If Director's Fiduciary Obligations Are Not Contractual, What About Rights To Indemnification?

Allen Matkins

Allen Matkins

Yesterday's post concerned, a recent ruling by Vice Chancellor Sam Glasscock in Lacey v. Mota-Velasco, C.A. No. 2019-0312-SG (Del. Ch. Feb. 11, 2021).  In finding that a director's duties are fiduciary, not contractual, the Vice Chancellor observed:

"While a corporate charter operates in some respects as part of a contractual arrangement among the stockholders and the corporation and its board, the entity and its directors are not contractually bound to one another by the charter—they are not counter-parties—and the legal compulsion for directors to comply with the charter arises as part of their fiduciary duties, and not in contract."

If a corporation and its directors are not counterparties to a contract embodied in the corporate charter, do directors, officers and other agents have any right to enforce indemnification provisions included in the corporate charter? 

It seems, and seemed, to me that a case can be made that the case can be made that indemnification provisions included in corporate charters could meet the definition of a contract, at least under California law. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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