         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.
                                               Ion a& saplffloa~
                                         boon 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 eon-
oerned in tYsnsa0tlQns       or thie kind.
      -::a hare reed with lntcrent your olaar date-
aeat 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
01116beaause 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 oorpom-
tfon la aunti nla@#t mtlrrly        by the p?eddont          of
the l.mmxumo oeqaayr     Tha build&   whfeh Is pm-
posed 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         the pmaideat of ths llfo ln-
uaraaa* 0cmpaw  Ti    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 aqliii-
           aation o? thie naragraph.      In o+iher worda, le It
           your o&Am      thfit Q tmnseotion   of the kind de-
           earlbed i:a Sorbl&lon where the officer     a~ direoUr
           a-8 hate 8 pbrixmal fatesoot      in tha trtmaoeiw?
                  *A related n.usotion 011whloh w dosiro your
           opincioz lsr     what la ths posltlon     or B.‘Lfnnurtli~cst
           %erapanyla a tramm~tianwhloh 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
           leaot 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 cum-
           panleo 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~pany28
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.patnyla 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 ruXseaof 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 generelohereater-
irtlos    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   cm-
oery Co. ot al. v. ShegpfirB et al., 137 c:. Y. 12) 823. Arti-
else 4727 eed 577 do not npply to oorpomtloee               an eueh, but
only to a director or oMioar of an insuranoe ooqany who re-
OQivca 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,     eo-
priaolpel        ent or bewtisleru      in such puroheee.       The pene1ty
for a viooict.2on of eOoh atatutca lir not plaoed upon meid in-
8uran0~ 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 ilioe that a direator       ‘\
ar offiau or M lneurenoe aompeay ~108 atook ln axmthu oar-
paration troti which eaid ineurenoe 001p_egllyie 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 arti-
oer vloletlq,     name, end the lwelity        of the treneestIon,      im-
amfar a8 the lnmuranae eonpeny ie 6oneernt&, ie detunined                  by
0th.r well-keovfn maleo of ler.         Thmfacets here under amefdere-
tlon do not shim that tb prerideet of the City ~etimal                  Life
Imm MOO Companyis to reoelve any moneyor valuahl 0 @aim
                    proQwlng      rsaotllpmding   or aid*     in   the
~dLiEz.fi           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, eon-
neotizt&y him tharewlth belap. hla said owner&hip of staak in
the Tsxaa Dlsoount Cor&aanyand bei% president of both of
               s. The only wey he oould be peoti*rtiy
aaid 0 cx2lpanle                                                  inter-
ustext 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           alpofflaar
or tb iugumnoe ampany owlla stook           or ls a dlrrotor      or ol-
iioer,  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 prorl-
slona 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 ??a-
tlonal     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 PLpurabaare lllqal  and la
anklzq nuah pumhaoe, oueb oomjnmy would not be partiolpsltlag
In an illeml    tCmaPOtl(HL.

             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? in-
mrwe     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    WM-
paaio8 &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 ?air-
neam 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
 f8Caoto83-a madi the< on adhamnor to the Yletlon OS tkm ekepa-
 rate exlatclnou of t!a oay?Tatlon           nould, under t&a prrtloular
 tawurrtRtmono, eunctlon a *auJ or pro~toto lnjustlos*.                  First
:&t&anal >uJ\ktu ~T~ngonet 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 oar-
poratlon~ (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 oh-
euavent 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    par-
anal 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 lnatru-
iaant 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 Cmupauyend 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 oor-
poratlons,      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&$nal opinion ab 8aid opin-
ion is hereby In all t&&-s approved.             Thin opiuloa involved
en notion by the Kerobantsaad Plm%taro ??atlocml Bank si tit.
Varnon emam         the City Watiorml Benk or Texerkana to reoover
intereet’on     mmey dsmsiteU with the defandant.            One T. H.
Leeves wea a stookholder         in the IPersrkana bn&, a errrmberOS
its board of direetoro         asi its president.      1% wee ala0 a
stookholaer     l.n th e :‘ftl Vernon bank nnd one of ita oiae pre-
+.lentr and a nzenber of Its board of direators.             Plaint&if
racoo~red Ju$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 ~)a-
     tzaot 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 etio-
tion OS ths u0r4me       RSJEthAt this rios in tha 04fitra4t
WESdue to the particrlpatfon   OS leovea fn its nakiae,who
was at the tlna flnanoially   intersat&   lr ths plaintltf    bs5k,
sina WQGundertakl&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 pans-
1% 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 fre-
     qaent 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?pona-
     tlona 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 spp4ai-
     lee in the negotlatims,       but 0oefimCl    kle ;mrtiOl-
     patlon 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&u-
 tiny 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 c7e-
posits mdo by hionslelf, it rrould hzvvu presented
a tmmaotlon           quite   different      frm the one n.ow un-
bar auncitieration.            ISem we hsve twa eorporatlone,
baoh   dlstinot       legal    %ntitie8& each cap*ible of I&C-
ir&? 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@
                            They had oaly one offloer fa wm-
EmIt, LeeveII. T t is 0on064.4 that hle 0m0urr6a00
was not oven neoeamry              to the authorltatlvts         aoa-
atmmatlon 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 OW-
traot 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 WCAQbirsotom
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 wolf-
establiehbd       POlfoy     Of  thb h?tW-CO        ~110~ sN8bdOUiOf
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 oorpore-
tions, unlene it be shown upon inquiry, tArit 8
wro&:  would be porpat;ratd in &iv&! tha requested
                          ::re think rctllef    should netbe 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 Pia-
wont Coau?anpby 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 in-
qalsy,     we ere
                                                             Vbry truly   yvurr




                                                      4
                                                                  Jwi.    w. Btumett
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