Also known as: duty of loyalty · loyalty duty · fiduciary duty of loyalty
Written by attorneys · grounded in primary & secondary sources — see below
A fiduciary obligation requiring a trustee, partner, member, or agent to act solely in the interests of the beneficiary or entity without self-dealing or conflicts of interest. The obligation includes accounting for any property, profit, or benefit derived from the relationship and refraining from competing or dealing adversely with the principal.
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Diego Duarte, a member of Duarte Shipping, an LLC, arranged for the company to lease warehouse space from a firm he secretly owned. He collected rental payments that exceeded market rates and deposited the excess into his personal account. The other members discovered the arrangement and demanded that Duarte account for the overpayments as profits belonging to the LLC.
Devon Drake and Darius Dixon formed a limited partnership to operate Desert Oil. Their agreement purported to eliminate any duty of loyalty so that Drake could pursue separate oil leases without disclosure. When Dixon learned of the side deals, he challenged the waiver clause as unenforceable under the statute.
Danielle Dixon and Dolores Diaz formed a general partnership to run Duffy Construction. Their written agreement stated that neither partner would owe any duty of loyalty. When Diaz discovered that Dixon had taken a construction contract for herself, she sued, arguing the waiver was invalid.
A criminal defendant asked his lawyer to present false alibi testimony at trial. The lawyer refused, warned the client that perjury would be disclosed to the court if attempted, and prepared to withdraw. The defendant later claimed ineffective assistance based on disloyalty.
Darrell Duncan, the general partner of a limited partnership developing Dakota Industries projects, awarded a subcontract to a company he controlled at an inflated price. The limited partners sued, claiming Duncan failed to account for the profit derived from the transaction.
Diego Duarte and Devon Drake operated a partnership that owned several retail sites. Duarte proposed leasing one site to his own corporation at below-market rent. After full disclosure of all terms and profits, both partners voted to approve the lease.
Uniform acts prohibit partnership or LLC agreements from altering or eliminating the duty of loyalty except in narrowly defined circumstances such as ratification after full disclosure. Any attempt to waive the duty outright is unenforceable.
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All partners must authorize or ratify the transaction after receiving full disclosure of every material fact. Partial or incomplete disclosure prevents valid ratification.
…or his attorneys. Trial counsel for Reis urges that personal "aggrandizement” is prerequisite to a finding of a breach of duty of loyalty. But Reis’ aggrandizement or self-interest, weighty enough to cause him in these transactions to favor the corporation of which he was a director, was palpable enough. He himself wrote to…
…such information to the other party as will assist in having the agreement upheld, as long as he or she does not violate the duty of loyalty
…property into the trust. We noted in Kurrelmeyer I that the power of attorney made wife an agent of decedent and that a “fiduciary duty of loyalty
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No. Counsel's duty of loyalty does not extend to assisting a client in committing perjury. The lawyer must first attempt to dissuade the client and may disclose the perjury if necessary.
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A member must account to the company and hold as trustee any property, profit, or benefit derived in the conduct of the company's activities, from use of company property, or from appropriation of a company opportunity.
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Yes. The duty of loyalty of a general partner includes the obligation to account for any property, profit, or benefit derived in the conduct or winding up of the partnership's activities.
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