Kinzbach Tool Co. v. Corbett-Wallace Corp.
160 S.W.2d 509 · Texas Supreme Court · 1942
Facts
Kinzbach Tool Company and The Corbett-Wallace Corporation, both in the oil field tool business in Houston, Texas, were negotiating the sale of Corbett's 'whipstock' contract to Kinzbach. Corbett's president secretly contacted G. E. Turner, a trusted Kinzbach employee, offering him a commission if the sale occurred. Corbett instructed Turner not to disclose the potential $20,000 selling price or the commission to his employer. Despite Kinzbach instructing Turner to ascertain Corbett's price, Turner concealed the commission agreement and the lower price from Kinzbach. Kinzbach subsequently purchased the whipstock contract from Corbett for $25,000, unaware of Turner's secret arrangement. After the deal closed, Kinzbach discovered Turner was to receive a $5,000 commission from Corbett and discharged him. Corbett paid Turner $500 and agreed to pay the remaining $4,500 from future installments, leading to Kinzbach's attempt to deduct the commission from payments.
Procedural history
Kinzbach sued Corbett and Turner, and Corbett sued Kinzbach, with the cases consolidated. The district court ruled partially for Kinzbach, but the Court of Civil Appeals reversed, finding Corbett's obligation to Turner valid and awarding Corbett the full contract amount. This Court granted Kinzbach's writ of error to review the Court of Civil Appeals' decision.
Issue
Did Turner, as a trusted employee of Kinzbach, breach a fiduciary duty by secretly agreeing to a commission from Corbett and failing to disclose material information during the contract negotiations? If so, what are the consequences for Kinzbach, Turner, and Corbett, particularly regarding the secret commission and the contract price?
Holding
Yes, Turner breached his fiduciary duty to Kinzbach by accepting a secret commission and failing to disclose material facts. The court held that Kinzbach was entitled to deduct the $5,000 secret commission from the purchase price, and Corbett's obligation to Turner for the remaining commission was cancelled.
Rule
A fiduciary, such as a trusted employee, owes a duty of open dealing and full disclosure to their principal, including disclosing any adverse interest or secret commissions. Failure to make such disclosures constitutes a breach of trust, and the fiduciary must account to their principal for all secret gains, regardless of whether the principal suffered an affirmative loss. A third party who knowingly participates in a fiduciary's breach of duty becomes a joint tort-feasor and is liable.
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