What Default Rules Teach Us About Corporations: What Understanding Corporations Teaches Us About Default Rules

26 Pages Posted: 20 Apr 2005

See all articles by Tamar Frankel

Tamar Frankel

Boston University School of Law

Abstract

This Essay addresses corporate law's Default Rules, which allow corporations to waive their directors' liability for damages for breach of their fiduciary duty of care. Most large corporations have adopted such a waiver. This Essay distinguishes Private Contracts from Public Contracts. Public Contracts include legislation, referendums, and votes on specific outcomes, such as union members' votes on the contracts that their representatives agreed upon with management. This Essay shows that the courts view corporations and corporate articles as Public Contracts. In some Public Contracts gap-filling rules limit the scope of the Public Contracts to the information that the voters received before they voted. In waiver cases, however, the courts do not limit the scope of the waivers to the information that the voting shareholders received before they voted for the waivers. The Essay suggests that courts should follow Public Contract gap-filling rules and interpret the waivers as limited to the circumstances in which the voters voted, and the information they received before the voting.

Suggested Citation

Frankel, Tamar, What Default Rules Teach Us About Corporations: What Understanding Corporations Teaches Us About Default Rules. Boston Univ. School of Law Working Paper No. 06-33. Available at SSRN: https://ssrn.com/abstract=700843 or http://dx.doi.org/10.2139/ssrn.700843

Tamar Frankel (Contact Author)

Boston University School of Law ( email )

765 Commonwealth Avenue
1070G
Boston, MA 02215
United States
617-353-3773 (Phone)
617-353-3077 (Fax)

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