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IAI Actuarial Core Principles · Business Management · Trusts and agency

Dev, a principal, instructs his agent Tara to sell shares at a minimum price. Tara, acting honestly, follows the instruction but is later sued by a buyer over a defect in Dev's title. Dev refuses to cover her costs, which she incurred lawfully in carrying out his instructions. What is the principal's duty here?

Dev must indemnify Tara against the consequences of lawful acts she did within her authority, including costs from the buyer's claim. This indemnity is distinct from commission and does not need prior written consent.

  1. ANo duty, because an agent bears all legal costs of the agency
  2. BA duty only if Tara obtained written consent beforehand
  3. CA duty to indemnify Tara against consequences of lawful acts done in the exercise of her authorityCorrect
  4. DA duty to pay only if the buyer wins the case
  5. A duty to pay only the commission and nothing else

Explanation

A principal must indemnify the agent against the consequences of lawful acts done within authority. Written consent is not required and the duty does not depend on the buyer's success. Commission is a separate right.

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