Fiduciary Duties and Unincorporated Business Entities: In Defense of the Manifestly Unreasonable Standard

This article wades into the debate between contractarians and anti-contractarians over the extent to which statutes on unincorporated business entities should limit the ability of the participants in those entities to contract around fiduciary duties. Statutes enacted in the past several years provide considerable, but not complete, freedom to limit fiduciary duties. Contractarians argue that statutory limitations are inefficient and unnecessary, while anti-contractarians take the view that the statutes provide too much freedom of contract. This article stakes out a middle ground, arguing that the drafters of the statutes got it right and that in the absence of statutory limitations the courts would likely impose limitations. The middle ground chosen - that limitations cannot be manifestly unreasonable - should prove workable over time. By providing statutory guidance, lawyers and others advising unincorporated business entities will be better able to craft enforceable agreements. Finally, this article presents some ideas on how courts might interpret the term manifestly unreasonable