96 N.Y.S. 10 | N.Y. App. Div. | 1905
Lead Opinion
There are two appeals in this case, one from an interlocutory judgment overruling the demurrer of the defendant, the ground stated being that the complaint failed to state facts sufficient to constitute a cause of action, and the other from an order granting a grelmiaary injunetion. It is conceded by all of the parties that if
The Equitable Life Assurance Society of the United States was incorporated in 1859, under and in pursuance of the laws of this State relating to corporations, and more especially .under the provisions Of chapter 463 of the Laws of 1853, and amendments thereto. The.plaintiff is the owner and holder of tliirty-six shares of the capital stock of the defendant, twenty-three of which were subscribed for by plaintiff’s father, Daniel D. Lord, he being one of the original corporators. Upon the organization of the defendant society the corporators filed a declaration with the Comptroller of the State, signed by each of them, setting forth their intention to form a company for the purposes named in said act, which declaration" comprised a. copy; of, the charter the said corporators proposed to adopt. This declaration, with the copy of the proposed charter, was submitted. to the Attorney-General of the State in the manner pointed out by the statute, and all of the steps were taken necessary to complete the organization of the company and to launch it in a business career, with a paid-up capital-stock of $100,000, which sum was, ■under the provisions of law, deposited with the Comptroller of the State as a guaranty fund for the benefit of those who should take -out policies of insurance. The charter, after declaring that the Company should bé entitled to all the rights and privileges provided by the statutes, and that it should be subject to all of the obligations ■ imposed by law, provided that the capital- of the defendant should ..-be. $.100,000 in cash, divided into 1,000 shares of''$100 each, which . should be personal property transferable only on the books' of the .-company, in conformity - with its by-laws;. that the holders of the isaid - capital stock might receive a semiannual dividend on the stock
On the l-6th day of February, 1905, steps were taken on the part of certain persons prominently identified with the defendant, to bring about what they were pleased to call a ^mutualization of the Equitable Life Assurance Society of the United States. This movement went through various stages, resulting in the board of directors adopting a proposed new charter for the defendant, under the provisions of section 52 of the Insurance Law (Laws of 1892, chap. 690), as amended by chapter 722 of the Laws of 1901. The salient feature of this proposed new charter, and the one which the plaintiff seeks to prevent going into. operation, provides that of the fifty-two members of the board of directors, twenty-eight shall be chosen by the policyholders and twenty-four by the stockholders, the result to be brought about by the following method: Six of the vacancies occurring annually among the directors, by the expiration each year of the derm of office of one of said four classes, shall be filled by a plurality vote of the stockholders in the company, and each of said stockholders, in the
The broad question presented upon this appeal is whether the board of directors of the defendant has the power to take from the stockholders the ultimate power of control over the affairs of the Equitable Life Assurance Society, and vest such control in the policyholders; for it is obvious that if the policyholders may elect a majority of the board of directors under all circumstances, they may absolutely divest the stockholders of the control of the affairs of the company, and may thus, under the other powers vested in the board of' directors, distribute the surplus which has been accumulated in excess of the legitimate needs of safe insurance upon the mutual plan. The plaintiff urges that there is no power in the Legislature to authorize such a change in the management of the affairs of the defendant, and that if such power does exist it has not been exercised, and that the action of the board of directors is without warrant of law and void. The learned court at Special Term
Chapter 463 of the Laws of 1853, under which the defendant was organized, and under which, with its Amendments, it has been conducted, provided that any number of persons, not less than thirteen,
We are not impressed with this reasoning; it seems to us entirely clear that the Legislature undertook in the two acts of 1853 to adopt an insurance law which should provide for two different classes of insurance, and that the provision of section 20 of chapter 463 of the Laws of 1853 was designed solely for the purpose of enabling life insurance companies to have the power to carry out their life contracts with policyholders, and not as a limitation upon the power of the Legislature or as a repeal of the Revised Statutes, in so far as they provided for the reservation of power in the Legislature to alter, amend or repeal the charters of insurance companies. Chapter 308 of the Laws of 1849, as amended, constituted the General Insurance Law up to 1853. Section 15 of that act provided that all “ charters formed or extended under this act shall be of thirty years’ duration each, except those of life insurance, but the Legislature may at any time alter, amend or repeal this act, or dissolve and provide for the closing up the business and affairs of any company formed under it.” Section 17 provided that all provisions, of the Revised Statutes in relation to corporations should apply so far as the same were applicable, the same as was provided subsequently in section 11 of chapter 463 of the Laws of 1853. When the Legislature came to separate the Life Insurance Law from the Fire Insurance Law, it provided that fire insurance companies might have charters which were to endure for thirty years, subject to the right of the Legislature to alter, amend
If we are correct in this conclusion, that the defendant’s charter was subject to the provisions of the Revised Statutes —that it was “ subject to alteration,, suspension and repeal, in the discretion of the Legislature ”,—then it is unnecessary to consider the effect of the provisions of section 1 of article 8 of the Constitution of this State. However, as the learned court at Special Term determined the question, and the importance of the litigation demands that all phases of the matter should be finally disposed of at the earliest possible moment, it may not be out of place briefly to revert to the constitutional aspects of the case. This provision of the Constitution is that “ corporations may be formed under general laws; but shall not be created by special act, except for municipal purposes, and in cases where, in the judgment of the Legislature, the objects of the corporation cannot be attained under general laws. All general laws and special acts passed pursuant to this section may be altered from time to time or repealed.” This provision of the Constitution has existed as a constitutional provision since 1846; prior to that time the last sentence was substantially contained in the Revised Statutes (supra) and as a statutory provision it is now contained in section 40 of the General Corporation Law (Laws of 1892, chap. 687, added by Laws of 1895, chap. 672), and was concededly adopted to avoid the rule established in Da/rtmouth College v. Woodward (4 Wheat. 518), which was decided in 1819, and it seems to us that it is late in the history of the jurisprudence of this State to attempt to make a distinction between the power to alter or repeal a general or special law and the power to amend or repeal the charter of a corporation organized under such general or special law by means of an amendment to the law. It is undoubtedly true that the Legislature, in the absence of a reservation of such power, may not amend or repeal a
In the recent case of Hinckley v. Schwarzsahild dh S. Co. (107 App. Div. 470) Mr. Justice Hatch reviewed the authorities upon the question of the reserved powers of the Legislature in reference to corporations under the provisions of the State Constitution and says: “ These cases would seem to authorize the conclusion that acts which do no more than regulate and control the internal management of a corporation, so far as it has relation to the public and concerns the policy of the State are within the power to alter and • repeal, even though the exercise of the power adds to the burden of the stockholder by increasing his liability or diminishes the value of his stock or changes the name, offices or proportion in management and control of the corporation. Within this power, under this rule, must necessarily fall the right to change the capital stock of the corporation as to amount, kind and classification. In effect it must be deemed to exhibit the policy of the State adopted to promote the corporate purpose, enhance its welfare and extend its business.”
While the authorities are, as we believe, clear upon the proposition stated by Mr. Justice Hatch in reference to corporations generally, we are equally persuaded that in reference to life insurance companies the power may be very appropriately exercised. As we have already pointed out, the character of life insurance contracts is peculiar; the annual premiums not only pay the current risk, but they constitute partial payments upon the full life term, subject to forfeiture under certain stated conditions, and the policyholders are peculiarly interested in the life of the company and the method of its management. In fact, as a practical proposition, although the policyholders technically occupy the relation of creditors to the corporation they are the capitalists; they are the ones who furnish the money upon which the business is conducted. “ The insured parties are associates in a great scheme. This associated relation
The authority to make the radical change in the control of the defendant’s corporate affairs is claimed by the appellant to be found in section 52 of the Insurance Law, as amended by chapter 722 of the Laws of 1901, in connection with the original statute of 1853 under which the company was organized. Section 52 of the Insurance Law, as thus amended, provides as follows: “ Any domestic corporation ’existing or doing business at the time'this chapter takes effect, may, by a vote of a majority of its directors or trustees,
It seems entirely clear to ns that the provisions of section 52 of the Insurance Law do not contemplate any radical change' in the character of any domestic insurance company; the Insurance Law is in effect a codification of the Insurance Law of the State as. it . existed at the time Of the enactment, and the provisions of section 52 are merely intended to permit companies organized under special acts,-Or under. previously existing statutes, to come Within the particular provisions of the-codified law, more as" a matter of • convenience than as One of substance, and it Was not thought neces
But even were this not so, we are unable to find in the Life'Insurance Law of 1853, as modified and limited by the Be vised Statutes of that time, any justification for admitting to the electorate of life insurance companies the policyholders thereof. Section 3 of chapter 463 of the Laws of 1853, under which the defendant was organized, provided that the incorporators should file in the office of the Comptroller a declaration, which should comprise a copy of the charter they proposed to adopt, and the said charter “shall set forth the name of the company; the place where it is to be located; the kind of business to be undertaken ; * * * the mode and manner in which the corporate powers of the company are to be exercised ; the manner of electing the trustees or directors and officers, a majority of whom shall be citizens of this State, and the time of such election,” etc.; and it is claimed that under this provision in reference to the manner of electing directors, it was competent for the original incorporators to include a plan for permitting the policyholders to participate in the election, and that this may now be done under the provisions of section 52 of the Insurance Law.
‘- Tlie directors of every-stock corporation shall be chosen at the time and place fixed by the by-laws- of the corporation by a plurality of the votes-at such election. Each-director shall be a stockholder unless otherwise- provided in the certificate or in á by-law adopted
The interlocutory judgment appealed from should be affirmed, with costs, and the order of injunction, should be sustained, with costs. ■ ^ '
Bartlett, Rich and Miller, JJ., concurred; Bartlett,. J., in separate memorandum; Hooker, J.,. read for reversal.
-I concur in the result, on the-ground that under existing laws there is no power in the board of directors Of the. Equitable Life Assurance' Society so tó amend its charter as to deprive a stockholder of the right to participate in the election of every director of the corporation. While the. board may permit policyholders to, vote for every director, it cannot lawfully exclude'stockholders from the exercise of the samé right. , ,
47 Misc. Rep. 187.— [Rep.
Dissenting Opinion
I do not concur in the view that the interlocutory judgment should be affirmed. The defendant, the Equitable Life Assurance Society, was incorporated in the year 1859 under the provisions of. chapter 463 of the Laws of 1853, relating to the incorporation of life insurance Companies. That chapter provided that the corporators file in the office of the Comptroller a declaration setting forth their " intent to form a company and comprising a copy of the proposed charter, and that .the charter show, among other things, the manner of electing the trustees or directors and officers.” In this respect-the charter-proposed, and which actually became'the charter of the society,, provided: “ The Board of Directors shall consist of fiftjr two persons, a majority of .whom shall be citizens -of the State of Hew York, each of whom shall be a proprietor 'of at -least five • shares of the said, capital stock. * * *. In the election of Directors, every stockholder in the company shall be entitled to one vote for every share of' stock held by him, and such vote may be given in person, or by proxy. . At any time hereafter, the Board of Directors, after giving notice at the two previous
On the 21st day of March, 1905, the board of directors of the society adopted a proposed amended charter, which they intend to submit to the Superintendent of Insurance of the State of New York for his approval; it is also their intention, unless restrained-by the intervention of this court, to procure approval by the Superintendent of the amended charter, to the end that the affairs of the society may hereafter be administered thereunder. The provisions of the proposed amended charter which are obnoxious to the plaintiff are these“ The Board of Directors shall consist of Fifty-two . persons, a majority of whom shall be citizens and residents of the State of New York, each of whom shall be a policyholder or a proprietor of at least five shares of the said Capital Stock. * * * The directors shall be chosen by ballot by the stockholders and policyholders in the Company in the following manner : Six of the vacancies occurring annually among the directors, by the expiration each year of the term of office of one of said four classes, shall be filled by a plurality vote of the stockholders in the Company, and each of said stockholders in • the election to fill such vacancies shall be entitled to one vote for every share of stock held by him, such vote to be given in person or by proxy. The other seven vacancies so occurring annually shall in like manner be filled by a plurality vote of the policyholders in the Company, and in the election to fill such vacancies each policyholder in the Company, who shall have been such for at least twelve months prior to the date of such election, shall be entitled to one vote, which may be given in person or by proxy. In case the number of Directors shall at any time be reduced to less than fifty-two, the numbers elected by stockholders and policyholders, respectively, shall be in the proportion of six to seven; and these proportions shall not be changed without the consent of the holders of three-fifths of the stock of the Company.”
The plaintiff is the owner of thirty-six shares of the capital stock of the society. The capital stock is $100,000, divided into 1,000 shares of the par value of $100 each. The business of the society
Claiming that the admission of policyholders to vote for and elect-a majority of the directors of the society, as contemplated by the proposed amended charter, would be in derogation- of his rights as one of the owners of the society’s capital stock, the plaintiff has instituted this action in equity to restrain its directors, officers and employees from 'presenting to the Superintendent of Insurance or filing, the proposed amended, charter or any other amended charter whereby his rights as a stockholder shall be in any way affected or impaired. To his complaint the society has demurred on the ground that it does not state facts sufficient to constitute a cause of action, and now appeals from an interlocutory judgment overruling the demurrer. ~
The act -of 1853 under which the society was incorporated, did not in terms contain- a reservation to the Legislature of the right to alter, amend or repeal the charter of any corporation organized thereunder. The plaintiff’s claim for relief is based upon three propositions: First, there was not reserved to the Legislature the privilege of amending or altering the society’s charter; second, that he and the other stockholders of the society have vested rights in" the nature of property rights and contract rights which entitle them to vote for all the directors of the society, and which rights cannot lawfully be taken away or impaired under reserved legislative authority by any amendment of the .charter, and-, third, that the proposed amended charter is not authorized by the provisions of the statute under which the directors have assumed to act.
In respect of the first proposition, I agree- in the conclusion expressed in the prevailing opinion. At the time the-society was incorporated, and ever since then, the Constitution of the State contained the following provision: “ Corporations may be formed under general laws; but shall not be created- by special act, except-for municipal purposes, and-in cases where, in the judgment of the Legislature, the objects of the corporation cannot, be attained' under-
Having reached- the conclusion -that the power to alter or amend was Vested in the Legislature, the second question for determination is whether or not that power is sufficiently comprehensive to deprive this plaintiff and. his fellow-stockholders of the exclusive right of-electing a majority!of the directors of the society. I also conclude that this is embraced within the reserve power of the Legislature. The proposition seems to be established .by controlling authority, and if the deductions drawn from the cases to be cited are logical, may hardly be considered an open question: Grobe v. Erie County Mutual Ins. Co. (39 App. Div. 183) was unanimously affirmed in the Court of Appeals (169 N. Y, 613) upon the opinion read in the Appellate Division. . In that case the, voting power was taken from the policy-holders of a mutual insurance company upon whom it was Con-, ferred by the charter, and given to the stockholders. In the case at bar part of the voting power is proposed to be -taken from the stockholders and given to the policyholders. The principle involved is necessarily the same. Speaking, of the constitutional question involved in the reserve power to alter or repeal, Mr. Justice Follett said: “ Pursuant to this provision the statutes under Which this corporation was organized and by which it-must be controlled were passed, and every person who became a member of the corporation did so with full knowledge that it might be at any time changed from a^ mutual to a stock corporation, upon certain terms and conditions, and that under this provision of the Constitution those terms might at any time be changed by the Legislature,” In Looker v.. Maynard, (179 U.S. 46) the authority of the Legislature to pass an act permitting each stockholder of a corporation theretofore organized to cumulate his votes upon any one or more candidates for directors was upheld. If the Legislature has power,.
The third proposition is whether the proposed amended charter is authorized by the provisions of the statute under which the directors have acted. Upon that question I am unable to agree with the views of the majority of this court. The directors of the defendant society assumed to place in operation the new proposed charter, from which quotation has been made, under and by virtue of the power conferred upon insurance companies in this respect by section 52 of the Insurance Law (Laws of 1892, chap. 690, as ámd.). To -reach a correct conclusion upon this branch of the case it is necessary to examine with some care the changes which this section has undergone since its enactment. It was-originally passed in the year 1892. It then read as follows: “§ 52. Reorganization of existing corporations and amendment of certificates.— Any domestic insurance corporation existing or doing business at the time this chapter takes effect, and not incorporated under any law repealed by this chapter, may, by a vote of a majority of its directors, accept the provisions of this chapter and amend its charter to conform with the same, upon obtaining the consent of the Superintendent of Insurance thereto in writing; and thereafter it shall be deemed to have been incorporated under this chapter. Every domestic insurance corporation may amend its charter or certificate of incorporation by inserting therein any statement or matter which might have been originally inserted therein.” But chapter 463 of the Laws of 1853, under which the defendant society was organized, was specifically repealed by section 290 of the Insurance Law of 1892, and hence the 1st sentence of the section just quoted would not apply to the society because that was applicable only to insurance companies not incorporated under any law repealed by that act. The Legislature of 1893, however, amended this section (Laws of 1893, chap. 725) so as to read
Since the defendant society was, at the time of the action' of-the board of directors now complained of, a. domestic corporation existing and doing business when the Insurance Law took effect, the 1st sentence of section 52 thereof, of course, applied to it. And so the section existed, as far as it is important for us to inquire, until the year 1901, when by chapter 722 of the laws of that year the following provision was added thereto : “ This section shall apply to insurance corporations organized under or subject to article six of the Insurance Law, as well as to insurance corporations organized under special charters or articles two and ten of the Insurance Law; all contracts, policies and certificates issued by such corporations prior to accepting the provisions of this chapter shall be valued as one year term insurance at the ages attained, excepting when such contracts, policies or certificates shall provide for a limited number of specified premiums or for specified surrender values, in which case they shall be valued as provided in article two, section eighty-four of the Insurance Law.” ' It is urgently insisted that this amendment of 1901 operated to exclude from the purview of the section corporations not organized under article 6 of the Insurance Law, or under special charters or articles 2. and 10 of the lnsurance Law, it being contended that the amendment of 1901 was
By virtue, then, of the provisions of section 52, the board of directors of the defendant society undertook by their resolution of March 21, 1905, to effect the adoption of a new charter, that the corporation might enjoy the privileges and provisions of the laws now existing, such being the manifest intention of the enactment in section 52 of the Insurance Law. One of the provisions of such existing law, the advantage of which the directors sought, to obtain for the defendant society, is apparently contained in section 70 of the Insurance Law, which, after providing that thirteen or more persons may become a corporation for the purpose of making insurance upon the lives of persons, by making and filing in the office of the Superintendent of Insurance a certificate signed by them, stating their intention and setting forth a copy of the charter, prescribes what that charter may contain in this language: It “ shall state the name of the proposed corporation, the place where it is to be located, the kind of insurance to be undertaken, and under which of the foregoing subdivisions it is authorized, the mode and manner in which its corporate powers are to be exercised, the manner of electing its directors cmd officers, a majority of whom shall be citizens and residents of this State, the time of such elections, the manner of filling vacancies, the amount of its capital, and such other particulars as may be necessary to explain and make manifest the objects and purposes of the corporation.” And it is asserted that because the privilege is accorded the thirteen or more persons to adopt a charter which shall declare “ the manner of electing its directors and officers,” it was within the power of these directors to propose for adoption a charter which should give the power of electing the majority of the directors to the policyholders, although under the original charter the policyholders had no such right. It is not clear to my mind, however, that tbe language is sufficiently broad for the purpose.' ■ The word “ manner,” while more compre^ hensive in its meaning and uses than either the words “method” or “ mode,” may with much, reason be held to mean in that con
It is apparent, therefore, that statutory authdrity exists for the action of the board of directors of. the. defendant society in the adoption of a charter which accords to policyholders' the -privilege of electing a majority of the directors, thereby restricting the privilege of stockholders in that respect, Inasmuch as there Was
The appeal from the order granting a temporary injunction should likewise prevail, for the injunction cannot stand upon a complaint which fails to state a cause of action.
Interlocutory judgment overruling demurrer to the complaint affirmed, with costs-.
Sic.
See Banking Law (Laws of 1892, chap, 689), § 52.—[Rep,