Kinzbach Tool Co. v. Corbett-Wallace Corp.
138 Tex. 565 · 1942
Facts
Kinzbach Tool Company (Kinzbach) and The Corbett-Wallace Corporation (Corbett), both in the oil field tool business in Houston, Texas, were involved in a transaction. In March 1937, Corbett sought to sell its sales right contract for a patented "whipstock" tool to Kinzbach. E. B. Corbett, president of Corbett, contacted G. E. Turner, a trusted employee of Kinzbach, and offered him a commission if the contract was sold to Kinzbach. Corbett informed Turner they wanted $20,000 for the contract but instructed him not to disclose this price to Kinzbach, aiming to get as much as possible. Turner, acting on Kinzbach's instructions to find out Corbett's price, never disclosed his commission arrangement or the $20,000 potential price to his employer, even though Kinzbach indicated willingness to pay up to $25,000. Kinzbach ultimately purchased the contract for $25,000. After the deal, Kinzbach discovered Turner was to receive a $5,000 commission from Corbett, leading to Turner's immediate discharge. Corbett had paid Turner $500 and agreed to pay the remaining $4,500 from future installments. When the first deferred installment was due, Kinzbach tendered a reduced amount, deducting the commission, which Corbett rejected.
Issue
Did Turner, as a trusted employee of Kinzbach, breach a fiduciary duty by secretly contracting for and accepting a commission from Corbett for facilitating the sale of the whipstock contract to Kinzbach, and is Corbett liable for participating in this breach?
Holding
Yes, Turner breached his fiduciary duty to Kinzbach, and Corbett, by knowingly participating, became a joint tort-feasor. The court reversed the lower courts' judgments and remanded, instructing that Kinzbach is entitled to a credit for the $5,000 secret commission against the purchase price, and Corbett's obligation to Turner for the commission is cancelled.
Rule
A fiduciary relationship exists when one occupies a position of peculiar confidence, requiring integrity, fidelity, fair dealing, and good faith, and includes informal relations where one party trusts and relies upon another. A fiduciary has a duty to deal openly and make full disclosure to their principal of all facts and circumstances concerning their dealings, especially any adverse interest or secret gain. Failure to disclose such information, like a secret commission from an opposing party, constitutes a breach of trust and a wrongful act. A fiduciary cannot retain any secret gain or benefit acquired in violation of duty and must account to their principal for all received, regardless of whether the principal can show 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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