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IAI Actuarial Core Principles · Business Management · Trusts and agency

Arjun, an agent, is engaged by Bharat Reinsurance to buy a portfolio of bonds. Without telling Bharat, he buys the bonds from his own holdings at a market price and keeps the sale proceeds. Which duty has Arjun most clearly breached?

Arjun breached the duty to disclose that he was dealing on his own account and to obtain the principal's consent. Self-dealing without disclosure lets the principal repudiate the transaction, even if the price was fair.

  1. AThe duty to render accounts at the end of the agency
  2. BThe duty to follow the principal's directions on the manner of business
  3. CThe duty to pay the principal's debts promptly
  4. DThe duty to disclose his dealing on his own account and obtain the principal's consentCorrect
  5. The duty to delegate the work to a sub-agent

Explanation

An agent who deals on his own account in the agency business must disclose all material circumstances and obtain the principal's consent. Otherwise the principal may repudiate the transaction. The facts concern undisclosed self-dealing, not accounts or instructions.

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