                              June4, 1958

Hon. William A. Harrison           Opinion No.   WW-443
Conrmissionerof Insurance
State Board of Insurance           Re:   "Does a group life insurance
Austin 14, Texas                         policy issued to a securities
                                         dealer-seller covering purchases
                                         of securities come within the
                                         permitted coverages of Article
Dear Mr. Harrison:                       3.50, Texas Insurance Code?"

          We quote from your letter requesting our opinion on the above
styled question in part as follows:

         "A life insurance company doing business in this State
    has filed for the approval of this department a group life
    insurance policy to be used in this State which would be
    issued to a seller or dealer of securities. The policy
    would cover the lives of the purchasers of securities from
    the dealer-seller for a principal amount which would be
    equal to the unpaid balance owed to the seller-dealer by
    the purchaser on securities bought in accordance with a
    purchase agreement. . . . Under the terms of this agree-
    ment the purchaser agrees to obtain a certain amount of
    securities from the dealer-seller on an installment pay-
    ment basis.

         "However, the purchase agreement provides that the
    purchaser may terminate his obligations under the agree-
    ment at any time by merely giving notice to the seller-
    dealer that he does not wish to go through with the agree-
    ment. Upon such termination the purchaser is entitled to
    receive the total amount of securities fully paid for by
    past installment payments, and upon termination the pur-
    chaser does not owe the seller-dealer any debt or obliga-
    tion and the purchaser is relieved entirely from making
    further installment payments to the seller-dealer.

         "If the option to terminate has not been exercised
    prior to the death of the purchaser, the option to ter-
    minate is destroyed, and all unpaid installments under
    the agreement become immediately due and payable as a
    binding obligation upon the estate of the deceased pur-
    chaser.
Hon. William A. Harrison, page 2   (WW-443)


          "We respectfully request your opinion as to whether
     the option to terminate the purchase agreement in the man-
     ner heretofore described removes the purchaser of such se-
     curities from the category of 'debtors' eligible for in-
     surance under Article 3.50, Section 1 (4) (a), Texas
     Insurance Code, or do such purchasers actually constitute
     'debtors' within the meaning of Article 3.50, so as to au-
     thorize this department to approve the policy form con-
     tract as being a permitted coverage of Article 3.50 of the
     Code."

          Section 1 of Article 3.50 provides in part that, "no policy
of group insurance shall be delivered in this State unless it conforms
to one of the following descriptions:" Section 4 of Article 3.50 pro-
vides that:

          "A policy issued to a creditor who shall be deemed
     the policyholder, to insure debtors of the creditor, sub-
     ject to the following requirements:

          "(a) The debtors eligible for insurance under the
     policy shall all be members of a group of persons number-
     ing not less than fifty (50) at all times, . . . or who
     became purchasers of securities, . . . from one vendor
     under agreement . . . to pay the balance of the price of
     the securities, . . . purchase to the extent of their re-
     spective indebtedness to said financial institution or
     vendor, . . ."

          Paragraph 3 of the purchase agreement involved herein contains
the following clause:

          "But I reserve the right at any time during my life-
     time to terminate this agreement, discontinue further pay-
     ments and receive the shares I have fully paid for as pro-
     vided for in paragraph 8 on page 4."

          Paragraph 8 on page 4 of the purchase agreement states in
part that:

          "The program of an investor may be terminated during
     the life of the investor, without penalty or obligation,
     by either the investor or by . e ., by written notice giv-
     en by one party to the other party. 0 -"

          Paragraph 9 on page 4 provides in part:

          "In the event of the death of an investor prior to
     termination of his program, this agreement shall be binding
Hon. William A. Harrison, page 3 (WW-443)



     upon his estate and the amount of all monthly or quar-
     terly payments remaining unpaid under the Investor's
     Program shall become immediately due and payable by
     his estate in one payment."

          The policy of insurance filed for approval by this department
under the debtors "eligible" clause provides that:

         "The class of debtors eligible for insurance here-
    under shall include each person who submits evidence of
    insurability satisfactory to the company and who resides
    in one of the places named in the list of approved places
    contained in this policy and who subscribes to a system-
    atic investment program, with insurance, of ABC invest-
    ment program, for the purchase through the creditor of
    shares of ABC fund, which program provides:
          11
           . . .

         "(c) For the right of the debtor to terminate his
    participation in such pro&o-amand further obligation
    thereunder:"

         :Under the fact situation you have outlined in your request
letter and by the very terms of the contract of insurance filed for
approval and the purchase agreement thereunder, the purchaser herein
cannot be truly deemed a debtor since he retains the unqualified option
to terminate the ~agreement,discontinue further payments and receive
only those shares fully paid for; and as to the remaining shares origi-
nally contracted for, after termination, the purchaser has no obliga-
tion to purchase them and owes no payment thereon.

         "A debtor is one who owes something to another per-
    son, or, one who is under obligation, arising from express
    agreement, implication of law, or from the principals of
    natural justice, to render and pay a sum of money to an-
    other, 13 Tex. Jur. 690, Section 2.

          "A creditor has been defined to be one to whom a
     debt is owed by another person, called the debtor. Also,
     he is one who has a right to require of another the.ful-
     fillment of a contract or an obligation;" 13 Tex. Jur.
     690, Section 3.

          The relation of debtor and creditor does not exist where nei-
ther of the parties owes the other anything. Lobban v. Wierhauser,
141 S.W.2d 384 (Tex.Civ.App. 1940) error ref.).
Hon. William A. Harrison, page 4   (W-443)


          No enforceable obligation arises under the purchase agreement
until after the purchaser, because of his demise, ceases to exist and
the obligation is then only against his estate. There is no "debtor"
in existence at the time the policy is to be issued.

          Therefore, we hold in answer to your question that a purchaser
of securities under the fact situation outlined by you does not fall
within the category of "debtors" eligible for insurance under Article
3.50,Section 1 (4) (a), Texas Insurance Code&
                                   SUMMARY

              A purchaser of securities who retains an
              unqualified option to terminate the agree-
              ment and relieve himself of further obli-
              gation thereon is not properly a debtor
              eligible for insurance as contemplated by
              Section l(4) (a) of Article 3.50,Texas
              Insurance Code.

                                             Very truly yours,

                                             WILL WILSON
                                             Attorney General of Texas


                                             BY
                                                  R&hard A. Wells
                                                  Assistant

RAw:lm

APPROVED:

OPINION COMMITTEE:

Gee. P. Blackburn, Chairman

Fred B. Werkenthin
C. K. Richards
Marietta McGregor Payne

REVlEWEDFORTHR ATTORNEY GNNEKUL
BY:
     W. V. Geppe*
