Corporate Charters - Who Are Parties?
Last summer, I considered the question of whether bylaws constitute a contract under California law. See Are Bylaws Contracts Under California Law? and Are Bylaws a Contract or Contracts? Earlier this month, Vice Chancellor Sam Glasscock III ruled that a director's duties are fiduciary not contractual:
"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."
Lacey v. Mota-Velasco, C.A. No. 2019-0312-SG (Del. Ch. Feb. 11, 2021). This case involved a derivative claim by stockholders that was based on the theory that directors of a corporation could be liable to the corporation for breach of contract as a result of the corporation's failure to abide by its charter. Vice Chancellor acknowledged that it is "useful" to consider direct actions by stockholders against the corporation as actions in contract. However, he found that directors are not subject to a contract simply because it binds the corporation.