OFFICEOFTHEATTORNEY GENERALOF‘TEXAS AUSTIN

Iionorehle 0. P. Lcmkhsrt, Cliaimxm Roara OfIn8uranoeComaaisalonePs Austin, Texas bar sir:

n the purohase al 

## estatefrw ooarltcorqpeayby **onal tite**  **Xnsur-**

**, Ealles,**  Texas.

boon Ion a& saplffloa~ 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 OOApenieSwill not be eonoerned in tYsnsa0tlQns or thie kind.

-::a hare reed with lntcrent your olaar dateaeat o? howtmnz-~~ations &volvia$ offloere ati direatom of oorpomtioas u-8 tmatab gsmrally by ths lawmof this state, but rosywesuggest that the partlaulrr ertlola Inuhieh we ars Intersated, 

### Artisle 4727, rsiars to offloers tlnd **dlnotora** of inrurano6 wlspaeies spbairioaily andwethmc It has a &rioter appllofttlon than is (rsmmtlly the 01116 beaause 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 

### oanpaayLa owna by a 

### oorpontion, the Texae Claoount aempeny, 

### andthe esm oorpom

### tfon la aunti nla@#t mtlrrly by the p?eddont of the l.mmxumo oeqaayr Thabuild& whfeh Is pmposed to be aold to the lnsrtranoe@mpaay18wed by the Texas **Dlnoount** Coeopant. **It** seem6thet io thla traataotlon the ‘Peras Dlsoouat Comp*nyfmd
the ~rddbnt Of th tiSU~OS OOmpany FAX% fOT all pmotleal purpose* om and the eaiw* Xnother rr)FBa, in applying **Art&ale** 4727 **to** the **sale by**  thm Texas Dlatasuut Cempenyof a baUdfag to 

## thelife 1nrau&0o Bern

Ti the pmaideat of ths llfo lnuaraaa* 0cmpaw raadfeatly intorested ln the transae tioth Canha 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 OSes hlmlwlor ooApany, whr,had property he **neated** to sol1 to the laeurmae bomprpny,oulld simply fOXis81oarporet~on to mfl ths progm-tg aad the0 

### 1st the oorporatlon sell 1t 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 OYoftieer *has no psrsonti interest i~i

## fhlarsble0. P.LookBert, cha1mal,ewe3

suah transaotlon*

. 3 nh~ll appreointe BUaqliiiaation o? thie naragraph. In o+iherworda, le It your o&Am thfit Qtmnseotion of the kind deearlbed i:a Sorbl&lon where the officer 

### a~direoUr a-8 hate 8

### pbrixmalfatesoot in tha trtmaoeiw?
*Arelated n.usotion 011whloh w dosiro your opincioz lsr what la ths posltlon or B.‘L fnnurtli~cst %erapany

la a

## tramm~tian

whloh ie barred by the &woviaitma af Artlole li7271 In other words, if 

## the dlreotor8 of an inauranoe ooi-pany suLhorl%e **the** purolia~~eof 

### property Promone 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 ~10have aon-edmlttod a6 an leaot an lnveatcmnt 8) thee **kind.** l’hs Snot tAMi drtioi4 1727 ia r0unu In the oivtlacetateshas b0mneonstrue by u8aa problbltln(l insu.ranoo cumpanleo froaiboiq 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 ~rouroontsntioa .that beoautae ths aaforlty at the ntmk of th6 City Yatlonal L&i* fneuranoe Coa~pany 28 own.6by tki Texm Disouant Comgaag,the Nouk of wh5.ohIs 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 CoolgenyWithiR the **praVia14ns** of osld Artfcrlee 6727 ad 477, ant3t&at therefare, such lneuraaoe aom.patny la grohibtteU fr~atwki~ suoh ,purahrsr,by ssid +tiulor 4727 and 577. “8
**do** Rat **60 54n5tme**  **said, Artfalaa**  **or tlJo**  d3tutc.s **Hlld 8W**  **of** theopinionthat CharuXsea of law set forthInour origLrra1 Opinion Fo. C-5250, 2~3 the opinions therein pfwrea to, Oovet ehiB situation.**und apart**  **from** its **stookholAdsr8,** and the generelohereaterirtlos of aeoh ae e dlatinot legel entity, regardlaee of horn curdbywhoa 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 cmoery Co. ot al. v. ShegpfirBet al., 137 c:. Y. 12) 

### 823. Artielse 4727 eed 577 do not npply to oorpomtloee an eueh, but only to a director or oMioar of an insuranoe ooqany whoreOQivca any nunuy OTvclllueble thing r0r negotIetlng, prooum'ig, reoovnmding M aidlap, in the puraheee by euoh eompeny of w property, or who 10 peaunierily lntereated ae prindpel, eopriaolpel t.2ent or bewtisleru in such puroheee. Thepene1ty for a viooic onof eOoh atatutca lir not plaoed upon meid in8uran0~ 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 ilio that **a** direator e ‘\


### ar offiau orM lneurenoe aompeay ~108 atook ln **axmthu** oar

### parationtroti which eaid ineurenoe 001p_eglly ie 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 8~ VdU6bis thiB,& iOF fIe&Bt$etIag eeid paroheee, e&ry ih wuld cot be aiteoteb thereby, unless there was unf8lrner8 or fraud therain, eird this would be @verned by other rulea of 

### law, hatead 

### or btieprotlsiona 

### of aald I:rtiO1ea 

### 4727and577. Said rtatut8esvi&t a psnaltg only upon tha,dfnotm or artioer vloletlq, name, end the lwelity of the treneestIon, imamfar a8 the lnmuranaeeonpeny ie 6oneernt&, ie detunined by 0th.r well-keovfn maleo of ler. Thmfacetshere under amefdere

### tlon do not shim that tb prerideet of the City ~etimal Life ImmMOOCompany is to reoelve anymoney or valuahl 0 @aim

~dLiEz.fi proQwlng rsaotllpmding or aid* in the

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 4727and

### 577can **be**appl.iod to him, or to thle treneeotlon, tkreonly thirr(r,eonneotizt&yhim tharewlth belap. hla said owner&hip of staak in the Tsxaa Dlsoount Cor&aany and bei% president of both of aaid 0cx2lpanle

s. Theonly wey he oould be peoti*rtiy interustext In au& pumhme wwld be throw& the cwsnemhip of mob dtook in the ¶'ems nieoouet Compeny, but said td%ttuWa 60 IlOt forbid auahside on the grounds that a direotor 

### alp offlaar or tb iugumnoe ampany owllastook or ls a dlrrotor or ol**iioer,** in the aomprinyfzoiz whfoh et%d 1: pumhase is made, infact 8aid statutes do not a?fWt smb paroha8e 

## et all and

only penalha a dirootor or o??iaor whoviol,atss the prorlslona thereof. There fs no law that iarbidw euahpurahase, and thheonly 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 pangand 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 18nothing in aafd **Artlola** that makessrvrhPL purabaarelllqal and la anklzq nuahpumhaoe, In an illeml **tCmaPOtl(HL.** oueb oomjnmywould not be partiolpsltlag

Theiaosttbtoau 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 madeto pay **a fio8**  **und8T** ArtLclo 577 a? tbs ~0081 a0h This, however, aaul6 not ia anyway 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 thrripfor vl&dl~n~~ therm?, bat tha valldlty e? atrohaat8, insofar aa 

### they e??eot the eorparatiom involved, aust at111 'Ipedst~rafmd by the ?air

### neamor 

### 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 ip1an exoepffon to the tsenesal rule aloh iorbldai: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* mlahunity th!::cthe seperateuean of the ooxpoxatf on haa aeased and ‘thf3 f8Caoto 83-amadithe< on adhamnor to the Yletlon OStkmekeparate exlatclnou of t!a oay?Tatlon nould, under t&a prrtloular tawurrtRtmono, eunctlon a *auJ or pro~toto lnjustlos*. First :&t&anal >uJ\k

tu ~T~ngon

et al. 8. Casbls, **132 l:.**  **‘ :.**  **(21 100,**  :Cofmlr,6lm 0;: .Qcx3alo$ hcifi.5 Auerlaen Gneollr\Q2a: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., 553. ?I:. (27 622 writ d18dSSd Therd.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 oarporatlon~ (2) where the oorpormte flottan le reeortsd to a8 8 IWOMof 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 oheuavent a statute.

The authorltlos generally em la conrglets aooard In deelerlap thet 5 oont?aot between a oorporation and 0~8 or all OSits offleers and dlreotors la not void per 88, **but**

t&at 

### It artybe oToldod for unfairness or fraud. %rrnv. **Brooks** et **al., 83**  **3. J+-.**  **(2) 949,**  coladsaion of AFpaal8.

Xt has bean hmldthat &ere ii aorporatioa $8 in e??Mt the altttr ego of ~a **lmlttldual** whowas 106 pre,siba: 8nclwa8 raerelythe vohi@.le bgwhlohhe aurri8d onhis paranal end lndlvidual biminesf+, our eourtr wlli, ln or88r to prevent lnjoatlao, look through the acre e@ar,poratafop01e? 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 thfa3apreme

T&9gef~eral rule %athat, wturr 0 eorporetioa ama ell of the s?iaok or ani?ther **aorporatloa** and ueea the latter as a *mert,w,anogr***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 shoponthat the oorpomtion **was** vlrtuellp cunsd **and** COntrOlledby one **pewon** and **wa8** employed by hlrt:ae en lnatruiaantin 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+727and 577 ap;;ly only to an 

### individual **dlxeatar** OXoffleer 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 downwhereby 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 oorporatlons, ant?not **atberwlee.**

Therules of law that do have an epplloatlm POthis question are lafd down ln the Mm OSCity ~etiotml Bankef %xarkana 1. r;Ierahanta and Planter8 Ratlone Banko? Mt. Vernon, 1(-j:,3. “‘* 338, refomd to and r@oted Srm in our Ori~iml opinion Po. O-4250, but wewit1 not quote thatper6 Of said opinlm quoted by UQiw our aald orl&$nal opinion ab 8aid opinion is hereby In all t&&-s approved. Thin opiuloa involved en notion by the Kerobantsaad Plm%taro??atlocml Banksi tit. Varnon emam the City Watiorml Benkor Texerkana to reoover intereet’on mmey dsmsiteU with the defandant. One**T.** H. Leeves wea a stookholder in the IPersrkana bn&, a errrmber OS its board of direetoro asi its president. 1%wee ala0 a stookholaer l.n the :ëft l Vernon bank nnd one of ita oiae pre- +.lentr anda nzenberof Its board of **direators.** Plaint&if racoo~red Ju$pmt for the full -unt zrtodfor. The apaerl was **based on**  **two propoeiticms,**  **stat& BE**  **f ’** **~h?mr**236



## *seoold. 'ihnre it is shown that a auntraot is Ezadeby oft'icers of a corpumtion, so1f;~) OS wbonare IaterestcJ in the aontrs4t advsrsely to tha skiukhoM~rs, end someme 

## not, the ~)atzaot rill?. '3~halt3void, or at Isfist voidrbls, tit the eluotion or the corporation, u5l.03~ it be show5 that it rrnsc~~urred in by a ;Iznjorlty of th4 dlsi5tarested iii~soCom:*
The aefenae was baaed ex4lus~vel.y upm the theory that ths oontraat ausd onwas mid or at leaat voidable, 

### at tha etiotion OSths u0r4me RSJE thAt 

### thisrios in tha 04fitra4t WES due to the particrlpatfon OSleovea fn its 

### nakiae,who was at the tlna flnanoially intersat& lr ths plaintltf bs5k, sinaWQG

undertakl&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% uponwhethor or not sucthoontraot 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. Theno8t freqaent transaotiono v&ah fall within this alaos are those ?7hsrea5 ofS?.oer, or 4~s o$ ths direatom o? a oar, ration enters into a contraat wfth the 44~0 poratrORfor his ownbonafit, or whheratwr,aa?ponatlona having the mazeor 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 thI.. ?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 OSLe~vss, rendthat I.c;sves is uot show5 t.0hav4 mde any pretaass of aotiag Sor the spp4ailee in the negotlatims, **but 0oefimCl**  **kle ;mrtiOl**  patlon in the proae4di5gs a4laXy to mak3.mthe OSSJFof the payment ot' 2 per sent. upon daily bsla544n in bohalS of the Rpp4llQAt. 'Yheabse54eof t-h18slusnt takea from rather thn.re@Cdsto

the clromatanoe8 thet oali for the wataM’uZ s&utiny of the **oourts** over euuh tranematlons, and tend to me&bit 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 c7eposits mdo by hionslelf, it rrould hzvvupresented a tmmaotlon **quite** different frm the one n.owunbar auncitieration. ISemwe hsve twa eorporatlone,
**baoh dlstinot**  **legal** %ntitie8& each cap*ible of I&Cir&?aontmota andof aulng and being sued thsrsou in its ownnaitm. **The** oontraot was probebly for **~~emu~~u~handit-the reaortl**  indloat+%?inothIn@

T They had oaly one offloer fa wmEmIt,LeeveII. t is 0on064.4 that hle 0m0urr6a00 was not oven neoeamry to the authorltatlvts aoaatmmatlon 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 OSstatute or er txwwm law. st was awh a oontmot're the appellant and the appeUee had a j36rfb6t right %OO&W intO bhrough **thbir** IIIB~~S~~F
ofiloers in whorPcauohauthority WBIeonSided, 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 WCAQ birsotom andramagl~ oifibers in oowwxl. Are they for that reason to be deprived OSthe 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~ sN8bdOUi Of b5rwlaroe aat4tI%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 oorporetions, unlene it be shown upon inquiry, tArit 8

wro&: would be porpat;ratd in &iv&! tha requested::rethink rctllef should net **be** withheld 

### in

e18ealiketha 

### onewdsr 

### aaualderatlan, unlessft be shown that a trust relntlon &ar bow. violate8 in the mk5.xq of the aontmot, 

### andthatfmud, 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 araidreul bat&o fro% the T6xaa Piawont 

### Coau?anp

by theCitykiattonal Life Xncrurane~Carcpaay under the faota stated rwld aot ooms

### wit&h the proofrions of Artlaler, 

### L727or 577, a&2ihsit 6Wh trarzoaetion **would be**  

### in all th4z,e legal.

l!rurUnz~ **that** thio 

### aacrtlr~oOortl~ snfmers 

### your inqalsy, weere Vbry truly yvurr



### 4 Jwi. w. Btumett



### A6alstant



### APPEWED 

# 0
a 4kzP