American States Public Service Co. v. Rath

SHENK, J. Appeal from a judgment for the plaintiff. The plaintiff sued to recover sums alleged to have [671]been retained by the defendants as secret profits in transactions in which it was alleged the defendants were the agents of the plaintiff. The complaint was in two counts. In the first count it was alleged that the defendants, as agents of the plaintiff, received the sum of $675,000 for the purpose of purchasing the issued and outstanding stock of Southern California Utilities, Inc., for the plaintiff’s account, and that in fact but $500,000 was paid for said property; that the defendants retained the difference of $175,000 for their own account, which sum was due and owing to the plaintiff and remained unpaid. In the second count the plaintiff alleged a conspiracy between the defendants Rath and Gillelen to defraud the plaintiff of said sum of $175,000. The plaintiff prayed judgment for the sum of $175,000.

Upon the trial it appeared that Rath came to southern California in 1928 for the purpose of negotiating for the purchase of public utilities for his principal, the plaintiff. Rath met the defendant Gillelen who introduced him to a Mr. Nicholson, the owner of Southern California Utilities, Inc. In the final negotiations for the purchase of the stock from Mr. Nicholson by the plaintiff, two transactions were consummated: An agreement between Gillelen and Rath that the latter’s principal would pay $650,000 for the utility, and a separate agreement between Gillelen and Nicholson that Nicholson would accept $500,000 as the full purchase price. The plaintiff furnished the sum of $650,000 as the purchase price, which was paid to Gillelen. Gillelen paid $500,000 to Nicholson, and the plaintiff became the owner of the utility. In addition, on Rath’s representation that Gillelen was the “agent” in the transaction and at Rath’s request, the plaintiff paid to Rath $25,000 to be paid as a commission to Gillelen. The evidence amply supports the conclusion of the jury that that sum was retained by Rath and that evidence was manufactured by the defendants to create the appearance that the sum was paid to Gillelen.

Upon disclosure of the facts at the trial it was questioned whether the plaintiff would be entitled to recover both sums, i. e., the sum of $150,000 “secret profit”, and the sum of $25,000 commission. It was argued that if Gillelen was an independent broker in the transaction and made a profit he was entitled to retain it, in which event the plaintiff could recover only the sum of $25,000 paid as a “commission”; [672]