Contractually Adopted Fiduciary Duty

12 Pages Posted: 1 Mar 2015

See all articles by D. Gordon Smith

D. Gordon Smith

Brigham Young University - J. Reuben Clark Law School

Date Written: December 1, 2014

Abstract

The Delaware Supreme Court recently referred to “contractually adopted fiduciary duties.” Although some commentators, including Larry Ribstein, view fiduciary duties as a type of contract term, the notion of contractually adopted fiduciary duties is incoherent. The need to opt in to fiduciary duties would arise in only two circumstances: (1) fiduciary relationships that do not invoke fiduciary duties without contractual authorization, and (2) nonfiduciary relationships in which the parties wish to invoke fiduciary duties that would otherwise be absent. The first category of relationships does not exist, as courts impose fiduciary duties when the structure of a relationship indicates that fiduciary duties are justified, and the second category of cases is rare — and should be nonexistent — as independent contracting parties generally have no reason to opt in to the fiduciary regime because fiduciary duties simply do not make sense outside of fiduciary relationships.

Nevertheless, the issue arises occasionally in judicial opinions, and this Essay offers a simple proposal to clarify the line between fiduciary duties and contractual duties. When a duty arises from the language of a contract, that duty is a contractual duty, but if a duty arises as a matter of common law because the structure of the relationship comports with the description of fiduciary relationships, that duty is a fiduciary duty.

Keywords: Contract, Fiduciary Duty

JEL Classification: K12, K22

Suggested Citation

Smith, D. Gordon, Contractually Adopted Fiduciary Duty (December 1, 2014). 2014 University of Illinois Law Review 1783. Available at SSRN: https://ssrn.com/abstract=2571646

D. Gordon Smith (Contact Author)

Brigham Young University - J. Reuben Clark Law School ( email )

422 JRCB
Provo, UT 84602
United States
801.422.3233 (Phone)
801.422.0390 (Fax)

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