The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1915-03-10
No. 10, 14O.
L. E. Inscho, ct al, Appellees.


L. E. Inscho, ct al, Appellees.
The Mid Continent Development Company.
Appeal from WyaDdottee County.
division No. l.
REVERSED.
Syllabus. By the Court. Burch. J.
l. The majority of the stockholders of a
corporation have the right to control the
corpora ton and the majority of the board
of directors have the right to determine its
DoIiries and manage and iref.t IT'S affairs
so long as they act in good faith and with
in the limitations of the law The appoint
ment of receiver for a solvent. going con-
Germ is last resort remedy and should not
be employed to correct improper conduct
when other adequate remedy is available.
Bad Judgment and ill success in previous
ventures. completed or not being actively
prosecuted. current transactions merely
unwise and not SO reckless or eXtrayagant
as 10 amount TO breach or trust Irregular
tiles and misconduct which are not SO Gull
pable TO jeopardize the interests of the
corporation and the rights of stockholders,
and dissensfons among directors, so long
a ma jority of them control, do not war
rant the appointment OF a receiver In no
case should a court take the property and
business of Il solvent going corporation
out of the hands of the board of directors
and into it's own hands by the appointment
of a receiver the suit of Il minority
stakeholder unless the right of the plain
tiff be free from reasonable doubt and the
danger of loss or injury be clearly proved
>. This suit was commenced by a pre-
ferred stockhOlder for a dividend, for the
appropriation of the property of the cor
pOratiOn 20 the payment OF such dividend
for the redemption of her stock. and for
the appointment of a receiver to accom-
plish the purposes of the suit A receiver
was appointed at the commencement of the
suit on the allegations of the verified petit
ton. which contained numerous specified
lions of misconduct on the part of the
board of directors and charged imminence
hear the cause. who returned findings of
fact and conclusions of law which the court
adopted, except a recommendation that the
receiver be discharged. Before the refer
ence made Il new and enlarged board
of directors was chosen at a regular stock
holders meeting. which new board the
referee found to be harmonious, and
against which no objection of any kind
was lodged. The charge of threatened in
soIvency was not sustained. HELD. the
retention of the receiver after the election
of the board of directors constituted
an abuse of judicial discretion HELD,
further. the findings of fact disclose that
the original appointment of the receiver
not justified.
5. The capital stock of the corporation
consisted of 100000 common stock and
$4,000 preferred stock The plaintiff pur
chased 800 shares of the preferred stock
and received a certificate of stock which
provided there should be paid on ii from
net earnings fixed yearly dividend from
date of issuance at the rate of 70 per an
mum, to be earned before dividends on COM
mon stock were declared: that the stock
should not be entitled to further dividends
and should have no voting power; that it
SHOULD be preferred as to assets on wind
ing uD the affairs of the company; and
that il should be redeemable at the option
of the company after one year from date
of issue, at par with accrued dividends:
HELD. the certificate was certificate OF
stock and not certificate of indebtedness
and the plaintiff was stakeholder of the
corporation and not creditor
f. The board of directors adopted
resolution to redeem the preferred stock
and at the same time adopted a resolution
to set aside 1870 of the gross earnings from
that time for that purpose, to be known
as a preferred stock fund to be appor-
toned often 80 of the amount OF
the preferred stock was accumulated The
resolutions We're adopted only eight days
before the receiver was appointed and the
board Of directors had no opportunity to
carry them out out HELD, the resolu-
lions must be construed together and so
considered they merely pledged the trans
fer of 1870 of future gross earnings to the
preferred stock fund to be apportioned as
stated the entire issue of preferred stock
did not Immediately become an absolute
liability of the company; the preferred
stockholders continued to be stockholders
and nor creditors until an annor-ionment
of the preferred stock fund was made; and
the preferred stockholders then became
creditors only with respect 10 such appor-
tionment.
). The defendant engaged in the bust
ness of prospecting for producing gas and
oil 1t developed a valuable gas field near
Muncie, left it for other fields and then
returned To it after the proceeds of the
sale of its stock had been spent 1t then
borrowed $1,000 which it used TO build .
pipe line to supply gas TO consumers with
whom it had contracts BY bringing in
new wells and connecting them with the
pipe line it brought its income up to an
average of s.. 500 per month and received
for the sale of gas for the thirty days next
preceding the appointment of the receiv-
er the sum of $1,000 1t expended all earn
iugs received after the pipe line was built
in repaying the money borrowed TO build
the pipe line. in drilling wells and
connecting them with the pipe line and
for general expenses When the suit was
commenced il still owed about $500 of in
debtedness incurred for these purposes,
which WAS due ana payable HELD, there
were no net earnings ont of which TO pay
dividends on the preferred stock
6 At the time the resolutions referred (
adopted a resolution authorizing the sec
rotary and treasurer to proceed with the
payment of preferred dividends At that
ury which were forthwith applied to the
Satisfaction of the claims OF creditors.
HELD. the money was not net earnings
and the duty to pay creditors was superior
to the duty to pay preferred stock holders. T
All the Justices concurrinE
\ true copy
Attest: D A VALENTINE.
tSeaIJ Clerk Supreme Court.