General Automotive Manufacturing Co. v. Singer
19 Wis. 2d 528, 120 N.W.2d 659 (1963)
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Rule of Law:
A fiduciary agent breaches the duty of loyalty by engaging in undisclosed, competitive business activities for personal profit, and must account to the principal for any profits earned from such activities, regardless of the agent's belief that the principal was incapable of pursuing the opportunities.
Facts:
- General Automotive Mfg. Co. ('Automotive') hired Albert Singer as its general manager under a contract requiring him to devote his entire time and skill to the company.
- The employment contract continued on an at-will basis after its initial term expired.
- As general manager, Singer's duties included soliciting and procuring machine-shop work for Automotive.
- While still employed, Singer established his own side business as a 'manufacturer's agent and consultant' without Automotive's knowledge.
- Singer received orders for machine parts, primarily from a customer named Husco.
- Believing Automotive could not fill these orders profitably or effectively due to equipment or price constraints, Singer did not inform Automotive of the opportunities.
- Instead, Singer secretly subcontracted the work to other machine shops, collected payment from the customers, and personally retained the profits.
- Singer's side business generated profits of $64,088.08.
Procedural Posture:
- General Automotive Mfg. Co. filed a lawsuit against its former general manager, Albert Singer, in a Wisconsin trial court.
- The trial court found that Singer had breached his employment contract and his fiduciary duty of loyalty.
- A judgment was entered in favor of Automotive, awarding damages equal to the profits Singer earned, totaling $64,088.08.
- Singer, as the appellant, appealed the judgment to the Supreme Court of Wisconsin.
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Issue:
Does a corporate general manager, acting as a fiduciary agent, breach the duty of loyalty by secretly operating a competing side business and retaining profits from business opportunities that the manager unilaterally determined the corporation could not pursue?
Opinions:
Majority - Brown, C. J.
Yes. A general manager breaches the fiduciary duty of loyalty by secretly operating a competing business for personal gain. As a fiduciary agent, Singer was bound by a duty of utmost good faith and loyalty to Automotive, which required him to act for the furtherance of Automotive's interests, not his own. Singer's side business, where he brokered the same type of machine-shop work that Automotive performed, created a direct conflict of interest. His argument that he only took orders Automotive could not handle is irrelevant; it was not his decision to make. Singer's primary obligation was to disclose all business opportunities to Automotive, allowing the company to decide whether to accept, reject, subcontract, or expand its operations to accommodate the work. By failing to disclose these opportunities and secretly profiting from them, Singer violated his duty to act solely for Automotive's benefit and must therefore account to Automotive for all profits he earned.
Analysis:
This decision reaffirms the stringent nature of an agent's fiduciary duty of loyalty, particularly for high-ranking corporate officers. The court clarifies that the duty of disclosure is paramount and an agent cannot usurp a corporate opportunity based on their personal judgment of the principal's capabilities. The ruling establishes that the principal, not the agent, has the sole discretion to evaluate and act on business opportunities within its line of business. This precedent reinforces the legal principle that any secret profits gained by an agent through competition with their principal rightfully belong to the principal.
