If an act is not indicated as within the corporation’s powers in the corporate charter then the act is ultra vires.
Ultra vires acts are void or voidable.
Void = nichtig, ab initio, the act never occurred.
Voidable = the wronged part can avoid the legal consequences of the act.
Recall the charitable donation in the case last week. The plaintiff were arguing that the donation was ultra vires.
Ultra vires transactions may not be ratified by the shareholders even if they want to.
A party may be estopped from denying the legality of a completed transaction which would otherwise be ultra vires “in the interests of justice”.
Estoppel is an equitable remedy.
Equitable remedies are Discretionary: courts may grant them, but do not have to.<
Contemporary corporations usually indicate that the corporation is empowered to undertake “all lawful activity”.
What can shareholders who are unhappy with management do?
They can sue
— in their own name: a ‘direct’ cause of action.
— in the name of the company, i.e. on behalf of the corporation itself as a representative of the corporation’s interest. This is called a derivative site.
To make a derivative suit one must first exhaust their remedies at the corporation prior to going to the court.
The plaintiff must make a demand of the board first. If the board refuses the request the plaintiff has exhausted their corporate remedy and may now go to court.
Failure to make a demand may be excused where the demand would be futile.
The theory of the derivitive suit is that the plaintiff is representing the corporation.