#### Charles W. Morse, Suing on His Own Behalf and on Behalf of All Other Stockholders of The Equitable Life Assurance Society of the United States, Respondent, *v.*The Equitable Life Assurance Society of the United States and Others, Appellants.

First Department,

February 14, 1908.

Insurance — statutory limitation of investments by insurance corporations •— rights of insurance company respecting stock acquired before restriction — right to vote on merger proposition.

Although section 100 of the Insurance Law, as amended by chapter 326 of the Laws of 1906, prohibits life insurance corporations from investing in stocks of . any corporation other than the securities of municipal corporations or those of the State or government, etc., and requires insurance companies to dispose of unauthorized holdings within- five years from December 81, 1906, etc., an insurance company holding the stock of two trust companies acquired before said act went into, effect, may vote upon the stock so held upon a proposition for the merger of the trust companies.

During the period of ownership permitted by the statute the title of an insurance company to the stock is perfect and confers upon it the same privileges, responsibilities and duties as those of any other stockholder.

Although such insurance company on the merger of the trust companies will surrender its shares and receive other shares in the merged company in certain proportions, it is not making a new “investment” of its funds within the meaning of the statute.

Hence, the action of the directors of such insurance company in voting on a proposed merger is not *ultra vires*and will not he restrained at the suit of a minority stockholder.

Appeal by the defendants, The Equitable Life Assurance Society of the United States and others, from an order of the Supreme Court, made at the ¡New York Special Term' and entered in the *236office of the clerk of the county of New York on the lltli day of September, 1907.

*Charles F. Brown [Patti D. Cravath, AUan MoCulloh, Carl A. Be Gersdorff*with him on the brief] of counsel, for the appel_ lants.

*Louis Marshall [Thomas B. Adams*with him on the brief] of counsel, for the respondent. >

Clarke, J.:

This is an appeal from an order granting an injunction *pendente lite*in- an action in equity brought to enjoin and restrain the Equi. table Life Assurance Society of the United States, its directors, officers, agents and employees from voting at any meeting of the stockholders' of the defendant, The Equitable' Trust Company of New York, or of the defendant, The Mercantile Trust Company, in favor of approving an agreement of merger, dated June 13, 1907, between said trust companies; from exchanging the capital stock of the Equitable Trust Company held by the insurance company for shares of stock of the Mercantile Trust Coiupany; and restraining the said trust companies and their and each of their directors, officers, agents and employees from carrying out the aforesaid agreement of merger. The said merger agreement and the questions arising thereunder have been considered in *Colby*v. *Equitable Trust Co.*(124 App. Div. —.)handed down herewith, and no further consideration of the questions there passed upon is necessary in this opin. ion. We, therefore, consider solely the questions peculiar to this case.

The capital stock of the Equitable Life Assurance Society is $100,000, divided into 1,000 shares of the par value of $100 each, the annual dividends thereon being limited by law to seven per cent. The plaintiff owns 15 shares of said capital stock. The charter of the society provides that the earnings and receipts over and above the dividends, losses and expenses, shall be accumulated, and that the insurance business of the company shall be conducted upon the mutual plan. The assets of the company in excess of its capital stock, according to its last report, amount to upwards of $434,000,000, of which $68,720,333 is surplus. A majority of its *237directors are elected by policyholders and not by the stockholders. The insurance company owns 14,500 shares of the capital stock of the defendant Equitable Trust Company, being sixty-seven per cent thereof, and 12,941 shares of the capital stock of the Mercantile Trust Company, being about forty-nine per cent thereof. One of the grounds upon which the injunction was prayed is that the Equitable Life Assurance Society has no right, under section 100 of the Insurance Law of the State of Mew York (Laws of 1892, chap. 690), added by chapter 326 of the Laws of 1906, to exchange its stock in the Equitable Trust Company of Mew York for stock of the merged company under the merger agreement. Said section provides as follows: “Investments.— Mo domestic life insurance corporation, whether incorporated by special act or under a general law, shall after the first day of June, nineteen hundred and six, invest in or loan upon any shares of stock of any corporation, other than a municipal corporation, nor, excepting government, State or municipal securities, shall it invest in, or loan upon, any bonds or obligations which shall not be secured by adequate collateral security or' where more than one-third of the total value of the collateral security therefor shall consist of shares of stock. Every such corporation which on the first day of June, nineteen hundred and six; shall own any shares of stock other than' public stocks of municipal corporations, whenever the same shall have been acquired, or any bonds or obligations of tlie kinds above described where. said bonds- or obligations shall have been acquired after the first day of March, nineteen hundred and six, shall dispose of,the said shares of stock and of said bonds and obligations within five years from the thirty-first day of December, nineteen hundred and six, and in each year prior to .the expiration of said five years shall make such reduction of its holdings of said securities as may be approved in writing by the Superintendent of Insurance. Mo investment or loan shall be made by any such life insurance corporation unless the same shall first have been authorized by the board of directors or by a committee thereof charged with the duty of supervising such investment or loan. Mo such corporation shall subscribe to or participate in any underwriting of the purchase or sale of securities or property, or enter into any transaction for such purchase or sale on account of said corporation jointly *238with any other person, firm or corporation; nor shall any such corporation .enter into any agreement to withhold from sale any of its property, but the disposition of its property shall be at all times within the control of its board of directors. Any such corporation,, in addition to other investments allowed by law, may invest any of its funds in any duly authorized bonds or evidences of debt of any city, county, town, village, school district, municipality or other civil division of any Staté, and may loan .upon the . security of improved unencumbered real property in any State worth fifty per centum more than the amount loaned thereon.”

The insurance company has now a considerable amount of money invested in certain -shares- of the capital stock of the Equitable Trust Company and the Mercantile Trust Company. It is provided by the terms of the proposed merger that the holders of the capital stock of the Equitable Trust Company shall surrender their stock by delivering the certificates therefor, duly indorsed in blank for transfer, to the merged company, and each stockholder shall be entitled to receive at his option either one share of the capital stock of the merged company for each two shares of the stock of the Equitable Trust Company so surrendered, or ,$435 in cash for each share so surrendered; that the holders of the present outstanding capital stock'of the Mercantile Trust Company shall be entitled to retain one share in the merged company for each share of such present stock and to receive new certificates therefor upon surrender to the merged company of the present certificates for cancellation.

If the insurance company surrenders its shares -of the Equitable Trust Company stock at the ratio of two to one, and receives shares of the merged company therefor, and surrenders its shares in the Mercantile Trust Company and receives share for share therefor of the merged company, will that transaction violate the provision of the statute cited *supra,*that “ no domestic life insurance corporation * * * shall * * * invest in * * any shares of stock of any corporation, other than a municipal corporation ? ”

It is, of course, conceded if this were an original. transaction ; if the-insurance company should agree to buy and pay for out of its funds shares óf stock in the merged corporation to be formed by this agreement, that it woulci yi,oíate the provisions of the statute *239iii fact and in intent. Tlie insurance company owns, however, upon expenditures of money heretofore made, when not prohibited by law, shares, of stock in the two constituent companies. It has the right, under the statute, to continue to hold such shares as were acquired prior to the 1st of June, 1906, for five years from the 31st day of December, 1906, subject only to the requirement that it shall make in each year of said five years such reduction of its holdings of said securities as may be approved in writing by the Superintendent of Insurance. During that period its ownership of said stock is perfect. Its title is as good, its privileges, responsi-. bilities and duties the same as that of any other holder of shares in said companies.' It*has the right to vote upon its shares in every election and upon every proposition lawfully submitted to the stockholders of the said companies, including the right to vote upon a proposition for merger, required by law to be submitted by the directors to the stockholders, and which can only be accomplished by the consent of the holders of two-thirds of said stock. So long as it is the owner it is vested with all the rights of ownership. The Century Dictionary defines the word “invest” as follows: “To employ for some profitable use; convert into some other form of wealth', usually of a more or less permanent nature, as in the purchase of property or shares, or in loans secured by mortgage, etc.; said of money or capital; followed by *in*/ as, to *invest*one’s means *in*lands or houses or *in*bank stock, government bonds, etc.; to *invest*large sums *in*hooks.” “"Investment ” in the same dictionary is defined to be “ An investing of money or capital; expenditure for profit or future benefit; a placing or conversion of capital in a way intended to secure income or profit from its employment; as, an *investment*in active business, or in stocks, land, or the like; to make safe *investment*of one’s principal.”

In 23 Cyclopedia of Law and Procedure, 348, “invest” is defined, 'as follows : “As. used in connection with money or capital, to give money for some other property;, to lay out money for some other kind of property, usually of a permanent nature; literally, to clothe money in some thing; to lay out money in some permanent form so as to produce an income ; to lay out (money or capital) in business with the view of obtaining an jqcmpq 9F profit) to plape money so that it will yi@I4 a profit,” . '

*240Under this proposed merger no money is to be paid out or clothed in securities or transferred from cash to stock. The investment has long since been made; the money has long since been placed “ so that it will yield a profit,” given “for some other property,” laid out in a “ permanent form so as to produce an income.” There is to be a mere exchange of shares of stock in two separate companies for shai'es of stock in one company which is to be the result of the merging of the two separate companies, the merged company to take over and .carry on the powers, rights and privileges, of the two Separate companies. Instead of' the laying out of capital, the parting'with money for a security, there .will be a considerable transformation of securities into cash by that provision which permits the company to receive $435 per share for those shares of the Equitable Trust Company which it does not desire to exchange for shares in the merged company at the ratio provided. The president of the insurance company states under oath, “ I knowof no way by which the Society can realize as much upon its holdings as by availing itself of the proposed merger, which insures a cash price of $435 for each share of stock which is not exchanged for stock of the .merged company. • In my judgment that price is considerably in excess of the probable liquidation value of the stock. * * * If for any reason the proposed merger should prove impracticable, my own judgment, as representing the Equitable Life Assurance Society, would be in favor of liquidating the Equitable Trust Company so as to return to its stockholders its capital and surplus, less the expense of liquidation.”

If seems to me clear that the proposed transaction, so far as it affects the Equitable Life Assurance Society does not offend against the provisions of section 100 of. the Insurance Law, added by chapter 326 of the Laws of 1906. If I am right, the proposed action of the directors in- voting the shares owned by the insurance company is not *ultra vires,*and as the learned court at Special Term in the *Colby*case distinctly held that the scheme of merger was not fraudulent, this case falls within the doctrine that a stockholder cannot enjoin the execution of a.contract *intra vires*unless, fraud or oppression or unfairness is shown. .As laid down in *Leslie*v. *Lorillard*(110 N. Y. 532): “ In actions by stockholders, which assail the acts of their directors or trustees, courts will not interfere unless *241the powers have been illegally or unconscientiously executed or unless it be made to appear that the- acts were fraudulent or collusive and destructive of the rights of the stockholders.” When we consider the nature and character, the assets, surplus and capital stock of this insurance company, it is difficult to perceive in what possible way the proposed merger can be destructive of the rights of this plaintiff who owns fifteen shares of its stock upon which the dividends are limited by law to seven per cent per annum.

For these reasons, in addition to those expressed in the opinion in the *Colby*case, thb order appealed from should he reversed and the injunction vacated, with costs and disbursements to the appellants.

Patterson, P. J., McLaughlin, Laughlin and Scott, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.