Duty of loyalty

The Duty of Loyalty is often called the cardinal principal of fiduciary relationships, but is particularly strict in the law of trusts. 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.

Duty of Loyalty in corporation law to describe a fiduciaries' "conflicts of interest and requires fiduciaries to put the corporation's interests ahead of their own." "Corporate fiduciaries breach their duty of loyalty when they divert corporate assets, opportunities, or information for personal gain."

It is generally acceptable if a director makes a decision for the corporation that profits both him and the corporation. The duty of loyalty is breached when the director puts his or her interest in front of that of the corporation.

Section 8.60 of the Model Business Corporation Act states there is a conflict of interest when the director knows that at the time of a commitment that he or a related person is 1) a party to the transaction or 2) has a beneficial financial interest in the transaction that the interest and exercises his influence to the detriment of the corporation.

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