Neither an agent, nor those in his employ, may be interested in the profit of a sale to or purchase from his principal without the clear assent of the principal. (Sec. 60-64.) That the intention was honest, or that the principal suffered no loss by the transaction, makes no difference. (Sec. 65, 66.)
Such a transaction is not, however, void, but is voidable at the option of the defrauded party, and may be ratified by him. (Sec. 67.) And where the principal knows that the agent is acting in his own behalf, the transaction is valid. (Sec. 68, 69.)
Where others combine with the broker to carry through a transaction in the profits of which the broker is secretly interested, they may all be liable for fraud or deceit. Such a combination is usually sought to be held liable on the theory of a conspiracy. (Sec. 70.) Sharing in the benefits of such a transaction makes one liable, even though unaware of the wrong committed. (Sec. 71.)
In New York, a conspiracy to defraud another out of property by criminal means is a misdemeanor. And so is corrupt influencing of an agent. And under the New York statute, an agent may also commit a misdemeanor by accepting a gratuity or a promise under an understanding that he shall act in a particular manner in his principal's business. (Sec. 70.)
A person may agree with the owner of property to buy it at a certain price, and then turn around and agree to sell it to somebody else at an advanced price, and may, as a matter of right, make all he can so long as the purchaser gets all he bought, and pays no more than he agreed to pay, and is not, in fact, damaged.
But this rule does not apply where the person who makes the profit is the agent of either party and makes the profit out of the party whom he represents.1 "It is the unquestionable duty of an agent to act in matters touching the agency with a sole regard to the interests of his principal. The agent in accepting the employment undertakes to manage the interests confided to him and discharge the trust reposed in him to the best of his ability for the benefit of his principal." 2
Some cases go to the length of holding that the broker may not accept part of the commission of the broker acting for the other party.3
On the other hand, in Alvord v. Cook, 174 Mass. 120 (1899), the plaintiffs, while acting as the defendants' brokers, made an agreement with a person acting as broker for the other party to an exchange that the brokers for the contracting parties should share equally the commissions obtained on both sides. It was claimed that this arrangement was not known to the defendants, and was a fraud upon them. The arrangement was not such as to make the respective brokers partners, and it did not appear whether the commissions of the respective brokers were to be lump sums or percentages, or whether they were to be equal in amount.
The court said: " It is easy to conceive of an arrangement between brokers for sharing the commissions which would put one of them under a temptation to act adversely to the interest of his client, and perhaps it is easier to conceive of such an arrangement than of one not having such an effect, but we are not prepared to say that necessarily, as matter of law, every arrangement between brokers to share commissions changes the relation they hold to their principals, either by putting them under an additional or different temptation than that arising out of the nature of the employment or otherwise, and is therefore invalid.
¹ Helberg v. Nichol, 149 111. 249 (1894).
2 Price v. Keyes, 62 N. Y. 382 (1875); Kingsley v. Wheeler. 95 Minn. 362 (1905); Leathers v. Canfleld, 45 L. R. A. 33 (Mich. 1898).
³ See Plotner v. Chlllson, 95 Pac. 777 (1908), (citing McKlnley v. Williams, 74 Fed. 95; 20 C. C. A. 313).
"In this case there was an exchange of property, and it is fair to assume that the property upon each side was substantially of the same value; and it does not appear that the commissions were unequal.
"The defendants fail to show that, upon the facts of this case, either broker was placed by this arrangement in any better or worse condition than without it, or that in any way he was subjected to any other or different temptation to act adversely to the interests of the principal than that naturally and ordinarily arising out of the nature of his employment."
If the person who makes the profit is not the agent of either party, it seems no inference may be drawn from the fact that he ascertained first whether the purchaser would give a certain amount before the party who makes the profit agrees to buy the property at a less amount.4