Case ID: ad_159/html/0877-01.html
Source: Caselaw Access Project
Author: {"author": "Dowling, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Charles F. Garrigues Company, Respondent, v. International Agricultural Corporation, Appellant.
    First Department,
    December 31, 1913.
    Principal and agent — fraudulent suppression of material facts by agent—forfeiture of right to compensation — corporation—fraud — doctrine of corporate entity.
    An agent who fraudulently conceals material facts from his principal, to the latter’s damage, forfeits any right to compensation for services. Hence, where an agent and a broker whom he has employed to negotiate a sale both fraudulently represent to the principal that a certain amount of the commission is to be paid to third persons, not disclosed, in order to make the contract, the broker cannot recover commissions. The doctrine of corporate entity will not be allowed to stand in the way of redress for fraud or of the administration of justice.
    Appeal by the defendant, International Agricultural Corporation, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 19th day of November, 1913, sustaining a demurrer to a separate defense set up in the answer, and also from an order entered in said clerk’s office on the 28th day of November, 1913, denying the defendant’s motion to resettle the first order by granting leave to plead anew.
    
      Joseph M. Hartfield, for the appellant.
    
      Nathan D. Stern, for the respondent.
   Dowling, J.:

Plaintiff sues to recover the sum of $29,376.10 as the balance of the commission to which it claims to be entitled under the terms of a written agreement between the defendant and the E. I. du Pont de Nemours Powder Company, whereby the commission to be paid to plaintiff by defendant (which latter had employed the former as its broker to negotiate the sale of the muriate of potash covered by the agreement) was fixed at two dollars and twenty-five cents per ton.

The facts set up in the separate defense and which must be deemed to be admitted by the demurrer are as follows: That at the time of the signing of the agreement in question defendant was the owner of 100 “Kuxe ” or shares (being the entire outstanding issue of shares) of the “Kaliwerke Sollstedt Gewerkschaft ” organized under the laws of the kingdom of Prussia, or empire of Germany, and that at the time of the agreement in question the defendant was the single and entire owner of said Gewerkschaft; that the agent in America of the Gewerkschaft was a corporation known as Heller, Hirsch & Go. (hereinafter called the agent) which was receiving for its services $40,000 per annum and three per cent upon new business in potash obtained from American customers; that knowing all these facts, plaintiff and said agent represented to defendant that said agent could sell for the Gewerkschaft and defendant as its owner to the E. I. du Pont de Nemours Powder Company a certain quantity of muriate of potash for the years 1910, 1911 and 1912 (corresponding with the agreement actually made), but that it would be necessary for the Gewerkschaft and defendant to pay a commission of twenty-five cents per ton to plaintiff and a further sum of two dollars per ton to a certain person or persons not disclosed, in order to make said contract; that plaintiff and the agent wrongfully and fraudulently concealed from the Gewerkschaft and the defendant that said agent was in reality to receive the said sum of two dollars per ton out of the commission, and although knowing that defendant, because of its entire ownership of the Gewerkschaft, would really have to pay the commission, plaintiff and the agent wrongfully concealed from defendant the fact that plaintiff had agreed to pay said two dollars out of the stipulated total of two dollars and twenty-five cents per ton to the agent; that such agreement to pay said agent two dollars per ton was made at the time of the making of the contract to sell the potash, plaintiff knowing at the time that the agent represented the Gewerkschaft and acted for it and defendant, and knowing as well of defendant’s entire ownership of the Gewerkschaft; that the agent subsequently demanded its three per cent on the total amount sold under the contract, as plaintiff knew. It is further alleged:

XV. That the concealment by the plaintiff and said Heller, Hirsch & Co. of the fact that the said Heller, Hirsch & Co. was to receive $2 of said $2.25 commission, was a concealment of a material fact, and defendant would not have signed the said paper writing, or would not have employed the said plaintiff, except that it relied upon the statements made to it by the said plaintiff and the said Heller, Hirsch & Co. that it was necessary to pay the said sum to some third person or persons, in order to make said sale, and would not have made said agreement or entered into said employment, if the said plaintiff and the said Heller, Hirsch & Co. had not wrongfully concealed from it and the said Gewerkschaft the fact that the said Heller, Hirsch & Co. was to receive any portion of said commission, and this defendant relied, in the execution of said paper, upon the statements and representations made to it by the said plaintiff and the said Heller, Hirsch & Co., which statements and representations were false, as herein set forth.”

We are of the opinion that these facts established a defense to the cause of action set forth herein. Plaintiff alleges that it was acting as a broker, employed by defendant and that it procured for defendant the contract in question.

Its duties to its principal were as laid down by Chief Judge Ruger in Murray v. Beard (102 N. Y. 505): “We think the judgment was properly ordered on that ground, and that it can also be sustained upon the ground of fraudulent suppression of material facts by the plaintiff in making the contract, as well as that it was contra bonos mores. * * * An agent is held to uberrima fides in his dealings with his principal, and if he acts adversely to his employer in any part of the transaction, or omits to disclose any interest which would naturally influence Ms conduct in dealing with the subject of the employment, it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services. (Story on Agency, §§ 31, 334; Story’s Eq. Jur. § 315; Ewell’s Evans on Agency, 268; Dunlap Paley on Agency, 105, 106; Carman v. Beach, 63 N. Y. 97, 100.) ”

In the recent case of Dickinson v. Tysen (209 N. Y. 395) the Court of Appeals emphasized the duty of brokers to act “ fairly, honestly, and in good faith” toward their principal.

In Low v. Woodbury (107 App. Div. 298) it is said: “The concealment by an agent of facts which, are material to his principal’s interests, especially after inquiry made, amounts in law to fraud. ‘ Like other agents, the broker is required to exercise the utmost good faith towards his principal; and if, in the course of his agency, he has committed a fraud on his principal, he is not entitled to his commissions.’ ” The allegations constituting the separate defense establish a clear case of the fraudulent suppression of a material fact from the principal to its financial damage, since it was being induced by false representations to agree to pay' plaintiff a fixed sum, in ignorance that nine-tenths of it was being paid in reality to its own agent with whom it had a valid subsisting agreement to pay both annual salary and commission. Nor should the fact that defendant is a separate corporate entity from the Gewerkschaft save plaintiff from the consequences of its wrong. For being the entire owner of the foreign corporation, defendant was equally damaged, whether the loss was sustained to its own treasury, or that of its owned concern. That the- doctrine of corporate entity will not be allowed to stand in the way of circumventing fraud or administering justice, has been held in Goss & Co. v. Goss, No. % (147 App. Div. 698). (See, also, Buffalo Loan Co. v. Medina Gas Co., 12 App. Div. 199; Morawetz Corp. § 277.)

The order appealed from will, therefore, be reversed, with ten dollars costs and disbursements, and the demurrer to the separate defense overruled, with costs.

Ingraham, P. J., Clarke, Scott and Hotchkiss, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, motion denied and demurrer overruled, with ten dollars costs.

CASES REPORTED WITH BRIEF SYLLABI AND DECISIONS HANDED DOWN WITHOUT OPINION.