Also known as: fiduciary obligations · fiduciary duty · fiduciary duties
Written by attorneys · grounded in primary & secondary sources — see below
A duty of loyalty and care owed by a person in a position of trust and confidence to another party or entity. The duty requires the fiduciary to place the beneficiary's interests ahead of personal gain and to account for any property, profit, or benefit obtained through the relationship.
Flora Ford, a member of a member-managed LLC that develops commercial properties, purchased adjacent land in her own name and resold it to the LLC at a markup. The LLC discovered the transaction after closing. Flora must account to the company for the profit because the duty of loyalty requires her to hold as trustee any benefit derived in the conduct of the company's affairs.
Finn Fletcher, the sole general partner of a limited partnership formed to operate a chain of restaurants, used partnership funds to purchase equipment for a separate venture he owned individually. When the limited partners discovered the diversion, Finn was required to restore the amounts taken because the duty of loyalty obligates a general partner to account for benefits obtained during the conduct of partnership activities.
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Faye Fuller, a partner in a general partnership that manufactures tools, sold her own warehouse to the partnership at an inflated price without disclosing her ownership interest. After the other partners learned of the markup, the partnership recovered the secret profit because the duty of loyalty requires a partner to account for any benefit derived in the conduct of the partnership's business.
Freya Freeman, appointed personal representative of an estate that included undeveloped land, sold a parcel to herself at below-market value without court approval. Heirs who later discovered the transaction sued for damages. Freya became liable for the loss to the same extent as a trustee because the exercise of power concerning estate assets was improper and breached her fiduciary duty.
Francesca Fowler organized a new corporation to acquire and operate a chain of fitness centers. She sold her own existing centers to the corporation at a substantial profit without disclosing her ownership to all contemplated original investors. After the corporation learned of the transaction, it recovered the secret profit because promoters owe a fiduciary duty to the corporation to be formed and may not retain undisclosed profits from sales to it.
Faith Fitzgerald's law firm represented a family and their insurer in an uninsured-motorist case. After the firm obtained confidential information from one family member, that member became a defendant in related litigation. The firm was disqualified from continuing representation because prior fiduciary duties and confidential information obtained from the former client created a non-consentable conflict.
The beneficiary or entity may require the fiduciary to account for and disgorge the profit, rescind the transaction, or recover damages for any loss. Courts treat the fiduciary as holding the benefit in trust for the beneficiary.
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Yes. If the exercise of power concerning the estate is improper, the personal representative is liable to interested persons for damage or loss to the same extent as a trustee of an express trust.
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No. Prior fiduciary duties and confidential information obtained from the former client can create a non-consentable conflict that requires disqualification of the firm.
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…we noted the similar prohibitions of the common law, that “even in the absence of a written contract, an employee has a fiduciary obligation to protect confidential information obtained during the course of his employment.” As the New York courts have recognized: “It is well established, as a general proposition, that a person…