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1925 Supreme(SC) 15
Privy Council
Carson, Phillimore, Justice Wrenbury, JJ.
Hope Prudhomme and Company -Appellant
Versus
Hamel and Horley, Ltd. -Resopndent
Privy Council No. 76 of 1924
Decided On : 24-03-1925
McMillan and Mot, Donald, Lee and Co., Sanderson, H. O’Hagon, Alexander Keilson, E.B. Raikes
An agent who makes an undisclosed profit from a transaction cannot claim indemnity from the principal for damages arising from that transaction. Ratification of an unauthorized act requires the principal to have full knowledge of the facts and a reasonable motive to adopt the contract.
Headnote:(A) Law of Agency - Distinction between Agent and Principal - In commercial transactions, a distinction must be drawn between a legal agent, who acts on behalf of a principal for a commission, and a commercial agent who acts as a buyer from the manufacturer and sells at a profit. Where the correspondence and contract terms, such as the provision for a specific commission, indicate an agency relationship, the party is treated as an agent in the strict legal sense.
(B) Secret Profits - An agent is not entitled to make an undisclosed profit from a transaction conducted on behalf of the principal. If an agent acts as a principal to secure a secret profit, they cannot claim indemnity from the principal for damages recovered by a third party in relation to that transaction.
(C) Ratification - For a principal to ratify an unauthorized act of an agent, there must be evidence that the principal, with full knowledge of the facts, adopted the transaction. Ratification will not be inferred where the principal has no reasonable motive to adopt a contract that results in a certain loss.
Facts of the case:
A firm of exporters sold a cargo of groundnuts to intermediaries who were tasked with placing the merchandise at continental ports. The intermediaries resold the goods to an ultimate buyer at a higher price, retaining the difference as a secret profit instead of acting as agents for a commission. Due to the government requisition of the vessel during wartime, the exporters failed to deliver the cargo. The ultimate buyer recovered damages from the intermediaries in a foreign court. The intermediaries then sought indemnity from the exporters for these damages. The exporters repudiated liability upon discovering that the intermediaries had acted as principals to make a secret profit.
Findings of Court:
The court found that the relationship between the parties was one of agency in the strict legal sense, based on the initial correspondence and the specific contract notes which provided for a commission. The intermediaries continued to describe themselves as agents even after the foreign court's award. The court further found that the exporters did not ratify the intermediaries' conduct of selling as principals, as there was no motive for the exporters to adopt a transaction that led to a disastrous result.
Issues: Whether the intermediaries acted as agents or as principals in the transaction, and whether the exporters had ratified the intermediaries' action of selling the goods as principals for a profit.
Ratio Decidendi: The court ruled that the intermediaries were agents and therefore prohibited from making secret profits. Since they acted as principals without authority to do so, they could not claim indemnity from the exporters. Ratification requires a conscious adoption of the act with knowledge of the facts and a rational motive, neither of which was present in this case.
Result: Appeal allowed.
Legal Category Hierarchy
-
commercial law
-
agency
- agent vs principal
- secret profits
- ratification
-
sale of goods
- non-delivery
- indemnity
-
agency
Lord Phillimore :-
The appellants who are the plaintiffs constitute a French firm of merchants carrying on business at Madras as exporters of ground nuts, castor seeds and other country produce.
The respondents, the defendant Com pany, are merchants in London who, from August, 1913, down to the date of the present suit, were intermediaries for the placing of the appellants' merchandise at European Continental ports, especially Marseilles.
The suit was brought for the price of a cargo of castor seeds sold by the appellants to the respondents. The respondents set up certain defence to some of the items in the appellants' claim, but there was no answer to the bulk of it, and their real ground for refusing to pay was that they had a counter-claim against the appel lants for a larger amount in respect of the non-delivery of a cargo of ground nuts, which should have been despatched in December, 1916, or January, 1917, to Marseilles.
It was this counter-claim that formed and forms the real matter in dispute. The trial Judge decided against the counter claim, but the High Court at Madras in its appellate jurisdiction reversed this decision and gave judgment for the coun ter-claim - hence the present appeal.
The particular transaction over which the dispute arose began by a telegram of the 12th October, 1916, despatched by the respondents to the following effect :-
"Immediate reply bid ordinary three hundred December, January 59.
Hamel."
The expansion of this telegram is to be found in a paragraph of a letter of the same date, which reads as follows :-
"We are much obliged for your offer of 100 tons of ordinary at F. 59.50 for December/January shipment, c.i.f. Mar seilles, which offer we put before our friends, but regret to say that we have not been able to place at your price. On the other hand, we have succeeded in getting a counter-offer (but for 300 tons, instead of 100) at F. 59, which we are cabling you to-night and hope you will be able to accept. If you can do so and can offer us further quantities at the same price we think we could place them or machine-decorticated kernels at Fs. 2 more."
The telegram in response was not pro duced at the trial, but there is no doubt that it was an acceptance dated the 14th, and on the same day the appellants wrote to the respondents as follows :-
"In accordance with the cables exchan ged between us, we beg to confirm the following sale :-
Quantity. - 300 tons (three hundred tons only).
Quality. - Groundnut kernels ordinary usual quality.
Brand. - H.P.
Price at Frs. 59 per 100 kilos, (francs fifty-nine only).
C.F.I. per steamer from Kernels Port to Marseilles.
Shipment. - December and/or January, 1916, and 1917.
Buyer.-
Payment. - As usual
Terms. - As usual
Commission. - As arranged."
This letter was upon a printed form with such words as "quantity, quality, etc.," printed with spaces to be filled up in writing. What is especially to be noticed is that as against the word "buyer" there is a blank and against the word "Commission", the words "as arranged." The respondents on the 18th despatched the following note :-
"Contract (Purchase) Note No. 028.
Article. - Coromandel kernels new crop.
Quantity. - 300 (three hundred) tons, packed in bags.
Quality. - As stipulated in Ref. 031.
Price. - Fcs. 59 (francs fifty-nine), less 1 per cent. per 100 kilos., cost, freight and insurance, including war risk, Marseilles.
Shipment. - From Corornandel Coast during December, 1916 and or January, 1917.
Payment. - As arranged.
Terms. - Marseilles C. Contract, 1909.
Your telegram of 14th October 1916.
Our telegram of 12th October 1916."
In compliance with this arrangement, the appellants took up space on the ss. "Seapool": and if they could have kept this they would have been able to ship to Marseilles in accordance with the contract. But, it being in the middle of the war, the Government requisitioned the "Seapool," and the appellants did not succeed in procuring any other ship and failed to send the cargo forward.
The goods were the subject
