Breach of Fiduciary Duty Links and Cites Motherlode file mlcg 5-12-2012

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http://cyber.law.harvard.edu/trusting/unit5all.htmlExcerpt from:The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties"by Tamar FrankelVol.2, p.127-128 fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care. These duties vary with different types of relationships between fiduciaries and their counter-parties ('entrustors'). � Recently, courts have imposed fiduciary duties on union officers, physicians and clergymen.Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g. of corporate directors). However, fiduciary duties and remedies draw on a common source � equity. Thus, in addition to damages � a remedy in common law � fiduciaries must account for ill-gotten profits even if their entrustors suffered no injury � a remedy in equity. The similarities and differences among fiduciary relationships explain why law regulates fiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by which fiduciary relationships can be recognized.Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, in which fiduciaries provide to entrustors services that public policy encourages. Bailees, escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers, lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners, may be both fiduciaries and entrustors of each other.(2) To perform their services effectively, fiduciaries must be entrusted with power over the entrustors or their property ('power'). The extent of entrusted power varies with the parties' desires and terms of their arrangements. � Arrangements in which entrustors are precluded from controlling their fiduciaries in the performance of their services, categorized in law as 'trust', vest far more power in the fiduciaries than arrangements, categorized in law as 'agency', in which entrustors control their fiduciaries in the performance of their services. The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property. � The magnitude of the powers entrusted to fiduciaries is also related to the cost of specifying the fiduciaries' future actions. Thus the services of escrowees and bailees, which do not require broad discretion, can be spelled out easily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend on future unknown circumstances.(3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors. Entrustment enables fiduciaries to use entrusted power for other purposes � for their own use or the use of third parties. Entrustors' losses from abuse of entrusted powers can be higher than their benefits from the fiduciaries' services. therefore, and entrustor will not hand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary's embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g. $5).(4) Entrustors' costs of monitoring fiduciaries' use of entrusted power are likely to exceed entrustors' benefits from the relationship. For example, if the adviser's interests conflict with those of the entrustors, the value of their advice, even their expert advice, is doubtful. Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationship for clients would be undermined if the clients must watch over their discretionary investment managers to prevent abuse of power.(5) Entrustors' costs of monitoring the quality of fiduciary services are likely to be very high, because most fu services involve expertise that entrustors do not possess. These monitoring costs may exceed

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http://cyber.law.harvard.edu/trusting/unit5all.htmlExcerpt from:The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties"by Tamar FrankelVol.2, p.127-128 fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care. These duties vary with different types of relationships between fiduciaries and their counter-parties ('entrustors'). � Recently, courts have imposed fiduciary duties on union officers, physicians and clergymen.Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g. of corporate directors). However, fiduciary duties and remedies draw on a common source � equity. Thus, in addition to damages � a remedy in common law � fiduciaries must account for ill-gotten profits even if their entrustors suffered no injury � a remedy in equity. The similarities and differences among fiduciary relationships explain why law regulates fiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by which fiduciary relationships can be recognized.Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, in which fiduciaries provide to entrustors services that public policy encourages. Bailees, escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers, lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners, may be both fiduciaries and entrustors of each other.(2) To perform their services effectively, fiduciaries must be entrusted with power over the entrustors or their property ('power'). The extent of entrusted power varies with the parties' desires and terms of their arrangements. � Arrangements in which entrustors are precluded from controlling their fiduciaries in the performance of their services, categorized in law as 'trust', vest far more power in the fiduciaries than arrangements, categorized in law as 'agency', in which entrustors control their fiduciaries in the performance of their services. The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property. � The magnitude of the powers entrusted to fiduciaries is also related to the cost of specifying the fiduciaries' future actions. Thus the services of escrowees and bailees, which do not require broad discretion, can be spelled out easily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend on future unknown circumstances.(3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors. Entrustment enables fiduciaries to use entrusted power for other purposes � for their own use or the use of third parties. Entrustors' losses from abuse of entrusted powers can be higher than their benefits from the fiduciaries' services. therefore, and entrustor will not hand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary's embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g. $5).(4) Entrustors' costs of monitoring fiduciaries' use of entrusted power are likely to exceed entrustors' benefits from the relationship. For example, if the adviser's interests conflict with those of the entrustors, the value of their advice, even their expert advice, is doubtful. Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationship for clients would be undermined if the clients must watch over their discretionary investment managers to prevent abuse of power.(5) Entrustors' costs of monitoring the quality of fiduciary services are likely to be very high, because most fu services involve expertise that entrustors do not possess. These monitoring costs may exceed

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