General Automotive Mfg. Co. v. Singer

Wisconsin Supreme Court · Corporations

CorporationsFiduciary DutyAgencyCorporate Competitionfiduciary dutyduty of loyaltysecret profitsagent competition

Facts

Singer was employed as the plaintiff's general manager under a contract that continued on the same terms after its fixed term expired, including a duty to devote his entire time and attention to the company and not engage in another permanent business. While still employed, Singer received customer orders for parts, decided some were unsuitable for the company, failed to disclose those orders or circumstances to the company, and instead placed the work with other machine shops for his own account. He later operated his own manufacturer's agent and consulting business, still without informing the plaintiff, and earned profits from brokering orders in the same line of business. The trial court found these activities were secret, directly competitive, and produced $64,088.08 in profits.

Issue

Whether a corporation's general manager breaches his fiduciary duty and duty of loyalty by secretly diverting customer orders to his own sideline business, even when he believes the corporation cannot or should not fill those orders itself. Also, whether any recovery must be reduced by a stipulation granting him a credit equal to 3% of gross sales.

Rule

A corporate agent or general manager owes the corporation the utmost good faith and loyalty and must act for the corporation's furtherance and advancement, not adversely to its interests or to serve a private interest of his own. When such an agent receives orders within the sphere of the corporation's business, he must disclose all material facts to the corporation rather than treat the orders as his own; if he secretly competes and earns undisclosed profits, he must account to the corporation for those profits. The corporate opportunity doctrine is not the governing framework where the case concerns operation of a competing business and retention of secret profits rather than acquisition of property in opposition to the corporation.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

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

Lena Ortiz is the operations manager of River Forge Components, a small parts fabricator in Milwaukee. While still employed full-time, she receives customer requests for precision brackets that she thinks River Forge cannot make profitably, quietly sends those jobs to outside shops in Ohio, and keeps the spread between the customer price and the shop price.

If River Forge sues Lena for the profits she kept, which is the strongest argument for River Forge under the governing rule?

Explanation. A managerial agent owes utmost good faith and loyalty and may not secretly compete by diverting orders within the sphere of the corporation’s business for personal gain. Even if the manager believes the company cannot or should not do the work, the duty is to disclose the orders and relevant facts so the corporation can decide how to respond. Because Lena secretly retained profits from such orders, she must account for them.