General rule. The agent must display and exercise the utmost good faith toward his principal.
One employs another as agent out of personal regards. The relationship is a highly personal one. The principal and agent are, it is true, at arm's length in dealing with each other concerning the terms of the agency, but once the relationship has been entered into, the agent then becomes the representative of the principal, the man who stands in his stead, who, so to speak, takes upon himself the identity of the principal, who is the principal in respect to that act. It follows therefore that the agent must establish the principal's interests as his own, and that he must not place himself in any position which will tempt him from acting in the very way that the principal would have acted were the principal actually present as he is by a fiction presumed to be present. It is therefore one of the most fundamental and frequently reiterated rules in the law of agency that a principal is entitled to the highest good faith and utmost zeal of his agent, and that the agent will not only be prevented from taking secret advantages, but will not be allowed to even place himself in the way of temptation, though in the particular case no harm thereby resulted to the principal. In the following sections we will note some applications of this rule.
An agent cannot without consent of both parties be the agent of both of them and receive double compensation. In such a case he loses his right to all compensation, and if either party is privy to his double dealing, the other party may avoid the agreement.
An agent of one person cannot be the agent of the other with whom he is sent to deal. To permit this would lead him into temptation to betray one of his principals.44 If both parties know of the double agency and consent thereto, there then can be no objection, but otherwise the agent loses all right of compensation by either party, and if either party knows of the double agency and knows that the other party does not know of it, the contract is voidable at the instance of the innocent party.45
This rule is based on the fact that a principal is entitled to the utmost fidelity of his agent, and therefore is entitled to have the agent keep himself from the temptation to betray his interests. It is entirely immaterial whether or not the agent did betray his trust, or did anything unfair. Indeed he may have acted in all good faith and without any disadvantage to his
44. Gann v. Zettler, 60 S. E. Reporter (Georgia) 283, in which the court said: "It is recorded of him 'who spake as never man spake,' that, 'seeing the multitudes he went up into a mountain, and when he was set, his disciples came unto him; and he opened his mouth and taught them, saying: * * * 'No man can serve two masters, for either he will hate one and love the other, or else he will hold to the one and despise the other.' So, also, is our law."
45. Rice v. Wood, 113 Mass. 133.
principal. This is of no moment.46 The only safe rule to apply is the rule that the agent cannot place himself in the way of temptation. If he does so, further inquiry need not be made; the rule will simply be applied that what he has done shall redound to the benefit of his master, and he loses his right to compensation, or, if that has been paid, it can be recovered.
An agent employed to buy or sell cannot secretly buy from or sell to himself.
If one sells his own property it is human nature that he should desire to sell at the highest price he can get, and if he buys property, he would buy it as cheaply as possible. If I employ an agent to sell property belonging to me, I employ him to use his efforts in my behalf to get the highest price he can, and if I employ him to buy for me, I do so under the implied understanding that he will purchase on the most favorable terms to me that he can get. Clearly, then, if he buys from or sells to himself he is opposing his interests to mine. If I know he is doing this, then I am on my guard and can protect myself, but otherwise he betrays or is tempted to betray my trust in him. Therefore, buying from or selling to himself is forbidden, and the principal may upon discovering the facts have the transaction rescinded. And what may not be done directly may not be done indirectly, that is, the agent acquires no further rights by acting through another and in that other's name.
Example 11. A appointed B to sell his real estate. B reported he had sold to F. Afterwards B by assignment succeeded to F's title, and A discovered that F was acting secretly at the time of the sale as a colorable purchaser merely and that B was the real purchaser. A sued to set aside the sale, and the court set it aside as having been made by the agent in breach of his trust.47
46. People v. Township Board, 11 Mich. 222.
An agent cannot use his agency to obtain secret profits and benefits.
Upon the same principles, an agent will not be permitted to use his agency for the purpose of making secret profits and taking secret benefits, and such profits and benefits will accrue to the principal. Thus if he uses the principal's money for purposes of speculation, and thereby makes a profit, the principal will be entitled thereto, or if he purchases or acquires for himself property which the principal has an interest in acquiring, it will be considered that he acquired it for the benefit of the principal, if the principal desires to take it.
Example 12. An agent of a lessee of a theatre, acting upon the knowledge and in the advantage secured by his agency, secured to himself a renewal of his principal's lease, and it was held that it would be considered that the agent acquired it for the benefit of his principal.48
So profits made in the scope of agency will be considered as made for the benefit of the principal. If an agent is employed to sell for one price and succeeds in selling for a higher one, the excess belongs to the principal.