Also known as: duties to deal · refusal to deal
Written by attorneys · grounded in primary & secondary sources — see below
A fiduciary obligation requiring an agent or director who acts on their own account in a transaction connected with the agency or directorship to deal fairly with the principal or corporation and to disclose all facts the agent or director knows or should know would reasonably affect the principal's or corporation's judgment.
Dustin Donovan served as procurement agent for Dillon Energy. Without disclosure, Donovan formed his own reseller and routed Dillon's purchases through it at a markup. Dillon Energy later discovered the ownership and sued. The court held Donovan liable because he failed to reveal his personal stake and the availability of lower direct prices, violating the duty to deal fairly.
Daniel Diaz, a director of Delta Dynamics, arranged a contract that funneled an unauthorized financial benefit to himself through a controlled entity. Shareholders sued after discovering the arrangement. The court found Diaz breached the duty because the undisclosed benefit constituted a failure to deal fairly with the corporation and its shareholders.
Select any source to read its text and confirm it supports the definition.
The agent must disclose all facts known or that should be known that would reasonably affect the principal's judgment, including ownership interests and secret profits, unless the principal has manifested knowledge or indifference.
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No. A general remark that the agent sometimes acts in a dual capacity fails to reveal specific ownership, markups, or conflicts that would affect the principal's judgment in the actual transaction.
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Receipt of a financial benefit to which the director was not entitled breaches the duty to deal fairly and exposes the director to liability under the applicable standard for breach of duty to the corporation and shareholders.
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No. Industry experience or general awareness of possible conflicts does not relieve the agent of the obligation to disclose specific material facts that would reasonably affect judgment.
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