the executor, I am still of the opinion that a decree against an executor who has thus misconducted himself, which only deprives him of his improper gain, does not inflict an adequate penalty upon him. If such a rule should be established, it would be attended, I apprehend, with disastrous results. To restrain the tempted trustee from misconduct, there needs some other penalty than the mere liability, in case of discovery, to be forced to account to the estate for ill-gotten gains. On grounds of plain public policy, courts ought not to relax the obligations of trustees, or relieve them from adequate penalties. Were the question now raised for the first time and in an ordinary case, I should strongly incline to the view that the executor should be deprived of all his commissions. But it is within the discretion of the court whether to deprive him of all or of only part of his commissions, a discretion to be exercised in view of all the circumstances of the case." E. S. O.

[ENGLISH DIVISIONAL COURT.]

HIPPISLEY v. KNEE BROTHERS.

[1905] 1 K. B. 1.

Also Reported in 74 L. J. K. B. N. S. 68, 92 L. T. N. S. 20, 21 Times L. R. 5.

Principal and agent — Secret profit received by agent without fraud

The plaintiff employed the defendants, auctioneers, to sell goods for him by auction upon the terms that they were to be paid a lump sum by way of commission, and were further to be paid "all out of pocket expenses," including the expenses of printing and advertising. The defendants in due course sold the plaintiff's goods. In rendering their account of the out of pocket expenses to the plaintiff they debited him with the gross amounts of the printers' bill and of the cost of advertising in the newspapers, they having in fact received discounts both from the printers and the newspaper proprietors, a fact of which the plaintiff had no knowledge. There was evidence of a general custom for printers and newspaper proprietors to deal with auctioneers as principals, and to allow them a trade discount off their retail charges, which discount they would not allow to the auctioneers' customers if they dealt with them directly, and the defendants in omitting to disclose the fact of the discounts to the plaintiff did so in the honest belief that they were lawfully entitled under the custom to receive the discounts and retain them to their own use:

Held, that although the defendants were not entitled to debit the • plaintiff with the gross amounts of the printing and advertising bills,

inasmuch as by the terms of the employment they were only to be paid their actual out of pocket expenses, yet, as they received the discounts without fraud, and as the duty to account correctly for the out of pocket expenses was merely incidental to and separable from their main duty connected with the sale of the goods, the omission to disclose the receipt of the discounts to the plaintiff did not disentitle them to retain their commission.

Andrews v. Ramsay [1903] 2 K. B. 635, ante, 184, 72 L. J. K. B. N. S. 865, 89 L. T. N. S. 450, 19 Times L. R. 630, 52 Week. Rep. 126, distinguished.

(October 27, 1904.)

APPEAL from the Bristol County Court.

Any other work,

The plaintiff employed the defendants, a firm of auctioneers, to sell some pictures and other articles for him by auction upon terms which were set out in a letter from the defendants to the plaintiff and dated July 25, 1903, and which was as follows: "Referring to our interview with you as to the sale of your furniture and effects, we now beg to confirm the terms arranged, viz., 5 per cent on all lots sold and all out of pocket expenses in addition, which includes advertisements, printing and posting bills, printing and circulating catalogues, porters' time, postages, use of sale room, etc. The cost of removal from the various places, including clerk's time checking, to be 4l. 10s. 8d. Use of sale room to be 10s. per week to date of sale. Minimum commission on sale for personal services to be 201. price to be arranged." The defendants, in pursuance of the said employment, instructed a firm of printers to print the posters and catalogues. The printers did the work and debited the defendants' account with the sum of 137. 9s., that being the price which they would have charged to any ordinary customer. The printers, however, allowed to the defendants because they were auctioneers the trade discount of 10 per cent, amounting to 17. 6s. 10d. The defendants also advertised the sale in certain newspapers, and upon the gross payments for the advertisements, amounting to 14l. 6s. 4d., they received from the newspaper proprietors a discount of 10 per cent, amounting to 17. 8s. 7d. The sale took place in due course, and the plaintiff's goods were sold for an aggregate amount of less than 400l., whereupon the minimum commission of 201. became payable. The defendants, in

the account sent by them to the plaintiff, charged him with the full amount of the printers' bill, 137. 9s., and of the charges for newspaper [3] advertisements, 14l. 6s. 4d., without making any rebate to him in respect of the discounts allowed to them, and, having deducted from the gross sum realized by the sale the sum of 201. for minimum commission with the two above-mentioned sums of 13l. 9s. and 14l. 6s. 4d., and a further sum for money lent, they paid the balance to the plaintiff. Subsequently, the plaintiff, having discovered the fact of the defendants having received the said discounts without disclosing the fact to him, brought his action in the county court to recover the two sums of 11. 6s. 10d. and 1l. 8s. 7d., and also the 201. minimum commission, on the authority of Andrews v. Ramsay [1903] 2 K. B. 635, ante, 184, 72 L. J. K. B. N. S. 865, 89 L. T. N. S. 450, 19 Times L. R. 620, 52 Week. Rep. 126. At the hearing evidence was given of a general custom for printers and newspaper proprietors to deal with auctioneers as principals, and to allow them as trade customers a trade discount off their retail charges, the whole of the retail price being charged by the auctioneers against the vendors. The defendants honestly believed that they were entitled under this custom to receive the said discounts and retain them to their own use. The plaintiff admitted that he knew there was a custom for newspaper proprietors to allow a discount to auctioneers, but he did not know the amount of it, or that the defendants would receive such a discount in the present case. He was not aware that there was any custom for printers to allow such a discount, or that the defendants would receive it from the printers. The County Court judge held that the defendants in contracting with the printers and newspaper proprietors acted as principals, and not as agents for the plaintiff, that the plaintiff was not damnified by their receipt of the discounts, and that the defendants were consequently entitled to retain them. He accordingly held that the plaintiff could not recover any one of the three sums claimed. The plaintiff appealed.

Clavell Salter, K.C., and Soper, for the appellant. The defendants were not entitled to charge the plaintiff with the

amount of the discounts, for in incurring the expenses for printing and advertising they were acting as agents for the plaintiff. [4] The fact that the printers and newspaper proprietors looked to them for payment did not make them any the less agents. Then if so, the well-established rule as to secret profits made by agents applies. In Parker v. McKenna (1874) L. R. 10 Ch. 96, at p. 118, Lord Cairns, L.C., thus stated the rule: "Now the rule of this court, as I understand it, as to agents, is not a technical or arbitrary rule. It is a rule founded upon the highest and truest principles of morality. No man can in this court, acting as an agent, be allowed to put himself into a position in which his interest and his duty will be in conflict. All that the court has to do is to examine whether a profit has been made by an agent, without the knowledge of his principal, in the course and execution of his agency." Further, there is in the present case the additional reason that the defendants expressly stipulated for their "out of pocket expenses" and nothing more, and under that term cannot be included a sum which they did not in fact pay. The existence of the custom for auctioneers to receive these discounts and the consequent bona fides of the defendants are immaterial. The only material question is whether the plaintiff in fact knew that his agents were being allowed the discounts, and the finding is that he did not. Then if the defendants are not entitled to charge the plaintiff with the discounts, neither are they entitled to their commission of 201. Andrews v. Ramsay [1903] 2 K. B. 635, ante, 184, 72 L. J. K. B. N. S. 865, 89 L. T. N. S. 450, 19 Times L. R. 620, 52 Week. Rep. 126, where it was held that an agent to sell property, who has sold the property but received a secret profit from the purchaser, must not only account for that profit to his principal, but is not entitled to any commission from his principal. No distinction can be drawn between that case and the present, upon the ground that there the secret profit was received from the purchaser and here from third persons; the net result to the vendor is the same. The advertising and printing are just as important parts of the agency as the conduct of the sale itself in the auction room, and there was one entire remuneration for

all the duties that the defendants were employed to perform,namely, the commission of 201.

Duke, K.C., and Thornton Lawes, for the defendants.

[5] [Lord Alverstone, Ch. J.: We are satisfied that there is no case to recover back the commission, and only wish to hear the defendants on the subject of the discounts.]

There is a distinction between cases in which a person is acting solely as agent for a principal in making a contract and cases in which the principal employs an agent who to his knowledge will have to make contracts with third persons on his own behalf for which he will have to pledge his own credit. Where the agent in the known course of business makes a contract on which he is liable he is entitled to make a profit on it, and not merely to have an indemnity against his out of pocket expenses. The custom of allowing these discounts to auctioneers is so universal that the plaintiff must have known, or ought to have known, that the defendants would receive them; indeed, he admitted that he knew there was a custom for newspaper proprietors to allow them on advertisements.

In Great Western Insurance Co. v. Cunliffe (1874) L. R. 9 Ch. 525, 43 L. J. Ch. N. S. 741, 31 L. T. N. S. 661, the defendants, insurance brokers, were employed by the plaintiffs to effect reinsurances for them. There was no provision for their remuneration for this work by the plaintiffs, and according to the custom they received from the underwriters a discount of 5 per cent, and also at the end of the year a further 12 per cent on the balance of the accounts if favourable. The plaintiffs knew of the 5 per cent discount, but did not know of the 12 per cent. But it was held that as the latter allowance, like the former, was according to a well-established practice which the plaintiffs. might have ascertained if they had taken the trouble to inquire, the defendants were entitled to retain it. Similarly in Baring v. Stanton (1876) 3 Ch. D. 502, where a shipowner employed agents to effect insurances for him on his ships, and they in their accounts charged him with the full premiums, although they had received a 5 per cent brokerage from the underwriters and also a 10 per cent discount for cash, in accordance with the