Court Opinion

ID: 6698513
Source: CourtListenerOpinion
Date Created: 2022-07-20 22:01:59.487762+00
Date Added: 2024-06-11T16:01:19.926180
License: Public Domain

Seawell, J.
We endeavor to avoid repetition in the discussion of principles closely interrelated in considering the two appeals. For convenience, we discuss defendant’s appeal first.
DEFENDANT’S APPEAL.
The defendant’s objections to the evidence relate principally to the methods adopted by plaintiff in establishing the quantum of recovery for *507tbe value of tbe goods sold by defendant under tbe agency, or tbe proportionate amount of recovery tberefor.
We tbink, in tbe main, that these objections are rendered untenable, or at least made legally harmless to defendant, by reason of tbe findings of fact based upon competent evidence.
It might be inferred from tbe evidence, and it is so found, that tbe defendant attempted to become tbe purchaser of plaintiff’s commodity in violation of tbe trust relation existing between them; and having supposed itself to have achieved that result, concealed from tbe plaintiff tbe profits made out of tbe transaction. In accomplishing this, it commingled plaintiff’s waste with tbe waste of some forty other mills, or, in legal effect, with its own property. Both in view of tbe wrong committed and because tbe facts were within tbe peculiar knowledge of tbe defendant, tbe burden was upon it to identify plaintiff’s goods on demand, or, since this was impossible, at least, as we conceive tbe law to be, to show what proportion of tbe proceeds of tbe sale less than tbe whole was due tbe plaintiff, or run tbe risk of a greater recovery. Tbe defendant was not helpful in this respect, and plaintiff was forced to develop its case as best it could from defendant’s records. It was content to demand only a proportionate part of tbe sales receipts or value of tbe product sold.
In this attempt, there were two lines of procedure: one based on tbe value of tbe waste from plaintiff’s mills bandied by tbe defendant, supplemented by evidence as to tbe value of tbe waste sold; and tbe other based on tbe proportionate poundage of plaintiff’s waste in tbe commingled product. Perhaps, neither could be held as strictly accurate in results, since there was evidence that tbe value of waste was unstable and varied greatly with tbe kind. Tbe objections, however, are more properly addressed to tbe effect of tbe evidence than to its competency.
Tbe method adopted in tbe investigation afforded as near an approximation to reality as could be expected under tbe circumstances; and defendant having declined tbe burden of proof which we tbink rested upon it, in view of its breach of tbe duty to keep plaintiff’s property separate from its own, has no cause to complain.
A careful review of tbe exceptions does not disclose any of sufficient merit to justify a new trial on defendant’s appeal.
Plaiwtiee’s Appeal.
We are bound by tbe findings of fact where there is competent legal evidence to support them, and ordinarily we cannot require tbe finding of additional facts or conclusions unless tbe appealing party has specifically requested tbe finding. In this case, we do not tbink tbe findings requested by tbe plaintiff could alter the result, as they are sufficiently *508covered by those actually made in so far as might be necessary for final determination of the controversy.
However, the plaintiff’s appeal brings up for review conclusion of law No. 5, which fails to award to plaintiff return of the commissions paid defendant for its purported sales which were, in fact, made to itself, and allows commissions on sale on the cleaned waste, the expenses of’ willowing, and denies to the plaintiff the item of interest demanded by it.
Plaintiff’s recovery cannot exceed the legal effect of the findings made by the court.
It is strongly urged upon us that throughout the transaction the defendant’s conduct was tortious and that its legal liabilities are those of a trespasser. Apparently, when the case was heard before, Cotton Mills v. Manufacturing Co., 218 N. C., 560, 11 S. E. (2d), 550, the view presented by plaintiff would make the defendant a mere tort-feasor and trespasser from the beginning; and this Court understood the gravamen of the complaint to be that defendant obtained possession of the property through fraudulent devices with the purpose of committing the other wrongs subsequently practiced. Upon demurrer of the defendant, the Court sustained the complaint as properly presenting a cause of action in tort. That was the aspect of the case then presented. The trial, however, developed a contractual relation, in which the defendant was found to have departed from the duties imposed by his agency — in other words, committed breaches of trust in its contractual relation — and the findings of the court go no further.
Becoming, or attempting to become, the purchaser of its principal’s goods and accounting only on that basis, it transpired that in carrying out this transaction, defendant further violated its duty as plaintiff’s agent by commingling the plaintiff’s goods with its own and selling it at a profit which it did not reveal.
We apprehend that the consequences and penalties which attend this conduct of the defendant are somewhat different from those which the law visits on one who, a trespasser ab initio, having never acquired the right to the possession of the property, but takes it, converts it to his own use, changes it into a different form, and sells the property thus altered. The more heinous nature of the civil offense, together with obvious necessity of public policy to prevent both the invasion of the possession and the conversion of the property, makes such an offender a trespasser ab initio ad finem. We think the cases cited in plaintiff’s brief denying credit for expenses incurred in improving the property or converting it into a more valuable form have application to such a case. Pine River Logging & Improvement Co. v. U. S., 186 U. S., 279, 46 L. Ed., 1164; Wooden-Ware Co. v. U. S., 106 U. S., 432, 27 L. Ed., 401. It ivas for the owner, according to its own desire and judgment, to handle its property as it thought best.
*509In tbe ease at bar, plaintiff was not injured by tbe cleaning or willowing of its waste in tbe bands of its agent — -it constituted an improvement wbicb produced a sale at a mucb bigber price — and sale of tbe product was tbe prime purpose of tbe contract. Tbe plaintiff now demands as its equitable right tbe payment to it of tbe secret profits realized on tbe purchase price of tbe improved property. -To disallow tbe expenses of tbe willowing would, in our judgment, be tbe infliction of a naked penalty, for wbicb we are unable to find precedent, and go beyond tbe rule wbicb permits tbe principal to recover tbe profits of tbe agent’s transaction.
Plaintiff, however, has raised a more serious question with regard to tbe allowance of commissions to tbe defendant on tbe sale of its waste. Speaking generally, when an agent, in a fiduciary relation, is guilty of disloyalty to bis principal and when by virtue of bis position be seeks to make profit to himself rather than promote tbe interest of bis principal, be is not entitled to compensation. Mecbem on Agency, sec. 1588; Restatement of tbe Laws, Agency, sec. 456.
It has been suggested that tbe allowance of commissions in tbe case at bar may be sustained because of an implied affirmance or ratification by tbe plaintiff through tbe institution of this suit and tbe relief demanded in it.
Tbe effect of tbe rule that a selling agent cannot become tbe purchaser of bis principal’s property is to make such sale voidable 'by tbe principal, who may, at bis election, ratify or disaffirm it, whether injured by tbe transaction or not. Robertson v. Chapman, 152 U. S., 673, 38 L. Ed., 592; Gardner v. Ogden, 22 N. Y., 327; Tatsuno v. Kasai, 70 Utah, 203, 259 P., 218, 62 A. L. R., 54, Annotation 62 A. L. R., 71. If tbe principal disaffirms tbe sale of tbe agent to himself, be is entitled to have bis property back with tbe damages, if any, or to have tbe value thereof with incidental damages, if any, consequent upon tbe wrongful transaction. 2 Am. Jur., sec. 259.
But it is a recognized principle of law that tbe agent who thus violates bis duty may be regarded — at tbe election of tbe principal — as trustee with respect to tbe property and its proceeds, and if be has transferred it to a bona fide purchaser, be may be made to account not only for its real value, but for any profit made by him on a resale. Robertson v. Chapman, supra; 2 Am. Jur., Agency, sec. 259; Am. Inst. Restatement, Agency, secs. 399 (d) and 400 (c).
It is more logical and nearer reality to say that tbe plaintiff has been compelled to accept tbe situation thrust upon it by defendant’s wrong and, by election of remedies, to work out its equities to tbe best advantage. It does not thereby necessarily condone everything tbe defendant has done. Equity will follow these transactions and give to them their *510proper significance and legal effect in applying the appropriate remedy when that remedy is pursued by the principal.
The rule which denies to the agent the right to purchase property of its principal which has been entrusted to him to sell to the best advantage, and thereafter to deal with it as his own, is firmly embedded in the law as an expression of public policy. The principle is said to be one of prevention, not remedial justice, which operates, however fair the transaction may have been, however free from every taint of moral wrong. National Fire Ins. Co. v. Llewellyn, 142 Okla., 272, 86 P., 792, 83 A. L. R., 1502; Am. L. Inst. Rest., Agency, sec. 389. However, in addition to this general rule of public policy, we think there is a reason of special application in the case at bar. To recover commissions the defendant must resort to its contract and to the performance of its conditions in hoc modo, and this defendant has not done. There is no compensation recoverable outside of the contract.
In selling to itself, the defendant attempted to act in the double capacity of agent and purchaser — a combination so incompatible and noxious to the fundamental rule of loyalty demanded of an agent to his principal, acting as a fiduciary, as to be intolerable to public policy. In selling plaintiff’s waste to itself, the defendant must be considered as acting solely as purchaser and performing no compensable service for the plaintiff.
In the sale of the property thereafter, defendant did not purport to act as agent of the plaintiff, but sold to its own advantage and for its own profit. Defendant had become trustee of the property de son tort, a situation incompatible with a demand for commissions under the contract.
Conceding that in some instances a denial of commissions to a trustee may, under the circumstances of the case, become a matter of discretion with the trial court, we are of the opinion that here they were, as a matter of law, not recoverable and should not have been allowed.
Under C. S., 2309, all sums of money due by contract, except money due on penal bonds, bear interest as a matter of law. In Bond v. Pickett Cotton Mills, 166 N. C., 20, 81 S. E., 936, the law is said to apply to breaches of contract where the principal amount due can be ascertained “from the terms of the contract itself, or from evidence relative to the inquiry.” This language is somewhat confusing as indicating that interest may be had as a matter of law for all breaches of contract, whether liquidated or not; but, at any rate, we do not believe that the law permitting the recovery in this case is altogether based on breach of contract. Any principle justifying recovery — whether recovery of secret profit or otherwise- — is based on the theory of liability created by public policy, which superadds to the contract a right of an equitable nature which cannot be considered strictly damages for its breach or within its *511express or implied promise to pay. It is a right growing out of the relationship created by the contract, rather than the contract itself, and the methods hy which the amount of recovery is to be ascertained are not strictly those which apply to ordinary breaches of contract. The recovery of plaintiff in this case is not predicated on conversion of its property, or it would be limited to the damages immediately incident to the conversion, and, therefore, the demand made on the defendant by the commencement of the suit as fixing the date from which interest should be calculated is not of moment. Lance v. Butler, 135 N. C., 419, 47 S. E., 438.
Recovery of profits on transactions involving disloyalty of agents acting in fiduciary relations is commonly referred to the principle of constructive trusts — a trust arising ex maleficio• — out of violation of the trust relation — and not subject to the incidents of contract. Bogert, Trusts and Trustees, sec. 543, p. 729; Underhill, Law of Trusts and Trustees, 9th Ed., p. 184, et seq.; Perry on Trusts, 11th Ed., sec. 206, p. 355, et seqLewin on Trusts, p. 166. We quote from the last cited text: “The principle on which a court of equity elicits constructive trusts might he pursued with numerous other instances; as if a factor, agent ... or other person in fiduciary positions acquire any pecuniary advantage to himself through the medium of his fiduciary character, he is accountable as a constructive trustee for those profits to his employer or other person whose interest he was hound to advance — but unless the money was originally that of his principal, it cannot be said to be his until a judgment or order has been obtained.”
Recovery in instances of this kind is not a matter of exact measurement under the terms of the contract, hut seems to be sui generis, and we are of the opinion that it does not come within the cited statute—C. S., 2309—so as to bear interest as a matter of law. We do not, of course, mean to say that interest is never recoverable except under the provisions of C. S., 2309, or that there are no conceivable instances in which interest might he recoverable in connection with the enforcement of a constructive trust; but upon the facts of this case, we approve the conclusion reached by the court below with respect to this item.
The defendant will not he allowed commissions on the sales transactions set out in the findings of fact; and plaintiff is entitled to recover commissions already paid to the defendant or retained by it. These may be computed by reference to the findings of fact.
The judgment of the court below will be modified in accordance with this opinion.
On plaintiff’s appeal,
Modified and affirmed.
On defendant’s appeal,
Affirmed.