THEATJTORNEY GENERAL
OF TEXAS
Honarable Wm. J..Lawson
Secretary of State
Au&In,
_, Texas ..,
Dear Sir: Attention: Honorable Frank D. Wear
Opinion No: O-3366
Re: Neces’sitgof regCstratl,on’ of
employeih of’011 companies u’nder
the ‘Texas Securit’iesAct’when
operating in manner setforth.
.We are pleased to cornPlywith your request of April
r/1941, for an opinion on the above~‘question”,whichwas sub-
mttted-~toua by letter of t,heSecretarg of State on April 16,
1940; and’subsequently wlthdrewn before release of our opIhion.
We quote from.your letter setting out the questions and facts
relating thereto:
“1 . Is an employee of an oil company who
is’employed for the purpose of securing oil and
gas leases for such company and who Is paid by
them on a,salary basis required to register with
thb Setmrltles Division of the office of the
Secretary of State under the ,provisions of the
Texas ‘Securities.Act :when ‘heobtains such leases
in hIs own name and later assigns them to the
company?
"2. Is an employee of an oil company em-
ployed by them for ~the purpose of obtaining,
leases required to register with t he.‘Securities
Division of’the Office ‘ofthe Secretary of State
when he obtalns such leases ln his own name and
assigns them to the company and Is ijaldfor
securing siiCh~
leases a coinmlssionbased on the
number of’acres obtained end the price paid for
such leases?” _.
In connection
., with these questions you state that:
“‘The major ‘Oil’
companies of ,Texas,such ,as
the Gulf, Magnolia, Sun Oil end others, employ
men to,~representthem In the purchase of oil and
Honorable WM. J. Lawson, page 2 O-3366
gas leases, In order to prevent informatlon
from reaching the public and other lease buyers
that such major companies are purchasing in a
certain location, these men so employed by such
major companiess purchasing leases,'take such
leases In their own name and at a later date
essign them to the c'ompeny. Some'of these men
'soemployed by the major oil companies ere paid
a straight salary by the month OP year. Ottier
men so employed by the'major oil companies are
Paid on a commission basis of so much per acre
at the time the assignment is made to the
companies."
It is noted at the outset that your question is not“con-
cerned,with thenpossible ultimate sale of such oil and gas leases
by the oil company employer or with respect to its duty to reg-
ister under the Securities Act, but solely with the purchase by
the employee Of sQnc:hleases
and royalties for the benefit of the
compeng endsthe subsequent asslgnment by employee to employer of
the leases and royalties. We have carefully considered your in-
quiry as so qualified and have reached the dondlusion.that House
Bill No. 521, Acts 44th Legislature, 1935, as amended, known end
cited es the Texas Securities Act (Artic,le600a, Vernon's Anno-
tated Civil Statutes), does not,apply to transactions in the
nature of those set forth,
Section 2 (e] of the Securities Act defines a "seciirl-
ty" to include 'a ce'rtificeteor any instrument representing anx
interest in or under an oil, gas or,mining lease, fee'or title.
Under this definition, the ordinary type of 011 and gas lease OP
rbyeltg contract has been Reid a "security," Atwood v. State,
139 Tex. Crq R, 43, 121 8. W. (2d) 353s
Section 2 (c) defines a "dealer" as including "every
person or company, other than a salesmen, who engages in this
State, either for all or part of his or its time, directly or
through an agent, In sellfrlg, offering for sale or delivery or
soliciting subscriptions to, or orders for, or undertaking to
dispose of';or to invite offers for, or~dealing in any other
manner In any security or seeu,rftieswithin this State.
In Section 2 (d) a "salesmen" is defined'es Including
"every person orcompany employed or appointed or authorized by
a'deeler to sell, offer for sale or deliVery,“‘orsolicit-sub-
scriptions to or orders for, or deal in any other manner, in
secur,itleswithin this State, whether by airect act or through
subagents; provided, thet the officers of a corporation or
partners of's partner'shipshall~not be deemed salesmen, where
such corporation or partnership is registered as a dealer here-
under 0"
Honorable Wm, J, Lawson, page 3 O-3366
Section 2 (e) reeds as follows:
"The terms 'sale,' OP 'offer for sale' OP
'sell' shall include every disposition, or attempt
to'dispose ofte security for value. The‘term
'sale' means and includes contracts end agreements
whereby securities ere sold, traded-norexchanged for
moiiey,property OP other thing of,value, or any
transfer or agreement to transfer, in trust or
otherwlse. Any security giveh or delivered with
OP as e bonus on account of, any purchase of secur-
ities OP other thing of value,~shall be conclu-
sively presumed to~'constltutes part of the sub- ~'
ject of such purchase and to have been sold for value.
The teem 'sell' meanb’eny act by which a sale is
made, and the term 'sale' or? 'offer fop sale” shall
include~a subscription, an option for sale, e'
solicitation of sale, an attempt to sell, or an ”
off6r to sell, directly or by an agent or salesman,
by e~cirwder, letter, or advertisement or other-
wise, including tRe deposit in.'eUnl%ed States
Post Office or mafl box or in any inennerin the
UniteKStates mails within thisstate of a letter,
cirouler orother edvertising matter; provided,
however, that nothing herein shell limit OP diminish
the full meaning of the terms 'sale, 'sell' or
'offer for sale' as used by or accepted in courts
of law or equity. Provided, further, that the
sale of a'security under conditions which entitle
the purchaser or subsequent holder to exchange
thb same for, OP to pur+hese some other security
shall not be deemed a sale or offer for sale.of
such other secur1~t.y; but no exchange for or sale
of'such other securltg shall everbe,msde unless
and until the sele thereof shall have been first
authorized in Texas under this Act, if not exempt
h&eunder, or by other provisions of law."
Section 12 of the Act provides that:
"Except es provided inSection 3 of this.
Act,*no person, ff,rm,corporation OP dealer shall,
airectly or throughagents or salesmen, offer for
sale, sell or make e sele of, any sBcuri%les In
this State without ffrst being registered es in
this Atitprovided. 'No selesmsn or agent shall,
QI behalf of eny dealer, sell, offer for sale, OP
make.sele of, any,s,ecuritiesWithin~~thlsState
unless registered es e salesman or agent of a
registered dealer under the provisions of this
Honorable Wm. J. Lawson, page 4 O-3366
Act. A list of dealers, agents and salesmen
registered under the provisions of this Act shall,
at all times, be kept by the Secretary of State
and be open to the public."
Other sections of the Act ,provlde methods of-.registra-
tion for dealers, salesmen and issuers of securities',and.~Sec-
tlon 23 makes it unlawful for any dealer',agent or salesman "to
sell any securities" until the dealerhas been registered,
temporarily or permanently,
Section 30 (Article 1083a, Vernon's Annotated Penal
Code) of the Act is Its penal provision, providing:
"Any dealer, agent, salesman, principal,
officer, or employee, who shall, within this
State, sell, offer for sale or delivery, solicit
subscriptions to or orders for, dispose of, in-
v-iteoffer'sfor, or who shall deal in any other
manner in any security or securities, wlthout
being registered as in this Act provided, br who
shall within this State, sell, offer for sale
or delivery, solicit subscriptions to and
orders.'for,dispose of, invite orders ~for, or
who shall deal in any other manner in any
security or securities issued after the effective
date of tRfs Act without having secured a permit
a'sherein provided, or who knowingly makes any
false statement of fact in any statement or
matter of information required by this Act to
be filed with the Secretary of State, or in any
advertisement, prospectus, letter, telegram,
circular, or any other document containing an
offer to sell or dispose of, or in or by verbal
OP written solicitation to purchase, or in any
commendatory matter concerning any securities,
with intent to aid in 'thedisposal or purchase
of the same, or-who knowingly makes any'false
statement or representation concerning any
registration made under the p~ovlsions of ,this
Act, OP who is guilty of any fraud or fraudu-
lent practice In the sale of, offering for
sale or delivery of, invitation of offers for,
or dealing in any other manner in any security
oi-securities, or who shall knowingly'partici-
pate In declaring, issuing or paying any cash
divided by 01"for any'person'or company out
of any funds other than the actual ektrning of
such person or company or from the lawful
liquidation of the business thereof, shall be
Honorable Wm. J. Lawson, page 5 O-3366
deemed guilty of a felony and, upon conviction
thereof, shall be sentenced to pay a fine of
not more than One Thousand Dollars ($lOOO), or
imprisoned in the penitentiary for not more than
;;;,i;l p-3, OP by both such fine and impri-
. .
,.,
-From a careful analysis of the Act it is clear that
~mptiasis has been placed upon "Sale," "offer for sale," "ex-
change" OP "dealing in securitiesan There is nothingsIn the-Act
either e.%pressor Implied to indiCate.that the Legislature had
in mind a regulation of the purchase as dlstinguished from the
sale of securities. As stated in Smith v. Fishback ( C. C. A.
1938), 123 S.W. (2d) 771, writ refused:
"The Act makes it the duty of all persons
dealing in securities, good or bad,‘to first
secure from the Secretary of State a permit be-
fore entering upon the business of "selling' 'or
'Exc'hanging'same for anything of value 'for all
br @art of his times either 'directly or through
an agent' within this State."
And as stated in a passage from the opinion of Kneeland
v. Rmerton, 280 Mass, 371, 183 N. E. 155, 87 A.L,R. 1, quoted with
approval in the Fishback case, supra:
"The plaintiff as puX4ch~S8r in ignorance
of the fact that as to the share of stock sold
him by the defendant there had been failure to
comply with the statute was not in pari delict0
with the defendant, The prohibitions of the
statute did not aonly to him at all but only to
the'seller'.'The aim of the statute was to oro-
t8ct the class to which the nlaintiff belongs
afiainstthat to which the defendant belongs."'
As stated in Culver v. Cockburn (C,C.A. 1939), 127 S.
W. (2d) 328, writ dismissed:
"The Securities Act indicates a legis-
lative intent to protect the investing public
by'providing a more efficient and'effective
means of preventing fraud in the sale of
securities."
In that case it was held that there was nothing in the
Act which would justify the presumption that the Legislature in-
tended to regulate the type of contract which might be made by
the owner of real property with an agent for the payment of com-
Honorable Wm. J. Lawson, page 6 O-3366
pensatlon for procuring a purchaser therefor, Likewise, we feel
that there is nothing in the Act which would justify the'presump-
tion that the Legislature intended to regulate the purchase of
oil and gas leases by individual oil company principals through
agents.
Let us examine more minutely the transactions descrlb-
8d in your letter. A person is employed as an"agent by an oil
company to purchase oil and gas leases and royalties on its ac-
count. The oil company remains an undisclosed principal through-
out the transaction, When the lease is purchased it is taken
in the name of the agent. No violation of the Securities Act
has occurred at this point. Yet we assume that company funds
have been used by the agent in the procurement of the iease and
equitable title to the prOp8Pty 1.nquestion is in the oil com-
pany . Subsequently, in accordance with the terms of'.hisem-
PlOyment the agent ttiansfeP3 l8gal title to the company by an
assignment of the lease.
Ifsthe prohibitions of the Securities Act were not "
inten ad to apply to the pUrChas8rS, can it be that the Act was
nevert heless intended to apply to an assignment by the agent to
his ,prlncipal in accordance with&e terms of his employment?
As so construed the only safeguard afforded in such instances
would be protection to principals against the likelihood of
unscrupulous acts by their agents. We hardly believe that this
was the intent of the Legislature.
Nor can the act of the agent in assigning the lease or
royalty to his company properly be Classed as a "sale" as that
term is defined in Section 2 (e) of the Act. There has been no
transfer for value.
Consequently, it is the opinion of,,thisdepartment and
you are respectfully advised,that an employee of an oil company
(paid either on a salary or commission basis) whose,duty it is to
secure oil and gas leases and royaXles in his own name and later
assign them to his employer is not required to register under the
Securities Act either as a dealer or sa:esm%n in the consummation
of such transactions.
JDS:RS