Also known as: duties of fidelity · fiduciary duty of loyalty
Written by attorneys · grounded in primary & secondary sources — see below
A fiduciary obligation requiring a partner, member, or agent to act solely for the benefit of the entity or principal. The obligation includes a duty to account for and hold as trustee any property, profit, or benefit derived in the conduct or winding up of the entity's activities.
Dustin Donovan, a member of Drake Logistics, negotiates a supply contract on the company's behalf. He directs the supplier to pay a ten percent rebate into an account he controls. The company later discovers the payment. Donovan must account for and surrender the rebate to the LLC because it arose from his conduct of company business.
Diana Delgado, general partner of Desert Oil, arranges the sale of partnership equipment. She causes the buyer to wire an undisclosed bonus to her personal account. The limited partners sue. Delgado must hold the bonus in trust for the partnership because it was obtained during the conduct of partnership affairs.
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Dylan Duffy, a partner in Dominion Capital, negotiates a financing arrangement for the firm. The lender pays him a personal finder's fee that he does not disclose. The other partners demand an accounting. Duffy must turn over the fee to the partnership because it was derived in the conduct of partnership business.
The fiduciary must account for the profit and hold it as trustee for the entity. Beneficiaries may compel disgorgement of the entire amount received, even if the entity suffered no loss.
No. The duty requires disclosure and consent for each instance. Past silence or lack of a written policy does not constitute agreement to retain profits obtained through the fiduciary position.
No. The duty of fidelity prohibits secret profits regardless of whether the underlying deal was fair or profitable to the entity. The prohibition focuses on the conflict created by the undisclosed benefit.