Academic journal article Law and Contemporary Problems

Delaware Corporate Law and the Model Business Corporation Act: A Study in Symbiosis

Academic journal article Law and Contemporary Problems

Delaware Corporate Law and the Model Business Corporation Act: A Study in Symbiosis

Article excerpt

I

INTRODUCTION

The central point of this article is that there has been a constructive symbiosis between the Model Business Corporation Act (MBCA) and Delaware's corporation law, including its statutory component (the Delaware General Corporation Law, or DGCL) and its case law. We see three main elements of this symbiosis.

First, each set of statutes has been informed by drafting and case-law experience generated under the other.

Second, especially in recent years, Delaware's legislature and judiciary have initiated important new elements of corporate law, subsequently adopted by the MBCA.

Finally, the MBCA's more deeply deliberative style has led to useful refinements of Delaware law.

We interrupt this optimistic assessment at the outset, however, to point out that this symbiosis was--put gently--not visibly intended or perceived by the original shapers of the MBCA. They publicly derided the craftsmanship of the Delaware statute ("poor in sequence and loose in its provisions")' and stoutly asserted the superiority of their own work ("the organization of subject matter in the Model Act is the best that can be devised"). (2) As they saw it, the MBCA was substantively superior to Delaware's corporate law: with evident disdain, the MBCA drafters explained that "under the Delaware law charter amendments may be adopted upon the vote of a mere majority of the voting shares, and dividends may be declared and paid from earnings of the current or preceding year even though there may be large accumulated deficits from prior years.'' (3) In sum, Delaware's statute was notably infradig: "[I]t was not the type of statute which the committee should present as a model for states intending to revise their laws," and "not a single member of the committee thought it desirable to use the Delaware statute as a pattern.' (4)

We loyal Delawareans do not intend to quibble with the boastful founding generation of the MBCA. True, we would not anoint the MBCA with the self-congratulatory accolades that accompanied (promoted?) the publication of the Model Business Corporation Act Annotated in 1961 ("[A] magnificent work. I cannot remember when in recent years I have experienced such sheer pleasure from reading a legal text...."). (5) But the drafters of the original MBCA had reason to take pride in their work and to plausibly contend that the MBCA was better organized and more clearly drafted than the DGCL. We do not argue that the MBCA drafters did not have a case to make on that score, particularly as we concede that the current MBCA remains arguably a better model than the current DGCL for states lacking Delaware's highly developed judicial system and corporate case law.

As will be seen, however, our praise of the MBCA is not unalloyed: there have been occasions on which its hallmark precision has impaired its utility as a model, and its assertions of superiority have been overblown. But due to its unique form of authorship--through the work of a select committee of consistently conscientious, intelligent, and experienced corporate lawyers--the MBCA has made major contributions to U.S. corporate law and to the development of Delaware's law itself. Delaware has contributed to the MBCA too, and these mutual contributions have had an unexpected but felicitous effect on U.S. corporate law.

II

STATUTORY RELATIONSHIP

At first glance, the origins of the MBCA and the modern DGCL seem unrelated. The statutes differ materially in language, structure, and approach. Moreover, the two statutes have quite distinct foundations: the modern DGCL springs from the 1967 revision to the DGCL (1967 Revision), and a comprehensive report prepared by Professor Ernest L. Folk III (Folk Report). (6) In contrast, the MBCA's primary drafters were members of the Chicago bar, and the original MBCA (1950 MBCA) drew heavily upon the Illinois Business Corporation Act enacted in 1933. …

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