Keogh v Dalgety and Company Limited [1916] HCA 69

KEOGH F . : s z ae . APPELLANT PLAINTIFF, AND DALGETY & COMPANY LIMITED t . Responpents. Drrenpayts,

ON APPEAL FROM THE SUPREME COURT OF VICTORIA. H.C. or A. Principal and Agent - Secret profit made by agent - Liability of agent - Fiduciary -

1916. relation - Accounts.

Marsovr! The estate of a testator was indebted to the defendants in a sum of money

Oct. 18, 19, alleged to amount to £200,000 for advances made in respect of a station pro: 2 perty which, with the stock and plant thereon, was the only asset of the estate. As the result of negotiations between the defendants and the executrix an agree-

Gritith C0, : A rate Barton, Isaacs, ment was entered into between the defendants, the executrix and the plaintiff, ey who was a son of the testator, by which it was agreed that, subject to the

sanction of the Supreme Court of Victoria (which was afterwards obtained), and in order to effect a compromise between the executrix and the defendants, they should consent to a sale of the station by the executrix to the plaintiff for £180,000 ; that the defendants should release all their securities over the pro- perty and the executrix should transfer it to the plaintiff ; that the defendants should retain all the titles to the land until the mortgages next to be mentioned should have been given by the plaintiff, and that if such mortgages should not be given the plaintiff should secure the debt of £180,000 with interest thereon at 5 per cent. per annum to the defendants by mortgage or other security; that subject to the sanction of the Supreme Court being obtained the defendants 4 would use their best endeavours to obtain for the plaintiff a first mortgage on usual and reasonable terms on the station land for such amount as they could obtain at a rate not exceeding 5 per cent., and the plaintiff should execute such mortgage and pay the mortgage money to the defendants in partial discharge of the debt but should not be personally liable to the mortgagee for

principal or interest ; that after such first mortgage was obtained the plaintiff H.C. or A. should give the defendants a second mortgage over the land and a first mortgage 1916. cover the stock and plant to secure the balance of the £180,000, also without = - ~ personal liability ; that the first and second mortgages on the land should befor Kooi concurrent terms of five years; and that upon completion of these arrangements Daroury & the defendants should release the testator's estate from all claims. It was Co. Lrp. further stipulated that during the term of the mortgages the plaintiff should only draw from the income of the station by way of salary £600 a year, and that, after payment of that sum and the working expenses and interest, the surplus profits should be accumulated and placed to a suspense account with the defen- dants, and at the end of the five years should be paid to them in reduction of the mortgage debt. In pursuance of this agreement the defendants obtained for the plaintiff a first mortgage of £100,000 at 5 per cont., but without the plain- tiff's knowledge entered into an agreement with the mortgagee by which, in consideration of a commission of } per cent. per annum to be paid to them by the mortgagee out of the interest payable by the plaintiff, they agreed to guarantee the payment of principal and interest, and under that agreement the defendants were paid by the mortgagee £2,500, being £250 each half-year during the term of the mortgage. In an action by the plaintiff against the defendants to recover the £2,500 as being a secret profit made by them while acting as his agent in connection with the loan of £100,000,

Held, by Isaacs, Gavan Duffy and Rich JJ. (Griffith C.J. and Barton J. dissenting), that the defendants were agents in the ordinary sense for the plaintiff to obtain the loan of £100,000 for him and owed to him the ordinary duty of agents, and that, therefore, the plaintiff was entitled to payment to him of £2,500 and not merely to have that sum brought into the accounts between him and the defendants.

Held, by Grifith C.J. and Barton J., that there was no such fiduciary obligation on the part of the defendants as to preclude them from entering into an independent agreement with the new mortgagees to induce them to lend the money at the nominal rate of 5 per cent., and that if there was the amount recoverable would not exceed the profit, if any, which the defendants derived from that agreement.

Decision of the Supreme Court of Victoria (Cussen J.): Keogh v. Dalgely & Co, Ltd., (1917) V-LR., 11; 38 A.L.T., 87, varied.

An action was brought in the Supreme Court by William Monahan Keogh against Dalgety & Co. Ltd. in which the plaintiff by his statement of claim alleged that in or about 1909 he employed the defendants as his agents to procure a loan for him on the security of Warrana Station; that the defendants as such agents procured a loan of £100,000 with interest thereon at 5 per cent. per annum ; and that the defendants while acting as agents for the plaintiff made

« upon the sum of £100,000. The plaintiff claimed an account of

defendants obtained for themselves a pecuniary benefit in connection - with the loan, namely, a commission of $ per cent. per annum

all secret and pecuniary benefits and profits obtained by or payable to the defendants in connection with the loan, a declaration that - the defendants were accountable to the plaintiff in respect of such _ benefits and profits with interest, an order for payment of what should be found due upon the taking of such account with interest, - and such other accounts, declarations, inquiries and orders as might 4 be necessary or proper.

The action was heard by Cussen J., who made an order by which he declared that the defendants were accountable to the plaintiff in respect of ten several sums of £250 received by the defendants from the lenders of the £100,000 under a guarantee from them to the defendants, and ordered that the account of the plaintiff in the - books of the defendants called " W. M. Keogh Working Account" - should be debited in each half-year in which the several sums of £250 were respectively received with the sum of £2,250 instead of the - sum of £2,500 and that all necessary adjustments of interest should be made accordingly, and also that a certain other account should be adjusted upon the same basis: Keogh v. Dalgety & Co. Ltd. (1).

From that decision the plaintiff now appealed to the High Court.

The other material facts are stated in the judgments hereunder.

Weigail K.C, and Starke, for the appellant. The commission which the respondents received for the guarantee was money which : they received in the course of their employment as agents, and was money for which they were responsible to the appellant. The respondents admit that they were agents for the plaintiff in obtain- ing the loan. Having undertaken to endeavour to obtain a loan for the appellant, the respondents were under a duty to do their best for him (Gray v. Dalgety & Co. (2) ). The receipt by the defen- dants of each payment of commission created a debt from them to the plaintiff the moment it was received, both at common law and in equity (Morison v. Thompson (3); Powell & Thomas v. Evan

(1) (1917) V.L.R., 11; 38 A,L.T., 87, (2) 19 C.L.R., 356, at pp. 373-375. (3) LR. 9 Q.B., 480, at p. 485.

Jones & Co. (1); Lister & Co. v. Stubbs (2) ). Being a debt owing to the appellant as and when each sum of £250 was received, why should it not be paid to the appellant ? It is an independent debt outside the accounts altogether. It is unimportant that the appel- lant suffered no injury. He is not to be put in jeopardy of an inquiry as to whether he has been injured (Parker v. McKenna (3) ). It is sufficient that the respondents made a profit in the course of their agency and by virtue of it. It is no answer that the respon- dents incurred a possibility of a loss (Williams v. Stevens (4); Ken- nedy v. De Trafford (5) ).

(Grirrrra C.J. referred to In re Coomber ; Coomber v. Coomber (6).]

The fact that the respondents incurred a personal responsibility to the mortgagees in return for the payments received does not affect the matter (De Bussche v. Alt (7); Burrell v. Mossop (8) ; Archer's Case (9) ).

[Isaacs J. referred to Boston Deep Sea Fishing and Ice Co. v. Ansell (10).]

Mann, for the respondents. There was no fiduciary relationship between the appellant and the respondents in connection with the loan. Not every person who undertakes an obligation to carry out some transaction for another is that other's agent. The whole of the obligations of the parties are set out in the contract, and if the respondents did not carry out what they had promised they were liable for breach of contract not only to the appellant but also to the executrix. The obligation to find a person to lend the money was more for the benefit of the executrix than of the appellant.

[Isaacs J. referred to Grant v. Gold Exploration and Development Syndicate (11).]

Tf there was any fiduciary relation between the appellant and the respondents, it was one of such a kind as required the respondents to account to the fund in which both parties had an interest, and

(1) (1905) 1 K.B., 11, at p. 19. (7) 8 Ch. D., 286, at p. 315.

(3) LR. 10 Ch., 96, at pp. 118, 124. (9) (1892) 1 Ch., 322, at p. 339. (4) LR. 1 P.C., 352, at p. 359. (10) 39 Ch. D., 339, at p. 363.

(5) (1897) A.C., 180, at p. 185. (11) (1900) 1 Q.B., 233, at p. 244.

not to the appellant only. The appellant's interest in that fund is the measure of the fiduciary relationship between the appellant and the respondents.

Grirriru C.J. This case affords a conspicuous example of the danger of being led astray by phrases instead of appealing to prin-_ ciples. The plaintiffs case, as made by his statement of claim, is" that he employed the defendants as his agents to procure a loan for him, that they as such agents procured a loan of £100,000 at 5 per cent. on security of station property, and that they while acting as his agents made a secret arrangement with the lenders" by which they obtained for themselves a pecuniary benefit in con-_ nection with the loan, namely, a commission of 10s. per cent. per annum on £100,000.

They endeavour to establish their case in this way : - The plaintiff _ obtained a loan of £100,000 through the instrumentality of the - defendants : therefore, they were his agents in the matter: therefore, they were in a fiduciary position with regard to him : therefore, it was a breach of the duty which they owed him to enter into any - contract with the lenders in connection with the loan without his _ knowledge: The contract in question being a contract of guarantee by which they incurred very onerous obligations for a period of five years, the full amount of the premiums in respect of the contract _ of guarantee must therefore be regarded as received for the plaintiffs _ use.

In my opinion every step of this argument involves either a petitio principit or an ambiguity, or both. I will read again the passage - which I read during the argument from the judgment of Fletcher Moulton LJ. in In re Coomber (1) : - * Fiduciary relations are of many different types ; they extend from the relation of myself to - an errand boy who is bound to bring me back my change up to the most intimate and confidential relations which can possibly exist -

between one party and another where the one is wholly in the hands of the other because of his infinite trust in him. All these are cases of fiduciary relations, and the Courts have again and again, in cases where there has been a fiduciary relation, interfered and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of inter- ference. Of course that is absurd. 'The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them." Buckley L.J. expressed himself to the same effect.

I prefer to follow this advice, and to approach the subject by inquiring, first, whether the defendants were in any, and, if any, in what, sense agents for the plaintiff in the transaction in question ; next, to inquire whether any, and, if any, what, fiduciary obligation to the plaintiff relevant to the present case was imposed upon them by such agency ; then, whether they committed any breach of that obligation ; and lastly, if they did, what liability they incurred by that breach.

The relevant facts of the case either appear upon the face of contemporaneous documents, or are admitted.

The estate of Denis Patrick Keogh, a grazier in New South Wales, who died in 1884, having made a will of which his widow was sole executrix, was in the year 1909 indebted to the defendants in a very large sum of money, claimed to amount to £200,000, for advances made in respect of a station property called " Warrana," for which the only security they held consisted of equitable mort- gages of land. They desired to obtain payment of a portion of this debt and to obtain a legal mortgage for the balance. The result of the negotiations between Keogh's executrix and themselves was embodied in an agreement dated 25th February 1909, made between the defendants of the first part, the executrix of D. P.

chaser," of the third part. The general effect of the agreement was that, subject to the sanction of the Supreme Court of Victori and in order to effect a compromise of all disputes between t execntrix and the defendants they should consent to a sale of Warrana property by the executrix to the plaintiff (who was son of the testator) for £180,000; that when the sanction of the Court should have been obtained the defendants should release all their securities over the property and the executrix should transfer it to the purchaser; that the defendants should retain all the titles to the land until the mortgages next to be mentioned should have been given by the purchaser, and that, if the mortgages should not be given, the purchaser should secure the debt of £180,000 with interest at 5 per cent. per annum to the defendants by mortgage or other security ; that subject to such sanction the defendants should use their best endeavours to obtain for the purchaser a first mortgage on usual and reasonable terms on the whole of the land of Warrana for such amount as they could obtain at a rate not exceeding 5 per cent., and the purchaser should execute such mortgage and pay the mortgage money to the defendants in partial discharge of th debt, but should not be personally liable to the mortgagee for prin- cipal or interest ; that after such first mortgage was obtained the purchaser should give the defendants a second mortgage over the land and a first mortgage over the stock and plant in forms already - agreed upon to secure the balance of the £180,000, also without personal liability. The first and second mortgages on the land were to be for concurrent terms of five years: and upon completion of these arrangements the defendants were to release the testator's estate from all claims. It was further stipulated that during the term of the mortgages the plaintiff should only draw from the income of - Warrana by way of salary £600 a year, and that, after payment of - that sum and the working expenses of the station and interest, the surplus profits should be accumulated and placed to a snspense account with the defendants, and at the end of the five years should _ be paid to them in reduetion of the mortgage debt. The agreement was carried out in its entirety. Before examining the nature and effect of this agreement and -

the obligations which it imposed upon the defendants, I will say a few words as to the principle on which the doctrine that an agent or other person occupying a fiduciary position cannot make a secret profit from his employment or trust is founded. That doctrine is not an esoteric doctrine which none but initiates are capable of under- standing, but the simple rule expressed in the eighth commandment, and which is enforced by giving to the principal what is his own, not, as suggested in argument, by giving him a windfall, or punishing the agent or trustee for misconduct (see Morison v. Thompson (1) ). To take the simplest case, that of an agent who makes a secret profit on a sale or a purchase effected by him for his principal. In the case of a sale, whatever the purchaser pays in order to obtain the property sold, belongs, in reason as well as in law, to the vendor principal, and this is equally the case whether part of the price is paid by way of secret commission or by way of direct bribe to the agent, who cannot legally intercept any part of it. The agent has, therefore, received money which belongs to his principal and must pay it over to him. For this reason, and for this reason only, an action lay at common law to recover it as money received for the use of the principal. So, in the case of a purchase, the purchaser principal is entitled to the benefit of all that the vendor gives as consideration for the purchase money. Thus, in Archer's Case (2) (which at first impression seems an extreme case) it was held that a guarantee which the promoter of a company gave to a director in order to induce him to become a director, and which was a step in bringing about the sale, should be regarded as part of what he gave as consideration for the purchase, and that the company, for whom its director was agent, was consequently entitled to the benefit of it. Tf the benefit which the agent has intercepted is not a sum of money, the appropriate remedy is not an action for money had and received but a suit asking for such relief as will give the principal his own. In no case, however, can the principal claim more than his own, which, as I have said, is awarded not by way of punishment of a delin- quent, but by way of giving the principal what was always his. In the case of a sale the vendor principal is entitled to all that is paid by the purchaser for what he, the vendor, sells, and to no more. ()) LR. 9 Q.B., 480. (2) (1892) 1 Ch., 322.

If by a contemporaneous transaction, whether as an inducement to enter into the contract of sale or not, the agent (perhaps because the purchaser will not otherwise agree to buy) agrees to sell property of his own, perhaps a piece of adjoining land, to the same pur the vendor cannot claim the price of that property. These prin- ciples cover all the decided cases on the subject, and when they are fully apprehended all difficulties disappear. In the case, for instance, of a trustee who attempts to obtain for himself what he can only properly obtain for his beneficiary, the Court compels him to hand over to the beneficiary what he has so obtained, but only so far as_ it belongs to the beneficiary. Thus, if a tenant for life of a lease for years obtains a renewal in his own name, he must account to the remaindermen for so much of the new term as properly belongs _ to them. If a trustee employs trust funds in business on his own account he must account for the profits, but he is not bound to pay over the whole of his gross receipts.

A Court of law has, indeed, no jurisdiction to award to a suitor anything more than he has lost, except in cases of actions for a penalty under a Statute or cases in which what is called " vindictive" damages may be recovered. Full compensation is the measure of - the relief. :

Ido not know of any case which is in conflict with the principles Ihave stated. If any judicial dictum is in apparent conflict with them, I venture to apply the language of Lord Selborne L.C. in - Caledonian Railway Co. v. Walker's Trustees (1): "A judgment which is right, and consistent with sound principles, upon the facts and circumstances of the case which the House had to decide, need not be construed as laying down a rule for a substantially - different state of facts and circumstances, though some propositions, | i wider than the case itself required, may appear to have received countenance from those who then advised the House."

With this preface I proceed to examine the transaction now in | question, and to inquire what was the real nature of the relationship between the plaintiff and the defendants intended to be created by - it. In my judgment, it was in substance the relation of a mortgagor - and a second mortgagee in possession subject to a first mortgage

of part of the mortgaged property. It was essential to the creation of this relationship that the defendants should endeavour to secure a loan of as large a sum as possible upon the security of part of the estate, of which sum the plaintiff was to be the nominal borrower but without incurring any personal liability, and which was to be immediately paid by him to the defendants in reduction of the debt due to them by the estate. In what sense were the defendants his agents to procure thisloan? 1t would, if obtained, enure very much more for their own benefit (since they would obtain the immediate use of a large sum of money), and for the benefit of the testator's estate, than for the benefit of the plaintiff. In negotiating for the loan they were, in truth, acting on behalf of all the parties to the agreement, and not on behalf of the plaintiff only. If in the course of the negotiations they had accepted a bribe of, say, £5,000 from the lenders they would have had to avcount for it in reduction of the amount secured by their mortgage, and the value of the equity of redemption would have been increased accordingly ; and that is all. In the present case it may well be (as I infer from what Mr. Weigall told us in opening his case to be the fact) that the value of the equity of redemption is less than the £2,500 now claimed. To my mind it is almost preposterous to suggest that in such a case as T have put the plaintiff could have claimed payment to him in cash of the £5,000. In so far as money so received could be regarded as the mortgagor's money it would have been a sum which he would have been bound to pay back to them immediately on receipt of it by him.

This is, of course, not what actually happened. What did happen was this: It will be remembered that the first mortgage was to include only the lands of Warrana, and that the plaintiff mort- gagor was not to incur any personal liability. There was an ubvious possibility that no lender might be found willing to lend so large a sum of money as desired at 5 per cent. on such a security without any personal liability. And this appears to have been what actually oceurred. The defendants said in the course of the correspondence between the parties that the lenders refused to lend the £100,000 asked for except at a rate sufficient to return a net interest of 44

per cent. after paying the premiums upon a policy or contract guarantee, and this was not disputed.

It may be - but it is not part of the plaintiff's case - that it bevond the scope of the defendants' authority, which was "to endeavour to obtain a first mortgage on usual and reasonable ter

for such amount as they can obtain at a rate not exceeding 5 per. cent.," to agree to give 5 per cent. if they knew that that rate was - based upon the lender demanding it in order to enable him to pay the premiums for a guarantee of the debt and still obtain 4} per cent. net. If so, they may be liable to an action for damages. It will be soon enough to deal with such a case when it is made.

The lenders, having so insisted, asked the defendants, who them- selves carry on, amongst other businesses, that of guarantors, to give the guarantee, to which they agreed, charging a premium of - 10s. per cent. per annum, amounting to £500. An indenture of - guarantee, dated 20th December 1912, was accordingly executed, - which recited, amongst other things, that the defendants "in con- sideration of" the mortgagees "agreeing to pay them an annual sum equal to 10s. per cent. per annum on the said sum of £100,000 (such amount to be paid by equal half-yearly payments out of interest as received by the'? mortgagees "under the said mort- gage)' agreed to give the guarantee.

Tn pursuance of this agreement the defendants received £500 a year for each of the five vears, and this is the sum for which the plaintiff sues. With regard to the parenthetical words above quoted, it should be pointed out that the defendants, who, as I have shown, were in the position of mortgagees in possession, kept all the accounts of the Warrana property, and were also the first mortgagees' agents to receive the annual interest of £5,000. The parenthetical words related, therefore, to a matter of book-keeping, and were a mere stipulation as to the time and mode of payment of the annual premiums under the guarantee.

What then was the fiduciary obligation which the respondents violated by giving the guarantee themselves instead of trying to get someone else to give it? As at present advised I am unable to see any. The plaintiff's contention assumes that, while they were of course at liberty to undertake a personal responsibility for the

£100,000, it was their duty, if they did so, and did not do it gratui- tously, either first to obtain the plaintiff's approval or to pay him the preminm. I cannot find, either in reason or authority, any obliga- tion to ask his approval. The matter seems to me wholly outside the scope of the agreement by which their obligations to the plaintiff were created and limited.

If the price for which they stipulated for incurring the obligation to the mortgagees was unreasonable, it may be that the plaintiff might claim the benefit of the bargain, but that benefit could not exceed the difference between the actual premium and the reason- able premium. Further, the guarantee was no part of the con- sideration moving from the plaintiff, and the price paid for it is in no sense his.

When an agent accepts as an inducement to enter into a bargain for his principal a collateral agreement which is beneficial to him, the principal may be entitled to claim the benefit of that agreement. Tf, as in the case put earlier, an agent accepts by way of such induce- ment an agreement with the other party that the latter shall buy from him property which is only worth £100 at a price of £200, the principal might possibly in a proper suit claim the difference of £100, But he certainly could not claim the whole £200. If the principal claims the benefit of the collateral agreement he must bear the burden of it. From that point of view the measure of the plain- tiff's right against the defendants, if any, would be the profit which they derived from the contract of guarantee. That profit is not measured by the amount of the premiums, any more than the profit which a fire insurance company derives from a fire policy is measured by the amount of the premiums received in respect of it. It follows that, if the appellant is entitled to any relief in this action, he is not entitled to present payment of the £2,500 claimed.

Again, when a mortgagee in possession is guilty of a dereliction of duty to his mortgagor, as, for instance, if he sells part of the mortgaged property for a larger price than that which is stated in the contract of sale as the consideration, the mortgagor is entitled to claim the difference, but he is not, so far as I understand the law,

entitled to receive it in cash. The extent of his right is measured ; VoL, XXII, 28

by the extent of his loss, which is that the adverse balance against him has been unduly inflated.

The learned Judge has, however, directed the defendants to bring the £2,500 into the Suspense Account, é.e. their account as mortgagees in possession, and there is no cross-appeal,

I agree, though not for the reasons given by the appellant, that this judgment cannot be supported, but all we can do is to dismiss the appeal.

Barton J. I think the learned Chief Justice has accurately stated the principle on which the cases hitherto decided are founded. The present action seems to be an attempt to extend the well known doctrine beyond its application in those cases. On the circumstances made known to this Court the reason of the matter does not, in my opinion, warrant such an extension.

That this class of cases is founded on the right of the plaintiff to get back his own, which the defendant is improperly retaining, is made very plain by the review which Cockburn C.J. made of the cases in his judgment in Morison v. Thompson (1).

I would also point out that as all profit of the station, after the expenses and interest as well as the plaintiffs £600 a year had been paid, was to go in reduction of the defendants' debt, the latter were interested not only in obtaining as large a loan as possible, but also in arranging for as low a rate of interest as possible, seeing that there would then be more money to go into the Suspense Account for the payment to the defendants of their debt.

It is plain that the loan from Chapman and Higgins, with the personal liability of the borrower eliminated, as it was, would not have been advanced for as low a rate as 5 per cent., or perhaps at all, if the defendants had not consented to guarantee repayment of the principal. For, notwithstanding the plaintifi's misdescrip- tion in his letter of 18th January 1915, it was to principal as well as interest that the guarantee extended. Is it then reasonable to contend that the defendants obtained the } per cent. by virtue of their relation to the plaintiff? (See Williams v. Stevens (2), Lord

(1) LR. 9 Q.B., 480. (2) LR. 1 GP., 352, at p. 359.

Westbury's judgment.) It is not shown to be by virtue of their agency that the defendants were enabled to secure the guarantee. For it is consistent with all the circumstances that it was because the lenders would not advance their money without the security for repayment (in lieu no doubt of the personal covenant of the borrower) afforded by the personal liability of very substantial guarantors. I do not mean that the defendants would be saved because they took a risk - that they did so is immaterial - but that the facts show that their contract was independent of their agency : that they were not taking advantage of their position. Then, is the plaintiffs case proved at all - can it be reasonably urged on these facts that the money claimed is his? How could he possibly have had the benefit of this money - seeing that if the defendants had not made the agreement with the lenders for the } per cent. the plaintiff would either not have got the loan at all or would have had to pay more than 5 per cent ?

The stigma of secrecy can scarcely be placed on a transaction of which plaintiff could not have claimed any of the benefits if it had been made with his knowledge. Could he possibly have said, "T will not consent to your giving a guarantee and receiving $ per cent. for it," unless he had also said, in face of the agreement of 25th February 1909, "I don't want a loan at 5 per cent." ? If he could not say this, what duty of disclosure could there be ?

Isaacs, Gavan Durry anv Ricu JJ. The executrix of the will of Denis Patrick Keogh and the respondent Company agiced to a compromise of disputed claims. The compromise included a pro- vision that the appellant, a son of the deceased, should become the purchaser of the only asset in the estate - Warrana Station and the stock and chattels thereon - and that certain steps should be taken for the purpose of paying to the Company the sum agreed on as the debt payable to them by the estate. The agreement took the form of an indenture executed by all three parties, and one of its pro- visions declared that the sanction of the Supreme Court of Victoria was a condition of its operation. That sanction was given. The respective rights and relations of the parties are set out and

H. ©. or A. delimited by the deed, which is now their root of title, so to 7 speak, and extraneous circumstances are immaterial, because there

Kroon is no question of ambiguity as to any of its expressions. Daronry & The first question is what is the legal effect of the deed, construed

Co. Lrp. in the ordinary way. Isaacs J. It provides for a series of steps: (1) there is to be a transfer of Gavan Duffy J. ts .

Rich J." the station to the appellant as purchaser; (2) as purchaser he is to mortgage it to some person other than the respondent Company but without being personally liable, and they bound themselves to "use their best endeavours to obtain for the purchaser a first mortgage on usual and reasonable terms on the whole of the said lands for such amount as it can obtain at a rate not exceeding £5 per centum per annum" and the appellant undertook to execute the mortgage; (3) the appellant undertook to pay the mortgage money to the respondents in part satisfaction of the debt owing to them by the estate, and amounting to £180,000; (4) he agreed to give the Company a second mortgage at £5 per cent. without personal liability ; (5) he agreed to draw only £600 a year out of the station proceeds during the terms of the mortgages (five years), and any surplus profits after payment of the salary and ordinary station expenses and interest were to be accumulated and placed to a suspense account, and at the end of five years to be paid to the Company in reduction of their mortgage debt.

It is plain, therefore, that the relations created were various.

The relation of purchaser was as between the executrix and the appellant only. The relation of the appellant as mortgagor in respect of the first mortgage was towards the proposed lender - not the respondents. The relation between the appellant and the respon- dents with regard to the negotiations for the first mortgage was that of principal and agent, their position not being adverse to him, but one of duty towards him, to "use their best endeavours" not only to secure the best sum procurable, but to secure it at as low a rate as they reasonably could, upon " usual and reasonable terms," and not over 5 per cent. It is not, and it could not be, sug- gested that it is a "usual" term for the agent himself to give a guarantee and swell the principal's interest by what he charges for the guarantee. It is plain too, that as the balance was to be at

5 per cent. interest it was to the interest of the appellant to get as much as possible on first mortgage at a rate less than 5 per cent.

Only after the mortgage was obtained did the respondents' adverse interest begin. It is quite misleading to say they were to negotiate the loan in the conjoint interest of Keogh and themselves. The same could be said of every agent to negotiate a loan, because his commission depends on it. The loan was not in any direct sense on their behalf - though indirectly they might be advantaged by the result of it. When the respondents undertook to Keogh to act jor him in negotiating a first mortgage, they undertook to regard his interests as a principal in the ordinary way; their promised ""best endeavours " were not to be the best for themselves but for him, and there is nothing in the case to weaken the ordinary duty of an agent to act with perfect candour and honesty towards the principal whose confidence is reposed in him.

The view adopted on this branch of the case by Cussen J. is mani- festly right. The Company undertook the duty of getting a first mortgage for Keogh, but in the course of this transaction, and as part of it, they agreed with the proposed lenders, Chapman and Higgins, who asked for a personal guarantee, that they, the Company, would give that guarantee and charge } per cent. for it, payable directly and specifically out of such moneys of Chapman and Higgins as they should have received as interest from moneys belonging to Keogh - that is, from the proceeds of Keogh's station, which by agree- ment between the parties were to be applied by the respondents first in paying current expenses and then their own debt, the full balance of course being pavable to Keogh as the owner. In other words, they bargained with the lenders on terms which required Keogh to pay a certain sum to the lenders for interest, and required the lenders at the same time and as an indivisible term of the transaction to give to the agents out of the very money so received by the lenders a fixed sum in return. True the Company gave their guarantee for that, but the guarantee was part and parcel of the agreement of Joan. The Conrt in such a case does not stop to inquire whether such a guarantee was necessary or not: it might be thought that, if Dalgety & Co. were willing to take a second mortgage at 5 per cent. without any guarantee, there was no necessity for a guarantee for

the first mortgage. The appellant throughout the correspondence maintained from a business standpoint that a guarantee was obvivusly unnecessary, and his counsel suggested that that was so. But that is immaterial. The all-important point is that the respon- dents concealed the fact from Keogh that they were getting £250 out of every £2,500 he paid for interest, and he only discovered it by accident through the Income Tax Office. The fact that they were deriving a business profit in connection with the transaction disqualified them from disinterested action on behalf of Keogh, and this important circumstance they kept back from him. That was wholly indefensible (see per Kennedy J. in Smailes v. Hans Dessen & Co. (1) ). The observations of Bowen L.J. in Boston Deep Sea Fishing and Ice Co. v. Ansell (2), at p. 362, cannot be too strongly impressed upon the attention of those who undertake to act as the agents of others. The learned Lord Justice also, at pp. 363-364, distinctly dissipated the idea that it makes any difference whether the surreptitious profit was gained as a pure gift or for services rendered or for any other reason. The rule is clear and without exception that whatever profit in the result has found its way into the agent's hands, and in whatever form it may rest there, the full money value of the benefit he has got must he paid as a debt to his principal. Dalgety & Co. have a clear profit of £2,500 sur- reptitiously obtained. The risk they ran, if it could ever be called a risk, has ended in no money payment and never can end in any, for the first mortgage debt is paid.

Now, why should they not pay this over to Keogh? Cussen J. has ordered that it be taken into account - in other words, that they may treat it as proceeds honestly arising in the ordinary way from the station. It does not arise from the station ; it is entirely outside the agreement ; it forms no part of the stipulated accounts; it is a sum which, by reason of a strict rule of law and equity established for the protection of principals from the fraud of their agents, is an independent debt owing by Dalgety & Co. to Keogh (Lister & Co. v. Stubbs (3) ). This right is not' limited by any rule as to mere compensation (Grant v. Gold Exploration and Development

(1) 11 Com. Cas., 72, at p. 96. (2) 39 Ch. D., 339. (8) 45 Ch. D., 1.

Syndicate (1)). The rule should not be weakened. 'The interest they stated was 5 percent. : let it be so; and let the accounts proceed on that basis as agreed. Put having by their conduct given rise to an independent debt, the law requires them to pay that sum inde- pendently to their principal. If there were cross sums which by an ordinary set-off could be balanced against it, that would be another matter; but there is nothing of the kind: and as this sum is apart from the agreed accountancy, and Keogh never had any right to it as against Dalgety & Co. until after it had been paid to Dalgety & Co. (Grant v. Gold Exploration and Development Syndicate (1) ), the judgment should be varied by ordering the respondents to pay to the appellant the sum of £2,500 they received.

Appeal allowed. Order appealed from varied by ordering that the defendants pay to the plain- tiff the sum of £2,500. The question of interest reserved for further consideration. Respondents to pay costs of appeal.

Solicitors for the appellant, Hedderwick, Fookes & Alston. Solicitors for the respondents, Blake & Riggall.