McKinley v. Williams

• Decision Date: 17 April 1896
• Docket Number: 690.
• Citation: 74 F. 94
• Parties: McKINLEY v. WILLIAMS.
• Court: U.S. Court of Appeals — Eighth Circuit

74 F. 94

McKINLEY v. WILLIAMS.

No. 690.

United States Court of Appeals, Eighth Circuit.

April 17, 1896

Walter Ayers, for appellant.

I. K Boyesen (J. L. Washburn and John J. Herrick with him on the brief), for appellee.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge.

The law guards the fiduciary relations with jealous care. It seeks to prevent the possibility of a conflict between the duty and the personal interest of a trustee. It demands that the agent shall work with an eye single to the interest of the principal. It prohibits him from receiving any compensation but his commission, and forbids him from acting adversely to his principal, either for himself or for others. It visits such a breach of duty, not only with the loss of the profits he gains, but with the loss of the compensation which the faithful discharge of duty would have earned. To permit the agent of a vendor to become interested, as the purchase or as the agent of a purchaser, in the subject-matter of the agency, inaugurates so dangerous a conflict between duty and self-interest, that the law wisely and peremptorily prohibits it. An agent of a vendor, who speculates in the subject-matter of his agency, or intentionally becomes interested in it as a purchaser, or as the agent of the purchaser, violates his contract of agency, betrays his trust, forfeits his commission as agent, and becomes indebted to his principal for the profits he gains by his breach of duty. Warren v. Burt, 12 U.S.App. 591, 595, 7 C.C.A 105, 107, and 58 F. 101, 103; Gunn v. Black, 19 U.S.App. 477, 485, 8 C.C.A. 534, 539, and 60 F. 151, 156; Michoud v. Girod, 4 How. 503, 554, 555; Crump v Ingersoll, 44 Minn. 84, 46 N.W. 141; Hegenmyer v Marks, 37 Minn. 6, 32 N.W. 785; Jacobus v. Munn, 37 N.J.Eq. 48, 53 Moore v. Zabriskie, 18 N.J.Eq. 51; Perry, Trusts, Sec. 919; Bank v. Tyrrell, 27 Beav. 273, 10 H.L.Cas. 26; Panama & S.P. Tel. Co. v. India Rubber, Gutta Percha & Telegraph Works Co., 10 Ch.App. 515, 526; Bent v. Priest, 86 Mo. 475, 482. This is not the first time this court has been called upon to announce these principles, but the reckless disregard of them, which characterizes the acts of some of the agents whose transactions are portrayed to us, admonishes us that we cannot reiterate them too often, nor enforce them too rigidly. The court below placed the decree from which this appeal was taken upon these indisputable principles. This decree avoids a contract of agency, deprives the agent of his stipulated compensation, and awards to the principal a recovery of $160,827.43, on account of the gains which it finds the agent obtained by violating his contract of agency, and betraying his trust. The agent, John McKinley, appealed from this decree, and his appeal presents two questions: First. Does the proof warrant the finding of the circuit court that the appellant was the agent of the appellee, John M. Williams, to sell leases upon his lands, when he gained the profits with which he is charged? And, second, if so, was the highest market value, or the amount which he realized from the property which he thus obtained, the measure of his liability to his principal?

The appellee, Williams, alleged in the bill which he filed in the court below in the case that he was a resident of Chicago, Ill.; that the appellant was a resident of Duluth, Minn.; that the latter was his agent to sell leases of certain mineral lands, which he owned in Minnesota, under a written agreement made between them in August, 1891, to the effect that the appellant should sell and dispose of such leases for the mutual interests of both parties to the contract, and should receive one-fifth of the revenues derived from these lands. He also alleged that, to enable his agent to sell such leases to better advantage, he made a formal lease of the land to the appellant, so that he could make an assignment of it in his own name, or could sublet the lands with the written consent of the appellee; that the appellant thereupon sublet several tracts of these lands, and sold his apparent interest in them, under the formal lease to him, for which he received large amounts of money, promissory notes, and stocks in corporations, which he refused to account for or to turn over to his principal. The prayer of the bill was that the appellant should account for, pay over, and assign to the appellee all the money and property which he had acquired from his dealings with these lands, and that the original contract of agency should be canceled. The appellant answered this bill. He alleged in his answer that the formal lease, made at the same time as the contract of agency, was an actual lease; that, under it, he became liable to pay the rents reserved, and obtained the right to all profits he had realized by selling any part of his leasehold interest thereunder, or by subletting any part of the land described therein. He also alleged that the appellee knew of the profits he was gaining at the times when he received them; that he, nevertheless, assented to the leases and contracts through which he obtained them, and consented that he should retain these profits for his own benefit. The appellee filed a replication to this answer.

The most salient fact which a careful perusal of this voluminous record discloses is this: The appellant testified, and his counsel was thereby forced to concede, that the main defense pleaded in his answer was baseless. McKinley testified that, when the appellee made the lease to him, he did not have the means to open or operate mines upon these lands; that the understanding was that he should go ahead, and get other parties to operate them; that he was to represent the appellee and himself in making the subsequent leases; that he decided both for himself and the appellee to whom the subsequent leases should be made, determined the responsibility of the lessees, and fixed the royalties in the leases, subject to the appellee's approval, which was given on his recommendation; and that the appellee had no other agent to represent him in these transactions in Minnesota. In view of this testimony, counsel for the appellant was compelled to, and did, concede that McKinley never became the lessee of the properties, so that he could do with them as he liked, but that the formal lease was a mere instrument, by means of which he was to accomplish the purposes of his agency; and thus we are spared the consideration of this issue. This testimony of the appellant leaves him in this situation: He admits that he was the agent of the appellee holding a lease of his properties, not under a liability to pay the rents reserved therein, but for the sole purpose of selling that lease, or of subletting the property of the appellee described therein, for the mutual benefit of his principal and himself, under a written agreement that he should receive one-fifth of the revenues he might thus obtain from the property of his principal. He admits in his answer and in his testimony that he did obtain large amounts of money and valuable property, by subletting portions of this property, and by selling shares of his apparent leasehold interest therein; and he admits that he refuses to account to his principal for this money and property, and that he insists that it is his own. How, then, does he attempt to escape from the effect of the principles of law to which we have averted? His claim now is that in consideration that he would expend money and render services in exploring for mineral and in developing or procuring the development of mines upon these lands, and in consideration that he would pay his principal for certain pipe timber thereon, the latter orally agreed that he might retain for himself all the profits he acquired, above his one-fifth of the royalties on the ore, at the rate of 30 cents per ton, secured to him by the original lease, and that, in additional to these profits, he should continue to receive this share of the royalties. The appellee meets this claim with a positive denial. He says that he never made any such agreement. This alleged agreement is certainly an extraordinary-- an unusual--contract. It is a contract by which a principal who is paying his agent one-fifth of the income of his property in his charge continues his employment and his compensation, and at the same time converts him into an adversary and a speculator in the subject-matter of his agency. An agent who would enforce such a contract should certainly be required to establish it by very convincing evidence, for experience and observation teach that the interest of owners ordinarily prevents them from entering into contracts with their agents which make them adversely interested in the property intrusted to their care. What, then, is the proof of this contract?

No written agreement to this effect is produced by the appellant, although both parties testify that they carefully reduced to writing and signed the contracts under which they were acting, within 30 days of the time when the appellant testifies that this verbal agreement was made. There is conflicting testimony in the record, but these facts are conclusively established: For 10 years prior to 1891, the appellant acted as the agent of the appellee in Minnesota to explore and buy pine lands for him, and to pay taxes on those he owned in that state. During this time he learned that there was iron ore on some of these lands, and he informed the appellee of that fact, and asked him for an interest in the land, and an opportunity to act as his agent, in exploring, developing the ore upon, and disposing of, it. The result was that the appellee agreed to employ him as his agent for this purpose, and to pay him one-fifth of the revenues derived from the property, on...