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Modes of Gap Filling: Good Faith and Fiduciary Duties Reconsidered

Mariana Pargendler

São Paulo Law School of Fundação Getulio Vargas FGV DIREITO SP; Stanford Law School

Tulane Law Review, Vol. 82, 2008

This article offers a novel account of the doctrines of good faith and fiduciary duties under a functional perspective that reconciles the theoretical contributions of the law-and-economics scholarship with the actual application of the law. The traditional doctrinal statements on this matter assert that fiduciary duties impose high standards of behavior on the parties named fiduciaries, while the duty of good faith is highly context-specific and constantly escapes definition. Law-and-economics scholars argue that although good faith and fiduciary duties differ in the strength of the obligations imposed, a continuum exists between these different doctrines. In this view, both share the same nature as contract gap-fillers that help promote efficiency by providing the parties with the terms they would have contracted for in a world of zero transaction costs and unlimited foresight. This article adds to the conventional wisdom and demonstrates that good faith and fiduciary duties embody distinct gap-filling methods. While fiduciary duties are untailored defaults that supply the term that most parties in a certain fiduciary category would have wanted, the doctrine of good faith mandates the application of a tailored gap-filling method that fills in contractual gaps with the terms that the parties before the court would have contracted for. I show how the hidden tension between a tailored and an untailored gap-filling method sheds light on the outcome and the dissenting opinions of prominent fiduciary law cases. Finally, I argue that there is reason to believe that the existence of these different gap-filling methods represented by the doctrines of good faith and fiduciary duties is not only descriptively accurate, but also normatively desirable.

Number of Pages in PDF File: 42

Keywords: Contracts, Law and Economics, Good Faith, Fiduciary Duties

JEL Classification: K00, K12, K20, K22

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Date posted: August 28, 2007  

Suggested Citation

Pargendler, Mariana, Modes of Gap Filling: Good Faith and Fiduciary Duties Reconsidered. Tulane Law Review, Vol. 82, 2008. Available at SSRN: http://ssrn.com/abstract=1008400

Contact Information

Mariana Pargendler (Contact Author)
São Paulo Law School of Fundação Getulio Vargas FGV DIREITO SP ( email )
R. Rocha, 233, Bela Vista
São Paulo, 01330-000

Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

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