Duties of a Principal to an Agent - Explained
Compensation, Reimbursement, and Indemnification
Written by J. Mance Gordon
Updated at April 20th, 2024
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Duties of a Principal to an Agent?
The terms of an agency may be laid out in the agency agreement.
Generally, a principal owes the following duties to the agent:
- Duty to Compensate,
- Duty to Reimburse, and
- Duty to Indemnify the Agent.
What is the Duty to Compensate an Agent?
An agency relationship may be paid or gratuitous. If the agency agreement does not indicate the terms of compensation, the principal is obligated to provide the agent with reasonable compensation.
- Example: Default rules in a relationship with a sales agent dictate that the agent will earn a reasonable commission on sales induced or completed.
What is the Duty to Reimburse an Agent?
The principal must reimburse the agent for a reasonable amount expended in carrying out her duties. Reasonable reimbursement includes the cost of travel, meals, lodging, incidental expenses, etc.
What is the Duty to Indemnify an Agent?
Generally, a principal must indemnify an agent for liability incurred in the performance of her duties. This generally arises when the instructions of the principal subject the agent to liability to a third party.
- Note: If an agent exceeds or acts outside of the scope of her authority, the principal may be relieved from the duty to indemnify. If the principal later ratifies the actions of the agent, she will incur the obligation to indemnify the agent against liability.
Related Topics
- What is an Agency relationship?
- What are the types of agents?
- Employee vs. Independent Contractor
- What are the types of principals?
- What is required to form a principal-agent relationship?
- What are the duties of a principal?
- What are the duties of an agent?
- What is the authority of an Agent to Bind Business in Contract?
- When are Agents liable to principals and third parties?
- What is Respondeat Superior?
- What is a Frolic and Detour?
- When does the Agency Relationship Terminate?