Untitled Texas Attorney General Opinion ( 1943 )

OFFICEOFTHEATTORNEY GENERALOF‘TEXAS
AUSTIN
Iionorehle 0. P. Lcmkhsrt, Cliaimxm
Roara Of In8uranoeComaaisalonePs
Austin, Texas
bar sir:
n the purohase
al estate frw
ooarlt corqpeay by
onal tite Xnsur-
, Ealles, Texas.
Ion a& saplffloa~
boon mcwZr& aad oar&ally
uent as Cellowor
a oarehl reabfri of
t&at mi artlole of this
the ai+il statutes oorefing the
03qmfea
to gr@Veut off%OQrS
OOQ?~ fro.% bolw
at' the cam-
230
fnlpllbd that lnsuranob OOApenieS will not be eon-
oerned in tYsnsa0tlQns or thie kind.
-::a hare reed with lntcrent your olaar date-
aeat o? how tmnz-``ations &volvia$ offloere ati
direatom of oorpomtioas u-8 tmatab gsmrally
by ths lawm of this state, but rosy we suggest that
the partlaulrr ertlola In uhieh we ars Intersated,
Artisle 4727, rsiars to offloers tlnd dlnotora of
inrurano6 wlspaeies spbairioaily and we thmc It
has a &rioter appllofttlon than is (rsmmtlly the
01116beaause the funds or Lnaurnnoe oompaniee @CO
lasgaly tnmt Wnds, It 16 raeuonable to oonolude
that the lmeskasat of euoh Crud hnda ehould be
mds by fwnwtfel ofiLoer~ and dlr~oto~s of the
oolnpany in ahargo Qf the mad&
“In the laatamt aaae, the Qajority atoak in
tholnmwanae oanpaay La owna by a oorpontion,
the Texae Claoount aempeny, and the esm oorpom-
tfon la aunti nla@#t mtlrrly by the p?eddont of
the l.mmxumo oeqaayr Tha build& whfeh Is pm-
posed to be aold to the lnsrtranoe @mpaay 18 wed
by the Texas Dlnoount Coeopant. It seem6 thet io
thla traataotlon the ‘Peras Dlsoouat Comp*ny fmd
the ~rddbnt Of th tiSU~OS OOmpany FAX% fOT all
pmotleal purpose* om and the eaiw* Xn other
rr)FBa, in applying Art&ale 4727 to the sale by thm
Texas Dlatasuut Cempeny of a baUdfag to the life
1nrau&0o Bern the pmaideat of ths llfo ln-
uaraaa* 0cmpaw Ti raadfeatly intorested ln the
transae tioth Can ha be diroraed fmlp the tmnr
artion wbn he tame elmoat this sntlro rtook of the
Tosea Mmoant -^Joea*nyP Ii thfa rwironfw~ i6 not
eorxeot, thea en oftioex OS es hlmlwlor ooApany,
whr, had property he neated to sol1 to the laeurmae
bomprpny, oulld simply fOXis 81 oarporet~on to mfl
ths progm-tg aad the0 1st the oorporatlon sell 1 t
to the insuranoe oompap~
+%sferrin& apeeffioally to y6Ur opinion, BafEe
6, eeoond ga``e~repb, it in stated that Artlclo b727
does not pmhibit a txanmotfon of this kind if tha
dfreotor OY oftieer *has no psrsonti interest i~i
fhlarsble 0. P. LookBert,cha1mal, ewe 3
suah transaotlon* . 3 nh~ll appreointe BU aqliii-
aation o? thie naragraph. In o+iher worda, le It
your o&Am thfit Q tmnseotion of the kind de-
earlbed i:a Sorbl&lon where the officer a~ direoUr
a-8 hate 8 pbrixmal fatesoot in tha trtmaoeiw?
*A related n.usotion 011whloh w dosiro your
opincioz lsr what la ths posltlon or B.‘Lfnnurtli~cst
%erapanyla a tramm~tianwhloh ie barred by the
&woviaitma af Artlole li7271 In other words, if the
dlreotor8 of an inauranoe ooi-pany suLhorl%e the
purolia``e of property Prom one ai the oftiaaro or
direotors, la violation of Xrtiole 4727 ia the
lnveotrasnt an FTleml one from the standplnt of
the S.nmxan~e cmmpany? It has beerr cur view that
in suoh a trenmation the lnsurenoe ooqmny t&mu&
it8 offio4m or dlr6otbrs is at leaat partloipatiqg
in an Illegal transsstfon and, fqlla%q~, aatablirrhed
omunlnatlen praetfoea ~10 have aon-edmlttod a6 an
leaot an lnveatcmnt 8) thee kind. l’hs Snot tAMi
drtioi4 1727 ia r0unu In the oivtl acetates has
b0mn eonstrue by u8 aa problbltln(l insu.ranoo cum-
panleo froai boiq partiss to au& trmaeatione and,
theraron Chat inwmtmenta 31 this type 7&U not
be reoo@&&. w
W4 un4erstcma tmm tha above quoted part of ywr
z-quest that it la ~rour oontsntioa .that beoautae ths aaforlty
at the ntmk of th6 City Yatlonal L&i* fneuranoe Coa~pany28
own.6 by tki Texm Disouant Comgaag, the Nouk of wh5.oh Is
anned almoet entirely by it8 presidmt tie iei aleo president
of th% city Matianal. L&f% Ia8u;raIles coIQpaRg eal4 preMBia%nt
wmlil be int6reatdl in the purahese oi a building from the
Tarno Dlsaount ‘sempauy by the City &Monit Mire Iar;llrrmae
Coolgeny WithiR the praVia14ns of osld Artfcrlee 6727 ad 477,
ant3 t&at therefare, such lneuraaoe aom.patnyla grohibtteU
fr~at wki~ suoh ,purahrsr, by ssid +tiulor 4727 and 577. “8
do Rat 60 54n5tme said, Artfalaa or tlJo d3tutc.s Hlld 8W of
the opinion that Cha ruXseaof law set forth In our origLrra1
Opinion Fo. C-5250, 2~3 the opinions therein pfwrea to,
Oovet ehiB situation.
und apart from its stookholAdsr8, and the generelohereater-
irtlos of aeoh ae e dlatinot legel entity, regardlaee of horn
curd by whoa ltsrtook la hold, met be rreognlmbd uu%er the
lawe of Telft~, ueleee euoh entity ehould be Ulersgerded under
other rulee of lew herelmftu refertid to. I: iz, Butt cm-
oery Co. ot al. v. ShegpfirB et al., 137 c:. Y. 12) 823. Arti-
else 4727 eed 577 do not npply to oorpomtloee an eueh, but
only to a director or oMioar of an insuranoe ooqany who re-
OQivca any nunuy OT vclllueble thing r0r negotIetlng, prooum'ig,
reoovnmding M aidlap, in the puraheee by euoh eompeny of w
property, or who 10 peaunierily lntereated ae prindpel, eo-
priaolpel ent or bewtisleru in such puroheee. The pene1ty
for a viooict.2on of eOoh atatutca lir not plaoed upon meid in-
8uran0~ aorporlutlon, but only won suoc dix-d43r of orrieu,
thermm, said fbtatutes aould mt hue my 4 plloatfm tQ
tlrs atter here under 8onsldaratlon. The ilioe that a direator ‘\
ar offiau or M lneurenoe aompeay ~108 atook ln axmthu oar-
paration troti which eaid ineurenoe 001p_egllyie meking e purohesa
of property vnuld not, of ftaolf, affoot such j)oxoheee, in
taat even ii ssld dlreator or ofrltcer ehmld reoeive money,
OF 0 ih 8~ VdU6bis thiB,& iOF fIe&Bt$etIag eeid paroheee, e&ry
wuld cot be aiteoteb thereby, unless there was unf8lrner8 or
fraud therain, eird this would be @verned by other rulea of
law, hatead or btie protlsiona of aald I:rtiO1ea 4727 and 577.
Said rtatut8es vi&t a psnaltg only upon tha, dfnotm or arti-
oer vloletlq, name, end the lwelity of the treneestIon, im-
amfar a8 the lnmuranae eonpeny ie 6oneernt&, ie detunined by
0th.r well-keovfn maleo of ler. Thmfacets here under amefdere-
tlon do not shim that tb prerideet of the City ~etimal Life
Imm MOO Companyis to reoelve any moneyor valuahl 0 @aim
proQwlng rsaotllpmding or aid* in the
~dLiEz.fi build- koa the Tmes Di8oount
of that he Ie pecuelarlly 1ntereetti:as prlnolpel,
agent or bensfiolary fn 8uoh puxeheee, iu faot it is nu% ehwn
that eey of the prwleionn of add Artlobe 4727 and 577 can
be appl.iod to him, or to thle treneeotlon, tkre only thirr(r, eon-
neotizt&y him tharewlth belap. hla said owner&hip of staak in
the Tsxaa Dlsoount Cor&aanyand bei% president of both of
s. The only wey he oould be peoti*rtiy
aaid 0 cx2lpanle inter-
ustext In au& pumhme wwld be throw& the cwsnemhip of mob
dtook in the ¶'ems nieoouet Compeny, but said td%ttuWa 60 IlOt
forbid auah side on the grounds that a direotor alpofflaar
or tb iugumnoe ampany owlla stook or ls a dlrrotor or ol-
iioer, in the aompriny fzoiz whfoh et% 1:d pumhase is made, in
fact 8aid statutes do not a?fWt smb paroha8e et all and
only penalha a dirootor or o??iaor who viol,atss the prorl-
slona thereof. There fs no law that iarbidw euah purahase,
and thhe only thing that oauld be aafd in regard thereto is
that, slaoe ths greridmt o? the Teaas Mswant Caqmny ie
also tha preeldiwit o? the City Ziatlanal Life In63manoe Cope
pang and owns a majority of the stmk of tha Texao Elsootmt
Cowwy whloh owns a irrajorlty o? the 8todr or the City ??a-
tlonal i.ife Imamn68 Company nucrh gurohase 10 eubjeat to
alone s=Utlny when wumtianob at Clia &n!apr tlae and Oould
be set aside wan the appearanoo or un?al.rnoo8 or rraud.
%mre is noth& in Artlolo 4727 that prsUblt8 en
insuraaae oom~fmaaeking a purohwa o?a hulldlng u&dot
the oirowtano8s here boiag aondd8red, and thera 18 nothing
in aafd Artlola that makes srvrh PLpurabaare lllqal and la
anklzq nuah pumhaoe, oueb oomjnmy would not be partiolpsltlag
In an illeml tCmaPOtl(HL.
The iaosttbtoau be eald in n&a14 to euobtr8a8-
aotlon la t&at, l? 8 dtreebr ctx o??loor of an lnouranae ooti
puy violates the pro~islo~ o? 8ald Artiobl he aan be m
88out& therefor end made to pay a fio8 und8T ArtLclo 577 a?
tbs ~0081 a0h This, however, aaul6 not ia any way a??oot
the legality of the Branrotion by dioh $UOh guroha8e was
undo, as said artlolw of the 8htUtQ8 do not ?laae my @waler
dutieo or raaponsibillt%@a upan dirwtom and o??~o.oerr a? in-
mrwe oompanle8 than 6~6 plaood up00 dlreotora aad o??lawa
a? other oorporatiOn8. A.ll said utieleo da ie to spWJi?y
@Wtain thi458 that d%SWOtOH OT OfflOWS Of inOUWUl00 WM-
paaio8 &all not do ami p``alke thrrip for vl&dl~n`` therm?,
bat tha valldlty e? atroh aat8, insofar aa they e??eot the
eorparatiom involved, aust at111 'Ipe dst~rafmd by the ?air-
neam or unfsirnem 02' the partlartlar tr4nosotion.
It is the rule that th le@l ilotion of oorpomto
entity nay be cIisreaarded '&ere the fiOtfOn i8 Used fie 6 SW(UUI
o? psrpetrat* ?raud, or 1s relied upon to $uati?y wrowb
3ut this rule ip1 an exoepffon to the tsenesal rule aloh iorblda
i:mortrble 0. X1. Z.ookhaat, Ohatiaarur, Page 6
dleregerdi~, oorporate odatenoe ar sat&y and is not to be
a``lle& unlass It Zs .xide tb appetU! th8t &hePO,I* mlah unity
th!::c the seperateuean of the ooxpoxatf on haa aeased and ‘thf3
f8Caoto83-a madi the< on adhamnor to the Yletlon OS tkm ekepa-
rate exlatclnou of t!a oay?Tatlon nould, under t&a prrtloular
tawurrtRtmono, eunctlon a *auJ or pro~toto lnjustlos*. First
:&t&anal >uJ\ktu ~T~ngonet al. 8. Casbls, 132 l:. ‘:. (21 100,
:Cofmlr,6lm 0;: .Qcx3alo$ hcifi.5 Auerlaen Gneollr\Q 2a:qany of
f’~‘r’;s et al. 8. llltller et al,, 76 9. 7;. (2) 833, writ refused;
Contln*ntal Yugply CO~J~NUI et al. v. Fomst I!!. alJ,more of
'loma ot el., 55 3. ?I:. (27 622 writ d18dSSd The rd.6
t&et ths logial.fiation of corpheto entity nay‘ba disregarded
la 91~0 sp~&ioable where (1) a oorpomtlon la orp&.tmd end
operated us it ewe tool or buslneea oondult of anether oar-
poratlon~ (2) where the oorpormte flottan le reeortsd to a8
8 IWOM of a~ediw~ an eriatiag La& obilggatia; (3) where
tha oorporate flotion la employed to aohlevr, of perpetrate
aonopo~g; aad (4) when the corporate flotlsa ie used to oh-
euavent a statute.
The authorltlos generally em la conrglets aooard In
deelerlap thet 5 oont?aot between a oorporation and 0~8 or
all OS its offleers and dlreotors la not void per 88, but
t&at It arty be oToldod for unfairness or fraud. %rrn v.
Brooks et al., 83 3. J+-. (2) 949, coladsaion of AFpaal8.
Xt has bean hmld that &ere ii aorporatioa $8 in
e??Mt the altttr ego of ~a lmlttldual who was 106 pre,siba:
8nclwa8 raerelythe vohi@.le bgwhlohhe aurri8d onhis par-
anal end lndlvidual biminesf+, our eourtr wlli, ln or88r to
prevent lnjoatlao, look through the acre e@ar,porata fop01 e?
tb&ngs to the mallty and ~dJudlo&s the lieblllt~ of the
part168 aocrordlng to the rtctual faote. hIsrral1 et ux v4
(2) 480, a??lrasd by thfa 3apreme
T&9 gef~eral rule %a that, wturr 0 eorporetioa ama
ell of the s?iaok or ani?ther aorporatloa and ueea the latter
as a *mert, w,anog r* ox **mere 1netwnentiilt`` for perpetratiw
freud, 3s for the purpose or cpvaalap, the law, the uorponkte
tlctlon rl,?i ba dlsrerparded to pevent ther atkfdnrnent at* eittmx
ob.jeotlvo. Eanbl.en 8, Borw%ts-'Paran Theaterc Mskppanqt, hi.,
162 :L .r. (a) 456.
235
if it be shopon that the oorpomtion was vlrtuellp cunsd and
COntrOlled by one pewon and wa8 employed by hlrt: ae en lnatru-
iaant in the aouxae of tli0 -6rpetxation of Ghe trawl, We)l et
828 v. Gaffmy, 8!+ Z. :;. (2f 759.
But none of theee rule@ ef law are appllonbla to
the 8ltuation here under otmsidoration, for the reemm that
artiolea I+727 and 577 ap;;ly only to an individual dlxeatar
OX offleer of an Inmiranoe ooepeny, end not to the inmea
oonpany itself, cad there sre no Saote whlah show that tJm
president of the Tens Dismount Cmupauyend the Cltr Matiopal
Life Xnsu,-aaoo Company is oubjeot to the rulen of law abore
laid down whereby the 1ege.l fiation of oorpowte entity my
be dlaregarded, in feat the Saets lxerein are au& that the
sitmtlon mmt be dealt with as n tmmaotion between two oor-
poratlons, ant? not atberwlee.
The rules of law that do have an epplloatlm PO this
question are lafd down ln the Mm OS City ~etiotml Bank ef
%xarkana 1. r;Ierahanta and Planter8 Ratlone Bank o? Mt. Vernon,
1(-j:, 3. “‘* 338, refomd to and r@oted Srm in our Ori~iml
opinion Po. O-4250, but we wit1 not quote that per6 Of said
opinlm quoted by UQ iw our aald orl&$nal opinion ab 8aid opin-
ion is hereby In all t&&-s approved. Thin opiuloa involved
en notion by the Kerobantsaad Plm%taro ??atlocml Bank si tit.
Varnon emam the City Watiorml Benk or Texerkana to reoover
intereet’on mmey dsmsiteU with the defandant. One T. H.
Leeves wea a stookholder in the IPersrkana bn&, a errrmberOS
its board of direetoro asi its president. 1% wee ala0 a
stookholaer l.n th e :‘ftl Vernon bank nnd one of ita oiae pre-
+.lentr and a nzenber of Its board of direators. Plaint&if
racoo~red Ju$pmt for the full -unt zrtod for. The apaerl
was based on two propoeiticms, stat& BE f’~h?mr
236
*seoold. 'ihnre it is shown that a auntraot
is Ezade by oft'icers of a corpumtion, so1f;~)OS
wbon are IaterestcJ in the aontrs4t advsrsely
to tha skiukhoM~rs, end some me not, the ~)a-
tzaot rill?. '3~ halt3 void, or at Isfist voidrbls,
tit the eluotion or the corporation, u5l.03~ it
be show5 that it rrns c``urred in by a ;Iznjorlty
of th4 dlsi5tarested iii~soCom:*
The aefenae was baaed ex4lus~vel.y upm the theory that ths
oontraat ausd on was mid or at leaat voidable, at tha etio-
tion OS ths u0r4me RSJEthAt this rios in tha 04fitra4t
WESdue to the particrlpatfon OS leovea fn its nakiae,who
was at the tlna flnanoially intersat& lr ths plaintltf bs5k,
sina WQGundertakl&g at the. sazm tima, ee cno af the oifioera
or tbs d4fSAuRAt, to b&Q it in a oontract to pay the rowsr
intarest on its daily balanoea for ntmey deposited. In pans-
1% upon whethor or not sucth oontraot was *oidsble, th* oourt
mde the tollrni5g boldiqg:
". . . There is still. another olass whloh is
treated as voJ.dabla, not at the mre option of one
or the other of the partlea, but upon the pr00J
of iraua or unieirn4sa. It ia said that eourta
will aloeely sorutlnlze sush oontraats, and, ujuu3
the ditmovsry of the slightset appearaiws or traua
or unfud.rnes~, will set thaa aside. The no8t fre-
qaent transaotiono v&ah fall within this alaos are
those ?7hsre a5 ofS?.oer, or 4~s o$ ths direatom o?
a oar, ration enters into a contraat wfth the 44~0
porat r OR for his own bonafit, or whhera twr, aa?pona-
tlona having the maze or a mJcljority 42 the direotsr9,
or oontralli5g ofSi44rs ifi omino5, deal with ea4h
other thmu+ suoh directors 4~ %ma#m 4Sfi84vs.
To thir group or ollnes we th I..?1; th5 tmiknssattin helW
under oonaideratlon is mre nearly referabler IS
tlk3m ia any 414smit lacklrq to 0lsarl.y pla44 it
within this @oitp, it nrlsss from ths fast that
Bairler axon4 had auttmrity to mke thio oontraot,
lmleps5ffant OS Le~vss, rend that I.c;sves is uot show5
t.0 hav4 mde any pretaass of aotiag Sor the spp4ai-
lee in the negotlatims, but 0oefimCl kle ;mrtiOl-
patlon in the proae4di5gs a4laXy to mak3.m the
OSSJF of the payment ot' 2 per sent. upon daily
bsla544n in bohalS of the Rpp4llQAt. 'Yhe abse54e
of t-h18 slusnt takea from rather thn.re @Cds to
the clromatanoe8 thet oali for the wataM’uZ s&u-
tiny of the oourts over euuh tranematlons, and
tend to me&b it a ~aldablo agreement. ff Leevea,
a8 the aontractfng oifioer for appsl.l.~it, had
mde a cnntmat between hlmelf iind We a;:pellant
whereby he WM to rboeive 2 per oect. upon c7e-
posits mdo by hionslelf, it rrould hzvvu presented
a tmmaotlon quite different frm the one n.ow un-
bar auncitieration. ISem we hsve twa eorporatlone,
baoh dlstinot legal %ntitie8& each cap*ible of I&C-
ir&? aontmota and of aulng and being sued thsrsou
in its own naitm. The oontraot was probebly for
``emu``u~handit-the reaortl indloat+%?i nothIn@
They had oaly one offloer fa wm-
EmIt, LeeveII. T t is 0on064.4 that hle 0m0urr6a00
was not oven neoeamry to the authorltatlvts aoa-
atmmatlon of tha eontrnot
pollant’a oaehler, had fu f
of hla olfioet to aalce this ldentlo
alone; an8 it 1s further show@ beyond omtrover8y
that hs was, at least, an equal teotar with IdmvH
in thb OOfiSutlaPtiOE Ot th6 tPbd6. Thst thi.6 OW-
traot was not vald rbso1utd.y we think IS pert'eebl~
olear. It Ml8 not in Tlolatlon or an provisl~,
either OS statute or er txwwm law. s t was awh a
oontmot're the appellant and the appeUee had a
j36rfb6t right %O O&W intO bhrough thbir IIIB``S``F
ofiloers in whorP cauoh authority WBI eonSided, and
thererorb aid not violrte any-rule of ?ublio polioy.
Did Leevbs* Wre pPrtfaipation in it mke it ViObBUs?
Ve think not. It freqwmtly oouwa ln thie oouatry
that two or nsrb oerporatlws have’the WCAQbirsotom
and ramagl~ oifibers in oowwxl. Are they for that
reason to be deprived OS the privlla~,c of rgkiilg
advantageoura e@e*arents between t.``l~eM' Swh
a rule woulil seriously lutarfers with another wolf-
establiehbd POlfoy Of thb h?tW-CO ~110~ sN8bdOUiOf
b5rwlaroe aat4 tI%as. 9s highly is thle frueaan
prized that it b contrary to pubIll poliay to nurlca
mntmete ln restraint of trade.
by rePusing to enforae mmtmots bet-men oorpore-
tions, unlene it be shown upon inquiry, tArit 8
wro&: would be porpat;ratd in &iv&! tha requested
::re think rctllef should netbe withheld in
e18ea like tha one wdsr aaualderatlan,unless ft
be shown that a trust relntlon &ar bow. violate8
in the mk5.xq of the aontmot, and that fmud, or
at lenot uniafrneaa has besr; praotlae4 tu~ar4 the
party sought to be !xwana threbg.
I) . ”
. .*
Xt is th6 opinion af this dapvtarmt, thsmiorc,
that the purahasa cl araid reul bat&o fro% the T6xaa Pia-
wont Coau?anpby the City kiattonal Life Xncrurane~ Carcpaay
under the faota stated rwld aot ooms wit&h the proofrions
of Artlaler, L727 or 577, a&2 ihsit 6Wh trarzoaetion would be
in all th4z,e legal.
l!rurUnz~ that thio aacrtlr~oOortl~ snfmers your in-
qalsy, we ere
Vbry truly yvurr
4
Jwi. w. Btumett
A6alstant
0
APPEWED
a
4kzP