Also known as: fiduciary duties of loyalty and fair dealing · duty of loyalty and fair dealing · duty of loyalty · duty of fair dealing · fiduciary duty
Written by attorneys · grounded in primary & secondary sources — see below
A fiduciary obligation requiring a partner, member, or agent to prioritize the interests of the partnership, company, or principal over personal gain. The obligation encompasses duties to account for any property, profit, or benefit derived from the entity's activities and to avoid self-dealing without full disclosure and consent.
Finn Fletcher, a member of Falcon Dynamics LLC, negotiated a supply contract for the company with a vendor he partially owned. He kept the vendor's side payment for himself without telling the other members. The company later discovered the payment and demanded that Finn account for it as a company asset.
Felipe Figueroa and Flagship Logistics LP agreed in their partnership document to reduce the duty of loyalty to allow certain self-interested transactions. When a dispute arose over an undisclosed side deal, the court examined whether the agreement validly altered the duty or left it intact under the statute.
Select any source to read its text and confirm it supports the definition.
Francisco Frost, a general partner in Fairview Manufacturing LP, tried to amend the agreement to eliminate loyalty obligations before pursuing a personal opportunity that competed with the partnership. The limited partners challenged the amendment, arguing the statute prevented complete elimination of the duty.
Felicia Fuentes, personal representative of an estate, sold estate property to her own company at below-market value. The beneficiaries sued, claiming the sale breached her fiduciary duty and seeking recovery of the loss under the same standard applied to trustees.
Felix Franco, promoter of a new corporation, sold his own land to the entity at an inflated price and kept the difference. He disclosed the sale only to the first two subscribers. The remaining initial investors later sued to recover the secret profit for the corporation.
Felicity French, general partner of Fairfield Bank LP, used partnership funds to acquire a neighboring property for her own account. The limited partners demanded that she hold the property in trust for the partnership and account for any profits realized.
Uniform acts permit a partnership agreement to alter or eliminate the duty of loyalty only to the extent provided in the statute's exceptions. Complete elimination is generally disallowed, and any modification must still preserve core protections against willful misconduct.
Supporting sources
The member must account to the company and hold the profit as trustee for the entity. The company may recover the benefit or rescind the transaction.
Supporting sources
Disclosure and ratification must reach every person contemplated as part of the original financing plan. Partial disclosure leaves the promoter liable for the secret profit.
Supporting sources
The representative is liable for loss from any improper exercise of power to the same extent as a trustee. Self-dealing transactions are subject to scrutiny under the same fiduciary standards.
Supporting sources
…judgment rule did not apply, then the directors who approved the transaction were potentially liable for a breach of their fiduciary duty, and thus, could not impartially consider a stockholder’s demand. Id. The trial court then stated that board approval of the Meyers-Fink agreement, allowing Fink’s consultant…