RUPA and Fiduciary Duty: The Texture of Relationship

The fiduciary duty rules in the Revised Uniform Partnership Act (1994) ("RUPA") have been criticized by some as being too contractarian and by others as being too paternalistic. Professor J. Dennis Hynes, whose agency and partnership casebook I have long admired, joins those who believe that RUPA is overly paternalistic. His thesis is that RUPA's fiduciary duty rules invite too much judicial intervention. He asserts that, unless the bargaining of the parties is flawed, courts should refrain from intervening in the resulting contract. Only if the bargaining process is flawed should "unconscionable" provisions be set aside.The essence of my response is that RUPA represents a major and sufficient move toward a contractarian statement of the law. In particular, I reject the assertion that partners should be free to contract away all fiduciary duties. First, individuals rarely "bargain" as equals for partnership agreements that completely define their relationship. The law should assume that the completely defined partnership relationship is the exception rather than the norm. It should also take into account the probability that the bargaining process involves human foible and important information asymmetries, if not outright fraud. Second, even apart from the imperfections of bargaining, prohibiting certain types of relationships is preferable to permitting them. Mandatory minima are designed to prevent types of relationships that would cost more than they would benefit. Finally, the language of fiduciary law, with its mandatory rules, is preferable to the language of the law of the sale of goods, with its mandatory rules. The language stating the minima among partners ought to reflect the texture of their relationship, which is one of a powerful mutual agency, ill-defined hierarchy, and joint and several liability. If the indeterminacy of the mimina is kept in check, the benefit of the mimina will far exceed the cost.