of service, and may be empowered to enter into contracts which are binding on the principal. An example of a general agent would be the manager of a business owned by an absentee owner.
- Special Agent
- A special agent’s power and authority is limited to accomplishing a specific, and limited assignment. A real estate agent is a special agent and does not have the power or authority to enter into contracts on behalf of the principal.
- Fiduciary Responsibility
- An agent, whether general or special, has what is called a fiduciary responsibility to the principal. The word fiduciary is etymologically related to the word “faithful.” The agent is legally required to be faithful to the principal’s best interests, even at the expense of the agent’s own, personal interests. The fiduciary responsibilities of an agent to his or her principal include: Loyalty; Obedience; Disclosure; Confidentiality; Reasonable Care and Diligence; Accountability. These responsibilities are the very core of whether or not an agent has performed properly, and therefore will be discussed in more detail, below.
Duties of an Agent
The following are the fiduciary responsibilities owed by an agent to his or her client…
- An agent must act at all times solely in the best interests of his or her principal to the exclusion of all other interests, including the agent’s own self-interest.
- An agent is obligated to obey promply and efficiently all lawful instructions of his her her principal, within the scope of the agency.
- An agent is obligated to disclose to her or his principal all relevant and material information (unless obtained through another fiduciary relationship) that the agent knows and that pertains to the scope of the agency.
- An agent is obligated to safeguard his or her principal’s confidences and secrets. The duty of confidentiality continues forever. Any confidental information learned during the time of the agency relationship continues to be confidential, even after the agency relationship ends. An agent working for the seller would be obligated to disclose any information he or she learned which might be sensitive to the negotiating position of the buyer, but a buyer’s agent would protect that information.
- Reasonable Care and Due Diligence
- An agent is obligated to use reasonable care and diligence in pursuing the principal’s affairs.
- An agent is obligated to account for all money or property belonging to the principal which is entrusted to the agent.
See section on Agency Relationships for a discussion of the real-world impact of agency on real estate buyers.