Also known as: duties of loyalty · fiduciary duty of loyalty
Written by attorneys · grounded in primary & secondary sources — see below
A fiduciary obligation requiring a person in a position of trust to act solely in the interests of the beneficiary or principal. The obligation prohibits self-dealing and requires the fiduciary to account for any profits derived from the relationship or from opportunities belonging to the beneficiary.
Demetrius Douglas, a member of a member-managed LLC, learns of a profitable supply contract while managing company affairs. He signs the contract through his separate entity and keeps the profits. The company sues, and the court requires Douglas to account for the benefit because the opportunity arose in the conduct of the LLC's business.
Darrell Duncan and Deborah Dunn form a limited partnership. Their agreement tries to eliminate the general partner's duty of loyalty regarding self-dealing transactions. A court holds the provision ineffective because the statute forbids altering or eliminating the duty except in narrowly defined circumstances.
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Diana Delgado and Derek Douglas form a general partnership. Their agreement purports to remove the duty of loyalty for all partners. The court refuses to enforce the clause because the statute prohibits altering or eliminating the duty except as otherwise provided.
Danielle Dixon's defense lawyer learns the client intends to commit perjury at trial. The lawyer refuses to present the false testimony and informs the court after attempting to dissuade the client. The client claims ineffective assistance, but the court finds no violation of the duty of loyalty because counsel need not assist in committing perjury.
Dillon Energy, a member-managed LLC, has a member who awards a construction contract to his spouse's firm without disclosure or bids. The other member sues for breach. The court finds the transaction voidable because the duty of loyalty requires accounting for benefits derived from self-interested dealings.
Desert Oil, a limited partnership, has a general partner who uses partnership assets to secure a personal side deal. The limited partners sue. The court orders the general partner to hold the profits in trust for the partnership because the duty of loyalty requires accounting for benefits derived from the partnership's affairs.
No. Uniform acts applicable to partnerships and limited partnerships expressly prohibit altering or eliminating the duty of loyalty except in limited circumstances not applicable to wholesale elimination.
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The principal or partnership may recover the profits received by the breaching party, impose a constructive trust, and deny compensation for services connected to the breach.
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No. Court approval does not cure a breach when the trustee fails to disclose material connections or when the transaction is not fair to the beneficiaries.
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Ratification is effective only after full disclosure of all material facts to the other partners or members. Partial or misleading disclosure prevents valid ratification.
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…theory, a fiduciary's undisclosed, self-serving use of a principal's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of that information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or…