Court Opinion

ID: 4144316
Source: CourtListenerOpinion
Date Created: 2017-02-18 03:43:45.526807+00
Date Added: 2024-06-11T14:49:47.523484
License: Public Domain

Tx3lilA7r7romwzY            GENERAL
                          OFTEXAS

Honorable M. 0. Flowers
Secretary of State
Austin, Texas
Dear Sir:            Attention:     Mr. C. P. Sanders
                     Opinion No. O-2077
                     Re: Does the appllcatlon or certificate
                          of the United Fraternal Benefit As-
                          sociation, considered singly or to-
                          gether, constitute a security wlth-
                          in the meaning of the Securities
                          Act?
          Your letter of March 14, 1940, requesting an opin-
ion of this department on the above stated question, has been
received.
            Your letter reads, in part as follows:
         "The United Fraternal Benefit Asaoclatlon,
   a corporation organized under Section 2 of Arti-
   cle 1302 of the Revised Civil Statutes of'Texas,
   with a lodge form of government, whose charter
   was filed by the Secretary of State on the 18th
   day of October, 1939, desires t6 amend Fts char-
   ter under the provlslons of Chapter 8 of Title
   78 of the Revised Civil Statutes of Texas, in
   order to obtain authority to provide Insurance
   benefits.
         "Under the provisions of Article 4838 of
   the Revised Civil Statutes, it Is necessary that
   said association obtain not less than five hun-
   dred bOna fide appllcatlons for such Insurance
   benefits before It may obtain such authority.
   In furtherance of such desire, such association
   h&s prepared appl&atlon blanks and a certlflcate
   of membership. The Association Is now attemptIng
   to secure appllcatLons for membership from then
   general public and, In particular, from doctrXi%
   llvlng In the State of Texas, and a part of such
   application blank provides for appointment of
   doctors who make application for membership as
Honorable M. 0. Flowers, page 2         o-2077

    medlcal examiners and for the Issuance of a cer-
    tificate to them showing such appointment. Part
    of the money collected from an app~licantis set
    aside as life-time dues of the number of such
    assoclatlbn; part to the purchase of notes made
    by other applicants and part to a mortuary fund.
          "Itithe case of application by a doctor,
    such company agrees to appoint such doctor as a
    medical examlner for a certain designated ais-
    trlct and agree to pay him $1.00 for every mem-
    ber examine&by said doctor In hls.dlstrlct and
    to pay an addltlonal'sum of $4.00 If a detailed
    medical examination Is required.
          "I am.encloslng herewith's copy of the ap-
    pllcation blank prepared and used by said associa-
   3lon, together wlth~a copy of the certificate
    Issued by It tb aoctors.who take memberships, for
    your use In considering this request. The assocla-
    tlon plans to employ agents on a commission basis
    to secure such applications and contends that such
   membership certificates,are not securities, wlth-
    In the meaning of the Texas Securities Act.
           "Before passing on such contention, thls De-
    partment will appreciate the benefit of your ad-
    Vloe as to whether or not such application or cer-
   -tiflcate, singly or together, constitutes a secur-
    ity within the meaning of the aforesaid Securltles
    Act."
          Article 6008, Vernon's Annotated Civil Statutes,
reads, in part,89 follows:
           "Section 2. The following terms shall, unless
    the context  otherwise indicates, have the follow-
    lng respective meanings:
         "(a) The term 'securltg' or 'securities'
   shall Include zany share, stock, treasury stock,
   stock certificate under a voting trust agreement,
   collateral trust certlflcate,.equlpment .trust
   certificate, preorganizatlon certificate, or re-
   ceipt, subscription or reorganization certlfl-
   cate, note, bond, debenture, mortgage certlfl-
   cate or other evidence .of Indebtedness, any fdrm
   of commercial paper, certlflcate In or under a
   prOfIt sharlrrg.orparticipation agreement, c.??rti-
   flcate or,ln8t@ment,representlng any ~lnterest
Honorable M. 0. Flowers, page 3         O-2077

    In or under oil, gas or mlnlng lease, fee or title,
    or any certificate or Instrument representing or
    secured by an Interest In any or all of the cap-
    ital, property, assets , profits or earnings of
    any company, Investment contracts, or any other
    instrument commonly known as a securtly, whether
    similar to those herein referred to or not. . . ."
          The above mentioned appllcatlon for membership and
appointment as a regional, medical advisor and examiner to
the United Fraternal Benefit Association, reads In part as
follows:
         "IN CONSIDERATION of the premises set forth
   In the recitals hereof and the benefits to accrue
   to First and Second Parties by and through a con-
   summation of the objects and purposes thereln set
   worth, It Is agreed:
         "Sec. 1. The Second Party agrees tc pay to
   the First Party the sum of $           payable
   as follows: $                cash, receipt whereof
   Is hereby acknowledged br First Partr: and the
   remainder of said sum shall be due and payable
   in                   Installments of        each
   and               Installments    of 8-
   the first installment being due?&   pa~yableon '
   the         day of               19-3   and one in-
   stallment being due and oavable'on the    -aas
   of            next thereafter until allT nstall-
   ments are paid; said Installment payments being
   payable at Dallas, Dallas County, Texas, and shall
   bear interest from maturlty at the rate-of
   per centum per annum, and It Is agreed that upon
   failure to pay any Installment as stipulated First
   Party may, at Its election, mature all remaining
   unpaid installments, and further that If this ob-
   ligation Is placed In the hands of an attorney for
   collection or If collected by suit or through the
   probate court ten per centum additional on the
   principal and Interest then due shall be allowed
   and recovered as attorneys fees.
         %ec D 11. The funds set forth In Section I
   hereof, as and when paid, it Is agreed, shall be
   USed, expended and applied as follows:
         "First: The first 6              of said sum
   shall be applied,and allocated by First Partg
   to the payment of the life time dues of the Second
Honorable W. 0. Flowers, pae4
                           g           O-2077

    Party as stipulated and provided for In Section
    III of thls agreement.
          "Second: Should any one or more of the ap-
   plicants for Insurance benefits referred to ln
   the recitals hereof-execute his or her note, notes
   or other evidence of Indebtedness, in payment, ln
   whole or ln.part, of the premium required to be
   paid for a benefit certificate or policy of lngti-
   ante Issued or to be Issued to such-'applicantthen
   so much of sald fund as may remsln after an allo-
   cation of the amount stipulated In subdivision
   First of this section, as may be requisite there-
   unto, may be used and applied by First Party, at
   Its option, for the purchase by Second Party of
   such note, notes, or other evidence of lndebted-
   ness; or an interest therein, and thereupon such
   note, notes or other evidence of indebtedness so
   purchased with said funds, In whole or In part,
   shall be transferred to the Treasurer of the First
   Party, and his successors in office, wlthout re-
   course on Flrst Party to be held in trust by such
   Treasurer in his Individual capacity as Trustee
   of the Second Party and such other party or parties,
   If any, whose funds may be used and employed by
   First Party In such purchase‘and sale; It being
   contemplated by First and Second Partles, and so
   agreed, that the funds of another person or other
   persons subscribing to the fund referred to In the
   recitals hereof may be so employed and used by
   First Party jointly with said funds of Second Party
   for the purchase of such purchases and sales. The
   gains and losses, or either, arising or sustained
   by and through the said uses of said funds shall
   accrue to and be borne by the partles holding an
   Interest Fn such note, notes or other evidence of
   indebtedness in the ratio or proportion of their
   respective investments therein. The said Trustee,
   and his successors In office, shall hold and re-
   tain possession of every such note, notes or other
   evidence of Indebtedness at the office of First
   Party In Dallas, Texas, and shall have power to
   collect the same,.or any part thereof, execute
   receipts for payment thereof or thereon and to
   maintain suits thereon in his name as Trustee for
   the use and benefit of the beneficial owner or
   owners thereof, and he shall transmit, within flf-
   teen days after receipt thereof, to Second Party
   all,collectlons made thereon assignable to Second
   Party, less reasonable collection expenses Incurred,
    all colleotlone  mcde thrreon assignable to Semnd
    T?arty,loma reasonable eol~eatfon sx~.ense8 ~IIouFro6,
    if any. Xrst T’urty a@WS to iurnieh to SWOAd
    ?arty quort.orly 0 written rnpwt of the amount ct
    any outetandiug cbligetloas  in *rtriah Seeoad Party
    mop ho lrate~eeted under tho tams   ai thie aubdivf-
    don  topthor uith the ~66%~ or Am6      and Fo6tofffa6
    hddroe# OF &cWm&mes Of tba obligator or obliga'torn
    lnmfar ua it may be r6A6Qnabl.y prooticalfor Fint
    Party 60 to do.

          -3ilrd1   shcsu3a there remair hng balanoe of
    the fund8 rererrea to In section I hereof after
    an appliaation,   epprogrlationend expndlture them-
    of LSJ ret forth IA eubdivldloniPlrat    and Ercreond
    above, theA atoh b6lAno0, QY? ro.mwh thmwo? aiscay
    bs reasonnblg neaeusary thareunto,, &all be set
    aside by alrnt Party to oreate and pmvide  tie mctrtu+
    cry Suad referred to in the recitals hereof, mad
    thereupon .ohall bo held invIolate tcr mah purg08e.
                     "?WTt~ D??AFT SSBXiTP

                               FaAk
           ~Sio&ieffr Balk)
          *You 4mrehe&b0 autkorio8a to oar
    drafta &UUJZ 6galu6t,my aeaoant by t&e &.Zted Prater-
    &al Pondit Aseoolation, Xmllas, Texea~in the arsount
    of                 ard charge mme~ Ca s&aaeouut, vdtih-
    out rurther netif#e, uutdl revoked by sm in wFSAn&
    la eeee .fuadt# ure not avallabl8 at t&e time draft ar-
    rlveo 46 net a-stun the nme tintI you notify me. I
    reeerv& ,~the right to r%thdrew thfe, authority 5% m
    opw.on.
                              (;gylt    s1gA *BankingBifgatws

          “F0llFth: L;hc&d there TeIMin aA9 b628A46 OS
    the funds referred   to in Escrtion I he+ot after an
    appllaation,   appropriationand expenditum ,thQreQf
    68 5Qt.forth %A Eub&%VLoi6tOIXJ%-6t,Seqond and ?%Ilird
    above, or either, thea M1cshb&lane6 @hall be #et
    aside by Ml’@% Petty fQF uud plaOed iA iti?, %QAQFQl
    maborehip    &BO fund to ti uabd. by it &ii reeoX=&anee
    aith Its rule@ 6Ad rQ&MbtioAQ      $#iatrAiA$ maah dUea,
    f UAdPi~

               vhdor the lbwe mentioned wplioetfon, a physioion
make6   agpliaation to the UnItad lbaternal Ben~lt AMaaiatton'
                                                          r     .-

Honorable M. 0. Flowers, page 6         O-2077

tlons applicable to such memberships or as the same may be
thereafter altered, amended, modified or enlarged and agrees
to pay said association, concurrently with the execution with
said application a designated sum not to exceed Seventy Two
Dollars ($72.00) paid in cash ,and in the event the total
Seventy-Two Dollars is not paid a portion thereof Is paid
and the balance is to be paid In Installments as set out in
the application. The.appllcatibn for membership-'inthe
United Fraternal.Benefit Association is also an application
for appointment as a regional, medical advisor and examiner
for said association. When the physician becomes a member
of said association he Is also appointed as a medical advisor
and examiner for said association and for hFsservFces the
association agrees to pay him the sum of $1.00 for every
member examined by the said physiclan In his district and to
pay an addlti-onalsum of $4.00 Is a detailed medlcal examl-
nation is required.
          The above memtloned certlflcate and appllcatlon con-
sidered together is more than an application for membership
In the United Fraternal Benefit Association and a contract of
employment. The agreement as set out ln the application
specifically provides that "should any one or more applicants
for Insurance benefits referred to In the recitals hereof ex-
ecute his or her note, notes or other evidence of Fndebted-
ness, In payment, In whole or Fn part, of the premium required
to be paid for a benefit certificate or policy of Insurance
Issued or to be Issued to such applicant then so much of said
fund as may remain after an allocation of the amount stipulated
In subdivision First of this Section, as may be requisite
thereunto, may be used and applied by First Party, at Its op-
tion, for the purchase by Second Party of such note, notes,
or other evidence of indebtedness, or an interest therein, and
thereupon such note, notes or other evidence of Indebtedness
so purchased with saFd funds, In whole or in part, shall be
transferred to the Treasurer of the First Party, and his suc-
cessors in office, with out recourse on First Party to be.held
In trust by such Treasurer In his Fndlvidual capacity as Trus-*
tee of the Second Party and such other party or parties, If
any, whose funds may be used and employed by First Party in
such purchase and sale; It being contemplated by First and
Second Parties, and so agreed, that the funds of another per-
son or other persons 'subscribingto the fund referred to In
the recitals hereof may be so employed and used by First Party
jointly with said funds of Second Party for the purposes of
such purchases and sales. The gains and losses, or either,
arising or sustained by and through the said uses of 'said
funds shall accrue to and be borne by the parties holding ah
Interest In such note, notes or other evidence of indebtedness
in the ratio or proportion of their respective Investments
therein. . . .'
Honorable M. 0. Flowers, page 7         0-2077

          The above mentioned certificate and application,
considered together Is a profit sharing or participating
agreement wherein both parties, namely, the physician and
the United Fraternal.Beneflt Association, participate in
the gains and losses, or either, arising or sustained by
and through the uses of said funds.
          After a careful study of the term "security" or
"securities" as defined In the above mentioned Act In con-
nection with the appllcatlon and certificate of the United
Fraternal Benefit Association, we are of the opinion that
said application and certificate considered together con-
stitutes a security within the meaning of the Securities
Act.
          It is to be specifically understood that we are
not passing upon the authority of-the issuing company to
Issue the kind and character of Instrument or instruments
as hereinabove mentioned. WeLther are we passing upon any
phase of the Insurance law which may be applicable regard-
ing the proposed amendment to the charter of the UnLted
Fraternal Benefit Association.
          Trusting that the foregoing fully answers your Fn-
qulry, we are
                              Yours very truly
                            ATTORNEY GENERAL OF TEXAS

                              By s/Ardell Williams
                                   Ardell Williams
                                         Assistant

AW:IM:wc

APPROVED APRIL 8, 1940
s/Gerald C. Mann
ATTORNEY GRNERAL OF TEXAS
Approved Opinion Committee by s/BWB Chairman