Untitled Texas Attorney General Opinion ( 1945 )

7
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Honorable George II.sbeppud
Captrollrsl,of Public boootlntr
Austin, Texu
D8ar Sir a
945, you have Cm-
tlve to t& above
ted la yoourrequest,
e ~rrled in June,
all oi the rtook la
HU8bbti ud Uife
death of the ulfe
hurbmd
8tlll owmd
epumh0a ali 0f h0~ OQI-
ng the marriage 8 8ub-
de6 to thi mrplu8 of the oorporatlon.
ld hl8 p0r8Oml bU8iaO88 through the
lifJ
fUrrd8fPOl8it uheo UOOd.OdUid r8duO-
ooUat8 reoel~le throw a method aot
It 18 kmva that a number of lavertrvatr
e were ude by the hu8bOad durlag oorerture
t then lcwe8tmeatr m8de thalr w8y lat0 the
l88Ot8 Of the OorportbtlOaprior to the Ulie's de8th. It 18
ooatsaded $hat ao O~Paualty Altat Ya8 acotumlated durlq
aoverture.
Uhdhec say part of th+nabove amatloaed addltloar
to 8urplu8 looruing during the marriage 0~0 rubjeot to ia-
herit&Ace taxer under the Texa8 8tatgter turar 00 a deter-
miaatloa of the nature and cwaer8hlp of the property vhioh
they represent.
859
.~Boaor8bleOeorge 8. $nppaM, page :!
kOO888dly, 611 i@IQUirJ iat0 the tA8twO Ot thfrr
property ru8t begin vlth the prermptioii th&t ( Ur8U8at to
Artiole 4619, Vernon@8 Annotrtsd 01~11;Statute8? the pap-
lr ty regyweg~ b the OUUeP8hlp of the oDrpor8tloo18Wm-
ruaity. d 19, Veraoa'r Aanoteted Civil 8tatUtO8,
18 ia pt QUOtddt
"sea. 1. All property acquired by either
the hurbaad or vlfe during marrl8ge, except that
,uhia&k
18 the uparate prop8rty of either, 8ball
be ahmod the oomon property of the hu8baOd ad
ulfej u&d all the effeotr vhloh the hu8baUd md
Wlfa gQU8088 at the tb8 the IMl’rlaf;oluy be dl8-
solved 8haU be regarded l 8 oomon effeet 8 or
-1U8, UlllO88th0 OOatrmJ be Mti8fWtOZ'ilJ
praved. ...I
8W l180, 3~tXP'8 %t8UOf itWitEIl~RelUtiOl&l
iliTcm88,
se0t10n aa, gk8&e369.
thee
it 18 ooatoaded tiMt bo cot!waloityproperty
ua 8loowulatad durlag the tirrl&ge, It is arrumed that thfs
ODlltruy to the aboro ]~e8``tlOa ulP1.be 8titilttOdOa the
b8818 elttkqr(a) th8t rho otook 1.1the SeparJte property 01’
the hu8buAd a8 it ~88 owned by bin prior to marrlqe md
that the mlilitloarto survlw reprenat no more tha ln ‘ea-
baawmeot in the valve of the rtock m&I remala, t&ref~re,
repuwte propertyi or (b) tbt the addlt$oar to 8urplu8 uere
sot ia the pO88088lOllOf the hurband 8t the tire the MFriLL@3
~a8 dl88olved br the death of thd rife 8iaCe ao dlrt?lbU-
tlonj ii&i through dividead OS Othsrvl&, bad beon mule.
&fore p888lag to fhe more peoul&U r8peOt8 of the
la8taat aWe, 8oma rsll wttled prlrralple8pert&iRlUg to the
datenlaatlon of poprrrty a8 oomm~alf~ or #operate in %=8
v,biohwa em qpllcable
._ -.. - be aotsd. It may be
rhould _ . 8t8ted
a8 a generel rule tn8c pr3rit8 rrom 0 nu8me8n an uni8a
reparrte poperty 18 lave8ted beoome OOnCdU~it:r property
~IUrdee 1. Vlwent, 147 3.W. (26) lC@; Oi8t 1. Tf;ygU;,
153 Y.W. (?a) 3773 aull~ao+v. Ragbert, 125 Zi.ll.
Lo sa 112 S.W. Cpd) 5158 Brlttloa v
$?``W~‘(~d~ 2491 Scbuethlm v. d .
Eahvethelm l*~!f~$ghi)
a8 Udl 88 iCiVeStllelrt8
pOflt8 fZ'Olll OX’ W&.v‘cltIE8llt8 Of HP-
rrc\tepo:perty (Bread v.,Rratad,l@ S.W. (Pa).310~ A. 8.
Hichardo,lledlclw Co. v, Jenniaq, %$%S.u. %f! Schuethelm
HonorAble Oeorge B. Sheppard, page 3
*
v. Sohwethelm, 8U rA Coilmlrrlonerof InternAl Revenue v.
U118OQ, 76 ~1. (?d 7bsr 3 r’8 Lav of J6arltal RelAtlOa8 la
TexA8, SeOtlOU 367,p pAge f?47, Aad oA8e8 cited). Oae te8t
A8 to ul iwrea8e of repmate property beooPlq A pArt of the
oamualty 18 the uverAbll1ty of the 1Wreare froa the orl-
&nrl (Spoor'8 bs of Marital RelAtloar la TexA8, Lkatlao
36% w 540). Another ApplloAble rule 18 that gemrAlly
&l propolFy aad peoualAry right8 obtalaed by lit&r epoon
durlag s&Arrla$ethrow the toll, taleat, lner , thrLit or
indurtry of either beoaaer oommunlty pro rtr fag&m v.
&m, 8APrAj 31 cO?PUS JUri8, ~OtiOth 1tz5, f
Iav of lIArit RelAtloar la TexA8, Reotloa 36t?, pege 201 94Yg8).
Bovever, ‘80laoreame la reparate. propert vhlob 18 ao we
than AA enhaaoemeat OS it8 vAlue rerultlag rra fortultour
OaU8e8 8uoh a8 MtWal oath or the fluotrutloar of the
mrket rem8la8 a ptwt 0F the 8epArAte e8t8te latri ellov
v. 3orrel8, 18 3.W. 689~ Oglesby v. Potts, 40 3.W. T pd) 815~
41 Corpur Jur18 3ecuudw8, Seotloa 479b, page 1015j apWr’8
LAW of WritAl Relatloas la TexA8, Seotloa 360, page 440),
AUK the test Of 8everabillt.yabove aoted 18 An impOrtAnt aoa-
8lderatlon here.
Ram the above, Lt reemr clear that kre the 011
oompAay la this ca8e 8 proprletorrhlp of the husbalrd, the
A~li1~8 flWJ the bU8lne88 would be COtBmUeity property. sot
only would they fall into community by reason of belag pz?o-
fit8 hXB A bU8la@A8 OF from ilWO8tl88nt8, but they would
8180 stand the above mentionad test8 of severabilityfrom
orlglrul property and of having been produced by the toll,
tAleat, or ladustry of the hudbAad.
But the dlffereatlAtlog fAotor la the lnotaat
0880 18 thAt the hurband COad'Mtea hi8 bU8iUA88 affair8
through the ln8trmaeatallty of A oorporatlon. Ordiwily,
dividend8 pAld to either 8pou8e on AOOouUt of 8tO8k A+W-
ately ovaed Are conmualty property, but aa 1aereAw la the
value of 8uoh 8took through aooumuhted rurphar reMln8 rep-
arate property evea thou@ the hu8bAad 18 ~a offloer of the
oorporatloa And the laoreA8e wA8 due tirgely to hl8 toll,
talent, or lndurtry. It 18 Mid th8t if the hu8bAad 1e paid
A 8alAry for hi8 8ArvlcAo by the oorporAtlon, thl8 relmburwr
the oonnunlt~ for hi8 time Aad Irbor, And Although the
8qultle8 of the oaunnunlty'8 alalm la A oorporatlon of a
*fmlly ahArAoter" are 8tron& they drould aot by looked
to defeat an election to preserve the sepA*ate torn of an
. .
Hoaoreble Oeorge ii. Sheppard, pege 4
lave.tRerrt ~S.oflsld v. Wei88, 131 P. (pd) 631; B.ele V.
Pmtenot 111 P. (?d) 956~ In lie lierbertr EDtat., 14 P.
(26) 61 41 Corpu8 Jurle Seouadua, Seetioa 479b, me 1015).
Oeaecelly then, where the aorporate ltock la the
wparate property of oae of the rpouees, the oamunlty ha.
aa alair on or iaterert ia thm eddltioa8 to or th elaaumule-
tiOR 8 Ofta OP & WWt.8U@U8 MOPUi~ dlU’i~ WPi@lps, URl.88
dletributloa thereof 18 made. at iU th. ia8taat 0aSd 'e;,
w in polpit vlth which no preoedeat her been round)
are O8rtaLa fMt8 uhiah aarry the lrqulry further. The hu8beoid
OUMU all 0r the ltoek la th18 oorporatloa aad 0ardwt.d
Villtt&lJ all Of hi8 b U8iR .l88 if.irS tbrOU&h it. Ia 8Ub-
8tW. 8Ud fact the OoTpONtiOR Ua8 the hu8b.Qd’r ~R8trU-
m8atalltyBr the ooladuot of hi8 bueiase8 affsloe or a method
of operation thereior. Iadeed, It might evea be rleved a8
no more than a method o flc o o unt la g .
Coatrolliag, thererors, of the reteral :queetioar
preeeated by the hurbaad’8 Operetioa throu&h a aorporatfoa,
18 vhethar the legal SlatLoa that a oorporatioa is aa entity
. or legal perroa ari8tirrg eeperately and apert from it8 isem-
bera or 8tookhoZdsrr will obtafa under the facrtr herein.
While the reoogaltloa of a oorporotloa a8 aa ea-
tity eoparate and dlrtlnet from the rwmbere rho oompon it
1s iuudemeatal, it i8 a legal iiotloa and f8 not a 88C:COWROt,
principle lnetltably followed ,vhea the fictloo I8 oppoeed
to the fact8. I’rMtlc~lly, it i8 WC.88.F~ to dlore8ard the
flotioa iR order to Oopr With 8OPO lbU8.8 Oi the WJrpo2.t.
method of conducti- bueW.88. (10 Texae JurQ, Seotloa 45,
08 639, 640, 641~ l3 Amerloaa Jwir., 3eotlon 7, peg.8
?I
16 161; ,18 4orpu8~Jurle Seauadum, Ssetloa 6, page8 376,
377f The larger prinelpl.8 ?I juetlee mU8t not be obeoaed
by the corporate 0411. A Siatloa ehould not prevail over
hat.
The owaerablp of all of a corporetloaga ltoek by
one men 18 not prohibited la Texee, but when .a.ltoekholder
Is the 8010 omer (or even prrottaally the role omer) 8ad
treat8 the eorpor*tioa 88 hi8 elter ego, the aorporate da-
tltr 8hoUld be
er prlaoiplee
341 8.U. 9Sr4~Ew $bv. Co. v.
Reed Rdu. Co. v. Wel88b, 193 S.W.
Turoa 264 3.W. 13Pi Merrill v.
482; “tD
1 TeXa8 Jurlr.,
. . 862
,XoaorebleQaorge B. sluppird, ~p"ge 5
In Re Char. II. 22 ?ed. Suppi, SOa) In Merrill
Horton, In0 .,
v. lXsmoa8, the oourt (Qourt of Civil Appeels, Qslrestaa)
uid i
I... It 28 well settled ia lush iR8t8.M.8
the mere aorporate form of things
lt7, 8ad hold OLMrho is la t&t
macmar rlrd form rum17 orrryiog otk trrrrsatloos
for and la bdmli or himself personsll~j...I
Ia Re -8. lL XOrtOR, IM!., the &agrUge Of the
oourt Is partloulerly lpplloable here:
'It rurt be ooaeeded that a aOrpOUtiOa
eatlt ~111 sot be l@nored bosause oae ladl-
tlduaI ova8 all of the etoak. Court8 oxerolsa
great caution la lgaorlag the atliloi81 eatlty
and sachlgaorllrg oaly oo~ne8lt la da h e a th e
proo? rubstaatlates the thoagbt, and drives lr y
other coaclurloa from the miad, thst the entity
18 lo faat the tool or mere sgsaay of the Owaer
of the stock. Centmoot Corp. v. Hsrssh, 1
68 P. 26 460: In re Xaat.uoky Wagon D.C.,
%:'ti``~. 9581 Id., 6 Ix&, a3 F. 2d 7$661
Uoodbur vi Plokerlag Lbr. Co., D.O., 10 F.
aupp. 7t 1.
There 18 & grovlag tkl&saoy upon the psrts of
court8 to dlsregsrd the corporate entity and to treat the
stockholder8 88 a n l88oclatloa of ladlviduele rhea the la-
ters8t of U8tiCt3 are thereby served. (&me4 Psper Co. 0.
2d 4 3.Y. 132; Ibtropolltea Holdlag Co. v. Snyder
~%~[~dj ?63; law v. XcLeughlia 2 Fed Supp 6011 5 To&8
Lsr Review 77~ 18 Corpus Juris 3e&aadum,*3eotl~a 6, p8gee
376, 377 cad footnote8 sad 08888 olted 13 Aumrlcaa Jarlr.,
Section 7 cad asses cited) In Oamr bspur CO* v. Tuaaaw,
o thl e r
doritle8 vere quoted &8 followrt
"A8 raid la Re Rleget, Kapaer & Altmsrk
(LO.) 157 Fed. 6091
"W&e doatMae of o.orporate entity 18 not
80 wrea th eatoourt o flqalty, looking thro*
forma to the lubetaaae of thlwe, asy ost la a
proper 0880 lgaore it to pre8erve the rights of
lnnooeat partl.8, or to oirokmveat fraud. *
_ _______ .._-.-
Eoaorable George Ii.Bhepperd, pega 6
%e United Stat.8 Supreme Oonrt expre8eed
the aame thought in MaCaskIll v. ~.a., 216 P.S.
94, 30 aup. ot. 386, 54 L. B. 5901
“‘A growlag taadeacry 18 therefore exhlbit-
ad
- 111the._court8 to look beyond the oorporate
form to the purpose or It. H* man oase8 a8
then era becotirrg colnnroaaadthe oourtrere
becomlrrgmore sad more laollaed to imre the
oorporate exlsteaae when aeae8ury to aiewm-
vent fraud. @
"Lo d Hsarfield, IR Johnson t. Smith, 2
Burr. 965 , said:
“‘The oourt would not ladUr8 thet s men
form or fiction of IAT, lotroduaed for the sske
Ot jurtlae, ahodd work a wrong contrary to the
reel truth sad 8Ub8tUNe of the thing.'
"....
‘And in St. L. Q 3. 1. Ry. Co. v. Xele
('2.x.Clr. App.) 153 S.V. 4111
"Qhea oae corporation uks8 a80 Of another
ai its lastrwat through which to perform lts
bU8ILIO88,the prlaclpel aorporetioa Is really
repre8eated by the agent8 o? the subcorpora-
tloa, and lte ll&bllItf la just the same a8 If
the principal corporation bad dose the busi-
no88 la its ova muse;'
“And in Bond-Reed Udw. Co. v. Wslrh (Tex.
Civ. App.) 181 8.Y. 348:
"@The testimony siaou~cl
that the oorpora-
tloa8 iierebut the outwrd msalSe8tatIoa8 of
Oso. H. Road, owned and ooatrolled by him. He
was the Ia8plrstioa sad 8010 of the oorpor8tloa8
sad the court properly readered judgment sg8lart
hIsi."'
And la Iaw v. HeLaughlla, tha court uldt
I ... The tea&eaoy oi the 3qmma Court of
the mritsd State8 to disregard ohanges la form
Xonomble Oeorge 33. 3hopperd, me 7
of ovasrehlp vlthout chepee la lubeteaae la ce8ee
of corporatereorpalratIoa is dealaredIn We188
7. bteara, 265 U.S. 343, 44 3. at. 490, 68 Lans. Ch.
1001 33 A.L.R. 520 and Elr&r v. Naaoaber,
& 0.8.'189,)0 3. ct. f89 64 L. IM. 5% 9
A.L.R. 1570. The 8ame terrrieaay tovud d&e-
garbing the corporate flotloa 18 rhovn la other
lituetions vhepe all of the etoek of l a o r p o r o -
Among the alrcumstaaces vhea thi8 will be done era
laoluded thore eltuetioa8 In vhloh the u8e of the corporate
flotioa operatea to ofraumveat s etatute, prejudloe the right8
or re8ult it& an eVa81OP or extrtlag leg81
oatlneatel Suppl Co. 7. Form& B. ffllmore ‘~
622~ 5 Texas E v Revler 77, sad Bsse8 alted
follwtag 18 quoted fro6 tba cm41 sited (55 3.W.
Vpoa lveer ta Ia meao f th
t efa o ts,
th ec o ur ts
vi11 dlere erd the flotloa of aorporate entity
uhers the 1) is wed ,a8 a wan8 OS per-
petrating fraudi ( ) v&r* 6 oorporatlloa I8 or-
ganized and operated a8 a mere tool or busiasse
aoudult of another aorporatloaz (3) vhere the
corporate flctloa 1s re8orted to a8 a mean8 of
evading en exi8tlog legal obllgat&oa; (4) vhere
the corporate ?lCtlOR Lr vaployed to lohleve or
perpetrate monopoly; (5) uhere the corporate
flatlon 18 u8ed to cIrouuveat a 8tatut.j and
(6) where the corporate flotloa 18 relied upon
a8 e protection OS crime or to juttlfy vrofq.” .~’
The rea8oa8 for disrelprdlag the oorporate eatlty
la the instant case are compelliag. To recogalre it vould
give effect to e cireumveation of Article 4619, Revlssd Civil
Statute8 of Texar, a8 amended. The faots t&t (1.) the rurplur
~8 prod&ad by the toll, talent, or indU8tFyof the hu8baad,
(2) the surplus la seqereble from the orLglem1velw OS the
etook, (f) the lacrease othervise ftifiil8 all the re~ulre-
watr of comwnity property ‘acquired durlag marriage pur-
ewat to said etatute, cad (4) the hurbaad'r Control of it 18
lioiigmbl.George 8. sbeppard, pa@. 8
taatamouatto owaer8hlp aad it8 iiwideotalrights, aotulth-
ltmdln& the reaoglrltloaof the aorporata flatlon wuld
nullify the p~ovl8Io~8 of tba uld art&ale. had It follous
t-t rush la turn would rerult la a alrauaventIoa of Artlale
7ll7, llevlMd Clvll St&tuto# of Tour, a8 moded.
Nor. vIol.lroewould bo done to the omualt7 prop-
arty 87ot.m of Tous b7 r.ooQlitloo oi l c o r p o r a tlw na4.r
8-h airaum8tanoo8than by upholdioe the validity of QW-
traotr 8lteri11$the legal order8 oi descent. (8~ Bpur*r
&u of Marital tug&r in a-8, bation 56, page 67,,ant3
a#tioO 59, -0 70.) n UOUld bo 8a 1nv1tat1oato WAyoru
derlriu to dafoat t& rl&ts of hl8 ulfe urb her helrr end
a80 the lnhuiti8PaOtu st8tut.8 to iacorporat* 1or to
marriage uul operato through an 8i toa ego. It vou!G opewtr
to areate 8 right of llootioo with regard to proporty ocaithg
iato tha awmsuait7.
It mat bo eoooluded, therefore, that t&o eorporats
entity llrthe present 080 Mmald be dlse~ded and the &MI-
tloaa to crurplusor the proiltr lo o r u lr
or rurned
g durlq the
marriage should be held community proportj. At the time of
her death tha ulfo hrd 8a undiotdsd one-half iatereat tbre-
la aad thia l.atere8t
parsed to the hu8band.
Actaordl~y, you arb adriaed that it I8 the opinion
of thI8 offtoe that one-half of the addition8 to surplus ao-
aruing log aulrriage are rubjeat to an Wmrlteno~ tax under
th0 Itlh
%F it8lWe TSX ull8 Of 'PQX(L8.
Very truly your8