Story Case

Warren Lincoln, an insurance broker, appointed Simon Phillips his agent to solicit insurance business in the town of Springfield. Phillips agreed to take as compensation one per cent of the receipts of the business. Either party had the right to terminate the contract on five days' notice. Phillips worked for six months, and was on the point of closing two big contracts when Lincoln revoked the agency, and closed the contracts himself ten days later. Phillips brought suit for commission on these contracts. Lincoln defended on the ground that the revocation was according to the original agreement. Is this a good defense?

Ruling Court Case. Warren Mfg. Company Vs. Holbrook, Volume 118 New York Reports, Page 586

The Warren Manufacturing Company produced a certain roofing material. The company engaged Hol-brook to solicit contracts, in which this roofing material might he used. It was further agreed that Holbrook should have the right to do the work and pay the company an agreed price for the material.

Pursuant to the terms of this contract, Holbrook, with the assistance of the company, procured a contract with a railroad company, which would furnish a great deal of work. Holbrook immediately set about getting ready to do the work, when he was discharged by the company, who did the rest of the work and appropriated the profits.

In resisting the claim of Holbrook the company contended that they had reserved the right to discharge him at pleasure.

Justice Parker delivered the opinion.

Where a principal reserves the right to discharge at pleasure, he may undoubtedly do so, provided he does it in good faith. Here it was a question of fact whether it was done in good faith. The man was discharged soon after getting a lucrative contract, the profits from which went to the company. The Court said in part: "It was also urged in support of the motion for judgment, that by the terms of the agency the plaintiff was at liberty to terminate it at any time. That, therefore, the plaintiff did but exercise a right reserved of which the defendant cannot be heard to complain. "We cannot assent to that proposition in the breadth contended for it. The right to terminate the agency had indeed only one limitation, but it had one. The time of its exercise was subject to the ordinary requirements of good faith. When the compensation of an agent is depending upon the success of his efforts in procuring a contract for his principal and his subsequent performance of the work, the principal will not be permitted to stimulate his efforts with the promise of reward, and then, when the contract is obtained and the compensation assured after construction, terminate the agency for the sole purpose of securing to himself the agent's profits. At any time before there was a reasonable assurance that the contract would be obtained, the plaintiff might have terminated the agency."

Ruling Law. Story Case Answer

When an agent is engaged for no definite length of time, the principal may revoke his authority at any time, and the agent is entitled only to the services which he has already performed. If the agent's right to compensation depends upon his successful transaction of a given work, even though his agency is unlimited in time, the principal may not discharge him unless it is done in perfect good faith. There is an implied agreement to this effect between them. If an agent is engaged for a certain period, and is wrongfully discharged before the expiration of the period, he is entitled to the reasonable value of the services performed and damages for not being permitted to finish out his contract.

In the Story Case, the defense set up by Lincoln is not good, and Phillips would be entitled to recover the commissions for the contracts closed by Lincoln, and which he was about to close himself.