What is a Fiduciary Relationship? Explained with different examples!

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What is a fiduciary relationship?

The term fiduciary relationship in legal parlance referred to the relationship between two parties, where one Party put its blinding trust/ confidence in the other Party. The Party whose trust is placed has a duty to act in the other Party’s best interest. The term fiduciary is used for the Party who is bound to act on this duty, While the term Principal is used for the other Party.

Due to its nature, a fiduciary relationship is also referred to as a confidence relationship.

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Example of the fiduciary relationship

a) Parent-Child

The relationship between parents and their child is fiduciary in nature. The parent is dutifully bound to act in the interest of the child.

b)   Directors of the company

What is a fiduciary relationship?

The directors of the company have a responsibility to manage the assets of the company and in its shareholder’s interest. They should not take undue advantage of the company’s assets for personal gain. It should always be used in a bona fide manner in the company’s interest.

c)   Agency

An agent represents the interest of the Principal. He acts as per the instruction of the Principal and act,

The principal interest is of utmost importance here. The agent makes a deal on behalf of the Principal and hence he is legally bound to act in the bona fide manner

Characteristic of the Fiduciary relationship

  1. Duty of care- The fiduciary has the responsibility to take care of the principle’s
  2. Duty of Loyalty- While dealing with the Principal’s assets and liability, the fiduciary should always have the principal interest in mind. They should not try to make a profit for themselves.
  3. Duty of Good Faith- Every action taken by the fiduciary should be done in good. There shall be a mala fide intent behind the action.
  4. Duty of confidentiality-The relationship between the fiduciary and the Principal is that of trust, and the breach of confidence is a breach of
  5. Duty of Prudence-The fiduciary should do his due diligence before acting on behalf of the Principal.

The principle behind the fiduciary relationship

Although recognized by law, there is no hard and fast rule for determining the fiduciary relationship. The factors have to be considered for each case based on the facts of the case.

Following are the principle which is used to check the relevance of the facts:

  1. Any deed done by the person who is in control in furthering his duty should be done in good faith. The fiduciary has to burden of proof to show that he acted in good
  2. The fiduciary should always act in the beneficiary’s interest and should not make a profit at his

Conclusion

A fiduciary relationship can originate from contractual obligation or through gratuitous nature. Generally, these relationships are created in good conscience.

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