Sunday, November 24, 2013

Cheff v. Mathes case brief

Cheff v. Mathes case brief summary
199 A.2d 548 (Del. 1964)

Defendant corporate directors appealed a judgment from the trial court (Delaware) in favor of plaintiff shareholders in a derivative suit. The trial court held that defendants were liable for losses allegedly resulting from the improper use of corporate funds to purchase shares of the company.

Plaintiff shareholders filed a derivative suit against defendant corporate directors, alleging that purchases of company stock with corporate funds were made for the purpose of ensuring the perpetuation of control by the incumbent directors. The trial court agreed with plaintiffs' allegations and found that the directors acted with the improper desire to maintain control. Defendants appealed.


  • In reversing the lower court, the court noted that the evidence indicated that the directors' decisions were based upon direct investigation, receipt of professional advice, and personal observations of the company attempting a takeover. 
  • Based upon their information, the board of directors believed, with justification, that there was a reasonable threat to the corporation's continued existence. 
  • The question was thus one of business judgment and furnished no justification for holding the directors personally liable for losses even though, in hindsight, their decisions might not have been the best for the business.

The matter was reversed and remanded with instructions to enter a judgment for defendants as defendants met their burden of proof by establishing that they acted in good faith and after reasonable investigation.

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