OFFICE OF THE AlTORNEY GENERAL OF **TEXAE** AUSTIN

Dssr **8lr: opinion**  **x0. o-u389**  **Be: coartmat:on**  **0f Art**  **Ravfsed Civl** 

**x0 El-e**  **in rscsipt**  **of .lon**  **ca tts**  **foltowln& :;uastl** 

oh lnatsnos orrning two oor~ora$lonr( atian and the

sarano~ cor*raseeb where It appw8 af each 3oard is lCe~tioa1, ooatrolllnrplatarest

"iis a conowte flleetr?itioaof the question ~~h3k 00nrr0aa u&; tbr farlo~ing 18 tjr3foal:l

Tha controlling stook of &auance Qorpora**tion A**  **is** orned by B.C. and D, mo 

### ocmstitaate 1ts

### Board OS ~ireoto rs. 

### 2%. o ontr ollirl& stook OS oorporagioa It,l finance oorjioratlon,$8 

### ownedby B,C, **and** D, thsy being U ldentioal ~arsciis who own the oontrolllng stock la Inmrsaoa Cmpsny A, *Tim itines oorpxatios 1 sol18 to Imaursnoe Cor?oratbm A orrtaia socurltles owned 

### b7 it. **3%~ quwtion**  **uhioh eonSzoat8**  **nm is**  **whaOhor or**  

### not **uuder** 

### suoh **obwaritstanoes an6**  **la** 

### rim d **Artfal. 412** **’ 1,**  **notBfthstanding said**  **Artiole** 1s a prohibition agsinst SOW JS the directors, offioiels, agents do., should thr Board oS IasurMoe c4xaui*sjonars reoogniza the saourities so guraka8ed as adnlsslbla asset&P
%I propounding the **ioregolng** puastions, I am laborirg under the izapraasion that the mubuss of t?m 3owd of the 8ellfng Corporatto%E have a ;eouniary interest in the amourities sold to Inmranos Corporation A, the Directors oS rhich are either ldontlcal with the **Direotors cd**  **the S4vLUng** Corporatfcisor owzt and aoatrol ths maJorffq **stook.**
'CT- will note that In at9lettsarto yaa of **October** l?th, I **requested** that you oonsld~~ whether or not a distlaotlon OM? or should **be** nmde where the oirlcars and diraetors OS tko two **oorgoretions** are identical, and whether or **not** the ofriosrs **and** directors am not **identi** oal, and **to aomider**  **IS there**  **1~** a **distinction** to be drawn between Inatanms where th* ofticer or director of both oorporatlonn 3p1ls the eontrolling intereeat in 

### both **coryorotiozs or**  

### oua8 ths a~ntrolU.ng interest in the borrow& ooxporstion.

l * * I .*

Rsfetec ce is mdd to hrti0104VE7, Uti8e6 Civil StatPlieS, 1925. I.itsve given nost oamical **con- 8fdsntica**  **end** analysis 

## to thf 8 eftll statut8. II 18

OwT utudied a.$nion that the prohibition **contained** th8roin **do48** not agply to tha oircmt8nara you hare d48crlbsd. S84 in this uonnsction Cbnferenoe G&x.ion X0. 5097 or 

### t%i8 departrent.

Art1ole 4727 and Artlale 577, Penal C&4, 1925, Eave a8 their aceibinsd obfsative the 

### prohiblthm an8 psnalitlng of II

director and offioer or dlreatorr end otiksr8 

### of aor~oratlon8 in re8prat to 

### oertaio**per8an** 

### a1 **aot8.** Both the prohlbltion and the **p8tmlty** apply to indirldualr. They 

### do not embrace tha oorporation itaslt **68** 

### an entity. The language ir alerr, umablgu0128an6 not **8Ubj44t** 

## to aoatruotfon.

Th4 lneetiion ot th8 prwirion8 aoncarning polio loa!m **WQS**undolabtedlp for the xrpoae of anablfng dI TO4tOr8 md OfffO8rs of fwiurance oo~paxi48 to take e&vantage af tr:lr xell-rcocg~-.lzed

class .ztf

loaae., It camot be cocaluded that it f.?dic&tsr a legislative **intent thet**  **bXt~ranCCi CO2pa?ii48,** **~8 aSu**  **48 th8h**  **&-** dltidual dlreotors and officers, mre within the atatutmy inhibition.

Artlole 577, eapra, **4XpT4881l 8tate8**  that ***4~**
**ha** brlloll VfOlati,w any proti8ioIl oi thi8 article 8ha l-d. not le8.8

than thres huMred 

### nor more than one thousand Qo11ems'r 

### (t3nber8corlng Our8) *
The raat tbut irticlo 4727 and brticlo 577 are not a.?pUoable d,aea not amen that the kerd of Insurance **tkd88iOZWr8 18**  **pOwerlsBS to**  **OOntrOl** the 8dsi84ibllity oi **asset8** of **life lnsuranas**  co.:paniel aaquired **under** the oirewnstence8 outlined in your letter.

**‘ Ilrk8I.8**  **aZl in0Ur~Ce**  **OO%~ell~ >Ur4h4888** **88OtSitie8 from**  a **aor>oration whose** 3mrd of ikectorr haa a member**8hlp identical**  with thst of the ,inzreharin8 Insurance **th~~p~~y~**

**th8 Board**  **Of ~8UmUX?~** **Ca.BSLiSlrianOr8 i8**  **entitled to**  **b8 g~l&~d**  by **asrtain itlndaaS?.t?id** **m148 of**  **hW in**  **&O** twaiofng th0 adaLi88ibility Of 8uch 88WritLa8 a8 elreet8 of the in8urance ecxpany.

It **18** toa ~.a11sstablfshcd to requim citationof out::oritythct 

### ciilmrr und especially diXMtOr8

of 0or~orat:onr are riduclsrier. SO, **kO01OVer,** 8 yyv3s*tJ cz X", .K IntP

. .... ..~i&iS.Ch. 49, p. 777 *DutIe8 and Tower8 ot DIreotor8 a8 Piduoiarie8ng 2 COW3 OX XYemotive 1451 B 5094 on *Dlreotorrr~ 25 BAWARD LAW iUXBU 427 gInterloeklng tireotoratea,The Problem **Mid** it8 **sOh.Oll -;**  **TRmrTr-mBsAL nsmw3**  **caxrA?a** XT AI, 1. HS?XLL 22 ’ AL 101 S.W. (2d) 607.

**??hO** ia4t **that 8**  **QUt OT**  811 **Of** the **dlnO% ‘** **X8** of 054 ooatreating oorporatfon 8re dirclotz-nt of the other oontraatl.ngoorporatioa afford8 a ground ior **sub** jeoting **the** oontzwat Into r!xiohthey enter to the **8triot** 88t sarutiap by courts of e uity. .?TI@XS841; 10'

TSX. JUR. 3 

### a lFSXQ%ox C34Co&OR95

. ?ho true rule in Texa8 with relrpeatto colttract8 betaeen wrporation8 having intarlooking alrsct

### oretea or dricers lb cownon poerally nap :33 

## round enunaiatod in CITY H:,T?&%L %XGi WJ. %lSXJTS* QiD xii33RS XxX.%. SMX. 105 s.3. 336 (c&i 1907). to the 0rfe0t thfet

**‘ 1%**  **18 nOti**  fnhW4Xitly **Wona;** fW tW0 **OOr** poratIon8, **hrrvlng** all or a part of their aoatrolling oriicrers In aasao5, +AB aont?a& with eaah other. 

### Xvenwhen a 

### majorityor 811 of the aontiscting 

### 0rsicers of 

### two **cor~osationa 8zO**  memm to b!th, that raot alom bow 2ot mke e eontreat between 

### th8 tW0 COrgarationU, entered into by euah oontraotiq 

### oiiioar8, ab8olntely void and incagable of refificafion. **TS4** current **of modern** autkmitY 5oldr that

**funfi** siltii it ***** ld awear, upn ;,,e&&;:%.i' that the aoi%::ot 18 ialT md **thoro has**  bee; no abuse of the trust relation,

.q~.crrn by the sdjudiontod **cfis48.** de;.Ond8**in** a **-of- ,** Son. ‘#alterC. L’oo4ward,Chairman, pa+y 5

lor case. llehed.* 20 lnflaribis rtlla has b;on **sstnb**

The ale wae ateted rtth remarkable clarity by Xr. Justice Clark, apeaklng ror the 3tited States salpramacourt in GsT&s TS. j&,fJ;xDj, CC;;';;,3

',cI;:x:G CC& PAST, 254 U.S. 590, 599, 41 9. ct. 2G9, 65 L. 3d. 425, when he eaidr

Y?ie **relation** 

### 0r Clreator8 to oorpratlonr is of such a tidueiars nature that traa%eation% between board8 her&g acanonms.bers are **reqrd** ed as jealously by the lsa ae arc ;ersonal dealingo b&mm 6 direotor and &i8 corFretion, and where the **raimes8** 

### Ormeh transaction% i% ahallengsd tha burden 1% upon those who wcxlld maintain them to show their entire

## rabies6 an8 wkeerea sale :s ictolved the full cd%quacy of the cmr;i4er:&io~. 33,waially is this true whore e common director is do5inetlni;in i,*luexe or in ohsraoter. T::iri court has been consletently emphatic in the appllcetlon **0i** this rule, uhlah, It has dealarea, is fMlnded in **soundest** morality, and wa mm add ln the soundest busln4s% policy.*
In oorrinenting

on thi% rile, the United State% Suprome Court in TCmz-LrCE EL CG.;ZY V%. x.zG3mY, 91 U.S. SQ7, 23 i. 3id.322. **said,**

8 * * + when the lendsr is a direator, aharged rlth others, with the oontrol and managxzxmt 0r.m alfairs 

### 0r the corporation, representing, in this regctrd,the aggrorjats 

### intereat of all the etockkoldere,hia obiigetloc, if he beeme a 2srty to a oontract -siththe CCI,+Cy, to cozxior and tfiir des:lq, ir:lncreorod in the precise degr;rao t:w*t tis raixesa3tiitive oharacter hii%given tin gower and confrsl derived rra the coidlJence repwed in him by the atockholdara ah0 aoyointe4 h.kattelr aGent.*
In England, the ~11s is that c;rgzations having dirsotore Ln ccmzon izegxot cozArc.ct. i-c82 Tkmg6x1 Corj2orstions

846. s: :;T

T. F::,TL3jto. IL‘,;,~,s~#g cc.,Hon. Ifalter C. :&xlward, Chalrsan, pit* 7

lwality of o p;o rtuaity to all entitled tkers80 abuaa andviolate the flduaiary relation a trust obli~etioa of dlTeef&ra. 3aw treataa **ment must**  be rtow **to** an-e o~dsstro~ the evil.a **A8 utstrd**  another rag **ia** EnBYE WI. 3RO+?S,?30 583, 635 (1380):

artlola QOllCiSO Wo take the liberty to quote a&z' from the

in 39 3 .L.R. (this tlzrie at p. 4741,w3ich is a rtatmrieat

cf our ~osl.tionr

**Th@ the2**  great might 0r **autmrity supgorta**  **the ~onoluaioa**  **that** oontreotr **made** 

### by corporations, 

### in wclch ita directors are interested either individually, 

### or **through** theeir arfiiiatfons -irfth **other** eorpretlms, are aot void ab fnftlo, but asr8ly voidable, yet th6 rule 0r law in this respect is such that a11 praotlcal plrpose8, if tha CQxtraot or transaotlaa be attacked, It will be **archled** ahoat **a6** a **matter** 0r cow86, **‘ booause**  **the puastlon**  

### or tha ixtegity or 

### ?a @od rolth **oi the**  **treneaotion** will -:ot be irr;uked into. 

### The uourt.8

willnot 

### contidbr wbther 

### orxot **the traxtztion**  Lair been 5xjurious. Zxclaad, they have g&a so far zs **to hold**  **tb.et even**  whiHI0 It CQUld be smZUeitiVsIy CLapm that**Eon, 34lter**  **C. Xocdwnrd,**  **Zhalmse, pgr**  **9**Eon. Xalter C. Gxduard, Cbairaan, pa,ge9

CSt0b say refuse adtisaibillty ar **asset8 of**  the **lnsuranaa** ooz?any aaourltisa obteimd by purobaus frrua a aorporation hating an Identical Board of Diraotore.



### TJi0 861~10 **na605ing** 

### spglle~iathor00as48 

### where tba Board **of** Xreotorr of the pmoha&.ng insurance ccanpw and the sslliag aorporatioa have an identloal majority oontrolll.llg l**14lu4nt..**
Iho refusal of tha Board of fnaunnoe Oaamis8ioaer8 to admit aertein 840uritlar a8 a804ts of ths


### nt of ?.ho

aagital 

### atookof 

### an in-oe oompeny pnq;rrr hrtiola 4748, llarlsed CiTil **St4tflto8,** 19e5. Whdhar impalrnwrnt 18 brought abou4 a~ 

### notbfthlm l

### efirra,tbs authority 

### of tha Boerd 

### of Imurancs Cmdssloaers is the aamm whem the transaotion **between**the insurance aar;.jaay and the oprporatioa having OO~KMS **dlraotorfi** doe8 oat -84 **the** 

### tar4 of

### fairnee8 **or** 

### 18 **a** riolatioa of the trust rabtlon8hip.

In thf8 opinioa ws ars not passing u;ronths 4uertion of whether or no4 tha individual dlraotoz6ia the sl4untion do8orikd are guilty 

### of rfolating ktiolrs 47Bt 

### utd 6t7, mapre.

Truathg that we hare 8eti8faotorll~ 

### answered your in@ry, wo are Your8 ~4ry truly ATTOR!EW

C-AS, OI TEXAS 

# BY 9 I L\<s3?x$

Dick stixlt
RsaiRt4nt

App~ovEcMAy 16, 1940

ATTORHEY GENERAL OF TEXAS