Legal Definitions - fiduciary duty

When someone has a fiduciary duty to someone else, they must act in a way that will benefit the other person financially. The person who has the duty is called the fiduciary, and the person to whom the duty is owed is called the principal or beneficiary. If the fiduciary breaches their duties, they would need to account for any ill-gotten profit, and the beneficiaries are typically entitled to damages.

One example of fiduciary duty is when directors of corporations have certain responsibilities to fulfill. They are charged with the duty of care, which requires them to inform themselves of all material information reasonably available to them before making a business decision. They must also assess the information with a critical eye to protect the interests of the corporation and its stockholders. The duty of loyalty means that all directors and officers of a corporation must act without personal economic conflict. They are not permitted to use their position of trust and confidence to further their private interests. The duty of good faith requires them to advance the interests of the corporation and fulfill their duties without violating the law. The duty of confidentiality requires them to keep corporate information confidential and not disclose it for their own benefit. The duty of prudence requires a trustee to administer a trust with the degree of care, skill, and caution that a prudent trustee would exercise. The duty of disclosure requires directors to act with complete candor and disclose all relevant facts and circumstances to the stockholders in certain circumstances.

Another example is when attorneys have a fiduciary duty to their clients, a principal to an agent, a guardian to the ward, a priest to the parishioner, and a doctor to the patient. Fiduciary duty is imposed whenever confidence is reposed on one side in a contractual relationship, so as to allow that side to exert influence and dominance over the other.

These examples illustrate how fiduciary duty requires a person to act in the best interests of another person or entity, and to avoid any conflicts of interest that could harm the other party.