Are agents allowed to engage in undisclosed self-dealing with the principal?

The correct response highlights a fundamental principle in agency law regarding the relationship between an agent and a principal. Agents have a fiduciary duty to act in the best interests of their principals, which includes the requirement to fully disclose any potential conflicts of interest. Undisclosed self-dealing—where an agent engages in transactions that may benefit themselves at the expense of the principal without informing the principal—contradicts this fiduciary duty.

In general, a principal must be fully aware of any interests an agent might have in a transaction to protect their own interests. If agents engage in self-dealing without the principal's knowledge, it can lead to situations of trust violation and potential liability for damages caused by the agent's actions. This means that if an agent were to partake in undisclosed self-dealing, they would be acting against the rules that govern their conduct.

The other options suggest scenarios where agents might have some form of permission or conditions under which they could engage in self-dealing. However, the essence of agency law is to ensure that agents prioritize their principals' interests above their own, making any undisclosed self-dealing inherently inappropriate.