Opinion ID: 2459188
Heading Depth: 1
Heading Rank: 2

Heading: liability of rattikin

Text: Rattikin strenuously insists that even if its agent was at fault, since the loss is primarily due to the wrongdoing of the City's own agent, the City is entitled to no recovery (or at least no more than half) because of the rule that one principal cannot recover from another principal for the fraud of the agents of both principals. This contention overlooks the fiduciary obligation which Rattikin owed to the City. Rattikin took the City's money to accomplish a purpose directed by the City. Rattikin was paid a fee for its services and for the careful handling of these funds. Rattikin therefore owed the City the duty of loyalty, the duty to make full disclosure, and the duty to exercise a high degree of care to conserve the money and pay it only to those persons entitled to receive it. Rattikin is liable for the breach of its fiduciary obligation, regardless of the fact that the City received exactly what it intended to buy. Slay v. Burnett Trust, 143 Tex. 621, 187 S.W.2d 377 (1945). Furthermore, Rattikin is liable for knowingly participating in Hall's abuse of his fiduciary obligation to the City. Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509 (1942). Rattikin next argues that the knowledge of Pippen should not be imputed to it, because if Pippen did disburse funds to Hall with knowledge that Hall was to convert them, Pippen was then acting adversely to and in fraud of the principal, Rattikin. While it was not to the interest of Rattikin for Pippen to pay out the funds under those circumstances, the same could usually be said where an agent is guilty of conscious default. It does not necessarily follow that the principal is absolved of liability. Rattikin has not undertaken to prove Pippen's motivation as fraudulent collusion between Pippen and Hall, though this would be Rattikin's burden. Steele v. Butler, 227 S.W. 506 (Tex.Civ.App., 1921, no writ). But irrespective of the interest of Pippen, his acts in issuing the checks to Hall were done as vice-president of the defendant corporation. Pippen was completely in charge of these transactions; he prepared the papers and conducted the closings as the sole representative of Rattikin. Rattikin is thus bound by constructive notice of every material fact involved in the transaction and known to Pippen. Wichita Royalty Co. v. City National Bank of Wichita Falls, 127 Tex. 158, 89 S.W.2d 394, 93 S.W.2d 393 (1935); Wellington Oil Co. v. Maffi, 136 Tex. 201, 150 S.W.2d 60 (1941); Irvine v. Grady, 85 Tex. 120, 19 S.W. 1028 (1892); U. S. F. & G. v. San Diego Bank, 155 S.W.2d 411 (Tex.Civ.App. 1941, error ref'd w. o. m.). The emphasis here should be laid on the fiduciary obligation which Rattikin owed to the City. Pippen's failure to disclose the misapplication of these funds resulted in a violation of Rattikin's duty to the City. Under those circumstances Rattikin is bound by the knowledge of Pippen even if Pippen is considered as having acted adversely to Rattikin. Restatement, Second, Agency § 282(2) (a) (see illustrations 6 and 8). We therefore conclude that the trial court erred in entering judgment in favor of Pippen and Rattikin. Under the evidence and the findings of the jury, the City was entitled to judgment against them for those funds converted by Hall with the knowledge of Pippen.