Also known as:fiduciary duty · fiduciary's duties · fiduciary obligation
Written by attorneys · grounded in primary & secondary sources — see below
Obligations of loyalty and care imposed on a person who occupies a position of trust with respect to another. The duties require the fiduciary to place the beneficiary's interests first, to refrain from self-dealing, and to account for any property, profit, or benefit derived from the relationship.
Sources & Authorities
How it applies
Common Examples
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LLC Member Diverts Opportunity
Fernando Farrell, a member of Falcon Dynamics, an LLC managed by its members, learned of a profitable supply contract during company business. He formed a separate entity to take the contract for himself and retained the resulting profit without informing the other members. The company may compel Farrell to account for and surrender the profit obtained through the opportunity.
General Partner Takes Secret Profit
Forrest Falconer, the general partner of Ferrum Metals LP, purchased equipment at a discount during partnership operations and resold it to the partnership at full price while concealing his markup. The limited partnership may require Falconer to disgorge the undisclosed profit realized from the transaction.
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Partner Conceals Side Deal
Fabian Flynn, a partner in Freeman Engineering, negotiated a subcontract for the partnership but secretly arranged for his own consulting firm to receive a referral fee from the subcontractor. The partnership may recover the fee from Flynn as a benefit derived in the conduct of partnership business.
Personal Representative Self-Deals
Fatima Flores, appointed personal representative of an estate, sold estate real property to a corporation in which she held a controlling interest at below-market value. Interested persons may recover damages from Flores for loss caused by the improper exercise of her power over estate assets.
Promoter Retains Undisclosed Gain
Fumiko Fujimoto, promoter of Foxfire Biotech, sold laboratory equipment she personally owned to the corporation at an inflated price. She disclosed the transaction only to the lead investor and omitted other contemplated initial shareholders. The corporation may rescind the sale or recover the secret profit from Fujimoto.
Law Firm Faces Conflict From Prior Client
Farah Fox represented a family and its insurer in an auto-accident matter. After the former client became a defendant in related uninsured-motorist litigation, the firm continued the joint representation. The court may disqualify the firm because of the continuing fiduciary obligations and confidential information obtained from the former client.
Common questions
Frequently Asked
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What remedies are available when a fiduciary breaches the duty of loyalty by retaining a secret profit?+
The beneficiary or entity may require the fiduciary to account for and surrender the profit, rescind the transaction, or recover damages for any loss. Courts treat the fiduciary as holding the benefit in trust for the protected party.
Supporting sources
Does a personal representative who improperly exercises power over estate assets face the same liability as a trustee?+
Yes. The personal representative is liable to interested persons for damage or loss resulting from breach of fiduciary duty to the same extent as a trustee of an express trust.
Supporting sources
Must disclosure of a promoter's self-dealing transaction reach every contemplated initial investor?+
Yes. Disclosure and ratification must extend to all persons contemplated as part of the original financing scheme. Disclosure to only some initial subscribers is insufficient to avoid liability for secret profits.
Supporting sources
Can prior fiduciary duties and confidential information from a former client require disqualification of a law firm in later litigation?+
Yes. Joint representation that creates non-consentable conflicts when a former client becomes a defendant may lead to disqualification because of the continuing fiduciary duties and confidential information obtained from the former client.
Supporting sources
433 U.S. 186 (1977)Conflict of Laws
…and former officers and directors of the two corporations. Heitner alleged that the individual defendants had breached their fiduciary duties by permitting the corporation to engage in certain activities that resulted in antitrust violations and other liabilities. Simultaneously with the filing of the complaint, Heitner filed a…