Illingworth v. DeMott

(after stating the issues and evidence).

In reference to the question of joint agency of DeMott and Davett, which is raised on the pleadings, it is entirely clear that DeMott in this transaction was not the agent of complainant to purchase the stock for him, and further that complainant understood throughout the negotiations that DeMott so far from being his agent was interested adversely to him, and controlled or claimed to control the stock as seller. If DeMott, as seller, tampered with an agent whom complainant had previously employed to buy, it might afford ground as against DeMott for rescinding the contract of sale, but so long as complainant stands on the sale and ratifies it, there can be no right on his part as purchaser to recover from the seller as money belonging to the purchaser the profits made by the seller, even if part of the seller’s profits was made by tampering with complainant’s agent. To allow such recovery while the purchaser holds the stock and thus affirms the sale, would be to make another bargain for the parties to the sale as a penalty for fraud in the sale. On this bill, therefore, there is no right to recover from DeMott any portion of the profits he received, upon the theory that he was an agent of the complainant, to whose service in the purchase of the stock complainant was entitled. ISTor do I think that as against Davett the complainant has any right to recover the profits which Davett has made in the transaction.

In the first place, the conclusion to be drawn from consideration of the entire evidence bearing upon the dealings between complainant and defendant, in relation to this transaction, is that Davett, in the negotiations, was not an agent or broker of complainant to be paid by him, but was an under-broker for *12the seller or the seller’s broker (DeMott), who was to be compensated by the latter, and that complainant so understood the relation between himself and Davett. Complainant during the negotiations did commission Davett to communicate to DeMott his offers to purchase and the terms, but this must, under the evidence, be considered not as an original employment creating Davett complainant’s agent to purchase, but as the reply or answer made by the complainant through Davett to the offer to sell on other terms previously communicated to complainant by Davett as the agent of DeMott or his principal.

In the second place, the evidence shows that Davett, before any communication with the complainant which could be considered as employing Davett to act for him to any extent or for any purpose as his agent in this transaction, had accepted an employment from DeMott to sell the stock. A broker is primarily the agent of the person who. first employs him (Marsh v. Buchan, 1 Dick. Ch. Rep. 595, 596, 604 (Errors and Appeals, 1890); Story Ag. ¶ 31; 4 Am. & Eng. Encycl. L. (2d ed.) 966), and as between DeMott and himself, this prior agency for DeMott, the seller, continued to the close of the transaction. If while so employed as seller’s agent, under an agreement with him for compensation which virtually gave Davett and not DeMott, his principal, control of the price, Davett undertook subsequently to be also the purchaser’s agent to purchase, without fully informing the purchaser as to his agency for the seller and its terms, the acceptance of such subsequent employment without such notice was a fraud, which might avoid the entire transaction if the purchaser chose to revoke and the seller insisted on the sale after notice of his agent’s fraud.

But the subsequent dishonest employment for the purchaser could not, as it seems to me, be either a legal or equitable basis for declaring the prior legal agency for the-seller revoked, and the subsequent dishonest agency established as the legal agency. To hold that the purchaser, defrauded by dishonesty of this kind in a person who assumed to act as his agent, can recover the profits fraudulently received as money which belongs to him as principal, is to affirm as legal an agency which in its origin was *13illegal and dishonest. The remedy of the principal in such case is a rescission of the contract for fraud, or an action to recover the loss he has sustained by reason of the fraud. But he cannot recover as money belonging to him in his character as principal the profits received by an agent who was the seller’s agent, and afterwards fraudulently assumed to act as his agent. The case is not one where an agent having been first employed by the purchaser makes secret profits under a subsequent agreement with the seller or his broker. In such case all the illicit profits which he makes while under the first and legal employment, in the course of that employment, belong to the employer under the rule settled both at law and in equity.

In the third place, I think that while complainant in concluding the purchase relied on Davett’s assertion that DeMott, or the person for whom DeMott acted as selling broker, ultimately controlled the *price, and was misled both by Davett’s. representations and actions, as to Davett himself being the person who controlled the price, yet the entire evidence shows, as I conclude, that even if there was an agency to some extent assumed by Davett for the complainant in the transaction, the purchase as between complainant and Davett was upon the basis that complainant was not expected to pay Davett any commission or-compensation for his services, but that Davett was to be compensated by DeMott. Illingworth dealt for himself in relation to fixing the price, and himself received from Davett, as part of the consideration to him on the purchase, the release of an option Davett held against him, which both parties then considered worth $2,500. In the absence of sufficient explanation, the bargaining as to price by complainant, on the basis of Davett’s giving him something, would seem to be conclusive that the relations of the-parties at that time were adverse and not confidential. Unless Davett was to receive something from DeMott to compensate him for this surrender, there would seem to be no adequate reason or explanation of the surrender. And in reference to this surrender, the deception or fraud, if any was practiced on complainant, was in Davett’s misleading him as to the amount he was to receive from DeMott as a compensation, *14and as to Davett’s own control, over the price, by his statements and conduct before the bargain was concluded, and by Davett’s application to complainant subsequent to the bargain (which, when carried out, was worth over $2,000 to him), to give him $500 or $1,000 for getting complainant the chance to purchase. If this be the correct view of the evidence, and complainant was not to compensate Davett for any services, but Davett was to receive his compensation from the other side, then the rule entitling the principal to recover the compensation so received, as being secret or illicit profits, does not apply, and the fact that the compensation to Davett was greater than complainant expected does not make any part of the compensation complainant’s money.

In addition to the above reasons, there is another obstacle to complainant’s recovery, on the basis of agency, of the amount received by Davett. The evidence shows that on the evening of the 15th of December complainant received from Mr. Graham the information as to the market price of the Blanchard stock, which led him to believe or suspect that he had been defrauded, and the weight of the evidence shows, also, I think, that complainant went to Davett’s office on the following morning, December 16th, and procured the surrender of the old option without complaining of the supposed fraud, and that this complaint was not made until the following day, December 17th. Under these circumstances, the complainant, if entitled to any relief against Davett, would be required to restore or re-instate the surrendered option as an equitable condition, and it is a serious question whether the surrender of the option and acceptance of this benefit from Davett, and giving a new option, after the information from Mr. Graham, does not bar any relief on the basis of agency. But, without deciding the case upon this point, I conclude, upon the whole evidence as to the transactions and relations' between Davett and complainant up' to the time of the completion of the sale, that there is no right to recover from Julius Davett any portion of these profits which DeMott and the Davetts divided upon the sale of- the stock to complainant, upon the claim that Davett was complainant’s *15agent. Any.right of recovery which complainant may have; against either DeMott or Davett must, as it seems to me under the facts proved, be based not on the affirmance of the sale and the existence of an agency for complainant, in which complainant was wholly entitled to Davett’s services in the sale and the profits received by him, but must rest upon the basis of fraud and misrepresentation in procuring the sale, entitling complainant either to a rescission of the sale, as against DeMott.and Davett, or an action for damages. The complainant’s bill for an accounting by either DeMott or Davett, as his agents, must therefore be dismissed.