Lord v. Equitable Life Assur. Soc'y of United States
Citation | 87 N.E. 443,194 N.Y. 212 |
Parties | LORD et al. v. EQUITABLE LIFE ASSUR. SOCIETY OF UNITED STATES et al. |
Decision Date | 09 February 1909 |
Court | New York Court of Appeals |
OPINION TEXT STARTS HERE
Appeal from Supreme Court, Appellate Division, Second Department.
Action by Franklin B. Lord, prosecuted after his death by Franklin B. Lord, Jr., and others, his executors, against the Equitable Life Assurance Society of the United States and others. From an order of the Appellate Division (126 App. Div. 937,110 N. Y. Supp. 1135) affirming an interlocutory judgment rendered at Special Term (57 Misc. Rep. 417,108 N. Y. Supp. 67) sustaining a demurrer to the complaint, plaintiffs by permission of the Appellate Division appeal, and the Appellate Division certifies a question for decision. Reversed, and question certified answered in the affirmative.
The appeal was taken by permission of the Appellate Division, and the following question was certified for decision: ‘Does the complaint in this action, consisting of the amended complaint and the supplemental complaint, set forth a cause of action against the defendant the Equitable Life Assurance Society of the United States?’
Edward M. Shepard, for appellants.
William B. Hornblower, for respondent.
This action was brought by Franklin B. Lord, now deceased, to restrain the defendant corporation from so amending its charter as to give policy holders the right to vote for a majority of the directors and to limit stockholders to the right to vote for a minority only. It is continued by his executors, through a supplemental complaint, in order to set aside as illegal and void an amendment to the charter purporting to have been made after the date of the amended complaint and to enjoin the officers of said company from holding or taking part in any election of directors held otherwise than as prescribed by the original charter. By stipulation of the parties the amended and the supplemental complaints are to be read together and treated as the sole complaint in the action, and, while there are individual defendants who were permitted to intervene, for convenience the corporation will be referred to as if it were the only party defendant. The word ‘mutualization’ has been used throughout this litigation to express the idea of so changing the charter of a stock life insurance company as to confer upon the policy holders the right to vote for directors, and it is used with that meaning in this opinion.
The plaintiff is the owner of 36 shares of the capital stock of the defendant, which is a life insurance corporation organized in 1859 pursuant to the provisions of chapter 463, p. 887, of the Laws of 1853 as from time to time amended. That act authorized the corporators to prepare a charter in the form of a certificate of incorporation, in which should be set forth, among other things, the method of electing directors and the manner in which the corporate powers should be exercised. A majority of the directors were to be citizens of this state, but no other qualification was specified in the statute.According to the certificate filed by the corporators, the amount of the capital stock is the sum of $100,000, divided into 1,000 shares of the face value of $100 each. The board of directors is composed of 52 members, each of whom is required to be ‘a proprietor of at least five shares of the said capital stock.’ The charter also contained the following provisions:
‘The business of this company shall be to make insurances upon the lives of individuals, and every insurance appertaining thereto, or connected therewith; and to grant, purchase, or dispose of annuities, as set forth in the act aforesaid, passed June 24, 1853, and amendments thereto.’
The defendant now has outstanding upward of 500,000 policies, and the amount insured is nearly a billion and a half of dollars; but ‘only a minority of the said policies are for insurance in the sum of as much as $5,000.’ The gross surplus amounts to upward of $80,000,000, the accumulations for the benefit of policy holders to over $410,000,000, and the net surplus, after providing for all policies outstanding, to a large sum. All the net surplus has never been divided, for the management has ever has in mind the stability of the company and the need of guarding its investments from the effect of fluctuation in the value of securities. This appeal involves the legality of an effort to so ‘mutualize’ the defendant's charter as to allow the policy holders to elect 28 of the directors, leaving the 24 remaining to be elected by the stockholders. This was sought to be effected by the directors, against the protest of the plaintiff's testator, under the authority of the Legislature as expressed in the insurance law, passed in 1892, and amended in the respect under consideration in 1901 and 1906. Laws 1892, p. 1955, c. 690, § 52; Laws 1901, p. 1779, c. 722, § 1; Laws 1906, p. 771, c. 326, § 13. The first effort, made under the amendment of 1901, did not succeed, as it was held by the Appellate Division upon a demurrer to the original complaint herein that, while the Legislaturehad the power, it had not so exercised it as to enable the directors to change the corporate control of the company ‘by giving to policy holders power to participate in the election of directors.’ 109 App. Div. 252,96 N. Y. Supp. 10. This led to the act of 1906, under which a second effort was made to effect the same purpose and the action of the directors in this regard, having been sustained by the courts below, is now before us for review.
The primary question is whether the Legislature had power to pass the act of 1906, which provides, in substance, that any stock life insurance company may by the vote of a majority of the directors, when authorized by stockholders holding a majority of the capital stock, confer upon its policy holders the right to vote for all or any less number of the directors. This depends upon certain provisions of the Constitution and the Revised Statutes when read in connection with the statute under which the defendant was incorporated. The Revised Statutes, passed in 1827, provided that: ‘The charter of every corporation, that shall hereafter be granted by the Legislature, shall be subject to alteration, suspension and repeal, in the discretion of the Legislature.’ 1 Rev. St. (1st Ed.) 600, pt. 1, c. 18, tit. 3, § 8. The Constitution, as adopted in 1846 and also as revised in 1894, provides that: Const. art. 8, § 1.
The appellants claim that the general power to amend corporate charters as reserved by the Legislature in the Revised Statutes does not apply to those taken out under the act of 1853, because that act provides by section 11 that all companies formed thereunder ‘shall be subject to all the provisions of the Revised Statutes in relation to corporations, so far as the same are applicable, except in regard to annual statements and other matters herein otherwise specially providedfor’; and by section 20 that ‘Every charter created by or under the laws of this state for the purposes aforesaid, shall continue until repealed.’ It is insisted that the exception mentioned in the earlier section refers to the part quoted from the later, and hence that the Revised Statutes were so modified as to prevent the Legislature from touching the charter of the defendant, except by repeal.
History forbids this construction. The provision in the Revised Statutes was the result of public alarm...
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