Private Law Theory

Abstract:
The nature of fiduciary relationships remains a source of confusion and dispute in spite of their long history and wide acceptance in Anglo-American legal system. The purpose of this article is to present a unified theory that is capable of combining a large variety of fiduciary relationships into a distinctive legal category on the basis of the fundamental axiom at law that one may not make a contract with oneself. The article maintains that a fiduciary relationship comes into existence whenever a person voluntarily enters into a relationship with another person that is socially desirable but would necessarily degenerate at least in part into a contract with oneself or its equivalent were that relationship sustained as a contractual one. It characterizes fiduciary law as a law that imposes on whoever undertakes a fiduciary relationship the duty of loyalty, the duty to act solely for the interest of the other person, not as a mere exhortation but as a legal duty enforced by courts. The article then shows how fiduciary law solves the intrinsic difficulty – and in many cases the sheer impossibility – of alleging and establishing the fact of fiduciary breach by presuming any outer appearance of disloyalty as evidence of breach and by placing the entire burden of disproof on the accused fiduciary. The article also subsumes the gain-based disgorgement remedy for fiduciary breach under the loss-based compensatory principle by demonstrating that the open-ended nature of the duty of loyalty necessarily keeps the fiduciary’s unauthorized gain from exceeding the beneficiary’s lost expectation. Fiduciary law thus works as a coherent and practicable legal system that is distinct from contract law and other branches of private law.

Iwai, Katsuhito, The Foundation for a Unified Theory of Fiduciary Relationships: ‘One May Not Make a Contract with Oneself’ (March 31, 2014).

First posted 2014-04-13 19:25:27