Evening journal., 1917-04-21
IN HOME
Insurance Case
Chancellor Dismisses Bill
Charging Irregularities
Bought by Stockholders
APPROVES BORROWING
FOR EXPANSION

decision IN the case OF lhomaS Ming
sion Julia NJ. Mack, Warren Geiger,
.John " Doan, Mary F. Lynch and John
g. NIaoinnis against the Home Life In
surance Company and the Home Protec-
tive COMPANY, to annul contracts made
bv the company and to correct iuegu-
larities and alleged unlawful acts OF
officers and directors, which suit had
been in the court for several months
lie holds that unless the complainants
be riyen some relief based on the pay
ment of dividends, the dismissal OF the
bill would follow.
The complainants were all stockhold- !
ers in the insurance company. The oih- J
GERS of the two defendant companies for
more than nine years were the same
persons and the majority of the direc-
tors of the insurance company we're d.
rectors of the Protective Company as
we'll
Up to 1909 the Protective Company
| owned practically all the stock OF the
insurance company. From 1909 to the
| latter part of 1918 the Protective Com
pany sold shares Of the insurance COM
| pany's stock at prices about double par
! in connection with policies Of insurance
issued the persons insured being given
the right to taie such shares. These
shares we're issued under an option orig
inaly granted by the insurance company
to Paul Bright and afterwards assigned
to the Protective Company. They gave
the exclusive right 10 purchase $780,
600 worth of stock at par.
In 1909 the stockholders Of the in
surance company extended the option
to include the entire capital stock.
Advances or contributions made to
the protective company by the insur-
ance company under the option were
needed and used to acquire new busi-
ness, because, il was shown. it costs
new insurance company more to
place insurance the first year Of its
existence than it gets from the busi-
ness.
I In February Of that year a resolu-
tion was adopted by the stockholders
of the Insurance Company showing
that about $4,000 had been received
= from the Protective Company Of
r which SS1 900 had been repaid. and
, authorizing the execution of obliga-
tions for the balance with interest at
; per cent to be paid only out of sur
, plus in excess of $4,000 as long as
= the Insurance Company continued in
business, and that these obligations
70 should not be considered liens or
; debts except on dissolution or retire
; ment. Up to 1912 the Protective Com
= pany held a majority Of the stock and
; still has power 10 secure control b.
exercising the option. The Protective
Is Company holds about 5000 shares
T now out Of about 10000 outstanding
- About $500 shares remain to be is
+ sued which the Protective Compan,
y can take at par at an ytime.
q The complainants alleged that tn
y plan OF financing the Insurance Com
!. pany was fraudulent This plan wa
- that the Protective Company shoul
:. furnish the Insurance Company none
|. to acquire new business and in re
= turn therefor the Protective Compan
., was given a perpetual and eXclusiv
n right to take the stock Of the InsuT
>. ance Company at par, the latter com
~ pany being liable to return all none
~. advanced with interest.
4. The chancellor holds tha. any on
n. who acquires sock in a corporatio
after that corporation has given {
~. another an exclusive right TO tax
"a and pay for at par all the stock of tn
u. corporation cannot assert as again'
- the corporation or the option holder
the general pre-emptive rights.
-, The charge was also made that N
A contract was void because 1t violate
,s- the rule against perpetuities TIL
:, rule had for its real purpose, III
~ chancellor contends. the preventio
'5e of tying up land for an unreasonab
". long period, but no cases have bee
- produced or found which extends u
III rule to a stock option, he holds.
10 The chancellor discussed the pie
- OF financing the insurance compaI
by the protection company which,
was alleged, was illegal and unfa
-, The only sources of earnings for ;
'o insurance company are its gains
~ mortality, excess interest earnin
II and margins on surrenders al
lapses. the opinion states. and {
lay chancellor finds that these do n
oe' provide sufficient money to obta
= rapid grow tn. and additional mon
is usually Obtainable by contribute
or advances.
OF In this case. the chancellor holt
re- the insurance company obtain
cry from the protective company mon
Mr.. with which to acquire new busint
day under an arrangement TO repay
10 same under the agreement set for
the Broadly stated. the question here
esi- "Is IL wrong for an insurance co
,re- panv TO borrow money to be spent
es- acquiring new business?' y the op
me ion reads:
on: "There is but one rational ansV
by to this. Such use of money by
insurance company was evidence
With good bushes management and '
-ery like sowing seed for a future harv
-ery II certainly is not wrong TO bor1
the money for such purposes * the
lich rover is not Obliged 70 repay 1t
Mr.. cent from the profits from the use
use A. The cap,tal of the insurance c.
many could not be impaired by US
money for such a purpose and N
EFF. a manner Neither would II he
paired If the money were payable {
TSg erally. because for every dollar 81
N for new business the value OF
~ q business would be increased and
,or new business would be an asset
ancing the liability.
"The complainants can. there
. not base any relief on this fact NJ
we're actual m 'srenresen'ations in
reports made TO the insurance {
missioner by the company. but st
holders ara not affected by reasc
the deception and this court need
act for the insurance commissi
- unless asked TO.
'The charge was made in the
a tha. dividends he'd been paid {
than out of earnings. While this