Pg 32

Question 1

What is the date that the ratification becomes binding?

Answer 1

The principal is bound as of the date of the unauthorized act. The ratification makes it so that the unauthorized act was always authorized.

Question 2

Can acts that are against public policy be ratified?

Answer 2

No

Question 3

Can a principal have an agent do something for him that he couldn’t do directly himself?

Answer 3

No.

Question 4

If an act is void to begin with can it be ratified?

Answer 4

No

Question 5

If at ratification a principal is ignorant of material facts that are involved in the original transaction, what happens?

Answer 5

He can avoid the affirmance

Question 6

If you own shares in a corporation called Tri-star and a horse called Tri-stand and you message your accountant and say, “Sell Tri-star for $2000“ but she misread and sells the horse, then deposits the money and you say, “good job“ is that a ratification?

Answer 6

No, because you didn’t know the material facts that the horse was being sold instead of the stocks.

Question 7

What is a way that a principal can ratify a transaction without specifically saying the words?

Answer 7

He can receive or retain the benefits of the transaction knowing the material facts regarding it.

Question 8

If a horse was sold when you told your accountant to sell stocks and he responds that he sold the horse and you take out the money and spend it, is that a ratification?

Answer 8

Yes

Question 9

If an insane man’s daughter buys him clothes and tells the seller to charge it to her dad, then later her dad becomes sane and agrees to pay, is that a ratification?

Answer 9

No, because the man was insane at the time of the unauthorized act, and the rule is that at the time of the unauthorized act, the principle must have legal capacity to authorize the act.

Question 10

Do corporations and individuals have different powers?

Answer 10

No, they both have the same powers to do anything necessary or convenient to carry out their business and affairs.

Question 11

What is indemnification?

Answer 11

One party can guarantee against the loss of another. Corporations can promise their directors or officers that the corporation will cover costs that arise from the directors’ or officers’ actions in the course of their service to the corporation.

Question 12

What does the MBCA say about corporations indemnifying their directors?

Answer 12

Corporations must indemnify a director that is wholly successful on the merits in the defence of any proceeding that the director was a party to because of his role as a director of the corporation. The entire proceeding must have been disposed of with a finding of no liability for this to happen.

Question 13

What are the three different roads to indemnification?

Answer 13

– mandatory
– permissive
– court ordered

Question 14

What is permissive indemnification?

Answer 14

Courts are authorized to indemnify their directors and officers, but they do not have to.

Question 15

Is it possible for a corporation to choose to indemnify a director or an officer after the act or omission that creates liability?

Answer 15

Yes, this is discretionary, and can be decided by the shareholders, special counsel, or disinterested directors at a special meeting.

Question 16

Where would you find indemnification provisions?

Answer 16

• AOI
• bylaws
• resolutions
  – contracts between the corporation and the director or officer

Question 17

Indemnification usually includes a right to what?

Answer 17

The cost of defence for a director or officer

Question 18

Why is there never indemnification for shareholder derivative suits?

Answer 18

Because the director or officer is accused of violating a fiduciary duty that is owed to the corporation, so the corporation shouldn’t pay for a defence of someone that wronged it.

Question 19

What is director and officer insurance?

Answer 19

A policy that is renewed annually to give protection to directors and officers when indemnification is not available

Question 20

What are the three broad categories of director and officer insurance?

Answer 20

• side A coverage
  – side B coverage
  – side C coverage

Question 21

What is side A coverage as a category of director and officer insurance?

Answer 21

This covers costs that are not covered by indemnification. I.e.: if a director is sued in a shareholder derivative action.

Question 22

What is involved in side B coverage as a category of director and officer insurance?

Answer 22

This is a way for the corporation to be reimbursed for the cost of indemnification for its directors and officers.

Question 23

What is involved in side C coverage as a category of director and officer insurance?

Answer 23

This is insurance coverage for the corporation for its own liability exposure.

Question 24

What are the differences between side A, side B, and side C coverage under director and officer insurance?

Answer 24

• side A: applies to the director or officer for costs that are not covered by indemnification
  – side B: applies to the corporation for the costs of indemnification
  – sightsee: applies to the corporation for its own liability exposure

Question 25

What is E and O coverage?

Answer 25

Errors and omissions. This covers directors and officers for their errors or omissions.