Category: Freedom of Contract

NEW BLOG POST BY PETER MAHLER ABOUT NEW LAW JOURNAL ARTICLE ON LLC FREEDOM OF CONTRACT AND HOW IT IS BEING ABUSED

By , August 1, 2016 8:58 am

In the post under the link below, Peter Mahler discusses an important new law journal article by Professor Peter Molk of Willamette Law School on LLC freedom of contract and how it is being abused.  Every LLC formation lawyer should read the Mahler post and the Molk article.

Here is the link:

http://www.nybusinessdivorce.com/2016/06/articles/interviews/professor-peter-molks-groundbreaking-study-llc-owners-contract-around-default-statutory-protections/

IMPLIED COVENANT

By , February 19, 2015 10:35 am

The blog post under the link below discusses a January 28, 2015 decision by the Delaware Court of Chancery in a case called Orckit Communications Ltd. v. Networks Inc., and you can get a copy of the decision through that link.  The case is complex, but, in essence, under the relevant facts, it upholds a waiver of the implied contractual covenant of good faith and fair dealing (the “Implied Covenant”).  The Implied Covenant provides that on issues not addressed in contracts, the parties must meet one another’s reasonable expectations as in effect at the time of execution.  The Implied Covenant haunts LLC drafting, and a constitutional argument can be made that it is non-waivable.  But if your LLC formation client wants it to be waived in the governing operating agreement, read Orckit and look for common law waiver guidelines.

Here’s the link:   http://www.rlf.com/Publications/5931.

NEW ARTICLE BY CHIEF JUSTICE STRINE AND VICE CHANCELLOR LASTER

By , September 25, 2014 1:11 pm

Freedom of contract is, along with management structure flexibility and pick-your-partner and charging order protections, the major factor for most entity formation clients in choosing between LLCs and state-law business corporations as the entities they will use to conduct a new business.  The attached blog post in the “Delaware Corporate and Commercial Litigation Blog” summarizes and provides a link to a recently published law journal article by  two justices of the Delaware Court of Chancery that argues that the statutory freedom of contract available to the members of Delaware LLCs and other Delaware non-corporate entities should be restricted.

In Chapter 3 of my Wolters Kluwer LLC book, I discuss the concept of LLC freedom of contract in great detail.  On the basis of that discussion, I have to confess, with all due respect, that I think that the justice’s article is dead wrong.