Roman and civil law recognized a type of contract called
fiducia (also
contractus fiduciae or fiduciary contract), involving essentially a sale to a person coupled with an agreement that the purchaser should sell the property back upon the fulfillment of certain conditions.[18] Such contracts were used in the emancipation of children, in connection with testamentary gifts and in pledges. Under Roman law a woman could arrange a fictitious sale called a fiduciary coemption in order to change her guardian or gain legal capacity to make a will.[19]
In Roman Dutch law, a fiduciary heir may receive property subject to passing it to another on fulfillment of certain conditions; the gift is called a fideicommissum. The fiduciary of a fideicommissum is a fideicommissioner and one that receives property from a fiduciary heir is a fideicommissary heir.[20]
Fiduciary principles may be applied in a variety of legal contexts.[21]
[edit] Possible relationships
Joint ventures, as opposed to business partnerships, are not presumed to carry a fiduciary duty; however, this is a matter of degree.[22] If a joint venture is conducted at commercial arm's length and both parties are on an equal footing then the courts will be reluctant to find a fiduciary duty, but if the joint venture is carried out more in the manner of a partnership then fiduciary relationships can and often will arise. Arklow vs. MacLean Privy Council 1999
Husbands and wives are not presumed to be in a fiduciary relationship; however, this may be easily established. Similarly, ordinary commercial transactions in themselves are not presumed to but can give rise to fiduciary duties, should the appropriate circumstances arise. These are usually circumstances where the contract specifies a degree of trust and loyalty or it can be inferred by the court.[23]
Generally, the employment relationship is not regarded as fiduciary, but may be so if "within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations. Although terminologies like duty of good faith, or loyalty, or the mutual duty of trust and confidence are frequently used to describe employment relationships, such concepts usually denote situations where "a party merely has to take into consideration the interests of another, but does not have to act in the interests of that other". If fiduciary relationships are to arise between employers and employees, it is necessary to ascertain that the employee has placed himself in a position where he must act solely in the interests of his employer.[24] In the Canadian case of Canadian Aero Service ltd v O'Malley,[25] it was held that a senior employee is much more likely to be found to owe fiduciary duties towards his employer.
A protector of a trust may owe fiduciary duties to the beneficiaries, although there is no case law establishing this to be the case.[26]
[edit] Example
For example, two members of a band currently under contract with one another (or with some other tangible, existing relationship that creates a legal duty), X and Y, record songs together. Let us imagine it is a serious, successful band and that a court would declare that the two members are equal partners in a business. One day, X takes some demos made cooperatively by the duo to a recording label, where an executive expresses interest. X pretends it is all his work and receives an exclusive contract and $50,000. Y is unaware of the encounter until reading it in the paper the next week.
This situation represents a conflict of interest and duty. Both X and Y hold fiduciary duties to each other, which means they must subdue their own interests in favor of the duo's collective interest. By signing an individual contract and taking all the money, X has put personal interest above the fiduciary duty. Therefore, a court will find that X has breached his fiduciary duty. The judicial remedy here will be that X holds both the contract and the money in a constructive trust for the duo. Note, X will not be punished or totally denied of the benefit; both X and Y will receive a half share in the contract and the money.
[edit] Elements of duty
A
fiduciary, such as the administrator, executor or guardian of an estate,
may be legally required to file with a probate court or judge a surety bond, called a fiduciary bond or probate bond, to guarantee faithful performance of his duties.[27] One of those duties may be to prepare,
generally under oath, an inventory of the tangible or intangible property of the estate, describing the items or classes of property and usually placing a valuation on them.[28]
A bank or other fiduciary having legal title to a mortgage may sell fractional shares to investors, thereby creating a participating mortgage.
[edit] Accountability
A fiduciary will be liable to account if proven to have acquired a profit, benefit or gain from the relationship by one of three means:[2]
* In circumstances of conflict of duty and interest
* In circumstances of conflict of duty to one person and duty to another person
* By taking advantage of the fiduciary position.
Therefore, it is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and not to profit from his fiduciary position without express knowledge and consent. A fiduciary cannot have a conflict of interest.
[edit] Conflict of duties
A fiduciary's duty must not conflict with another fiduciary duty.[29]Stewart v Layton (1992) 111 ALR 687 Conflicts between one fiduciary duty and another fiduciary duty arise most often when a lawyer or an agent, such as a real estate agent, represent more than one client, and the interests of those clients conflict. This would occur when a lawyer attempts to represent both the plaintiff and the defendant in the same matter, for example. The rule comes from the logical conclusion that a fiduciary cannot make the principal's interests a top priority if he has two principals and their interests are diametrically opposed; he must balance the interests, which is not acceptable to equity. Therefore, the conflict of duty and duty rule is really an extension of the conflict of interest and duty rules.
[edit] No-profit rule
A fiduciary must not profit from the fiduciary position.[3] This includes any benefits or profits which, although unrelated to the fiduciary position, came about because of an opportunity that the fiduciary position afforded. It is unnecessary that the principal would have been unable to make the profit; if the fiduciary makes a profit, by virtue of his role as fiduciary for the principal, then the fiduciary must report the profit to the principal. If the principal consents then the fiduciary may keep the benefit. If this requirement is not met then the property is deemed by the court to be held by the fiduciary on constructive trust for the principal.
Secret commissions, or bribes, also come under the no profit rule. The bribe shall be held in constructive trust for the principal. The person who made the bribe cannot recover it, since he has committed a crime. Similarly, the fiduciary, who received the bribe, has committed a crime.
Fiduciary duties are an aspect of equity and, in accordance with the equitable principles, or maxims, equity serves those with clean hands. Therefore,
the bribe is held on constructive trust for the principal, the only innocent party.
Bribes were initially considered not to be held on constructive trust, but were considered to be held as a debt by the fiduciary to the principal.[30] This approach has been overruled; the bribe is now classified as a constructive trust.[31] The change is due to pragmatic reasons, especially in regard to a bankrupt fiduciary. If a fiduciary takes a bribe and that bribe is considered a debt then if the fiduciary goes bankrupt the debt will be left in his pool of assets to be paid to creditors and the principal may miss out on recovery because other creditors were more secured. If the bribe is treated as held on a constructive trust then it will remain in the possession of the fiduciary, despite bankruptcy, until such time as the principal recovers it.
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