101 N.J. Eq. 413 | N.J. Ct. of Ch. | 1927
The East Orange bank and the Central Trust Company, of East Orange, entered into an agreement with the Savings Investment and Trust Company of East Orange, by a two-third vote of all the members of their respective boards of directors, to merge into the Savings Investment and Trust Company the five thousand shares of capital stock of the former, each having twenty-five hundred shares, to be exchanged for a like number of shares of the savings investment company. Stockholders of eighty-five per cent. of the ten thousand shares of the savings investment company voted their approval of the merger. The approval vote of the stockholders of the two other companies was, approximately, of the same percentage. The complainants, holders of one hundred and ninety-six shares of the savings investment company, alone voted disapproval, and filed this bill to enjoin the merger, setting up that the agreement is ultra vires the savings investment company, and, if authorized, that the plan is unfair and inequitable.
The savings investment company was organized in 1890 under the Safe Deposit and Trust Company act of 1885. It took its charter subject to the reservations contained in the act of 1846, later embodied in the Corporation act of 1875 (now section 4 of our Corporation act), that "the charter of every corporation which shall hereafter be granted by or created under any of the acts of the legislature, shall be subject to alteration, suspension and repeal in the discretion of the legislature." In 1925 the legislature authorized trust companies and banks to merge, by agreement assented to by a vote of two-thirds of all the members of the respective boards of directors of the merging companies, approved by the vote of the stockholders owning at least two-thirds in amount of the stock of the respective corporations; the agreement to specify the corporation to receive into itself the merging corporation, and the conditions of the merger and the mode of carrying it into effect; copies to be filed with the banking commissioner and recorded in the county clerk's office. The act provides for compensation to dissenting stockholders *415
by appraisers appointed by a justice of the supreme court. It is objected that the statutory authority to merge cannot be exercised by the directors and stockholders of the savings investment company, against the will of the complainants, because to do so would impair the obligation of the corporations' contract with its stockholders, and the undertaking inter sese
of the stockholders, in violation of the fundamental law. Kean
v. Johnson,
The decision would be the same if the savings investment company were one of the companies whose franchises was to be merged and extinguished, but for a different reason. Trust companies and banks, while not public utilities, in the technical sense, for they may select their depositors and deny borrowers, are, nevertheless, public agencies in the sense that through them the industry, trade and commerce of the country are carried on, and are universally recognized as affected with an important public interest, and subject to police regulation. The present day thought, in financial and commercial circles, tends towards banking institutions of large and centralized capital, with branch agencies, to better assure stability, stimulate public confidence, afford greater convenience and accommodation in large as well as small businesses, and security for patrons and stockholders than that afforded by the system now in vogue, of smaller local concerns of limited facilities. And to this trend the federal government has given its support by the so-called McFadden *419
bill, and this state, by adopting the branch bank system, and its ally, the Merger act. This manifestation of policy of state and nation bids judicial consideration in giving effect to the reserve power of the state over corporations which are privileged to profit in business of public concern. The legislative expression predicates the Merger act to be in the public interest — peculiarly a legislative function — and also to be within the reserve power over corporate contracts. The reserve power torepeal charters is absolute. Every corporation accepts the corporate privilege with notice that it may be withdrawn at the will of the legislature. The extinction of a charter by merger is nothing short of a repeal of the charter to a stockholder unwilling to go along with the merger. As to him the merger is not an alteration or amendment of the grant, but a complete destruction of it. Destroying, the state has a care not to take away or destroy the stockholder's investment, and safeguards it by providing compensation by appraisal at fair value. In fine, with the compensation provision, there can be no longer any question as to the power of the state under the reserve power to repeal, alter or amend the charter of any corporation in any respect, if the change be in the public interest. This view was entertained by the New York supreme court, and affirmed by the court of appeals, in Colby v. Equitable Trust Co.,
The next objection is: That the savings investment company is not one of the class of trust companies authorized to merge. The assertion is literally true. The Merger act of 1925 authorizes one or more trust companies organized under an act concerningtrust companies, Revision 1899, or under any special act, to merge with banks. As we have seen, the savings investment company was organized under the Safe Deposit and Trust Company act of 1885. When the revision of 1899 came into being, for the formation, thereafter, of trust companies, with enlarged powers and increased facilities for management and regulation, the act of 1885 was repealed, and companies theretofore created under general laws or special act were afforded the privileges of the revised act, and, accordingly, the savings investment company accepted the grant by amending its charter. It was further provided that the revised act shall be applicable to all trust companies theretofore formed, reserving to them all their rights and powers and retaining their liabilities. All trust companies were operating under the Revision of 1899 at the time the Merger act was passed in 1925, and it is plain, beyond question, that it was the intention of the legislature to embrace all trust companies, however created, for, no reason is apparent why the few formed under the act of 1885, and they are the only ones omitted, should be excluded. "Organized" was not used to denote "created," but in the sense of "operating." This interpretation is consistent with the legislative scheme, and it may be said with assurance that the savings investment company, by the bestowal of power of the Revision of 1899, and amending its charter, and availing itself of its privileges, was "organized" under that act, within the perview of the Merger act. The rule is, undoubtedly, that the right to merge cannot be enjoyed unless it be expressly granted; the power cannot be implied. Delaware *421 ware and Raritan Canal v. Raritan and Delaware Bay RailroadCo.,
The objection, that the merger is unfair and inequitable, calls for careful judicial scrutiny of the plan, in view of the interests in the merger of interlocking directorates, and of interlocking interests of stockholders of the three concerns. The plan must be free from unfairness before the complainants can be put to their election, of joining their associates or taking compensation in lieu. Colgate v. United States Leather Co.,
The Central Trust Company had just opened its doors in a rented building, upon which it has an option to purchase, in a business commanding location in East Orange, with a paid-in capital of $150 per share. Its board of directors is of the usual composition, men of exceptional worth and business influence, and the infant member, in the family of banks, was not without promise of militancy and prosperity. That its stock was reasonably worth $175 cannot be justly challenged, and it is not, seriously. The cash capital, plus the license alone, warrants the figure, according to common experience. The savings investment company is a well-managed and prosperous institution. The market value of its stock is established by satisfactory proof to be $350 per share. Evidence of a few sales of odd, five and ten share, lots, to round out individual blocks, at, approximately, fifty points higher, and from which it is argued that the value per share is $387.50, does not disturb the soundness of the proof of the merger value at prevailing prices in a normal market. The book value is $203.60 per share, and the difference between that and the market or merger value, $146.40 per share, is *423
set down to so-called good-will. The book value is made up of items of assets and liabilities, and their value and amounts, as appears in detail upon the books of the company, and as reported to and examined by the state banking department; all of which in condensed form is submitted annually to the stockholders and the public generally. To show that the book value is greater, the complainants point out that it should be augmented by the increase in value of the bank buildings, which are carried on the books at cost, less depreciation; by $217,000, increase in value of bonds and mortgages, over cost; by $300,000 reserved for depreciation in securities, and by the value of the old bank fixtures and furniture, wholly written off. Under dissolution and distribution of the assets these items of property, unquestionably, would all have to be accounted for at their fair or sales value, but then there would be no accounting for the good-will. In merger values they form an indefinite part of that elastic term, goodwill, with little or no influence on the market value. The things, contemplated by the statute to be taken in exchange, in merging going concerns, is not assets for assets, but share for share of capital stock, upon parity of value, and the measuse of equality is the fair market value. The complainants also stress the obvious disparity between the savings investment company's established trade, and annual earning capacity of $158,000 on its $17,000,000 of deposits, and the paucity of both these elements of value in the infant corporation, and by a method of computation, satisfactorily to themselves, at least, show that parity in this respect would require that the Central Trust Company contribute earning capital of $1,600,000 instead of $812,500, the amount to be paid in by its stockholders, and contend that this inequality in contribution of earning dollars, in round figures $800,000, stamps the merger as unfair. If the argument is correctly understood, it means that to maintain parity of values, in dollar earning capacity, the Central Trust Company should come into the merger with $800,000 of deposits. That sum is inconsequential, even with a new bank, and, no doubt, was discounted, as readily acquirable with a week or two of intensive *424
operation. However, the argument altogether loses sight of the fact that the stockholders of the Central Trust Company are paying for this shortcoming in the premium of $146 per share, exacted for the savings investment company's stock; the good-will. And compensation to the savings investment company, for these subordinate inequalities, is deemed to be found, and it is sustained by the testimony of experienced bankers, in the extension of its grant into a new and pre-empted field of commercial activity; in the prestige and increased traffic to be brought to it by the prominence and influence of the newly associated directors and stockholders, and all that flows from a combination, brains, wealth and opportunity; all of which was reflected in the sharp advance in the market value of the stock of the savings investment company, as merged, to $400 per share, when the pending merger was first rumored. In such circumstances, when neither fraud nor bad faith motivates the vast majority of stockholders which favors the merger, and the minority is not oppressed or wronged, a court of equity ought not to interfere. In guarding the rights of the minority care should be taken not to injure the interests of the majority. The principle that should govern the court is tersely stated by Judge Peckham, of the New York court of appeals, in Gamble v. Queens CountyWater Co.,
The savings investment company is the owner of one thousand shares of the East Orange bank, and as part of the merger agreement offers these shares, proportionally, to the stockholders of its company, as merged, at their market value, the shares not taken to be sold. The complainants claim unfairness, because they will be compelled to put up a large amount of money, against their will, to protect their interests. If the savings investment company has the right to merge, and, it is held, it has, and the complainants elect to join in the merger, there is no warrantable cause for complaint that the complainants cannot accommodate themselves to the equitable offer. A similar complaint was made and denied in Farmers Loanand Trust Co. v. Hewitt,
*426The bill will be dismissed.