Business Associations, Pages 105–109

Tarnowski v. Resop

Supreme Court of Minnesota, 1952

Facts:

Plaintiff hired defendant to negotiate the purchase of a route of coin-operated music machines. At his suggestion, he purchased such a business from sellers for $30,620, with $11,000 down. Defendant claimed that he made a thorough investigation of the route, that it had 75 locations in operation, that every machine was less than six months old, and that the gross income amounted to over $3,000 per month. However, defendant had actually only looked at five locations and then repeated the rest from what the sellers told him, but claiming it was his own discovery. Sellers had also paid defendant $2,000 for suggesting them.

However, sellers lied to defendant, who then repeated these lies to plaintiff. There were only 47 locations, some had no machines, some machines were up to seven years old, and the gross income was far less than $3,000 per month. Plaintiff sued sellers and ended up getting paid $9,500. Plaintiff then sued defendant for collecting a commission from sellers while being his agent and for the damages he sustained because of defendant's suggestion.

Procedural History:

Plaintiff recovered a verdict of $5,200 at trial.

Issue:

Can plaintiff recover against defendant either for the profit defendant made from sellers or for the loss plaintiff sustained?

Defendant's Argument:

After successfully recovering against sellers, plaintiff cannot also recover against defendant.

Rule:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 107, Paragraph 5
Restatement, Agency, § 407(1)

"If an agent has received a benefit as a result of violating his duty of loyalty, the principal is entitled to recover from him what he has so received, its value, or its proceeds, and also the amount of damage thereby caused, except that if the violation consists of the wrongful disposal of the principal's property, the principal cannot recover its value and also what the agent received in exchange therefor."

Explanation:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 107, Paragraph 6
Restatement, Agency, § 407(1), Comment a

[W]hether or not the principal elects to get back the thing improperly dealt with or to recover from the agent its value or the amount of benefit which the agent has improperly received, he is, in addition, entitled to be indemnified by the agent for any loss which has been caused to his interests by the improper transaction.

Reasoning:

  • Any profits defendant made from his agency belong to plaintiff, whether or not if they adversely affected plaintiff or if plaintiff rescinded the contract upon discovering it. Defendant owed a duty of loyalty to plaintiff and violated it by secretly accepting $2,000 for himself.

  • The costs incurred by plaintiff, including his attorney fees were directly traceable to the harm caused by defendant's wrongful act and are thus recoverable.

  • Many of the things recoverable here were not recoverable against sellers, so they may be recovered against defendant. They are not joint tort-feasors because plaintiff's suits have different causes of action.

Holding:

Plaintiff had an absolute right to defendant's $2,000 commission from sellers, as well as his other damages. Affirmed.

Brave Browser – Ad-free browsing