California Real Estate SalespersonLaws of Agency and Fiduciary DutiesHard
An agent negotiating the sale of a client's property arranges to resell it immediately to a third party at a higher price, pocketing the difference without telling the seller. What legal doctrine addresses this violation?
- AThe doctrine of caveat emptor
- BThe doctrine of merger, which absorbs prior agreements into the deed
- CThe doctrine of secret profits, requiring the agent to disgorge any undisclosed gain
- DThe doctrine of laches, barring the seller's claim due to delay
Show answer & explanationAnswer & explanation
Correct answer: C. The doctrine of secret profits, requiring the agent to disgorge any undisclosed gain
An agent who secretly profits from a transaction at the principal's expense violates the fiduciary duty of full disclosure and loyalty. Under the secret profit doctrine, the principal can recover the undisclosed profit and may rescind the transaction.
Why the other options are wrong
- A. Caveat emptor concerns buyer diligence in purchases, not agent fiduciary breaches.
- B. Merger doctrine relates to contract terms being absorbed into a deed, unrelated here.
- D. Laches concerns unreasonable delay in asserting rights, not the underlying violation.
Secret Profit Doctrine
An agent who makes an undisclosed profit at the principal's expense must disgorge that profit, as it violates the fiduciary duty of loyalty and full disclosure.
- Applies when agent benefits secretly from a transaction
- Principal can rescind the deal and recover the profit
- Distinct from an agreed and disclosed commission
Memory trick: Secret profits sneak out the back door — the law drags them back.