The Gazette 1987

GAZETTE

JANUARY/FEBRUARY 1 9 87

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

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."

(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.

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.

(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

This

possibility does not arise in the

case of money

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

(iv) some dishonest act relating to

the money."

Duty to Account

The agent must pay over to the

principal all money received to the

use of the principal.

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.

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.

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.

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

secret

profit. Thus if the principal

knows

that the agent is making the

profit and does not object, then the

agent is entitled to keep that pro-

fit.

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."

Fridman explains this duty by

stating that the agency agreement

is a contract

uberrimae fides.

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."

An agent must account to the

principal for all profits.

TurnbuHv

Garden

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

Meade.

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-