Hamlyn v. Houston and Co. (1903)

Section 26 makes the firm liable for loss or injury caused by the wrongful act or omission of a partner acting in the ordinary course of the business of the firm, or with the authority of his partners. The words look easy until the wrongful act is one no firm would ever authorise. No partnership deed authorises bribery. Does that put the act outside the ordinary course of business and free the innocent partner?

Hamlyn v. Houston answers no, and it supplies the test that makes the answer workable: look not at the wrongful means but at the end the partner was authorised to pursue. If it was within the scope of his authority to obtain the thing by legitimate means, then for the purpose of the firm's civil liability it was within the scope of his authority to obtain it by illegitimate means.

The defendants Houston and Strong were partners in a firm dealing in grains. Strong appears to have been a sleeping partner, or at any rate he had delegated the transaction of the whole of the firm's business to Houston.

The jury found that it was in the course of the business of the firm to obtain, by legitimate means, information about contracts made or tendered for with brewers and with buyers of grains by competing firms. The more secret those matters were, the greater the value of the information to the firm.

To obtain that information, Houston bribed the clerk of the plaintiff, Hamlyn, a competitor in business, to give him access to documents belonging to the plaintiff. It appears that he actually had possession of one of the plaintiff's books for a time.

The plaintiff sued the firm for damages for the loss occasioned to him. The trial judge held the firm liable, and the defendants applied to set that aside.

Is a firm civilly liable for a wrongful and even criminal act of one partner, where the object of the act was one the partner was authorised to pursue by lawful means, but the means he used were unlawful?

For the defendants. Houston's action was so completely outside the scope of the authority given to him that the firm cannot be responsible. Counsel offered a definition: where the end sought by the agent is itself illegal and the means are illegal, the action is not within the scope of the general authority to conduct a business; it is otherwise where the end and the means are legal, or where only one of them is illegal.

The application was dismissed. The firm was liable.

Collins M.R. tested the case by the defendants' own suggested standard and found that it did not help them. Was the end to be obtained here in itself illegal? It was not. On the jury's finding, it was part of the defendants' business to obtain information as to the contracts and tenders of competitors, and there was nothing illegal in obtaining it. The jury had in effect found that it was within the scope of the authority given to Houston to obtain such information by legitimate means.

He then stated the rule. It is too well established by the authorities to be 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 this 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 therefore the one the trial judge applied: 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.

The two grounds of the doctrine. Collins M.R. was careful to say that this doctrine does not rest on the notion of the principal holding the agent out as having authority. The grounds are these. First, 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 his behalf. Second, 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 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 delegated to him.

Mathew J. agreed, and removed a confusion that had crept in from the reference to the criminal law. It was not suggested that Houston's partner would be liable criminally; the question was only one of civil liability. The jury were entirely warranted in finding that Houston was authorised to obtain information about competing firms' contracts and tenders by legitimate means; he obtained it by illegitimate means; and it being within the scope of his authority to procure the information, it is immaterial whether the acts he committed in order to procure it were fraudulent or even criminal. His partner is responsible for those acts.

A firm is civilly liable for the wrongful, fraudulent or even criminal act of a partner where the object of the act was one it was within the scope of his authority to pursue by lawful means. It is immaterial that the act was contrary to instructions or was an offence, and the liability does not depend on holding out. The reasons are that the principal chose the agent and that he takes the benefit of the agent's efforts, and so should bear the risk of excesses incidental to what he delegated.

Section 26 requires that the partner should have been acting in the ordinary course of the business of the firm, or with the authority of his partners, and makes the firm liable to the same extent as the partner. Hamlyn is authority on how the first limb is read. The words are not confined to acts a firm would authorise; they are satisfied where the wrong was done in the pursuit of an object within the ordinary course of the business.

Two neighbouring points are worth carrying with it.

The sleeping partner is caught. Strong took no part; he had delegated the whole business to Houston. That did not save him, and s. 25, under which every partner is liable jointly and also severally for all acts of the firm, produces the same result in India. Compare Cox v. Hickman, where Lord Cranworth said the principle applies not only to persons acting openly as partners but to secret or dormant partners.

Civil liability, not criminal. Mathew J.'s point is the one to put in an answer where the wrong is also an offence: the firm answers in damages; the criminal liability stays with the partner who committed the offence.

Section 26 does not make the firm liable for every wrong a partner commits during business hours. If the object pursued had itself been outside the ordinary course of the firm's business — a purely private grudge, or a venture of the partner's own — the firm would not be liable, because the first limb of s. 26 would fail. That is the line to draw when the problem question puts a partner's personal vendetta into a partnership setting.

Compare s. 27, which deals with the different wrong of misapplication of money or property received from a third party, and which fixes the firm either where the partner received within his apparent authority, or where the firm received and the misapplication occurred while the property was in the firm's custody. Rhodes v. Moules is the case on that section.