In the world of commerce, there are several commercial relations that come into existence. Fiduciary duty is one of such relation that has a very different nature and it is a moral as well as a contractual obligation of a trustee. The element of ‘trust’ is an important component of any business and commercial relation. Clients come to a particular company on regular basis because they believe that the company will provide them with the needed goods and services. Similarly, one might go to his/her favourite coffee shop believing that the shop will be able to serve an excellent cup of coffee. Similarly, a patient might visit his/her Physician, because of the trust in the Physician’s ability to cure the ailment. In the world of business and in the language of law, all these people are maintaining their fiduciary duties (Scholasticus, 2010).
What is a Fiduciary Duty?
As mentioned above, a fiduciary duty is not just any obligation. It is a moral as well as contractual obligation. Doctors and lawyers are probably the best professionals who are apt at fulfilling their fiduciary duty. The fiduciary duty basically arises out of a contract or an agreement that exists within the two parties. The two parties are often termed as the fiduciary (also known as trustee) and a principal (also known as testator or beneficiary). This fiduciary-principal relationship is the basis of what is known as a fiduciary duty. An example might explain the concept better.
A real estate broker and buyer client has a fiduciary relationship between them, wherein, they have a fiduciary duty or rather an obligation towards each other. In such a situation it is the duty of the broker to disclose all facts about that property to the buyer. In addition to that, the broker is also obliged to transfer all legal and lawful documents to the buyer. Similarly, it is the fiduciary duty of the buyer to provide the broker with sufficient and decided commission and also needful legal documents. Thus, a fiduciary duty is not just a one way process but a two way process. There are, however, some exceptions to this process, such as the medical field as there is a probability that one patient is not able to provide the doctor with apt description of his symptoms. Irrespective of these inaccuracies, the doctor must disclose to his patient the facts about the ailment.
A breach of fiduciary duty is a situation where the person who is entrusted with the duty does not fulfil the duty. It is also possible that the trustee fulfils the duty partially. In any case, the partial or complete fulfilment of duty is considered to be a breach of duty. The following are some cases and examples where the breach of fiduciary duty is observed.
- Fiduciary duty of care: A nurse or a nanny, a lawyer, doctor, or a regent, are some people who are entrusted with the duty to care for their clients. In cases where they carelessly commit some mistake or even abstain from fulfilling their duties, their clients (principals) might end up suffering losses, some monetary, others non monetary. In cases, where the breach is committed unintentionally, the court does not hand out harsh or criminal penalties. However, in cases of intentional breach, the court will adopt a criminal code for the proceedings.
- Fiduciary duty of loyalty: Conventional fiduciary duty law, defines loyalty to be a legally enforceable duty of the trustee. For example, a lender of a banker or a prominent investor of a company tends to be in possession of some sensitive information about the business of the company. In such a scenario, the investor of the company or the lender is expected to safeguard the information and not use it for selfish motives. Such a breach of fiduciary duty invites harsh sentences as in most of the cases, it is intentional. Insider trading and leakage of sensitive technical information are two prominent cases where companies experience the breach of duty of loyalty.
- Fiduciary duty of good faith: Good faith is a trust that is bestowed by one person upon another person. In a situation where the people hold office of authority in companies, they are expected to do a duty of good faith towards the company or organisation. For example, if the person holding an office indulges in corporate corruption, it is said to be a breach of duty of good faith. The company as well as the court of law can use criminal codes for the proceedings.
It must be noted that breach of fiduciary duty is always treated with seriousness, especially, if it has been done intentionally. In such a situation, penalisation is decided upon the seriousness of the breach and the consideration that was in question.
Reference
Scholasticus, K. (2010). Fiduciary-duty. http://www.buzzle.com/articles/fiduciary-duty.html
