Story Case

Joseph Hamlin for many years had been lessee of a theater, and had built up a fine theatrical business. Robert Davis was his confidential agent and business manager. Just previous to the time when Hamlin's lease was about to expire, Davis went to the owner and opened up negotiations for the taking up of the lease in his own name. In fact, knowing what Hamlin offered, Davis offered $5,000 more per year for the same, than his principal had been paying and finally Davis acquired the lease. Hamlin asked the Court to have Davis declared a trustee of the lease for him, upon the ground that his conduct was a breach of duty. What should the Court do?

Ruling Court Case. Hofflin Vs. Moss, Volume 67 Federal Reports, Page 440

Moss was a manufacturer of some medicine. He entered into an agreement with the plaintiff by the terms of which the plaintiff was to make contract with Weekly Newspapers for the insertion of defendant's advertisement. By the terms of the contract it was planned that the defendant should pay for the advertising by selling the medicine to the publishers at a reduced rate, but still at such a rate that a small profit would be made. Defendant further agreed to pay the plaintiff for services, $2.75 for each contract thus placed.

The plaintiff sues for commissions, claiming that he has placed a large number of contracts and that the defendant has not paid him therefor. In defense, the defendant contended that plaintiff was really his agent, and as such had been guilty of a breach of duty. The evidence showed that the plaintiff owned and controlled a large amount of advertising space, for which he was now claiming compensation. It seems that the purpose of his scheme was not only to advertise, but to sell and make profits on the sales, in payment of the advertisement.

Justice Caldwell delivered the opinion.

Plaintiff, by virtue of his contract with the defendant, became his agent, and as such agent it was his duty to act solely for the interest of his principal. Here his primary motive was his own interest; such being the case he is entitled to no compensation.

The Court said in part: "The moment that the plaintiff accepted this agency for the defendants, the law bound him to the exercise of disinterested skill, diligence and zeal in carrying out the agency. He was bound to act in the utmost good faith towards the defendants, and execute the agency in the mode he knew his principals expected and intended it should be carried out, and with an eye only to their interests. Instead of so acting he was contracting for and with himself, and his interests in the matter were directly inimical to those of his principals. An agent thus acting cannot recover commission or compensation for his services."

Ruling Law. Story Case Answer

By means of the relationship which exists between the principal and agent, the latter comes into possession of facts concerning his principal's business which, but for the relationship, he could never get. Because of this, the law imposes upon an agent the duty of exercising a very high degree of good faith and loyalty towards his principal, and the principal's interests. Without the consent or acquiescence of the principal, he may not sell his principal's goods to himself, or sell his own to the principal. Nor may he engage in any independent business or enterprise, for himself, or any one else, which would in any way conflict with his superior duty to his principal.

In the Story Case, the Court should rule that the lease be held by Davis in trust for Hamlin.