Untitled Texas Attorney General Opinion ( 1941 )

OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Honorable 0. P. Lookhart, Chairman
Beard of Insuranoe commlss10ners
Austin, Texas
Bear sir:
ted
al
cult
d
xerolsl-
em enumera ill
2 by oomplging with
ments or that Arti-
iole 4983P And re-
n on the above question
and other quest t proper to first set
cat the reots 0 etter (substituting a
ilotitioue nsme d), and then take up
eaoh of your qu ote given are aa roilows:
is a dome&lo anin-
rganized amI operat-
or Title 105, Ohapter
Statutes of Tens, 1925,
neoeesary (if It be
oonpetent to obtain such prir-
r operation under, and holds
llanoe with, &tloles 4982
he Board of Insuranoe Com-
Question Ho* It
"Is said U. J. 8. Company a legal entftY,
snob as is oompecent under our Stjate Constttu-
txon and Statutea, to qualify for~eutroisl43 the
powers entlrnerated In &Mole 4982 by OOmPlYbg
Honorable 0. P. Lookhart, Page 2
wI&the requirements of that ArtIole- and
”
ArtI 4982 is as rollows:
*Am Demon or aasooIetlon or mmom,
any State Eankihs corooration or any th r
domestic oorooratlon. or anr oorwra$oneor-
g I ed under the laws oi any other State,
p%Ied ch rorei II corporatl I
with the l?&s of th ‘ss State rel%&Wfl “g-
suranoe other than lire, pay exerolse the
foxlowIng powers by oomplying with the provi-
eloms of this subdivision:
“1. Qualify as guardIan, ourator, exeou-
tor, administrator, assignee, reoelver, trustee
by appointment of any oourt or under will, or
depository of money In oourt, without giving
bond as sueh.
“2. Beoome sole guarantor or surety In
or upon any bond required to be given under
the laws ot this State, any oiher etetute to
i:sytrary notwIthstandIng. (Underscoring
Artiole 4983, Vernon’s Annotated Texas UIvIl Btat-
utel, provides that those Ineluded In this subdl~ldon, In
order to exerolse the owers granted In Artiole 4982 shell:
(1) meko e deposit of $ 50,OCO.CO In the State Treaeuxy; (2)
satisfy the CostmIssIoner of solrenoy; (3) maintain speciried
premium reserves; (4) tile annual sworn report; (5) pay taxes
on business wrItten.
The U. y. S. Company Is an uninoorporated joint
etoak oompany organized and operating under the provisions
or Title 105, Chapter 2, Revised Civil Statute6 Or 1925. An
*unincorporated joint steak oompanyR has been derided In
Allen v, Long, (Tex. Sup. Ct.) 80 Tex. 261, 25 Texas Jurls-
prudenoe 171, and 20 Rawle C. L. 32l, ae follows:
*An unincorporated joint stock company
may be derined as an assooiatlon of IndIvI-
duals r0r the purpose of pmit, pessesslng
a common oapital oontributed by the members
composing it, auoh oapital being commonly
di~vided Into shares, of which eaoh member
Honorable 0. P. Lookhart, Page 3
holds one or more, and whIoh are transferable
by the owner; the business of the asaooletlon
befnng under the oontrol or oertaln seleoted
individuals oalled direotors or trusteea.
Suoh an organization or assoalatlon enjoys
exiatsnce as a legal entlty~ and, Indeed, the
statue of joint steak oompanles is reoognlud :
by t,he statutes. . . .*
It is our opinion that the U. J. 8. Company, 811un-
Inoorporated joint atook aompany organized and doing bu0Iness
under the provIsIons of Title 105, Chapter 2, of the BevIsed
Civil Statutes or Teua, 1925, Is em wessooiation of parsonsv
such hs is competent under our State Oonstitutlon and statutes
to qualify for exeroising the pourers enumerated In Artiole 4982
by aomplying with the requirements of ArtIoles 4982 and 4983.
&estion Hoa 2:
*Ia the Board or Insuranoe fXum&sloners
legally authorlsed to issue to the U. J. S.
Company its oertlrloete shoring suoh oonoernla
complianoe with Articles 4982 end 4983, and of
its authority to exerolee the powers presorlbed
In Artiole 49821"
.Fie are or the opinion that the Board or Insuranoe
Commissioners has legel;i~ authority to issue to U.‘J. S. Coma
pany a certiflaate showing suoh oonoern has aomplled with
Articles4982 and 4983, and has authority to exercise the pourers
presorlbed In Artlole 4982. However, auoh oertirioate should
not be Issued until the Iloard or InsUranOe CommW@Ioners has
been furnished proof that suoh oompfiny is authortied .by its
oharter to engage In suoh business. In this .aonneotlon we
refer you, to our answer to @.zostion No. 3.
Queetion NO. 2:
*Is U. J. S. Company, having oomplied with
’ the provisions of Artloles 4962 and 4983, and hav-
ing received the oertlfloate or permit therein
mentioned from the Board of fnsuranoe CommIssloner8,
legally authorlaed to write as surety the bonds
required of insurers and orflolals of Insurers by
the provisions of (1939) Senate Bill 13 Sootion 5,
(Title 78, Chapter 22, Article 5068-1, 3 ection 517"
Although Artlole 4982 etates that any of those namsd
therein, upon a oomplianoe with said &Mole and Artiole 4983,
Honorable 0. P. Lookhart, Page 4
“may exercise the following powers. . .v, ywt, we think It la
not to be assumed that a mere eompllsnoe therewith authorizes
any peraon, assooiation of persons, or oorporation, not other-
wise qualified, to exeralse the powers therein named. For
instanoe, an ordinary domeutlo oorporation, although It might
othersise exeroise the powers enumerated In Article 4982,
must meet the further requirement of being so authorized by
Its c;;.arter.
In the oaae of Henderson, et al Y. Soott Oil & Re-
fining Co., et al, 258 S.W. 1082, the Fort Worth Oourt of
Civil Appeals pointed the way for the determInatlon of the
po>!era of an un.lnoor,poratsd joint s took company. We quote
rrom that opinion:
“It is quite olear,~ we think, that the
essoolation was not a oorporetion, and we
agree with appelleea that as Instituted it
was not a Massaohusetta trust. See McCamey
T. Holllster Oil Co. (Tex. Civ. App.) 24.l
a. W. 689, where the subjeot Ia elaborately
disoussed. Nor was it a partnership either
general, or a lImlted one under chapter 1,
title 102, of our Revised Statutes. On the
oontrery, It is evldezt that it wae intended
as an ~unlnoorporatsd joint-stook oompany, a
es designated In ohapter 2 of title of the
statutes already rererred to. Indeed, the
art:cles of asaoolatlon and dealsration of
trust so designate the oompany, as well as
oontain provleions whloh olearly difieren-
tiate the assooiation from an inoorporated
body or a partnership es generally understood.
It rollows; we think, that the appellee esso-
oiation is without legal existence, entity,
or authority, exoept suoh as is given It by
our statutes and by the terms of the agree-
ment between the parties. It ie provided In
said ahapter of title 102, article 6149, .that
such oompa~ies ‘may sue or be sued in any
OOU% of this state having jurIa~iotion Or
the subjeot-matter In Its company or dtstin-
gulshlng name. * But the status or puvers or
such association are not otherwise given. We
oan therefore look only to the terms of the
I”
Bonorabls 0. P. Lockhart, Page 5
e.greeioents between the parties to amertain
its powers. . . .*
(Note; Title 102, referred to above, is now Title
105; and Artiole 6149 is mm Artiole 6133.)
Our opinion, controlled by the holding in the above
case, is that the ternis of the agreement between the parties
?ormlng an uninoorporstsd Joint stock company suoh as the
U. J. S. Oompany, determine whether such a ooageny, upon oom-
plianoe with Artiales 4982 and 4983, is legally authorized to
write as surety the bonds required of Insurers and officials
of 3nsurces by the provisions ci Article 5068-1, Section 5.
If by the tarns of such agrseuent the compaay is 80 authorie-
ed, and it has oozplied with Artloles 4982 and 4983, then it
Is our opinion that the Board of Insurance CommIssionem is
legally authorized to issue to said oompany its oertlficate
of authority to exercise the powers presoribed in Axtiole
4982.
The amendsent of the articles of association, se-
lied upon by the ooapany, hs authorieing it to traasaot ,suoh
businefls, (omitting the signatures and substtitutiag fioi%tlous
names) is as follows:
“AKWOWNT OF ‘ETEORIGINALARTIDLESOF TEE
U. J. S. COKPANY
“1%&%3h~T TO OPlGWl’BUNDERARTSCLX4982
WAneeting of the stookholders and officera
or the U. J. S. Ccmpaay, of Palo Alto, Texas was
held on Deeember 5, 194l, and the meeting was
oalled for the purpose of adopting the following
amendmnts:
WAnotion was made by Lee Marvin, Vloe-
President of the company, to amend the purpose-
olauses of the articles of assmiation.
“Since the campany had deposited the etat-
utory deposit with the Irlf%lranee Departmeat to
qualify to write fidelity, surety, ana warantv
uader Article 4982, the amendment is to provide
th,e segregation oi asset8 of the oonspany as
zco:Llows:
“1. All asaets and 1iablLitier under all.
other purpossa are to be kspt entirely
Honorable 0. P. Lockhart, Page 6
separate, and a separate statement mdde
to the Securities Dlvlsion of the Secre-
tary of State.
“24 All premiums colleoted ana other
assets presumably liable I’or the
payment of the company~s obligationa
incurred during its operations under
Artiole 4982, are to be kept and re-
ported to the Insurance Department in
the following manner:
“a. Unearned premium reserve
b. Claim reserve
0. Investnents to meet requ.irWente
of the insurance laws
d. Cash
e., Contingent reserve, tax reserve,
: etc.
f;‘, Acccunts Reoelvable
“3. The oompany*s operations under Article
b982 shall be acoordlng to Statutory
provisIons which are as follows?
‘ai Quality as guardian, curator
exeoutcr, administrator, ass i gnee,
reoeiver, trustee by appolntient
of any coutt or under will, or
depository of money in ccurt,
without giving bond as euch,
Beoome sole guarantor or surety
In or upon q bond required tc
be given under the laws of this
State, any other statute to the
contrary notwfthstandlng,
*A vo:ta was taken and the amenbent carried,
there being si%ty Percent of the outstanding stook
=&resented, and the foXloWing off’iaers were &re-
Tent and votedt Li Mi Barretti President1 Lee
Marvin, Vibe-President; and Jsmes Ci Wcsterfall;
Secretary-Treasurer+~.
“In siQness whew,thfs aptwntient is aimed
b:r the companyrs President end attested by its
Seoretar@‘masurer, and Its seal hereunto affixed,
Honorable 0. P. Lockhart, Page 7
this 5th day of December, 1941, A. D.” (Under-
suoring ours)
Section 16 of the original articles of association
is as follows:
“The fiscal year of the Orricers shall end
as of December 31 of each year. Annual meetings
of the stockholders for the transaotion of busi-
ness shall be held at any orfice of the Company
in the State of Texas, or any other designated
o:lfice, on the first Monday before Deoember 31
in each year beginning with the year 1939 of
which meetings notice shall bc given by the
Secretary by mail to each stockholder at his
registered address at least ten days before said
meetings. Speoial meetings of the stockholders
may be called at any time by bm days notice as
above stated when ordered by the President. At
all meetings of the stockholders each holder of
shares oi stock shall be entitled tc one vots
flor each share held by him and each stockholder
may vote by written prosy. 51s of the votes
o’ast shall determine any question under considera-
tzon or the election of any 0ffioer.e
l&wever, Section 22 of&d articles provides:
"This Agreement shall not be altered or
amended by the Ofrioera, btlt only by the stock-
holders at any regular meeting or special meet-
ing oalle-d for that purpose and then by a vote
or rl$ of the outstanding shares of the oonpsnyvs
s,took.”
Thus, while Section 16 authorizes the determination
of other questions by a vote of 51% of the votes cast, yet
Section 22 requirea, for an amendment of the Arti= of Agree-
mnt, a favorable vote OS 51% of the outstanding shares of
%‘e note that the amendment submitted doee not Zx3Oite
ao s &wing
w* that notices of the stockholders* meeting of
Deeembcr 5, 1941, were mailed as provided ior in Section 16.
It &OWS that that 60$ of the outstanding stook was rep=+-
sent& in the meeting, but not that 5l'$ Of the outstanding
stook WCIBvoted in favor of the amendment. Nor does there
appear to be any other evidence of such fact8 before the board.
Honorable 0. P. Lookhart, Page 8
We think the amendment, if it wae passed in aoOo+
danoe with the provisions of the Article8 of Agreement, i8
sufficient to authoriee the oompany to engage in the sotlvities
provided for under Artiole 4982, but that the Board of Insur-
anoe brOlUiSSiOn0r8 8hould not reOo@lize it until it 18 proven
to be a valid amndntent.
&mstion No. 2:
"fn making exfmhetiooa of the arialrs of
this oompany se provided bylaw, and partloulafi
ly in satlefylng itself' in ao.oordanOe with Seo-
tion 2 of Artiole 4983 88 to whether euoh oom-
pany '18 8olvent and ha8 made the required do-
posit' 18 It (1) the legal duty (2) the legal
privilege of thie Board in its dleoretion, to
eramine all Of the assets, liabilities, airair
and oondltion of the oompany throughout Its ao-
ttVitie8 both under Artiole 4982 and OtherWi8e
and to determine ite solvenoy in the light 0r
till such matters, a8 this Board Oonoeivea it8
duty end right to be, or 18 thie Department
restricted by law to en examination or the assets,
llabilitiee, airairs and oonditlon or 8u0h cam-
pany only in 80 rar a8 they are dlreotlyinvolv-
eld in Artlole 4982 operations a8 contended by
the Gompeny?v
Seotion 2 or Article 4983 requires that, before the
oompany operate8 under the provision8 of Art1016 &982, it shall
*aatlsry the Commissioner 0r its 6ol~enOy.~ Under Article
l+682a sll the powers, duties and prerogatives formerly vested
in or devolving upon the Oommissioner of Insurenoe are nom
conrerred upon the Board of Insuranoe Commissioners.
Seotion 2 does not limit the question of.' 8OlVenOy
to a detemlnatlon of the financial status of the Artiale 4982
busiNs of the company, stsndlng alone and without relation
&ti ita other business. On the oontrary, the import oi the
language used is that the oompany must be determined to be
solvent as a whole. This partioularly le true In view 0r
the fact that some of the oompany'e pmspeotive aseets under
Its Artiicle I+982 operations (for instanQe, undivided profits
over 63 above the statutory deposit and prenium reeerve)
will be liable for Its debte inoarred under other operatione.
we are of the apin%on that the Boati of InsummJe
Commlssloners has both the prb~vilege and the duty to deter-
F
Honorable 0. I?. Lookhart, Page 9
mine the eolvenoy of the oompany a8 6 whole. They may do thi8
by an eIciaclnatiOn Of all Of the 888et8, llabllitlee, affair8
and condition of the oo:i~pany throughout Its aotlvltles, both
under Article 4982 and otherrise.
guestion No. 10:
“If you en8wer in reaponee to question 9
that this Board 18 either required or aathor-
lzed to examine a.0 assQt8, llabilitles, airairs
an8 oondltion ot 8UOh oompany involved both
under Artiole 4982 and other&e, and to deter-
mine llss Bolvenoy ln the light OS all suah mat-
ter8, then please ailviee ~8 whether in deter-
mln.ing it8 8olvenoy thlr Board 18 (1) required,
or autherleed in its dlaoretlon, by law to apply
the OrdhWy telrt or 8t6ndCLrdof 801ySgOy by
epprovfng as 'admitted aeset8' at lcQ6'of their
6j926i8dt value all 6rS8Qt6 Or the o'arPg8i1)'under
its *other operatl on8*, as oonknded by the oom-
pany; or (2) whether, on the other hand, -68 oon-
osived by thie Board, our examlner8 should ,de-
termine eolvenoy under .what may be denominated
tthe lneurenoe 8tandardt, both under the 4982
operation8 end it8 other operetione, by admit-
tjng aasete 0d.y of the OhS8Q8 end with th8
margins or safety in value provided by the ln-
8UrtUlO68tatUte8?”
Artfole 4986, whloh relate8 to oompanlee operating
under Article 4982, provides:
*All articles of the 8tatute8 80 far 68 the
8ame are applicable and not lnoonsistent with
the provisions of law governing banks and bank-
ing OOrpOrEitiOn8 8hal1 6PPJJr to d.l 0@4lPtie8
doing busine88 hereunder."
The ~inaur``~oe standardv la886 in determining 8olV~Op
oonsl8ts ln the praotloal epplloatlon of the requirement8 Of
Artloles 47,705, 4706 end 4993, Revised Civil Statute8 of 1925,
a8 amended - at least, we so understand your u8e of the PhrdSer
In our conference opinion NO. O-958, addressed to Honorable
vrata c, woodward., Chairman or the Board 0r Insuranae Com-
r&+sfoners, we expressed the opinion that Artiole8 4705 and
4706 applied only to intturanoe oompenlee areated under Chap-
ter 2, Tftle 78, Revised Civil Statute8 of Texas, and th8t
&tiole 4993 applied only to oasualty .$mU’W@em~onap``e~
Honorable 0. P. Lackhart, -8 10
oraaterd under Chapter 18 of Title 78, We enolose herewith a
oopy of opinion No. 04958. As pointed out in your opinion
request, the company here under oonslderatlon ia organized
under the provl8lon8 of Chapter 2 of Title 105.
We are therefore or the op5nion that the Board of
Insursnae Commissioners 18 not authorized to apply suoh "in-
surancre standarda in determining solvenay under the provision8
or Artiole 4983. We believe that the Legislature, in using
th8 w8rd v8olv8noy" in this rrtatate, meant that suah aompany
anut satisfy the Cormlsaioner (now the Board of Insuranoe Com-
mls81oner8) that it is pO88OsSed 0r assets equal to it8 lie-
bil%isr, aoupled with an ability to meet its obligation8 68
they mature, and that its debt8 oan be oolleoted by legal
Woodley, et al v. Cottle County, 52 8. W. (2d) 530
w"?z:?;. Crlppen 282 N P 9 722; Kennedy v. Burr, (Wed. f
l@Jl Pm 1022. 9%; term ~130iv&tt when applied to a person,
means that he has property suSSlo!.ent to pay all his debte,
and that all his debt8 oan be oolle8ted by legal prooeso,*
39 Words and Phrasss 475 (oiting nuraerou8 caserr). Thi8, in
our opinion, 1s the etandard to be applied In determining 801-
venoy,, The method of epplytig the standard ie left to ths
judgment and dleoretlon or the Board of Insuranoe ~ommisaionero.
And the deoielon of the Board a8 to solvenoy or insolvensy 18
oontrolling, unless it app8an by oonvinoing evldenoe that it8
a&ion la plainly arbitrary and made in bad faith. United
States %Ving8 Bank va lbrgenthau, 85 F8d. (26) 8ll, 8l4.
We have re8 otfully deollned to atlswer ymr qUOQ-
tions numbered 4, 5, r , 7 and 8, for the ree8on that the80
inquiriesevidently are the oonoern of the joint stook oom-
pany Itself, and do not involvs any question whioh is ourrant-
ly before your department in it8 offiolal oapaolty.
YoWC8 V8l.J’trtily
ATTORNKYGKNKKALOFTKKAS
WRAIQO
KNCLOSURK