The Internal Limits on Fiduciary Loyalty

Abstract

This paper seeks to deepen our understanding of fiduciary loyalty by focusing on the role of constraints on that loyalty. In the process, it seeks to elaborate on loyalty obligations more generally. As described here, constraints on a loyalty obligation that are implications of that loyalty obligation itself are defined as internal. Constraints imposed from outside a fiduciary loyalty obligation are defined as external. In addition to categorizing types of loyalty, this paper will also indicate why we should care about the distinction between internal and external constraints. For example, this distinction helps determine whether lawyers are better seen as private or as public fiduciaries. In addition, it helps explain how a corporate director who intentionally violates positive law can count as disloyal, even if that violation benefits the corporation or its shareholders. In practice, this distinction may also have important effects on judicial reasoning and legal compliance.

Keywords: fiduciary, loyalty, duty of obedience, internal constraint, external constraint, agency law, lawyer-client relationship, corporate law