The Modernization of Corporate Law: An Essay for Bill Cary

The business reality to which corporate law relates is constantly evolving. The author argues that in many critical areas, corporate statutory law has failed to evolve alongside that business reality, with the result that much of the statutory law is obsolescent and in need of modernization. After discussing some of the institutional reasons for this statutory obsolescence, he illustrates the problem by discussing the areas of corporate combinations, shareholders\u27 informational rights, corporate distributions, and corporate structure, and describes how a few statutes have managed to deal with the underlying issues in these areas in a realistic manner. He concludes by discussing the prospects for modernizing corporate statutory la

The Modernization of Corporate Law: An Essay for Bill Cary

The business reality to which corporate law relates is constantly evolving. The author argues that in many critical areas, corporate statutory law has failed to evolve alongside that business reality, with the result that much of the statutory law is obsolescent and in need of modernization. After discussing some of the institutional reasons for this statutory obsolescence, he illustrates the problem by discussing the areas of corporate combinations, shareholders\u27 informational rights, corporate distributions, and corporate structure, and describes how a few statutes have managed to deal with the underlying issues in these areas in a realistic manner. He concludes by discussing the prospects for modernizing corporate statutory la

The Role of Fault in Contract Law: Unconscionability, Unexpected Circumstances, Interpretation, Mistake, and Nonperformance

It is often asserted that contract law is based on strict liability, not fault. This assertion is incorrect. Fault is a basic building block of contract law, and pervades the field. Some areas of contract law, such as unconscionability, are largely fault based. Other areas, such as interpretation, include sectors that are fault based in significant part. Still other areas, such as liability for nonperformance, superficially appear to rest on strict liability, but actually rest in significant part on the fault of breaking a promise without sufficient excuse. Contract law discriminates between two types of fault: the violation of strong moral norms, such as the prohibition of deception, and the violation of somewhat weaker moral norms, such as the requirement of due care. In some areas of contract law, one type of fault dominates. Where both types of fault are relevant, one party\u27s violation of a strong moral norm will normally override the other party\u27s violation of a weaker moral norm. Fault is pervasive in contract law because it should be. One part of the human condition is that we hold both policy and moral values; law cannot escape this condition. Moreover, if moral obligation and fault were removed from contract law, the contracting system would be much less efficient. The efficiency of the contracting system rests on a tripod whose legs are legal remedies, reputational effects, and the internalization of social norms-in particular, the moral norm of promise keeping. All three legs are necessary to ensure the reliability, and therefore the efficiency, of the contracting system

The duty of care in American corporate law

This Article concerns the duty of care in American corporate law. To fully understand that duty, it is necessary to distinguish between roles, functions, standards of conduct, and standards of review. A role consists of an organized and socially recognized pattern of activity in which individuals regularly engage. In organizations, roles take the form of positions, such as the position of the director. A function consists of an activity that an actor is expected to engage in by virtue of his role or position. A standard of conduct states the way in which an actor should play a role, act in his position, or conduct his functions. A standard of review states the test that a court should apply when it reviews an actor’s conduct to determine whether to impose liability, grant injunctive relief, or determine the validity of his actions. In many or most areas of law, standards of conduct and standards of review tend to be conflated. For example, the standard of conduct that governs automobile drivers is that they should drive carefully, and the standard of review in a liability claim against a driver is whether he drove carefully. Similarly, the standard of conduct that governs an agent who engages in a transaction with his principal is that the agent must deal fairly, and the standard of review in a claim by the principal against an agent, based on such a transaction, is whether the agent dealt fairly. The conflation of standards of conduct and standards of review is so common that it is easy to overlook the fact that whether the two kinds of standards are or should be identical in any given area is a matter of prudential judgment. In a corporate world in which information was perfect, the risk of liability for assuming a given corporate role was always commensurate with the incentives for assuming the role, and institutional considerations never required deference to a corporate organ, the standards of conduct and review in corporate law might be identical. In the real world, however, these conditions seldom hold, and in American corporate law the standards of review pervasively diverge from the standards of conduct. Traditionally, the two major areas of American corporate law that involved standards of conduct and review have been the duty of care and the duty of loyalty. The duty of loyalty concerns the standards of conduct and review applicable to a director or officer who takes action, or fails to act, in a matter that does involve his own self-interest. The duty of care concerns the standards of conduct and review applicable to a director or officer who takes action, or fails to act, in a matter that does not involve his own self-interest