July 29, 1988
Honorable Mike Driscoll Opinion No. JM-935
Harris County Attorney
1001 Preston, Suite 634 Re: Whether a bondsman may
Houston, Texas 77002 deposit with the county
treasurer an assignment of
an insurance policy for
purposes of complying with
article 2372p-3, V.T.C.S.
(RQ-1435)
Dear Mr. Driscoll:
YOU ask:
._ May a bondsman,
.
or applicant, deposit with
tne county treasurer an asslgnmenc. ora an
insurance policy as collateral and comply
with Article 2372~3-3, Vernon's Texas Civil
Statutes?
Article 2372p-3, V.T.C.S., governs the licensing and
regulation of bail bondsmen. Section 6(f) of article
2372p-3 provides:
(f) UPon notice from the [county bail
bond] board that the application has been
tentatively approved, the applicant shall
then:
(1) deposit with the county treasurer of
the county in which the license is to be
issued a cashier's check, certificate of
deposit, cash, or cash ecuivalent in the
amount indicated bv the annlicant under Sub-
division (5) of Subsection la) of Section 6
of this Act but in no event less than $50,000
except in counties with populations of less
than 250,000 persons by the most recent
federal census., the amount for applicants in
said counties shall be $10,000 to be held in
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Honorable Mike Driscoll - Page 2 (JM-935)
a special fund to be called the bail security
fund. (Emphasis added.)
Article 3.49-1, section 2, of the Insurance Code
permits any insured to transfer or assign any policy or any
right or interest therein, except as prahibited by the terms
of the policy, to "any person, persons, partnership,
association, corporation or other legal entity, or any
combination thereof" and provides that such assignee shall
have at all times an insurable interest in the life of such
person.
Your question is prompted by the following facts:
A bondsman who has a $100,000 Certificate
of Deposit (CD) deposited with the Harris
County Treasurer as collateral on his license
would like to withdraw that CD and replace it
with an assignment of a life insurance policy
with a cash value of at least the same
amount.
The issue raised by these facts is whether the assignment of
a life insurance policy with the requisite cash value will
qualify as the cash ecuivalent of the amount required to be
deposited under article 2372p-3.
An 1887 opinion of the Supreme Court of Texas in
JZ 11 aa v. Mu- 4 S.W. 361 362 (Tex. 1887) defined the
t~rm"*Oeguivalent io cash" as hollows:
It is not easy to conceive what is
intended to be embraced by the use of the
words 'its equivalents;' but to be equivalent
to cash must be something commercially as
good as cash, or, as we take it, something
that could readily be converted into cash at
a fixed price.
While we find no other Texas cases defining "cash
eguivalent," or "equivalent to cash," in Thomnson
Thomnson, 236 S.W.2d 779, 790 (Tex. 1951), "cash" wz,
defined as follows:
'Cash' is defined in Webster's New Inter-
national Dictionary, 2nd Edition, Unabridged
as \B. A quantity of money, C. minted or
current coin. 2. Corn. a. money, especially
ready money; strictly coin or specie, but
also, less strictly, bank notes, siaht drafts
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Honorable Mike Driscoll - Page 3 (JM-935)
or demand denosits at a bank.' (Emphasis
ours. ) This same authority gives the phrase
'cash money* as a synonym for the word
'cash*.
A similar certificate was construed in the
case of -se v. First National Bank of
Tex. Civ:App., 196 S.W.2d 48, 171
. . . 516, writ refused, NHE, to be a
it=EF-$
negotiable instrument, and not to' be
ambiguous.
In some contexts, the word %ash" has been given a
broad meaning. For example, in construing a will, the
meaning of the word ncash*' has been given a broader meaning
when it was necessary to carry out the intent of the
testator and prevent from passing in intestacy a portion of
his estate. In such instances the words "cash" and "money"
have been construed to "include all kinds of property, real
and personal." Flower v. Dort, 260 S.W.2d 685 (Tex. Civ.
APP - Ft. Worth 1953, writ ref'd n.r.e.).
We conclude, however, that the legislature clearly
intended that the phrase "cash equivalent" have a much
narrower definition in the instant statute. The definition
of "cash" in JCYhom~son would appear closer to what was
intended by the term %ash equivalent" in article 2372p-3.
We so conclude because it is clear that, whatever else the
legislature may have intended to embrace with the phrase
"cash equivalent," it certainly meant an instrument that is
readily convertible to cash or may be converted to cash
within a reasonable time and with reasonable effort. The
question, then, is whether an assignee of a life insurance
policy who holds the policy merely as collateral security
for a debt has the right to readily convert the policy,
i.e., to surrender it and demand its then cash surrender
value. We conclude that he does not.
In j a on' co.,
127 S.W.2d 188 (Tex. 1939), szt aside on other arounds, 128
S.W.2d 790 (Tex. 1939), the court addressed the issue of
whether an assignee of a life insurance policy, who holds
same merely as collateral security for a debt, has the
authority, by virtue of being such assignee, to surrender
such policy to the company issuing it and demand its cash
surrender value. The court concluded that he does not.
While noting that authorities in other jurisdictions are
divided on the issue, the court concluded that the better
rule was set forth in Cooley's Briefs on Insurance, 2d Ed.,
Vol:7, p. 6527:
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Honorable Mike Driscoll - Page 4 (JM-935)
'JJl Dledaee of an insurance policy, who
holdseit as collateral, in the absence of a
distinct provision permitting its sale, has
onlv the rlaht to collect. and ¬ the
riaht to sell or surrender it; and if the
nledoee does wrongfully surrender the policy
-tie debt is. satiefied-to the extent of th;
value of the security surrendered. (Emphasis
added.)
127 S.W.2d at 191.
The court held that, when an insured transfers a life
insurance policy as collateral security, the assignee does
not acquire legal title. The interest acquired by the
assignee nis but a chose in action and is governed by the
same principles applicable to chases in action in general."
127 S.W.2d at 192. It "is not negotiable" either by the
common law or statute. The court concluded that the
assignee has no authority to surrender the policy and demand
its cash surrender value without the insured's express
consent that the assignee surrender the policy. See 45 Tex.
Jur. 3d, Insurance Contracts and Coverage, 9 248.
An assignment of a life insurance policy
to the county treasurer does not constitute
deposit of a "cash equivalent" within the
meaning of article 2372p-3, section 6(f),
where the assignor, bondsman or applicant has
not also expressly authorized the County
Treasurer to surrender the policy for its
cash value.
Very I truly ye
JIM MATTOX
Attorney General of Texas
MARYKELLER
First Assistant Attorney General
MU MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
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Honorable Mike Driscoll - Page 5 (JM-935)
RICK GILPIN
Chairman, Opinion Committee
Prepared by Tom G. Davis
Assistant Attorney General
P
p. 4698