Tarnowski v. Resop
Citation and Court
Tarnowski v. Resop, 51 N.W.2d 801 (Minn. 1952)
Facts
Tarnowski hired Resop as his agent to investigate and negotiate the purchase of a coin-operated machine business. Resop secretly received a 2,000 secret profit.
Issue
May a principal recover an agent’s secret profits from a transaction even after the principal has already recovered his actual losses through rescission?
Holding
Yes. The Minnesota Supreme Court held that Tarnowski was entitled to recover both his actual losses (through rescission) and the secret profit Resop received, as these are independent and cumulative remedies.
Rule / Doctrine
An agent owes a fiduciary duty of loyalty to the principal, which includes the duty to account for and disgorge all secret profits received in connection with the agency relationship. The principal’s right to disgorgement of secret profits exists independently of any actual harm suffered. Even if the principal recovers full compensation for losses through rescission or other remedies, the agent must still disgorge all unauthorized gains — the agent should not be permitted to profit from a breach of fiduciary duty.
Significance
Tarnowski is a foundational agency law case establishing that fiduciary disgorgement is a separate remedy from compensatory damages. The case illustrates that the purpose of disgorgement is not solely compensatory but also deterrent and prophylactic: agents must not profit from disloyalty regardless of whether the principal is made whole. This principle carries through to corporate law, where officers and directors face similar disgorgement obligations for self-interested transactions.