1904 HIPPISLEY v. KNEE The fact that the printers and newspaper proprietors looked to them for payment did not make them any the less agents. Then if so, the well-established rule as to secret profits made BROTHERS. by agents applies. In Parker v. McKenna (1) Lord Cairns L.C. thus stated the rule: "Now the rule of this Court, as I understand it, as to agents, is not a technical or arbitrary rule. It is a rule founded upon the highest and truest principles of morality. No man can in this Court, acting as an agent, be allowed to put himself into a position in which his interest and his duty will be in conflict. . . . All that the Court has to do is to examine whether a profit has been made by an agent, without the knowledge of his principal, in the course and execution of his agency." Further, there is in the present case the additional reason that the defendants expressly stipulated for their "out of pocket expenses" and nothing more, and under that term cannot be included a sum which they did not in fact pay. The existence of the custom for auctioneers to receive these discounts and the consequent bona fides of the defendants are immaterial. The only material question is whether the plaintiff in fact knew that his agents were being allowed the discounts, and the finding is that he did not. Then if the defendants are not entitled to charge the plaintiff with the discounts, neither are they entitled to their commission of 201.: Andrews v. Ramsay (2), where it was held that an agent to sell property who has sold the property but received a secret profit from the purchaser must not only account for that profit to his principal, but is not entitled to any commission from his principal. No distinction can be drawn between that case and the present upon the ground that there the secret profit was received from the purchaser and here from third persons; the net result to the vendor is the same. The advertising and printing are just as important parts of the agency as the conduct of the sale itself in the auction-room, and there was one entire remuneration for all the duties that the defendants were employed to perform-namely, the commission of 201. Duke, K.C., and Thornton Lawes, for the defendants. (1) (1874) L. R. 10 Ch. 96, at p. 118. (2) [1903] 2 K. B. 635. 1904 [LORD ALVERSTONE C.J. We are satisfied that there is no case to recover back the commission, and only wish to hear HIPPISLEY the defendants on the subject of the discounts.] v. KNEE There is a distinction between cases in which a person is BROTHERS. acting solely as agent for a principal in making a contract and cases in which the principal employs an agent who to his knowledge will have to make contracts with third persons on his own behalf for which he will have to pledge his own credit. Where the agent in the known course of business makes a contract on which he is liable he is entitled to make a profit on it, and not merely to have an indemnity against his out of pocket expenses. The custom of allowing these discounts to auctioneers is so universal that the plaintiff must have known, or ought to have known, that the defendants would receive them; indeed, he admitted that he knew there was a custom for newspaper proprietors to allow them on advertisements. In Great Western Insurance Co. v. Cunliffe (1) the defendants, insurance brokers, were employed by the plaintiffs to effect reinsurances for them. There was no provision for their remuneration for this work by the plaintiffs, and according to the custom they received from the underwriters a discount of 5 per cent., and also at the end of the year a further 12 per cent. on the balance of the accounts if favourable. The plaintiffs knew of the 5 per cent. discount, but did not know of the 12 per cent. But it was held that as the latter allowance, like the former, was according to a well-established practice which the plaintiffs might have ascertained if they had taken the trouble to inquire, the defendants were entitled to retain it. Similarly in Baring v. Stanton (2), where a shipowner employed agents to effect insurances for him on his ships, and they in their accounts charged him with the full premiums, although they had received a 5 per cent. brokerage from the underwriters and also a 10 per cent. discount for cash, in accordance with the usual practice, it was held that, as the allowances were usual and the shipowner had never inquired on what terms the agents effected the insurances, he could not object to their retention by the agents. Mellish L.J. said: "If that "-the (1) (1874) L. R. 9 Ch. 525. (2) (1876) 3 Ch. D. 502. 1904 practice" is generally known and acquiesced in I cannot HIPPISLEY conceive that it is a fraud upon anybody. It may be a misfortune to Mr. Stanton that, being an American, he really did BROTHERS. not know the usage in London. But if a person comes and V. KNEE trades in London he must make himself acquainted with the usages in London." The fact here that the contract expressly mentions "out of pocket expenses " is immaterial; it does not add anything to the rights and duties arising out of the ordinary relation of principal and agent. LORD ALVERSTONE C.J. I will deal first with that portion of the plaintiff's claim which relates to the two sums of 17. 6s. 10d. and 11. 8s. 7d., which it is agreed are the amounts of the discount which the defendants, the auctioneers, received from the printers and the newspaper proprietors respectively on account of the printing and advertisement order's executed in connection with the sale which he conducted for the plaintiff. Now the employment of the defendants was in writing, and although the alleged custom of auctioneers to receive such discounts for their own use is very material in connection with the question of bona fides, it is sufficient in order to determine what the rights of the parties were in this particular case to look at the terms of the contract itself. The terms, which were confirmed by the defendants' letter of July 25, were: "5 per cent. on all lots sold, and all out of pocket expenses in addition, which includes advertisements, printing and posting bills, printing and circulating catalogues, &c. . . . Minimum commission on sale for personal services to be 207." I draw attention to the provision that there was to be a minimum commission of 201. The defendants thereby insured themselves against the risk of their work being unremunerative, the intention being that they were to look to that commission alone for the remuneration of their personal services, including their services in connection with the printing and the advertisements. So that even if there could have been a doubt as to the meaning of the words "out of pocket expenses," the provision as to the minimum commission makes the matter free from doubt, and renders it abundantly clear that the defendants were to have the 1904 v. KNEE C.J. 201. commission and their actual out of pocket expenses, out nothing more. Therefore I think that upon that ground, wholly HIPPISLEY apart from the broader ground upon which Mr. Salter relied, the plaintiff is entitled to recover the two sums of 17. 6s. 10d. and BROTHERS. 11. 8s. 7d., and to that extent the judgment of the county court Lord Alverstone judge must be reversed. Mr. Duke, indeed, contended that the Court ought to allow these discounts to the defendants upon the ground that the custom for auctioneers to take them was so general that the plaintiff must have known, or ought to have known, that they were in fact being received. Of course, if to the knowledge of the principal they were being received by the agent, the profit ceased to be secret and the question would not arise; but where there is no knowledge the agent ought to account, and it is only honest that he should conduct his business on the principle of his liability so to account. The two authorities cited by Mr. Duke were cases in which it was obvious that the principal knew that the agent was being remunerated by third parties; therefore they in no way conflict with the principle which I have endeavoured to lay down. Unfortunately there appears to prevail in commercial circles in which perfectly honourable men desire to play an honourable part an extraordinary laxity in the view taken of the earning of secret profits by agents. The sooner it is recognised that such secret profits ought to be disapproved of by men in an honourable profession, the better it will be for commerce in all its branches. The other claim made by the plaintiff, and in respect to which we did not call upon the defendants' counsel, was that in consequence of the defendants' conduct they were not entitled to retain the 201. which they had deducted from the gross proceeds for their commission, and in support of that claim Mr. Salter relied upon the judgment of this Court in Andrews v. Ramsay (1), where we held that a dishonest agent could not recover any commission at all. I desire, speaking for myself, to say that in this case I am satisfied that there was no fraud, but that what was done by the defendants was done under a mistaken notion as to what they were entitled (1) [1903] 2 K. B. 635. 1904 v. KNEE C.J. to do under the contract: they thought that by reason of the HIPPISLEY alleged custom they were entitled to deduct from the proceeds of sale the gross amounts of the advertising and printing bills. BROTHERS. That is enough to differentiate the present case from Andrews Lord Alverstone V. Ramsay (1), where we were dealing with an agent who acted with downright dishonesty. But Mr. Salter went further, and contended that if there has been a failure by the agent to account for a secret discount received, even though that failure may have been due to a bonâ fide mistake, he is not entitled to receive any commission or remuneration for his services from the principal. I am not prepared to go that length. If the Court is satisfied that there has been no fraud or dishonesty upon the agent's part, I think that the receipt by him of a discount will not disentitle him to his commission unless the discount is in some way connected with the contract which the agent is employed to make or the duty which he is called upon to perform. In my opinion, the neglect by the defendants to account for the discounts in the present case is not sufficiently connected with the real subject-matter of their employment. If the discount had been received from the purchasers the case would have been covered by Andrews v. Ramsay (1); but here it was received in respect of a purely incidental matter; it had nothing to do with the duty of selling. It cannot be suggested that the plaintiff got by one penny a lower price than he would otherwise have got. Therefore I come to the conclusion that, so far as the 201. commission is concerned, the plaintiff is not entitled to succeed. KENNEDY J. I am of the same opinion. Upon the general question with regard to the discounts received by the defendants on these bills I think the plaintiff is entitled to succeed. Out of pocket expenses were all that the auctioneers here were entitled to claim from the principal who employed them, and in fact they claimed what was not an out of pocket expense. It has been suggested that the meaning of the expression "out of pocket expenses" might be qualified by the knowledge of the principal that in some of the contracts into which the (1) [1903] 2 K. B. 635. |