The duty of loyalty is often called the cardinal principle of fiduciary relationships, but is particularly strict in the law of trusts.[1] In that context, the term refers to a trustee's duty to administer the trust solely in the interest of the beneficiaries, and following the terms of the trust. It generally prohibits a trustee from engaging in transactions that might involve self-dealing or even an appearance of conflict of interest. Furthermore, it requires a fiduciary to deal with transparency regarding material facts known to them in interactions with beneficiaries.[2]
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Duty of loyalty in corporation law to describe a fiduciary's "conflicts of interest and requires fiduciaries to put the corporation's interests ahead of their own."[3] "Corporate fiduciaries breach their duty of loyalty when they divert corporate assets, opportunities, or information for personal gain."[3]
It is generally acceptable if a company director makes a decision for the corporation that profits both the director and the corporation, but the duty of loyalty is breached when the director puts his or her interest ahead of that of the corporation.
^"Chapter 15". Restatement of Trusts (Third ed.). American Law Institute. 2003–2008. p. 67.
^"Section 78". Restatement of Trusts (Third ed.). American Law Institute. 2003–2008. pp. 93–94.
^ abCorporations, Fifth Edition. Examples and Explanations. Alan R. Palmiter. ASPEN. New York. p. 192.
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