Thursday, May 26, 2005
John H. Langbein, Sterling Professor of Law and Legal History at Yale University, has recently published an extensive and well-reasoned article entitled Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?, 114 Yale L.J. 929 (2005).
Here is the summary of the article as provided by LexisNexis:
The duty of loyalty requires a trustee "to administer the trust solely in the interest of the beneficiary." ... The 1979 Act does not regulate the fiduciary duties of such agents, hence it remits fiduciary issues to the common law of agency, which applies a sole interest rule comparable to that of trust law. ... A court or a legislature could conclude that a higher-than-ordinary standard should be imposed on a reformed trust law duty of loyalty, and thus require the trustee to prove by clear and convincing evidence that the conflicted transaction was prudently undertaken in the best interest of the beneficiary. ... By contrast, the trustee who has violated the trust law sole interest rule in circumstances in which the purpose was to benefit the beneficiary will routinely be alive and able to testify about those circumstances. ... In a case such as Boardman v. Phipps or in the most embarrassing of the auction cases, the sole interest rule takes away a benefit from the trustee who earned it and awards it to the trust beneficiary.