That friendship could be a legal relationship analogous to a fiduciary relationship isn’t something which ordinarily strikes one but when I saw the title of a paper by Ethan J. Leib, an Associate Professor of Law, at the University of California’s Hastings College of the Law which spoke about ‘Friends as Fiduciaries’, it struck me that that’s exactly what it is although, as Mr Leib says, “[T]he case for thinking of friends as fiduciaries is exceedingly persuasive and underappreciated, both in the law and in our lives.”

The law does not clearly define what a fiduciary is but there are a few relationships such as that between a lawyer and his client, or between a trustee and the beneficiary of the trust involved which the law treats as clearly falling within the category of fiduciary relationships.

“Joint adventurers, like co-partners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honour the most sensitive, is then the standard of behaviour. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the “disintegrating erosion” of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court,” it was held in Meinhard v. Salmon, 249 N.Y. 458, 463-464 (1928).

They are relationships in which trust is an important component and in which the price of distrust could be very high. The fiduciary is often in a position of authority or power, and it is difficult to keep a close eye on him — what do you do when your doctor or lawyer begins to spout Latin other than hope that they know what they’re talking about?

Fiduciary relationships are also relationships in which the price of distrust is often extremely high — think of the consequences of having a doctor talk about one’s medical issues to all and sundry. The possible consequences of a breach of trust make it essential for fiduciaries to be required to act with some minimal degree of care.

If one looks at the relationships which one shares with one’s friends, the similarities are striking. There is trust involved. If there wasn’t, one would never be able to exchange confidences with one’s friends. Friends are expected not to be entirely selfish and self-absorbed. They have an obligation to keep their word whether that obligation is simply to the extent of not standing one up for dinner or in relation to something more important. They have a duty to be loyal particularly since a breach of the obligations of friendship can have extremely serious consequences for the person aggrieved.

One of the first things one learns of civil procedure is that civil courts have jurisdiction to try all suits of a civil nature and that suits involving what are merely social obligations do not qualify as being of a civil nature.

There is no reason, however, for friends not to be subject to the same liabilities as a fiduciary. When one friend makes a promise to another and that other acts in reliance of that promise, he should be required to keep his word. He should not take advantage of the friendship or exercise undue influence for his own benefit. And if he does do so, there should be some way the person aggrieved can remedy the situation particularly if he is harmed by it.

Many people would probably cringe at the thought of having the State interfere in the private sphere. Apart from arguing from a purely moral position that trust should be honoured or from a legal point of view saying that if trust could be dishonored with impunity, it’d destroy the socio-legal structure within which we function, the bottom line for me is that it is now accepted that abuse cannot be tolerated in either the public or the private sphere.

All of us trust our friends (in varying degrees, it must be admitted). We are usually far more vulnerable to them than we are to most other people. The very nature of our relationship with them requires that we let down our guard. And I cannot see how a breach of trust in friendship, the betrayal of the relationship itself isn’t a form of abuse.

Link: http://ssrn.com/abstract=1115668