There Two Ways To Create An Obligation And Six Ways To Extinguish It

California defines an “obligation” as “a legal duty, by which a person is bound to do or not to do a certain thing.”  Cal. Civ. Code § 1427.  An obligation is created in one of two ways: by contract or by operation of law.  Cal. Civ. Code § 1428.  The Civil Code, however, provides six different means

Oracular Utterances From California’s Civil Code

In prior posts, I’ve mentioned the Etruscans who were the northern neighbors of the Latins and the erstwhile kings of Rome.  The last of these kings was Tarquinius Superbus, also known as Tarquin the Proud.  According to the ancient sources, Tarquinius Superbus was induced, or tricked, into buying a set of books (actually scrolls) from the Sybil

Are Charter Indemnification Provisions Contracts?

Public companies typically include provisions in their articles and bylaws that mandate indemnification of directors and officers.  Often, these provisions include a statement to the effect that the rights to indemnification are a contract right.  However, declaring that a contract exists does not necessarily establish a contract.  Fortunately, the California Civil Code provides some rules for

Is An Immoral Contract Unlawful?

Last week, I wrote about a proposal by the Nevada Secretary of State to ban the establishment of  a corporation for an “illicit purpose“.  Currently, Nevada specifically authorizes the formation of corporations to transact any “lawful” business and for “legitimate” purposes, NRS 78.030(1), while California permits corporations to be formed for “lawful” purposes, Cal. Corp. Code §

Can Officers Contract For The Business Judgment Rule?

Yesterday, I wrote about a recent memorandum opinion by U.S. District Court Judge Dale S. Fischer that led to a jury verdict awarding nearly $169 million in damages against three former corporate officers.  Among other things, Judge Fischer ruled that the business judgment rule is not available to corporate officers under California law. Nearly four years ago, the

How To Interpret An Indemnity Agreement

When interpreting an indemnity provision, whether in the articles of incorporation, bylaws or a separate agreement, the first question might be what does “indemnity” mean?  Etymologically, “indemnity” is derived from the Latin words in (not) and damnum (injury or damage).  Section 2772 of the California Civil Code defines “indemnity” as “a contract by which one

When Signing As Agent Can Lead To Personal Liability

In the transactional setting, lawyers are often concerned with confirming the authority of corporate officers and other agents to bind the corporation. Thus, we often see representations and warranties of due authorization and execution and legal opinions to that effect as well.  The focus of these efforts is, of course, to ensure that the principal