Also known as: duties of trust and confidence · fiduciary duty
Written by attorneys · grounded in primary & secondary sources — see below
An obligation arising from a fiduciary relationship that requires one party to act solely for the benefit of another and to refrain from self-dealing or misappropriating property or information.
Demetrius Douglas, a member of a member-managed LLC, negotiated a supply contract for the company and arranged for a side payment from the vendor to himself. The company later discovered the payment. Douglas must account to the LLC for the benefit received during the conduct of its affairs.
Doris Duffy, the general partner of a limited partnership, used partnership funds to purchase property in her own name during the winding up of the partnership's affairs. The limited partners discovered the transaction. Duffy must hold the property as trustee for the partnership.
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David Dawson, a partner in a general partnership, received a commission from a third party for steering partnership business to that party. The other partners learned of the payment after the transaction closed. Dawson must account to the partnership for the commission earned in the conduct of its business.
Diana Delgado, personal representative of an estate, sold estate property to her own company without independent appraisal or court approval. Beneficiaries discovered the sale after learning the property's true value. Delgado is liable to the beneficiaries for the loss to the same extent as a trustee of an express trust.
Danielle Dixon, a promoter of a new corporation, sold her own land to the corporation at a substantial markup without disclosing the profit to all contemplated original investors. After the corporation was formed and the investors learned of the markup, the corporation recovered the secret profit.
Yes. The duty requires the fiduciary to account for and hold as trustee any profit derived from the conduct of the entity's affairs. Full disclosure and approval from those entitled to it are necessary before the fiduciary may retain the benefit.
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The exercise is improper when it involves self-dealing or a conflict of interest without independent safeguards such as appraisal or court approval. The representative is then liable for resulting loss to the same extent as a trustee of an express trust.
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Uniform acts permit modification of fiduciary duties in some circumstances, but core loyalty obligations such as the duty to account for secret profits generally cannot be eliminated entirely.
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