Feess v. The Mechanics State Bank

• Decision Date: 06 May 1911
• Docket Number: 17,433
• Citation: 84 Kan. 828,115 P. 563
• Parties: W. E. FEESS et al., Appellees, v. THE MECHANICS STATE BANK et al., Appellants
• Court: Kansas Supreme Court

115 P. 563

84 Kan. 828

W. E. FEESS et al., Appellees, v. THE MECHANICS STATE BANK et al., Appellants

No. 17,433

Supreme Court of Kansas

May 6, 1911

Decided January, 1911.

Appeal from Labette district court.

Judgment reversed.

SYLLABUS

SYLLABUS BY THE COURT.

1. INJUNCTION --Temporary -- Notice. A temporary injunction, which affects large pecuniary interests, should not be granted nor should a receiver be appointed to take the possession and control of business and property from its owners, without notice to the parties to be affected and before they have had an opportunity to be heard in relation to their rights, except in cases of the greatest emergency.

2. CORPORATIONS -- Minority Stockholders -- Dissolution. In the. absence of express statutory authority the court has no authority, at the suit of an individual or minority stockholder, to. dissolve a corporation, wind up its affairs and distribute its assets and no such authority has been conferred in this state.

3. CORPORATIONS -- Appointment of Temporary Receiver Not Justifiable. Neither should a receiver be appointed to take temporary control of a bank and its business unless it is absolutely necessary and no other adequate remedy is afforded, and it should never be done where it is likely to do irreparable injury to others, or where greater injury will probably result from the appointment than if none was made.

4. CORPORATIONS -- Solvent Bank Not Subject to Receivership on Account of Mismanagement. While a court may appoint a receiver on the application of minority stockholders, where the business of the banking corporation has been so mismanaged as to render it insolvent or where it is absolutely necessary to preserve the property and business of the bank or the interests of the stockholders, a receiver should not be appointed to take the control of a solvent bank because of irregularities or misconduct of officers, where such irregularities or misconduct may be corrected and cured by the board of directors or the bank commissioner, or are capable of adequate remedy by an injunction proceeding in a court of equity.

5. CORPORATIONS -- Misconduct of Officers No Warrant for Appointing a Receiver. The irregularities and misconduct of officers complained of herein are considered and are held not to have warranted the court in appointing a receiver to take the possession and control of the bank from its owners.

6. CORPORATIONS -- Payment of Attorneys' Fees Not Warranted. Nor was there authority in the court to order the payment of the plaintiff's attorneys out of the assets of the bank.

7. CORPORATIONS -- Power of Majority Acting in Good Faith. Under the law a majority of the stockholders have the control of a corporation and the majority of its directors have power to determine the policy to be pursued and to manage and direct its affairs, and the minority must submit to their judgment so long as the majority act in good faith and within the limitation of the law.

A. A. Osgood, George L. Davis, and Paul H. Kimball, for the appellants.

Dennis Madden, W. B. Glasse, and E. L. Burton, for the appellees.

OPINION

JOHNSTON, C. J.:

This was an action by W. E. Feess, C. A. Lambert, P. P. Duffy and C. K. Leinbach, stockholders in the Mechanics' State Bank, against the Mechanics' State Bank, Abner Davis, its president, and C. M. Bradway, its cashier, to enjoin the bank and its president and cashier from selling or disposing of any of the assets of the bank or taking them beyond the jurisdiction of the court, and they also asked that a receiver be appointed to take charge of the bank and its assets and perform such other duties as the court might direct. The bank was organized under the laws of Kansas to do a general banking business at Parsons, Kan. It had a capital of $ 50,000, divided into five hundred shares of the par value of $ 100 each. Abner Davis, the president, owned three hundred and ninety-four shares and C. M. Bradway owned five shares of the capital stock. Of the complaining parties, Feess owned ten shares, Lambert two and one-half, Duffy two and one-half, Leinbach one, and Mary Allen, afterward made a party, one share. In the petition it was alleged that Davis and Bradway, who owned four-fifths of the stock and controlled the management of the bank, were managing it contrary to the wishes of the directors by allowing customers to overdraw their accounts; by depositing money in a bank in Oklahoma City; by loaning funds to Oklahoma parties and refusing to make loans to parties in Parsons; also in not having the required number of qualified directors; in not conforming to the requirements of the bank commissioner; and, further, that they were about to dispose of the assets of the bank in a way that would render the stock of the minority stockholders worthless. On October 28, 1910, the court, without notice to the defendants, granted a temporary injunction as prayed for, upon the giving of a 2000-dollar bond, and at the same time appointed a receiver, not only to take charge of the assets, but also to wind up the affairs of the bank. A bond in the sum of $ 100,000 was first required from the receiver. As soon as the depositors learned of the order of the court a run was made on the bank, and all depositors who presented themselves and asked for their money were paid in full. Before the receiver qualified the run had been made and a large part of the cash in the bank drawn out, and the receiver's bond was then reduced to $ 50,000. After the receiver took possession he represented to the court that the bank still had $ 11,150 cash on hand and that the depositors had all been paid, except a group of oil companies, all under one control, whose deposits amounted to $ 11,750, some of which had overdrawn their accounts, and that if a balance were struck the oil companies would be owing the bank $ 79.65. An application was therefore made to withhold payment of these deposits until the right of the bank to set off the overdrafts against them was determined, and this was granted. On November 3, 1910, the defendants moved for an increase of the injunction bond, alleging that there was no ground for the action; that it incited a run and wrecked the bank and that it had already caused a damage of more than $ 20,000, but the motion was denied. On the same day the defendants asked for the removal of the receiver appointed by the court, reciting that he had previously acted in bad faith with the bank; had arranged to purchase twenty-five shares of stock with the understanding that he would be elected as a director of the bank; that he borrowed money and gave his note to the bank for the ostensible purpose of paying for the stock which he had agreed to buy but that he did not take or pay for the stock, and, although he did not qualify as a director, he had acted with the board and had voted with others to approve the loan of $ 2500 to himself; that he had conspired with plaintiffs, who only represented twenty-two shares of stock, to wreck the bank, and that with them he had endeavored to compel defendants, who represented four hundred and sixty-four shares of stock, to sell their stock or buy plaintiffs' stock. It was also alleged that, aside from the unpaid loan, he had previously overdrawn his account and had failed to make it good; that he had procured the making of a loan of $ 750 to parties, upon his guaranty, and when they defaulted he had refused to make good his guaranty; that a coal company, of which he was president, had overdrawn its account with the bank and he had failed to pay the overdrafts; that while acting as director he had undertaken to obtain a loan of $ 10,000 from the bank for a relative, to be invested in a newspaper enterprise, and when it was declined he became incensed and entered into the conspiracy mentioned; that he acted with plaintiffs in causing this action to be brought in order that he might be appointed as receiver and thus obtain control of the bank, and that by his fraudulent actions, his known hostility to defendants and lack of familiarity with the banking business he was an unfit person to have charge of the bank, and they therefore asked his removal. In that connection they asked that some other person be appointed in his stead. The motion was denied. Afterward the defendants answered alleging that plaintiffs only owned three one-hundredths of the stock of the bank; that there were five qualified directors, all of whom were residents of Labette county, Kansas, except Davis, and that one of them was plaintiff Feess; that plaintiffs Lambert and Leinbach were elected in January, 1910, but they never qualified as directors although they subsequently acted in that capacity. They specifically denied the charges of misconduct and mismanagement made against them. They further alleged that the bank had at all times been solvent; that its funds had been loaned on good security and that their purpose had been to make it a profitable institution and its stock a desirable investment, and it was also averred that Davis had offered plaintiffs $ 135 per share for the stock held by them. They asked to have the injunction dissolved and the receiver discharged.

The trial court made forty-six special findings of fact holding most if not all of plaintiffs' allegations to be true. The findings were to the effect that funds of the bank had been deposited in a bank in Oklahoma City, of which Davis was an officer, without consent of the directors or of the bank commissioner; that the president and cashier, contrary to the wishes of the directors, had refused to make a loan of $ 7500 to persons in Parsons to buy a newspaper; that certain city warrants drawing 6 per cent interest had been sold when other surplus funds of the bank were earning a less...