Franklin National Bank v. Kennerly Coal & Coke Co.

• Court: Pennsylvania Supreme Court
• Writing for the Court: MR. JUSTICE KEPHART:
• Citation: Franklin National Bank v. Kennerly Coal & Coke Co., 300 Pa. 479, 150 A. 902 (Pa. 1930)
• Decision Date: 27 May 1930
• Docket Number: 27
• Parties: Franklin National Bank et al. v. Kennerly Coal & Coke Co., Appellant

150 A. 902

300 Pa. 479

Franklin National Bank et al. v. Kennerly Coal & Coke Co., Appellant

No. 27

Supreme Court of Pennsylvania

May 27, 1930

Argued March 25, 1930

Appeal, No. 27, March T., 1930, by defendant, from decree of C.P. Cambria Co., Dec. T., 1925, No. 10, for plaintiff, in case of Franklin National Bank and J. A. Harris, Jr., and Franklin Trust Co. of Philadelphia, intervenor, v. Kennerly Coal & Coke Co. Affirmed.

Bill for receiver. Before McCANN, J.

The opinion of the Supreme Court states the facts.

Decree for plaintiffs. Defendant appealed.

Error assigned, inter alia, was decree, quoting it.

The decree of the court below is affirmed at the cost of appellant.

Philip N. Shettig, with him Paul W. Cauffiel and A. A. Nelson, for appellant. -- The Franklin National Bank, and J. A. Harris Jr., who represents its interests, original plaintiffs in this case, may not maintain this action or procure relief against appellant, even though it be conceded that another stockholder might have grounds for relief.

The Franklin Trust Co. of Philadelphia, executor of Edward W Jones, deceased, is not a proper party plaintiff in this proceeding and is not entitled to relief thereunder.

Appellant corporation being solvent, none of the principles applicable to the appointment of receivers for insolvent corporations may be invoked. The matters complained of have either no merit as establishing mismanagement, dissension or jeopardy of stockholders' interests, or they pertain to matters the relief for which is not by receivership.

J. C. Davies, with him John Hampton Barnes, for appellees. -- The Franklin National Bank and J. A. Harris, Jr., original plaintiffs in this case, are not barred from maintaining this action and are entitled to relief thereunder.

The Franklin Trust Co. is a proper party plaintiff in this proceeding.

Appellant company has failed to attain and has abandoned its object of incorporation. Its affairs have been irregularly conducted and illegal acts committed, giving rise to dissension among its stockholders, and their interests are in jeopardy, all due to gross mismanagement and gross misconduct on the part of its officers and directors, and the question of solvency is immaterial: McDougall v. R.R., 294 Pa. 108; Gilmore v. Drug Co., 279 Pa. 193.

Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE KEPHART:

We are asked to vacate the appointment of a receiver which was made on the ground of corporate mismanagement. The appointment of a receiver is a discretionary matter with the court below, and its action will not be disturbed unless there is a clear abuse of sound judicial discretion: McDougall v. Hunt. & Br. T.R. & C. Co., 294 Pa. 108. We suggested in that case a receiver should not be appointed unless there is good reason therefor, but when such reason exists, there should be no hesitancy in making the appointment. After a careful review of the evidence, we are satisfied that the court below proceeded with extreme caution. No receivers were appointed until four years had elapsed from the filing of the bill.

Appellant was organized to own and operate a large coal area. Its capital stock of a million dollars was all issued but not fully paid, and its bond issue of four hundred thousand dollars was partly outstanding. Almost a quarter of a century has passed and the company has done nothing toward the accomplishment of its purpose except the purchase of the lands proposed to be opened. The right-of-way acquired by it for the purpose of operation was sold some twelve years ago on the promise of the purchaser that it would build a railroad to the property, but the road has never been built. Calls on the stockholders for pro rata payments on account of the unpaid balance due on their subscriptions to stock were made from time to time; some paid, others did not, and the officers, through a mistaken view of the law, declared forfeited the stock of certain of the delinquents, afterwards selling the forfeited stock to one of the directors without competitive bidding, for the value only of the unpaid calls. The manner of making the forfeiture is criticized, and gross discrimination has been charged in that the shares in arrears were not uniformly cancelled. No action was taken against the delinquent shares of any officers or directors.

The money received on calls was used, without corporate authority, to redeem outstanding bonds; those redeemed were not selected by allotment, but the bonds of favored holders were taken. This was in direct violation of the mortgage covenant and harmful consequences from it might have ensued....