Also known as:trust relationships · fiduciary relationship
Written by attorneys · grounded in primary & secondary sources — see below
A relationship in which one party owes another a duty to act for the other's benefit on matters within the scope of the relationship. The duty requires loyalty, care, and avoidance of self-dealing or secret profits. Full disclosure and consent from all contemplated beneficiaries are necessary before the duty holder may retain any personal gain from transactions with the beneficiary.
Sources & Authorities· 5 primary sources
Select any source to read its text and confirm it supports the definition.
Cases
Uniform Acts
Common Law
Restatements
Dictionaries
How it applies
Common Examples
6
Promoter Secret Profit Recovery
Thaddeus Tran formed a new pharmaceutical company and arranged for it to license a key compound from a venture he secretly controlled on terms highly favorable to that venture. He disclosed the conflict only to the lead investor while planning additional equity sales to physicians who received no information. After incorporation the company sued to recover the profit. The court allowed recovery because the promoter's trust relationship required full disclosure and ratification by every person contemplated as an initial shareholder.
Therapist Confidentiality Breach
Tabitha Taylor, a psychiatrist, learned during sessions that her patient planned to harm a specific third party. Taylor disclosed the threat to the intended victim without the patient's consent. The patient sued for breach of the trust relationship created by therapy. The court held that the relationship imposed a duty to protect foreseeable victims that overrode absolute confidentiality.
Tarasoff v. Regents of the University of California551 P.2d 334, 342 (Cal. 1976)
Joint Venture Opportunity Usurpation
Tanya Tang and Tyrone Tran formed a joint venture to develop a waterfront property. Tang later acquired an adjacent parcel and a new long-term lease in her own name without informing Tran. Tran sued claiming the opportunity belonged to the venture. The court imposed liability because the trust relationship between joint venturers barred one from taking a benefit that was a graft on the original enterprise.
Tori Taylor and her family controlled a savings and loan holding company. They formed a new entity that offered to buy the publicly held shares at a low price while simultaneously selling their own shares at a premium. Minority shareholders sued. The court found a trust relationship that required the controllers to act with fairness toward the minority and to disclose all material facts.
Jones v. H. F. Ahmanson & Co.460 P.2d 464 (Cal. 1969)
Reporter Confidential Information Misuse
Tara Tran, a financial columnist, agreed with her newspaper not to reveal pre-publication information about upcoming columns. She passed the information to friends who traded on it for profit. The government prosecuted under securities fraud statutes. The court held that the employment created a trust relationship that made the unauthorized disclosure a breach of duty supporting criminal liability.
Carpenter v. United States484 U.S. 19 (1987)
Officer Inside Information Trading
True North Logistics officers learned during a board meeting that the company would miss earnings targets. One officer sold shares before the announcement and realized a gain. Shareholders sued to recover the profit. The court held that the officers' trust relationship with the corporation prohibited them from using material non-public information for personal trading advantage.
Diamond v. Oreamuno24 N.Y.2d at 497-499, 248 N.E.2d at 912-913, 301 N.Y.S.2d at 80-82
Common questions
Frequently Asked
5
When does a trust relationship arise between a promoter and a corporation to be formed?+
A trust relationship arises when a promoter negotiates transactions on behalf of a corporation that has not yet been formed. The promoter owes fiduciary duties of disclosure and loyalty to the corporation and to all persons contemplated as original investors. Partial disclosure to only some subscribers is insufficient. Ratification must come from every person who becomes an initial shareholder.
Supporting sources
Does a trust relationship exist between a developer and a homeowners association during the period the developer controls the board?+
The developer stands in a fiduciary relationship to the association while it controls the board through appointed directors. That relationship requires the developer to exercise care and loyalty, though the duties are not identical to those of a trustee. Specific protections for members are provided by statute rather than a blanket trustee standard.
Supporting sources
Why does the absence of a trust relationship prevent an embezzlement conviction when a finder later decides to keep lost property?+
Embezzlement requires that the initial custody of property arise from a trust relationship. A finder who takes custody without intent to steal and later forms that intent lacks the required entrustment. The crime is therefore not embezzlement.
Supporting sources
How does a trust relationship affect the justification for reliance in a fraudulent misrepresentation claim?+
When the speaker stands in a fiduciary or similar trust relationship with the listener, the listener is justified in relying on the speaker's opinions even though opinions are ordinarily not actionable. The relationship supplies the special reason to expect reliance that makes the opinion statement actionable as fraud.
Supporting sources
Does an agency agreement that permits multiple representations automatically eliminate fiduciary duties?+
A general disclosure that the agent represents multiple principals does not authorize the agent to use confidential information supplied by one principal to benefit another. The trust relationship still requires loyalty with respect to matters within the scope of each agency and prohibits diversion of client-specific proprietary data.
Supporting sources
cannot be developed because of collusive communication between the psychiatrist and others, treatment will be frustrated. (See, e.g., Slovenko (1973) Psychiatry and Law, p. 61; Cross,…
fiduciary relationship
to the corporation and may not exploit his position as an "insider" by appropriating to himself a business opportunity properly belonging to the corporation. If such a business opportunity…
from personally using undisclosed corporate information to their advantage, but they may not give such information to an outsider for the same improper purpose of exploiting the information…
Business Associations Agency and PartnershipAgency relationships · CreationUBEFoundational