Honorable Bert Ford, Administrator 

Texas Liquor Control Board 

Austin, Texas 

Dear Sir: Opinion No. O-4750 

Re: The authority of the Texas 

Liquor Control Board to 

refuse a package store permit 

to a subsidiary corporation 

because of a violation by its 

parent corporation of the 

provisions of Article 666-17(2), 

Vernon's Penal Code of Texas. 

Your request for opinion, dated July 27, 1942, has been received 

and considered by this department. We quote from your letter as 

follows: 

“A group of drug stores commonly referred to @s 

'Walgreen' Drug Stores operating in Texas are five 

separate domestic corporations which hold an 

aggregate of twenty-three package store permits to 

sell liquor at retail. They are as follows: 

"Name of Company Number of'permits Held 

'I 1. Walgreen Incorporated 

"2. The Walgreen Company of Texas i 

I, 

i: 

The Walgreen Texas Company 5 

,I * Walgreen Drugs Incorporated 

-5: Marvin Drug Company 54 

"For"purposes of determining whether or not the Texas 

Liquor Control Act should so operate and should be so 

construed as to affect or limit the number of permits 

held by these combined companies, an inquiry has been 

made into the ownership, management, and control of the 

respective enterprises, and the facts in respect thereto 

are probably more definitely reflected in the attached 

transcript of interrogatories propounded to and answered 

by Mr. P. J. Redford of Chicago, Assistant Secretary of 

the,Walgreen Company of Chicago, Illinois. .From the 

transcript of testimony reflected by this inquiry, it 

may be observed that the five domestic corporations are 
Honorable Bert Ford, Page 2, O-4750 

actually subsidiaries of the Walgreen Company of 

Chicago, a foreign corporation, with earnings or 

dividends accruing to each respectively for the 

benefit of the Walgreen'company of Chicago, and with 

the general management of the subsidiary companies 

controlled by officers of the Walgreen Company of 

Chicago. 

"In determining whether or not the respective corporations may each obtain and use five package store 

permits, it appears necessary to first determine the 

legislative intent with reference to the limitations 

imposed upon any person as to the number of permits in 

which such person may have ownership or an interest. 

"After reviewing the facts in connection with this matter, 

will you kindly advise whether or not in your opinion 

each of the respective corporations is eligible for a full 

number of five permits, or whether the limitation of five 

package~store permits would be applicable to the parent 

company, the beneficial holder of all of the stock of the 

various subsidiary companies. 

expire on August 31, 1942, 

All existing permits will 

and it is desired to resolve 

this question in advance of that date." 

In the preparation of this opinion we have also considered the 

transcript of interrogatories propounded to and answered by Mr. 

P. J. Redford of Chicago, Assistant Secretary of the Walgreen 

Company of Chicago, Illinois, together with the exhibits 

attached thereto; however, in view of the conclusion herein 

expressed, this transcript and accompanying exhibits wi&l not 

be summarized herein. 

Subsection (2) of Section 17, Article 666, Vernon's Penal Code, 

provides: 

"It shall be unlawful for any person to hold or have an 

interest in more than five (5) package stores or the 

business thereof. It shall further be unlawful for any 

person to hold or have an interest in more than five (5) 

package store permits." 

BY Section 3-a of the same Article, 'person" is defined as: 

. . . any natural person or association of natural 

persona, trustee, receiver, partnership, corporation, 

organization, or the manager, agent, servant, or 

employee of any of them." 

On the assumption that the Walgreen Company of Illinois 

(hereinafter called the Illinois Company) is the beneficial 
Honorable Bert Ford, Page 3, O-4750 

owner of all the stock in the five Texas companies, then, in 

so far as these provisions are concerned, unless the Illinois 

Company holds or has an "interest" in the package stores 

organized under the names of the Texas companies or in the 

business thereof or in the package store permits obtained by 

such stores, each of the five Texas companies is eligible to 

receive five package store permits. 

We construe the word "interest" as used in the above Section 

according to its legal rather than its popular usage, and 

interpret it as being synonymous with legal title or equitable 

title or both. This interpretation is in accord with that 

previously placed upon the word by the courts of this and other 

jurisdictions. In Automobile Mortgage Company v. Ayub, 266 

S.W. 134 (Corn. App. 192/+), the Commissioner of Appeals held that 

a sale of corporate shares was not a transfer of an interest in 

intoxicating liquor owned by the corporation, because such sale 

conveyed neither legal nor equitable title to the liquor. A 

similar interpretation has been placed upon the word by the 

Supreme Court of the United States in applying the "commodities 

clause" of the Hepburn Act. This clause prohibits railroad 

companies from transporting any commodities in which such 

companies "may have any interest, direct or indirect." U.S.C., 

Title 49, In United States v. Delaware & Hudson Co., 

213 U.S. 3 R 6’(!$3) at p. 413, th e court held that the mere 

fact,~that a railroad owns part or all of the stock in a coal 

company does not mean that the railroad possesses 'an interest 

direct or indirect ' in the property or products of.such company, 

since the word "interest" is synonymous with legal or equitable 

title or both. -This construction has often been reiterated by 

the court. United States v. Lehigh Valley Railroad Company, 

220 U.S. 257 (1910); United States v.Elgin,.J. & E. Railroad, 

298 U.S. 492 (1935). 

With the word "interest" thus construed, it is patent that a 

stockholder in a corporation does not, by the mere fact of 

his stock ownershipk have or hold an interest in stores 

operated by the corporation, in the businesses thereof, or in 

any permits which these stores might possess. We quote from 

10 Texas Jurisprudence 781, sec. 153: 

"In harmony with the concept that a corporation is a legal 

entity distinct from its members, the ownership of the 

corporate assets is held to be vested in the corporation, 

not in the stockholders." 

In Automobile Mortgage Company v. Ayub, supra, the court 

quoted with approval the following statement: 

"A share of capital stock is property 0f.a peculiar kind. 
Honorable Bert Ford, Page 4, O-4750 

Accurately speaking, it does not consist in an 

interest either legal or equitable, in the property of 

the company." 

N.E. 65 

Herbert v. Simpson, 220 Mass. 480, 108 

Although a stockholder does possess substantial rights to the 

surplus of a corporation, once dividends are properly declared, 

and although he is entitled to a pro rata share of the corporate 

assets upon dissolution, these rights are of an inchoate nature 

so long as the organization is a going concern and so long as no 

specific property has been appropriated for the payment of dividends. McAllister v. Eclipse Oil Company, 98 s.W. (2d) 171, 176 

(Sup. Ct.); 10 Tex. Jur. 780-781, sec. 152. _ 

Moreover,~these principles are equally applicable in cases where 

all of the stock of one corporation or of several corporations is 

owned by a parent organization; even in these situations, the 

parent corporation possesses no interest in the property or the 

business of the subsidiary corporations. Moroney v. Moroney, 

286 S.W. 167, 169 (Corn. App. 1926). Consequently, in,,the 

situation under discussion, the fact that the Illinois Company 

is the beneficial owner of all the stock of the five Texas 

companies does not, ipso facto, make the Illinois Company the 

possessor of an interest in the package stores or in the 

businesses thereof, or in the package store permits of the Texas 

companies; however, while concentration of stock ownership in the 

hands of the Illinois Company is not in itself determinative of 

the question under consideration, it may well be an important 

evidentiary factor in connection with matters hereafter discussed. 

In an opinion approved by Attorney General McGraw (Opinion No. 

3004, September 1, 1937), this department ruled that ownership 

by one,peraon ofstock in three of the five Texas Balgreen 

companies now under consideration did not constitute a violation 

of Article h66-17(2) even though the three companies might, in 

the aggregate, possess more than five package store permits. We 

adhere to the opinion therein expressed, but call especial 

attention to the fact that this opinion was expressly predicated 

upon the statement of facts submitted to this department and that 

such facts touched solely upon the question of whether stock 

owner'ship is coupled with other facts, hereinafter to be mentioned, 

concerning the motives and interrelations of the persons and 

organizations involved. 

But, although stock ownership alone does not give the Illinois 

Company an interest in the Texas companies, the company may well 

be deemed to possess such an interest through the application of 

other well known and widely accepted principles of corporation 

law. Along with the courts of virtually every other jurisdiction, 

the Texas courts have long recognized that there are certain well 
Honorable Bert Ford, Page 5, O-4750 

defined instances in which courts will disregard the fiction of 

corporate entity and will find that parent and subsidiary 

companies are one for the purpose of charging the parent with the 

acts of the subsidiary. As has been said, the concept of 

corporate entity is "but a lenal ,_, fiction adopted for convenience; 

it is not a sacrosanct principle granting exemption from liability in circumstances wherein the fiction of corporate entity~is 

opposed to the facts." 10 Tex.Jur. 640-641, sec. 45. Where the 

fiction is so disregarded, the parent possesses an "interest" in 

the subsidiary since the fictional dichotomy between the twos 

organizations disappears and they are treated as a unity. 

The application of this principle is well illustrated by the 

Supreme Court cases,cited supra, construing the commodities clause. 

The government in the first suit alleged only that the Lehigh 

Valley Railroad Company owned stock in a coal company whose goods 

it was carrying.~ On demurrer, it was held that no violation of 

the clause was thereby shown since stock ownership alone was not 

tantamount to an "interest, direct or indirect" in the coal 

company. After this blow, the government presented an amended 

petition in which it alleged additional facts of the nature 

hereinafter to be discussed and requested that the two corporations be treated as a unity. The court disregarded the 

corporate concept, and, looking atthe substance and reality of the 

relations between the parent and subsidiary, held that the former 

was directly interested in the coal produced by the latter. 

In the case of Continental Suppl 

55 S.W: (2d) 622 (Civ. App. 

Co. v. Forrest E. Gilmore Co., 

1932 3 , writ dismissed, at p. 628, the 

Amarillo court thus classified the situations in which the fiction 

of corporate entity will be disregarded: 

"Where the fiction (1) is used as a means of perpetrating 

fraud; (2) where a corporation is organized and operated 

as a mere tool or business conduit of another corporation; 

(3) where the corporate fiction is resorted to as a means 

of evading an existing legal obligation; (4) where the 

corporate fiction is employed to achieve orperpetrate 

monopoly; (5) where the car orate fiction is used to 

circumventa,statute; and (,) f: where the corporate fiction 

is relied upon as a protection of crime or to justify 

wrong." 

This classification was adopted in Pacific American Gas Company 

of Texas v. Miller, 76 S.W. (2d) 833, 851, writ refused, and was 

cited with approval by the ,Commission of Appeals in First 

National Bank in Canyon v. Gamble, 132 S.W. (2) 100 (1939), at 

p. 103. Items (l), (3), (4) and (6) in the above classification 

are inapplicable to the instant situation and will not be considered further. Since the remaining items may well be relevent 
Honorable Bert Ford, Page 6, 04750 

to the solution of the matter at hand, they will be discussed 

individually. 

(a) Where a corporation is organized and operated as a mere 

tool or business conduit of another corporation: We quote from 

10 Tex.Jur. lOl9-1020, sec. 354: 

“Formerly, it was held by the Texas courts 

that: 'Where one corporation makes use of another as its instrument through which to perform 

its business, the principal corporation is really 

represented by the agents of the ,subcorporation, and 

its liability is just the same as if the principal 

corporation had done the business in its own name.' 

The authorities so holding have, however, been in 

effect overruled so far as they assert a rigid conclusion of law in the circumstances stated. But 

although the doctrine that the two corporations are 

separate legal entities forbids the legal conclusion 

that one corporation is the agent or partner of another 

without facts to warrant that conclusion, the one' 

corporation may be liable for the transactions and 

acts of the other where one is in fact the agent of the 

other or where a partnership in fact exists between the 

two organizations; Moreover, the fiction of separate 

entities is not maintained where a subsidiary is not 

conducted bona fide as a separate organization. . . ." 

"Piercin the Veil of Corporate Entity," 12 Columbia 

~~~~~%~'496 (1912?, at pp. 504-505, it is said: - 

"It cannot be too strongly emphasized that mere identity 

of stockholders per se does not operate to destroy the 

distinct corporate existence of two corporations. So much 

is clear. It must further appear by clear and convincing 

evidence that the corporation created is only an adjunct 

of the business of its creator - a mere agency or instrumentality, through which it acts - a mere business department, or bureau, so to speak. Once, however, these facts 

appear, a court . . . should look through the thin guise 

of corporhte entity to the actual substance of things and 

should not hesitate to cast aside the entity concept in 

order to achieve justice." 

In Humble Oil & Refining Company v. Railroad Commission, 128 

S.W. (2d) 9 (19391, at P. 11-12, the Supreme Court stated: 

"In the c ase just cited (State v. Lone Star Gas Co., 86 

S.W. (2d) 484, 491, writ refused) the rule of law here 

involved is thus stated: 'The cases are legion which 
Honorable Bert Ford, Page 7, O-4750 

deal with the relationship of two or more corporations 

from the standpoint of ownership of the capital stock 

in one by another, and from the standpoint of association together for the purpose of carrying on a single 

or common business enterprise. The rule is well settled 

that courts will look through the forms to the realities 

of the relationship between two or more corporations in 

order to determine whether each is a separate entity or 

corporation: or whether their commingled affairs are such 

as to constitute them one integrated and sinale business 

enterprise; or whether, through IntercorporaFe set-up, 

affiliation, or stock ownership, the purpose is to control the subsidiary corporation or corporations so that 

they are used as the mere instrumentalities or agents of 

the owning corporation or corporations. In discussing 

the rule, it has been held that while "ownership, alone, 

of capital stock in one corporation by-another, does not 

create an identity of corporate interest . . . or create 

the relation of principal and agent or representative 

between the two"; still it has been repeatedly held that 

such rule is not applicable "where stock ownership has 

been resorted to, not for the purpose of participating in 

the affairs of a corporation in the normal and~usual 

manner, but for the purpose . e . of controlling a 

subsidiary company so that it may be used as a mere 

agency or instrumentality of the owning company or 

companies." Chicago, M. & St. P. Ry. v0 Minneapolis 

,Civic & Commerce Ass'n, 247 U.S. 490, 38 s. Ct. 553, 557, 

62 L. Ed. 1229; United States 

220 U.S. 257, 31 S. Ct. 387, 

v. Lehigh Valley R. Co., 

v. Reading Co., 253 U.S. 26, 

5 L. led. 458; United States 

760; United States v. 

0 s. ct. 425, 64 L. Ed. 

L. & W. R. c0.,~238 U.S. 

516, 34 S. Ct. 873, 59 L. Ed. 1438. Also, in discussing 

the rule, the fact that the same persons are directors 

and managers of two corporations has been given consideration (McCaskill Co. v. United State;.sd2;6 U.~S. 

9i,ses; s. Ct. 386, 391, 54 L. Ed. 5901, 

the,courts_?o 

growing 

y is therefore exhibited in look 

beyond the corporate form to the purpose of it, and to 

the officers who are identified with that purpose." 

See, also, Gallatin natural Gas ,Co. v. Public Seruice 

co., 79 Mont. 269, 256 P. 373. 'Where one corporation 

owns or dominates another, it has been often held that 

"the independent entity of the two companies is so far 

disregarded that each is considered as but a part of the 

indivisible whole." Kimberly Coal Co. v. Douglas (6 Cir.), 

(C.C.A.( 45 F. 2d 25,~ 27; In re Kentucky Wagon Mfg. Co., 

3 F. Supp. 958; Law.v. McLaughlin, D.C.,,,2F Supp. 

And.."t,he rule which appears to be established by 

theie cases is that, where the corporate organization and 
Honorable Bert Ford, Page 8, O-4750 

affairs of one railroad company are controlled and 

dominated by another railroad company through ownership 

of stock or lease, the roads must be regarded as 

identical for the purpose of rate making." Pontiac, 

0. & N. Ry'. Co. v. Michigan R.R. Corn., 203 Mich. 258, 

168 N. w. 927, 929. 

"A somewhat 

court in A.T. 

analogous question was decided by this 

& S.F. R 

773, 775 (w-1 7: 

Co. v. R.R. Corn., 77 S.W. 2d 

.t refused whereinit was held that 

subsidiary corporations, owned, controlled, and operated 

by railroads to carry on pick-up and delivery service, 

did not possess separate legal individuality from the 

parent corporation, 

Railroad Commission; 

as regards the jurisdiction of the 

and wherein it was held as follows; 

"To permit railroads to perform such steps in the process 

of transportation through other separate legal entities 

created and owned by them would enable them to defeat 

the jurisdiction of the commission over such transportation. And in such case where the stock of such 

separate corporation is owned by the railroad company, and 

itz.zole function is merely to help conduct the business 

of the parent corporation under whose complete control it 

operates, and in the instant case largely, if not wholly, 

through the same employees, the subsidiary corporation 

will be treated as if it were a mere department of the 

railroad itself."' 

*The judgment in the Lone Star Gas Company case, zupra, 

was reversed by the Supreme Court of the United States 

(304 U.S. 224, 58 S. Ct. 883, 82 L. Ed. 1304), but the 

rule of law above announced was not questioned. 'We 

here and now approve and adopt as the holding of this 

Court the above-quoted holding of the Court of Civil 

Appeals." (Emphasis ours) 

The difficult'problem is the ascertainment of what facts of 

ownership, control, and management in a common enterprise are 

necessary to justify the characterization of a subsidiary as 

an "adjunct," "agency," instrumentality," or "creature" of the 

parent. In Ballantine-on Private Corporations (1927) at p. 37, 

we find the statement: 

"It is submitted that no mechanical rule based on objective 

facts of control or connection which will furnish a 

certain test is possible of formulation. Identity of 

stockholders, identity of officers, the manner of keeping 

books and records, the methods of conducting the corporate 

business as a separate concern or as a mere department of 

the other concern, may be evidential facts to be conzider- 
. 

Honorable Bert Ford, Page 9, O-4750 

ed as bearing on the question of juggling of separate 

capacities and whether the subsidiary is being managed 

in such a way as to make the controlling corporation 

justly responsible. (citing cases) But after all it 

comes down to a question of good fai~th and honesty in 

the use of the corporation for legitimate ends. If a 

corporation is owned and controlled by another and is 

manipulated by the owner for its own purpose and in its 

own interests to the vreltidice of innocent third vartiez. 

or the public welfare; ii may be necessary to limit zuch 

abuse of the corporate capacity or shield." (Emphasis 

ours) 

In Anderson, Limitations of the Corporate Entity (1931) 334-335, 

1 345, the criteria are stated thus: 

"Some of the controlling circumstances sustaining liability 

of the parent corporation are sometimes asserted to be 

ownership of all of the stock of the subsidiary or even 

a majority of the stock, coupled with control or ownership 

by the same persons of the stock of both the parent and 

subsidiary corporation , . . Of course consideration is 

given to the degree that the subsidiary is financed by 

then parent, coupled with which is the maintaining of such 

financing. Likewise, consideration is given where a 

common directorate is found functioning both corporations, 

as also is the case where there are common officers and 

employees. Decisions are influenced by the extent of the 

commingling of stockholders' and directors' meetings and 

also the extent to which both the parent and zubzidiery 

have common transactions of business. The degree to wnich 

interests between the two are favorable~one to another has 

an influencing effect upon holding the entities the same. 

The manner of bookkeeping will be looked to, but this is 

not a controlling circumstance. Of course, consideration 

will be given to the extent to which an officer or director 

of one corporation is permitted to dictate the policies of 

the other. It hardly need be said that in such decisions 

will be involved the character of business that such 

corporations are engaged in and the extent to which the 

trade or public generally regards the two as separate or 

one. " 

These excerpts are but suggestive; any evidence tending to show 

that the subsidiary exists merely as the shadow and the creature 

of the parent will be relevant in determining whether the two 

should be treated as one for the purpose at hand, and such 

evidence is found in the actualities of the transactions among 

the corporations rather than in the carefulness with which the 

identity of each corporation is preserved on paper. 
Honorable Bert Ford, Page 10, O-4750 

(b) Where the corporation is used to circumvent a statute: 

Courts are not so myopic as to allow the fiction of corporate 

identity to be used to circumvent a statute. Thus in Northern 

Securities Company v. United States, 193 U.S. 197 (1903) the 

court struck down an attempt to avoid the intent and purport of 

the Sherman anti-trust statute by recourse to the fiction of 

corporate identity. Likewise, in United States v. Milwaukee 

Refrigerator Transit Company, 142 Fed. 247 (1905), the identity 

of a subsidiary was disregarded when its recognition would have 

resulted in the evasion of provisions of the Interstate Commerce 

Act and the Elkinz Act of 1903. The same kind of action was 

taken in the commodities clause cases cited zupra. 

Several of the exce.rptz quoted above have stressed the fact that 

the fiction of the corporate entity of a subzidiarywillbe 

disregarded when the recognition of this fiction would be against 

the vublic interest or the public welfare. It is common 

knowled,ge that the legislature included Article 666-17(2) of the 

Penal Code of Texas in the Liquor Control Act because of the 

detrimental effect upon the,public,of the prior operation of 

chain liquor stores and because of a belief that the interests 

and welfare of the people of this State would best be furthered 

by confining the ownership and operation of package stores to 

relatively small and independent units. Moreover, the article 

expressly makes the violation of its provisions an unlawful act. 

In view of the langauge~ contained in the Gilmore case, zupra, 

and approved in the Gamble case, zupra, the separate identity of 

a zubzidia~ry controlled by its parent when to do so will be to 

sanction an evasion of this article, to ignore the public policy 

expressed by the legislature, and to point an easy way for future 

evasions by the simple act of incorporation. 

While the facts submitted in and with your letter of July 27, 

1942, are not sufficiently detailed and sufficiently comprehensive to allow this department to say as a matter of law 

whether or not the Walgreen parent-subsidiary organization fall8 

within the two categories above discussed, you are respectfully 

advised that: 

(1) If you determine that the factual inter-relationship (a8 

distinguished from the paper interrelationship) existing between 

the Illinois Company and the five Texas companies is such a8 to 

constitute the latter mere "adjunctzV or "business conduits" of 

the former, accordi~ng to the criteria above discussed, then-the 

Illinois Corn any will be guilty of a violation of the provisions 

of Article h.h-17(2) $: of the Texas Penal Code; and, under Article 

666-~(2) and the definition, contained in Article 666-11(9), 

none of the five Texas companies will be eligible to receive a 

package store permit. 
Honorable Bert Ford, Page 11, O-4750 ' 

(2) If you determine that the five Texas companies were 

organized by the Illinois Company or"%hat they were acquired 

by the Illinoiz Company or that they are maintained by the 

Illinoiz Company as ostensibly separate organizations primarily 

for the purpose of evading the provisions of Article 666-1712) 

of the Texas Penal Code or of subverting the public policy 

therein embodied, then the Illinoiz Company will be guilty of a 

violation of the provlzionz of this article; and, under Article 

hhh-ll(2) and the definition contained in Article 666-11(q) 

none of the five Texas companies will be eligible to receive a 

package store permit. 

You are further respectfully advised that should your findings 

fall within either of the above mentioned categories, the 

provisions of Article 666-1.1 (2) will prevent the issuance of 

any package store permit to the~Illinoiz Compan 

period from September 1, 1942, to August 31, 19 E 3. 

for the permit 

Very truly yours 

ATTORNN GENERAL OF TEXAS 

zi R. Dean moorhead 

By 

R. Dean Moorhead 

A,zoiatant 

RDM;QO/cge 

APPROVED AUGUST 26, 1942 

d GERALD C. MANN 

ATTORNEY GENERAL OF TEXAS 

APPROVED OPINION COMMITTEE 

By BWB, Chairman