OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
ilonorable ho. 9. YoAdamr,
Cordmdoner,
Btate Deprctment of Qanklng
Auatfa, r62au
Dear iire WAdam
eve #ubjeot-matter
ate and Investors
., domhiled In
a authorbed to do
euumt to the prcrisiimJ
ot the oorporatioas
nod by represeate-
ootion with a recent examination
oae regarding the &fscretiooary
authority ot tho Comolimaioner in coapeot to
a propomd auiculbpant to a trta8t agreePent
filed by Mtbjcct oorporatton rbloh 8enld per-
mlt said aorporatioa to Cnruivtl Lnwrance
poliaiem in conneotivn with mortgage loan8
pledged as onll8teral 8fXurity and held br a
cocporaCe truetee ot this state, containing
a loss payable olnuae lo favor oP the htest-
ore 8yabtoate or its asmlgafi. Our lstter of
442
Bonorablo Jno. 4. UAdams - paga 2
dAte_JAnuary 13th vhlch is attached touches
upon tbe aubjeat mstter.
*We are also enclosing two original lat-
ters reeeired Srom Yr. Edward Y. Burke, As-
sistant to Qenaral Counsel for aubjeet aor-
puration, one dated February 18th aad another
dated Yabruary el8t, the latter suggesting an
altematlte plan vhich embraaea a oortit%aa-
tion as to ln8urMee ootorago being ma%ntalaed
in oouaeatioa with a giron loan.
*au should like adrioe as to vbether or
not tho Comvilaaioner in his dlaoretion aould
Approve either on0 ot tho plaoe submitted by
Yr e b u r k o . l 0 0.”
aection 7 at Article 1622a, Vernon's Civil Stat-
utoa, dealing with loon and brokerage aompaaiee, insofar
as pertinent, ia es tollova~
sAl1 boada, notes, certiricates, debent-
ures, or other ebligatlOn8 sold in Texas by
any oorporation atteuted by a provision at
this Aot ahall be secured by aeouritiea ot
the reaaonable market value, equaling at
least at all tfmea the Saoe +alue a? auah
bonds, notes, cortiFioate8, debentures or
othar ObligAtiOnSr It such oorporatian 88118
in Texas bonds, notes, oertitieatea, debeot-
ures or other obligations upon vh%ah it re-
ooirea hietallment poymollts, auah bonds,
notes, oertiiioatea, debentures aud other ob-
ligations sOal be secured at all times by ae-
auritioa hating the reasonable market value
equal to the withdrawal or Gvncellation value
or suah obligations outstanding. Said aecur-
itlea shall be plaoed in tha hnnda ol a oor-
poration having trust power8 approved by the
Jianking Commissioner of Tea88 as Trustee under
a trust agreement, the terma of which shall be
approved in writing by the Banking Commiasioaer
Of Texas, or at the option of any such oorpora-
tioa vhioh sells in Texas bonds, a&es, oer-
.
.c-
nonorable Jao. a. haldame - page 3
tltioatea, dobonturea or Other obligations
upon vhlch it raaeirea lnatallment payments,
such corporation siay upon application to,
aod opprotal by, the Baoking Cewdasioner
et Texas depoait aeauritiea having a reaaon-
able market value aqua1 to the withdrawal
or aanccllation ralua of such obllgatioaa
outataodlog with the State Treamurer ot
Toxaa in lieu ot such deposits vitb a Trua-
teo as sot Sorth breinoboro, proridad that,
la the waut suoh dopcait is lrda with the
State Trwsurc of Taxaa in lieu ot arch
trustee: (1) Such corperatloa shall tile a
eertitied atatummt of reserve liability
a& detailad list ot leouritiea w depedt-
ed, aai-aanuall~ vitb tha BanJUq Comdaa-
loner at Tcxas, vbiob OertltLcation
ahall be
vu&da by a Cwtitiod public Aaoountant, who
shall be approved 87 and be aatisfrotovy to
the Bonkiag Ccmiaaioncr. The corporation
shall pay a tea ot Oiitem ($lS.OD) Dollars
for filing esch tmah statement. (2) Said se-
curities ahall be depeaitcd with the State
Treasurer uuder a trust agreement, the terms
ot which shall be approred by the Panking
Cow&s8ionar .”
~‘JWiefly stated, the plans submitted by counsel
Par the particular companies imolved Are aa follevar
1. Tha acapany will furnish the dapoaltarr
with a oortitioata as follovat
“Loan uo. uama -
@This is to certlry that adequate tire
insuraoca protection in being main-
tained in connection with the abora
loan, and aaid ioauranoa i a being
hold by the Investors Syndioate of
hioneapolis, Minnesota.*
2. Ao amndment to the trust agreement deleting
the raqu&rcmcnt tfith reapeOt to the furniahin~ of the AS-
signments with the pollcios And inserting n requirement to
444
Llenorable Jno, Q+ UAdsmS - page 4
the sff'eat thrt the 0ompany furtish a oertiricate similar
to the rorm quoted above.
7Jmre 18 a broad diooretion lodged in the Bank-
ing Commissioner In Sbotion 7 above quoted with respect
to the moaaribies to be plsdged by a loan ahd brokerage
comp~. rhat diror%tion, however, is not an arbitrary
one, but is that dimarstion that should be axeraised by
ah szsoutite or sdmihistratire orflasr charged ritb the
duty or approtiag such seourftiss as aollatsral to the
companJ*s outstanding obligation8 to the publio. me
statute rqulres such seourltiea to be sof the reason-
able market value, aqua1 at Isart St 811 times the faa@
value ot such bonds, notes, oertiiieates, bebfintures, or
other QbligStiOllS*, where mah obllgationa. hare barn sold
and paid tar, and in asses uhere sueb obligations hark
been sold on installmeat payanents*by securities having
the reasonable market value equal to the withdrawal or
asnaellatioa value of auob obligations outstanding.* The
etatuts thus makes the reasonable market value OF the ac-
curfties deposited the measure of 8aaurities required or
tba iaauiag and depoalting aorporations. What that reusnn-
able market value is, has be4n faotu8lly uubmittcd to the
detarminotlon of th6 l+anking Comrsissionar for hi8 oPfioia1
approval.
Nor, the plans proposed by the particular ooupan-
ies under oonaideration oontmplate tbQ doposit of aotas
secured by aattgage or other lien upon improved real estate,
which ubwaotsr of instruments undoubtsdly could be ell~lbla
and sdequate under tbc test of reasonabl6 market value of
nuah note and ifenD lut nhsro, as is usually the sass, the
value OP the note is materially affeoted by the value of
the auildiags upon the lsnd mortgsgsd, naosmsaril~ au insur-
anoe pollay in Tator of tbo holder of such paper rould be an
essential element in appraising tbe market salue of the note,
and consequently the adsquaoy of the security of sbich it
was a part.
Ye are thaaforo of the opinion the sukPJestion8 of
aounsel ror the oompanies should not be follored, for this
Tould bs to aoospt the personal liability ot the companyin
lieu OP the securitie,u required by law.