Question

. A Merrill manufacturer of computer disk drives has contracted with you for you to be its agent in finding customers for their products. You arrange (without the principal’s knowledge) a sale of the disk drives to a computer assembly business that you and your sister own. You have: a. Not violated any of an agent’s duties. b. Violated the duty of loyalty by usurping an opportunity. c. Violated the duty of loyalty by self-dealing. d. Violated the duty of loyalty by competing with the principal.

Answer 1

Answer: c. violated the duty of loyalty by self-dealing.

Explanation:

An agent has a duty not to deal with the principal as an adverse party in a transaction associated with the agency relationship. Agent has the duty to disclose all the relevant facts regarding the transaction and the transaction should be fair. When the agent deals with the principal without disclosing the position in transaction, it leads to self-dealing. Here the agent arranges the sale of the disk drives to a computer assembly business owned by the agent and the sister without principal’s knowledge and hence it leads to self-dealing and the duty of loyalty is violated here. Usurping an opportunity occurs when the agent takes an opportunity belonging to the principal, hence the option is wrong. Here the agent also does not compete with the principal. So the answer is option C.

Answer 2

c. Breach of the duty of loyalty due to proprietary trading.