Why Fiduciary Law Is Equitable

Fiduciary law is both celebrated as unbound by rules and deplored as unprincipled. Moralists see in fiduciary law a fixed and mandatory system, even as legal economists and contractarians have cast fiduciary law as the ultimate set of defaults to fill in incomplete contracts. Like general equity, out of which it grew, modern fiduciary law suffers from the hard times the theory of equity has fallen into, and for the same reasons. This chapter argues that a functional theory of equity – of equity as a safety valve aimed at countering opportunism – captures the character of fiduciary law. Fiduciary relationships, in which someone undertakes to act on another's behalf by using discretion, carry more than the usual potential for opportunism. In the equitable solutions to opportunism based on proxies and presumptions, fiduciary law gets its main features. Like equity but in a more sweeping and often more categorical way, fiduciary law sets the presumption against the fiduciary when certain proxies are triggered. Thus, in situations of undisclosed conflict of interest the presumption of opportunism arises even without regard to the substance of the deal. For self-dealing likewise the presumption arises in an almost indefeasible way. Like equity generally, fiduciary law features a constrained residuum of open-endedness to deal with new and creative ways of being opportunistic. The theory of equity as targeting potential opportunism unifies the best aspects of traditional and modern theories of fiduciary law, and helps explain why fiduciary law has become so disparate and contested after the fusion of law and equity. Cut off from the special rationales of equity, fiduciary law itself threatens to become too expansive or too narrow and hidebound – like equity generally. Finally, the functional theory of equity as anti-opportunism helps explain the similarity of fiduciary law to another much misunderstood area of private law – unjust enrichment – and the relation between the two. The chapter concludes with some remarks about fiduciary law within the overall architecture of private law