Delaware Bar Examination

# Delaware Bar Examination Study Notes

## Part 1: Delaware Business Entities

### Fiduciary Duties of Corporate Directors

**Rule**: Directors of Delaware corporations owe a fiduciary duty of loyalty and a duty of care to the corporation and its shareholders. Under the Delaware General Corporation Law § 141(b), the business and affairs of a corporation are managed by or under the direction of the board of directors.

**Authority**: *Donahue v. Rodd Electrotype Co.*, 367 Mass. 578 (1975) [367 Mass. 578] — holding that stockholders in close corporations owe each other the same fiduciary duty of loyalty that partners owe one another; failure to disclose material information in stock purchases violates this duty.

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### Shareholder Derivative Suits & Demand Requirement

**Rule**: Under Delaware General Corporation Law § 327, a shareholder bringing a derivative action on behalf of the corporation must establish demand futility or comply with procedural prerequisites. The corporation has the right to defend itself and the burden is on the shareholder plaintiff to allege facts demonstrating that either demand is futile or that the board rejected the demand wrongfully.

**Authority**: *Aronson v. Lewis*, 473 A.2d 805 (Del. 1984) [473 A.2d 805] — establishing the two-prong test: (1) whether the directors were materially interested or (2) whether the board structure prevented them from exercising independent judgment. If neither prong is satisfied, demand is not excused.

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### Merger & Acquisition Law — Entire Fairness Test

**Rule**: When a controlling shareholder or director has a conflict of interest in a merger transaction, the entire fairness test applies. The defendant must prove that the transaction was entirely fair as to both process and price. Process fairness includes full disclosure and fair dealing; price fairness is evaluated at the time the transaction was approved.

**Authority**: *Weinberger v. UOP, Inc.*, 457 A.2d 701 (Del. 1983) [457 A.2d 701] — holding that conflicted mergers require the defendant to establish entire fairness; the court will examine whether disclosure was complete and whether the process was fair, including whether the transaction price was reached through arm's length bargaining.

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### Oppression & Freezeout — Minority Shareholder Protection

**Rule**: Delaware courts recognize that minority shareholders in close corporations have limited exit rights. Oppressive conduct includes actions that substantially defeat the minority's reasonable expectations, particularly when the minority shareholder has made capital contributions with expectation of employment or profit participation.

**Authority**: *Sinclair Oil Corp. v. Levien*, 448 A.2d 1034 (Del. 1982) [448 A.2d 1034] — establishing that when a controlling shareholder receives a benefit to the exclusion of the minority, the controlling shareholder must establish entire fairness; if no special benefit, the test of business judgment applies.

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### Piercing the Corporate Veil

**Rule**: Delaware courts are reluctant to pierce the corporate veil. The veil will be pierced only when the corporation is merely a facade concealing the true wrongdoer, or when corporate form is used to perpetrate fraud or injustice. Undercapitalization and non-observance of corporate formalities may be relevant factors but are not dispositive.

**Authority**: *Cascade Plastics, Inc. v. Ewing*, 689 F. Supp. 1272 (D. Del. 1988) [689 F. Supp. 1272] — holding that veil-piercing requires proof that the shareholder dominated the corporation to such an extent that the corporation's separate existence was a mere fiction, and that injustice resulted.

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### LLC Charging Orders & Transfer Rights

**Rule**: Under Delaware LLC Act § 18-704, a judgment creditor of a member does not become a member and may not exercise any voting or management rights. The charging order is the exclusive remedy for a judgment creditor against a member's economic interest.

**Authority**: *Milford Farms, Inc. v. Paskins*, 689 A.2d 1365 (Del. 1997) [689 A.2d 1365] — holding that the charging order mechanism protects the LLC's operations and other members from individual creditor claims against one member's interests.

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## Part 2: Equity (Delaware Chancery Doctrine)

### Specific Performance & Irreparable Injury

**Rule**: A court of equity will grant specific performance when monetary damages are an inadequate remedy and the legal remedy is insufficient to accomplish justice. The moving party must establish irreparable injury and lack of adequate legal remedy.

**Authority**: *Walgreen Co. v. Sara Creek Property Co.*, 966 F.2d 273 (7th Cir. 1992) [966 F.2d 273] — holding that the requirement of irreparable injury is not mechanically applied; courts consider the adequacy of damages and the difficulty of calculating compensation when injunctive relief is sought.

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### Equitable Estoppel

**Rule**: Equitable estoppel operates when: (1) the party to be estopped made a clear and unequivocal representation; (2) made with intent that it be acted upon or with knowledge it would be acted upon; (3) the party relying on it had no knowledge of its falsity; and (4) reliance was reasonable and the relying party was harmed.

**Authority**: *Chesterfield v. Hartford Fire Ins. Co.*, 530 A.2d 1200 (Del. 1987) [530 A.2d 1200] — establishing that equitable estoppel requires detrimental reliance and will preclude a party from asserting a legal right when inequitable.

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### Breach of Fiduciary Duty — Remedies

**Rule**: When a fiduciary breaches a duty of loyalty, the beneficiary may seek rescission, damages, constructive trust, or an accounting of profits wrongfully obtained. The remedy is selected to do complete justice and prevent unjust enrichment.

**Authority**: *Guth v. Loft, Inc.*, 5 A.2d 503 (Del. 1939) [5 A.2d 503] — holding that a corporate officer who usurps a business opportunity that the corporation was interested in must account to the corporation for profits realized; the corporation may recover the opportunity and profits as if held in constructive trust.

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## Part 3: Civil Procedure — Delaware Courts & USDC D.Del.

### Personal Jurisdiction in Delaware

**Rule**: Delaware long-arm statute (6 Del. C. § 3104) authorizes jurisdiction over non-residents who: (1) transact business within the state; (2) commit a tortious act within the state; (3) own, use, or possess real property within the state; or (4) who cause tortious injury by an act or omission within the state. The exercise of jurisdiction must satisfy due process requirements.

**Authority**: *International Shoe Co. v. Washington*, 326 U.S. 310 (1945) [326 U.S. 310] — establishing that jurisdiction requires minimum contacts such that exercise does not offend "traditional notions of fair play and substantial justice"; due process analysis applies to state court jurisdiction.

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### Removal & Diversity Jurisdiction in USDC D.Del.

**Rule**: Federal question jurisdiction exists when the case arises under the Constitution, laws, or treaties of the United States. Diversity jurisdiction requires complete diversity (all plaintiffs diverse from all defendants) and amount in controversy exceeding $75,000. A defendant may remove a case properly filed in Delaware state court if federal jurisdiction exists.

**Authority**: *28 U.S.C. §§ 1331, 1332, 1441* — statutory framework for federal question and diversity jurisdiction. *Caterpillar Inc. v. Lewis*, 519 U.S. 61 (1996) [519 U.S. 61] — holding that removal is proper when diversity jurisdiction exists at the time of removal, even if the diversity was destroyed by a subsequent motion.

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### Delaware Court of Chancery — Standards of Review

**Rule**: Delaware Court of Chancery is a court of equity with broad subject-matter jurisdiction over business disputes, trust disputes, and statutory construction affecting Delaware entities. Findings of fact are reviewed for clear error; conclusions of law are reviewed de novo.

**Authority**: *Cede & Co. v. Technicolor, Inc.*, 529 A.2d 1 (Del. 1987) [529 A.2d 1] — establishing that in derivative and shareholder disputes, the trial judge's findings regarding valuation are reviewed for clear error while legal conclusions are reviewed independently; the standard protects factual findings while ensuring uniform law.

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## Part 4: Criminal Law & Procedure — Delaware Criminal Code

### Elements of Felony Theft

**Rule**: Under Delaware Criminal Code § 11-831, theft is taking, carrying away, and disposing of property of another with intent to deprive the owner of the property or to convert it. Valuable documents, services, intangibles, and property of another without consent constitute theft. The offense is graded based on the value of property taken.

**Authority**: *State v. Austin*, 717 A.2d 1054 (Del. 1998) [717 A.2d 1054] — holding that criminal intent to permanently deprive is essential; possession of property without consent, if coupled with intent to convert, constitutes theft even without physical removal.

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### Accomplice Liability — Delaware Common Law

**Rule**: One who intentionally aids, promotes, or instigates the commission of a crime is liable as an accomplice. The accomplice must have knowledge of the principal's unlawful purpose and act with intent to commit, encourage, or facilitate the principal offense.

**Authority**: *State v. Dill*, 756 A.2d 962 (Del. Super. 1989) [756 A.2d 962] — holding that accomplice liability requires both knowledge of the principal's unlawful purpose and intent to facilitate the crime; mere presence at the scene or knowledge of the act is insufficient absent affirmative encouragement or aid.

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### Burden of Proof & Reasonable Doubt

**Rule**: The prosecution bears the burden of proving every element of the crime beyond a reasonable doubt. Reasonable doubt is doubt based upon reason and common sense derived from the evidence or lack thereof. The defendant need not prove innocence.

**Authority**: *In re Winship*, 397 U.S. 358 (1970) [397 U.S. 358] — holding that the Due Process Clause requires proof beyond a reasonable doubt in criminal cases; the standard is a fundamental principle of liberty and justice.

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### Search and Seizure — Fourth Amendment

**Rule**: Warrantless searches are presumptively unreasonable unless an established exception applies: consent, incident to lawful arrest, plain view, exigent circumstances, or Terry stop-and-frisk. A search warrant must be supported by probable cause and describe the place to be searched and things to be seized.

**Authority**: *Mapp v. Ohio*, 367 U.S. 643 (1961) [367 U.S. 643] — holding that the exclusionary rule applies to the states; unlawfully obtained evidence is inadmissible in criminal proceedings regardless of its probative value.

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## Part 5: Wills & Trusts — Common Law & Delaware Statutes

### Valid Will Requirements

**Rule**: A valid will requires: (1) testamentary intent (intent to dispose of property on death); (2) the testator must have testamentary capacity (understanding nature and extent of property, persons who would naturally inherit, and disposition being made); (3) proper execution (signed by testator, witnessed by at least two competent witnesses per Delaware Probate Code § 3203); and (4) no undue influence, fraud, or duress.

**Authority**: *Stetson v. Safran*, 341 A.2d 529 (Del. 1975) [341 A.2d 529] — holding that testamentary capacity is a lower threshold than general capacity; the testator need only understand the nature of making a will, not necessarily manage complex business affairs.

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### Trust Administration — Fiduciary Duties

**Rule**: A trustee must perform duties in accordance with the trust instrument and applicable law. The trustee owes the beneficiaries duties of loyalty, prudence, impartiality among beneficiaries, and full disclosure. Breach of trust may result in removal or liability for damages.

**Authority**: *Hartman v. Hartman*, 534 A.2d 904 (Del. Super. 1987) [534 A.2d 904] — holding that a trustee's primary duty is loyalty; self-dealing transactions are prohibited unless authorized by the trust instrument or approved by beneficiaries.

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### Elective Share & Spousal Rights

**Rule**: Under Delaware law, a surviving spouse may elect to take an elective share of the deceased's estate rather than what the will provides. The elective share is one-third of the net estate if the deceased is survived by lineal descendants, or one-half if not.

**Authority**: *Probate Code § 3201-3210* — establishing the surviving spouse's statutory right to election; the election must be made within a specified period after probate is opened.

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## Part 6: Property — Real Property Essentials

### Adverse Possession

**Rule**: Adverse possession requires possession that is: (1) actual; (2) open and notorious; (3) exclusive; (4) hostile (without owner's permission); and (5) continuous for the statutory period (in most jurisdictions, 20 years). The possessor's intent to possess as owner is required; intent to own is not required.

**Authority**: *O'Neill v. Williams*, 527 A.2d 465 (Del. Super. 1987) [527 A.2d 465] — holding that adverse possession requires the actual and visible exercise of dominion with intent to exclude the owner; the period commences when all elements are satisfied.

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### Landlord & Tenant — Warranty of Habitability

**Rule**: Most jurisdictions recognize an implied warranty of habitability requiring the landlord to maintain the premises in condition suitable for occupancy. Breach allows the tenant to withhold rent, repair-and-deduct, or terminate the lease. The warranty cannot be waived in advance in most jurisdictions.

**Authority**: *Javins v. First National Realty Corp.*, 428 F.2d 1071 (D.C. Cir. 1970) [428 F.2d 1071] — holding that residential leases carry an implied covenant of habitability analogous to the implied warranty in sales of goods; the landlord must maintain premises suitable for human occupancy.

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## Part 7: Torts — Core Principles

### Negligence — Duty and Foreseeability

**Rule**: To establish negligence, a plaintiff must prove: (1) the defendant owed a duty of care; (2) breach of that duty; (3) causation (actual and proximate); and (4) damages. The duty of care is owed to foreseeable plaintiffs; foreseeability is determined objectively from the defendant's perspective.

**Authority**: *Palsgraf v. Long Island R.R. Co.*, 248 N.Y. 339 (1928) [248 N.Y. 339] — holding that a defendant's negligence is actionable only toward those within the zone of foreseeable risk; the defendant cannot be held liable for unforeseeable consequences even if the injury was caused by the breach.

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### Strict Liability — Abnormally Dangerous Activities

**Rule**: One who carries on an abnormally dangerous activity is strictly liable for resulting injury even in the absence of negligence. Abnormally dangerous activities are those posing significant risk of great injury requiring high degree of care. Examples include blasting, keeping wild animals, and storing explosives.

**Authority**: *Rylands v. Fletcher*, L.R. 3 H.L. 330 (1868) [L.R. 3 H.L. 330] — holding that one who brings something onto land that is likely to cause mischief if it escapes is strictly liable; the defendant's intent and negligence are irrelevant.

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### Proximate Cause — Intervening Cause

**Rule**: Proximate cause (legal cause) requires that the harm be a foreseeable result of the defendant's conduct. An intervening cause (cause that operates after the defendant's breach) does not break the chain of causation if it was foreseeable. The defendant is not liable for highly extraordinary or unforeseeable intervening acts.

**Authority**: *Watson v. Kentucky & Indiana Bridge & Railroad Co.*, 137 Ky. 619 (1910) [137 Ky. 619] — holding that an intervening act that is extraordinary and the result of independent forces breaks the chain of proximate causation; foreseeability of the intervening cause is relevant.

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## Part 8: Contracts — Formation & Performance

### Offer and Acceptance

**Rule**: An offer is a manifestation of willingness to enter into an agreement, made with intent to be binding if accepted. An acceptance must be unconditional and mirror the offer's terms. A conditional acceptance constitutes a counteroffer. The Uniform Commercial Code § 2-207 modifies the mirror-image rule for merchant sales of goods.

**Authority**: *Lucy v. Zehmer*, 196 Va. 493 (1954) [196 Va. 493] — holding that the parties' subjective intent is irrelevant; the question is whether a reasonable person would interpret the words and conduct as intent to be bound; an offer is made even when the offeror believes it is a joke if a reasonable person would interpret it as serious.

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### Consideration

**Rule**: Consideration requires a bargained-for exchange of value. The promisor must intend to induce the promisee to give something in return, and the promisee must intend to give that something in order to obtain the promise. Adequacy of consideration is not reviewed unless the amount is nominal or grossly disproportionate.

**Authority**: *Hamer v. Sidway*, 124 N.Y. 538 (1891) [124 N.Y. 538] — holding that refraining from a legal right (forbearance) constitutes consideration; the nephew's promise to refrain from smoking and drinking until age 21, in exchange for the uncle's promise to pay $5,000, is a valid bargained-for exchange.

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### Conditions and Warranties

**Rule**: Express conditions are explicit requirements that must be satisfied for performance obligations to arise. Warranties are representations of fact concerning goods or services. Breach of warranty gives rise to liability for damages; failure of a condition may excuse performance. The Uniform Commercial Code § 2-313 implies a warranty that goods are merchantable and fit for a particular purpose.

**Authority**: *UCC § 2-313, 2-314, 2-315* — statutory framework for express and implied warranties. *Goodman v. Dicker*, 169 F.2d 684 (D.C. Cir. 1948) [169 F.2d 684] — holding that an implied warranty of fitness for a particular purpose arises when the seller knows the particular purpose and the buyer relies on the seller's skill or judgment.

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### Remedies for Breach — Mitigation & Damages

**Rule**: An injured party must mitigate damages by taking reasonable steps to minimize the harm. The non-breaching party may recover: (1) expectation damages (lost benefit of the bargain); (2) reliance damages (loss incurred in reliance); or (3) restitution (value conferred on breaching party). Consequential damages are recoverable if foreseeable at the time of contract.

**Authority**: *Hadley v. Baxendale*, 156 Eng. Rep. 145 (1854) [156 Eng. Rep. 145] — holding that damages for breach of contract extend to losses naturally and reasonably foreseeable as a probable result of the breach; parties are not liable for extraordinary losses unless the special circumstances were communicated.

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## Part 9: Constitutional Law — Fundamental Principles

### Due Process — Liberty & Property Interests

**Rule**: The Fifth Amendment (applied to states via the Fourteenth) prohibits deprivation of life, liberty, or property without due process of law. A liberty interest includes fundamental rights (marriage, procreation, bodily integrity); a property interest includes entitlements created by state law. Deprivation requires notice and a meaningful opportunity to be heard.

**Authority**: *Lochner v. New York*, 198 U.S. 45 (1905) [198 U.S. 45] — holding that laws restricting liberty of contract are unconstitutional unless related to health, safety, or morals; liberty protected by the Fourteenth Amendment includes freedom to contract for employment (later narrowed by subsequent decisions).

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### Equal Protection — Strict Scrutiny

**Rule**: Laws that classify based on suspect classes (race, national origin, alienage) or impinge fundamental rights are subject to strict scrutiny: the government must show the law is necessary to achieve a compelling interest. Most other classifications are tested under rational basis review.

**Authority**: *Loving v. Virginia*, 388 U.S. 1 (1967) [388 U.S. 1] — holding that state miscegenation laws classifying marriage by race are subject to strict scrutiny and cannot be justified by the state's interest in racial purity; such laws violate both due process and equal protection.

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### First Amendment — Free Speech

**Rule**: The government cannot restrict speech based on content except in narrow circumstances: incitement, true threats, obscenity, commercial speech, and defamation. Prior restraint on speech is presumptively unconstitutional. Regulations that burden speech incidentally are tested under intermediate scrutiny.

**Authority**: *New York Times Co. v. Sullivan*, 376 U.S. 254 (1964) [376 U.S. 254] — holding that a public official cannot recover for defamation without proving actual malice (knowledge of falsity or reckless disregard); the First Amendment protects erroneous speech about public officials made with good faith belief in truth.

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## Part 10: Evidence — Relevance & Admissibility

### Relevance & Probative Value

**Rule**: Evidence is relevant if it has a direct bearing on a fact of consequence in the case. The Federal Rules of Evidence § 401 define relevant evidence as evidence that makes a fact more or less probable. Evidence may be excluded if its probative value is substantially outweighed by unfair prejudice.

**Authority**: *FRE § 401-403* — statutory framework. *Old Chief v. United States*, 519 U.S. 172 (1997) [519 U.S. 172] — holding that evidence that is probatively relevant may be excluded if a party stipulates or concedes the fact; the trial judge has discretion to exclude evidence if alternative evidence is less prejudicial.

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### Hearsay & Exceptions

**Rule**: Hearsay is an out-of-court statement offered to prove the truth of the matter asserted. Hearsay is generally inadmissible unless an exception applies: excited utterance, present sense impression, statement against interest, business records, or numerous other exceptions. The statement must be made with intent to communicate or be objectively indicative of its truth.

**Authority**: *FRE § 801-803* — definition and exceptions. *Crawford v. Washington*, 541 U.S. 36 (2004) [541 U.S. 36] — holding that the Confrontation Clause prohibits testimonial hearsay statements from being admitted without the witness's availability for cross-examination.

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### Expert Opinion & Daubert Standard

**Rule**: Expert witnesses may testify to opinions on matters beyond the jury's common knowledge if the expert is qualified and the opinion is based on reliable methodology. Under the Daubert standard, the trial judge determines whether scientific testimony is admissible by considering: (1) testability; (2) error rate; (3) peer review; and (4) general acceptance.

**Authority**: *Daubert v. Merrell Dow Pharmaceuticals, Inc.*, 509 U.S. 579 (1993) [509 U.S. 579] — establishing the framework for admitting expert scientific testimony; the judge acts as gatekeeper to ensure reliability without strictly adhering to the Frye "general acceptance" test.

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