752, a demand being held needless where a majority of stock was shown to be owned by a rival corporation, which controlled the managing bodies of the first company. In Pittsburg etc. Ry. Co. v. Dodd, 24 Ky. Law Rep. 2057, 72 S. W. 822, it is said: "The directors need not be dishonest. It is enough if their situation is such that by reason of conflict of interest they cannot or should not act."

4. Where the Corporation has Abandoned Business-No Managing Body. Where the corporation has abandoned business, no demand is necessary: Tennessee etc. Min. Co. v. Ayers (Tenn.), 43 S. W. 744; Crumlish v. Shenandoah Val. R. Co., 28 W. Va. 623. And the same applies where there is no governing body upon which a request could be made: Sheridan Brick Works v. Marion Trust Co., 157 Ind. 292, 87 Am. St. Rep. 207, 61 N. E. 666. An allegation that all of the officers have absconded and that their whereabouts are unknown, shows sufficiently that it was impossible for a stockholder to make a demand: Wilcox v. Bickel, 11 Neb. 154, 8 N. W. 436. That a stockholder of a dissolved corporation may sue to set aside a void judgment rendered against it, see Musson v. Richardson, 11 Rob. (La.) 37.

The fact that a corporation is no longer a going concern does not, however, dispense with the necessity for a demand: Dillon v. Lee, 110 Iowa, 156, 81 N. W. 245.

5. Relationship as Giving Rise to Presumption of Refusal.-The mere fact that three stockholders control the election of the seven directors of a corporation and actually elected them does not, of itself, give rise to the legal presumption that the directors thus elected would refuse to discharge their duties to the corporation and the stockholders, when requested by the latter: Decatur etc. Land Co. v. Palm, 113 Ala. 531, 59 Am. St. Rep. 140, 21 South. 315, disapproving Mack v. De Bardeleben etc. Iron. Co., 90 Ala. 396, 8 South. 150.

How far the question of relationship between a director and a defendant may excuse a demand, is brought out in Siegman v. Maloney (N. J.), 54 Atl. 405, affirming 63 N. J. Eq. 422, 51 Atl. 1003. The action was to recover dividends illegally declared by certain persons while directors of the corporation; and the facts are stated by the court as follows: "It appears from an examination of the allegations of the bill that only five of the twelve directors in office at the time of the institution of the suit were upon the board at the time when the illegal dividends were declared and paid; and it was admitted in the bill that, notwithstanding this fact, the complainant did not apply to the board to bring suit for the purpose of obtaining the relief sought by the bill before beginning this action. He alleges in excuse of his failure in this regard that, in addition to the five members who participated in the declaration and payment of the illegal dividends, one other was a brother of, and connected in business with, one of the individual defendants,

and that still another is 'an employé and representative of one of the other individual defendants,' and insists that for this reason he was justified in assuming that an application to the board to bring this suit would have been refused. . . . .

"The fact that a majority of the board of directors in office at the time of filing this bill had no part in the declaring or payment of the illegal dividends is sufficient to defeat the complainant's right to sue, unless the facts set out in the bill with relation to two of that majority afford sufficient grounds for concluding that one or the other of those two would, in willful disregard of the interests of the corporation, vote with the directors against whom relief is sought, and by doing so defeat an application to the board of directors to prosecute. But in our judgment, these facts justify no such conclusion. On the contrary, the presumption is that, notwithstanding the relations existing between the two directors and two of the individual defendants against whom relief is sought, the former would faithfully discharge the duty which they owed to the corporation and its stockholders, although their action would necessarily have an injurious effect upon the interests of those defendants. Neither the existence of blood nor of business relationship justifies a presumption of dishonesty under the conditions referred to."

6. Miscellaneous Instances. Where a corporation is about to sell part of its property to a lower, instead of a higher, bidder, the difference in amount being large, and it not appearing that the former was a more desirable purchaser, a stockholder may sue to enjoin such sale without requesting the directors to do so, where they passed a resolution accepting, as far as they could, the lower offer, which they would not rescind: Lewisohn v. Anaconda etc. Min. Co., 50 N. Y. Supp. 263, 23 Misc. Rep. 31.

Where a corporation issues illegal stock, which it treats as good, a stockholder may sue to cancel it as a cloud on his rights, no demand being necessary, as the corporation could not sue to cancel its own stock, for it would be estopped to deny the validity of the subscription by which it was procured: Stebbins v. Perry County, 167 Ill. 567, 47 N. E. 1048.

7. Presumption as to the Continuance in Office of the Same Directors. As has been already stated, where the board of directors, or a majority of them, are the parties against whom relief is sought, no previous demand to sue is necessary. The court will not presume, where there is an election every year, that the same directors who were in default continued in office: Corning v. Barrett, 48 N. Y. Supp. 1013, 22 Misc. Rep. 241. Where, however, a statute provides that every corporation must file annually, within thirty days after the election of officers, a report of the directors, and that directors shall hold for one year and until others are elected and qualify, the fact that the corporation did not file any report of the election of directors since the year when the default occurred, justifies the

conclusion that no election has been held since, and that the same directors were in office when the suit was begun: Appleton v. American Malting Co. (N. J.), 54 Atl. 454.

In Fry v. Rush, 63 Kan. 429, 65 Pac. 701, it was held that where a statute provided for the annual election of directors, and for the filling of vacancies on the board, an allegation that certain vacancies existed at one time, or that the directors in office at a particular time were inefficient or derelict in duty, did not give rise to a presumption that such a state of facts would continue from year to year.

III. Suits in the Federal Courts.

a. Importance of Equity Rule 94.-Before a stockholder can maintain suit on behalf of a corporation in the federal courts, a strict observance of equity rule 94, promulgated by the supreme court of the United States, is necessary. This rule reads as follows: "Every bill brought by one or more stockholders in a corporation, against the corporation and other parties, founded on rights which may properly be asserted by the corporation, must be verified by oath, and must contain an allegation that the plaintiff was a shareholder at the time of the transaction of which he complains, or that his shares had devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction of a case of which it would not otherwise have cognizance. It must also set forth with particularity the efforts of the plaintiff to secure such action as he desires on the part of the managing directors or trustees, and, if necessary, of the shareholders, and the causes of his failure to obtain such action."

The reasons leading to the adoption of this rule are fully given in Hawes v. Oakland, 104 U. S. 450, the purpose being to prevent the wrongful exercise of the jurisdiction of the federal courts by bringing a suit in the name of a stockholder when the jurisdiction could not have been invoked if the suit had been brought in the name of the corporation: Old Colony Trust Co. v. Dubuque Light Co., 89 Fed. 794. This rule is not a technical one, but is jurisdictional: Dickinson v. Consolidated Traction Co., 114 Fed. 232. Where, therefore, there is a constitutional question involved, the court has jurisdiction regardless of the citizenship of the parties, and the rule does not apply: Ball v. Rutland R. Co., 93 Fed. 513; nor does it when the relief is sought by a petition of intervention in a suit already pending, of which a federal court has jurisdiction: Old Colony Trust Co. v. Dubuque Light etc. Co., 89 Fed. 794; nor where the action was begun in a state court and removed to a federal tribunal: Earle v. Seattle etc. Ry. Co., 56 Fed. 909.

Where the right of action is one which the corporation could not enforce, but is to the stockholder individually, no demand on the officers is necessary under rule 94: Barcus v. Gates, 89 Fed. 783, 32 C. C. A. 337. But it is necessary where the right of action is in the corporation: Clarke v. Eastern Bldg. etc. Assn., 89 Fed. 779;

Dickinson v. Consolidated Traction Co., 114 Fed. 232; Worth Mfg. Co. v. Bingham, 116 Fed. 785. And see Weidenfeld v. Allegheny ete. R. Co., 47 Fed. 11; Heidenfeld v. Sugar Run R. Co., 48 Fed. 615. It is not enough, under rule 94, that the corporation would probably refuse, but it is imperative that the rule be followed: Foote v. Cunard Min. Co., 17 Fed. 46. So he must exhaust all means of redress within the corporation itself: Bill v. Western Union Tel. Co., 16 Fed. 14.

Not only are a demand and refusal necessary, but it must also appear that the complainant was a stockholder at the time of the transaction which is the basis of the suit, or that the shares since devolved on him by operation of law: Dannmyer v. Coleman, 11 Fed. 97; Bimber v. Calivada Colonization Co., 110 Fed. 58.

The demand must be more than a mere formal one, and a general averment of request and refusal is not a sufficient compliance with the rule: Elkins v. City of Chicago, 119 Fed. 957. See, also, McHenry v. New York etc. R. Co., 22 Fed. 130. Where the bill shows that the stockholders addressed a communication to the president of the company, calling his attention to the violations of the charter, and requesting the directors to oppose the acts complained of, and that the company declined to comply with the request, this fulfills the requirements of the rule: Ball v. Rutland R. Co., 93 Fed. 513. See, also, Edwards v. Mercantile Trust Co., 124 Fed. 381, as to what is a sufficient demand. The efforts to obtain redress must be made by the plaintiff, and not other parties: Dannmyer v. Coleman, 11 Fed. 97.

b. Conflict as to Whether Demand may be Dispensed With.-In Squair v. Lookout Mt. Co., 42 Fed. 729, it was held that the transfer of stock of the defendant to another corporation would not be enjoined, where the efforts to secure redress within the corporation were not set forth, as required by rule 94, although it was alleged that the directors of the one corporation held a similar position in the other. So, where a failure to aver an effort to secure remedial action from the directors is attempted to be excused by the allegation that five of the seven directors who participated in the original wrong are still members of the board, this is not enough: Church v. Citizens' St. R. Co., 78 Fed. 526, the court saying: "Applying the general principles of equity jurisprudence, and following the current of authority in the state courts on the subject, the court would be clearly of opinion that that would be a sufficient excuse. But the language of the rule in question, and the interpretation that has been given by the court which promulgated the rule, make it obvious that it was the purpose to introduce a more stringent rule in the national courts than the rule which is applied on the same subject in the state courts, and that such an excuse as is offered here does not satisfy the rule." But see Weir v. Bay State Gas Co., 91 Fed. 940, where it is held that this rule introduced no new principle of law, but was only to prevent collusive suits.

There are, however, other federal decisions to the effect that such demand and refusal, and an averment of the facts leading thereto, are not required by rule 94 on all occasions. So where it appears that the guilty parties are in control of the corporation, so that the ensuing litigation would be against themselves, it has been held that a request may be dispensed with: De Neufville v. New York etc. Ry. Co., 81 Fed. 10, 26 C. C. A. 306; Rogers v. Nashville etc. Ry. Co., 91 Fed. 299, 33 C. C. A. 517; Berwind v. Canadian Pac. Ry. Co., 98 Fed. 158; Eldred v. American Palace Car Co., 99 Fed. 168. See, also, Dickinson v. Consolidated Traction Co., 114 Fed. 232. It is said in Young v. Alhambra Min. Co., 71 Fed. 810: "The effect of the ninety-fourth rule was to make the question of collusion or improper jurisdiction a preliminary one. But where the bill, in all of its averments, shows that the controversy is substantially between citizens of different states, and there is no collusion, all of the ends of the rule are already met. To require more would be to exalt the means above the end." See, also, Excelsior etc. Co. v. Brown, 74 Fed. 321, 20 C. C. A. 428, 42 U. S. App. 55, where the bill was to preserve a corporation which was being wrecked by the officers thereof for their own private ends, and it was held absurd to show that the officers had been requested to convict themselves of fraud.

c. Effect in State Courts.-The ninety-fourth rule just discussed has been mentioned in some decisions of the state courts. In Parson v. Joseph, 92 Ala. 405, 8 South. 788, it is considered merely a rule of practice, not a general principle of law, and not adopted in Alabama. And it does not apply to suits in Colorado: Miller v. Murray, 17 Colo. 408, 30 Pac. 46. After speaking of actions by stockholders on behalf of corporations, the court proceeded: "It is worthy of note in passing that the subsequent decisions of the United States court upon this question are of little value in the state courts, for the reason that all such decisions must necessarily have been founded upon this rule, although, in some of the cases, mention of the rule is not to be found in the opinion."

IV. What Wrong Must be Inflicted on the Corporation.

a. Generally.-Before a court of equity will interfere with the management of a corporation at the instance of a stockholder, some injury must be shown, and some wrongful or fraudulent act committed or about to be committed: Wills v. Porter (Cal.), 61 Pac. 1109; Moore v. Silver Val. Min. Co., 104 N. C. 534, 10 S. E. 679; Latimer v. Richmond etc. R. Co., 39 S. C. 44, 17 S. E. 258; Kessler v. Ensley Co., 123 Fed. 546; Dimpfeil v. Ohio etc. Ry. Co., 110 U. S. 209, 3 Sup. Ct. Rep. 573.

In Hawes v. Oakland, 104 U. S. 450, in the course of his opinion, Judge Miller said: "We understand that doctrine to be that to enable a stockholder in a corporation to sustain in a court of equity in his own name, a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the appro