Recovery of Lost Premiums in Failed Mergers

The paper argues that the concept of trust is inevitably latent in every contractual relationship, and is best understood as a comprehensive theory and justification of contract law as both trust and contracts (more than any other legal action) are aiming toward the same universal goal of cooperation, risk-taking, and fulfillment of reasonable expectations. Contract law, per se and through its good faith doctrine, could then function as an expressive, coercive, and thus corrective legal tool, serving to symbolize, build, and internalize a culture of trust wherever it has failed to develop. Accordingly, while viewing the corporation as a nexus of contracts and as a voluntary organization based on cooperation and consent, trust can thus function as an axis that best fits corporate law, and also serves to justify it. The paper is organized as follows. Part I, briefly considers the essential role of trust. Although trust is discussed in this paper as a crucial concept in the corporate arena, some interdisciplinary insights about the axiomatic necessity of trust are cited in order to substantiate its systematic and universal role. The major theoretical claim of the article is then been outlined, namely, that the concept of trust serves as a comprehensive theory of contract law. Since the claim is that contract law is justified and also serves as the main legal bridge toward substantiating the social norm of trust, reference is also been made to the recent literature discussing the interaction between social norms and the law. Part II, illustrates the doctrinal ways by which the Israeli supreme Court integrates between the concept of trust, contract law and corporate law and substantiate the social norm of trust in the corporate context. Israeli precedent resorts rather extensively to the good faith doctrine of contract law in corporate contractual settings, explicitly justifying this recourse by reference to the trust principle, and stressing the implicit obligation of the corporation and its organs to fulfill the reasonable expectations of all corporate actors. Part III, points out some preliminary thoughts concerning specific issues in corporate and securities law that seem best suited for a research project based on the trust theory of contract and corporate law outlined here, such as issues of comparative corporate law, the search for an efficient corporate governance structure, the scope of mandatory rules in corporate law, the justification and content of the disclosure philosophy in securities regulation and legal methods for the protection of mixed investors within a corporate law model of shareholders supremacy. Part IV concludes with a discussion about the potential role of the corporation in generating an environment of universal trust, which is crucially important in the global economy.

This article is the first chapter of the second edition of The Anatomy of Corporate Law: A Comparative and Functional Approach, by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda and Edward Rock (Oxford University Press, 2009). The book as a whole provides a functional analysis of corporate (or company) law in Europe, the U.S., and Japan. Its organization reflects the structure of corporate law across all jurisdictions, while individual chapters explore the diversity of jurisdictional approaches to the common problems of corporate law. In its second edition, the book has been significantly revised and expanded. As the book's introductory chapter, this article describes the functions and boundaries of corporate law. We first detail the economic importance of the corporate form's hallmark features: legal personality, limited liability, transferable shares, delegated management, and investor ownership. We then identify the major agency problems that attend the corporate form, and that, therefore, corporate law must address: conflicts between managers and shareholders, between controlling and minority shareholders, and between shareholders as a class and non-shareholder constituencies of the firm such as creditors and employees. In our view, corporate law serves in part to accommodate contract and property law to the corporate form and, in substantial part, to address the agency problems that are associated with this form. We next consider the role of law in structuring corporate affairs so as to achieve these goals: whether, and to what extent standard forms - as opposed, on the one hand, to private contract, and on the other, to mandatory rules - are needed, and the role of regulatory competition. Whilst the ‘core’ features of corporate law are present in all - or almost all - legal systems, different systems have made different choices regarding the form and content of many other aspects of their corporate laws. To assist in explaining these, we review a range of forces that shape the development of corporate law, including domestic share ownership patterns. These forces operate differently across countries, implying that in some cases, complementary differences in corporate laws are functional. However, other such differences may be better explained as a response to purely distributional concerns. In addition to Chapter 1, Chapter 2 of the Anatomy of Corporate Law (2nd ed.), Agency problems, Legal Strategies, and Enforcement is also available (full text) on SSRN at http://ssrn.com/abstract=1436555.

Corporate and commercial law is replete with colourful terminology such as “poison pills,” “white knights,” and “shirking,” all of which are short forms for particular conduct by directors and officers in their oversight of a business.2 While frequently termed “private law,” in reality, corporate and commercial law today is highly codified, and directors, contracting parties, and capital market participants have their activities regulated by a myriad of statutes.3 Hence, there are strong elements of both public and private law in corporate and commercial relations, and this article discusses the British Columbia Court of Appeal’s (bcca’s) contribution to the development of both aspects. There are more than four hundred reported corporate and commercial judgments in the bcca’s history, encompassing many broad areas of law: corporate law, securities regulation, insolvency law, banking law, contract law, secured transactions law, financial regulation, maritime law, debtor and creditor law, and a long list of other areas. This short article can offer only a few broad reflections on the court’s overall contribution as it celebrates its centenary.

This essay is in response to a commentary by Professor David Millon, who ably argues in the same journal that a dependence on metaphor drives much of the debate within corporate law jurisprudence and corporate law scholarship. This essay joins Millon in his criticism. For decades, scholars have used metaphors ? corporation as person, corporation as creature of the state, corporation as property, corporation as contract, corporation as community, to name the most prominent ? as justifications for the imposition of, or freedom from, legal and ethical requirements. The metaphors are often taken as self-evident. The legal and ethical arguments then flow quite naturally. Currently, the dominant metaphors in corporate law spring from the rights-based common law of contract and property. Arguments that corporations have obligations to stakeholders other than shareholders are deemed inconsistent with property or contract norms. It is no coincidence that those who oppose more socially responsible corporate governance regimes choose metaphors from the common law. Common law rights have long had significant rhetorical power. Much of this persuasiveness is based on the fact that they are seen as neutral, pre-political, and pre-legal. Corporate law is private law, defined by common law principles, and therefore neutral. To change it is impermissible. These rights-based metaphors used to explain corporate law harken back to Lochner v. New York, and are subject to some of the same criticisms. Even the so-called laissez-faire marketplace is shot through with government, and even the most basic common law entitlements are functions of legal rules. Contract and property law are no more neutral, private, or pre-legal than statutory law. One cannot justify the present make-up of corporate law as non-political or pre-legal because it is based on common law principles any more than Lochner could justify common law itself as non-political or pre-legal. This essay suggests that our thinking about corporate law would be improved if we jettisoned the metaphors of private law and instead considered corporate law as regulation. That is, corporate law should be subject to the same analysis as environmental law, labor law, tax law, communications law, and the like. At a high level of generality, the analysis with regard to corporate law rules should be the same as the analysis for other kinds of statutes and regulations. One should ask what we want our society to look like and then seek to craft a bundle of legal rules and regulatory programs that are likely to move us in that direction.

This paper explores path dependency theory in relation to the evolution of corporate law systems. It is accepted amongst corporate law theorists that significant differences in corporate law and governance systems across the globe can be explained by reference to path dependency scholarship. Insights provided by this scholarship raise questions regarding the continued harmonisation of insolvency law in the European Union. Path dependency scholarship provides us with a theoretical framework which might assist in understanding and addressing challenges to the goal of further harmonisation of insolvency laws in the European Union. The purpose of this paper is to illustrate that theoretical debates, such as those which have taken place between convergence theorists and path dependency theorists in corporate governance and company law scholarship, can i) provide analytical tools which give insight into current phenomenon existing in doctrinal law, ii) can provide predictive indicators for the likelihood of success for policy initiatives such as harmonisation and iii) can assist in the formation of future policy initiatives which have a direct impact over time in the development of doctrinal law.

This essay explores the moral foundations of Fuller and Perdue’s The Reliance Interest in Contract Damages. Part I explains and further develops Fuller and Perdue’s moral objection to promissory theories. Part II examines two alternative theories of contract, each of which can be regarded as responses to the moral objection: (1) the reliance theory (Fuller and Perdue, Atiyah, Gilmore); and (2) the transfer theory (Barnett, Benson). Part III then presents a new moral defense of the traditional promissory theory of contract, drawing on an analogy between contract law and property law. Lastly, in Part IV, I summarize the essay’s arguments by offering a new ‘map’ of private law. The essay’s main argument is that while Fuller and Perdue correctly identified the central moral question of contract theory, and (even more importantly) rightly stressed the importance of reliance-based liability in private law, their moral objection to promissory liability was unfounded and their moral acceptance of reliance-based liability was (and remains) in need of supporting arguments.

Regulatory competition has been high on the agenda of lawyers and economists for several years. Initially, the focal point of the debate was corporate law. Only recently the attention has shifted to other areas of law, notably contract law. However, in contrast to corporate law where there is little doubt that states do compete for corporate charters both in the United States and in Europe, it is hotly debated whether there is – or whether there can be – regulatory competition in contract law. In the first part of the following article I argue that this question must be answered in the affirmative: empirical evidence shows that there is regulatory competition in contract law just like in other areas of law, notably corporate law. Most importantly, empirical evidence shows that businesses and consumers actually choose the applicable contract law based on the quality of the law and that states actually respond to these choices by adjusting their contract laws. With this finding, however, the discussion about regulatory competition in contract law has not yet reached its end. To the contrary: the fact that states actually do compete for application of their contract law raises a number of normative questions. Should regulatory competition be promoted because it induces a race to the top? Should it be banned because it induces a race to the bottom? In the second part of the paper I argue that regulatory competition in contract law will generally induce a race to the top. It should, therefore, generally be promoted. However, I also argue that regulatory competition may induce a race to the bottom in some cases, namely where a choice of law does not account for the interests of all parties affected by the choice. In these cases, I conclude, that regulatory competition should be regulated. More specifically, I argue that it should be regulated on the level of private international law by limiting freedom of choice.

If reading books on corporation law putsyou to sleep, this book is a refreshing change. Dr. Huber’s diverseintellectual background (2 doctorates and 5 masters degrees), a CPA and attorneygives him a unique perspectiveon the issues and underlying assumptions that most lawyers and economists take for granted. He has the courage to challenge a number of assumptions and sacred cows by applying a mix of economictheory, law and philosophy. Shareholders own corporations, don’t they? Not according to Huber. So who owns them? Read hisbook. There’s a separation of ownership and control, right? Not really. Oh, and did I mention that the directors do not represent the shareholders? If shareholders don’t own corporations, and if directors aren’t agents ofthe shareholders, what happens to the agency theory of the firm? McGee: Corporate Law and the Theory of the Firm (Book Review)352Huber’s analysis might reasonably lead one to conclude that the literature on the theory of the firm needs to be reexamined. The book focuses on issues relating to the separation of ownership and control, and to the contradictions between the economic theory of the firm and corporate law. Huber reviews the origin and function of common lawand the principles of contract law, and discusses the relationship between contract law and the relationship of shareholders, directors and corporations. Separate chapters are devoted to the examination of property and property laws; agency and agency laws; trusts and trust law; partnerships and partnership law; corporations, corporate law, and the contradictions of corporate law; sociology, culture and corporations; corporatehood, the corporation as a legal person, and the theory of the firm.Huber’s latest book would make a good supplement to a graduate law or economics class. It challenges assumptions and provokes thought, which is sorely needed in today’s university environment.

Modern corporate law scholarship focuses on flexible, dynamic questions: should multiple-class shares be permitted? To what extent should staggered boards be implemented? Even when making the more structural inquiry – what is a corporation, and what is its purpose? – corporate jurists tend toward generalizations: perceiving corporate law as either contract law, property law, or public law, and being either shareholderists (shareholder primacy advocates) or stakeholderists (corporate social responsibility advocates). In these accounts, fiduciary duties presumably run directly to shareholders or stakeholders. However, as this Article demonstrates, careful examination of corporate law (in Delaware and many other jurisdictions) reveals that all of these prevailing conceptions are, positively and normatively, inaccurate. This Article offers a new paradigm through which to examine corporate law. It provides an integrative theory, fully congruent with both existing law and policy analysis, showing that corporate law is not any other field, but has its own structure, with uniquely beneficial economic and practical implications. At the heart of corporate law's anatomy is a simple, yet profound, fact: the corporation is a person with a purpose. The corporation itself has Hohfeldian relationships with its stakeholders, shareholders, and fiduciaries. The benefit of both stakeholders and shareholders is derived from the degree to which the corporation attains its purpose (for example, the lawful pursuit of profit). Directors and other fiduciaries, in turn, have an obligation to cause the corporation to achieve its purpose. While corporate purpose, personhood, stakeholders, shareholders, and fiduciaries are all subjects of heated discussion, this Article is the first to tie them together, providing a fully self-explanatory picture of their mutual interactions. Doing away with both the contract/property and shareholder/stakeholder dichotomies, this Article applies the theory to several high-currency topics, including shareholder activism, corporations' constitutional rights, the rise of LLCs and other alternative corporations, mandatory arbitration, and Senator Warren's Accountable Capitalism Act. At each turn, the purpose-based theory of corporate law produces more refined conclusions, and charts a way forward – from conceptions devised in the 1980s, to a nuanced framework, capable of providing better answers to the many issues corporate law faces in its current state of flux.

Fuller, L, ‘Consideration and form’ (1941) 41 Columbia LR 799. Fuller, L and Perdue, W, ‘The reliance interest in contract damages’ (1936–37) 46 Yale LJ 52. Furmston, M, ‘Return to Dunlop v Selfridge?’ (1960) 23 MLR 373. Gardner, S, ‘Trashing with Trollope: a deconstruction of postal rules in contract’ (1992) 2 OJLS 170. Goff, R, and Jones, G, The Law

O RDINARILY the failure of one party to a contract to fulfill the performance required of him constitutes a breach of contract for which he is liable in damages to the other party. But sometimes the failure to perform is excused and the contract is said to be discharged rather than breached. This study uses economic theory to investigate three closely related doctrines in the law of contracts that operate to discharge a contract: impossibility, impracticability, and frustration. These are not the only excuses for nonperformance of a contract. Among other excuses, not discussed in this study, is the closely related doctrine of mutual mistake (sometimes called antecedent impossibility). Also related, and only incidentally discussed herein, is the doctrine of Hadley v. Baxendale1 limiting the liability of the breaching party to the foreseeable damages of the breach. There is an extensive legal literature on the set of doctrines that, for want of a more inclusive term, we shall sometimes lump together under the name impossibility. The main conclusions of this literature are summarized in Part IA, next, while Part IB analyzes the subject from the standpoint of economics.2 Part II applies the economic analysis to the leading cases and

This article re‐examines the established principle that contract damages compensate but do not punish from the theoretical perspective of corrective justice and, in particular, the version advocated by Professor Ernest Weinrib. Weinrib argues that corrective justice affirms the traditional view that contract damages should be circumscribed by compensatory functions, and the notion of punitive damages is inconsistent with the structure of corrective justice and hence contractual rights. The correctness of this conclusion depends, however, on what is understood by punishment. This article argues that punishment is not necessarily explicable only as a form of state punishment, but may (adopting the retributive idea of punishment expounded by Jane Hampton) also be understood as a form of correlatively‐structured response that redresses the moral injury inflicted by one's conduct on another. If that is the case, punitive damages for breach of contract may be justified even within the framework of corrective justice.

The second edition of this internationally acclaimed book explores damages for breach of an international sales contract, one of the most important and frequently invoked remedies. The focus is on the international contract law instruments such as the Convention on Contracts for the International Sale of Goods (CISG), the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law. The book draws on the experience of some major legal systems and engages with legal scholarship on the international instruments and on contract damages, providing the most comprehensive, in-depth and thorough examination of damages under the instruments to date. The second edition is updated, reflecting the latest developments in legal thinking on contract damages. It incorporates about 60 new cases and now covers more than 370 cases decided by courts and arbitration tribunals from around the world. The new edition is substantially revised, covering new topics such as

This contribution to a proposed Research Handbook on the Economics of Corporate Law (Claire A. Hill and Brett H. McDonnell, eds.) deals with the role of the public interest in corporate law from four perspectives. First, it describes the extremely limited role that the concept of the public interest plays in corporate law doctrine. Second, it reviews the standard account of the manner in which corporate law serves the public interest, and its implications for policy. Third, it describes two different understandings, from the “progressive” branch of corporate law scholarship, of the relationship between the public interest and corporate law. Fourth, it comments on the degree to which these alternative understandings are capable of generating persuasive arguments for corporate law reform.

The dominant view of the corporation in legal scholarship is contractarian, one that sees the corporation as a “nexus of contracts” among the various suppliers of inputs to the business, such as investors, creditors, and employees. According to this view, the holders of common stock—those who are traditionally the primary focus of corporate law—are not the owners of the corporation, but just one of many contractual claimants. As a result, the corporation is a free-floating nexus of contracts with no property interests in the corporation itself or its assets. Thus, corporate law is seen as essentially a specialized branch of contract law. The contractarian metaphor has largely persuaded the academy and much of the corporate law bench, evidenced by the regularity in which Delaware courts interpret charter documents as “contracts.” Courts and commentators alike regard corporate law as essentially a set of “off-the-rack” contractual default rules provided by the state. Yet the contractarian metaphor has struggled to account for some of the most fundamental features of corporate law. For example, the nexus of contracts view fails to adequately explain why fiduciary duties attach uniquely to shareholders and not to other contractual claimants on the corporation. Equally important, the nexus of contracts approach also fails to account for the many in rem features of the corporation that contract law could not easily replicate. There is a piece missing in the contractarian account of the corporation. This Article argues that property law provides the missing piece of the contractarian puzzle in demarcating the boundaries of corporate law and explaining the distinctive features of it. In the property theory, the corporation is an ownership structure—a device for turning a messy set of in personam claims into an orderly package of in rem property rights, called “shares.” The in rem structure depersonalizes these rights, allowing them to be divided and transferred without contractual assent and without entangling the personal attributes of the holder. The key to the proprietary nature of this ownership interest is the residual control—voting rights—that solidify the status of common stock as a property interest rather than a contractual interest. The property theory’s assertion that claims on the corporation are a mix of property and contract rights provides traction in otherwise slippery areas of corporate law. If there is a line to be drawn between contract and property, this dividing line identifies the boundaries of distinctively corporate law from contract law. Accordingly, the rationale for shareholder-only fiduciary duties is not primarily that shareholders are the residual claimants in the economic sense, but that they have a residual control right constituting an ownership interest unique among corporate claimants. The property theory of corporate law best explains many features of corporate law and clarifies otherwise murky line drawing exercises in defining the scope of fiduciary duties.