IionorebleM. 0. Flowers
Secretary of State
Austin, Texas

Dear Sir:                        Attentionr Mr. Will Mann Richardson

                                 Opinion No. O-2544-A
                                 Re: Reconsideration of opinion   No,
                                      o-2544

        Your request for reoonsideration of the above numbered opinion
of this department has been received. 'fhebrief submitted in oonneotion
therewith has also been reoeived and carefully considered.

       We quote from opinion No. O-2544, as followsr

       "Section 6 of Artiole 12 of the Texas Constitution
  reads:

       "TNo corporation shall issue stook or bonds ex-
     cept for money paid, labor done or property ao-
     tually received. and all fictitious;increase of
     steak or indebtedness shall be void.'

       "'Nothink the correct test for the determination of
  whether or not property is of suoh character as to be
  capable of being accepted by a corporation in payment of
  capital stook was set forth by Judge Phillips of the
  Supreme Courtin the case of Washer VB: %nyer, 211 S. W.
  965, 4 A. L. R. 1520. Ihe question involved in such case
  whether or not a note was property within the purview of
  the above quoted oonstitutional provision. The court
  said!

       "'Cndeniably, in the broad 8ense a note is
     property in the hands of the payee. So, in a
     literal 8en88, is everything property which is
     capable of ownership. All forms of choses in
     action are property in the earnasense--the right
     to recover a debt, the right to reoover damages
     for breach of a contract, unsatisfied judgments.
     and other similar kinds of aotionable demands.
     But the framers of the Constitution never intended
     that property of that nature should constitute the
Honorable M. 0. Flowers, Page 2                O-2544-A




       oapital of a corporation. The term "property"
       was used in this section of the Constitution
       in no auoh sense. It means property readily
       capable of being applied to the debts of the
       oorporation. As a rule, it should be property
       .of the kind adapted as to the oharter uses of
       the corporation and whioh it may legally acquire.
       There are some classes of property wh9ch are SO
       staple in character and so easily convertible
       into money as to be in actual ~ommeroe the ready
       equivalent of money, and it is possible that a
       corporation in its formative period would be
       authorized to receive suoh property in payment
       for stock though not, in a &riot sense, adapted
       to its purpose*. The different forms of valuable
       property and the different purposes for whioh
       corporations may be created, make it impossible
       to lay down other than general rules upon the
       subject.

          "'The integrity of a oorporation and the in-
       terests of the publia demand, however, that the
       assets of a corporatfon consist of something more
       than its stockholders' debts, Its oapital oan-
       not be thus constituted, and therefore it cannot
       aooept a stock subsariber's note in payment for
       his stock. There is authority opposed to this
       holding, as there is authority whioh supports it,
       But it seems to us no authority is needed to
       establish it.'

        "Viewing the contract involved in the light of the
   foregoing well established principles of law, we do not
   believe it constitutes property within the purview of
   the Constitution and consequently the charter amendment
   does not warrant your approval."

        The courts have held that the.Board of directors of a corporation
have no authority to oontract for personal serviaee and impose an obli-
gation thereby upon the corporation to oontinue beyond their term of
office. See the ease of Denton Milling   tipany vso Blewett, 264 S. W,
236, writ of error denied 276 S. VI.1114, 114 Tex. 582, and also the
case of Clifford vs. Firemen's Mut. Benefit Ass’n of City of New York,
249 N. Y. S. 713, 2S2 App. Div. 260, affirmed 182 N. D. 175, 259 x'.YL.
547.

        The proposed contract is speculative and unoertain   in   many   re-
spects, to wit:

          1.   It is highly speculative and unoertain as to whether or not
Honorable M. 0. Flowers. Pege,3              0-2544-A




there will ever be eny prooeeds from the contract, and what amount, if
my.

        2. It is speculative 8s to whether or not the newly elected
board of direotors eaoh year will approve and reenter the contraotO

        3, It is speoulative as to whether or not the president will
be removed from office.

       4.   The oontinued solvency of the insurance oompany is speaulative,

        We think said contract is so highly speculative a8 to impose an
impossible burden upon the Seoretary of State to determine what value,
if any, said contract has, thus rendering the same incapable of being
considered as property within the purview of Section 6 of Article 12 of
our State Constitution.

        We hereby approve opinion No. O-2644 of this departmer&   It is
our opinion that the charter amendment does not warrant your approval.

                                       Yours very truly

                                    ATTORNEY GKNEAL     OF TEXAS


                                     By s/V&n.J, Fanning
                                               Assistant

WJFrGO:wc

APPROVED SEP. 24, 1940
s/Gerald C. Mann
ATTORNEY GENERAL OF TEXAS


Approved Opinion Committee By BWB Chairman




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