Honorable J. M. Falkper No. c- ‘.4aa
Banking CommlsEiionerof Texas
Austin, Texas ., Re: Under the given factual
situation and the
provisions of the
Texas Trust Act,
la the bank ~ln
quektlon, as trustee,
prohibited from
depositing the '.
!%Zc~e%~oslts
lq its.de inatl-
.iiatution
for a period
.of more~than.one
y.earand 'related
Deay Mr. Balkner:. ~questions. i
'You hav&~reQueated.our opinlon:on certain,Quesflons
undetithe following relevant
. facts:
‘!A6 &at& chartered.bank and trust.company
has b.&nrx=&d:truatee tinderVarlou~;tri~stinden;
'tureswhich auttibx$zethe .bw-In its-.flduciary
capacity,'irrespectlve~of any proviklon..or pakt
bf'thk.%.xasTrust Act,..to'lnveat $r’shares of a
savings- and loan tisociatlon located in ,the .s&nti
zl$y and deposit money‘fn the trustee bank. The
trustee Is &so given the right and ~1s requested
to depdslt the income ftim the trust estates in
the savlngs~and.loah asso&atlons'to earn the
.curxent rate of Interest,
"The tkstee~bank 'has deposllzedkth it&f
on time c.ertiflcatea.ofdeposit.$37.500 which
has been so deposited'for bn6 year. Trus'tee
bank has alko deposited with a sayings and loan
'aasoc+atlonvarious savings accounts which form
part of the trust'--eetates,under
sbeclflc author-
ization in the various trust -dentures ltitie,spect$ve
PC any provlafon of the Texas Trust-Act. . . .
:
-2302-
Honorable J.'M. Falkner, Page 2 ,(C-488)
"The bank's directors own 85.4$ of the outstand-
ing stock in the bank. The savings and loqn dlrec-
tors own 97% of the outstanding stock In the savings
and loan association. Mrectors of both the bank
and the savings and loan association own 82.3% of
the bank stock.and 77.6% of~the savings and loan
stock."
Under the foregoing facts you have.reqtieatedour opinion
to the following questions:
Is the trustee bank prohibited f’rom depositing
the $& 500 In time certificate deposits In Its own ln-
stltutl& for a.perlod of more than'one year?
.2,. Is the.trus$ke bank prohibited from.maklng deposits
In savings accounts ln.$he savings and loan
of trust f'inxia
assbclat$@
3. If queatloti'number2 ls.anawered,ln,$he affirma-.
tlve, then Uthe savings and loan asaociat~o~l~c~eaa~s
its permanent reserve stock by selling shares-of additional
stock, would.the trustee bank be prohibited from +ve%tlng
tiuat funds In such'atock of the savings and loan asaocla-
lqion?
.Ir-some legal relatlonahlps, the.fiduclaryelement
Is ‘inore Intense than In others. It la pecullar.ly,lntense
in the caae'of a trust. While this fiduclary~relatlonahlp
creates zinumber of duties, none Is more fundamental than
the duty owed by the trustee .to the beneficiaries In the
nature of the dtityof loyalty. This duty Is.sometimes
characterized as.not permlttlng a trustee'to place hlm-
self fi'a position where,lt would be Sor-his own benefit
to violate his duties to the beneficiaries. This duty
6f 'lojralty Is based on‘a .generalprincipal ~of'pollby and
morality which forblds~a fi'duclaryfrom placing himself'
In a sltuatiotiwhere there is or could be 'confll.ct'b+ween
his self-interest and his duty to others. See Scott on
Trust, 8 170, Duty of $,yalty, et seq..
A number of .states.haveexpr&asly enacted statutes
that set out the duty of loyalty.ln-clear and unambiguous
terms. In Tegas; any dev$atlon.from this hi
loyalty Is exprkssly prohibited by Article 7
which provides:
-2303-
.
Honorable J. Mi Falkner, Page-3 (C- 488)
II
. but no act of the trustor shall relieve
. .
a corporate trustee from the duties, restrlctions,-
.and llabllltles Imposed upon It by Sectldns 10, 11,
and 12 of the Texas Trust Act." (Qnphasls added)
Neither can the beneficiary relieve the trustee of
the prohlbltlons contained in Sections 10, ll.and 12 of
the Texag.Trust Act. See Article 7ti25b-23.
However, pursuant'to Article 7425b-24 (E),V&nonls
Civil Statutes, a court of competent jur$suict.ionmay
modify or entirely relieve any trustee from any or all
of ~he'duties,~llmltatlons and restrictions Imposed upon
him by the Texas Trust Act,:to-wlt:
"E. A court of competent lurlsdlction may, for
cause.shown and upon notice to the beneficlarlc
s:eve.a' trustee from any or all of the'dutlea,
'limitations,and restrdotlona~whlch .would.otherwlse
be placed upon .hlm'bythis Act, or.whol.ly'oroartly
release.and excu8e.a trustee..who .has acted'honestls
and reationably,'f*m llablil~y.for~~olatloris of thk
provisions of this Act." @nphasls .added).. ~_
Obviously.,the .princlpleswhich are applicable,to a
corporate .truqtee are equally'applicable~to 'ocirooratiolis
affiliated with.it. Bystatutory deflnltion, an affilllate
IS .deflnedltiArtlc,ie'7.425b-J+(E)
to mean:
..
11 any peraon.dlrectly or Indirectly con-
trolil&'or controlled by.the person, or zany oer-
son .under d1tiec.t
or Indirect common'control wlth
another'person . ;. V (Eknphaalsadded)
The:aforementlbned Sections XI, .ll and ‘12 of the Texas
Trust Act; that are equally appllcable.to both the corporate
trustee and~any affiliate, are as follows:
"Art. 74~5~io. Loan of.trust~funtis
~"Exkeptaa.&ovlded 'ln~Sectl& 11 oi:,+&ls.A&,
a corporate trustee.shall not lend trust funds to
Itself or an affiliate (as defined herein); or to
at~,director,~offlcer, or employee of Itself 'or of
an affiliate; nor.shall any noncorporate trustee
lend trust funds to hImseLf, or to his relative,
emplbyer,.employee, parttier,or.other business
zy3oclate.
-2304- .
Honorable J. M. Falkner, Page 4 ,(~-488)
'"Art.7$25b-11. Corporate trustee depositing trust
funds with self
"A corporate trustee may deposit with Itself
trust funds which are being held Cendlng lnvest-
ment, distribution, or to pay debts, provldedt
maintains under control of Its trust department
(If It .h+s a trust department separate from its
banking department) as securlty'for such deposit
a separate.fund consisting of securities legal for
trust Investments which have at all times dur-
lng the deposit a total market .value equal to the'
.amountof the deposit. No such security shall be
requlred to the extend said deposit Is Insured or
otherwlse.secured by or under state or federal law.
The separate fund of securltles.shall be marked
as.such. Withdrawals from or additions to It may
be made from time to time, as long as the required
value.ls malntalned. The~lqcome of such securities
shall belong to thencorporate trustee.
"A& 7&2$b-12. ,mstee buying from orselld~ng to
sel'f
"A:trustee shaxl~not buy nor sell. either dl-
rectly or indlrectly,~any property owned by or
.-belongingto the.trust ,estate;: from or .to'ltaelf
or an affiliate; or from orto ,a director, officer,
or.emolcvee of such trustee..~drof an affiliate:
or from &to himself, a relative, employer, ..part-
ner or caner business associate; provlded,.a:natlon-
al banking assdclation, or a state chartered bank
andltrust company, or a statechartered trust company,
or a state:.charteredbank having ~trust n~owetis,
or any other.state chartered corporation having
the Fight to exercise trust powers. when acting
or~servlng as ~executor,administrator, .guarolan,
trustee, or receiver, may sell-shares of the xapltal
stock o.fltself'so owned .or held by Itself, -for any
estate, to one.~o.rmore of Its officers, stockholders
or directors, upon a court of comnetent jurisdiction
.findlng that any such sale will be to the best interest
ofthe estate owning such shares; flxlng or approving
the price to be paid .therefor,and tlieterms of sale,
upon entering an order,'.decpeeo,rjudgment, authorizing,
approving and'dlrectlng such sale to'be made; and
provided furtherthat a corporate trustee, executor,
-230%
:Honorable J..,M.Falkner,.Page 5 (C-488 )
In the absence of a court of competent jurisdiction
relieving the trustee bank of the proi%slons of Sections
10, 11 and 12. '~upra,‘lt~ 1s the oplnlon'of this office
Untitled Texas Attorney General Opinion
Combined Opinion