Court Opinion

ID: 4136378
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:12:54.267121+00
Date Added: 2024-06-11T09:17:20.293456
License: Public Domain

THE     ATTORNEYGENERAL
                              ofi'TEXAS
                               Ausniu     11. ‘I-EXAS
  WI&     WJLSON
AT-roRNEY   GENERAL                  April 24, 1959

       Mr. William A. Harrison              Opinion No. WW-601
       Commissioner of Insurance
       International Life Building          Rt:   Whether or not commissions paid
       Austin, Texas                              to directors on the sale of capital
                                                  stock is prohibited by Article
       Dear Sir:                                  3.67 of the Insurance Code.

               You have requested the opinion of this office on the question of
       “whether the taking of a commission by an officer or dirtctor of a life
       insurance company operating under the provisions of Chapter 3, Texas
       Insurance Code, on sales of original issue capital stock of such company
       made personally by such officer or director violates tht provisions of
       Article 3.67, Texas Insurance Code.”

              Article 3.67 reads as follows:

                       “No director or officer’of any insurance company
              transacting business inor organiaed under the laws of
              this State, shall rtceive any money or valuable thing for
              negotiating, procuring, recommending or aiding in any
              purchase or sale by such company of any property, or
              any loan from such company, nor be pecuniarily inter-
              ested, either as principal, co-principal, agent or bene-
              ficiary in any such purchase, sale or loan. Nothing in
              this article shall prewnt a life insurance corporation
              from making a loan upon a policy held therein, by the
              borrower,   not in txcess of the rettrvt value thtreof.’ .

       It is our opinion that the taking of a commission by a director for sales
       of original iasut capital stock falls with&the prohibition of Article 3.67.

              The argument has been made that inasmuch am stock does not be-
       come property until after the purchase ha6 beeh madt and-a stock certffi-
       cab issued, a commirsion on tht salt would not be a violation of Article
       $67. Ao stated in Volume 11,~Flttchtr Cyclopedia of Corporations, page
         :

                       “Stock ca? be created only by contract. whether
              it be in the simple form of a subcription,  or in any other
              mode. There must be an agreement to take tht stock,
              and nothing short of this can crqate ft. Thie imparts to
              the stock the quality ‘of property which bforo it did not
              poaa*se.s
Mr. William,    A. Harrison,,   page 2 (WW-601)

It should be remembered,       however, that Article 3.67 by its own terms not
only prohibits the taking of a commission       for the sale itself but for “nego-
tiating, procuring,   recommending     or aiding” in such sale.     It is obvious
that the “agreement     to take the stock” will have been preceded by negotia-
tions, no matter how limited or cursory, htncc any commission received
as a result of such a sale would necessarily        include compensation      for the
negotiations  leading to its consummation.       It is equally obvious that the
commission    is in fact paid for the person’s    activities  in negotiating,    recom-
mending, procuring and aiding in, the obtaiping of the subscription agree-.
mtnt.

         It has also been argued that if Article 3.67 is construed to prohibit
a director or an officer of an insurance company of the kind in question
from receiving     a commission      on ‘the sale of original issue capital stock of
such company, the same article by the same reasoning would prohibit the
director from being pecuniarily        interested       as principal in the purchase of
any such property sold by such company and hence would be prohibited
from purchasing      stock in the company even though such director is re-
quired by Article 3.04, Section 4, to be a stockholder.               This, of course,
would be a ridiculous     result but, in view of Article 3.14, one that does not
follow.   This article,   also’passed     in 1909, expressly       exempts the directors’
dealings with the insurance company as a shareholder                 from the general
prohibitions   relating to directors’      activitie’s.    It provides:

                 “Any director,   member Of a committee,        or officer,
        or any clerk of a ‘d,omestic’ company, who is charged with
        the duty of handling or investing its funds, shall not deposit
        or invest such, ~~~,~~~.~.erneegt,,~~~~hecprpo.r,,ate name of such
        company; . &all not- b~$&&w&o~!fC(fYd&of such company; shall
        not be itiYev&te$tin”any   ivatf’i~~‘&@loi&,    pledge, securiv
        or property of such company, except as stockholder;           sha
        not take or receive to his own use any fee, brokerage,          com-
        mission,   gift or other consideration    for, or on account of,
        a loan made by or on behalf of such company.”
                                       $I
         ‘The conclusion we have reached is in accbrdance with an Attorney
General opinion dated August 3,, 1911, to the Commissioner           of Insurance
and Banking which hei&thj&a       co&so),    whereby the pr,eside,n$of an insur-
ance company,was      to’receive  a 25%.commission~      for the sale of unsold
capital,stock   was unlawful. by,,virtue of ,&is article.,

         We do not pass upon any penal laws covering this or similar fact
situations since the rules for con,struing civil and penal statutes are dif-
ferent.                             ..,

                          .                 .

            .
MI-. William    A. Harrison,   page 3 (WW-601)

                                  SUMMARY

                 C.ommissions paid to directors on the
                 sale of capital stock are prohibited by
                 Article 3.67 of the Insurance Code.

                                           Very truly yours,

                                           WILL WILSON         9
                                           Att

                                           BY

APPROVED:

OPINION    COMMITTEE:

Geo. P. Blackburn, Chairman

William K. Hemphill
Tom I. McFarling
John Reeves

REVIEWFP        FOR TW    AT.WRNEY,.G~NE;RAL        .
BY:
      ‘korgan   Nesbitt