ConCept and kinds of fiduCiary

relationship
intriduCtion
A fiduciary relationship is where one person places some type of trust,
confidence, and reliance on another person. The person who is
delegated trust and confidence would then have a fiduciary duty to act
for the benefit and interest of the other party. The party who owes a
duty to act for the best interest of the other party is called the fiduciary.
The party to whom the duty is owed is called principal.

Fiduciary relationships are created in many legal assignments such as

contracts, wills, trusts, elections, corporate settings, The main purpose
for fiduciary relationships is to establish an honest and trusted

definition of fiduCiary relationship

There is no precise definition of Fiduciary Relation. Even Indian Trust
Act, 1882 does not define the term fiduciary relationship. The definition
of Fiduciary Relationship can be gathered from various judgments of
the High Courts and Supreme Courts. Justice Anant Narayan of Madras
High Court in case of Mrs. Nellie Wapshare v. Pierce Leslie and Co.
Ltd (1) in which the term Fiduciary Relation is defined as follows:
A fiduciary relationship may arise in the context of a jural relationship.
Where confidence is reposed by one in another and that leads to a
transaction in which there is a conflict of interest and duty in the person
in whom such confidence is reposed, fiduciary relationship immediately
springs into existence.

The term fiduciary relations relates to a person to whom property or

power is entrusted for the benefit of another. It is the relationship of a
person to another, where the former is bound to exercise rights and
powers in good faith for the benefit of later, e.g. trustee and beneficiary.
This fiduciary relationship may arise out of jural relationship or it may
not.
types of fiduCiary relationship
This section discusses some kinds of fiduciary relationships. These are
listed as follows
#1 - Trustee and beneficiary
In this relationship, the trustee acts as the fiduciary and handles the
assets of the beneficiary. The trustee has the authority to manage
the wealth of the beneficiary. The trustee should remain loyal and
honest in its dealings.

#2 - Guardian and ward

In this relationship, a guardian, an adult, becomes the fiduciary of a
minor. The court appoints a guardian if the minor is not cared for by the
natural guardian. The fiduciary duty of the guardian is to facilitate the
overall development of the minor. This includes looking after the latter’s
education, health, food, and lodging needs. The guardian and ward
relationship exists till the minor attains the age of majority.
#3 - Principal and agent
In this relationship, a principal or an agent can be an individual,
government agency, partnership or corporation. The principal appoints
an agent to act on its behalf as the fiduciary. The goal of the fiduciary is
to manage the business stake of the principal and prevent any conflict
of interest.
#4 - Attorney and client
In this relationship, the attorney acts as a fiduciary to the client. It is
important that the attorney must represent the client fairly and
honestly. The attorney and client relationship is one of the most
stringent fiduciary relationships in the United States. If the attorney
breaches his duty at any point of time or is not found to be compliant
with the terms of the relationship, he/she is held liable by the court. In
this way, the attorney is accountable for his/her actions.

#5 - Real estate agent and the buyer or seller

In this relationship, the real estate agent is the fiduciary and the buyer
or seller of the property is the beneficiary. Such a relationship is
referred to as the fiduciary relationship in real estate. The fiduciary
needs to act in either of the following ways:
 If the fiduciary is working for the buyer, the former must not
disclose the buying price in advance. This way, the fiduciary is
responsible for protecting the buyer’s interest.
 If the fiduciary is working for the seller, the former must not
disclose the least price accepted by the latter. This way, the
fiduciary must protect the seller’s interest.
The fiduciary can disclose the personal information of the agent only if
there is written permission for the same.
Examples
Let us consider some examples of fiduciary relationships.

Example #1
A patient X (beneficiary) goes to doctor Y (fiduciary) for the treatment of
a chronic disease. Since this is the first time X has visited Y, the former
began to discuss the critical points of Y’s advice with another patient.
However, Y follows a policy of not disclosing the information of one
patient to the other. The inferences are stated as follows:
 Doctor Y seems to have served in the best interest of patient X.
This is because, being a fiduciary, Y had no right to disclose X’s
information to any other patient.
 On the other hand, X was free to share his medications and
treatment with the other patients. Hence, there has not been any
breach of the fiduciary duty of the doctor. Instead, Y has rightly
followed the code of conduct of his profession.
Example #2
Macellum Advisors, a hedge fund manager, holds 5% shares of Kohl’s
Corporation, which runs a chain of department stores in the United
States. In May 2022, Macellum Advisors claimed that some directors
(fiduciaries) of Kohl’s failed to disclose certain material information to
the shareholders (beneficiaries) before the annual meeting. The
inferences are stated as follows:
  The board of directors was supposed to act as a fiduciary to the
shareholders of the company. As a part of the fiduciary
relationship, it was important for the directors to disclose all the
necessary bus
confident that the other person is working for their interest and are not
using their power for their own interest or the interest of a third party.

prinCiples of fiduCiary relationship:

In number of human transactions the fiduciary relationship is
recognized and enforced by law. Though there is no hard or fast role to
determine the existence of fiduciary relationship but the material test to
determine the existence of fiduciary relationship.

Fiduciary relation signifies some relation which has some of the

characteristics or incident of trust. There are certain principles at the
basis of fiduciary relationship. Fiduciary relationship covers variety of
different relations arising out of jural relationship. There are certain
principles underlined the fiduciary relationships which are as under:
a. Fiduciary transaction must be good faith transaction: A fiduciary is
a person who is under confidential obligation, in whom a
confidence is reposed by another therefore; such person is
always under obligation to safeguard and protect the interest of
that another person. It is immaterial whether the confidential
obligation arises from a contract or a gratuitous undertaking.
Section 111 of Indian Evidence Act provides rule of burden of proof
thereby where there is a question as to the good faith of a
transaction between parties, one of whom stands to the other in a
position of active confidence, the burden of proving the good faith
of transaction is on the party who is in a position of active
confidence.
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b. Fiduciary must not: make profit at the cost of interest of
beneficiary: The general rule is that a fiduciary may not derive a
profit for himself at the expense of beneficiary whose interest is
bound to protect. Whatever the profit which comes to the
fiduciary, must be handed over to the beneficiaries as such profit
 belongs to the beneficiaries.
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c. Fiduciary must is not be a purchaser: It is a general rule that
fiduciary must not purchase the property held by him and under
his control for another. He is prevented from becoming the owner
of the property of the beneficiary which is given to him to exercise
control over it for and on behalf of the beneficiary. Such type of
purchase if any, adversely affecting the interest of beneficiary and
hence, not recognized by the law.
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d. Fiduciary services are gratuitous in nature: The basic principle is
that a fiduciary undertakes to act voluntarily and is not give any
remuneration for his services unless contrary he is provided
under the contract. The principle of gratuitous nature of fiduciary
services has been applied to and generally governs all fiduciaries.
The reason behind this principle is that no person is entitled to
payment simply for the reason that he has undertaken to act in
the interest of another person.
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e. Fiduciary office is onerous in nature: Fiduciary office is onerous
and hence, fiduciary to perform and to act for the protection of the
interest of the person whom is bound to protect as a matter of
confidential obligation he has undertaken to fulfill. Patna High
Court in Rajendra Prasad v. RP. Sao (9) held that a tenant for life,
co-owner, mortgagee or other qualified owner of any property all
are under fiduciary relationship
Case Laws
Keech v. Sandford (1726)
Court: House of Lords (England)

Facts: Keech, a trustee, was granted a lease for property held in

trust for a minor. When the lease expired, Keech attempted to
renew the lease in his own name, rather than in the name of the
beneficiary (the minor). Sandford, the defendant, argued that the
trustee had the right to renew the lease for himself.
Judgment: The court ruled that Keech, as a trustee, had a fiduciary
duty to act in the best interest of the beneficiary. The court held
that a fiduciary could not profit from their position and could not
take advantage of opportunities that arose through their trust
relationship. Keech was not allowed to keep the lease for himself.

Principle: A fiduciary is prohibited from taking personal advantage

of opportunities that arise from their position.

2. Bristol and West Building Society v. Mothew (1998)

Court: Court of Appeal (England)

Facts: Mothew was a solicitor who had been instructed by a client

to facilitate the release of mortgage funds. The client argued that
Mothew had acted in his own interests and had not fully disclosed
all facts. Mothew contended that his actions were within the
bounds of the instructions given.

Judgment: The court held that a fiduciary duty requires a person

to act with the utmost loyalty and good faith. Mothew had breached
this duty by not fully disclosing potential conflicts of interest and
acting without complete transparency.

Principle: Fiduciaries are expected to act with the highest standards of loyalty
and to fully disclose all material facts that could affect the principal's interests.

3. Meinhard v. Salmon (1928)

Court: New York Court of Appeals

Facts: Salmon and Meinhard entered into a joint venture to operate a building
project. While the venture was ongoing, Salmon entered into a new lease
agreement for the property without informing Meinhard. Meinhard sued,
arguing that Salmon had breached his fiduciary duty by not sharing the
opportunity.
judgment: The court ruled in favour of Meinhard, emphasizing that joint
venturers owe each other a high fiduciary duty. The court concluded that
Salmon was required to disclose any opportunities related to the venture to
Meinhard, and his failure to do so was a breach of his fiduciary obligations.

Principle: Joint venturers owe a fiduciary duty of loyalty and must disclose all
opportunities related to the venture.
4. Fiduciary Trust Company International v. First National Bank (2007)
Court: U.S. District Court for the Southern District of New York

Facts: Fiduciary Trust Company was a trustee for a large trust fund. It was
alleged that the company mismanaged the assets by investing them in risky
financial products that were not in the best interests of the beneficiaries. The
beneficiaries sued, claiming that Fiduciary Trust had failed in its fiduciary duty
to act prudently and in good faith.

Judgment: The court found that Fiduciary Trust Company had indeed
violated its fiduciary duties. The company was required to compensate the
beneficiaries for the losses caused by its mismanagement and failure to act
prudently. The judgment reaffirmed that fiduciaries must always act with care,
loyalty, and diligence when managing assets.
Principle: Trustees must manage trust assets with the highest degree of
care, prudence, and loyalty, and must act solely in the best interests of the
beneficiaries.
ConClusion
Fiduciary relation generally arises out of the jural relationship
wherein one person reposes confidence in the other, where a
person acts on behalf of another is stands in a fiduciary relation.
Fiduciary relationship, in generic sense can be said, a situation
where one person is under a confidential obligation to act in the
interest of another person. Fiduciary therefore is a person who is
bound to act in good faith and with due regard to the interest of
one reposing the confidence.

Fiduciary relationship covers variety of relations having some

common features. Whether the relation between the two persons
is of fiduciary or not, depend upon the fact and circumstances of
the case. The fiduciary relationship may arise out of numerous
human transactions, wherein a confidence is reposed by one
person in another.