Also known as: undivided loyalty · undiluted loyalty · fiduciary duty of loyalty
Written by attorneys · grounded in primary & secondary sources — see below
A fiduciary obligation requiring a trustee, partner, member, or similar actor to administer the trust, partnership, or company solely in the interests of the beneficiaries or the entity. The obligation bars self-dealing and conflicted transactions unless an exception such as court approval or informed consent applies.
Demetrius Douglas, a member of a member-managed LLC that develops commercial property, learns of an adjacent parcel the company could acquire at a favorable price. He buys it personally, resells it to the LLC at a markup, and pockets the gain. The other members sue, alleging breach of the duty of undivided and undiluted loyalty. The court orders Douglas to disgorge the profit to the company.
Daphne Doyle, general partner of a limited partnership formed to operate a chain of fitness centers, causes the partnership to lease equipment from a company she controls at above-market rates. Limited partners discover the arrangement and demand an accounting. The court requires Doyle to restore the excess payments to the partnership.
Select any source to read its text and confirm it supports the definition.
Destiny Davis, a partner in a general partnership that manufactures specialty tools, receives an offer to license a new design to a third party. She accepts the license personally rather than offering it to the partnership. Her partners sue for the profits. The court holds Davis must account for and turn over the license proceeds.
Dorothy Daniels, trustee of a trust holding income-producing assets for both an income beneficiary and remainder beneficiaries, elects unitrust treatment that increases her own remainder interest. The income beneficiary objects. The court upholds the election because the statute permits it and the common-law prohibition on self-dealing does not bar the choice here.
Darrell Duncan, joint venturer with another in a hotel lease, obtains a renewal in his own name after the original term expires. His co-venturer demands that the renewal be held for the venture. The court imposes a constructive trust, requiring Duncan to share the renewed lease with his co-venturer.
The duty bars transactions affected by a conflict between fiduciary and personal interests. A presumption of conflict arises when the trustee deals with a spouse or other close relatives, including siblings. The transaction is then voidable unless an exception such as court approval or informed beneficiary consent applies.
Supporting sources
Yes. An undisclosed conflict and self-dealing constitute a breach sufficient for removal. The breach itself triggers equitable remedies, including removal, to protect the trust and beneficiaries from ongoing divided loyalty.
Supporting sources
The duty applies to partners, general partners in limited partnerships, and members in member-managed LLCs. Each must account to the entity for any profit or benefit derived in the conduct of its business or affairs.
Supporting sources
No. The duty of undivided and undiluted loyalty prohibits a lawyer from representing one client against another in the same litigation or arbitration. The rule bars such direct adversity even if the clients might otherwise consent.
Supporting sources
…and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the “disintegrating erosion” of particular exceptions ( Wendt v. Fischer , 243 N. Y. 439, 444). Only thus has the level of conduct for fiduciaries been kept at a level higher than that…