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Examples of fiduciary duty and how it works

| Jul 21, 2020 | FINRA |

In the US, including Pennylvania, fiduciary duty means one party acts in the interest of another party, usually involving business transactions, such as being placed in charge of a trust. The other party is often referred to as the principal. The fiduciary has the legal responsibility to act on legal duty to the principal taking strict measures to keep conflicts from arising.

Breach of contract can happen during fiduciary duty and mostly involves taking actions that do not benefit the principal. Instead, the actions benefit the fiduciary. Conflict can arise when the fiduciary submits improper information that causes misinterpretations and bad advice. Sometimes, this occurs unintentionally, and the problem needs to be identified to resolve issues.

To make a breach of contract claim, the plaintiff must show certain elements. The plaintiff has to prove they had a legal duty, and the fiduciary breached the contract. A fiduciary claim should indicate causation that occurred directly from the breach of contract. The plaintiff must also prove that damages occurred, or they won’t have a legal basis for the claim.

In addition to a trustee, fiduciary duty can involve several types of relationships. In a guardian/ward relationship, a fiduciary appointed by the court has taken responsibility for the care of a minor child. In an attorney/client relationship, the attorney must provide the highest level of trust and confidentiality. A control stockholder may be placed in charge of making the best decisions for the other stockholders.

A breach of contract by fiduciaries could have serious consequences for both parties and leave the fiduciary with a bad reputation. For example, an executor who embezzles funds for themselves has likely breached the contract. If a party feels the fiduciary made a breach of contract, an attorney with knowledge on FINRA may be able to assist them.