Lum v. McEwen

Minnesota Supreme Court · Corporations

CorporationsAgencyPublic policyFiduciary dutyagent loyaltyprincipal-agentbribepublic policy

Facts

McEwen was superintendent and general manager of the Northern Mill Company, which was considering remodeling its mill and extending its logging railroad. The plaintiff executed a note promising to pay Clark $5,000 if, within nine months, the company extended its railroad to Brainerd and built a sawmill there, in consideration of McEwen's agreement to use his influence and authority to secure that result. The note was actually for McEwen's benefit but was made payable to Clark to conceal McEwen's connection to the arrangement. The plaintiff sought cancellation of the note.

Issue

Whether a note given to compensate a corporate agent for using his influence and authority to induce his principal to adopt a particular business policy is enforceable, or whether it is void as against public policy.

Rule

An agent owes his principal loyalty, integrity, and the exercise of his best judgment uninfluenced by antagonistic personal interests. Therefore, a contract under which an agent receives personal payment for using his influence or authority to procure action by the principal in a desired manner is void as against public policy, regardless of whether the principal suffered actual injury or whether the recommended action was beneficial.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Harbor Aggregates, a Minnesota corporation, is deciding whether to move its gravel-processing yard from St. Cloud to Duluth. Its operations director, Evan Mercer, is responsible for studying the proposal and advising the board. A Duluth property owner promises Evan $40,000 if the company approves the move within six months.

If the property owner later sues to enforce the promise after the company approves the relocation, what is the strongest argument against enforcement?

Explanation. The majority rule is that an agent owes loyalty, integrity, and best judgment to the principal, free from antagonistic personal interests. A contract paying the agent personally to influence or procure corporate action in a desired direction is treated as a bribe and is void as against public policy. The defect is the conflicting incentive itself, not lack of authority or proof of bad results. (Derived from Lum v. McEwen (n.d.).)