Can We Contract For Fiduciary Loyalty? – Andrew Gold

Post by Andrew Gold

Some of the more interesting puzzles in private law involve the boundaries between subfields.  Here is a recent example that implicates contract law and fiduciary law.  In 2013, the Delaware Supreme Court expressly recognized a contractually created fiduciary duty of good faith.  See Gerber v. Enterprise Products Holdings, LLC, 67 A.3d 400, 418 (Del. 2013).  From different perspectives, several theorists have recently argued that there are qualitative differences between contractual and fiduciary duties.  See Daniel Markovits, Sharing Ex Ante and Sharing Ex Post: The Non-Contractual Basis of Fiduciary Relations, in Philosophical Foundations of Fiduciary Law 209 (Gold & Miller, eds.) (2014); Stephen R. Galoob & Ethan J. Leib, Intentions, Compliance, and Fiduciary Obligations, 20 Legal Theory 106 (2014).  See also D. Gordon Smith, Contractually Adopted Fiduciary Duty, 2014 U. Ill. L. Rev. 1783, 1792 (arguing that a duty arising from the language of a contract should be considered a contractual duty).  Which view is right?

The idea that fiduciary duties are contractual is not new.  See, e.g., Frank H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty, 36 J.L. & Econ. 425 (1993).  Nor is the controversy over this idea.  Although critics emphasize differences between contract duties and loyalty duties, however, they are often concerned to show that fiduciary relationships are not necessarily contractual in origin.  Cf. Paul B. Miller, Justifying Fiduciary Duties, 58 McGill L.J. 969, 986 (2013) (discussing parent-child relationships as an example of a non-consent-based fiduciary relationship).  The question of origins is somewhat different from the present issue.  In theory, one could hold the view that fiduciary relationships are not contractual (and that the duties that attach based on the existence of those relationships are not contractual), while allowing for a contract-based fiduciary duty.

The recent dispute focuses attention more fully on the characteristics of loyalty duties, rather than the origins of fiduciary relationships.  Is it even possible to have a contract-based fiduciary duty of loyalty?  The answer, I take it, requires a view on both the nature of contracts and the nature of fiduciary loyalty.  I would be curious to hear what readers think.

4 thoughts on “Can We Contract For Fiduciary Loyalty? – Andrew Gold”

  1. Great questions, Andrew. My (generally uninformed!) view is that “fiduciary” duties in the narrow sense derive from trust principles and tend to concern third parties either (1) not in a direct contractual relationship with the fiduciary (e.g., trustee-beneficiary); or, perhaps more often, (2) effectively prevented via transaction costs, information asymmetries, and the like, from contracting for the optimal level of care with the fiduciary (e.g., director-shareholder, parent-child, etc.). Thus, in the narrow sense, “fiduciary” duty steps in when optimal contracting is unavailable.

    It is unclear to me that the high standard of care placed on the fiduciary is always justified, but as a rough cut, one might assume that in a contractually defective situation the loyalty/care duties imposed by operation of law should be higher than duties typically agreed upon in a commercial contract.

    Despite this analysis, many appear to use “fiduciary duty” more loosely to refer to relatively strict duties (e.g., duties of the sort found in loyalty and care). In this event, it seems uncontroversial that commercial and other parties could contract to impose such duties on one another. For example, unlike employees, independent contractors are not typically bound by a non-contractual duty of loyalty to refrain from rendering services for competitors. But a contract could certainly specify as much, effectively imposing a fiduciary-like duty in a contractual situation. Whether such contractually imposed, fiduciary-like duties should be classed as fiduciary duties “proper” seems to me more a matter of usage than proper categorization.

  2. Thank you, Ted — these are excellent points. And these concerns can become a matter of usage rather than proper categorization, as you suggest. I would add that much depends on what is built into our notion of loyalty. So, for example, Galoob & Leib argue that one can’t act loyally by accident. (In contrast, you can accidentally perform according to a contract’s terms.) On this view, you aren’t really being a loyal fiduciary if you act for the wrong sorts of reasons. I’m not convinced that fiduciary loyalty always looks that way — at least from a legal point of view — but this is one of the conceptual possibilities.

  3. Fiduciary obligations arise in limited access relationships the moment vulnerability exists. It’s status becomes active by default as soon as the stronger party is in a position to harm the beneficiary and lasts as long as that vulnerability exists.


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