Court Opinion

ID: 5197048
Source: CourtListenerOpinion
Date Created: 2022-01-06 15:44:51.667893+00
Date Added: 2024-06-11T08:27:07.549818
License: Public Domain

Hooker, J. (dissenting):
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 * stated meetings, may, *271by a vote of three-fourths of all the Directors, provide that each life policy-holder, who shall be insured in not less than Five Thousand Dollars, shall be entitled to one vote at the annual election of-Directors, but such vote .shall be given personally and not by proxy.”
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 *272has been eminently successful ever since its incorporation, until now. there are 560,000 policies of life insurance outstanding issued by it,, the amount thus insured exceeding the sum of $1,495,000,000. At the present time the society has. a surplus of more thap $80,000,000 over and above such assets . as would’ be necessarv to meet its v contingent and' fixed liabilities.
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-*273general laws. All general lems mid special acts passed pursuant to this section may be- altered from time to time or repealed.” (Const. [1846] art. 8, § 1; Const. [1894] art. 8, §1.) It is claimed by the learned, counsel for the respondent that this constitutional provision was not self-operative, and that a charter granted under a special act or general law, after the Constitution of 1846 went into effect, could not be altered, unless the special act or general law itself specifically so provided. It is. conceded on every hand that this provision found its way into the fundamental law to remedy the consequences of the decision of the Supreme Court of the United States in Dartmouth College v. Woodward (4 Wheat. 518), the effect of which was that in the absence of reservation of power to do so, a State Legislature might not alter the charter of a corporation organized under and by virtue of its "laws. Full effect should be given to the evident intent of the constitutional provision; the power to amend or alter a general law or special act under and by force of which a corporation springs into being, carries with it the power to alter the charter of the corporate body itself; for the body exists by reason of the act, and rests for the protection and enjoyment of its rights and privileges upon its grants $ the charter is to such extent one with the act which creates it, that power to alter the latter must imply power to alter the charter itself. This view is supported by authority. In Barnes v. Arnold (45 App. Div. 314; affd., 169 N. Y. 61.1) the court said : “ But it seems to us that it is not necessary to have recourse in this instance to what is termed the ‘ reserve power 1 of the Legislature, for the reason that the right' to alter and amend any corporate privileges granted by the State is clearly conferred by the fundamental law itself. By article VIII of the Constitution of 1846, to which it is conceded on all hands the enactment of 1892* must conform, it was provided, among other things, as follows, viz.: Section 1. Corporations may be formed under general laws, but shall not (except in certain cases) be created by special act,’ and that 'A11 general laws and special acts passed pursuant to this section may be altered from time to time or repealed.’ * * * Here, then, is conferred upon the Legislature in unmis*274takable terms the power to create any and all corporations by general laws, the right to alter and amend, in its discretion, all such laws, and the power to enact such measures as will secure the creditors of all ■ corporations thus formed by the individual liability of the incorporators or by such other means as may be deemed available.- How could a grant of legislative power be more, liberally conferred or more clearly defined, -and how could the members of any corporation created wliile these provisions were in operation possibly misconstrue their force and effect ?”
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,. *275under its reserve power to'alter, to provide for cumulative voting, and thereby change the voting value of shares and deprive the majority of the exclusive absolute right of electing all the directors, it follows that the right of the stockholders may be limited to the extent of vesting in policyholders the privilege of electing a majority of the directors. The power of the stockholder is not annihilated ; his right to a voice in the choice of directors is still present; a diluted power, if you please, or a weaker voice, as you will, but still his interest remains.
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 *276as follows: “ § 52. Reorganization of existing corporations and amendments of certificates. 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 accept 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, and every such corporation in reincorporating under this provision may for that purpose so adopt in whole or in part a new charter, in conformity herewith, and include therein any or all provisions of its existing charter,, and any or all changes from its existing charter,, to cover and enjoy any or all the privileges and provisions of 'existing laws which might be so included and enjoyed it were originally incorporated thereunder.” Section 1 of the act of 1893 provided that nothing in any of the sections amended by said act should apply to any insurance corporation incorporated undér articles 6 and 7 of the Insurance Law.
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 *277meant to limit the application of section 52. The claim is, however, it seems to me, without merit. It was manifestly the purpose of the amendment to extend rather than limit the operation of the section, and to add to the number of corporations which were to be subject to the provisions thereof.
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*278neetion the procedure of electing directors and officers rather than a definition of the classes in whom the suffrage should lie. This is a debatable question, not entirely free from doubt, which it is unnecessary to decide, for elsewhere in the statutes of the State is to be found general authority for a provision in articles of incorporation i that others than 'stockholders may compose such electorate. At the time of its passage section 20 of (the General Corporation Law (Laws of .1892, chap. 687) provided: “ At every election of directors and meeting of the members of any corporation, every member, who is not in default in the payment of his subscriptions upon his stock or disqualified by the by-laws, shall be entitled to one vote, if a non-stóck corporation, and, if a stock corporation, to one vote for every share of stock held by him for ten days' immediately preceding the election, or meeting,” and it is said that by force of this section of the General Corporation Law, stockholders have the indefeasible exclusive right to vote for directors. But by -chapter. 355'of the Laws of 1.901 that'section was amended sons to provide that unless otherwise'provided in the certificate of incorporation, every stockholder of record of a Stock corporation shall be entitled at every meeting of the corporation to one vote for every share of stock standing in his name on- the books of the corporation, and at every meeting of a ñomstock corporation, every' member, unless disqualified by the by-laws, shall be entitled to one vote.” The words italicized express a new statutory provision, which, in effect, declares, and it is. thereby clearly contemplated, that a certificate of incorporation may lawfully provide that others than stockholders may vote. Hence incorporators of a new company might provide in the articles of. incorporation that the voting power should be lodged elsewhere than- in the stockholders, where it usually resides^, and if. such a 'pro vision is-competent'by virtue of. that amendment' in the case of a new corporation, it is clearly competent pursuant tó the provisions of section 52 of the Insurance Law (as amd. supra) ■ in the casé of a new charter being adopted by the defendant society.
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 *279reserved to the Legislature the power to pass laws by which this change might be effected, and inasmuch as the change itself does not impair the obligations of any contract of the plaintiff, or deprive him of property without due process of law, the interlocutory judgment appealed from should be reversed and the demurrer to the complaint sustained.
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,