HAMLYN V/S HOUSTON & CO. (1903) 1 K.B. 81

BRIEF FACTS AND PROCEDURAL HISTORY 

In this case the defendant company is a partnership company with two partners, Mr Houston and Mr Strong, who represented the company. Mr Houston took care of the functioning of the company and Mr Strong was a sleeping partner. Mr Houston, acting within the scope of his authority, bribed the clerk of the plaintiff’s company and induced him to commit a breach of contract with the plaintiff as a result of which the clerk divulged some of the secret, important information of the plaintiff’s company. This act of Mr Houston was done without Mr Strong’s knowledge. The information was used by Mr Houston in a way to make the plaintiff company, his competitor, suffer the loss. Plaintiff sued both the partners of the defendant company for breach of contract under vicarious liability. The trial court said that both the partners are liable for breach of the contract. The case went to the Court of Appeal.

THE RATIO OF THE CASE 

The defendant’s counsel argued that gaining information about your competitor’s business is something that a businessman can do and hence, it is legal. So, what Mr Houston did is legal and that he is not liable for the breach of contract. The court agreed with this argument of the defence counsel and stated that Mr Houston acted as an agent and it is done within the scope of his authority, it is illegitimate and amounts to a breach of contract. This was based on the board risk principle, according to which if the principal is the one who will benefit from the acts of the agent, then he is also liable for the risks the agent goes through, while he is performing the acts delegated to him. In this case, the clerk was an agent of Mr Houston and so he is liable for the risk the clerk incurred, that is, the breach of contract, while delivering the information Mr Houston has asked for.

ISSUES

• Whether or not Mr Houston acted within the scope of his authority in obtaining the details of the plaintiff company?
• Whether or not Mr Strong is liable for the wrongful act committed by Mr Houston?

[Liability of other partners/firm for wrongful acts of a partner- One partner bribed the clerk of a competing firm to obtain information relating to contracts]

JUDGEMENT 

COLLINS, M.R. – The decision of the learned judge in this case was, in my opinion, right. The defendant Strong appears to have been a sleeping partner in a firm consisting of himself and the defendant Houston, or, at any rate, he delegated the transaction of the whole of the firm’s business to Houston. The jury have found that it was in the course of the business of the firm to obtain by legitimate means information in regard to contracts made or tendered for with brewers and with buyers of grains by competing firm What Houston did for the purpose of obtaining information which, according to the finding of the jury, it was within the scope of his authority to obtain by legitimate means, was to bribe the clerk of the plaintiff, who was a competitor in business, to give him access to documents belonging to the plaintiff; indeed, it would appear that he actually had possession of one of the plaintiff’s books for a time. It was argued for the defendants that this action by Houston was so completely outside the scope of the authority given to him that the defendants’ firm cannot be responsible for it in an action brought against them by the plaintiff for damages thereby occasioned to him. The defendants’ counsel have endeavoured to frame a definition with regard to what is and what is not within the scope of an agent’s authority so as to render his principal liable. They suggested that, where the end sought to be obtained by the agent is in itself illegal, and the means employed to accomplish it are illegal, it cannot be said that the action of the agent is within the scope of the general authority given to him to conduct a business, but that it is otherwise where the end and the means employed are legal, or where the end is legal or illegal. Trying this case by the test so suggested, was the end to be obtained here in itself illegal? The defendants’ counsel say that it was, but it does not appear to me to be so. According to the finding of the jury it was part of the defendants’ business to obtain information as to the contracts and tenders of competitors in business, and, the more secret these matters were, the greater was the value of that information to the defendants’ firm. The jury have in effect found that it was within the scope of the authority given to Houston to obtain such information by legitimate means, and I do not see that there was anything illegal in obtaining it. It is too well established by the authorities to be now disputed that a principal may be liable for the fraud or other illegal act committed by his agent within the general scope of the authority given to him, and even the fact that the act of the agent is criminal does not necessarily take it out of the scope of his authority. If the act done by the agent is within the general scope of the authority given to him, it matters not for the present purpose that it was directly contrary to the instructions of his principal, or even that it may have been an offence against society itself. The test is that which is applied to this case by the learned judge. Was it within the scope of the authority given to Houston to obtain this information by legitimate means? If so, it was within the scope of his authority for the present purpose to obtain it by illegitimate means, and the defendants are liable. That is the law as expressed in the Partnership Act, 1890, and as laid down by decisions previous to that Act, in which it has been held that a principal is liable for the fraud or other wrongful act of his agent if committed within the scope of his employment. This doctrine does not appear to rest upon the notion of the principal’s holding out the agent as having authority. The grounds upon which it seems to rest, as explained in cases such as Barwick v. English Joint Stock Bank [(1867) L.R. 2 Ex. 259], appear to be that the principal is the person who has selected the agent, and must therefore be taken to have had better means of knowing what sort of a person he was than those with whom the agent deals on behalf of his principal; and that, the principal having delegated the performance of a certain class of acts to the agent, it is not unjust that he, being the person who has appointed the agent, and who will have the benefit of his efforts if successful, should bear the risk of his exceeding his authority in matters incidental to the doing of the acts the performance of which has been delegated to him. For these reasons I think this application must be dismissed.

METHEW, J. – I agree. A little confusion has been introduced into this case by the reference made to the criminal law. It is not suggested that Houston’s partner would be liable determinally; the question is only one of civil liability. The rule of law applicable is perfectly plain. The question is whether the action of Houston was within the scope of his authority for the purpose of making the firm liable. I think the jury were entirely warranted in finding that Houston was authorized to obtain information as to the contracts and tenders made by competing firms by legitimate means. He did obtain such information by illegitimate means. It being within the scope of his authority to procure the information, it is immaterial for the present purpose whether the acts which he committed in order to procure it were fraudulent or even criminal or not, and his partner is responsible for those acts.

• The Court of Appeal upheld the order of the trial court and said that both the partners of the defendant company, Mr Houston and Mr Strong, are guilty of inducing breach of contract, even though it was committed by only one of them.

REFERENCES

https://lexpeeps.in

This Article is written by Vaibhav Vishwakarma of swami Vivekananda University Sagar, 10th semester Intern at Legal Vidhiya.

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