Corporations - Derivative Suits - Stockholder Demand as Condition Precedent

Authors

W. Stanley Walch S.Ed., University of Michigan Law SchoolFollow

Abstract

A derivative suit alleging directors' fraud was brought by a minority shareholder, but there was no allegation of a demand for relief having been made on the corporation's stockholders prior to bringing the suit. The plaintiff did allege, however, that it was useless and impossible for him to make demand on the stockholders because the complaint charged directors' fraud which was a void act beyond the power of the stockholders to ratify, and secondly because it would be highly unreasonable to require plaintiff to make a demand for relief on more than 100,000 stockholders of the corporation. Delaware Chancery Rule 23(b) requires that a plaintiff in order to bring a derivative suit must allege with particularity his efforts to obtain the relief sought from the directors of the corporation and "if necessary" from the stockholders, or his reasons for failing to make such demand. The lower court held that plaintiff's allegations were insufficient to excuse the condition precedent of stockholder demand established by the chancery rule, and dismissed the bill. On appeal, held, reversed, with petition for reargument denied. The Delaware chancery rule does not require a useless act and when directors' fraud, which is beyond the power of the stockholders to ratify, is alleged stockholder demand is not "necessary." Mayer v. Adams, (Del. 1958) 141 A. (2d) 458.

Recommended Citation

W. S. Walch S.Ed., Corporations - Derivative Suits - Stockholder Demand as Condition Precedent, 57 Mich. L. Rev. 282 (1958).
Available at: https://repository.law.umich.edu/mlr/vol57/iss2/7