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. 

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 OOApenieS will not be eonoerned in tYsnsa0tlQns or thie kind. 

-::a hare reed with lntcrent your olaar dateaeat 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 

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 oanpaay La owna by a oorpontion, 

the Texae Claoount aempeny, and the esm oorpomtfon la aunti nla@#t mtlrrly by the p?eddont of 

the l.mmxumo oeqaayr Tha build& whfeh Is pmposed 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 

Ti 

the pmaideat of ths llfo lnuaraaa* 0cmpaw 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 aqliiiaation o? thie naragraph. In o+iher worda, le It 

your o&Am thfit Q tmnseotion of the kind deearlbed i:a Sorbl&lon where the officer a~ direoUr 

a-8 hate 8 pbrixmal fatesoot in tha trtmaoeiw? 

*A related n.usotion 011 whloh 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~~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 

l eaot 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 cumpanleo 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~pany 28 

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.patny la 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 ruXsea of 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 generelohereaterirtlos 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 cmoery Co. ot al. v. ShegpfirB et 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 who reOQivca 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, eopriaolpel 

t.2 

ent or bewtisleru in such puroheee. The pene1ty 

for a viooic on of 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 e that a direator ‘\ 

ar offiau or M lneurenoe aompeay ~108 atook ln axmthu oarparation troti 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 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 artioer vloletlq, name, end the lwelity of the treneestIon, imamfar a8 the lnmuranae eonpeny ie 6oneernt&, ie detunined by 

0th.r well-keovfn maleo of ler. Thm facets here under amefderetlon do not shim that tb prerideet of the City ~etimal Life 

Imm MOO Company is to reoelve any money 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 4727 and 577 can 

be appl.iod to him, or to thle treneeotlon, tkre only thirr(r, eonneotizt&y him tharewlth belap. hla said owner&hip of staak in 

the Tsxaa Dlsoount Cor&aany and bei% president of both of 

aaid 0 cx2lpanle s. The only 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 auah side on the grounds that a direotor alp offlaar 

or tb iugumnoe ampany owlla stook or ls a dlrrotor or oliioer, 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 prorlslona 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 ??atlonal 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 PL purabaare lllqal and la 

anklzq nuah pumhaoe, 

In an illeml tCmaPOtl(HL. 

oueb oomjnmy would not be partiolpsltlag 

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? inmrwe 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 WMpaaio8 &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 ?airneam 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 

f8Caoto 83-a madi the< on adhamnor to the Yletlon OS tkm ekeparate 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\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 oarporatlon~ (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 oheuavent 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 paranal 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 lnatruiaant 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 Cmupauy end 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 oorporatlons, 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 opinion 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 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 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 ~)atzaot 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 etiotion OS ths u0r4me RSJE thAt this rios in tha 04fitra4t 

WES due to the particrlpatfon OS leovea fn its nakiae, who 

was at the tlna flnanoially intersat& lr ths plaintltf bs5k, 

sina WQG 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 pans1% 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 freqaent 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?ponatlona 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 spp4ailee in the negotlatims, but 0oefimCl kle ;mrtiOlpatlon 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&utiny 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 c7eposits mdo by hionslelf, it rrould hzvvu presented 

a tmmaotlon quite different frm the one n.ow unbar auncitieration. ISem we hsve twa eorporatlone, 

baoh dlstinot legal %ntitie8& each cap*ible of I&Cir&? 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@ 

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 OWtraot 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 WCAQ birsotom 

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 wolfestabliehbd POlfoy Of thb h?tW-CO ~110~ sN8bdOUi Of 

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 oorporetions, unlene it be shown upon inquiry, tArit 8 

wro&: would be porpat;ratd in &iv&! tha requested 
::re think rctllef should net be 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 Piawont Coau?anp by 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 inqalsy, we ere 

Vbry truly yvurr 

4 Jwi. w. Btumett 

A6alstant 

APPEWED 0 a 

4kzP