Also known as: fiduciary relationship · confidential relationship · fiduciary duty · confidential relation
Written by attorneys · grounded in primary & secondary sources — see below
A relationship of trust and confidence in which one party is obligated to act for the benefit of another and refrain from self-dealing. The relationship imposes duties of loyalty and care that prevent the trusted party from obtaining secret profits or advantages without full disclosure and consent. Breach of the relationship exposes the trusted party to liability for resulting losses or disgorgement of gains.
Freya Freeman, a member of a member-managed LLC, sold equipment she personally owned to the company at an inflated price without telling the other members. The company later discovered the markup and demanded that Freeman account for the secret profit. Because Freeman stood in a fiduciary relationship to the LLC, the court required her to disgorge the gain to the company.
Floyd Franklin, the general partner of a limited partnership, purchased land for the partnership and immediately resold a portion to it at a markup he concealed. The limited partners sued after learning of the transaction. The fiduciary relationship required Franklin to hold the secret profit in trust for the partnership.
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Francesca Fiore, a partner in a general partnership, arranged for the partnership to hire a supplier that paid her a hidden commission. The other partners discovered the arrangement during an audit. The fiduciary relationship obligated Fiore to turn the commission over to the partnership.
Farid Farahani, serving as personal representative of an estate, sold estate property to a company he controlled without court approval or disclosure to the heirs. The heirs sued for damages after learning of the self-dealing sale. The fiduciary relationship made Farahani liable for the loss to the same extent as a trustee.
Fiona Foster, the trustee who drafted the trust instrument, inserted an exculpatory clause shielding herself from liability for ordinary negligence. The settlor had no independent counsel and did not understand the clause. The fiduciary relationship rendered the clause unenforceable absent proof it was fair and adequately communicated.
Felipe Figueroa, a promoter forming a new corporation, sold his own land to the corporation at a profit without disclosing the transaction to all contemplated original investors. After the corporation sued, the court held that the fiduciary relationship required full disclosure to every person expected to participate in the initial financing.
No. The relationship arises whenever one party reposes trust and confidence in another who undertakes to act for the first party's benefit, even without a formal appointment. Courts recognize it in partnerships, LLCs, corporate promotions, estate administration, and certain criminal deception contexts.
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A breaching party must disgorge secret profits, compensate for resulting losses, or face rescission of the tainted transaction. Liability extends to the same extent as a trustee of an express trust when the relationship is that of a personal representative.
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No. A clause relieving the trusted party of liability is unenforceable if it resulted from abuse of the relationship, unless the trusted party proves the clause was fair and its terms were adequately communicated to the other party.
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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.
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…likely to be diluted or adversely affected unless those rights are considered in a suit involving those who have this kind of confidential relation to them. Coming to the merits, we are met with a wide range of questions that implicate the Due Process Clause of the Fourteenth Amendment. Overtones of some arguments suggest that…