Finding loyalty in good faith

Abstract

The merits of contractual loyalty duties have been obscured by two leading views on loyalty. The first view, associated with the law and economics movement, tends to see fiduciary loyalty as contractual across the board. The second view claims that loyalty, by its very nature, cannot be contractual. This Article views the conceptual landscape differently. It contends that legal duties of loyalty are sometimes contractual, and that sometimes they are not. And, on this view, contractual duties of good faith can also be understood as loyalty duties, even if in some jurisdictions that view is rejected.

This Article adopts a thin conception of loyalty—defined as “taking the side” of the object of loyalty—to argue that loyalty can be contractual. In doing so, it suggests that instantaneous or transactional loyalty is consistent with both the “ordinary sense” of loyalty and with various legal practices, such as oaths of office and professional mandates.

In turn, adopting this perspective invites a significant range of policy questions that are otherwise hard to assess. Considerations include the accessibility of concepts, compliance effects, the ability of parties to modify loyalty duties, the varieties of loyalty that are available from within a contractual rubric, and the coevolution of legal and extralegal concepts. By recognizing loyalty as a flexible concept, this Article concludes that legal systems can legitimately anchor loyalty within the contractual bond, offering a more nuanced understanding of how parties engage with each other’s interests in diverse settings.