15 Pa. Cons. Stat. § 1712

Standard of care, justifiable reliance and business judgment rule.

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§ 1712. Standard of care, justifiable reliance and business judgment rule.

(a) General rule.--A director of a business corporation shall stand in a fiduciary relation to the corporation and shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director reasonably believes to be in the best interests of the corporation and with such care, including the skill and diligence that a person of ordinary prudence would use under similar circumstances and reasonable inquiry into those issues required by the statutes of this Commonwealth to be considered in the circumstances and those interests and factors listed or described in section 1715(a) (relating to exercise of powers generally) or 1716(a) (relating to alternative standard) that the director considers appropriate. This subsection is subject to subsection (d) where applicable.

(a.1) Justifiable reliance.--In performing the duties of a director, and in satisfying the requirements of subsection (d), a director is entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:

(1) One or more officers or employees of the corporation or an affiliate of the corporation whom the director reasonably believes to be reliable and competent in the matters presented.

(2) Counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such person.

(3) A committee of the board upon which the director does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.

(b) Effect of actual knowledge.--A director is not considered to be acting in good faith under subsection (a.1) if the director has actual knowledge concerning the matter that causes the director to believe reliance is unwarranted.

(c) Officers.--(Deleted by amendment).

(d) Business judgment rule.--A director who makes a business judgment in good faith fulfills the duties under this section if:

(1) the subject of the business judgment does not involve self-dealing by the director or an associate or affiliate of the director;

(2) the director is informed with respect to the subject of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and

(3) the director rationally believes that the business judgment is in the best interests of the corporation.

(e) Burden of proof.--A person challenging the conduct of a director as violating the duty of care under this section has the burden of proving:

(1) a breach of the duty of care, including that a requirement for fulfillment of that duty under subsection (d) has not been met; and

(2) in a damage action, that the breach was the legal cause of damage suffered by the corporation.

(Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)

Cross References. Section 1712 is referred to in sections 1553, 1715, 1716, 1717, 3321 of this title.

Notes of Decisions

Cited in 14 cases (2 in the last 5 years), 1998–2023 · leading case: Anchel v. Shea

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Anchel v. Shea (2000) pasuperct · cites it 4× “See 15 Pa.C.S. § 1712. Thus, Freadman’s commitment as a director vested him, unquestionably, with the right to vote against Anchel.”

FIDELITY BOND AND MORTG. CO. v. Brand (2007) paed “’ ” It cites 15 Pa.C.S. § 1712(b) for the proposition that a director acts in bad faith if he has knowledge that “would cause his reli- *729 anee to be unwarranted.”

Santoro v. Morse (2001) pasuperct “¶ 22 We do not agree, however, that the same infirmity is found in those portions of the injunction which (a) impressed the stock of CTINY with a constructive trust in favor of CTI, and (b) *1231 directed an accounting and access, via counsel, to the books of the corporation. ¶…”

Harold C. Lampe, Jr V. (2011) ca3 “15 Pa. Cons.Stat. Ann. § 512(a); see also 15 Pa.”

Crawford v. Zambrano (In re Zambrano Corp.) (2012) pawb · cites it 2× “Pennsylvania law codifies the fiduciary duties owed to a corporation by directors at 15 Pa. Cons.Stat. Ann. § 1712; Section 1712(a) applies to directors while Section 1712(c) applies to officers.”

Zampogna v. Law Enforcement Health Benefits, Inc. (2013) pacommwct “§ 512(a), which applies to "domestic corporations," and 15 Pa.C.S. § 1712(a), which applies to "business corporations.”

Matlow, R. v. Marsh, B. v. Gateway Towers (2019) pasuperct · cites it 2× “Citing 15 Pa.C.S. § 1712(a) and arguing that corporate principles apply to a non-profit entity like GTCA, GTCA states that “[i]t is a general rule that an action at law to recover damages for an injury to a corporation can be brought only in the name of the corporation itself…”

Chappel v. Applied Control Systems Inc. (1998) pactcomplallegh “A director of a corporation has a *175 legal obligation to the corporation to perform her duties as a director in good faith and in a manner that she reasonably believes to be in the best interests of the corporation. The director must use such care, including reasonable…”

Kitty Ward Travel v. Ward, T. (2016) pasuperct “15 Pa.C.S. § 1712. 6 “Voluntary transfer of corporate assets” is the title of 15 Pa.”

Qato, E. v. Xoxe, P. (2022) pasuperct “in good faith, in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances -8- J-A26003-21 15 Pa.C.S. § 1712(a).…”

DRIVER OPPORTUNITY PARTNERS I, LP v. ADAMS (2023) pawd “15 Pa.C.S. §§ 1712, 1715 and 1716) that the directors’ duty is owed solely to the corporation.”

Ciampa, P. v. Conversion Sciences, Inc. (2015) pasuperct “” 15 Pa.C.S. § 1712(c). - 21 - J-A24018-15 his undivided loyalty; if there is presented to him a business opportunity which is within the scope of its own activities and of present or potential advantage to it, the law will not permit him to seize the opportunity for himself; if…”

Show all 14 citing cases →

— 15 Pa. Cons. Stat. § 1712(a) — 7 cases

Anchel v. Shea (2000) pasuperct “See 15 Pa.C.S. § 1712. Thus, Freadman’s commitment as a director vested him, unquestionably, with the right to vote against Anchel.”

Harold C. Lampe, Jr V. (2011) ca3 “15 Pa. Cons.Stat. Ann. § 512(a); see also 15 Pa.”

Zampogna v. Law Enforcement Health Benefits, Inc. (2013) pacommwct “§ 512(a), which applies to "domestic corporations," and 15 Pa.C.S. § 1712(a), which applies to "business corporations.”

Matlow, R. v. Marsh, B. v. Gateway Towers (2019) pasuperct “Citing 15 Pa.C.S. § 1712(a) and arguing that corporate principles apply to a non-profit entity like GTCA, GTCA states that “[i]t is a general rule that an action at law to recover damages for an injury to a corporation can be brought only in the name of the corporation itself…”

— 15 Pa. Cons. Stat. § 1712(b) — 1 case

— 15 Pa. Cons. Stat. § 1712(c) — 1 case

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