Book Opener

Duty to AccountAn agent who handles money for the principal owes a duty toaccount for every cent of that money. The duty to account means theagent must keep a record of all the money collected and paid out andmust report this to the principal. The agent must keep the principal’smoney safe and separate from others’ money. The agent must also turnthe principal’s money over to the principal in keeping with his or herinstructions. If the agent mixes the principal’s money with his or herown funds to the extent that it is impossible to determine whose moneyis whose, the agent loses all claim to the money. The entire amount thenbelongs to the principal.Judgment and SkillAgents must use all of the skill and judgment that they have whenperforming work for principals. However, agents are not perfect. Eventhe most well-informed agents make mistakes from time to time. Forthis reason, agents are not held liable for honest mistakes if they haveperformed to the best of their ability.Example 6. Peggy Reinhardt entrusted Avery Wilson with$500,000 and told him to invest it in the best possible stocks.Avery decided to invest in the Van Meader Chemical Company,a new corporation that was clearly one of the best investmentopportunities at the time. One week later, a chemical gas leak ata Van Meader plant in Brazil destroyed millions of dollars worthof real estate. Van Meader stock fell, and Reinhardt lost herinvestment in the company. Avery couldn’t be held liable for thisloss because he had done his best.Principal’s Duties to the AgentAgents also have rights guaranteed to them by law. The law imposesspecific duties on the principal in dealing with the agent. The sameduties are found in the employer-employee relationship, which we willdiscuss in Chapter 20. These duties include compensation, reimbursement,indemnification, and cooperation.Social StudiesSince Benjamin Franklinwas named the first PostmasterGeneral in 1775,the post office has usedtechnology to deliver themail. In 1823, navigablewaters were used. In1862, the postal servicestarted using trains.Today, the U.S. PostalService delivers hundredsof millions of messagesand billions of dollars infinancial transactionseach day to 8 millionbusinesses and 250million Americans.Research ActivityAccess the U.S. PostalService Web site andreview the institution’shistory. Determine whensignificant changes weremade in the use of technology,and create atimeline to describethese changes.CompensationAn agent who is working on behalf of a principal is entitled to bepaid for services rendered, unless he or she is a gratuitous agent. Theprincipal must pay any compensation agreed upon in the contract. If nospecific amount has been set, a reasonable sum must be paid for anyauthorized acts performed by the agent for the principal. Sometimes itis possible to figure out this reasonable sum by checking the customarysalaries or wages paid to other agents performing the same kinds oftasks for their principals.Chapter 19: Agency Relationships and Their Termination 419