"It is an elementary principle that an agent cannot take upon himself incompatible duties, and characters, or act in a transaction where he has an adverse interest or employment. ... In such a case he must necessarily be unfaithful to one or the other, as the duties which he owes to his respective principals are conflicting, and incapable of faithful performance by the same person."l "Where fraud is claimed by which a person is induced to enter into a contract with brokers or others, and such fraud is relied upon as a defense in an action upon the contract it should be pleaded as an affirmative defense. In an action upon any contract, however, evidence to show that the person bringing the action has failed to perform his contract in whole or in part is competent under a general denial. It is not necessary in pleading to allege specifically facts to show the failure of the person bringing the action to carry out the contract upon which the action is brought. Proof of bad faith in carrying out the agreement sued upon or failure in any way honestly, fairly and in good faith to carry out the contract upon which the action is brought can be asserted and shown under a general denial." 2
Add to footnote 1:
Garrigues Co. v. International Agri. Corp., 159 App. Div. 877; 144 N. Y. Suppl. 982 (1913).
Add to footnote 4 (p. 151):
Cardozo v. Middle Atl. I. Co., (Va. App.) 82 S. E. 80 (1914).
That it is not always an easy task to say when the broker is acting in good faith and when he is not, must be evident. In one case,3 a real estate broker had made a contract whereby he agreed to conceal his principal, a railroad company, in the purchase of certain lands, and to endeavor to obtain the lowest price and to look only to the seller for his commissions. The question of good faith did not arise through any objection of the seller who was to pay the commission, but after the railroad company had purchased some of the parcels through the broker under this arrangement, it subsequently purchased other parcels in the tract directly from the owners and the broker sued the company for an alleged breach of the agreement, and the question of good faith was then urged by the railroad company.
1Murphy v. Harrison Granite Co., 168 App. Div. 723, 730; 154 N. Y. Suppl. 546 (1915). 2Dickinson v. Tysen, 209 N. Y. 395 (1913).
3 Foss v. N. Y. C. & H. R. R. Co., 161 App. Div. 681; 146 N. Y. Suppl. 930 (1914); affd., 217 N. Y. 7V (1916), no opinion.
While in this case the broker was denied a recovery on grounds other than the question of good faith, that question was discussed. One of the justices said: "I see no objection to a broker, representing one desirous of purchasing property, going to the owner and saying: I know some one who may purchase your property if you will offer it at a reasonable figure, and I am representing him, but I shall not proceed with the negotiations unless you agree to pay for my services, which are to be rendered to the purchaser from whom I am to receive, no compensation.' .... There was no agreement on the part of the plaintiff (the broker) to do anything for the owners, and he was not vested by them with any discretion. They fixed their selling prices and made their own propositions to him to be presented to his client."
Another justice of the court took a somewhat different view, however, saying: "I concur in the reversal of this judgment and dismissal of the complaint on the ground stated by my brother Laughlin, but I do not concur with him in his conclusion that a broker engaged in a negotiation for the sale of real property can receive a commission from the seller and at the same time contract with the purchaser to receive an advantage from him without disclosing such contract to the seller. A broker approaching the owner of real estate with an offer to purchase the property and making an agreement with the owner of the property that he shall receive a commission from the owner for his services in selling the property assumes towards the seller a position in which the utmost good faith is required on his part. The very fact that he undertakes to act in that capacity imposes this obligation upon him and whether he gives up the name of the customer or not, if he is to receive his commission from the seller he cannot place himself in a position antagonistic to the seller's interest and procure any advantage from the purchaser without disclosing the true condition of the seller.
"The plaintiff here assumed from the beginning of the negotiation that he was to get his commission from the seller. The fact that he represented the purchaser in his endeavors to procure the property at as small a price as possible justified him in going to the owners of the property and making an offer and endeavoring to get the property at as low a price as possible, and if he had acted openly with the owners and stated that he represented the purchaser there would have been no objection to the transaction. But that he never did. He went to the owners of the property with the offer and demanded a commission if he carried out the transaction. To that the owners agreed. He thereby became bound to state to the owners who were to pay him for his services that he rendered, his relation to the persons who had made the offer and that he was acting for them in procuring the property at as small a price as possible and could not be depended on to represent the owners in the transaction, and to show the utmost good faith. And it seems to me that if he had completed the sale the owners could have refused to pay him any commission upon the ground that, having brought an offer to them and asked them for a commission for services that he rendered to them in making a sale, he was all that time acting against their interests and was endeavoring not to induce the purchaser to pay more, but to induce the seller to take less. This seems to me to be a distinct violation of his duty to the sellers as laid down in Dickinson v. Tyson." 4
In Dickinson v. Tyson,5 it was said: "It may be conceded that where a broker with full knowledge of the person whom he represents, carries an offer to an owner of real property and makes the same contingent upon the owner paying to the person communicating the offer, a specified commission, that there is no obligation on the part of the person communicating the offer to disclose to the owner any facts within his knowledge as to the intention or ability of the proposed purchaser to sell the property to another at an advanced price. In such case it rests with the owner to accept the offer or reject it as he chooses, and if he accepts it he must do so subject to the condition that commisions be paid as stated.
"A wholly different situation exists when brokers are employed by the owner to procure a purchaser for his real property. After such an agreement brokers act by the authority and in the interest of the owner, and it is their duty to act fairly, honestly, and in good faith towards such owner. In that case their skill, knowledge and experience must be used to benefit the owner and cannot be withheld, particularly to further some personal interest of the brokers."
4 209 N. Y. 395 (1913).
is the duty of a broker to impart to his principal any information which comes under his observation that would in any way affect his principal's business, so that his principal may determine whether the deal should be consummated or not.6
6 Greenblatt v. Fox. 59 Pa. Super. Co. 53 (1915).