RES exam question on Contract & Agency Law: A salesperson acting as buyer's agent secretly receives a $5,000 cash incentive from…
A salesperson acting as buyer's agent secretly receives a $5,000 cash incentive from a developer without disclosing it to the buyer-client. Which of the following correctly states the legal consequences?
- AThe salesperson need only disclose the payment retrospectively; retaining it is permissible once disclosure is made
- BThe salesperson must disclose the payment to the buyer-client and account for the secret profit to the principal
- CThe salesperson must refund the payment to the developer but has no obligation to inform the buyer-client of it
- DThe salesperson may retain the incentive provided it does not exceed 1% of the transaction price and is receipted
Show answer & explanation
Answer
B. The salesperson must disclose the payment to the buyer-client and account for the secret profit to the principal
Explanation
An agent owes a fiduciary duty not to make a secret profit from the agency. Any undisclosed benefit received in connection with the principal's affairs must be disclosed, and the agent must account for (pay over) the profit to the principal. The principal may also rescind the contract with the third party and/or claim damages. Under CEA rules, receiving an undisclosed referral benefit is also a regulatory offence punishable by a fine or suspension.
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