Iionoreble M. 0. Flowers 

Secretary of State 

Austin, Texas 

Dear Sir: Attentionr Mr. Will Mann Richardson 

Opinion No. O-2544-A 

Re: Reconsideration of opinion No, 

o-2544 

Your request for reoonsideration of the above numbered opinion 

of this department has been received. 'fhe brief submitted in oonneotion 

therewith has also been reoeived and carefully considered. 

We quote from opinion No. O-2544, as followsr 

"Section 6 of Artiole 12 of the Texas Constitution 

reads: 

"TNo corporation shall issue stook or bonds except for money paid, labor done or property aotually received. and all fictitious; increase of 

steak or indebtedness shall be void.' 

"'No think the correct test for the determination of 

whether or not property is of suoh character as to be 

capable of being accepted by a corporation in payment of 

capital stook was set forth by Judge Phillips of the 

Supreme Courtin the case of Washer VB: %nyer, 211 S. W. 

965, 4 A. L. R. 1520. Ihe question involved in such case 

whether or not a note was property within the purview of 

the above quoted oonstitutional provision. The court 

said! 

"'Cndeniably, in the broad 8ense a note is 

property in the hands of the payee. So, in a 

literal 8en88, is everything property which is 

capable of ownership. All forms of choses in 

action are property in the earna sense--the right 

to recover a debt, the right to reoover damages 

for breach of a contract, unsatisfied judgments. 

and other similar kinds of aotionable demands. 

But the framers of the Constitution never intended 

that property of that nature should constitute the 
Honorable M. 0. Flowers, Page 2 O-2544-A 

oapital of a corporation. The term "property" 

was used in this section of the Constitution 

in no auoh sense. It means property readily 

capable of being applied to the debts of the 

oorporation. As a rule, it should be property 

.of the kind adapted as to the oharter uses of 

the corporation and whioh it may legally acquire. 

There are some classes of property wh9ch are SO 

staple in character and so easily convertible 

into money as to be in actual ~ommeroe the ready 

equivalent of money, and it is possible that a 

corporation in its formative period would be 

authorized to receive suoh property in payment 

for stock though not, in a &riot sense, adapted 

to its purpose*. The different forms of valuable 

property and the different purposes for whioh 

corporations may be created, make it impossible 

to lay down other than general rules upon the 

subject. 

"'The integrity of a oorporation and the interests of the publia demand, however, that the 

assets of a corporatfon consist of something more 

than its stockholders' debts, Its oapital oannot be thus constituted, and therefore it cannot 

aooept a stock subsariber's note in payment for 

his stock. There is authority opposed to this 

holding, as there is authority whioh supports it, 

But it seems to us no authority is needed to 

establish it.' 

"Viewing the contract involved in the light of the 

foregoing well established principles of law, we do not 

believe it constitutes property within the purview of 

the Constitution and consequently the charter amendment 

does not warrant your approval." 

The courts have held that the.Board of directors of a corporation 

have no authority to oontract for personal serviaee and impose an obligation thereby upon the corporation to oontinue beyond their term of 

office. See the ease of Denton Milling tipany vso Blewett, 264 S. W, 

236, writ of error denied 276 S. VI. 1114, 114 Tex. 582, and also the 

case of Clifford vs. Firemen's Mut. Benefit Ass’n of City of New York, 

249 N. Y. S. 713, 2S2 App. Div. 260, affirmed 182 N. D. 175, 259 x'. YL. 

547. 

The proposed contract is speculative and unoertain in many respects, to wit: 

1. It is highly speculative and unoertain as to whether or not 
Honorable M. 0. Flowers. Pege, 3 0-2544-A 

there will ever be eny prooeeds from the contract, and what amount, if 

my. 

2. It is speculative 8s to whether or not the newly elected 

board of direotors eaoh year will approve and reenter the contraotO 

3, It is speoulative as to whether or not the president will 

be removed from office. 

4. The oontinued solvency of the insurance oompany is speaulative, 

We think said contract is so highly speculative a8 to impose an 

impossible burden upon the Seoretary of State to determine what value, 

if any, said contract has, thus rendering the same incapable of being 

considered as property within the purview of Section 6 of Article 12 of 

our State Constitution. 

We hereby approve opinion No. O-2644 of this departmer& It is 

our opinion that the charter amendment does not warrant your approval. 

Yours very truly 

ATTORNEY GKNEAL OF TEXAS 

By s/V&n. J, Fanning 

Assistant 

WJFrGO:wc 

APPROVED SEP. 24, 1940 

s/Gerald C. Mann 

ATTORNEY GENERAL OF TEXAS 

Approved Opinion Committee By BWB Chairman 

.