Fiduciary Relationship

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A relationship in which one individual owes another a fiduciary duty to act in the other’s interest. Certain interactions may give rise to a fiduciary relationship, regardless of the parties’ intent. For example, Restatement Third of Agency § 8.01 establishes that “the relationship between a principal and an agent is a fiduciary relationship,” and the creation of an agency relationship does not require that the parties intended to create such a relationship, so long as their conduct manifests such a relationship. For example, Deep Blue Ventures, Inc. v. Manfra, Tordella & Brookes, Inc., a New York State case, stated that “[t]he existence of an agency relationship does not depend upon the intent of the parties to create it, nor upon their belief that they have done so. . . [nor is] how the parties to any given relationship label it dispositive.”

The fiduciary relationship between the principal and agent dissolves when the parties cease to intend to maintain a fiduciary relationship, either formally or informally. However, the potential for the agent to create obligations for the principal with third parties does not cease on dissolution, as dissolution only causes actual authority to cease. The agent may no longer create obligations for the principal with third parties once the relationship terminates, which causes the agent’s apparent authority to cease.   

[Last updated in December of 2020 by the Wex Definitions Team]