Opinion
January 18, 1950.
Frank Sheridan Jonas, Inc., brought action against Guillerno Romanant to recover commissions received by defendant and another on purchases made by a foreign buying commission, on ground that defendant learned the sources of supply of the materials sold to the buying commission while defendant was in the employ of plaintiff and was specifically assigned to the task of finding such sources of supply.
The Special Term, Greenberg J., held that there was a breach of a fiduciary position by defendant, so as to require him to account for commissions received.
Judgment for plaintiff.
Wagner, Quillinan, Wagner Tennant, New York City (Joseph L. Delaney and E.S. Menapace, New York City, of counsel), for plaintiff.
Gronich, Herbsman Aleyner, New York City (Samuel Herbsman, New York City, of counsel), for defendant.
This action is to require the defendant to account for commissions received by him and by Aviation Export Co. Inc., a since dissolved corporation formed by him, on purchases made by the so-called Passio Argentine Commission.
At the conclusion of the trial the court found the facts and reserved decision on the law. Briefly stated the salient facts are as follows: Plaintiff's president, Frank Sheridan Jonas, was for a great number of years engaged in the business of exporter, export commission agent, and manufacturer's representative under his own name. In and about February 1946 the plaintiff corporation was formed. In April of 1946 the defendant sought and obtained employment with the plaintiff corporation. His original salary was $57 a week, but as a result of several increases he was receiving $85 a week at the time that he left his employment.
When the defendant commenced his employment he did general office work but within two or three weeks he was assigned to assist Jonas as a sales agent, particularly in connection with the plaintiff's account with the Argentine Aeronautical Purchasing Commission, a valuable account which the plaintiff corporation, and before its existence Jonas himself, had had for several years. One of the defendant's duties was to secure required materials for such account.
The defendant was introduced by Jonas to various members of the Commission as plaintiff's representative, and he familiarized the defendant with the needs of the Argentine Commission and the names of various suppliers of required materials.
During the latter part of November 1946 Commodore Passio arrived in New York City on a special and urgent buying mission for the Argentine government — his limited purpose was to purchase certain items which were in short supply. While Commodore Passio worked in conjunction with the Argentine Commission hereinbefore referred to and maintained his headquarters at the Commission's office, he was in complete charge of such special buying mission.
Almost as soon as Commodore Passio arrived in New York City the defendant was advised to have Jonas himself come to its office. Jonas accompanied by the defendant was then introduced to Commodore Passio who told him of his general requirements. Jonas agreed to aid Commodore Passio in locating and purchasing divers materials including surplus materials. For such services Commodore Passio agreed to pay the plaintiff 10% of the purchase price of such materials providing the plaintiff would share half of its commission with the Argentine Commission which Jonas agreed to do. During all such time the defendant was present as Jonas's assistant and the plaintiff's agent.
Jonas assigned to defendant the task of aiding the mission in locating the required items. In the course of performing these duties the defendant as an employee of plaintiff who paid his travelling expenses as well as salary and bonuses, learned from the plaintiff or from those to whom plaintiff sent him of certain sources of supplies.
Jonas personally took Commodore Passio to a couple of suppliers from whom the latter made some purchases. Shortly thereafter Jonas made arrangements to have the defendant as the plaintiff's representative take Commodore Passio to Cleveland to meet a Mr. Hall, a representative of the Reading Company, a company which had agreed to help Jonas locate surplus materials for Commodore Passio.
The defendant went to Cleveland as plaintiff's representative and then to Pittsburgh in the same capacity.
Instead of disclosing to plaintiff what he had learned in the course of his employment, the defendant concealed the facts, and giving as a pretext that he was ill and desired to return to his native Puetto Rico, in bad faith resigned from plaintiff's employ. He continued the negotiations with the Passio commission which had been begun during his employment by plaintiff and received commissions on the purchases made by such Commission from suppliers of whom he had learned and with whom he had dealt as the plaintiff's employee.
From these facts it is the court's view that plaintiff is entitled to judgment requiring defendant to account for the profits made by him and his corporation on these transactions with the Passio Commission.
There are certain accepted principles of law which dictate the conclusion in this case. An agent is required to exercise the utmost good faith toward his principal and must act in accordance with the highest and truest principles of morality. Elco Shoe Manufacturers v. Sisk, 260 N.Y. 100, 183 N.E. 191. Unless otherwise agreed an agent is subject to a duty not to compete with the principal concerning the subject matter of his agency during his employment. This rule is likewise applicable even when the employment is terminated when the agent resigned in bad faith and for the very purpose of taking advantage of confidential information obtained during his agency. Admittedly, under certain circumstances an agent may terminate his relationship and then be free to compete fairly with his former principal, but he is not free before such termination to solicit customers for himself in anticipation of such termination.
With these principles as a guide the basic question to be determined is whether the business in hand represented a "pre-emptive opportunity" for the principal, Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546, 62 A.L.R. 1, or, to put it otherwise, whether the business was "recognized or identified" as one in which the principal "had a tangible expectancy — a right which in its nature was inchoate." Blaustein v. Pan American Petroleum Transport Co., 293 N.Y. 281, 300, 56 N.E. 2d 705, 713.
That such was the case seems clear from Byrne v. Barrett, 268 N.Y. 199, 197 N.E. 217, 100 A.L.R. 680, which established that one in a fiduciary position — employee, agent, partner, director, etc. — in whom is entrusted the negotiation of a transaction cannot, by resigning and not disclosing all he knows about the negotiation, thereafter continue and consummate it without disgorging, at the instance of the equity court, the profits acquired. Nor is it necessary that the fiduciary be specifically entrusted with the particular transaction so long as there is an "intimate relation" between the business entrusted and the opportunity availed of by the fiduciary. Beatty v. Guggenheim, 225 N.Y. 380, at page 385, 122 N.E. 378, 380.
In the case at bar the defendant, as plaintiff's employee, was specifically assigned the task of finding sources of supply for the Passio Commission and he did so at his employer's expense. Had the defendant "acquainted them [plaintiffs] fully with the status of the matter and given them an informed choice of whether to surrender the matter to him [defendant] or to compete with him on even terms", Byrne v. Barrett, supra, 268 N.Y. supra, at page 207, 197 N.E. at page 219, 100 A.L.R. 680, a different situation might here be presented. But just as in the cited case: "This he did not do" (ibid). "The trouble about his conduct is that he excluded his coadventurer [principal] from any chance to compete, from any chance to enjoy the opportunity for benefit that had come to him alone by virtue of his agency". Meinhard v. Salmon, supra, 249 N.Y. at page 465, 164 N.E. at page 547, 62 A.L.R. 1. Not only did the defendant conceal the opportunity, he untruthfully stated his reason for resigning and thereby, as in the Byrne case where the defendant led the plaintiffs to believe the negotiation would not be fruitful, lulled the plaintiff into a false sense of security.
Judgment is accordingly directed in favor of the plaintiff for the relief demanded in the complaint.
The findings of fact made at the conclusion of the trial together with this memorandum constitute the decision in the case. Settle interlocutory judgment.