Opinion
Decided October 2d 1936.
1. The general power of the legislature to alter, suspend or repeal the charter of any corporation, reserved by section 6 of the General Corporation act of 1846 and re-enacted as section 4 of the General Corporation act of 1896, gave it the power to provide by P.L. 1932 p. 17, amending P.L. 1898 p. 422, that domestic corporations organized under the latter act, might merge with associations having similar objects formed under the 1898 act or under the laws of another state.
2. Article IV, section 7, paragraph 4 of the state constitution, provides that no act shall be passed which shall provide that any existing law shall be made or deemed a part of the act unless the existing law be recited in such act. The Non-Pecuniary Corporation act of 1898 contains no reference to the General Corporation act of 1896, nor does the latter contain any reference to the latter. The provisions of the latter act applying to merger need not be considered in connection with non-pecuniary corporations. P.L. 1932 p. 17; amending the 1898 Non-Pecuniary Corporation act, confers legislative permission on the defendant New Jersey corporation to merge with a New York corporation having similar purposes.
3. The permission granted by the legislature under P.L. 1932 p. 17, to merge, should not be exercised by a non-pecuniary domestic corporation if it will impair the rights of its objecting members. In becoming members of the defendant corporation and accepting its insurance certificate, a reciprocal relation arose between complainants and defendant, on the one hand, and between complainants and their fellow members on the other hand. A contractual status arose whereby the parties were bound to deal with each other equitably and to refrain from any act which would impair their relationship.
4. In associating together under defendant's charter, defendant's members became bound in equity from combining together and, by a majority vote over the objection of a substantial minority, take advantage of permissive legislation to merge, if thereby a material change would result in the mutual enterprise and the contracts or status of the minority would be impaired.
5. Under the proposed merger with the New York association, defendant, a New Jersey association, with headquarters in this state, conducted under the supervision of the department of banking and insurance and subject to New Jersey laws as construed by New Jersey courts, would turn over all its assets, amounting to more than one million dollars, now impressed with a trust in complainants' favor, to be commingled with the assets of the foreign corporation. Complainants would be compelled to become members of the merged corporation and accept such protection for their present interests as the New York corporation and laws may give them, or in the alternative surrender their certificates for an amount less than their certificates assure will be paid at death if they continue membership with the defendant. Held, complainants' right to continue membership with defendant is a vested one and the proposed merger is inequitable as against them. Decree restraining merger advised.
On appeal from a decree of the court of chancery advised by Vice-Chancellor Fielder, who filed the following opinion:
"The defendant Association of the Sons of Poland, was incorporated February 27th, 1911, under 'An act to incorporate associations not for pecuniary profit' ( P.L. 1898 p. 422; Comp. Stat. p. 125) as a fraternal mutual benefit and insurance corporation. It has one hundred and four subordinate lodges or groups of which eighty-six are located in this state, seventeen in New York State and one in Connecticut; it has assets of $1,010,000 largely invested in this state and a membership of thirteen thousand and seventy-three adults and three thousand one hundred and eighteen minors carrying $7,850,000 insurance. Complainants are six of said groups and seven individual members of the Association, residents of this state. Hereafter in using the word 'complainants,' it is intended to refer to those named as complainants and also to the membership of the six groups. The object of the suit is to restrain a proposed merger of the defendant Association with the Polish National Alliance of Brooklyn, a New York corporation organized for and operating with objects, purposes and benefits similar to those of the defendant Association. The Polish National Alliance has ninety-six lodges in New York, twenty-seven in New Jersey and a total of twelve in six other states; it has assets of $1,171,000 largely invested in New York and a membership of eleven thousand five hundred and sixty-seven adults and one thousand eight hundred and twenty-five minors, carrying $6,107,000 insurance. The defendants are the Association of the Sons of Poland and its officers and directors and hereafter they will be referred to as the 'defendant.'
"The power of corporations to merge exists only by virtue of statute ( Colgate v. United States Leather Co., 75 N.J. Eq. 229; Wm. B. Riker Son Co. v. United Drug Co., 79 N.J. Eq. 580 ) and the issue here is whether there is legislative authority for the merger of a domestic corporation organized under P.L. 1898 p. 422, with a foreign corporation incorporated for similar purposes and if there is, whether such authority can be exercised against complainants' will.
"When the defendant was incorporated, section 6 of the act of 1898 limited the power to merge to corporations organized under that act but by amendment P.L. 1932 p. 17, it is provided that associations having similar objects, formed under the act of 1898 or under the laws of another state, may combine. The complainants point to section 12 of the act of 1898 which provides that 'this act is subject to any alteration or modification which may be hereafter enacted by general law as to the amount of real and personal property to be held by the corporations herein provided for' and for them it is argued that the amendatory act of 1932 enlarging the power to merge cannot apply to the defendant, because when its charter was obtained, the legislative right to affect that charter by amendment was limited by section 12 to specific subjects which do not include merger. But that section must be read in connection with section 6 of the General Corporation act approved February 14th, 1846 ( Nix. Dig. 168), re-enacted as section 4 of the General Corporation act of 1896 ( P.L. 1896 p. 277; Comp. Stat. p. 1600), which provides that the charter of every corporation shall be subject to alteration, suspension and repeal in the discretion of the legislature and I am of the opinion that the passage of P.L. 1932 p. 17, was within the power of the legislature as reserved by the act of 1846 and that the power to merge as granted by the act of 1932, is properly part of the act of 1898 which it amends. Montclair v. New York and Greenwood Lake Railway Co., 45 N.J. Eq. 436; Schwarzwaelder v. German, c., Insurance Co., 59 N.J. Eq. 589; State, c., v. Commissioner of Railroad Taxation, 37 N.J. Law 228; Shiloh Turnpike Co. v. Bates, 80 N.J. Law 171.
"The defendant contends that our General Corporation act of 1896, entitled 'An act concerning corporations,' as amended by P.L. 1918 p. 1013 and by P.L. 1929 p. 478 ( Cum. Supp. Comp. Stat. 47-104), authorizing the merger of a domestic corporation with a foreign corporation, applies here. Our state constitution, paragraph 4, section 7, article IV, provides that every law shall embrace but one subject which shall be expressed in its title and that no act shall be passed which shall provide that any existing law shall be made or deemed a part of the act, or which shall enact any existing law, or any part thereof, unless the existing law be recited in such act. The Non-Pecuniary Corporation act was not passed until two years after the General Corporation act of 1896 and the former, contains no reference to the latter, nor does the title or body of the General Corporation act indicate that that act is intended to apply to corporations other than those generally known as business corporations. It is not necessary, however, to decide whether the cited provisions of the General Corporation act apply to merger by a corporation organized under the Non-Pecuniary Corporation act because I believe that P.L. 1932 p. 17, amending the Non-Pecuniary Corporation act of 1898, confers legislative permission on the defendant to merge with the Polish National Alliance.
"The permission so granted should not be exercised if it will impair the rights of defendant's objecting members. When complainants became members of the defendant and accepted its certificate of insurance, a reciprocal relation arose between complainants and defendant on the one hand and between complainants and their fellow members on the other hand. Defendant's certificate of incorporation, its constitution and by-laws, the payment thereunder of dues or assessments by complainants for the issuance of death benefit certificates, created a contractual relation or status whereby the parties thereto were bound to deal with each other equitably and to refrain from any act which would impair the relationship into which they had mutually agreed to enter — a relationship which was to continue for the life of each complainant provided he continued to pay dues or assessments to the defendant. In associating together under defendant's charter, defendant's members became bound in equity to refrain from combining together and, by a majority vote over the objection of a substantial minority, take advantage of permissive legislation to merge, if thereby a material change would result in the enterprise in which all had mutually agreed to embark and the contracts or status of the minority would be impaired. Zabriskie v. Hackensack, c., Railroad Co., 18 N.J. Eq. 178; Black v. Delaware and Raritan Canal Co., 24 N.J. Eq. 455; Schwarzwaelder v. German, c., Insurance Co., supra; Colgate v. United States Leather Co., supra; Wm. B. Riker Son Co. v. United Drug Co., supra; Allen v. Francisco Sugar Co., 92 N.J. Eq. 431.
"This is not the case of an ordinary business corporation with stockholders who become such with a view to profits to be derived from their investment and to whom it would make little, if any difference whether their corporation combines with another, so long as the nature of the business is not altered and the terms of merger are fair. This defendant was organized as a fraternal body for social and death or funeral benefits to its members and its continued existence is not shown to be dependent on a merger with another entity. Among its distinct and special purposes is the plan to provide and maintain a fund out of which it may contract with its members to pay death or funeral benefits and under its by-laws it has established various benevolent and charitable objects for the benefit of its members. Its funds or assets have been created through payment by members of dues or assessments and those assets are impressed with a trust in favor of complainants to secure to them the benefits guaranteed by defendant's certificate of incorporation, constitution and by-laws and its by-laws provide that in case of dissolution its assets shall be used for charitable purposes among all Poles but never divided among its remaining members. Its headquarters are in this state and the death benefit part of its business is conducted under the supervision of our department of banking and insurance and is subject to the laws of this state as construed by our courts. All this the defendant proposes to change as appears from an agreement of merger executed by the representatives of the defendant and the Polish National Alliance, wherein it is provided that all assets belonging to defendant shall be transferred and assigned to the latter corporation, whose headquarters are in New York State, and that thereafter the defendant's activities shall cease; that the consolidated funds of the two organizations shall be used for the payment of death claims in accordance with the by-laws, rules and regulations of the Polish National Alliance; that defendant's subordinate lodges or groups and members shall become subordinate lodges or groups and members of the Polish National Alliance and shall be subject to its certificate of incorporation, its constitution and its by-laws and that its business and assets shall be subject to New York laws and supervision; that the Polish National Alliance shall receive into its membership all of defendant's members who are in good standing who, if they desire to continue their membership and death benefit insurance, shall pay such assessments as the Polish National Alliance may levy under its by-laws; that if a member of defendant declines to become a member of the Polish National Alliance, his certificate and membership and all benefits thereunder shall cease, except that he shall be entitled to the reserve value of his certificate as computed by the Polish National Alliance, unless his certificate contains a definite provision as to surrender value, in which event he shall be entitled to receive such sum.
"It seems to me that the mere recital of the changes to be wrought in complainants' contract or status with defendant by the proposed merger, discloses that injury will be done complainants thereby. Complainants became members of the defendant before the amendatory act of 1932 was passed and their right to membership and to have their benefit certificates paid out of assets which they have helped to accumulate are valuable property rights and yet it is proposed to terminate that membership and to turn over those assets, amounting to over one million dollars, now impressed with a trust in complainants' favor (or in case of defendant's dissolution, in favor of all Poles) to a foreign corporation to be commingled with the assets of that corporation. When a corporation organized under our General Corporation act merges with another, its stockholders are not compelled to exchange their shares for stock in the merged corporation or, in case of dissenting stockholders, to accept what the merged corporation decides should be paid them. Dissenting stockholders may apply to our courts for an appraisement to determine the full value of their stock and to have such value paid them. Comp. Stat. p. 1611 § 108. But not so under the terms of the proposed merger. Complainants will be compelled to become members of the merged corporation and accept such protection for their present interest in the defendant as the New York corporation and the laws of New York may give them, or if they decline membership in the Polish National Alliance, they must surrender their insurance for a sum to be determined by the Polish National Alliance, or for a sum which may be fixed by their death benefit certificates to be paid them in cash or voluntary surrender of the certificates — in either event an amount less than their certificates assure will be paid at death if they continue membership with defendant.
"Believing that the complainants' right to continue membership with defendant to be a benefit of value vested in them through their contract or status with defendant and their fellow members prior to the passage of the act of 1932 and believing that the proposed merger is inequitable as against the dissenting complainants and if carried out, will impair seriously their contract or status, I will advise a decree restraining the merger."
Mr. Merritt Lane, for the appellants.
Mr. Aaron A. Melniker, for the respondents.
The judgment under review herein should be affirmed, for the reasons expressed in the opinion delivered by Vice-Chancellor Fielder, in the court below.
For affirmance — THE CHIEF-JUSTICE, HEHER, PERSKIE, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, JJ. 8.
For reversal — LLOYD, CASE, BODINE, JJ. 3.