The Gazette 1987

JANUARY/FEBRUARY 1 9 87

GAZETTE

profit and does not object, then the agent is entitled to keep that pro- fit. 68 Fridman goes further and states that: "if the profit, though secretly made, has not been obtained as a result of any fraud practised on the principal, the mak- ing of such profit will not deprive the agent of his rights against the principal, though the agent will not be able to keep his secret pro- fit." 69 Fridman explains this duty by stating that the agency agreement is a contract uberrimae fides. 70 Lord Denning has (as usual) made some interesting observations on this subject: "Once it is found that the agent has used his principal's property or his position so as to make money for himself, it matters not that the principal has lost no profits or suffered no damage . . Nor does it matter that the prin- cipal could not have done the act himself . . . Nor do you have to find that the act, which brought about the profit, was done within the course of his employment . . The reason is simply because it is money which the agent ought not to be allowed to keep. He gained an unjust benefit by the use of his principal's property or his posi- tion and must account for it." 71 An agent must account to the principal for all profits. 72 TurnbuHv Garden 73 is a clear example of an agent's duty not to make a secret profit — even if the agent is a gratuitous one. An agent was appointed to buy a cavalry outfit for the principal's son. The agent obtained some discounts on the outfit but charged the full price to the principal. The court held that the principal only had to indemnify the agent for the real cost of the outfit and no more: anything else would have been a secret profit allowing the agent to profit by a wrong. Another case is Thompson v Meade. 7 * A stockbroker was in- structed to purchase shares at a specific price. He obtained them at a lower price. The court held that he could not charge the client more than he actually paid for them: to do so would have allowed the agent a secret profit. What happens if the agent breaches this duty? First, the agent is no longer entitled to the agency commission. Secondly, the prin-

The Duties of an Agent to a Principal - II (Part / of this article appeared in the December, 1986 issue)

Duty to Respect the Principal's Title

(iv) some dishonest act relating to the money." 64 Duty to Account The agent must pay over to the principal all money received to the use of the principal. 65 In order to fulfil the duty to account, the agent is under a duty to keep the principal's property separate from his or her own, keep proper accounts and to produce those accounts to the principal (or a nominee) on request. 66 Interest- ingly, the duty to account exists even where the transaction (whereby the money is received) was void or illegal, so long as the contract of agency is not itself illegal. 67 Duty Not to Make Secret Profits An agent has no right to receive any financial benefit from the agency other than the remuner- ation provided under the agency itself. To receive any such payment is to make a secret profit. The agent is merely the medium through wh i ch the principal reaches a third party. It would be wrong for the agent to make some financial gain from the agency which was not disclosed to the principal. In essence, the agent is under a duty not to make a secret profit.

If an agent is in possession of property belonging to the principal, then the agent is under a duty to respect the principal's title to that property: the agent is estopped from denying the principal's title. This duty has been succinctly described by Fridman in the follow- ing terms: "(t)he agent cannot deny the title of the principal to goods, money, or land possessed by the agent on behalf of the principal." 59 (a) title of the principal An agent is under a duty to respect the principal's title. Thus, for example, a carrier entrusted as agent with good? by a principal cannot contest the principal's title. 60 An agent is incapable of acquiring title to a principal's land because the possession of the land by the agent is deemed to be that of the principal himself or herself. 61 (b) title of a third party What if a third party claims the principal's property? The agent may be able to avoid handing the goods to the principal by setting up the third party's rights to the pro- perty against the rights of the prin- cipal. That is to say, the agent may be able to plead jus tertii . 62 This possibility does not arise in the case of money 63 unless the agent was guilty of some wrongful act in connection with that money. Frid- man states that acting wrongfully " i nvo l ves (i) knowi ng ly par- ticipating in a breach of trust by the principal or (ii) intermeddling with the trust property otherwise than merely as an agent or (iii) receiving or dealing with the money knowing that his principal has no right to pay it over or to instruct him to deal with it in the manner indicated or

by Vincent J. G. Power and Kieran M. Hughes

While an agent is in any event under a duty not to accept bribes or secret commissions (infra), there need be no bribery, fraud or corrup- tion involved in a "secret profit". The agent's duty is not to make a secret profit. Thus if the principal knows that the agent is making the

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