Fiduciary Duties on the Temporal Edges of Agency Relationships

Authors

Deborah A. DeMott, Duke Law SchoolFollow

Document Type

Chapter of Book

Publication Date

2019

Keywords

Agency, formation, termination, de facto officer, fiduciary duty, competition, brokers, lawyers, irrevocable power

Abstract

The duties that principals and agents owe each other are typically coterminous with the agency relationship itself. But sometimes temporal lines of clean demarcation do less work. The Chapter identifies situations in which an agent may owe duties—including fiduciary duties—to the principal prior to the formal start of their relationship, including any enforceable contract between the parties. Likewise, not all duties that agents and principals owe each other end with the relationship. The Chapter explores the rationales for duties at the temporal peripheries for an agency relationship and the extent to which they are derived from doctrines distinct from agency law. Issues in some contexts are amenable to resolution through bright-line determinations; others require nuanced and fact-specific inquiry.

Issues that arise on the peripheries of termination are complicated as a consequence of a distinct feature of agency relationships: both principal and agent hold ongoing power to terminate the relationship, albeit in breach of contract. Neither owes a duty of disclosure to the other concerning plans to terminate, including (in most instances) the agent’s preparations to compete with the principal post-termination. And in the midst of agency relationships, agents, like principals, may negotiate to further their own interests, whether to continue the relationship under modified terms or bring it to an agreed-to end.

These structural consequences of agency require tempering either the claims to generality or the content of some theoretical accounts of fiduciary relationships more broadly, particularly those stressing the cognitive dimensions of agents’ loyalty and demanding robust commitment from the agent. Agency law, which tolerates both preparations to compete post-termination as well as unilateral and undisclosed strategizing pre-termination over exit, accommodates relationships between competent parties whose perspectives and preferences may shift over time and who may bargain on an interim basis to adjust the terms of their relationship. In this respect, as in others, agency relationships do not much resemble donative trusts, the assumed prototypes of many theoretical accounts of fiduciary relationships. Additionally, the quotidian and ubiquitous character of agency relationships lends these issues practical significance.

Citation

Deborah A DeMott, Fiduciary Duties on the Temporal Edges of Agency Relationships, in Fiduciary Obligations in Business (Arthur B. Laby & Jacob Hall Russell, eds., forthcoming)