Research Handbooks in Corporate Law and Governance series
Edited by Robert W. Hillman and Mark J. Loewenstein
Chapter 4: Alternative entities in Delaware—re-introduction of fiduciary concepts by the backdoor? of fiduciary concepts by the backdoor?
In the 1980s, styling themselves “contractarians,” law and economics scholars advocated that corporate law has no role to play other than approximation of an “off-the-rack” contract. That contract would approximate the bargain parties to a business venture would reach on their own, were they to be free of transaction costs (lawyers’ fees, communication costs, travel). A corollary of that proposition was that the parties would be free to opt out of any provision that the off-the-rack contract contained, including even the fiduciary duties of care and loyalty. Those duties, which exist in the brooding omnipresence overhanging all of corporate and partnership law, once were thought to be universal and unwaivable, or nearly so. The duties were powerful, omnipresent gap fillers the common law had always superimposed on express statutory obligations and used to fill gaps in instances in which the statute had been silent. Seemingly, Mr. Chief Justice Veasey of the Supreme Court of Delaware put paid to the notion that contract and self-ordering could trump common law fiduciary duties, as the economics scholars and more specifically the contractarians had advocated. In Paramount Communications, Inc. v. QVC Network, Inc., the court, per Justice Veasey, expressly rejected contractarians’ contentions to the contrary: “To the extent that a contract, or a provision of it, purports to require a board to act or not act in such a fashion as to limit the exercise of fiduciary duties, it is invalid and unenforceable.”
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