EMERY, V. C.
Bill for an accounting by John Illingworth against William S. De Mott and others. Dismissed.
The equity upon which complainant bases his claim to decree in this case is the right of a principal to compel his agent to account for profits secretly derived by the agent in the course of the transaction of the business for the principal. Complainant alleges in his bill the Joint application of defendants to act for him in the purchase of stock of an incorporated company, and an agreement on his part for the purchase, relying upon their joint representations as to the lowest price at which purchase could be made, which representations are claimed to have been false. He also alleges in the bill that Davett, one of the two defendants, was acting as his special agent in making the purchase, under an agreement for compensation for his services. The defendants De Mott and Davett who answer separately, each deny any agency for complainant, joint or several, and allege substantially that in the transaction in question—a sale of Prudential Insurance stock to the complainant—the defendant Davett was acting, not as complainant's agent to purchase, but as the agent to sell for the defendant De Mott, who had control of the sale of the stock in question, under an agreement or option given to him by the owner, a Mr. Blanchard, to sell to De Mott or his nominee at a fixed net price,—$80,000. The answers of both defendants admit that previous to the sale to complainant an agreement was made between De Mott and Davett that any profit made on a sale should be equally divided between De Mott, the defendant Davett, and a brother of the defendant Julius Davett a Mr. Emil Davett. who is not a party to the suit. The sale to complainant was effected for $80,000 in cash and 100 shares of Atha & Illingworth Company stock, the latter shares representing the profit, which, under the agreement, was to be equally divided between the three persons named. Blanchard received the $80,000 in cash directly from the complainant, who delivered the Atha & Illingworth stock to De Mott, supposing, as the bill alleges, that De Mott received it to deliver to Blanchard. Complainant, discovering, as he alleges, a few days afterwards, that Blanchard's stock was for sale for $80,000, and that the Atha & Illingworth stock was the profit on the transaction, filed his bill to enjoin De Mott, who still held the stock, from transferring it, and for its delivery to him as the secret profits of his agents. There is no prayer in the bill that the sale of the stock be set aside, nor does complainant offer to return the stock purchased. The Atha & Illingworth stock has been sold, pending the suit, under order of the court made after hearing the parties, and the proceeds paid into court to abide decree in the suit. The issue between the parties as made up on the record is one of the existence of an agency of the defendants, or either of them, for the complainant in the purchase, and this question of fact was the question argued at the hearing by counsel; the general rule that an agent must account to his principal for secret profits not being disputed. The facts of the case upon which the questionnegotiations there was no conversation between Illingworth and Davett as to commissions to be paid to him by Illingworth, but the latter now says that this agreement was given in lieu of a commission which he expected to pay Davett as his agent. He does not say that this was so stated to Davett at the time of signing it. Davett, on the contrary, says that he was Rippel's broker in this transaction, and that Rippel paid him about $3,000 for effecting the sale, and denies that this agreement was received from Illingworth as compensation for his services as Illingworth's agent in procuring the stock. His explanation of his procuring this option or agreement is that after the sale he thought Illingworth felt well disposed towards him for bringing him this chance to purchase; that he (Davett) wanted to make as much as possible, and he asked Illingworth what he (Davett) would make out of it, and whether Illingworth would allow him anything out of the deal, and that Illingworth ought to give him something, because he had got the stock for him. He says there was one other person he knew of buying the stock. He also says that Illingworth knew he was getting something out of the other side. Illingworth, after figuring what the stock had cost him at $700, said he would give him a chance, and give him something to work for, and when the stock got up to about $800 they would sell it, and the option or agreement was then reduced to writing. Illingworth at that time held other Prudential stock besides the 200 shares then purchased. The evidence as to details of the interviews between Illingworth and Davett in reference to the purchase of this stock before its actual purchase is very meager on both sides, being in the main simply statements by Illingworth that Davett acted as his agent, and by Davett that he acted as agent of the seller. The evidence does not, in my judgment, justify the conclusion that the complainant has, by his proofs in reference to this transaction, shown the existence of Davett's agency for him at the time of the subsequent purchase now in question. The transaction and the agreement, or option, as it was usually called, which ended it, is however, an important fact in the case, for in the subsequent dealings between complainant and Davett the option, which was then considered valuable, was surrendered by Davett to the complainant, and a new option at $900 substituted—an advance of $200 per share.
Another purchase of a small lot of the stock (20 shares) was made late in October; Davett, as the agent of the owner, who paid him his commission, selling this also to Illingworth, who does not contradict this statement of Davett, and in fact says nothing about the transaction. This brings us to the purchase now in dispute, the evidence as to previous transactions being insufficient, in my judgment, to establish any agency on Davett's part to purchase for complainant as then existing, but showing that Davett knew that Illingworth was desirous of purchasing the stock at figures at least as high as $700, and that Davett had then, by virtue of the agreement of October 20, 1898, accepted an agency on behalf of the complainant to sell, if possible, 100 shares at over $700, which agency, with Davett's contingent interest in the profits, was by both parties considered as still in force. The course of events in relation to the sale now in question was substantially as follows: Mr. Leon Blanchard, a neighbor and social friend of defendant De Mott, had for some time owned the stock in question (200 shares of Prudential Insurance Company stock), and during the year De Mott had spoken to Blanchard in regard to the stock. In December, 1898,—and before the 13th, as Blanchard says,—De Mott applied to him to know if he (Blanchard) would sell this 200 shares, and that he told De Mott he would. Blanchard cannot fix precisely the date of this interview, and he now says that the price he fixed—$80,000—was not fixed until he signed the option to De Mott on December 13, 1898, at his house. De Mott fixes the date of this interview as about December 6th, and, as I understand his evidence, says that Blanchard at this interview verbally agreed to sell him 200 shares of the stock, that he then fixed the price at $800, and that Blanchard told him he would deliver the 200 shares of Prudential stock to him upon the payment of $80,000, and he (De Mott) could get whatever he liked out of it. Blanchard wanted the stock to net him $80,000, and De Mott took it, as he says, on that understanding. De Mott did not, as he says, offer to give $800, but Blanchard offered it to him at $800, and the agreement (in the form of an option) was put into writing one week later. The date of, this interview between De Mott and Blanchard, and also of the subsequent interview between De Mott and Davett is decisively fixed by the evidence of Davett, who says that on December 6th De Mott told him that Blanchard had stock which he would sell, and that an agreement between himself and De Mott for the division of profits on a sale of this stock had been made when he wrote to the complainant the letter of December 6th, hereafter referred to. De Mott says that about the time when Blanchard first spoke to him he went to Davett because Davett had told him he wanted the stock for complainant, who would pay a good price for it; and his account of the interview is that, when he made the bargain with Davett, the latter said he could probably sell this stock, or get complainant to buy it; that complainant wanted it; that no figure was mentioned, as Davett did not know at the time what he could do with it, but he would do the best he could, and get all he could out of it; that the agreement was that Davett was to undertake the sale of the stock with the understanding that he (De Mott) was to have one-third of whatever was made. The proposition came from Davett, as De Mott thinks, and one-third of the profits wasto go to Emil Davett. a brother of Julius, and a clerk in his office; but De Mott says he knew nothing and cared nothing for the reason of this, being himself interested only in getting his one-third. Davett's account is somewhat different. He says, on cross-examination, that on December 6th De Mott told him that Blanchard had some stock he would sell, and that he then knew that De Mott had offered to sell it for Blanchard without any commission, and that he then understood that De Mott had authority to sell the stock; that De Mott did not come to him, and ask him to find a buyer, but asked him if he could find a buyer,—if he knew a man who would pay about those figures. No figures, however, are mentioned. He further says that at that interview on December 6th the bargain was made that he (Davett) was to sell that stock to complainant, if he could, and that his compensation was to be one-third of the profits, De Mott to have a third, and his (Davett's) brother, Emil, was to have a third; Emil's services being to assist him (his brother, Julius) in his (Emil's) way about the office. Emil Davett, who was also present at the interview, fixes the date of it as probably a day or two before the 6th of December, when the letter was written, and says that at the time of the agreement for a division of the profits between the three, no asking price for the stock was fixed, but it was the arrangement with De Mott that they were to get all they could for it, and all over $800 was to be divided between the three. The above statement gives substantially all the evidence relating to the status of all the parties in relation to this stock up to the time when the transactions with the complainant in reference to it commenced.
On December 6th, after the interview in which the bargain was made that Davett should sell the stock to complainant for the best price he could obtain, and for the division of the profits, Emil Davett went to complainant's residence in Newark, to see him, and, complainant then being absent in North Carolina, obtained his post-office address there. Julius Davett, the defendant, then wrote to complainant as follows: "Newark, N. J., Dec. 6th, 1808. Mr. John Illingworth—Dear Sir: I sent up to your house to-day, and found that you were away, and I took the liberty of asking your wife for your address, which she gave me. I have 200 shares of Prudential stock which I will hold for you until your return. Will you please call as soon as possible when you get back? I am, yours, truly, J. T. Davett. I can make you a good trade on the above 200 shares." This letter, after being written by Julius, was read over by him to his brother, Emil, at the latter's request, and then mailed, and the complainant received It In North Carolina. He returned to Newark on Monday, December 12th, and on the afternoon of that day called on Davett. Complainant's account of the interview is that Davett told him De Mott had a party who would sell 200 shares of Prudential stock for $900 a share, and that he could also work in the trade 100 shares of Atha & Illingworth stock in part payment. Complainant told Davett that was altogether too high; he would not consider it; and walked out. Julius Davett's statement is that: "Complainant, after stating he had my letter, said to me, 'You have some Prudential stock to sell,' and I said, 'Yes.' He asked the price, and I said: 'I have 200 shares. It is held outrageously high. It is the only lot I know of on the market, and the price is $900.' He said that was too high, he could see nothing in it at those figures. He asked whether I could take in any of his stock (Atha & Illingworth stock), and I told him I thought I could work in 100 shares. In reply to his question whether I couldn't work in 150 shares, I said, 'My man won't take that' He said, 'Who is your man?' I said. 'De Mott has got control of the stock.' He said he saw nothing in it at those figures. I then said. 'If you will buy this stock at $900, I have got this option at 700, and at the market value to-day—about 800—I will put in this old option, which I consider worth $2,500, and try and work in your hundred shares.' I also told him there would be a cash dividend of 1,000 in the 200 shares in about a month, and that he was putting in his Atha stock at par, which was more than it was worth. Then some figuring was done by the complainant, in which he put down $2,500 as the value of the option, $1,000 for the cash dividend, and $2,000 as the difference between Atha stock at par and at 80, making altogether $5.500 to be received by him, which, subtracted from $90,000, left the stock standing him at $84,500. Complainant then said he didn't think he could do anything at those figures, and asked me to see De Mott, and see if he wouldn't take 150 shares of the Atha stock and $75,000 cash. I told him I didn't believe he would, but I would try it. As he was about to go, I proposed to split the difference on this 900 figure, and call it 875, to which he said, 'All right,' and, in reply to my question, said he would do that. I repeated, 'That will be $80,000 cash and 75 shares Atha & Illingworth stock,' and he said, 'All right,' and I made an appointment to meet him at his house that night." In reference to the precise date of this conversation about the proposal to pay 875,—which is important, —Davett says that he had a conversation with the complainant both on Monday, the 12th, and on Tuesday, the 13th, and that he went to complainant's house on the 13th, and that part of the conversation—that relating to splitting the difference—may have been on the 13th, but on the 12th the figuring on the price at 900 occurred. Complainant, on cross-examination, says that he figured some on the 12th, but does not recollect what it was, and does not remember the figures. After this conversation (which was probably on the 13th), Davett, as he says, saw De Mott about 3 o'clock in the afternoon, and had a conversalionday to sign the new option at 900, and take up the old one at 700. On cross-examination, however, he says that, when the complainant signed the contract on December 14th, there was talk about not transferring the Atha stock to a broker's name, and complainant said, "I don't want this stock [the Atha stock] to stand in a broker's name, and you fellows are making it any way." And, further, that on the 14th, before the contract was signed, Julius Davett told complainant that De Mott would get the stock, and that he (Julius Davett) expected De Mott to make an advance, and expected to make $500, or as much as he could. The complainant, on his first examination, said nothing whatever as to any conversation about commissions or compensation from him to Davett, either before or after the sale, and, being called in rebuttal, denies saying that he would not pay anything, and that Davett must get his commission out of the other side, and that the first time he charged them with getting the stock for nothing was on Friday or Saturday after the sale; and he now says that he understood Davett's changing the option from 700 to 900 was to be Davett's compensation from him.
In this conflict of the evidence of the three witnesses as to any conversation between complainant and Davett, as to Davett's compensation or profits, before the agreement to purchase was completed, the evidence of the complainant and De Mott, as to a conversation between them on the day following the agreement to purchase, and when these two were completing it, may throw some light upon the question. The agreement to buy was signed, as has been stated, on the 14th, and Davett was to make an appointment to carry out the purchase on the following morning. De Mott met complainant on the 15th, for this purpose, and then told him for the first time that the stock was Blanchard's stock, and that the transfer would take place at the Manufacturers' Bank, where Blanchard would attend to deliver the stock. On the way to the bank, complainant, as he says, asked De Mott: "What is Mr. Davett going to make out of this deal? He has given up an option that I thought was a very good one. What is he going to make out of it?" To which De Mott replied, as complainant says: "Well, I don't think he is going to make a cent from me out of it." De Mott admits that Illingworth asked him what Davett was going to make out of it, but says that he does not think he made any reply. De Mott and complainant met Blanchard at the bank, and complainant at once paid to Blanchard a check for $21,000 in part payment, and then received the certificates from Blanchard for the purpose of raising a loan on them at another bank to pay the balance. The Prudential stock was thus delivered to the complainant before payment in full, and before delivery to Blanchard or De Mott of the 100 shares of Atha & Illingworth stock. Without, so far as appears, any request on Mr. Blanchard's part for this stock, complainant left the bank with the 200 shares, and on the way to his own bank was overtaken by De Mott, who said he was asked by Mr. Blanchard to keep with him until he got the money. Complain ant procured a loan of $40,000 on the stock, then went back, and paid the sum to Blanchard, and afterwards went to another bank for the balance, Blanchard saying that he would wait for him. Complainant then left the bank, and De Mott, coming after him, again said that Mr. Blanchard wanted to hold the 100 shares of his Atha & Illingworth stock until complainant got the balance of the money, and complainant then handed them to De Mott in the hall of the bank, and not in Blanchard's presence; telling him, as he says, to hand them to Mr. Blanchard. On complainant's return to the bank he paid Blanchard $21,000 in two checks, making $80,000 in all paid by complainant directly to Blanchard, and, after asking Mr. Blanchard whether everything was satisfactory, and receiving his reply that it was, went out Nothing appears to have been said by either Blanchard or complainant to the other at any time about the 100 shares of Atha & Illingworth stock. De Mott says nothing about these occurrences in reference to his obtaining the Atha & Illingworth stock, merely saying that he went to the bank, and there assisted in closing up the transaction. The transfer was made on the morning of the 15th, and on the evening of that day, about 5 o'clock, complainant says he went again to Davett's office, and then signed the new option agreement dated December 14th, and tore up the old one. Later in the evening, and on the following morning, complainant ascertained from two other brokers that the Blanchard stock was for sale for $800; and on Friday, the 16th, he says he visited Davett's office, and charged him with fraud, and conspiring with De Mott to obtain his stock. Julius Davett says that complainant is mistaken about the date of signing the new option, and that the new option was signed on the morning of the 16th, about 11 o'clock, when the old one was destroyed; and that De Mott came in about that time, and that then complainant said, "You two fellows have made that whole Atha stock;" and that it was on the 17th (Saturday) that complainant came to his office, and threatened to post him as a swindler, if he did not give up 50 shares of the Atha stock. Davett says that he told complainant he would see De Mott, and see how he felt about it. Emil Davett also says that the new option was signed on Friday,—the day after the sale was closed. Mr. Graham, one of the brokers, who gave complainant information about the price of the Blanchard stock, says that at his interview (the exact date of which he cannot fix) he was told by Mr. Illingworth that it was made on the day of the evening he was at complainant's. This would make the time of complainant's information from Graham as to the price the evening of December15th. Complainant also says that he said to Graham he had that day bought of Blanchard 200 shares of Prudential stock for $900, when Graham informed him it could have been bought for $800, and that, on the morning of the 16th, Rippel, another broker, said he could have sold it to him for $800; and that, after hearing this from Rippel, he went straight to Davett's office, and charged him with fraud. Rippel, although called as a witness upon other points, gave no evidence as to the date of his information to the complainant about the selling price of Blanchard's stock. Both complainant and the Davetts say that the last interview with the complainant was the interview in which complainant charged fraud against the brokers, and they also agree that after the sale Illingworth was twice at the office, and that on his first visit he signed the new option. The important and vital difference between them is as to the date of signing the new option and destroying the old one, which Illingworth, after first stating that it was on the 16th, afterwards says was on the afternoon of the 15th, and which the Davetts fix positively as on the 16th. If it occurred on the 10th, then it must have been after complainant's information from Graham, received on the evening of the day the sale was effected, as both complainant and Graham fix it; and the fact that complainant gave the new option and destroyed the old one after receiving the information from Graham which he made the basis of his subsequent charge of fraud, is a circumstance which may affect the equity of his case. The bill was filed on December 20, 1898.
Prank E. Bradner, for complainant .
J. E. Howell, for defendants.
EMERY, V. C. (after stating the issues and evidence). In reference to the question of joint agency of De Mott and Davett, which is raised on the pleadings, it is entirely clear that De Mott in this transaction was not the agent of complainant to purchase the stock for him, and, further, that complainant understood throughout the negotiations that De Mott, so far from being his agent, was interested adversely to him, and controlled, or claimed to control, the stock as seller. If De Mott, as seller, tampered with an agent whom complainant had previously employed to buy, it might afford ground, as against De Mott, for rescinding the contract of sale, but, so long as complainant stands on the sale, and ratifies it, there can be no right on his part as purchaser to recover from the seller, as money belonging to the purchaser, the profits made by the seller, even if part of the seller's profits was made by tampering with complainant's agent. To allow such recovery while the "purchaser holds the stock, and thus affirms the sale, would be to make another bargain for the parties to the sale, as a penalty for fraud in the sale. On this bill, therefore, there is no right to recover from De Mott any portion of the profits he received upon the theory that he was an agent of the complainant, to whose service in the purchase of the stock complainant was entitled. Nor do I think that, as against Davett the complainant has any right to recover the profits which Davett has made in the transaction.
In the first place, the conclusion to be drawn from consideration of the entire evidence bearing upon the dealings between complainant and defendant in relation to this transaction is that Davett in the negotiations was not an agent or broker of complainant to be paid by him, but was an underbroker for the seller or the seller's broker (De Mott), who was to be compensated by the latter, and that complainant so understood the relation between himself and Davett. Complainant during the negotiations did commission Davett to communicate to De Mott his offers to purchase, and the terms; but this must under the evidence, be considered, not as an original employment creating Davett complainant's agent to purchase, but as the reply or answer made by the complainant, through Davett to the offer to sell on other terms previously communicated to complainant by Davett as the agent of De Mott or his principal.
In the second place, the evidence shows that Davett, before any communication with the complainant which could be considered as employing Davett to act for him to any extent or for any purpose as his agent in this transaction, had accepted an employment from De Mott to sell the stock. A broker is primarily the agent of the person who first employs him. Marsh v. Buchan (Err. & App.; 1890) 46 N. J. Eq. 595, 596, 604, 22 Atl. 128; Story, Ag. par. 31; 4 Am. & Eng. Enc. Law (2d Ed.) 906. And, as between De Mott and himself, this prior agency for De Mott, the seller, continued to the close of the transaction. If, while so employed as seller's agent, under an agreement with him for compensation, which virtually gave Davett, and not De Mott, his principal, control of the price, Davett undertook subsequently to be also the purchaser's agent to purchase, without fully informing the purchaser as to his agency for the seller and its terms, the acceptance of such subsequent employment, without such notice, was a fraud, winch might avoid the entire transaction if the purchaser chose to revoke, and the seller Insisted on the sale after notice of his agent's fraud. But the subsequent dishonest employment for the purchaser could not, as it seems to me, be either a legal or equitable basis for declaring the prior legal agency for the seller revoked, and the subsequent dishonest agency established as the legal agency. To hold that the purchaser, defrauded by dishonesty of this kind in a person who assumed to act as his agent, can recover the profits fraudulently received as money which belongs to him as principal, is to affirm as legal an agency which, in its origin, was illegal and dishonest. The remedy of the principal in such case is a rescission of the contract for fraud, or anaction to recover the loss he has sustained by reason of the fraud. But he cannot recover, as money belonging to him in his character as principal, the profits received by an agent who was the seller's agent, and afterwards fraudulently assumed to act as his agent. The case is not one where an agent having been first employed by the purchaser makes secret profits under a subsequent agreement with the seller or his broker. In such case all the illicit profits which he makes, while under the first and legal employment, in the course of that employment, belong to the employer under the rule settled both at law and in equity.
In the third place, I think that while complainant, in concluding the purchase, relied on Davett's assertion that De Mott, or the person for whom De Mott acted as selling broker, ultimately controlled the price, and was misled both by Davett's representations and actions as to Davett himself being the person who controlled the price, yet the entire evidence shows, as I conclude, that, even if there was an agency to some extent assumed by Davett for the complainant in the transaction, the purchase, as between complainant and Davett, was upon the basis that complainant was not expected to pay Davett any commission or compensation for his services, but that Davett was to be compensated by De Mott. Illingworth dealt for himself in relation to fixing the price, and himself received from Davett, as part of the consideration to him on the purchase, the release of an option Davett held against him, which both parties then considered worth $2,500. In the absence of sufficient explanation, the bargaining as to price by complainant on the basis of Davett's giving him something would seem to be conclusive that the relations of the parties at that time were adverse, and not confidential. Unless Davett was to receive something from De Mott to compensate him for this surrender, there would seem to be no adequate reason or explanation of the surrender. And in reference to this surrender, the deception or fraud, if any was practiced on complainant, was in Davett's misleading him as to the amount he was to receive from De Mott as a compensation, and as to Davett's own control over the price, by his statements and conduct before the bargain was concluded, and by Davett's application to complainant subsequent to the bargain (which, when carried out, was worth over $2,000 to him) to give him $500 or $1,000 for getting complainant the chance to purchase. If this be the correct view of the evidence, and complainant was not to compensate Davett for any services, but Davett was to receive his compensation from the other side, then the rule entitling the principal to recover the compensation so received, as being secret or illicit profits, does not apply, and the fact that the compensation to Davett was greater than complainant expected does not make any part of the compensation complainant's money.
To addition to the above reasons, there is another obstacle to complainant's recovery, on the basis of agency, of the amount received by Davett, The evidence shows that on the evening of the 15th of December complainant received from Mr. Graham the information as to the market price of the Blanchard stock, which led him to believe or suspect that he had been defrauded; and the weight of evidence shows also, I think, that complainant went to Davett's office on the following morning, December 10th, and procured the surrender of the old option, without complaining of the supposed fraud, and that this complaint was not made until the following day, December 17th. Under these circumstances, the complainant, if entitled to any relief against Davett, would be required to restore or reinstate the surrendered option as an equitable condition; and it is a serious question whether the surrender of the option, and acceptance of this benefit from Davett, and giving a new option, after the information from Mr. Graham, does not bar any relief on the basis of agency. But, without deciding the case upon this point, I conclude, upon the whole evidence as to the transactions and relations between Davett and complainant up to the time of the completion of the sale, that there is no right to recover from Julius Davett any portion of these profits which De Mott and the Davetts divided upon the sale of the stock to complainant upon the claim that Davett was complainant's agent. Any right of recovery which complainant may have against either De Mott or Davett must, as it seems to me, under the facts proved, be based, not on the affirmance of the sale and the existence of an agency for complainant, in which complainant was wholly entitled to Davett's services in the sale and the profits received by him, but must rest upon the basis of fraud and misrepresentation in procuring the sale, entitling complainant either to a rescission of the sale, as against De Mott and Davett, or an action for damages. The complainant's bill for an accounting by either De Mott or Davett as his agents must therefore be dismissed.